Internal Revenue Bulletin 2016-11 (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.

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
REG–150349 –12, page 440.
These final and temporary regulations revise and clarify certain
rules relating to the requirements to conduct physical inspec-
tions andreview low-income certifications and other documenta-
tion under §§ 1.42–5(a)(2), 1.42–5(c)(2), and (3), and 1.42–5(h)
of the Income Tax Regulations, with respect to the compliance-
monitoring duties of a State or local housing credit agency
(Agency) under § 42 of the Internal Revenue Code. The text of
the temporary regulations also serves as the text of these
proposed regulations.
Rev. Rul. 2016 – 8, page 426.
Modification of Rev. Rul. 2005–3 to remove Cuba from the
section 901(j) list effective December 21, 2015.
Rev. Proc. 2016 –15, page 435.
This revenue procedure sets forth, for purposes of
§ 1.42–5T(c)(2)(iii)(B) of the Income Tax Regulations, the
minimum number of low-income units in a low-income housing
project for which a State or local housing credit agency
(Agency) must conduct physical inspections and low-income
certification reviews. This revenue procedure also permits
the physical inspection protocol established by the Depart-
ment of Housing and Urban Development (HUD) Real Estate
Assessment Center (the REAC protocol) to satisfy the
physical inspection requirements of § 1.42–5(d) and
§ 1.42–5T(c)(2)(ii) and (iii).
Rev. Proc. 2016 –17, page 436.
This revenue procedure provides guidance regarding the re-
covery of administrative and litigation costs by individuals
and organizations that provide pro bono representation to
taxpayers.
T.D. 9753, page 426.
These final and temporary regulations revise and clarify certain
rules relating to the requirements to conduct physical inspec-
tions and review low-income certifications and other documen-
tation under §§ 1.42–5(a)(2), 1.42–5(c)(2), and (3), and
1.42–5(h) of the Income Tax Regulations, with respect to the
compliance-monitoring duties of a State or local housing credit
agency (Agency) under § 42 of the Internal Revenue Code.
ADMINISTRATIVE
Rev. Proc. 2016 –17, page 436.
This revenue procedure provides guidance regarding the
recovery of administrative and litigation costs by individuals
and organizations that provide pro bono representation to
taxpayers.
T.D. 9754, page 432.
This document contains final regulations that authorize the
disclosure of certain items of return information to the Bureau
of the Census (Bureau) in conformance with section 6103(j)(1)
of the Internal Revenue Code (Code).
Finding Lists begin on page ii.
Bulletin No. 2016 –11
March 14, 2016

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.
March 14, 2016Bulletin No. 2016 –11

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 901.—Taxes of
Foreign countries and of
possessions of United
States
26 CFR 1.901–2: Income, war profits, or excess
profits tax paid or accrued
(Also: Section 952(a)(5))
Modification of Rev. Rul.
2005–3. Rev. Rul. 2005–3,
2005–1 C.B. 334, with
respect to countries
described in section
901(j)(2)(A) of the Internal
Revenue Code (“Code”), is
modified.
Rev. Rul. 2016 – 08
This ruling modifies Rev. Rul. 2005–3,
2005–1 C.B. 334, which lists countries
subject to special rules under sections
901(j) and 952(a)(5) of the Code.
LAW AND ANALYSIS
Sections 901, 902, and 960 of the Code
generally allow U.S. taxpayers to claim a
foreign tax credit forincome, war profits, and
excess profits taxes paid or accrued (or
deemed paid or accrued) to any foreign coun-
try or to any possession of the United States.
The foreign tax credit is subject to various
limitations and restrictions under section 901.
Section 901(j)(1) imposes restrictions
in the case of income and taxes attribut-
abletocertaincountries.Section
901(j)(1)(A) denies the credit for taxes
paid or accrued (or deemed paid or ac-
crued under section 902 or 960) to any
country described in section 901(j)(2)(A)
if the taxes are with respect to income
attributable to a period during which sec-
tion 901(j) applies. Section 901(j)(1)(B)
requires taxpayers to apply subsections
(a), (b), and (c) of section 904 and sec-
tions 902 and 960 separately with respect
to income attributable to such a period
from sources within such country. In ad-
dition, section 952(a)(5) provides that
subpart F income includes income derived
by a controlled foreign corporation from
any foreign country during any period
during which section 901(j) applies to that
foreign country.
The special rules under sections 901(j)
and 952(a)(5) cease to apply to a country
when the Secretary of State certifies to the
Secretary of the Treasury that such coun-
try is no longer described in section
901(j)(2)(A). Revenue Ruling 2005–3 sets
forth the countries which are (or were)
described in section 901(j)(2)(A) and the
period during which the special rules un-
der sections 901(j) and 952(a)(5) apply
with respect to each such country. Based
on the certification by the Secretary of
State, this revenue ruling states the date on
which Cuba ceased to be described in
section 901(j)(2)(A).
HOLDING AND EFFECTIVE DATE
The list of countries in Revenue Ruling
2005–3 is modified by changing the ref-
erence to Cuba as follows:
Country
Starting
Date
Ending
Date
CubaJanuary
1, 1987
December
21, 2015
For guidance on issues arising in a
taxable year when section 901(j) ceases to
apply to a country, see Rev. Rul. 92– 62,
1992–2 C.B. 193.
EFFECT ON OTHER REVENUE
RULINGS
This ruling modifies Rev. Rul. 2005–3,
2005–1 C.B. 334, with respect to coun-
tries subject to special rules under sections
901(j) and 952(a)(5) of the Code.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Richard L. Chewning of the Of-
fice of Associate Chief Counsel (Inter-
national). For further information re-
garding this revenue ruling, contact
Mr. Chewning at (202) 317-6936 (not a
toll-free number).
26 CFR 1.42–5T, 26 CFR 1.42–5
T.D. 9753
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Amendments to the
Low-Income Housing Credit
Compliance-Monitoring
Regulations
AGENCY:Internal Revenue Service (IRS),
Treasury.
ACTION:Final and temporary regulations.
SUMMARY: Thisdocument contains fi-
nal and temporary regulations relating
to the compliance-monitoring duties of a
State or local housing credit agency for
purposes of the low-income housing
credit. The final and temporary regula-
tions revise and clarify the requirement
to conduct physical inspections and re-
view low-income certifications and
other documentation. The final and tem-
porary regulations will affect State or
local housing credit agencies. The text
of these temporary regulations also
serves as the text of the proposed regu-
lations (REG–150349 –12) set forth in
the notice of proposed rulemaking on
this subject in the Proposed Rules sec-
tion in this issue of theInternal Reve-
nue Bulletin.
DATES:Effective date: These regulations
are effective on February 25, 2016.
Applicability date: For dates of appli-
cability, see § 1.42–5T(h)(2).
FOR FURTHER INFORMATION
CONTACT: Jian H. Grant, (202) 317-
4137, and Martha M. Garcia, (202) 317-
6853 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document amends 26 CFR part 1
to revise and clarify rules relating to sec-
March 14, 2016Bulletin No. 2016 –11
426

tion 42 of the Internal Revenue Code
(Code). On March 5, 2012, the Treasury
Department and the IRS published Notice
2012–18, 2012–10 IRB 438. Notice
2012–18 informed State and local housing
credit agenciesparticipating in a physi-
cal inspections pilot program of an al-
ternative method for satisfying certain
inspection and review responsibilities
under § 1.42–5(c)(2) for projects for
which the Department of Housing and
Urban Development (HUD) conducted
physical inspections.
1
Notice 2012–18
also requested comments on various is-
sues relating to § 1.42–5. The Treasury
Department and the IRS received writ-
ten and electronic comments in re-
sponse. After consideration of all of the
comments received, the Treasury De-
partment and the IRS are issuing these
final and temporary regulations.
This document also updates the author-
ity citation of 26 CFR part 1. The Omni-
bus Budget Reconciliation Act of 1989
(Public Law 101–239) re-designated sec-
tion 42(m) of the Code as section 42(n).
The updates in this document reflect that
re-designation.
General Overview
Section 42provides rules for deter-
mining the amount of the low-income
housing credit, which section 38 allows
as a credit against income tax. Section
42(a) provides that the amount of the
low-income housing credit for any tax-
able year in the credit period is an
amount equal to the applicable percent-
age of the qualified basis of each qual-
ifiedlow-incomebuilding.Section
42(c)(2) defines a qualified low-income
building as any building that is part of a
qualified low-income housing project at
all times during the compliance period
(the period of 15 taxable years begin-
ning with the first taxable year of the
credit period).
Section 42(g)(1) defines a qualified
low-income housing project as any project
for residential rental property if the proj-
ect meets one of the following tests, as
elected by the taxpayer:
(A) At least 20 percent of the residential
units in the project are rent-restricted and
occupied by individuals whose income is
50 percent or less of area median gross
income; or
(B) At least 40 percent of the residential
units in the project are rent-restricted and
occupied by individuals whose income is
60 percent or less of area median gross
income.Ingeneral,undersection
42(i)(3)(A), a low-income unit is a resi-
dential unit that is rent-restricted and the
occupants of which meet the applicable
income limit elected by the taxpayer as
described in section 42(g)(1)(A) or (B).
Undersection 42(i)(3)(B)(i), a unit is
not treated as a low-income unit unless
it is suitable for occupancy and used
other than on a transient basis. Under
section 42(i)(3)(B)(ii), the suitability of
a unit for occupancy must be determined
under regulations prescribed by the Sec-
retary taking into account local health,
safety, and building codes. Failure of
one or more units to qualify as low-
income units may result in a project’s
ineligibility for the low-income housing
credit, reduction in the amount of the
credit, and/or recapture of previously
allowed credits.
Undersection 42(m)(1), the owners
of an otherwise-qualifying building are
not entitled to low-income housing cred-
its that are allocated to the building
unless, among other requirements, the
allocation is pursuant to a qualified al-
location plan (QAP). A QAP provides
standards by which a State or local
housing credit agency or its Authorized
Delegatewithinthemeaningof
§ 1.42–5(f)(1) (“Agency”) will make
these allocations. A QAP also provides
a procedure that an Agency must follow
in monitoring for compliance with the
provisions of section 42. A plan fails to
be a QAP unless, in addition to other
requirements, it—
provides a procedure that the
agency (or an agent or other private
contractor of such agency) will
follow in monitoring for noncompli-
ance with the provisions of [section
42] and in notifying the Internal
Revenue Service of such noncom-
pliance which such agency becomes
aware of and in monitoring for
noncompliancewithhabitability
standards through regular site visits.
Section 42(m)(1)(B)(iii).
Section1.42–5(thecompliance-
monitoring regulations) describes some of
the provisions that must be part of any QAP.
As part of its compliance-monitoring re-
sponsibilities, an Agency must perform
physical inspections and low-income certi-
fication review.
The compliance-monitoring regula-
tions specifically provide that, for each
low-income housing project, an Agency
must conduct on-site inspections of all
buildings by the end of the second calen-
dar year following the year the last build-
ing in the project is placed in service (the
all-buildings requirement). In addition,
prior to the amendments in this document,
the regulations provided that, for at least
20 percent of the project’s low-income
units (the 20-percent rule), the Agency
must both inspect the units and review the
low-income certifications, the documenta-
tion supporting the certifications, and the
rent records for the tenants in those
same units (the same-units require-
ment). The regulations provide that the
Agency must also conduct on-site in-
spections and low-income certification
review at least once every 3 years after
the initial on-site inspection. Further,
the regulations require the Agency to
randomly select which low-income units
and tenant records to inspect and review
(the random-selection rule). The regula-
tions also require the Agency to choose
the low-income units and tenant records
in a manner that will not give owners of
low-income housing projects advance
notice that a unit and tenant records for
a particular year will or will not be
inspected and reviewed (the no-notice
rule). However, an Agency may give an
owner reasonable notice that an inspec-
tion of the building and low-income
units or tenant record review will occur
so that the owner may notify tenants of
the inspection or assemble tenant re-
cords for review (for example, 30-day
notice of inspection or review).
1
Notice 2014 –15, 2014 –12 IRB 661, extended permission through December 31, 2014, for State and local housing credit agencies to use the alternative method in Notice 2012–18.
Bulletin No. 2016 –11March 14, 2016
427

Summary of Comments and
Explanation of Provisions
Use of the REAC Protocol, Physical
Inspections, and Low-Income
Certification Reviews
Notice 2012–18 asked whether the 20-
percent rule for both physical inspections
and low-income certification review is ap-
propriate, including whether this percent-
age appropriately balances the IRS’s com-
pliance concerns against the desirability
of reducing the inspection burden on
Agencies, tenants, and building owners;
whether the percentage should vary de-
pending on the type of inspection the
Agencies are performing; and whether the
percentage should vary with the number
of units in a building.
Notice 2012–18 also asked whether
the regulations should provide an excep-
tion from the inspection provisions of
§ 1.42–5(d) for inspections done under the
HUD Real Estate Assessment Center pro-
tocol (REAC protocol) similar to the
exception under § 1.42–5(d)(3) for inspec-
tions performed by the Rural Housing
Service under the section 515 program.
Notice 2012–18 had permitted use of the
REAC protocol by participants in an inter-
Departmental physical inspections pilot
program that sought to align the section
42 physical inspection requirements with
the physical inspection requirements un-
der HUD programs.
Several commenters asserted that the
20-percent rule is appropriate. Others
claimed that it is overly burdensome for
larger properties (30 units or more). Sev-
eral commenters suggested that the regu-
lations permit an Agency to satisfy the
physical inspection requirement by using
the REAC protocol. These commenters
generally suggested that availability of the
REAC protocol for physical inspections
would promote flexibility and lessen bur-
den. Allowing an Agency to use the
REAC protocol for purposes of the sec-
tion 42 physical inspection requirements
would eliminate the need for multiple
Federal inspections on the same property
if the property also benefits from HUD
programs. Additionally, for larger proper-
ties, the minimum number of low-income
units that an Agency must inspect under
the REAC protocol may be fewer than
under the 20-percent rule.
In response to the comments received,
the final and temporary regulations autho-
rize the IRS to specify in guidance pub-
lished in the Internal Revenue Bulletin the
minimum number of low-income units for
which an Agency must conduct physical
inspections and low-income certification
review. Rev. Proc. 2016 –15, which is be-
ing issued concurrently with these regula-
tions, provides that, in a low-income
housing project, the minimum number of
low-income units that must undergo phys-
ical inspection is the lesser of 20 percent
of the low-income units in the project,
rounded up to the nearest whole number
of units, or the number of low-income
units set forth in the Low-Income Housing
Credit Minimum Unit Sample Size Refer-
ence Chart in the revenue procedure. The
revenue procedure applies the same rule
to determine the minimum number of
units that must undergo low-income cer-
tification review. An Agency is free to
conduct physical inspections or low-
income certification review on a larger
number of low-income units if it believes
that to be appropriate.
The Treasury Department and the IRS,
however, are concerned about application
of this 20 percent rule in some situations.
For projects with a relatively smaller
number of low-income units, physical in-
spection or low-income certification re-
view of a randomly chosen 20 percent of
those units may not produce a sufficiently
accurate estimate of the remaining units’
overall compliance with habitability or
low-income requirements. Accordingly,
not later than when these temporary reg-
ulations are finalized, the Treasury De-
partment and the IRS intend to consider
whether Rev. Proc. 2016 –15 should be
replaced with a revenue procedure that
does not permit use of the 20 percent rule
in those circumstances.
In response to Notice 2012–18’s re-
quest for comments on whether the IRS
should provide an exception from the in-
spection provisions of § 1.42–5(d) for in-
spections done under the REAC protocol,
commenters generally supported creating
such an exception. The final and tempo-
rary regulations, however, do not fully
adopt this suggestion. Instead, the regula-
tions authorize the IRS to provide in guid-
ance published in the Internal Revenue
Bulletin exceptions from, or alternative
means of satisfying, the inspection provi-
sions of § 1.42–5(d). Rev. Proc. 2016 –15
provides that the REAC protocol is among
the inspection protocols that satisfy both
§ 1.42–5(d) and the physical inspection
requirements of § 1.42–5T(c)(2)(ii) and
(iii). The revenue procedure contains a
rigorous definition of which inspection re-
gimes it will treat as being the REAC
protocol for this purpose. Comments are
requested on all aspects of the provisions
in the revenue procedure that define “per-
formed under the REAC protocol” for
purposes of satisfying §§ 1.42–5(d) and
1.42–5T(c)(2)(ii) and (iii).
Because vacant low-income units con-
tribute to a building’s qualified basis, both
occupied and vacant low-income units in
a low-income housing project must be in-
cluded in the population of units from
which units are selected for inspection.
This is the case even if the vacant unit or
units may be temporarily unsuitable for
occupancy as a result of work that is being
done to repair or rehabilitate the unit or
units. See § 1.42–5(e)(4). Potential in-
spection of vacant units is the rule for all
compliance-monitoring inspections that
do not use the REAC protocol, and Rev.
Proc. 2016 –15 therefore requires simi-
lar treatment when an Agency conducts
a physical inspection under the REAC
protocol.
Some commenters recommended using
a risk-based assessment model in place of
the 20-percent rule. Such a model would
determine the frequency of inspections
and the number of low-income units to
inspect based on the probability of non-
compliance of a low-income housing proj-
ect. The probability of noncompliance
would be determined for this purpose by
the degree of compliance of the project
over one or more prior years. The final
and temporary regulations do not adopt
this approach. However, in response to the
request for comments on these temporary
regulations, commenters wishing to renew
this suggestion should provide both
greater detail regarding the suggested
risk-based procedure and a thorough jus-
tification for that procedure, including
why a multi-year approach fits within the
compliance requirements of section 42.
March 14, 2016Bulletin No. 2016 –11
428

Several commenters suggested modify-
ing the 20-percent rule by requiring more
units for the initial physical inspection than
for the subsequent physical inspections on
the ground that a comprehensive initial
physical inspection establishes a baseline of
compliance for a low-income housing proj-
ect. By contrast, some commenters sug-
gested requiring more units for the subse-
quent physical inspections, asserting that the
quality of compliance of a low-income
housing project often decreases after the ini-
tial physical inspection. These comments,
however, did not provide sufficient analysis
to justify increasing the number of units to
be inspected in either the initial or a subse-
quent inspection. Without a reasonable basis
for doing so, requiring more units for either
the initial or subsequent inspections would
unreasonably increase the administrative
burden on Agencies, owners, and tenants of
low-income housing projects. The final and
temporary regulations, therefore, do not
adopt these suggestions. Commenters wish-
ing to renew either of these suggestions
should provide both greater detail and a
thorough justification for the suggestion.
On the question of whether the required
percentage of low-income units should vary
depending on the type of compliance review
(physical inspection or low-income certifi-
cation review), one commenter recom-
mended against a varying percentage, stat-
ing that there is no compelling reason for the
required percentage to vary. A second com-
menter suggested that, in order to assess
tenant eligibility, an Agency should review
more than 20 percent of the low-income
certifications because noncompliance relat-
ing to tenant eligibility may be harder to
detect than noncompliance relating to hab-
itability. The final and temporary regula-
tions adopt the first commenter’s sugges-
tion. Just as an Agency may always
physically inspect more than the minimum
number of units, if an Agency deems it
appropriate, the Agency may always review
more than the minimum number of low-
income certifications in a project to assess
tenant eligibility. Commenters wishing to
renew comments on this issue should pro-
vide both greater detail and a thorough jus-
tification for their suggestion.
Two commenters suggested that the
regulations not impose an all-buildings re-
quirement for physical inspection, but
merely require an Agency to apply the
physical inspection and low-income certi-
fication review requirements on a project-
wide basis. According to these comment-
ers, an all-buildings requirement can make
the inspection process overly burden-
some, particularly in rural areas where
projects often consist of small buildings
such as single-unit buildings, duplexes, or
triplexes. The final and temporary regula-
tions do not fully adopt this suggestion.
The regulations continue to require that
Agencies comply with the all-buildings
requirement unless guidance published in
the Internal Revenue Bulletin pursuant to
§ 1.42–5T(a)(iii) provides otherwise.
Rev.Proc. 2016 –15 does provide for
such an exception. Under Rev. Proc.
2016 –15, the all-buildings requirement does
not apply to an Agency that uses the REAC
protocol, under HUD oversight, to satisfy
the physical inspection requirement (al-
though the REAC protocol itself may re-
quire inspection of all buildings in certain
cases). The rigor with which Rev. Proc.
2016 –15 defines the REAC protocol justi-
fies this exception. Among the requirements
set forth in the revenue procedure is the
requirement that a physical inspection per-
formed under the REAC protocol utilize the
standards adopted, and inspectors certified,
by HUD. Inspections performed under the
REAC protocol or by the Rural Housing
Service under the section 515 program re-
quire federal agency oversight. Thus, such
oversight substitutes for an all-buildings re-
quirement for inspection. Similar to inspec-
tionsperformed by the Rural Housing Service
under the section 515 program, inspections
performed under the REAC protocol are not
subject to an all-buildings requirement. A
physical inspection that the revenue procedure
treats as being performed under the REAC
protocol also involves the use of the most
recent REAC UPCS inspection software,
which has a strong statistical basis. Therefore,
under the revenue procedure, the REAC pro-
tocol is an acceptable method for satisfying
both § 1.42–5(d) and the physical inspection
requirement of § 1.42–5T(c)(2)(ii) and (iii). If,
in the future, the Treasury Department and the
IRS become persuaded that there are one or
more additional suitable alternatives to theall-
buildings requirement, they may provide
one or more additional exceptions to that
requirement.
A commenter suggested that the regu-
lations permit an Agency to treat multiple
buildings with a common owner and plan
of financing as a single low-income hous-
ing project, regardless of whether the
owner has elected this treatment under
section 42(g)(3)(D). The final and tempo-
rary regulations do not adopt this sugges-
tion. Section 42(c)(2)(A) defines a “qual-
ified low-income building” as, in part, any
building that is part of a qualified low-
income housing project at all times
throughout the compliance period. Sec-
tion 42(g) defines a “qualified low-income
housing project” as any project for resi-
dential rental property if the project meets
the requirements of section 42(g)(1)(A) or
(B), whichever is elected by the taxpayer.
The scope of the term “qualified low-
income housing project” for purposes of
physical inspections should be the same as
for other purposes under section 42.
Decoupling of the Physical Inspection
and Low-Income Certification Review
Requirements (Ending the Same-Units
Requirement)
Notice 2012–18 asked for comments
on whether permitting physical inspection
and low-income certification review of
different low-income units (that is, ending
the same-units requirement) would sim-
plify the inspection process. The notice
also asked for comments on whether end-
ing the requirement would impair the
value of the data obtained. One com-
menter asserted that the current rule of
requiring physical inspection and low-
income certification review of the same
low-income units is effective in finding
noncompliance on a particular unit. Most
commenters, however, believed that de-
coupling of the physical inspection and
low-income certification review require-
ments would reduce the administrative
burden, better preserve the surprise ele-
ment, and likely increase the coverage of
compliance-monitoring.
In response to these comments, the fi-
nal and temporary regulations end the
same-units requirement by decoupling the
physical inspection and low-income certi-
fication review. Therefore, an Agency is
no longer required to conduct physical
inspection and low-income certification
review on the same units. Because the
units no longer need to be the same, an
Agency may choose a different number of
Bulletin No. 2016 –11March 14, 2016
429

units for physical inspection and for low-
income certification review, provided the
Agency chooses at least the minimum
number of low-income units in each case.
If an Agency chooses to select different
low-income units for physical inspections
and low-income certification review, the
Agency must select the units for physical
inspection or low-income certification re-
view separately and in a random manner.
Further, because the units no longer
need to be the same, an Agency may
choose to conduct physical inspection and
low-income certification review at differ-
ent times. For example, if HUD requires a
physical inspection only two years after a
joint HUD/low-income housing credit in-
spection, that second inspection may be
used for both HUD and low-income hous-
ing credit purposes without accelerating
the next low-income housing credit file
review. (Thereafter, physical inspections
performed every third year might take
place a year before the every-three-year
file reviews.) Also, an Agency may
choose to conduct physical inspections in
the summer but complete the low-income
certification review in the winter when
physical inspections may be difficult to
conduct due to weather conditions. The
inspections and reviews, however, must
satisfy the applicable timeliness require-
ments of § 1.42–5T(c)(2)(ii)(A)(1) and (2).
In addition, to make meaningful the
physical inspection and low-income certi-
fication review, the final and temporary
regulations retain the random-selection
rule and strengthen the no-notice rule. Ac-
cordingly, if an agency decides to de-
couple the physical inspection and low-
income certification review, the Agency
may not allow selection of a low-income
unit for physical inspection (or low-
income certification review) to influence
the likelihood that the same unit will be
selected (or will not be selected) for low-
income certification review (or physical
inspection).
Whether or not an Agency is selecting
the same units for inspection and for low-
income certification review, the Agency
may give an owner reasonable notice that
an inspection of the building and low-
income units or review of low-income
certifications will occur. This notice en-
ables the owner to notify tenants of the
inspection or to assemble low-income cer-
tifications for review. The regulations pro-
vide that reasonable notice is generally no
more than 30 days, but they also provide a
very limited extension for certain extraor-
dinary circumstances beyond an Agency’s
control such as natural disasters and se-
vere weather conditions.
Thus, under the final and temporary
regulations, if an Agency chooses to select
the same units for physical inspections
and low-income certification review, the
Agency may conduct physical inspections
and low-income certification review either
at the same time or separately. However,
once the Agency informs the owner of the
identity of the units for which physical
inspections or low-income certification re-
view will occur, the Agency must conduct
the physical inspections and low-income
certification review within the reasonable-
notice time frame described in the preced-
ing paragraph.
Comments are requested on these as-
pects of the regulations. For example,
comments are requested on whether the
same maximum amount of notice is rea-
sonable for physical inspections and low-
income certification review. Comments
are also requested on whether, for physi-
cal inspections, the reasonable-notice time
frame should be shortened. For example,
under the REAC protocol, an inspector
provides a 15-day notice of an upcoming
HUD inspection to the owner and/or man-
ager of the building and same-day notice
of which units are to be inspected.
Possible Changes in the Minimum Size
of Samples
The Treasury Department and the IRS
believe the methods in Rev. Proc.
2016 –15 reasonably balance the burden
on Agencies, tenants, and building owners
while adequately monitoring compliance.
However, additional comments may be
submitted on other possible methods, in-
cluding stratified sampling procedures and
estimation methodologies. To be useful,
any such comments should include sub-
stantial detail regarding the procedures to
be adopted and should provide thorough
justification as to whether the suggested
methods effectively reduce burden with-
out negatively impacting the confidence
that can be placed in the results obtained
from the resulting samples.
Revision to Frequency and Form
of Certification
The final and temporary regulations re-
vise the rules currently in § 1.42–5(c)(3)
to clarify that a monitoring procedure
must require that the owner certifications
in § 1.42–5(c)(1) be made to and reviewed
by the Agency at least annually covering
each year of the 15–year compliance period.
Effective/Applicability Dates
The temporary regulations apply on
February 25, 2016 and expire onFebruary
22, 2019. Agencies using the REAC proto-
col as part of the physical inspections pilot
program may rely on the temporary regula-
tions for on-site inspections and low-income
certification review occurring between
January 1, 2015 and February 25, 2016.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings notices, notices and other guid-
ance cited in this document are published
in the Internal Revenue Bulletin (or Cu-
mulative Bulletin) and are available from
the Superintendent of Documents, U.S.
Government Printing Office, Washington,
DC 20402, or by visiting the IRS website
at http://www.irs.gov.
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements of
Executive Order 12866, as supplemented
and reaffirmed by Executive Order 13563.
Therefore, a regulatory impact assessment
is not required. It has also been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations, and
because these regulations do not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Internal Revenue Code,
these regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.
March 14, 2016Bulletin No. 2016 –11
430

Drafting Information
The principal authors of these regula-
tions are Jian H. Grant and Martha M.
Garcia, Office of the Associate Chief
Counsel (Passthroughs and Special Indus-
tries). However, other personnel from the
Treasury Department and the IRS partic-
ipated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entries
for §§ 1.42–1T and 1.42–2T and by add-
ing and revising entries in numerical order
to read as follows:
Authority: 26 U.S.C. 7805***
Section 1.42–1T also issued under 26
U.S.C. 42(n).
Section 1.42–2 also issued under 26
U.S.C. 42(n).
Section 1.42–5T also issued under 26
U.S.C. 42(n).
Par. 2. Section 1.42–5 is amended by:
1. Adding paragraph (a)(2)(iii).
2. Revising paragraphs (c)(2)(ii) and
(iii) and (c)(3).
3. Revising the paragraph heading of
paragraph (h), redesignating the text of
paragraph (h) as paragraph (h)(1) and add-
ing a paragraph (h)(1) heading, and add-
ing paragraph (h)(2).
4. Adding paragraph (i).
The additions and revisions read as fol-
lows:
§ 1.42–5 Monitoring compliance with
low-income housing credit requirements.
(a)***
(2)***
(iii) [Reserved]. For further guidance,
see § 1.42–5T(a)(2)(iii).
*****
(c)***
(2)***
(ii) [Reserved]. For further guidance,
see § 1.42–5T(c)(2)(ii).
(iii) [Reserved]. For further guidance,
see § 1.42–5T(c)(2)(iii).
(3) [Reserved]. For further guidance,
see § 1.42–5T(c)(3).
*****
(h)Effective/applicability dates—(1)
In general.***
(2) [Reserved]. For further guidance,
see § 1.42–5T(h)(2).
(i) [Reserved]. For further guidance,
see § 1.42–5T(i).
Par. 3. Section 1.42–5T is added to
read as follows:
§ 1.42–5T Monitoring compliance with
low-income housing credit requirements
(temporary).
(a)(1) through (a)(2)(ii) [Reserved].
For further guidance, see § 1.42–5(a)(1)
through (a)(2)(ii).
(iii)Effect of guidance published in the
Internal Revenue Bulletin. Guidance pub-
lished in the Internal Revenue Bulletin
(see § 601.601(d)(2)(ii)(b) of this chapter)
may provide—
(A) Exceptions to the requirements re-
ferred to in § 1.42–5(a)(2)(i) and the re-
quirements described in this section; or
(B) Alternative means of satisfying
those requirements.
(b) through (c)(2)(i) [Reserved]. For
further guidance, see § 1.42–5(b) through
(c)(2)(i).
(ii) Require that, with respect to each
low-income housing project, the Agency
conduct on-site inspections and review
low-income certifications (including in
that term the documentation supporting
the low-income certifications and the rent
records for tenants).
(iii) Require that the on-site inspec-
tions that the Agency must conduct satisfy
both the requirements of § 1.42–5(d)
andtherequirementsinparagraph
(c)(2)(iii)(A) through (D) of this section,
and require that the low-income certifica-
tion review that the Agency must perform
satisfies the requirements in paragraphs
(c)(2)(iii)(A) through (D) of this section.
Paragraph (c)(2)(iii)(A) through (D) of
this section provides rules determining
how these on-site inspection requirements
and how these low-income certification
review requirements may be satisfied by
an inspection or review, as the case may
be, that includes only a sample of the
low-income units.
(A)Timing. The Agency must conduct
on-site inspections of all buildings in the
low-income housing project and must re-
view low-income certifications of the low-
income housing project—
(1) By the end of the second calendar
year following the year the last building in
the low-income housing project is placed
in service; and
(2) At least once every 3 years there-
after.
(B)Number of low-income units. The
Agency must conduct on-site inspections
and low-income certification review of
not fewer than the minimum number of
low-income units required by guidance
published in the Internal Revenue Bul-
letin. See § 601.601(d)(2)(ii)(b) of this
chapter.
(C)Selection of low-income units for
inspection and low-income certifications
for review—(1)Random selection. The
Agency must select in a random manner
the low-income units to be inspected and
the units whose low-income certifications
are to be reviewed. The Agency is not
required to select the same low-income
units of a low-income housing project for
on-site inspections and low-income certi-
fication review, and an Agency may
choose a different number of units for
on-site inspections and for low-income
certification review, provided the Agency
chooses at least the minimum number of
low-income units in each case. If the
Agency chooses to select different low-
income units for on-site inspections and
low-incomecertificationreview,the
Agency must select the units for on-site
inspections or low-income certification re-
view separately and in a random manner.
(2)Advance notification limited to rea-
sonable notice. The Agency must select
the low-income units to inspect and low-
income certifications to review in a man-
ner that will not give advance notice that a
particular low-income unit (or low-
income certifications for a particular low-
income unit) for a particular year will or
will not be inspected (or reviewed). How-
ever, the Agency may give an owner rea-
sonable notice that an inspection of the
building and low-income units or review
of low-income certifications will occur.
The notice is to enable the owner to notify
tenants of the inspection or to assemble
low-income certifications for review.
Bulletin No. 2016 –11March 14, 2016
431

(3)Meaning of reasonable notice. For
purposes of paragraph (c)(2)(iii)(C)(ii)of
this section, reasonable notice is generally
no more than 30 days. The notice period
begins on the date the Agency informs the
owner of the identity of the units for
which on-site inspections or low-income
certification review will or will not occur.
Notice of more than 30 days, however,
may be reasonable in extraordinary cir-
cumstances that are beyond an Agency’s
control and that prevent an Agency from
carrying out within 30 days an on-site
inspection or low-income certification re-
view. Extraordinary circumstances in-
clude, but are not limited to, natural disas-
ters and severe weather conditions. In the
event of extraordinary circumstances that
result in a reasonable-notice period longer
than 30 days, an Agency must conduct the
on-site inspection or low-income certifi-
cation review as soon as practicable.
(4)Applicability of reasonable notice
limitation when the same units are chosen
for inspection and file review.Ifthe
Agency chooses to select the same units
for on-site inspections and low-income
certification review, the Agency may con-
duct on-site inspections and low-income
certification review either at the same time
or separately. The Agency, however, must
conduct both the inspections and review
within the reasonable-notice period de-
scribed in paragraph (c)(2)(iii)(C)(2) and
(3) of this section.
(D)Method of low-income certification
review. The Agency may review the low-
income certifications wherever the owner
maintains or stores the records (either on-
site or off-site).
(3)Frequency and form of certifica-
tion.A monitoring procedure must require
that the certifications and reviews of
§ 1.42–5(c)(1) and (c)(2)(i) be made at
least annually covering each year of the
15-year compliance period under section
42(i)(1). The certifications must be made
under penalty of perjury. A monitoring
procedure may require certifications and
reviews more frequently than every 12
months, provided that all months within
each 12-month period are subject to cer-
tification.
(c)(4) through (h)(1) [Reserved]. For
further guidance, see § 1.42–5(c)(4)
through (h)(1).
(2)Effective/applicability dates of the
REAC inspection protocol. The require-
ments in paragraphs (a)(2)(iii), (c)(2)(ii)
and (iii), and (c)(3) of this section apply
beginning on February 25, 2016. Agen-
cies using the REAC inspection protocol
of the Department of Housing and Urban
Development as part of the Physical In-
spections Pilot Program may rely on these
provisions for on-site inspections and
low-income certification review occurring
between January 1, 2015 and February 25,
2016. Otherwise, for the rules that apply
before February 25, 2016,see § 1.42–5 as
contained in 26 CFR part 1 revised as of
April 1, 2015.
(i)Expiration date. The applicability of
this section expires on February 22, 2019.
John Dalrymple.
Deputy Commissioner for
Services and Enforcement.
Approved: January 29, 2016.
Mark J. Mazur,
Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on February 23,
2016, 4:15 p.m., and published in the issue of the Federal
Register for February 25, 2016, 81 F.R. 9333)
26 CFR 301.6103(j)(1)–1: Disclosures of return in-
formation reflected on returns to officers and em-
ployees of the Department of Commerce for certain
statistical .....
T.D. 9754
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Disclosures of Return
Information Reflected on
Returns to Officers and
Employees of the Department
of Commerce for Certain
Statistical Purposes and
Related Activities
AGENCY:Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations that authorize the disclo-
sure of certain items of return information
to the Bureau of the Census (Bureau) in
conformance with section 6103(j)(1) of
the Internal Revenue Code (Code). These
regulations finalize temporary regulations
that were made pursuant to a request from
the Secretary of Commerce. These regu-
lations require no action by taxpayers and
have no effect on their tax liabilities.
Thus, no taxpayers are likely to be af-
fected by the disclosures authorized by
this guidance.
DATES:Effective Date:These regula-
tions are effective on February 26, 2016.
Applicability Date:For dates of appli-
cability, see § 301.6103(j)(1)–1(e).
FOR FURTHER INFORMATION
CONTACT: William Rowe, (202) 317-
5093 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains amendments
to 26 CFR part 301. Section 6103(j)(1)(A)
authorizes the Secretary of Treasury to
furnish, upon written request by the Sec-
retary of Commerce, such returns or re-
turn information as the Secretary of Trea-
sury may prescribe by regulation to
officers and employees of the Bureau for
the purpose of, but only to the extent
necessary in, the structuring of censuses and
conducting related statistical activities au-
thorized by law. Section 301.6103(j)(1)–1
of the existing regulations further defines
such purposes by reference to 13 U.S.C.
chapter 5 and provides an itemized descrip-
tion of the return information authorized to
be disclosed for such purposes.
By letter dated May 10, 2013, the Sec-
retary of Commerce requested that addi-
tional items of return information be dis-
closed to the Bureau for purposes of
structuring a census that costs less per
housing unit and still maintains high qual-
ity results. A major cost in previous de-
cennial censuses was the high number of
follow-up, in-person attempts to collect
information from housing units that did
not return a completed census form. The
Bureau intends to conduct research and
testing for the next decennial census using
March 14, 2016Bulletin No. 2016 –11
432

administrative data from federal agencies,
state agencies, and commercial vendors to
determine whether the number of non-
response follow-up visits can be reduced
through the strategic reuse of this data.
Specifically, the Bureau aims to achieve
the following research initiatives: (1) Val-
idating and enhancing the Master Address
File; (2) Designing and assigning re-
sources to carry out the next decennial
census; (3) Un-duplicating public, private,
and census lists; and (4) Imputing missing
data. All administrative data from the
above sources, including return informa-
tion, will be integrated into the Bureau’s
data system that is used for the next de-
cennial census and housing counts and
will be done in a manner such that the
source (for example, commercial vendor,
IRS, or Social Security Administration)
will not be associated with any data ele-
ment in the final decennial person-level
census records.
On July 15, 2014, a temporary regula-
tion (TD 9677) was published in theFed-
eral Register(79 FR 41132). The text of
the temporary regulations also serves as
the text of proposed regulations set forth
in a notice of proposed rulemaking (REG–
120756 –13) published in theFederal
Registerfor the same day (79 FR 41152).
No public hearing was requested or held.
Two comments responding to the notice
of proposed rulemaking were received.
After consideration of these comments,
the proposed regulations are adopted by
this Treasury decision, and the corre-
sponding temporary regulations are re-
moved.
The temporary regulations authorized
disclosure of additional items of return
information from the Form 1040, “U.S.
Individual Income Tax Return”, and dis-
closure of items from the Form 1098,
“Mortgage Interest Statement”. Specifi-
cally, § 301.6103(j)(1)–1T of the tempo-
rary regulations authorizes the disclosure
of the following additional items of return
information from Forms 1040: (1) Elec-
tronic Filing System Indicator; (2) Return
Processing Indicator; and (3) Paid Pre-
parer Code. Section 301.6103(j)(1)–1T
authorizes the disclosure of the following
items of return information from Form
1098: (1) Payee/Payer/Employee Tax-
payer Identification Number; (2) Payee/
Payer/Employee Name (First, Middle,
Last, Suffix); (3) Street Address; (4) City;
(5) State; (6) ZIP Code (9 digit); (7) Post-
ing Cycle Week; (8) Posting Cycle Year;
and (9) Document Code. These temporary
regulations apply to disclosures to the Bu-
reau of the Census made on or after July
15, 2014, and expire on or before July 14,
2017.
Both comments opposed publication of
the regulations and questioned the under-
lying authority for the IRS to disclose
federal tax return information. Contrary to
the views expressed in these comments,
section 6103(j)(1) specifically authorizes
the IRS to disclose returns or return infor-
mation to the Bureau of the Census for the
purpose of, but only to the extent neces-
sary in, the structuring of censuses and
national economic accounts and conduct-
ing related statistical activities authorized
by law. The final regulations under
§ 301.6103(j)(1)–1 are being issued under
the authority of section 6103(j)(1). Ac-
cordingly, the recommendation of both
commentators that the regulations not be
published has not been adopted.
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements
of Executive Order 12866, as supple-
mented and reaffirmed by Executive Or-
der 13563. Therefore, a regulatory as-
sessment is not required. It has also been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations. In addition, because the regu-
lations do not impose a collection of
information on small entities, the Regu-
latory Flexibility Act (5 U.S.C. chapter
6) does not apply. Accordingly, a regu-
latory flexibility analysis is not required
under the Regulatory Flexibility Act (5
U.S.C. chapter 6). Pursuant to section
7805(f) of the Internal Revenue Code,
the Notice of Proposed Rulemaking pre-
ceding this regulation was submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small businesses.
Drafting Information
The principal author of these final reg-
ulations is William Rowe, Office of the
Associate Chief Counsel (Procedure &
Administration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is amended
as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2.Section 301.6103(j)(1)–1 is
amended by adding paragraphs (b)(1)(xviii)
through (xx) and (b)(7) and revising para-
graph (e) to read as follows:
§ 301.6103(j)(1)–1 Disclosures of return
information reflected on returns to
officers and employees of the
Department of Commerce for certain
statistical purposes and related
activities.
*****
(b)***
(1)***
(xviii) Electronic Filing System Indica-
tor.
(xix) Return Processing Indicator.
(xx) Paid Preparer Code.
*****
(7) Officers or employees of the In-
ternal Revenue Service will disclose the
following return information reflected
on Form 1098 “Mortgage Interest State-
ment” to officers and employees of the
Bureau of the Census for purposes of,
but only to the extent necessary in, con-
ducting and preparing, as authorized by
chapter 5 of title 13, United States Code,
demographic statistics programs, cen-
suses, and surveys—
(i) Payee/Payer/Employee Taxpayer
Identification Number;
(ii)Payee/Payer/Employee Name (First,
Middle, Last, Suffix);
(iii) Street Address;
(iv) City;
(v) State;
(vi) ZIP Code (9 digit);
(vii) Posting Cycle Week;
(viii) Posting Cycle Year; and
(ix) Document Code.
*****
Bulletin No. 2016 –11March 14, 2016
433

(e)Effective/applicability date. Para-
graphs(b)(1)(xviii) through (xx) and (b)(7)
of this section apply to disclosures to the
Bureau of the Census made on or after July
15, 2014. For rules that apply to disclosures
to the Bureau of the Census before that date,
see 26 CFR 301.6103(j)(1)–1 (revised as of
April 1, 2014).
§ 301.6103(j)(1)–1T[Removed]
Par. 3. Section 301.6103(j)(1)–1T is
removed.
John Dalrymple,
Deputy Commissioner for
Services and Enforcement.
Approved: January 22, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on February 24,
2016, 4:15 p.m., and published in the issue of the Federal
Register for February 26, 2016, 81 F.R. 9766)
March 14, 2016Bulletin No. 2016 –11
434

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 1.601.105: Examination of returns and
claims for refund, credit, or abatement; determina-
tion of correct tax liability
(Also: Part I, Sections 42; 1.42–5, 1.42–5T)
Rev. Proc. 2016 –15
SECTION 1. PURPOSE
This revenue procedure sets forth, for
purposes of § 1.42–5T(c)(2)(iii)(B) of the
Income Tax Regulations, the minimum
number of low-income units in a low-
income housing project for which a State
or local housing credit agency (Agency)
must conduct physical inspections and
low-income certification reviews. This
revenue procedure also permits the phys-
ical inspection protocol established by the
Department of Housing and Urban Devel-
opment (HUD)Real Estate Assessment
Center (the REAC protocol) to satisfy
the physical inspection requirements of
§ 1.42–5(d) and § 1.42–5T(c)(2)(ii) and (iii).
SECTION 2. BACKGROUND
.01 Section 42 of the Internal Revenue
Code provides rules for determining the
amount of the low-income housing credit,
which is allowed as a credit against in-
come tax under section 38. A low-income
unit is a residential unit that is rent-
restricted and whose occupants meet the
applicable income limit elected by the tax-
payer as described in section 42(g)(1)(A)
or (B).
.02 Under section 42(i)(3)(B)(i), a low-
income unit is not treated as a low-income
unit unless it is suitable for occupancy and
used other than on a transient basis. Under
section 42(i)(3)(B)(ii), the suitability of a
unit for occupancy must be determined
under regulations prescribed by the Sec-
retary taking into account local health,
safety, and building codes. Failure of one
or more units to qualify as low-income
units may result in a low-income housing
project’s ineligibility for the low-income
housing credit, reduction in the amount of
the credit, and/or recapture of previously
allowed credits.
.03 Section 1.42–5 of the Income Tax
Regulations provides procedures that an
Agency (or its Authorized Delegate
within the meaning of § 1.42–5(f)(1))
must follow in monitoring for compliance
with the provisions of section 42.
.04 Section 1.42–5T(c)(2)(ii) requires
an Agency to conduct on-site inspections
and perform low-income certification re-
view (including documentation support-
ing the low-income certifications and the
rent records for tenants) for each low-
income housing project.
.05 Section 1.42–5T(c)(2)(iii) requires
an Agency to conduct on-site inspections
that satisfy the requirements of both
§ 1.42–5(d) and § 1.42–5T(c)(2)(iii)(A)–(D)
(relating to timing, number of low-income
units, manner of selection, andmethod of
review) and to perform low-income certifi-
cation review that satisfies the requirements
of § 1.42–5T(c)(2)(iii)(A)–(D).
.06 Section 1.42–5T(c)(2)(iii)(A) re-
quires an Agency to conduct on-site in-
spections of all buildings in a low-income
housing project and review low-income
certifications by the end of the second
calendar year following the year the last
building in the project is placed in service
and at least once every 3 years thereafter.
.07 Section 1.42–5T(a)(2)(iii) provides
that guidance published in the Internal
Revenue Bulletin may provide alternative
means of satisfying the requirements of
§§ 1.42–5(a)(2)(i) and 1.42–5T and may
provide exceptions from those provisions.
Section 1.42–5T(c)(2)(iii)(B) provides
that an Agency must conduct on-site in-
spections and low-income certification re-
view of no fewer than the minimum num-
ber of low-income units required by
guidance published in the Internal Reve-
nue Bulletin.
.08 Section 1.42–5T(c)(2)(iii)(C) re-
quires an Agency to select the low-income
units for purposes of on-site inspections
and low-income certification review in a
random manner. The Agency must select
the low-income units to inspect and low-
income certifications to review in a
manner that will not give advance notice
that a low-income unit or low-income
certifications for a particular year will or
will not be inspected or reviewed. How-
ever, the Agency may give an owner
reasonable notice that an inspection of
the building and low-income units or
review of low-income certifications will
occur so that the owner may notify ten-
ants of the inspection or assemble low-
income certifications for review. Section
1.42–5T(c)(2)(iii)(C)(3) provides rules
for determining the meaning of “reason-
able notice.”
.09 An Agency does not need to select
the same low-income units for on-site in-
spections and low-income certification re-
view. If the Agency chooses to select dif-
ferent low-income units for on-site
inspections and low-income certification
review, the Agency must select the units
for on-site inspections or low-income cer-
tification review separately and in a ran-
dom manner. An Agency may choose a
different number of units for on-site in-
spections and low-income certification re-
view, provided the Agency chooses at
least the minimum number of low-income
units in each case.
.10 Any pattern of overlap or non-
overlap of the units selected for inspection
and the units selected for low-income
certification review must not violate
§ 1.42–5T(c)(2)(iii)(C)(2) (which limits
advance notification to reasonable notice
of which units will be subject to inspec-
tion or low-income certification review).
Thus, if the Agency chooses to select the
same units for on-site inspections and
low-incomecertificationreview,the
Agency may conduct on-site inspections
and low-income certification review either
at the same time or separately, but within
the reasonable-notice period. This period
starts to run on the date the Agency in-
forms the owner of the identity of the
units for which on-site inspections or low-
income certification review will occur.
SECTION 3. SCOPE
Thisrevenue procedure applies for de-
termining whether compliance-monitoring
provisionsmeettherequirementsof
§§ 1.42–5(d) and 1.42–5T(c)(2)(ii) and (iii).
SECTION 4. NUMBER OF LOW-
INCOME UNITS FOR INSPECTION
AND LOW-INCOME
CERTIFICATION REVIEW
The minimum number of low-income
units for which an Agency must conduct
on-site inspections and low-income certi-
Bulletin No. 2016 –11March 14, 2016
435

fication review is the lesser of (1) or (2)
below—
(1) 20 percent of the low-income units
in the low-income housing project,
rounded up to the nearest whole
number of units, or
(2) the Minimum Unit Sample Size set
forth in the following Low Income
Housing Credit Minimum Unit
Sample Size Reference Chart:
Number of
Low-Income
Units in the
Low-Income
Housing
Project
Number of
Low-Income
Units Selected
for Inspection
or Low-Income
Certification
Review
(Minimum Unit
Sample Size)
11
22
33
44
5–65
76
8–97
10–118
12–139
14–1610
17–1811
19–2112
22–2513
26–2914
30–3415
35–4016
41–4717
48–5618
57–6719
68–8120
82–10121
102–13022
131–17523
176–25724
258–44925
450–1,46126
1,462–9,99927
SECTION 5. INSPECTION
STANDARD—USE OF THE REAC
PROTOCOL
.01 The REACprotocol is among the
inspection protocols that satisfy both
§ 1.42–5(d) and the physical inspection re-
quirement of § 1.42–5T(c)(2)(ii) and (iii).
This revenue procedure treats an inspection
as being performed under the REAC proto-
col only if the inspection satisfies all of the
following requirements:
(1) Both vacant and occupied low-
income units in a low-income
housing project are included in the
population of units from which
units are selected for inspection.
1
(2) The inspection complies with the
procedural and substantive re-
quirements of the HUD Real Es-
tateAssessment Center (REAC), in-
cluding the requirement to use the
most recent REAC Uniform Physi-
cal Condition Standards (UPCS) in-
spection software (or software that is
accepted by HUD).
2
(3) The inspection is performed by
HUD REAC inspectors (or inspec-
tors certified by HUD).
(4) The inspection results are sent to
HUD, the results are reviewed and
scored within HUD’s secure sys-
tem without any involvement of
the inspector who conducted the
inspection, and HUD makes its in-
spection report available.
.02 If, consistent with Section 5.01 of
this revenue procedure, an Agency con-
ducts on-site inspections under the REAC
protocol—
(1) § 1.42–5T(c)(2)(iii)(A) is applied as
if it did not contain the word “all”;
(2) The number of low-income units re-
quired to be inspected under the
REAC protocol satisfies the require-
ments of § 1.42–5T(c)(2)(iii)(B)
(concerning the number of low-
income units an Agency must in-
spect); and
(3) The manner in which the low-
income units are selected for in-
spection under the REAC protocol
satisfiestherequirementsof
§ 1.42–5T(c)(2)(iii)(C).
.03 Conducting on-site inspections un-
der the REAC protocol does not excuse an
Agency from reviewing low-income cer-
tifications in accordance with § 1.42–
5T(c)(ii) and (iii).
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective on
February 25, 2016. Agencies using the
REAC protocol as part of the Physical
Inspections Pilot Program, however, may
rely on these provisions for on-site inspec-
tions and low-income certification review
occurring between January 1, 2015 and
February 25, 2016.
SECTION 7. DRAFTING
INFORMATION
The principal authors of this revenue
procedure are Jian H. Grant and Martha
M. Garcia of the Office of Associate Chief
Counsel (Passthroughs & Special Indus-
tries). For further information regarding
this revenue procedure, please contact Ms.
Grant at (202) 317-4137 or Ms. Garcia at
(202) 317-6853 (not toll free numbers).
[26 C.F.R. § 301.7430 –2]:[Requirements and proce-
dures for recovery of reasonable administrative costs]
(Also: Section 7430)
Rev. Proc. 2016 –17
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance on the recovery of administrative and
litigation costs in connection with the de-
termination, collection, or refund of any
tax, interest, or penalty by individuals
who provide pro bono representation to
taxpayers.
SECTION 2. BACKGROUND
.01 Section 7430 provides for awards
of reasonable administrative and litigation
costs incurred by taxpayers who substan-
tially prevail in administrative or court
proceedings brought by or against the
United States in connection with the de-
1
For low-income units, including vacant units, that do not pass inspection under the REAC protocol, it may be possible to correct the noncompliance andavoid loss of credits or recapture.
See§ 1.42–5(e)(4).
2
The HUD REAC requires the use of the REAC sampling methodology, which is incorporated in the REAC UPCS inspection software. However, mere use of the public version of the REAC
UPCS inspection software is not, by itself, sufficient to qualify as use of the REAC protocol.
March 14, 2016Bulletin No. 2016 –11
436

termination, collection, or refund of any
tax, interest, or penalty under title 26.
.02 Section 7430(c)(3)(B), as amended
by the Internal Revenue Service Restruc-
turing and Reform Act of 1998, Pub. L.
No. 105–206, 112 Stat. 685 (Jul. 22, 1998)
(RRA ’98), provides that a court may
award reasonable attorneys’ fees under
section 7430(a) in excess of fees paid or
incurred if those fees are less than the
reasonable attorneys’ fees because an in-
dividual is representing the prevailing
party for no fee or for a fee which, taking
into account all the facts and circum-
stances, is no more than a nominal fee
(i.e., pro bono).
.03 Section 7430(c)(3)(A)provides
that the fees for the services of an indi-
vidual (whether or not an attorney) who
is authorized to practice before the
United States Tax Court or before the
Internal Revenue Service (the Service)
shall be treated as fees for the services
of an attorney.
.04 Section 7430(c)(3)(B) further pro-
vides that an award of fees for represen-
tation on a pro bono basis may only be
paid to the individual providing the pro
bono representation or such individual’s
employer.
.05 On November 25, 2009, the Trea-
sury Department and the Service pub-
lished proposed amendments to the Trea-
sury regulations relating to awards of
administrative costs and attorneys’ fees
under section 7430 (74 FR 61589) to con-
form the regulations to the amendments
that were made to section 7430 in RRA
’98, including the amendment allowing
for an award of reasonable attorneys’ fees
when a taxpayer is represented on a pro
bono basis. Final regulations are being
issued contemporaneously with this reve-
nue procedure (Treasury Decision 9756).
.06 In response to public comments
received on the proposed regulations, this
revenue procedure supplements the final
regulations by providing more detailed in-
formation and processes specific to pro
bono representation. A summary of the
comments can be found in the preamble to
the final section 7430 regulations.
SECTION 3. SCOPE
.01 This revenue procedure applies to
representatives providing pro bono repre-
sentation.
.02 Pro Bono Representation. Pro bono
representation is established by demon-
strating that (1) representation was pro-
vided for no fee or for a fee that, taking
into account all the facts and circum-
stances, constitutes a nominal fee, and (2)
the representative intended to provide rep-
resentation for no fee or a nominal fee from
the commencement of the representation.
See Treas. Reg. § 301.7430 – 4(d)(2).
(A) A nominal fee is defined as a fee
that is insignificantly small or minimal. A
nominal fee is a trivial payment, bearing
no relation to the value of the representa-
tion provided, taking into account all the
facts and circumstances. See Treas. Reg.
Sec. 301.7430 – 4(d)(3).
(B) Intent to provide representation for
no fee or a nominal fee may be demon-
strated through documentation such as a
retainer agreement or a pro bono represen-
tation agreement. A representative will
not be considered to have provided pro
bono representation if the facts demon-
strate that the representative anticipated a
fee greater than a nominal fee or provided
representation on a contingency fee basis.
However, the fact that the representative
intended to seek recovery of fees under
section 7430 will not prevent the repre-
sentative from satisfying this requirement.
See Treas. Reg. § 301.7430 – 4(d)(2)(ii).
.03 Pro bono representatives include,
but are not limited to, individuals provid-
ing pro bono representation directly or
individuals employed by or acting in con-
junction with organizations providing le-
gal representation. Thus, a pro bono rep-
resentative may be a sole practitioner, a
partner or employee in a law firm or ac-
counting firm, an employee of an organi-
zation, or a volunteer affiliated with an
organization. Examples of organizations
that provide pro bono representation, in
whole or in part, include, but are not lim-
ited to, legal aid organizations, low in-
come taxpayer clinics receiving funding
under section 7526, clinics participating in
the Service’s Student Tax Clinic Program,
and clinics participating in the United
States Tax Court’s clinical program,
whether the representation is provided by
the employees, the legal aid organization
or clinic, or by other individuals and/or
service providers affiliated with the legal
aid organization or clinic.
SECTION 4. PROCEDURE
.01 To recover fees under section 7430,
a pro bono representative generally should
follow the procedures set forth in section
7430, Treas. Reg. § 301.7430 –2, and Tax
Court Rules 230 –233. The additional pro-
cedures set forth below apply only to pro
bono representatives.
.02 Recordkeeping Requirements. To
recover fees, a pro bono representative
must maintain contemporaneous activity
records of all time spent on a case for
which fees are being claimed. The records
should be similar to billing records main-
tained by for-profit law firms for non-pro
bono representation, and must show the
work performed and the time allocated to
each task. The representation must be de-
scribed in sufficient detail to enable the
Service to evaluate the reasonableness of
the amount of time expended in relation to
the service performed and to identify du-
plicated efforts, if any. The records must
include time spent by all those who pro-
vide representation to the taxpayer that is
recoverable under this revenue procedure.
For each representative for whom fees are
claimed, the records must identify the in-
dividual’s name and position, such as su-
pervisory attorney, student, or paralegal,
and the associated incremental periods of
time spent by that individual for which a
fee is claimed. For each increment of time
for which fees are claimed, the records
must identify the date on which the rep-
resentation was provided and must de-
scribe the nature of the representation in
detail. The use of classifications to de-
scribe the representation is strongly en-
couraged. Suggested classifications in-
clude, but are not limited to, initial client
interview, research (identifying the issue),
preparing pleadings or other court docu-
ments, preparing letters (identifying the
recipient and subject matter), investiga-
tion of underlying facts (briefly describing
the subject matter and information), anal-
ysis of taxpayer or third-party records
(identifying the records), consultation
with tax return preparer (identifying the
preparer), consultation or interview of
third party (identifying the person), and
telephone conversations (identifying with
whom the conversation was held and the
subject matter). What constitutes suffi-
cient detail will be initially determined by
Bulletin No. 2016 –11March 14, 2016
437

the Service based on the facts and circum-
stances of each case.
.03 Review of Denial. The Service’s
denial of an award of fees, in whole or in
part, may be challenged in the Tax Court
pursuant to section 7430(f).
.04 Rate for Pro Bono Representatives
Who Charge an Hourly Rate. The hourly
rate used to calculate an attorney fee
award for pro bono representatives who
charge hourly rates in their ordinary
course of business will generally be lim-
ited to the lesser of the statutory hourly
rate set forth in section 7430(c)(1)(B)(iii)
or their hourly billing rate, unless they can
establish that a special factor, as described
in section 7430(c)(1)(B)(iii), applies.
.05 Fixed Rate for Pro Bono Represen-
tatives Who Do Not Charge an Hourly
Rate. Some pro bono representatives do
not charge hourly rates for representation
in the ordinary course of their business.
Examples of these pro bono representa-
tives include, but are not limited to, em-
ployees of a clinic or organization that
provides pro bono representation, and
other individuals who perform pro bono
representation outside of their profes-
sional employment, such as retired repre-
sentatives or in-house counsel. Since it is
often difficult to determine an appropriate
hourly rate with respect to these pro bono
representatives on a case-by-case basis,
and attempting to do so may require the
expenditure of significant resources by the
parties to the proceeding and possibly a
court, this revenue procedure provides a
fixed rate for individuals who provide pro
bono representation but do not charge an
hourly rate for representing taxpayers
equal to the statutory hourly rate under
section 7430(c)(1)(B)(iii). If an award
based on a higher hourly rate is sought,
the burden will be on the requester to
establish that a higher hourly rate is ap-
propriate.
.06 Fixed Rate for Students and Para-
legals. Reasonable fees may be recovered
for work performed by students who have
been authorized to practice before the Ser-
vice pursuant to 31 C.F.R. Part 10 (Trea-
sury Department Circular No. 230) or to
practice before the United States Tax
Court under the supervision of a practitio-
ner through the United States Tax Court’s
Clinical, Student Practice and Calendar
Call Program, and by paralegals or other
persons qualified to perform paralegal
work who are assisting pro bono represen-
tatives. For reasons similar to those de-
scribed in section 4.05 of this revenue
procedure, this revenue procedure pro-
vides a fixed rate for students authorized
as described in this section 4.06, and for
paralegals or other persons qualified to
perform paralegal work regardless of
whether they charge an hourly rate, equal
to thirty-five percent of the statutory
hourly rate provided for representatives
under section 7430(c)(1)(B)(iii). If an
award based on a higher hourly rate is
sought, the burden will be on the requester
to establish that a higher hourly rate is
appropriate. Fees are not recoverable for
work that is secretarial in nature.See
Treas. Reg. § 301.7430 – 4(c)(2).
.07 Other Volunteers at a Pro Bono
Clinic or Organization. Fees for time
claimed for other volunteers (e.g., stu-
dents or professionals who have not been
authorized to practice before the Service
or the Tax Court or paralegal students)
working at a pro bono clinic or organiza-
tion may be recoverable on a case-by-case
basis. The burden will be on the requester
to establish an appropriate hourly rate.
.08 Application of Requirements of
Section 7430. To be eligible for an award
of attorneys’ fees, taxpayers represented
by a pro bono representative must meet all
applicable requirements of section 7430.
.09 Award of Fees. A fee awarded un-
der section 7430(c)(3)(B) generally will
be paid to the pro bono representative,
unless the Service is specifically in-
structed by the representative, in writing,
to pay the fee to the representative’s em-
ployer, such as a law firm. Fees awarded
for services provided by an employee of a
pro bono clinic or organization, or a stu-
dent affiliated with a pro bono clinic or
organization, will be paid to the clinic or
organization. If, however, an individual
representative who is not an employee of
a pro bono clinic or organization volun-
teers to provide services in affiliation with
a pro bono clinic or organization, fee
awards in that context will be paid to the
clinic or organization. Solely for the pur-
pose of determining to whom an award of
fees under section 7430 should be paid,
the clinic or organization will be consid-
ered the employer of the individual who
volunteers to provide services for the pro
bono clinic or organization. If the Service
is specifically informed in writing by the
pro bono clinic or organization that, pur-
suant to an agreement between the clinic
or organization and the representative,
some or all of the award should be paid to
the representative or to the represent-
ative’s employer, that agreement will be
honored. For purposes of this section 4.09,
a for-profit law firm is not considered to
be an organization.
SECTION 5. EXAMPLES
Example 1. This example primarily illustrates the
application of sections 4.04 and 4.05 of this Revenue
Procedure. Attorney W, an employee of a low in-
come taxpayer clinic, represents D in a Tax Court
proceeding. Counsel, an attorney employed by a
for-profit law firm, also represents D in that Tax
Court action on a pro bono basis. D prevails and a
motion for fees is filed on D’s behalf. Counsel’s
hourly billing rate at the law firm exceeds the stat-
utory hourly rate under section 7430(c)(1)(B)(iii).
The claim for fees includes time charged at the
statutory hourly rate for Attorney W and time
charged at Counsel’s hourly billing rate. Counsel
cannot demonstrate that any special factor warrants
an hourly rate in excess of the statutory hourly rate.
Similarly, Attorney W cannot demonstrate that a rate
in excess of the fixed rate is appropriate. Assuming
D meets the remaining requirements of section 7430,
Attorney W and Counsel are entitled to an award of
fees for a reasonable number of hours. The award is
limited to the statutory hourly rate for Attorney W’s
and Counsel’s time.
Example 2. This example primarily illustrates the
application of sections 4.05 and 4.06 of this Revenue
Procedure. Attorney X, an employee of a low in-
come taxpayer clinic, represents A on a pro bono
basis in a controversy with the Service. Student S
and Paralegal P assist Attorney X with the represen-
tation of A. Student S has been authorized to practice
before the Service. A prevails and Attorney X files a
claim for fees on A’s behalf. Attorney X does not
charge an hourly billing rate, and cannot demonstrate
that a rate in excess of the statutory hourly rate is
appropriate. Similarly, Student S and Paralegal P do
not charge an hourly billing rate, and cannot dem-
onstrate that a rate in excess of the fixed rate set forth
in section 4.06 of this revenue procedure is appro-
priate. Assuming A meets the remaining require-
ments of section 7430, fees will be awarded for
Attorney X’s reasonable time at a fixed rate equal to the
statutory hourly rate under section 7430(c)(1)(B)(iii).
Fees for reasonable time spent by Student S andPara-
legal P in assisting Attorney X will be awarded at a
fixed rate of thirty-five percent of the statutory
hourly rate provided for representatives under sec-
tion 7430(c)(1)(B)(iii).
Example 3. This example primarily illustrates the
application of section 4.09 of this Revenue Proce-
dure. Attorney Y, who is employed by a nonprofit
organization, represents B on a pro bono basis. B
prevails with respect to the amount in controversy. In
addition to Attorney Y, B is represented by Lawyer,
an attorney employed by a for-profit law firm, who
March 14, 2016Bulletin No. 2016 –11
438

worked on the case on a pro bono basis at the request
of the nonprofit organization. B prevails and Attor-
ney Y files a claim for administrative and litigation
costs on B’s behalf. Therefore, assuming B is other-
wise entitled to recover costs, and the nonprofit
organization does not specifically inform the Service
that the portion of the fees attributable to Lawyer’s
work on the case should be paid to Lawyer or Law-
yer’s firm, all fees will be paid to the nonprofit
organization.
Example 4. This example primarily illustrates the
application of section 4.02 of this Revenue Proce-
dure. Attorney Z, an employee of a low income
taxpayer clinic, provides C with pro bono represen-
tation in a controversy with the Service that was
ongoing for several years. C prevails and Attorney Z
files a claim for fees on C’s behalf. The activity
records submitted with the claim for fees were cre-
ated shortly before the claim was submitted. The
Service may challenge C’s entitlement to fees based
on the fact that the activity records were not con-
temporaneously maintained and may be unreliable.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for
all motions for costs under section 7430
filed on or after February 29, 2016. Tax-
payers may elect to follow this revenue
procedure for motions for costs under sec-
tion 7430 filed prior to February 29, 2016,
and pending before the court on February
29, 2016.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Shannon K. Castañeda of the
Office of Associate Chief Counsel (Proce-
dure and Administration). For further in-
formation regarding this revenue proce-
dure, contact Shannon K. Castañeda at
(202) 317-5437 (not a toll-free number).
Bulletin No. 2016 –11March 14, 2016
439

Part IV. Items of General Interest
Notice of Proposed
Rulemaking by Cross-
reference to Temporary
Regulations.
Amendments to the Low-
Income Housing Credit
Compliance-Monitoring
Regulations
REG–150349 –12
AGENCY:Internal Revenue Service (IRS),
Treasury.
ACTION:Notice of proposed rulemaking
by cross-reference to temporary regulations.
SUMMARY: In the Rules and Regula-
tions section of this issue of theInternal
Revenue Bulletin, the IRS is issuing fi-
nal and temporary regulations concern-
ing the compliance-monitoring duties of
a State or local housing credit agency
(Agency) for purposes of the low-
income housing credit. The final and
temporary regulations revise and clarify
certain rules relating to the requirements
to conduct physical inspections and re-
view low-income certifications and
other documentation. The text of the
temporary regulations also serves as the
text of these proposed regulations.
DATES: Comments and requests for a
public hearing must be received by May
25, 2016.
ADDRESSES: Send submissions to: CC:
PA:LPD:PR (REG–150349 –12), room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station, Wash-
ington, 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–150349 –12),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW.,
Washington, DC. Submissions may also
be sent electronically via the Federal
eRulemaking Portal at www.regulations.
gov (IRS REG–150349 –12).
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Jian H. Grant, (202) 317-4137, and Mar-
tha M. Garcia, (202) 317-6853 (not toll-
free numbers); concerning submission of
comments, the hearing, and/or to be
placed on the building access list to attend
the hearing, Oluwafunmilayo Taylor at
(202) 317-6901 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Final and temporary regulations in the
Rules and Regulations section of this is-
sue of theInternal Revenue Bulletin
amend the Income Tax Regulations (26
CFR Part 1) relating to section 42 and
serve as the text for these proposed regu-
lations.
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements of
Executive Order 12866, as supplemented
and reaffirmed by Executive Order 13563.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations, and because the
regulations do not impose a collection of
information on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section
7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on their impact on small
business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the “Addresses”
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed rules. All comments will
be available at www.regulations.gov or
upon request. A public hearing will be
scheduled if requested in writing by any
person that timely submits written com-
ments. If a public hearing is scheduled,
notice of the date, time, and place for the
public hearing will be published in the
Federal Register.
Drafting Information
The principal authors of these regula-
tions are Jian H. Grant and Martha M.
Garcia, Office of the Associate Chief
Counsel (Passthroughs and Special Indus-
tries). However, other personnel from the
IRS and the Treasury Department partic-
ipated in their development.
*****
Proposed 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
continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 1.42–5 is amended by
revising paragraphs (a)(2)(iii), (c)(2)(ii)
and (iii), and (c)(3), and adding two sen-
tences to paragraph (h) to read as follows:
§ 1.42–5 Monitoring compliance with
low-income housing credit requirements.
(a)***
(2)***
(iii) [The text of proposed amendments
to § 1.42–5(a)(2)(iii) is the same as the
text of § 1.42–5T(a)(2)(iii) published else-
where in this issue of theInternal Reve-
nue Bulletin].
*****
(c)***
(2)***
(ii) [The text of proposed amendments
to § 1.42–5(c)(2)(ii) is the same as the text
of § 1.42–5T(c)(2)(ii) published else-
where in this issue of theInternal Reve-
nue Bulletin].
(iii) [The text of proposed amendments
to § 1.42–5(c)(2)(iii) is the same as the
text of § 1.42–5T(c)(2)(iii) published else-
where in this issue of theInternal Reve-
nue Bulletin].
March 14, 2016Bulletin No. 2016 –11
440

(3) [The text ofproposed amendments
to § 1.42–5(c)(3) is the same as the text of
§ 1.42–5T(c)(3) published elsewhere in this
issue of theInternal Revenue Bulletin].
*****
(h)***
[The text of the proposed addition to
§ 1.42–5(h) is the same as the text of the
first two sentences of § 1.42–5T(h)(1)
published elsewhere in this issue of the
Internal Revenue Bulletin].
*****
John Dalrymple,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on February 23,
2016, 4:15 p.m., and published in the issue of the Federal
Register for February 25, 2016, 81 F.R. 9379)
Bulletin No. 2016 –11March 14, 2016
441

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:
Amplifieddescribes 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).
Clarifiedis 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.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified andclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Supersededdescribes 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
supersededdescribes 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.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
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.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The 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.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—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.
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.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE
—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Bulletin No. 2016 –11March 14, 2016
i

Numerical Finding List
1
Bulletins 2016 –1 through 2016 –11
Announcements:
2016-1, 2016-3 I.R.B.283
2016-2, 2016-3 I.R.B.283
2016-3, 2016-4 I.R.B.294
2016-4, 2016-6 I.R.B.313
2016-5, 2016-8 I.R.B.356
2016-6, 2016-10 I.R.B.409
2016-7, 2016-8 I.R.B.356
2016-8, 2016-9 I.R.B.367
2016-9, 2016-9 I.R.B.367
2016-10, 2016-9 I.R.B.367
2016-11, 2016-10 I.R.B.411
Notices:
2016-1, 2016-2 I.R.B.265
2016-2, 2016-2 I.R.B.265
2016-3, 2016-3 I.R.B.278
2016-4, 2016-3 I.R.B.279
2016-5, 2016-6 I.R.B.302
2016-6, 2016-4 I.R.B.287
2016-7, 2016-5 I.R.B.296
2016-8, 2016-6 I.R.B.304
2016-9, 2016-6 I.R.B.306
2016-10, 2016-6 I.R.B.307
2016-11, 2016-6 I.R.B.312
2016-12, 2016-6 I.R.B.312
2016-13, 2016-7 I.R.B.314
2016-14, 2016-7 I.R.B.315
2016-16, 2016-7 I.R.B.318
2016-17, 2016-9 I.R.B.358
2016-18, 2016-9 I.R.B.359
2016-19, 2016-9 I.R.B.362
2016-20, 2016-9 I.R.B.362
Proposed Regulations:
REG-118867-10, 2016-10 I.R.B.411
REG-147310-12, 2016-7 I.R.B.336
REG-150349-12, 2016-11 I.R.B.440
REG-138344-13, 2016-4 I.R.B.294
REG-125761-14, 2016-7 I.R.B.322
REG-100861-15, 2016-8 I.R.B.356
REG-129067-15, 2016-10 I.R.B.420
REG-134122-15, 2016-7 I.R.B.334
REG-101701-16, 2016-9 I.R.B.368
Revenue Procedures:
2016-1, 2016-1 I.R.B.1
2016-2, 2016-1 I.R.B.102
2016-3, 2016-1 I.R.B.126
2016-4, 2016-1 I.R.B.142
2016-5, 2016-1 I.R.B.188
2016-6, 2016-1 I.R.B.200
2016-7, 2016-1 I.R.B.239
Revenue Procedures:—Continued
2016-8, 2016-1 I.R.B.243
2016-10, 2016-2 I.R.B.270
2016-11, 2016-2 I.R.B.274
2016-13, 2016-4 I.R.B.290
2016-14, 2016-9 I.R.B.365
2016-15, 2016-11 I.R.B.435
2016-16, 2016-10 I.R.B.394
2016-17, 2016-11 I.R.B.436
Revenue Rulings:
2016-1, 2016-2 I.R.B.262
2016-2, 2016-4 I.R.B.284
2016-3, 2016-3 I.R.B.282
2016-4, 2016-6 I.R.B.299
2016-5, 2016-8 I.R.B.344
2016-7, 2016-10 I.R.B.391
2016-8, 2016-11 I.R.B.426
Treasury Decisions:
9745, 2016-2 I.R.B.256
9748, 2016-8 I.R.B.347
9749, 2016-10 I.R.B.373
9750, 2016-10 I.R.B.374
9751, 2016-10 I.R.B.379
9752, 2016-10 I.R.B.385
9753, 2016-11 I.R.B.426
9754, 2016-11 I.R.B.432
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2015–27 through 2015–52 is in Internal Revenue Bulletin
2015–52, dated December 28, 2015.
March 14, 2016Bulletin No. 2016 –11
ii

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2016 –1 through 2016 –11
Announcements:
2007-21
Modified by
Ann. 2016-1, 2016-3 I.R.B.283
Notices:
2005-50
Modified by
Notice 2016-2, 2016-2 I.R.B.265
2007-59
Revoked by
Notice 2016-16, 2016-7 I.R.B.318
2013-54
Supplemented by
Notice 2016-17, 2016-9 I.R.B.358
2014-79
Superseded by
Notice 2016-1, 2016-2 I.R.B.265
2015-52
Supplemented by
Notice 2016-17, 2016-9 I.R.B.358
2015-87
Supplemented by
Notice 2016-17, 2016-9 I.R.B.358
Revenue Procedures:
2015-1
Superseded by
Rev. Proc. 2016-2, 2016-1 I.R.B.1
2015-2
Superseded by
Rev. Proc. 2016-2, 2016-1 I.R.B.102
2015-3
Superseded by
Rev. Proc. 2016-3, 2016-1 I.R.B.126
2015-5
Superseded by
Rev. Proc. 2016-5, 2016-1 I.R.B.142
2015-7
Superseded by
Rev. Proc. 2016-7, 2016-1 I.R.B.188
2015-8
Superseded by
Rev. Proc. 2016-8, 2016-1 I.R.B.200
Revenue Procedures:—Continued
2015-9
Superseded by
Rev. Proc. 2016-5, 2016-1 I.R.B.239
2015-10
Superseded by
Rev. Proc. 2016-10, 2016-2 I.R.B.270
2015-22
Superseded by
Rev. Proc. 2016-8, 2016-01 I.R.B.243
2015-53
Modified by
Rev. Proc. 2016-11, 2016-2 I.R.B.274
Revenue Rulings:
2005-3
Modified by
Rev. Rul. 2016-8, 2016-11 I.R.B.426
2008-15
Revoked by
Rev. Rul. 2016-3, 2016-3 I.R.B.282
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2015–27 through 2015–52 is in Internal Revenue Bulletin
2015–52, dated December 28, 2015.
Bulletin No. 2016 –11March 14, 2016
iii

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available atwww.irs.gov/irb/.
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 Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.
NW, IR-6230 Washington, DC 20224.
Internal Revenue Service
Washington, DC 20224
Official Business
Penalty for Private Use, $300