Internal Revenue Bulletin 2013-47 (PDF rendition): IRS Notices

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 2013-70, page 528.

Q&A on Tax Credits for Sections 25C and 25D. This notice
provides guidance in a question-and-answer format regarding
the credits for nonbusiness energy property under § 25C and
residential energy efficient property under § 25D of the Code.
The notice answers questions that arise frequently or for which
taxpayers have expressed an urgent need for guidance under
§ 25C and § 25D. In addition, this notice incorporates the
changes made to § 25C by section 710 of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation
Act of 2010, Pub. L. No. 111-312, 124 Stat. 3296 (2010),
and to § 25C and § 25D by sections 104 and 401 of the
American Taxpayer Relief Act of 2012, Pub. L. No. 112-240,
126 Stat. 2313 (2013).

### Notice 2013-71, page 532.

This notice modifies the use-or-lose rule for health FSAs to permit
use of up to $500 of unused amounts in a health FSA in the
following year. This notice also clarifies the transition relief re-
ferred to in the preamble to section 4980H proposed regulations
for an employer with a 2013-2014 non-calendar year cafeteria
plan.

### Rev. Proc. 2013-35, page 537.

This procedure sets forth the 2014 cost-of-living adjustments
to certain items due to inflation as required under various
provisions of the Code and Service guidance.

### Announcement 2013-44, page 545.

This announcement contains amendments to temporary regula-
tions relating to guidance for taxpayers electing to establish a
mixed straddle using straddle-by-straddle identification. These
amendments include a change to the applicability date of the
temporary regulations pursuant to which the temporary regula-
tions apply to transactions established after the date of publica-

Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service

tion of the Treasury decision adopting these rules as final regula-
tions in the Federal Register. The amendments to the temporary
regulations will affect taxpayers who elect to establish a mixed
straddle using straddle-by-straddle identification.

### Announcement 2013-45, page 546.

This announcement contains amendments to proposed regula-
tions relating to guidance for taxpayers electing to establish a
mixed straddle using straddle-by-straddle identification. These
amendments include a change to the applicability date of the
proposed regulations pursuant to which the proposed regulations
would apply to transactions established after the date of publica-
tion of the Treasury decision adopting these rules as final regula-
tions in the Federal Register. The amendments to the proposed
regulations will affect taxpayers who elect to establish a mixed
straddle using straddle-by-straddle identification.

## ESTATE TAX

Rev. Proc. 2013-35, page 537.

This procedure sets forth the 2014 cost-of-living adjustments
to certain items due to inflation as required under various
provisions of the Code and Service guidance.

## GIFT TAX

### Rev. Proc. 2013-35, page 537.

This procedure sets forth the 2014 cost-of-living adjustments
to certain items due to inflation as required under various
provisions of the Code and Service guidance.

(Continued on the next page)

## EXCISE TAX

Rev. Proc. 2013-35, page 537.

This procedure sets forth the 2014 cost-of-living adjustments
to certain items due to inflation as required under various
provisions of the Code and Service guidance.

## ADMINISTRATIVE

Rev. Proc. 2013-35, page 537.

This procedure sets forth the 2014 cost-of-living adjustments
to certain items due to inflation as required under various
provisions of the Code and Service guidance.

## 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 I. Rulings and Decisions Under the Internal Revenue Code of 1986

### Section 1 .- Tax Imposed

The Service provides inflation adjustments to the
tax rate tables for individuals, trusts, and estates for
taxable years beginning in 2014. The Service also
provides an inflation adjustment to the amount used
to reduce the net unearned income of a minor child
subject to the "kiddie tax" for taxable years begin-
ning in 2014. See Rev. Proc. 2013-35, page 537.

### Section 23 .- Adoption Expenses

The Service provides inflation adjustments to the
adoption credit allowed for the adoption of a child
for taxable years beginning in 2014. The Service also
provides inflation adjustments to the value used in
calculating the modified adjusted gross income lim-
itations used to determine the amount of adoption
credit that is allowed in taxable years beginning in
2014. See Rev. Proc. 2013-35, page 537.

#### Section 24 .- Child Tax Credit

The Service provides an inflation adjustment for
the value used in determining the amount of the credit
that may be refundable for taxable years beginning in
2014. See Rev. Proc. 2013-35, page 537.

### Section 25A .- Hope and Lifetime Learning Credits

The Service provides an inflation adjustment for
the amount of qualified tuition and related expenses
that are taken into account in determining the
amount of the Hope Scholarship Credit for taxable
years beginning in 2014. Also for taxable years
beginning in 2014, the Service provides an inflation
adjustment for the amount of a taxpayer's modified
adjusted gross income that is taken into account in
determining the reduction in the amount of the Hope
Scholarship and Lifetime Learning Credits otherwise
available. See Rev. Proc. 2013-35, page 537.

## Section 32 .- Earned Income

The Service provides inflation adjustments to the
limitations on the earned income credit for taxable
years beginning in 2014. See Rev. Proc. 2013-35,
page 537.

## Section 42 .- Low-Income Housing Credit

The Service provides inflation adjustments to the
amounts used to calculate the State housing credit
ceiling used in determining the low-income housing
credit, and the per low-income unit qualified basis
amount, for calendar year 2014. See Rev. Proc.
2013-35, page 537.

## Section 45R .- Employee Health Insurance Expenses of Small Employers

The Service provides the dollar amount used to cal-
culate average annual wages for determining who is eli-
gible for the small employer health insurance credit for
calendar year 2014. See Rev. Proc. 2013-35, page 537.

## Section 55 .- Alternative Minimum Tax Imposed

The Service provides an inflation adjustment for
the exemption amounts for the alternative minimum
tax for taxable years beginning in 2014. Also for
taxable years beginning in 2014, the Service pro-
vides an inflation adjustment for the amounts used to
determine the phaseout of the exemption amounts
for the alternative minimum tax. See Rev. Proc.
2013-35, page 537.

## Section 59 .- Other Definitions and Special Rules

The Service provides an inflation adjustment to
the exemption amount used in computing the alter-
native minimum tax for a minor child subject to the
"kiddie tax" for taxable years beginning in 2014. See
Rev. Proc. 2013-35, page 537.

## Section 62 .- Adjusted Gross Income Defined

The Service provides inflation adjustments to the
amounts an eligible employer may pay in calendar
year 2014 to certain welders and heavy equipment
mechanics for rig-related expenses that are deemed
substantiated under an accountable plan if paid in
accordance with Rev. Proc. 2002-41, 2002-1 C.B.
1098. See Rev. Proc. 2013-35, page 537.

## Section 63 .- Taxable Income Defined

The Service provides inflation adjustments to the
standard deduction amounts (including the limitation in
the case of certain dependents, and the additional stan-
dard deduction for the aged or blind) for taxable years
beginning in 2014. See Rev. Proc. 2013-35, page 537.

## Section 68 .- Overall Limitation on Itemized Deductions

The Service provides overall limitations on item-
ized deductions for individuals for taxable years begin-
ning in 2014. See Rev. Proc. 2013-35, page 537.

## Section 125 .- Cafeteria Plans

The Service provides an inflation adjustment for
voluntary employee salary reductions for contribu-
tions to health flexible spending arrangements for
taxable years beginning in 2014. See Rev. Proc.
2013-35, page 537.

## Section 132 .- Certain Fringe Benefits

The Service provides inflation adjustments to the
limitations on the exclusion of income for a qualified
transportation fringe benefit for taxable years begin-
ning in 2014. See Rev. Proc. 2013-35, page 537.

## Section 135 .- Income from United States Savings Bonds Used to Pay Higher Education Tuition and Fees

The Service provides inflation adjustments to the
limitation on the exclusion of income from United
States savings bonds for taxpayers who pay qualified
higher education expenses for taxable years begin-
ning in 2014. See Rev. Proc. 2013-35, page 537.

## Section 137 .- Adoption Assistance Programs

The Service provides inflation adjustments to the
maximum amount that can be excluded from an
employee's gross income in connection with a qual-
ified adoption assistance program for taxable years
beginning in 2014. The Service also provides infla-
tion adjustments to the amount used to calculate the
modified adjusted gross income limitations used to
determine the amount that can be excluded from an
employee's gross income for taxable years begin-
ning in 2014. See Rev. Proc. 2013-35, page 537.

## Section 146 .- Volume Cap

The Service provides inflation adjustments to the
amounts used to determine the State ceiling for the
volume cap of private activity bonds for calendar
year 2014. See Rev. Proc. 2013-35, page 537.

## Section 147 .- Other Requirements Applicable to Certain Private Activity Bonds

The Service provides an inflation adjustment to
the loan limit amount on agricultural bonds for first-
time farmers for calendar year 2014. See Rev. Proc.
2013-35, page 537.

## Section 148 .- Arbitrage

26 C.F.R. 1.148-5: Yield and valuation of in-
vestments. The Service provides inflation adjust-
ments for determining in the calendar year 2014
whether a broker's commission or similar fee with
respect to the acquisition of a guaranteed investment
contract or investments purchased for a yield re-
stricted defeasance escrow is reasonable. The Ser-
vice provides an inflation adjustment to the compu-
tation credit determined under permission to rely on
§ 1.148-3(d)(4) of the proposed Income Tax Regu-
lations for bond years ending in 2014. See Rev. Proc.
2013-35, page 537.

## Section 151 .- Allowance of Deductions for Personal Exemptions

The Service provides an inflation adjustment to the
personal exemption amount for taxable years beginning
in 2014. See Rev. Proc. 2013-35, page 537.

## Section 213 .- Medical, Dental, etc., Expenses

The Service provides inflation adjustments to the
limitations on the amount of eligible long-term care
premiums includible in the term "medical care" for
taxable years beginning in 2014. See Rev. Proc.
2013-35, page 537.

## Section 220 .- Archer MSAs

The Service provides inflation adjustments to the
amounts used to determine whether a health plan is
a "high deductible health plan" for purposes of de-
termining whether an individual is eligible for a
deduction for cash paid to a medical savings account
for taxable years beginning in 2014. See Rev. Proc.
2013-35, page 537.

## Section 221 .- Interest on Education Loans

The Service provides inflation adjustments to the
income limitations used to determine the allowable
deduction for interest on education loans for taxable
years beginning in 2014. See Rev. Proc. 2013-35,
page 537.

## Section 512 .- Unrelated Business Taxable Income

The Service provides an inflation adjustment to
the maximum amount of annual dues that can be
paid to certain agricultural or horticultural organiza-
tions without any portion being treated as unrelated
trade or business income by reason of any benefits or
privileges available to members for taxable years
beginning in 2014. See Rev. Proc. 2013-35, page
537.

## Section 513 .- Unrelated Trade or Business

The Service provides an inflation adjustment to
the maximum cost of a "low cost article" for taxable
years beginning in 2014. Funds raised through a
charity's distribution of "low cost articles" will not
be treated as unrelated business income to the char-
ity. See Rev. Proc. 2013-35, page 537.

## Section 877 .- Expatriation to Avoid Tax

The Service provides an inflation adjustment to
the amount used for calendar year 2014 to determine
whether an individual's loss of United States citizen-
ship had the avoidance of United States tax as one of
its principal purposes. See Rev. Proc. 2013-35, page
537.

## Section 877A .- Tax Responsibilities of Expatriation

The Service provides an inflation adjustment to
the amount that reduces the amount that would be
includible in the gross income of a covered expatri-
ate for taxable years beginning in 2014. See Rev.
Proc. 2013-35, page 537.

## Section 911 .- Citizens or Residents of the United States Living Abroad

The Service provides an inflation adjustment to
the amount of foreign earned income that may be
excluded from gross income for taxable years begin-
ning in 2014. See Rev. Proc. 2013-35, page 537.

## Section 2010 .- United Credit Against Estate Tax

The Service provides an inflation adjustment to
the amount of the unified credit against estate tax for
the estate of a decedent dying in calendar year 2014.
See Rev. Proc. 2013-35, page 537.

## Section 2032A .- Valuation of Certain Farm, etc., Real Property

The Service provides an inflation adjustment to
the maximum amount by which the value of certain
farm and other qualified real property included in a
decedent's gross estate may be decreased for pur-
poses of valuing the estate of a decedent dying in
calendar year 2014. See Rev. Proc. 2013-35, page
537.

## Section 2503 .- Taxable Gifts

The Service provides an inflation adjustment to
the amount of gifts that may be made to a person in
a calendar year without including the amount in
taxable gifts for calendar year 2014. See Rev. Proc.
2013-35, page 537.

## Section 2523 .- Gift to Spouse

The Service provides an inflation adjustment to the
amount of gifts that may be made in a calendar year to a
spouse who is not a citizen of the United States without
including the amount in taxable gifts for calendar year
2014. See Rev. Proc. 2013-35, page 537.

## Section 4161 .- Imposition of Tax

The Service provides an inflation adjustment to the
amount of excise tax imposed for calendar year 2014
on the first sale by a manufacturer, producer, or im-
porter of any shaft of a type used in the manufacture of
certain arrows. See Rev. Proc. 2013-35, page 537.

## Section 4261 .- Imposition of Tax

The Service provides inflation adjustments for
excise taxes on domestic and international passenger
air transportation for calendar year 2014. See Rev.
Proc. 2013-35, page 537.

## Section 6033 .- Returns by Exempt Organizations

The Service provides an inflation adjustment to
the amount of dues certain exempt organizations
with nondeductible lobbying expenditures can
charge and still be excepted from reporting require-
ments for taxable years beginning in 2014. See Rev.
Proc. 2013-35, page 537.

## Section 6039F .- Notice of Large Gifts Received from Foreign Persons

The Service provides an inflation adjustment to
the amount of gifts received in a taxable year from
foreign persons that triggers a reporting requirement
for a United States person for taxable years begin-
ning in 2014. See Rev. Proc. 2013-35, page 537.

## Section 6323 .- Validity and Priority Against Certain Persons

The Service provides inflation adjustments for
calendar year 2014 to (1) the maximum amount of a
casual sale of personal property below which a fed-
eral tax lien will not be valid against a purchaser of
the property, and (2) the maximum amount of a
contract for the repair or improvement of certain
residential property at or below which a federal tax
lien will not be valid against a mechanic's lienor. See
Rev. Proc. 2013-35, page 537.

## Section 6334 .- Property Exempt from Levy

The Service provides inflation adjustments to the
value of certain property exempt from levy (fuel, pro-
visions, furniture, household personal effects, arms for
personal use, livestock, poultry, and books and tools of
a trade, business, or profession) for calendar year 2014.
See Rev. Proc. 2013-35, page 537.

## Section 6601 .- Interest on Underpayment, Nonpayment, or Extension of Time for Payment, of Tax

The Service provides an inflation adjustment to the
amount used to determine the amount of interest
charged on a certain portion of the estate tax payable in
installments for the estate of a decedent dying in cal-
endar year 2013. See Rev. Proc. 2013-35, page 537.

## Section 7430 .- Awarding of Costs and Certain Fees

The Service provides an inflation adjustment to
the hourly limit on attorney fees incurred in calendar
year 2014 that may be awarded in a judgment or
settlement of an administrative or judicial proceed-
ing concerning the determination, collection, or re-
fund of tax, interest, or penalty. See Rev. Proc.
2013-35, page 537.

## Section 7702B .- Treatment of Qualified Long-Term Care Insurance

The Service provides an inflation adjustment to
the stated dollar amount for calendar year 2014 of
the per diem limitation regarding periodic payments-
received under a qualified long-term care insurance
contract or periodic payments received under a life
insurance contract that are treated as paid by reason
of the death of a chronically ill individual. See Rev.
Proc. 2013-35, page 537.

## Part III. Administrative, Procedural, and Miscellaneous

### Q&A on Tax Credits for Sections 25C and 25D Notice 2013-70

#### SECTION 1. PURPOSE

This notice provides guidance with re-
spect to the credits for nonbusiness energy
property under § 25C of the Internal Rev-
enue Code (Code) and residential energy
efficient property under § 25D of the
Code. This notice incorporates the
changes made to § 25C by section 710 of
the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of
2010, Pub. L. No. 111-312, 124 Stat.
3296 (2010) (the 2010 Act) and to § 25C
and § 25D by sections 104 and 401 of the
American Taxpayer Relief Act of 2012,
Pub. L. No. 112-240, 126 Stat. 2313
(2013) (the 2012 Act).

#### SECTION 2. BACKGROUND

Section 25C allows a credit in an
amount equal to the sum of (1) 10 percent
of the amount paid or incurred by the
taxpayer for qualified energy efficiency
improvements installed during the year,
and (2) the amount of the residential en-
ergy property expenditures paid or in-
curred by the taxpayer during the year.1
The credit is allowed for qualifying prop-
erty placed in service through December
31, 2013.2

Section 25D allows a credit for quali-
fied expenditures made by a taxpayer for
residential energy efficient property. Tax-
payers may claim the § 25D credit for
qualified property placed in service before
January 1, 2017.

On May 11, 2009, the Internal Reve-
nue Service (the Service) issued Notice
2009-41, 2009-19 I.R.B. 933, to provide
procedures that manufacturers may follow
to certify that property satisfies certain
conditions of § 25D. The notice defines

qualified expenditures for residential en-
ergy efficient property based on the defi-
nitions in § 25D(d).

On June 22, 2009, the Service issued
Notice 2009-53, 2009-25 I.R.B. 1095, to
provide procedures that manufacturers
may follow to certify property as being
eligible for the credit under § 25C. The
notice defines the terms qualified energy
efficiency improvements and residential
energy property expenditures based on
their respective definitions in § 25C(c)
and (d) as in effect at that time. The 2010
Act subsequently modified those defini-
tions, however, by updating certain effi-
ciency standards and making other
changes. As a result of those modifica-
tions, for properties placed in service in
2011, 2012, and 2013, taxpayers must rely
on the definitions provided in § 25C(c)
and (d) as amended by the 2010 Act.

Both Notice 2009-41 and Notice
2009-53 provide guidance to taxpayers
seeking to claim credits under §§ 25C and
25D in reliance on a manufacturer's cer-
tification. The notices provide that for ei-
ther credit, a taxpayer may rely on a man-
ufacturer's certification that property is
eligible for the credit so long as the Ser-
vice has not withdrawn the manufactur-
er's right to make the certification. The
notices further clarify that the Service
may determine that a manufacturer's cer-
tification is erroneous; in such cases, the
Service will withdraw a manufacturer's
right to provide a certification on which
future purchasers of the component or
property may rely, and taxpayers purchas-
ing the component or property after the
date on which the Service publishes an
announcement of the withdrawal may not
rely on the manufacturer's certification.

SECTION 3. QUESTIONS AND
ANSWERS RELATED TO BOTH
§ 25C (NONBUSINESS ENERGY
PROPERTY) AND § 25D
(RESIDENTIAL ENERGY EFFICIENT
PROPERTY)

Q-1: Are the credits refundable or non-
refundable?

A-1: Both the § 25C credit and the
§ 25D credit are nonrefundable personal
tax credits. A taxpayer claiming a nonre-
fundable credit can only use it to decrease
or eliminate a tax liability. A taxpayer will
not receive a tax refund for any amount
that exceeds the taxpayer's tax liability for
the year.

Q-2: Is a taxpayer who is subject to the
alternative minimum tax (AMT) eligible
to claim the credits?

A-2: Yes. A taxpayer who is subject to
the AMT is eligible to claim both the
§ 25C credit and the § 25D credit and may
offset the AMT with those credits.

Q-3: May a taxpayer carry forward
unused credits to another tax year?

A-3: A taxpayer may not carry for-
ward the § 25C credit. Thus, if a taxpayer
cannot claim all or a portion of the credit
in the year in which the related expendi-
ture is treated as made, the unused amount
of the credit will expire. However, a tax-
payer may carry the § 25D credit forward
to future tax years pursuant to § 25D(c).

Q-4: Can a taxpayer claim the credits
for expenditures incurred for a newly con-
structed home?

A-4: A taxpayer can claim the § 25C
credit only for qualifying expenditures in-
curred for an existing home or for an
addition or renovation to an existing
home, and not for a newly constructed
home. In contrast, a taxpayer can claim
the § 25D credit for qualifying expendi-
tures incurred for either an existing home
or a newly constructed home.

Q-5: May a taxpayer claim the credits
in the year of purchase if installation of

1For property placed in service in taxable years beginning in 2009 and 2010, § 25C allowed taxpayers to claim a maximum aggregate credit of $1,500. However, for years other than taxable
years beginning in 2009 and 2010, § 25C limits the credit allowable to any taxpayer to the excess of $500 over the aggregate credits allowed to that taxpayer under § 25C for all prior taxable
years ending after December 31, 2005 (including credits claimed in 2009 and 2010).

The maximum amount of credit allowed for any taxable year is $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water
boiler; and $300 for any item of energy-efficient building property. In addition, in the case of amounts paid or incurred for exterior windows, including skylights, § 25C limits the credit
allowable to any taxpayer to the excess of $200 over the aggregate maximum amount of the credits allowed to that taxpayer for exterior windows under § 25C for all prior taxable years
ending after December 31, 2005.

2Section 25C expired on December 31, 2011, but was retroactively extended by the 2012 Act.

the qualifying property occurs in a later
year?

A-5: No. A taxpayer may not claim the
credits until the year the property is in-
stalled. The installation must be com-
pleted before the end of 2013 for the
§ 25C credit and before the end of 2016
for the § 25D credit.

In the case of an expenditure incurred
in connection with the construction or re-
construction of a structure, a taxpayer can-
not claim the credits until the year in
which the taxpayer's original use of the
constructed or reconstructed structure be-
gins, and the taxpayer's original use of the
constructed or reconstructed structure
must begin before the end of 2013 for the
§ 25C credit and before the end of 2016
for the § 25D credit.

Q-6: Are the credits available for im-
provements made to a second home (for
example, a vacation home or an invest-
ment property)?

A-6: Improvements made to a second
home are not eligible for the credit under
§ 25C. Section 25C(c) and (d) require
qualified energy efficiency improvements
and residential energy property to be in-
stalled in or on a dwelling unit owned and
used by the taxpayer as the taxpayer's
principal residence (within the meaning of
§ 121).

With respect to the credit under § 25D,
fuel cell property credits are not available
for second homes. Section 25D(d)(3) re-
quires fuel cell property to be installed on
or in connection with a dwelling unit that
is used as the taxpayer's principal resi-
dence (within the meaning of § 121).
However, a taxpayer may claim a § 25D
credit for other qualifying properties de-
scribed in § 25D that are not fuel cell
properties (solar electric property, solar
water heating property, small wind energy
property, and geothermal heat pump prop-
erty) installed in or on a dwelling unit
used as a second home or a vacation home
by the taxpayer. But a taxpayer may not
claim the § 25D credit for expenditures
for improvements made to an investment
property, such as rental property, that is
not also used as a residence by the tax-
payer.

Q-7: May a taxpayer claim a credit if
the qualified property is also used for
business purposes, such as in a dwelling

unit in which the taxpayer also conducts a
business?

A-7: For both credits under §§ 25C
and 25D, if a taxpayer uses property
solely for business purposes, the property
will not qualify for the credit. For a tax-
payer who otherwise qualifies for the
credits, but whose use of the qualified
property for business purposes exceeds 20
percent, §§ 25C(e)(1) and 25D(e)(7) pro-
vide that the taxpayer, when calculating
the amount of credit, may take into ac-
count only that portion of the expenditures
for the property that are properly allocable
to use for nonbusiness purposes. A tax-
payer who qualifies for the credits and
whose use of the qualified property for
business purposes is not more than 20
percent may claim the full credit.

Q-8: May a taxpayer include labor
costs when calculating the credits?

A-8: When calculating the § 25C
credit, a taxpayer may include the labor
costs for the onsite preparation, assembly,
or original installation of residential en-
ergy property such as qualifying electric
heat pumps, qualifying air conditioners,
and qualifying biomass stoves. In con-
trast, a taxpayer may not include the labor
costs for qualified energy efficient build-
ing envelope components including a
qualifying insulation material or system,
exterior window, skylight, exterior door,
or roof. Thus, for an energy efficient
building envelope component for which a
taxpayer pays a fixed price, the taxpayer
must make a reasonable allocation be-
tween the qualifying cost of the property
and the nonqualifying labor cost of the
installation. When calculating the § 25D
credit, a taxpayer may include the expen-
ditures for labor costs properly allocable
to the onsite preparation, assembly, or
original installation of the qualified prop-
erty and for piping or wiring to intercon-
nect the qualifying property to the home.

Q-9: May a taxpayer include sales tax
when calculating the amount of expendi-
tures eligible for the credits?

A-9: Generally, yes. Because the sales
tax on a qualifying property is part of the
amount paid or incurred, a taxpayer may
include the amount of sales tax when cal-
culating both the § 25C credit and the
§ 25D credit. However, because labor
costs for qualified energy efficient build-
ing envelope components in § 25C are

ineligible for the credit as described in
A-8, to the extent that sales tax is alloca-
ble to these labor costs, the sales tax is
similarly ineligible for the credit.

Q-10: Are tenant-stockholders in a co-
operative housing corporation and condo-
minium owners eligible to claim the cred-
its?

A-10: Yes. Sections 25C(e)(1) and
25D(e)(5) treat a tenant-stockholder (as de-
fined in § 216) in a cooperative housing
corporation (as defined in § 216) as making
his or her proportionate share (as defined in
§ 216(b)(3)) of any expenditures of such
corporation. Similarly, §§ 25C(e)(1) and
25D(e)(6) treat a member of a condomin-
ium management association as having
made the individual's proportionate share of
any expenditures of such association.

Q-11: If a government or a public util-
ity provides a subsidy (for example, an
incentive, grant, or rebate) to a taxpayer to
purchase or install a qualifying property
under § 25C or § 25D, is the taxpayer
required to reduce the cost basis of the
property by the amount of the subsidy
received, thereby reducing the amount of
the qualified expenditure for which a
credit may be claimed?

A-11: The answer depends on the facts
that apply to each taxpayer.

.01 Public Utility. Under § 136, if a
public utility provides (directly or indi-
rectly) a subsidy to a customer for the
purchase or installation of any energy
conservation measure, the customer does
not include in his or her gross income the
value of the subsidy. As a result, the tax-
payer may not claim a credit for the
amount of the subsidy that is excluded
from the taxpayer's gross income. This
rule applies whether a third-party contrac-
tor receives a subsidy on behalf of the
taxpayer or the taxpayer receives the sub-
sidy directly. Not all payments from a
public utility fall within the provisions of
§ 136.

.02 Rebates. Rebates generally repre-
sent a reduction in the purchase price or
cost of property, and the taxpayer must
exclude the amount of the rebate from the
amount of the qualified expenditure on
which the taxpayer calculates the tax
credit. In general, in order for a receipt of
funds to be considered a nontaxable re-
bate, the rebate must be based on or re-
lated to the cost of the property; the rebate

must be received from someone having a
reasonable nexus to the sale of the prop-
erty, for example, the manufacturer, dis-
tributor, or seller/installer; and the rebate
must not represent payment or compensa-
tion for services.

.03 State Energy-Efficiency Incentives.
A state may provide energy-efficiency in-
centives to encourage taxpayers to pur-
chase qualifying property under § 25℃ or
§ 25D. Section 136 does not address these
incentives.

Generally, a taxpayer is not required to
reduce the purchase price or cost of prop-
erty acquired with a governmental energy-
efficiency incentive that is not a rebate.
Many states label their energy-efficiency
incentives as rebates, but these incentives
may not in fact constitute rebates or
purchase-price adjustments for federal in-
come tax purposes.

However, for qualifying property un-
der § 25C placed in service after 2010 that
is financed in whole or in part by subsi-
dized energy financing, the amount of ex-
penditures eligible for the § 25C credit
does not include any expenditures that are
made from subsidized energy financing.
Subsidized energy financing means fi-
nancing provided under a federal, state, or
local program a principal purpose of
which is to provide subsidized financing
for projects designed to conserve or pro-
duce energy.

Q-12: If a taxpayer is eligible to claim
a state tax credit related to the purchase of
qualifying property under § 25℃ or § 25D,
is the taxpayer required to reduce the cost
basis of the property by the amount of the
state tax credit claimed, thereby reducing
the amount of the qualified expenditure
for which the § 25C or § 25D credit may
be claimed?

A-12: No. The taxpayer does not re-
duce the amount of the qualified expendi-
ture by the amount of the state tax credit
claimed in calculating the credits.

Q-13: If a taxpayer finances the pur-
chase of a qualifying property under
§ 25C or § 25D through the seller of the
property, may the taxpayer calculate the
amount of the credit based on the full cost
of the property if the taxpayer is contrac-
tually obligated to pay that entire amount?

A-13: Yes. If the taxpayer is contrac-
tually obligated to pay the full cost of the
qualifying property, the taxpayer may
claim a tax credit based on that amount.

Q-14: May a taxpayer claim a credit
for payments of interest owed through fi-
nancing or for expenses such as an origi-
nation fee or an extended warranty?

A-14: No. Interest expense is not part
of the expenditure for qualifying property
under § 25C or § 25D. Other miscella-
neous costs such as an origination fee or
an amount paid for an extended warranty
are also ineligible for the credits.

Q-15: May a taxpayer claim a credit
for property that the taxpayer leases rather
than purchases?

A-15: No. A taxpayer must purchase
the qualifying property to claim the cred-
its under §§ 25C and 25D.

Q-16: May a taxpayer claim the credits
when the taxpayer does not have a man-
ufacturer's certification that the property
is eligible for the credit?

A-16: Yes. A taxpayer may qualify for
the credits under §§ 25C and 25D without
a manufacturer's certification statement if
the taxpayer can show that the property
meets the required efficiency standards. A
taxpayer should retain documentation suf-
ficient to establish the entitlement to, and
amount of, any credit.

SECTION 4. QUESTIONS AND
ANSWERS RELATING TO § 25C
(NONBUSINESS ENERGY
PROPERTY)

Q-17: If a taxpayer claimed a § 25C
credit in the amount of $1,000 in 2009, is
the taxpayer eligible to claim additional
credits for qualifying § 25℃ property ex-
penditures made in 2013?

A-17: No. Prior law allowed taxpayers
to claim an aggregate credit of $1,500
under § 25C for the 2009 and 2010 tax
years. However, the 2010 Act amended
§ 25C(b) to provide a lifetime limitation
of $500 of which no more than $200 may
be attributable to expenditures on win-
dows. Thus, a taxpayer who has claimed
less than $500 in total for all previous
years is eligible for the § 25C credit in
2013. For example, a taxpayer who
claimed a § 25C credit in the amount of
$100 in 2006 and $50 in 2007 for non-

window expenditures and claimed no
§ 25℃ credit in 2009, 2010, 2011, and
2012 is eligible to claim up to $350 as a
§ 25℃ credit for 2013 (of which no more
than $200 may be attributable to expendi-
tures on windows).

Q-18: Is a sealant such as caulk or
weather stripping an insulation material or
system eligible for the credit?

A-18: Section 25C(c) defines a build-
ing envelope component as any insulation
material or system that is specifically and
primarily designed to reduce the heat loss
or gain of a dwelling unit when installed
in or on such dwelling unit and meets the
prescriptive criteria for such material or
system established by the 2009 Interna-
tional Energy Conservation Code (IECC),
including supplements, as in effect on
February 17, 2009.

Section 402.4 of the 2009 IECC ad-
dresses components to reduce air leakage.
Section 402.4.1 provides, in part, that the
building thermal envelope must be dura-
bly sealed to limit infiltration. The follow-
ing must be caulked, gasketed, weather-
stripped or otherwise sealed with an air
barrier material, suitable film, or solid ma-
terial:

1\.
All joints, seams, and penetrations.

2\. Site-built windows, doors and sky-
lights.

3\.
Openings between window and door
assemblies and their respective jambs
and framing.

4\.
Utility penetrations.

5\.
Dropped ceilings or chases adjacent to
the thermal envelope.

6\.
Knee walls.

7\.
Walls and ceilings separating a garage
from conditioned spaces.

8\. Behind tubs and showers on exterior
walls.

9\. Common walls between dwelling units.

10\. Attic access openings.

11\. Rim joist junction.

12\. Other sources of infiltration.3

Thus, if a taxpayer uses an air barrier
material, suitable film, or solid material
such as caulk or weatherstripping to seal
the areas of a principal residence listed
above, the taxpayer may claim the § 25C
credit with respect to amounts paid for

such sealant as long as the taxpayer satis-
fies the other requirements of § 25C.

Q-19: The manufacturer of a radiant
barrier would like to certify that its prod-
uct is eligible for the § 25C credit. Can the
manufacturer refer to the U-factor as an
alternative to the R-value when determin-
ing if the requirements of the 2009 IECC
are satisfied?

A-19: Yes. Section 25C requires that
an insulation material or system meet the
prescriptive criteria for such material or
system, established by the 2009 IECC, as
in effect on February 17, 2009. The 2009
IECC established criteria for insulating
materials to reach certain minimum
R-values, which measures the material's
ability to stop heat transfer. Instead of the
R-value, section 402.1.3 of the 2009 IECC
allows taxpayers to use the U-factor,
which measures the amount of heat trans-
mitted through a given assembly, as an
alternative criterion. Thus, a manufacturer
of a radiant barrier can use the U-factor
instead of the R-value if measured in com-
pliance with the provisions of section
402.1.3 of the 2009 IECC, as in effect on
February 17, 2009.

Q-20: Is a window sash replacement
kit considered an exterior window under
§ 25C(c)(2)(B) that is eligible for the
§ 25℃ credit?

A-20: Yes. Although window sash re-
placement kits are generally comprised of
only the sashes, glazing, and adjacent
parts and are not whole windows, the Ser-
vice considers the kit an exterior window
for purposes of the credit. To be eligible
for the credit, pursuant to § 25C(c)(1), the
window sash replacement kit must meet
the requirements of the Energy Star pro-
gram.

SECTION 5. QUESTIONS AND
ANSWERS RELATING TO § 25D
(RESIDENTIAL ENERGY EFFICIENT
PROPERTY)

.01 General Questions.

Q-21: A taxpayer may claim a § 25D
credit if a qualifying property is installed
in or on an existing home or a newly
constructed home. In the case of a newly
constructed home, how does the taxpayer
determine the cost of the qualifying prop-
erty under § 25D?

A-21: The taxpayer may request that
the homebuilder make a reasonable allo-

cation or the taxpayer may use any other
reasonable method to determine the cost
of the property that is eligible for the
§ 25D credit. See Q&A 8 for information
concerning labor costs.

Q-22: A homebuilder constructed a
house in which qualifying § 25D property
was installed in year 1. The house was not
sold and used as a residence until year 2.
May a taxpayer that buys the home for use
as a residence in year 2 claim the § 25D
credit?

A-22: Yes. As long as the taxpayer
begins to use the house as a residence
before 2017, the taxpayer may claim the
§ 25D credit in year 2. Section 25D(e)(8)
treats an expenditure in connection with
the construction or reconstruction of a
structure as made when the taxpayer be-
gins to originally use the constructed or
reconstructed structure as a residence.

Q-23: Same facts as Q-22, but the
house was a model home, and the quali-
fying property was used during the time it
was marketed for sale. May a taxpayer
claim the § 25D credit in year 2?

A-23: Yes. The expenditure is treated
as made when the use of the structure as a
residence begins.

Q-24: In 2010, Taxpayer A purchases
and moves into a newly constructed home
that contains qualifying § 25D property.
Taxpayer A claims the § 25D credit in
2010. In 2013, Taxpayer A sells the home
to Taxpayer B. Is Taxpayer B eligible for
a credit on the same § 25D property?

A-24: No. Section 25D(e)(8) generally
treats an expenditure as made when the
original installation of the qualifying
property is completed. In the case of an
expenditure incurred in connection with
the construction or reconstruction of a
structure, the expenditure is treated as
made when the original use of the con-
structed or reconstructed structure as a
residence by the taxpayer begins. Thus,
only the taxpayer who begins the original
use of the constructed or reconstructed
structure as a residence or the taxpayer
using the home as a residence when the
property was originally installed is eligi-
ble for the tax credit.

##### .02 Solar Electric Property

Q-25: If a taxpayer installs solar elec-
tric property other than directly on the
taxpayer's home, may the taxpayer claim
the § 25D credit?

A-25: Section 25D(d)(2) defines a
qualified solar electric property expendi-
ture, in part, as an expenditure for prop-
erty that uses solar energy to generate
electricity for use in a dwelling unit that is
used as a residence by the taxpayer.
Therefore, if solar panels that are not di-
rectly located on the taxpayer's home use
solar energy to generate electricity di-
rectly for the taxpayer's home the tax-
payer may claim the § 25D credit.

Q-26: A taxpayer purchases solar pan-
els that are placed on an off-site solar
array and connected to the local public
utility's electrical grid that supplies elec-
tricity to the taxpayer's residence. The
taxpayer enters into a direct contractual
arrangement with the local public utility
that supplies electricity to the taxpayer's
residence to allow the taxpayer to provide
electricity to the grid using a net metering
system that measures the amount of elec-
tricity produced by the taxpayer's solar
panels and transmitted to the grid and the
amount of electricity used by the taxpay-
er's residence and drawn from the grid.
The contract states that the taxpayer owns
the energy transmitted by the solar panels
to the utility grid until drawn from the grid
at his residence. Absent unusual circum-
stances, the panels will not generate elec-
tricity for a specified period in excess of
the amount expected to be consumed at
the taxpayer's residence during that spec-
ified period. Can the taxpayer claim the
§ 25D credit?

A-26: Yes. Section 25D(d)(2) defines
a qualified solar electric property expen-
diture, in part, as an expenditure for prop-
erty that uses solar energy to generate
electricity for use in a dwelling unit used
as a residence by the taxpayer. The tax-
payer's expenditure for off-site solar pan-
els under this type of contractual arrange-
ment with a local public utility that
supplies electricity to the taxpayer's resi-
dence meets the definition of qualified so-
lar electric property expenditure.

Q-27: A taxpayer purchases and in-
stalls solar electric property to generate
electricity for the taxpayer's own home
and to allow the taxpayer to sell excess
electricity to a utility. Unlike the taxpayer
in Q-26, this taxpayer generates more
than a minimal amount of excess electric-
ity. Does this taxpayer qualify for the

§ 25D credit on the full amount of the
solar electric property?

A-27: No. Under these facts, the tax-
payer may not claim the § 25D credit for
the full amount of the solar electric prop-
erty expenditure because the property not
only generates electricity for use in the
taxpayer's home, but it also generates
electricity for sale by the taxpayer. The
taxpayer may only claim the § 25D credit
for the portion of the solar electric prop-
erty expenditure that relates to the elec-
tricity generated for use in the taxpayer's
home. In addition, the taxpayer may be
able to claim the § 48 credit for a portion
of the solar electric property expenditure
if the requirements of § 48 are satisfied.

Q-28: Is an expenditure for a solar air
heater eligible for the § 25D credit?

A-28: No. Section 25D(d)(2) defines a
qualified solar electric property expenditure,
in part, as an expenditure for property that
uses solar energy to generate electricity for
use in a dwelling unit. Section 25D(d)(1)
defines a qualified solar water heating prop-
erty expenditure, in part, as an expenditure
for property to heat water for use in a dwell-
ing unit if at least half of the energy used by
such property for such purpose is derived
from the sun. A solar air heater that warms
air and does not generate electricity or heat
water is not eligible for the § 25D credit.

Q-29: Is an expenditure for a solar
powered exhaust fan eligible for the
§ 25D credit?

A-29: Only the component part of a
property that actually generates electricity
for the dwelling unit is eligible for the § 25D
credit. If a solar panel on a fan generates
electricity to power the fan for use in the
dwelling unit, the cost of the panel compo-
nent may be eligible for the § 25D credit if
all the requirements of § 25D are met; how-
ever, the entire cost of the fan is not eligible.

Additionally, § 25D(e)(1) specifically al-
lows certain labor costs to be taken into
account when calculating the credit. Under
this provision, a taxpayer may take into ac-
count only the labor costs allocable to the
qualifying component when calculating the
credit.

.03 Small Wind Energy Property.

Q-30: May a taxpayer claim the § 25D
credit for the purchase of small wind en-
ergy property made from remanufactured
wind turbines?

A-30: Yes. Section 25D does not re-
quire that the original use of the qualified
property or parts of the property begin
with the taxpayer.

.04 Geothermal Heat Pump Property.

Q-31: A taxpayer contacts a seller to
inquire about the installation of a geother-
mal heat pump to heat his home. The seller/
installer informs the taxpayer that the fol-
lowing items must be installed in addition to
the geothermal heat pump: heat exchange
equipment in the ground outside of the
house, a distribution system for the home,
and a back-up emergency heating or cooling
system. Which of these costs, if any, are
eligible for the § 25D credit?

A-31: Only the cost of the heat ex-
change equipment in the ground outside
the house can be eligible for the § 25D
credit. The costs for the distribution sys-
tem for the home and a back-up emer-
gency heating or cooling system are not
eligible for the credit because they are not
incurred for qualified geothermal heat
pump property. Section 25D(d)(5)(B) de-
fines qualified geothermal heat pump
property as any equipment that (1) uses
the ground or ground water as a thermal
energy source to heat the dwelling unit or
as a thermal energy sink to cool such
dwelling unit, and (2) meets the require-
ments of the Energy Star program in ef-
fect at the time that the expenditure for
such equipment is made. Section
25D(e)(1) provides that expenditures for
piping and wiring to interconnect quali-
fied property to a dwelling unit are eligi-
ble for the § 25D credit. However, nothing
in § 25D extends the credit to other aux-
iliary equipment such as distribution sys-
tems within the dwelling unit or backup
emergency heating and cooling systems.

Q-32: Is a manufacturer of geothermal
heat pump property that provides a certi-
fication pursuant to Notice 2009-41 re-
quired to become an Energy Star partner?

A-32: No. A manufacturer of geother-
mal heat pump property is not required to
become an Energy Star partner to provide
a certification pursuant to Notice 2009-
41. However, the geothermal heat pump
property must meet the requirements of
the Energy Star program in effect at the
time the taxpayer purchases the property.
Furthermore, any manufacturer that pro-
vides a certification must retain in its re-
cords documentation establishing that the

property meets those requirements and,
upon request, make such documentation
available for inspection by the Service.

## SECTION 6. EFFECT ON OTHER DOCUMENTS

This notice clarifies and amplifies No-
tice 2009-53 and Notice 2009-41.

## SECTION 7. DRAFTING INFORMATION

The principal author of this notice is
Martha M. Garcia of the Office of Asso-
ciate Chief Counsel (Passthroughs & Spe-
cial Industries). For further information
regarding this notice contact Ms. Garcia
on (202) 622-3110 (not a toll-free call).

Modification of "Use-or-
Lose" Rule for Health
Flexible Spending
Arrangements (FSAs) and
Clarification Regarding
2013-2014 Non-Calendar
Year Salary Reduction
Elections Under § 125
Cafeteria Plans

## Notice 2013-71

I. PURPOSE

This notice contains modifications to
the rules for § 125 cafeteria plans. First,
sections II through V of the notice modify
the "use-or-lose" rule for health FSAs that
is currently set forth in proposed regula-
tions under § 125 of the Internal Revenue
Code (the Code). This modification per-
mits § 125 cafeteria plans to be amended
to allow up to $500 of unused amounts
remaining at the end of a plan year in a
health FSA to be paid or reimbursed to
plan participants for qualified medical ex-
penses incurred during the following plan
year, provided that the plan does not also
incorporate the grace period rule. This
carryover of up to $500 does not affect the
maximum amount of salary reduction
contributions that the participant is per-
mitted to make under §125(i) of the Code
($2,500 adjusted for inflation after 2012).
This carryover option provides an alterna-

tive to the current grace period rule and
administrative relief similar to that rule.

Second, section VI of this notice clar-
ifies the scope of the transition relief pro-
vided in the preamble to proposed regula-
tions under § 4980H that allows greater
flexibility for individuals to make changes
in salary reduction elections for accident
and health plans provided through § 125
cafeteria plans for non-calendar cafeteria
plan years beginning in 2013.

## II. BACKGROUND

Section 125(d)(1) defines a § 125 cafe-
teria plan as a written plan maintained by an
employer under which all participants are
employees, and all participants may choose
among two or more benefits consisting of
cash and qualified benefits. Section 125(f)
defines a qualified benefit as any benefit
which, with the application of § 125(a), is
not includable in the gross income of the
employee by reason of an express provision
of the Code (with certain exceptions). Qual-
ified benefits include employer-provided ac-
cident and health plans excludable from
gross income under §§ 106 and 105(b), but
exclude long term care insurance and certain
qualified health plans offered through an Ex-
change (also referred to as a Marketplace)
established under § 1311 of the Patient Pro-
tection and Affordable Care Act (the Act).4

Pursuant to § 125(d)(2)(A), a § 125 caf-
eteria plan generally does not include any
plan that provides for deferred compensa-
tion. Proposed regulations under § 125 that
predated the enactment of the Act generally
have prohibited participants from using con-
tributions made for one plan year to pur-
chase a benefit that will be provided in a
subsequent plan year. Commonly referred
to as the "use-or-lose" rule, this requires that
unused benefits or contributions remaining
as of the end of the plan year (that is,
amounts credited to a health FSA partici-
pant's account that remain unused, referred
to below as "unused amounts") be forfeited.
See Prop. Treas. Reg. §§ 1.125-1(c)(7)(C),
1.125-1(0), and 1.125-5(c).

In 2005, the Treasury Department and
the IRS modified the use-or-lose rule by
adopting the grace period rule. Under the
grace period rule, a § 125 cafeteria plan
may permit an employee to use amounts
remaining from the previous year (includ-
ing amounts remaining in a health FSA) to
pay expenses incurred for certain qualified
benefits during the period of up to two
months and 15 days immediately follow-
ing the end of the plan year. See Notice
2005-42, 2005-1 C.B. 1204, and Prop.
Treas. Reg. § 1.125-1(e). This exception
was based on other areas of tax law that
do not treat certain arrangements as pro-
viding for deferred compensation if the
compensation payment is made no later
than the fifteenth day of the third month
after the taxable year in which the services
are performed. See, for example, Treas.
Reg. § 1.404(b)-1T, Q&A-2.

Section 125(i)5 provides that, beginning
in 2013, a health FSA is not treated as a
qualified benefit unless the § 125 cafeteria
plan limits each employee's salary reduction
contributions to the health FSA to no more
than $2,500 per taxable year (as indexed for
cost-of-living adjustments). Notice 2012-
40, 2012-26 I.R.B. 1046, provides that the
term "taxable year" in § 125(i) refers to the
plan year of the § 125 cafeteria plan, so that
the limit is applicable only beginning with
the first day of the first plan year beginning
in 2013.

Notice 2012-40 stated that "[t]he $2,500
limit, while not addressing the 'use-or-lose'
rule, limits the potential for using health
FSAs to defer compensation and the extent
to which salary reduction amounts may ac-
cumulate over time. Given the $2,500 limit,
the Treasury Department and the IRS are
considering whether the use-or-lose rule for
health FSAs should be modified to provide a
different form of administrative relief (in-
stead of, or in addition to, the current 21/2
month grace period rule)." Notice 2012-40
requested comments on whether the pro-
posed regulations under § 125 should be
modified to provide flexibility with respect

to the operation of the use-or-lose rule for
health FSAs in addition to the 21/2-month
grace period rule. Numerous comments
were submitted in response to this request,
the overwhelming majority favoring modi-
fication of the use-or-lose rule.

## III. FURTHER MODIFICATION OF USE-OR-LOSE RULE

The public comments argued for addi-
tional flexibility with respect to the opera-
tion of the use-or-lose rule for a number of
reasons. These included the difficulty for
employees of predicting their future needs
for medical expenditures, the desirability of
minimizing incentives for unnecessary
spending at the end of a year or grace pe-
riod, the possibility that lower- and
moderate-paid employees are more reluc-
tant than others to participate because of
aversion to even modest forfeitures of their
salary reduction contributions, and the op-
portunity to ease and potentially to simplify
the administration of health FSAs. In light
of these comments, the Treasury Depart-
ment and the IRS have determined that it is
appropriate to modify the use-or-lose rule to
permit the use of up to $500 of unused
amounts in a health FSA in the immediately
following plan year.

Accordingly, an employer, at its op-
tion, is permitted to amend its § 125 caf-
eteria plan document to provide for the
carryover to the immediately following
plan year of up to $500 of any amount
remaining unused as of the end of the plan
year in a health FSA. The carryover of up
to $500 may be used to pay or reimburse
medical expenses under the health FSA
incurred during the entire plan year to
which it is carried over. For this purpose,
the amount remaining unused as of the
end of the plan year is the amount unused
after medical expenses have been reim-
bursed at the end of the plan's run-out
periodo for the plan year. In addition to the
unused amounts of up to $500 that a plan
may permit an individual to carry over to
the next year, the plan may permit the

4Public Law 111-148 (124 Stat. 1029 (2010)), amended by § 10104 and § 10203 of the Act.

5Section 125(i) was added to the Code by § 9005 of the Act, amended by § 10902 of the Act, and further amended by § 1403(b) of the Health Care and Education Reconciliation Act of
2010 (HCERA), Pub. L. No. 111-152.

"A "run-out period" is a period immediately following the end of a plan year during which a participant can submit a claim for reimbursement of expenses incurred for qualified benefits during the
plan year. See Prop. Treas. Reg. § 1.125-1(f). By contrast, a grace period is a period of up to two months and 15 days immediately following the end of a plan year during which a participant may
use amounts remaining from the previous plan year (including amounts remaining in a health FSA) to pay expenses incurred for certain qualified benefits during that two-month-and-15-day period.
See Notice 2005-42, 2005-1 C.B. 1204, and Prop. Treas. Reg. § 1.125-1(e). (A run-out period may also be provided immediately following the end of a grace period instead of immediately following
the end of a plan year, so that participants can submit claims for reimbursement of expenses incurred during the grace period or the previous plan year.)

individual to also elect up to the maxi-
mum allowed salary reduction amount un-
der § 125(i). Thus, the carryover of up to
$500 does not count against or otherwise
affect the indexed $2,500 salary reduction
limit applicable to each plan year. Al-
though the maximum unused amount al-
lowed to be carried over in any plan year
is $500, the plan may specify a lower
amount as the permissible maximum (and
the plan sponsor has the option of not
permitting any carryover at all).

A plan adopting this carryover provi-
sion is not permitted to also provide a
grace period with respect to health FSAs.
Nor is the plan, for any plan year, permit-
ted to allow an individual to salary reduce
for qualified health FSA benefits more
than the indexed $2,500 salary reduction
limit or permitted to reimburse claims in-
curred during the plan year that exceed the
applicable indexed $2,500 salary reduc-
tion limit (and any nonelective employer
flex credits) plus the carryover amount of
up to $500. If an employer amends its plan
to adopt a carryover, the same carryover
limit must apply to all plan participants. A
§ 125 cafeteria plan is not permitted to
allow unused amounts relating to a health
FSA to be cashed out or converted to any
other taxable or nontaxable benefit. Un-
used amounts relating to a health FSA
may be used only to pay or reimburse
certain § 213(d) medical expenses (ex-
cluding health insurance, long-term care
services or insurance, see Prop. Treas.
Reg. §1.125-1(q)). With respect to a par-
ticipant, the amount that may be carried
over to the following plan year is equal to
the lesser of (1) any unused amounts from
the immediately preceding plan year or
(2) $500 (or a lower amount specified in
the plan). Any unused amount in excess of
$500 (or a lower amount specified in the
plan) that remains unused as of the end of
the plan year (that is, at the end of the
run-out period for the plan year) is for-
feited. Any unused amount remaining in
an employee's health FSA as of termina-
tion of employment also is forfeited (un-
less, if applicable, the employee elects
COBRA continuation coverage with re-
spect to the health FSA).

The uniform coverage rule requires
that the maximum amount of reimburse-
ment from the health FSA (including both
salary reduction amounts and any non-

elective employer flex credits) be avail-
able for claims incurred at all times during
the period of coverage (properly reduced
as of any particular time for prior reim-
bursements for the same period of cover-
age). That rule continues to apply to § 125
cafeteria plans adopting the carryover of
up to $500.

Use of the carryover option permitted
under this notice does not affect the ability
of a health FSA to provide for the pay-
ment of expenses incurred in one plan
year during a permitted run-out period at
the beginning of the following plan year
(just as a run-out period can also be pro-
vided when using the grace period rule).
Thus, for plans using the new carryover
option, a participant's unused health FSA
balance at the end of the prior plan year
may be used (a) for expenses incurred in
the prior plan year, but only if claimed
during the plan's run-out period that be-
gins at the end of the prior plan year (in
effect retroactively reducing the unused
amount as of the end of the prior plan
year) or (b) to the extent of the permitted
carryover amount of up to $500 from the
final prior plan year unused amount, for
expenses that are incurred at any time in
the current plan year. In contrast, salary
reduction or other amounts credited to a
health FSA with respect to service in the
current plan year may be used only for
expenses incurred in the current plan year
(unless and to the extent that these current
plan year amounts may later be carried
over to the following plan year).

For ease of administration, a § 125
cafeteria plan is permitted to treat reim-
bursements of all claims for expenses that
are incurred in the current plan year as
reimbursed first from unused amounts
credited for the current plan year and, only
after exhausting these current plan year
amounts, as then reimbursed from unused
amounts carried over from the preceding
plan year. Any unused amounts from the
prior plan year that are used to reimburse
a current year expense (a) reduce the
amounts available to pay prior plan year
expenses during the run-out period, (b)
must be counted against the permitted car-
ryover of up to $500, and (c) cannot ex-
ceed the permitted carryover. For exam-
ples of how the carryover operates, see
section V of this notice.

## IV. WRITTEN § 125 CAFETERIA PLAN AMENDMENT

To utilize the new carryover option
permitted under this notice, a § 125 cafe-
teria plan offering a health FSA must be
amended to set forth the carryover provi-
sion. The amendment must be adopted on
or before the last day of the plan year from
which amounts may be carried over and
may be effective retroactively to the first
day of that plan year, provided that the
§ 125 cafeteria plan operates in accor-
dance with the guidance under this notice
and informs participants of the carryover
provision, and provided further that a plan
may be amended to adopt the carryover
provision for a plan year that begins in
2013 at any time on or before the last day
of the plan year that begins in 2014.

A § 125 cafeteria plan that incorporates
a carryover provision may not also pro-
vide for a grace period in the plan year to
which unused amounts may be carried
over. Accordingly, if, pursuant to the car-
ryover provision, a plan permits amounts
that were unused in a plan year to be
carried over to the following plan year, the
plan is not permitted to provide for a grace
period that occurs in that following plan
year. For example, a calendar year plan
permitting a carryover to 2015 of unused
2014 health FSA amounts (as determined
at the end of the run-out period in early
2015) would not be permitted to have a
grace period in 2015, but would be per-
mitted to have had a grace period during
the first 21/2 months of 2014.

If a plan has provided for a grace pe-
riod and is being amended to add a carry-
over provision, the plan must also be
amended to eliminate the grace period
provision by no later than the end of the
plan year from which amounts may be
carried over. The ability to eliminate a
grace period provision previously adopted
for the plan year in which the amendment
is adopted may be subject to non-Code
legal constraints.

## V. EXAMPLES

The preceding rules of this notice are
illustrated by the following examples:

Example 1. Employer sponsors a § 125 cafeteria
plan and health FSA with a calendar plan year, an
annual run-out period from January 1 through March
31 in which participants can submit claims for ex-

penses incurred during the preceding plan year, and
an annual open enrollment season in November in
which participants elect a salary reduction amount
(not to exceed $2,500) for the following plan year.
The plan is timely amended to provide for a carry-
over that allows all participants to apply up to $500
of unused health FSA amounts remaining at the end
of the run-out period to the health FSA for expenses
incurred at any time during that plan year. The plan
does not provide for a grace period with respect to
the health FSA. The plan also does not provide for
nonelective employer flex credits.

In November 2014, Participant A elects a salary
reduction amount of $2,500 for 2015. By December
31, 2014, A's unused amount from the 2014 plan
year is $800. On February 1, 2015, A submits claims
and is reimbursed with respect to $350 of expenses
incurred during the 2014 plan year, leaving a carry-
over on March 31, 2015 (the end of the run-out
period) of $450 of unused health FSA amounts from
2014. The $450 amount is not forfeited; instead, it is
carried over to 2015 and available to pay claims
incurred in that year so that $2,950 (that is, $2,500 +
$450) is available to pay claims incurred in 2015. A
incurs and submits claims for expenses of $2,700
during the month of July 2015, and does not submit
any other claims during 2015. A is reimbursed with
respect to the $2,700 claim, leaving $250 as a po-
tential unused amount from 2015 (depending upon
whether A submits claims during the 2015 run-out
period in early 2016).

This § 125 cafeteria plan satisfies the preceding
rules of this notice.

Example 2. The same facts as Example 1, except
that A's expenses of $2,700 are incurred and sub-
mitted during the month of January 2015 (and not
July 2015). The plan may treat $500 of the $800
unused amounts as of December 31, 2014, as avail-
able to pay current year expenses. Accordingly, A is
reimbursed with respect to the $2,700 claim. The
plan treats the first $2,500 of the claim as reimbursed
with health FSA contributions for 2015, and the
remaining $200 of the claim as reimbursed with the
unused amounts as of December 31, 2014. The un-
used amount remaining from 2014 from which
claims for expenses incurred during the 2014 plan
year may be reimbursed during the 2014 run-out
period in early 2015 is reduced to $600 ($800-
$200). On February 1, 2015, A submits and is reim-
bursed with respect to $350 of claims for expenses
incurred during the 2014 plan year. After the $350
reimbursement, the unused amount remaining for
2014 from which claims for expenses incurred dur-
ing the 2014 plan year may be reimbursed during the
2014 run-out period in early 2015 is reduced to $250
($600-$350). A submits no further claims for ex-
penses incurred during the 2014 plan year, so that in
addition to the $200 previously used to reimburse the
January 2015 claim, $250 is carried over to the 2015
plan year. A submits no further claims for 2015. The
amount carried over to 2016 is $250.

This § 125 cafeteria plan satisfies the preceding
rules of this notice.

Example 3. The same facts as Example 2, except
that on February 1, 2015, A submits claims with
respect to $700 of expenses incurred during the 2014
plan year. Because the unused amount remaining
from 2014 from which claims for expenses incurred

during the 2014 plan year may be reimbursed has
been reduced to $600 prior to February 1, 2015, the
plan reimburses A for only $600 of the total $700 of
claims. After the $600 reimbursement, the unused
amount remaining from 2014 from which claims for
expenses incurred during the 2014 plan year may be
reimbursed is reduced to zero ($600-$600). A sub-
mits no further claims for expenses incurred during
the 2014 plan year, so that the amount carried over to
the 2015 plan year is $0 (the entire $800 of unused
amounts as of December 31, 2014, having been used
to reimburse claims submitted in January 2015
($200) and February 2015 ($600).

This § 125 cafeteria plan satisfies the preceding
rules of this notice.

Example 4. The same facts as Example 1, except
that, for 2014, A elects a salary reduction amount of
$600 and, on December 31, 2014, A still has $600 of
unused health FSA amounts.

For 2015, A elects no salary reduction for the
health FSA, submits no claims during the run-out pe-
riod, and as of the end of the run-out period on March
31, 2015, $600 in unused health FSA amounts remains.
Of that amount, $100 is forfeited because it exceeds the
$500 carryover limit, and $500 is carried over to the
2015 plan year. A incurs $200 in expenses during the
2015 plan year, which are reimbursed during that plan
year. As of December 31, 2015, A has $300 in unused
health FSA amounts.

For 2016, A elects no salary reduction for the
health FSA but has the $300 carryover from 2015,
which is not forfeited. A incurs medical expenses of
$300 in 2016, which are reimbursed using the $300
carryover from 2015.

This § 125 cafeteria plan satisfies the preceding
rules of this notice.

VI. CLARIFICATION OF SCOPE OF
TRANSITION RULE APPLICABLE
TO NON-CALENDAR PLAN YEARS
BEGINNING IN 2013 FOR
PARTICIPANT CHANGES IN
SALARY REDUCTION ELECTIONS
UNDER HEALTH PLANS PROVIDED
THROUGH § 125 CAFETERIA PLANS

## A. BACKGROUND

Generally, § 125 cafeteria plan elec-
tions must be made before the start of the
plan year, and are irrevocable during the
plan year, with limited exceptions, includ-
ing certain changes in status. See Prop.
Treas. Reg. § 1.125-2, Treas. Reg.
§1.125-4. Under existing regulations, the
availability of health plan coverage
through an Affordable Insurance Ex-
change (also referred to in other published
guidance as a Marketplace) beginning
with calendar year 2014 does not consti-
tute such a change in status. As a result,
employees would not be able to change
their salary reduction elections for health
coverage during a plan year in order to,
for example, cease their salary reductions

and § 125 cafeteria plan coverage and
purchase coverage through an Exchange.
However, the Treasury Department and
the IRS previously concluded that transi-
tion relief is appropriate for individuals
with respect to non-calendar § 125 cafe-
teria plan years beginning in 2013. For
individuals eligible for such a plan, health
plan coverage through an Exchange will
first become available in the middle of the
plan's 2013-2014 non-calendar plan year
(that is, January 2014). Accordingly, the
Treasury Department and the IRS have
provided transition relief from the election
rules in Prop. Treas. Reg. § 1.125-2 with
respect to salary reduction elections under
a § 125 cafeteria plan for an employer-
provided accident and health plan with a
non-calendar plan year beginning in 2013.
The transition relief was provided in Sec-
tion IX.B of the preamble to proposed
regulations (issued on December 28,
2012) under § 4980H (referred to below
as "Section IX.B"). See 78 Fed. Reg. 218,
237 (Jan. 2, 2013).

Specifically, Section IX.B permits an
employer, at its election, to amend one or
more of its written § 125 cafeteria plans to
allow employees to make either or both of
the following changes in salary reduction
elections, whether or not the employee
experienced a change in status event de-
scribed in Treas. Reg. § 1.125-4:

1\. An employee who elected to salary re-
duce through the employer's § 125 caf-
eteria plan for accident and health plan
coverage with a non-calendar plan year
beginning in 2013 is allowed to pro-
spectively revoke or change his or her
election with respect to the accident
and health plan once during that plan
year; and

2\.
An employee who failed to make a
salary reduction election through the
employer's § 125 cafeteria plan for ac-
cident and health plan coverage with a
non-calendar plan year beginning in
2013 before the deadline in Prop.
Treas. Reg. § 1.125-2 for making elec-
tions for the § 125 cafeteria plan year
beginning in 2013 is allowed to make a
prospective salary reduction election
for accident and health coverage on or
after the first day of the 2013 plan year
of the § 125 cafeteria plan.

B. CLARIFICATION OF § 125
CAFETERIA PLAN TRANSITION
RULE FOR PARTICIPANT SALARY
REDUCTION ELECTIONS AS SET
FORTH IN SECTION IX.B

Although the description of the § 125
cafeteria plan transition rule in Section
IX.B refers to applicable large employer
members (generally meaning a person
that, together with one or more other per-
sons, is treated as a single employer that is
an applicable large employer), the relief is
available, subject to the rules set forth in
Section IX.B, to an employer with a § 125
cafeteria plan non-calendar plan year be-
ginning in 2013 whether or not the em-
ployer is an applicable large employer or
applicable large employer member under
§ 4980H.

Stakeholders have asked whether em-
ployees may use the relief set forth in
Section IX.B if their employer amends its
§ 125 cafeteria plan to allow changes in
salary reduction elections but adopts an
amendment that is more limited than the
two options listed in Section IX.B, as de-
scribed above. An amendment to a § 125
cafeteria plan adopted pursuant to Section
IX.B may be more restrictive than the

amendments described in Section IX.B
but may not be less restrictive. For exam-
ple, an employer may amend its § 125
cafeteria plan to allow an employee who
elected to salary reduce through the § 125
cafeteria plan to pay for accident and
health plan coverage under the § 125 caf-
eteria plan with a non-calendar plan year
beginning in 2013 to prospectively revoke
or change his or her election with respect
to the accident and health plan once, dur-
ing a limited period (for example, the first
month of 2014 only rather than the entire
plan year) without regard to whether the
employee experienced a change in status
event described in Treas. Reg. § 1.125-4.

## VII. EFFECTIVE DATES

An employer may adopt the carryover
provision (of up to $500) authorized in
this notice to health FSAs for the current
§ 125 cafeteria plan year (and/or subse-
quent § 125 cafeteria plan years) by
amending the § 125 cafeteria plan docu-
ment in the manner and within the time
frames described in section IV of this no-
tice.

The clarifications described in section
VI of this notice of the relief provided in

Section IX.B may be applied beginning on
or after December 28, 2012 (the date on
which the proposed regulations that in-
cluded Section IX.B were issued).

## VIII. EFFECT ON OTHER DOCUMENTS

The Treasury Department and the IRS
intend to amend Prop. Treas. Reg.
§§ 1.125-1(o) and 1.125-5(c) to reflect
the guidance in this notice; taxpayers may
rely on the guidance in this notice pending
the issuance and effectiveness of those
amendments to the regulations.

## IX. DRAFTING INFORMATION

The principal author of this notice is
Janet A. Laufer of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). For
further information regarding the modifi-
cation of the use or lose rules contained in
this notice, contact Ms. Laufer at (202)
927-9639 (not a toll-free call). For further
information regarding the clarifications to
Section IX.B, contact Ms. Katy Johnson at
(202) 927-9639 (not a toll-free call).

26 CFR 601.602: Tax forms and instructions.

(Also Part I, §§ 1, 23, 24, 254, 32, 42, 45R, 55, 59, 62, 63, 68, 125, 132(f), 135, 137, 146, 147, 148, 151, 213, 220, 221, 512, 513, 877, 8774, 911, 2010, 2032A,
2503, 2523, 4161, 4261, 6033, 6039F, 6323, 6334, 6601, 7430, 7702B; 1.148-5.)

## Rev. Proc. 2013-35

TABLE OF CONTENTS

SECTION 1. PURPOSE

SECTION 2. CHANGES

### SECTION 3. 2014 ADJUSTED ITEMS

Code Section

.01 Tax Rate Tables

1(a)-(e)

.02 Unearned Income of Minor Children Taxed as if Parent's Income ("Kiddie Tax").

1(g)

.03 Adoption Credit

.04 Child Tax Credit

.05 Hope Scholarship and Lifetime Learning Credits

25A

.06 Earned Income Credit

.07 Rehabilitation Expenditures Treated as Separate New Building.

42(e)

.08 Low-Income Housing Credit

42(h)

.09 Employee Health Insurance Expense of Small Employers

45R

.10 Exemption Amounts for Alternative Minimum Tax

.11 Alternative Minimum Tax Exemption for a Child Subject to the "Kiddie Tax"

59(j)

.12 Transportation Mainline Pipeline Construction Industry Optional Expense Substantiation Rules for Payments to Employees under Accountable Plans

62(c)

.13 Standard Deduction

.14 Overall Limitation on Itemized Deductions

.15 Cafeteria Plans.

125

.16 Qualified Transportation Fringe Benefit.

132(f)

.17 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses

135

.18 Adoption Assistance Programs

137

.19 Private Activity Bonds Volume Cap

146(d)

.20 Loan Limits on Agricultural Bonds.

147(c)(2)

.21 General Arbitrage Rebate Rules

148(f)

.22 Safe Harbor Rules for Broker Commissions on Guaranteed Investment Contracts or Investments Purchased for a Yield Restricted Defeasance Escrow

148

.23 Personal Exemption

151

.24 Eligible Long-Term Care Premiums

213(d)(10)

.25 Medical Savings Accounts

220

.26 Interest on Education Loans

221

.27 Treatment of Dues Paid to Agricultural or Horticultural Organizations

512(d)

.28 Insubstantial Benefit Limitations for Contributions Associated With Charitable Fund-Raising Campaigns

513(h)

.29 Expatriation to Avoid Tax.

877

.30 Tax Responsibilities of Expatriation

877A

.31 Foreign Earned Income Exclusion

911

.32 Unified Credit Against Estate Tax

2010

.33 Valuation of Qualified Real Property in Decedent's Gross Estate.

2032A

.34 Annual Exclusion for Gifts

2503; 2523

.35 Tax on Arrow Shafts.
4161

.36 Passenger Air Transportation Excise Tax
4261

.37 Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying
Expenditures

6033(e)(3)

.38 Notice of Large Gifts Received from Foreign Persons

6039F

.39 Persons Against Whom a Federal Tax Lien Is Not Valid

6323

.40 Property Exempt from Levy

6334

.41 Interest on a Certain Portion of the Estate Tax Payable in Installments

6601(j)

.42 Attorney Fee Awards

7430

.43 Periodic Payments Received under Qualified Long-Term Care Insurance Contracts or under
Certain Life Insurance Contracts.

7702B(d)

# SECTION 4. EFFECTIVE DATE

# SECTION 5. DRAFTING INFORMATION

## SECTION 1. PURPOSE

This revenue procedure sets forth
inflation-adjusted items for 2014.

## SECTION 2. CHANGES

.01 Section 1421(a) of the Patient Pro-
tection and Affordable Care Act of 2010,
Pub. L. No. 111-148, 124 Stat. 119
(PPACA), added § 45R to the Internal
Revenue Code. Section 45R provides a
Federal income tax credit to certain small
employers that make nonelective contri-
butions toward their employees' health in-
surance premiums. The maximum credit
is a percentage of the premiums that the
employer paid during the tax year for cer-
tain health insurance coverage that the
employer provided to certain employees.

Under § 45R(c) the maximum credit is
phased out based on the employer's num-
ber of full-time equivalent employees in
excess of 10 and the employer's average
annual wages in excess of the dollar
amount in effect under § 45R(d)(3)(B).
For a taxable year beginning after 2013,
an inflation adjustment applies to the dol-
lar amount in § 45R(d)(3)(B), which is
used under § 45R(c) as described above
and under § 45R(d)(1)(B) in determining
who is an eligible small employer for pur-
poses of qualifying for this credit.

.02 Section 9005 of the PPACA
amended § 125 to provide limitations on
Health Flexible Spending Arrangements.
Section 10902 of the Health Care and
Education Reconciliation Act of 2010,
Pub. L. No. 111-152, 124 Stat. 1029,

amended section 9005 and § 125 to pro-
vide that the dollar limitation under
§ 125(i) on voluntary employee salary re-
ductions for contributions to health flexi-
ble spending arrangements is adjusted for
inflation for taxable years beginning after
December 31, 2013.

## SECTION 3. 2014 ADJUSTED ITEMS

.01 Tax Rate Tables. For taxable years
beginning in 2014, the tax rate tables un-
der § 1 are as follows:

TABLE 1 - Section 1(a) - Married Individuals Filing Joint Returns and Surviving Spouses

If Taxable Income Is:

The Tax Is:

Not over $18,150

10% of the taxable income

Over $18,150 but not over $73,800

$1,815 plus 15% of the excess over $18,150

Over $73,800 but not over $148,850

$10,162.50 plus 25% of the excess over $73,800

Over $148,850 but not over $226,850

$28,925 plus 28% of the excess over $148,850

Over $226,850 but not over $405,100

$50,765 plus 33% of the excess over $226,850

Over $405,100 but not over $457,600

$109,587.50 plus 35% of the excess over $405,100

Over $457,600

$127,962.50 plus 39.6% of the excess over $457,600

TABLE 2 - Section 1(b) - Heads of Households

If Taxable Income Is:

The Tax Is:

Not over $12,950

10% of the taxable income

Over $12,950 but not over $49,400

$1,295 plus 15% of the excess over $12,950

Over $49,400 but not over $127,550

$6,762.50 plus 25% of the excess over $49,400

Over $127,550 but not over $206,600

$26,300 plus 28% of the excess over $127,550

Over $206,600 but not over $405,100

$48,434 plus 33% of the excess over $206,600

Over $405,100 not over $432,200

$113,939 plus 35% of the excess over $405,100

Over $432,200

$123,424 plus 39.6% of the excess over $432,200

TABLE 3 - Section 1(c) - Unmarried Individuals (other than Surviving Spouses and Heads of Households)

If Taxable Income Is:

The Tax Is:

Not over $9,075

10% of the taxable income

Over $9,075 but not over $36,900

$907.50 plus 15% of the excess over $9,075

Over $36,900 but not over $89,350

$5,081.25 plus 25% of the excess over $36,900

Over $89,350 but not over $186,350

$18,193.75 plus 28% of the excess over $89,350

Over $186,350 but not over $405,100

$45,353.75 plus 33% of the excess over $186,350

Over $405,100 not over $406,750

$117,541.25 plus 35% of the excess over $405,100

Over $406,750

$118,118.75 plus 39.6% of the excess over $406,750

TABLE 4 - Section 1(d) - Married Individuals Filing Separate Returns

If Taxable Income Is:

The Tax Is:

Not over $9,075

10% of the taxable income

Over $9,075 but not over $36,900

$907.50 plus 15% of the excess over $9,075

Over $36,900 but not over $74,425

$5,081.25 plus 25% of the excess over $36,900

Over $74,425 but not over $113,425

$14,462.50 plus 28% of the excess over $74,425

Over $113,425 but not over $202,550

$25,382.50 plus 33% of the excess over $113,425

Over $202,550 not over $228,800

$54,793.75 plus 35% of the excess over $202,550

Over $228,800

$63,981.25 plus 39.6% of the excess over $228,800

TABLE 5 - Section 1(e) - Estates and Trusts

If Taxable Income Is:

The Tax Is:

Not over $2,500

15% of the taxable income

Over $2,500 but not over $5,800

$375 plus 25% of the excess over $2,500

Over $5,800 but not over $8,900

$1,200 plus 28% of the excess over $5,800

Over $8,900 but not over $12,150

$2,068 plus 33% of the excess over $8,900

Over $12,150

$3,140.50 plus 39.6% of the excess over $12,150

.02 Unearned Income of Minor Children
Taxed as if Parent's Income (the "Kiddie
Tax"). For taxable years beginning in 2014,
the amount in § 1(g)(4)(A)(ii)(I), which is
used to reduce the net unearned income
reported on the child's return that is subject
to the "kiddie tax," is $1,000. This $1,000
amount is the same as the amount provided
in § 63(c)(5)(A), as adjusted for inflation.

The same $1,000 amount is used for pur-
poses of § 1(g)(7) (that is, to determine
whether a parent may elect to include a
child's gross income in the parent's gross
income and to calculate the "kiddie tax").
For example, one of the requirements for the
parental election is that a child's gross in-
come is more than the amount referenced in
§ 1(g)(4)(A)(ii)(I) but less than 10 times that

amount; thus, a child's gross income for
2014 must be more than $1,000 but less than
$10,000.

.03 Adoption Credit. For taxable years
beginning in 2014, under § 23(a)(3) the
credit allowed for an adoption of a child
with special needs is $13,190. For taxable
years beginning in 2014, under § 23(b)(1)
the maximum credit allowed for other

adoptions is the amount of qualified adop-
tion expenses up to $13,190. The avail-
able adoption credit begins to phase out
under § 23(b)(2)(A) for taxpayers with
modified adjusted gross income in excess
of $197,880 and is completely phased out
for taxpayers with modified adjusted gross
income of $237,880 or more. (See section
3.18 of this revenue procedure for the
adjusted items relating to adoption assis-
tance programs.)

.04 Child Tax Credit. For taxable years
beginning in 2014, the value used in
§ 24(d)(1)(B)(i) to determine the amount
of credit under § 24 that may be refund-
able is $3,000.

.05 Hope Scholarship, American Op-
portunity, and Lifetime Learning Credits.

(1) For taxable years beginning in
2014, the Hope Scholarship Credit under
§ 25A(b)(1), as increased under § 25A(i)
(the American Opportunity Tax Credit), is
an amount equal to 100 percent of quali-

fied tuition and related expenses not in
excess of $2,000 plus 25 percent of those
expenses in excess of $2,000, but not in
excess of $4,000. Accordingly, the maxi-
mum Hope Scholarship Credit allowable
under § 25A(b)(1) for taxable years be-
ginning in 2014 is $2,500.

(2) For taxable years beginning in
2014, a taxpayer's modified adjusted
gross income in excess of $80,000
($160,000 for a joint return) is used to
determine the reduction under
§ 25A(d)(2) in the amount of the Hope
Scholarship Credit otherwise allowable
under § 25A(a)(1). For taxable years be-
ginning in 2014, a taxpayer's modified
adjusted gross income in excess of
$54,000 ($108,000 for a joint return) is
used to determine the reduction under
§ 25A(d)(2) in the amount of the Lifetime
Learning Credit otherwise allowable un-
der § 25A(a)(2).

.06 Earned Income Credit. (1) In gen-
eral. For taxable years beginning in 2014,
the following amounts are used to deter-
mine the earned income credit under
§ 32(b). The "earned income amount" is
the amount of earned income at or above
which the maximum amount of the earned
income credit is allowed. The "threshold
phaseout amount" is the amount of ad-
justed gross income (or, if greater, earned
income) above which the maximum
amount of the credit begins to phase out.
The "completed phaseout amount" is the
amount of adjusted gross income (or, if
greater, earned income) at or above which
no credit is allowed. The threshold phase-
out amounts and the completed phaseout
amounts shown in the table below for
married taxpayers filing a joint return in-
clude the increase provided in
§ 32(b)(3)(B)(i), as adjusted for inflation
for taxable years beginning in 2014.

Item

Number of Qualifying Children

One

Two

Three or More

None

Earned Income Amount

$ 9,720

$13,650

$6,480

Maximum Amount of Credit

$ 3,305

$ 5,460

$ 6,143

$ 496

Threshold Phaseout Amount (Single, Surviving Spouse, or Head of Household)

$17,830

$8,110

Completed Phaseout Amount (Single, Surviving Spouse, or Head of Household)

$38,511

$43,756

$46,997

$14,590

Threshold Phaseout Amount (Married Filing Jointly)

$23,260

$13,540

Completed Phaseout Amount (Married Filing Jointly)

$43,941

$49,186

$52,427

$20,020

The instructions for the Form 1040 se-
ries provide tables showing the amount of
the earned income credit for each type of
taxpayer.

(2) Excessive Investment Income. For
taxable years beginning in 2014, the
earned income tax credit is not allowed
under § 32(i) if the aggregate amount of
certain investment income exceeds
$3,350.

calendar year 2014, the per low-income
unit qualified basis amount under
§ 42(e)(3)(A)(ii)(II) is $6,500.

.08 Low-Income Housing Credit. For
calendar year 2014, the amount used un-
der § 42(h)(3)(C)(ii) to calculate the State
housing credit ceiling for the low-income
housing credit is the greater of (1) $2.30
multiplied by the State population, or (2)
$2,635,000.

.09 Employee Health Insurance Ex-

.07 Rehabilitation Expenditures
Treated as Separate New Building. For pense of Small Employers. For taxable

years beginning in 2014, the dollar
amount in effect under § 45R(d)(3)(B) is
$25,400. This amount is used under
§ 45R(c) for limiting the small employer
health insurance credit and under
§ 45R(d)(1)(B) for determining who is an
eligible small employer for purposes of
the credit.

.10 Exemption Amounts for Alternative
Minimum Tax. For taxable years begin-
ning in 2014, the exemption amounts un-
der § 55(d)(1) are:

Joint Returns or Surviving Spouses

$82,100

Unmarried Individuals (other than Surviving Spouses)

$52,800

Married Individuals Filing Separate Returns

$41,050

Estates and Trusts

$23,500

For taxable years beginning in 2014, under § 55(b)(1), the excess taxable in- come above which the 28 percent tax rate applies is:

Married Individuals Filing Separate Returns

$ 91,250

Joint Returns, Unmarried Individuals (other than surviving spouses), and Estates and Trusts

$182,500

For taxable years beginning in 2014, the amounts used under § 55(d)(3) to de- termine the phaseout of the exemption amounts are:

Joint Returns or Surviving Spouses

$156,500

Unmarried Individuals (other than Surviving Spouses)

$117,300

Married Individuals Filing Separate Returns and Estates and Trusts

$ 78,250

.11 Alternative Minimum Tax Exemp-
tion for a Child Subject to the "Kiddie
Tax." For taxable years beginning in
2014, for a child to whom the § 1(g)
"kiddie tax" applies, the exemption
amount under §§ 55 and 59(j) for pur-
poses of the alternative minimum tax un-
der § 55 may not exceed the sum of (1) the
child's earned income for the taxable year,
plus (2) $7,250.

.12 Transportation Mainline Pipeline
Construction Industry Optional Expense
Substantiation Rules for Payments to Em-
ployees under Accountable Plans. For cal-
endar year 2014, an eligible employer
may pay certain welders and heavy equip-
ment mechanics an amount of up to $17
per hour for rig-related expenses that is
deemed substantiated under an account-
able plan if paid in accordance with Rev.

Proc. 2002-41, 2002-1 C.B. 1098. If the
employer provides fuel or otherwise reim-
burses fuel expenses, up to $10 per hour is
deemed substantiated if paid under Rev.
Proc. 2002-41.

.13 Standard Deduction.

(1) In general. For taxable years begin-
ning in 2014, the standard deduction
amounts under § 63(c)(2) are as follows:

Filing Status

Standard Deduction

Married Individuals Filing Joint Returns and Surviving Spouses (§ 1(a))

$12,400

Heads of Households (§ 1(b))

$ 9,100

Unmarried Individuals (other than Surviving Spouses and Heads of Households) (§ 1(c))

$ 6,200

Married Individuals Filing Separate Returns (§ 1(d))

$ 6,200

(2) Dependent. For taxable years be-
ginning in 2014, the standard deduction
amount under § 63(c)(5) for an individual
who may be claimed as a dependent by
another taxpayer cannot exceed the
greater of (1) $1,000, or (2) the sum of
$350 and the individual's earned income.

(3) Aged or blind. For taxable years
beginning in 2014, the additional standard
deduction amount under § 63(f) for the
aged or the blind is $1,200. The additional
standard deduction amount is increased to
$1,550 if the individual is also unmarried
and not a surviving spouse.

.14 Overall Limitation on Itemized De-
ductions. For taxable years beginning in
2014, the applicable amounts under
§ 68(b) are $305,050 in the case of a joint
return or a surviving spouse, $279,650 in
the case of a head of household, $254,200
in the case of an individual who is not
married and who is not a surviving spouse
or head of household, $152,525 in the
case of a married individual filing a sep-
arate return.

.15 Cafeteria Plans. For the taxable
years beginning in 2014, the dollar limi-
tation under § 125(i) on voluntary em-
ployee salary reductions for contributions
to health flexible spending arrangements
is $2,500.

.16 Qualified Transportation Fringe
Benefit. For taxable years beginning in
2014, the monthly limitation under
§ 132(f)(2)(A) regarding the aggregate
fringe benefit exclusion amount for trans-
portation in a commuter highway vehicle
and any transit pass is $130. The monthly
limitation under § 132(f)(2)(B) regarding
the fringe benefit exclusion amount for
qualified parking is $250.

.17 Income from United States Savings
Bonds for Taxpayers Who Pay Qualified

Higher Education Expenses. For taxable
years beginning in 2014, the exclusion
under § 135, regarding income from
United States savings bonds for taxpayers
who pay qualified higher education ex-
penses, begins to phase out for modified
adjusted gross income above $113,950 for
joint returns and $76,000 for all other
returns. The exclusion is completely
phased out for modified adjusted gross
income of $143,950 or more for joint re-
turns and $91,000 or more for all other
returns.

.18 Adoption Assistance Programs. For
taxable years beginning in 2014, under
§ 137(a)(2) the amount that can be ex-
cluded from an employee's gross income
for the adoption of a child with special
needs is $13,190. For taxable years begin-
ning in 2014, under § 137(b)(1) the max-
imum amount that can be excluded from
an employee's gross income for the
amounts paid or expenses incurred by an
employer for qualified adoption expenses
furnished pursuant to an adoption assis-
tance program for other adoptions by the
employee is $13,190. The amount exclud-
able from an employee's gross income
begins to phase out under § 137(b)(2)(A)
for taxpayers with modified adjusted gross
income in excess of $197,880 and is com-
pletely phased out for taxpayers with
modified adjusted gross income of
$237,880 or more. (See section 3.03 of
this revenue procedure for the adjusted
items relating to the adoption credit.)

.19 Private Activity Bonds Volume
Cap. For calendar year 2014, the amounts
used under § 146(d)(1) to calculate the
State ceiling for the volume cap for pri-
vate activity bonds is the greater of (1)
$100 multiplied by the State population,
or (2) $296,825,000.

.20 Loan Limits on Agricultural Bonds.
For calendar year 2014, the loan limit
amount on agricultural bonds under
§ 147(c)(2)(A) for first-time farmers is
$509,600.

.21 General Arbitrage Rebate Rules.
For bond years ending in 2014, the
amount of the computation credit deter-
mined under the permission to rely on
§ 1.148-3(d)(4) of the proposed Income
Tax Regulations is $1,620.

.22 Safe Harbor Rules for Broker Com-
missions on Guaranteed Investment Con-
tracts or Investments Purchased for a Yield
Restricted Defeasance Escrow. For calendar
year 2014, under § 1.148-5(e)(2)(iii)(B)(1),
a broker's commission or similar fee for the
acquisition of a guaranteed investment con-
tract or investments purchased for a yield
restricted defeasance escrow is reasonable if
(1) the amount of the fee that the issuer
treats as a qualified administrative cost does
not exceed the lesser of (A) $38,000, and
(B) 0.2 percent of the computational base
(as defined in § 1.148-5(e)(2)(iii)(B)(2)) or,
if more, $4,000; and (2) the issuer does not
treat more than $108,000 in brokers' com-
missions or similar fees as qualified admin-
istrative costs for all guaranteed investment
contracts and investments for yield re-
stricted defeasance escrows purchased with
gross proceeds of the issue.

.23 Personal Exemption.

(1) For taxable years beginning in
2014, the personal exemption amount un-
der § 151(d) is $3,950.

(2) Phaseout. For taxable years begin-
ning in 2014, the personal exemption
phases out for taxpayers with the follow-
ing adjusted gross income amounts:

Filing Status

AGI - Beginning of Phaseout

AGI - Completed Phaseout

Married Individuals Filing Joint Returns and Surviving Spouses (§ 1(a))

$305,050

$427,550

Heads of Households (§ 1(b))

$279,650

$402,150

Unmarried Individuals (other than Surviving Spouses and

$254,200

$376,700

Heads of Households) (§ 1(c))

Married Individuals Filing Separate Returns (§ 1(d))

$152,525

$213,775

.24 Eligible Long-Term Care Premi-
ums. For taxable years beginning in 2014,

the limitations under § 213(d)(10), regard-
ing eligible long-term care premiums in-

cludible in the term "medical care," are as
follows:

Attained Age Before the Close of the Taxable Year

Limitation on Premiums

40 or less

$ 370

More than 40 but not more than 50

$ 700

More than 50 but not more than 60

$1,400

More than 60 but not more than 70

$3,720

More than 70

$4,660

.25 Medical Savings Accounts.

(1) Self-only coverage. For taxable
years beginning in 2014, the term "high
deductible health plan" as defined in
§ 220(c)(2)(A) means, for self-only cov-
erage, a health plan that has an annual
deductible that is not less than $2,200 and
not more than $3,250, and under which
the annual out-of-pocket expenses re-
quired to be paid (other than for premi-
ums) for covered benefits do not exceed
$4,350.

(2) Family coverage. For taxable years
beginning in 2014, the term "high deduct-
ible health plan" means, for family cover-
age, a health plan that has an annual de-
ductible that is not less than $4,350 and
not more than $6,550, and under which
the annual out-of-pocket expenses re-
quired to be paid (other than for premi-
ums) for covered benefits do not exceed
$8,000.

.26 Interest on Education Loans. For
taxable years beginning in 2014, the
$2,500 maximum deduction for interest
paid on qualified education loans under
§ 221 begins to phase out under
§ 221(b)(2)(B) for taxpayers with modi-
fied adjusted gross income in excess of
$65,000 ($130,000 for joint returns), and
is completely phased out for taxpayers
with modified adjusted gross income of
$80,000 or more ($160,000 or more for
joint returns).

.27 Treatment of Dues Paid to Agricul-
tural or Horticultural Organizations. For
taxable years beginning in 2014, the lim-
itation under § 512(d)(1), regarding the
exemption of annual dues required to be
paid by a member to an agricultural or
horticultural organization, is $158.

.28 Insubstantial Benefit Limitations
for Contributions Associated with Chari-
table Fund-Raising Campaigns.

(1) Low cost article. For taxable years
beginning in 2014, for purposes of defin-
ing the term "unrelated trade or business"
for certain exempt organizations under
§ 513(h)(2), "low cost articles" are articles
costing $10.40 or less.

(2) Other insubstantial benefits. For
taxable years beginning in 2014, under
§ 170, the $5, $25, and $50 guidelines in
section 3 of Rev. Proc. 90-12, 1990-1
C.B. 471 (as amplified by Rev. Proc. 92-
49, 1992-1 C.B. 987, and modified by
Rev. Proc. 92-102, 1992-2 C.B. 579), for
the value of insubstantial benefits that
may be received by a donor in return for a
contribution, without causing the contri-
bution to fail to be fully deductible, are
$10.40, $52, and $104, respectively.

.29 Expatriation to Avoid Tax. For cal-
endar year 2014, under § 877A(g)(1)(A),
unless an exception under § 877A(g)(1)(B)
applies, an individual is a covered expatriate
if the individual's "average annual net in-
come tax" under §877(a)(2)(A) for the five
taxable years ending before the expatriation
date is more than $157,000.

.30 Tax Responsibilities of Expatria-
tion. For taxable years beginning in 2014,
the amount that would be includible in the
gross income of a covered expatriate by
reason of § 877A(a)(1) is reduced (but not
below zero) by $680,000.

.31 Foreign Earned Income Exclusion.
For taxable years beginning in 2014, the
foreign earned income exclusion amount
under § 911(b)(2)(D)(i) is $99,200.

.32 Unified Credit Against Estate Tax.
For an estate of any decedent dying during
calendar year 2014, the basic exclusion
amount is $5,340,000 for determining the
amount of the unified credit against estate
tax under § 2010.

.33 Valuation of Qualified Real Prop-
erty in Decedent's Gross Estate. For an

estate of a decedent dying in calendar year
2014, if the executor elects to use the
special use valuation method under
§ 2032A for qualified real property, the
aggregate decrease in the value of quali-
fied real property resulting from electing
to use § 2032A for purposes of the estate
tax cannot exceed $1,090,000.

.34 Annual Exclusion for Gifts.

(1) For calendar year 2014, the first
$14,000 of gifts to any person (other than
gifts of future interests in property) are not
included in the total amount of taxable
gifts under § 2503 made during that year.

(2) For calendar year 2014, the first
$145,000 of gifts to a spouse who is not a
citizen of the United States (other than
gifts of future interests in property) are not
included in the total amount of taxable
gifts under §§ 2503 and 2523(i)(2) made
during that year.

.35 Tax on Arrow Shafts. For calendar
year 2014, the tax imposed under
§ 4161(b)(2)(A) on the first sale by the
manufacturer, producer, or importer of
any shaft of a type used in the manufac-
ture of certain arrows is $0.48 per shaft.

.36 Passenger Air Transportation Ex-
cise Tax. For calendar year 2014, the tax
under § 4261(b)(1) on the amount paid for
each domestic segment of taxable air
transportation is $4. For calendar year
2014, the tax under § 4261(c)(1) on any
amount paid (whether within or without
the United States) for any international air
transportation, if the transportation begins
or ends in the United States, generally is
$17.50. Under § 4261(c)(3), however, a
lower amount applies under § 4261(c)(1)
to a domestic segment beginning or end-
ing in Alaska or Hawaii, and the tax ap-
plies only to departures. For calendar year
2014, the rate is $8.70.

.37 Reporting Exception for Certain
Exempt Organizations with Nondeduct-
ible Lobbying Expenditures. For taxable
years beginning in 2014, the annual per
person, family, or entity dues limitation to
qualify for the reporting exception under
§ 6033(e)(3) (and section 5.05 of Rev.
Proc. 98-19, 1998-1 C.B. 547), regard-
ing certain exempt organizations with
nondeductible lobbying expenditures, is
$110 or less.

.38 Notice of Large Gifts Received from
Foreign Persons. For taxable years begin-
ning in 2014, § 6039F authorizes the Trea-
sury Department and the Internal Revenue
Service to require recipients of gifts from
certain foreign persons to report these gifts
if the aggregate value of gifts received in the
taxable year exceeds $15,358.

.39 Persons Against Whom a Federal
Tax Lien Is Not Valid. For calendar year
2014, a federal tax lien is not valid against
(1) certain purchasers under § 6323(b)(4)
who purchased personal property in a ca-
sual sale for less than $1,490, or (2) a
mechanic's lienor under § 6323(b)(7) who
repaired or improved certain residential
property if the contract price with the
owner is not more than $7,470.

.40 Property Exempt from Levy. For
calendar year 2014, the value of property
exempt from levy under § 6334(a)(2)
(fuel, provisions, furniture, and other
household personal effects, as well as
arms for personal use, livestock, and poul-
try) cannot exceed $8,940. The value of
property exempt from levy under

§ 6334(a)(3) (books and tools necessary
for the trade, business, or profession of the
taxpayer) cannot exceed $4,470.

.41 Interest on a Certain Portion of the
Estate Tax Payable in Installments. For an
estate of a decedent dying in calendar year
2014, the dollar amount used to determine
the "2-percent portion" (for purposes of
calculating interest under § 6601(j)) of the
estate tax extended as provided in § 6166
is $1,450,000.

.42 Attorney Fee Awards. For fees in-
curred in calendar year 2014, the attorney
fee award limitation under
§ 7430(c)(1)(B)(iii) is $190 per hour.

.43 Periodic Payments Received under
Qualified Long-Term Care Insurance
Contracts or under Certain Life Insurance
Contracts. For calendar year 2014, the
stated dollar amount of the per diem lim-
itation under § 7702B(d)(4), regarding pe-
riodic payments received under a qualified
long-term care insurance contract or peri-
odic payments received under a life insur-
ance contract that are treated as paid by
reason of the death of a chronically ill
individual, is $330.

SECTION 4. EFFECTIVE DATE

.01 General Rule. Except as provided
in section 4.02, this revenue procedure
applies to taxable years beginning in
2014.

.02 Calendar Year Rule. This revenue
procedure applies to transactions or events
occurring in calendar year 2014 for pur-
poses of sections 3.07 (rehabilitation ex-

penditures treated as separate new build-
ing), 3.08 (low-income housing credit),
3.12 (transportation mainline pipeline
construction industry optional expense
substantiation rules for payments to em-
ployees under accountable plans), 3.19
(private activity bonds volume cap), 3.20
(loan limits on agricultural bonds), 3.21
(general arbitrage rebate rules), 3.22 (safe
harbor rules for broker commissions on
guaranteed investment contracts or invest-
ments purchased for a yield restricted de-
feasance escrow), 3.29 (expatriation to
avoid tax), 3.33 (valuation of qualified
real property in decedent's gross estate),
3.34 (annual exclusion for gifts), 3.35 (tax
on arrow shafts), 3.36 (passenger air
transportation excise tax), 3.39 (persons
against whom a federal tax lien is not
valid), 3.40 (property exempt from levy),
3.41 (interest on a certain portion of the
estate tax payable in installments), 3.42
(attorney fee awards), and 3.43 (periodic
payments received under qualified long-
term care insurance contracts or under
certain life insurance contracts).

## SECTION 5. DRAFTING INFORMATION

The principal author of this revenue
procedure is William Ruane of the Office
of Associate Chief Counsel (Income Tax
& Accounting). For further information
regarding this revenue procedure, contact
Mr. Ruane at (202) 622-4920 (not a toll-
free call).

# Part IV. Items of General Interest

Mixed Straddles; Straddle-
by-Straddle Identification
Under Section
1092(b)(2)(A)(i)(I);
Correction

Announcement 2013-44

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Temporary regulations; cor-
recting amendments.

SUMMARY: This document contains
amendments to temporary regulations re-
lating to guidance for taxpayers electing
to establish a mixed straddle using
straddle-by-straddle identification. These
amendments include a change to the ap-
plicability date of the temporary regula-
tions pursuant to which the temporary reg-
ulations apply to transactions established
after the date of publication of the Trea-
sury decision adopting these rules as final
regulations in the Federal Register. The
amendments to the temporary regulations
will affect taxpayers who elect to establish
a mixed straddle using straddle-by-
straddle identification.

DATES: Effective Date: These amend-
ments are effective on October 29, 2013.

Applicability Date: As corrected,
§1.1092(b)-6T applies to identified
mixed straddles established after the date
of publication of the Treasury decision
adopting these rules as final regulations in
the Federal Register.

FOR FURTHER INFORMATION
CONTACT: Pamela Lew or Robert B.
Williams at (202) 622-3950 (not a toll-
free number).

SUPPLEMENTARY INFORMATION:

## Background

The temporary regulations that are the
subject of these amendments are under
section 1092 of the Internal Revenue
Code (Code). The temporary regulations
(TD 9627) were published in the Federal
Register on Friday, August 2, 2013 (78
FR 46807). The temporary regulations ap-

plied to all identified mixed straddles es-
tablished after the date of filing, August 1,
2013.

## Need for amendments

The Treasury Department and the IRS
received comments raising concerns about
the immediate applicability date of the
temporary regulations. In response to
those comments, this document amends
the temporary regulations to limit the ap-
plication of the identified mixed straddle
transaction rules in §1.1092(b)-6T to sec-
tion 1092(b)(2) identified mixed straddles
established after the date of publication of
the Treasury decision adopting these rules
as final regulations in the Federal Regis-
ter. This document also amends the ex-
amples in the temporary regulations to
reflect the change in the applicability date
and to clarify the determination of a hold-
ing period. The Treasury Department and
the IRS anticipate finalizing the regula-
tions no later than the end of the current
Priority Guidance Plan year on June 30,
2014, and will as part of that process
consider all comments received.

* * * * *

## Amendments to the Regulations

Accordingly, 26 CFR part 1 is cor-
rected by making the following correcting
amendments:

## PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 is amended by adding entries in
numerical order to read as follows:

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

Section 1.1092(b)-6T also issued un-
der 26 U.S.C. 1092(b)(1).

Section 1.1092(b)-6T also issued un-
der 26 U.S.C. 1092(b)(2) .* * *

Par. 2. Section 1.1092(b)-3T is
amended by:

1\. Revising the heading of paragraph
(b)(6).

2\. Revising the first sentence of paragraph
(b)(6).

The amendments read as follows:

§1.1092(b)-3T Mixed straddles;
straddle-by-straddle identification under
section 1092(b)(2)(A)(i)(I) (Temporary).

(b)(6) Accrued gain and loss with re-
spect to positions of a section 1092(b)(2)
identified mixed straddle established on or
before the applicability date of
§1.1092(b)-6T. The rules of this para-
graph (b)(6) apply to all section
1092(b)(2) identified mixed straddles es-
tablished on or before the applicability
date of §1.1092(b)-6T; see §1.1092(b)-
6T for section 1092(b)(2) identified mixed
straddles established after the applicabil-
ity date of §1.1092(b)-6T .* * *

* * * * *

Par. 3. Section 1.1092(b)-6T is
amended as follows:

1\. Revising the heading of §1.1092(b)-
6T.

2\. Adding a sentence at the end of the
introductory text of paragraph (b) and
revising Example 1 and Example 2 of
paragraph (b).

3\. Revising paragraph (c).

The amendments read as follows:

§1.1092(b)-6T Mixed straddles; accrued
gain and loss associated with a position
that becomes part of a section
1092(b)(2) identified mixed straddle.

* * *

(b) * * * The following examples as-
sume that this section applies to identified
mixed straddles established after August
1, Year 2.

Example 1. On August 13, Year 2, A enters into
a section 1256 contract. As of the close of the day on
August 15, Year 2, there is $500 of unrealized loss
on the section 1256 contract. On August 16, Year 2,
A enters into an offsetting non-section 1256 position
and makes a valid election to treat the straddle as a
section 1092(b)(2) identified mixed straddle. A con-
tinues to hold both positions of the section
1092(b)(2) identified mixed straddle on January 1,
Year 3. Under these circumstances, A will recognize
the $500 loss on the section 1256 contract that ex-
isted prior to establishing the section 1092(b)(2)
identified mixed straddle on the last business day of
Year 2 because the section 1256 contract would be
treated as sold on December 31, Year 2, (the last
business day of the taxable year) under section

1256(a). The loss recognized in Year 2 will be
treated as 60% long-term capital loss and 40% short-
term capital loss. All gains and losses occurring after
the section 1092(b)(2) identified mixed straddle is
established are accounted for under the applicable
provisions in §1.1092(b)-3T.

Example 2. On September 3, Year 1, A enters
into a non-section 1256 position. As of the close of
the day on August 22, Year 2, there is $400 of
unrealized short-term capital gain on the non-section
1256 position. On August 23, Year 2, A enters into
an offsetting section 1256 contract and makes a valid
election to treat the straddle as a section 1092(b)(2)
identified mixed straddle. On September 10, Year 2,
A closes out the section 1256 contract at a $500 loss
and disposes of the non-section 1256 position, real-
izing an $875 gain. Under these circumstances, A
has $400 of short-term capital gain attributable to the
non-section 1256 position prior to the day the section
1092(b)(2) identified mixed straddle was established.
The $400 unrealized gain earned on the non-section
1256 position will be recognized on September 10,
Year 2, when the non-section 1256 position is dis-
posed of. The gain will be short-term capital gain.
See §1.1092(b)-2T for rules concerning holding pe-
riod. On September 10, Year 2, the gain of $875 on
the non-section 1256 position will be reduced to
$475 to take into account the $400 of unrealized gain
when the section 1092(b)(2) identified mixed strad-
dle was established. The $475 gain on the non-
section 1256 position will be offset by the $500 loss
on the section 1256 contract. The net loss of $25
from the straddle will be treated as 60% long-term
capital loss and 40% short-term capital loss because
it is attributable to the section 1256 contract.

(c) Effective/applicability date. The
rules of this section apply to all section
1092(b)(2) identified mixed straddles es-
tablished after the date of publication of
the Treasury decision adopting these rules
as final regulations in the Federal Regis-
ter.

* * * * *

Martin Franks,
Branch Chief,
Publications & Regulations Branch
Legal Processing Division
Associate Chief Counsel
(Procedure & Administration)

(Filed by the Office of the Federal Register on October 25,
2013, 8:45 a.m., and published in the issue of the Federal
Register for October 29, 2013, 78 F.R. 64396)

## Mixed Straddles; Straddle- by-Straddle Identification Under Section 1092(b)(2)(A)(i)(I); Correction

### Announcement 2013-45

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Notice of proposed rulemaking
by cross-reference to temporary regulations
and notice of public hearing; correction.

SUMMARY: This document contains
amendments to proposed regulations re-
lating to guidance for taxpayers electing
to establish a mixed straddle using
straddle-by-straddle identification. These
amendments include a change to the ap-
plicability date of the proposed regula-
tions pursuant to which the proposed reg-
ulations would apply to transactions
established after the date of publication of
the Treasury decision adopting these rules
as final regulations in the Federal Regis-
ter. The amendments to the proposed reg-
ulations will affect taxpayers who elect to
establish a mixed straddle using straddle-
by-straddle identification.

DATES: Comments must be received by
October 31, 2013. Request to speak and
outlines of topics to be discussed at the
public hearing scheduled for December 4,
2013, at 10 a.m. must be received by
October 31, 2013.

ADDRESSES: Send submissions to: CC:
PA:LPD:PR (REG-112815-12), room
5205, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand-
delivered Monday through Friday between
the hours of 8 a.m. and 4 p.m. to CC:PA:
LPD:PR (REG-112815-12), Courier's
Desk, Internal Revenue Service, 1111 Con-
stitution Avenue, NW., Washington, DC, or
sent electronically via the Federal eRule-
making Portal at www.regulations.gov (IRS
REG-112815-12).

FOR FURTHER INFORMATION
CONTACT: Pamela Lew or Robert B.
Williams at (202) 622-3950 (not a toll-
free number).

## SUPPLEMENTARY INFORMATION: Background

The proposed regulations that are the
subject of these amendments are under
section 1092 of the Internal Revenue
Code (Code). The text of temporary reg-
ulations (TD 9627), published in the Fed-
eral Register on Friday, August 2, 2013
(78 FR 46807), serves as the text of the
proposed regulations. The proposed regu-
lations (REG-112815-12) were published
in the Federal Register on Friday, August
2, 2013 (78 FR 46854). The proposed
regulations were proposed to apply to all
identified mixed straddles established af-
ter the date of filing, August 1, 2013.

## Need for amendments

The Treasury Department and the IRS
received comments raising concerns about
the immediate applicability date of the
temporary regulations. In response to
those comments, the Treasury Department
and the IRS are amending the temporary
regulations to limit the application of the
identified mixed straddle transaction rules
in §1.1092(b)-6T to section 1092(b)(2)
identified mixed straddles established af-
ter the date of publication of the Treasury
decision adopting the rules as final regu-
lations in the Federal Register. The text
of the temporary regulations, as amended,
continues to serve as the text of these
proposed regulations, and this document
amends the proposed regulations to con-
form to the changes to the temporary reg-
ulations. The Treasury Department and
the IRS anticipate finalizing the regula-
tions no later than the end of the current
Priority Guidance Plan year on June 30,
2014, and will as part of that process
consider all comments received.
* * * * *

## Amendments to the Regulations

Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:

# PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 is amended by adding entries in
numerical order to read as follows:
Authority: 26 U.S.C. 7805* * *
Section 1.1092(b)-6 also issued under
26 U.S.C. 1092(b)(1).
Section 1.1092(b)-6 also issued under
26 U.S.C. 1092(b)(2) .* * *

Par. 2. Section 1.1092(b)-6 is amended
by revising the heading to read as follows:

§1.1092(b)-6 Mixed straddles; accrued
gain and loss associated with a position
that becomes part of a section
1092(b)(2) identified mixed straddle.

*****

Legal Processing Division
Associate Chief Counsel
(Procedure & Administration)

(Filed by the Office of the Federal Register on October 25,
2013, 8:45 a.m., and published in the issue of the Federal
Register for October 29, 2013, 78 F.R. 64430)

Martin Franks,
Branch Chief,
Publications & Regulations Branch

# 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.

TT-Trustee.

D Decedent.

LP-Limited Partner.

LR-Lessor.

X-Corporation.

DE-Donee.

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.

BK-Bank.

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

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

CI-City.

T.I.R .- Technical Information Release.

TP-Taxpayer.
TR-Trust.

U.S.C .- United States Code.

DC-Dummy Corporation.

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.

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

Y-Corporation.

Z-Corporation.

## Numerical Finding List1

Bulletins 2013-27 through 2013-47

### Announcements

2013-35, 2013-27 I.R.B. 46
2013-36, 2013-33 I.R.B. 142
2013-37, 2013-34 I.R.B. 155
2013-38, 2013-36 I.R.B. 185
2013-39, 2013-35 I.R.B. 167
2013-40, 2013-38 I.R.B. 226
2013-41, 2013-40 I.R.B. 322
2013-42, 2013-44 I.R.B. 464
2013-43, 2013-46 I.R.B. 524
2013-44, 2013-47 I.R.B. 545
2013-45, 2013-47 I.R.B. 546

### Notices

2013-41, 2013-29 I.R.B. 60
2013-42, 2013-29 I.R.B. 61
2013-43, 2013-31 I.R.B. 113
2013-44, 2013-29 I.R.B. 62
2013-45, 2013-31 I.R.B. 116
2013-46, 2013-31 I.R.B. 117
2013-47, 2013-31 I.R.B. 120
2013-48, 2013-31 I.R.B. 120
2013-49, 2013-32 I.R.B. 127
2013-50, 2013-32 I.R.B. 133
2013-51, 2013-34 I.R.B. 153
2013-52, 2013-35 I.R.B. 159
2013-53, 2013-36 I.R.B. 173
2013-54, 2013-40 I.R.B. 287
2013-55, 2013-38 I.R.B. 207
2013-56, 2013-39 I.R.B. 262
2013-57, 2013-40 I.R.B. 293
2013-58, 2013-40 I.R.B. 294
2013-59, 2013-40 I.R.B. 297
2013-60, 2013-44 I.R.B. 431
2013-61, 2013-44 I.R.B. 432
2013-62, 2013-45 I.R.B. 466
2013-63, 2013-44 I.R.B. 436
2013-64, 2013-44 I.R.B. 438
2013-65, 2013-44 I.R.B. 440
2013-66, 2013-46 I.R.B. 498
2013-67, 2013-45 I.R.B. 470
2013-68, 2013-46 I.R.B. 501
2013-69, 2013-46 I.R.B. 503
2013-70, 2013-47 I.R.B. 528
2013-71, 2013-47 I.R.B. 532

## Proposed Regulations

REG-124148-05 2013-44 I.R.B. 444
REG-161948-05 2013-44 I.R.B. 449
REG-148659-07 2013-45 I.R.B. 473
REG-132251-11 2013-37 I.R.B. 191
REG-148812-11 2013-45 I.R.B. 484
REG-111753-12 2013-40 I.R.B. 302
REG-112815-12 2013-35 I.R.B. 162

REG-114122-12 2013-35 I.R.B. 163

REG-136630-12 2013-40 I.R.B. 303

REG-140789-12 2013-32 I.R.B. 136

REG-144990-12 2013-39

I.R.B. 264

REG-110732-13 2013-43

I.R.B. 405

REG-111837-13 2013-39

I.R.B. 266

REG-113792-13 2013-38 I.R.B. 211

REG-115300-13 2013-37 I.R.B. 197

## Revenue Procedures

2013-28, 2013-27 I.R.B. 28
2013-29, 2013-33 I.R.B. 141
2013-30, 2013-36 I.R.B. 173
2013-31, 2013-38 I.R.B. 208
2013-32, 2013-28 I.R.B. 55
2013-33, 2013-38 I.R.B. 209
2013-34, 2013-43 I.R.B. 398
2013-35, 2013-47 I.R.B. 537

## Revenue Rulings

2013-13, 2013-32 I.R.B. 124
2013-15, 2013-28 I.R.B. 47
2013-16, 2013-40 I.R.B. 275
2013-17, 2013-38 I.R.B. 201
2013-18, 2013-37 I.R.B. 186
2013-19, 2013-39 I.R.B. 240
2013-20, 2013-40 I.R.B. 272
2013-21, 2013-43 I.R.B. 396
2013-22, 2013-46 I.R.B. 496

## Treasury Decisions

9620, 2013-27 I.R.B. 1
9621, 2013-28 I.R.B. 49

9622, 2013-30 I.R.B. 64

9623, 2013-30 I.R.B. 73
9624, 2013-31 I.R.B. 86
9625, 2013-34 I.R.B. 147
9626, 2013-34 I.R.B. 149
9627, 2013-35 I.R.B. 156
9628, 2013-36 I.R.B. 169
9629, 2013-37 I.R.B. 188
9630, 2013-38 I.R.B. 199
9631, 2013-38 I.R.B. 205
9632, 2013-39 I.R.B. 241
9633, 2013-39 I.R.B. 227
9634, 2013-40 I.R.B. 272
9635, 2013-40 I.R.B. 273
9636, 2013-43 I.R.B. 331
9637, 2013-44 I.R.B. 427
9638, 2013-46 I.R.B. 487

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2013-1 through 2013-26 is in Internal Revenue Bulletin
2013-26, dated June 24, 2013.

Finding List of Current Actions on Previously Published Items1

83-59 Modified by Rev. Proc. 2013-32, 2013-28 I.R.B. 55

2012-25 Obsoleted in part by Rev. Proc. 2013-28, 2013-27 I.R.B. 28

Bulletins 2013-27 through 2013-47

86-42

2013-1

Modified by

Amplified and modified by

Notices:

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

2004-23

90-52

2013-3

Clarified by

Modified by

Amplified and modified by

Notice 2013-57, 2013-40 I.R.B. 293

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

2004-50

96-30

Proposed Regulations:

Clarified by

Modified by

Notice 2013-57, 2013-40 I.R.B. 293

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

112815-12 Corrected by

2005-70

97-48

Ann. 2013-45, 2013-47 I.R.B. 546

Obsoleted by T.D. 9633 2013-39 I.R.B. 227

Situation 1 superseded, Situation 2 obsoleted by Rev. Proc. 2013-30, 2013-36 I.R.B. 173

Revenue Rulings:

2006-40

2003-43

58-66

Superseded by

Amplified and clarified by

Notice 2013-68, 2013-46 I.R.B. 501

Modified and superseded by Rev. Proc. 2013-30, 2013-36 I.R.B. 173

Rev. Rul. 2013-17, 2013-38 I.R.B. 201

2009-41

2013-17

Clarified and amplified by

2003-48

Notice 2013-70

Obsoleted in part and superseded in part by Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Supplemented by Notice 2013-61, 2013-44 I.R.B. 432

2009-53

Treasury Decisions:

Clarified and amplified by

2003-61

Notice 2013-70

Superseded by Rev. Proc. 2013-34, 2013-43 I.R.B. 397

9610 Corrected by

2012-74

Ann. 2013-41, 2013-40 I.R.B. 322

Obsoleted by

2004-34

Notice 2013-51, 2013-34 I.R.B. 153

Modified and clarified by Rev. Proc. 2013-29, 2013-33 I.R.B. 141

9612 Corrected by

2013-16

Ann. 2013-35, 2013-27 I.R.B. 46

Superseded by

2004-48

Notice 2013-55, 2013-38 I.R.B. 207

Modified and superseded by

9622

Rev. Proc. 2013-30, 2013-36 I.R.B. 173

Corrected by

2013-29

Ann. 2013-39, 2013-35 I.R.B. 167

Clarified by

2004-49 Sections 4.01 &amp; 4.02 modified and super-

Notice 2013-60, 2013-44 I.R.B. 431

seded, Section 4.03 obsoleted by Rev. Proc. 2013-30, 2013-36 I.R.B. 173

9627

Corrected by

2013-36

Ann. 2013-44, 2013-37 I.R.B. 545

Appendix updated by

2007-44

Notice 2013-55, 2013-38 I.R.B. 207

Modified by Ann. 2013-37, 2013-34 I.R.B. 155

Superseded by

Notice 2013-55, 2013-38 I.R.B. 207

2007-62 Modified and superseded by

2013-39

Rev. Proc. 2013-30, 2013-36 I.R.B. 173

Amplified by

Notice 2013-47, 2013-31 I.R.B. 120

2009-25

Pilot program discontinued by

2013-40

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Amplified by

Notice 2013-47, 2013-31 I.R.B. 120

2011-18

Modified and clarified by

Revenue Procedures:

Rev. Proc. 2013-29, 2013-33 I.R.B. 141

81-60

2011-49

Modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Ann. 2013-37, 2013-34 I.R.B. 155

1A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2013-1 through 2013-26 is in Internal Revenue Bulletin 2013-26, dated June 24, 2013.

Official Business
Penalty for Private Use, $300

# INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.

# CUMULATIVE BULLETINS

The contents of the weekly Bulletins were consolidated semiannually into permanent, indexed, Cumulative Bulletins through the
2008-2 edition.

# INTERNAL REVENUE BULLETINS ON CD-ROM

Internal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

# We Welcome Comments About the Internal Revenue Bulletin

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page
(www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:P:SPA, Washington, DC 20224.

Internal Revenue Bulletin 2013-47 (PDF rendition): IRS Notices

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