Internal Revenue Bulletin 2018-6 (PDF rendition): IRS Notices

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# INTERNAL REVENUE BULLETIN

A

IRS

Bulletin No. 2018-6
February 05, 2018

## HIGHLIGHTS OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

## INCOME TAX

Notice 2018-05, page 341.

The notice permits qualifying withholding agents to apply the
transition rules in Notice 2010-46 for calendar years 2018
and 2019.

### Notice 2018-13, page 341.

This notice provides additional guidance for determining
amounts included in gross income by a United States share-
holder under section 951(a)(1) by reason of section 965 of the
Internal Revenue Code as amended by "An Act to provide for
reconciliation pursuant to titles II and V of the concurrent
resolution on the budget for fiscal year 2018", P.L. 115-97,
which was enacted on December 22, 2017.

### Rev. Proc. 2018-12, page 349.

This revenue procedure provides safe harbors that taxpayers
may use to value stock for purposes of the continuity of
interest (COI) requirement under section 1.368-1(e). If the
conditions set forth in the revenue procedure are met, taxpay-
ers may use the average of the daily volume weighted average
prices, the average of the average high-low daily prices, or the
average of the daily closing prices of stock trading on certain
stock exchanges in order to determine whether the COI re-
quirement has been satisfied under the signing date rule or the
closing date rule.

### Rev. Rul. 2018-05, page 339.

Federal rates; adjusted federal rates; adjusted federal long-
term rate and the long-term exempt rate. For purposes of
sections 382, 1274, 1288, and other sections of the Code,
tables set forth the rates for February 2018.

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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

Section 1274 .-
Determination of Issue
Price in the Case of
Certain Debt Instruments
Issued for Property.

(Also Sections 42, 280G, 382, 467, 468, 482, 483,
1288, 7520.)

### Rev. Rul. 2018-05

This revenue ruling provides various
prescribed rates for federal income tax

purposes for February 2018 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month for
purposes of section 1274(d) of the Internal
Revenue Code. Table 2 contains the short-
term, mid-term, and long-term adjusted
applicable federal rates (adjusted AFR)
for the current month for purposes of sec-
tion 1288(b). Table 3 sets forth the ad-
justed federal long-term rate and the long-
term tax-exempt rate described in section
382(f). Table 4 contains the appropriate

percentages for determining the low-
income housing credit described in sec-
tion 42(b)(1) for buildings placed in ser-
vice during the current month. However,
under section 42(b)(2), the applicable per-
centage for non-federally subsidized new
buildings placed in service after July 30,
2008, shall not be less than 9%. Finally,
Table 5 contains the federal rate for de-
termining the present value of an annuity,
an interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.

REV. RUL. 2018-05 TABLE 1 Applicable Federal Rates (AFR) for February 2018 Period for Compounding

Annual

Semiannual Short-term

Quarterly

Monthly

AFR

1.81%

1.80%

1.80%

1.79%

110% AFR

1.99%

1.98%

1.98%

1.97%

120% AFR

2.17%

2.16%

2.15%

2.15%

130% AFR

2.35%

2.34%

2.33%

2.33%

AFR

Mid-term

2.31%

2.30%

2.29%

2.29%

110% AFR

2.55%

2.53%

2.52%

2.52%

120% AFR

2.78%

2.76%

2.75%

2.74%

130% AFR

3.01%

2.99%

2.98%

2.97%

150% AFR

3.48%

3.45%

3.44%

3.43%

175% AFR

4.07%

4.03%

4.01%

4.00%

AFR

Long-term

2.66%

2.64%

2.63%

2.63%

110% AFR

2.92%

2.90%

2.89%

2.88%

120% AFR

3.20%

3.17%

3.16%

3.15%

130% AFR

3.46%

3.43%

3.42%

3.41%

REV. RUL. 2018-05 TABLE 2

Annual

Adjusted AFR for February 2018 Period for Compounding Semiannual

Quarterly

Monthly

Short-term adjusted AFR

1.34%

1.34%

1.34%

1.34%

Mid-term adjusted AFR

1.72%

1.71%

1.71%

1.70%

Long-term adjusted AFR

1.97%

1.96%

1.96%

1.95%

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# REV. RUL. 2018-05 TABLE 3 Rates Under Section 382 for February 2018

Adjusted federal long-term rate for the current month
1.97%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal
long-term rates for the current month and the prior two months.)

1.97%

# REV. RUL. 2018-05 TABLE 4 Appropriate Percentages Under Section 42(b)(1) for February 2018

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in
service after July 30, 2008, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit

7.57%

Appropriate percentage for the 30% present value low-income housing credit

3.25%

# REV. RUL. 2018-05 TABLE 5 Rate Under Section 7520 for February 2018

Applicable federal rate for determining the present value of an annuity, an interest for life
or a term of years, or a remainder or reversionary interest

2.8%

## Section 42 .- Low-Income Housing Credit

The applicable federal short-term, mid-term, and
long-term rates are set forth for the month of Feb-
ruary 2018. See Rev. Rul. 2018-05, page 339.

## Section 280G .- Golden Parachute Payments

The applicable federal short-term, mid-term, and
long-term rates are set forth for the month of Feb-
ruary 2018. See Rev. Rul. 2018-05, page 339.

## Section 382 .- Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change

The adjusted applicable federal long-term rate is
set forth for the month of February 2018. See Rev.
Rul. 2018-05, page 339.

## Section 467 .- Certain Payments for the Use of Property or Services

The applicable federal short-term, mid-term, and
long-term rates are set forth for the month of Feb-
ruary 2018. See Rev. Rul. 2018-05, page 339.

## Section 468 .- Special Rules for Mining and Solid Waste Reclamation and Closing Costs

The applicable federal short-term, mid-term, and
long-term rates are set forth for the month of Feb-
ruary 2018. See Rev. Rul. 2018-05, page 339.

## Section 482 .- Allocation of Income and Deductions Among Taxpayers

The applicable federal short-term, mid-term, and
long-term rates are set forth for the month of Feb-
ruary 2018. See Rev. Rul. 2018-05, page 339.

## Section 483 .- Interest on Certain Deferred Payments

The applicable federal short-term, mid-term, and
long-term rates are set forth for the month of Feb-
ruary 2018. See Rev. Rul. 2018-05, page 339.

### Section 1288 .- Treatment of Original Issue Discount on Tax-Exempt Obligations

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2018. See Rev. Rul. 2018-05, page 339.

## Section 7520 .- Valuation Tables

The applicable federal short-term, mid-term, and
long-term rates are set forth for the month of Feb-
ruary 2018. See Rev. Rul. 2018-05, page 339.

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# Part III. Administrative, Procedural, and Miscellaneous

Extension of Transition Rules
from Notice 2010-46
Notice 2018-05

## I. PURPOSE

This Notice permits withholding agents
to apply the transition rules from Notice
2010-46, 2010-24 I.R.B. 757, in calendar
years 2018 and 2019, as described in more
detail below.

## II. BACKGROUND

Notice 2010-46 addresses potential
overwithholding in the context of securities
lending and sale repurchase agreements.
Notice 2010-46 provides a two-part solu-
tion to the problem of overwithholding on a
chain of dividends and dividend equiva-
lents. First, it provides an exception from
withholding for payments to a qualified se-
curities lender (QSL). Second, it provides a
proposed framework to credit forward prior
withholding on a chain of substitute divi-
dends paid pursuant to a chain of securities
loans or stock repurchase agreements. The
QSL regime requires a person that agrees to
act as a QSL to comply with certain with-
holding and documentation requirements.
The Department of Treasury (Treasury De-
partment) and the Internal Revenue Service
(IRS) permitted withholding agents to rely
on transition rules described in Notice
2010-46, Part III, until guidance was de-
veloped that would include documentation
and substantiation of withholding.

On September 18, 2015, temporary
regulations containing rules for qualified
derivatives dealers (QDD) were published
in the Federal Register (80 FR 56866).
The Treasury Department and the IRS
stated that the final QDD regulations
would supplant the proposed regulatory
framework described in Notice 2010-46.
80 FR at 56878. The Treasury Department
and the IRS reiterated the intent to replace
the proposed regulatory framework de-
scribed in Notice 2010-46 with the QDD
regime in Notice 2016-42, 2016-29
I.R.B. 67, which contained the proposed
qualified intermediary agreement (QI
Agreement) that included provisions relat-
ing to the QDD regime. Revenue Proce-
dure 2017-15, 2017-3 I.R.B. 437, which

sets forth the final QI Agreement, pro-
vided that taxpayers could continue to rely
on Notice 2010-46 during calendar year
2017.

As part of transition relief announced
in Notice 2016-76, 2016-51 I.R.B. 834,
the Treasury Department and the IRS an-
nounced that taxpayers may continue to
rely on Notice 2010-46 during 2017, and
that Notice 2010-46 would be obsoleted
as of January 1, 2018. On January 24,
2017, final regulations containing rules for
QDDs were published in the Federal Reg-
ister (82 FR 8144) (2017 Final Regula-
tions). Consistent with Notice 2016-76,
the "Effect on Other Documents" section
of the preamble to the 2017 Final Regu-
lations obsoleted Notice 2010-46 as of
January 1, 2018. In response to a com-
ment requesting that the QSL regime re-
main, the preamble to the 2017 Final Reg-
ulations noted that "[w]hile the Treasury
Department and the IRS understand that
the QSL regime was administratively
more convenient for taxpayers than the QI
regime, it created administrability prob-
lems, particularly with respect to verifica-
tion, for the IRS. That regime is being
replaced by incorporating the QDD rules
into the existing QI framework, including
the specific rules for pooled reporting on
Form 1042-S, and the QI requirements for
compliance review and certification." 82
FR at 8153.

Since the 2017 Final Regulations, com-
ments have stated that securities lending
does not pose a high risk for withholding
tax avoidance. In these comments, market
participants have requested that the QSL
regime be extended for a longer transi-
tional period and have requested that the
Treasury Department and the IRS con-
sider simplifying the rules for securities
lenders. After considering comments from
participants in the securities lending mar-
ket and the tax administration concerns of
the IRS, particularly with respect to veri-
fication, the Treasury Department and the
IRS have decided to extend the QSL re-
gime described in Notice 2010-46, Part
III, but only for payments made in calen-
dar years 2018 and 2019. During this pe-
riod, the Treasury Department and the IRS
intend to consider whether additional
guidance is appropriate to address the par-

ticular circumstances of foreign lenders of
U.S. dividend-paying stocks.

## III. EXTENSION OF TRANSITION RULES FROM NOTICE 2010-46

Notwithstanding the preamble to the
2017 Final Regulations, withholding agents
may apply the transition rules described in
Notice 2010-46, Part III, for payments
made in calendar years 2018 and 2019.

## IV. DRAFTING INFORMATION

The principal authors of this Notice are
Karen Walny and Peter Merkel of the
Office of Associate Chief Counsel (Inter-
national). For further information regard-
ing this Notice, contact Karen Walny or
Peter Merkel at (202) 317-6938 (not a
toll-free number).

Additional Guidance Under
Section 965 and Guidance
Under Sections 863 and
6038 in Connection with
the Repeal of Section
958(b)(4)

### Notice 2018-13

## SECTION 1. OVERVIEW

This notice announces that the De-
partment of the Treasury ("Treasury De-
partment") and the Internal Revenue
Service ("IRS") intend to issue regula-
tions for determining amounts included
in gross income by a United States
shareholder under section 951(a)(1) by
reason of section 965 of the Internal
Revenue Code ("Code") as amended by
"An Act to provide for reconciliation
pursuant to titles II and V of the con-
current resolution on the budget for fis-
cal year 2018," P.L. 115-97 (the "Act"),
which was enacted on December 22,
2017. See Notice 2018-07, 2018-4
I.R.B. 317, for prior guidance issued
under section 965. In addition, this no-
tice provides guidance in connection
with the repeal of section 958(b)(4) by
the Act.

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Section 2 of this notice provides back-
ground on section 965 and the repeal of
section 958(b)(4) by the Act. Section 3 of
this notice describes regulations that the
Treasury Department and the IRS intend
to issue with respect to section 965.
Section 4 of this notice describes a mod-
ification that the Treasury Department and
the IRS intend to make with respect to
regulations under section 965 that were
described in section 3.03 of Notice 2018-
07. Section 5 of this notice provides guid-
ance under section 863 in connection with
the repeal of section 958(b)(4) by the Act
and announces the IRS's intention to up-
date the Instructions for Form 5471 as a
result of such repeal. Section 6 of this
notice describes the effective dates of the
regulations and other guidance described
in this notice. Section 7 of this notice
requests comments and provides contact
information.

## SECTION 2. BACKGROUND

### .01 Treatment of Accumulated Post-1986 Deferred Foreign Income as Subpart F Income

Section 965(a) provides that for the last
taxable year of a deferred foreign income
corporation ("DFIC") that begins before
January 1, 2018 (such year of the DFIC,
the "inclusion year"), the subpart F in-
come of the corporation (as otherwise de-
termined for such taxable year under sec-
tion 952) shall be increased by the greater
of (1) the accumulated post-1986 deferred
foreign income of such corporation deter-
mined as of November 2, 2017, or (2) the
accumulated post-1986 deferred foreign
income of such corporation determined as
of December 31, 2017 (each such date, a
"measurement date," and the greater of
the accumulated post-1986 deferred for-
eign income of the corporation as of the
measurement dates, the "section 965(a)
earnings amount").

The section 965(a) earnings amount is
not subject to the rules or limitations in
section 952 and is not limited by the ac-
cumulated earnings and profits of the
DFIC as of the close of the inclusion year.

### .02 Determination of United States Shareholder's Section 951(a)(1) Inclusion By Reason of Section 965

Section 965(b)(1) provides that, if a
taxpayer is a United States shareholder
with respect to at least one DFIC and at
least one E&P deficit foreign corporation,
then the portion of the section 965(a)
earnings amount which would otherwise
be taken into account under section
951(a)(1) by a United States shareholder
with respect to each DFIC is reduced by
the amount of such United States share-
holder's aggregate foreign E&P deficit
that is allocated to such DFIC. The portion
of the section 965(a) earnings amount that
is taken into account under section
951(a)(1) by a United States shareholder,
taking into account the reduction de-
scribed in the preceding sentence, is re-
ferred to in this notice as the "section
965(a) inclusion amount."1

### .03 Allocation of Aggregate Foreign E&P Deficit and Definition of E&P Deficit Foreign Corporation

The aggregate foreign E&P deficit of
any United States shareholder is allocated
to each DFIC of the United States share-
holder in an amount that bears the same
proportion to such aggregate as (A) such
United States shareholder's pro rata share
of the section 965(a) earnings amount of
each such DFIC bears to (B) the aggregate
of such United States shareholder's pro
rata shares of the section 965(a) earnings
amounts of all DFICs of such United
States shareholder. Section 965(b)(2). The
term "aggregate foreign E&P deficit"
means, with respect to any United States
shareholder, the lesser of (I) the aggregate
of such shareholder's pro rata shares of
the specified E&P deficits of the E&P
deficit foreign corporations of such share-
holder or (II) the aggregate of such share-
holder's pro rata shares of the section
965(a) earnings amounts of all DFICs of
such shareholder. Section 965(b)(3)(A)(i).

The term "E&P deficit foreign corpo-
ration" means, with respect to any tax-
payer, any specified foreign corporation
with respect to which such taxpayer is a
United States shareholder, if, as of No-

vember 2, 2017, (i) such specified foreign
corporation has a deficit in post-1986
earnings and profits, (ii) such corporation
was a specified foreign corporation, and
(iii) such taxpayer was a United States
shareholder of such corporation. Section
965(b)(3)(B). The term "specified E&P
deficit" means, with respect to an E&P
deficit foreign corporation, the amount of
such corporation's deficit in post-1986
earnings and profits as of November 2,
2017. See section 965(b)(3)(C). A speci-
fied foreign corporation that is a DFIC
cannot also be an E&P deficit foreign cor-
poration. See H.R. Rep. No. 115-466, at
618 (2017) (Conf. Rep.) (“Deferred earn-
ings of a U.S. shareholder are reduced
(but not below zero) by the shareholder's
share of deficits as of November 2, 2017,
from a specified foreign corporation that
is not a [DFIC] . . . . ").

### .04 Application of the Participation Exemption

Section 965(c)(1) provides that there
shall be allowed as a deduction for the
taxable year of a United States share-
holder in which a section 965(a) inclusion
amount is included in the gross income of
such United States shareholder an amount
equal to the sum of (A) the United States
shareholder's 8 percent rate equivalent
percentage (as defined in section 965(c)
(2)(A)) of the excess (if any) of (i) the
section 965(a) inclusion amount, over (ii)
the amount of such United States share-
holder's aggregate foreign cash position,
plus (B) the United States shareholder's
15.5 percent rate equivalent percentage
(as defined in section 965(c)(2)(B)) of so
much of such United States shareholder's
aggregate foreign cash position as does
not exceed the section 965(a) inclusion
amount.

Section 965(c)(3)(A) provides that the
term "aggregate foreign cash position"
means, with respect to any United States
shareholder, the greater of (i) the aggre-
gate of such United States shareholder's
pro rata share of the cash position of each
specified foreign corporation of such
United States shareholder determined as
of the close of the inclusion year, or (ii)
one half of the sum of (I) the aggregate

1In contrast to Notice 2018-07, this notice uses the term "section 965(a) inclusion amount" to refer to an amount included in the gross income of the United States shareholder with respect
to a DFIC, rather than an amount of the DFIC.

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described in clause (i) determined as of
the close of the last taxable year of each
such specified foreign corporation that
ends before November 2, 2017, plus (II)
the aggregate described in clause (i) de-
termined as of the close of the taxable
year of each such specified foreign corpo-
ration which precedes the taxable year
referred to in subclause (I). Each date
referred to in the preceding sentence
is referred to in this notice as a "cash
measurement date."

The cash position of any specified for-
eign corporation is the sum of (i) cash
held by such corporation, (ii) the net ac-
counts receivable of such corporation, and
(iii) the fair market value of the following
assets held by such corporation: (I) per-
sonal property which is of a type that is
actively traded and for which there is an
established financial market; (II) commer-
cial paper, certificates of deposit, the se-
curities of the Federal government and of
any State or foreign government; (III) any
foreign currency; (IV) any obligation with
a term of less than one year ("short-term
obligation"); and (V) any asset which the
Secretary identifies as being economically
equivalent to any asset described in sec-
tion 965(c)(3)(B). Section 965(c)(3)(B).
For purposes of section 965(c)(3), the
term "net accounts receivable" means,
with respect to any specified foreign cor-
poration, the excess (if any) of (i) such
corporation's accounts receivable, over
(ii) such corporation's accounts payable
(determined consistent with the rules of
section 461). Section 965(c)(3)(C).

#### .05 Definition of DFIC and Accumulated Post-1986 Deferred Foreign Income

For purposes of section 965, a DFIC is,
with respect to any United States share-
holder, any specified foreign corporation
of such United States shareholder that has
accumulated post-1986 deferred foreign
income (as of a measurement date) greater
than zero. Section 965(d)(1). The term
"accumulated post-1986 deferred foreign
income" means the post-1986 earnings
and profits of the specified foreign corpo-
ration except to the extent such earnings
and profits (A) are attributable to income
of the specified foreign corporation that is
effectively connected with the conduct of
a trade or business within the United
States and subject to tax under chapter 1

("effectively connected income"), or (B)
in the case of a controlled foreign corpo-
ration ("CFC"), if distributed, would be
excluded from the gross income of a
United States shareholder under section
959 ("previously taxed income"). Section
965(d)(2).

Section 965(d)(3) provides that the
term "post-1986 earnings and profits"
means the earnings and profits of the for-
eign corporation (computed in accordance
with sections 964(a) and 986, and by only
taking into account periods when the for-
eign corporation was a specified foreign
corporation) accumulated in taxable years
beginning after December 31, 1986, and
determined (A) as of the measurement
date that is applicable with respect to such
foreign corporation, and (B) without dim-
inution by reason of dividends distributed
during the inclusion year other than divi-
dends distributed to another specified for-
eign corporation.

### .06 Specified Foreign Corporation

Section 965(e)(1) provides that the term
"specified foreign corporation" means (A)
any CFC and (B) any foreign corporation
with respect to which one or more domestic
corporations is a United States shareholder
(10-percent corporation). For purposes of
sections 951 and 961, a 10-percent corpora-
tion is treated as a CFC solely for purposes
of taking into account the subpart F income
of such corporation under section 965(a).
Section 965(e)(2). However, if a passive
foreign investment company (as defined in
section 1297) with respect to the share-
holder is not a CFC, then such corporation is
not a specified foreign corporation. Section
965(e)(3).

### .07 Determination of Pro Rata Share

Section 965(f)(1) provides that the de-
termination of any United States share-
holder's pro rata share of any amount with
respect to any specified foreign corpora-
tion shall be determined under rules sim-
ilar to the rules of section 951(a)(2) by
treating such amount in the same manner
as subpart F income (and by treating such
specified foreign corporation as a CFC).

.08 Repeal of Section 958(b)(4)

Section 958 provides rules for deter-
mining stock ownership of a foreign cor-

poration for purposes of sections 951
through 965. Section 958(b) provides, in
relevant part, that section 318(a) (relating
to the constructive ownership of stock)
applies, subject to certain modifications,
to the extent that the effect is to treat any
United States person as a United States
shareholder within the meaning of section
951(b) or to treat a foreign corporation as
a CFC under section 957. Effective for the
last taxable year of foreign corporations
beginning before January 1, 2018, and
each subsequent year of such foreign cor-
porations, and for the taxable years of
United States shareholders in which or
with which such taxable years of foreign
corporations end, the Act repeals section
958(b)(4). As in effect prior to repeal,
section 958(b)(4) provided that subpara-
graphs (A), (B), and (C) of section
318(a)(3) were not to be applied so as to
consider a United States person as owning
stock which is owned by a person who is
not a United States person. The subpara-
graphs of section 318(a)(3) generally at-
tribute stock owned by a person to a part-
nership, estate, trust, or corporation in
which such person has an interest (so-
called "downward attribution"). For ex-
ample, stock of a corporation owned by a
person that owns 50 percent or more in
value of the stock of another corporation
is treated as owned by such other corpo-
ration. See section 318(a)(3)(C).

## SECTION 3. REGULATIONS TO BE ISSUED ADDRESSING THE APPLICATION OF SECTION 965

.01 Determination of Status of a
Specified Foreign Corporation as a
DFIC or an E&P Deficit Foreign
Corporation

The Treasury Department and the IRS
intend to issue regulations providing that,
for purposes of determining the status of a
specified foreign corporation as a DFIC or
an E&P deficit foreign corporation, it
must first be determined whether the spec-
ified foreign corporation is a DFIC. If the
specified foreign corporation meets the
definition of a DFIC, it is classified solely
as a DFIC and not also as an E&P deficit
foreign corporation, even if such specified
foreign corporation otherwise satisfies the
requirements of section 965(b)(3)(B). If a
specified foreign corporation does not

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meet the definition of a DFIC, the United
States shareholder must then determine
whether it is an E&P deficit foreign cor-
poration. In some cases, as illustrated in
Example 2, a specified foreign corporation
may be classified as neither a DFIC nor an
E&P deficit foreign corporation, despite
having post-1986 earnings and profits
greater than zero or a deficit in accumu-
lated post-1986 deferred foreign income.

Example 1. (i) Facts. USP, a domestic corpora-
tion, owns all of the stock of FS, a foreign corpora-
tion. As of November 2, 2017, FS has a deficit in
post-1986 earnings and profits of 150u. As of De-
cember 31, 2017, FS has 200u of post-1986 earnings
and profits. FS does not have previously taxed in-
come or effectively connected income for any tax-
able year.

(ii) Analysis. Because FS, a specified foreign
corporation, does not have previously taxed income
or effectively connected income for any taxable year,
FS's accumulated post-1986 deferred foreign in-
come is equal to its post-1986 earnings and profits.
Because FS has accumulated post-1986 deferred for-
eign income as of December 31, 2017, FS is a DFIC.
See section 965(d)(1). Accordingly, FS is not an
E&P deficit foreign corporation.

Example 2. (i) Facts. USP, a domestic corpora-
tion, owns all of the stock of FS, a foreign corpora-
tion. As of both November 2, 2017, and December
31, 2017, FS has 100u of previously taxed income
described in section 959(c)(2) and a deficit of 90u in
earnings and profits described in section 959(c)(3),
all of which were accumulated in taxable years be-
ginning after December 31, 1986, while FS was a
specified foreign corporation. Accordingly, as of
both November 2, 2017, and December 31, 2017, FS
has 10u of post-1986 earnings and profits.

(ii) Analysis. (A) Determination of status as a
DFIC. For purposes of determining whether FS is a
DFIC, a determination must be made whether FS has
accumulated post-1986 deferred foreign income
greater than zero as of either November 2, 2017, or
December 31, 2017. Under section 965(d)(2), FS's
accumulated post-1986 deferred foreign income is
its post-1986 earnings and profits, except to the
extent such earnings are effectively connected in-
come or previously taxed income. Disregarding FS's
100u of previously taxed income, FS has a 90u
deficit in accumulated post-1986 deferred foreign
income as of both November 2, 2017, and December
31, 2017. Accordingly, FS does not have accumu-
lated post-1986 deferred foreign income greater than
zero as of either measurement date and therefore FS
is not a DFIC.

(B) Determination of status as an E&P deficit
foreign corporation. For purposes of determining
whether FS is an E&P deficit foreign corporation, a
determination must be made whether FS has a deficit
in post-1986 earnings and profits as of November 2,
2017. As described in paragraph (i) of this Example
2, FS has 10u of post-1986 earnings and profits as of
both November 2, 2017, and December 31, 2017. As
a result, FS does not have a deficit in post-1986
earnings and profits as of November 2, 2017, and
therefore FS is not an E&P deficit foreign corpora-

tion. Accordingly, FS is neither a DFIC nor an E&P
deficit foreign corporation.

.02 Alternative Method for Calculating
Post-1986 Earnings and Profits

The Act provides that the earnings and
profits of a specified foreign corporation
must be determined as of two measure-
ment dates and "in accordance with sec-
tions 964(a) and 986." See section 965(a)
and (d)(3). Consistent with this require-
ment, the Treasury Department and the
IRS have determined that, for purposes of
measuring the post-1986 earnings and
profits of a specified foreign corporation
as of a measurement date, the extent to
which an item of income, deduction, gain,
or loss is taken into account as of such
measurement date must generally be de-
termined under principles applicable to
the calculation of earnings and profits,
including the application of sections 312
and 964.

For purposes of determining whether a
specified foreign corporation is a DFIC
and for purposes of determining a DFIC's
section 965(a) earnings amount, the actual
post-1986 earnings and profits of the spec-
ified foreign corporation must be deter-
mined as of the close of both November 2,
2017, and December 31, 2017. In addi-
tion, for purposes of determining whether
a specified foreign corporation is an E&P
deficit foreign corporation and for pur-
poses of determining the amount of the
specified E&P deficit of an E&P deficit
foreign corporation, the actual post-1986
earnings and profits (including a deficit)
of the specified foreign corporation must
be determined as the close of November 2,
2017.

However, the Treasury Department
and the IRS recognize that it may be im-
practical for taxpayers to determine the
post-1986 earnings and profits of a spec-
ified foreign corporation as of a measure-
ment date that does not fall on the last day
of a month. Therefore, the Treasury De-
partment and the IRS intend to issue reg-
ulations providing that an election may be
made to determine a specified foreign cor-
poration's post-1986 earnings and profits
as of a measurement date based on the
amount of post-1986 earnings and profits
(including a deficit) as of another date as
provided in this section 3.02 (the “alter-
native method"). If an election to use the

alternative method is made, the amount of
the post-1986 earnings and profits (includ-
ing a deficit) of a specified foreign corpo-
ration (other than a specified foreign cor-
poration with a 52-53-week taxable year
described in § 1.441-2(a)(1)) as of No-
vember 2, 2017, will equal the sum of (1)
the corporation's post-1986 earnings and
profits as of October 31, 2017, and (2) the
corporation's annualized earnings and
profits amount. For this purpose, the term
"annualized earnings and profits amount"
means, with respect to a specified foreign
corporation, the amount equal to the prod-
uct of two (the number of days after Oc-
tober 31, 2017, and on or before the mea-
surement date on November 2, 2017)
multiplied by the daily earnings amount of
the specified foreign corporation. The
term "daily earnings amount" means, with
respect to a specified foreign corporation,
the post-1986 earnings and profits (includ-
ing a deficit) of the specified foreign cor-
poration as of the close of October 31,
2017, that were earned (or incurred) dur-
ing the specified foreign corporation's
taxable year that includes October 31,
2017, divided by the number of days that
have elapsed in such taxable year as of the
close of October 31, 2017. A specified
foreign corporation that does not have a
52-53-week taxable year described in
§ 1.441-2(a)(1) may not determine its
post-1986 earnings and profits under the
alternative method with respect to the
measurement date on December 31, 2017.

In the case of a specified foreign cor-
poration that has a 52-53-week taxable
year described in § 1.441-2(a)(1), an elec-
tion may be made to use the alternative
method to determine its post-1986 earn-
ings and profits as of both measurement
dates based on the amount of post-1986
earnings and profits (including a deficit)
as of the closest end of a fiscal month to
each measurement date consistent with
the principles of the preceding paragraph.
For example, if the closest end of a fiscal
month of a specified foreign corporation
that has a 52-53-week taxable year occurs
after an applicable measurement date, the
annualized earnings amount will be sub-
tracted from (rather than added to) the
post-1986 earnings and profits of the spe-
cified foreign corporation as of such fiscal
month end. For a specified foreign corpora-
tion with a 52-53-week taxable year, in

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order to use the alternative method for any
measurement date, the election must be
made for both measurement dates.

The IRS intends to issue forms, publi-
cations, regulations, or other guidance that
will specify the manner and timing of an
election to use the alternative method.

Example. (i) Facts. FS, a foreign corporation, has
a calendar year taxable year and as of October 31,
2017, FS has post-1986 earnings and profits of
10,000u, 3,040u of which were earned during the
taxable year that includes October 31, 2017. An
election is made for FS to determine its post-1986
earnings and profits under the alternative method.

(ii) Analysis. As of the close of October 31, 2017,
304 days have elapsed in the taxable year of FS that
includes October 31, 2017. Therefore, FS's daily
earnings amount is 10u (3,040u divided by 304), and
FS's annualized earnings and profits amount is 20u
(10u multiplied by 2). Accordingly, FS's post-1986
earnings and profits as of November 2, 2017, are
10,020u (its post-1986 earnings and profits as of
October 31, 2017 (10,000u), plus its annualized
earnings and profits amount (20u)).

### .03 Treatment of Deficits

### (a) Allocation of Deficits to Different Classes of Stock

For purposes of determining the amount
of a United States shareholder's aggregate
foreign E&P deficit, the aggregate of such
shareholder's pro rata shares of the specified
E&P deficits of the E&P deficit foreign cor-
porations of such shareholder must be de-
termined. Section 965(f)(1) provides that, in
determining a United States shareholder's
pro rata share of "any amount with respect
to any specified foreign corporation," rules
similar to section 951(a)(2) shall be applied.
Section 1.951-1(e) provides guidance with
respect to allocating subpart F income
among multiple classes of stock but does
not address deficits.

The Treasury Department and the IRS
intend to issue regulations providing that,
for purposes of determining a United
States shareholder's pro rata share of the
specified E&P deficit of an E&P deficit
foreign corporation that has multiple
classes of stock outstanding, the specified
E&P deficit is allocated first among the
shareholders of the corporation's common
stock and in proportion to the value of the
common stock held by such shareholders.

### (b) Treatment of Hovering Deficits

The Conference Report accompanying
the Act provides that "the amount of post-

1986 earnings and profits of a specified
foreign corporation is the amount of pos-
itive earnings and profits accumulated as
of the measurement date reduced by any
deficit in earnings and profits of the spec-
ified foreign corporation as of the mea-
surement date, without regard to the lim-
itation category of the earnings or deficit."
H.R. Rep. No. 115-466, at 618. The Con-
ference Report clarifies that, for this pur-
pose, the term "deficit" includes a hover-
ing deficit (as defined in § 1.367(b)-
7(d)(2)(i)), with the following example:

For example, assume that a foreign
corporation organized after Decem-
ber 31, 1986 has $100 of accumu-
lated earnings and profits as of No-
vember 2, 2017, and December 31,
2017 ... which consist of $120
general limitation earnings and
profits and a $20 passive limitation
deficit, the foreign corporation's
post-1986 earnings and profits
would be $100, even if the $20 pas-
sive limitation deficit was a hover-
ing deficit.

Id. at 619. Consistent with the Conference
Report, the Treasury Department and the
IRS intend to issue regulations clarifying
that all deficits related to post-1986 earn-
ings and profits, including hovering defi-
cits, are taken into account for purposes of
determining the post-1986 earnings and
profits (including a deficit) of a specified
foreign corporation.

### .04 Determination of Aggregate Foreign Cash Position

#### (a) Definitions for Determining Net Accounts Receivable

Section 965(c)(3)(C) does not define
the term "accounts receivable" for pur-
poses of the term "net accounts receiv-
able." The Treasury Department and the
IRS intend to issue regulations providing
that, for purposes of section 965(c)(3)(C),
the term "accounts receivable" means re-
ceivables described in section 1221(a)(4),
and the term "accounts payable" means
payables arising from the purchase of
property described in section 1221(a)(1)
or 1221(a)(8) or the receipt of services
from vendors or suppliers. Receivables
that are treated as accounts receivable
within the meaning of section 965(c)(3)

(C)(i) will not also be treated as short-
term obligations.

#### (b) Treatment of Demand Obligations

Section 965(c)(3)(B) provides that the
"cash position" of a specified foreign cor-
poration includes the fair market value of
any short-term obligation. The Treasury
Department and the IRS intend to issue
regulations providing that, for purposes of
determining a specified foreign corpora-
tion's cash position, a loan that must be
repaid on the demand of the lender (or that
must be repaid within one year of such
demand) will be treated as a short-term
obligation, regardless of the stated term of
the instrument.

#### .05 Translation Rules

(a) Comparison of Accumulated Post-
1986 Deferred Foreign Income as of the
Measurement Dates

Generally, determinations made under
subtitle A of the Code must be made in a
taxpayer's functional currency. See sec-
tion 985(a). For purposes of determining
the tax under subtitle A of the Code of any
shareholder of a foreign corporation, the
earnings and profits of such corporation
must be determined in the corporation's
functional currency. See section 986(b)
(1). Accordingly, the Treasury Depart-
ment and the IRS intend to issue regula-
tions providing that, for purposes of de-
termining the section 965(a) earnings
amount of a specified foreign corporation,
the accumulated post-1986 deferred for-
eign income of the specified foreign cor-
poration as of each of the measurement
dates must be compared in the functional
currency of the specified foreign corpora-
tion. If the functional currency of a spec-
ified foreign corporation changes between
the two measurement dates, the compari-
son must be made in the functional cur-
rency of the specified foreign corporation
as of December 31, 2017, by translating
the specified foreign corporation's earn-
ings and profits as of November 2, 2017,
into the new functional currency using the
spot rate on November 2, 2017. For pur-
poses of this notice, the term "spot rate"
has the meaning described in § 1.988-
1(d).

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##### (b) Determination of the Amount of Inclusion Under Section 951(a)(1) by Reason of Section 965

In the case of any United States person,
the earnings and profits determined under
section 986(b)(1) when distributed, deemed
distributed, or otherwise taken into account
are translated into U.S. dollars using the
appropriate exchange rate for purposes of
determining the tax on such earnings under
subtitle A of the Code. See section 986(b)
(2). Generally, except as provided in regu-
lations, section 989(b) sets forth the appro-
priate exchange rate. In the case of an actual
distribution of earnings and profits or an
actual or deemed sale or exchange of stock
in a foreign corporation treated as a divi-
dend under section 1248, the appropriate
exchange rate is the spot rate on the date
such distribution or deemed dividend is in-
cluded into income. Section 989(b)(1) and
(2). In the case of subpart F income included
in income by a United States shareholder
under section 951(a)(1)(A), the appropriate
exchange rate is the average exchange rate
for the taxable year of the foreign corpora-
tion. Section 989(b)(3). Any amounts in-
cluded in income under section 951(a)(1)
(B) (inclusions under section 956) are
treated for this purpose as distributions
made on the last day of the taxable year for
which such amounts were so included, and
accordingly translated at the spot rate on the
last day of such taxable year. Section
989(b).

In order to calculate the section 965(a)
inclusion amount of a United States share-
holder with respect to a DFIC, the United
States shareholder's pro rata shares of the
section 965(a) earnings amounts of its
DFICs and the specified E&P deficits of
its E&P deficit foreign corporations must
be translated into U.S. dollars. The Trea-
sury Department and the IRS have deter-
mined that the spot rate on December 31,
2017, is the appropriate exchange rate for
purposes of translating these amounts, re-
gardless of a specified foreign corpora-
tion's taxable year or the applicable mea-
surement date, because it is the date on
which a specified foreign corporation's
post-1986 earnings and profits becomes
fixed and immediately precedes the tran-
sition to the participation exemption under
section 245A. Furthermore, a single spot
rate on December 31, 2017, is more ad-

ministrable for the IRS and less burden-
some for taxpayers than the yearly aver-
age approach of section 989(b)(3) because
under the yearly average approach, certain
amounts required for the determination of
the section 965(a) inclusion amount of a
United States shareholder (for example,
the United States shareholder's aggregate
foreign E&P deficit) would not be deter-
minable until the last closing of an inclu-
sion year of a specified foreign corpora-
tion of the United States shareholder.

Accordingly, the Treasury Department
and the IRS intend to issue regulations
providing that the appropriate exchange
rate under section 989(b) for translating
the section 965(a) earnings amount will be
the spot rate on December 31, 2017. The
regulations will also provide that the spot
rate on December 31, 2017, will apply for
purposes of translating other amounts
necessary for the application of section
965(b), including (1) translating a section
965(a) earnings amount into U.S. dollars
in computing amounts described in sec-
tion 965(b)(2)(A) and (B), (2) translating
a specified E&P deficit into U.S. dollars in
order to determine a United States share-
holder's aggregate foreign E&P deficit
under section 965(b)(3)(A), (3) translating
a section 965(a) inclusion amount with
respect to a DFIC (if such amount was
reduced by an aggregate foreign E&P def-
icit under section 965(b)(1)) back into the
functional currency of the DFIC for pur-
poses of determining the previously taxed
income of the DFIC, and (4) translating
the portion of the U.S. dollar-denominated
aggregate foreign E&P deficit allocated to
a DFIC under section 965(b)(2) into the
functional currency of the DFIC for pur-
poses of determining its previously taxed
income under section 965(b)(4)(A).

The regulations will also provide that,
for purposes of section 986(c), foreign
currency gain or loss with respect to dis-
tributions of previously taxed income de-
scribed in section 959(c)(2) by reason of
section 965 will be determined based on
movements in the exchange rate between
December 31, 2017, and the date on
which such previously taxed earnings and
profits are actually distributed.

Example. (i) Facts. As of November 2, 2017, and
December 31, 2017, USP, a domestic corporation,
owns all of the stock of CFC1, an E&P deficit
foreign corporation with the "u" as its functional
currency; CFC2, an E&P deficit foreign corpora-

tion with the "v" as its functional currency; CFC3,
a DFIC with the "y" as its functional currency; and
CFC4, a DFIC with the "z" as its functional cur-
rency. USP, CFC1, CFC2, CFC3, and CFC4 each
have a calendar year taxable year. As of December
31, 2017, 1u=$1, .75v=$1, .50y=$1, and
.25z=$1. CFC1 has a specified E&P deficit of
100u, CFC2 has a specified E&P deficit of 120v,
CFC3 has a section 965(a) earnings amount of
50y, and CFC4 has a section 965(a) earnings
amount of 75z.

(ii) Analysis. (A) For purposes of applying sec-
tion 965(b), the section 965(a) earnings amount of
each of CFC3 and CFC4 translated into U.S. dollars
at the spot rate on December 31, 2017, is $100 (50y
at .50y=$1) and $300 (75z at .25z=$1), respec-
tively. Furthermore, USP's pro rata share of the
section 965(a) earnings amounts, as translated, is
$100 and $300, respectively, or 100% of each sec-
tion 965(a) earnings amount.

(B) For purposes of applying section 965(b), the
specified E&P deficit of each of CFC1 and CFC2
translated into U.S. dollars at the spot rate on De-
cember 31, 2017, is $100 (100u at lu=$1) and $160
(120v at .75v=$1), respectively. Furthermore USP's
pro rata share of each specified E&P deficit, as
translated, is $100 and $160, respectively, or 100%
of each specified E&P deficit. Therefore, USP's ag-
gregate foreign E&P deficit is $260.

(C) For purposes of applying section 965(b),
USP's aggregate foreign E&P deficit of $260 is
allocated $65 to reduce the amount that USP
would otherwise take into account under section
951(a)(1) by reason of section 965 with respect to
CFC3 ($260 X($100/$400)) and allocated $195 to
reduce the amount that USP would otherwise take
into account under section 951(a)(1) by reason of
section 965 with respect to CFC4 ($260 X ($300/
400)). After reduction under section 965(b)(1), the
section 965(a) inclusion amount of USP with re-
spect to CFC3 is $35 ($100- $65) and the section
965(a) inclusion amount of USP with respect to
CFC4 is $105 ($300-$195). The previously taxed
income of CFC3 and CFC4 resulting from the
section 965(a) inclusion amounts included in gross
income by USP, translated into the respective
functional currencies of CFC3 and CFC4 at the
spot rate on December 31, 2017, are 17.5y ($35 at
.50y=$1) and 26.25z ($105 at .25z=$1), respec-
tively.

(D) For purposes of determining the previously
taxed income of each of CFC3 and CFC4 under
section 965(b)(4)(A) as a result of the reduction to
USP's section 965(a) inclusion amounts with respect
to CFC3 and CFC4, the amounts of the aggregate
foreign E&P deficit of USP are allocated to each of
CFC3 and CFC4 under section 965(b)(2), which
translated into the respective functional currencies of
CFC3 and CFC4 at the spot rate on December 31,
2017, are 32.5y ($65 at .50y=$1) and 48.75z ($195
at .25z=$1), respectively.

(c) Determination of Cash Positions as
of Cash Measurement Dates

The Treasury Department and the IRS
intend to issue regulations providing that

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the cash position of a specified foreign cor-
poration with respect to any cash measure-
ment date must be expressed in U.S. dollars.
Therefore, the amount of a United States
shareholder's aggregate foreign cash posi-
tion will be the greater of the U.S. dollar-
denominated aggregate amounts on each
cash measurement date described in section
965(c)(3)(A).

In determining the cash position attrib-
utable to net accounts receivable, the
amount of accounts receivables and ac-
counts payables (in each case, if not oth-
erwise denominated in U.S. dollars) must
be translated into U.S. dollars at the spot
rate on the relevant cash measurement
date. The fair market value of assets de-
scribed in section 965(c)(3)(B)(iii) must
also be determined in U.S. dollars on the
relevant cash measurement date. For ex-
ample, in the case of foreign currency, the
fair market value will equal the currency
amount translated at the spot rate on the
relevant cash measurement date.

SECTION 4. MODIFICATION TO
RULE DESCRIBED IN SECTION 3.03
OF NOTICE 2018-07 RELATING TO
DISTRIBUTIONS OF PREVIOUSLY
TAXED INCOME

Section 3.03 of Notice 2018-07 an-
nounced that the Treasury Department
and the IRS intend to issue regulations
providing that if a United States share-
holder receives distributions from a DFIC
during the inclusion year that are attribut-
able to previously taxed income described
in section 959(c)(2) by reason of section
965(a), the amount of gain recognized by
the United States shareholder with respect
to the stock of the DFIC under section
961(b)(2) will be reduced (but not below
zero) by the section 965(a) inclusion
amount (the "gain-reduction rule"). No-
tice 2018-07 does not expressly apply the
gain-reduction rule to distributions to a
United States shareholder from an entity
(an "upper-tier entity") that is not a DFIC
(for instance, an E&P deficit foreign cor-
poration) that has received distributions
from a DFIC (a "lower-tier DFIC") at-
tributable to previously taxed income
described in section 959(c)(2) by reason
of section 965(a). Moreover, Notice
2018-07 could be interpreted to provide
that even when the upper-tier entity is a
DFIC, the amount of gain recognized by

the United States shareholder that is re-
duced by reason of the gain-reduction
rule is limited solely to the section
965(a) inclusion amount of the United
States shareholder with respect to the
upper-tier entity, rather than also includ-
ing the section 965(a) inclusion amount
with respect to the lower-tier DFIC from
which such upper-tier entity has re-
ceived distributions attributable to pre-
viously taxed income described in sec-
tion 959(c)(2) by reason of section
965(a).

The Treasury Department and the IRS
intend to issue regulations that provide
that the gain-reduction rule also applies
to distributions received from a DFIC
through a chain of ownership described in
section 958(a). Specifically, regulations
will provide that if a United States share-
holder receives distributions through a
chain of ownership described under sec-
tion 958(a) from a DFIC during the inclu-
sion year that are attributable to previ-
ously taxed income described in section
959(c)(2) by reason of section 965(a), the
amount of gain recognized under section
961(b)(2) by the United States share-
holder with respect to the stock or prop-
erty of any entity in the ownership chain
described in section 958(a) through which
the distribution is made will be reduced
(but not below zero) by the section 965(a)
inclusion amount of the United States
shareholder with respect to such DFIC.
The gain-reduction rule will apply simi-
larly to reduce the amount of gain that
would otherwise be recognized under sec-
tion 961(c) by any controlled foreign cor-
poration in the ownership chain described
in section 958(a) through which the dis-
tribution is made to a United States share-
holder for purposes of determining the
amount included under section 951(a)(1)
in the gross income of the United States
shareholder.

Example. (i) Facts. USP, a domestic corporation,
owns all of the stock of CFC1, a specified foreign
corporation that has no post-1986 earnings and prof-
its (or deficit), and CFC1 owns all the stock of
CFC2, a DFIC. USP is a calendar year taxpayer.
CFC1 and CFC2 have inclusion years that end on
November 30, 2018. The functional currency of
CFC1 and CFC2 is the U.S. dollar. USP's adjusted
basis in the stock of CFC1 is zero, and CFC1's
adjusted basis in the stock of CFC2 is zero. On
January 1, 2018, CFC2 distributes $100 to CFC1,
and CFC1 distributes $100 to USP. USP has a sec-
tion 965(a) inclusion amount of $100 with respect to

CFC2. CFC2 has no other earnings and profits de-
scribed in section 959(c)(1) or (2), other than earn-
ings and profits described in section 959(c)(2) by
reason of section 965(a).

(ii) Analysis. USP receives a distribution from
CFC2, a lower-tier DFIC, through a chain of own-
ership described in section 958(a) during the inclu-
sion year of CFC2 that is attributable to $100 of
previously taxed income described in section
959(c)(2) by reason of section 965(a). The amount of
gain that USP would otherwise recognize with re-
spect to the stock of CFC1 under section 961(b)(2)
and the amount of gain that CFC1 would otherwise
recognize with respect to the stock of CFC2 under
section 961(c) for purposes of determining CFC1's
subpart F income is reduced (but not below zero) in
each case by $100, USP's section 965(a) inclusion
amount with respect to CFC2.

SECTION 5. GUIDANCE IN
CONNECTION WITH THE REPEAL
OF SECTION 958(b)(4)

.01 Application of Section 863

Section 863 and the regulations there-
under provide special rules for determin-
ing the source of certain items of gross
income, including gross income from
space and ocean activities and interna-
tional communications income. Section
863(d) provides that, except as provided
in regulations, any income derived from a
space or ocean activity ("space and ocean
income") by a United States person is
sourced in the United States (such income,
"U.S. source income") and that any space
and ocean income derived by a foreign
person is sourced outside the United
States (such income, "foreign source in-
come"). Regulations under section 863(d)
include an exception from the statutory
provision regarding space and ocean in-
come derived by a foreign person if the
foreign person is a CFC. Specifically,
space and ocean income derived by a CFC
is treated as U.S. source income, except to
the extent that the income, based on all the
facts and circumstances, is attributable to
functions performed, resources employed,
or risks assumed in a foreign country. See
§ 1.863-8(b)(2)(ii).

In the case of any United States person,
50 percent of any international communi-
cations income (as defined in section
863(e)(2)) is treated as U.S. source in-
come and 50 percent of such income is
treated as foreign source income. Section
863(e)(1)(A). Subject to certain excep-
tions, including exceptions set forth in
regulations, international communications

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income derived by a foreign person is
treated as foreign source income. Regula-
tions under section 863(e) provide that
international communications income de-
rived by a CFC is treated as one-half U.S.
source and one-half foreign source. See
§ 1.863-9(b)(2)(ii).

As a result of the repeal of section
958(b)(4) by the Act, stock of a foreign
corporation owned by a foreign per-
son can be attributed to a United States
person under section 318(a)(3) for pur-
poses of determining whether such United
States person is a United States share-
holder of the foreign corporation and,
therefore, whether the foreign corporation
is a CFC. In other words, as a result of the
repeal of section 958(b)(4), section 958(b)
now provides for "downward attribution"
from a foreign person to a United States
person in circumstances in which section
958(b), before the Act, did not so provide.
As a result, foreign corporations that were
not previously treated as CFCs may be
treated as CFCs.

The Treasury Department and the IRS
have determined that, in light of the change
to the constructive ownership rules in sec-
tion 958(b), further study is necessary to
determine whether it is appropriate for the
source of income described in section
863(d) and (e) to be determined by ref-
erence to the status of the recipient as a
CFC. Accordingly, for purposes of ap-
plying §§ 1.863-8 and 1.863-9, taxpay-
ers may determine whether a foreign
corporation is a CFC without regard to
the repeal of section 958(b)(4) pending
further guidance (which will be prospec-
tive, as described in section 6 of this
notice).

.02 Elimination of Form 5471 Filing
Obligation for Certain Constructive
Owners

Pursuant to section 6038(a)(4), the IRS
may require any United States person
treated as a United States shareholder of a
CFC to file an information return on Form
5471, "Information Return of U.S. Per-
sons with Respect to Certain Foreign Cor-
porations," with respect to its ownership
in such CFC. For this purpose, a United
States shareholder is defined in section
951(b), and the United States sharehold-
er's ownership in a CFC is determined
based on direct and indirect ownership

under section 958(a) and constructive
ownership under section 958(b). Under
the Instructions for Form 5471 (Rev. Dec.
2017), a United States shareholder who
owns stock in a CFC for an uninterrupted
period of 30 or more days during the
CFC's tax year and owned the stock on
the last day of that year is a Category 5
Filer and must file Form 5471.

As discussed in section 5.01 of this
notice, as a result of the Act, section
958(b) now provides for "downward attri-
bution" from a foreign person under sec-
tion 318(a)(3) to a United States person in
circumstances in which section 958(b),
before the Act, did not so provide. A
United States shareholder's pro rata share
of a CFC's subpart F income and the
amount determined under section 956 that
a United States shareholder is required to
include in gross income, however, con-
tinue to be determined based on direct and
indirect ownership of the CFC under sec-
tion 958(a), which does not take into ac-
count such downward attribution.

The IRS intends to amend the Instruc-
tions for Form 5471 to provide an excep-
tion from Category 5 filing for a United
States person that is a United States share-
holder with respect to a CFC if no United
States shareholder (including such United
States person) owns, within the meaning
of section 958(a), stock in such CFC, and
the foreign corporation is a CFC solely
because such United States person is con-
sidered to own the stock of the CFC
owned by a foreign person under section
318(a)(3).

## SECTION 6. EFFECTIVE DATES

Section 965 is effective for the last
taxable years of foreign corporations that
begin before January 1, 2018, and with
respect to United States shareholders, for
the taxable years in which or with which
such taxable years of the foreign corpora-
tions end. The Treasury Department and
the IRS intend to provide that the regula-
tions described in sections 3 and 4 of this
notice are effective beginning the first tax-
able year of a foreign corporation (and
with respect to United States shareholders,
the taxable years in which or with which
such taxable years of the foreign corpora-
tions end) to which section 965 applies.
Before the issuance of the regulations de-
scribed in this notice, taxpayers may rely

on the rules described in sections 3 and 4
of this notice.

The repeal of section 958(b)(4) is ef-
fective for the last taxable year of foreign
corporations beginning before January 1,
2018, and each subsequent year of such
foreign corporations and for the taxable
years of United States shareholders in
which or with which such taxable years of
foreign corporations end. Taxpayers may
rely on section 5.01 of this notice with
respect to the last taxable year of foreign
corporations beginning before January 1,
2018, and for the taxable years of United
States shareholders in which or with
which such taxable years of foreign cor-
porations end, pending the issuance of
further guidance (the application of which
will be prospective). Before the change to
instructions described in section 5.02 of
this notice, taxpayers may also rely on the
exception described in section 5.02 of this
notice for the last taxable year of foreign
corporations beginning before January 1,
2018, and each subsequent year of such
foreign corporations and for the taxable
years of United States shareholders in
which or with which such taxable years of
foreign corporations end.

## SECTION 7. REQUEST FOR COMMENTS AND CONTACT INFORMATION

The Treasury Department and the IRS
request comments on the rules described
in this notice. The Treasury Department
and the IRS expect to issue additional
guidance under section 965, and the Trea-
sury Department and the IRS request
comments on what additional guidance
should be issued to assist taxpayers in
applying section 965. In addition, com-
ments are requested as to whether, in light
of the repeal of section 958(b)(4), it would
be appropriate for the Treasury Depart-
ment and the IRS to reconsider the provi-
sions of any form, publication, regulation,
or other guidance that reference CFCs,
and if so, what revisions may be appro-
priate.

Written comments may be submitted to
the Office of Associate Chief Counsel (In-
ternational), Attention: Leni C. Perkins, In-
ternal Revenue Service, IR-4579, 1111
Constitution Avenue, NW, Washington,
DC 20224. Alternatively, taxpayers
may submit comments electronically to

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Notice.comments@irscounsel.treas.gov.
Comments will be available for public
inspection and copying.

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

26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of tax
liability

(Also Part I, §§ 368, 1.368-1.)

## Rev. Proc. 2018-12

### SECTION 1. PURPOSE

This revenue procedure provides meth-
ods that taxpayers may use to value certain
stock received by a target corporation's
shareholders in a potential reorganization
for purposes of determining whether the
continuity of interest (COI) requirement un-
der § 1.368-1(e) of the Income Tax Regu-
lations is satisfied. In the circumstances de-
scribed in this revenue procedure, the
Internal Revenue Service (IRS) will not
challenge a taxpayer's use of one of these
methods to determine the value of such
stock, in lieu of using the stock's actual
trading price on a particular day.

### SECTION 2. BACKGROUND

.01 The provisions of subchapter C,
chapter 1, of the Internal Revenue Code of
1986 generally provide nonrecognition
treatment for reorganizations described in
§ 368. The COI requirement is one of a
number of requirements that a transaction
must satisfy in order to qualify as a reor-
ganization. The COI requirement prevents
transactions that resemble sales from
qualifying as reorganizations. Pinellas Ice
& Cold Storage Co. v. Commissioner, 287
U.S. 462 (1933). Section 1.368-1(e) of
the Income Tax Regulations generally
provides rules applicable to the determi-
nation of whether the COI requirement is
satisfied. See generally § 1.368-1(e) for
the definitions of terms used in this reve-
nue procedure.

.02 In some reorganizations, the share-
holders of a corporation (Target) transfer
their Target stock to another corporation
(Acquiror) in exchange for either the

stock of Acquiror or, in the case of a
triangular reorganization (as defined in
§ 1.358-6(b)(2)), the stock of the corpo-
ration in control (within the meaning of
§ 368(c)) of Acquiror (in either case, Is-
suing Corporation stock). In these reorga-
nizations, Target shareholders may re-
ceive only Issuing Corporation stock or,
in some cases, money or other property in
addition to Issuing Corporation stock. In
other reorganizations, Target transfers its
property to Acquiror in exchange for Is-
suing Corporation stock (and, in some
cases, money or other property), and then
Target distributes the Issuing Corporation
stock (and the money or other property, if
any) to its shareholders in exchange for
their Target stock.

.03 The COI requirement requires that,
in substance, a substantial part of the
value of the Target shareholders' proprie-
tary interests (i.e., stock) in Target be pre-
served. Section 1.368-1(e)(1)(i); John A.
Nelson Co. v. Helvering, 296 U.S. 374
(1935). A proprietary interest in Target is
preserved if it is exchanged for Issuing
Corporation stock. To the extent that the
shareholders' proprietary interests in Tar-
get are acquired for money or other prop-
erty, their proprietary interests are not
preserved. Section 1.368-1(e)(1)(i). To
determine whether the COI requirement is
satisfied, the value of the Issuing Corpo-
ration stock the Target shareholders re-
ceived is compared to the aggregate value
of the consideration the Target sharehold-
ers received.

.04 Prior to 2011, the determination of
whether the COI requirement is satisfied
had been based on the value of the Issuing
Corporation stock "as of the effective date
of the reorganization" (Closing Date).
Rev. Proc. 77-37, 1977-2 C.B. 568. Un-
der this rule (Closing Date Rule), a de-
cline in the value of the Issuing Corpora-
tion stock between the date a contract to
effect a potential reorganization becomes
binding (Signing Date) and the Closing
Date could cause a transaction to fail the
COI requirement.

.05 On December 19, 2011, the De-
partment of the Treasury (Treasury De-
partment) and the IRS issued final
regulations (TD 9565, 76 FR 78540)
including a special rule (Signing Date
Rule) that applies if a binding contract
to effect a potential reorganization pro-

vides for fixed consideration (as defined
in § 1.368-1(e)(2)(iii)(A)) to be ex-
changed for the Target shareholders'
proprietary interests. Section 1.368-
1(e)(2)(i). If the Signing Date Rule ap-
plies, the consideration is valued as of
the end of the last business day before
the first date there is a binding contract
(Pre-signing Date), rather than on the
Closing Date. Thus, under the Signing
Date Rule, a change between the Sign-
ing Date and the Closing Date in the
value of the Issuing Corporation stock
to be received by the Target sharehold-
ers does not affect the determination of
whether the COI requirement is satis-
fied.

.06 The Treasury Department and the
IRS published proposed regulations in
2011 (2011 Proposed Regulations) (REG-
124627-11, 76 F.R. 78591 (Dec. 19, 2011))
that identified situations, other than those
covered by the Signing Date Rule, in which
the value of Issuing Corporation stock could
be determined based on a value other than
its actual trading price on the Closing Date.
In one of these situations, the 2011 Pro-
posed Regulations would have allowed the
parties to use an average of the trading
prices of Issuing Corporation stock over a
number of days, in lieu of its actual trading
price on the Closing Date, for purposes of
determining whether the COI requirement is
satisfied.

.07 The Treasury Department and the
IRS received comments on the 2011 Pro-
posed Regulations to the effect that parties
to potential reorganizations frequently use
average trading price methods to value
Issuing Corporation stock in determining
the amount and/or the mix of consider-
ation to be exchanged for Target stock.
The IRS agrees that such methods often
produce a more reliable estimate of the
fair market value of Issuing Corporation
stock than its trading price on a single
date. Accordingly, the IRS has concluded
that, in certain circumstances, taxpayers
should be able to rely on such methods for
purposes of determining whether the COI
requirement is satisfied. The IRS also
agrees with commenters that taxpayers
should be able to rely on such methods
regardless of whether the Signing Date
Rule or the Closing Date Rule applies to a
particular transaction.

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.08 Accordingly, the IRS is prescribing
in section 4 of this revenue procedure
certain Safe Harbor Valuation Methods
and Measuring Periods. For COI require-
ment purposes, if a transaction meets the
requirements of either section 3.01 or 3.02
of this revenue procedure, the parties to a
potential reorganization may select one of
these Safe Harbor Valuation Methods and
an appropriate Measuring Period, each de-
scribed in section 4 of this revenue proce-
dure, to determine the value of certain
Issuing Corporation stock.

## SECTION 3. TRANSACTIONS TO WHICH THIS REVENUE PROCEDURE APPLIES

Taxpayers may apply this revenue pro-
cedure to transactions that meet the re-
quirements of either section 3.01 or 3.02
of this revenue procedure.

.01 A taxpayer may rely on this reve-
nue procedure if the Signing Date Rule
applies to the transaction and the require-
ments in paragraphs (1), (2), (3), (4), and
(5) of this section 3.01 are satisfied:

(1) The shareholders of Target receive
Issuing Corporation stock, and either
money or other property or both, in ex-
change for their Target stock in a transac-
tion that, apart from the COI requirement,
would qualify as a reorganization de-
scribed in § 368(a)(1)(A), (B), or (C), or
as a reorganization described in § 368(a)
(1)(G) to which § 354, or so much of
§ 356 as relates to § 354, applies.

(2) Shares of one or more classes of
Issuing Corporation stock that are ex-
changed for the Target shareholders' stock
are traded on a national securities exchange
registered under Section 6 of the Securities
Exchange Act of 1934 (15 U.S.C. 78f) with
the Securities and Exchange Commission
(Exchange Traded Stock).

(3) All parties to the potential reorga-
nization, as defined in § 368(b), treat the
transaction in a consistent manner (i.e., as
either qualifying or not qualifying as a
reorganization).

(4) The transaction is effected pursuant
to a binding contract that evidences the
parties' agreement as to the following
terms:

(a) The contract specifies-

(i) The Safe Harbor Valuation Method
and an appropriate Measuring Period,
each described in section 4 of this revenue

procedure, that will be used to determine
the value of each class of Exchange
Traded Stock to be received by the Target
shareholders.

(ii) The national securities exchange
and the authoritative reporting source that
will be used to determine the trading
prices of each class of Exchange Traded
Stock throughout the Measuring Period.
The national securities exchange that will
be used (specified exchange) must meet
the requirements of paragraph (2) of this
section 3.01. If a class of Exchange
Traded Stock trades on more than one
national securities exchange, the contract
must specify the single exchange that will
be used to value that class of Exchange
Traded Stock.

(b) Pursuant to the contract, the parties
will utilize the value of each class of Ex-
change Traded Stock determined under
the selected Safe Harbor Valuation
Method and Measuring Period in deter-
mining the number of shares of each class
of Issuing Corporation stock, the amount
of money, and any other property (identi-
fied by specific value or by specific de-
scription) to be exchanged for all of the
Target stock, or to be exchanged for each
share of Target stock.

(5) The contract terms described in
paragraph (4) of this section 3.01 are ful-
filled at the Closing Date, in all material
respects.

.02 Taxpayers may rely on this revenue
procedure if the Closing Date Rule applies
to the transaction and the requirements in
paragraphs (1), (2), and (3) of this section
3.02 are satisfied:

(1) The requirements in paragraphs (1),
(2), and (3) of section 3.01 of this revenue
procedure are satisfied.

(2) The transaction is effected pursu-
ant to a contract that is binding on the
parties no later than the beginning of the
first trading day of the Measuring Period
(as defined in section 4.02 of this reve-
nue procedure) selected by the parties,
and evidences the parties' agreement as
to the matters set forth in paragraph (4)
of section 3.01 of this revenue proce-
dure.

(3) The contract items described in
paragraph (2) of this section 3.02 are ful-
filled at the Closing Date, in all material
respects.

## SECTION 4. SAFE HARBOR VALUATION METHODS AND MEASURING PERIODS

This section 4 sets forth the Safe Har-
bor Valuation Methods and the Measuring
Periods taxpayers may use to avail them-
selves of the safe harbor in section 5 of
this revenue procedure in determining the
value of Exchange Traded Stock. The safe
harbor is available only if the transaction
satisfies the requirements in section 3 of
this revenue procedure, and if the method
used to determine the value of the Ex-
change Traded Stock is a Safe Harbor
Valuation Method described in section
4.01 of this revenue procedure that uses
the appropriate Measuring Period de-
scribed in section 4.02 of this revenue
procedure.

.01 Safe Harbor Valuation Methods.

To avail themselves of the safe harbor
provided in section 5 of this revenue pro-
cedure, taxpayers may use any of the Safe
Harbor Valuation Methods set forth in
paragraphs (1), (2), and (3) of this section
4.01 to determine the value of Exchange
Traded Stock.

(1) Average of the Daily Volume
Weighted Average Prices. For each class
of Exchange Traded Stock, taxpayers
may use the average of the daily volume
weighted average prices of a share of
that class of Exchange Traded Stock, on
the specified exchange, as determined
on each day of the Measuring Period
(see section 4.02 of this revenue proce-
dure).

(2) Average of the Average High-Low
Daily Prices. For each class of Exchange
Traded Stock, taxpayers may use the av-
erage of the daily average high-low trad-
ing prices of a share of that class of Ex-
change Traded Stock, on the specified
exchange, as determined on each day of
the Measuring Period.

(3) Average of the Daily Closing
Prices. For each class of Exchange
Traded Stock, taxpayers may use the
average of the daily closing prices of a
share of that class of Exchange Traded
Stock, on the specified exchange, as de-
termined on each day of the Measuring
Period.

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### .02 Measuring Period.

A Measuring Period is a number of
consecutive trading days, based on the
trading days of the specified exchange,
used in connection with a Safe Harbor
Valuation Method described in section
4.01 of this revenue procedure. The Mea-
suring Period used to determine the value
of a share of each class of Exchange
Traded Stock must include at least five but
not more than 35 consecutive trading
days.

The Measuring Period must end no
later than the Closing Date, if the Closing
Date is a trading day on the specified
exchange. If the Closing Date is not a
trading day, the Measuring Period must
end no later than the last trading day be-
fore the Closing Date. If the Signing Date
Rule applies to the transaction, the Mea-
suring Period must end no earlier than
three trading days before the Pre-signing
Date. If the Closing Date Rule applies to
the transaction, the Measuring Period
must end no earlier than three trading days
before the Closing Date.

## SECTION 5. SAFE HARBOR

If the applicable requirements in sec-
tion 3 of this revenue procedure are satis-
fied, the IRS will not challenge the posi-
tion that, for purposes of determining
whether the COI requirement is satisfied,
the value of Exchange Traded Stock is
determined under the Safe Harbor Valua-
tion Method and Measuring Period se-
lected by the parties. The safe harbor is
available regardless of whether the value
of Exchange Traded Stock, as determined

under the Safe Harbor Valuation Method
and the Measuring Period selected by the
parties, satisfies the COI requirement.

## SECTION 6. SCOPE AND EFFECT OF REVENUE PROCEDURE

.01 Exclusivity.

The safe harbor set forth in section 5 of
this revenue procedure is available solely
for purposes of determining whether the
COI requirement is satisfied. Further, the
safe harbor may be applied only to trans-
actions that satisfy the requirements of
section 3 of this revenue procedure and
only to determine the value of Exchange
Traded Stock under a Safe Harbor Valu-
ation Method described in section 4.01 of
this revenue procedure using the appropri-
ate Measuring Period described in section
4.02 of this revenue procedure. No infer-
ence should be drawn regarding the appli-
cation of any federal tax principles outside
the scope of this revenue procedure.

.02 Effect of Safe Harbor Not Applying.

If the safe harbor does not apply, this
revenue procedure has no effect on the
federal tax treatment of the transaction. In
such cases, the determination of whether a
transaction satisfies the COI requirement
will be made under general federal tax
principles without regard to the provisions
of this revenue procedure.

### .03 Private Letter Rulings.

Subject to the provisions of Rev. Proc.
2018-1, 2018-1 I.R.B. 1, and Rev. Proc.
2018-3, 2018-1 I.R.B. 130, the IRS will
entertain requests for rulings and determi-

nation letters regarding transactions and
legal issues to which the safe harbor does
not apply and regarding the applicability
of the safe harbor.

# SECTION 7. EFFECT ON OTHER DOCUMENTS

This revenue procedure further ampli-
fies Rev. Proc. 77-37, 1977-2 C.B. 568,
as amplified by Rev. Proc. 86-42,
1986-2 C.B. 722, and Rev. Proc. 89-50,
1989-35 I.R.B. 12.

# SECTION 8. EFFECTIVE DATE

This revenue procedure is effective
with respect to transactions with an effec-
tive date on or after January 23, 2018.

# SECTION 9. DRAFTING INFORMATION

The principal author of this revenue
procedure is Jean Broderick of the Office
of Associate Chief Counsel (Corporate).
For further information regarding this rev-
enue procedure, contact Ms. Broderick at
(202) 317-6848 (not a toll-free number).

# Section 368. - Definitions relating to corporate reorganizations.

26 CFR 1.368-1(e)(2): Measuring continuity of
interest.

Can an average value of the issuing corporation
stock be used to determine whether the continuity of
Interest requirement is satisfied. See Rev. Proc.
2018-12, page 349.

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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.

GP-General Partner.

TFR-Transferor.

CI-City.

GR-Grantor.

T.I.R .- Technical Information Release.

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.

U.S.C .- United States Code.

DC-Dummy Corporation.

X-Corporation.

DE-Donee.

Del. Order-Delegation Order.

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.

TFE-Transferee.

CFR-Code of Federal Regulations.

COOP-Cooperative.

IC-Insurance Company.

LR-Lessor.

M-Minor.

Y-Corporation.

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.

C.B .- Cumulative Bulletin.

Z-Corporation.

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## Numerical Finding List1

Bulletin 2018-1 through 2018-6

Notices:

2018-01, 2018-3 I.R.B. 285
2018-02, 2018-2 I.R.B. 281
2018-03, 2018-2 I.R.B. 285
2018-05, 2018-6 I.R.B. 341
2018-06, 2018-3 I.R.B. 300
2018-07, 2018-4 I.R.B. 317
2018-13, 2018-6 I.R.B. 341

### Proposed Regulations:

REG-119514-15, 2018-04 I.R.B. 325

Revenue Procedures:

2018-1, 2018-1 I.R.B. 1
2018-2, 2018-1 I.R.B. 106

2018-3, 2018-1 I.R.B. 130
2018-4, 2018-1 I.R.B. 146
2018-5, 2018-1 I.R.B. 244
2018-7, 2018-1 I.R.B. 282
2018-8, 2018-2 I.R.B. 286

2018-9, 2018-2 I.R.B. 290
2018-11, 2018-5 I.R.B. 334
2018-12, 2018-6 I.R.B. 349

## Revenue Rulings:

2018-01, 2018-2 I.R.B. 275
2018-02, 2018-2 I.R.B. 277
2018-03, 2018-2 I.R.B. 278
2018-04, 2018-4 I.R.B. 304
2018-05, 2018-6 I.R.B. 339

## Treasury Decisions:

9829, 2018-04 I.R.B. 308

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2017-27 through 2017-52 is in Internal Revenue Bulletin
2017-52, dated December 27, 2017.

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# Finding List of Current Actions on Previously Published Items1

Bulletin 2018-1 through 2018-6

<!-- PageFooter="1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2017-27 through 2017-52 is in Internal Revenue Bulletin 2017-52, dated December 27, 2017." -->
<!-- PageFooter="Bulletin No. 2018-6" -->
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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
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