Internal Revenue Bulletin 2017-46 (PDF rendition): IRS Notices

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

# INTERNAL REVENUE BULLETIN

IRS

## 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

### T.D. 9825, page 500.

These final regulations amend existing regulations that address
the federal income tax treatment of transactions in which
federal financial assistance (FFA) is provided to banks and
domestic building and loan associations, and they clarify the
federal income tax consequences of those transactions to
banks, domestic building and loan associations, and related
parties.

### Notice 2017-68, page 513.

This notice announces that obligations of a United States
person received in exchange for certain property that was
located in an area designated by FEMA as subject to damage
from Hurricane Irma or Hurricane Irma will be considered to
qualify for the exception from United States property in section
956(c)(2)(C) and Treas. Reg. § 1.956-2(b)(1)(v) if repaid by
March 31, 2018.

### REG-116256-17, page 514.

This document contains proposed amendments to 26 CFR part
1 under section 754 of the Code. Specifically, these proposed
amendments would remove the signature requirement con-
tained in § 1.754-1(b) (current regulation) in order to eliminate
a regulatory burden.

Bulletin No. 2017-46
November 13, 2017

## ADMINISTRATIVE

REG-116256-17, page 514.

This document contains proposed amendments to 26 CFR part
1 under section 754 of the Code. Specifically, these proposed
amendments would remove the signature requirement con-
tained in § 1.754-1(b) (current regulation) in order to eliminate
a regulatory burden.

## EXEMPT ORGANIZATIONS

Announcement 2017-17, page 515.

Revocation of IRC 501(c)(3) Organizations for failure to meet
the code section requirements. Contributions made to the
organizations by individual donors are no longer deductible
under IRC 170(b)(1)(A).

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## 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.

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Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
T.D. 9825
FOR FURTHER INFORMATION CON-
TACT: Russell G. Jones, (202) 317-5357,
or Ken Cohen, (202) 317-5367 (not toll-
free numbers).
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1

## Treatment of Transactions in which Federal Financial Assistance is Provided

AGENCY: Internal Revenue Service (IRS),
Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-
nal regulations under section 597 of the
Internal Revenue Code (Code). These fi-
nal regulations amend existing regulations
that address the federal income tax treat-
ment of transactions in which federal fi-
nancial assistance (FFA) is provided to
banks and domestic building and loan as-
sociations, and they clarify the federal in-
come tax consequences of those transac-
tions to banks, domestic building and loan
associations, and related parties. These reg-
ulations affect banks, domestic building and
loan associations, and related parties.

DATES: Effective Date: These regula-
tions are effective on October 19, 2017.

Applicability date: These regulations
apply on or after October 19, 2017, except
with respect to FFA provided pursuant to
an agreement entered into before such
date. In the latter case, §§ 1.597-1 through
1.597-7 as contained in 26 CFR part 1,
revised April 1, 2017, will continue to
apply unless the taxpayer elects pursuant
to § 1.597-7(c) of these regulations to
apply §§ 1.597-1 through 1.597-6 of
these regulations on a retroactive basis.
The election to apply §§ 1.597-1 through
1.597-6 of these regulations on a retroac-
tive basis cannot be made if the period for
assessment and collection of federal in-
come tax has expired under the rules of
section 6501 for any taxable year in which
§§ 1.597-1 through 1.597-6 would affect
the determination of the electing entity's
or group's income, deductions, gain, loss,
basis, or other items.

SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act

The collections of information con-
tained in these final regulations have been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under OMB
control number 1545-1300. The collec-
tions of information in these final regula-
tions are in §§ 1.597-2(c)(4), 1.597-
4(g)(5), 1.597-6(c), and 1.597-7(c)(3).
The collections of information in these
regulations are necessary for the proper
performance of the function of the IRS by
providing relevant information concern-
ing the deferred FFA account and the
amount of income tax potentially not sub-
ject to collection. The collections also in-
form the IRS and certain financial institu-
tions that certain elections in these
regulations have been made.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less the collection of information displays
a valid control number.

Books and 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 section 6103.

### Background

On May 20, 2015, the Treasury De-
partment and the IRS published a notice
of proposed rulemaking (REG-140991-
09) in the Federal Register (80 FR
28872), proposing to modify and clarify
the existing regulations under §§ 1.597-1
through 1.597-7 concerning the treatment
of certain transactions in which FFA is
provided to banks and domestic building
and loan associations (Institutions) and re-
lated parties. For purposes of section 597

and the regulations promulgated under that
section, FFA generally includes any money
or property provided by an "Agency" (such
as the Federal Deposit Insurance Corpora-
tion) to an Institution or to a direct or indi-
rect owner of stock in an Institution. Among
other changes, the proposed regulations pro-
vided guidance regarding the determination
of the fair market value of assets covered by
a Loss Guarantee, the ownership of assets
subject to a Loss Guarantee, and the transfer
of property to an Agency by an Institution's
non-consolidated affiliate. (The “Explana-
tion of Provisions" in the notice of pro-
posed rulemaking contained a detailed de-
scription of the proposed changes to the
existing regulations.) The notice of pro-
posed rulemaking also requested comments
from the public and provided instructions
for requesting a public hearing.

The Treasury Department and the
IRS received no comments on the pro-
posed regulations, and no public hearing
was requested or held. This Treasury
decision thus adopts the proposed regu-
lations with only non-substantive, clari-
fying changes. For example, the final
regulations clarify that, with respect to
any election provided under the final
regulations that is available for a con-
solidated group to make, the agent for
the group, within the meaning of
§ 1.1502-77, must make the election.

Like the proposed regulations, these
final regulations amend and restate all of
§§ 1.597-2 through 1.597-7 in order to
make the reading of the regulations more
user-friendly. However, unlike the pro-
posed regulations, rather than restating all
of § 1.597-1, these final regulations ex-
pressly list the changes to the definitions
in § 1.597-1. This change to the proposed
regulations is merely for the sake of clar-
ity and no substantive change is intended.
These final regulations make no changes
to § 1.597-8.

### 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

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is not required. It is hereby certified that
the collection of information contained in
these regulations will not have a signifi-
cant economic impact on a substantial
number of small entities. This certification
is based on the fact that the regulations
apply only to transactions involving banks
or domestic building and loan associa-
tions, which tend to be larger businesses.
Therefore, a regulatory flexibility analysis
is not required under the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6). Pursuant
to section 7805(f) of the Code, the notice
of proposed rulemaking preceding these
regulations was submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business, and no com-
ments were received.

### Drafting Information

The principal author of these regula-
tions is Russell G. Jones of the Office of
Associate Chief Counsel (Corporate).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.

* * * * *

### Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is
amended as follows:

#### PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 continues to read in part as follows:

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

Par. 2. In § 1.597-1, paragraph (b) is
amended by:

a. Adding the definitions "Agency Re-
ceivership" and "Average Reimbursement
Rate" in alphabetical order.

b. Revising the definitions of "Consol-
idated Subsidiary" and "Continuing Eq-
uity".

c. Adding the definitions "Covered As-
set" and "Expected Value" in alphabetical
order.

d. Revising the definition of "Loss
Guarantee".

e. Adding the definitions "Loss Share
Agreement" and "Third-Party Price" in
alphabetical order.

The additions and revisions read as fol-
lows:

§ 1.597-1 Definitions.

* * * * *

(b) * * *

Agency Receivership. An Institution or
entity is under Agency Receivership if an
Agency is acting as receiver for such In-
stitution or entity.

Average Reimbursement Rate. The
term Average Reimbursement Rate means
the percentage of losses (as determined
under the terms of the Loss Share Agree-
ment) that would be reimbursed by an
Agency or a Controlled Entity if every
asset subject to a Loss Share Agreement
were disposed of for the Third-Party
Price. The Average Reimbursement Rate
is determined at the time of the Taxable
Transfer and is not adjusted for any
changes in Third-Party Price over the life
of any asset subject to the Loss Share
Agreement or the prior disposition of any
asset subject to the Loss Share Agree-
ment.

* * * * *

Consolidated Subsidiary. The term
Consolidated Subsidiary means a corpo-
ration that both:

(i) Is a member of the same consoli-
dated group as an Institution; and

(ii) Would be a member of the affiliated
group that would be determined under
section 1504(a) if the Institution were the
common parent thereof.

Continuing Equity. An Institution has
Continuing Equity for any taxable year if,
on the last day of the taxable year, the
Institution is not a Bridge Bank, in
Agency Receivership, or treated as a New
Entity.

* * * * *

Covered Asset. The term Covered As-
set means an asset subject to a Loss Guar-
antee. The fair market value of a Covered
Asset equals the asset's Expected Value.

Expected Value. The term Expected
Value means the sum of the Third-Party
Price for a Covered Asset and the amount
that an Agency or a Controlled Entity
would pay under the Loss Guarantee if the
asset actually were sold for the Third-
Party Price. For purposes of the preceding
sentence, if an asset is subject to a Loss
Share Agreement, the amount that an

Agency or a Controlled Entity would pay
under a Loss Guarantee with respect to the
asset is determined by multiplying the
amount of loss that would be realized un-
der the terms of the Loss Share Agree-
ment if the asset were disposed of at the
Third-Party Price by the Average Reim-
bursement Rate.

* * * * *

Loss Guarantee. The term Loss Guar-
antee means an agreement pursuant to
which an Agency or a Controlled Entity
guarantees or agrees to pay an Institution
a specified amount upon the disposition or
charge-off (in whole or in part) of specific
assets, an agreement pursuant to which an
Institution has a right to put assets to an
Agency or a Controlled Entity at a speci-
fied price, a Loss Share Agreement, or a
similar arrangement.

Loss Share Agreement. The term Loss
Share Agreement means an agreement
pursuant to which an Agency or a Con-
trolled Entity agrees to reimburse the
guaranteed party a percentage of losses
realized.

* * * * *

Third-Party Price. The term Third-
Party Price means the amount that a third
party would pay for an asset absent the
existence of a Loss Guarantee.

Par. 3. Section 1.597-2 is revised to
read as follows:

§ 1.597-2 Taxation of FFA.

(a) Inclusion in income-(1) In gen-
eral. Except as otherwise provided in the
regulations under section 597, all FFA is
includible as ordinary income to the recip-
ient at the time the FFA is received or
accrued in accordance with the recipient's
method of accounting. The amount of
FFA received or accrued is the amount of
any money, the fair market value of any
property (other than an Agency Obliga-
tion), and the issue price of any Agency
Obligation (determined under § 1.597-
3(c)(2)). An Institution (and not the nom-
inal recipient) is treated as receiving di-
rectly any FFA that an Agency provides in
a taxable year to a direct or indirect share-
holder of the Institution, to the extent the
money or property is transferred to the
Institution pursuant to an agreement with
an Agency.

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(2) Cross references. See paragraph (c)
of this section for rules regarding the tim-
ing of inclusion of certain FFA. See para-
graph (d) of this section for additional
rules regarding the treatment of FFA re-
ceived in connection with transfers of
money or property to an Agency or a
Controlled Entity, or paid pursuant to a
Loss Guarantee. See § 1.597-5(c)(1) for
additional rules regarding the inclusion of
Net Worth Assistance in the income of an
Institution.

(b) Basis of property that is FFA. If
FFA consists of property, the Institution's
basis in the property equals the fair market
value of the property (other than an
Agency Obligation) or the issue price of
the Agency Obligation (as determined un-
der § 1.597-3(c)(2)).

(c) Timing of inclusion of certain
FFA-(1) Scope. This paragraph (c) limits
the amount of FFA an Institution must
include in income currently under certain
circumstances and provides rules for the
deferred inclusion in income of amounts
in excess of those limits. This paragraph
(c) does not apply to a New Entity or an
Acquiring.

(2) Amount currently included in in-
come by an Institution without Continuing
Equity. The amount of FFA an Institution
without Continuing Equity must include
in income in a taxable year under para-
graph (a)(1) of this section is limited to
the sum of-

(i) The excess at the beginning of the
taxable year of the Institution's liabilities
over the adjusted bases of the Institution's
assets; and

(ii) The amount by which the excess
for the taxable year of the Institution's
deductions allowed by chapter 1 of the
Internal Revenue Code (Code) (other
than net operating and capital loss car-
ryovers) over its gross income (deter-
mined without regard to FFA) is greater
than the excess at the beginning of the
taxable year of the adjusted bases of the
Institution's assets over the Institution's
liabilities.

(3) Amount currently included in in-
come by an Institution with Continuing
Equity. The amount of FFA an Institution
with Continuing Equity must include in
income in a taxable year under paragraph
(a)(1) of this section is limited to the sum
of-

(i) The excess at the beginning of the
taxable year of the Institution's liabilities
over the adjusted bases of the Institution's
assets;

(ii) The greater of-

(A) The excess for the taxable year of
the Institution's deductions allowed by
chapter 1 of the Code (other than net
operating and capital loss carryovers) over
its gross income (determined without re-
gard to FFA); or

(B) The excess for the taxable year of
the deductions allowed by chapter 1 of the
Code (other than net operating and capital
loss carryovers) of the consolidated group
of which the Institution is a member on
the last day of the Institution's taxable
year over the group's gross income (de-
termined without regard to FFA); and

(iii) The excess of the amount of any
net operating loss carryover of the Insti-
tution (or in the case of a carryover from
a consolidated return year of the Institu-
tion's current consolidated group, the net
operating loss carryover of the group) to
the taxable year over the amount de-
scribed in paragraph (c)(3)(i) of this sec-
tion.

(4) Deferred FFA-(i) Maintenance of
account. An Institution must establish a
deferred FFA account commencing in the
first taxable year in which it receives FFA
that is not currently included in income
under paragraph (c)(2) or (3) of this sec-
tion, and must maintain that account in
accordance with the requirements of this
paragraph (c)(4). The Institution must add
the amount of any FFA that is not cur-
rently included in income under paragraph
(c)(2) or (3) of this section to its deferred
FFA account. The Institution must de-
crease the balance of its deferred FFA
account by the amount of deferred FFA
included in income under paragraphs
(c)(4)(ii), (iv), and (v) of this section. (See
also paragraphs (d)(4) and (d)(5)(i)(B) of
this section for other adjustments that de-
crease the deferred FFA account.) If, un-
der paragraph (c)(3) of this section, FFA
is not currently included in income in a
taxable year, the Institution thereafter
must maintain its deferred FFA account
on a FIFO (first in, first out) basis (for
example, for purposes of the first sentence
of paragraph (c)(4)(iv) of this section).

(ii) Deferred FFA recapture. In any
taxable year in which an Institution has a

balance in its deferred FFA account, it
must include in income an amount equal
to the lesser of the amount described in
paragraph (c)(4)(iii) of this section or the
balance in its deferred FFA account.

(iii) Annual recapture amount-(A)
Institutions without Continuing Equity-
(1) In general. In the case of an Institution
without Continuing Equity, the amount
described in this paragraph (c)(4)(iii) is
the amount by which-

(i) The excess for the taxable year of
the Institution's deductions allowed by
chapter 1 of the Code (other than net
operating and capital loss carryovers) over
its gross income (taking into account FFA
included in income under paragraph (c)(2)
of this section) is greater than

(ii) The Institution's remaining equity
as of the beginning of the taxable year.

(2) Remaining equity. The Institution's
remaining equity is-

(i) The amount at the beginning of the
taxable year in which the deferred FFA
account was established equal to the ad-
justed bases of the Institution's assets mi-
nus the Institution's liabilities (which
amount may be positive or negative); plus

(ii) The Institution's taxable income
(computed without regard to any carry-
over from any other year) in any subse-
quent taxable year or years; minus

(iii) The excess in any subsequent tax-
able year or years of the Institution's de-
ductions allowed by chapter 1 of the Code
(other than net operating and capital loss
carryovers) over its gross income.

(B) Institutions with Continuing Eq-
uity. In the case of an Institution with
Continuing Equity, the amount described
in this paragraph (c)(4)(iii) is the amount
by which the Institution's deductions al-
lowed by chapter 1 of the Code (other
than net operating and capital loss carry-
overs) exceed its gross income (taking
into account FFA included in income un-
der paragraph (c)(3) of this section).

(iv) Additional deferred FFA recapture
by an Institution with Continuing Equity.
To the extent that, as of the end of a
taxable year, the cumulative amount of
FFA deferred under paragraph (c)(3) of
this section that an Institution with Con-
tinuing Equity has recaptured under this
paragraph (c)(4) is less than the cumula-
tive amount of FFA deferred under para-
graph (c)(3) of this section that the Insti-

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tution would have recaptured if that FFA
had been included in income ratably over
the six taxable years immediately follow-
ing the taxable year of deferral, the Insti-
tution must include that difference in in-
come for the taxable year. An Institution
with Continuing Equity must include in
income the balance of its deferred FFA
account in the taxable year in which it
liquidates, ceases to do business, transfers
(other than to a Bridge Bank) substantially
all of its assets and liabilities, or is deemed
to transfer all of its assets under § 1.597-
5(b).

(v) Optional accelerated recapture of
deferred FFA. An Institution that has a
deferred FFA account may include in in-
come the balance of its deferred FFA ac-
count on its timely filed (including exten-
sions) original federal income tax return
for any taxable year that it is not under
Agency Control. The balance of its de-
ferred FFA account is income on the last
day of that year.

(5) Exceptions to limitations on use of
losses. In computing an Institution's tax-
able income or alternative minimum tax-
able income for a taxable year, sections
56(d)(1), 382, and 383 and §§ 1.1502-15,
1.1502-21, and 1.1502-22 (or §§ 1.1502-
15A, 1.1502-21A, and 1.1502-22A, as
appropriate) do not limit the use of the
attributes of the Institution to the extent, if
any, that the inclusion of FFA (including
recaptured FFA) in income results in tax-
able income or alternative minimum tax-
able income (determined without regard
to this paragraph (c)(5)) for the taxable
year. This paragraph (c)(5) does not ap-
ply to any limitation under section 382
or 383 or § 1.1502-15, § 1.1502-21, or
§ 1.1502-22 (or § 1.1502-15A, § 1.1502-
21A, or § 1.1502-22A, as appropriate) that
arose in connection with or prior to a
corporation becoming a Consolidated
Subsidiary of the Institution.

(6) Operating rules-(i) Bad debt re-
serves. For purposes of paragraphs (c)(2),
(3), and (4) of this section, the adjusted
bases of an Institution's assets are reduced
by the amount of the Institution's reserves
for bad debts under section 585 or 593,
other than supplemental reserves under
section 593.

(ii) Aggregation of Consolidated Sub-
sidiaries. For purposes of this paragraph
(c), an Institution is treated as a single

entity that includes the income, expenses,
assets, liabilities, and attributes of its Con-
solidated Subsidiaries, with appropriate
adjustments to prevent duplication.

(iii) Alternative minimum tax. To com-
pute the alternative minimum taxable in-
come attributable to FFA of an Institution
for any taxable year under section 55, the
rules of this section, and related rules, are
applied by using alternative minimum tax
basis, deductions, and all other items re-
quired to be taken into account. All other
alternative minimum tax provisions con-
tinue to apply.

(7) Earnings and profits. FFA that is
not currently included in income under
this paragraph (c) is included in earnings
and profits for all purposes of the Code to
the extent and at the time it is included in
income under this paragraph (c).

(d) Transfers of money or property to
an Agency, and Covered Assets-(1)
Transfers of property to an Agency. Ex-
cept as provided in paragraph (d)(4)(iii) of
this section, the transfer of property to an
Agency or a Controlled Entity is a taxable
sale or exchange in which the Institution
is treated as realizing an amount equal to
the property's fair market value.

(2) FFA with respect to Covered Assets
other than on transfer to an Agency-(i)
FFA provided pursuant to a Loss Guaran-
tee with respect to a Covered Asset is
included in the amount realized with re-
spect to the Covered Asset.

(ii) If an Agency makes a payment to
an Institution pursuant to a Loss Guaran-
tee with respect to a Covered Asset owned
by an entity other than the Institution, the
payment will be treated as made directly
to the owner of the Covered Asset and
included in the amount realized with re-
spect to the Covered Asset when the Cov-
ered Asset is sold or charged off. The
payment will be treated as further trans-
ferred through chains of ownership to the
extent necessary to reflect the actual re-
ceipt of such payment. Any such transfer,
if a deemed distribution, will not be a
preferential dividend for purposes of sec-
tions 561, 562, 852, or 857.

(iii) For the purposes of this paragraph
(d)(2), references to an amount realized
include amounts obtained in whole or par-
tial satisfaction of loans, amounts ob-
tained by virtue of charging off or mark-
ing to market a Covered Asset, and other

amounts similarly related to property,
whether or not disposed of.

(3) Treatment of FFA received in ex-
change for property. FFA included in the
amount realized for property under this
paragraph (d) is not includible in income
under paragraph (a)(1) of this section. The
amount realized is treated in the same
manner as if realized from a person other
than an Agency or a Controlled Entity.
For example, gain attributable to FFA re-
ceived with respect to a capital asset re-
tains its character as capital gain. Simi-
larly, FFA received with respect to
property that has been charged off for
federal income tax purposes is treated as a
recovery to the extent of the amount pre-
viously charged off. Any FFA provided in
excess of the amount realized under this
paragraph (d) is includible in income un-
der paragraph (a)(1) of this section.

(4) Adjustment to FFA-(i) In general.
If an Institution pays or transfers money
or property to an Agency or a Controlled
Entity, the amount of money and the fair
market value of the property is an adjust-
ment to its FFA to the extent the amount
paid and transferred exceeds the amount
of money and the fair market value of any
property that an Agency or a Controlled
Entity provides in exchange.

(ii) Deposit insurance. This paragraph
(d)(4) does not apply to amounts paid to
an Agency with respect to deposit insur-
ance.

(iii) Treatment of an interest held by an
Agency or a Controlled Entity-(A) In
general. For purposes of this paragraph
(d), an interest described in § 1.597-3(b)
is not treated as property when transferred
by the issuer to an Agency or a Controlled
Entity nor when acquired from an Agency
or a Controlled Entity by the issuer.

(B) Dispositions to persons other than
issuer. On the date an Agency or a Con-
trolled Entity transfers an interest de-
scribed in § 1.597-3(b) to a holder other
than the issuer, an Agency, or a Con-
trolled Entity, the issuer is treated for pur-
poses of this paragraph (d)(4) as having
transferred to an Agency an amount of
money equal to the sum of the amount of
money and the fair market value of prop-
erty that was paid by the new holder as
consideration for the interest.

(iv) Affiliated groups. For purposes of
this paragraph (d), an Institution is treated

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as having made any transfer to an Agency
or a Controlled Entity that was made by
any other member of its affiliated group.
The affiliated group must make appropri-
ate basis adjustments or other adjustments
to the extent the member transferring
money or other property is not the mem-
ber that received FFA.

(5) Manner of making adjustments to
FFA-(i) Reduction of FFA and deferred
FFA. An Institution adjusts its FFA under
paragraph (d)(4) of this section by reduc-
ing in the following order and in an ag-
gregate amount not greater than the ad-
justment-

(A) The amount of any FFA that is
otherwise includible in income for the tax-
able year (before application of paragraph
(c) of this section); and

(B) The balance (but not below zero) in
the deferred FFA account, if any, main-
tained under paragraph (c)(4) of this sec-
tion.

(ii) Deduction of excess amounts. If the
amount of the adjustment exceeds the sum
of the amounts described in paragraph
(d)(5)(i) of this section, the Institution
may deduct the excess to the extent the
deduction does not exceed the amount of
FFA included in income for prior taxable
years reduced by the amount of deduc-
tions allowable under this paragraph
(d)(5)(ii) in prior taxable years.

(iii) Additional adjustments. Any adjust-
ment to FFA in excess of the sum of the
amounts described in paragraphs (d)(5)(i)
and (ii) of this section is treated-

(A) By an Institution other than a New
Entity or an Acquiring, as a deduction of
the amount in excess of FFA received that
is required to be transferred to an Agency
under section 11(g) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(g)); or

(B) By a New Entity or an Acquiring, as
an adjustment to the purchase price paid in
the Taxable Transfer (see § 1.338-7).

(e) Examples. The following examples
illustrate the provisions of this section:

Example 1. Timing of inclusion of FFA in in-
come. (i) Institution M, a calendar-year taxpayer
without Continuing Equity because it is in Agency
Receivership, is not a member of a consolidated
group and has not been acquired in a Taxable Trans-
fer. On January 1, 2018, M has assets with a total
adjusted basis of $100 million and total liabilities of
$120 million. M's deductions do not exceed its gross
income (determined without regard to FFA) for
2018. The Agency provides $30 million of FFA to M
in 2018. The amount of this FFA that M must in-

clude in income in 2018 is limited by paragraph
(c)(2) of this section to $20 million, the amount by
which M's liabilities ($120 million) exceed the total
adjusted basis of its assets ($100 million) at the
beginning of the taxable year. Pursuant to paragraph
(c)(4)(i) of this section, M must establish a deferred
FFA account for the remaining $10 million.

(ii) If the Agency instead lends M the $30 mil-
lion, M's indebtedness to the Agency is disregarded
and the results are the same as in paragraph (i) of this
Example 1 under section 597(c), paragraph (b) of
§ 1.597-1, and paragraph (b) of § 1.597-3.

Example 2. Transfer of property to an Agency. (i)
Institution M, a calendar-year taxpayer without Con-
tinuing Equity because it is in Agency Receivership,
is not a member of a consolidated group and has not
been acquired in a Taxable Transfer. At the begin-
ning of 2018, M's remaining equity is $0 and M has
a deferred FFA account of $10 million. The Agency
does not provide any FFA to M in 2018. During the
year, M transfers property not subject to a Loss
Guarantee to the Agency and does not receive any
consideration. The property has an adjusted basis of
$5 million and a fair market value of $1 million at
the time of the transfer. M has no other taxable
income or loss in 2018.

(ii) Under paragraph (d)(1) of this section, M is
treated as selling the property for $1 million, its fair
market value, thus recognizing a $4 million loss ($5
million - $1 million). In addition, because M did
not receive any consideration from the Agency, un-
der paragraph (d)(4) of this section M has an adjust-
ment to FFA of $1 million, the amount by which the
fair market value of the transferred property ($1
million) exceeds the consideration M received from
the Agency ($0). Because no FFA is provided to M
in 2018, this adjustment reduces the balance of M's
deferred FFA account to $9 million ($10 million -
$1 million) under paragraph (d)(5)(i)(B) of this sec-
tion. Because M's $4 million loss causes M's deduc-
tions to exceed its gross income by $4 million in
2018 and M has no remaining equity, under para-
graph (c)(4)(iii)(A) of this section M must include $4
million of deferred FFA in income and must de-
crease the remaining $9 million balance of its de-
ferred FFA account by the same amount, leaving a
balance of $5 million.

Example 3. Loss Guarantee. Institution Q, a
calendar-year taxpayer, holds a Covered Asset (As-
set Z). Q's adjusted basis in Asset Z is $10,000. Q
sells Asset Z to an unrelated third party for $4,000.
Pursuant to the Loss Guarantee, an Agency pays Q
$6,000 ($10,000 - $4,000). Q's amount realized from
the sale of Asset Z is $10,000 ($4,000 from the third
party and $6,000 from the Agency) under paragraph
(d)(2) of this section. Q realizes no gain or loss on
the sale ($10,000 - $10,000 = $0), and therefore
includes none of the $6,000 of FFA it receives pur-
suant to the Loss Guarantee in income under para-
graph (d)(3) of this section.

Par. 4. Section 1.597-3 is revised to
read as follows:

§ 1.597-3 Other rules.

(a) Ownership of assets. For all federal
income tax purposes, an Agency is not

treated as the owner of assets subject to a
Loss Guarantee, yield maintenance agree-
ment, or cost to carry or cost of funds
reimbursement agreement, regardless of
whether it otherwise would be treated as
the owner under general federal income
tax principles.

(b) Debt and equity interests received
by an Agency. Debt instruments, stock,
warrants, or other rights to acquire stock
of an Institution (or any of its affiliates)
that an Agency or a Controlled Entity
receives in connection with a transaction
in which FFA is provided are not treated
as debt, stock, or other equity interests of
or in the issuer for any purpose of the
Internal Revenue Code while held by an
Agency or a Controlled Entity. On the
date an Agency or a Controlled Entity
transfers an interest described in this para-
graph (b) to a holder other than an Agency
or a Controlled Entity, the interest is
treated as having been newly issued by the
issuer to the holder with an issue price
equal to the sum of the amount of money
and the fair market value of property paid
by the new holder in exchange for the
interest.

(c) Agency Obligations-(1) In gen-
eral. Except as otherwise provided in this
paragraph (c), the original issue discount
rules of sections 1271 et seq. apply to
Agency Obligations.

(2) Issue price of Agency Obligations
provided as Net Worth Assistance. The
issue price of an Agency Obligation that is
provided as Net Worth Assistance and
that bears interest at either a single fixed
rate or a qualified floating rate (and pro-
vides for no contingent payments) is the
lesser of the sum of the present values of
all payments due under the obligation,
discounted at a rate equal to the applicable
Federal rate (within the meaning of sec-
tion 1274(d)(1) and (3)) in effect for the
date of issuance, or the stated principal
amount of the obligation. The issue price
of an Agency Obligation that bears a qual-
ified floating rate of interest (within the
meaning of § 1.1275-5(b)) is determined
by treating the obligation as bearing a
fixed rate of interest equal to the rate in
effect on the date of issuance under the
obligation.

(3) Adjustments to principal amount.
Except as provided in § 1.597-5(d)(2)(iv),
this paragraph (c)(3) applies if an Agency

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modifies or exchanges an Agency Obliga-
tion provided as Net Worth Assistance (or
a successor obligation). The issue price of
the modified or new Agency Obligation is
determined under paragraphs (c)(1) and
(2) of this section. If the issue price is
greater than the adjusted issue price of the
existing Agency Obligation, the differ-
ence is treated as FFA. If the issue price is
less than the adjusted issue price of the
existing Agency Obligation, the differ-
ence is treated as an adjustment to FFA
under § 1.597-2(d)(4).

(d) Successors. To the extent necessary
to effectuate the purposes of the regula-
tions under section 597, an entity's treat-
ment under the regulations applies to its
successor. A successor includes a trans-
feree in a transaction to which section
381(a) applies or a Bridge Bank to which
another Bridge Bank transfers deposit li-
abilities.

(e) [Reserved]

(f) Losses and deductions with respect
to Covered Assets. Prior to the disposition
of a Covered Asset, the asset cannot be
charged off, marked to a market value, de-
preciated, amortized, or otherwise treated in
a manner that supposes an actual or possible
diminution of value below the asset's fair
market value. See § 1.597-1(b).

(g) Anti-abuse rule. The regulations
under section 597 must be applied in a
manner consistent with the purposes of
section 597. Accordingly, if, in structuring
or engaging in any transaction, a principal
purpose is to achieve a federal income tax
result that is inconsistent with the pur-
poses of section 597 and the regulations
thereunder, the Commissioner can make
appropriate adjustments to income, de-
ductions, and other items that would be
consistent with those purposes.

Par. 5. Section 1.597-4 is revised to
read as follows:

§ 1.597-4 Bridge Banks and Agency
Control.

(a) Scope. This section provides rules
that apply to a Bridge Bank or other In-
stitution under Agency Control and to
transactions in which an Institution trans-
fers deposit liabilities (whether or not the
Institution also transfers assets) to a
Bridge Bank.

(b) Status as taxpayer. A Bridge Bank
or other Institution under Agency Control
is a corporation within the meaning of
section 7701(a)(3) for all purposes of the
Internal Revenue Code (Code) and is sub-
ject to all Code provisions that generally
apply to corporations, including those re-
lating to methods of accounting and to
requirements for filing returns, even if an
Agency owns stock of the Institution.

(c) No section 382 ownership change.
The imposition of Agency Control, the
cancellation of Institution stock by an
Agency, a transaction in which an Institu-
tion transfers deposit liabilities to a Bridge
Bank, and an election under paragraph (g)
of this section are disregarded in deter-
mining whether an ownership change has
occurred within the meaning of section
382(g).

(d) Transfers to Bridge Banks-(1) In
general. Except as otherwise provided in
paragraph (g) of this section, the rules of
this paragraph (d) apply to transfers to
Bridge Banks. In general, a Bridge Bank
and its associated Residual Entity are to-
gether treated as the successor entity to
the transferring Institution. If an Institu-
tion transfers deposit liabilities to a Bridge
Bank (whether or not it also transfers as-
sets), the Institution recognizes no gain or
loss on the transfer and the Bridge Bank
succeeds to the transferring Institution's
basis in any transferred assets. The asso-
ciated Residual Entity retains its basis in
any assets it continues to hold. Immedi-
ately after the transfer, the Bridge Bank
succeeds to and takes into account the
transferring Institution's items described
in section 381(c) (subject to the condi-
tions and limitations specified in section
381(c)), taxpayer identification number
(TIN), deferred FFA account, and account
receivable for future FFA as described in
paragraph (g)(4)(ii) of this section. The
Bridge Bank also succeeds to and contin-
ues the transferring Institution's taxable
year.

(2) Transfers to a Bridge Bank from
multiple Institutions. If two or more Insti-
tutions transfer deposit liabilities to the
same Bridge Bank, the rules in paragraph
(d)(1) of this section are modified to the
extent provided in this paragraph (d)(2).
The Bridge Bank succeeds to the TIN and
continues the taxable year of the Institu-
tion that transfers the largest amount of

deposits. The taxable years of the other
transferring Institutions close at the time
of the transfer. If all the transferor Insti-
tutions are members of the same consoli-
dated group, the Bridge Bank's carryback
of losses to the Institution that transfers
the largest amount of deposits is not lim-
ited by section 381(b)(3). The limitations
of section 381(b)(3) do apply to the
Bridge Bank's carrybacks of losses to all
other transferor Institutions. If the trans-
feror Institutions are not all members of
the same consolidated group, the limita-
tions of section 381(b)(3) apply with re-
spect to all transferor Institutions. See
paragraph (g)(6)(ii) of this section for ad-
ditional rules that apply if two or more
Institutions that are not members of the
same consolidated group transfer deposit
liabilities to the same Bridge Bank.

(e) Treatment of Bridge Bank and Re-
sidual Entity as a single entity. A Bridge
Bank and its associated Residual Entity or
Entities are treated as a single entity for
federal income tax purposes and must file
a single combined federal income tax re-
turn. The Bridge Bank is responsible for
filing all federal income tax returns and
statements for this single entity and is the
agent of each associated Residual Entity
to the same extent as if the Bridge Bank
were the agent for a consolidated group,
within the meaning of § 1.1502-77, in-
cluding the Residual Entity. The term In-
stitution includes a Residual Entity that
files a combined return with its associated
Bridge Bank.

(f) Rules applicable to members of
consolidated groups-(1) Status as mem-
bers. Unless an election is made under
paragraph (g) of this section, Agency
Control of an Institution does not termi-
nate the Institution's membership in a
consolidated group. Stock of a subsidiary
that is canceled by an Agency is treated as
held by the members of the consolidated
group that held the stock prior to its can-
cellation. If an Institution is a member of
a consolidated group immediately before
it transfers deposit liabilities to a Bridge
Bank, the Bridge Bank succeeds to the
Institution's status as the common parent
or, unless an election is made under para-
graph (g) of this section, as a subsidiary of
the group. If a Bridge Bank succeeds to an
Institution's status as a subsidiary, its
stock is treated as held by the shareholders

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of the transferring Institution, and the
stock basis or excess loss account of the
Institution carries over to the Bridge
Bank. A Bridge Bank is treated as owning
stock owned by its associated Residual
Entities, including for purposes of deter-
mining membership in an affiliated group.

(2) Coordination with consolidated re-
turn regulations. The provisions of the
regulations under section 597 take prece-
dence over conflicting provisions in the
regulations under section 1502.

(g) Elective disaffiliation-(1) In gen-
eral. A consolidated group of which an
Institution is a subsidiary may elect irre-
vocably not to include the Institution in its
affiliated group if the Institution is placed
in Agency Receivership (whether or not
assets or deposit liabilities of the Institu-
tion are transferred to a Bridge Bank). See
paragraph (g)(6) of this section for cir-
cumstances under which a consolidated
group is deemed to make this election.

(2) Consequences of election. If the
election under this paragraph (g) is made
with respect to an Institution, the follow-
ing consequences occur immediately be-
fore the subsidiary Institution to which the
election applies is placed in Agency Re-
ceivership (or, in the case of a deemed
election under paragraph (g)(6) of this
section, immediately before the consoli-
dated group is deemed to make the elec-
tion) and in the following order-

(i) All adjustments of the Institution
and its Consolidated Subsidiaries under
section 481 are accelerated;

(ii) Deferred intercompany gains and
losses and intercompany items with re-
spect to the Institution and its Consoli-
dated Subsidiaries are taken into account
and the Institution and its Consolidated
Subsidiaries take into account any other
items required under the regulations under
section 1502 for members that become
nonmembers within the meaning of
§ 1.1502-32(d)(4);

(iii) The taxable year of the Institution
and its Consolidated Subsidiaries closes
and the Institution includes the amount
described in paragraph (g)(3) of this sec-
tion in income as ordinary income as its
last item for that taxable year;

(iv) The members of the consolidated
group owning the common stock of the
Institution include in income any excess
loss account with respect to the Institu-

tion's stock under § 1.1502-19 and any
other items required under the regulations
under section 1502 for members that own
stock of corporations that become non-
members within the meaning of § 1.1502-
32(d)(4); and

(v) If the Institution's liabilities exceed
the aggregate fair market value of its as-
sets on the date the Institution is placed in
Agency Receivership (or, in the case of a
deemed election under paragraph (g)(6) of
this section, on the date the consolidated
group is deemed to make the election), the
members of the consolidated group treat
their stock in the Institution as worthless.
(See §§ 1.337(d)-2, 1.1502-35(f), and
1.1502-36 for rules applicable when a
member of a consolidated group is enti-
tled to a worthless stock deduction with
respect to stock of another member of the
group.) In all other cases, the consolidated
group will be treated as owning stock of a
nonmember corporation until such stock
is disposed of or becomes worthless under
rules otherwise applicable.

(3) Toll charge. The amount described
in this paragraph (g)(3) is the excess of the
Institution's liabilities over the adjusted
bases of its assets immediately before the
Institution is placed in Agency Receiver-
ship (or, in the case of a deemed election
under paragraph (g)(6) of this section, im-
mediately before the consolidated group is
deemed to make the election). In comput-
ing this amount, the adjusted bases of an
Institution's assets are reduced by the
amount of the Institution's reserves for
bad debts under section 585 or 593, other
than supplemental reserves under section
593. For purposes of this paragraph (g)(3),
an Institution is treated as a single entity
that includes the assets and liabilities of its
Consolidated Subsidiaries, with appropri-
ate adjustments to prevent duplication.
The amount described in this paragraph
(g)(3) for alternative minimum tax pur-
poses is determined using alternative min-
imum tax basis, deductions, and all other
items required to be taken into account. In
computing the increase in the group's tax-
able income or alternative minimum tax-
able income, sections 56(d)(1), 382, and
383 and §§ 1.1502-15, 1.1502-21, and
1.1502-22 (or §§ 1.1502-15A, 1.1502-
21A, and 1.1502-22A, as appropriate) do
not limit the use of the attributes of the
Institution and its Consolidated Subsidiar-

ies to the extent, if any, that the inclusion
of the amount described in this paragraph
(g)(3) in income would result in the group
having taxable income or alternative min-
imum taxable income (determined with-
out regard to this sentence) for the taxable
year. The preceding sentence does not ap-
ply to any limitation under section 382 or
383 or § 1.1502-15, § 1.1502-21, or
§ 1.1502-22 (or § 1.1502-15A, § 1.1502-
21A, or § 1.1502-22A, as appropriate)
that arose in connection with or prior to
a corporation becoming a Consolidated
Subsidiary of the Institution.

(4) Treatment of Institutions after dis-
affiliation-(i) In general. If the election
under this paragraph (g) is made with re-
spect to an Institution, immediately after
the Institution is placed in Agency Re-
ceivership (or, in the case of a deemed
election under paragraph (g)(6) of this
section, immediately after the consoli-
dated group is deemed to make the elec-
tion), the Institution and each of its Con-
solidated Subsidiaries are treated for
federal income tax purposes as new cor-
porations that are not members of the
electing group's affiliated group. Each
new corporation retains the TIN of the
corresponding disaffiliated corporation
and is treated as having received the assets
and liabilities of the corresponding disaf-
filiated corporation in a transaction to
which section 351 applies (and in which
no gain was recognized under section
357(c) or otherwise). Thus, the new cor-
poration has no net operating or capital
loss carryforwards. An election under this
paragraph (g) does not terminate the sin-
gle entity treatment of a Bridge Bank and
its Residual Entities provided in para-
graph (e) of this section.

(ii) FFA. A new Institution is treated as
having a non-interest bearing, nontrans-
ferable account receivable for future FFA
with a basis equal to the amount described
in paragraph (g)(3) of this section. If a
disaffiliated Institution has a deferred FFA
account at the time of its disaffiliation, the
corresponding new Institution succeeds to
and takes into account that deferred FFA
account.

(iii) Filing of consolidated returns. If a
disaffiliated Institution has Consolidated
Subsidiaries at the time of its disaffilia-
tion, the corresponding new Institution is
required to file a consolidated federal in-

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come tax return with the subsidiaries in
accordance with the regulations under
section 1502.

(iv) Status as Institution. If an Institu-
tion is disaffiliated under this paragraph
(g), the resulting new corporation is
treated as an Institution for purposes of
the regulations under section 597 regard-
less of whether it is a bank or domestic
building and loan association within the
meaning of section 597.

(v) Loss carrybacks. To the extent a
carryback of losses would result in a re-
fund being paid to a fiduciary under sec-
tion 6402(k), an Institution or Consoli-
dated Subsidiary with respect to which an
election under this paragraph (g) (other
than under paragraph (g)(6)(ii) of this sec-
tion) applies is allowed to carry back
losses as if the Institution or Consolidated
Subsidiary had continued to be a member
of the consolidated group that made the
election.

(5) Affirmative election-(i) Original
Institution-(A) Manner of making elec-
tion. Except as otherwise provided in
paragraph (g)(6) of this section, a consol-
idated group makes the election provided
by this paragraph (g) by sending a written
statement by certified mail to the affected
Institution on or before 120 days after its
placement in Agency Receivership. The
statement must contain the following leg-
end at the top of the page: "THIS IS AN
ELECTION UNDER § 1.597-4(g) TO EX-
CLUDE THE INSTITUTION AND CON-
SOLIDATED SUBSIDIARIES REFER-
ENCED IN THIS STATEMENT FROM
THE AFFILIATED GROUP," and must
include the names and TINs of the com-
mon parent and of the Institution and Con-
solidated Subsidiaries to which the elec-
tion applies, and the date on which the
Institution was placed in Agency Receiv-
ership. The consolidated group must send
a similar statement to all subsidiary Ins-
titutions placed in Agency Receivership
during the consistency period described in
paragraph (g)(5)(ii) of this section. (Fail-
ure to satisfy the requirement in the pre-
ceding sentence, however, does not inval-
idate the election with respect to any
subsidiary Institution placed in Agency
Receivership during the consistency pe-
riod described in paragraph (g)(5)(ii) of
this section.) The consolidated group must
retain a copy of the statement sent to any

affected or subsidiary Institution (and the
accompanying certified mail receipt) as
proof that it mailed the statement to the
affected Institution, and the consolidated
group must make the statement and re-
ceipt available for inspection by the Com-
missioner upon request. The consolidated
group must include an election statement
as part of its first federal income tax return
filed after the due date under this para-
graph (g)(5) for such statement. A state-
ment must be attached to this return indi-
cating that the individual who signed
the election was authorized to do so on
behalf of the consolidated group. The
agent for the group, within the meaning
of § 1.1502-77, takes all actions re-
quired under this paragraph (g)(5)(i)(A)
to make the election provided under this
paragraph (g)(5) for the consolidated
group. An Agency cannot make the
election provided under this paragraph
(g)(5) under the authority of section
6402(k) or otherwise.

(B) Consistency limitation on affir-
mative elections. A consolidated group
may make an affirmative election under
this paragraph (g)(5) with respect to a
subsidiary Institution placed in Agency
Receivership only if the group made, or
is deemed to have made, the election
under this paragraph (g) with respect to
every subsidiary Institution of the group
placed in Agency Receivership within
five years preceding the date the subject
Institution was placed in Agency Re-
ceivership.

(ii) Effect on Institutions placed in re-
ceivership simultaneously or subsequently.
An election under this paragraph (g), other
than under paragraph (g)(6)(ii) of this sec-
tion, applies to the Institution with respect
to which the election is made or deemed
made (the original Institution) and each
subsidiary Institution of the group placed in
Agency Receivership or deconsolidated in
contemplation of Agency Control or the re-
ceipt of FFA simultaneously with the orig-
inal Institution or within five years there-
after.

(6) Deemed election-(i) Deconsolida-
tions in contemplation. If one or more
members of a consolidated group decon-
solidate (within the meaning of § 1.1502-
19(c)(1)(ii)(B)) a subsidiary Institution in
contemplation of Agency Control or the
receipt of FFA, the consolidated group is

deemed to make the election described in
this paragraph (g) with respect to the In-
stitution on the date the deconsolidation
occurs. A subsidiary Institution is conclu-
sively presumed to have been deconsoli-
dated in contemplation of Agency Control
or the receipt of FFA if either event occurs
within six months after the deconsolida-
tion.

(ii) Transfers to a Bridge Bank from
multiple groups. On the day an Institu-
tion's transfer of deposit liabilities to a
Bridge Bank results in the Bridge Bank
holding deposit liabilities from both a
subsidiary Institution and an Institution
not included in the subsidiary Institu-
tion's consolidated group, each consol-
idated group of which a transferring In-
stitution or the Bridge Bank is a
subsidiary is deemed to make the elec-
tion described in this paragraph (g) with
respect to its subsidiary Institution. If
deposit liabilities of another Institution
that is a subsidiary member of any con-
solidated group subsequently are trans-
ferred to the Bridge Bank, the consoli-
dated group of which the Institution is a
subsidiary is deemed to make the elec-
tion described in this paragraph (g) with
respect to that Institution at the time of
the subsequent transfer.

(h) Examples. The following examples
illustrate the provisions of this section:

Facts. Corporation X, the common parent of a
consolidated group, owns all the stock (with a basis
of $4 million) of Institution M, an insolvent Institu-
tion with no Consolidated Subsidiaries. At the close
of business on April 30, 2018, M has $4 million of
deposit liabilities, $1 million of other liabilities, and
assets with an adjusted basis of $4 million and a fair
market value of $3 million.

Example 1. Effect of receivership on consolida-
tion. On May 1, 2018, M is placed in Agency Re-
ceivership and the Agency begins liquidating M. X
does not make an election under paragraph (g) of this
section. M remains a member of the X consolidated
group after May 1, 2018 under paragraph (f)(1) of
this section.

Example 2. Effect of Bridge Bank on consolida-
tion-(i) Additional facts. On May 1, 2018, M is
placed in Agency Receivership and the Agency
causes M to transfer all of its assets and deposit
liabilities to Bridge Bank MB.

(ii) Consequences without an election to disaffil-
iate. M recognizes no gain or loss from the transfer
and MB succeeds to M's basis in the transferred
assets, M's items described in section 381(c) (subject
to the conditions and limitations specified in section
381(c)), and TIN under paragraph (d)(1) of this
section. (If M had a deferred FFA account, MB

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would also succeed to that account under paragraph
(d)(1) of this section.) MB continues M's taxable
year and succeeds to M's status as a member of the
X consolidated group after May 1, 2018 under para-
graphs (d)(1) and (f) of this section. MB and M are
treated as a single entity for federal income tax
purposes under paragraph (e) of this section.

(iii) Consequences with an election to disaffili-
ate. If, on July 1, 2018, X makes an election under
paragraph (g) of this section with respect to M, the
following consequences are treated as occurring im-
mediately before M was placed in Agency Receiv-
ership. M must include $1 million ($5 million of
liabilities - $4 million of adjusted basis) in income
as of May 1, 2018 under paragraph (g)(2) and (3) of
this section. M is then treated as a new corporation
that is not a member of the X consolidated group and
that has assets (including a $1 million account re-
ceivable for future FFA) with a basis of $5 million
and $5 million of liabilities received from disaffili-
ated corporation M in a section 351 transaction. New
corporation M retains the TIN of disaffiliated corpo-
ration M under paragraph (g)(4) of this section.
Immediately after the disaffiliation, new corporation
M is treated as transferring its assets and deposit
liabilities to Bridge Bank MB. New corporation M
recognizes no gain or loss from the transfer and MB
succeeds to M's TIN and taxable year under para-
graph (d)(1) of this section. Bridge Bank MB is
treated as a single entity that includes M and has $5
million of liabilities, an account receivable for future
FFA with a basis of $1 million, and other assets with
a basis of $4 million under paragraph (d)(1) of this
section.

Par. 6. Section 1.597-5 is revised to
read as follows:

§ 1.597-5 Taxable Transfers.

(a) Taxable Transfers-(1) Defined.
The term Taxable Transfer means-

(i) A transaction in which an entity
transfers to a transferee other than a
Bridge Bank-

(A) Any deposit liability (whether or
not the Institution also transfers assets), if
FFA is provided in connection with the
transaction; or

(B) Any asset for which an Agency or
a Controlled Entity has any financial ob-
ligation (for example, pursuant to a Loss
Guarantee or Agency Obligation); or

(ii) A deemed transfer of assets de-
scribed in paragraph (b) of this section.

(2) Scope. This section provides rules
governing Taxable Transfers. Rules appli-
cable to both actual and deemed asset
acquisitions are provided in paragraphs
(c) and (d) of this section. Special rules
applicable only to deemed asset acquisi-
tions are provided in paragraph (e) of this
section.

(b) Deemed asset acquisitions upon
stock purchase-(1) In general. In a
deemed transfer of assets under this para-
graph (b), an Institution (including a
Bridge Bank or a Residual Entity) or a
Consolidated Subsidiary of the Institution
(the Old Entity) is treated as selling all of
its assets in a single transaction and is
treated as a new corporation (the New
Entity) that purchases all of the Old Enti-
ty's assets at the close of the day imme-
diately preceding the occurrence of an
event described in paragraph (b)(2) of this
section. However, such an event results in
a deemed transfer of assets under this
paragraph (b) only if it occurs-

(i) In connection with a transaction in
which FFA is provided;

(ii) While the Institution is a Bridge
Bank;

(iii) While the Institution has a positive
balance in a deferred FFA account (see
§ 1.597-2(c)(4)(v) regarding the optional
accelerated recapture of deferred FFA); or

(iv) With respect to a Consolidated
Subsidiary, while the Institution of which
it is a Consolidated Subsidiary is under
Agency Control.

(2) Events. A deemed transfer of assets
under this paragraph (b) results if the In-
stitution or Consolidated Subsidiary-

(i) Becomes a non-member (within the
meaning of § 1.1502-32(d)(4)) of its con-
solidated group, other than pursuant to an
election under § 1.597-4(g);

(ii) Becomes a member of an affiliated
group of which it was not previously a
member, other than pursuant to an elec-
tion under § 1.597-4(g); or

(iii) Issues stock such that the stock that
was outstanding before the imposition of
Agency Control or the occurrence of any
transaction in connection with the provi-
sion of FFA represents 50 percent or less
of the vote or value of its outstanding
stock (disregarding stock described in sec-
tion 1504(a)(4) and stock owned by an
Agency or a Controlled Entity).

(3) Bridge Banks and Residual Enti-
ties. If a Bridge Bank is treated as selling
all of its assets to a New Entity under this
paragraph (b), each associated Residual
Entity is treated as simultaneously selling
its assets to a New Entity in a Taxable
Transfer described in this paragraph (b).

(c) Treatment of transferor-(1) FFA
in connection with a Taxable Transfer. A

transferor in a Taxable Transfer is treated
as having directly received immediately
before a Taxable Transfer any Net Worth
Assistance that an Agency provides to the
New Entity or the Acquiring in connec-
tion with the transfer. (See § 1.597-2(a)
and (c) for rules regarding the inclusion of
FFA in income and § 1.597-2(a)(1) for
related rules regarding FFA provided to
shareholders.) The Net Worth Assistance
is treated as an asset of the transferor that
is sold to the New Entity or the Acquiring
in the Taxable Transfer.

(2) Amount realized in a Taxable
Transfer. In a Taxable Transfer described
in paragraph (a)(1)(i) of this section, the
amount realized is determined under sec-
tion 1001(b) by reference to the consider-
ation paid for the assets. In a Taxable
Transfer described in paragraph (a)(1)(ii)
of this section, the amount realized is the
sum of the grossed-up basis of the stock
acquired in connection with the Taxable
Transfer (excluding stock acquired from
the Old or New Entity), plus the amount
of liabilities assumed or taken subject to
in the deemed transfer, plus other relevant
items. The grossed-up basis of the ac-
quired stock equals the acquirers' basis in
the acquired stock divided by the percent-
age of the Old Entity's stock (by value)
attributable to the acquired stock.

(3) Allocation of amount realized-(i)
In general. The amount realized under
paragraph (c)(2) of this section is allo-
cated among the assets transferred in the
Taxable Transfer in the same manner as
amounts are allocated among assets under
§ 1.338-6(b) and (c)(1) and (2).

(ii) Modifications to general rule. This
paragraph (c)(3)(ii) modifies certain of the
allocation rules of paragraph (c)(3)(i) of
this section. Agency Obligations and Cov-
ered Assets in the hands of the New Entity
or the Acquiring are treated as Class II
assets. Stock of a Consolidated Subsidiary
is treated as a Class II asset to the extent
the fair market value of the Consolidated
Subsidiary's Class I and Class II assets
(see § 1.597-1(b)) exceeds the amount of
its liabilities. The fair market value of an
Agency Obligation is deemed to equal its
adjusted issue price immediately before
the Taxable Transfer.

(d) Treatment of a New Entity and an
Acquiring-(1) Purchase price. The pur-
chase price for assets acquired in a Tax-

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able Transfer described in paragraph
(a)(1)(i) of this section is the cost of the
assets acquired. See § 1.1060-1(c)(1). All
assets transferred in related transactions
pursuant to an option included in an
agreement between the transferor and the
Acquiring in the Taxable Transfer are in-
cluded in the group of assets among which
the consideration paid is allocated for pur-
poses of determining the New Entity's or
the Acquiring's basis in each of the assets.
The purchase price for assets acquired in a
Taxable Transfer described in paragraph
(a)(1)(ii) of this section is the sum of the
grossed-up basis of the stock acquired in
connection with the Taxable Transfer (ex-
cluding stock acquired from the Old or
New Entity), plus the amount of liabilities
assumed or taken subject to in the deemed
transfer, plus other relevant items. The
grossed-up basis of the acquired stock
equals the acquirers' basis in the acquired
stock divided by the percentage of the Old
Entity's stock (by value) attributable to
the acquired stock. FFA provided in con-
nection with a Taxable Transfer is not
included in the New Entity's or the Ac-
quiring's purchase price for the acquired
assets. Any Net Worth Assistance so pro-
vided is treated as an asset of the trans-
feror sold to the New Entity or the Ac-
quiring in the Taxable Transfer.

(2) Allocation of basis-(i) In general.
Except as otherwise provided in this para-
graph (d)(2), the purchase price determined
under paragraph (d)(1) of this section is
allocated among the assets transferred in the
Taxable Transfer in the same manner as
amounts are allocated among assets under
§ 1.338-6(b) and (c)(1) and (2).

(ii) Modifications to general rule. The
allocation rules contained in paragraph
(c)(3)(ii) of this section apply to the allo-
cation of basis among assets acquired in a
Taxable Transfer. No basis is allocable to
an Agency's agreement to provide Loss
Guarantees, yield maintenance payments,
cost to carry or cost of funds reimburse-
ment payments, or expense reimburse-
ment or indemnity payments. A New En-
tity's basis in assets it receives from its
shareholders is determined under general
federal income tax principles and is not
governed by this paragraph (d).

(iii) Allowance and recapture of addi-
tional basis in certain cases. The basis of
Class I and Class II assets equals their fair

market value. See § 1.597-1(b). If the fair
market value of the Class I and Class II
assets exceeds the purchase price for the
acquired assets, the excess is included rat-
ably as ordinary income by the New En-
tity or the Acquiring over a period of six
taxable years beginning in the year of the
Taxable Transfer. The New Entity or the
Acquiring must include as ordinary in-
come the entire amount remaining to be
recaptured under the preceding sentence
in the taxable year in which an event
occurs that would accelerate inclusion of
an adjustment under section 481.

(iv) Certain post-transfer adjustments-
(A) Agency Obligations. If an adjustment
to the principal amount of an Agency Ob-
ligation or cash payment to reflect a more
accurate determination of the condition of
the Institution at the time of the Taxable
Transfer is made before the earlier of the
date the New Entity or the Acquiring files
its first post-transfer federal income tax
return or the due date of that return (in-
cluding extensions), the New Entity or the
Acquiring must adjust its basis in its ac-
quired assets to reflect the adjustment. In
making adjustments to the New Entity's
or the Acquiring's basis in its acquired
assets, paragraph (c)(3)(ii) of this section
is applied by treating an adjustment to the
principal amount of an Agency Obligation
pursuant to the first sentence of this para-
graph (d)(2)(iv)(A) as occurring immedi-
ately before the Taxable Transfer. (See
§ 1.597-3(c)(3) for rules regarding other
adjustments to the principal amount of an
Agency Obligation.)

(B) Covered Assets. If, immediately af-
ter a Taxable Transfer, an asset is not
subject to a Loss Guarantee but the New
Entity or the Acquiring has the right to
designate specific assets that will be sub-
ject to the Loss Guarantee, the New Entity
or the Acquiring must treat any asset so
designated as having been subject to the
Loss Guarantee at the time of the Taxable
Transfer. The New Entity or the Acquir-
ing must adjust its basis in the Covered
Assets and in its other acquired assets to
reflect the designation in the manner pro-
vided by paragraph (d)(2) of this section.
The New Entity or the Acquiring must
make appropriate adjustments in subse-
quent taxable years if the designation is
made after the New Entity or the Acquir-
ing files its first post-transfer federal in-

come tax return or the due date of that
return (including extensions) has passed.

(e) Special rules applicable to Taxable
Transfers that are deemed asset acquisi-
tions-(1) Taxpayer Identification Num-
bers. Except as provided in paragraph
(e)(3) of this section, the New Entity suc-
ceeds to the TIN of the Old Entity in a
deemed sale under paragraph (b) of this
section.

(2) Consolidated Subsidiaries-(i) In
general. A Consolidated Subsidiary that is
treated as selling its assets in a Taxable
Transfer under paragraph (b) of this sec-
tion is treated as engaging immediately
thereafter in a complete liquidation to
which section 332 applies. The consoli-
dated group of which the Consolidated
Subsidiary is a member does not take into
account gain or loss on the sale, exchange,
or cancellation of stock of the Consoli-
dated Subsidiary in connection with the
Taxable Transfer.

(ii) Certain minority shareholders.
Shareholders of the Consolidated Subsid-
iary that are not members of the consoli-
dated group that includes the Institution
do not recognize gain or loss with respect
to shares of Consolidated Subsidiary stock
retained by the shareholder. The share-
holder's basis for that stock is not affected
by the Taxable Transfer.

(3) Bridge Banks and Residual Enti-
ties-(i) In general. A Bridge Bank or
Residual Entity's sale of assets to a New
Entity under paragraph (b) of this section
is treated as made by a single entity under
§ 1.597-4(e). The New Entity deemed to
acquire the assets of a Residual Entity
under paragraph (b) of this section is not
treated as a single entity with the Bridge
Bank (or with the New Entity acquiring
the Bridge Bank's assets) and must obtain
a new TIN.

(ii) Treatment of consolidated groups.
At the time of a Taxable Transfer de-
scribed in paragraph (a)(1)(ii) of this sec-
tion, treatment of a Bridge Bank as a
subsidiary member of a consolidated
group under § 1.597-4(f)(1) ceases. How-
ever, the New Entity that is deemed to
acquire the assets of a Residual Entity is a
member of the selling consolidated group
after the deemed sale. The group's basis
or excess loss account in the stock of the
New Entity that is deemed to acquire the
assets of the Residual Entity is the group's

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basis or excess loss account in the stock of
the Bridge Bank immediately before the
deemed sale, as adjusted for the results of
the sale.

(4) Certain returns. If an Old Entity
without Continuing Equity is not a sub-
sidiary of a consolidated group at the time
of the Taxable Transfer, the controlling
Agency must file all federal income tax
returns for the Old Entity for periods end-
ing on or prior to the date of the deemed
sale described in paragraph (b) of this
section that are not filed as of that date.

(5) Basis limited to fair market value.
If all of the stock of the corporation is not
acquired on the date of the Taxable Trans-
fer, the Commissioner may make appro-
priate adjustments under paragraphs (c)
and (d) of this section to the extent using
a grossed-up basis of the stock of a cor-
poration results in an aggregate amount
realized for, or basis in, the assets other
than the aggregate fair market value of the
assets.

(f) Examples. The following examples
illustrate the provisions of this section.
For purposes of these examples, an Insti-
tution's loans are treated as if they were a
single asset. However, in applying these
regulations, the fair market value of each
loan (including, for purposes of a Covered
Asset, the Third-Party Price and the Ex-
pected Value) must be determined sepa-
rately.

Example 1. Branch sale resulting in Taxable
Transfer. (i) Institution M is a calendar-year tax-
payer in Agency Receivership. M is not a member of
a consolidated group. On January 1, 2018, M has
$200 million of liabilities (including deposit liabili-
ties) and assets with an adjusted basis of $100 mil-
lion. M has no income or loss for 2018 and, except
as otherwise described in this paragraph (i), M re-
ceives no FFA. On September 30, 2018, the Agency
causes M to transfer six branches (with assets having
an adjusted basis of $1 million) together with $120
million of deposit liabilities to N. In connection with
the transfer, the Agency provides $121 million in
cash to N.

(ii) The transaction is a Taxable Transfer in
which M receives $121 million of Net Worth Assis-
tance under paragraph (a)(1) of this section. (M is
treated as directly receiving the $121 million of Net
Worth Assistance immediately before the Taxable
Transfer under paragraph (c)(1) of this section.) M
transfers branches having a basis of $1 million and is
treated as transferring $121 million in cash (the Net
Worth Assistance) to N in exchange for N's assump-
tion of $120 million of liabilities. Thus, M realizes a
loss of $2 million on the transfer. The amount of the
FFA M must include in its income in 2018 is limited
by paragraph (c) of § 1.597-2 to $102 million, which
is the sum of the $100 million excess of M's liabil-

ities ($200 million) over the total adjusted basis of its
assets ($100 million) at the beginning of 2018 and
the $2 million excess for the taxable year (which
results from the Taxable Transfer) of M's deductions
(other than carryovers) over its gross income other
than FFA. M must establish a deferred FFA account
for the remaining $19 million of FFA under para-
graph (c)(4) of § 1.597-2.

(iii) N, as the Acquiring, must allocate its $120
million purchase price for the assets acquired from
M among those assets. Cash is a Class I asset. The
branch assets are in Classes III and IV. N's adjusted
basis in the cash is its amount, that is, $121 million
under paragraph (d)(2) of this section. Because this
amount exceeds N's purchase price for all of the
acquired assets by $1 million, N allocates no basis to
the other acquired assets and, under paragraph (d)(2)
of this section, must recapture the $1 million excess
at an annual rate of $166,667 in the six consecutive
taxable years beginning with 2018 (subject to accel-
eration for certain events).

Example 2. Stock issuance by Bridge Bank caus-
ing Taxable Transfer. (i) On April 1, 2018, Institu-
tion P is placed in Agency Receivership and the
Agency causes P to transfer assets and liabilities to
Bridge Bank PB. On August 31, 2018, the assets of
PB consist of $20 million in cash, loans outstanding
with an adjusted basis of $50 million and a Third-
Party Price of $40 million, and other non-financial
assets (primarily branch assets and equipment) with
an adjusted basis of $5 million. PB has deposit
liabilities of $95 million and other liabilities of $5
million. P, the Residual Entity, holds real estate with
an adjusted basis of $10 million and claims in liti-
gation having a zero basis. P retains no deposit
liabilities and has no other liabilities (except its lia-
bility to the Agency for having caused its deposit
liabilities to be satisfied).

(ii) On September 1, 2018, the Agency causes
PB to issue 100 percent of its common stock for $2
million cash to X. On the same day, the Agency
issues a $25 million note to PB. The note bears a
fixed rate of interest in excess of the applicable
Federal rate in effect for September 1, 2018. The
Agency provides Loss Guarantees guaranteeing PB a
value of $50 million for PB's loans outstanding.

(iii) The stock issuance is a Taxable Transfer in
which PB is treated as selling all of its assets to a
new corporation, New PB, under paragraph (b)(1) of
this section. PB is treated as directly receiving $25
million of Net Worth Assistance (the issue price of
the Agency Obligation) immediately before the Tax-
able Transfer under paragraph (c)(2) of § 1.597-3
and paragraph (c)(1) of this section. The amount of
FFA PB must include in income is determined under
paragraphs (a) and (c) of § 1.597-2. PB in turn is
deemed to transfer the note (with a basis of $25
million) to New PB in the Taxable Transfer, together
with $20 million of cash, all its loans outstanding
(with a basis of $50 million) and its other non-
financial assets (with a basis of $5 million). The
amount realized by PB from the sale is $100 million
(the amount of PB's liabilities deemed to be assumed
by New PB). This amount realized equals PB's basis
in its assets; thus, PB realizes no gain or loss on the
transfer to New PB.

(iv) Residual Entity P also is treated as selling all
its assets (consisting of real estate and claims in

litigation) for $0 (the amount of consideration re-
ceived by P) to a new corporation (New P) in a
Taxable Transfer under paragraph (b)(3) of this sec-
tion. (P's only liability is to the Agency and a lia-
bility to the Agency is not treated as a debt under
paragraph (b) of § 1.597-3.) P's basis in its assets is
$10 million; thus, P realizes a $10 million loss on the
transfer to New P. The combined return filed by PB
and P for 2018 will reflect a total loss on the Taxable
Transfer of $10 million ($0 for PB and $10 million
for P) under paragraph (e)(3) of this section. That
return also will reflect FFA income from the Net
Worth Assistance, determined under paragraphs (a)
and (c) of § 1.597-2.

(v) New PB is treated as having acquired the
assets it acquired from PB for $100 million, the
amount of liabilities assumed. In allocating basis
among these assets, New PB treats the Agency note
and the loans outstanding (which are Covered As-
sets) as Class II assets. For the purpose of allocating
basis, the fair market value of the Agency note is
deemed to equal its adjusted issue price immediately
before the transfer ($25 million), and the fair market
value of the loans is their Expected Value, $50
million (the sum of the $40 million Third-Party Price
and the $10 million that the Agency would pay if PB
sold the loans for $40 million) under paragraph (b)
of § 1.597-1. Alternatively, if the Third-Party Price
for the loans were $60 million, then the fair market
value of the loans would be $60 million, and there
would be no payment from the Agency.

(vi) New P is treated as having acquired its assets
for no consideration. Thus, its basis in its assets
immediately after the transfer is zero. New PB and
New P are not treated as a single entity under para-
graph (e)(3) of this section.

Example 3. Taxable Transfer of previously dis-
affiliated Institution. (i) Corporation X, the common
parent of a consolidated group, owns all the stock of
Institution M, an insolvent Institution with no Con-
solidated Subsidiaries. On April 30, 2018, M has $4
million of deposit liabilities, $1 million of other
liabilities, and assets with an adjusted basis of $4
million. On May 1, 2018, M is placed in Agency
Receivership. X elects under paragraph (g) of
§ 1.597-4 to disaffiliate M. Accordingly, as of May
1, 2018, new corporation M is not a member of the
X consolidated group. On May 1, 2018, the Agency
causes M to transfer all of its assets and liabilities to
Bridge Bank MB. Under paragraphs (e) and (g)(4) of
§ 1.597-4, MB and M are thereafter treated as a
single entity which has $5 million of liabilities, an
account receivable for future FFA with a basis of $1
million, and other assets with a basis of $4 million.

(ii) During May 2018, MB earns $25,000 of
interest income and accrues $20,000 of interest ex-
pense on depositor accounts and there is no net
change in deposits other than the additional $20,000
of interest expense accrued on depositor accounts.
MB pays $5,000 of wage expenses and has no other
items of income or expense.

(iii) On June 1, 2018, the Agency causes MB to
issue 100 percent of its stock to Corporation Y. In
connection with the stock issuance, the Agency pro-
vides an Agency Obligation for $2 million and no
other FFA.

(iv) The stock issuance results in a Taxable
Transfer under paragraph (b) of this section. MB is

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treated as receiving the Agency Obligation immedi-
ately prior to the Taxable Transfer under paragraph
(c)(1) of this section. MB has $1 million of basis in
its account receivable for FFA. This receivable is
treated as satisfied, offsetting $1 million of the $2
million of FFA provided by the Agency in connec-
tion with the Taxable Transfer. The status of the
remaining $1 million of FFA as includible income is
determined as of the end of the taxable year under
paragraph (c) of § 1.597-2. However, under para-
graph (b) of § 1.597-2, MB obtains a $2 million
basis in the Agency Obligation received as FFA.

(v) Under paragraph (c)(2) of this section, in the
Taxable Transfer, Old Entity MB is treated as sell-
ing, to New Entity MB, all of Old Entity MB's
assets, having a basis of $6,020,000 (the original $4
million of asset basis as of April 30, 2018, plus
$20,000 net cash from May 2018 activities, plus the
$2 million Agency Obligation received as FFA), for
$5,020,000, the amount of Old Entity MB's liabili-
ties assumed by New Entity MB pursuant to the
Taxable Transfer. Therefore, Old Entity MB rec-
ognizes, in the aggregate, a loss of $1 million from
the Taxable Transfer.

(vi) Because this $1 million loss causes Old
Entity MB's deductions to exceed its gross income
(determined without regard to FFA) by $1 million,
Old Entity MB must include in its income the $1
million of FFA not offset by the FFA receivable
under paragraph (c) of § 1.597-2. (As of May 1,
2018, Old Entity MB's liabilities ($5 million) did not
exceed MB's $5 million adjusted basis of its assets.
For the taxable year, MB's deductions of $1,025,000
($1 million loss from the Taxable Transfer, $20,000
interest expense and $5,000 of wage expense) ex-
ceeded its gross income (disregarding FFA) of
$25,000 (interest income) by $1 million. Thus, under
paragraph (c) of § 1.597-2, MB includes in income
the entire $1 million of FFA not offset by the FFA
receivable.)

(vii) Therefore, Old Entity MB's taxable income
for the taxable year ending on the date of the Taxable
Transfer is $0.

(viii) Residual Entity M is also deemed to engage
in a deemed sale of its assets to New Entity M under
paragraph (b)(3) of this section, but there are no
federal income tax consequences as M has no assets
or liabilities at the time of the deemed sale.

(ix) Under paragraph (d)(1) of this section, New
Entity MB is treated as purchasing Old Entity MB's
assets for $5,020,000, the amount of New Entity
MB's liabilities. Of this, $2 million is allocated to
the $2 million Agency Obligation, and $3,020,000 is
allocated to the other assets New Entity MB is
treated as purchasing in the Taxable Transfer.

Example 4. Loss Guarantee. On January 1, 2018,
Institution N acquires assets and assumes liabilities
of another Institution in a Taxable Transfer. In ex-
change for assuming $1,100,000 of the transferring
Institution's liabilities, N acquires Net Worth Assis-
tance of $200,000, loans with an unpaid principal
balance of $1 million, and two foreclosed properties
each having a book value of $100,000 in the hands of
the transferring Institution. In connection with the
Taxable Transfer, an Agency guarantees N a price of
$800,000 on the disposition or charge-off of the
loans and a price of $80,000 on the disposition or
charge-off of each of the foreclosed properties. This

arrangement constitutes a Loss Guarantee. The
Third-Party Price is $500,000 for the loans and
$50,000 for each of the foreclosed properties. For
basis allocation purposes, the loans and foreclosed
properties are Class II assets because they are Cov-
ered Assets, and N must allocate basis to such assets
equal to their fair market value under paragraphs
(c)(3)(ii) and (d)(2)(ii) and (iii) of this section. The
fair market value of the loans is their Expected
Value, $800,000 (the sum of the $500,000 Third-
Party Price and the $300,000 that the Agency would
pay if N sold the loans for $500,000). The fair
market value of each foreclosed property is its Ex-
pected Value, $80,000 (the sum of the $50,000
Third-Party Price and the $30,000 that the Agency
would pay if N sold the foreclosed property for
$50,000) under paragraph (b) of § 1.597-1. Accord-
ingly, N's basis in the loans and in each of the
foreclosed properties is $800,000 and $80,000, re-
spectively. Because N's aggregate basis in the cash,
loans, and foreclosed properties ($1,160,000) ex-
ceeds N's purchase price ($1,100,000) by $60,000,
N must include $60,000 in income ratably over six
years under paragraph (d)(2)(iii) of this section.

Example 5. Loss Share Agreement. (i) The facts
are the same as in Example 4 of this paragraph (f)
except that, in connection with the Taxable Transfer,
the Agency agrees to reimburse Institution N in an
amount equal to zero percent of any loss realized
(based on the $1 million unpaid principal balance of
the loans and the $100,000 book value of each of the
foreclosed properties) on the disposition or charge-
off of the Covered Assets up to $200,000; 50 percent
of any loss realized between $200,000 and $700,000;
and 95 percent of any additional loss realized. This
arrangement constitutes a Loss Guarantee that is a
Loss Share Agreement. Thus, the Covered Assets are
Class II assets, and N allocates basis to such assets
equal to their fair market value under paragraphs
(c)(3)(ii) and (d)(2)(ii) and (iii) of this section.
Because the Third-Party Price for all of the Cov-
ered Assets is $600,000 ($500,000 for the loans
and $50,000 for each of the foreclosed properties),
the Average Reimbursement Rate is 33.33%
((($200,000×0%)+($400,000×50%)+($0×
95%))/$600,000). The Expected Value of the loans
is $666,667 ($500,000 Third-Party Price + $166,667
(the amount of the loss if the loans were disposed of
for the Third-Party Price X 33.33%)), and the Ex-
pected Value of each foreclosed property is $66,667
($50,000 Third-Party Price + $16,667 (the amount
of the loss if the foreclosed property were sold for
the Third-Party Price X 33.33%)) under paragraph
(b) of § 1.597-1. For purposes of allocating basis,
the fair market value of the loans is $666,667 (their
Expected Value), and the fair market value of each
foreclosed property is $66,667 (its Expected Value)
under paragraph (b) of § 1.597-1.

(ii) At the end of 2018, the Third-Party Price for
the loans drops to $400,000, and the Third-Party
Price for each of the foreclosed properties remains at
$50,000. The fair market value of the loans at the
end of Year 2 is their Expected Value, $600,000
($400,000 Third-Party Price + $200,000 (the
amount of the loss if the loans were disposed of for
the Third-Party Price X 33.33%) (the Average Re-
imbursement Rate does not change)). Thus, if the
loans otherwise may be charged off, marked to a

market value, depreciated, or amortized, then the
loans may be marked down to $600,000. The fair
market value of each of the foreclosed properties
remains at $66,667 ($50,000 Third-Party Price +
$16,667 (the amount of the loss if the foreclosed
property were sold for the Third-Party Price X
33.33%)). Therefore, the foreclosed properties may
not be charged off or depreciated in 2018.

Par. 7. Section 1.597-6 is revised to
read as follows:

§ 1.597-6 Limitation on collection of
federal income tax.

(a) Limitation on collection where fed-
eral income tax is borne by an Agency. If
an Institution without Continuing Equity
(or any of its Consolidated Subsidiaries) is
liable for federal income tax that is attrib-
utable to the inclusion in income of FFA
or gain from a Taxable Transfer, the fed-
eral income tax will not be collected if it
would be borne by an Agency. The final
determination of whether the federal in-
come tax would be borne by an Agency is
within the sole discretion of the Commis-
sioner. In determining whether federal in-
come tax would be borne by an Agency,
the Commissioner will disregard indem-
nity, tax-sharing, or similar obligations of
an Agency, an Institution, or its Consoli-
dated Subsidiaries. Collection of the sev-
eral federal income tax liability under
§ 1.1502-6 from members of an Institu-
tion's consolidated group other than the
Institution or its Consolidated Subsidiar-
ies is not affected by this section. Federal
income tax will continue to be subject to
collection except as specifically limited in
this section. This section does not apply to
taxes other than federal income taxes.

(b) Amount of federal income tax at-
tributable to FFA or gain on a Taxable
Transfer. For purposes of paragraph (a) of
this section, the amount of federal income
tax in a taxable year attributable to the
inclusion of FFA or gain from a Taxable
Transfer in the income of an Institution
(or a Consolidated Subsidiary) is the ex-
cess of the actual federal income tax lia-
bility of the Institution (or the consoli-
dated group in which the Institution is a
member) over the federal income tax
liability of the Institution (or the consol-
idated group in which the Institution is a
member) determined without regard to
FFA or gain or loss on the Taxable
Transfer.

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(c) Reporting of uncollected federal in-
come tax. A taxpayer must specify on a
statement included with its Form 1120
(U.S. Corporate Income Tax Return) the
amount of federal income tax for the tax-
able year that is potentially not subject to
collection under this section. If an Institu-
tion is a subsidiary member of a consoli-
dated group, the amount specified as not
subject to collection is zero.

(d) Assessments of federal income tax
to offset refunds. Federal income tax that
is not collected under this section will be
assessed and, thus, used to offset any
claim for refund made by or on behalf of
the Institution, the Consolidated Subsid-
iary, or any other corporation with several
liability for the federal income tax.

(e) Collection of federal income taxes
from an Acquiring or a New Entity-(1)
Acquiring. No federal income tax liability
(including the several liability for federal
income taxes under § 1.1502-6) of a
transferor in a Taxable Transfer will be
collected from an Acquiring.

(2) New Entity. Federal income tax li-
ability (including the several liability for
federal income taxes under § 1.1502-6)
of a transferor in a Taxable Transfer will
be collected from a New Entity only if
stock that was outstanding in the Old En-
tity remains outstanding as stock in the
New Entity or is reacquired or exchanged
for consideration.

(f) Effect on section 7507. This section
supersedes the application of section
7507, and the regulations thereunder, for
the assessment and collection of federal
income tax attributable to FFA.

Par. 8. Section 1.597-7 is revised to
read as follows:

§ 1.597-7 Effective/applicability dates.

(a) FIRREA effective date. Section 597,
as amended by section 1401 of the Finan-
cial Institutions Reform, Recovery, and
Enforcement Act of 1989 (Public Law
101-73, 103 Stat 183 (1989)) (FIRREA)
is generally effective for any FFA re-
ceived or accrued by an Institution on or
after May 10, 1989, and for any transac-
tion in connection with which such FFA is
provided, unless the FFA is provided in

connection with an acquisition occurring
prior to May 10, 1989. See § 1.597-8 for
rules regarding FFA received or accrued
on or after May 10, 1989, that relates to an
acquisition that occurred before May 10,
1989.

(b) Applicability date of §§ 1.597-1
through 1.597-6. Sections 1.597-1
through 1.597-6 apply on or after Octo-
ber 19, 2017, except with respect to FFA
provided pursuant to a written agreement
that is binding before October 19, 2017,
and that continues to be binding at all
times after such date, in which case
§§ 1.597-1 through 1.597-6 as contained
in 26 CFR part 1, revised April 1, 2017,
will continue to apply unless the taxpayer
elects to apply §§ 1.597-1 through
1.597-6 on a retroactive basis pursuant to
paragraph (c) of this section.

(c) Elective application to prior years
and transactions-(1) In general. Except
as limited in this paragraph (c), an elec-
tion is available to apply §§ 1.597-1
through 1.597-6 to taxable years begin-
ning prior to October 19, 2017. A con-
solidated group may elect to apply
§§ 1.597-1 through 1.597-6 for all mem-
bers of the group in all taxable years to
which section 597, as amended by FIR-
REA, applies. The agent for the group,
within the meaning of § 1.1502-77,
makes the election provided by this para-
graph (c) for the consolidated group. An
entity that is not a member of a consoli-
dated group may elect to apply §§ 1.597-1
through 1.597-6 to all taxable years to
which section 597, as amended by
FIRREA, applies for which it is not a
member of a consolidated group. The
election provided by this paragraph (c) is
irrevocable.

(2) Election unavailable if statute of
limitations closed. The election provided
by this paragraph (c) cannot be made if
the period for assessment and collection
of federal income tax has expired under
the rules of section 6501 for any taxable
year in which §§ 1.597-1 through
1.597-6 would affect the determination of
the electing entity's or group's income,
deductions, gain, loss, basis, or other
items.

(3) Manner of making election. An In-
stitution or consolidated group makes the
election provided by this paragraph (c) by
including a written statement as a part of
the taxpayer's or consolidated group's
first annual federal income tax return filed
on or after October 19, 2017. The state-
ment must contain the following legend at
the top of the page: "THIS IS AN ELEC-
TION UNDER § 1.597-7(c)," and must
contain the name, address, and taxpayer
identification number of the taxpayer or
agent for the group making the election.
The statement must include a declaration
that "TAXPAYER AGREES TO EX-
TEND THE STATUTE OF LIMITA-
TIONS ON ASSESSMENT FOR THREE
YEARS FROM THE DATE OF THE
FILING OF THIS ELECTION UNDER
§ 1.597-7(c), IF THE LIMITATIONS
PERIOD WOULD EXPIRE EARLIER
WITHOUT SUCH EXTENSION, FOR
ANY ITEMS AFFECTED IN ANY
TAXABLE YEAR BY THE FILING OF
THIS ELECTION," and a declaration that
either "AMENDED RETURNS WILL BE
FILED FOR ALL TAXABLE YEARS
AFFECTED BY THE FILING OF THIS
ELECTION WITHIN 180 DAYS OF
MAKING THIS STATEMENT, UNLESS
SUCH REQUIREMENT IS WAIVED IN
WRITING BY THE INTERNAL REVE-
NUE SERVICE" or "ALL RETURNS
PREVIOUSLY FILED ARE CONSIS-
TENT WITH THE PROVISIONS OF
§§ 1.597-1 THROUGH 1.597-6." An elec-
tion with respect to a consolidated group
must be made by the agent for the group, not
an Agency, and applies to all members of
the group.

Kirsten Wielobob,
Deputy Commissioner for Services and
Enforcement.

Approved: August 22, 2017.

David J. Kautter,
Assistant Secretary for Tax Policy.

(Filed by the Office of the Federal Register on October 18,
2017, 8:45 a.m., and published in the issue of the Federal
Register for October 19, 2017, 82 F.R. 48618)

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## Part III. Administrative, Procedural, and Miscellaneous

Treatment Under Section
956(c) of Certain
Receivables Following
Hurricane Irma or
Hurricane Maria

Notice 2017-68

### SECTION 1. OVERVIEW

Under section 956(c)(1)(C), United
States property generally includes obliga-
tions of a United States person. However,
section 956(c)(2)(C) provides an excep-
tion from United States property for an
obligation of a United States person aris-
ing in connection with the sale or process-
ing of property if the amount of such
obligation outstanding at no time during
the taxable year exceeds the amount
which would be ordinary and necessary to
carry on the trade or business of both the
other party to the sale or processing trans-
action and the United States person had
the sale or processing transaction been
made between unrelated persons. See also
Treas. Reg. § 1.956-2(b)(1)(v). In re-
sponse to the damage caused by Hurricane
Irma and Hurricane Maria, including in
the Commonwealth of Puerto Rico and
the U.S. Virgin Islands, certain controlled

foreign corporations (within the meaning
of section 957(a)) ("CFCs") may need to
sell (or may have sold) substantial amounts
of property located in affected areas to re-
lated United Stated persons and may do so
(or have done so) in exchange for obliga-
tions of such persons.

SECTION 2. TREATMENT OF
CERTAIN OBLIGATIONS UNDER
SECTION 956(c)

The damage caused by Hurricane Irma
and Hurricane Maria has imperiled prop-
erty located in affected areas. To facilitate
necessary safekeeping of certain such
property, Notice 2017-55, 2017-42 IRB
324 (October 16, 2017), announced that a
CFC would not be treated as holding
United States property as a result of tem-
porarily storing such property in the
United States. Treas. Reg. § 1.956-
2(b)(1)(v) indicates that whether an obli-
gation of a United States person received
in exchange for a sale of such property
would be excluded from United States
property under section 956(c)(2)(C) and
Treas. Reg. § 1.956-2(b)(1)(v) is deter-
mined based on all of the facts and cir-
cumstances. However, to provide cer-
tainty and thus further facilitate the
safekeeping and ongoing distribution of
such property, this notice announces that,

for purposes of section 956, if a CFC
holds an obligation of a United States
person, such obligation will be considered
to satisfy the requirements of section
956(c)(2)(C) and Treas. Reg. § 1.956-
2(b)(1)(v) to be excluded from United
States property, if (1) the obligation was
received in exchange for property that, if
transported to the United States for tem-
porary storage for safekeeping in antici-
pation of, or as a result of, Hurricane Irma
or Hurricane Maria, would not cause a
CFC to be treated as holding United States
property pursuant to Notice 2017-55, and
(2) the obligation ceases to be outstanding
on or before March 31, 2018. An obliga-
tion of a United States person that does
not meet the conditions in the preceding
sentence may nevertheless be exclud-
able from United States property under
956(c)(2)(C) and Treas. Reg. § 1.956-
2(b)(1)(v) depending on all of the facts
and circumstances.

## SECTION 3. DRAFTING INFORMATION

The principal author of this notice is
Rose E. Jenkins of the Office of Associate
Chief Counsel (International). For further
information regarding this notice, contact
Ms. Jenkins at (202) 317-6934 (not a toll-
free number).

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## Part IV. Items of General Interest

### Streamlining the Section 754 Election Statement REG-116256-17

AGENCY: Internal Revenue Service (IRS),
Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains pro-
posed amendments to the regulation relating
to the requirements for making a valid elec-
tion under section 754 of the Internal Rev-
enue Code of 1986 (Code), as amended.
The proposed regulation affects partnerships
and their partners by removing a regulatory
burden in making an election to adjust the
basis of partnership property.

DATES: Electronic or written comments
and requests for a public hearing must be
received by November 13, 2017.

ADDRESSES: Send submissions to Inter-
nal Revenue Service, CC:PA:LPD:PR
(REG-116256-17), Room 5203, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand-
delivered Monday through Friday be-
tween the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (REG-116256-17), Cou-
rier's Desk, 1111 Constitution Avenue,
N.W., Washington, DC, 20224, or sent elec-
tronically, via the Federal eRulemaking Por-
tal at www.regulations.gov (indicate IRS
and REG-116256-17).

FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tion, Meghan Howard, at (202) 317-5055;
concerning submissions of comments and
requests for a public hearing, Regina
Johnson, at (202) 317-6901 (not toll-free
numbers).

#### SUPPLEMENTARY INFORMATION:

##### Background and Explanation of Provision

This document contains proposed amend-
ments to 26 CFR part 1 under section 754 of
the Code. Specifically, these proposed
amendments would remove the signature
requirement contained in § 1.754-1(b) (cur-
rent regulation) in order to eliminate a reg-
ulatory burden.

Section 754 provides that if a partner-
ship files an election (section 754 elec-
tion), in accordance with regulations pre-
scribed by the Secretary, the basis of
partnership property shall be adjusted, in
the case of a distribution of property, in the
manner provided in section 734 and, in the
case of a transfer of a partnership interest, in
the manner provided in section 743. Such an
election applies with respect to all distribu-
tions of property by the partnership and to
all transfers of interests in the partnership
during the taxable year with respect to
which such election was filed and all subse-
quent taxable years. Such election may be
revoked by the partnership, subject to such
limitations as may be provided by regula-
tions prescribed by the Secretary.

The current regulation provides the
method to make the section 754 election
and states in relevant part that a section
754 election shall be made in a written
statement (section 754 election statement)
filed with the partnership return for the
taxable year during which the distribution
or transfer occurs. For the section 754
election to be valid, the return must be
filed not later than the time prescribed for
filing the return for such taxable year,
including extensions. The current regula-
tion requires that the section 754 election
statement (i) set forth the name and ad-
dress of the partnership making the elec-
tion, (ii) be signed by any one of the
partners, and (iii) contain a declaration
that the partnership elects under section
754 to apply the provisions of section
734(b) and section 743(b). Accordingly,
under the current regulation, a partnership
that files an unsigned section 754 election
statement with its partnership return
(whether filed electronically or in paper)
has not made a valid section 754 election.

Currently the only remedy for failing to
make a proper section 754 election is to
request "9100 relief" to make a late section
754 election either: (1) through automatic
relief, if the error is discovered within 12
months pursuant to § 301.9100-2 of the
Procedure and Administration Regula-
tions; or (2) through a private letter ruling
request pursuant to § 301.9100-3. The
IRS has received numerous requests for
9100 relief with respect to unsigned sec-
tion 754 election statements, especially

where returns have been filed electroni-
cally. In order to ease the burden on part-
nerships seeking to make a valid section
754 election and to eliminate the need to
seek 9100 relief, the Treasury Department
and the IRS are proposing to amend the
current regulation to remove the signature
requirement in § 1.754-1(b)(1). The
amended regulation will provide that a
taxpayer making a section 754 election
must file a statement with its return that:
(i) sets forth the name and address of the
partnership making the section 754 elec-
tion, and (ii) contains a declaration that
the partnership elects under section 754 to
apply the provisions of section 734(b) and
section 743(b).

##### Proposed Applicability Date

The amendments to this regulation are
proposed to apply to taxable years ending
on or after the date of publication of the
Treasury decision adopting these rules as a
final regulation in the Federal Register.
Taxpayers, however, may rely on this pro-
posed regulation for periods preceding the
proposed applicability date. Accordingly,
partnerships that filed a timely partnership
return containing an otherwise valid section
754 election statement, but for the missing
signature of a partner on the statement, will
not need to seek 9100 relief in such cases.

##### 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
this regulation, if adopted, would not have
a significant economic impact on a sub-
stantial number of small entities under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6). This certification is based on
the fact that this regulation reduces the
information currently required to be col-
lected in making an election to adjust the
basis of partnership property and thereby
reduces burden on small entities. Pursuant
to section 7805(f) of the Code, this regu-
lation has been submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small businesses.

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### Comments and Requests for a Public Hearing

Before this proposed regulation is ad-
opted as a final regulation, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed in
this preamble under the "Addresses" head-
ing. The Treasury Department and the IRS
request comments on all aspects of the pro-
posed regulation. All comments will be
available at www.regulations.gov or upon
request. A public hearing will be scheduled
if requested in writing by any person that
timely submits written comments. If a pub-
lic hearing is scheduled, notice of the date,
time, and place for the public hearing will be
published in the Federal Register.

### Drafting Information

The principal author of this regulation is
Meghan M. Howard of the Office of the
Associate Chief Counsel (Passthroughs and
Special Industries). However, other person-
nel from the Treasury Department and the
IRS participated in their development.
* * * * *

### Proposed Amendment 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 * * *

Section 1.754-1 also issued under 26
U.S.C. 754.

Par 2. Section 1.754-1 is amended by
revising the fourth sentence of paragraph
(b)(1) and adding new paragraph (d) to
read as follows:

§ 1.754-1 Time and manner of making
election to adjust basis of partnership
property.

* * * * *

(b) * * *

(1) * * * The statement required by this
paragraph (b)(1) must set forth the name
and address of the partnership making the
election, and contain a declaration that the
partnership elects under section 754 to
apply the provisions of section 734(b) and
section 743(b). * * *

* * * * *

(d) Applicability date. The fourth sen-
tence of paragraph (b)(1) of this section
applies to taxable years ending on or after
the date these regulations are published as
final regulations in the Federal Register.
Taxpayers may, however, rely on the
fourth sentence of paragraph (b)(1) of this
section for periods prior to the date these
regulations are published as final regula-
tions in the Federal Register.

Deputy Commissioner for Services and
Enforcement.

### Deletions From Cumulative List of Organizations, Contributions to Which are Deductible Under Section 170 of the Code

### Announcement 2017-17

#### Table of Contents

The Internal Revenue Service has re-
voked its determination that the organiza-
tions listed below qualify as organizations
described in sections 501(c)(3) and 170(c)(2)
of the Internal Revenue Code of 1986.

Generally, the IRS will not disallow
deductions for contributions made to a
listed organization on or before the date of
announcement in the Internal Revenue Bul-
letin that an organization no longer qualifies.
However, the IRS is not precluded from
disallowing a deduction for any contribu-
tions made after an organization ceases to
qualify under section 170(c)(2) if the orga-
nization has not timely filed a suit for de-
claratory judgment under section 7428 and
if the contributor (1) had knowledge of the
revocation of the ruling or determination
letter, (2) was aware that such revocation
was imminent, or (3) was in part responsible
for or was aware of the activities or omis-
sions of the organization that brought about
this revocation.

If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on November 13,
2017 and would end on the date the court
first determines the organization is not
described in section 170(c)(2) as more
particularly set for in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.

NAME OF ORGANIZATION

Effective Date of Revocation

LOCATION

Listening Post Productions, Inc.

1/1/2014

Philadelphia, PA

Cathedral City Police Management Association

12/3/2012

Cathedral City, CA

Supportive Parents of Tigard Students

2/1/2014

Tigard, OR

Cougar Football Community

1/1/2014

Henderson, NV

Hope in Action, Inc.

1/1/2014

Upper Sandusky, OH

American Friends of Nishmas Yisroel

1/1/2014

Brooklyn, NY

Heartland Housing Assistance

1/1/2013

St. Clair Shores, MI

Brutontown Neighborhood Association

1/1/2015

Greenville, SC

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NAME OF ORGANIZATION

Effective Date of Revocation

LOCATION

Individual Development, Inc.

1/1/2013

Washington, DC

Jesus Mary and Joseph Ministries

1/1/2009

Tucson, AZ

Smiley Projects - Humanitarian Division, Inc.

1/1/2014

St. Petersburg, FL

Beit Yehuda, Inc.

1/1/2010

Brooklyn, NY

Dynamics Booster Club, Inc.

8/1/2009

Chandler, AZ

Heaven Sent Pitbull Rescue

1/1/2013

Colorado Springs, CO

Fishers of Men Community Resource Center

1/1/2013

Denver, CO

Just Us 4 LMNN, Inc.

1/1/2014

Glendale, CA

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# Definition of Terms

Revenue rulings and revenue procedures
(hereinafter referred to as "rulings") that
have an effect on previous rulings use the
following defined terms to describe the
effect:

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).

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

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

Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A

and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).

Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.

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

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

stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.

Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.

# Abbreviations

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

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

F.R .- Federal Register.

FUTA-Federal Unemployment Tax Act.

FX-Foreign corporation.

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

GE-Grantee.

TFE-Transferee.

TFR-Transferor.

CI-City.

GR-Grantor.

IC-Insurance Company.

TP-Taxpayer.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

TR-Trust.

CY-County.

LE-Lessee.

TT-Trustee.

D-Decedent.

LP-Limited Partner.

DC-Dummy Corporation.

LR-Lessor.

M-Minor.

Nonacq .- Nonacquiescence.

O Organization.

DR-Donor.

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.

C-Individual.

T.D .- Treasury Decision.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

GP-General Partner.

T.I.R .- Technical Information Release.

U.S.C .- United States Code.

X-Corporation.

DE-Donee.

Del. Order-Delegation Order.

DISC-Domestic International Sales Corporation.

E-Estate.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

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

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

FPH-Foreign Personal Holding Company.

BK-Bank.

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

COOP-Cooperative.

Y-Corporation.

Z-Corporation.

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## Numerical Finding List1

Bulletin 2017-27 through 2017-46

### Action on Decision:

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

### Announcements:

2017-05, 2017-27 I.R.B. 5
2017-08, 2017-28 I.R.B. 9
2017-09, 2017-35 I.R.B. 219
2017-10, 2017-33 I.R.B. 210
2017-11, 2017-39 I.R.B. 255
2017-12, 2017-38 I.R.B. 238
2017-13, 2017-40 I.R.B. 271
2017-17, 2017-46 I.R.B. 515

### Notices:

2017-36, 2017-33 I.R.B. 208
2017-37, 2017-29 I.R.B. 89
2017-38, 2017-30 I.R.B. 147
2017-39, 2017-31 I.R.B. 150
2017-40, 2017-32 I.R.B. 190
2017-41, 2017-34 I.R.B. 211
2017-42, 2017-34 I.R.B. 212
2017-43, 2017-36 I.R.B. 224
2017-44, 2017-36 I.R.B. 226
2017-45, 2017-38 I.R.B. 232
2017-46, 2017-41 I.R.B. 275
2017-47, 2017-38 I.R.B. 232
2017-48, 2017-39 I.R.B. 254
2017-49, 2017-40 I.R.B. 258
2017-50, 2017-41 I.R.B. 280
2017-51, 2017-40 I.R.B. 260
2017-52, 2017-40 I.R.B. 262
2017-53, 2017-42 I.R.B. 318
2017-54, 2017-42 I.R.B. 321
2017-55, 2017-42 I.R.B. 324
2017-56, 2017-43 I.R.B. 365
2017-57, 2017-42 I.R.B. 324
2017-58, 2017-42 I.R.B. 326
2017-59, 2017-45 I.R.B. 484
2017-60, 2017-43 I.R.B. 365
2017-61, 2017-43 I.R.B. 371
2017-62, 2017-44 I.R.B. 460
2017-63, 2017-44 I.R.B. 460
2017-64, 2017-45 I.R.B. 486
2017-66, 2017-45 I.R.B. 487

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

### Proposed Regulations:

REG-128841-07, 2017-42 I.R.B. 327
REG-139633-08, 2017-31 I.R.B. 175
REG-128483-15, 2017-32 I.R.B. 191

REG-136118-15, 2017-28 I.R.B. 9

Proposed Regulations :- Continued

REG-105004-16, 2017-41

I.R.B. 295

REG-125374-16, 2017-41

I.R.B. 300

REG-115615-17, 2017-44

I.R.B. 463

REG-116256-17, 2017-46

I.R.B. 514

REG-129631-17, 2017-44

I.R.B. 464

## Revenue Procedures:

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

2017-42, 2017-29

I.R.B. 124

2017-43, 2017-31

I.R.B. 153

2017-44, 2017-35

I.R.B. 216

2017-45, 2017-35

I.R.B. 216

2017-46, 2017-43

I.R.B. 372

2017-47, 2017-38

I.R.B. 233

2017-48, 2017-36

I.R.B. 229

2017-50, 2017-37

I.R.B. 230

2017-52, 2017-41

I.R.B. 283

2017-53, 2017-40

I.R.B. 263

2017-54, 2017-42

I.R.B. 336

2017-55, 2017-43

I.R.B. 373

2017-56, 2017-44

I.R.B. 465

2017-57, 2017-44 I.R.B. 474

2017-58, 2017-45 I.R.B. 489

## Revenue Rulings:

2017-14, 2017-27 I.R.B. 2
2017-15, 2017-32 I.R.B. 176
2017-16, 2017-35 I.R.B. 215
2017-17, 2017-36 I.R.B. 222
2017-18, 2017-39 I.R.B. 239
2017-19, 2017-40 I.R.B. 257
2017-20, 2017-41 I.R.B. 273
2017-21, 2017-45 I.R.B. 482

## Treasury Decisions:

9819, 2017-29 I.R.B. 85

9820, 2017-32 I.R.B. 178

9821, 2017-32 I.R.B. 181

9822, 2017-33 I.R.B. 195
9823, 2017-33 I.R.B. 206

9824, 2017-42 I.R.B. 312

9825, 2017-46 I.R.B. 500

9827, 2017-44 I.R.B. 382
9828, 2017-44 I.R.B. 431

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

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## Finding List of Current Actions on Previously Published Items1

Bulletin 2017-27 through 2017-46

Notices:

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

2017-10
Modified by
Notice 2017-58, 2017-42 I.R.B. 326
2017-29
Modified by
Notice 2017-58, 2017-42 I.R.B. 326

### Revenue Procedures:

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

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

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

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

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# Internal Revenue Service Washington, DC 20224

Official Business
Penalty for Private Use, $300

# INTERNAL REVENUE BULLETIN

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

## We Welcome Comments About the Internal Revenue Bulletin

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page
(www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.
NW, IR-6230 Washington, DC 20224.