Internal Revenue Bulletin 2016-12 (PDF rendition): IRS Notices

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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–123867–14, page 484.
This document contains proposed regulations that amend the
utility allowance regulations concerning the low-income hous-
ing credit. The proposed regulations relate to the circum-
stances in which utility costs paid by a tenant based on actual
consumption in a submetered rent-restricted unit are treated
as paid by the tenant directly to the utility company. The
proposed regulations extend those rules to situations in which
a building owner sells to tenants energy that is produced from
a renewable source and that is not delivered by a local utility
company. The proposed regulations affect owners of low-
income housing projects that claim the credit, the tenants in
those low-income housing projects, and the State and local
housing credit agencies that administer the credit.
Notice 2016–21, page 465.
Section 911 of the Internal Revenue Code provides that quali-
fied U.S. citizens and residents living abroad can elect to
exclude from income certain foreign earned income and for-
eign housing cost amounts. This notice provides adjustments
to the limitation on housing expenses for tax year 2016 for
purposes of section 911 of the Code for specific locations, on
the basis of geographic differences in housing costs relative to
housing costs in the United States.
T.D. 9755, page 442.
This document contains final and temporary regulations that pro-
vide guidance on the utility allowance regulations under
§ 1.42–10 concerning the low-income housing credit. The final
regulations clarify the circumstances in which utility costs paid by
a tenant based on actual consumption in a submetered rent-
restricted unit are treated as paid by the tenant directly to the
utility company. The temporary regulations extend the principles
of these submetering rules to situations in which a building owner
sells to tenants energy that is produced from a renewable source
and that is not delivered by a local utility company.
T.D. 9756, page 450.
This proposed regulation relates to awards of administrative
costs and attorneys fees under section 7430 to conform the
regulations to the amendments made in the Taxpayer Relief Act
of 1997 and the IRS Restructuring and Reform Act of 1998.
T.D. 9757, page 462.
Proposed regulations that provide guidance regarding the re-
quirement that a recipient’s basis in certain property acquired
from a decedent be consistent with the value of the property as
finally determined for federal estate tax purposes. In addition,
these proposed regulations provide guidance on the reporting
requirements for executors or other persons required to file
federal estate tax returns. These proposed regulations affect
executors or other persons who file estate tax returns after
July 31, 2015. The proposed regulations also affect beneficia-
ries who acquire certain property from these estates, and
subsequent transferees to whom beneficiaries transfer the
property in transactions that do not result in the recognition of
gain or loss for federal income tax purposes.
ESTATE TAX
REG–127923–15, page 473.
Temporary regulations that provide transition rules under sec-
tion 6035 extending the due date for statements required by
that section to be filed or furnished prior to February 29, 2016,
until February 29, 2016. These temporary regulations are
applicable to executors and other persons who file after July
31, 2015, returns required by section 6018(a) or (b).
ADMINISTRATIVE
T.D. 9756, page 450.
This proposed regulation relates to awards of administrative
costs and attorneys fees under section 7430 to conform the
regulations to the amendments made in the Taxpayer Relief Act
of 1997 and the IRS Restructuring and Reform Act of 1998.
Finding Lists begin on page ii.
Bulletin No. 2016–12
March 21, 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 21, 2016Bulletin No. 2016–12

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
T.D. 9755
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Utility Allowances
Submetering
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION:Final and temporary regulations.
SUMMARY: This document contains fi-
nal and temporary regulations that amend
the utility allowance regulations concern-
ing the low-income housing credit. The
final regulations clarify the circumstances
in which utility costs paid by a tenant
based on actual consumption in a subme-
tered rent-restricted unit are treated as
paid by the tenant directly to the utility
company. The temporary regulations ex-
tend the principles of these submetering
rules to situations in which a building
owner sells to tenants energy that is pro-
duced from a renewable source and that is
not delivered by a local utility company.
The final and temporary regulations affect
owners of low-income housing projects
that claim the credit, the tenants in those
low-income housing projects, and State
and local housing credit agencies. The text
of these temporary regulations also serves
as the text of the proposed regulations
(REG–123867–14) set forth in the notice
of proposed rulemaking on this subject in
the Proposed Rules section of this issue of
theBulletin.
DATES:Effective Date: These regula-
tions are effective on March 3, 2016.
Applicability Date: For dates of appli-
cability, see §§ 1.42–12(a)(5) and
1.42–10T(f)–(g).
FOR FURTHER INFORMATION
CONTACT: James Rider (202) 317-4137
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to § 1.42–10 of the Income Tax Regula-
tions (26 CFR Part 1), which concerns the
applicable utility allowance relating to the
low-income housing credit under section
42 of the Internal Revenue Code. On May
5, 2009, the Treasury Department and the
IRS released Notice 2009–44 (2009–21
IRB 1037) (see § 601.601(d)(2)(ii)(b)) to
provide guidance on how the utility allow-
ance regulations apply to buildings with a
submetering system. On August 7, 2012,
the Treasury Department and the IRS pub-
lished in theFederal Registera notice of
proposed rulemaking under section
42(g)(2)(B)(ii) (77 FR 46987) (the 2012
proposed regulations) to provide that util-
ity costs paid by a tenant based on actual
consumption in a submetered rent-
restricted unit are treated as paid by the
tenant directly to the utility company and
thus do not count against the maximum
rent that the building owner can charge.
The 2012 proposed regulations generally
incorporated the guidance in Notice
2009–44. The Treasury Department and
the IRS received written and electronic
comments responding to the 2012 pro-
posed regulations. No requests for a pub-
lic hearing were made and no public hear-
ing was held.
After consideration of all the com-
ments, the final regulations adopt the 2012
proposed regulations as amended by this
Treasury decision, and the temporary reg-
ulations extend those rules to the provi-
sion of energy that the building owner
acquires directly from renewable sources
and then provides to low-income tenants.
The text of the temporary regulations also
serves as the text of the proposed regula-
tions (REG–123867–14) for purposes of
the notice of proposed rulemaking on this
subject in the Proposed Rules section in
this issue of theBulletin.
Summary of Comments and
Explanation of Provisions
Comments Specifically Relating to
Submetering
Commenters generally stated that the
2012 proposed regulations provided for
accurate utility allowance determinations,
which would promote energy efficiency
and help maintain the financial stability of
housing credit properties.
1.Actual-Consumption Submetering
Arrangements and Ratio Utility Billing
Systems
The 2012 proposed regulations defined
an actual-consumption submetering ar-
rangement for utility allowance purposes
as not including a ratio utility billing sys-
tem (RUBS). RUBS uses a formula that
allocates a property’s utility bill among its
units based on the units’ relative floor
space, number of occupants, or some
other quantitative measure, but not actual
consumption by the tenant(s) in the unit.
A commenter expressed concern that the
inability to use RUBS for utility allow-
ance purposes could be interpreted to pro-
hibit the use of RUBS for any low-income
housing credit project. This concern is
unwarranted. Although the 2012 proposed
regulations precluded an arrangement
such as RUBS from qualifying as an ac-
tual consumption submetering arrange-
ment, they did not prohibit the use of
RUBS for low-income housing credit
projects. However, any amount paid by a
tenant for utilities using RUBS must be
included in gross rent. Accordingly, the
final regulations follow the approach in
the 2012 proposed regulations and con-
tinue to define an actual-consumption sub-
metering arrangement as not including
RUBS.
2.Administrative Costs of Submetering
The 2012 proposed regulations pro-
vided that, if the owner charges a unit’s
tenants an administrative fee for the
owner’s actual monthly costs of adminis-
tering an actual-consumption submetering
March 21, 2016Bulletin No. 2016–12
442

arrangement, then the fee is not consid-
ered gross rent for purposes of section
42(g)(2) so long as the aggregate monthly
fee or fees for all of the unit’s utilities
under one or more actual-consumption
submetering arrangements does not ex-
ceed the lesser of (A) five dollars per
month; or (B) the owner’s actual monthly
costs paid or incurred for administering
the arrangement. One commenter recom-
mended that the final regulations simply
require owners to include in gross rent any
amounts that exceed five dollars and not
require the owner to determine actual
monthly cost. According to the com-
menter, requiring the building owner to
determine actual cost is overly burden-
some and would lead to technical non-
compliance as a result of nominal
amounts. Two commenters requested that
the final regulations also permit building
owners to charge tenants an administra-
tive fee in accordance with State law as
currently permitted in Notice 2009–44.
According to these commenters, this rule
is regionally tuned and therefore allows
building owners to recoup the full cost of
submetering in a fair manner. The com-
menters suggested that by not allowing
building owners to recover State-
approved charges for electricity, the 2012
proposed regulations would create a dis-
incentive for developers to invest in high
performance, sustainable low income
housing or build additional housing units.
In response to these comments, the final
regulations do not include a requirement to
determine actual monthly cost, and they
generally permit owners to charge tenants
an administrative fee in accordance with a
State or local law that specifically prescribes
a dollar amount for the administrative fee.
The final regulations authorize the Treasury
Department and the IRS, by publication in
the Internal Revenue Bulletin (IRB) (see
§ 601.601(d)(2)(ii)), both to provide for ad-
ministrative fees in excess of five dollars per
month even in the absence a State or local
law doing so and to put an upper bound on
administrative fees even if State or local law
allows higher fees.
Thus, if a building owner or its agent
charges a unit’s tenants a fee for admin-
istering an actual-consumption submeter-
ing arrangement, then gross rent includes
any amount by which the aggregate
amount of monthly fees for all of the
unit’s utilities under one or more actual-
consumption submetering arrangements
exceeds the greater of—(i) five dollars per
month; (ii) an amount (if any) designated
by publication in the IRB; or (iii) the
lesser of a dollar amount (if any) specifi-
cally prescribed under a State or local law
or a maximum amount (if any) designated
by publication in the IRB.
3.Energy Acquired Directly from a
Renewable Source
During consideration of the comments
on the 2012 proposed regulations, the
Treasury Department and the IRS realized
that the proposed definition of an actual-
consumption submetering arrangement
assumed that the building owner was pur-
chasing the utility in question from a local
utility company. For example, proposed
§ 1.42–10(e)(1)(iv) referred to “the utility
company rate incurred by the building
owner for the particular utility.” This as-
sumption appeared to preclude applying
submetering principles to electricity gen-
erated from renewable sources by the
building owner or by some other person
from whom the building owner purchases
it directly.
The legislative purposes of the low-
income housing credit, however, are fully
consistent with applying submetering
principles to energy that is acquired with-
out the intervention of a local utility com-
pany. Accordingly, this Treasury decision
contains temporary regulations that apply
those principles to energy that the build-
ing owner provides to tenants after having
acquired it directly from renewable
sources. Qualification for this submeter-
ing treatment, however, depends on the
charges to the tenants for this energy be-
ing comparable to local utility rates. To
the extent that tenants consume this en-
ergy, charges by the building owner must
not exceed the rates that the local utility
company would have charged the tenants
if they had instead acquired the energy
from that company. Information about
how to provide comments on the sub-
stance of the temporary regulations is in
the notice of proposed rulemaking on this
subject (REG–123867–14), which is in
the Proposed Rules section in this issue of
theBulletin.
Comments Relating to Utility Allowances
Generally
In addition to comments responding to
the 2012 proposed regulations, the Trea-
sury Department and the IRS received
comments relating to the utility allowance
regulations that existed prior to these final
regulations. The final regulations incorpo-
rate certain changes suggested in those
comments, as described in this preamble.
1.Role of Agencies Regarding the
Utility Allowance Methods
Section 1.42–10(b) provides the rules
for determining the applicable utility al-
lowance based upon whether (1) the
building receives rental assistance from
the Rural Housing Service (RHS) (“RHS-
assisted building”), (2) the building has
any tenant that receives RHS rental assis-
tance payments (“RHS tenant assis-
tance”), (3) the rents and utility allow-
ances of the building are reviewed by the
Department of Housing and Urban Devel-
opment (HUD) (“HUD-regulated build-
ing”), or (4) the building is not described
in (1), (2), or (3) (“other buildings”).
For an RHS-assisted building and a
building with RHS tenant assistance, the
applicable utility allowance is the applica-
ble RHS utility allowance. For a HUD-
regulated building, the applicable utility
allowance is the applicable HUD utility
allowance. In other buildings, for all rent-
restricted units occupied by tenants re-
ceiving HUD tenant assistance, the appli-
cable utility allowance is the applicable
Public Housing Authority (PHA) utility
allowance established for the Section 8
Existing Housing Program. For all other
tenants in rent-restricted units in other
buildings, the applicable utility allowance
is the applicable PHA utility allowance, a
local utility company estimate, an esti-
mate from the State or local housing credit
agency (Agency) that has jurisdiction over
the building, the HUD Utility Schedule
Model, or an energy consumption model.
See § 1.42–10(b)(4)(ii) to determine
which utility allowance applies.
Prior to these final regulations, the ex-
isting regulations provided that, under the
energy consumption model, utility con-
sumption estimates must be calculated by
“either a properly licensed engineer or a
Bulletin No. 2016–12March 21, 2016
443

qualified professional approved by the
Agency that has jurisdiction over the
building.” The 2012 proposed regulations
requested comments on whether approval
by the agency with jurisdiction over the
building should be required by the regu-
lations for both properly licensed engi-
neers and other qualified professionals or
only for qualified professionals that are
not properly licensed engineers.
One commenter suggested that the
Agency’s approval should be required for
determinations by both properly licensed
engineers and other qualified profession-
als, because the Agency should have the
ability to approve or deny a utility allow-
ance method unless the building is a RHS
property or a HUD-regulated building.
Other commenters suggested that Agency
approval should be required only for pro-
fessionals who are not properly licensed
engineers. According to these comment-
ers, the intent and benefit of a project
sponsor using a licensed engineering pro-
fessional is not only to receive the benefit
of the third-party professional’s expertise
but also to simplify evaluation of the
third-party by the Agency. One com-
menter suggested that when reviewing
consumption model estimates, an Agency
should need to check for only the seal of
an engineer, because State certification of
the engineer already imposes standards
for expertise, performance, and conduct
and exposes the certified individual and
firm, if any, to possible sanctions through
the professional certification and over-
sight process.
In response to these comments, the fi-
nal regulations provide that Agency ap-
proval is required only for qualified pro-
fessionals that are not properly licensed
engineers. However, the final regulations
also clarify that an Agency continues to
have the option to review, and take appro-
priate action regarding, utility estimates
based on the energy consumption model
or the other optional methods.
One commenter suggested that the fi-
nal regulations should clarify that an
Agency has the ability to approve or deny
any owner’s utility allowance, unless the
building is an RHS property or a HUD-
regulated building. By contrast, another
commenter expressed concern that the ex-
isting regulations give an Agency too
much discretion to approve or disapprove
any of the methods of calculating utility
allowances. In particular, the commenter
suggested that the final regulations require
an Agency to accept utility estimates
based on an energy consumption model
whenever the estimate is calculated by a
properly licensed engineer.
The final regulations do not adopt this
latter suggestion. The existing regulations
appropriately allow an Agency to approve
or disapprove a method or to require cer-
tain information before permitting use of
the method. Additionally, an Agency
should have the ability to review the en-
ergy consumption model even when the
model is used by a properly licensed en-
gineer, who is not subject to Agency ap-
proval. Therefore, the final regulations
specifically authorize an Agency to ap-
prove or disapprove use of the energy
consumption model or require informa-
tion about the model before permitting its
use, regardless of the type of professional
who calculates the utility estimates.
2.Use of Consumption Data for the
Energy Consumption Model
Under the existing regulations prior to
these final regulations, use of the energy
consumption model was limited to the
building’s consumption data for the
twelve-month period ending no earlier
than 60 days prior to the beginning of the
90-day period under § 1.42–10(c)(1). One
commenter was concerned about the per-
ceptions that may arise if engineering
models yield allowances that are out of
line with past consumption. The com-
menter requested additional guidance on
the development of acceptable assump-
tions for use in engineering models to
avoid this problem.
Another commenter stated that it is un-
clear whether the required building con-
sumption data refers to the calculated con-
sumptions derived from an energy
consumption model or a separate set of
consumption data such as historical tenant
utility billing information. According to
the commenter, several Agencies that reg-
ulate the acceptable utility allowance
methodologies either have had an unclear
understanding of what additional informa-
tion, if any, is required for an engineering
analysis under the energy consumption
model or have taken the position that ac-
tual historical tenant utility bills for the
most recent 12-month period are neces-
sary to process an energy consumption
model utility allowance submittal.
The commenter also asserted that histor-
ical utility data may be inaccessible and,
even if the data were accessible, collection
of the data imposes an additional paperwork
burden on property owners. The commenter
further contended that historical utility bill-
ing data does not take into account energy-
efficient behavior and does not promote en-
ergy conservation. According to the
commenter, most utility providers do not
maintain utility information beyond the
most recent 12-month period. As year-to-
year variations occur, the most recent
12 months may not be a representative set of
consumption data to provide an ongoing
utility allowance. The commenter suggested
amending the energy consumption model to
allow an engineering approach that analyzes
specific factors including, but not limited to,
unit size, building orientation, design and
materials, mechanical systems, appliances,
and characteristics of the building location.
For the reasons stated by the comment-
ers, the final regulations remove the provi-
sion requiring that an energy consumption
model use the building’s consumption data
for a particular twelve-month period. In-
stead, the final regulations revise the specific
factors used in determining estimates under
the energy consumption model to include
available historical data.
3.Areas with No Public Housing
Authorities
The existing regulations provide that, if
the building is neither an RHS-assisted
building nor a HUD-regulated building
and no tenant in the building receives
RHS tenant assistance, then the appropri-
ate utility allowance for the units in the
building is the applicable PHA utility al-
lowance. One commenter requested clari-
fication as to which method of calculating
utility allowances applies if no PHA exists
under these circumstances. Under the ex-
isting regulations, if a building owner ob-
tains a local utility company estimate or
uses one of the other options for determin-
ing the applicable utility allowance, then
the selected option replaces the applicable
PHA allowance as the appropriate utility
allowance. The regulations do not include
March 21, 2016Bulletin No. 2016–12
444

an option for using the allowance of a
neighboring PHA.
Allowing the use of a neighboring
PHA’s utility allowance might not be ap-
propriate because climate and utility con-
sumption can be dissimilar from one PHA
jurisdiction to a neighboring jurisdiction.
Comments are requested on how the rules
might best address situations in which no
PHA exists. Comments should be submit-
ted in the manner described in the notice
of proposed rulemaking on submetering
(REG–123867–14), which is in the Pro-
posed Rules section in this issue of the
Bulletin.
4.Changes in Public Housing Authority
Utility Allowances
One commenter requested that a build-
ing owner be required to check for a
change in a PHA utility allowance only
annually. The existing regulations provide
that, if the applicable utility allowance for
units changes, the building owner must
use the new utility allowance to compute
gross rents of the units due 90 days after
the change (the 90-day period). For exam-
ple, if a tenant provides a local utility
company estimate that shows a higher
utility cost than the otherwise applicable
PHA utility allowance, then the building
owner must lower the rent. The lower rent
must be in effect for rent due at the end of
the 90-day period. The commenter stated
that a building owner must continuously
monitor for changes in the PHA utility
allowance because a PHA is not required
to update utility allowances on a regular,
fixed schedule.
The final regulations do not adopt this
recommendation because it might result in
tenants paying more than the gross rent
amount under section 42(g)(2). If a PHA
utility allowance were to change after the
one-time date suggested by the com-
menter, then tenants would pay a higher
rent until the next annual date to review
the PHA utility allowance and the higher
rent might exceed the gross-rent limit un-
der section 42(g)(2). Compliance with the
90-day period does not require continuous
monitoring. A building owner that checks
the PHA utility allowance every 60 days
would have at least 30 days in which to
adjust rents.
5.HUD-Regulated Building
Prior to these final regulations, the ex-
isting regulations defined a HUD-
regulated building as one in which neither
the building nor any tenant in the building
receives RHS assistance and the rents and
utility allowances of the building are re-
viewed by HUD on an annual basis. One
commenter recommended amending this
definition because HUD does not review
the rents and utility allowances on an an-
nual basis for all HUD programs. In re-
sponse to this comment, the final regula-
tions define a HUD-regulated building to
mean one in which the rents and utility
allowances of the building are regulated
by HUD.
6.Disclosure to Tenants
One commenter suggested that the final
regulations address how utility estimates are
to be made available to all tenants in the
building. Because circumstances may
vary and different reasonable options may
exist, the final regulations do not adopt
this suggestion.
Comments
Information about how to provide
comments is in the notice of proposed
rulemaking on this subject (REG–
123867–14), which is in the Proposed
Rules section in this issue of theBulletin.
Table of Contents
The final regulations update the table
of contents to include all of the current
provisions under section 42.
Effect on Other Documents
Notice 2009–44 (2009–21 IRB 1037)
is obsolete for taxable years beginning on
or after March 3, 2016.
Statement of Availability of IRS
Documents
Notice 2009–44 is published in the
Internal Revenue Bulletin and is available
from the Superintendent of Documents,
U.S. Government Printing Office, Wash-
ington, 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 also has 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 the 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
section 7805(f) of the Code, the notice of
proposed rulemaking that preceded these
final regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business. No com-
ments were received.
Drafting Information
The principal author of these regula-
tions is David Selig, Office of the Asso-
ciate Chief Counsel (Passthroughs and
Special Industries), IRS. However, other
personnel from the Treasury Department
and the IRS participated in their develop-
ment.
*****
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 adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805***
Section 1.42–10T also issued under 26
U.S.C. 42(n);***
Par. 2. Section 1.42–0 is amended by:
1. Revising the introductory text.
2. Revising the heading and adding en-
tries for § 1.42–1.
3. Adding entries for § 1.42–1T.
4. Adding entries for §§ 1.42–3
through 1.42–18.
The additions and revisions read as fol-
lows:
Bulletin No. 2016–12March 21, 2016
445

§ 1.42–0 Table of contents.
This section lists the paragraphs con-
tained in §§ 1.42–1 through 1.42–18 and
§ 1.42–1T.
§ 1.42–1 Limitation on low-income
housing credit allowed with respect to
qualified low-income buildings receiving
housing credit allocations from a State
or local housing credit agency.
(a) through (g) [Reserved]
(h) Filing of forms.
(i) [Reserved]
(j) Effective dates.
§ 1.42–1T Limitation on low-income
housing credit allowed with respect to
qualified low income buildings receiving
housing credit allocations from a State
or local housing credit agency
(temporary).
(a) In general.
(1) Determination of amount of low-
income housing credit.
(2) Limitation on low-income housing
credit allowed.
(b) The State housing credit ceiling.
(c) Apportionment of State housing
credit ceiling among State and local hous-
ing credit agencies.
(1) In general.
(2) Primary apportionment.
(3) States with 1 or more constitutional
home rule cities.
(i) In general.
(ii) Amount of apportionment to a con-
stitutional home rule city.
(iii) Effect of apportionment to consti-
tutional home rule cities on apportionment
to other housing credit agencies.
(iv) Treatment of governmental author-
ity within constitutional home rule city.
(4) Apportionment to local housing
credit agencies.
(i) In general.
(ii) Change in apportionment during a
calendar year.
(iii) Exchanges of apportionments.
(iv) Written records of apportionments.
(5) Set-aside apportionments for proj-
ects involving a qualified nonprofit orga-
nization.
(i) In general.
(ii) Projects involving a qualified non-
profit organization.
(6) Expiration of unused apportion-
ments.
(d) Housing credit allocation made by
State and local housing credit agencies.
(1) In general.
(2) Amount of a housing credit alloca-
tion.
(3) Counting housing credit allocations
against an agency’s aggregate housing
credit dollar amount.
(4) Rules for when applications for
housing credit allocations exceed an agen-
cy’s aggregate housing credit dollar
amount.
(5) Reduced or additional housing
credit allocations.
(i) In general.
(ii) Examples.
(6) No carryover of unused aggregate
housing credit dollar amount.
(7) Effect of housing credit allocations
in excess of an agency’s aggregate hous-
ing credit dollar amount.
(8) Time and manner for making hous-
ing credit allocations.
(i) Time.
(ii) Manner.
(iii) Certification.
(iv) Fee.
(v) No continuing agency responsibil-
ity.
(e) Housing credit allocation taken into
account by owner of a qualified low-
income building.
(1) Time and manner for taking hous-
ing credit allocation into account.
(2) First-year convention limitation on
housing credit allocation taken into ac-
count.
(3) Use of excess housing credit allo-
cation for increases in qualified basis.
(i) In general.
(ii) Example.
(4) Separate housing credit allocations
for new buildings and increases in quali-
fied basis.
(5) Acquisition of building for which a
prior housing credit allocation has been
made.
(6) Multiple housing credit allocations.
(f) Exception to housing credit alloca-
tion requirement.
(1) Tax-exempt bond financing.
(i) In general.
(ii) Determining use of bond proceeds.
(iii) Example.
(g) Termination of authority to make
housing credit allocation.
(1) In general.
(2) Carryover of unused 1989 appor-
tionment.
(3) Expiration of exception for tax-
exempt bond financed projects.
(h) [Reserved]
(i) Transitional rules.
*****
§ 1.42–3 Treatment of buildings
financed with proceeds from a loan
under an Affordable Housing Program
established pursuant to section 721 of
the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989
(FIRREA).
(a) Treatment under sections 42(i) and
42(b).
(b) Effective date.
§ 1.42–4 Application of not-for-profit
rules of section 183 to low-income
housing credit activities.
(a) Inapplicability to section 42.
(b) Limitation.
(c) Effective date.
§ 1.42–5 Monitoring compliance with
low-income housing credit requirements.
(a) Compliance monitoring require-
ment.
(1) In general.
(2) Requirements for a monitoring pro-
cedure.
(i) In general.
(ii) Order and form.
(iii) [Reserved]
(b) Recordkeeping and record retention
provisions.
(1) Recordkeeping provision.
(2) Record retention provision.
(3) Inspection record retention provi-
sion.
(c) Certification and review provisions.
(1) Certification.
(2) Review.
(ii) [Reserved]
(iii) [Reserved]
(3) [Reserved]
(4) Exception for certain buildings.
(i) In general.
(ii) Agreement and review.
(iii) Example.
March 21, 2016Bulletin No. 2016–12
446

(5) Agency reports of compliance
monitoring activities.
(d) Inspection provision.
(1) In general.
(2) Inspection standard.
(3) Exception from inspection provi-
sion.
(4) Delegation.
(e) Notification-of-noncompliance pro-
visions.
(1) In general.
(2) Notice to owner.
(3) Notice to Internal Revenue Service.
(i) In general.
(ii) Agency retention of records.
(4) Correction period.
(f) Delegation of authority.
(1) Agencies permitted to delegate
compliance monitoring functions.
(i) In general.
(ii) Limitations.
(2) Agencies permitted to delegate
compliance monitoring functions to an-
other Agency.
(g) Liability.
(h) Effective/applicability dates.
(1) In general.
(2) [Reserved]
§ 1.42–6 Buildings qualifying for
carryover allocations.
(a) Carryover allocations.
(1) In general.
(2) 10 percent basis requirement.
(i) Allocation made before July 1.
(ii) Allocation made after June 30.
(b) Carryover-allocation basis.
(1) In general.
(2) Limitations.
(i) Taxpayer must have basis in land or
depreciable property related to the project.
(ii) High cost areas.
(iii) Amounts not treated as paid or
incurred.
(iv) Fees.
(3) Reasonably expected basis.
(4) Examples.
(c) Verification of basis by Agency.
(1) Verification requirement.
(2) Manner of verification.
(3) Time of verification.
(i) Allocations made before July 1.
(ii) Allocations made after June 30.
(d) Requirements for making carryover
allocations.
(1) In general.
(2) Requirements for allocation.
(3) Special rules for project-based al-
locations.
(i) In general.
(ii) Requirement of section
42(h)(1)(F)(1)(III).
(4) Recordkeeping requirements.
(i) Taxpayer.
(ii) Agency.
(5) Separate procedure for election of
appropriate percentage month.
(e) Special rules.
(1) Treatment of partnerships and other
flow-through entities.
(2) Transferees.
§ 1.42–7 Substantially bond-financed
buildings.[Reserved]
§ 1.42–8 Election of appropriate
percentage month.
(a)Electionundersection
42(b)(2)(A)(ii)(I) to use the appropriate
percentage for the month of a binding
agreement.
(1) In general.
(2) Effect on state housing credit ceil-
ing.
(3) Time and manner of making elec-
tion.
(4) Multiple agreements.
(i) Rescinded agreements.
(ii) Increases in credit.
(5) Amount allocated.
(6) Procedures.
(i) Taxpayer.
(ii) Agency.
(7) Examples.
(b)Electionundersection
42(b)(2)(A)(ii)(II) to use the appropriate
percentage for the month tax-exempt
bonds are issued.
(1) Time and manner of making elec-
tion.
(2) Bonds issued in more than one
month.
(3) Limitations on appropriate percent-
age.
(4) Procedures.
(i) Taxpayer.
(ii) Agency.
§ 1.42–9 For use by the general public.
(a) General rule.
(b) Limitations.
(c) Treatment of units not for use by
the general public.
§ 1.42–10 Utility allowances.
(a) Inclusion of utility allowances in
gross rent.
(b) Applicable utility allowances.
(1) Buildings assisted by the Rural
Housing Service.
(2) Buildings with Rural Housing Ser-
vice assisted tenants.
(3) Buildings regulated by the Depart-
ment of Housing and Urban Development.
(4) Other buildings.
(i) Tenants receiving HUD rental assis-
tance.
(ii) Other tenants.
(A) General rule.
(B) Utility company estimate.
(C) Agency estimate.
(D) HUD Utility Schedule Model.
(E) Energy consumption model.
(c) Changes in applicable utility allow-
ance.
(1) In general.
(2) Annual review.
(d) Record retention.
(e) Actual consumption submetering
arrangements.
(1) Definition.
(2) Administrative fees.
§ 1.42–11 Provision of services.
(a) General rule.
(b) Services that are optional.
(1) General rule.
(2) Continual or frequent services.
(3) Required services.
(i) General rule.
(ii) Exceptions.
(A) Supportive services.
(B) Specific project exception.
§ 1.42–12 Effective dates and
transitional rules.
(a) Effective dates.
(1) In general.
(2) Community Renewal Tax Relief
Act of 2000.
(i) In general.
(3) Electronic filing simplification
changes.
(4) Utility allowances.
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447

(5) Additional effective dates affecting
utility allowances.
(b) Prior periods.
(c) Carryover allocations.
§ 1.42–13 Rules necessary and
appropriate; housing credit agencies’
correction of administrative errors and
omissions.
(a) Publication of guidance.
(b) Correcting administrative errors
and omissions.
(1) In general.
(2) Administrative errors and omis-
sions described.
(3) Procedures for correcting adminis-
trative errors or omissions.
(i) In general.
(ii) Specific procedures.
(iii) Secretary’s prior approval re-
quired.
(iv) Requesting the Secretary’s ap-
proval.
(v) Agreement to conditions.
(vi) Secretary’s automatic approval.
(vii) How Agency corrects errors or
omissions subject to automatic approval.
(viii) Other approval procedures.
(c) Examples.
(d) Effective date.
§ 1.42–14 Allocation rules for post-2000
State housing credit ceiling amount.
(a) State housing credit ceiling.
(1) In general.
(2) Cost-of-living adjustment.
(i) General rule.
(ii) Rounding.
(b) The unused carryforward compo-
nent.
(c) The population component.
(d) The returned credit component.
(1) In general.
(2) Limitations and special rules.
(i) General limitations.
(ii) Credit period limitation.
(iii) Three-month rule for returned credit.
(iv) Returns of credit.
(A) Building not qualified within re-
quired time period.
(B) Noncompliance with terms of the
allocation.
(C) Mutual consent.
(D) Amount not necessary for financial
feasibility.
(3) Manner of returning credit.
(i) Taxpayer notification.
(ii) Internal Revenue Service notification.
(e) The national pool component.
(f) When the State housing credit ceil-
ing is determined.
(g) Stacking order.
(h) Nonprofit set-aside.
(1) Determination of set-aside.
(2) Allocation rules.
(i) National Pool.
(1) In general.
(2) Unused housing credit carryover.
(3) Qualified State.
(i) In general.
(ii) Exceptions.
(A) De minimis amount.
(B) Other circumstances.
(iii) Time and manner for making request.
(4) Formula for determining the Na-
tional Pool.
(j) Coordination between Agencies.
(k) Example.
(l) Effective dates.
(1) In general.
(2) Community Renewal Tax Relief
Act of 2000 changes.
§ 1.42–15 Available unit rule.
(a) Definitions.
(b) General section 42(g)(2)(D)(i) rule.
(c) Exception.
(d) Effect of current resident moving
within building.
(e) Available unit rule applies sepa-
rately to each building in a project.
(f) Result of noncompliance with avail-
able unit rule.
(g) Relationship to tax-exempt bond
provisions.
(h) Examples.
(i) Effective date.
§ 1.42–16 Eligible basis reduced by
federal grants.
(a) In general.
(b) Grants do not include certain rental
assistance payments.
(c) Qualifying rental assistance pro-
gram.
(d) Effective date.
§ 1.42–17 Qualified allocation plan
(a) Requirements
(1) In general [Reserved]
(2) Selection criteria [Reserved]
(3) Agency evaluation.
(4) Timing of Agency evaluation.
(i) In general.
(ii) Time limit for placed-in-service
evaluation.
(5) Special rule for final determinations
and certifications.
(6) Bond-financed projects.
(b) Effective date.
§ 1.42–18 Qualified Contracts.
(a) Extended low-income housing
commitment.
(1) In general.
(i) Extended use period.
(ii) Termination of extended use period.
(iii) Other non-acceptance.
(iv) Eviction, gross rent increase con-
cerning existing low-income tenants not
permitted.
(2) Exception.
(b) Definitions.
(c) Qualified contract purchase price
formula.
(1) In general.
(i) Initial determination.
(ii) Mandatory adjustment by the buyer
and owner.
(iii) Optional adjustment by the
Agency and owner.
(2) Low-income portion amount.
(3) Outstanding indebtedness.
(4) Adjusted investor equity.
(i) Application of cost-of-living factor.
(ii) Unadjusted investor equity.
(iii) Qualified-contract cost-of-living
adjustment.
(iv) General rule.
(v) Provision by the Commissioner of
the qualified-contract cost-of-living ad-
justment.
(vi) Methodology.
(vii) Example.
(5) Other capital contributions.
(6) Cash distributions.
(i) In general.
(ii) Excess proceeds.
(iii) Anti-abuse rule.
(d) Administrative discretion and re-
sponsibilities of the Agency.
(1) In general.
(2) Actual offer.
(3) Debarment of certain appraisers.
(e) Effective /applicability date.
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448

Par. 3. Section 1.42–0T is added to
read as follows:
§ 1.42–0T Table of contents.
This section lists the paragraphs con-
tained in §§ 1.42–5T and 1.42–10T.
§ 1.42–5T Monitoring compliance with
low-income housing credit requirements
(temporary).
(a)(1) through (a)(2)(ii) [Reserved]
(iii) Effect of guidance published in the
Internal Revenue Bulletin.
(b) through (c)(2)(i) [Reserved]
(3) Frequency and form of certification.
(c)(4) through (g) [Reserved]
(h) Effective/applicability dates.
(1) [Reserved]
(2) Effective/applicability dates of the
REAC inspection protocol.
§ 1.42–10T Energy obtained directly
from renewable sources (temporary).
(a) through (e)(1)(i)(A) [Reserved]
(B) Utility not purchased from or
through a local utility company.
(C) Renewable source.
(2) [Reserved]
(f) Date of applicability.
(g) Expiration date.
Par. 4. Section 1.42–10 is amended by:
1. Adding a sentence after the first sen-
tence of paragraph (a).
2. Revising paragraph (b)(3).
3. Revising the first sentence of para-
graph (b)(4)(ii)(A).
4. Revising paragraph (b)(4)(ii)(E).
5. Adding paragraph (e).
The additions and revisions read as
follows:
§ 1.42–10 Utility allowances.
(a)***Forpurposes of the preceding
sentence, if the cost of a particular utility
for a residential unit is paid pursuant to an
actual-consumption submetering arrange-
ment within the meaning of paragraph
(e)(1) of this section, then that cost is
treated as being paid directly by the ten-
ant(s) and not by or through the owner of
the building.***
(b)***
(3)Buildings regulated by the Depart-
ment of Housing and Urban Development.
If neither a building nor any tenant in the
building receives RHS housing assistance,
and the rents and utility allowances of the
building are regulated by HUD (HUD-
regulated buildings), the applicable utility
allowance for all rent-restricted units in
the building is the applicable HUD utility
allowance.
(4)***
(ii)***
(A)***Ifnone of the rules of para-
graphs (b)(1), (2), (3), and (4)(i) of this
section apply to determine the appropriate
utility allowance for a rent-restricted unit,
then the appropriate utility allowance for
the unit is the applicable PHA utility al-
lowance.***
*****
(E)Energy consumption model.A
building owner may calculate utility esti-
mates using an energy and water and sew-
age consumption and analysis model (en-
ergy consumption model). The energy
consumption model must, at a minimum,
take into account specific factors includ-
ing, but not limited to, unit size, building
orientation, design and materials, mechan-
ical systems, appliances, characteristics of
the building location, and available histor-
ical data. The utility consumption esti-
mates must be calculated by a properly
licensed engineer or other qualified pro-
fessional. The qualified professional and
the building owner must not be related
within the meaning of section 267(b) or
707(b). If a qualified professional is not a
properly licensed engineer and if the
building owner wants to utilize that qual-
ified professional to calculate utility con-
sumption estimates, then the owner must
obtain approval from the Agency that has
jurisdiction over the building. Further, re-
gardless of the type of qualified profes-
sional, the Agency may approve or disap-
prove of the energy consumption model or
require information before permitting its
use. In addition, utility rates used for the
energy consumption model must be no
older than the rates in place 60 days prior
to the beginning of the 90-day period un-
der paragraph (c)(1) of this section.
*****
(e)Actual-consumption submetering ar-
rangements—(1)Definition. For purposes
of this section, an actual-consumption sub-
metering arrangement for a utility in a res-
idential unit possesses all of the following
attributes:
(i) The utility consumed in the unit is
described in paragraph (e)(1)(i)(A) of this
section or in § 1.42–10T(e)(1)(i)(B);
(A) The utility is purchased from or
through a local utility company by the
building owner (or its agent or other party
acting on behalf of the building owner).
(B) [Reserved]. For further guidance
see § 1.42–10T(e)(1)(i)(B) through
(e)(1)(i)(C)(3).
(ii) The tenants in the unit are billed
for, and pay the building owner (or its
agent or other party acting on behalf of the
building owner) for, the unit’s consump-
tion of the utility;
(iii) The billed amount reflects the
unit’s actual consumption of the utility. In
the case of sewerage charges, however, if
the unit’s sewerage charges are combined
on the bill with water charges and the
sewerage charges are determined based on
the actual water consumption of the unit,
then the bill is treated as reflecting the
actual sewerage consumption of the unit;
and
(iv) The rate at which the building
owner bills for the utility satisfies the fol-
lowing requirements:
(A) To the extent that the utility con-
sumed is described in paragraph (e)(1)(i)(A)
of this section, the utility rate charged to the
tenants of the unit does not exceed the rate
incurred by the building owner for that util-
ity; and
(B) To the extent that the utility consumed
is described in § 1.42–10T(e)(1)(i)(B), the
utility rate charged to the tenants of the
unit does not exceed the rate described in
§ 1.42–10T(e)(1)(iv)(B).
(2)Administrative fees. If the owner
charges a unit’s tenants a fee for admin-
istering an actual-consumption submeter-
ing arrangement, the fee is not considered
gross rent for purposes of section
42(g)(2). The preceding sentence, how-
ever, does not apply unless the fee is com-
puted in the same manner for every unit
receiving the same submetered utility ser-
vice, nor does it apply to any amount by
which the aggregate monthly fee or fees
for all of the unit’s utilities under one or
more actual-consumption submetering ar-
rangements exceed the greater of—
(i) Five dollars per month;
Bulletin No. 2016–12March 21, 2016
449

(ii) An amount (if any) designated by
publication in the Internal Revenue Bulletin
(see § 601.601(d)(2)(ii) of this chapter); or
(iii) The lesser of—
(A) The dollar amount (if any) specif-
ically prescribed under a State or local
law; or
(B) A maximum amount (if any) des-
ignated by publication in the Internal Rev-
enue Bulletin (see § 601.601(d)(2)(ii) of
this chapter).
Par. 5. Section 1.42–10T is added to
read as follows:
§ 1.42–10T Energy obtained directly
from renewable sources (temporary).
(a) through (e)(1)(i)(A) [Reserved].
For further guidance see § 1.42–10(a)
through (e)(1)(i)(A).
(B)Utility not purchased from or
through a local utility company. The util-
ity is not described in § 1.42–
10(e)(1)(i)(A) and is produced from a re-
newable source (within the meaning of
paragraph (e)(1)(i)(C) of this section).
(C)Renewable source. For purposes of
paragraph (e)(1)(i)(B) of this section, a
utility is produced from a renewable
source if—
(1) It is energy that is produced from
energy property described in section 48;
(2) It is energy that is produced from
property that is part of a facility described in
section 45(d)(1) through (4), (6), (9), or
(11); or
(3) It is a utility that is described in
guidance published for this purpose in
the Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii) of this chapter).
(ii) through (iv)(A) [Reserved]. For
further guidance see § 1.42–10(e)(1)(ii)
through (e)(1)(iv)(A).
(B) The rate described in this para-
graph (e)(1)(iv)(B) is the rate at which the
local utility company would have charged
the tenants in the unit for the utility if that
entity had provided it to them.
(2) [Reserved]
(f)Date of applicability. This section
applies to a building owner’s taxable
years beginning on or after March 3,
2016. A building owner may apply the
provisions of this section to the building
owner’s taxable years beginning before
March 3, 2016.
(g)Expiration date. The applicability
of this section expires on March 1, 2019.
Par. 6. Section 1.42–12 is amended by
adding paragraph (a)(5) to read as follows:
§ 1.42–12 Effective dates and
transitional rules.
(a)***
(5)Additional effective dates affecting
utility allowances. (i) The following pro-
visions apply to a building owner’s tax-
able years beginning on or after March 3,
2016—
(A) The second sentence in § 1.42–
10(a);
(B) Section 1.42–10(b)(3);
(C) The first sentence in § 1.42–
10(b)(4)(ii)(A);
(D) Section 1.42–10(b)(4)(ii)(E); and
(E) Section 1.42–10(e).
(ii) A building owner may apply these
provisions to the building owner’s taxable
years beginning before March 3, 2016.
Otherwise, the utility allowances provi-
sions that apply to taxable years beginning
before March 3, 2016 are contained in
§ 1.42–10 (see 26 CFR part 1 revised as of
April 1, 2015).
John Dalrymple,
Deputy Commissioner for
Services and Enforcement.
Approved: February 8, 2016.
Mark J. Mazur,
Assistant Secretary
of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on March 2,
2016, 8:45 a.m., and published in the issue of the Federal
Register for March 3, 2016, 81 F.R. 11104)
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
T.D. 9756
Regulations under IRC
Section 7430 Relating to
Awards of Administrative
Costs and Attorneys’ Fees
AGENCY:Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations relating to awards of ad-
ministrative costs and attorneys’ fees. The
final regulations conform the regulations
to the amendments made in the Taxpayer
Relief Act of 1997 and the IRS Restruc-
turing and Reform Act of 1998. The reg-
ulations affect taxpayers seeking attor-
neys’ fees and costs.
DATES:Effective date: The final regula-
tions are effective on March 1, 2016.
Applicability date: For date of applica-
bility, see § 301.7430–6.
FOR FURTHER INFORMATION
CONTACT: Shannon K. Castañeda at
(202) 317-5437 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
I.In General
This document contains final amend-
ments to Treasury Regulations under sec-
tion 7430 of the Internal Revenue Code
(Code) relating to awards of administra-
tive and attorneys’ fees. Section 7430 gen-
erally permits a prevailing party in an
administrative or court proceeding to seek
an award for reasonable administrative
and litigation costs incurred in connection
with such proceedings. The amendments
incorporate the 1997 and 1998 amend-
ments to section 7430, which were en-
acted as part of the Taxpayer Relief Act of
1997 (TRA), Public Law No. 105–34, 111
Stat. 788 (Aug. 5, 1997), and the IRS
Restructuring and Reform Act of 1998
(RRA ‘98), Public Law No. 105–206, 112
Stat. 685 (Jul. 22, 1998).
The Treasury Department and the Inter-
nal Revenue Service published a notice of
proposed rulemaking (REG–111833–99) in
theFederal Register,74 FR 61589,on
November 25, 2009 (the NPRM), propos-
ing amendments to the regulations under
section 7430. A public hearing was sched-
uled for March 10, 2010. The Internal Rev-
enue Service did not receive any requests to
testify at the public hearing, and thepublic
hearing was cancelled. Two written
comments responding to the NPRM
were received and are available for public
inspection at http://www.regulations.gov
March 21, 2016Bulletin No. 2016–12
450

or upon request. After consideration of
the comments, the proposed regulations
are adopted as revised by this Treasury
Decision.
II.Statutory Provisions
Section 7430 generally authorizes a
court to award administrative and litiga-
tion costs, including attorneys’ fees, to a
prevailing party in an administrative or
court proceeding brought by or against the
United States in connection with the de-
termination, collection, or refund of any
tax, interest, or penalty. To qualify as a
“prevailing party” a taxpayer must sub-
stantially prevail as to the amount in con-
troversy or the most significant issue or
set of issues in the proceeding, exhaust the
administrative remedies, meet net worth
and size limitations, and pay or incur the
costs. The taxpayer generally cannot qual-
ify for an award of such costs, however, if
the government establishes that its posi-
tion in the proceeding was substantially
justified.
The TRA contained several amend-
ments to section 7430 that are incorpo-
rated in the amendments to the regula-
tions. First, the TRA provided that a
taxpayer has ninety days after the date the
Internal Revenue Service mails to the tax-
payer a final decision determining tax,
interest, or a penalty, to file an application
with the Internal Revenue Service to re-
cover administrative costs. Section 7430
had previously been silent as to the timing
for seeking administrative costs. Second,
the TRA provided that a taxpayer has
ninety days after the date the Internal Rev-
enue Service mails to the taxpayer, by
certified or registered mail, a final adverse
decision regarding an award of adminis-
trative costs, to file a petition with the Tax
Court. Section 7430 had previously been
silent as to the timing for seeking review
in the Tax Court. Third, the TRA clarified
the application of the net worth and size
limitations imposed by section 7430(c)(4)
by providing that individuals filing joint
returns should be treated as separate tax-
payers for purposes of determining net
worth. The TRA added trusts to the list of
taxpayers subject to the net worth and size
limitations and also specified the date on
which the net worth and size determina-
tion should be made. Before the TRA’s
clarification of the net worth and size lim-
itations, section 7430 had stated only that
a prevailing party must meet the require-
ment of the first sentence of section
2412(d)(1)(B) of Title 28. Section
2412(d)(2)(B) establishes the net worth
and size limitations of the Equal Access to
Justice Act. See 28 U.S.C. 2412 (EAJA).
The TRA also added section 7436 to the
Code, which gives the Tax Court jurisdic-
tion in certain employment tax cases. Sec-
tion 7436(d)(2) provides that section 7430
applies to proceedings brought under sec-
tion 7436.
RRA ‘98 also contained several amend-
mentsaffecting section 7430. First, RRA
‘98 increased the hourly rate limitation for
attorneys’ fees in section 7430(c)(1) from
$110 per hour to $125 per hour. Second,
two special factors were added that may
be considered to allow an increase in an
attorney’s hourly rate: (1) Difficulty of the
issues presented and (2) local availability
of tax expertise. Prior to the enactment of
RRA ’98, the only special factor included
in section 7430(c)(1) was the limited
availability of qualified attorneys. Third,
RRA ‘98 added a provision that requires a
court to consider whether the Internal
Revenue Service has lost cases with sub-
stantially similar issues in other circuit
courts of appeal in deciding whether the
Internal Revenue Service’s position was
substantially justified. Fourth, RRA ‘98
created an exception to the requirement
that to recover attorneys’ fees, the tax-
payer must have paid or incurred the fees.
The exception provides that if an individ-
ual who is authorized to practice before
the Tax Court or the Internal Revenue
Service is representing the taxpayer on a
pro bonobasis, then the taxpayer may
petition for an award of reasonable attor-
neys’ fees in excess of the amounts that
the taxpayer paid or incurred, as long as
the fee award is ultimately paid to the
individual who represented the taxpayer
or such individual’s employer. The Trea-
sury Department and the Internal Revenue
Service are releasing, simultaneously with
these final regulations, a revenue proce-
dure detailing the procedures for the re-
covery of attorneys’ fees in thepro bono
context. Fifth, RRA ‘98 extended the pe-
riod for recovery of reasonable adminis-
trative costs to include costs incurred after
the date on which the first letter of pro-
posed deficiency, commonly known as a
30-day letter, is mailed to the taxpayer.
Previously, administrative costs only in-
cluded costs incurred on or after the date
of the receipt by the taxpayer of the notice
of the decision of the Internal Revenue
Service Office of Appeals, or the date of
the notice of deficiency.
Summary of Regulations
The final regulations reflect the
changes made by the TRA as originated in
the proposed regulations. Clarifying
changes included in the proposed regula-
tions and adopted here address the calcu-
lation of net worth. Section 7430 imposes
net worth and size limitations on who can
recover costs. First, the proposed and final
regulations specify which limitations with
respect to net worth and size apply when a
taxpayer is an owner of an unincorporated
business. Second, the proposed and final
regulations clarify the net worth and size
limitations in cases involving partnerships
subject to the unified audit and litigation
procedures of sections 6221 through 6234
of the Code (the TEFRA partnership pro-
cedures).
The final regulations reflect a further
clarification that was not included in the
proposed regulations. The proposed regu-
lations merely noted that the net worth of
taxpayers who filed joint returns should be
calculated separately. The final regula-
tions further explain how the separate cal-
culation will be conducted in various sit-
uations. When taxpayers who file joint
returns jointly petition the court and incur
joint costs, each taxpayer qualifies for a
separate net worth limitation of $2 mil-
lion, but the limitation will be evaluated
jointly. As such, taxpayers will meet the
net worth limitation so long as their com-
bined assets are equal to or less than $4
million, regardless of how the assets are
distributed. This prevents high net worth
taxpayers from avoiding the net worth
limitation by seeking costs on behalf of a
spouse with a lower net worth. When tax-
payers file a joint return, but petition the
court separately and incur separate costs,
the limitation will be evaluated separately.
As such, each taxpayer will have his/her
assets applied toward a separate $2 mil-
lion cap for each spouse. This analysis
protects the ability of spouses with fewer
assets to seek representation when the
Bulletin No. 2016–12March 21, 2016
451

spouse with higher-value assets is unwill-
ing or unable to incur those costs.
The final regulations do not adopt the
proposed rule in §§ 301.7430–5(g)(1) and
(2) that the net worth limitation is com-
puted based on the fair market value of the
taxpayer’s assets. The existing section
7430 regulations do not address this issue
and no comments from the public were
received on this issue. The existing case
law, however, generally recognizes that
the net worth calculation is made based on
the acquisition costs of the taxpayer’s as-
sets. Because the case law is clear and
provides an existing standard for deter-
mining net worth, the final regulations
follow the case law and do not adopt the
proposed rule in § 301.7430–5(g)(1) and
(2) relating to the determination of the
value of the taxpayer’s assets. Accord-
ingly, the final regulations add a new para-
graph (6) to § 301.7430–5(g) to clarify
that for purposes of determining net
worth, assets are valued based on the cost
of their acquisition.
Consistent with the changes made by
RRA ’98, the final regulations clarify that a
taxpayer may be eligible to recover reason-
able administrative costs from the date of
the 30-day letter only if at least one issue
(other than recovery of administrative costs)
remains in dispute as of the date that the
Internal Revenue Service takes a position in
the administrative proceeding. This require-
ment follows RRA ‘98’s prevailing party
definition. Under the changes made by RRA
‘98, the position of the United States is
established in the administrative proceeding
on the earlier of the date the taxpayer re-
ceives the notice of the decision of the In-
ternal Revenue Service Office of Appeals or
the date of the notice of deficiency. Where
the Internal Revenue Service concedes an
issue in the Office of Appeals prior to issu-
ing a notice of deficiency or notice of the
decision of the Office of Appeals, the
United States does not take a position, so an
award of administrative costs is not avail-
able. Where the Internal Revenue Service
concedes an issue in the notice of decision,
the position of the United States is necessar-
ily substantially justified.See, for example,
Fla. Country Clubs, Inc. v. Commissioner,
122 T.C. 73, 78–86 (2004),aff’d, 404 F.3d
1291 (11th Cir. 2005) (Where the Office of
Appeals determined that taxpayer did not
owe any additional tax after issuing a 30-
day letter, but without ever issuing a notice
of deficiency or notice of determination, the
Internal Revenue Service did not take a po-
sition),Purciello v. Commissioner, T.C.
Memo. 2014–50 (Where the Internal Rev-
enue Service conceded the matter at issue in
full in the notice of decision, the Internal
Revenue Service was substantially justified).
Summary of Comments and
Explanation of Revisions
The Treasury Department and the In-
ternal Revenue Service received two writ-
ten comments in response to the NPRM,
both of which related to the provisions in
the proposed regulations providing for the
award of reasonable attorneys’ fees when
an individual is representing a party on a
pro bonobasis. This section addresses
those comments. This section also de-
scribes the significant differences between
the rules proposed in the NPRM and those
adopted in the final regulations.
As discussed in this preamble, prior to
RRA ’98, only those costs incurred by the
taxpayer were eligible for payment under
section 7430. RRA ’98 provided that the
court could award costs in excess of the
costs actually incurred by the taxpayer if
those costs were less than the reasonable
attorneys’ fees because an individual is
representing the taxpayer on apro bono
basis. The statute definedpro bonoas
representation provided for no fee or for a
fee which (taking into account all the facts
and circumstances) is no more than a
nominal fee. Finally, the statute directed
that awards forpro bonorepresentation
must be paid to the representative or that
representative’s employer, as opposed to
section 7430’s general requirement that
awards are paid to the taxpayer.
1.Persons on whose behalf pro bono
representation must be provided
Section 7430 establishes net worth and
size limitations that a taxpayer must meet
in order to recover administrative or liti-
gation costs. The proposed regulations in-
cluded an additional requirement related
to a taxpayer’s net worth: they stated that,
for reasonable administrative costs to be
awarded for legal services provided on a
pro bonobasis, the services must be pro-
vided to or on behalf of either (A) persons
of limited financial means who meet the
eligibility requirements for programs
funded by the Legal Services Corporation,
or (B) organizations operating primarily
to address the needs of persons with lim-
ited means if payment of a standard legal
fee would significantly deplete the orga-
nization’s financial resources. Both of the
commentators recommended revising the
regulations to provide that organizations
to whom or on whose behalf representa-
tion may be provided include low income
taxpayer clinics, clinics participating in
the Internal Revenue Service student tax
clinic program, and clinics operating as
approved clinics in the United States Tax
Court. Both commentators also proposed
changes in the proposed regulations’ in-
come limitation for persons on whose be-
halfpro bonolegal representation must be
provided. The proposed regulations pro-
vided an income limitation based on the
eligibility requirements for programs
funded by the Legal Services Corporation
(see 42 U.S.C. 2996e(a)(1)(A)), which is
125 percent of the current Federal Poverty
Guidelines published by the United States
Department of Health and Human Ser-
vices. One commentator recommended
that the limitation be expanded to include
individuals and households whose in-
comes do not exceed 250 percent of the
poverty level as determined in accordance
with criteria established by the Director of
the Office of Management and Budget.
The other commentator recommended
that the regulations should not contain an
income threshold for persons on whose
behalf pro bono representation is pro-
vided, and recommended that the only
limitation should be thatpro bonorepre-
sentation must be provided to persons
with limited means if payment of a stan-
dard legal fee would significantly deplete
the person’s financial resources.
The Treasury Department and the In-
ternal Revenue Service have carefully
considered both comments and have con-
sidered the difficulty of establishing fair
and easily applied limitations on eligibil-
ity for attorneys’ fees forpro bonorepre-
sentation based upon the income and fi-
nancial resources of the taxpayer. The
Treasury Department and the Internal Rev-
enue Service have determined that eligibil-
ity should not be limited based on the in-
come or financial resources of the recipient
of the representation beyond the limit pro-
March 21, 2016Bulletin No. 2016–12
452

vided by section 7430(c)(4)(A)(ii). As a re-
sult, the rule contained in the proposed
regulations is not being finalized. This
change makes it unnecessary to revise the
eligibility requirements as proposed by
the commentators.
2.Rate of reimbursement for attorneys
who do not have a customary hourly
rate
An example in the proposed regula-
tions stated that an award for represen-
tation by attorneys employed by a low
income taxpayer clinic who do not have
a customary hourly rate would be lim-
ited to therate prescribed under section
7430(c)(1)(B). Section 7430(c)(1)(B)(iii)
provides for attorneys’ fees based on pre-
vailing market rates for the kind or quality
of services furnished, except that the fee is
limited to a statutory rate of $125 an hour
plus cost of living adjustments, unless a
special factor justifies a higher rate. One
commentator stated that because of the dif-
ficulty of determining the prevailing market
rates for the kind or quality of services fur-
nished in the case of attorneys representing
low income taxpayers, and because of the
unlikelihood that a low income taxpayer
clinic or student taxpayer clinic program
would become involved in a case that would
justify a rate in excess of the statutory rate,
the rate forpro bonoattorneys who do not
have a customary hourly rate should be set
at the statutory rate.
After publishing the proposed regula-
tions, the Treasury Department and the
Internal Revenue Service determined that
details such as the rate of compensation
forpro bonoattorneys who do not have a
customary hourly rate would more logi-
cally be contained in a revenue procedure.
The Treasury Department and the Internal
Revenue Service are releasing simultane-
ously Rev. Proc. 2016–17, which pro-
vides thatpro bonoattorneys who do not
charge an hourly rate receive the statutory
rate for their services unless they establish
that a special factor, as described in sec-
tion 7430(c)(1)(B)(iii), applies to justify a
higher hourly rate. The final regulations,
therefore, do not contain the example in
the proposed regulations on the rate appli-
cable topro bonoattorneys who do not
have a customary hourly rate. Instead,
these recommendations are taken into ac-
count in Rev. Proc. 2016–17.
3.Enhanced rate based on limited
availability of pro bono representatives
with tax expertise
One commentator recommended a
change to the section of the proposed reg-
ulations that provided that the limited lo-
cal availability of tax expertise is a special
factor that would justify an award at a rate
higher than the statutory rate. The pro-
posed regulations provided that limited
local availability of tax expertise is estab-
lished by demonstrating that a representa-
tive possessing tax expertise is not avail-
able in the taxpayer’s geographical area.
The commentator stated that she did not
think this special factor produces a fair
result in the case ofpro bonorepresenta-
tives because, even if attorneys possessing
tax expertise practice within a taxpayer’s
geographic area, those attorneys may not
be willing or able to take onpro bono
cases. The commentator suggested that
the regulation be revised so that, inpro
bonocases, the special factor based on the
limited local availability of tax expertise
would apply if there is no representative
possessing tax expertise practicing within
the taxpayer’s geographic area who is
willing or able to represent the taxpayer
on apro bonobasis.
The Treasury Department and the In-
ternal Revenue Service disagree that the
proposed rule does not produce a fair re-
sult in the case ofpro bonorepresenta-
tives. The rule permits the award of an
enhanced rate based on the limited local
availability of tax expertise because such
a circumstance reasonably could have an
unfair impact on a taxpayer who pays or
incurs liability for attorneys’ fees. For ex-
ample, the taxpayer who must go outside
his geographic area to retain a representa-
tive with tax expertise might be required
to pay more for the representation than the
generally prevailing market rate for repre-
sentatives in the taxpayer’s geographic
area. Taxpayers who are represented on a
pro bono basis are entitled to the enhanced
rate in the same manner as taxpayers who
incur fees. Therefore, the final regulations
adopt the rule in the proposed regulations
without change.
4.Payments for work performed by
students and hourly rates for students
The proposed regulations did not dis-
cuss issues relating to the award of attor-
neys’ fees based on the work of volunteer
law students. Both commentators recom-
mended clarifying the proposed regula-
tions to state that payment for work per-
formed by law students should be made to
the attorneys under whom the students
work or to such an attorney’s employer
rather than to the law students.
One commentator expressed concern
that fees may be awarded based on the work
of law students who volunteer in low in-
come taxpayer clinics and clinics participat-
ing in the Internal Revenue Service student
taxpayer clinic program, but that such stu-
dents do not have customary hourly rates.
The commentator proposed setting an
hourly rate for law students at 40 percent of
the statutory hourly rate for attorneys. The
commentator also requested clarification
that the work of law students can be com-
pensated as attorneys’ fees or costs regard-
less of whether the students have special
orders authorizing them to practice before
the Internal Revenue Service.
The Treasury Department and the In-
ternal Revenue Service agree that award-
ing fees based on the work of volunteer
students may be appropriate and are ad-
dressing this issue in a revenue procedure
being released contemporaneously with
these final regulations. In Rev. Proc.
2016–17, the Treasury Department and
the Internal Revenue Service clarify that
work performed by students authorized to
practice before the Internal Revenue Ser-
vice or the Tax Court may be compensa-
ble at 35 percent of the statutory hourly
rate for attorneys, unless the student can
demonstrate that a rate in excess of that 35
percent is appropriate, with the award
payable to the clinic or organization with
which the student is affiliated. Rev. Proc.
2016–17 further clarifies that with respect
to students who are not authorized to prac-
tice before the Internal Revenue Service
or the Tax Court, the requester will have
the burden of proving that an award of
costs is appropriate and what rate of com-
pensation is reasonable.
Bulletin No. 2016–12March 21, 2016
453

5. Effective/applicability date
The proposed regulations provided that the
changes in §§ 301.7430–2, 301.7430–3,
301.7430–4, and 301.7430–5 would ap-
ply to costs incurred and services per-
formed as of the date of publication of the
final regulations, without regard to when a
petition was filed. That meant that these
changes could have applied in cases
where a petition was filed before publica-
tion of the final regulations in theFederal
Register. To ensure that these changes are
not mandatory for cases in which a petition
was filed before publication of the final reg-
ulations in theFederal Register, the effec-
tive/applicability date in § 301.7430–6 of
the final regulations has been revised to pro-
vide that the changes in §§ 301.7430–2,
301.7430–3, 301.7430–4, and 301.7430–5
apply to costs incurred and services per-
formed in cases in which the petition was
filed on or after the date of publication of the
final regulations in theFederal Register.
However, taxpayers may rely on the
changes contained in §§ 301.7430–2,
301.7430–3, 301.7430–4, and 301.7430–5
of the final regulations for costs incurred
and services performed in which a petition
was filed prior to March 1, 2016.
In addition, no effective/applicability
date was proposed with respect to the
rules for qualified offers under
§ 301.7430–7, but one has been added to
the final regulations. Accordingly, under
§ 301.7430–7(f) of the final regulations,
section 301.7430–7 applies to qualified
offers made in administrative court pro-
ceedings described in section 7430 after
December 24, 2003, except that section
301.7430–7(c)(8) is effective as of the
date these final regulations are published
in theFederal Register.
Statement of Availability for IRS
Document
For copies of recently issued Revenue
Procedures, Revenue Ruling, notices and
other guidance published in the Internal
Revenue Bulletin, visit the IRS Web site
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 also has 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
on small entities a collection of informa-
tion requirement, the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) does not ap-
ply. Therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to sec-
tion 7805(f) of the Internal Revenue Code,
the Notice of Proposed Rulemaking was
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on its impact on small
business. No comments were received.
Drafting Information
The principal author of these regula-
tions is Shannon K. Castañeda, Office of
Associate Chief Counsel (Procedure and
Administration).
*****
Adoptions 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 301.7430–0 is amended
by:
1. Adding an entry for § 301.7430–
3(c)(4).
2. Adding entries to § 301.7430–4,
paragraphs (b)(3)(iii)(A) through (F) and
(d).
3. Revising the entries for
§ 301.7430–5.
4. Revising the section heading for
§ 301.7430–6.
5. Adding entries for §§ 301.7430–7
and 301.7430–8.
The additions and revisions read as fol-
lows:
§ 301.7430 – 0 Table of contents.
*****
§ 301.7430–3 Administrative proceeding
and administrative proceeding date.
*****
(c)***
(4) First letter of proposed deficiency
that allows the taxpayer an opportunity for
administrative review in the Office of Ap-
peals.
*****
§ 301.7430–4 Reasonable
administrative costs.
*****
(b)***
(3)***
(iii)***
(A) In general.
(B) Special factor.
(C) Limited availability.
(D) Local availability of tax expertise.
(E) Difficulty of the issues.
(F) Example.
*****
(d) Pro bono representation.
(1) In general.
(2) Requirements.
(3) Nominal fee.
(4) Payment when representation pro-
vided for a nominal fee.
(5) Requirements.
(6) Hourly rate.
(7) Examples.
§ 301.7430–5 Prevailing party.
(a) In general.
(b) Position of the Internal Revenue
Service.
(c) Examples.
(d) Substantially justified.
(1) In general.
(2) Position in courts of appeal.
(3) Examples.
(4) Included costs.
(5) Examples.
(6) Exception.
(7) Presumption.
(e) Amount in controversy.
(f) Most significant issue or set of is-
sues presented.
(1) In general.
(2) Example.
(g) Net worth and size limitations.
(1) Individuals.
(2) Estates and trusts.
March 21, 2016Bulletin No. 2016–12
454

(3) Others.
(4) Special rule for charitable organi-
zations and certain cooperatives.
(5) Special rule for TEFRA partnerships.
(6) Determining net worth.
(h) Determination of prevailing party.
(i) Examples.
§ 301.7430–6 Effective/applicability
dates.
§ 301.7430–7 Qualified offers.
(a) In general.
(b) Requirements for treatment as a
prevailing party based upon having made
a qualified offer.
(1) In general.
(2) Liability under the last qualified offer.
(3) Liability pursuant to the judgment.
(c) Qualified offer.
(1) In general.
(2) To the United States.
(3) Specifies the offered amount.
(4) Designated at the time it is made as
a qualified offer.
(5) Remains open.
(6) Last qualified offer.
(7) Qualified offer period.
(8) Interest as a contested issue.
(d) [Reserved].
(e) Examples.
(f) Effective date.
§ 301.7430–8 Administrative costs
incurred in damage actions for
violations of section 362 or 524 of the
Bankruptcy Code.
(a) In general.
(b) Prevailing party.
(c) Administrative proceeding.
(d) Costs incurred after filing of bank-
ruptcy petition.
(e) Time for filing claim for adminis-
trative costs.
(f) Effective date.
Par. 3. Section 301.7430–1 is amended
by revising paragraphs (b)(1)(ii)(A),
(d)(1)(i) and (ii) and (d)(2) introductory
text to read as follows:
§ 301.7430 –1 Exhaustion of
administrative remedies.
*****
(b)***
(1)***
(ii)***
(A) Requests an Appeals office confer-
ence in accordance with §§ 601.105 and
601.106 of this chapter or any successor
published guidance; and
*****
(d)***
(1)***
(i) The party follows all applicable In-
ternal Revenue Service procedures for
contesting the matter (including filing a
written protest or claim, requesting an ad-
ministrative appeal, and participating in
an administrative hearing or conference);
or
(ii) If there are no applicable Internal
Revenue Service procedures, the party
submits to the Area Director of the area
having jurisdiction over the dispute a writ-
ten claim for relief reciting facts and cir-
cumstances sufficient to show the nature
of the relief requested and that the party is
entitled to the requested relief, and the
Area Director denies the claim for relief in
writing or fails to act on the claim within
a reasonable period after the claim is re-
ceived by the Area Director.
(2) For purposes of paragraph (d)(1)(ii)
of this section, areasonable periodis—
*****
Par. 4. Section 301.7430–2 is amended
by:
1. Revising paragraph (a).
2. Removing the semicolon at the end
of paragraph (c)(3)(i)(B) and adding a pe-
riod in its place, and adding a sentence at
the end of the paragraph.
3. Adding a sentence at the end of
paragraph (c)(3)(i)(E).
4. Revising paragraph (c)(3)(ii)(C),
adding paragraph (c)(3)(iii)(C).,and revis-
ing paragraph (c)(5).
5. Adding a sentence at the end of
paragraph (c)(7).
6. Revising paragraph (e).
The additions and revisions read as fol-
lows:
§ 301.7430 –2 Requirements and
procedures for recovery of reasonable
administrative costs.
(a)Introduction. Section 7430(a)(1)
provides for the recovery, under certain
circumstances, of reasonable administra-
tive costs incurred in connection with an
administrative proceeding before the In-
ternal Revenue Service. Paragraph (b) of
this section lists the requirements that a
taxpayer must meet to be entitled to an
award of reasonable administrative costs
from the Internal Revenue Service. Para-
graph (c) of this section describes the pro-
cedures that a taxpayer must follow to
recover reasonable administrative costs.
Paragraphs (b) and (c) apply to requests
for administrative costs regarding all ad-
ministrative proceedings within the Inter-
nal Revenue Service.
*****
(c)***
(3)***
(i)***
(B)***Forcosts incurred after Jan-
uary 18, 1999, if the taxpayer alleges that
the United States has lost in courts of
appeal for other circuits on substantially
similar issues, the taxpayer must provide,
for each such case, the full name of the
case, volume and pages of the reporter in
which the opinion appears, the circuit in
which the case was decided, and the year
of the opinion;
*****
(E)***This statement must identify
whether the representation is on a pro
bono basis as defined in § 301.7430–4(d)
and, if so, to whom payment should be
made. Specifically, the statement must di-
rect whether payment should be made to
the taxpayer’s representative or to the re-
presentative’s employer.
(ii)***
(C) For costs incurred after January 18,
1999, if more than $125 per hour (as ad-
justed for an increase in the cost of living
pursuant to § 301.7430–4(b)(3)) is
claimed for the fees of a representative in
connection with the administrative pro-
ceeding, an affidavit is necessary stating
that a special factor described in
§ 301.7430–4(b)(3) is applicable, such as
the difficulty of the issues presented in the
case or the lack of local availability of tax
expertise. If a special factor is claimed
based on specialized skills and distinctive
knowledge as described in § 301.7430–
4(b)(2)(ii), the affidavit should state—
(1) Why the specialized skills and dis-
tinctive knowledge were necessary in the
representation;
(2) That there is a limited availability
of representatives possessing these spe-
Bulletin No. 2016–12March 21, 2016
455

cialized skills and distinctive knowl-
edge; and
(3) How the representative’s education
and experience qualifies the representative
as someone with the necessary specialized
skills and distinctive knowledge.
(iii)***
(C) In cases of pro bono representation,
time records similar to billing records,
detailing the time spent and work com-
pleted, must be submitted for the re-
quested fees.
*****
(5)Period for requesting costs from
the Internal Revenue Service.To recover
reasonable administrative costs pursuant
to section 7430 and this section, the tax-
payer must file a written request for costs
within 90 days after the date the final
adverse decision of the Internal Revenue
Service with respect to all tax, additions to
tax, interest, and penalties at issue in the
administrative proceeding is mailed or
otherwise furnished to the taxpayer. For
purposes of this section,interestmeans
the interest that is specifically at issue in
the administrative proceeding indepen-
dent of the taxpayer’s objections to the
underlying tax, additions to tax, and pen-
alties imposed. The final decision of the
Internal Revenue Service for purposes of
this section is the document that resolves
the taxpayer’s liability with regard to all
tax, additions to tax, interest, and penalties
at issue in the administrative proceeding
(such as a Form 870 or closing agree-
ment), or a notice of assessment for that
liability (such as the notice and demand
under section 6303), whichever is earlier
mailed or otherwise furnished to the tax-
payer. For purposes of this section, if the
90th day falls on a Saturday, Sunday, or a
legal holiday, the 90-day period shall end
on the next succeeding day that is not a
Saturday, Sunday, or a legal holiday as
defined by section 7503.
*****
(7)***Once a notice of decision
denying (in whole or in part) an award for
reasonable administrative costs is mailed
by the Internal Revenue Service via certi-
fied mail or registered mail as required by
paragraph (c)(6) of this section, a taxpayer
may obtain judicial review of that deci-
sion by filing a petition for review with
the Tax Court prior to the 91st day after
the mailing of the notice of decision.
*****
(e) The following examples primarily
illustrate paragraph (a) of this section:
Example 1. Taxpayer A receives a notice of
proposed deficiency (30-day letter). A requests and
is granted Appeals office consideration. The admin-
istrative file contains certain documents provided by
A as substantiation for the tax matters at issue.
Appeals determines that the information submitted is
insufficient. Appeals then issues a notice of defi-
ciency. After receiving the notice of deficiency but
before the 90-day period for filing a petition with the
Tax Court has expired, and before filing a petition
with the Tax Court, A convinces Appeals that the
information previously submitted and reviewed by
Appeals is sufficient and, therefore, the notice of
deficiency is incorrect and A owes no additional tax.
Pursuant to section 6212(d), the notice of deficiency
is rescinded. Appeals then closes the case showing a
zero deficiency and mails A a notice to this effect.
Assuming that Appeals did not rely on any new
information provided by A in rescinding the notice
of deficiency and that all of the other requirements of
section 7430 are satisfied, A may recover reasonable
administrative costs incurred after the date of the
30-day letter (the administrative proceeding date as
defined in Treas. Reg. § 301.7430–3(c)). To recover
these costs, A must file a request for administrative
costs with the Appeals office personnel who settled
A’s tax matter, or if that person is unknown to A,
with the Area Director of the area that considered the
underlying matter, within 90 days after the date of
mailing of the Office of Appeals’ final decision that
A owes no additional tax.
Example 2. Taxpayer B files a request for an
abatement of interest pursuant to section 6404 and
the regulations thereunder. The Area Director issues
a notice of proposed disallowance of the abatement
request (akin to a 30-day letter). B requests and is
granted Appeals office consideration. No agreement
is reached with Appeals and the Office of Appeals
issues a notice of disallowance of the abatement
request. B does not file suit in the Tax Court, but
instead contacts the Appeals office within 180 days
after the mailing date of the notice of disallowance
of the abatement request to attempt to reverse the
decision. B convinces the Appeals office that the
notice of disallowance is in error. The Appeals office
agrees to abate the interest and mails the taxpayer a
notification of this decision. The mailing date of the
notification from Appeals of the decision to abate
interest commences the 90-day period from which
the taxpayer may request administrative costs. As-
suming that Appeals did not rely on any new infor-
mation provided by B in reversing its notice of
disallowance, and that all of the other requirements
of section 7430 are satisfied, B may recover reason-
able administrative costs incurred after the date the
Area Director issued the notice of proposed disal-
lowance of the abatement request (the administra-
tive proceeding date as defined in Treas. Reg.
§ 301.7430–3(c)). To recover these costs, B must file
a request for costs with the Appeals office personnel
who settled B’s tax matter, or if that person is un-
known to B, with the Area Director of the area that
considered the underlying matter within 90 days
after the date of mailing of the Office of Appeals’
final decision that B is entitled to abatement of
interest.
Example 3. Taxpayer C receives a notice of
proposed adjustment and employment tax 30-day
letter. C requests and is granted Appeals office con-
sideration. The administrative file contains certain
documents provided by C to support C’s position in
the tax matters at issue. Appeals determines that the
documents submitted are insufficient. Appeals then
issues a notice of determination of worker classifi-
cation. After receiving the notice of determination of
worker classification but before the 90-day period
for filing a petition with the Tax Court has expired,
C convinces Appeals that the documents previously
submitted and reviewed by Appeals adequately sup-
port its position and, therefore, C owes no additional
employment tax. Appeals then closes the case show-
ing a zero tax adjustment and mails C a no-change
letter. Assuming that Appeals did not rely on any
new information provided by C in reversing its no-
tice of determination of worker classification, and
that all of the other requirements of section 7430 are
satisfied, C may recover reasonable administrative
costs incurred after the date of the notice of proposed
adjustment and 30-day letter (the administrative pro-
ceeding date as defined in Treas. Reg. § 301.7430–
3(c)). To recover these costs, C must file a request
for administrative costs with the Appeals office per-
sonnel who settled C’s tax matter, or if that person is
unknown to C, with the Area Director of the area that
considered the underlying matter, within 90 days
after the date of mailing of the Office of Appeals’
final decision that C owes no additional tax.
Par. 5. Section 301.7430–3 is amended
by:
1. Revising paragraphs (b), (c)(1), and
(3).
2. Adding paragraph (c)(4).
3. Revising paragraph (d).
The addition and revisions read as fol-
lows:
§ 301.7430 –3 Administrative
proceeding and administrative
proceeding dates.
*****
(b)Collection action. A collection ac-
tion generally includes any action taken
by the Internal Revenue Service to collect
a tax (or any interest, additional amount,
addition to tax, or penalty, together with
any costs in addition to the tax) or any
action taken by a taxpayer in response to
the Internal Revenue Service’s act or fail-
ure to act in connection with the collection
of a tax (including any interest, additional
amount, addition to tax, or penalty, to-
gether with any costs in addition to the
tax). A collection action for purposes of
section 7430 and this section includes any
action taken by the Internal Revenue Ser-
vice under Chapter 64 of Subtitle F to
March 21, 2016Bulletin No. 2016–12
456

collect a tax. Collection actions also in-
clude collection due process hearings un-
der sections 6320 and 6330 (unless the
underlying tax liability is properly at is-
sue), and those actions taken by a taxpayer
to remedy the Internal Revenue Service’s
failure to release a lien under section 6325
or to remedy any unauthorized collection
action as described by section 7433, ex-
cept those collection actions described by
section 7433(e). An action or procedure
directly relating to a claim for refund after
payment of an assessed tax is not a col-
lection action.
(c)Administrative proceeding date—
(1)General rule. For purposes of section
7430 and the regulations thereunder, the
termadministrative proceeding date
means the earlier of—
(i) The date of the receipt by the tax-
payer of the notice of the decision of the
Internal Revenue Service Office of Ap-
peals;
(ii) The date of the notice of deficiency;
or
(iii) The date on which the first letter of
proposed deficiency that allows the tax-
payer an opportunity for administrative
review in the Internal Revenue Service
Office of Appeals is sent.
*****
(3)Notice of deficiency. A notice of
deficiency is a notice described in section
6212(a), including a notice rescinded pur-
suant to section 6212(d). For purposes of
determining reasonable administrative
costs under section 7430 and the regula-
tions thereunder, the following will be
treated as a notice of deficiency:
(i) A notice of final partnership admin-
istrative adjustment described in section
6223(a)(2).
(ii) A notice of determination of
worker classification issued pursuant to
section 7436.
(iii) A final notice of determination de-
nying innocent spouse relief issued pursu-
ant to section 6015.
(4)First letter of proposed deficiency
that allows the taxpayer an opportunity
for administrative review in the Office of
Appeals. Generally, the first letter of pro-
posed deficiency that allows the taxpayer
an opportunity for administrative review
in the Office of Appeals is the first letter
issued to the taxpayer that describes the
proposed adjustments and advises the tax-
payer of the opportunity to contact the
Office of Appeals. It also may be a claim
disallowance or the first letter of determi-
nation that allows the taxpayer an oppor-
tunity for administrative review in the Of-
fice of Appeals.
(d)Examples. The provisions of this
section are illustrated by the following
examples:
Example 1. Taxpayer A receives a notice of
proposed deficiency (30-day letter). A files a request
for and is granted an Appeals office conference. At
the Appeals conference no agreement is reached on
the tax matters at issue. The Office of Appeals then
issues a notice of deficiency. Upon receiving the
notice of deficiency, A does not file a petition with
the Tax Court. Instead, A pays the deficiency and
files a claim for refund. The claim for refund is
considered by the Internal Revenue Service and the
Area Director issues a notice of proposed claim
disallowance. A requests and is granted Appeals
office consideration. A convinces Appeals that A’s
claim is correct and Appeals allows A’s claim. A
may recover reasonable administrative costs in-
curred on or after the date of the notice of proposed
deficiency (30-day letter), but only if the other re-
quirements of section 7430 and the regulations there-
under are satisfied. A cannot recover costs incurred
prior to the date of the 30-day letter because these
costs were incurred before the administrative pro-
ceeding date.
Example 2. Taxpayer B files an individual in-
come tax return showing a balance due. No payment
is made with the return and the Internal Revenue
Service assesses the amount shown on the return.
The Internal Revenue Service issues a Notice Of
Intent to Levy And Notice Of Your Right To A
Hearing pursuant to sections 6330(a) and 6331(d). B
timely requests and is granted a Collection Due
Process (CDP) hearing. In connection with the CDP
hearing, B enters into an installment agreement as a
collection alternative. The costs that B incurred in
connection with the CDP hearing were not incurred
in an administrative proceeding, but rather in a col-
lection action. Accordingly, B may not recover those
costs as reasonable administrative costs under sec-
tion 7430 and the regulations thereunder.
Par. 6. Section 301.7430–4 is amended
by:
1. Removing the language “such” the
second time it appears in the second sen-
tence and in the fifth sentence of para-
graph (b)(2)(ii) and adding the language
“that” in its place.
2. Revising paragraphs (b)(3)(i) and
(b)(3)(iii)(B).
3. Revising the first sentence in para-
graph (b)(3)(iii)(C) and adding a new sec-
ond sentence following the first sentence.
4.Redesignatingparagraph
(b)(3)(iii)(D) as paragraph (b)(3)(iii)(F),
adding new paragraphs (b)(3)(iii)(D) and
(b)(3)(iii)(E), and revising newly redesig-
nated paragraph (b)(3)(iii)(F).
5. Revising paragraph (c)(4).
6. Adding paragraph (d).
The additions and revisions read as fol-
lows:
§ 301.7430 – 4 Reasonable
administrative costs.
*****
(b)***
(3)Limitation on fees for a represen-
tative—(i)In general. Except as otherwise
provided in this section, fees incurred af-
ter January 18, 1999, and described in
paragraph (b)(1)(iv) of this section that
are recoverable under section 7430 and
the regulations thereunder as reasonable
administrative costs may not exceed $125
per hour (as adjusted for an increase in the
cost of living and, if appropriate, a special
factor adjustment).
*****
(iii)***
(B)Special factor.Aspecial factoris a
factor, other than an increase in the cost of
living, that justifies an increase in the
$125 per hour limitation of section
7430(c)(1)(B)(iii). The undesirability of
the case, the work and the ability of coun-
sel, the results obtained, and customary
fees and awards in other cases, are factors
applicable to a broad spectrum of litiga-
tion and do not constitute special factors
for the purpose of increasing the $125 per
hour limitation. By contrast, the limited
availability of a specially qualified repre-
sentative for the proceeding, the limited
local availability of tax expertise, and the
difficulty of the issues are special factors
justifying an increase in the $125 per hour
limitation.
(C)Limited availability. Limited avail-
ability of a specially qualified representa-
tive is established by demonstrating that a
specially qualified representative for the
proceeding is not available at the $125 per
hour rate (as adjusted for an increase in
the cost of living). The representative’s
special qualification must be based on
nontax expertise.***
(D)Limited local availability of tax
expertise. Limited local availability of tax
expertise is established by demonstrating
that a representative possessing tax exper-
tise is not available in the taxpayer’s geo-
Bulletin No. 2016–12March 21, 2016
457

graphical area. Initially, this showing may
be made by submission of an affidavit
signed by the taxpayer, or by the taxpay-
er’s counsel, that no representative pos-
sessing tax expertise practices within a
reasonable distance from the taxpayer’s
principal residence or principal office. The
hourly rate charged by representatives in
the geographical area is not relevant in
determining whether tax expertise is lo-
cally available. If the Internal Revenue
Service challenges this initial showing,
the taxpayer may submit additional evi-
dence to establish the limited local avail-
ability of a representative possessing tax
expertise.
(E)Difficulty of the issues. In determin-
ing whether the difficulty of the issues
justifies an increase in the $125 per hour
limitation on the applicable hourly rate,
the Internal Revenue Service will consider
the following factors:
(1) The number of different provisions
of law involved in each issue.
(2) The complexity of the particular
provision or provisions of law involved in
each issue.
(3) The number of factual issues pres-
ent in the proceeding.
(4) The complexity of the factual is-
sues present in the proceeding.
(F)Example. The provisions of this
section are illustrated by the following
example:
Example. Taxpayer A is represented by B, a CPA
and attorney with a LL.M. Degree in Taxation with
Highest Honors who regularly handles cases dealing
with TEFRA partnership issues. B represents A in an
administrative proceeding involving TEFRA part-
nership issues that is subject to the provisions of this
section. Assuming A qualifies for an award of rea-
sonable administrative costs by meeting the require-
ments of section 7430, the amount of the award
attributable to the fees of B may not exceed the $125
per hour limitation (as adjusted for an increase in the
cost of living), absent a special factor. B is not a
specially qualified representative because extraordi-
nary knowledge of the tax laws does not constitute
distinctive knowledge or a unique and specialized
skill constituting a special factor. A higher rate may
be justified by another special factor, that is, the
limited local availability of tax expertise or the dif-
ficulty of the issues.
*****
(c)***
(4)Examples. The provisions of this
section are illustrated by the following
examples:
Example 1. After incurring fees for representa-
tion during the Internal Revenue Service’s examina-
tion of A’s income tax return, A receives a notice of
proposed deficiency (30-day letter). A files a request
for and is granted an Appeals office conference. At
the conference no agreement is reached on the tax
matters at issue. The Internal Revenue Service then
issues a notice of deficiency. Upon receiving the
notice of deficiency, A discontinues A’s administra-
tive efforts and files a petition with the Tax Court.
A’s costs incurred before the date of the mailing of
the 30-day letter are not reasonable administrative
costs because they were incurred before the admin-
istrative proceeding date. Similarly, A’s costs in-
curred in connection with the preparation and filing
of a petition with the Tax Court are litigation costs
and not reasonable administrative costs.
Example 2. Assume the same facts as inExample
1except that after A receives the notice of defi-
ciency, in addition to petitioning the Tax Court, A
recontacts Appeals and A convinces Appeals that the
information previously submitted during the review
by Appeals is sufficient and, therefore, the notice of
deficiency is incorrect and A owes no additional tax.
The Internal Revenue Service and A agree to a
stipulated decision in the Tax Court case to reflect
Appeals’ decision. The Tax Court enters the deci-
sion. If A seeks administrative costs, A may recover
costs incurred after the date of the mailing of the
30-day letter, costs incurred in recontacting Appeals
after the issuance of the notice of deficiency, and
costs incurred up to the time the Tax Court petition
was filed, as reasonable administrative costs, but
only if the other requirements of section 7430 and
the regulations thereunder are satisfied. The costs
incurred before the date of the mailing of the 30-day
letter are not reasonable administrative costs because
they were incurred before the administrative pro-
ceeding date, as set forth in § 301.7430–3(c)(1)(iii).
A’s costs incurred in connection with the filing of a
petition with the Tax Court are not reasonable ad-
ministrative costs because those costs are litigation
costs. Similarly, A’s costs incurred after the filing of
the petition are not reasonable administrative costs,
as they are litigation costs.
(d)Pro bono representation—(1)In
general. Fees recoverable under section
7430 and the regulations thereunder as
reasonable administrative costs may ex-
ceed the attorneys’ fees paid or incurred
by the prevailing party if such fees are less
than the reasonable attorneys’ fees be-
cause an individual is representing the
prevailing party on a pro bono basis. In
addition to attorneys’ fees, reasonable
costs incurred or paid by the individual
providing the pro bono representation that
are normally billed separately also may be
recovered under this section. The Trea-
sury Department and the Internal Revenue
Service may, in revenue rulings, notices,
or other guidance published in the Internal
Revenue Bulletin, provide for additional
rules that apply for awards of costs for pro
bono representation for purposes of this
paragraph (d).
(2)Requirements. Pro bono represen-
tation is established by demonstrating—
(i) Representation was provided for no
fee or for a fee that (taking into account all
the facts and circumstances) constitutes a
nominal fee;
(ii) The representative intended to pro-
vide representation for no fee or for a
nominal fee from the commencement of
the representation. Intent to provide rep-
resentation for no fee or for a nominal fee
may be demonstrated through documenta-
tion such as a retainer agreement. An in-
dividual will not be considered to have
represented a client on a pro bono basis if
the facts demonstrate that the individual
anticipated a fee greater than a nominal
fee or provided representation on a con-
tingency fee basis. The fact that the rep-
resentative intended to seek recovery of
fees under section 7430 will not prevent
the representative from satisfying this re-
quirement.
(3)Nominal fee.Anominal feeis de-
fined as a fee that is insignificantly small
or minimal. A nominal fee is a trivial
payment, bearing no relation to the value
of the representation provided, taking into
account all the facts and circumstances.
(4)Payment when representation pro-
vided at no charge or for a nominal fee.A
prevailing party who receives representa-
tion at no charge or for a nominal fee and
who satisfies the requirements under this
section is eligible to receive reasonable
fees in excess of the fees actually paid or
incurred. Payment will be made to the
representative or the representative’s em-
ployer.
(5)Recordkeeping. Contemporaneous
records must be maintained, demonstrat-
ing the work performed and the time al-
located to each task. These records should
contain similar information to billing
records.
(6)Examples. The provisions of this
section are illustrated by the following
example:
Example 1. Taxpayer A, an attorney, files a pe-
tition with the Tax Court and pays a $60 filing fee. A
appears pro se in the court proceeding. If A prevails,
he will not be entitled to an award of reasonable
litigation costs for his services. A is rendering ser-
vices on his own behalf, not providing pro bono
representation. His lost opportunity costs are not
compensable under section 7430. A may recover the
filing fee as a litigation cost, but only if the other
requirements of section 7430 and the regulations
thereunder are satisfied.
March 21, 2016Bulletin No. 2016–12
458

Par. 7. Section 301.7430–5 is revised
to read as follows:
§ 301.7430 –5 Prevailing party.
(a)In general. For purposes of an
award of reasonable administrative costs
under section 7430 in the case of admin-
istrative proceedings commenced after
July 30, 1996, a taxpayer is a prevailing
party (other than by reason of section
7430(c)(4)(E)) only if—
(1) At least one issue (other than re-
covery of administrative costs) remains in
dispute as of the date that the Internal
Revenue Service takes a position in the
administrative proceeding, as described in
paragraph (b) of this section;
(2) The position of the Internal Reve-
nue Service was not substantially justi-
fied;
(3) The taxpayer substantially prevails
as to the amount in controversy or with
respect to the most significant issue or set
of issues presented; and
(4) The taxpayer satisfies the net worth
and size limitations referenced in para-
graph (f) of this section.
(b)Position of the Internal Revenue
Service. The position of the Internal Rev-
enue Service in an administrative pro-
ceeding is the position taken by the Inter-
nal Revenue Service as of the earlier of—
(1) The date of the receipt by the tax-
payer of the notice of the decision of the
Internal Revenue Service Office of Ap-
peals; or
(2) The date of the notice of deficiency
or any date thereafter.
(c)Examples. The provisions of this
section may be illustrated by the follow-
ing examples:
Example 1. Taxpayer A receives a notice of
proposed deficiency (30-day letter). A pays the
amount of the proposed deficiency and files a claim
for refund. A’s claim is considered and a notice of
proposed claim disallowance is issued by the Area
Director. A does not request an Appeals office con-
ference and the Area Director issues a notice of
claim disallowance. A then files suit in a United
States District Court. A cannot recover reasonable
administrative costs because the notice of claim dis-
allowance is not a notice of the decision of the
Internal Revenue Service Office of Appeals or a
notice of deficiency. Accordingly, the Internal
Revenue Service has not taken a position in the
administrative proceeding pursuant to section
7430(c)(7)(B).
Example 2. Taxpayer B receives a notice of
proposed deficiency (30-day letter). B disputes the
proposed adjustments and requests an Appeals office
conference. The Appeals office determines that B
has no additional tax liability. B requests adminis-
trative costs from the date of the 30-day letter. B is
not the prevailing party and may not recover admin-
istrative costs because all of the proposed adjust-
ments in the case were resolved as of the date that
the Internal Revenue Service took a position in the
administrative proceeding.
(d)Substantially justified—(1)In gen-
eral. The position of the Internal Revenue
Service is substantially justified if it has a
reasonable basis in both fact and law. A
significant factor in determining whether
the position of the Internal Revenue Ser-
vice is substantially justified as of a given
date is whether, on or before that date, the
taxpayer has presented all relevant infor-
mation under the taxpayer’s control and
relevant legal arguments supporting the
taxpayer’s position to the appropriate In-
ternal Revenue Service personnel. The ap-
propriate Internal Revenue Service per-
sonnel are personnel responsible for
reviewing the information or arguments,
or personnel who would transfer the in-
formation or arguments in the normal
course of procedure and administration to
the personnel who are responsible.
(2)Position in courts of appeal.
Whether the United States has won or lost
an issue substantially similar to the one in
the taxpayer’s case in courts of appeal for
circuits other than the one to which the
taxpayer’s case would be appealable
should be taken into consideration in
determining whether the Internal Reve-
nue Service’s position was substantially
justified.
(3)Example. The provisions of this
section (d) are illustrated by the following
example:
Example. The Internal Revenue Service, in the
conduct of a correspondence examination of tax-
payer A’s individual income tax return, requests
substantiation from A of claimed medical expenses.
A does not respond to the request and the Internal
Revenue Service issues a notice of deficiency. After
receiving the notice of deficiency, A presents suffi-
cient information and arguments to convince a tax
compliance officer that the notice of deficiency is
incorrect and that A owes no tax. The revenue agent
then closes the case showing no deficiency. Al-
though A incurred costs after the issuance of the
notice of deficiency, A is unable to recover these
costs because, as of the date these costs were in-
curred, A had not presented relevant information
under A’s control and relevant legal arguments sup-
porting A’s position to the appropriate Internal Rev-
enue Service personnel. Accordingly, the position of
the Internal Revenue Service was substantially jus-
tified at the time the costs were incurred.
(4)Included costs. (i) An award of
reasonable administrative costs shall only
include costs incurred on or after the ad-
ministrative proceeding date as defined in
section 301.7430–3(c) of this chapter.
(ii) If the Internal Revenue Service
takes a position in an administrative pro-
ceeding, as defined in paragraph (b) of this
section, and the position is not substan-
tially justified, the taxpayer may be per-
mitted to recover costs incurred before the
position was taken, but not before the
dates set forth in this paragraph (d)(4).
(5)Examples. The provisions of this
section may be illustrated by the follow-
ing examples:
Example 1. Pursuant to section 6672, taxpayer D
receives from the Area Director Collection Opera-
tions (Collection) a proposed assessment of trust
fund taxes (Trust Fund Recovery Penalty). D re-
quests and is granted Appeals office consideration.
Appeals considers the issues and decides to uphold
Collection’s recommended assessment. Appeals no-
tifies D of this decision in writing. Collection then
assesses the tax and notice and demand is made. D
timely pays the minimum amount required to com-
mence a court proceeding, files a claim for refund,
and furnishes the required bond. Collection disal-
lows the claim, but Appeals, on reconsideration,
reverses its original position, thus upholding D’s
position. If Appeals’ initial determination was not
substantially justified, D may recover administrative
costs incurred on or after the mailing of the proposed
assessment of trust fund taxes, because the proposed
assessment is the first determination letter that al-
lows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of
Appeals.
Example 2. Taxpayer E receives a notice of pro-
posed deficiency (30-day letter). E pays the amount
of the proposed deficiency and files a claim for
refund. E’s claim is considered and a notice of pro-
posed disallowance is issued by the Area Director. E
requests and is granted Appeals office consideration.
No agreement is reached with Appeals and the Of-
fice of Appeals issues a notice of claim disallowance.
E does not file suit in a United States District Court
but instead contacts the Appeals office to attempt to
reverse the decision. E convinces the Appeals officer
that the notice of claim disallowance is in error. The
Appeals officer then abates the assessment. E may
recover reasonable administrative costs if the posi-
tion taken in the notice of claim disallowance issued
by the Office of Appeals was not substantially jus-
tified and the other requirements of section 7430 and
the regulations thereunder are satisfied. If so, E may
recover administrative costs incurred from the mail-
ing date of the 30-day letter because the require-
ments of paragraph (c)(2) of this section are met. E
cannot recover the costs incurred prior to the mailing
of the 30-day letter because they were incurred be-
fore the administrative proceeding date.
(6)Exception. If the position of the
Internal Revenue Service was substan-
tially justified with respect to some issues
Bulletin No. 2016–12March 21, 2016
459

in the proceeding and not substantially
justified with respect to the remaining is-
sues, any award of reasonable administra-
tive costs to the taxpayer may be limited
to only reasonable administrative costs at-
tributable to those issues with respect to
which the position of the Internal Revenue
Service was not substantially justified. If
the position of the Internal Revenue Ser-
vice was substantially justified for only a
portion of the period of the proceeding
and not substantially justified for the re-
maining portion of the proceeding, any
award of reasonable administrative costs
to the taxpayer may be limited to only
reasonable administrative costs attribut-
able to that portion during which the po-
sition of the Internal Revenue Service was
not substantially justified. Where an
award of reasonable administrative costs
is limited to that portion of the adminis-
trative proceeding during which the posi-
tion of the Internal Revenue Service was
not substantially justified, whether the po-
sition of the Internal Revenue Service was
substantially justified is determined as of
the date any cost is incurred.
(7)Presumption.If the Internal Reve-
nue Service did not follow any applicable
published guidance in an administrative
proceeding commenced after July 30,
1996, the position of the Internal Revenue
Service, on those issues to which the guid-
ance applies and for all periods during
which the guidance was not followed, will
be presumed not to be substantially justi-
fied. This presumption may be rebutted.
For purposes of this paragraph (d)(7), the
termapplicable published guidance
means final or temporary regulations, rev-
enue rulings, revenue procedures, infor-
mation releases, notices, and announce-
ments published in the Internal Revenue
Bulletin and, if issued to or with respect to
the taxpayer, private letter rulings, techni-
cal advice memoranda, and determination
letters (§ 601.601(d)(2) of this chapter).
Also, for purposes of this paragraph
(d)(7), the term administrative proceeding
includes only those administrative pro-
ceedings or portions of administrative
proceedings occurring on or after the ad-
ministrative proceeding date as defined in
§ 301.7430–3(c).
(e)Amount in controversy. The amount
in controversy shall include the amount in
issue as of the administrative proceeding
date as increased by any amounts subse-
quently placed in issue by any party. The
amount in controversy is determined with-
out increasing or reducing the amount in
controversy for amounts of loss, deduc-
tion, or credit carried over from years not
in issue.
(f)Most significant issue or set of is-
sues presented. (1)In general. Where the
taxpayer has not substantially prevailed
with respect to the amount in controversy
the taxpayer may nonetheless be a prevail-
ing party if the taxpayer substantially pre-
vails with respect to the most significant
issue or set of issues presented. The issues
presented include those raised as of the
administrative proceeding date and those
raised subsequently. Only in a multiple
issue proceeding can a most significant
issue or set of issues presented exist.
However, not all multiple issue proceed-
ings contain a most significant issue or set
of issues presented. An issue or set of
issues constitutes the most significant is-
sue or set of issues presented if, despite
involving a lesser dollar amount in the
proceeding than the other issue or issues,
it objectively represents the most signifi-
cant issue or set of issues for the taxpayer
or the Internal Revenue Service. This may
occur because of the effect of the issue or
set of issues on other transactions or other
taxable years of the taxpayer or related
parties.
(2)Example. The provisions of this
section may be illustrated by the follow-
ing example:
Example. In the purchase of an ongoing business,
Taxpayer F obtains from the previous owner of the
business a covenant not to compete for a period of
five years. On audit of F’s individual income tax
return for the year in which the business was ac-
quired, the Internal Revenue Service challenges the
basis assigned to the covenant not to compete and a
deduction taken as a business expense for a seminar
attended by F. Both parties agree that the covenant
not to compete is amortizable over a period of five
years; however, the Internal Revenue Service asserts
that the proper basis of the covenant is $25,000,
while F asserts the basis is $50,000 and claims a
deduction of $10,000 in the year in which the busi-
ness was acquired. F deducted $12,000 for the sem-
inar. The Internal Revenue Service determines that
the deduction for the seminar should be disallowed
entirely. In the notice of deficiency, the Internal
Revenue Service adjusts the amortization deduction
to reflect the change to the basis of the covenant not
to compete, and disallows the seminar expense.
Thus, of the two adjustments determined for the year
under audit, the adjustment attributable to the disal-
lowance of the seminar is larger than that attributable
to the covenant not to compete. Due to the impact on
the next succeeding four years, however, the cove-
nant not to compete adjustment is the most signifi-
cant issue to both F and the Internal Revenue Ser-
vice.
(g)Net worth and size limitations—(1)
Individuals. A taxpayer who is a natural
person meets the net worth and size lim-
itations of this paragraph if the taxpayer’s
net worth does not exceed two million
dollars. For purposes of determining net
worth, individuals filing a joint return, and
jointly incurring administrative or litiga-
tion costs shall have their net worth deter-
mined jointly, with all assets and liabili-
ties treated as joint for purposes of the net
worth evaluation, and applying a joint cap
of four million dollars. Individuals who
file a joint return, but incur separate ad-
ministrative or litigation costs, by retain-
ing separate representation, and/or seek-
ing individual administrative review or
petitioning the court individually, such as
under section 6015, shall have their net
worth determined separately, with only
those assets and liabilities reasonably at-
tributable to each spouse considered
against separate caps of two million dol-
lars per spouse.
(2)Estates and trusts. An estate or a
trust meets the net worth and size limita-
tions of this paragraph if the estate or
trust’s net worth does not exceed two mil-
lion dollars. The net worth of an estate
shall be determined as of the date of the
decedent’s death provided the date of
death is prior to the date the court pro-
ceeding is commenced. The net worth of a
trust shall be determined as of the last day
of the last taxable year involved in the
proceeding.
(3)Others. (i) A taxpayer that is a
partnership, corporation, association, unit
of local government, or organization
(other than an organization described in
paragraph (g)(4) of this section) meets the
net worth and size limitations of this para-
graph if, as of the administrative proceed-
ing date:
(A) The taxpayer’s net worth does not
exceed seven million dollars; and
(B) The taxpayer does not have more
than 500 employees.
(ii) A taxpayer who is a natural person
and owns an unincorporated business is
subject to the net worth and size limita-
tions contained in paragraph (g)(3)(i) of
this section if the tax at issue (or any
March 21, 2016Bulletin No. 2016–12
460

interest, additional amount, addition to
tax, or penalty, together with any costs in
addition to the tax) relates directly to the
business activities of the unincorporated
business.
(4)Special rule for charitable organiza-
tions and certain cooperatives. An organi-
zation described in section 501(c)(3) exempt
from taxation under section 501(a), or a
cooperative association as defined in sec-
tion 15(a) of the Agricultural Marketing
Act, 12 U.S.C. 1141j(a) (as in effect on
October 22, 1986), meets the net worth
and size limitations of this paragraph if, as
of the administrative proceeding date, the
organization or cooperative association
does not have more than 500 employees.
(5)Special rule for TEFRA partnership
proceedings. (i) In cases involving part-
nerships subject to the unified audit and
litigation procedures of subchapter C of
chapter 63 of the Internal Revenue Code
(TEFRA partnership cases), the TEFRA
partnership meets the net worth and size
limitations requirements of this paragraph
(g) if, on the administrative proceeding
date—
(A) The partnership’s net worth does
not exceed seven million dollars; and
(B) The partnership does not have
more than 500 employees.
(ii) In addition, each partner requesting
fees pursuant to section 7430 must meet
the appropriate net worth and size limita-
tions set forth in paragraph (g)(1), (g)(2),
or (g)(3) of this section. For example, if a
partner is an individual, his or her net
worth must not exceed two million dollars
as of the administrative proceeding date.
If the partner is a corporation, its net
worth must not exceed seven million dol-
lars and it must not have more than 500
employees.
(6)Determining net worth. For pur-
poses of determining net worth under this
paragraph (g), assets are valued based on
the cost of their acquisition.
(h)Determination of prevailing party.
If the final decision with respect to the tax,
interest, or penalty is made at the admin-
istrative level, the determination of
whether a taxpayer is a prevailing party
shall be made by agreement of the parties,
or absent an agreement, by the Internal
Revenue Service. See § 301.7430–2(c)(7)
regarding the right to appeal the deci-
sion of the Internal Revenue Service
denying (in whole or in part) a request
for reasonable administrative costs to
the Tax Court.
Par. 8. Section 301.7430–6 is revised
to read as follows:
§ 301.7430 – 6 Effective/applicability
dates.
Sections301.7430–2through
301.7430–6, other than §§ 301.7430–2(b)(2),
(c)(3)(i)(B), (c)(3)(i)(E), (c)(3)(ii)(C),
(c)(3)(iii)(C), (c)(5), (c)(7), and (e);
§§ 301.7430–3(c)(1), (c)(3), (c)(4), and
(d); §§ 301.7430–4(b)(3)(i), (b)(3)(ii),
(b)(3)(iii)(B), (b)(3)(iii)(C), (b)(3)(iii)(D),
(b)(3)(iii)(E), (b)(3)(iii)(F), (c)(2)(ii),
(c)(4), and (d); and §§ 301.7430–5(a), (b),
(c)(3), (d)(2), (d)(3), (d)(4), (d)(5), (d)(7),
(f)(2), (g)(1), (g)(2), (g)(3), (g)(5), and
(g)(6) apply to claims for reasonable ad-
ministrative costs filed with the Internal
Revenue Service after December 23,
1992, with respect to costs incurred in
administrative proceedings commenced
after November 10, 1988. Section
301.7430–2(c)(5) is applicable to costs
incurred and services performed in cases
in which the petition was filed on or after
March 1, 2016, except for the last two
sentences, which are applicable March 23,
1993. Sections 301.7430–2(b)(2), and
(c)(3)(i)(B) (except the last sentence);
301.7430–4(b)(3)(ii), (b)(3)(iii)(C) (ex-
cept the first two sentences), and (c)(2)(ii)
(except for references to the statutory cap
as $125); and 301.7430–5(a) (except the
parenthetical of 5(a) and all of 5(a)(1)),
and the first and last sentence of (d)(7) are
applicable for administrative proceedings
commenced after July 30, 1996.Sections
301.7430–1(e), 301.7430–2(c)(2), 7430–
3(a)(4) and (b) are applicable with respect to
actions taken by the Internal Revenue Ser-
vice after July 22, 1998. The last sentence of
§ 301.7430–2(c)(3)(i)(B), the first two sen-
tences of § 301.7430–2(b)(3)(iii)(C),
§§ 301.7430–2(c)(3)(i)(E), (c)(3)(ii)(C),
(c)(3)(iii)(C), (c)(7), (e); 301.7430–3(c)(1),
(c)(3), (c)(4), (d); 301.7430–4(b)(3)(i),
(b)(3)(iii)(B), (b)(3)(iii)(E), (b)(3)(iii)(F),
(c)(2)(ii) (to the extent it references the stat-
utory cap as $125), (c)(4), (d); the parenthet-
ical of § 301.7430–5(a) and §§ 301.7430–
5(a)(1), (b), (d)(2), (d)(3), (d)(4), (d)(5),
(d)(7), except the first and last sentences,
(f)(2), (g)(1), (g)(2), (g)(3), (g)(5), and
(g)(6) apply to costs incurred and services
performed in cases in which the petition was
filed on or after March 1, 2016.
Par. 9. Section 301.7430–7 is amended
by:
1. Adding paragraph (c)(8).
2. Amending paragraph (e) by adding
Examples 16and17.
3. Revising paragraph (f).
The additions and revisions read as fol-
lows:
§ 301.7430 –7 Qualified offers.
*****
(c)***
(8)Interest as a contested issue.To
constitute a qualified offer, an offer must
specify the offered amount of the taxpay-
er’s liability (determined without regard
to interest, unless interest is a contested
issue in the proceeding), as provided in
paragraphs (c)(1)(ii) and (c)(3) of this sec-
tion. Therefore, a qualified offer generally
may only include an offer to compromise
tax, penalties, additions to the tax, and
additional amounts. Interest may only be
included in a qualified offer if interest is a
contested issue in the proceeding. For pur-
poses of this section, interest is a con-
tested issue in the proceeding only if the
court in which the proceeding could be
brought would have jurisdiction to deter-
mine the amount of interest due on the
underlying tax, penalties, additions to the
tax, and additional amounts. Examples of
proceedings in which interest might be a
contested issue include proceedings in
which the increased interest rate for large
corporate underpayments under section
6621(c) is imposed by the Internal Reve-
nue Service and interest abatement pro-
ceedings brought under section 6404. In-
terest is not a contested issue in the
proceeding if the court that would have
jurisdiction over the proceeding would not
have jurisdiction to determine the amount
or rate of interest, regardless of whether
the taxpayer attempts to raise interest as
an issue in the proceeding. Consequently,
interest will not be a contested issue in the
vast majority of tax cases because they
merely involve the straightforward appli-
cation of statutory interest under section
6601. Accordingly, in those cases, interest
may not be included in the offer.
*****
Bulletin No. 2016–12March 21, 2016
461

(e)***
Example 16.Qualified offer may not compromise
interest unless it is a contested issue. Taxpayer J
receives a notice of deficiency making an adjustment
resulting in a deficiency in tax of $6,500 plus a
penalty of $500. Interest is not a contested issue in
the proceeding. Within the qualified offer period, J
submits a written offer to settle the case for a defi-
ciency of $1,000, including all taxes, penalties, and
interest. The offer states that it is a qualified offer for
purposes of section 7430(g) and that it will remain
open for acceptance by the Internal Revenue Service
for a period of 90 days. Section 7430(g)(2)(B) and
paragraph (c)(3) of this section state that the amount
of a qualified offer must be without regard to interest
unless interest is at issue in the proceeding. Since J’s
offer attempts to compromise interest, which is not a
contested issue in the proceeding, it is not a qualified
offer.
Example 17.Qualified offer based on new de-
fense or legal theory. Taxpayers K and L received a
statutory notice of deficiency for tax year 2005, a tax
year when they were married and filed a joint income
tax return. Taxpayer K files a separate petition claim-
ing innocent spouse relief and simultaneously sub-
mits an offer purporting to be a qualified offer. The
offer states that K is entitled to innocent spouse relief
and offers to settle the 2005 deficiency as to K. K’s
innocent spouse claim was not raised during K and
L’s audit, nor was it raised during their appeals
conference. Additionally, at no time prior to or con-
temporaneously with submitting the offer did K file
with the Internal Revenue Service a Form 8857,
Request for Innocent Spouse Relief, or otherwise
provide the information specified in § 1.6015–5(a) of
this chapter. K’s offer is not a qualified offer because
K did not file a Form 8857 or otherwise provide
substantiation or legal and factual arguments neces-
sary to allow for informed consideration of the mer-
its of the innocent spouse claim as required by para-
graph (c)(4) of this section, contemporaneously with
the offer or prior to making the offer.
(f)Effective/applicability date. This
section is applicable with respect to qual-
ified offers made in administrative or
court proceedings described in section
7430 after December 24, 2003, except that
paragraph (c)(8) is effective as of March
1, 2016.
§§ 301.7430–1, 301.7430–2, 301.7430–
4, and 301.7430–5 [Amended]
Par. 10. For each section listed in the
table, remove the language in the “Remove”
column and add in its place the language in
the “Add” column as set forth below:
SectionRemoveAdd
§ 301.7430–1(f)(2)(i)district directorInternal Revenue Service office
§ 301.7430–1(f)(3)(ii)district directorInternal Revenue Service office
§ 301.7430–1(f)(3)(iii)district directorInternal Revenue Service office
§ 301.7430–1(f)(4)(i)district directorInternal Revenue Service office
§ 301.7430–1(g)Example 6third and fourth sentencesdistrict directorInternal Revenue Service office
§ 301.7430–1(g)Example 7third and fourth sentencesdistrict directorInternal Revenue Service office
§ 301.7430–1(g)Example 8 second and fourth sentencesdistrict directorInternal Revenue Service office
§ 301.7430–1(g)Example 9second sentencesuchthese
§ 301.7430–2(b)(2) fourth and fifth sentencessuchthese
§ 301.7430–2(c)(4) first sentencewhichthat
§ 301.7430–2(c)(6) second sentencesuchthe
§ 301.7430–4(b)(3)(ii) first and second sentences$110$125
§ 301.7430–4(c)(2)(i) third sentenceSuchThese
§ 301.7430–4(c)(2)(i) fourth sentencewhichthat
§ 301.7430–4(c)(2)(ii) second and third sentences$110$125
§ 301.7430–5(h) first sentencesuchan
John Dalrymple,
Deputy Commissioner
for Services and Enforcement.
Approved: January 19, 2016.
Mark J. Mazur
Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on February 29,
2016, 8:45 a.m., and published in the issue of the Federal
Register for March 1, 2016, 81 F.R. 10479)
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
T.D. 9757
Consistent Basis Reporting
Between Estate and Person
Acquiring Property From
Decedent
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations that provide transi-
tion rules providing that executors and
other persons required to file or furnish a
statement under section 6035(a)(1) or
(a)(2) before March 31, 2016, need not do
so until March 31, 2016. These temporary
regulations are applicable to executors
and other persons who file after July 31,
2015, returns required by section 6018(a)
or (b).
DATES:Effective Date. These regula-
tions are effective on March 4, 2016.
March 21, 2016Bulletin No. 2016–12
462

Applicability Dates: For date of appli-
cability, see § 1.6035–2T(b).
FOR FURTHER INFORMATION
CONTACT: Theresa Melchiorre (202)
317-6859 (not a toll-free number).
Background
On July 31, 2015, the President of the
United States signed into lawH.R. 3236,
theSurface Transportation and Veterans
Health Care Choice Improvement Act of
2015, Public Law 114–41, 129 Stat. 443
(Act). Section 2004 of the Act added new
section 6035.
Section 6035 imposes reporting re-
quirements with regard to the value of
property included in a decedent’s gross
estate for federal estate tax purposes. Sec-
tion 6035(a)(1) provides that the executor
of any estate required to file a return under
section 6018(a) must furnish, both to the
Secretary and to the person acquiring any
interest in property included in the dece-
dent’s gross estate for federal estate tax
purposes, a statement identifying the
value of each interest in such property as
reported on such return and such other
information with respect to such interest
as the Secretary may prescribe.
Section 6035(a)(2) provides that each
other person required to file a return under
section 6018(b) must furnish, both to the
Secretary and to each person who holds a
legal or beneficial interest in the property
to which such return relates, a statement
identifying the same information de-
scribed in section 6035(a)(1).
Section 6035(a)(3)(A) provides that
each statement required to be furnished
under section 6035 (a)(1) or (2) is to be
furnished at such time as the Secretary
may prescribe, but in no case at a time
later than the earlier of (i) the date which
is 30 days after the date on which the
return under section 6018 was required to
be filed (including extensions, if any) or
(ii) the date which is 30 days after the date
such return is filed.
On August 21, 2015, the Treasury De-
partment and the IRS issued Notice 2015–
57, 2015–36 IRB 294. Notice 2015–57
delays until February 29, 2016, the due
date for any statements required by sec-
tion 6035 that are due before that same
date.
On February 11, 2016, the Treasury
Department and the IRS issued Notice
2016–19, 2016–09 IRB page 362. That
notice provides that executors or other
persons required to file or furnish a state-
ment under section 6035(a)(1) or (a)(2)
before March 31, 2016, need not do so
until March 31, 2016.
Explanation of Provisions
These temporary regulations reiterate
that executors or other persons required to
file or furnish a statement under section
6035(a)(1) or (a)(2) before March 31,
2016, need not do so until March 31,
2016. The text of these temporary regula-
tions also serves as the text of the pro-
posed regulations under § 1.6035–2 in the
related notice of proposed rulemaking
(REG–127923–15) in the Proposed Rules
section of this issue of the Federal Regis-
ter. These temporary regulations are is-
sued within 18 months of the date of the
enactment of the statutory provisions to
which the temporary regulations relate
and, as authorized by section 7805(b)(2),
are effective/applicable to executors and
other persons who file a return required by
section 6018(a) or (b) after July 31, 2015.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings notices, notices and other guid-
ance cited in this preamble 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
athttp://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. In addition, section 553(b)
of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to
these regulations because they are ex-
cepted from the notice and comment re-
quirements of section 553(b) and (c) of
the Administrative Procedure Act under
the interpretative rule and good cause ex-
ceptions provided by section 553(b)(3)(A)
and (B) of that Act. The Act included an
immediate effective date, thus making the
first required statements due 30 days after
enactment. It is necessary to provide more
time to provide the statements required by
section 6035(a) to allow the Treasury De-
partment and the IRS sufficient time to
issue both substantive and procedural
guidance on how to comply with the sec-
tion 6035(a) requirement and to provide
executors and other affected persons the
opportunity to review this guidance before
preparing the required statements. These
regulations reiterate the relief in Notice
2016–19 and, because of the immediate
need to provide relief, notice and public
comment pursuant to 5 U.S.C. 553(b) and
(c) is impracticable, unnecessary, and
contrary to the public interest. For the
applicability of the Regulatory Flexibility
Act (5 U.S.C. chapter 6), please refer to
the Special Analyses section of the pre-
amble to the cross-referenced notice of
proposed rulemaking published in the
Proposed Rules section in this issue of the
Federal Register. Pursuant to section
7805(f) of the Internal Revenue Code
(Code), these regulations have been sub-
mitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on their impact on
small business.
Drafting Information
The principal author of these tempo-
rary regulations is Theresa Melchiorre,
Office of the Associate Chief Counsel
(Passthroughs and Special Industries).
Other personnel from the Treasury De-
partment and the IRS participated in their
development.
*****
Temporary 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 adding an entry in
numerical order to read in part as follows:
Authority: 26 U. S. C. 7805***
*****
Bulletin No. 2016–12March 21, 2016
463

Section 1.6035–2T also issued under
26 U.S.C. section 6035.
*****
Par. 2. Section 1.6035–2T is added to
read as follows:
§ 1.6035–2T Transitional relief.
(a)Statements due before March 31,
2016. Executors and other persons required
to file or furnish a statement under section
6035(a)(1) or (a)(2) before March 31, 2016,
need not do so until March 31, 2016.
(b)Effective/Applicability Date. This
section is effective/applicable to executors
and other persons who file a return re-
quired by section 6018(a) or (b) after July
31, 2015.
John Dalrymple,
Deputy Commissioner
for Services and Enforcement.
Approved: January 22, 2016.
Mark J. Mazur,
Assistant Secretary of
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on March 2,
2016, 4:15 a.m., and published in the issue of the Federal
Register for March 4, 2016, 81 F.R. 11431)
March 21, 2016Bulletin No. 2016–12
464

Part III. Administrative, Procedural, and Miscellaneous
Determination of Housing
Cost Amounts Eligible for
Exclusion or Deduction for
2016
Notice 2016–21
SECTION 1. PURPOSE
This notice provides adjustments to the
limitation on housing expenses for purposes
of section 911 of the Internal Revenue Code
for specific locations for 2016. These adjust-
ments are made on the basis of geographic
differences in housing costs relative to hous-
ing costs in the United States.
SECTION 2. BACKGROUND
Section 911(a) allows a qualified individ-
ual to elect to exclude from gross income
the foreign earned income and housing cost
amount of such individual. Section
911(c)(1) defines the term “housing cost
amount” as an amount equal to the excess of
(A) the housing expenses of an individual
for the taxable year to the extent such ex-
penses do not exceed the amount deter-
mined under section 911(c)(2), over (B) 16
percent of the exclusion amount (computed
on a daily basis) in effect under section
911(b)(2)(D) for the calendar year in which
such taxable year begins ($276.78 per day
for 2016, or $101,300 for the full year),
multiplied by the number of days of that
taxable year within the applicable period
described in section 911(d)(1). The applica-
ble period is the period during which the
individual meets the tax home requirement
of section 911(d)(1) and either the bona fide
residence requirement of section 911(d)(1)(A)
or the physical presence requirement of
section 911(d)(1)(B). Assuming that the
entire taxable year of a qualified individ-
ual is within the applicable period, the
section 911(c)(1)(B) amount for 2016 is
$16,208 ($101,300 x .16).
Section 911(c)(2)(A) limits the housing ex-
penses taken into account in section
911(c)(1)(A) to an amount equal to (i) 30
percent (adjusted as may be provided under
the Secretary’s authority under section
911(c)(2)(B)) of the amount in effect under
section 911(b)(2)(D) for the calendar year in
which the taxable year of the individual be-
gins, multiplied by (ii) the number of days of
that taxable year within the applicable period
described in section 911(d)(1). Thus, under
this general limitation, a qualified individual
whose entire taxable year is within the appli-
cable period is limited to maximum housing
expenses of $30,390 ($101,300 x .30) in 2016.
Section 911(c)(2)(B) authorizes the
Secretary to issue regulations or other
guidance to adjust the percentage under
section 911(c)(2)(A)(i) based on geo-
graphic differences in housing costs rela-
tive to housing costs in the United States.
Pursuant to this authority, the Internal
Revenue Service (IRS) and the Treasury
Department published Notice 2006–87,
2006–2 C.B. 766, and Notice 2007–25,
2007–1 C.B. 760, for 2006; Notice 2007–77,
2007–2 C.B. 735, for 2007; Notice
2008–107, 2008–2 C.B. 1266, for 2008
and 2009; Notice 2010–27, 2010–15
I.R.B. 531, for 2009 and 2010; Notice
2011–8, 2011–8 I.R.B. 503, for 2010 and
2011; Notice 2012–19, 2012–10 I.R.B.
440 for 2011 and 2012; Notice 2013–31,
2013–21 I.R.B. 1099, for 2012 and 2013;
Notice 2014–29, 2014–18 I.R.B. 991 for
2013 and 2014; and Notice 2015–33,
2015–18 I.R.B. 934 for 2014 and 2015 to
provide adjustments to the limitation on
housing expenses for qualified individuals
incurring housing expenses in countries
with high housing costs relative to hous-
ing costs in the United States.
SECTION 3. TABLE OF ADJUSTED
LIMITATIONS FOR 2016
The following table provides adjusted
limitations on housing expenses (in lieu of
the otherwise applicable limitation of
$30,390) for 2016.
CountryLocation
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
AngolaLuanda84,000229.51
ArgentinaBuenos Aires56,500154.37
AustraliaMelbourne30,50083.33
AustraliaPerth32,60089.07
AustraliaSydney61,400167.76
AustriaVienna35,40096.72
Bahamas, TheGrand Bahama Island30,90084.43
Bahamas, TheNassau49,700135.79
BahrainBahrain44,000120.22
BarbadosBarbados37,700103.01
BelgiumBrussels40,000109.29
BelgiumGosselies34,90095.36
BelgiumMons34,90095.36
BelgiumSHAPE/Chievres34,90095.36
BermudaBermuda90,000245.90
Bulletin No. 2016–12March 21, 2016
465

CountryLocation
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
BrazilRio de Janeiro35,10095.90
BrazilSao Paulo56,600154.64
CanadaCalgary36,800100.55
CanadaMontreal43,900119.95
CanadaOttawa41,300112.84
CanadaQuebec33,30090.98
CanadaToronto41,400113.11
CanadaVancouver40,200109.84
Cayman IslandsGrand Cayman48,000131.15
ChileSantiago37,500102.46
ChinaBeijing71,200194.54
ChinaHong Kong114,300312.30
ChinaShanghai57,001155.74
ColombiaBogota58,700160.38
ColombiaAll cities other than Bogota49,400134.97
Costa RicaSan Jose32,00087.43
Democratic Republic of
the Congo
Kinshasa42,000114.75
DenmarkCopenhagen43,704119.41
Dominican RepublicSanto Domingo45,500124.32
EcuadorGuayaquil30,80084.15
EcuadorQuito38,200104.37
El SalvadorSan Salvador32,00087.43
EstoniaTallinn46,600127.32
FranceGarches68,600187.43
FranceLyon38,000103.83
FranceMarseille37,000101.09
FranceMontpellier30,60083.61
FranceParis68,600187.43
FranceSevres68,600187.43
FranceSuresnes68,600187.43
FranceVersailles68,600187.43
FranceAllcities other than Garches, Le Havre, Lyon,
Marseille, Paris, Sevres, Suresnes and Versailles
31,90087.16
GermanyBabenhausen33,70092.08
GermanyBaumholder32,60089.07
GermanyBerlin41,100112.30
GermanyBirkenfeld32,60089.07
GermanyBoeblingen40,800111.48
GermanyBonn42,000114.75
GermanyButzbach30,39083.03
GermanyCologne56,200153.55
GermanyDarmstadt33,70092.08
GermanyFrankfurt am Main35,10095.90
GermanyGarmisch-Partenkirchen31,60086.34
GermanyGelnhausen42,400115.85
March 21, 2016Bulletin No. 2016–12
466

CountryLocation
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
GermanyGiessen36,00098.36
GermanyGrafenwoehr34,00092.90
GermanyHanau42,400115.85
GermanyHeidelberg31,40085.79
GermanyIdar-Oberstein32,60089.07
GermanyIngolstadt48,100131.42
GermanyKaiserslautern, Landkreis41,200112.57
GermanyKarlsruhe32,40088.52
GermanyKoblenz33,00090.16
GermanyLeimen31,40085.79
GermanyLudwigsburg40,800111.48
GermanyMainz44,800122.40
GermanyMannheim31,40085.79
GermanyMunich48,100131.42
GermanyNellingen40,800111.48
GermanyNeubruecke32,60089.07
GermanyOber Ramstadt33,70092.08
GermanyOberammergau31,60086.34
GermanyPfullendorf33,00090.16
GermanyPirmasens41,200112.57
GermanyRheinau31,40085.79
GermanySchwetzingen31,40085.79
GermanySeckenheim31,40085.79
GermanySembach41,200112.57
GermanyStuttgart40,800111.48
GermanyVilseck34,00092.90
GermanyWahn42,000114.75
GermanyWiesbaden44,800122.40
GermanyZweibrueken41,200112.57
GermanyAllcities other than Augsburg, Babenhausen, Bad
Aibling, Bad Kreuznach, Bad Nauheim, Baumholder,
Berchtesgaden, Berlin, Birkenfeld, Boeblingen, Bonn,
Bremen, Bremerhaven, Butzbach, Cologne,
Darmstadt, Delmenhorst, Duesseldorf, Erlangen,
Flensburg, Frankfurt am Main, Friedberg, Fuerth,
Garlstedt, Garmisch-Partenkirchen, Geilenkirchen,
Gelnhausen, Germersheim, Giebelstadt, Grafenwoehr,
Grefrath, Greven, Gruenstadt, Hamburg, Hanau,
Handorf, Hannover, Heidelberg, Heilbronn, Herongen,
Idar-Oberstein, Ingolstadt, Kaiserslautern, Landkreis,
Kalkar, Karlsruhe, Kerpen, Kitzingen, Koblenz,
Leimen, Leipzig, Ludwigsburg, Mainz, Mannheim,
Mayen, Moenchen-Gladbach, Muenster, Munich,
Nellingen, Neubruecke, Noervenich, Nuernberg, Ober
Ramstadt, Oberammergau, Osterholz-Scharmbeck,
Pirmasens, Rheinau, Rheinberg, Schwabach,
Schwetzingen, Seckenheim, Sembach, Stuttgart,
Twisteden, Vilseck, Wahn, Wertheim, Wiesbaden,
Worms, Wuerzburg, Zirndorf and Zweibrueken
33,00090.16
Bulletin No. 2016–12March 21, 2016
467

CountryLocation
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
GhanaAccra36,00098.36
GreeceAthens33,60091.80
GreeceElefsis33,60091.80
GreeceEllinikon33,60091.80
GreeceMt. Parnis33,60091.80
GreeceMt. Pateras33,60091.80
GreeceNea Makri33,60091.80
GreecePiraeus33,60091.80
GreeceTanagra33,60091.80
GuatemalaGuatemala City41,800114.21
GuineaConakry51,300140.16
GuyanaGeorgetown35,00095.63
Holy See, TheHoly See, The45,700124.86
HungaryBudapest32,50088.80
HungaryPapá44,500121.58
IndiaMumbai67,920185.57
IndiaNew Delhi56,124153.34
IndonesiaJakarta37,776103.21
IrelandDublin39,700108.47
IrelandShannon Area31,40085.79
IsraelTel Aviv50,800138.80
ItalyGenoa41,800114.21
ItalyGioia Tauro31,20085.25
ItalyLa Spezia40,400110.38
ItalyMilan68,300186.61
ItalyNaples43,400118.58
ItalyParma34,70094.81
ItalyPordenone-Aviano39,600108.20
ItalyRome52,100142.35
ItalyTurin34,20093.44
ItalyVicenza35,90098.09
JamaicaKingston41,200112.57
JapanAtsugi36,30099.18
JapanCamp Zama36,30099.18
JapanChiba-Ken36,30099.18
JapanFussa36,30099.18
JapanGifu74,300203.01
JapanHaneda36,30099.18
JapanKanagawa-Ken36,30099.18
JapanKomaki74,300203.01
JapanMachidi-Shi36,30099.18
JapanNagoya74,300203.01
JapanOkinawa Prefecture50,400137.70
JapanOsaka-Kobe90,664247.72
JapanSagamihara36,30099.18
March 21, 2016Bulletin No. 2016–12
468

CountryLocation
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
JapanSaitama-Ken36,30099.18
JapanSasebo30,40083.06
JapanTachikawa36,30099.18
JapanTokyo81,300222.13
JapanTokyo-to36,30099.18
JapanYokohama44,600121.86
JapanYokosuka41,700113.93
JapanYokota34,60094.54
KazakhstanAlmaty48,000131.15
KoreaCamp Colbern54,200148.09
KoreaCamp Market54,200148.09
KoreaCamp Mercer54,200148.09
KoreaK–1654,200148.09
KoreaKimpo Airfield54,200148.09
KoreaMunsan31,30085.52
KoreaOsan AB33,80092.35
KoreaPyongtaek38,500105.19
KoreaSeoul54,200148.09
KoreaSuwon54,200148.09
KoreaTaegu31,40085.79
KoreaTongduchon35,20096.17
KuwaitKuwait City64,400175.96
KuwaitAll cities other than Kuwait City57,700157.65
LuxembourgLuxembourg37,400102.19
MacedoniaSkopje35,40096.72
MalaysiaKuala Lumpur46,200126.23
MalaysiaAll cities other than Kuala Lumpur33,70092.08
MaltaMalta55,100150.55
MexicoMazatlan31,00084.70
MexicoMerida37,900103.55
MexicoMexico City47,900130.87
MexicoMonterrey33,20090.71
MexicoAll cities other than Ciudad Juarez, Cuernavaca,
Guadalajara, Hermosillo, Matamoros, Mazatlan,
Merida, Metapa, Mexico City, Monterrey,
Nogales, Nuevo Laredo, Reynosa, Tapachula,
Tijuana, Tuxtla Gutierrez, and Veracruz
39,400107.65
MozambiqueMaputo39,500107.92
NamibiaWindhoek32,10087.70
NetherlandsAmsterdam52,900144.54
NetherlandsAruba36,00098.36
NetherlandsBrunssum32,70089.34
NetherlandsEygelshoven32,70089.34
NetherlandsHague, The62,200169.95
NetherlandsHeerlen32,70089.34
NetherlandsHoensbroek32,70089.34
Bulletin No. 2016–12March 21, 2016
469

CountryLocation
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
NetherlandsHulsberg32,70089.34
NetherlandsKerkrade32,70089.34
NetherlandsLandgraaf32,70089.34
NetherlandsMaastricht32,70089.34
NetherlandsPapendrecht32,80089.62
NetherlandsRotterdam32,80089.62
NetherlandsSchaesburg32,70089.34
NetherlandsSchinnen32,70089.34
NetherlandsSchiphol52,900144.54
NetherlandsYpenburg54,500148.91
NetherlandsAll cities other than Amsterdam, Aruba,
Brunssum, Coevorden, Eygelshoven, The Hague,
Heerlen, Hoensbroek, Hulsberg, Kerkrade,
Landgraaf, Maastricht, Margraten, Papendrecht,
Rotterdam, Schaesburg, Schinnen, Schiphol, and
Ypenburg.
32,40088.52
Netherlands AntillesCuracao45,800125.14
New ZealandAuckland35,70097.54
New ZealandChristchurch32,10087.70
New ZealandWellington33,80092.35
NicaraguaManagua31,80086.89
NigeriaAbuja36,00098.36
NorwayOslo34,40093.99
OmanMuscat41,300112.84
PanamaPanama City35,50096.99
ParaguayAsuncion31,10084.97
PeruLima39,100106.83
PhilippinesCavite35,70097.54
PhilippinesManila35,70097.54
PortugalAlverca41,800114.21
PortugalLisbon41,800114.21
QatarDoha42,744116.79
QatarAll cities other than Doha32,40088.52
RussiaMoscow108,000295.08
RussiaSaint Petersburg60,000163.93
RussiaSakhalin Island77,500211.75
RussiaVladivostok77,500211.75
RussiaYekaterinburg47,400129.51
RwandaKigali31,50086.07
Saudi ArabiaJeddah30,66783.79
Saudi ArabiaRiyadh40,000109.29
SingaporeSingapore77,100210.66
SloveniaLjubljana48,000131.15
South AfricaPretoria39,300107.38
SpainBarcelona40,600110.93
SpainMadrid55,700152.19
March 21, 2016Bulletin No. 2016–12
470

CountryLocation
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
SpainRota34,00092.90
SpainValencia32,00087.43
SurinameParamaribo33,00090.16
SwitzerlandBern64,900177.32
SwitzerlandGeneva93,300254.92
SwitzerlandZurich39,219107.16
SwitzerlandAll cities other than Bern, Geneva and Zurich32,90089.89
TaiwanTaipei46,188126.20
TanzaniaDar Es Salaam44,000120.22
ThailandBangkok59,000161.20
Trinidad and TobagoPort of Spain54,500148.91
TurkeyIzmir-Cigli31,60086.34
TurkeyYamanlar31,60086.34
UkraineKiev72,000196.72
United Arab EmiratesAbu Dhabi49,687135.76
United Arab EmiratesDubai57,174156.21
United KingdomBasingstoke41,099112.29
United KingdomBath41,000112.02
United KingdomBracknell62,100169.67
United KingdomBristol37,400102.19
United KingdomBrookwood40,900111.75
United KingdomCambridge40,700111.20
United KingdomCaversham73,800201.64
United KingdomCheltenham49,600135.52
United KingdomCroughton41,700113.93
United KingdomFairford40,500110.66
United KingdomFarnborough54,700149.45
United KingdomFelixstowe39,300107.38
United KingdomGibraltar44,616121.90
United KingdomHarrogate43,900119.95
United KingdomHigh Wycombe62,100169.67
United KingdomHuntingdon40,900111.75
United KingdomKemble40,500110.66
United KingdomLakenheath52,400143.17
United KingdomLiverpool36,800100.55
United KingdomLondon82,000224.04
United KingdomLoudwater64,600176.50
United KingdomMenwith Hill43,900119.95
United KingdomMildenhall52,400143.17
United KingdomOxfordshire41,200112.57
United KingdomPlymouth41,200112.57
United KingdomPortsmouth41,200112.57
United KingdomReading62,100169.67
United KingdomRochester42,300115.57
United KingdomSamlesbury40,900111.75
Bulletin No. 2016–12March 21, 2016
471

CountryLocation
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
United KingdomSouthampton44,200120.77
United KingdomSurrey48,402132.25
United KingdomWaterbeach42,100115.03
United KingdomWiltshire39,100106.83
United KingdomAll cities other than Basingstoke, Bath, Belfast,
Birmingham, Bracknell, Bristol, Brookwood,
Brough, Cambridge, Caversham, Chelmsford,
Cheltenham, Chicksands, Croughton, Dunstable,
Edinburgh, Edzell, Fairford, Farnborough,
Felixstowe, Ft. Halstead, Gibraltar, Glenrothes,
Greenham Common, Harrogate, High Wycombe,
Huntingdon, Hythe, Kemble, Lakenheath,
Liverpool, London, Loudwater, Menwith Hill,
Mildenhall, Nottingham, Oxfordshire, Plymouth,
Portsmouth, Reading, Rochester, Samlesbury,
Southampton, Surrey, Waterbeach, Welford,
West Byfleet, and Wiltshire.
40,900111.75
VenezuelaCaracas57,000155.74
VietnamHanoi46,800127.87
VietnamHo Chi Minh City42,000114.75
SECTION 4. ELECTION TO APPLY
2016 ADJUSTED LIMITATIONS TO
2015 TAXABLE YEAR
For some locations, the limitation on
housing expenses provided in section 3 of
this notice may be higher than the limita-
tion on housing expenses provided in the
“Table of Adjusted Limitations for 2015”
in Notice 2015–33. A qualified individual
incurring housing expenses in such a lo-
cation during 2015 may apply the adjusted
limitation on housing expenses provided
in section 3 of this notice for 2015 in lieu
of the amounts provided in the “Table of
Adjusted Limitations for 2015” in Notice
2015–33 (and as set forth in the Instruc-
tions to Form 2555 (2015)).
The Treasury Department and the IRS
anticipate that future annual notices pro-
viding adjustments to housing expense
limitations will make a similar election
available to qualified individuals that in-
cur housing expenses in the immediately
preceding year. For example, when ad-
justed housing expense limitations for
2017 are issued, it is expected that taxpay-
ers will be permitted to apply those ad-
justed limitations to the 2016 taxable year.
EFFECT ON OTHER DOCUMENTS
This notice supersedes Notice 2006–87,
2006–2 C.B. 766; Notice 2007–25,
2007–1 C.B. 760; Notice 2007–77,
2007–2 C.B. 735; Notice 2008–107,
2008–2 C.B. 1266; Notice 2010–27,
2010–15 I.R.B. 531; Notice 2011–8,
2011–8 I.R.B. 503; Notice 2012–19,
2012–10 I.R.B. 440; Notice 2013–31,
2013–21 I.R.B. 1099; Notice 2014–29,
2014–18 I.R.B. 991; and Notice 2015–33,
2015–18 I.R.B. 934.
EFFECTIVE DATE
This notice is effective for taxable
years beginning on or after January 1,
2016. However, as provided in section 4,
a taxpayer may elect to apply the 2016
adjusted housing limitations contained in
section 3 of this notice to his or her tax-
able year beginning in 2015.
DRAFTING INFORMATION
The principal author of this notice is
Joseph W. Vetting of the Office of Asso-
ciate Chief Counsel (International). For
further information regarding this notice
contact Mr. Vetting at (202) 317-4960
(not a toll-free number).
March 21, 2016Bulletin No. 2016–12
472

Part IV. Items of General Interest
Consistent Basis Reporting
Between Estate and Person
Acquiring Property From
Decedent
REG–127923–15
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing, and notice of proposed rulemaking by
cross-reference to temporary regulations.
SUMMARY: This document contains
proposed regulations that provide guid-
ance regarding the requirement that a re-
cipient’s basis in certain property acquired
from a decedent be consistent with the
value of the property as finally determined
for Federal estate tax purposes. In addi-
tion, these proposed regulations provide
guidance on the reporting requirements
for executors or other persons required to
file Federal estate tax returns. Temporary
regulations in the Rules and Regulations
section of this issue of theBulletinpro-
vide transition relief to executors and
other persons required to file or furnish
certain statements. The text of those tem-
porary regulations (TD 9757) published in
the Rules and Regulations section of this
issue of theBulletinalso serves as the text
of the proposed regulations regarding the
transition relief. These proposed regula-
tions as well as TD 9757 published else-
where in the Rules and Regulations sec-
tion of this issue of thisBulletinaffect
executors or other persons who file estate
tax returns after July 31, 2015. The pro-
posed regulations also affect beneficiaries
who acquire certain property from these
estates, and subsequent transferees to
whom beneficiaries transfer the property
in transactions that do not result in the
recognition of gain or loss for Federal
income tax purposes.
DATES: Written or electronic comments
and requests for a public hearing must be
received by June 2, 2016.
ADDRESSES: Send submissions to: CC:
PA:LPD:PR (REG–127923–15), Internal
Revenue Service, Room 5203, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand de-
livered Monday through Friday between
the hours of 8 a.m. and 4 p.m. to CC:PA:
LPD:PR (REG–127923–15), Courier’s
Desk, Internal Revenue Service, 1111
Constitution Avenue NW, Washington,
DC 20224; or sent electronically via the
Federal eRulemaking Portal athttp://www.
regulations.gov(IRS-REG–127923–15).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Theresa M. Melchiorre, at
(202) 317-6859; concerning submissions
of comments or, to request a hearing, Re-
gina Johnson, at (202) 317-6901 (not toll-
free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d). Com-
ments on the collection of information
should be sent to the Office of Manage-
ment and Budget, Attn: Desk Officer for
the Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to the
Internal Revenue Service, Attn: IRS Re-
ports Clearance Officer, SE:W:CAR:MP:
T:T:SP, Washington, DC 20224. Com-
ments on the collection of information
should be received by May 3, 2016.
Comments are specifically requested
concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service (IRS), including whether
the information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide informa-
tion.
The reporting requirements in these
proposed regulations are in § 1.6035–1(a)
and (d) and require executors and other
persons required to file a return under
section 6018 to furnish a statement to the
IRS and to each beneficiary providing in-
formation regarding the value of the prop-
erty the beneficiary acquires from the de-
cedent. The IRS will use this information
to determine whether the beneficiary (or
transferee) reports a basis for that property
that is consistent with the value of that
property as finally determined for Federal
estate tax purposes when the beneficiary
(or transferee) depreciates the property, or
sells, exchanges, or otherwise disposes of
some or all of that property in transactions
that result in the recognition of gain or
loss for Federal income tax purposes.
The collection of information may vary
depending on the property includible in
the gross estate and the number of bene-
ficiaries receiving the property. The fol-
lowing estimates are based on the infor-
mation that is available to the IRS. A
respondent may require more or less time,
depending on the circumstances.
Estimated total annual reporting bur-
den. The estimated total annual reporting
burden per respondent is 5.31 hours.
Estimated annual number of respon-
dents. The estimated annual number of
respondents is 10,000.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less it displays a valid control number
assigned by the Office of Management
and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Bulletin No. 2016–12March 21, 2016
473

Background
1.Overview.
On July 31, 2015, the President of the
United States signed into law H.R. 3236,
theSurface Transportation and Veterans
Health Care Choice Improvement Act of
2015, Public Law 114–41, 129 Stat. 443
(Act). Section 2004 of the Act enacted sec-
tions 1014(f), 6035, 6662(b)(8), 6662(k),
6724(d)(1)(D), and6724(d)(2)(II) of the
Internal Revenue Code (Code). This doc-
ument contains proposed regulations that
amend 26 CFR parts 1 and 301 under
those Code provisions to achieve consis-
tency between a recipient’s basis in cer-
tain property acquired from a decedent
and the value of the property as finally
determined for Federal estate tax pur-
poses. This notice of proposed rulemaking
also cross-references to temporary regula-
tions (TD 9757) published in the Rules
and Regulations section of this issue of
theBulletin, which provide transition re-
lief to certain persons required to file or
furnish statements under section 6035.
This document also proposes to remove
from 26 CFR part 1 regulations under
former section 6035 as a result of the
repeal of that Code provision in 2004.
2.Summary of new statutory framework.
A.Section 1014(f).
Section 1014(f) imposes an obligation
of consistency between the basis of cer-
tain inherited property and the value of
that property for Federal estate tax pur-
poses.
Section 1014(f)(1) provides that the
basis of property acquired from a dece-
dent cannot exceed that property’s final
value for purposes of the Federal estate
tax imposed on the estate of the decedent,
or, if the final value has not been deter-
mined, the value reported on a statement
required by section 6035(a).
Section 1014(f)(2) provides that sec-
tion 1014(f)(1) only applies to property
the inclusion of which in the decedent’s
gross estate increased the estate’s liability
for the Federal estate tax (reduced by
credits allowable against the tax).
Section 1014(f)(3) provides that, for
purposes of section 1014(f)(1), the basis
of property has been determined for Fed-
eral estate tax purposes if (A) the value of
the property is shown on a return under
section 6018 and that value is not con-
tested by the Secretary before the expira-
tion of the time for assessing the estate
tax; (B) in a case not described in (A), the
value is specified by the Secretary and that
value is not timely contested by the exec-
utor of the estate; or (C) the value is
determined by a court or pursuant to a
settlement agreement with the Secretary.
B.Section 6035.
Section 6035 requires the reporting,
both to the IRS and the beneficiary, of the
value of property included on a required
Federal estate tax return.
Section 6035(a)(1) provides that the
executor of any estate required to file a
return under section 6018(a) must furnish,
both to the Secretary and to the person
acquiring any interest in property included
in the estate, a statement identifying the
value of each interest in the property as
reported on the return and any other in-
formation as the Secretary may prescribe.
Section 6035(a)(2) provides that each
person required to file a return under sec-
tion 6018(b) must furnish to the Secretary
and to each other person who holds a legal
or beneficial interest in the property to
which the return relates a statement iden-
tifying the information described in sec-
tion 6035(a)(1).
Section 6035(a)(3)(A) provides that
this statement is due no later than the
earlier of (i) 30 days after the due date of
the return under section 6018 (including
extensions, if any) or (ii) 30 days after the
date the return is filed. If there is an ad-
justment to the information required to be
included on this statement, section
6035(a)(3)(B) requires the executor (or
other person required to file the statement)
to provide a supplemental statement to the
Secretary and to each affected beneficiary
no later than 30 days after the adjustment
is made.
Section 6035(b) authorizes the Secre-
tary to prescribe regulations to carry out
section 6035, including regulations relat-
ing to (1) the application of this section to
property to which no Federal estate tax
return is required to be filed, and (2) sit-
uations in which the surviving joint tenant
or other recipient may have better infor-
mation than the executor regarding the
basis or fair market value of the property.
C.Penalties under sections 6662, 6721,
and 6722.
Section 2004(c) of the Act added a new
accuracy-related penalty for underpay-
ments attributable to an inconsistent estate
basis. See section 6662(b)(8).
Section 6662(k) provides that there is
an inconsistent estate basis if the basis of
property claimed on a return exceeds the
basis as determined under section 1014(f).
Section 2004(c) of the Act adds state-
ments under section 6035 to the list of
information returns and payee statements
subject to the penalties under section 6721
and section 6722, respectively. Specifi-
cally, the Act adds new paragraph (D) to
section 6724(d)(1) to provide that the term
information returnmeans any statement
required to be filed with the Secretary
under section 6035. The Act also adds
new paragraph (II) to section 6724(d)(2)
to provide that the termpayee statement
means any statement required to be fur-
nished under section 6035 (other than a
statement described in section
6724(d)(1)(D)).
3.Notice 2015–57.
On August 21, 2015, the Treasury De-
partment and the IRS issued Notice 2015–
57, 2015–36 IRB 294. That notice delayed
until February 29, 2016, the due date for
any statements required under section
6035(a)(3)(A) to be provided before Feb-
ruary 29, 2016. The notice also stated that
the Treasury Department and the IRS ex-
pect to issue additional guidance to assist
taxpayers in complying with sections
1014(f) and 6035 and invited comments.
The Treasury Department and the IRS re-
ceived numerous comments in response to
the notice and considered all comments in
the drafting of the proposed regulations.
The comments are discussed in more de-
tail in this preamble.
4.Notice 2016–19.
On February 11, 2016, the Treasury
Department and the IRS issued Notice
2016–19, 2016–09 IRB 362. That notice
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474

provides that executors or other persons
required to file or furnish a statement un-
der section 6035(a)(1) or (a)(2) before
March 31, 2016, need not do so until
March 31, 2016.
Summary of Comments on Notice
2015–57 and Explanation of
Provisions
1.Section 1014(f)(1) – Consistency of
basis with estate tax return.
The general rule of section 1014 is that
the basis of property received from a de-
cedent (or as a result of a decedent’s
death) is that property’s fair market value
on the decedent’s date of death (or the
alternate valuation date, if elected). Newly
enacted section 1014(f)(1) provides that
the basis of certain property acquired from
a decedent cannot exceed that property’s
final value as determined for Federal es-
tate tax purposes. If no final value has
been determined when the taxpayer’s ba-
sis in the property becomes relevant for
Federal tax purposes, for example, to cal-
culate depreciation or amortization, or to
calculate gain or loss on the sale, ex-
change or disposition of the property, the
taxpayer uses the value reported on the
statement required by section 6035(a) (the
fair market value reported on the Federal
estate tax return) to determine the taxpay-
er’s basis for Federal tax purposes.
Proposed § 1.1014–10(a)(1) provides
that a taxpayer’s initial basis in certain
property acquired from a decedent may
not exceed thefinal valueof the property
as that term is defined in § 1.1014–10(c).
This limitation applies to the property
whenever the taxpayer reports to the IRS a
taxable event with respect to the property
(for example, depreciation or amortiza-
tion) and continues to apply until the
property is sold, exchanged, or otherwise
disposed of in one or more transactions
that result in the recognition of gain or
loss for Federal income tax purposes. The
property for this purpose includes any
other property the basis of which is de-
termined in whole or in part by refer-
ence to the basis of the property ac-
quired from the estate or as a result of
the death of the decedent (for example
as the result of a like-kind exchange or
involuntary conversion).
2.Effect of other provisions of the Code
that govern basis.
Section 6662(b)(8) imposes an
accuracy-related penalty on the portion of
any underpayment of tax required to be
shown on a return that is attributable to an
inconsistent estate basis. Under newly en-
acted section 6662(k), an inconsistent es-
tate basis arises if the basis of property
claimed on a return exceeds its final value
as determined under section 1014(f).
Commenters have expressed concern
that section 1014(f) and section 6662(k)
appear to prohibit otherwise permissible
adjustments to the basis of property as a
result of post-death events. In response, pro-
posed §§ 1.1014–10(a)(2) and 1.6662–8(b)
clarify that sections 1014(f) and 6662(k)
do not prohibit adjustments to the basis of
property as a result of post-death events
that are allowed under other sections of
the Code, and provide that such basis ad-
justments will not cause a taxpayer to
violate the provisions of section 1014(f)
or section 6662(k) on the date of sale,
exchange, or disposition. The proposed
regulations interpret sections 1014(f) and
6662(k) to require only that the beneficia-
ry’s initial basis of the inherited property
cannot exceed the final value of the prop-
erty for Federal estate tax purposes. Ad-
justments to the basis of the inherited
property permitted by other sections of the
Code as a result of post-death events (for
example, depreciation or amortization, or
a sale, exchange, or disposition of the
property) will not cause the taxpayer’s
basis in the property on the date of a
taxable event with respect to the property
to be treated as exceeding the final value
of the property. As a result, there cannot
be an underpayment attributable to an in-
consistent estate basis arising from these
basis adjustments, and the accuracy-
related penalty under section 6662(b)(8)
cannot apply solely as a result of these
basis adjustments.
3.Section 1014(f)(2) – Property that
increases estate tax liability.
The consistent basis requirement of
section 1014(f)(1) applies only to property
the inclusion of which in the decedent’s
gross estate for Federal estate tax pur-
poses increases the Federal estate tax lia-
bility payable by the decedent’s estate.
Proposed § 1.1014–10(b) defines this
property as property includible in the
gross estate under section 2031, as well as
property subject to tax under section 2106,
that generates a Federal estate tax liability
in excess of allowable credits. The pro-
posed regulations specifically exclude all
property reported on a Federal estate tax
return required to be filed by section 6018
if no Federal estate tax is imposed upon
the estate due to allowable credits (other
than a credit for a prepayment of that tax).
In cases where Federal estate tax is im-
posed on the estate, the proposed regula-
tions exclude property that qualifies for a
charitable or marital deduction under sec-
tion 2055, 2056, or 2056A because this
property does not increase the Federal es-
tate tax liability. In addition, the proposed
regulations exclude any tangible personal
property for which an appraisal is not re-
quired under § 20.2031–6(b) (relating to
the valuation of certain household and
personal effects) because of its value.
Thus, if any Federal estate tax liability is
incurred, all of the property in the gross
estate (other than that described in the
preceding two sentences) is deemed to
increase the Federal estate tax liability and
is subject to the consistency requirement
of section 1014(f).
4.Section 1014(f)(3) – Final value of
property acquired from a decedent.
Section 1014(f)(3) provides that, for
purposes of section 1014(f)(1), thefinal
valueof property has been determined for
Federal estate tax purposes if: (A) the
value is reported on a Federal estate tax
return filed with the IRS and is not con-
tested by the IRS before the period of
limitation on assessment expires; (B) the
value is specified by the IRS and is not
timely contested by the executor of the
estate; or (C) the value is determined by a
court or pursuant to a settlement agree-
ment with the IRS.
Proposed § 1.1014–10(c)(1) defines
thefinal valueof property that is reported
on a Federal estate tax return filed with the
IRS. That value is the value reported on
the Federal estate tax return once the pe-
riod of limitations on assessment for ad-
justing or contesting that value has ex-
pired. The IRS may specify a value for the
Bulletin No. 2016–12March 21, 2016
475

property by determining a value in the
course of carrying out its responsibilities
under section 7803(a)(2). If the IRS deter-
mines a value different from the value
reported, the final value is the value de-
termined by the IRS once that value can
no longer be contested by the estate. If the
value determined or specified by the IRS
is timely contested by the estate, the final
value is the value determined in an agree-
ment that is binding on all parties, or the
value determined by a court once the
court’s determination is final.
Proposed § 1.1014–10(c)(2) provides
that the recipient of property to which the
consistency requirement applies may not
claim a basis in excess of the value re-
ported on the statement required to be
furnished under section 6035(a) (the value
shown on the Federal estate tax return) if
the taxpayer’s basis in the property is rel-
evant for any purpose under the Internal
Revenue Code before the final value of
that property has been determined under
proposed § 1.1014–10(c)(1). However,
under section 1014(f)(1), basis cannot ex-
ceed the property’s final value. Therefore,
proposed § 1.1014–10(c)(2) provides that,
if the final value is determined before the
period of limitation on assessment expires
for any Federal income tax return of the
recipient on which the taxpayer’s basis is
relevant and the final value differs from
the initial basis claimed with respect to
that return, a deficiency and an underpay-
ment may result.
5.After-discovered or omitted property.
Commenters requested that the regula-
tions clarify how the consistent basis re-
quirement applies to property that is dis-
covered after the filing of the Federal
estate tax return or is otherwise omitted
from that return. If this property would
have generated a Federal estate tax liabil-
ity if it had been reported on the Federal
estate tax return that was filed with IRS,
proposed § 1.1014–10(c)(3)(i) provides
two different results based upon whether
the period of limitation on assessment
has expired for the Federal estate tax
imposed on the estate. Proposed
§ 1.1014–10(c)(3)(i)(A) provides that, if
the executor reports the after-discovered
or omitted property on an estate tax return
filed before the expiration of the period of
limitation on assessment of the estate tax,
the final value of the property is deter-
mined under proposed § 1.1014–10(c)(1)
or (2). Alternatively, proposed § 1.1014–
10(c)(3)(i)(B) provides that, if the after-
discovered or omitted property is not re-
ported before the period of limitation on
assessment expires, the final value of the
after-discovered or omitted property is
zero.
Finally, to address situations in which
no Federal estate tax return was filed, pro-
posed § 1.1014–10(c)(3)(ii) provides that
the final value of all property includible in
the gross estate subject to the consistent
basis requirement is zero until the final
value is determined under proposed
§ 1.1014–10(c)(1) or (2).
6.Definition of executor for purposes of
sections 1014(f) and 6035.
The proposed regulations adopt the
definition of the termexecutorfound in
section 2203 applicable for Federal estate
tax purposes and expand it to include a
person required to file a return under sec-
tion 6018(b).
7.Requirement to provide Information
Return and Statement(s) under section
6035.
The proposed regulations define the
termInformation Returnas the Form
8971, Information Regarding Beneficia-
ries Acquiring Property from a Decedent,
which includes a copy of a Schedule A
(Statement) for each person who has re-
ceived or will receive property from the
estate or by reason of the decedent’s
death.
Proposed § 1.6035–1(a)(1) provides
that an executor who is required to file a
Federal estate tax return also is required to
file an Information Return with the IRS to
report the final value of certain property,
the recipient of that property, and other
information prescribed by the Information
Return and the related instructions. The
executor also is required to furnish a
Statement to each beneficiary who has
acquired (or will acquire) property from
the decedent or by reason of the death of
the decedent to report the property the
beneficiary has acquired (or will acquire)
and the final value of that property.
8.Circumstances under which no
Information Return or Statement(s) is
required under section 6035.
Commenters expressed concern that
the section 6035 filing requirements might
extend to a return filed by an estate solely
to make the portability election under sec-
tion 2010(c)(5), or a generation-skipping
transfer tax election or exemption alloca-
tion. The proposed regulations provide
that the filing requirements of section
6035 do not apply to such returns because
these returns are not required by section
6018.
9.Property to be reported on an
Information Return and Statement(s).
Commenters requested that the regula-
tions clarify the types of property to be
reported on the Information Return and
one or more Statements. In response, pro-
posed § 1.6035–1(b) defines the property
to be reported on an Information Return
and Statement(s) as all property included
in the gross estate for Federal estate tax
purposes with four exceptions: cash (other
than coins or paper bills with numismatic
value); income in respect of a decedent;
those items of tangible personal property
for which an appraisal is not required un-
der § 20.2031–6(b); and property that is
sold or otherwise disposed of by the estate
(and therefore not distributed to a benefi-
ciary) in a transaction in which capital
gain or loss is recognized.
10.Beneficiaries.
Proposed § 1.6035–1(c)(1) provides
that each beneficiary (including a benefi-
ciary who is also the executor of the es-
tate) who receives property to be reported
on the estate’s Information Return must
receive a copy of the Statement reporting
the property distributable to that benefi-
ciary. Proposed § 1.6035–1(c)(2) provides
that, if the beneficiary is a trust, estate, or
business entity instead of an individual,
the executor is to furnish the entity’s
Statement to the trustee, executor, or to
the business entity itself, and not to the
beneficiaries of the trust or estate or to the
owners of the business entity.
Commenters requested guidance on
how to comply with the section 6035 re-
porting requirements when the executor
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476

cannot determine the exact distribution of
the estate’s property and thus the benefi-
ciary of each property by the due date of
the Information Return and the related
Statements. This situation can arise, for
example, when tangible personal property
defined in § 20.2031–6 is to be distributed
among a group of beneficiaries as that group
determines, the residuary estate is distribut-
able to multiple beneficiaries, or whenmul-
tiple residuary trusts are to be funded. In
response, proposed § 1.6035–1(c)(3) pro-
vides that, if by the due date the executor
does not yet know what property will be
used to satisfy the interest of each bene-
ficiary, the executor is required to report
on the Statement for each beneficiary all
of the property that could be used to sat-
isfy that beneficiary’s interest. This results
in the duplicate reporting of those assets
on multiple Statements, but each benefi-
ciary will have been advised of the final
value of each property that may be re-
ceived by that beneficiary and therefore
will be able to comply with the basis
consistency requirement, if applicable.
Proposed § 1.6035–1(c)(4) provides
that, if the executor is unable to locate a
beneficiary by the due date of the Infor-
mation Return, the executor is required to
report that on that Information Return and
explain the efforts taken to locate the ben-
eficiary. If the executor subsequently lo-
cates the beneficiary, the executor is re-
quired to furnish the beneficiary with a
Statement and file a supplemental Infor-
mation Return with the IRS within 30
days of locating the beneficiary. If the
executor is unable to locate a beneficiary
and distributes the property to a different
beneficiary who was not identified in the
Information Return as the recipient of that
property, the executor is required to file a
supplemental Information Return with the
IRS and furnish the successor beneficiary
with a Statement within 30 days after dis-
tributing the property.
11.Due date for Information Return and
Statements.
Proposed § 1.6035–1(d)(1) provides
that the executor is required to file the
Information Return with the IRS, and is
required to furnish each beneficiary with
that beneficiary’s Statement, on or before
the earlier of the date that is 30 days after
the due date of the Federal estate tax re-
turn (including extensions actually
granted, if any), or the date that is 30 days
after the date on which that return is filed
with the IRS. In response to comments,
proposed § 1.6035–1(d)(2) provides a
transition rule for any Federal estate tax
return that was due on or before July 31,
2015, but that is filed after July 31, 2015.
In this case, the due date of the Informa-
tion Return and all Statements is 30 days
after the date on which the return is filed.
Otherwise, as commenters noted, the due
date for the Information Return and State-
ment(s) may be prior to the effective date
of section 6035.
12.Supplemental Information Return
and Statement(s).
Proposed § 1.6035–1(e)(1) and (2)
generally requires a supplemental Infor-
mation Return and corresponding supple-
mental Statement(s) upon a change to the
information required to be reported on the
Information Return or a Statement that
causes the information as reported to be
incorrect or incomplete. Such changes in-
clude, for example, the discovery of prop-
erty that should have been, but was not,
reported on the Federal estate tax return, a
change in the value of property pursuant
to an examination or litigation, or (except
as provided by proposed § 1.6035–
1(e)(3)(B)) a change in the identity of the
beneficiary to whom the property is to be
distributed (for example, pursuant to a
death, disclaimer, bankruptcy, or other-
wise).
Proposed § 1.6035–1(e)(3) provides
that a supplemental Information Return
and Statement(s) may be filed, but they
are not required, to correct an inconse-
quential error or omission within the
meaning of § 301.6722–1(b) or to spec-
ify the actual distribution of assets pre-
viously reported as being available to
satisfy the interests of multiple benefi-
ciaries in the situation described in pro-
posed § 1.6035–1(c)(3).
Proposed § 1.6035–1(e)(4) provides
that the due date for the supplemental
Information Return and each supplemen-
tal Statement is 30 days after: (i) the final
value (within the meaning of proposed
§ 1.1014–10(c)(1)) of property is deter-
mined; (ii) the executor discovers that the
information reported on the Information
Return or Statement is otherwise incorrect
or incomplete; or (iii) a supplemental Fed-
eral estate tax return is filed. However, at
the suggestion of a commenter, if these
events occur prior to the distribution to the
beneficiary of probate property or of the
property of a revocable trust, a supple-
mental Information Return or Statement is
not due until 30 days after the property is
distributed. This is likely to be approxi-
mately the same time when the executor
would provide the beneficiary with infor-
mation as to changes, if any, to the basis
of the property that have occurred since
the decedent’s death and prior to the dis-
tribution. Because that basis adjustment
information is not part of what is required
to be reported under section 6035, how-
ever, if the executor chooses to provide
that basis adjustment information on the
Schedule A provided to the beneficiary,
the basis adjustment information must be
shown separately from the final value re-
quired to be reported on the beneficiary’s
Statement.
13.Subsequent transfers.
As discussed earlier in this preamble,
section 6035(a)(2) imposes a reporting re-
quirement on the executor of the dece-
dent’s estate and on any other person re-
quired to file a return under section 6018.
The purpose of this reporting is to enable
the IRS to monitor whether the basis
claimed by an owner of the property is
properly based on the final value of that
property for estate tax purposes. The Trea-
sury Department and the IRS are con-
cerned, however, that opportunities may
exist in some circumstances for the recip-
ient of such reporting to circumvent the
purpose of the statute (for example, by
making a gift of the property to a complex
trust for the benefit of the transferor’s
family).
Accordingly, pursuant to the regulatory
authority granted in section 6035(b)(2), the
proposed regulations require additional in-
formation reporting by certain subsequent
transferors in limited circumstances. Specif-
ically, proposed § 1.6035–1(f)provides
that, with regard to property that previ-
ously was reported or is required to be
reported on a Statement furnished to a
recipient, when the recipient distributes or
Bulletin No. 2016–12March 21, 2016
477

transfers (by gift or otherwise) all or any
portion of that property to a related trans-
feree, whether directly or indirectly, in a
transaction in which the transferee’s basis
for Federal income tax purposes is deter-
mined in whole or in part with reference
to the transferor’s basis, the transferor is
required to file and furnish with the IRS
and the transferee, respectively, a supple-
mental Statement documenting the new
ownership of this property. This pro-
posed reporting requirement is imposed
on each such recipient of the property.
For purposes of this provision, a related
transferee means any member of the
transferor’s family as defined in section
2704(c)(2), any controlled entity (a cor-
poration or any other entity in which the
transferor and members of the transfer-
or’s family, whether directly or indi-
rectly, have control within the meaning
of section 2701(b)(2)(A) or (B)), and
any trust of which the transferor is a
deemed owner for income tax purposes.
In the event such transfer occurs before
a final value is determined within the
meaning of proposed § 1.1014–10(c), the
transferor must provide the executor with
a copy of the supplemental Statement filed
with the IRS and furnished to the trans-
feree reporting the new ownership of the
property. When a final value is deter-
mined, the executor will then provide a
supplemental Statement to the new trans-
feree instead of to the transferor. The sup-
plemental Statements are due no later than
30 days after the transferor distributes or
transfers all or a portion of the property to
the transferee.
14.Surviving joint tenants or other
recipients under section 6035(b)(2).
Section 6035(b)(2) authorizes the IRS
to prescribe regulations relating to situa-
tions in which the surviving joint tenant or
other recipient may have better informa-
tion than the executor regarding the basis
or fair market value of the property re-
ceived by reason of the decedent’s death.
Section 6018(b) addresses these situa-
tions. Section 6018(b) generally requires
that, if the executor is unable to make a
complete return as to any part of the gross
estate of the decedent, the executor must
include on the return a description of that
part of the gross estate and the name of
every person holding a legal or beneficial
interest in it. Upon notice from the Secre-
tary, any such person must in like manner
make a return as to this part of the gross
estate. Section 6035(a)(2) and these pro-
posed regulations require a person re-
quired to file a return under section
6018(b) to file an Information Return with
the IRS and to furnish the Statement(s) to
each beneficiary of that property. There-
fore, the Treasury Department and the IRS
have determined that no additional regu-
lations applicable only to surviving joint
tenants or other recipients are necessary
for this purpose.
15.Removal of regulations under former
Section 6035
TheAmerican Jobs Creation Act of
2004(Public Law 108–357, 118 Stat.
1418) (Jobs Act) repealed former section
6035, effective for taxable years of for-
eign corporations beginning after Decem-
ber 31, 2004, and for taxable years of
United States shareholders with or within
which the tax years of foreign corpora-
tions end. Prior to repeal, former section
6035 set forth information reporting re-
quirements for certain United States per-
sons that were officers, directors, or 10-
percent shareholders of a foreign personal
holding company. Section 1.6035–1 (TD
8573), § 301.6035–1 (TD 6498),
§ 1.6035–2 (TD 8028), and § 1.6035–3
(TD 8028) (collectively, the FPHC regu-
lations) provide guidance on the informa-
tion reporting required under former sec-
tion 6035, as in effect prior to amendment
by theTax Equity and Fiscal Responsibil-
ity Act of 1982(Public Law 97–248, 96
Stat. 328), and prior to its repeal by the
Jobs Act.
This document proposes to withdraw
the FPHC regulations. However, the
FPHC regulations referenced above con-
tained in 26 CFR parts 1 and 301, revised
as of April 1, 2015, continue to apply for
taxable years of foreign corporations be-
ginning on or before December 31, 2004,
and for taxable years of United States
shareholders in which former section
6035 applies with or within which the tax
years of foreign corporations end.
16.Request for new process.
One commenter requested the creation
of a process to allow an estate beneficiary
to challenge the value reported by the
executor. There is no such process under
the Federal law regarding returns de-
scribed in section 6018. The beneficiary’s
rights with regard to the estate tax valua-
tion of property are governed by applica-
ble state law. Accordingly, the proposed
regulations do not create a new Federal
process for challenging the value reported
by the executor.
Proposed Effective/Applicability Date
Upon the publication of the Treasury
Decision adopting these rules as final in
theFederal Register, these proposed reg-
ulations will apply to property acquired
from a decedent or by reason of the death
of a decedent whose return required by
section 6018 is filed after July 31, 2015.
Persons may rely upon these rules before
the date of publication of the Treasury
Decision adopting these rules as final in
theFederal Register.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings notices, notices and other guid-
ance cited in this preamble 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
athttp://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 is hereby certified that
the collection of information in these reg-
ulations will not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that this rule primarily affects
individuals (or their estates) and trusts,
which are not small entities as defined by
the Regulatory Flexibility Act (5 U.S.C.
601). Although it is anticipated that there
March 21, 2016Bulletin No. 2016–12
478

may be an incremental economic impact
on executors that are small entities, in-
cluding entities that provide tax and legal
services that assist individuals in prepar-
ing tax returns, any impact would not be
significant and would not affect a substan-
tial number of small entities. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the notice of
proposed rulemaking will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to the
IRS. Comments are requested on all as-
pects of the proposed rules. All comments
will be available for public inspection and
copying. A public hearing may be sched-
uled if requested in writing by any person
that timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the hearing will
be published in theFederal Register.
Drafting Information
The principal author of these proposed
regulations is Theresa M. Melchiorre, Of-
fice of Associate Chief Counsel (Pass-
throughs and Special Industries). Other
personnel from the Treasury Department
and the IRS participated in their develop-
ment.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are proposed to be amended as follows:
PART 1 – INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805***
Section 1.1014–10 also issued under
26 U.S.C. 1014(f).
Section 1.6035–1 also issued under 26.
U.S.C. 6035(a).
Section 1.6035–2 also issued under 26.
U.S.C. 6035(a).
Par. 2. Section 1.1014–10 is added to
read as follows:
§ 1.1014–10 Basis of property acquired
from a decedent must be consistent with
Federal estate tax return.
(a)Consistent basis requirement—(1)
In general. The taxpayer’s initial basis in
property described in paragraph (b) of this
section may not exceed the property’s fi-
nal value within the meaning of paragraph
(c) of this section. This requirement ap-
plies whenever the taxpayer reports a tax-
able event with respect to the property to
the Internal Revenue Service (IRS) (for
example depreciation or amortization) and
continues to apply until the property is
sold, exchanged, or otherwise disposed of
in one or more transactions that result in
the recognition of gain or loss for Federal
income tax purposes, regardless of
whether the owner on the date of the sale,
exchange, or disposition is the same tax-
payer who acquired the property from the
decedent or as a result of the decedent’s
death.
(2)Subsequent basis adjustments. The
final value within the meaning of para-
graph (c) of this section is the taxpayer’s
initial basis in the property. In computing
at any time after the decedent’s date of
death the taxpayer’s basis in property ac-
quired from the decedent or as a result of
the decedent’s death, the taxpayer’s initial
basis in that property may be adjusted due
to the operation of other provisions of the
Internal Revenue Code (Code) governing
basis without violating paragraph (a)(1) of
this section. Such adjustments may in-
clude, for example, gain recognized by the
decedent’s estate or trust upon distribution
of the property, post-death capital im-
provements and depreciation, and post-
death adjustments to the basis of an inter-
est in a partnership or S corporation. The
existence of recourse or non-recourse debt
secured by property at the time of the
decedent’s death does not affect the prop-
erty’s basis, whether the gross value of the
property and the outstanding debt are re-
ported separately on the estate tax return
or the net value of the property is reported.
Therefore, post-death payments on such
debt do not result in an adjustment to the
property’s basis.
(b)Property subject to consistency re-
quirement—(1)In general. Property sub-
ject to the consistency requirement in
paragraph (a)(1) of this section is any
property that is includable in the dece-
dent’s gross estate under section 2031,any
property subject to tax under section 2106,
and any other property the basis of which
is determined in whole or in part by ref-
erence to the basis of such property (for
example as the result of a like-kind ex-
change or involuntary conversion) that
generates a tax liability under chapter 11
of subtitle B of the Code (chapter 11) on
the decedent’s estate in excess of allow-
able credits, except the credit for prepay-
ment of tax under chapter 11.
(2)Exclusions. For purposes of para-
graph (b)(1) of this section, property that
qualifies for an estate tax charitable or
marital deduction under section 2055,
2056, or 2056A, respectively, does not
generate a tax liability under chapter 11
and therefore is excluded from the prop-
erty subject to the consistency require-
ment in paragraph (a)(1) of this section.
For purposes of paragraph (b)(1) of this
section, tangible personal property for
which an appraisal is not required under
§ 20.2031–6(b) is deemed not to generate
a tax liability under chapter 11 and there-
fore also is excluded from the property
subject to the consistency requirement in
paragraph (a)(1) of this section.
(3)Application. For purposes of para-
graph (b)(1) of this section, if a liability
under chapter 11 is payable after the ap-
plication of all available credits (other
than a credit for a prepayment of estate
tax), the consistency requirement in para-
graph (a)(1) of this section applies to the
entire gross estate (other than property
excluded under paragraph (b)(2) of this
section) because all such property contrib-
utes to the liability under chapter 11 and
therefore is treated as generating a tax
liability under chapter 11. If, however,
after the application of all such available
credits, no tax under chapter 11 is pay-
able, the entire gross estate is excluded
from the application of the consistency
requirement.
(c)Final value—(1)Finality of estate
tax value. Thefinal valueof property re-
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479

ported on a return filed pursuant to section
6018 is its value as finally determined for
purposes of the tax imposed by chapter
11. That value is —
(i) The value reported on a return filed
with the Internal Revenue Service (IRS)
pursuant to section 6018 once the period
of limitations for assessment of the tax
under chapter 11 has expired without that
value having been timely adjusted or con-
tested by the IRS,
(ii) If paragraph (c)(1)(i) of this section
does not apply, the value determined or
specified by the IRS once the periods of
limitations for assessment and for claim
for refund or credit of the tax under chap-
ter 11 have expired without that value
having been timely contested;
(iii) If paragraphs (c)(1)(i) and (ii) of
this section do not apply, the value deter-
mined in an agreement, once that agree-
ment is final and binding on all parties; or
(iv) If paragraphs (c)(1)(i), (ii), and (iii)
of this section do not apply, the value
determined by a court, once the court’s
determination is final.
(2)No finality of estate tax value. Prior
to the determination, in accordance with
paragraph (c)(1) of this section, of the
final value of property described in para-
graph (b) of this section, the recipient of
that property may not claim an initial ba-
sis in that property in excess of the value
reported on the statement required to be
furnished under section 6035(a). If the
final value of the property subsequently is
determined under paragraph (c)(1) of this
section and that value differs from the
value reported on the statement required
to be furnished under section 6035(a),
then the taxpayer may not rely on the
statement initially furnished under section
6035(a) for the value of the property and
the taxpayer may have a deficiency and
underpayment resulting from this differ-
ence.
(3)After-discovered or omitted prop-
erty—(i)Return under section 6018 filed.
In the event property described in para-
graph (b)(1) of this section is discovered
after the estate tax return under section
6018 has been filed or otherwise is omit-
ted from that return (after-discovered or
omitted property), the final value of that
property is determined under section
(c)(3)(i)(A) or (B) of this section.
(A)Reporting prior to expiration of
period of limitation on assessment. The
final value of the after-discovered or omit-
ted property is determined in accordance
with paragraph (c)(1) or (2) of this section
if the executor, prior to the expiration of
the period of limitation on assessment of
the tax imposed on the estate by chapter
11, files with the IRS an initial or supple-
mental estate tax return under section
6018 reporting the property.
(B)No reporting prior to expiration of
period of limitation on assessment.Ifthe
executor does not report the after-
discovered or omitted property on an initial
or supplemental Federal estate tax return
filed prior to the expiration of the period of
limitation on assessment of the tax imposed
on the estate by chapter 11, the final value of
that unreported property is zero. SeeExam-
ple 3of paragraph (e) of this section.
(ii)No return under section 6018 filed.
If no return described in section 6018 has
been filed, and if the inclusion in the de-
cedent’s gross estate of the after-
discovered or omitted property would
have generated or increased the estate’s
tax liability under chapter 11, the final
value, for purposes of section 1014(f), of all
property described in paragraph (b) of this
section is zero until the final value is deter-
mined under paragraph (c)(1) or (2) of this
section. Specifically, if the executor files a
return pursuant to section 6018(a) or (b) that
includes this property or the IRS determines
a value for the property, the final value of all
property described in paragraph (b) of this
section includible in the gross estate then is
determined under paragraph (c)(1) or (2) of
this section.
(d)Executor. For purposes of this sec-
tion,executorhas the same meaning as in
section 2203 and includes any other per-
son required under section 6018(b) to file
a return.
(e)Examples. The following examples
illustrate the application of this section.
Example 1. (i) At D’s death, D owned 50% of
Partnership P, which owned a rental building with a
fair market value of $10 million subject to nonre-
course debt of $2 million. D’s sole beneficiary is C,
D’s child. P is valued at $8 million. D’s interest in P
is reported on the return required by section 6018(a)
at $4 million. The IRS accepts the return as filed and
the time for assessing the tax under chapter 11 ex-
pires. C sells the interest for $6 million in cash
shortly thereafter.
(ii) Under these facts, the final value of D’s
interest is $4 million under paragraph (c)(1)(i) of this
section. Under section 742 and § 1.742–1, C’s basis
in the interest in P at the time of its sale is $5 million
(the final value of D’s interest ($4 million ) plus 50%
of the $2 million nonrecourse debt). Following the
sale of the interest, C reports taxable gain of $1
million. C has complied with the consistency re-
quirement of paragraph (a)(1) of this section.
(iii) Assume instead that the IRS adjusts the
value of the interest in P to $4.5 million, and that
value is not contested before the expiration of the
time for assessing the tax under chapter 11. The final
value of D’s interest in P is $4.5million under para-
graph (c)(1)(ii) of this section. Under section 742 and
§ 1.742–1, C claims a basis of $5.5 million at the time
of sale and reports gain on the sale of $500,000. C has
complied with the consistency requirement of para-
graph (a)(1) of this section.
Example 2. (i) At D’s death, D owned (among
other assets) a private residence that was not encum-
bered. D’s sole beneficiary is C. D’s executor reports
the value of the residence on the return required by
section 6018(a) as $600,000 and pays the tax liability
under chapter 11. The IRS timely contests the reported
value and determines that the value of the residence is
$725,000. The parties enter into a settlement agreement
that provides that the value of the residence for pur-
poses of the tax imposed by chapter 11 is $650,000.
Pursuant to paragraph (c)(1)(iii) of this section, the final
value of the residence is $650,000.
(ii) Several years later, C adds a master suite to
the residence at a cost of $45,000. Pursuant to sec-
tion 1016(a), C’s basis in the residence is increased
by $45,000 to $695,000. Subsequently, C sells the
residence to an unrelated third party for $900,000. C
claims a basis in the residence of $695,000 and
reports a gain of $205,000 ($900,000 – $695,000). C
has complied with the consistency requirement of
paragraph (a)(1) of this section.
Example 3. (i) The facts are the same as in
Example 2but, after the expiration of the period for
assessing the tax imposed by chapter 11, the execu-
tor discovers property that had not been reported on
the return required by section 6018(a) but which, if
reported, would have generated additional chapter 11
tax on the entire value of the newly discovered
property. Pursuant to paragraph (c)(3)(i)(B) of this
section, C’s basis in the residence of $695,000 does
not change, but the final value of the additional
unreported property is zero.
(ii) Alternatively, assume that no return was
required to be filed under section 6018 before
discovering the additional property (and none in
fact was filed) but, after the application of the
applicable credit amount, D’s taxable estate in-
cluding the unreported property would have been
$200,000.Pursuant to paragraph (c)(3)(ii) of this sec-
tion, the final value of all property included in D’s gross
estate that is described in paragraph (b) of this section
is zero until the executor files an estate tax return with
the IRS pursuant to section 6018 or the IRS determines
a value for the property. In either of those events, the
final value of property described in paragraph (b) of
this section reported on the return is determined in
accordance with paragraph (c)(1) or (c)(2) of this sec-
tion.
Example 4. (i) At D’s death, D’s gross estate
includes a residence valued at $300,000 encumbered
by nonrecourse debt in the amount of $100,000. Title
March 21, 2016Bulletin No. 2016–12
480

to the residence is held jointly by D and C (D’s
daughter) with rights of survivorship. D provided all
the consideration for the residence and the entire
value of the residence was included in D’s gross
estate. The executor reports the value of the resi-
dence as $200,000 on the return required by section
6018 filed with the IRS for D’s estate and claims no
other deduction for the debt. The statement required
by section 6035 reports the value of the residence as
$300,000. C sells the residence before the final value
is determined under paragraph (c)(1) of this section
for $375,000 and claims a gain of $75,000 on C’s
Federal income tax return.
(ii) A court subsequently determines that the
value of the residence was $290,000 and the time for
contesting this value in any court expires before the
expiration of theperiod for assessing C’s income tax
for the year of C’s sale of the property. The final value
of the residence is $290,000 pursuant to paragraphs
(c)(1)(iv) and (c)(2) of this section. Because C claimed
a basis in the residence that exceeds the final value, C
may have a deficiency and underpayment.
(f)Effective/applicability date. Upon
the publication of the Treasury Decision
adopting these rules as final in theFederal
Register, this section will apply to property
acquired from a decedent or byreason of
the death of a decedent whose return
required by section 6018 is filed after
July 31, 2015. Persons may rely upon
these rules before the date of publication
of the Treasury Decision adopting these
rules as final in theFederal Register.
Par. 3. Section 1.6035–1 is revised to
read as follows:
§ 1.6035–1 Basis information to persons
acquiring property from decedent.
(a)Required Information Return and
Statement(s)—(1)In general. An executor
(defined in paragraph (g)(1) of this sec-
tion) required to file a return under section
6018 for an estate must file an Information
Return (defined in paragraph (g)(2) of this
section) with the Internal Revenue Service
(IRS) to report the value of certain prop-
erty (described in paragraph (b)(1) of this
section) included in the decedent’s gross
estate for purposes of the tax imposed by
chapter 11 of subtitle B of the Internal
Revenue Code (chapter 11) and other infor-
mation prescribed by the Information Re-
turn and the instructions thereto. The value
to be reported is the final value of the
property as described in § 1.1014–10(c).
This executor also must furnish a State-
ment (defined in paragraph (g)(3) of this
section) to each beneficiary who has (or
will) acquire, whether from the decedent
or by reason of the death of the decedent,
property reported on the Information Re-
turn to identify the property the benefi-
ciary is to receive and to report the value
of that property and other information pre-
scribed by theStatement and instructions
thereto. The Information Return and each
Statement are required to be filed and fur-
nished by the date provided in paragraph (d)
of this section. If, after the Information Re-
turn and Statement are filed and furnished,
there are certain changes in the final value
and/or the recipient of property as described
in paragraph (e) or (f) of this section, the
executor must file a supplemental Informa-
tion Return with the IRS and furnish a sup-
plemental Statement to the beneficiary. Sub-
sequent transfers of all or a portion of
property previously reported (or required to
be reported) on the Information Return re-
quired by paragraph (a) of this section, in
transactions in which the transferee acquires
the property with the transferor’s basis, re-
quire additional reporting as described in
paragraph (f) of this section.
(2)Exception. Paragraph (a)(1) of this
section applies only to the executor of an
estate required by section 6018 to file an
estate tax return. Accordingly, notwith-
standing § 20.2010–2(a)(1), the executor
does not have to file or furnish the Infor-
mation Return or Statement(s) referred to
in paragraph (a)(1) of this section if the
executor is not required by section 6018 to
file an estate tax return for the estate, even
if the executor does file such a return for
other purposes, e.g., to make a generation-
skipping transfer tax exemption allocation
or election, to make the portability elec-
tion under section 2010(c)(5), or to make
a protective filing to avoid any penalty if
an asset value is later determined to cause
a return to be required or otherwise.
(b)Property for which reporting is re-
quired—(1)In general. The property to
which the reporting requirement under
paragraph (a)(1) of this section applies is
all property reported or required to be
reported on a return under section 6018.
This includes, for example, any other
property whose basis is determined in
whole or in part by reference to that prop-
erty (for example as the result of a like-
kind exchange or involuntary conversion).
Of the property of a deceased nonresident
non-citizen, this includes only the prop-
erty that is subject to U.S. estate tax; sim-
ilarly, this includes only the decedent’s
one-half of community property. Never-
theless, the following property is excepted
from the reporting requirements—
(i) Cash (other than a coin collection
or other coins or bills with numismatic
value);
(ii) Income in respect of a decedent (as
defined in section 691);
(iii) Tangible personal property for
which an appraisal is not required under
§ 20.2031–6(b); and
(iv) Property sold, exchanged, or oth-
erwise disposed of (and therefore not dis-
tributed to a beneficiary) by the estate in a
transaction in which capital gain or loss is
recognized.
(2)Examples. The following examples
illustrate the provisions of paragraph
(b)(1) of this section.
Example 1. Included in D’s gross estate are the
contents of his residence. Pursuant to § 20.2031–6(a),
the executor attaches to the return required by sec-
tion 6018 filed for D’s estate a room by room item-
ization of household and personal effects. All articles
are named specifically. In each room a number of
articles, none of which has a value in excess of $100,
are grouped. A value is provided for each named
article. Included in the household and personal ef-
fects are a painting, a rug, and a clock, each of which
has a value in excess of $3,000. Pursuant to
§ 20.2031–6(b), the executor obtains an appraisal
from a disinterested, competent appraiser(s) of rec-
ognized standing and ability, or a disinterested deal-
er(s) in the class of personalty involved for the
painting, rug, and clock. The executor attaches these
appraisals to the estate tax return for D’s estate.
Pursuant to paragraph (b)(1)(iii) of this section, the
reporting requirements of paragraph (a)(1) of this
section apply only to the painting, rug, and clock.
Example 2. Included in D’s estate are shares in
C, a publicly traded company. Shortly after D’s
death but prior to the filing of the estate tax return for
D’s estate, C is acquired by T, also a publicly traded
company. For the shares in C includible in D’s
estate, the estate receives new shares in T and cash in
a fully taxable transaction. Pursuant to paragraph
(b)(1)(iv) of this section, the reporting requirements
of paragraph (a)(1) of this section do not apply to the
new shares in T or the cash.
(c)Beneficiaries—(1)In general.As
provided in paragraph (a)(1) of this sec-
tion, the executor must furnish to each
beneficiary (including a beneficiary who
is also an executor) receiving property
that must be reported on the Information
Return filed with the IRS, the Statement
containing the required information
regarding that beneficiary’s property. For
purposes of this provision, the beneficiary
of a life estate is the life tenant, the ben-
eficiary of a remainder interest is the re-
mainderman(men) identified as if the life
Bulletin No. 2016–12March 21, 2016
481

tenant were to die immediately after the
decedent, and the beneficiary of a contin-
gent interest is a beneficiary, unless the
contingency has occurred prior to the fil-
ing of the Form 8971. If the contingency
subsequently negates the inheritance of
the beneficiary, the executor must do sup-
plemental reporting in accordance with
paragraph (e) of this section to report the
change of beneficiary.
(2)Beneficiary not an individual.Ifthe
beneficiary is a trust or another estate, the
executor must furnish the beneficiary’s
Statement to the trustee or executor of the
trust or estate, rather than to the beneficia-
ries of that trust or estate. If the beneficiary
is a business entity, the executor must fur-
nish the Statement to the entity. However,
see paragraph (f) of this section for addi-
tional reporting requirements in the event
the trust, estate, or entity transfers all or a
portion of the property in a transaction in
which the transferee acquires the basis of
the trust, estate, or entity.
(3)Beneficiary not determined. If, by
the due date provided in paragraph (d) of
this section, the executor has not deter-
mined what property will be used to sat-
isfy the interest of each beneficiary, the
executor must report on the Statement for
each such beneficiary all of the property
that the executor could use to satisfy that
beneficiary’s interest. Once the exact dis-
tribution has been determined, the execu-
tor may, but is not required to, file and
furnish a supplemental Information Re-
turn and Statement as provided in para-
graph (e)(3) of this section.
(4)Beneficiary not located. An execu-
tor must use reasonable due diligence to
identify and locate all beneficiaries. If the
executor is unable to locate a beneficiary
by the due date of the Information Return
provided in paragraph (d) of this section,
the executor must so report on that Infor-
mation Return and explain the efforts the
executor has taken to locate the benefi-
ciary and to satisfy the obligation of rea-
sonable due diligence. If the executor sub-
sequently locates the beneficiary, the
executor must furnish the beneficiary with
that beneficiary’s Statement and file a sup-
plemental Information Return with the
IRS within 30 days of locating the bene-
ficiary. A copy of the beneficiary’s State-
ment must be attached to the supplemental
Information Return. If the executor is un-
able to locate a beneficiary and distributes
the property to a different beneficiary who
was not identified in the Information Re-
turn as the recipient of that property, the
executor must file a supplemental Infor-
mation Return with the IRS and furnish
the substitute beneficiary with that bene-
ficiary’s Statement within 30 days after
the property is distributed. See paragraph
(e)(1) of this section. A copy of the sub-
stitute beneficiary’s Statement must be at-
tached to the supplemental Information
Return.
(d)Due dates—(1)In general. Except
as provided in § 1.6035–2T, the executor
must file the Information Return with the
IRS, and must furnish to each beneficiary
the Statement with regard to the property
to be received by that beneficiary, on or
before the earlier of—
(i) The date that is 30 days after the due
date of the estate tax return required by
section 6018 (including extensions, if
any), or
(ii) Thedate that is 30 days after the date
on which that return is filed with the IRS.
(2)Transition rule. If the due date of
an estate tax returnrequired to be filed by
section 6018 is on or before July 31, 2015,
but the executor does not file the return with
the IRS until after July 31, 2015, then the
Information Return and Statement(s) are
due on or before the date that is 30 days
after the date on which the estate tax return
is filed, except as provided in § 1.6035–2T.
(e)Duty to supplement.—(1)In gen-
eral. In the event of any adjustment to the
information required to be reported on the
Information Return or any Statement as de-
scribed in paragraph (e)(2) of this section,
the executor must file a supplemental Infor-
mation Return with the IRS including all
supplemental Statements and furnish a cor-
responding supplemental Statement to each
affected beneficiary by the due date de-
scribed in paragraph (e)(4) of this section.
(2)Adjustments requiring supplement.
Except as provided in paragraph (e)(3) of
this section, an adjustment to which the
duty to supplement applies is any change
to the information required to be reported
on the Information Return or Statement
that causes the information as reported to
be incorrect or incomplete. Such changes
include, for example, the discovery of
property that should have been (but was
not) reported on an estate tax return de-
scribed in section 6018, a change in the
value of property pursuant to an examina-
tion or litigation, or a change in the iden-
tity of the beneficiary to whom the prop-
erty is to be distributed (pursuant to a
death, disclaimer, bankruptcy, or other-
wise). Such changes also include the ex-
ecutor’s disposition of property acquired
from the decedent or as a result of the death
of the decedent in a transaction in which the
basis of new property received by the estate
is determined in whole or in part by refer-
ence to the property acquired from the de-
cedent or as a result of the death of the
decedent (for example as the result of a
like-kind exchange or involuntary conver-
sion). Changes requiring supplement pursu-
ant to this paragraph (e)(2) are not inconse-
quential errors or omissions within the
meaning of § 301.6722–1(b) of this chapter.
(3)Adjustments not requiring supple-
ment—(i)In general. A supplemental In-
formation Return and Statement may but
they are not required to be filed or
furnished-
(A) To correct an inconsequential error
or omission within the meaning of
§ 301.6722–1(b) of this chapter, or
(B) To specify the actual distribution
of property previously reported as being
available to satisfy the interests of multi-
ple beneficiaries in the situation described
in paragraph (c)(3) of this section.
(ii)Example. Paragraph (e)(3)(i)(B) of
this section is illustrated by the following
example.
Example 1. D’s Will provided for D’s residuary
estate to be distributed to D’s three children (E, F,
and G). D’s residuary estate included stock in a
publicly traded company (X), a personal residence,
and three paintings. On the due date of the Informa-
tion Return and Statement required by paragraph
(a)(1) of this section, D’s executor had not yet de-
termined which property each child would receive
from D’s residuary estate in satisfaction of that
child’s bequest. In accordance with paragraph (c)(3)
of this section, D’s executor reported on the Infor-
mation Return filed with the IRS and on each child’s
own Statement that E, F, and G each might receive
an interest in the stock in X, the personal residence,
and the three paintings. Several months later, the
executor determined that E would receive the stock
in X, F would receive the residence, and G would
receive the paintings. Paragraph (e)(3)(i)(B) of this
section provides that the executor may but is not
required to file a supplemental Information Return
with the IRS and furnish supplemental Statements to
E, F, and G to accurately report which beneficiary
received what property.
Example 2. D’s Will provided that D’s jewelry
and household effects (personalty) are to be distrib-
March 21, 2016Bulletin No. 2016–12
482

uted among D’s three children (E, F, and G) as
determined by E, F, and G. In accordance with
paragraph (c)(3) of this section, D’s executor reports
on the Information Return filed with the IRS and on
each child’s own Statement each item of personalty
other than items described in paragraph (b)(1)(iii) of
this section. Several months later, E, F, and G deter-
mine who is to receive each item of personalty. Para-
graph (e)(3)(i)(B) of this section provides that the ex-
ecutor may but is not required to file a supplemental
Information Return with the IRS and furnish supple-
mental Statements to E, F, and G to accurately report
which beneficiary received which item(s) of personalty.
(4)Due date of supplemental report-
ing—(i)In general. Except as provided in
paragraph (e)(4)(ii) of this section, the
supplemental Information Return must be
filed and each supplemental Statement
must be furnished on or before 30 days
after—
(A) The final value within the meaning
of § 1.1014–10(c)(1) is determined;
(B) The executor discovers that the in-
formation reported on the Information Re-
turn or Statement is otherwise incorrect or
incomplete, except to the extent described
in paragraph (e)(3)(i) of this section; or
(C) A supplemental estate tax return un-
der section 6018 is filed reporting property
not reported on a previously filed estate tax
return pursuant to § 1.1014–10(c)(3)(i). In
this case, a copy of the supplemental State-
ment provided to each beneficiary of an
interest in this property must be attached to
the supplemental Information Return.
(ii)Probate property or property from
decedent’s revocable trust. With respect to
property in the probate estate or held by a
revocable trust at the decedent’s death, if an
event described in paragraph (e)(4)(i)(A),
(B), or (C) of this section occurs after the
decedent’s date of death but before or on the
date the property is distributed to the bene-
ficiary, the due date for the supplemental
Information Return and corresponding sup-
plemental Statement is the date that is 30
days after the date the property is distributed
to the beneficiary. If the executor chooses to
furnish to the beneficiary on the Statement
information regarding any changes to the
basis of the reported property as described
in § 1.1014–10(a)(2) that occurred after the
date of death but before or on the date of
distribution, that basis adjustment informa-
tion (which is not part of the requirement
under section 6035) must be shown sepa-
rately from the final value required to be
reported on that Statement.
(f)Subsequent transfers. If all or any
portion of property that previously was
reported or is required to be reported on
an Information Return (and thus on the
recipient’s Statement or supplemental
Statement) is distributed or transferred (by
gift or otherwise) by the recipient in a
transaction in which a related transferee
determines its basis, in whole or in part,
by reference to the recipient/transferor’s
basis, the recipient/transferor must, no
later than 30 days after the date of the
distribution or other transfer, file with the
IRS a supplemental Statement and furnish
a copy of the same supplemental State-
ment to the transferee. The requirement to
file a supplemental Statement and furnish
a copy to the transferee similarly applies
to the distribution or transfer of any other
property the basis of which is determined
in whole or in part by reference to that
property (for example as the result of a
like-kind exchange or involuntary conver-
sion). In the case of a supplemental State-
ment filed by the recipient/transferor be-
fore the recipient/transferor’s receipt of
the Statement described in paragraph (a)
of this section, the supplemental State-
ment will report the change in the owner-
ship of the property and need not provide
the value information that would other-
wise be required on the supplemental
Statement. In the event the transfer occurs
before the final value is determined within
the meaning of proposed § 1.1014–10(c),
the transferor must provide the executor
with a copy of the supplemental Statement
filed with the IRS and furnished to the
transferee in order to notify the executor
of the change in ownership of the prop-
erty. When the executor subsequently files
any Return and issues any Statement re-
quired by paragraphs (a) or (e) of this
section, the executor must provide the
Statement (or supplemental Statement) to
the new transferee instead of to the trans-
feror. For purposes of this provision, a
related transferee means any member of
the transferor’s family as defined in sec-
tion 2704(c)(2), any controlled entity (a
corporation or any other entity in which
the transferor and members of the trans-
feror’s family (as defined in section
2704(c)(2)), whether directly or indi-
rectly, have control within the meaning of
section 2701(b)(2)(A) or (B)), and any
trust of which the transferor is a deemed
owner for income tax purposes. If the
transferor chooses to include on the sup-
plemental Statement provided to the trans-
feree information regarding any changes
to the basis of the reported property as
described in § 1.1014–10(a)(2) that oc-
curred during the transferor’s ownership
of the property, that basis adjustment in-
formation (which is not part of the re-
quirement under section 6035) must be
shown separately from the final value re-
quired to be reported on that Statement.
(g)Definitions. For purposes of this
section, the following terms are defined as
follows—
(1)Executorhas the same meaning as
in section 2203 and includes any other
person required under section 6018(b) to
file a return.
(2)Information Returnmeans the
Form 8971, including each beneficiary’s
Statement as defined in paragraph (g)(3)
of this section required to be furnished, or
any successor form issued by the IRS for
this purpose.
(3)Statementmeans the payee state-
ment described as Schedule A of the In-
formation Return furnished to a benefi-
ciary or any successor form or schedule
issued by the IRS for this purpose.
(h)Penalties—(1)Failure to timely file
complete and correct Information Return.
For provisions relating to the penalty pro-
vided for failure to file an Information
Return required by section 6035(a)(1) on
or before the required filing date, failure to
include all of the required information on
an Information Return, or the filing of an
Information Return that includes incorrect
information, see section 6721 and the reg-
ulations thereunder. See section 6724 and
the regulations thereunder for rules relat-
ing to waivers of penalties for certain fail-
ures due to reasonable cause.
(2)Failure to timely furnish correct
Statements. For provisions relating to the
penalty provided for failure to furnish a
Statement required by section 6035(a)(2)
on or before the prescribed date, failure to
include all of the required information on
a Statement, or the filing of a Statement
that includes incorrect information, see
section 6722 and the regulations thereun-
der. See section 6724 and the regulations
thereunder for rules relating to waivers of
penalties for certain failures due to rea-
sonable cause.
Bulletin No. 2016–12March 21, 2016
483

(i)Effective/applicability date. Upon
the publication of the Treasury Decision
adopting these rules as final in theFed-
eral Register, this section will apply to
property acquired from a decedent or by
reason of the death of a decedent whose
return required by section 6018 is filed
after July 31, 2015. Persons may rely
upon these rules before the date of pub-
lication of the Treasury Decision adopt-
ing these rules as final in theFederal
Register.
Par. 4. Section 1.6035–2 is added to
read as follows:
§ 1.6035–2 Transition relief.
[The text of proposed § 1.6035–2 is the
same as the text of § 1.6035–2T published
elsewhere in this issue of theBulletin].
§ 1.6035–3 [REMOVED]
Par. 5. Section 1.6035–3 is removed.
Par. 6. Section 1.6662–8 is added to
read as follows:
§ 1.6662–8 Inconsistent estate basis
reporting.
(a)In general. Section 6662(a) and
(b)(8) impose an accuracy-related penalty
on the portion of any underpayment of tax
required to be shown on a return that is
attributable to an inconsistent estate basis.
(b)Inconsistent estate basis. In accor-
dance with section 6662(k), there is an
inconsistent estate basisto the extent that
a taxpayer claims a basis, without regard
to the adjustments described in § 1.1014–
10(a)(2), in property described in para-
graph (c) of this section that exceeds that
property’s final value as determined under
§ 1.1014–10(c).
(c)Applicable property. The property
to which this section applies is property
described in § 1.1014–10(b) that is re-
ported or required to be reported on a
return required by section 6018 filed after
July 31, 2015.
(d)Effective/applicability date. Upon
the publication of the Treasury Decision
adopting these rules as final in theFed-
eral Register, this section will apply to
property described in § 1.1014–10(b) ac-
quired from a decedent or by reason of the
death of a decedent whose return required
by section 6018 is filed after July 31,
2015. Persons may rely upon these rules
before the date of publication of the Trea-
sury Decision adopting these rules as final
in theFederal Register.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 7. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 8. Section 301.6721–1 is amended
by removing the word “or” at the end of
paragraph (g)(2)(x), removing the period
and adding “; or” at the end of paragraph
(g)(2)(xi), and adding paragraph (g)(2)(xii).
The addition reads as follows:
§ 301.6721–1 Failure to file correct
information returns.
*****
(g)***
(2)***
(xii) Section 6035 (relating to basis of
property acquired from decedents).
*****
*****
Par. 9. Section 301.6722–1 is amended
by removing the word “or” at the end of
paragraph (d)(2)(xxxiii), removing the pe-
riod and adding a semi-colon in its place
followed by the word “or” at the end of
paragraph (d)(2)(xxxiv), and adding para-
graph (d)(2)(xxxv).
The addition reads as follows:
§ 301.6722–1 Failure to furnish correct
payee statements.
*****
(d)***
(2)***
(xxxv) Section 6035 (relating to basis
of property acquired from decedents).
*****
John Dalrymple,
Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on March 2,
2016, 4:15 p.m., and published in the issue of the Federal
Register for March 4, 2016, 81 F.R. 11486)
Utility Allowances
Submetering
REG–123867–14
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION:Notice of proposed rulemaking
by cross-reference to temporary regulations.
SUMMARY: This document contains
proposed regulations that amend the util-
ity allowance regulations concerning the
low-income housing credit. The proposed
regulations relate to the circumstances in
which utility costs paid by a tenant based
on actual consumption in a submetered
rent-restricted unit are treated as paid by
the tenant directly to the utility company.
The proposed regulations extend those
rules to situations in which a building
owner sells to tenants energy that is pro-
duced from a renewable source and that is
not delivered by a local utility company.
The proposed regulations affect owners of
low-income housing projects that claim
the credit, the tenants in those low-income
housing projects, and the State and local
housing credit agencies that administer
the credit. In the Rules and Regulations
section of this issue of theBulletin, the
IRS is issuing temporary regulations con-
cerning utility allowance regulations
when the utility is generated from renew-
able sources and is not delivered by the
local utility company. The text of those
regulations also serves as the text of these
proposed regulations. This document also
contains a notice of a public hearing on
these proposed regulations.
DATES: Comments and requests for a
public hearing must be received by May 2,
2016.
ADRESSES: Send submissions to: CC:
PA:LPD:PR (REG–123867–14), 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–123867–14),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW., Washing-
ton, DC, or sent electronically, via the Fed-
March 21, 2016Bulletin No. 2016–12
484

eral eRulemaking Portal at http://www.
regulations.gov/ (IRS REG–123867–14).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, James Rider at (202) 317-
4137; concerning submissions of com-
ments and requests for a public hearing,
Oluwafunmilayo Taylor at (202) 317-
6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in the Rules
and Regulations section of this issue of
theBulletinamend 26 CFR part 1. The
temporary regulations provide a special
rule for a renewable-source utility ar-
rangement in which the building owner
does not pay a local utility company for
the utility consumed by the tenant. The
text of those regulations also serves as the
text of these regulations. The preamble to
the temporary regulations explains the
temporary regulations and these proposed
regulations.
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 this regulation, and because the
regulation does 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 has been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on its 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 written comments (a
signed original and eight (8) copies) or
electronic comments that are submitted
timely to the IRS as prescribed in this
preamble under the “ADDRESSES”
heading. The IRS and the Treasury De-
partment request comments on all aspects
of the proposed regulations. All comments
that are submitted by the public will be
available for public inspection and copy-
ing at www.regulations.gov or upon re-
quest. A public hearing will be scheduled
if requested in writing by any person that
timely submits comments. If a public
hearing is scheduled, notice of the date,
time, and place for the public hearing will
be published in theFederal Register.
Drafting Information
The principal author of these regula-
tions is David Selig, Office of the Asso-
ciate Chief Counsel (Passthroughs and
Special Industries), IRS. However, other
personnel from the IRS and the Treasury
Department participated in their develop-
ment.
*****
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 for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 1.42–10(e)(1)(i)(B) and
(C), and (e)(1)(iv)(B) are revised to read
as follows:
§ 1.42–10 Utility allowances.
*****
(e)***(1)***
(i)***
(B) [The text of the proposed amend-
ments to § 1.42–10(e)(1)(i)(B) is the same
as the text of § 1.42–10T(e)(1)(i)(B)
published elsewhere in this issue of the
Bulletin].
(C) [The text of the proposed amend-
ments to § 1.42–10(e)(1)(i)(C) is the same
as the text of § 1.42–10T(e)(1)(i)(C)
published elsewhere in this issue of the
Bulletin].
*****
(iv)***
(B) [The text of the proposed amend-
ments to § 1.42–10(e)(1)(iv)(B) is the same
as the text of § 1.42–10T(e)(1)(iv)(B)
published elsewhere in this issue of the
Bulletin].
*****
John Dalrymple
Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on March 2,
2016, 8:45 a.m., and published in the issue of the Federal
Register for March 3, 2016, 81 F.R. 11160)
Bulletin No. 2016–12March 21, 2016
485

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. 2016–12March 21, 2016
i

Numerical Finding List
1
Bulletins 2016–1 through 2016–12
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
2016-21, 2016-12 I.R.B.465
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-123867-14, 2016-12 I.R.B.484
REG-125761-14, 2016-7 I.R.B.322
REG-100861-15, 2016-8 I.R.B.356
REG-127923-15, 2016-12 I.R.B.473
REG-129067-15, 2016-10 I.R.B.421
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
Revenue Procedures:—Continued
2016-5, 2016-1 I.R.B.188
2016-6, 2016-1 I.R.B.200
2016-7, 2016-1 I.R.B.239
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
9755, 2016-12 I.R.B.442
9756, 2016-12 I.R.B.450
9757, 2016-12 I.R.B.462
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 21, 2016Bulletin No. 2016–12
ii

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2016–1 through 2016–12
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. 2016–12March 21, 2016
iii

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