Internal Revenue Bulletin 2017-51 (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.

# INTERNAL REVENUE BULLETIN

## 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

Notice 2017-71, page 561.

This notice provides that any act performed for the 2016
taxable year of a partnership, REMIC, or certain other entities
will be treated as timely for all purposes under the Code,
except with respect to interest, if the act would have been
timely if the Surface Transportation Act had not changed the
due date for partnership returns.

### Notice 2017-74, page 566.

This notice provides guidance on computing the affordability
exemption under § 5000A(e)(1) of the Internal Revenue Code
and § 1.5000A-3(e) of the Income Tax Regulations for taxpay-
ers with a family member who (i) is not eligible for coverage
under an eligible employer-sponsored plan, and (ii) resides in an
area in which the Health Insurance Marketplace serving the
area does not offer a bronze-level qualified health plan.

## ADMINISTRATIVE

Notice 2017-71, page 561.

### REG-119337-17, page 568.

Proposed regulations addressing how certain international
rules would operate in the context of the centralized partner-
ship audit regime, including rules relating to the withholding of
tax on foreign persons, withholding of tax to enforce reporting
on certain foreign accounts, and the treatment of creditable
foreign tax expenditures of a partnership.

Bulletin No. 2017-51
December 18, 2017

#### Announcement 2017-16, page 583.

The Office of Professional Responsibility (OPR) announces re-
cent disciplinary sanctions involving attorneys, certified public
accountants, enrolled agents, enrolled actuaries, enrolled re-
tirement plan agents, and appraisers. These individuals are
subject to the regulations governing practice before the Inter-
nal Revenue Service (IRS), which are set out in Title 31, Code
of Federal Regulations, Part 10, and which are published in
pamphlet form as Treasury Department Circular No. 230. The
regulations prescribe the duties and restrictions relating to
such practice and prescribe the disciplinary sanctions for vio-
lating the regulations.

## EXCISE TAX

### Notice 2017-73, page 562.

This notice describes approaches that the Department of the
Treasury and the Internal Revenue Service are considering to
address certain issues regarding donor advised funds of spon-
soring organizations and requests comments on those ap-
proaches.

## EXEMPT ORGANIZATIONS

Notice 2017-73, page 562.

### Announcement 2017-19, page 585.

Serves notice to potential donors of a stipulated decision by
the United States Tax Court in declaratory judgment proceed-
ings under Section 7428.

Finding Lists begin on page ii.

Announcement 2017-20, page 585.
Serves notice to potential donors of a stipulated decision by
the United States Tax Court in declaratory judgment proceed-
ings under Section 7428.

Announcement 2017-21, page 585.

Serves notice to potential donors of a stipulated decision by
the United States Tax Court in declaratory judgment proceed-
ings under Section 7428.

## The IRS Mission

Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the 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.

It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal 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, identify-
ing details and information of a confidential nature are deleted
to prevent unwarranted invasions of privacy and to comply with
statutory requirements.

Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

### Part I .- 1986 Code.

This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.

### Part II .- Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.

Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury's Office of the Assistant Sec-
retary (Enforcement).

### Part IV .- Items of General Interest.

This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

## Part III. Administrative, Procedural, and Miscellaneous

Relief for Partnerships,
REMICs, and Certain Other
Entities Performing Any
Acts by the Due Date in
Effect Before the
Enactment of the Surface
Transportation Act

Notice 2017-71
PURPOSE

This notice provides that any act per-
formed for the 2016 taxable year of a
partnership, real estate mortgage invest-
ment conduit (REMIC), or certain other
entities will be treated as timely for all
purposes under the Internal Revenue Code
(the Code), except with respect to interest
under section 6601 of the Code, if the act
would have been timely if the Surface
Transportation and Veterans Health Care
Choice Improvement Act of 2015 (the
Surface Transportation Act), Public Law
114-41, 129 Stat. 443 (2015), had not
changed the due date for partnership re-
turns.

Notice 2017-47, 2017-38 I.R.B. 232,
is amplified, clarified, and superseded.

## BACKGROUND

Section 2006 of the Surface Transpor-
tation Act amended section 6072 of the
Code and changed the date by which a
partnership must file its annual return with
the Internal Revenue Service (IRS). The
due date for filing the annual return of a
partnership changed from the fifteenth day
of the fourth month following the close of
the taxable year (April 15 for calendar-
year taxpayers) to the fifteenth day of the
third month following the close of the
taxable year (March 15 for calendar-year
taxpayers). The new due date applies to
the returns of a partnership for taxable
years beginning after December 31, 2015.

A REMIC is not a partnership, but un-
der section 860F(e) it is generally treated
as a partnership for purposes of subtitle F,
"Procedure and Administration," of the
Code. For example, under § 1.860F-
4(b)(1) of the Income Tax Regulations,
the due date and availability of any exten-

sion of time for filing a REMIC's annual
return are determined as if the REMIC
were a partnership. As a result, the new
due date also applies to the returns of a
REMIC for taxable years beginning after
December 31, 2015.

The due date for the return of a bank
with respect to a common trust fund, com-
monly filed on Form 1065, "U.S. Return
of Partnership Income," is administra-
tively tied to the due date of the return of
a partnership under § 1.6032-1T of the
Income Tax Regulations. Similarly, the
annual return filed by a religious or apos-
tolic association or corporation on Form
1065 is to be filed on the due date of a
partnership return under § 1.6033-2T(e)
of the Income Tax Regulations.

Partnerships filing Form 1065 and
Form 1065-B, "U.S. Return of Income for
Electing Large Partnerships," are affected
by the Surface Transportation Act amend-
ment. These partnerships may also file
Form 8804, "Annual Return for Partner-
ship Withholding Tax (Section 1446),"
and Form 8805, "Foreign Partner's Infor-
mation Statement of Section 1446 With-
holding Tax," which are generally due to
the IRS on the same date as the partner-
ship's Form 1065 or 1065-B. Filers of
Form 1065 must furnish their partners
with Schedules K-1, "Partner's Share of
Income, Deductions, Credits, etc.," by the
due date of the Form 1065, and filers of
Form 1065-B must furnish their partners
with Schedules K-1 by the first March 15
following the close of the partnership's
taxable year. Filers of Form 8804 that are
required to file Forms 8805 must also fur-
nish their partners with their respective
copies of Forms 8805 by the due date of
the Form 8804. Some partnerships must
also file additional returns, such as Form
5471, "Information Return of U.S. Per-
sons With Respect to Certain Foreign
Corporations," by the due date of the
Form 1065 or 1065-B. A REMIC must
file Form 1066, "U.S. Real Estate Mort-
gage Investment Conduit (REMIC) In-
come Tax Return," by March 15.

A partnership can obtain a six-month
extension of time to file Form 1065,
1065-B, or 8804, and a REMIC can ob-
tain a six-month extension of time to file
Form 1066, by filing Form 7004, "Appli-

cation for Automatic Extension of Time to
File Certain Business Income Tax, Infor-
mation, and Other Returns," by the statu-
tory due date of those returns. A partner-
ship that receives an extension of time to
file Form 1065 receives a concurrent ex-
tension of time to furnish its partners with
Schedules K-1. Also, a partnership that
receives an extension of time to file Form
8804 receives a concurrent extension of
time to file Forms 8805 and to furnish
respective copies of the Forms 8805 to its
partners. The six-month extension may
apply to additional returns that a partner-
ship may be required to file by the due
date of its Form 1065 or 1065-B, but it
does not affect the due date for a partner-
ship filing Form 1065-B to furnish its
partners with Schedules K-1.

An entity that fails to timely meet its
obligations to file and furnish returns is
subject to penalties. An entity that fails to
file Form 1065, 1065-B, 1066, or 8804 by
the due date (with regard to extensions) is
subject to penalty under section 6698 or
6651 of the Code. A partnership that fails
to file Forms 8805 by the due date (with
regard to extensions) is subject to penalty
under section 6721. A partnership that
fails to furnish Schedules K-1 or the part-
ner copies of Forms 8805 by the due date
is subject to penalty under section 6722. A
partnership that fails to file Form 5471 by
the due date is subject to penalty under
section 6038 or 6679. An entity that fails
to file additional documents that it is re-
quired to file by the due date of its Form
1065, 1065-B, or 1066 may also be sub-
ject to other penalties.

In addition to the obligation to file re-
turns with the IRS and furnish copies to
recipients, an entity may be required to
take various other actions, such as making
elections, contributing to an employee
pension plan, or paying tax, by the due
date of its return, either with or without
regard to any extension of time to file,
depending upon the particular action. A
nonexclusive list of examples of these ac-
tions is below:

· Section 860D(b)(1) provides that an
entity that meets the requirements for a
REMIC classification under section
860D(a) may elect to be treated as a

REMIC for its first taxable year and
that the election must be made on the
entity's income tax return for its first
taxable year. Section 1.860D-1(d)(1)
of the Income Tax Regulations identi-
fies that return as a timely Form 1066.

· Section 475(e) of the Code allows a
dealer in commodities to elect mark-
to-market accounting for commodi-
ties. Section 475(f) allows a similar
election for traders in securities or
commodities. To make an election un-
der either section 475(e) or (f), Rev.
Proc. 99-17, 1999-1 C.B. 503, pro-
vides that a taxpayer must file an elec-
tion statement not later than the due
date (without regard to extensions) of
its income tax return for the taxable
year immediately preceding the elec-
tion year. The election statement must
be attached to either the taxpayer's
original income tax return or, if appli-
cable, to a request for an extension of
time to file that return.

· Section 1.1092(b)-4T(f)(1) of the In-
come Tax Regulations generally pro-
vides that the election to establish one
or more mixed straddle accounts (a
mixed straddle election) for a taxable
year must be made by the due date
(without regard to extensions) of
the taxpayer's income tax return for
the immediately preceding taxable
year. In order to make the mixed strad-
dle election, a taxpayer must attach
Form 6781, "Gains and Losses from
Section 1256 Contracts and Strad-
dles," to the taxpayer's income tax re-
turn (or request for an automatic ex-
tension) for the immediately preceding
taxable year.

· Section 1295(b) of the Code permits a
U.S. person who owns stock in a pas-
sive foreign investment company
(PFIC) to elect to treat the PFIC as a
qualified electing fund (QEF) by mak-
ing the election on Form 8621, "Infor-
mation Return by a Shareholder of a
Passive Foreign Investment Company
or Qualified Electing Fund," filed with
its income tax return on or before the
due date (with regard to extensions) of
its income tax return.

· Section 1.1296-1(h) of the Income
Tax Regulations permits a U.S. person
who owns marketable stock in a PFIC
to elect to recognize gain or loss on the

sale of the PFIC shares at the end of
the year by making the election on
Form 8621 and filing it with an origi-
nal or superseding income tax return
on or before the due date (with regard
to extensions) of the income tax return
for that year.

· Section 4980D of the Code and
§§ 54.6011-2 and 54.6071-1(b)(1) of
the Pension Excise Taxes Regulations
require an employer who fails to meet
certain group health plan requirements
under chapter 100 of the Code to file
Form 8928, "Return of Certain Excise
Taxes Under Chapter 43 of the Inter-
nal Revenue Code," and pay an excise
tax on or before the due date of its
income tax return (without regard to
extensions).

· Section 404(a)(6) of the Code provides
that an employer's contribution pay-
ment to an employee's benefit plan
shall be deemed made on the last day
of the preceding taxable year if the
payment is on account of that taxable
year and is made not later than the due
date of the employer's income tax re-
turn for that taxable year (with regard
to extensions).

Many entities took the acts for the first
taxable year beginning after December 31,
2015, by the date previously required by
section 6072. If not for the Surface Trans-
portation Act, these acts would have been
timely.

## DISCUSSION

The IRS will treat acts of any (a) part-
nership, (b) REMIC, or (c) entity that may
properly file a Form 1065-such as a bank
(with respect to the return of a common
trust fund), or a religious or apostolic as-
sociation or corporation-and in fact filed
a Form 1065, as timely for the first taxable
year that began after December 31, 2015,
and before January 1, 2017, if the entity
took the act by the date that would have
been timely under section 6072 before
amendment by the Surface Transportation
Act (April 18, 2017, for calendar-year tax-
payers, because April 15 was a Saturday
and April 17 was a legal holiday in the
District of Columbia). However, the entity
will be liable for any interest due under
section 6601 from the date prescribed for
payment until the date the payment was
actually made.

An entity that has already been as-
sessed a penalty for failure to timely file a
return that is deemed timely filed under
this notice can expect to receive a letter
within the next several months notifying it
that the penalty has been abated. For other
acts deemed timely under this notice, such
as elections, an entity should file its re-
turns consistent with the treatment of the
acts as being performed timely as pro-
vided by this notice, and need not take
further action to obtain relief unless con-
tacted by the IRS. For reconsideration of a
penalty covered by this notice that has not
been abated by February 28, 2018, contact
the number listed in the letter that notified
you of the penalty or call (800) 829-0115
and state that you are entitled to relief
under Notice 2017-71. Taxpayers who
qualify for relief under this notice will not
be treated as having received a first-time
abatement under the IRS's administrative
penalty waiver program.

## EFFECT ON OTHER DOCUMENTS

This notice amplifies, clarifies, and su-
persedes Notice 2017-47, 2017-38 I.R.B.
232.

## DRAFTING INFORMATION

The principal author of this notice is
Jonathan R. Black of the Office of the
Associate Chief Counsel (Procedure and
Administration). For further information
regarding this notice contact Jonathan R.
Black at (202) 317-6845 (not a toll-free
number).

## Request for Comments on Application of Excise Taxes With Respect to Donor Advised Funds in Certain Situations Notice 2017-73

SECTION 1. PURPOSE

This notice describes approaches that
the Department of the Treasury (Treasury
Department) and the Internal Revenue
Service (IRS) are considering to address
certain issues regarding donor advised
funds (DAFs) of sponsoring organizations
and requests comments on those ap-

proaches. Specifically, the Treasury De-
partment and the IRS are considering de-
veloping proposed regulations under
§ 4967 of the Internal Revenue Code
(Code) that would, if finalized, provide
that: (1) certain distributions from a DAF
that pay for the purchase of tickets that
enable a donor, donor advisor, or related
person under § 4958(f)(7), to attend or
participate in a charity-sponsored event
result in a more than incidental benefit to
such person under § 4967; and (2) certain
distributions from a DAF that the distrib-
utee charity treats as fulfilling a pledge
made by a donor, donor advisor, or related
person, do not result in a more than inci-
dental benefit under § 4967 if certain
requirements are met. In addition, the
Treasury Department and the IRS are con-
sidering developing proposed regulations
that would change the public support
computation for organizations described
in §§ 170(b)(1)(A)(vi) and 509(a)(1) and
in § 509(a)(2) to prevent the use of DAFs
to circumvent the excise tax rules appli-
cable to private foundations under Chap-
ter 42 of the Code. This notice requests
comments regarding the issues addressed in
the notice as well as certain other issues.

## SECTION 2. BACKGROUND

Section 4966(d)(2) defines a DAF as a
fund or account owned and controlled by
a sponsoring organization, which is sepa-
rately identified by reference to contribu-
tions of a donor or donors, and with re-
spect to which the donor, or any person
appointed or designated by such donor
(donor advisor), has, or reasonably ex-
pects to have, advisory privileges with
respect to the distribution or investment of
the funds. Section 4966(d)(2)(B) excepts
from the definition of DAF any fund or
account which makes distributions only to
a single identified organization or govern-
mental entity, or certain committee-
advised funds that make grants to individ-
uals for travel, study, or other similar
purposes.

Section 4966(d)(1) defines a sponsoring
organization as an organization that: (1) is
described in § 170(c) (other than a govern-
mental unit described in § 170(c)(1), and
without regard to the requirement under
§ 170(c)(2)(A) that the organization be or-
ganized in the United States); (2) is not a

private foundation (as defined in § 509(a));
and (3) maintains one or more DAFs.

Under § 170(f)(18), a deduction other-
wise allowable under § 170(a) for a con-
tribution to a DAF is allowed only if:

(A) the sponsoring organization is de-
scribed in § 170(c)(2) and is not a
"type III supporting organization,"
as defined in § 4943(f)(5)(A) (other
than a functionally integrated type
III supporting organization as de-
fined in § 4943(f)(5)(B)); and

(B) the taxpayer obtains a contempora-
neous written acknowledgment from
the sponsoring organization of the
DAF that the sponsoring organiza-
tion has exclusive legal control over
the assets contributed.

Section 4966 imposes an excise tax on
each taxable distribution from a DAF.
This excise tax is paid by the sponsoring
organization. A separate excise tax, paid
by fund managers, is imposed on the
agreement of any fund manager to the
making of a distribution, knowing that it is
a taxable distribution. In general, under
§ 4966(c), a taxable distribution is any
distribution from a DAF to any natural
person, or to any other person if (i) the
distribution is for any purpose not speci-
fied in § 170(c)(2)(B), or (ii) the sponsor-
ing organization does not exercise expen-
diture responsibility with respect to such
distribution in accordance with § 4945(h).

Under § 4966(c)(2), a taxable distribu-
tion does not include a distribution from a
DAF to: (1) any organization described in
§ 170(b)(1)(A) (other than a disqualified
supporting organization as defined in
§ 4966(d)(4)); (2) the sponsoring organi-
zation of such DAF; or (3) any other DAF.

Section 4967 imposes an excise tax on
the advice that a person described in
§ 4967(d) provides regarding a distribu-
tion from a DAF that results in such per-
son or any other person described in
§ 4967(d) receiving, directly or indirectly,
a more than incidental benefit. Section
4967(d) refers to § 4958(f)(7), which de-
scribes a donor, donor advisor, a family
member of a donor or donor advisor, or a
35-percent controlled entity of such persons
as defined in § 4958(f)(3) (with the modifi-
cations described in § 4958(f)(7)(C)). This
excise tax is paid by any person who advises
the sponsoring organization as to the distri-
bution or who receives the prohibited ben-

efit. A separate excise tax, paid by fund
managers, is imposed on the agreement of
any fund manager of the sponsoring organi-
zation to the making of the distribution,
knowing that it would confer a prohibited
benefit. Section 4967(b) provides that, with
respect to any distribution, no tax shall be
imposed under § 4967 if a tax has been
imposed under § 4958.

Section 4958 imposes an excise tax on
any "excess benefit transaction." Section
4958(c)(1) defines an excess benefit trans-
action generally as any transaction in
which an economic benefit is provided by
an applicable tax-exempt organization (in-
cluding a § 501(c)(3) sponsoring organi-
zation of a DAF) directly or indirectly to
or for the use of a disqualified person
(including in the case of any transaction
that involves a DAF a donor, donor advi-
sor, or a person related to a donor or donor
advisor, as described in § 4958(f)(7)), if
the value of the economic benefit pro-
vided exceeds the value of the consider-
ation received. In general, the term "ex-
cess benefit" refers to the amount by
which the value of the economic benefit
provided exceeds the value of the consid-
eration received. Section 4958(c)(2) pro-
vides that, in the case of any DAF, an
excess benefit transaction also includes
any grant, loan, compensation, or other
similar payment from the DAF to a donor,
donor advisor, or related person. For pur-
poses of this special rule for DAFs, the
excess benefit includes the full amount of
the grant, loan, compensation, or other
similar payment. This excise tax under
§ 4958 is paid by the disqualified person
with respect to the transaction. A separate
excise tax, paid by organization managers,
is imposed on the participation of any
organization manager in the transaction,
knowing that it is an excess benefit trans-
action, unless such participation is not
willful and is due to reasonable cause.

Notice 2006-109, 2006-2 C.B. 1121,
provided interim guidance on several
DAF issues, including criteria for deter-
mining whether a supporting organization
is a disqualified supporting organization,
exclusion of certain employer-sponsored
disaster relief funds from the definition of
DAF, and transitional rules for educa-
tional grants. The notice also requested
comments regarding suggestions for fu-
ture guidance on DAFs.

Notice 2007-21, 2007-1 C.B. 611, re-
quested comments in connection with a
study conducted by the Treasury Depart-
ment and the IRS on the organization and
operation of DAFs and supporting organi-
zations, as required by § 1226 of the Pen-
sion Protection Act of 2006, Pub. L. No.
109-280, 120 Stat. 780 (2006).

In response to these notices, the Trea-
sury Department and the IRS received a
number of comments requesting guidance
on various DAF issues. Several comment-
ers indicated that guidance would be par-
ticularly helpful regarding whether § 4967
prohibits a donor, donor advisor, or per-
son related to a donor or donor advisor of
a DAF from advising a DAF distribution
to pay the cost of any such person's atten-
dance or participation in a charity-
sponsored event or to fulfill the person's
charitable pledge. The commenters noted
that some DAF sponsoring organizations
prohibit such DAF distributions, but oth-
ers do not. One commenter expressed con-
cern about improper use of DAFs by per-
sons seeking to avoid application of the
private foundation rules under Chapter 42
of the Code.

While the Treasury Department and
the IRS continue to develop proposed reg-
ulations that would, if finalized, compre-
hensively address donor advised funds,
this notice is intended to provide interim
guidance on these specific issues and to
solicit additional comments in anticipa-
tion of the issuance of further guidance.

SECTION 3. CERTAIN
DISTRIBUTIONS FROM A DAF
PROVIDING A MORE THAN
INCIDENTAL BENEFIT TO A
DONOR, DONOR ADVISOR, OR
RELATED PERSON

Several commenters requested guid-
ance on whether a distribution from a
DAF to an organization described in
§ 501(c)(3) (a "charity") that enables a
donor, donor advisor, or related person
under § 4958(f)(7) (collectively referred
to in this notice as a "Donor/Advisor") to
attend or participate in an event results in
the Donor/Advisor receiving a more than
incidental benefit under § 4967.

Several commenters suggested that a
distribution from a DAF should not be
considered as conferring a more than in-
cidental benefit as long as the amount of

the distribution from the DAF does not
exceed the portion of the ticket cost that
would be deductible under § 170 if paid
by the Donor/Advisor directly and the Do-
nor/Advisor separately pays for the non-
deductible portion. For example, if a char-
ity sells tickets to a charity-sponsored
event for $1,000 per ticket and notifies
purchasers that the fair market value of
each ticket is $100, then (assuming that
the requirements of § 170 are satisfied), a
person who purchases a ticket for $1,000
may deduct up to $900 of the payment as
a charitable contribution. These comment-
ers suggested that a Donor/Advisor with
respect to a DAF does not receive a more
than incidental benefit if the Donor/Advi-
sor pays the $100 ticket value and the
sponsoring organization, on the advice of
a Donor/Advisor, distributes $900 from
the DAF to the charity to pay the rest of
the cost of the ticket, because the Donor/
Advisor's position is the same as if the
Donor/Advisor had paid the full cost of
the ticket ($1,000) and claimed a $900
charitable contribution deduction.

One commenter offered the contrary
view that an arrangement under which a
Donor/Advisor pays only the nondeduct-
ible portion of the cost of a ticket to a
charity event and advises a DAF distribu-
tion to pay the deductible portion of the
cost results in a more than incidental ben-
efit, because but for the DAF distribution
the Donor/Advisor would not have re-
ceived the benefits that the ticket provides.
Under this view, the $900 distribution
from the DAF in the example relieves the
Donor/Advisor from a financial obligation
that the Donor/Advisor would otherwise
incur in order to receive the same benefits.

The Treasury Department and the IRS
currently agree that the relief of the Do-
nor/Advisor's obligation to pay the full
price of a ticket to a charity-sponsored
event can be considered a direct benefit to
the Donor/Advisor that is more than inci-
dental. Therefore, proposed regulations
under § 4967 would, if finalized, provide
that a distribution from a DAF pursuant to
the advice of a Donor/Advisor that subsi-
dizes the Donor/Advisor's attendance or
participation in a charity-sponsored event
confers on the Donor/Advisor a more than
incidental benefit under § 4967. The Trea-
sury Department and the IRS do not cur-
rently agree that, for purposes of § 4967, a

distribution made by a sponsoring organi-
zation from a DAF to a charity upon ad-
vice of a Donor/Advisor should be ana-
lyzed the same as a hypothetical, direct
contribution by the Donor/Advisor to the
charity. A Donor/Advisor who wishes to
receive goods or services (such as tickets
to an event) offered by a charity in ex-
change for a contribution of a specified
amount can make the contribution di-
rectly, without the involvement of a DAF.

The Treasury Department and the IRS
recognize that a similar issue arises if a
sponsoring organization makes a distribu-
tion from a DAF to a charity to pay, on
behalf of a Donor/Advisor, the deductible
portion of a membership fee charged by
the charity, and the Donor/Advisor sepa-
rately pays the nondeductible portion of
the membership fee. Therefore, the Trea-
sury Department and the IRS anticipate
that the same analysis would apply to a
case where the Donor/Advisor receives
these types of membership benefits, so
that the sponsoring organization cannot
pay the deductible portion of the member-
ship fee without conferring more than an
incidental benefit on the Donor/Advisor.

The Treasury Department and the IRS
recognize that a distribution that results in
a more than incidental benefit under
§ 4967 may also result in an excess benefit
under § 4958. The Treasury Department
and the IRS anticipate that any proposed
regulations would address the application
of excise taxes in the case of a distribution
that is potentially subject to tax under both
§§ 4958 and 4967. See § 4967(b).

SECTION 4. CERTAIN
DISTRIBUTIONS FROM A DAF
PERMITTED WITHOUT REGARD TO
A CHARITABLE PLEDGE MADE BY
A DONOR, DONOR ADVISOR, OR
RELATED PERSON

Commenters have expressed uncer-
tainty about whether a Donor/Advisor
may advise a distribution from a DAF to
satisfy a Donor/Advisor's pledge to make
a contribution to a charity. Commenters
noted that under § 4941, a private founda-
tion's grant or other payment in fulfillment
of the legal obligation of a disqualified per-
son ordinarily constitutes a prohibited act of
self-dealing. See § 53.4941(d)-2(f)(1) of the
Excise Tax Regulations.

Most commenters favored allowing
distributions from DAFs to fulfill a Do-
nor/Advisor's charitable pledge. A few
commenters expressed concern that re-
quiring a sponsoring organization to de-
termine, before making a DAF distribu-
tion, whether a Donor/Advisor made a
legally binding pledge may unduly com-
plicate charitable giving. In particular,
these commenters noted the difficulty in-
herent in determining whether a commit-
ment identified as a "pledge" is legally
enforceable under state law or merely an
indication of charitable intent. One com-
menter stated that whether a given pledge
is legally enforceable under state law of-
ten turns on factual details that can be
difficult for the sponsoring organization to
ascertain. A few commenters noted that
determining whether a pledge is legally
enforceable is impractical and also places
an undue administrative burden on the
IRS. These commenters also suggested
that distributions from DAFs to charitable
organizations should be encouraged and
that allowing satisfaction of Donor/Advi-
sors' charitable pledges facilitates the giv-
ing process.

The Treasury Department and the IRS
currently agree with those commenters
who suggested that it is difficult for spon-
soring organizations to differentiate be-
tween a legally enforceable pledge by an
individual to a third-party charity and a
mere expression of charitable intent. The
Treasury Department and the IRS are of
the view that, in the context of DAFs, the
determination of whether an individual's
charitable pledge is legally binding is best
left to the distributee charity, which has
knowledge of the facts surrounding the
pledge. Accordingly, to facilitate distribu-
tions from DAFs to charities, the Treasury
Department and the IRS are considering
proposed regulations under § 4967 that
would, if finalized, provide that distribu-
tions from a DAF to a charity will not be
considered to result in a more than inci-
dental benefit to a Donor/Advisor under
§ 4967 merely because the Donor/Advisor
has made a charitable pledge to the same
charity (regardless of whether the charity
treats the distribution as satisfying the
pledge), provided that the sponsoring or-

ganization makes no reference to the ex-
istence of any individual's pledge when
making the DAF distribution. Specifi-
cally, it is anticipated that under this ap-
proach a distribution from a DAF to a
charity to which a Donor/Advisor has
made a charitable pledge (whether or not
enforceable under local law) will not be
considered to result in a more than inci-
dental benefit to the Donor/Advisor if the
following requirements are satisfied:

(1) the sponsoring organization makes no
reference to the existence of a chari-
table pledge when making the DAF
distribution;

(2) no Donor/Advisor receives, directly
or indirectly, any other benefit that is
more than incidental (as discussed in
this notice and as further defined in
future proposed regulations) on ac-
count of the DAF distribution; and

(3) a Donor/Advisor does not attempt to
claim a charitable contribution de-
duction under § 170(a) with respect
to the DAF distribution, even if the
distributee charity erroneously sends
the Donor/Advisor a written ac-
knowledgment in accordance with
§ 170(f)(8) with respect to the DAF
distribution.

Because the relationship between a pri-
vate foundation and its disqualified per-
sons typically is much closer than the re-
lationship between a DAF sponsoring
organization and its Donor/Advisors, this
special rule regarding certain charitable
pledges would apply for purposes of
§ 4967 only. The principles discussed in
this section 4 would not be intended to
affect the tax treatment of any item under
any provision of the Code other than
§ 4967.1

For example, assume that charity Z, an
organization described in §§ 501(c)(3)
and 170(b)(1)(A)(vi), holds an annual
fundraising drive, and in response to the
annual fundraising solicitation, individual
B promises to contribute $1,000x to Z. B
has advisory privileges with respect to a
DAF and advises that the sponsoring or-
ganization distribute $1,000x from the
DAF to Z. The sponsoring organization
makes the advised distribution. Assume
further that in its transmittal letter to Z, the

sponsoring organization identifies B as the
individual who advised the distribution,
but makes no reference to a charitable
pledge by B or any other person. Z
chooses to treat the sponsoring organiza-
tion's distribution as satisfying B's
pledge. Z also publicly recognizes B for
B's role in facilitating the distribution
from the sponsoring organization, but Z
provides no other benefit to B. B does not
attempt to claim a § 170 deduction with
respect to the distribution. Under these
facts, the Treasury Department and the
IRS are currently of the view that the DAF
distribution does not result in a more than
incidental benefit to B under § 4967
merely because Z treats the distribution as
satisfying B's pledge.

## SECTION 5. PREVENTING ATTEMPTS TO USE A DAF TO AVOID "PUBLIC SUPPORT" LIMITATIONS

Publicly supported organizations under
§ 170(b)(1)(A)(vi) normally receive a
substantial part of their support from gov-
ernmental units and from direct or indirect
contributions from the public. In deter-
mining whether an organization qualifies
as "publicly supported" during any period,
the organization generally may treat con-
tributions (including grants) from a person
as support from the general public (public
support) only to the extent that such per-
son's total contributions to the organiza-
tion during the period do not exceed 2
percent of the organization's total support
during the period (the 2-percent public
support limitation). For this purpose, all
contributions made by an individual, trust,
or corporation and by any person or per-
sons standing in a relationship to the in-
dividual, trust, or corporation that is de-
scribed in § 4946(a)(1)(C) through (G)
and the related regulations are treated as
made by one person. See § 1.170A-
9(f)(6)(i) of the Income Tax Regulations.
The 2-percent public support limitation
does not apply to contributions received
by a donee organization from a § 170(b)
(1)(A)(vi) organization, except to the
extent that the contributions represent
amounts earmarked by a donor to the
§ 170(b)(1)(A)(vi) organization as being

1See, e.g., Revenue Ruling 81-110, 1981-1 C.B. 479 (January 1, 1981) (a payment by a third party to a charitable organization that explicitly is made to pay the legally enforceable pledge
of a donor is treated as a gift from the third party to the donor and then a charitable contribution from the donor to the organization); Treas. Reg. § 53.4941(d)-2(f)(1).

for, or for the benefit of, the donee orga-
nization. See § 1.170A-9(f)(6)(v).

Similarly, publicly supported organiza-
tions under § 509(a)(2) cannot treat con-
tributions from a substantial contributor as
public support, but contributions from an
organization described in § 170(b)(1)(A)
(other than clauses (vii) and (viii)) count
as public support except to the extent that
the contributions received by a donee or-
ganization represent amounts earmarked
by a donor to the § 170(b)(1)(A) organi-
zation as being for, or for the benefit of, a
particular recipient. See § 1.509(a)-3(j).

Because of the contributions they re-
ceive from the general public, DAF spon-
soring organizations typically qualify as
§ 170(b)(1)(A)(vi) organizations whose
distributions from DAFs would ordinarily
be counted as public support without lim-
itation to the distributee charity. The Trea-
sury Department and the IRS are aware
that some donors and distributee charities
seek to use DAF sponsoring organizations
as intermediaries. Rather than making
contributions, which would be subject to
the 2-percent public support limitation, di-
rectly to charities, these donors make con-
tributions to DAFs maintained by spon-
soring organizations and then advise the
sponsoring organizations to make distri-
butions from the DAFs to the distributee
charities. In light of the potential for
abuse, the Treasury Department and the
IRS are considering treating, solely for
purposes of determining whether the dis-
tributee charity qualifies as publicly sup-
ported, a distribution from a DAF as an
indirect contribution from the donor (or
donors) that funded the DAF rather than
as a contribution from the sponsoring or-
ganization. Such treatment would better
reflect the degree to which the distributee
charity receives broad support from a rep-
resentative number of persons.

Public support is defined in the regula-
tions under §§ 1.170A-9(f) and 1.509(a)-3.
The Treasury Department and the IRS are
considering proposing changes to these reg-
ulations to prevent the use of DAFs to cir-
cumvent the private foundation rules and
excise taxes imposed by the Code by advis-
ing distributions from a DAF to a charity. It
is currently anticipated that any proposed
changes to these regulations would provide
that a donee organization, for purposes of

determining its amount of public support,
must treat:

(1) a sponsoring organization's distribu-
tion from a DAF as coming from the
donor (or donors) that funded the
DAF rather than from the sponsoring
organization;

(2) all anonymous contributions received
(including a DAF distribution for
which the sponsoring organization
fails to identify the donor that funded
the DAF) as being made by one per-
son; and

(3) distributions from a sponsoring orga-
nization as public support without
limitation only if the sponsoring or-
ganization specifies that the distribu-
tion is not from a DAF or states that
no donor or donor advisor advised
the distribution.

The Treasury Department and the IRS
recognize that a donee organization may
need to obtain additional information
from the sponsoring organization in order
to determine its amount of public support.
However, the Treasury Department and
the IRS note that this additional informa-
tion would only be needed if the donee
organization intends to treat a distribution
from a sponsoring organization as public
support.

## SECTION 6. REQUEST FOR PUBLIC COMMENTS

The Treasury Department and the IRS
request comments regarding the issues ad-
dressed in this notice and suggestions for
future guidance with respect to DAFs. In
addition, the Treasury Department and the
IRS request comments with respect to the
following:

(1) How private foundations use DAFs in
support of their purposes.

(2) Whether, consistent with § 4942 and
its purposes, a transfer of funds by a
private foundation to a DAF should
be treated as a "qualifying distribu-
tion" only if the DAF sponsoring or-
ganization agrees to distribute the
funds for § 170(c)(2)(B) purposes (or
to transfer the funds to its general
fund) within a certain timeframe.

(3) Any additional considerations relat-
ing to DAFs with multiple unrelated
donors under the proposed changes
described in section 5 of this notice.

(4) Methods to streamline any required
recordkeeping under the proposed
changes described in section 5 of this
notice.

Written comments may be submitted by
March 5, 2018 to Internal Revenue Service,
CC:PA:LPD:PR (Notice 2017-73), Room
5203, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044, or electronically
to Notice.Comments@irscounsel.treas.gov
(please include "Notice 2017-73" in the
subject line). Alternatively, comments may
be hand delivered between the hours of 8:00
a.m. and 4:00 p.m. Monday to Friday to
CC:PA:LPD:PR (Notice 2017-73), Couri-
er's Desk, Internal Revenue Service, 1111
Constitution Avenue NW, Washington,
D.C .. Comments will be available for public
inspection and copying.

## SECTION 7. RELIANCE ON NOTICE

Taxpayers may rely on the rules de-
scribed in section 4 until additional guid-
ance is issued.

## SECTION 8. DRAFTING INFORMATION

The principal authors of this notice are
Amber L. Mackenzie and Ward L.
Thomas of the Office of Associate Chief
Counsel (TEGE). For further information
regarding this notice, contact Ms. Mac-
Kenzie at (202) 317-5800 or Mr. Thomas
at (202) 317-6173 (not toll-free numbers).

## Section 5000A Guidance for Individuals with No Available Marketplace Bronze-Level Plan

### Notice 2017-74

### PURPOSE

This notice provides guidance on com-
puting the affordability exemption under
§ 5000A(e)(1) of the Internal Revenue
Code (Code) and § 1.5000A-3(e) of the
Income Tax Regulations (Regulations) for
taxpayers with a family member who (i) is
not eligible for coverage under an eligible
employer-sponsored plan, and (ii) resides
in an area in which the Health Insurance
Marketplace (Marketplace) serving the

area does not offer a bronze-level quali-
fied health plan.

### BACKGROUND

For each month beginning after De-
cember 31, 2013, § 5000A of the Code
requires individuals to do one of the fol-
lowing: (i) maintain minimum essential
coverage for themselves and any family
members who are not exempt under
§ 5000A and § 1.5000A-3 of the Regula-
tions, (ii) qualify for a coverage exemp-
tion, or (iii) include an individual shared
responsibility payment with their Federal
income tax return for the taxable year.

Section 5000A(e)(1) of the Code pro-
vides that an individual qualifies for an
exemption for a month for which the in-
dividual lacks access to affordable mini-
mum essential coverage. An individual
lacks access to affordable coverage if the
individual's required contribution (deter-
mined on an annual basis) for minimum
essential coverage exceeds a percentage
(8.16 percent for 2017) of the individual's
household income for the taxable year.

For individuals who are ineligible to pur-
chase coverage under an eligible employer-
sponsored plan, the required contribution is
the annual premium for the applicable plan,
reduced by the maximum amount of any
credit allowable under § 36B of the Code
for the taxable year, determined as if the
individual were covered for the entire tax-
able year by a qualified health plan offered
through the Marketplace serving the rating
area where the individual resides. In gen-
eral, an applicable plan means the lowest
cost bronze plan available through the Mar-
ketplace serving the rating area in which the
individual resides that would cover all non-
exempt members of the individual's family
on one policy. However, if the Marketplace
serving the rating area where the individual
resides does not offer a single bronze plan
covering all nonexempt members of the in-
dividual's family, the premium for the ap-
plicable plan is the sum of the premiums for
the lowest cost bronze plans that are offered
through the Marketplaces serving the rating

areas where one or more of the family mem-
bers reside that would cover, in the aggre-
gate, all the nonexempt members of the
family. A nonexempt family member is an
individual in the family who is not other-
wise exempt under § 1.5000A-3 of the Reg-
ulations and is ineligible for coverage under
an eligible employer-sponsored plan under
§ 1.5000A-3(e)(3)(i).

### GUIDANCE

Market instability has resulted in lim-
ited offerings of plans on the Market-
places in some regions, and, as a result,
there are some individuals who live in
rating areas where no bronze plan was
offered for 2017. Thus, affected taxpayers
would not be able to make a determination
as to whether an individual not eligible for
employer-sponsored coverage who lives
in a rating area without a bronze plan is
eligible for the affordability exemption.

Individuals who are not eligible for
coverage under an eligible employer-
sponsored plan and who lack access to
affordable coverage should not be denied
the use of the affordability exemption un-
der § 5000A(e)(1) of the Code and
§ 1.5000A-3(e) of the Regulations merely
because they reside in an area served by a
Marketplace that does not offer a bronze-
level plan. Consequently, for purposes
of the affordability exemption under
§ 5000A(e)(1) and § 1.5000A-3(e), if an
individual resides in a rating area served
by a Marketplace that does not offer a
bronze plan, the individual generally
should use as his or her applicable plan
the lowest cost metal-level plan available
in the Marketplace serving the rating area
in which the individual resides that would
cover all nonexempt members of the indi-
vidual's family. However, if the Market-
place serving the rating area where an
affected taxpayer resides does not offer a
single bronze plan (or, if no bronze plan is
available through the Marketplace, any
lowest cost metal-level plan) that would
cover all nonexempt members of the af-
fected taxpayer's family, the affected tax-

payer should determine the applicable
plan by adding the premiums for the low-
est cost bronze plans, or the lowest cost
metal-level plans if a bronze plan is not
offered, that would cover in the aggregate
all of the nonexempt members of the af-
fected taxpayer's family.

Example 1. Individual K resides in an area served
by a Marketplace that does not offer a bronze plan
but does offer several silver plans. K is not eligible
for employer-sponsored coverage. To determine if
he qualifies for the affordability exemption under
§ 5000A(e)(1) of the Code and § 1.5000A-3(e) of
the Regulations, K should use as his applicable plan
the lowest cost silver plan available in the Market-
place that would cover K.

Example 2. Individual J has three dependents, A,
B, and C. None of the four family members is
eligible for employer-sponsored coverage. A and B
reside with J in an area served by a Marketplace that
offers bronze plans. C resides with J's former spouse
in an area served by a Marketplace that does not
offer a bronze plan but does offer a silver plan. The
Marketplace serving the area where J resides offers
bronze plans that cover J and her three dependents.
Thus, J uses the lowest cost bronze plan offered by
the Marketplace serving the area where J resides as
her applicable plan to determine if J qualifies for the
affordability exemption under § 5000A(e)(1) of the
Code and § 1.5000A-3(e) of the Regulations.

Example 3. Same facts as Example 2 except,
although the Marketplace where J resides offers
bronze plans covering J, A, and B under one policy,
none of these plans also cover C. Because no bronze
plan in the Marketplace serving the area where J
resides covers all nonexempt members of J's family,
J must aggregate the cost of more than one plan to
determine the premium for J's applicable plan. J
adds the cost of the lowest cost bronze plan covering
J, A, and B and, because the Marketplace where C
resides offers no bronze plans, the cost of the lowest
cost silver plan offered by the Marketplace serving
the area where C resides, to determine if J qualifies
for the affordability exemption under § 5000A(e)(1)
of the Code and § 1.5000A-3(e) of the Regulations.

## EFFECTIVE DATE

This notice applies for taxable years
ending after December 31, 2016.

## CONTACT INFORMATION

The further information regarding this
notice, contact Steve Toomey at (202)
317-4718 or Shareen Pflanz at (202) 317-
7006 (not a toll-free call).

## Part IV. Items of General Interest

26 CFR 1,754-1: Time and manner of making
election to adjust basis of partnership property

### Centralized Partnership Audit Regime: International Tax Rules

REG-119337-17

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains
proposed regulations implementing sec-
tion 1101 of the Bipartisan Budget Act of
2015 (BBA), which was enacted into law
on November 2, 2015. Section 1101 of the
BBA repeals the current rules governing
partnership audits and replaces them with
a new centralized partnership audit regime
that, in general, assesses and collects tax
at the partnership level. These proposed
regulations provide rules addressing how
certain international rules operate in the
context of the centralized partnership au-
dit regime, including rules relating to the
withholding of tax on foreign persons,
withholding of tax to enforce reporting on
certain foreign accounts, and the treatment
of creditable foreign tax expenditures of a
partnership.

DATES: Written or electronic comments
and requests for a public hearing must be
received by January 29, 2018.

ADDRESSES: Send submissions to: CC:
PA:LPD:PR (REG-119337-17), room
5207, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand deliv-
ered Monday through Friday between the
hours of 8:00 a.m. and 4:00 p.m. to CC:PA:
LPD:PR (REG-119337-17), Courier's
Desk, Internal Revenue Service, 1111 Con-
stitution Avenue, NW, Washington, DC
20224, or sent electronically via the Federal
eRulemaking Portal at www.regulations.gov
(IRS REG-119337-17).

FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions relating to creditable foreign tax ex-
penditures, Larry R. Pounders, Jr., of the
Office of Associate Chief Counsel (Inter-

national), (202) 317-5465; concerning the
proposed regulations relating to chapters 3
and 4 of subtitle A of the Internal Revenue
Code (other than section 1446), Subin
Seth of the Office of Associate Chief
Counsel (International), (202) 317-5003;
concerning the proposed regulations relat-
ing to section 1446, Ronald M. Gootzeit
of the Office of Associate Chief Counsel
(International), (202) 317-4953; concern-
ing the submission of comments or a
request for a public hearing, Regina
Johnson, (202) 317-6901 (not toll-free
numbers).

#### SUPPLEMENTARY INFORMATION:

##### Background

This document contains proposed
amendments to 26 CFR part 301. These
proposed regulations supplement the
regulations proposed in the notice of
proposed rulemaking (REG-136118-15)
published in the Federal Register on June
14, 2017 (82 FR 27334) (the "June 14
NPRM") and amend the Procedure and
Administration Regulations (26 CFR Part
301) under Subpart - Tax Treatment of
Partnership Items to implement the cen-
tralized partnership audit regime.

###### 1. The New Centralized Partnership Audit Regime

For information relating to (1) the new
centralized partnership audit regime en-
acted by the BBA, Pub. L. 114-74 (129
Stat. 58 (2015)) (as amended by the Pro-
tecting Americans from Tax Hikes Act of
2015, Pub. L. 114-113 (129 Stat. 2242
(2015))); (2) Notice 2016-23 (2016-13
I.R.B. 490 (March 28, 2016)), which re-
quested comments on the new partnership
audit regime enacted by the BBA; and (3)
the temporary regulations (TD 9780, 81
FR 51795) and a notice of proposed rule-
making (REG-105005-16, 81 FR 51835),
which provided the time, form, and man-
ner for a partnership to make an election
into the centralized partnership audit re-
gime for a partnership taxable year begin-
ning before the general effective date of
the regime, see the Background section of
the June 14 NPRM.

2\. Proposed Regulations Implementing
the Centralized Partnership Audit
Regime

The June 14 NPRM addresses various
issues concerning the scope and process
of the new centralized partnership audit
regime. Unless otherwise noted, all refer-
ences to proposed regulations in this
Background refer to regulations proposed
by the June 14 NPRM.

With respect to the scope of the cen-
tralized partnership audit regime, pro-
posed § 301.6221(a)-1(a) provides that
any adjustment to items of income, gain,
loss, deduction, or credit of a partnership
and any partner's distributive share is de-
termined at the partnership level. Pro-
posed § 301.6221(a)-1(b)(1) broadly de-
fines the phrase "items of income, gain,
loss, deduction, or credit" to include all
items and information required to be
shown, or reflected, on a partnership re-
turn or maintained in the partnership's
books and records. For example, proposed
§ 301.6221(a)-1(b)(1)(i)(A) provides that
the character, timing, source, and amount
of the partnership's income, gain, loss,
deductions, and credits, including whether
an item is deductible, tax-exempt, or a
tax-preference item, must be determined
under the centralized partnership audit re-
gime. Similarly, proposed § 301.6221(a)-
1(b)(1)(i)(F) provides that an adjustment
to the separate category, timing, and
amount of the partnership's creditable
foreign tax expenditures described in
§ 1.704-1(b)(4)(viii)(b), is included within
the centralized partnership audit regime. Fi-
nally, proposed § 301.6221(a)-1(d) pro-
vides that the IRS is not precluded from
making an adjustment to an item that must
be determined under the centralized partner-
ship audit regime for purposes of determin-
ing taxes imposed by provisions of the In-
ternal Revenue Code (the Code) outside of
chapter 1 of subtitle A (chapter 1).

Proposed § 301.6222-1 generally re-
quires a partner to treat items consistently
with the partnership's return; however, a
partner may take an inconsistent position
on an original income tax return if the
partner provides notice of the inconsistent
position in accordance with proposed
§ 301.6222-1(c). If a partner treats an

item inconsistently with the partnership
return position without providing notice,
the item may be adjusted to conform to
the partnership return, and any underpay-
ment resulting from that adjustment may
be assessed and collected as if it were on
account of a mathematical or clerical error
appearing on the partner's return.

Proposed § 301.6223-1 provides rules
relating to the designation of the partnership
representative. Proposed § 301.6223-2 pro-
vides rules relating to the authority of the
partnership representative and the effect of
actions taken by the partnership through the
partnership representative. Partners are
bound by the actions of the partnership rep-
resentative and may not take a position that
is inconsistent with the actions of the part-
nership (except with notice on the partner's
return, as provided under section 6222 and
proposed § 301.6222-1).

Proposed §§ 301.6225-1, 301.6225-2,
and 301.6225-3 provide rules relating to
partnership adjustments, including the
computation of the imputed underpay-
ment, modification of the imputed under-
payment, and the treatment of adjustments
that do not result in an imputed underpay-
ment. Under proposed § 301.6225-1(d),
adjustments are separated into four group-
ings: the reallocation grouping, the credit
grouping, the creditable expenditure group-
ing, and the residual grouping. The June 14
NPRM reserved § 301.6225-1(d)(2)(iv) for
rules addressing the treatment of items in
the creditable expenditure grouping. Each
grouping is further divided into subgroup-
ings of adjustments to account for prefer-
ences, restrictions, limitations, and conven-
tions. For example, an adjustment in the
residual grouping could be further divided
into subgroupings by character, source, cat-
egory, and other restrictions under the Code.

Under proposed § 301.6225-1, the net
positive adjustments in all subgroupings
of the residual and reallocation groupings
are summed. The sum is the total netted
partnership adjustment, which is multi-
plied by the highest applicable tax rate in
effect for the reviewed year (as defined in
proposed § 301.6241-1(a)(8)). The result-
ing figure is then increased, or decreased,
by the net adjustments in the credit group-
ing to produce the imputed underpayment
amount. A net non-positive adjustment in
the reallocation grouping or the residual
grouping (or any subgrouping thereof) is

treated as an adjustment that does not re-
sult in an imputed underpayment and is
taken into account in the adjustment year
(as defined under proposed § 301.6241-
1(a)(1)) under proposed § 301.6225-3.

The partnership may request a modifi-
cation, under proposed § 301.6225-2, to
adjust the imputed underpayment calcu-
lated under proposed § 301.6225-1. The
modification rules set out in proposed
§ 301.6225-2 generally allow: (1) modi-
fications that result in the exclusion of
certain adjustments, or portions thereof,
from the calculation of the imputed under-
payment (such as a modification under
proposed § 301.6225-2(d)(2) (amended
returns by partners), (d)(3) (tax-exempt
partners), (d)(5) (certain passive losses of
publicly traded partnerships), (d)(7) (part-
nerships with partners that are qualified
investment entities described in section
860), (d)(8) (partner closing agreements),
and, if applicable, (d)(9) (other modifica-
tions)); (2) rate modifications, which af-
fect only the taxable rate applied to the
total netted partnership adjustment (de-
scribed in proposed § 301.6225-2(d)(4));
and (3) modifications to the number and
composition of imputed underpayments
(described in proposed § 301.6225-
2(d)(6)).

Proposed § 301.6225-3 sets forth rules
for the treatment of adjustments that do not
result in an imputed underpayment. In gen-
eral, pursuant to proposed § 301.6225-
3(b)(1) the partnership takes the adjustment
into account in the adjustment year as a
reduction in non-separately stated income or
as an increase in non-separately stated loss
depending on whether the adjustment is to
an item of income or loss. Proposed
§ 301.6225-3(b)(2) provides that if an ad-
justment is to an item that is required to be
separately stated under section 702, the ad-
justment shall be taken into account by the
partnership on its adjustment year return as
an adjustment to such separately stated item.
Proposed § 301.6225-3(b)(3) provides that
an adjustment to a credit is taken into ac-
count as a separately stated item.

Proposed §§ 301.6226-1, 301.6226-2,
and 301.6226-3 provide rules relating to
the election under section 6226 by a part-
nership to have its partners take into ac-
count the partnership adjustments in lieu
of paying the imputed underpayment de-
termined under section 6225, the state-

ments the partnership must send to its
partners (including the computation of the
partners' safe harbor amounts), and the
computation and payment of the partners'
liability. If a partnership makes the elec-
tion under section 6226 to "push out" ad-
justments to its reviewed year partners,
the partnership is not liable for the im-
puted underpayment. Instead, under pro-
posed § 301.6226-3, reviewed year part-
ners must either pay any additional
chapter 1 tax that results from taking the
adjustments reflected on the statements
into account in the reviewed year and
from changes to the tax attributes in the
intervening years, or pay a safe harbor
amount, which is calculated based on
rules similar to those used to calculate the
imputed underpayment. In addition to be-
ing liable for the additional tax or safe
harbor amount, the partner must also pay
its allocable share of any penalties, addi-
tions to tax, or additional amounts re-
flected on the statement from the partner-
ship, and any interest determined in
accordance with proposed § 301.6226-
3(d).

Proposed § 301.6227-1 provides rules
for a partnership to file an administrative
adjustment request (AAR). A partnership
subject to the centralized partnership audit
regime may file a request for an adminis-
trative adjustment to one or more items of
income, gain, loss, deduction, or credit of
the partnership for any partnership taxable
year. Filing an AAR is the only mecha-
nism provided by the centralized partner-
ship audit regime to request a change to an
item reported on a partnership return that
has already been filed with the IRS. Pro-
posed § 301.6227-1(a) provides that only
a partnership representative acting on be-
half of the partnership may file an AAR; a
partner may not make a request for an
item to be adjusted administratively, such
as by filing an amended return to take a
position that is inconsistent with the part-
nership return. However, this rule does
not preclude a partner from taking an in-
consistent position on an original income
tax return if the partner provides notice of
the inconsistent position in accordance
with proposed § 301.6222-1(c).

Proposed §§ 301.6227-2 and 301.6227-3
provide rules for how the partnership ac-
counts for adjustments in an AAR and for
how partners must account for adjust-

ments in an AAR, respectively. Subject to
certain special rules, adjustments in an
AAR are generally taken into account in a
manner similar to IRS-initiated adjust-
ments. For example, an adjustment re-
quested in an AAR may result in an im-
puted underpayment calculated in a
manner similar to the computation of the
imputed underpayment under section
6225, although modification is more re-
stricted in the context of an AAR (see
proposed § 301.6227-2(a)(2)). The part-
nership must pay the imputed underpay-
ment or elect to have it and its partners
take the adjustments into account under
rules similar to those under section 6226.
One significant difference between an
IRS-initiated adjustment and an adjust-
ment requested in an AAR is that re-
quested adjustments that do not result in
an imputed underpayment are accounted
for under rules similar to those under sec-
tion 6226.

Finally, proposed § 301.6241-1 pro-
vides definitions for purposes of the cen-
tralized partnership audit regime.

##### Explanation of Provisions

###### 1. In General

These proposed regulations provide
guidance on certain international issues
related to the centralized partnership audit
regime. This Explanation of Provisions
proceeds as follows: Part 2 discusses pro-
visions related to chapters 3 and 4 of
subtitle A of the Code. Part 3 discusses
provisions related to creditable foreign tax
expenditures and foreign tax credits. Part
4 discusses issues related to treaties and
reductions to the rate of tax on foreign
persons under the Code. Part 5 discusses
issues related to certain foreign corpora-
tions.

Unless otherwise stated, all references
to proposed regulations in this Explana-
tion of Provisions are to the new proposed
regulations in this Notice of Proposed
Rulemaking. Because these regulations
are supplementing the regulations pub-
lished in the June 14 NPRM, the number-
ing and ordering of some of the provisions
do not follow typical conventions. The
Department of the Treasury (Treasury De-
partment) and the IRS intend to appropri-
ately integrate these provisions when both

these regulations and the proposed regu-
lations in the June 14 NPRM are finalized.

###### 2. Provisions Related to Chapters 3 and 4 of Subtitle A of the Code

###### A. Background

Chapter 3 (Withholding of Tax on
Nonresident Aliens and Foreign Corpora-
tions) of subtitle A of the Code imposes
withholding requirements on payments or
allocations of income to foreign persons
(under sections 1441 through 1446) and
provides rules regarding the application of
those withholding provisions (under sec-
tions 1461 through 1464). Sections 1441
and 1442 require all persons having the
control, receipt, custody, disposal, or pay-
ment of certain specified items of income
of any nonresident alien, foreign partner-
ship, or foreign corporation to withhold
tax at a 30-percent rate from such items
unless a reduced rate of withholding ap-
plies. Amounts subject to withholding
under sections 1441 and 1442 include
amounts from sources within the United
States that constitute fixed or determin-
able annual or periodical income, which in
turn is defined under § 1.1441-2(b)(1)(i)
to include all income included in gross
income under section 61, subject to cer-
tain exceptions. In addition to being re-
quired to withhold on a payment made to
a foreign person, a domestic (U.S.) part-
nership is required to withhold under sec-
tions 1441 and 1442 on an amount subject
to withholding that is includible in the
gross income of a partner that is a foreign
person. See § 1.1441-5(b)(2)(i). A foreign
partnership may also be required to with-
hold with respect to its foreign partners
under sections 1441 and 1442 if it is
either a foreign withholding partnership
as described in § 1.1441-5(c)(2), or fails
to meet the requirements described in
§ 1.1441-5(c)(3)(v). A partnership sat-
isfies its withholding requirements with
respect to its foreign partners by with-
holding on distributions made to the
partner that include amounts subject to
withholding, or, to the extent the part-
nership's withholding liability is not sat-
isfied by withholding on distributions,
by withholding on the partner's distrib-
utive share. See § 1.1441-5(b)(2)(i).

Section 1446 requires a partnership to
pay withholding tax to the extent that the
partnership has effectively connected tax-
able income (ECTI) that is allocable to a
foreign partner, at the highest rate applicable
to that partner. See § 1.1446-3(a)(2). ECTI
generally refers to the partnership's taxable
income as computed under section 703,
with adjustments as provided in section
1446(c) and § 1.1446-2, and computed
with consideration of only those partnership
items that are effectively connected (or
treated as effectively connected) with the
conduct of a trade or business in the United
States. See § 1.1446-2.

Section 1443 imposes withholding re-
quirements on certain payments or alloca-
tions of income made to foreign tax-
exempt organizations, including income
includible under section 512 for comput-
ing unrelated business taxable income
(subject to section 1443(a)) and income
subject to tax under section 4948 (subject
to section 1443(b)). Because the tax under
section 4948 is not a chapter 1 tax, and
therefore is not implicated by the central-
ized partnership audit regime, references
to chapter 3 in this preamble and these
proposed regulations refer to the provi-
sions in chapter 3 of subtitle A of the
Code, excluding section 1443(b). See pro-
posed § 301.6225-1(a)(4).

Section 1445 imposes withholding re-
quirements upon the disposition of a U.S.
real property interest (as defined in section
897(c)) by a foreign person and certain
related distributions. To the extent that a
partnership's income from the disposition
of a U.S. real property interest is allocable
to a foreign partner, the partnership is
subject to the requirements under section
1446. See §§ 1.1446-2; 1.1446-3(c)(2).

Chapter 4 (Taxes to Enforce Reporting
on Certain Foreign Accounts) of subtitle
A of the Code (chapter 4) requires a with-
holding agent (as defined in § 1.1473-
1(d)) to withhold tax at a 30-percent rate
on a withholdable payment (as defined in
§ 1.1473-1(a)) made to a foreign financial
institution (FFI) unless the FFI has en-
tered into an agreement described in sec-
tion 1471(b) to obtain status as a partici-
pating FFI, or the FFI is deemed to have
satisfied the requirements of section
1471(b). A participating FFI is required to
withhold tax with respect to payments
made to recalcitrant account holders (as

defined in § 1.1471-5(g)(2)) and nonpar-
ticipating FFIs (as defined in § 1.1471-
1(b)(82)) to the extent required under
§ 1.1471-4(b). Chapter 4 also generally
requires a withholding agent to withhold
tax at a 30-percent rate on a withholdable
payment made to a nonfinancial foreign
entity (NFFE) unless the NFFE has pro-
vided information to the withholding
agent with respect to the NFFE's substan-
tial U.S. owners or has certified that it has
no such owners. See section 1472.

Under sections 1461 and 1474, any
person required to withhold tax under
chapters 3 and 4 is made liable for such
tax, and may also be liable for any penal-
ties, additions to tax, additional amounts,
and interest that may apply for failure to
timely pay the tax required to be withheld.
To the extent that the tax required to be
withheld is paid by the beneficial owner of
the income (as defined in §§ 1.1441-1(c)(6)
and 1.1471-1(b)(8)) or by the withholding
agent (as defined in §§ 1.1441-7(a)(1) and
1.1473-1(d)), the tax will not be collected a
second time from the other; however, the
person that did not pay the tax is not re-
lieved from liability for any penalties, addi-
tions to tax, or interest that may apply. See
§§ 1.1446-3(e); 1.1463-1; 1.1474-4.

Under §§ 1.1462-1 and 1.1474-3, a
beneficial owner is required to include in
gross income the entire amount of income
from which tax is required to be withheld,
but the amount of any tax actually with-
held (including any amount withheld on a
partner's distributive share) is allowed as
a credit under section 33 against the ben-
eficial owner's income tax liability. Sim-
ilarly, under § 1.1446-3(d)(2)(i), the
amount of section 1446 tax paid by the
partnership that is allocable to a foreign
partner is allowed as a credit under section
33 against the partner's income tax liabil-
ity. In general, because the beneficial
owner will have gross income during the
taxable year when the withholding occurs,
the beneficial owner will be required to
file a U.S. income tax return for that year.
See section 6012. However, a beneficial
owner's requirement to file a return is
waived when it is not engaged in a U.S.
trade or business and its tax liability has
been fully satisfied through withholding at
source. See §§ 1.6012-1(b)(2)(i); 1.6012-
2(g)(2)(i).

B. Coordination of the Centralized
Partnership Audit Regime with Chapters
3 and 4

Proposed § 301.6221(a)-1(a) (June 14
NPRM) provides that all adjustments to
items of income, gain, loss, deduction, or
credit of a partnership, and any partner's
distributive share of those adjusted items
are determined, and any tax attributable
thereto is assessed and collected, at the part-
nership level under the centralized partner-
ship audit regime. Proposed § 301.6221(a)-
1(b)(1)(i) (June 14 NPRM) broadly defines
the phrase "items of income, gain, loss, de-
duction, or credit" to include all items and
information required to be shown, or re-
flected, on a partnership return or main-
tained in the partnership's books and re-
cords. Proposed § 301.6221(a)-1(b)(3)
(June 14 NPRM) defines tax for purposes of
the centralized partnership audit regime to
be the tax imposed by chapter 1. Proposed
§ 301.6221(a)-1(d) (June 14 NPRM), how-
ever, provides that nothing in subchapter C
of chapter 63 and the regulations thereunder
(the centralized partnership audit regime)
precludes the IRS from making any adjust-
ment to any of these items for purposes of
determining taxes imposed by other chap-
ters of the Code. The preamble to the June
14 NPRM explains that those taxes that are
not covered by the centralized partnership
audit regime include taxes imposed by
chapters 3 and 4. Accordingly, the IRS will
continue to examine a partnership's compli-
ance with its obligations under chapters 3
and 4 in a proceeding outside of the central-
ized partnership audit regime.

As discussed in Part 2.A of this Expla-
nation of Provisions, a partnership that
receives a payment or has income alloca-
ble to a partner that is a foreign person, an
FFI, or an NFFE may have withholding
requirements under chapters 3 and 4.
These requirements are imposed on the
partnership to ensure that any chapter 1
tax owed by its partners with respect to
the item of income is collected, or in the
case of chapter 4, to ensure compliance
with certain information reporting obliga-
tions regarding U.S. persons that hold for-
eign financial accounts or interests in pas-
sive foreign entities. The provisions of
chapters 3 and 4, therefore, create a col-
lection mechanism for tax that would oth-
erwise be due from the beneficial owner
of the income under chapter 1. This could

potentially result in taxes being collected
twice and, for this reason, and as dis-
cussed in Part 2.A of this Explanation of
Provisions, chapters 3 and 4 provide that
the tax is collected only once-either
from the withholding agent or from the
beneficial owner of the income. Similarly,
because an imputed underpayment may
now be assessed and collected at the part-
nership level under the centralized part-
nership audit regime, and is designed to
closely reflect the chapter 1 tax that the
partners would have reported and paid had
the partnership and partners reported cor-
rectly, coordination rules are necessary to
clarify how the centralized partnership au-
dit regime interacts with a partnership's
obligations under chapters 3 and 4, and to
ensure that tax is collected only once with
respect to the same item of income.

To demonstrate the rules regarding the
scope of the centralized partnership audit
regime and the examination of the part-
nership's obligations under chapters 3 and
4 outside of the centralized partnership
audit regime, these proposed regulations
provide examples that illustrate what oc-
curs when (1) a partnership fails to with-
hold at the correct rate on an item of
income allocable to a foreign partner, and
(2) a partnership fails to report an item of
income and, therefore, also fails to with-
hold on the additional income allocable to
a foreign partner. Example 1 under pro-
posed § 301.6221(a)-1(f) clarifies that a
partnership's withholding tax liability for
failure to withhold at the correct rate on an
item of income that the partnership re-
ceived and properly reported on its part-
nership return may be adjusted by the IRS
under the procedures applicable to an ex-
amination under chapter 3 or chapter 4,
and that the procedures under the central-
ized partnership audit regime do not apply
to the adjustment. The same result would
occur on a partnership's failure to with-
hold at the correct rate under section 1441
on a payment made to an unrelated for-
eign person, or upon a partnership's fail-
ure to withhold as a transferee of a U.S.
real property interest at the correct rate
under section 1445. Example 2 under pro-
posed § 301.6221(a)-1(f) presents a case
in which the partnership has failed to re-
port on its partnership return an item of
income that it received for which it would
have had a withholding obligation under

chapters 3 and 4, and the failure to report
the item is discovered in an examination
of the partnership's compliance with its
obligations under chapters 3 and 4. Be-
cause an adjustment to increase the part-
nership's income would be an adjust-
ment to an item of income of the
partnership, it would be subject to the
centralized partnership audit regime.
See proposed § 301.6221(a)-1(a) (June
14 NPRM). However, under proposed
§ 301.6221(a)-1(d) (June 14 NPRM),
the IRS is not precluded from determin-
ing an adjustment to the same item un-
der chapters 3 and 4 outside of the cen-
tralized partnership audit regime.

To address situations in which an item
subject to the centralized partnership audit
regime is also subject to the rules under
chapters 3 and 4, these proposed regula-
tions provide rules that coordinate the in-
teraction between the separate regimes,
and ensure that tax is collected only once
with respect to the same adjustment.
When an examination of the partner-
ship's obligations under chapters 3 and
4 is conducted before the initiation of an
administrative proceeding under the
centralized partnership audit regime,
proposed § 301.6225-1(c)(5) provides
that to the extent that the IRS has col-
lected tax under chapter 3 or chapter 4
attributable to an adjustment to an
amount subject to withholding (as de-
fined in § 301.6226-2(h)(3)(i)), that ad-
justment (or portion thereof) will be dis-
regarded for purposes of calculating the
total netted partnership adjustment
(upon which the imputed underpayment
amount is determined) under the central-
ized partnership audit regime. When the
IRS has not collected tax under chapter
3 or chapter 4 on an amount subject to
withholding, and the partnership is sub-
ject to examination under the central-
ized audit partnership regime, proposed
§ 301.6225-1(a)(4) provides that if the
partnership pays the imputed underpay-
ment pursuant to section 6225, and
the total netted partnership adjustment
(upon which the imputed underpayment
amount is determined) includes an ad-
justment to an amount subject to with-
holding under chapter 3 or chapter 4, the
partnership is treated as having paid the
amount required to be withheld with
respect to that adjustment under chapter

3 or chapter 4 for purposes of applying
§ 1.1463-1 or § 1.1474-4. Therefore,
the partnership is considered to have
satisfied its withholding tax liability as-
sociated with the adjustment. The part-
nership, however, is not relieved from
any interest, penalties, or additions to
tax that may otherwise apply under cur-
rent rules for failure to withhold under
chapters 3 and 4. See §§ 1.1461-1(a)(2);
1.1461-3; 1.1474-1(h). Under proposed
§ 301.6227-2(b)(3), this same rule ap-
plies when the partnership pays the im-
puted underpayment in an AAR pursu-
ant to section 6227.

C. Requirement to Withhold and Report
under Chapters 3 and 4 upon a Section
6226 Election

Under section 6226, a partnership may
elect to "push out" adjustments to its re-
viewed year partners rather than paying an
imputed underpayment determined under
section 6225. If a partnership makes a valid
election under section 6226 (a section 6226
election), proposed § 301.6226-2 (June 14
NPRM) requires it to furnish a statement to
each reviewed year partner that includes in-
formation regarding the partner's allocable
share of partnership adjustments with re-
spect to the imputed underpayment for
which the election is made and the partner's
share of any penalties, additions to tax, or
additional amounts (a section 6226 state-
ment). The partnership must also calculate
and include on each section 6226 statement
a safe harbor amount and, for each reviewed
year partner that is an individual, an interest
safe harbor amount. Under proposed
§ 301.6226-3 (June 14 NPRM), each re-
viewed year partner must increase its tax
imposed under chapter 1 by its additional
reporting year tax for the taxable year that
includes the date on which the section 6226
statement is furnished (the reporting year).
The additional reporting year tax is either
the aggregate of the adjustment amounts (as
computed under proposed § 301.6226-3(b)
(June 14 NPRM)) or the safe harbor
amount. In addition, each reviewed year
partner must also pay its share of any pen-
alties, additions to tax, additional amounts,
and interest (either as computed at the part-
ner level under proposed § 301.6226-
3(d)(1) (June 14 NPRM) or, if applicable,
the interest safe harbor amount).

As discussed in the preamble to the
June 14 NPRM, it is the view of the Trea-
sury Department and the IRS that, consis-
tent with the purposes of chapters 3 and 4,
if adjustments reflected on a section 6226
statement represent additional income al-
locable to a foreign or domestic partner
that was not properly accounted for in the
reviewed year, and the partnership makes
a section 6226 election to have the part-
ners take the adjustments into account,
these allocations of income should be sub-
ject to the rules in chapters 3 and 4 to the
same extent that these amounts would
have been if they had been properly ac-
counted for by the partnership in the re-
viewed year. Accordingly, these proposed
regulations provide rules that apply with-
holding and reporting requirements under
chapters 3 and 4 to a partnership that
makes a section 6226 election with re-
spect to a reviewed year partner that
would have been subject to withholding in
the reviewed year, and rules that apply to
the reviewed year partner when taking
these adjustments into account. Under
proposed § 301.6227-2(b)(4), these same
rules apply when a partnership elects to
have its reviewed year partners take into
account adjustments requested in an AAR.

Proposed § 301.6226-2(h)(3)(i) re-
quires a partnership that makes a section
6226 election to pay the amount of tax
required to be withheld under chapters 3
and 4 on any adjustment allocable to a
reviewed year partner that would have
been subject to withholding in the re-
viewed year. The partnership must pay the
withholding tax (in the manner prescribed
by the IRS in forms, instructions, and
other guidance) on or before the due date
for furnishing the section 6226 statement
that reports the adjusted item. Proposed
§ 301.6226-2(h)(3)(iii) clarifies the re-
porting requirements of chapters 3 and 4,
including a requirement to file an applica-
ble return (Form 1042, Annual Withhold-
ing Tax Return for U.S. Source Income of
Foreign Persons, or Form 8804, Annual
Return for Partnership Withholding Tax
(Section 1446)) and any associated infor-
mation returns (Forms 1042-S, Foreign
Person's U.S. Source Income Subject to
Withholding, or Forms 8805, Foreign
Partner's Information Statement of Sec-
tion 1446 Withholding Tax). The partner-
ship must file the return and issue infor-

mation returns for the partnership's
taxable year (for withholding reported on
Forms 8804 and 8805) or the calendar
year (for withholding reported on Forms
1042 and 1042-S) that includes the date
on which the partnership furnishes the
section 6226 statement.

Proposed § 301.6226-2(h)(3)(ii) allows
a partnership that is required to pay with-
holding tax under proposed § 301.6226-
2(h)(3)(i) to reduce the amount of that tax to
the extent that the reviewed year partner
provides valid documentation to establish
that it is entitled to a reduced rate of tax
under chapters 3 and 4. For this purpose,
these proposed regulations allow the part-
nership to rely on documentation that the
partnership possesses that is valid with re-
spect to the reviewed year (determined with-
out regard to the expiration after the
reviewed year of any validity period pre-
scribed in chapters 3 and 4), or new docu-
mentation that the partnership obtains from
the reviewed year partner if the partner in-
cludes a signed affidavit stating that the as-
sociated information and representations are
accurate with respect to the reviewed year.
However, proposed § 301.6226-2(h)(3)(ii)
does not allow the partnership to reduce
the amount of withholding tax due based
on partner-level items as provided in
§ 1.1446-6. Consideration of these partner-
level items raises administrability issues
given the partner's activities in the interven-
ing taxable years between the reviewed year
and the reporting year. For example,
partner-level deductions and losses certified
to the partnership for the reviewed year may
have been used in a subsequent year to
offset the partner's allocable share of part-
nership ECTI or income effectively con-
nected (or treated as effectively connected)
with the conduct of a trade or business in the
United States from other sources. Accord-
ingly, reductions to the amount of withhold-
ing tax a partnership is required to pay under
proposed § 301.6226-2(h)(3)(i) are limited
to those based on a reduced rate of tax. The
procedures under proposed § 301.6226-
2(h)(3)(ii) do not constitute a modification
as described in section 6225.

Proposed § 301.6226-3(f) requires a
reviewed year partner that is subject to
withholding under proposed § 301.6226-
2(h)(3)(i) to file a return for the reporting
year to report its additional reporting year
tax and its share of penalties, additions to

tax, additional amounts, and interest, not-
withstanding any filing exception in
§ 1.6012-1(b)(2)(i) or § 1.6012-2(g)(2)(i).
Therefore, a reviewed year partner whose
allocable share of adjustments is subject to
withholding under chapters 3 and 4 must file
a federal income tax return for the reporting
year and pay its allocable share of penalties,
additions to tax, additional amounts, and
interest, even if the partner's additional re-
porting year tax has been satisfied by the
partnership through withholding at source
and the partner would not otherwise be re-
quired to file a federal income tax return
under an exception in the section 6012 reg-
ulations.

In certain circumstances, the reviewed
year partner is allowed a credit under sec-
tion 33 for tax paid by the partnership
under proposed § 301.6226-2(h)(3)(i)
that the partner may apply against its in-
come tax liability for its reporting year.
For purposes of sections 1441 through
1443 and 1471 through 1474, a reviewed
year partner is allowed a credit for the
amount of tax actually withheld from that
partner (including any amounts withheld
on the partner's distributive share). To the
extent the tax is not withheld, but is in-
stead paid by the partnership (because, for
example, the reviewed year partner is no
longer a partner in the partnership), the
partnership (rather than the partner) is al-
lowed a credit against its withholding tax
liability for the amount of tax paid. In that
case, the tax will not be collected a second
time from the partner, but the partner
would remain liable for any applicable
penalties, additions to tax, or interest. See
§§ 1.1463-1; 1.1464-1; 1.1474-4. For
purposes of section 1446, a reviewed year
partner is allowed a credit for the tax paid
by the partnership with respect to ECTI
allocable to the partner. See § 1.1446-
3(d)(2). A partner claiming a credit under
section 33 must properly report the addi-
tional reporting year tax on its return and
substantiate the credit with the appropriate
information return (Form 1042-S or Form
8805), as well as any other requirements
prescribed by the IRS in forms, instruc-
tions, and other guidance.

Because § 301.6226-1(c)(1) (June 14
NPRM) requires a partnership to satisfy
the provisions of proposed §§ 301.6226-1
and 301.6226-2 (June 14 NPRM) to
make a valid section 6226 election, a part-

nership must pay the tax due under pro-
posed § 301.6226-2(h)(3)(i) and meet the
reporting obligations under proposed
§ 301.6226-2(h)(3)(iii) to satisfy this re-
quirement. However, a partnership that
anticipates making a section 6226 election
may instead request during the modifica-
tion process that the IRS determine a spe-
cific imputed underpayment (as defined in
§ 301.6225-1(e)(2)(iii) (June 14 NPRM))
with respect to adjustments allocated to
reviewed year partners that would have
been subject to withholding in the re-
viewed year, and a general imputed un-
derpayment (as defined in § 301.6225-
1(e)(2)(ii) (June 14 NPRM)) with respect
to all other adjustments. If the IRS agrees
with the modification request, upon re-
ceipt of the notice of final partnership
adjustment the partnership could then (1)
pay under section 6225 the specific im-
puted underpayment that includes adjust-
ments subject to withholding, and (2)
make a timely section 6226 election with
respect to the adjustments that result in the
general imputed underpayment. A part-
nership might make such a request so that
its partners subject to withholding under
chapters 3 and 4 would not need to file a
return as they would under proposed
§ 301.6226-3(f) when the partnership
makes a section 6226 election with re-
spect to those adjustments.

The Treasury Department and the IRS
are considering additional ways to allevi-
ate the filing obligation in proposed
§ 301.6226-3(f) for foreign persons when
a partnership pushes out its adjustments
and does not make a specific imputed un-
derpayment for adjustments subject to
withholding. Specifically, the Treasury
Department and the IRS are considering
whether to allow a partnership that pays
the withholding tax required under pro-
posed § 301.6226-2(h)(3)(i) to elect to
pay the share of penalties, additions to tax,
additional amounts, and interest attribut-
able to a partner that would have been
subject to withholding in the reviewed
year. Under this approach, if the partner's
additional reporting year tax and the part-
ner's share of penalties, additions to tax,
additional amounts, and interest have been
satisfied by the partnership, the partner's
tax liability would be treated as having
been fully satisfied through withholding at
source with respect to the adjustments on

its section 6226 statement. In that case,
the partner may be relieved of any filing
obligation that would otherwise arise
upon receiving a section 6226 statement if
the foreign partner otherwise qualifies for
a filing exception under § 1.6012-
1(b)(2)(i) or § 1.6012-2(g)(2)(i). Com-
ments are requested regarding this ap-
proach and how it should operate.

In the June 14 NPRM, the Treasury
Department and the IRS requested com-
ments on how the rules under chapters 3
and 4 should apply when a section 6226
statement includes income allocable to a
foreign partner that is an intermediary or
flow through entity. The Treasury Depart-
ment and the IRS continue to study this
issue in conjunction with the broader issue
of how to treat pass-through partners gen-
erally under the section 6226 regime. Spe-
cifically, comments are still requested re-
garding the application of chapters 3 and 4
to section 6226 in the case of partners that
are foreign flow through entities, includ-
ing partners that assume primary with-
holding responsibility as withholding for-
eign partnerships or withholding foreign
trusts.

3\. Provisions Related to U.S. Foreign
Tax Credits

###### A. Background

Subject to limitations, a taxpayer may
elect to claim a credit under section 901
for income, war profits, and excess profits
taxes paid or accrued during the taxable
year to any foreign country or possession
of the United States. This credit is gener-
ally referred to as the foreign tax credit
(FTC). Under section 902, certain corpo-
rations are deemed, for FTC purposes, to
have paid the foreign taxes that are paid or
accrued by foreign subsidiaries from
which they receive a dividend. Under sec-
tion 960, inclusions under subpart F of
part III of subchapter N of chapter 1 of the
Code (subpart F) are treated as dividends
for purposes of computing the foreign
taxes deemed paid under section 902.

A partnership is not eligible to claim an
FTC under section 901 (or a deduction for
foreign taxes under section 164). See sec-
tion 703(b)(3). Instead, under sections
702(a)(6), 706(a), and 901(b)(5) each
partner takes into account its distributive

share of the creditable foreign taxes paid
or accrued by the partnership in the part-
ner's tax year with or within which the
partnership's tax year ends. See § 1.702-
1(a)(6). Under section 702(a)(6), this
amount, known as a creditable foreign tax
expenditure (CFTE), is accounted for as a
separately stated item. Similarly, under
section 902(c)(7), a partner is treated as
owning a proportional share of stock
owned by or for the partnership for pur-
poses of computing a deemed paid credit
under section 902. Therefore, while a
partnership is not deemed to pay foreign
taxes paid by a foreign corporation in
which it holds stock, each of its domestic
corporate partners, if eligible, indepen-
dently calculates foreign taxes deemed
paid with respect to dividends or subpart F
inclusions relating to stock owned by or
for the partnership.

The amount of FTC allowed against a
taxpayer's U.S. tax in a given year is
limited to the amount of pre-credit U.S.
tax on the taxpayer's foreign source in-
come. See section 904. This FTC limita-
tion is applied separately to foreign source
income in each of the separate categories
described in section 904(d)(1) (i.e., the
passive category and general category)
and additional separate categories de-
scribed in § 1.904-4(m). The components
of the FTC limitation computation are
maintained and adjusted at the partner
level; several of these attributes must be
tracked from year to year and can affect
the computation of the partner's FTC and
FTC limitation (e.g., FTC carrybacks or
carryovers under section 904(c) and over-
all foreign loss accounts or overall domes-
tic loss accounts under section 904(f) and
(g)). Other specific rules may further limit
a taxpayer's utilization of FTCs (e.g., sec-
tions 901, 907, 908, and 909). If a tax-
payer pays or accrues creditable foreign
tax in excess of the limitation, the tax-
payer may not use the excess credits in
that year. However, section 904(c) pro-
vides that excess FTCs are first carried
back one year and then forward for up to
10 years and are utilized in the first year in
which the taxpayer has sufficient excess
limitation to use the FTCs.

Given the nature and purpose of the
FTC to mitigate the effects of double tax-
ation and the importance of preventing the
inappropriate use of the credit, special

procedural rules often apply. For example,
because the amount of foreign tax may
change as the result of a foreign audit,
refund claim, or other dispute resolution
process involving a foreign tax authority,
taxpayers are required to notify the IRS if
a foreign tax for which credit is claimed is
refunded (in whole or in part), if an ac-
crued tax remains unpaid after two years,
or if the amount of taxes paid differs from
the amount accrued. See section 905(c).
Any underpayment resulting from a
change to the amount of creditable foreign
tax paid or accrued is collectable upon
notice and demand, without regard to the
generally applicable statute of limitations.
See section 6501(c)(5). Moreover, taxpay-
ers have a special ten-year period of lim-
itations under section 6511(d)(3) for
claiming refunds of overpayments attrib-
utable to the application of an FTC. The
IRS also permits a taxpayer to accrue a
contested foreign tax if the amount of the
tax has actually been paid to the foreign
tax authority. Rev. Rul. 70-290 (1970-1
C.B. 160). These special rules allow in-
creased flexibility with regard to the tim-
ing of adjustments in order to better match
foreign income and the foreign tax on that
income and thereby mitigate double taxa-
tion of income.

Neither the statutory text of the central-
ized partnership audit regime nor the ex-
planation of that text prepared by the staff
of the Joint Committee on Taxation ex-
plicitly addresses coordination with the
FTC rules. Joint Comm. on Taxation,
JCS-1-16, General Explanations of Tax
Legislation Enacted in 2015, 57 (2016)
(JCS-1-16). Nothing in the BBA indi-
cates that the new procedures should in-
crease the incidence of double taxation or
alter the pre-existing restrictions, limita-
tions, or obligations affecting a taxpayer's
right to claim (or retain) an FTC. It is also
unlikely that the enactment of the new
centralized partnership audit regime was
meant to change significant and well-
established FTC rules without any explicit
reference to those rules in the statutory
text.

The view of the Treasury Department
and the IRS is that, to the maximum extent
possible, the long-standing FTC rules
should be preserved while implementing
the broader purpose of the centralized
partnership audit regime. In order to co-

ordinate these provisions in a manner that
is administrable and fair, rules should be
promulgated to clarify the appropriate in-
teraction of these two regimes. Some of
these issues are discussed in this preamble
and addressed in the regulations proposed
herein, such as the treatment of CFTEs
under the imputed underpayment provi-
sions of the centralized partnership audit
regime. Additionally, this preamble dis-
cusses the application of the FTC limita-
tion of partners in a partnership subject to
the centralized partnership audit regime,
certain special procedural FTC rules (in-
cluding those under sections 905(c) and
6511(d)(3)), and the treatment of credits
under sections 902 and 960 (which are not
themselves items of the partnership, but
the calculation of which turns on certain
items of the partnership, such as the
amount and separate category of dividend
or subpart F inclusion). The Treasury De-
partment and the IRS request comments
both with respect to the items specifically
identified and also with respect to any
additional issues regarding the coordina-
tion of the FTC regime and the new cen-
tralized partnership audit regime that war-
rant clarification or additional guidance.

###### B. Adjustments Affecting the Category or Amount of CFTEs of a BBA Partnership

A partnership reports CFTEs to its
partners as separately stated items, allow-
ing each partner to elect either a credit
under section 901 or a deduction under
section 164(a)(3). See Sections 702(a)(6)
and 901(b)(5). Under current rules, the
partnership is not required to maintain re-
cords or report to the IRS whether its
partners claimed credits or deductions
with respect to their CFTEs or the extent
to which any such credits are subject to a
partner's FTC limitation. Accordingly, the
tax effects of an adjustment to the CFTEs
reported by a partnership cannot be deter-
mined solely by examining the return and
other records of the partnership. Similarly,
the partnership lacks the necessary infor-
mation to determine those tax effects in
connection with an AAR.

Proposed § 301.6225-1(a)(2) (June 14
NPRM) provides that for purposes of de-
termining the imputed underpayment, all
applicable preferences, restrictions, limi-

tations, and conventions will be taken into
account to disallow netting of adjustments
as if the adjusted item was originally
taken into account in the manner most
beneficial to the partners. Similarly, pro-
posed § 301.6225-1(d)(1) (June 14
NPRM) provides that items within each
grouping are divided into subgroups, for
netting purposes, based on preferences,
limitations, restrictions, and conventions,
such as source, character, holding period,
or restrictions under the Code applicable
to such items.

Consistent with this general approach,
proposed rules are added in the paragraph
reserved in the June 14 NPRM for the
creditable expenditure grouping, proposed
§ 301.6225-1(d)(2)(iv)(A), relating to the
treatment of adjustments to CFTEs made
in an administrative proceeding under the
centralized partnership audit regime. Pro-
posed § 301.6225-1(d)(2)(iv)(A)(1) pro-
vides that the creditable expenditure group-
ing includes all adjustments to CFTEs, as
defined in § 1.704-1(b)(4)(viii)(b). Pro-
posed § 301.6225-1(d)(2)(iv)(A)(2) further
provides that adjustments to CFTEs are in-
cluded in subgroupings based on the cate-
gory of income to which the CFTEs relate in
accordance with section 904(d) and the reg-
ulations thereunder and in order to account
for different allocations of CFTEs between
partners. Proposed § 301.6225-1(d)(2)(iv)
(A)(3) provides rules used in computing the
imputed underpayment when there are one
or more adjustments to CFTEs. Specifically,
proposed § 301.6225-1(d)(2)(iv)(A)(3) pro-
vides that a net reduction to CFTEs in any
subgrouping is treated as a decrease to cred-
its in the credits grouping and therefore in-
creases the imputed underpayment (and safe
harbor amount) on a dollar-for-dollar basis.
A net increase to CFTEs in any subgrouping
is an adjustment that does not result in an
imputed underpayment and is therefore
taken into account in the adjustment year in
accordance with proposed § 301.6225-3
(June 14 NPRM). Examples 6, 7, 8, and 9
are added to proposed § 301.6225-1(f) to
illustrate the application of the rules in pro-
posed § 301.6225-1(d)(2)(iv).

These CFTE subgrouping rules serve
several goals. First, subgrouping prevents
netting of CFTEs between partners, or
between separate categories with respect
to the same partner, a restriction which is
necessary to preserve the application of

the category-by-category limitation re-
quired under section 904 and the regula-
tions thereunder. Second, by subgrouping
based on the sharing ratio of the partners
in the reviewed year, adjustments that
would be allocable to one partner cannot
be netted against adjustments to CFTEs
that would be allocable to another partner.
This is intended to provide greater consis-
tency with the requirement that CFTEs be
allocated in accordance with the partners'
interests in the partnership under section
704 and the regulations thereunder. Sub-
grouping based on the category and allo-
cation of the adjustment between the part-
ners is necessary to avoid a net reduction
in the U.S. tax collected as the result of
adjustments to CFTEs for which no credit
would have been allowed to the partner if
the CFTEs had been correctly reported in
the reviewed year.

One comment received in response to
Notice 2016-23 addressed the treatment
of adjustments to CFTEs in calculating
the imputed underpayment. Specifically,
the comment noted the complex FTC lim-
itation computation which must be made
at the partner level, based on components
maintained and adjusted each year by the
partner. After discussing several possible
approaches, the comment recommended
that CFTEs be treated as a credit for pur-
poses of computing the imputed under-
payment, increasing the imputed under-
payment to account for any decrease to
CFTEs, but suggested that the regulations
disallow any reduction to the imputed
underpayment based on an increase to
CFTEs, since they may be subject to lim-
itation at the partner level. The comment
explained that while this treatment may
cause the imputed underpayment to over-
state the correct tax amount, this over-
statement can be remedied if the part-
nership provides additional information
through the modification process.

Proposed § 301.6225-1(d)(2)(iv) gen-
erally adopts the recommended approach.
If the amount of CFTEs is decreased on
audit, the proposed regulations treat the
item as if the partners had reduced their
U.S. tax by that amount and, therefore,
increase the imputed underpayment by the
amount of the CFTE reduction. Con-
versely, if the amount of CFTEs is in-
creased on audit, the proposed regulations
treat the item as if the FTC limitation

would prevent use of the increased credit
and, therefore, do not reduce the imputed
underpayment.

The Treasury Department and the IRS
recognize that the rules proposed in
§ 301.6225-1(d)(2)(iv) may cause the
amount of the imputed underpayment to
exceed the amount of tax that would have
been due if the partnership had accurately
reported in the reviewed year, either be-
cause CFTEs reported in the reviewed
year were not claimed by all partners as
FTCs or because any additional CFTEs
agreed to on audit could be claimed as
FTCs. However, because the partners'
FTC posture is neither reflected on the
partnership returns nor required to be
maintained in the partnership's books and
records, the only practical way to maintain
the efficacy of the FTC rules is to assume
both that the partners claimed FTCs for all
CFTEs originally reported and that the
FTC limitation would prevent any addi-
tional CFTEs from being claimed as cred-
its. This approach preserves the long-
standing principles underlying the FTC
regime, especially the FTC limitation
rules in section 904 and the regulations
thereunder, and is consistent with the gen-
eral rule in § 301.6225-1(a)(2) (June 14
NPRM) which explicitly provides that the
adjusted items are treated as if they were
originally taken into account by the part-

nership or the partners, as applicable, in
the manner most beneficial to the partner-
ship and the partners. The modification
process under section 6225 (including
modification resulting from a partner fil-
ing an amended return or entering into a
closing agreement) will generally provide
an opportunity for the partnership to take
the partners' particular facts and circum-
stances into account when determining the
imputed underpayment, while at the same
time adhering to those long-standing prin-
ciples.

In addition to the amended return mod-
ification or section 6226 election available
under the current rules, additional types of
modification may be appropriate with re-
spect to some CFTEs under section
6225(c)(6) and proposed § 301.6225-
2(d)(9) (June 14 NPRM). For example,
not all partners are eligible to look
through the partnership for purposes of
determining the separate category of their
CFTEs. See § 1.904-5(h). Such partners

have only passive category CFTEs, re-
gardless of the category of those items at
the partnership level. Under these circum-
stances, a partnership may request modi-
fication under section 6225(c)(6) by pro-
viding sufficient evidence that a particular
portion of CFTEs would be allocable to a
partner or group of partners who cannot
look through the partnership to character-
ize such CFTEs, so that all adjustments to
CFTEs allocable to that partner or group
of partners may be netted without regard
to separate category. Similarly, if different
sharing ratios apply to the allocation of
adjusted CFTEs, some portion of the ad-
justments subject to different sharing ra-
tios may still ultimately be allocable to the
same partner or group of partners. Under
these circumstances, the partnership may
request modification by providing suffi-
cient evidence of the portion of each ad-
justment that is allocable to the same part-
ner or group of partners in order to allow
netting of those CFTEs by modification,
where appropriate.

The Treasury Department and the IRS
request comments on the application of
the netting rules to CFTEs and the related
computation of the imputed underpay-
ment, including any special modification
rules that may be appropriate with respect
to CFTEs. The Treasury Department and
the IRS also request comments regarding
circumstances in which the grouping and
subgrouping of CFTE adjustments could
be improved while preserving the FTC
limitation rules.

These proposed regulations continue to
reserve the rules on creditable expendi-
tures other than CFTEs. The Treasury De-
partment and the IRS request comments
as to whether special rules are needed to
address any other creditable expenditures
and if so, whether those rules should fol-
low or differ from the grouping and net-
ting rules for CFTEs set forth in these
proposed regulations.

###### C. Preserving FTC Limitation Rules under Section 904

Under the principles of proposed sec-
tion 301.6225-1 (June NPRM), an adjust-
ment decreasing the amount of foreign
source income would not offset an adjust-
ment increasing the amount of U.S. source
income under the netting process de-

scribed in proposed § 301.6225-1(c)
(June 14 NPRM). Instead, these items, the
foreign source income adjustment (which
is negative) and the U.S. source income
adjustment (which is positive), would be
in separate subgroups. Assuming no other
adjustments, the decrease in foreign
source income would be treated as an ad-
justment which does not result in an im-
puted underpayment, and the increase in
U.S. source income would be a net posi-
tive adjustment included in computing the
imputed underpayment. This is an appro-
priate result.

Without a subgrouping requirement,
the netting of U.S. and foreign source
items would circumvent FTC limitation
calculations under section 904 by effec-
tively ignoring the potential impact of
changes to foreign source income on
FTCs. Specifically, netting U.S. and for-
eign source items at the partnership level
would, in many cases, understate the true
underpayment of tax caused by the part-
nership treating these items incorrectly in
the reviewed year and, in other cases,
would cause a permanent reduction in the
partners' FTC limitation over time. Simi-
larly, in the case of adjustments to items
allocable to foreign partners, because for-
eign partners typically owe tax only with
respect to U.S. source income, netting
adjustments to U.S. source items against
adjustments to foreign source items may
understate the tax owed. Grouping ad-
justments by source may also facilitate
modification requests with respect to
amounts allocable to foreign partners.

One obstacle to subgrouping foreign
source and U.S. source items is that the
source (or allocation and apportionment)
of certain partnership items is determin-
able only by the partners. In this regard,
section 861 and the regulations thereunder
provide that deductible expenses, includ-
ing interest expense and research and ex-
perimentation (R&E) expense, are allo-
cated and apportioned between foreign
source gross income and other income on
the basis of partner-level attributes. For
example, § 1.861-9(e) provides that, sub-
ject to certain exceptions, a partner's dis-
tributive share of the interest expense of a
partnership is considered to be related to
all income-producing activities and assets
of the partner and is apportioned between
a partner's U.S. and foreign source in-

come based on the relative values of the
partner's assets. See also, for example,
§ 1.871-17 (providing rules for the allo-
cation and apportionment of R&E ex-
pense).

Therefore, these expense items, when
allocated and apportioned, affect the part-
ners' net foreign and U.S. source income
(and therefore the partner's FTC limita-
tion), in amounts that cannot be deter-
mined at the partnership level. Similarly,
items of gain or loss attributable to sales
of non-inventory property are sourced at
the partner level. See section 865(i)(5).
Because the source of certain items cannot
be accurately established at the partner-
ship level (and because certain expenses
must be allocated and apportioned at the
partner level), those items cannot defini-
tively be included in either foreign or U.S.
source income subgroupings for purposes
of computing the imputed underpayment.
Moreover, if an adjustment to items
sourced (or allocated and apportioned) at
the partner level can offset other adjust-
ments not sourced (or allocated and ap-
portioned) in that manner, the purposes of
the FTC limitation rules could effectively
be circumvented.

Under the proposed regulations in the
June 14 NPRM, adjustments to items that
may be sourced (or allocated and appor-
tioned) at the partner level will generally
be divided into subgroups in accordance
with the specific method applicable for the
sourcing (or allocation and apportion-
ment) of those items in order to avoid
netting that would undermine the applica-
tion of the FTC limitation under section
904 unless the IRS determines otherwise.
See proposed § 301.6225-1(a)(2) (June 14
NPRM). This would prevent, for example,
an increase to interest expense from being
netted against an increase to U.S. source
income. However, netting of an increase
to interest expense from one activity
against a decrease to interest expense
from another activity would generally be
permissible because netting these adjust-
ments would not typically affect the part-
ners' section 904 limitation.

The Treasury Department and the IRS
recognize that subgrouping significant
items of expense, such as R&E or interest,
may cause imputed underpayments to ex-
ceed the tax that would have been owed
had all items been treated correctly in the

reviewed year. While the partnership can
attempt to reduce this distortion during the
modification process or by making a sec-
tion 6226 election, the Treasury Depart-
ment and the IRS request comments re-
garding whether such distortions can be
reduced when computing the imputed un-
derpayment before the modification pro-
cess, while remaining consistent with the
purpose of the source and allocation and
apportionment rules under sections 861
and 865, as well as the application of the
FTC limitation under section 904.

The Treasury Department and the IRS
request comments with respect to the
grouping and subgrouping of items of in-
come, gain, loss, or deduction based on
source and separate category. Specifically,
the Treasury Department and the IRS re-
quest comments on any rule or modifica-
tion method that would allow the calcula-
tion of the imputed underpayment to more
accurately reflect the amount of tax that
would have been due if the partnership
had reported correctly in the reviewed
year. The Treasury Department and the
IRS also specifically request comments
relating to any rules that would preserve
the potential effects of adjustments to
partnership items that are sourced (or al-
located and apportioned) at the partner
level in determining the imputed under-
payment without requiring that all of these
items be assigned to separate subgroup-
ings.

###### D. Application of Section 905(c) to Creditable Foreign Tax Expenditures

Section 905(c) generally requires a tax-
payer to notify the IRS in the event of
certain changes to creditable foreign
taxes. A taxpayer must notify the IRS if
any foreign tax claimed as a credit is
refunded in whole or in part. Similarly, a
taxpayer must notify the IRS if an accrued
foreign tax claimed as a credit remains
unpaid after two years or if the amount
when paid differs from the amount ac-
crued. The notice requirement under sec-
tion 905(c) is generally satisfied by the
taxpayer filing an amended return for the
year or years to which the foreign tax
relates and paying any underpayment that
results from the adjustment to the amount
of creditable foreign tax. If such an ad-
justment results in an overpayment of tax,

a taxpayer may generally claim a refund
or credit within the 10-year period de-
scribed in section 6511(d)(3). See section
905(c)(3). In the context of a partnership,
the partner who claimed the FTC has his-
torically borne the primary obligation to
notify the IRS if there was a change in the
foreign tax liability described in section
905(c) (and to pay any underpayment,
upon notice and demand, or timely file a
claim for refund of any overpayment).
However, several aspects of the central-
ized partnership audit regime make it dif-
ficult to determine the most appropriate
application of section 905(c) with respect
to CFTEs reported by a partnership sub-
ject to the centralized partnership audit
regime.

Neither the statutory text of the central-
ized partnership audit regime, nor the ex-
planation of that text prepared by the staff
of the Joint Committee on Taxation, ex-
plicitly addresses section 905(c). See
JCS-1-16. There is no indication that the
new procedures were intended to restrict
either the taxpayer's or the government's
right to recoup any overpayment or under-
payment of U.S. tax resulting from a re-
determination required under section
905(c). It is also unlikely that Congress
would effectuate a change to long-
standing principles through generic proce-
dural provisions without any specific dis-
cussion of section 905(c) in the statutory
text.

Generally, if a partnership reports
CFTEs and has an adjustment described in
section 905(c), there are two ways of
viewing the adjustment required under
section 905(c): it is either an adjustment at
the partnership level, which is subject to
the centralized partnership audit regime,
or it is an adjustment at the partner level,
which is subject to the historic application
of this provision in the partnership con-
text. Either of these two approaches pres-
ents administrative challenges. Therefore,
the Treasury Department and the IRS re-
quest comments addressing coordination
and administration of section 905(c) and
the centralized partnership audit regime.
Specifically, the Treasury Department and
the IRS request comments on using the
AAR process for purposes of satisfying
the requirements of section 905(c) with
respect to changes to the foreign tax lia-
bility reported by a partnership as a CFTE.

E. Foreign Taxes Deemed Paid Under
Sections 902 and 960

Under sections 902 and 960, certain
domestic corporations are permitted to
claim credits for foreign taxes "deemed
paid" corresponding to foreign taxes paid
by a foreign subsidiary from which the
domestic corporation receives a dividend
or with respect to which the domestic cor-
poration has a subpart F inclusion. As
discussed in Part 3.A. of this Explanation
of Provisions, section 902(c)(7) provides
that stock of a foreign corporation held by
or on behalf of a partnership will be
treated as if it was actually owned (pro-
portionally) by the partners for purposes
of computing the foreign taxes deemed
paid under sections 902 and 960. Thus,
qualifying partners are generally entitled
to claim FTCs for deemed paid taxes at-
tributable to their allocable share of part-
nership dividend income and subpart F
inclusions.

Section 6221(a) provides that any ad-
justment to an item of income, gain, loss,
deduction, or credit of a partnership for a
partnership taxable year must be deter-
mined, and any tax attributable thereto
must be assessed and collected, at the
partnership level pursuant to the central-
ized partnership audit regime. Further,
proposed § 301.6221(a)-1 (June 14
NPRM) provides that all items required
to be shown or reflected on the partner-
ship's return and information in the
partnership's books and records related
to a determination of these items, as
well as factors that affect the determi-
nation of items of income, gain, loss,
deduction, or credit, are subject to de-
termination and adjustment at the part-
nership level under the centralized part-
nership audit regime.

Under existing filing requirements, a
partnership reports dividends from its sub-
sidiaries, foreign and domestic, and do-
mestic (U.S.) partnerships also report sub-
part F inclusions, but neither foreign nor
domestic partnerships are required to re-
port the amount of foreign taxes deemed
paid by a partner with respect to stock
held by or for the partnership. Further, a
partnership is generally not required to
maintain or report all information upon
which the computations of those amounts
are based (for example, the foreign sub-

sidiary's pools of post-1986 undistributed
earnings and post-1986 foreign income
taxes). Accordingly, the amount of any
deemed paid foreign tax computed with
respect to stock owned by or for a part-
nership cannot be determined based on
existing partnership reporting require-
ments.

The centralized partnership audit re-
gime did not explicitly address the treat-
ment of FTCs allowed with respect to
deemed paid foreign taxes under the cen-
tralized partnership audit regime. How-
ever, the dividends and subpart F inclu-
sions that trigger the availability of the
deemed paid FTC are subject to that re-
gime. Therefore, in order to preserve the
IRS's ability to audit FTCs for deemed
paid taxes claimed with respect to stock
owned through partnerships subject to the
centralized partnership audit regime, co-
ordinating rules are necessary. These rules
should ensure that all restrictions and lim-
itations on the FTC allowed under sec-
tions 902 and 960 are given effect with
respect to both the items giving rise to
FTCs and the FTCs themselves.

The broad scope of the centralized
partnership audit regime contemplates
that all tax effects, including FTCs for
deemed paid taxes, are considered during
a centralized partnership audit. However,
in the case of sections 902 and 960, the
current rules require the partners, and not
the partnership, to maintain and report the
relevant information. Therefore, the Trea-
sury Department and the IRS request com-
ments on whether it would be appropriate to
require a partnership, as opposed to the in-
dividual partners, to maintain and report the
information necessary to compute deemed
paid foreign taxes with respect to foreign
corporations in which the partnership owns
shares, so that the IRS can audit foreign tax
credits under section 902 and 960 entirely at
the partnership level. The Treasury De-
partment and IRS request comments on
how this information-reporting require-
ment could be crafted to minimize com-
pliance costs and burdens, especially for
partnerships whose partners are not eli-
gible to compute deemed paid taxes.
Alternatively, the Treasury Department
and the IRS request comments on any
approach, consistent with the statutory
principles of the centralized partnership
audit regime and the FTC regime,

whereby the IRS could effectively ad-
just credits for deemed paid foreign
taxes at either the partnership level or at
the partner level, without creating un-
reasonable distortions or undue burdens
on taxpayers or tax administration.

4\. Modification of an Imputed
Underpayment Based on the Status of a
Foreign Partner and Other Treaty
Issues.

Proposed § 301.6225-2(d)(2) through
(8) (June 14 NPRM) provides seven enu-
merated types of modifications the IRS
will consider if requested by the partner-
ship. The preamble to the June 14 NPRM
requested comments on modifications that
could be considered appropriate where a
partner is a foreign person and thus may
be subject to gross basis taxation under
section 871(a) or 881(a), or where a part-
nership, partner, or indirect partner is en-
titled to a reduced rate of tax under the
Code or as a resident of a country that has
in effect an income tax treaty with the
United States.

Under U.S. tax treaties, a foreign part-
ner or partnership may be entitled to ben-
efits with respect to an item of income,
profit, or gain paid to an entity that is
fiscally transparent under the laws of the
United States to the extent it is treated as
an item of income, profit, or gain of a
resident of the applicable treaty jurisdic-
tion. See also section 894. Thus, for ex-
ample, the Treasury Department and the
IRS are considering providing a modifica-
tion in proposed § 301.6225-2(d) (June 14
NPRM) that would apply as illustrated in
the following example: The IRS initiates
an administrative proceeding with respect
to a domestic partnership, and determines
a single partnership adjustment increasing
the U.S. source dividend income received
by the partnership. The partnership had
two equal partners during the reviewed
year: A, a U.S. citizen, and B, a nonresi-
dent alien individual resident in Country
X. The United States has in effect an
income tax treaty with Country X, and
Country X treats the partnership as fis-
cally transparent. Assuming that the other
requirements set forth in the regulations
for modifications are satisfied, if the part-
nership provides documentation demon-
strating to the IRS's satisfaction the

amount of the adjustment that is allocable
to B under the partnership agreement and
B's entitlement to a reduced rate of tax on
dividends in the reviewed year pursuant to
the income tax treaty between Country X
and the United States, the IRS could agree
to a modification to the imputed under-
payment with respect to the amount of the
adjustment allocable to B that is subject to
a reduced rate of tax under the income tax
treaty. Additionally, other methods for
modifications could be provided in future
guidance with respect to other Code-based
exemptions from tax applicable to foreign
persons, including sections 871(h) and
881(c), which provide an exemption from
tax for foreign persons with respect to
interest on certain portfolio debt invest-
ments. See also sections 871(a)(2) and
881(a) (limiting taxation of foreign per-
sons on U.S. source capital gains).

The Treasury Department and the IRS
are still considering additional modifica-
tions to address circumstances where a
partnership, partner, or indirect partner is
a foreign person, and which potential
modifications, such as modifications for
portfolio interest and U.S. source capital
gains, may already be addressed by one of
the seven types of modifications included
in the June 14 NPRM. See proposed
§ 301.6225-2(d)(3) (June 14 NPRM)
(providing rules for modifications for tax-
exempt partners which, as defined, in-
cludes certain foreign persons or entities).
Accordingly, the Treasury Department
and the IRS continue to request comments
on what specific types of modifications
available to partners or partnerships that
are foreign persons (including partners
that are foreign persons described under
section 501(c)) should be included in pro-
posed § 301.6225-2(d) (June 14 NPRM).

The June 14 NPRM also requested
comments on the coordination of the pro-
posed rules with the mutual agreement
procedures (MAP) available under in-
come tax treaties that a partnership, part-
ner, or indirect partner may invoke in or-
der to determine eligibility for treaty
benefits that may affect the calculation of
the imputed underpayment. Pursuant to
income tax treaties in effect between the
United States and other jurisdictions, the
Treasury Department and the IRS intend
to allow access to MAP, when and where
appropriate, for a partnership, partner, or

indirect partner that is subject to the cen-
tralized partnership audit regime. How-
ever, the Treasury Department and the
IRS are continuing to study this issue and
request comments on how to coordinate
MAP with the centralized partnership au-
dit regime.

###### 5. Foreign Corporations

The preamble to the June 14 NPRM
stated that the Treasury Department and
the IRS intend to issue regulations to ad-
dress situations where a partnership
pushes out an adjustment under section
6226 to a direct partner in the partnership
that is a foreign entity, such as a trust or
corporation, that may not be liable for
U.S. federal income tax with respect to
one or more adjustments, but an owner of
the direct partner is or could be liable for
tax with respect to that amount. For ex-
ample, if a direct partner in the audited
partnership is a controlled foreign corpo-
ration, the foreign corporation as a direct
partner may not have a U.S. tax liability
with respect to a given adjustment; how-
ever, the adjustment may impact the tax
liability of its U.S. shareholder(s) by in-
creasing the subpart F income of the CFC
that is included in the income of the U.S.
shareholder(s) under section 951(a). The
Treasury Department and the IRS con-
tinue to study this issue and continue to
request comments both on how the report-
ing obligations concerning foreign entities
should be modified to ensure that state-
ments issued under section 6226 are re-
flected on the returns of the U.S. owners
of these entities, and more generally, on
how to incorporate rules governing for-
eign corporations into the centralized part-
nership audit regime.

##### Special Analyses

Certain IRS regulations, including
these, are exempt from the requirements
of Executive Order 12866, as supple-
mented and reaffirmed by Executive Or-
der 13563. Therefore, a regulatory impact
assessment is not required. Because the
regulations would not impose a collection
of information on small entities, the Reg-
ulatory Flexibility Act (5 U.S.C. chapter
6) does not apply.

Pursuant to section 7805(f) of the
Code, these regulations have been submit-

ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.

#### Statement of Availability of IRS Documents

IRS Revenue Procedures, Revenue
Rulings, Notices and other guidance cited
in this preamble are published in the In-
ternal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Su-
perintendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
www.irs.gov.

##### Comments and Requests for Public Hearing

Before these proposed regulations are
adopted as final regulations, consideration
will be given to any electronic and written
comments that are submitted timely to the
IRS as prescribed in this preamble under
the ADDRESSES heading. The Treasury
Department and the IRS request com-
ments on all aspects of the proposed rules.
All comments will be available at www.
regulations.gov or upon request. A public
hearing will be scheduled if requested in
writing by any person that timely submits
written comments. If a public hearing is
scheduled, then notice of the date, time,
and place for the public hearing will be
published in the Federal Register.

##### Drafting Information

The principal authors of these pro-
posed regulations are Larry R. Pounders,
Jr., Ronald M. Gootzeit, and Subin Seth of
the Office of the Associate Chief Counsel
(International). However, other personnel
from the Treasury Department and the
IRS participated in their development.

#### List of Subjects in 26 CFR Part 301

Employment taxes, Estate taxes, Ex-
cise taxes, Gift taxes, Income taxes, Pen-
alties, Reporting and recordkeeping re-
quirements.

#### Proposed Amendments to the Regulations

Accordingly, 26 CFR part 301, as pro-
posed to be amended June 14, 2017 (82

FR 27334), is proposed to be further
amended as follows:

##### PART 301-PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6221(a)-1 is
amended by adding paragraph (f) to read as
follows:

### § 301.6221(a)-1 Scope of the partnership procedures under subchapter C of chapter 63 of the Internal Revenue Code.

* * * * *

(f) Examples. The following examples
illustrate the rules of paragraphs (a) and
(d) of this section as applied to cases in
which a partnership has a withholding
obligation under chapter 3 or chapter 4
of subtitle A of the Internal Revenue
Code (Code) with respect to income that
the partnership earns. For purposes of
these examples, each partnership is sub-
ject to the provisions of subchapter C of
chapter 63 of the Code, and the partner-
ship and its partners are calendar year
taxpayers.

Example 1. Partnership, a partnership created or
organized in the United States, has two equal part-
ners, A and B. A is a nonresident alien who is a
resident of Country A, and B is a U.S. citizen. In
2018, Partnership earned $200 of U.S. source royalty
income. Partnership was required to withhold 30
percent of the gross amount of the royalty income
allocable to A unless Partnership had documentation
that it could rely on to establish that A was entitled
to a reduced rate of withholding. See §§ 1.1441-
1(b)(1) and 1.1441-5(b)(2)(i)(A) of this chapter.
Partnership withheld $15 from the $100 of royalty
income allocable to A based on its incorrect belief
that A is entitled to a reduced rate of withholding
under the U.S .- Country A Income Tax Treaty. In
2020, the IRS determines in an examination of Part-
nership's Form 1042, Annual Withholding Tax Re-
turn for U.S. Source Income of Foreign Persons, that
Partnership should have withheld $30 instead of $15
on the $100 of royalty income allocable to A because
Partnership failed to obtain documentation from A
establishing a valid treaty claim for a reduced rate of
withholding. The rate of withholding on the income
allocable to A is not an item of income, gain, loss,
deduction, or credit under paragraph (b)(1) of this
section. Therefore, in accordance with paragraph (a)
of this section, the adjustment to increase Partner-
ship's withholding tax liability by $15 is not deter-
mined under subchapter C of chapter 63, and instead

must be determined as part of the Form 1042 exam-
ination.

Example 2. Partnership, a partnership created
or organized in the United States, has two equal
partners, A and B. A is a nonresident alien who is
a resident of Country A, and B is a U.S. citizen. In
2018, Partnership earned $100 of U.S. source div-
idend income. Partnership was required to report
the dividend income on its 2018 Form 1065, "U.S.
Return of Partnership Income," and withhold 30
percent of the gross amount of the dividend in-
come allocable to A unless Partnership had docu-
mentation that it could rely on to establish that A
was entitled to a reduced rate of withholding. See
§§ 1.1441-1(b)(1) and 1.1441-5(b)(2)(i)(A) of
this chapter. In 2020, in an examination of Part-
nership's Form 1042, the IRS determines that
Partnership earned but failed to report the $100 of
U.S. source dividend income in 2018. The adjust-
ment to increase Partnership's dividend income by
$100 would be an adjustment to an item of in-
come, gain, loss, deduction, or credit under para-
graph (b)(1) of this section if made in an admin-
istrative proceeding under subchapter C of chapter
63. The tax imposed on Partnership for its failure
to withhold on that income, however, is not a tax
as defined in paragraph (b)(3) of this section be-
cause it is a tax imposed by chapter 3 of subtitle A
of the Code (chapter 3 tax). Pursuant to paragraph
(d) of this section, the IRS may determine, assess,
and collect that chapter 3 tax without conducting a
proceeding under subchapter C of chapter 63.
Therefore, the IRS may determine the chapter 3
tax in the examination of Partnership's Form 1042
by adjusting Partnership's withholding tax liabil-
ity by an additional $15 for failing to withhold on
the $50 of dividend income allocable to A. If the
IRS subsequently initiates an administrative pro-
ceeding under subchapter C of chapter 63 and
makes an adjustment to the same item of income,
the portion of the dividend income allocable to A
will be disregarded in the calculation of the im-
puted underpayment to the extent that the chapter
3 tax has been collected with respect to such
income. See § 301.6225-1(c)(5).

Par. 3. Section 301.6225-1 is amended
by adding paragraphs (a)(4) and (c)(5),
revising paragraph (d)(2)(iv), and adding
Examples 6 through 9 to paragraph (f) to
read as follows:

### § 301.6225-1 Partnership Adjustment by the Internal Revenue Service.

* * * * *

(a) * * *

(4) Coordination with chapters 3 and 4
when partnership pays an imputed under-
payment. If a partnership pays an imputed
underpayment (as determined under para-
graph (c) of this section) and the total
netted partnership adjustment (as deter-
mined under paragraph (c)(3) of this sec-
tion) includes a partnership adjustment to
an amount subject to withholding (as de-

fined in § 301.6226-2(h)(3)(i)), the part-
nership is treated as having paid (at the
time that the imputed underpayment is
paid) the amount required to be withheld
with respect to that adjustment under
chapter 3 or chapter 4 for purposes of
applying §§ 1.1463-1 and 1.1474-4 of
this chapter. For purposes of the regula-
tions under subchapter C of chapter 63
of the Internal Revenue Code (Code),
the term chapter 3 means sections 1441
through 1464 of subtitle A of the Code,
but does not include section 1443(b),
and the term chapter 4 means sections
1471 through 1474 of subtitle A of the
Code. See paragraph (c)(5) of this sec-
tion for the coordination rule that ap-
plies when an adjustment is made to an
amount subject to withholding for which
tax has been collected under chapter 3 or
chapter 4.

* * * * *

(5) Adjustments to items for which tax
has been collected under chapters 3 and
4. To the extent that the IRS has collected
tax under chapter 3 or chapter 4 (as de-
fined in paragraph (a)(4) of this section)
attributable to an adjustment to an amount
subject to withholding (as defined in
§ 301.6226-2(h)(3)(i)), that adjustment
(or portion thereof) will be disregarded for
purposes of calculating the total netted
partnership adjustment under paragraph
(c)(3) of this section. See paragraph (a)(4)
of this section for the coordination rule
that applies when a partnership pays an
imputed underpayment that includes an
adjustment to an amount subject to with-
holding under chapter 3 or chapter 4.

(d) * * *

(2) * * *

(iv) Creditable expenditure group-
ing-(A) Creditable foreign tax expendi-
tures-(1) In general. The creditable ex-
penditure grouping includes all partnership
adjustments (including reallocation adjust-
ments as described in paragraph (d)(2)(ii) of
this section) to creditable foreign tax expen-
ditures (CFTEs) as defined in § 1.704-
1(b)(4)(viii)(b) of this chapter.

(2) Subgroupings. Adjustments to
CFTEs are grouped into subgroupings
based on the separate category of income
to which the CFTEs relate in accordance
with section 904(d) and the regulations
thereunder, and to account for different

allocations of CFTEs between partners.
Two or more adjustments are included
within the same subgrouping only if each
adjustment relates to CFTEs in the same
separate category and each adjusted item
would be allocated to the partners in the
same ratio had those items been properly
reflected on the partnership return for
the reviewed year. An adjustment that
changes the separate category of a CFTE
for section 904 purposes or that reallo-
cates the distributive share of a CFTE
between partners is treated as two separate
adjustments: an increase to the amount of
CFTEs in one subgrouping and a decrease
in another subgrouping.

(3) Effect on Imputed Underpayment.
For purposes of computing the imputed
underpayment in paragraph (c)(1) of this
section, a net decrease to CFTEs in any
CFTE subgrouping is treated as a decrease
to credits in the credit grouping described
in paragraph (d)(2)(iii) of this section. A
net increase to CFTEs in any CFTE sub-
grouping is treated as a net non-positive
adjustment, as defined in paragraph
(d)(3)(ii)(C) of this section. See para-
graphs (b) and (c)(2) of this section and
§ 301.6225-3 for the treatment of ad-
justments that do not result in an im-
puted underpayment.

(B) Other creditable expenditures.
[Reserved]

(f) * * *

Example 6. Partnership reports on its 2019
partnership return $400 of CFTEs in the general
category under section 904(d). The IRS initiates
an administrative proceeding with respect to Part-
nership's 2019 taxable year and determines that
the amount of CFTEs was $300 instead of $400
(<$100> adjustment to CFTEs). No other adjust-
ments are made for the 2019 taxable year. The
<$100> adjustment to CFTEs falls within the
creditable expenditure grouping described in para-
graph (d)(2)(iv) of this section and is within the
general category subgrouping. Because there are
no other adjustments for the 2019 taxable year in
this subgrouping, the net adjustment in the sub-
grouping is <$100>. Pursuant to paragraph
(d)(2)(iv)(A)(3) of this section, a net decrease to
CFTEs in a subgrouping in the creditable expen-
diture grouping is treated as a decrease to credits
under paragraph (d)(2)(iii) of this section. Because
no other adjustments have been made, the
<$100> adjustment to credits under paragraph
(d)(2)(iii) of this section produces an imputed
underpayment of $100 under paragraph (c)(1) of
this section.

Example 7. Partnership reports on its 2019 part-
nership return $400 of CFTEs in the passive cate-

gory under section 904(d). The IRS initiates an ad-
ministrative proceeding with respect to Partnership's
2019 taxable year and determines that the CFTEs
reported by Partnership were general category in-
stead of passive category CFTEs. No other adjust-
ments are made. Under the rules in paragraph
(d)(2)(iv)(A)(2) of this section, an adjustment to the
category of a CFTE is treated as two separate ad-
justments: an increase to general category CFTEs of
$400 and a decrease to passive category CFTEs of
$400. Both adjustments are included in the creditable
expenditure grouping under paragraph (d)(2)(iv) of
this section, but they are included in separate sub-
groupings. Therefore, the two amounts do not net.
Instead, the $400 increase to CFTEs in the general
category subgrouping is treated as a net non-positive
adjustment within the meaning of paragraph
(d)(3)(ii)(C) of this section and is an adjustment
that does not result in an imputed underpayment
within the meaning of paragraphs (b) and (c)(2) of
this section. Therefore, the $400 increase to
CFTEs in the general category subgrouping of the
creditable expenditure grouping is taken into ac-
count in accordance with § 301.6225-3. The de-
crease to CFTEs in the passive category subgroup-
ing of the creditable expenditure grouping results
in a net decrease to CFTEs. Therefore, pursuant to
paragraph (d)(2)(iv)(A)(3) of this section, it is
treated as a decrease to credits under paragraph
(d)(2)(iii) of this section, which results in an im-
puted underpayment of $400 under paragraph
(c)(1) of this section.

Example 8. Partnership has two partners, A and
B. Under the partnership agreement, $100 of the
CFTE is specially allocated to A for the 2019 taxable
year. The IRS initiates an administrative proceeding
with respect to Partnership's 2019 taxable year and
determines that $100 of CFTE should be reallocated
from A to B. The partnership adjustment is a
<$100> adjustment to general category CFTE allo-
cable to A and an increase of $100 to general cate-
gory CFTE allocable to B. Pursuant to paragraph
(d)(2)(iv)(A)(2) of this section, the <$100> adjust-
ment to general category CFTE and the increase of
$100 to general category CFTE are included in sep-
arate subgroupings, and the increase is disregarded
for purposes of computing the imputed underpay-
ment under paragraph (c)(1) of this section. The
increase and decrease of $100 of general category
CFTE do not net. Instead, the net increase to CFTEs
in the general-category, B-allocation subgrouping is
treated as a net non-positive adjustment, which does
not result in an imputed underpayment and is there-
fore taken into account by the partnership in the
adjustment year in accordance with § 301.6225-3.
The net decrease to CFTEs in the general-category,
A-allocation subgrouping is treated as a decrease to
credits in the credit grouping under paragraph
(d)(2)(iii) of this section, resulting in an imputed
underpayment of $100 under paragraph (c)(1) of this
section.

Example 9. Partnership has two partners, A and
B. Partnership owns two entities, DE1 and DE2,
that are disregarded as separate from their owner
within the meaning of § 301.7701-3 and are op-
erating in and paying taxes to foreign jurisdic-
tions. The partnership agreement provides that all
items (income, gain, loss, deduction, credit, etc.)

from DE1 and DE2 are allocable to A and B in the
following manner. Items related to DE1: to A 75%
and to B 25%. Items related to DE2: to A 25% and
to B 75%. Partnership reports CFTEs in the gen-
eral category of $300, $100 with respect to DE1
and $200 with respect to DE2. Partnership allo-
cates the $300 of CFTEs $125 and $175 to A and
B respectively. On examination, the IRS deter-
mines that Partnership understated the amount of
creditable foreign tax paid by DE2 by $40 and
overstated the amount of creditable foreign tax
paid by DE1 by $80. No other adjustments are
made. Because the two adjustments each relate to
CFTEs that are subject to different allocations, the
two adjustments are in different subgroupings un-
der paragraph (d)(2)(iv)(A)(2) of this section. The
adjustment reducing the CFTEs related to DE1
produces a net decrease to CFTEs within that
subgrouping and is treated as a reduction to credits
under paragraph (d)(2)(iii) of this section and re-
sults in an imputed underpayment of $80 under
paragraph (c)(1) of this section. The increase of
$40 of general category CFTE related to the DE2
subgrouping results in a net increase to CFTEs
within that subgrouping and is treated as a net
non-positive adjustment, which does not result in
an imputed underpayment and is taken into ac-
count in the adjustment year in accordance with
§ 301.6225-3.

* * * * *

Par. 4. Section 301.6226-2 is amended
by revising paragraph (h)(3) to read as
follows:

### § 301.6226-2 Statements furnished to partners and filed with the IRS.

* * * * *

(h) * * *

(3) Adjustments subject to chapters 3
and 4-(i) In general. A partnership that
makes an election under § 301.6226-1
with respect to an imputed underpayment
must pay the amount of tax required to be
withheld under chapter 3 or chapter 4 (as
defined in § 301.6225-1(a)(4)) on the
amount of any adjustment set forth in the
statement described in paragraph (a) of
this section to the extent that it is an
adjustment to an amount subject to with-
holding and the IRS has not already col-
lected tax attributable to the adjustment
under chapter 3 or chapter 4. The partner-
ship must pay the amount due under this
paragraph (h)(3)(i) on or before the due
date (as determined under paragraph (b)
of this section) for furnishing the state-
ment required under paragraph (a) of this
section that reflects the adjustment, and
must make the payment in the manner
prescribed by the IRS in forms, instruc-
tions, and other guidance. For purposes of

the regulations under subchapter C of
chapter 63 of the Internal Revenue Code,
the term amount subject to withholding
means an amount subject to withholding
(as defined in § 1.1441-2(a) of this chap-
ter), a withholdable payment (as defined
in § 1.1473-1(a) of this chapter), or the
allocable share of effectively connected
taxable income (as computed under
§ 1.1446-2(b) of this chapter).

(ii) Reduced rate of tax. A partnership
may reduce the amount of tax it is re-
quired to pay under paragraph (h)(3)(i) of
this section to the extent that it can asso-
ciate valid documentation from a re-
viewed year partner pursuant to the regu-
lations under chapter 3 or chapter 4 (other
than pursuant to § 1.1446-6 of this chap-
ter) with the portion of the adjustment that
would have been subject to a reduced rate
of tax in the reviewed year. For this pur-
pose, the partnership may rely on docu-
mentation that the partnership possesses
that is valid with respect to the reviewed
year (determined without regard to the
expiration after the reviewed year of any
validity period prescribed in § 1.1441-
1(e)(4)(ii), § 1.1446-1(c)(2)(iv)(A), or
§ 1.1471-3(c)(6)(ii) of this chapter), or
new documentation that the partnership
obtains from the reviewed year partner
that includes a signed affidavit stating that
the information and representations asso-
ciated with the documentation are accu-
rate with respect to the reviewed year.

(iii) Reporting requirements. A part-
nership required to pay tax under para-
graph (h)(3)(i) of this section must file the
appropriate return and issue information
returns as required by regulations under
chapter 3 or chapter 4. For return and
information return requirements, see
§ 1.1446-3(d)(1)(iii); § 1.1461-1(b), (c);
§ 1.1474-1(c), (d) of this chapter. The
partnership must file the return and issue
information returns for the year that in-
cludes the date on which the partnership
furnishes the statement required under
paragraph (a) of this section. The partner-
ship must report the information on the
return and information returns in the man-
ner prescribed by the IRS in forms, in-
structions, and other guidance.

* * * * *

Par. 5. Section 301.6226-3 is amended
by revising paragraph (f), and adding Exam-
ple 6 to paragraph (g) to read as follows:

### § 301.6226-3 Adjustments Taken Into Account by Partners.

** * * *

(f) Partners subject to withholding un-
der chapters 3 and 4. A reviewed year
partner that is subject to withholding un-
der § 301.6226-2(h)(3)(i) must file an
income tax return for the reporting year to
report its additional reporting year tax and
its share of any penalties, additions to tax,
additional amounts, and interest (notwith-
standing any filing exception in § 1.6012-
1(b)(2)(i) or § 1.6012-2(g)(2)(i) of this
chapter). The amount of tax paid by a
partnership under § 301.6226-2(h)(3)(i)
is allowed as a credit under section 33 to
the reviewed year partner to the extent
that the tax is allocable to the reviewed
year partner (within the meaning of
§ 1.1446-3(d)(2) of this chapter) or is
actually withheld from the reviewed year
partner (within the meaning of § 1.1464-
1(a) or § 1.1474-3 of this chapter). The
credit is allowed against the reviewed year
partner's income tax liability for its report-
ing year. The reviewed year partner must
substantiate the credit by attaching the ap-
plicable Form 1042-S, "Foreign Person's
U.S. Source Income Subject to Withhold-
ing," or Form 8805, "Foreign Partner's In-
formation Statement of Section 1446 With-
holding Tax," to its income tax return for the
reporting year, as well as meeting any other
requirements prescribed by the IRS in forms
and instructions.

(g) * * *

Example 6. On its partnership return for the 2020
tax year, Partnership, a domestic partnership, re-
ported U.S. source dividend income of $2,000. On
June 1, 2023, the IRS mails an FPA to Partnership
for Partnership's 2020 year increasing the amount of
U.S. source dividend income to $4,000 and asserting
an imputed underpayment plus an accuracy-related
penalty under section 6662(b). Partnership makes a
timely election under section 6226 in accordance
with § 301.6226-1 with respect to the imputed un-
derpayment in the FPA for Partnership's 2020 year
and does not file a petition for readjustment. The
time to file a petition expires on August 30, 2023.
Pursuant to § 301.6226-2(b), the partnership adjust-
ments become finally determined on August 30,
2023. On September 30, 2023, Partnership files the
statements described under § 301.6226-2 with the
IRS and furnishes to partner A, a nonresident alien
individual who was a partner in Partnership during
2020 (and remains a partner in Partnership in 2023),
a statement described in § 301.6226-2. A had a 50
percent interest in Partnership during all of 2020 and
was allocated 50 percent of all items from Partner-
ship for that year. The statement shows A's share of

U.S. source dividend income reported on Partner-
ship's return for the reviewed year of $1,000 and an
adjustment to U.S. source dividend income of
$1,000. In addition, the statement reports A's share
of the accuracy-related penalty related to the im-
puted underpayment, and A's safe harbor amount
and interest safe harbor amount (as determined under
§ 301.6226-2(g)). Under § 301.6226-2(h)(3)(i), be-
cause the additional $1,000 in U.S. source dividend
income allocated to A is an amount subject to with-
holding (as defined in § 301.6226-2(h)(3)(i)), Part-
nership must pay the amount of tax required to be
withheld on the adjustment. See §§ 1.1441-1(b)(1)
and 1.1441-5(b)(2)(i)(A) of this chapter. Under
§ 301.6226-2(h)(3)(ii), Partnership may reduce the
amount of withholding tax it must pay because it has
valid documentation from 2020 that establishes that
A was entitled to a reduced rate of withholding in
2020 on U.S. source dividend income of 10 percent
pursuant to a treaty. Partnership withholds $100 of
tax from A's distributive share, remits the tax to the
IRS, and files the necessary return and information
returns required by § 1.1461-1 of this chapter. A
does not elect to pay the safe harbor amount and
therefore must pay the additional reporting year tax
as determined in accordance with paragraph (b) of
this section, in addition to A's share of the penalty
and interest. On his 2023 return, A must report the
additional reporting year tax determined in accor-
dance with paragraph (b) of this section, plus A's
share of the accuracy related penalty determined at
the partnership level, and interest determined in ac-
cordance with paragraph (d) of this section. Under
paragraph (f) of this section, A may claim the $100
withholding tax paid by Partnership pursuant to
§ 301.6226-2(h)(3)(i) as a credit under section 33
against A's income tax liability on his 2023 return.
* * * * *

Par. 6. Section 301.6227-2 is amended
by adding paragraphs (b)(3) and (4) to
read as follows.

### § 301.6227-2 Determining and accounting for adjustments requested in an administrative adjustment request by the partnership.

** * * *

(b) * * *

(3) Coordination with chapters 3 and 4
when partnership pays an imputed under-
payment. If a partnership pays an imputed
underpayment resulting from adjustments
requested in an AAR under paragraph (b)(1)
of this section, the rules in § 301.6225-
1(a)(4) apply to treat the partnership as hav-
ing paid the amount required to be withheld
under chapter 3 or chapter 4 (as defined in
§ 301.6225-1(a)(4)).

(4) Coordination with chapters 3 and 4
when partnership elects to have adjust-
ments taken into account by reviewed year
partners. If a partnership elects under
paragraph (c) of this section to have its

reviewed year partners take into account
adjustments requested in an AAR, the
rules in § 301.6226-2(h)(3) apply to the
partnership, and the rules in § 301.6226-
3(f) apply to the reviewed year partners
that take into account the adjustments pur-
suant to § 301.6227-3.
* * * *

Kirsten Wielobob,
Deputy Commissioner for Services and
Enforcement.

(Filed by the Office of the Federal Register on November
29, 2017, 8:45 a.m., and published in the issue of the Federal
Register for November 30, 2017, 82 F.R. 56765)

## Announcement of Disciplinary Sanctions From the Office of Professional Responsibility

### Announcement 2017-16

The Office of Professional Responsi-
bility (OPR) announces recent disciplin-
ary sanctions involving attorneys, certi-
fied public accountants, enrolled agents,
enrolled actuaries, enrolled retirement
plan agents, appraisers, and unenrolled/
unlicensed return preparers (individuals
who are not enrolled to practice and are
not licensed as attorneys or certified pub-
lic accountants). Licensed or enrolled
practitioners are subject to the regulations
governing practice before the Internal
Revenue Service (IRS), which are set out
in Title 31, Code of Federal Regulations,
Subtitle A, Part 10, and which are released
as Treasury Department Circular No. 230.
The regulations prescribe the duties and
restrictions relating to such practice and
prescribe the disciplinary sanctions for vi-
olating the regulations. Unenrolled/unli-
censed return preparers are subject to
Revenue Procedure 81-38 and supersed-
ing guidance in Revenue Procedure
2014-42, which govern a preparer's el-
igibility to represent taxpayers before
the IRS in examinations of tax returns
the preparer both prepared for the tax-
payer and signed as the preparer. Addi-
tionally, unenrolled/unlicensed return
preparers who voluntarily participate in
the Annual Filing Season Program un-
der Revenue Procedure 2014-42 agree

to be subject to the duties and restric-
tions in Circular 230, including the re-
strictions on incompetent or disreputa-
ble conduct.

The disciplinary sanctions to be im-
posed for violation of the applicable stan-
dards are:

Disbarred from practice before the
IRS-An individual who is disbarred is
not eligible to practice before the IRS as
defined at 31 C.F.R. § 10.2(a)(4) for a
minimum period of five (5) years.

Suspended from practice before the
IRS-An individual who is suspended is
not eligible to practice before the IRS as
defined at 31 C.F.R. § 10.2(a)(4) during
the term of the suspension.

Censured in practice before the
IRS-Censure is a public reprimand. Un-
like disbarment or suspension, censure
does not affect an individual's eligibility
to practice before the IRS, but OPR may
subject the individual's future practice
rights to conditions designed to promote
high standards of conduct.

Monetary penalty-A monetary pen-
alty may be imposed on an individual who
engages in conduct subject to sanction, or
on an employer, firm, or entity if the in-
dividual was acting on its behalf and it
knew, or reasonably should have known,
of the individual's conduct.

Disqualification of appraiser-An
appraiser who is disqualified is barred
from presenting evidence or testimony in
any administrative proceeding before the
Department of the Treasury or the IRS.

Ineligible for limited practice-An
unenrolled/unlicensed return preparer
who fails to comply with the requirements
in Revenue Procedure 81-38 or to comply
with Circular 230 as required by Revenue
Procedure 2014-42 may be determined
ineligible to engage in limited practice as
a representative of any taxpayer. Under
the regulations, individuals subject to Cir-
cular 230 may not assist, or accept assis-
tance from, individuals who are sus-
pended or disbarred with respect to
matters constituting practice (i.e., repre-
sentation) before the IRS, and they may
not aid or abet suspended or disbarred
individuals to practice before the IRS.

Disciplinary sanctions are described in
these terms:

Disbarred by decision, Suspended by
decision, Censured by decision, Mone-

tary penalty imposed by decision, and
Disqualified after hearing-An adminis-
trative law judge (ALJ) issued a decision
imposing one of these sanctions after the
ALJ either (1) granted the government's
summary judgment motion or (2) con-
ducted an evidentiary hearing upon OPR's
complaint alleging violation of the regu-
lations. After 30 days from the issuance of
the decision, in the absence of an appeal,
the ALJ's decision becomes the final
agency decision.

Disbarred by default decision, Sus-
pended by default decision, Censured
by default decision, Monetary penalty
imposed by default decision, and Dis-
qualified by default decision-An ALJ,
after finding that no answer to OPR's
complaint was filed, granted OPR's mo-
tion for a default judgment and issued a
decision imposing one of these sanctions.

Disbarment by decision on appeal,
Suspended by decision on appeal, Cen-
sured by decision on appeal, Monetary
penalty imposed by decision on appeal,
and Disqualified by decision on ap-
peal-The decision of the ALJ was ap-
pealed to the agency appeal authority, act-
ing as the delegate of the Secretary of the
Treasury, and the appeal authority issued
a decision imposing one of these sanc-
tions.

Disbarred by consent, Suspended by
consent, Censured by consent, Mone-
tary penalty imposed by consent, and
Disqualified by consent-In lieu of a dis-
ciplinary proceeding being instituted or con-
tinued, an individual offered a consent to
one of these sanctions and OPR accepted
the offer. Typically, an offer of consent will
provide for: suspension for an indefinite
term; conditions that the individual must
observe during the suspension; and the in-
dividual's opportunity, after a stated number
of months, to file with OPR a petition for
reinstatement affirming compliance with the
terms of the consent and affirming current
fitness and eligibility to practice (i.e., an
active professional license or active enroll-
ment status, with no intervening violations
of the regulations).

Suspended indefinitely by decision in
expedited proceeding, Suspended indef-
initely by default decision in expedited
proceeding, Suspended by consent in
expedited proceeding-OPR instituted
an expedited proceeding for suspension

(based on certain limited grounds, includ-
ing loss of a professional license for
cause, and criminal convictions).

Determined ineligible for limited
practice-There has been a final determi-
nation that an unenrolled/unlicensed re-
turn preparer is not eligible for limited
representation of any taxpayer because the
preparer violated standards of conduct or
failed to comply with any of the require-
ments to act as a representative.

A practitioner who has been dis-
barred or suspended under 31 C.F.R.
§ 10.60, or suspended under § 10.82, or
a disqualified appraiser may petition for
reinstatement before the IRS after the
expiration of 5 years following such dis-
barment, suspension, or disqualification
(or immediately following the expira-
tion of the suspension or disqualification
period if shorter than 5 years). Rein-
statement will not be granted unless the
IRS is satisfied that the petitioner is not
likely to engage thereafter in conduct

contrary to Circular 230, and that grant-
ing such reinstatement would not be
contrary to the public interest.

Reinstatement decisions are published
at the individual's request, and described
in these terms:

Reinstated to practice before the
IRS-The individual's petition for rein-
statement has been granted. The individ-
ual is an attorney, certified public accoun-
tant, enrolled agent, enrolled actuary, or
an enrolled retirement plan agent, and el-
igible to practice before the IRS, or in the
case of an appraiser, the individual is no
longer disqualified.

Reinstated to engage in limited
practice before the IRS-The individ-
ual's petition for reinstatement has been
granted. The individual is an unenrolled/
unlicensed return preparer and eligible
to engage in limited practice before the
IRS.

OPR has authority to disclose the
grounds for disciplinary sanctions in these

situations: (1) an ALJ or the Secretary's
delegate on appeal has issued a final de-
cision; (2) the individual has settled a dis-
ciplinary case by signing OPR's "consent
to sanction" agreement admitting to one
or more violations of the regulations and
consenting to the disclosure of the admit-
ted violations (for example, failure to file
Federal income tax returns, lack of due
diligence, conflict of interest, etc.); (3)
OPR has issued a decision in an expedited
proceeding for indefinite suspension; or
(4) OPR has made a final determination
(including any decision on appeal) that an
unenrolled/unlicensed return preparer is
ineligible to represent any taxpayer before
the IRS.

Announcements of disciplinary sanc-
tions appear in the Internal Revenue Bul-
letin at the earliest practicable date. The
sanctions announced below are alphabet-
ized first by state and second by the last
names of the sanctioned individuals.

City &amp; State

Name

Professional Designation

Disciplinary Sanction

Effective Date(s)

California

Rowland Heights

Zhong, John Z.

CPA, EA

Suspended by decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from January 10, 2017

San Jose

Boitano, Steven F.

CPA

Reinstated to practice before the IRS, effective October 5, 2017

Illinois

South Barrington

Ahmed, Naveed

CPA

Reinstated to practice before the IRS, effective August 29, 2017

Indiana

South Bend

Marshall, Sven E.

Attorney, CPA

Suspended by default decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from August 30, 2017

Kentucky

Louisville

Ford, David C.

Attorney

Suspended by default decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from August 1, 2017

Massachusetts

Chicopee

Lowe, James

CPA

Suspended by default decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from July 19, 2017

Michigan

Grand Blanc

Alexander, Jr., Royal

Enrolled Agent

Suspended by default decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from July 6, 2017

City &amp; State New Jersey

Name

Professional Designation

Disciplinary Sanction

Effective Date(s)

Union

Johnson, Courtney

CPA

Suspended by decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from July 19, 2017

New York

Amsterdam

Witzke, Angela

CPA

Suspended by decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from July 19, 2017

Great Neck

McCoy, William L.

Enrolled Agent

Suspended by decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from September 7, 2017

Middletown

Guthrie, Sushana

Enrolled Agent

Suspended by default decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from July 19, 2017

North Carolina

Arden

Dearwester-Soboleski, Jane

Attorney

Suspended by default decision in expedited proceeding under 31 C.F.R. § 10.82(b)

Indefinite from August 1, 2017

Ford, David C., see Kentucky

Oklahoma

Tulsa

Auer, David B

Attorney

Suspended by consent for admitted violation of 31 C.F.R. § 10.51(a)(10)

Indefinite from September 26, 2017

Pennsylvania

Johnson, Courtney, see New Jersey

Texas

Livingston

Knebel, Walter

CPA

Suspended by ALJ default decision

Suspended for a minimum of 48 months from June 8, 2017

### Announcement 2017-19

#### Notice of Disposition of Declaratory Judgment Proceedings under Section 7428

This announcement serves notice to do-
nors that on June 20, 2017, the United States
Tax Court entered a decision that, effective
May 1, 2008 the organization listed below is
not qualified as an organization described in
section 501(c)(3) and is not exempt from
taxation under section 501(a).

American Friends of Yeshiva Shaare
Chaim, Inc.
Cleveland Heights, Ohio

#### Announcement 2017-20

##### Notice of Disposition of Declaratory Judgment Proceedings under Section 7428

This announcement serves notice to
donors that on September 13, 2017, the
United States Tax Court entered stipulated
decision that the organization listed below
is qualified as an organization described in
section 501(c)(3) and is exempt from tax-
ation under section 501(a).

Columbians of Nampa, Inc.
Nampa, ID

Announcement 2017-21

##### Notice of Disposition of Declaratory Judgment Proceedings under Section 7428

This announcement serves notice to
donors that on May 24, 2017, the United
States Tax Court dismissed the section
7428 action of the organization listed be-
low for lack of jurisdiction.
Faith's Hope Foundation
Fullerton, CA

# 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
effect:

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the 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 with
modified, below).

Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.

Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.

Modified is 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
with amplified and clarified, above).

Obsoleted describes 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.

Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.

Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-

stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes 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
published ruling is first modified and then,
as modified, is superseded.

Supplemented is 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
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is 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 following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

F.R .- Federal Register.

FUTA-Federal Unemployment Tax Act.

FX-Foreign corporation.

G.C.M .- Chief Counsel's Memorandum.

GE-Grantee.

GP-General Partner.

GR-Grantor.

COOP-Cooperative.

IC-Insurance Company.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

CY-County.

LE-Lessee.

LP-Limited Partner.

LR-Lessor.

M-Minor.

Nonacq .- Nonacquiescence.

O Organization.

P-Parent Corporation.

PHC-Personal Holding Company.

PO-Possession of the U.S.

PR-Partner.

PRS-Partnership.

PTE-Prohibited Transaction Exemption.
Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S-Subsidiary.

S.P.R .- Statement of Procedural Rules.

Stat .- Statutes at Large.

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

T.I.R .- Technical Information Release.

TP-Taxpayer.
TR-Trust.

TT-Trustee.

U.S.C .- United States Code.

DE-Donee.

Del. Order-Delegation Order.

DISC-Domestic International Sales Corporation.
DR-Donor.

E-Estate.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.
EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

FPH-Foreign Personal Holding Company.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

CI-City.

D-Decedent.

DC-Dummy Corporation.

X-Corporation.

Y-Corporation.

Z-Corporation.

## Numerical Finding List1

Bulletin 2017-27 through 2017-51

### Action on Decision:

2017-5, 2017-27 I.R.B. 1
2017-6, 2017-33 I.R.B. 194
2017-7, 2017-42 I.R.B. 311

### Announcements:

2017-05, 2017-27 I.R.B. 5
2017-08, 2017-28 I.R.B. 9

2017-09, 2017-35 I.R.B. 219
2017-10, 2017-33 I.R.B. 210
2017-11, 2017-39 I.R.B. 255
2017-12, 2017-38 I.R.B. 238
2017-13, 2017-40 I.R.B. 271

2017-15, 2017-47 I.R.B. 534
2017-16, 2017-51 I.R.B. 583
2017-17, 2017-46 I.R.B. 515
2017-18, 2017-48 I.R.B. 545
2017-19, 2017-51 I.R.B. 585
2017-20, 2017-51 I.R.B. 585
2017-21, 2017-51 I.R.B. 585

### Notices:

2017-36, 2017-33 I.R.B. 208
2017-37, 2017-29 I.R.B. 89
2017-38, 2017-30 I.R.B. 147
2017-39, 2017-31 I.R.B. 150
2017-40, 2017-32 I.R.B. 190
2017-41, 2017-34 I.R.B. 211
2017-42, 2017-34 I.R.B. 212
2017-43, 2017-36 I.R.B. 224
2017-44, 2017-36 I.R.B. 226
2017-45, 2017-38 I.R.B. 232
2017-46, 2017-41 I.R.B. 275
2017-47, 2017-38 I.R.B. 232
2017-48, 2017-39 I.R.B. 254
2017-49, 2017-40 I.R.B. 258
2017-50, 2017-41 I.R.B. 280
2017-51, 2017-40 I.R.B. 260
2017-52, 2017-40 I.R.B. 262
2017-53, 2017-42 I.R.B. 318
2017-54, 2017-42 I.R.B. 321
2017-55, 2017-42 I.R.B. 324
2017-56, 2017-43 I.R.B. 365
2017-57, 2017-42 I.R.B. 324
2017-58, 2017-42 I.R.B. 326
2017-59, 2017-45 I.R.B. 484
2017-60, 2017-43 I.R.B. 365
2017-61, 2017-43 I.R.B. 371
2017-62, 2017-44 I.R.B. 460
2017-63, 2017-44 I.R.B. 460
2017-64, 2017-45 I.R.B. 486
2017-67, 2017-47 I.R.B. 517

2017-68, 2017-46 I.R.B. 513

2017-69, 2017-48 I.R.B. 540

Notices :- Continued

2017-70, 2017-48 I.R.B.

543

2017-71, 2017-51 I.R.B.

561

2017-73, 2017-51 I.R.B.

562

2017-74, 2017-51 I.R.B.

566

9824, 2017-42 I.R.B. 312
9825, 2017-46 I.R.B. 500
9827, 2017-44 I.R.B. 382
9828, 2017-44 I.R.B. 431

## Proposed Regulations:

REG-128841-07, 2017-42 I.R.B. 327
REG-139633-08, 2017-31 I.R.B. 175

REG-128483-15, 2017-32 I.R.B. 191

REG-136118-15, 2017-28 I.R.B. 9
REG-105004-16, 2017-41 I.R.B. 295
REG-125374-16, 2017-41 I.R.B. 300
REG-115615-17, 2017-44 I.R.B. 463
REG-116256-17, 2017-46 I.R.B. 514
REG-119337-17, 2017-51 I.R.B. 568
REG-129631-17, 2017-44 I.R.B. 464

## Revenue Procedures:

2017-41, 2017-29 I.R.B. 92
2017-42, 2017-29 I.R.B. 124

2017-43, 2017-31 I.R.B. 153

2017-44, 2017-35 I.R.B. 216

2017-45, 2017-35 I.R.B. 216
2017-46, 2017-43 I.R.B. 372
2017-47, 2017-38 I.R.B. 233
2017-48, 2017-36 I.R.B. 229
2017-50, 2017-37 I.R.B. 230
2017-52, 2017-41 I.R.B. 283
2017-53, 2017-40 I.R.B. 263
2017-54, 2017-42 I.R.B. 336
2017-55, 2017-43 I.R.B. 373
2017-56, 2017-44 I.R.B. 465
2017-57, 2017-44 I.R.B. 474
2017-58, 2017-45 I.R.B. 489
2017-59, 2017-48 I.R.B. 543
2017-60, 2017-50 I.R.B. 559

## Revenue Rulings:

2017-14, 2017-27 I.R.B. 2

2017-15, 2017-32 I.R.B. 176
2017-16, 2017-35 I.R.B. 215
2017-17, 2017-36 I.R.B. 222
2017-18, 2017-39 I.R.B. 239
2017-19, 2017-40 I.R.B. 257
2017-20, 2017-41 I.R.B. 273
2017-21, 2017-45 I.R.B. 482

2017-22, 2017-48 I.R.B. 536
2017-23, 2017-49 I.R.B. 546
2017-24, 2017-49 I.R.B. 556

Treasury Decisions:

9819, 2017-29 I.R.B. 85
9820, 2017-32 I.R.B. 178
9821, 2017-32 I.R.B. 181
9822, 2017-33 I.R.B. 195
9823, 2017-33 I.R.B. 206

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2017-01 through 2017-26 is in Internal Revenue Bulletin
2017-26, dated June 27, 2017.

## Finding List of Current Actions on Previously Published Items1

Bulletin 2017-27 through 2017-51

Notices:

2015-77
Amplified by
Notice 2017-40, 2017-32 I.R.B. 190

2017-10
Modified by
Notice 2017-58, 2017-42 I.R.B. 326

2017-29
Modified by
Notice 2017-58, 2017-42 I.R.B. 326

### Revenue Procedures:

2016-27
Modified by
Rev. Proc. 2017-43, 2017-31 I.R.B. 153

2016-27
Superseded by
Rev. Proc. 2017-43, 2017-31 I.R.B. 153

2016-48
Superseded by
Rev. Proc. 2017-48, 2017-36 I.R.B. 232

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2017-01 through 2017-26 is in Internal Revenue Bulletin
2017-26, dated June 27, 2017.

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# INTERNAL REVENUE BULLETIN

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# We Welcome Comments About the Internal Revenue Bulletin

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Internal Revenue Bulletin 2017-51 (PDF rendition): IRS Announcements

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