Internal Revenue Bulletin 2023-44 (PDF rendition): IRS Notices

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Bulletin No. 2023–44
October 30, 2023
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.
ADMINISTRATIVE
REG-127391-16, page 1214.
This notice of proposed rulemaking modernizes regulations
regarding the sale of a taxpayer’s property that the IRS seizes
by levy. The proposed amendments would allow the IRS to
maximize sale proceeds for the benefit of the taxpayer whose
property the IRS has seized and the public fisc and would
affect all sales of property the IRS seizes by levy.
EXEMPT ORGANIZATIONS
T.D.9981, page 1174.
These final regulations under section 509(a)(3) address the
requirements for section 501(c)(3) organizations to qualify
as public charities when they are operated, supervised or
controlled by one or more supported organizations (Type I
Supporting Organizations) and when they are operated in
connection with one or more supported organizations (Type
III Supporting Organizations). These final regulations provide
rules for qualifying as functionally integrated and non-function-
ally integrated Type III Supporting Organizations. These final
regulations also provide rules for the prohibition on certain
contributions to Type I and Type III supporting organizations.
INCOME TAX
REG-117614-14, page 1193.
Treasury Regulation §1.367(b)-10 requires corporations
that acquire parent stock or securities in exchange for
property in connection with certain triangular reorganiza-
tions to make adjustments that have the effect of a dis-
tribution of property. The proposed regulations set forth
additional rules that apply to a subsequent inbound non-
recognition transaction in cases where those adjustments
are not made.
SPECIAL ANNOUNCEMENT
Notice 2023-71, page 1191.
This notice grants relief under § 7508A of the Internal Revenue
Code to taxpayers affected by the October 7, 2023 terrorist
attacks in the State of Israel. The notice postpones deadlines
for certain time-sensitive taxpayer and government acts for
affected taxpayers for a full year, until October 7, 2024. The
covered area receiving relief under this notice includes the
State of Israel, the West Bank and Gaza. The notice also iden-
tifies categories of affected taxpayers and provides a non-ex-
haustive list of the acts postponed.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
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This part includes rulings and decisions based on provisions
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October 30, 2023 Bulletin No. 2023–44

Part I
26 CFR 1.509(a)-4: Supporting Organizations
T.D. 9981
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 53
Requirements for Type I
and Type III Supporting
Organizations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations providing guidance on
the prohibition on certain gifts or contri-
butions to Type I and Type III supporting
organizations from persons who control
a supported organization and on certain
other requirements for Type III support-
ing organizations. The regulations reflect
changes to the law made by the Pension
Protection Act of 2006. The regulations
affect certain Type I and Type III sup-
porting organizations and their supported
organizations.
DATES: Effective date: These regulations
are effective on October 16, 2023.
Applicability date: For dates of appli-
cability, see §1.509(a)-4(I).
FOR FURTHER INFORMATION
CONTACT: Michael Gruccio at (202)
317-4541 or Don Spellmann at (202)
317-4086.
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document amends the Income Tax
Regulations (26 CFR part 1) by adding
final regulations under section 509(a) of
the Internal Revenue Code (Code). These
final regulations amend §1.509(a)-4 to pro-
vide guidance on amendments to the Code
enacted by section 1241 of the Pension
Protection Act of 2006 (PPA), Public Law
109-280, 120 Stat. 780 (August 17, 2006).
An organization described in section
501(c)(3) of the Code is classified as either
a private foundation or a public charity. To
be classified as a public charity, an organi-
zation must be described in section 509(a)
(1), (2), or (3). Organizations described in
section 509(a)(3) are known as “support-
ing organizations.” Supporting organiza-
tions achieve their public charity status by
providing support to one or more organi-
zations described in section 509(a)(1) or
(2), which, in this context, are referred to
as “supported organizations.”
To be described in section 509(a)(3),
an organization must satisfy (1) an organ-
izational test, (2) an operational test, (3)
a relationship test, and (4) a disqualified
person control test. The organizational
and operational tests require that a sup-
porting organization be organized, and at
all times thereafter operated, exclusively
for the benefit of, to perform the functions
of, or to carry out the purposes of one or
more supported organizations. The rela-
tionship test requires a supporting orga-
nization to establish one of three types of
relationships with one or more supported
organizations. A supporting organization
that is operated, supervised, or controlled
by one or more supported organizations is
known as a “Type I” supporting organi-
zation. The relationship of a Type I sup-
porting organization with its supported
organization(s) is comparable to that of a
corporate parent-subsidiary relationship.
A supporting organization that is super-
vised or controlled in connection with one
or more supported organizations is known
as a “Type II” supporting organization.
The relationship of a Type II supporting
organization with its supported organi-
zation(s) involves common supervision
or control by the persons supervising or
controlling both the supporting organiza-
tion and the supported organization(s). A
supporting organization that is operated
in connection with one or more supported
organizations is known as a “Type III”
supporting organization and is discussed
further in the remainder of this preamble.
Finally, the disqualified person control test
requires that a supporting organization not
be controlled directly or indirectly by cer-
tain disqualified persons.
Sections 1241 through 1243 of the PPA
revised the requirements for supporting
organizations. These final regulations
under §1.509(a)-4 address section 1241’s
five changes to the requirements an orga-
nization must satisfy to qualify as a Type
III supporting organization.
II. PPA Changes to Type III supporting
organizations.
The PPA made the following five
changes to the requirements an organiza-
tion must satisfy to qualify as a Type III
supporting organization:
(1) Section 1241(c) of the PPA removed
the ability of a charitable trust to rely on
the special rule under §1.509(a)-4(i)(2)
(iii) as then in effect, which allowed a trust
to satisfy the attentiveness requirement of
the integral part test for non-functionally
integrated Type III supporting organiza-
tions if the supported organization was
a beneficiary of the trust and state law
allowed the beneficiary to enforce the trust
and compel an accounting of the trust;
(2) Section 1241(d) of the PPA directed
the Secretary of the Treasury or her dele-
gate (Secretary) to promulgate regulations
under section 509 that establish a new dis-
tribution requirement for Type III support-
ing organizations that are not “functionally
integrated” (a non-functionally integrated
(NFI) Type III supporting organization) to
ensure that a “significant amount” is paid
to supported organizations; for this pur-
pose, the term “functionally integrated”
means a Type III supporting organization
that is not required under regulations to
make payments to supported organiza-
tions, because the supporting organization
engages in activities that relate to perform-
ing the functions of, or carrying out the
purposes of, its supported organization(s);
(3) Section 1241(b) of the PPA required
a Type III supporting organization to pro-
vide annually to each of its supported
organizations the information required by
the Department of the Treasury (Treasury
Department) and the IRS (referred to
in §1.509(a)-4(i)(2) as the notification
October 30, 2023 1174 Bulletin No. 2023–44

requirement) to ensure that the supporting
organization is responsive to the needs or
demands of its supported organization(s);
(4) Section 1241(b) of the PPA also
prohibited a Type III supporting orga-
nization from supporting any supported
organization not organized in the United
States; and
(5) Section 1241(b) of the PPA addi-
tionally prohibited a Type I or Type III
supporting organization from accepting
any gift or contribution from a person
who, alone or together with certain related
persons, directly or indirectly controls the
governing body of a supported organiza-
tion of the Type I or Type III supporting
organization.
III. Prior Rulemaking
On August 2, 2007, the Treasury
Department and the IRS published in
the Federal Register (72 FR 42335) an
advanced notice of proposed rulemaking
(ANPRM) (REG-155929-06) in response
to the PPA. The ANPRM described pro-
posed rules to implement the changes
made by the PPA to the Type III support-
ing organization requirements and solic-
ited comments regarding those proposed
rules.
On September 24, 2009, the Treasury
Department and the IRS published a
notice of proposed rulemaking (REG-
155929-06) in the Federal Register (74
FR 48672) proposing regulations regard-
ing certain requirements to qualify as a
Type III supporting organization under
the PPA (2009 proposed regulations). The
2009 proposed regulations set forth those
proposed requirements in §1.509(a)-4(i).
On December 28, 2012, the Treasury
Department and the IRS published a
Treasury Decision (TD 9605) in the
Federal Register (77 FR 76382) contain-
ing final and temporary regulations under
§1.509(a)-4 regarding the requirements
to qualify as a Type III supporting orga-
nization (2012 TD). Also on December
28, 2012, the Treasury Department and
the IRS published a notice of proposed
rulemaking (REG-155929-06) in the
Federal Register (77 FR 76426) contain-
ing proposed regulations that incorporated
the text of the temporary regulations in
the 2012 TD by cross-reference. The tem-
porary regulations in the 2012 TD made
significant changes to the distribution
requirement for NFI Type III supporting
organizations. The 2012 TD adopted other
aspects of the 2009 proposed regulations
with some changes in response to com-
ments and provided transition relief for
Type III supporting organizations in exis-
tence on December 28, 2012, that met and
continued to meet the test under former
§1.509(a)-4(i)(3)(ii), known as the “but
for” test, as in effect prior to December 28,
2012, treating them as functionally inte-
grated until the first day of their second
taxable year beginning after December
28, 2012. Upon expiration of this relief
period, the 2012 TD requires these organi-
zations to meet the same rules as all other
supporting organizations to be considered
functionally integrated. The preamble
to the 2012 TD also identified issues for
possible future rulemaking and requested
comments.
On January 6, 2014, the Treasury
Department and the IRS published Notice
2014-4, 2014-2 I.R.B. 274, to provide
additional transition relief for any Type III
supporting organization (1) supporting at
least one supported organization that is
a governmental entity to which the sup-
porting organization is responsive (within
the meaning of §1.509(a)-4(i)(3)) and (2)
engaging in activities for or on behalf of
the governmental supported organization
that perform the functions of, or carry out
the purposes of, the governmental sup-
ported organization and that, but for the
involvement of the supporting organiza-
tion, would normally be engaged in by
the governmental supported organization
itself. Notice 2014-4 stated that such an
organization will be treated as a function-
ally integrated Type III supporting orga-
nization until the earlier of the date final
regulations under §1.509(a)-4(i)(4)(iv) are
published in the Federal Register or the
first day of the organization’s third taxable
year beginning after December 31, 2013.
On December 23, 2015, the Treasury
Department and the IRS published a
Treasury Decision (TD 9746) in the
Federal Register (80 FR 79684) contain-
ing final regulations under §1.509(a)-4(i)
regarding the distribution requirement for
NFI Type III supporting organizations,
finalizing the rule in the 2012 proposed
and temporary regulations with very
minor changes (2015 final regulations).
The preamble to the 2015 final regula-
tions indicated that additional proposed
regulations would be forthcoming to pro-
vide additional guidance for Type III sup-
porting organizations, including specific
rules under §1.509(a)-4(i)(4)(iv) for Type
III supporting organizations that support
governmental supported organizations;
the 2012 TD had reserved §1.509(a)-4(i)
(4)(iv). In addition, the preamble to the
2015 final regulations indicated that sup-
porting organizations that support a gov-
ernmental supported organization could
continue to rely on Notice 2014-4 until the
date of publication of the new proposed
regulations.
On February 19, 2016, the Treasury
Department and the IRS published a
notice of proposed rulemaking (REG-
118867-10) in the Federal Register (81
FR 8446) containing proposed regulations
under §1.509(a)-4(f) and (i) regarding
the prohibition on certain contributions
to Type I and Type III supporting organi-
zations and the requirements for Type III
supporting organizations (2016 proposed
regulations). The 2016 proposed regu-
lations addressed issues identified in the
preamble to the 2012 TD as well as the
comments (six in total) on the 2012 TD
and Notice 2014-4.
The Treasury Department and the IRS
received six comments in response to the
2016 proposed regulations. The com-
ments are available for public inspection
at https://www.regulations.gov or upon
request. No public hearing was requested.
After considering the comments received,
the Treasury Department and the IRS
adopt the 2016 proposed regulations
in these final regulations with certain
revisions described in the Summary of
Comments and Explanation of Revisions.
Summary of Comments and
Explanation of Revisions
I. Overview
This Summary of Comments and
Explanation of Revisions addresses the
comments that the Treasury Department
and the IRS received in response to the
2016 proposed regulations and describes
the revisions adopted in these final reg-
ulations. As described in this Summary
of Comments and Explanation of
Bulletin No. 2023–44 1175 October 30, 2023

October 30, 2023 1176 Bulletin No. 2023–44
Revisions, these final regulations define
the term “control” for purposes of sec-
tion 509(f)(2), which prohibits a Type I
or Type III supporting organization
from accepting any gift or contribution
from any person who controls the gov-
erning body of the supported organiza-
tion(s). These final regulations also set
forth additional rules and requirements
for Type III supporting organizations,
including (1) additional requirements to
meet the responsiveness test for all Type
III supporting organizations; (2) addi-
tional rules regarding the qualification
of an organization as a functionally inte-
grated Type III supporting organization
under §1.509(a)-4(i)(4), including spe-
cific rules for supporting organizations
that support governmental supported
organizations; and (3) additional rules
regarding the required annual distribu-
tions under §1.509(a)-4(i)(5) by an NFI
Type III supporting organization.
II. Contributions from Controlling
Donors – Meaning of Control
Section 509(f)(2) and §1.509(a)-4(f)
(5) prohibit Type I and Type III sup-
porting organizations from accepting
any gift or contribution from any person
(other than an organization described in
section 509(a)(1), (2), or (4)) who, alone
or together with certain related persons
(as described in §1.509(a)-4(f)(5)(i)(B)
or (C)), directly or indirectly controls
the governing body of a supported orga-
nization of the Type I or Type III sup-
porting organization, or from persons
related to a person possessing such con-
trol. Section 509(f)(2) does not define
“directly or indirectly controls.” The
2012 TD reserved §1.509(a)-4(f)(5)(ii),
titled “Meaning of control,” for future
proposed regulations.
The 2016 proposed regulations
proposed defining “control” consis-
tently with the definition of control in
§1.509(a)-4(j), which relates to control
by disqualified persons for purposes of
the disqualified person control test in
section 509(a)(3)(C) and §1.509(a)-4(a)
(4). In general, under the 2016 proposed
regulations, the governing body of a sup-
ported organization is considered “con-
trolled” by a person if that person, alone
or by aggregating his or her votes or
positions of authority with certain related
persons described in §1.509(a)-4(f)(5)
(i)(B) or (C), may require the governing
body of the supported organization to
perform any act that significantly affects
its operations or may prevent the govern-
ing body of the supported organization
from performing any such act.
These final regulations adopt the defi-
nition of “control” proposed in the 2016
proposed regulations with minor changes
to add clarity. These final regulations make
clear that control exists if one or more per-
sons described in §1.509(a)-4(f)(5)(i)(A),
(B), or (C) hold 50 percent or more of the
total voting power of the governing body
or have the right to exercise veto power
over the actions of the governing body.
These final regulations also incorporate
language from §1.509(a)-4(j)(1) to make
clear that even if persons do not have con-
trol by virtue of having 50 percent or more
of the voting power or a veto power, all
pertinent facts and circumstances will be
taken into consideration in determining
whether such persons do in fact directly or
indirectly control the governing body of a
supported organization.
One commenter stated that if a parent
supporting organization controls a sup-
ported organization, section 509(f)(2)
would prohibit Type I and Type III sup-
porting organizations of that controlled
supported organization from accepting
any gift or contribution from the parent
supporting organization. To allow these
contributions, the commenter recom-
mended excluding from the definition of
control the control a parent supporting
organization exercises over its supported
organizations.
Section 509(f)(2) only excepts gifts
or contributions from organizations
described in section 509(a)(1), (2), and
(4). Congress did not provide an excep-
tion for section 509(a)(3) organizations.
For this reason, the commenter’s recom-
mendation is not consistent with section
509(f)(2), and these final regulations do
not adopt it.
III. Type III Supporting Organization
Relationship Test
Section 1.509(a)-4(i)(1) provides that,
for each taxable year, a Type III supporting
organization must satisfy (i) a notification
requirement, (ii) a responsiveness test,
and (iii) an integral part test provided in
the regulations. The 2016 proposed regu-
lations proposed additional rules regard-
ing each of these requirements. These
final regulations adopt the 2016 proposed
rules with the modifications described in
this part III.
A. Notification Requirement
Section 509(f)(1)(A) provides that
an organization will not be considered a
Type III supporting organization unless
the organization provides to each sup-
ported organization, for each taxable
year, such information as the Secretary
may require to ensure that the orga-
nization is responsive to the needs or
demands of the supported organizations.
To satisfy this notification requirement,
§1.509(a)–4(i)(2) requires a Type III
supporting organization to provide to
each of its supported organizations for
each taxable year: (1) A written notice
addressed to a principal officer of the
supported organization describing the
type and amount of all of the support it
provided to the supported organization
during the supporting organization’s pre-
ceding taxable year; (2) a copy of the
supporting organization’s most recently
filed Form 990, Return of Organization
Exempt from Income Tax, or other annual
information return required to be filed
under section 6033; and (3) a copy of
the supporting organization’s governing
documents, including any amendments
(unless previously provided and not sub-
sequently amended). The 2016 proposed
regulations proposed clarifying that for
NFI Type III supporting organizations
the description of support in the written
notice must include all of the distribu-
tions described in §1.509(a)–4(i)(6) to
the supported organization. These final
regulations adopt this clarification.
Section 1.509(a)–4(i)(2)(iii) requires
that the notification be transmitted by the
last day of the fifth calendar month fol-
lowing the close of “that taxable year.”
Due to the lack of clarity regarding the
reference to “that taxable year,” the 2016
proposed regulations proposed amend-
ing §1.509(a)-4(i)(2) to clarify that a
supporting organization must deliver
the required documents to each of its

Bulletin No. 2023–44 1177 October 30, 2023
supported organizations by the last day
of the fifth month of the supporting orga-
nization’s taxable year after the taxable
year in which it provided the support it is
reporting. The preamble to the 2016 pro-
posed regulations stated that the proposed
change is intended to reduce confusion
but does not substantively change the due
date or the content of the required notifi-
cation. The preamble also stated that the
date of delivery is determined by apply-
ing the general principles of section 7502.
The final regulations adopt this proposed
amendment without change.
One commenter requested clarifica-
tion that the annual written notice may
summarize all the programs and services
a supporting organization performs for
its supported organization. The Treasury
Department and the IRS agree that a sup-
porting organization may summarize its
activities directly furthering the exempt
purpose of the supported organization as
long as that summary provides sufficient
notice to the supported organization on
the character of the activity and its related
costs. The report must include a brief nar-
rative description of the support provided
and sufficient financial detail for the recip-
ient to identify the types and amounts of
support being reported.
B. Responsiveness Test
Section 1.509(a)-4(i)(3)(i) provides
that a supporting organization meets the
responsiveness test if it is “responsive
to the needs or demands of a supported
organization.” To meet this respon-
siveness test, an organization must sat-
isfy two elements—the “relationship
requirement” and the “significant voice
requirement.” Under the relationship
requirement, described in §1.509(a)-4(i)
(3)(ii), the officers, directors, or trustees
of the organization must have one of three
specified relationships with the officers,
directors, or trustees (and in some cases
the members) of the supported organiza-
tion. Under the significant voice require-
ment, described in §1.509(a)-4(i)(3)(iii),
the officers, directors, or trustees of the
supported organization, by reason of their
relationships described in §1.509(a)-4(i)
(3)(ii), must have a significant voice in
the investment policies of the supporting
organization, the timing of grants, the
manner of making grants, and the selec-
tion of grant recipients by the supporting
organization, and in otherwise directing
the use of the income or assets of the sup-
porting organization.
The preamble to the 2012 TD stated
that, in determining the appropriate distri-
bution amount for NFI Type III supporting
organizations, the Treasury Department
and the IRS considered the required rela-
tionship between a supporting organiza-
tion and its supported organizations, and
that the Treasury Department and the IRS
intended to issue proposed regulations in
the future that would amend the respon-
siveness test by requiring a Type III sup-
porting organization to be responsive to
all of its supported organizations.
In response to this proposal in the pre-
amble to the 2012 TD, one commenter
stated that a supporting organization
should not be required to be responsive to
all of its supported organizations because
the resulting administrative burden would
effectively limit the total number of orga-
nizations a supporting organization could
support. The commenter suggested alter-
natives under which a supporting orga-
nization would be responsive to only a
subset of its supported organizations that
would vary from year to year.
As stated in the preamble to the 2016
proposed regulations, the distinguish-
ing characteristic of Type III supporting
organizations, and the basis for their pub-
lic charity classification, is that they are
responsive to and significantly involved
in the operations of their publicly sup-
ported organizations. See §1.509(a)-4(f)
(4). Unless a Type III supporting organiza-
tion is responsive to each of its supported
organizations, the supported organiza-
tions cannot exercise the requisite level
of oversight of and engagement with
the supporting organization. Limiting
the responsiveness requirement to fewer
than all of the supported organizations
may result in the necessary oversight and
accountability being present for less than
all of a supporting organization’s opera-
tions. Consistent with this view, the 2016
proposed regulations proposed revising
§1.509(a)-4(i)(3)(i) to require a support-
ing organization to be responsive to the
needs and demands of each of its sup-
ported organizations to meet the respon-
siveness test.
In addition, to illustrate how con-
cerns about potential administrative bur-
dens may be addressed consistent with
the revised responsiveness test, the 2016
proposed regulations proposed a new
Example 3 in §1.509(a)-4(i)(3)(iv) to
demonstrate one way in which a Type III
supporting organization that supports
multiple organizations may satisfy the
responsiveness test in a manner that can
be cost-effective. The Example shows that
a supporting organization can meet the
relationship requirement in §1.509(a)-4(i)
(3)(ii) in different ways with respect to
each of its supported organizations. The
Example also shows how a supporting
organization can organize and hold reg-
ular meetings, provide information, and
encourage communication to help ensure
that its supported organizations have a
significant voice in the operations of the
supporting organization.
As noted in the preamble to the 2016
proposed regulations, another com-
menter in response to the preamble of the
2012 TD requested additional guidance
regarding the ability of trusts to satisfy
the significant voice requirement of the
responsiveness test. The new Example
3 in the 2016 proposed regulations pro-
vides further illustration of how Type III
supporting organizations, including char-
itable trusts, might satisfy the significant
voice requirement of the responsiveness
test. The Treasury Department and the
IRS note that although the examples in
the regulations relating to the respon-
siveness test may involve a Type III
supporting organization that is orga-
nized as either a corporation or a trust,
the applicable law and relevant regula-
tory provisions, as modified by the final
regulations, are applicable to all Type
III supporting organizations in the same
manner, whether they are organized as
corporations or trusts.
As the preamble to the 2016 pro-
posed regulations stated, the Treasury
Department and the IRS anticipate that
Type III supporting organizations may be
able to demonstrate that they satisfy the
responsiveness test in a variety of ways,
and that the determination will be based
on all the facts and circumstances.
As a result of the proposed changes
to the responsiveness test, the 2016 pro-
posed regulations also include conforming

October 30, 2023 1178 Bulletin No. 2023–44
changes to examples and other regulatory
provisions, specifically, removing ref-
erences to “supported organizations to
which the supporting organization is
responsive” since the supporting orga-
nization is to be responsive to each sup-
ported organization.
Two commenters to the 2016 proposed
regulations address the responsiveness
test, agreeing with the proposed amend-
ments to §1.509(a)-4(i)(3)(i) and the new
example in §1.509(a)-4(i)(3)(iv). Thus,
these final regulations adopt these pro-
posed amendments without change.
C. Integral Part Test – Functionally
Integrated Type III Supporting
Organizations
Section 1.509(a)-4(i)(1)(iii) provides
that, for each taxable year, a Type III
supporting organization must satisfy the
integral part test. The integral part test
under §1.509(a)-4(i)(1)(iii) is satisfied by
maintaining significant involvement in
the operations of one or more supported
organizations and providing support on
which the supported organizations are
dependent. To satisfy this test, a Type III
supporting organization must meet the
requirements either for a functionally inte-
grated Type III supporting organization or
for an NFI Type III supporting organiza-
tion, as set forth in §1.509(a)-4(i)(4) or
(5), respectively.
One commenter to the 2016 proposed
regulations stated that the cross reference
in §1.509(a)-4(d)(4)(i)(C) to the integral
part test should be corrected to conform
to the amendments made by the 2012 TD.
The final regulations adopt this recom-
mendation and revise §1.509(a)-4(d)(4)
(i)(C) to reference the requirements of the
integral part test set forth in §1.509(a)-4(i)
(1)(iii).
A Type III supporting organiza-
tion is functionally integrated under
§1.509(a)-4(i)(4) if it (1) engages in activ-
ities substantially all of which directly
further the exempt purposes of one or
more supported organizations and other-
wise meets the requirements described in
paragraph (i)(4)(ii) of that section, (2) is
the parent of each of its supported orga-
nizations as described in paragraph (i)
(4)(iii) of that section, or (3) supports a
governmental supported organization and
otherwise meets the requirements of para-
graph (i)(4)(iv) of that section.
1. “Substantially All” Test
Section 1.509(a)-4(i)(4)(ii)(B) pro-
vides that all pertinent facts and circum-
stances will be taken into consideration
in determining whether substantially all
of a supporting organization’s activities
directly further the exempt purposes of
its supported organization(s). One com-
menter to the 2016 proposed regulations
requested that supporting organizations
be given the option of meeting the “sub-
stantially all” test on average over a three-
or five-year period. The commenter also
recommended that transition relief be
provided if an organization does not meet
the test over the most recent three or five
years before the promulgation of final
regulations.
The 2012 TD adopted the substan-
tially all test in §1.509(a)-4(i)(4)(ii).
The 2012 TD also provided transition
relief in §1.509(a)-4(i)(11)(ii) for exist-
ing organizations to adjust to the new
rules. The 2016 proposed regulations did
not include any substantive changes to
§1.509(a)-4(i)(4)(ii). Furthermore, the
substantially all test in §1.509(a)-4(i)(4)
(ii)(B) takes into consideration all per-
tinent facts and circumstances, which
allows for some consideration of year-
to-year changes in activities. Finally, the
Treasury Department and the IRS note
that the commenter’s proposed multi-year
averaging test would be complex, create
uncertainty about a supporting organiza-
tion’s functionally integrated status at the
close of each taxable year, and would be
difficult to administer. For these reasons,
the final regulations do not adopt this
recommendation.
2. Parent of Each Supported Organization
Under §1.509(a)-4(i)(4)(iii), a support-
ing organization is the parent of a sup-
ported organization, and thus is deemed
to be functionally integrated, if the sup-
porting organization exercises a substan-
tial degree of direction over the policies,
programs, and activities of the supported
organization and a majority of the offi-
cers, directors, or trustees of the supported
organization is appointed or elected,
directly or indirectly, by the governing
body, members of the governing body, or
officers (acting in their official capacities)
of the supporting organization.
As the 2009 proposed regulations
noted, the classification of a parent orga-
nization as functionally integrated was
intended to “apply to supporting orga-
nizations that oversee or facilitate the
operation of an integrated system, such
as hospital systems.” To more fully
accomplish this objective, the 2016 pro-
posed regulations proposed a revision to
§1.509(a)-4(i)(4)(iii) clarifying that for a
supporting organization to qualify as the
parent of each of its supported organiza-
tions, the supporting organization and its
supported organizations must be part of
an integrated system (such as a hospital
system), and the supporting organization
must engage in activities typical of the
parent of an integrated system. The 2016
proposed regulations stated that examples
of these activities include (but are not lim-
ited to) coordinating the activities of the
supported organizations and engaging in
overall planning, policy development,
budgeting, and resource allocation for the
supported organizations.
One commenter requested that the final
regulations provide additional examples
of integrated systems, such as private
schools and universities, continuing care
retirement communities, and residential
rehabilitation facilities. The parenthetical
in the 2016 proposed regulations—such as
a hospital system—is stated as only one
example and is not exclusive. This sec-
tion of the regulations applies to any type
of integrated system of which the parent
organization and its supported organi-
zations are a part. The test is whether
the structure is that of an integrated sys-
tem and whether the requirements of
§1.509(a)-4(i)(4)(iii) are satisfied, not
whether the system is in a particular
industry. The Treasury Department and
the IRS conclude that it is unnecessary to
add other examples of industries that may
have integrated systems; doing so at this
time may indicate that any industries not
specifically mentioned in the final regula-
tions are excluded. Accordingly, the final
regulations do not adopt the commenter’s
request to provide additional examples.
Nevertheless, in response to the comment
and to make clear that a hospital system is

Bulletin No. 2023–44 1179 October 30, 2023
just one example of an integrated system,
the final regulations revise the parenthet-
ical in the 2016 proposed regulations to
read as follows: (such as, for example, a
hospital system).
The commenter also recommended
including additional examples of activities
that are typical of a parent of an integrated
system and suggested that the examples
might include financial planning and fore-
casting, legal services, human resources,
information management, billing and col-
lection services, marketing, and commu-
nity outreach and education. The Treasury
Department and the IRS note that the list
of activities in the 2016 proposed regula-
tions was only illustrative of how a parent
directs the overall policies, programs, and
activities of the supported organizations
within the integrated system and was not
exclusive. Thus, the absence of any par-
ticular activity, such as financial planning,
from this list is not determinative. The
final regulations clarify that a parent of
an integrated system of supported orga-
nizations must direct the overall policies,
programs, and activities of the supported
organizations (such as, for example, coor-
dinating the activities of the supported
organizations and engaging in overall
planning, policy development, budgeting,
and resource allocation). The Treasury
Department and the IRS note that a parent
of an integrated system may also perform
system-wide administrative services, such
as the examples provided by the com-
menter, in conjunction with directing the
overall policies, programs, and activities
of the supported organizations. For clar-
ity, these final regulations omit the defined
term “activities typical of a parent” in
proposed §1.509(a)-4(i)(4)(iii). The 2016
proposed regulations proposed to retain
the requirement in §1.509(a)-4(i)(4)(iii)
that the governing body, members of the
governing body, or officers of a parent
supporting organization must appoint or
elect a majority of the officers, directors,
or trustees of the supported organization.
The preamble to the 2016 proposed reg-
ulations stated that the use of the phrase
“appointed or elected, directly or indi-
rectly” means the supporting organization
could qualify as a parent of a second-tier
(or lower) subsidiary. Thus, for example,
if the directors of supporting organiza-
tion A appoint a majority of the directors
of supported organization B, which in
turn appoints a majority of the directors
of supported organization C, the direc-
tors of supporting organization A will be
treated as appointing the majority of the
directors of both supported organization B
and supported organization C. One com-
menter agreed with this interpretation and
requested that it be addressed in the final
regulations. These final regulations adopt
this recommendation.
As stated in the preamble to the 2016
proposed regulations, the Treasury
Department and the IRS interpret the
existing requirement under §1.509(a)-4(i)
(4)(iii) that the parent organization have
the power to appoint or elect a majority
of the officers, directors, or trustees of
each supported organization to include the
requirement that the parent organization
also have the power to remove and replace
such officers, directors, or trustees, or oth-
erwise have an ongoing power to appoint
or elect with reasonable frequency. One
commenter requested that language
reflecting this interpretation be specifi-
cally added to §1.509(a)-4(i)(4)(iii). The
final regulations adopt this commenter’s
recommendation.
3. Supporting a Governmental Supported
Organization
The 2012 TD reserved §1.509(a)-4(i)
(4)(iv) for future guidance on how a
Type III supporting organization can
qualify as functionally integrated by sup-
porting a governmental entity. As interim
guidance, Notice 2014-4 provided that a
Type III supporting organization will be
treated as functionally integrated if it (i)
supports a supported organization that is
a governmental entity to which the sup-
porting organization is responsive; and
(ii) engages in activities for or on behalf
of that governmental supported organi-
zation that perform the functions of, or
carry out the purposes of, that govern-
mental supported organization and that,
but for the involvement of the supporting
organization, would normally be engaged
in by the governmental supported organi-
zation itself. This interim guidance was
subsequently extended by the 2015 final
regulations. The 2016 proposed regula-
tions proposed new rules under which a
Type III supporting organization would
qualify as functionally integrated by sup-
porting governmental supported organi-
zations. These final regulations adopt the
proposed §1.509(a)-4(i)(4)(iv), with the
modifications discussed in the following
paragraphs.
The 2016 proposed regulations pro-
posed that a supporting organization that
only supports governmental supported
organizations would be considered func-
tionally integrated if a substantial part
of its total activities directly further the
exempt purposes of its governmental sup-
ported organizations and, if the supporting
organization supports more than one gov-
ernmental supported organization, all of
its governmental supported organizations
either: (1) Operate within the same geo-
graphic region (defined as a city, county,
or metropolitan area); or (2) work in close
coordination or collaboration with each
other to conduct a service, program, or
activity that the supporting organization
supports. The 2016 proposed regulations
proposed defining a governmental sup-
ported organization as a governmental
unit described in section 170(c)(1), or an
organization described in section 170(c)
(2) and (b)(1)(A) (other than in clauses
(vii) and (viii)) that is an instrumentality of
one or more governmental units described
in section 170(c)(1). To satisfy the close
coordination or collaboration require-
ment, the proposed regulations proposed
requiring a supporting organization to
maintain on file a letter from each of the
governmental supported organizations (or
a joint letter from all of them) describing
their coordination or collaboration efforts
with respect to the particular service,
program, or activity. The 2016 proposed
regulations proposed an exception to this
rule for certain pre-existing organizations
that support no more than one non-gov-
ernmental supported organization along
with one or more governmental supported
organizations, as well as a transition rule
for pre-existing organizations that con-
tinue to meet the requirements of Notice
2014-4.
Two commenters recommended that
Type III functionally integrated supporting
organizations should not be limited to only
supporting governmental supported orga-
nizations. One commenter proposed that
a supporting organization which supports
both governmental and non-governmental

October 30, 2023 1180 Bulletin No. 2023–44
supported organizations should qualify as
functionally integrated if the supporting
organization (i) conducts activities that
perform the functions of or carry out the
purposes of its governmental supported
organization(s), (ii) its non-governmen-
tal supported organizations operate in the
same geographic region or work in close
coordination or collaboration with the
governmental supported organization(s),
and (iii) substantially all of the supporting
organization’s activities directly further
the exempt purposes of its governmental
supported organization(s).
The other commenter recommended
replacing the requirement that all sup-
ported organizations be governmen-
tal supported organizations with a new
requirement that substantially all the
activities of the supporting organization
either (i) directly further the purposes of
the governmental supported organiza-
tions, or (ii) consist of grantmaking, fund-
raising, or investing for governmental
supported organizations that meet either
the same geographic region or close coor-
dination and collaboration requirements in
the 2016 proposed regulations.
A third commenter requested that,
when a supporting organization supports
more than one governmental supported
organization, the governmental supported
organizations should only be required to
work in close coordination or collabora-
tion. The commenter requested deleting
the requirement that the governmental
supported organizations conduct a ser-
vice, program, or activity that the support-
ing organization supports.
The 2016 proposed regulations pro-
posed allowing certain Type III supporting
organizations that support governmental
supported organizations to be classified
as functionally integrated on the basis
that the involvement of the governmental
supported organizations in the supporting
organization’s activities would minimize
the potential for abuse. As stated in the
preamble to the 2016 proposed regula-
tions, requiring close cooperation and col-
laboration on a common service, program,
or activity that the supporting organization
supports helps ensure that the governmen-
tal supported organizations will provide
sufficient input to and oversight of the
supporting organization. Moreover, the
coordination and collaboration between
the governmental supported organiza-
tions would be greatly diminished if they
engaged in different services, programs,
or activities. Furthermore, governmental
input and oversight would be diluted if
the definition of functionally integrated
were expanded to permit these supporting
organizations to support and be respon-
sive to non-governmental supported orga-
nizations as well. Additionally, for the
reasons discussed later in this preamble,
the Treasury Department and the IRS uti-
lize the substantial part test for supporting
governmental supported organizations
(instead of the substantially all test) but
specifically exclude grant making and
other financial activities from the defini-
tion of activities that directly further the
exempt purposes of the governmental
supported organizations. Accordingly,
these final regulations do not adopt these
recommendations. For clarity, these final
regulations omit the defined term “geo-
graphic region” contained in proposed
§1.509(a)-4(i)(4)(iv)(C).
As noted previously in this preamble,
the 2016 proposed regulations proposed
that, for simplicity and administrability,
the term “governmental supported orga-
nization” be defined using an existing
Code definition of governmental unit.
Three commenters stated their support for
this definition. Thus, the final regulations
adopt the definition in the 2016 proposed
regulations with the clarification described
in the following paragraph.
The preamble to the 2016 proposed
regulations noted that, because a govern-
mental unit described in section 170(c)(1)
includes all of the agencies, departments,
and divisions of that governmental unit,
all such agencies, departments, and divi-
sions will be treated as one governmen-
tal supported organization for purposes
of §1.509(a)-4(i)(4)(iv). One commenter
stated its support for this position and
requested that it be specifically written
into the regulations. These final regula-
tions adopt this commenter’s recommen-
dation. The final regulations specifically
state that a governmental unit includes
all of its agencies, departments, and divi
-
sions, and that they will be treated as one
governmental supported organization for
these purposes.
One commenter on the 2016 pro-
posed regulations requested that an
instrumentality of a governmental sup-
ported organization and the governmen-
tal supported organization with respect
to which it is an instrumentality should
be treated as one governmental supported
organization. The final regulations do
not adopt this recommendation because,
unlike an agency, department, or division
of a governmental unit, an instrumentality
described in §1.509(a)-4(i)(4)(iv)(B)(2) is
a separate legal entity.
The 2016 proposed regulations also
proposed that supporting organizations
that support only governmental supported
organizations may qualify as functionally
integrated only if a “substantial part” of
their activities directly furthers the exempt
purposes of their governmental supported
organization(s). The 2016 proposed reg-
ulations proposed using the same defi-
nition of “directly further” contained in
§1.509(a)-4(i)(4)(ii)(C), the integral part
test for functionally integrated Type III
supporting organizations, as promulgated
in the 2012 TD. This definition provides
that fundraising, making grants, and
investing and managing non-exempt-use
assets are not activities that directly fur-
ther the exempt purposes of the supported
organization.
One commenter recommended that
fundraising, making grants, and invest-
ing and managing non-exempt-use assets
should be considered activities that directly
further the exempt purposes of a gov-
ernmental supported organization. The
Treasury Department and the IRS deter-
mined that a Type III supporting orga-
nization should qualify as functionally
integrated only if the supporting organiza-
tion itself conducts activities that perform
the functions of or carry out the purposes
of its supported organization (as distin-
guished from providing financial sup-
port for the activities carried out by the
supported organization). As the 2012 TD
stated, fundraising, making grants, and
investing and managing non-exempt-use
assets relate to producing and distributing
income to finance the charitable activities
directly carried out by the supported orga-
nization. The 2016 proposed regulations
did not adopt comments seeking to apply
a different definition of ‘‘directly further’’
to supporting organizations that support
governmental supported organizations.
These final regulations do not adopt the

Bulletin No. 2023–44 1181 October 30, 2023
commenter’s proposal because using a
different definition of “directly further”
for governmental supported organizations
would undermine a fundamental distinc-
tion that §1.509(a)-4(i)(4) makes between
functionally integrated and NFI Type III
supporting organizations, i.e., directly con-
ducting charitable activities versus financ-
ing charitable activities. The Treasury
Department and the IRS also note the
complexity and administrative difficulty of
applying different definitions of “directly
further” under the integral part test.
These final regulations adopt the
requirement in the 2016 proposed regu-
lations that a substantial part of the sup-
porting organization’s total activities must
directly further the exempt purposes of its
governmental supported organizations.
These final regulations also add a new
example to clarify that a supporting orga-
nization can meet this requirement and
still make grants to one of its governmen-
tal supported organizations as a substan-
tial part of its activities. As the preamble to
the 2016 proposed regulations stated, the
“substantial part” test in §1.509(a)-4(i)(4)
(iv) allows these supporting organizations
to conduct more fundraising and other
financial activities, if certain requirements
are met, than is permitted under the “sub-
stantially all” test of §1.509(a)-4(i)(4)(ii)
that applies generally to be a functionally
integrated Type III supporting organiza-
tion. One commenter requested confir-
mation concerning the identity of these
certain requirements that must be met.
Under §1.509(a)-4(i)(4) as promulgated
by the 2012 TD and amplified by these
final regulations in providing the rules
for supporting governmental supported
organizations, the organization must meet
the annual notification requirement in
§1.509(a)-4(i)(2) and the responsiveness
test in §1.509(a)-4(i)(3), in addition to the
specific requirements in §1.509(a)-4(i)
(4)(iv), in order to be a functionally inte-
grated Type III supporting organization by
virtue of supporting governmental sup-
ported organizations.
One commenter recommended provid-
ing a clear definition of what constitutes
a substantial part of a supporting orga-
nization’s total activities for purposes of
meeting §1.509(a)-4(i)(4)(iv). Another
commenter recommended not adopting a
bright line rule to measure the quantity of
activities that equal a substantial part, but
requested a statement in the final regula-
tions that all pertinent facts and circum-
stances will be taken into account. This
commenter also requested more exam-
ples of activities that directly further the
exempt purpose of the governmental sup-
ported organization and clarification in
the regulations to require that a substantial
part of a supporting organization’s activi-
ties directly further the exempt purposes
of “at least one” (as opposed to all) of its
governmental supported organizations
when the governmental supported orga-
nizations share a common geographic
region.
In response to these comments,
the final regulations revise proposed
§1.509(a)-4(i)(4)(iv) to provide that, in
determining whether a substantial part of
a supporting organization’s total activities
directly further the exempt purposes of its
governmental supported organization(s),
all pertinent facts and circumstances
will be taken into consideration. This
approach is consistent with the approach
in §1.509(a)-4(i)(4)(ii)(B), which deter-
mines “substantially all” for the general
test of being functionally integrated by
considering all pertinent facts and circum-
stances. The final regulations also revise
proposed §1.509(a)-4(i)(4)(iv)(A) and add
a new example in §1.509(a)-4(i)(4)(v) to
make clear that a supporting organization
that supports more than one governmen-
tal supported organization as described
in §1.509(a)-4(i)(4)(iv)(A) satisfies the
substantial part test if a substantial part of
its activities directly furthers the exempt
purpose of at least one of its governmental
supported organizations.
One commenter stated that proposed
§1.509(a)-4(i)(4)(iv)(A)(1)(ii
), which
uses the phrase “close coordination or
collaboration,” should be made consistent
with proposed §1.509(a)-4(i)(4)(iv)(D),
which uses the phrase “close cooperation
or coordination.” The final regulations
adopt this recommendation and make
the provisions consistent by changing the
phrasing in §1.509(a)-4(i)(4)(iv)(C) of the
final regulations to “close coordination or
collaboration.” No substantive change is
intended by this revision.
The 2016 proposed regulations pro-
posed an exception to the general rule
for supporting organizations that support
governmental supported organizations.
The exception would treat a Type III
supporting organization in existence on
or before February 19, 2016 (the date of
the issuance of the 2016 proposed regu-
lations), as functionally integrated if: (1)
It supports one or more governmental
supported organizations and no more than
one supported organization that is not a
governmental supported organization; (2)
it designated each of its supported orga-
nizations as provided in §1.509(a)-4(d)
(4) on or before February 19, 2016; and
(3) a substantial part of its total activities
directly furthers the exempt purposes of its
governmental supported organization(s).
One commenter stated that the proposed
exception would allow it and similar orga-
nizations currently to qualify as function-
ally integrated. The final regulations adopt
the proposed exception without change.
The 2016 proposed regulations also
proposed further extending the transi-
tion relief provided in Notice 2014-4 and
extended in the preamble to the 2015 final
regulations. Under the 2016 proposed
regulations, a Type III supporting organi-
zation in existence on or before February
19, 2016, that met and continues to meet
the requirements of Notice 2014-4 would
be treated as functionally integrated until
the earlier of the first day of the organi-
zation’s first taxable year beginning after
the date final regulations are published
under §1.509(a)-4(i)(4)(iv) or the first
day of the organization’s second taxable
year beginning after February 19, 2016.
The Treasury Department and the IRS
did not receive any comments about the
transition rule or any requests to extend
the transition period in the 2016 proposed
regulations, which now has expired. The
Treasury Department and the IRS there-
fore conclude supporting organizations
have had sufficient time to adjust to the
new rules and further transition relief is
not necessary. Accordingly, these final
regulations do not provide a further exten-
sion of the transition relief proposed in the
2016 proposed regulations.
D. Integral Part Test – Non-Functionally
Integrated Type III Supporting
Organizations
Section 1.509(a)-4(i)(5) provides
that a supporting organization meets the

October 30, 2023 1182 Bulletin No. 2023–44
integral part test to be an NFI Type III
supporting organization if it satisfies the
distribution requirement of §1.509(a)-4(i)
(5)(ii) and the attentiveness requirement
of §1.509(a)-4(i)(5)(iii), or the pre-No-
vember 2, 1970, trust requirements of
§1.509(a)-4(i)(9). Section 1.509(a)-4(i)
(5)(ii) provides that, with respect to each
taxable year, a supporting organization
must distribute to or for the use of one or
more supported organizations an amount
equaling or exceeding its “distributable
amount.” Section 1.509(a)-4(i)(6) pro-
vides the amount of a distribution made to
a supported organization is the amount of
cash or the fair market value of the prop-
erty distributed.
The 2016 proposed regulations pro-
posed revising §1.509(a)-4(i)(5)(ii)
to state that a supporting organization
must make distributions as described in
§1.509(a)-4(i)(6) in a total amount equal-
ing or exceeding the supporting organiza-
tion’s distributable amount to satisfy the
distribution requirement, and proposed
revising §1.509(a)-4(i)(6) to describe in
detail what distributions count toward
satisfying the distribution requirement.
These final regulations adopt these pro-
posed revisions, explained as follows,
without change.
1. No Reduction of Distributable Amount
for Taxes Subtitle A Imposes
Section 1.509(a)-4(i)(5)(ii)(B) pro-
vides that the distributable amount is
equal to the greater of 85 percent of an
organization’s adjusted net income for
the immediately preceding taxable year
(as determined by applying the princi-
ples of section 4942(f) of the Code and
§53.4942(a)-2(d)) or its minimum asset
amount for the immediately preceding
taxable year, reduced by the amount of
taxes imposed on the supporting organiza-
tion under subtitle A of the Code (subtitle
A) during the immediately preceding tax-
able year.
Because the taxes under subtitle A are
imposed on a supporting organization’s
unrelated business taxable income (pur-
suant to section 511 of the Code) and
the activity that produces the unrelated
business taxable income does not further
the supported organization’s exempt pur-
poses, the preamble to the 2016 proposed
regulations stated that these taxes should
not be treated as the functional equivalent
of an amount distributed to a supported
organization. The 2016 proposed regula-
tions, therefore, proposed removing the
provision in §1.509(a)-4(i)(5)(ii)(B) that
reduces the distributable amount by the
amount of taxes subtitle A imposed on a
supporting organization during the imme-
diately preceding taxable year.
One commenter stated that the distrib-
utable amount should be reduced by the
amount of taxes imposed on the supporting
organization’s unrelated business income,
as section 4942(d) provides for private
foundations. In advocating to retain the
reduction in the distributable amount, the
commenter suggested that only the sup-
porting organization’s after-tax income
from unrelated business activities should
be considered available for distribution to
its supported organizations.
A supporting organization’s adjusted
net income under §1.509(a)-4(i)(5)(ii)(B)
includes gross income from all sources,
including investment income that is not
subject to tax under section 511. The 2012
TD and the 2015 final regulations, there-
fore, stated it was necessary to revise the
distribution requirement to ensure that
NFI Type III supporting organizations
distribute significant amounts to their sup-
ported organizations, as Congress directed
in the PPA. As stated in the 2015 final
regulations, the 85 percent of adjusted
net income test makes it more likely that
supported organizations will timely ben-
efit from higher returns received by their
supported organizations. Reducing the
distributable amount by any taxes on the
income would be counter to this objective.
The Treasury Department and the IRS
further note that section 4942(d) only
applies to private non-operating founda-
tions. As the preamble to the 2012 TD
recounted, a number of commenters to
the 2009 proposed regulations stated that
NFI Type III supporting organizations
should not be subject to the higher pay-
out for private non-operating foundations
because they are distinguishable from
them. These commenters stated that NFI
Type III supporting organizations are
more similar to private operating founda-
tions and medical research organizations
and therefore should be subject to their
lower payout requirements. The 2012 TD
and the 2015 final regulations adopted
this recommendation, providing lower
payout requirements for NFI Type III
supporting organizations than for private
non-operating foundations. Private oper-
ating foundations and medical research
organizations are not able to reduce their
payout requirements by the taxes imposed
by subtitle A. See §1.170A-9(d)(2)(v)
(B); §53.4942(b)-1(a)(1)(ii). The Treasury
Department and the IRS conclude for the
foregoing reasons that it would be incon-
sistent to apply a different rule to NFI Type
III supporting organizations. Therefore,
these final regulations adopt the 2016 pro-
posed revision to §1.509(a)-4(i)(5)(ii)(B)
without change.
2. Distributions that Count toward
Distribution Requirement
Section 1.509(a)-4(i)(6) provides
details on the distributions by a support-
ing organization that count toward satisfy-
ing the distribution requirement imposed
in §1.509(a)-4(i)(5)(ii). The regulations
provide that distributions include but are
not limited to: (1) Any amount paid to a
supported organization to accomplish
the supported organization’s exempt pur-
poses; (2) any amount paid by the support-
ing organization to perform an activity
that directly furthers the exempt purposes
of the supported organization within the
meaning of §1.509(a)-4(i)(4)(ii), but
only to the extent such amount exceeds
any income derived by the supporting
organization from the activity; (3) any
reasonable and necessary administrative
expenses paid to accomplish the exempt
purposes of the supported organization(s),
which do not include expenses incurred in
the production of investment income; (4)
any amount paid to acquire an exempt-use
asset described in §1.509(a)-4(i)(8)(ii);
and (5) any amount set aside for a specific
project that accomplishes the exempt pur-
poses of a supported organization to which
the supporting organization is responsive.
The list in §1.509(a)-4(i)(6) is not
exhaustive and other distributions may
count towards the distribution require-
ment. As stated in the preamble to the
2016 proposed regulations, the use of
a non-exclusive list creates uncertainty
for supporting organizations and the IRS
about what counts toward the distribution

Bulletin No. 2023–44 1183 October 30, 2023
requirement. Therefore, the 2016 pro-
posed regulations proposed revising and
clarifying the list in §1.509(a)-4(i)(6)
of what counts toward the distribution
requirement and making it an exclusive
list.
a. Reasonable and necessary
administrative expenses
Under §1.509(a)-4(i)(6), reasonable
and necessary administrative expenses
paid to accomplish the exempt pur-
poses of supported organizations, but not
expenses incurred in the production of
investment income, count toward the dis-
tribution requirement. For example, if a
supporting organization conducts exempt
activities that are for the benefit of, per-
form the functions of, or carry out the pur-
poses of its supported organization(s) and
also conducts nonexempt activities (such
as investment activities or unrelated busi-
ness activities), then the supporting orga-
nization’s administrative expenses (such
as salaries, rent, utilities and other over-
head expenses) must be allocated between
the exempt and nonexempt activities on a
reasonable and consistently-applied basis.
The supporting organization’s administra-
tive expenses attributable to the exempt
activities are treated as distributions to its
supported organization(s) if such expenses
are reasonable and necessary. Conversely,
the administrative expenses and operat-
ing costs attributable to the nonexempt
activities are not treated as distributions to
the supported organization(s). The 2016
proposed regulations proposed retaining
this provision, with additional guidance
regarding fundraising expenses.
b. Fundraising expenses
Section 1.509(a)-4(i)(6) does not spe-
cifically address whether fundraising
expenses count toward the distribution
requirement. The 2016 proposed regula-
tions addressed the issue, specifying that
reasonable and necessary administrative
expenses paid to accomplish the exempt
purposes of a supported organization gen-
erally do not include fundraising expenses
the supporting organization incurs. For
example, when a supporting organization
conducts a fundraising event for its sup-
ported organization(s) and distributes the
proceeds of the event, net of its fundraising
expenses, to its supported organization(s),
only the amount that the supporting orga-
nization actually distributes to its sup-
ported organization(s) counts towards the
distribution requirement. Thus, under the
2016 proposed regulations, the support-
ing organization’s fundraising expenses
do not count towards the distribution
requirement.
If a supporting organization conducts
a fundraising event at which the support-
ing organization instructs donors to make
contributions directly to the supported
organization, the 2016 proposed regula-
tions proposed that those contributions
would not count as a distribution from the
supporting organization to its supported
organization. However, in this situation
the supporting organization could count
towards the distribution requirement
the reasonable and necessary expenses
it incurs to solicit the contributions the
donors pay directly to its supported orga-
nization: (1) to the extent that the amount
of these solicitation expenses does not
exceed the amount of contributions the
supported organization actually receives;
and (2) if the supporting organization can
substantiate (as discussed later in this
preamble) that those contributions were
received as a result of the supporting orga-
nization’s solicitation activities. The 2016
proposed regulations proposed this rule
to provide consistency with the treatment
of contributions that supporting organiza-
tions receive directly and then distribute
to their supported organizations (net of
the supporting organization’s solicitation
expenses).
While commenters were generally sup-
portive of the proposal to count as distri-
butions the fundraising expenses incurred
to solicit contributions directly to the
supported organization, one commenter
recommended deleting the requirement
that contributions be received directly by
the supported organization for the fund-
raising expenses to count. Alternatively,
the commenter requested this special rule
for fundraising expenses also apply if the
contributions were received directly by an
agent of the supported organization.
Another commenter proposed that
contributions the supporting organization
received directly from the fundraising
solicitation as a matter of convenience
should be treated as contributions the sup-
ported organization received directly if the
supporting organization is contractually
obligated to remit the contributions to the
supported organization and the supporting
organization actually distributes the con-
tributions to the supported organization
within a reasonable time period. The com-
menter also proposed that the supporting
organization be allowed to count its fund-
raising solicitation expenses in the year
it incurred them so long as the supported
organization received the corresponding
contributions within a reasonable time
period following the end of that year.
In response to these comments, these
final regulations adopt the proposed rules
with certain modifications and clarifi-
cations. These final regulations provide
that expenses the supporting organiza-
tion incurs to solicit contributions count
towards the distribution requirement
when the resulting contributions are
received directly by a supported organiza-
tion, but only to the extent that the sup-
porting organization’s expenses for each
solicitation do not exceed the amount of
contributions a supported organization
actually receives, and only if the support-
ing organization substantiates that those
contributions were received as a result of
the supporting organization’s solicitation
activities. This limitation is applied on a
solicitation-by-solicitation basis; the sup-
porting organization may not aggregate
its expenses, or the contributions a sup-
ported organization receives, from more
than one solicitation to determine the
amount of solicitation expenses that count
towards its distribution requirement. The
Treasury Department and the IRS intend
that contributions are received directly by
the supported organization when donors
make their checks, credit card or other
payments payable to the supported orga-
nization. The Treasury Department and
the IRS also intend that when a supporting
organization receives checks or processes
credit card or other transactions that are
payable to its supported organization,
the supporting organization may count
as distributions the expenses it incurs for
soliciting those checks or credit card or
other payments, but only up to the amount
of contributions received directly by or
paid directly to the supported organiza-
tion and substantiated by the supported

October 30, 2023 1184 Bulletin No. 2023–44
organization. Thus, for purposes of meet-
ing its distribution requirement, the sup-
porting organization may not count as
distributions from the supporting orga-
nization to the supported organization
the amount of the check and credit card
or other contributions the donors make
payable to the supported organization.
Contributions made payable to the sup-
porting organization that are transferred
to the supported organization, however,
may be counted as distributions from the
supporting organization to the supported
organization at the time that the funds are
given by the supporting organization to
the supported organization. These final
regulations do not adopt a rule permitting
payments that are first deposited with the
supporting organization to count as contri-
butions received directly by the supported
organization (for purposes of permitting
additional solicitation expenses related to
those contributions to count as distribu-
tions). Preventing the supporting organi-
zation from counting those amounts twice
toward satisfying the supporting organi-
zation’s annual distribution requirements
and accounting for those funds in the sup-
porting organization’s account would be
administratively difficult.
c. Joint fundraising expenses
One commenter also requested guid-
ance on how to allocate contributions
when the supporting organization and the
supported organization share the costs
of a solicitation event. The Treasury
Department and the IRS do not intend for
the rule for fundraising expenses to apply
with respect to a solicitation event if the
supported organization incurs more than
de minimis costs related to the same solic-
itation event. Section 1.509(a)-4(i)(6)(i)
permits supporting organizations to count
any amount they pay to their supported
organization as a distribution for pur-
poses of satisfying the annual distribution
requirement described in §1.509(a)-4(i)
(5)(ii). A supporting organization can,
therefore, share the costs of a fundraiser
by distributing to the supported organi-
zation an amount equal to the supporting
organization’s share of the joint fundrais-
ing expenses. Section 1.509(a)-4(i)(6)(i)
would permit the supporting organization
to count this payment as a distribution for
purposes of §1.509(a)-4(i)(5)(ii), negat-
ing the need for a special rule in proposed
§1.509(a)-4(i)(6)(iii)(B). The Treasury
Department and the IRS note that it would
be very difficult to determine and substan-
tiate what portion of the contributions a
supported organization receives are attrib-
utable to the supporting organization’s
expenditures. Thus, expanding the rule
to cover joint solicitation efforts as the
commenter suggests would increase the
compliance burden on supporting organi-
zations and supported organizations and
would be difficult for the IRS to admin-
ister. These final regulations, therefore, do
not adopt this recommendation.
d. Taxable year to which fundraising
expenses are attributable
One commenter requested a clar-
ification that contributions made to a
supported organization in response to a
supporting organization’s end-of-the-year
fundraiser that the supported organization
does not receive until the following year
may be used to determine the portion of
reasonable and necessary fundraising
expenses the supporting organization may
treat as a distribution for the year in which
the fundraiser occurred. This commenter
recommended a 90-day window in the
second year for counting such contribu-
tions. These final regulations clarify that,
for purposes of applying the limitation on
the supporting organization’s solicitation
expenses for each taxable year that count
toward its distribution requirement, any
contributions the supported organization
receives directly from donors that are
attributable to a solicitation the support-
ing organization conducted in a particular
taxable year includes any contributions
the supported organization receives and
substantiates in writing on or before the
due date (without regard to extensions)
of the supporting organization’s Form
990 for the year in which it conducted the
solicitation.
For example, assume a support-
ing organization makes a solicitation
on December 15, 2024. The supported
organization receives contributions from
donors of $1x on December 26, 2024, and
$2x on March 15, 2025, that are attribut-
able to the solicitation made on December
15, 2024. The supported organization
substantiates the total contributions of $3x
in writing prior to May 15, 2025 (the due
date without extensions of the supporting
organization’s Form 990 for 2024). The
written substantiation indicates that these
contributions were attributable to the
December 15, 2024 solicitation. Under
§1.509(a)-4(i)(6)(iii)(B), the supporting
organization may treat up to $3x of any
reasonable and necessary expenses it
incurred for the December 15, 2024 solic-
itation toward its distribution requirement.
A supporting organization may not take
into account the same contributions in
computing the fundraising expense limita-
tion in more than one year or with respect
to more than one solicitation. Thus, in the
preceding example, the $2x contribution
the supported organization received on
March 15, 2025, may only be used by
the supporting organization to determine
its fundraising expense limitation for the
December 15, 2024, solicitation. The sup-
porting organization may not use the $2x
again to determine its 2025 fundraising
expense limitation.
e. Written substantiation from supported
organization
The 2016 proposed regulations pro-
posed requiring a supporting organization
to obtain written substantiation from the
supported organization of the amount of
contributions the supported organization
actually receives as a result of each of the
supporting organization’s solicitations.
One commenter requested that the permit-
ted written substantiation include an email
from the supported organization that the
supporting organization maintains in its
electronic records. These final regulations
adopt this recommendation, stating that
the written substantiation may be pro-
vided by electronic media.
Another commenter requested that
a supported organization be allowed to
aggregate into a single annual written
report the substantiation of all the con-
tributions it received from the support-
ing organization’s fundraising activities.
The commenter also requested that the
supported organization should only be
responsible for reporting the amount of
the contributions it received and not be
responsible for calculating the supporting
organization’s fundraising activities.

Bulletin No. 2023–44 1185 October 30, 2023
These final regulations clarify that the
supporting organization may substantiate
the contributions provided to the sup-
ported organization by a single annual
statement in writing from the supported
organization, provided that the amount
of contributions, if any, received by the
supported organization as a result of each
solicitation is separately identified. To
satisfy §1.509(a)-4(i)(6)(iii)(B), the writ-
ten substantiation must be postmarked or
electronically transmitted to the support-
ing organization no later than the due date
(without regard to extensions) of the sup-
porting organization’s Form 990 for the
year of the solicitation. In addition, written
substantiation relied on by the supporting
organization (whether provided in one or
multiple reports) must separately state the
amount of contributions, if any, received
directly by the supported organization
allocable to each solicitation made by the
supporting organization that is covered in
the report. The supporting organization is
responsible for determining its solicita-
tion expenses. The written substantiation
the supporting organization is required to
receive from the supported organization
need only provide information relevant to
the amount of contributions the supported
organization received; it does not need
to address the supporting organization’s
expenses.
f. Program-related investments not taken
into account
Finally, one commenter requested
that program-related investments (PRIs)
count toward the distribution require-
ment. The preamble to the 2016 proposed
regulations stated that, for purposes of
meeting the integral part test, PRIs are
not treated as distributions to the sup-
ported organizations. As the preamble
to the 2016 proposed regulations stated,
the Treasury Department and the IRS
recognize that private foundations may
use PRIs in a variety of ways to accom-
plish their exempt purposes and that
PRIs thus are treated as qualifying dis-
tributions under section 4942. However,
because supporting organizations must
be operated exclusively for the bene-
fit of, to perform the functions of, or to
carry out the purposes of their supported
organizations, they differ from private
foundations. Furthermore, other provi-
sions relating to the distribution require-
ment, such as the availability of set-asides
and the potential for carry-forwards of
excess distributions, provide significant
flexibility for supporting organizations to
meet the current and future needs of their
supported organizations. For these rea-
sons, these final regulations do not adopt
this recommendation.
IV. Technical Corrections
This Treasury Decision conforms the
paragraphs throughout §1.509(a)-4 to the
Code of Federal Regulations by making
non-substantive changes, including capi-
talizing letters of fourth level paragraphs.
This Treasury Decision also modifies
§53.4947-1 to correct certain cross-refer-
ences to §1.509(a)-4.
V. Applicability Date
These final regulations are applicable
to taxable years beginning on or after
October 16, 2023. Taxpayers may choose
to apply these final regulations to taxable
years beginning on or after February 19,
2016, and before October 16, 2023, so
long as the taxpayer applies the provisions
of these final regulations in their entirety
and in a consistent manner.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum
of Agreement, Review of Treasury
Regulations under Executive Order 12866
(June 9, 2023), tax regulatory actions
issued by the IRS are not subject to the
requirements of section 6(b) of Executive
Order 12866, as amended. Therefore,
a regulatory impact assessment is not
required.
II. Paperwork Reduction Act
The collection of information con-
tained in these regulations has 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 control
number 1545-2271.
The collection of information in these
regulations is in §1.509(a)-4(i)(4)(iv)(C)
(written record of close coordination or
collaboration by certain governmental sup-
ported organizations) and §1.509(a)-4(i)
(6)(iii)(B) (written record of contributions
received by certain supported organiza-
tions). Requiring a supporting organiza-
tion to collect (1) written records of its
governmental supported organizations’
close coordination or collaboration with
each other and (2) written records of the
contributions its supported organizations
directly received from donors in response
to solicitations by the supporting organi-
zation helps the IRS determine whether
the supporting organization is a function-
ally integrated or non-functionally inte-
grated Type III supporting organization.
The record keepers are certain Type III
supporting organizations.
Estimated number of recordkeepers:
6,089.
Estimated average annual burden hours
per recordkeeper: 2 hours.
Estimated total annual recordkeeping
burden: 12,178 hours.
Estimated frequency of collection of
such information: Annual.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
return information are confidential, as
required by 26 U.S.C. 6103.
III. Regulatory Flexibility Act
In connection with the requirements of
the Regulatory Flexibility Act (5 U.S.C.
chapter 6), it is hereby certified that these
final regulations will not have a significant
economic impact on a substantial number
of small entities. This certification is based
on the fact that these final regulations will
not impact a substantial number of small
entities.
Based on IRS Statistics of Income data
for 2019, there are 1,365,744 active non-
profit charitable organizations recognized
by the IRS under section 501(c)(3), of

October 30, 2023 1186 Bulletin No. 2023–44
which only 6,089 organizations self-iden-
tified as Type III supporting organizations.
The universe of organizations that would
be affected by §1.509(a)-4(i)(4)(iv)(C)
and §1.509(a)-4(i)(6)(iii)(B) is a subset
of all Type III supporting organizations,
because those provisions apply either to
organizations seeking to qualify as func-
tionally integrated based on support of
two or more governmental supported
organizations or to non-functionally
integrated organizations that solicit con-
tributions that are received directly by
a supported organization (rather than
by the supporting organization). Thus,
the number of organizations that will be
affected by the collection of information
under §1.509(a)-4(i)(4)(iv)(C) and (i)(6)
(iii)(B) will not be substantial. Moreover,
the time to complete the recordkeeping
requirements is expected to be no more
than 2 hours for each organization, thus
the regulations will not have a significant
economic impact. The requirements under
§1.509(a)-4(i)(4)(iv)(C) and (i)(6)(iii)(B),
therefore, will not have a significant eco-
nomic impact.
Pursuant to section 7805(f) of the
Code, this regulation was submitted to the
Chief Counsel for the Office of Advocacy
of the Small Business Administration for
comment on its impact on small business
and no comments were received.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated
costs and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any one year
by a State, local, or tribal government,
in the aggregate, or by the private sec-
tor, of $100 million in 1995 dollars,
updated annually for inflation. The
regulations do not include any Federal
mandate that may result in expenditures
by State, local, or tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing
any rule that has federalism implica-
tions if the rule either imposes substan-
tial, direct compliance costs on State and
local governments, and is not required
by statute, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive order. The regulations do not
have federalism implications, impose
substantial direct compliance costs on
State and local governments, or pre-
empt State law within the meaning of the
Executive order.
VI. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office
of Management and Budget’s Office of
Information and Regulatory Affairs des-
ignated this rule as not a “major rule,” as
defined by 5 U.S.C. 804(2).
Statement of Availability of IRS
Documents
Notice 2014-4 is published in the
Internal Revenue Bulletin and is available
from the Superintendent of Documents,
U.S. Government Printing Office,
Washington, DC 20402, or by visiting
the IRS website at: https://www.irs.gov/
irb/2014-02_IRB#NOT-2014-4.
Drafting Information
The principal authors of these reg-
ulations are Jonathan Carter and Don
Spellmann, Office of Associate Chief
Counsel (Employee Benefits, Exempt
Organizations, and Employment Taxes).
However, other personnel from the
Treasury Department and the IRS partic-
ipated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 53
Excise taxes, Foundations, Investments,
Lobbying, Reporting and recordkeeping
requirements.
Amendments to the Regulations
Accordingly, the Treasury Department
and the IRS amend 26 CFR parts 1 and 53
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.509(a)-4 is amended by:
1. In paragraph (d)(2)(i) introductory
text, removing “subdivision (iv) of this
subparagraph” and “subparagraph (1) of
this paragraph” and adding “paragraph
(d)(2)(iv) of this section” and “paragraph
(d)(1) of this section” in their places,
respectively.
2. Redesignating paragraphs (d)(2)(i)
(a) and (b) as paragraphs (d)(2)(i)(A) and
(B), respectively.
3. In newly redesignated paragraph (d)
(2)(i)(B)(1), removing “(a) of this subdi-
vision” and adding “paragraph (d)(2)(i)
(A) of this section” in its place.
4. In newly redesignated paragraph (d)
(2)(i)(B)(2), removing “subdivision (i)(a)
or this subparagraph” and adding “para-
graph (d)(2)(i)(A) of this section or this
paragraph (d)(2)(i)(B)(2)” in its place.
5. In paragraph (d)(2)(ii), removing
“subdivision (i)(a) or this subparagraph”,
“subparagraph (1) of this paragraph” and
“subparagraphs (3) (i), (ii), and (iii) and
(4)(i) (a) and (b) of this paragraph” and
adding “paragraph (d)(2)(i)(A) of this sec-
tion”, “paragraph (d)(1) of this section”,
and “paragraphs (d)(3)(i) through (iii) and
(d)(4)(i)(A) and (B) of this section” in
their places, respectively.
6. In paragraph (d)(2)(iii) introductory
text, removing “subparagraph” and add-
ing “paragraph (d)(2)” in its place.
7. Designating Examples 1 and 2 of
paragraph (d)(2)(iii) as paragraphs (d)(2)
(iii)(A) and (B), respectively.
8. In paragraph (d)(2)(iv) introductory
text, removing “subparagraph (1) of this
paragraph” and adding “paragraph (d)(1)
of this section” in its place.
9. Redesignating paragraphs (d)(2)(iv)
(a) and (b) as paragraphs (d)(2)(iv)(A)
and (B), respectively.
10. In newly redesignated paragraph
(d)(2)(iv)(A), removing “, and” and add-
ing “; and” in its place.

Bulletin No. 2023–44 1187 October 30, 2023
11. In paragraph (d)(3) introductory
text, removing “subparagraph (2)(i) (a) of
this paragraph” and adding “paragraph (d)
(2)(i)(A) of this section” in its place.
12. In paragraph (d)(4)(i) introductory
text, removing “subparagraph (2)(iv) of
this paragraph” and “this subparagraph”
and adding “paragraph (d)(2)(iv) of this
section” and “this paragraph (d)(4)” in
their places, respectively.
13. Redesignating paragraphs (d)(4)(i)
(a) through (c) as paragraphs (d)(4)(i)(A)
through (C), respectively.
14. Revising newly redesignated para-
graph (d)(4)(i)(C).
15. In paragraph (d)(4)(ii), removing
“subdivision (i)(b) of this subparagraph”
and “subdivision (i)(b)” and adding “para-
graph (d)(4)(i)(B) of this section” and
“paragraph (d)(4)(i)(B)” in their places,
respectively.
16. In paragraph (d)(4)(iii) introduc-
tory text, removing “subparagraph” and
adding “paragraph (d)(4)” in its place.
17. Designating the Example in para-
graph (d)(4)(iii) as paragraph (d)(4)(iii)
(A) and adding reserved paragraph (d)(4)
(iii)(B).
18. In paragraph (e)(3) introductory
text, removing “paragraph” and adding
“paragraph (e)” in its place.
19. Designating Examples 1 through 5
of paragraph (e)(3) as paragraphs (e)(3)(i)
through (v), respectively.
20. Revising paragraph (f)(5)(ii).
21. In paragraph (g)(2) introductory
text, removing “paragraph” and adding
“paragraph (g)” in its place.
22. Designating Examples 1 through 3
of paragraph (g)(2) as paragraphs (g)(2)(i)
through (iii), respectively.
23. In newly redesignated paragraph
(g)(2)(iii), removing “subparagraph (1)(ii)
of this paragraph” and adding “paragraph
(g)(1)(ii) of this section” in its place.
24. In paragraph (h)(3) introductory
text, removing “paragraph” and adding
“paragraph (h)” in its place.
25. Designating Examples 1 through 3
of paragraph (h)(3) as paragraphs (h)(3)(i)
through (iii), respectively.
26. Revising paragraphs (i)(2)(i) intro-
ductory text, (i)(2)(i)(A), (i)(2)(iii), and (i)
(3)(i).
27. Designating Examples 1 and 2 of
paragraph (i)(3)(iv) as paragraphs (i)(3)
(iv)(A) and (B), respectively.
28. Adding paragraph (i)(3)(iv)(C).
29. Revising paragraphs (i)(4)(ii)(A)
(1), (i)(4)(ii)(B), and (i)(4)(iii) and (iv).
30. Designating Examples 1 through 5
of paragraph (i)(4)(v) as paragraphs (i)(4)
(v)(A) through (E), respectively.
31. Adding paragraph (i)(4)(v)(F).
32. Revising paragraphs (i)(5)(ii)(A)
and (B) and (i)(5)(iii)(A).
33. Designating Examples 1 through 4
of paragraph (i)(5)(iii)(D) as paragraphs
(i)(5)(iii)(D)(1) through (4), respectively.
34. Revising newly designated para-
graph (i)(5)(iii)(D)(4), the third sentence
of paragraph (i)(6) introductory text, and
paragraphs (i)(6)(iii) and (v) introductory
text.
35. In paragraph (k)(2) introductory
text, removing “paragraph” and adding
“paragraph (k)” in its place.
36. Designating the Example in para-
graph (k)(2) as paragraph (k)(2)(i) and
adding reserved paragraph (k)(2)(ii).
37. Revising paragraph (l).
The revisions and additions read as
follows:
§1.509(a)-4 Supporting organizations.
* * * * *
(d) * * *
(4) * * *
(i) * * *
(C) Permit the supporting organization
to vary the amount of its support between
different designated organizations, so long
as it meets the requirements of the integral
part test set forth in paragraph (i)(1)(iii)
of this section with respect to at least one
beneficiary organization.
* * * * *
(f) * * *
(5) * * *
(ii) Meaning of control. For purposes
of paragraph (f)(5)(i) of this section, the
governing body of a supported organi-
zation will be considered controlled by
a person described in paragraph (f)(5)(i)
(A) of this section if that person, alone or
by aggregating the person’s votes or posi-
tions of authority with persons described
in paragraph (f)(5)(i)(B) or (C) of this sec-
tion, may require the governing body of
the supported organization to perform any
act that significantly affects its operations
or may prevent the governing body of the
supported organization from performing
any such act. The governing body of a
supported organization will be considered
to be controlled directly or indirectly by
one or more persons described in para-
graph (f)(5)(i)(A), (B), or (C) of this sec-
tion if the voting power of such persons
is 50 percent or more of the total voting
power of such governing body or if one
or more of such persons have the right
to exercise veto power over the actions
of the governing body of the supported
organization. Thus, if the governing body
of a supported organization is composed
of five members, none of whom has a
veto power over the actions of the sup-
ported organization, and no more than
two members are at any time described in
paragraph (f)(5)(i)(A), (B), or (C) of this
section, such supported organization will
not be considered to be controlled directly
or indirectly by such persons by reason
of this fact alone. However, all pertinent
facts and circumstances will be taken into
consideration in determining whether one
or more persons do in fact directly or indi-
rectly control the governing body of a sup-
ported organization.
* * * * *
(i) * * *
(2) * * *
(i) Annual notification. For each tax-
able year (Reporting Year), a Type III
supporting organization must provide the
following documents to each of its sup-
ported organizations:
(A) A written notice addressed to a
principal officer of the supported organi-
zation describing the type and amount of
all of the support (including all of the dis-
tributions described in paragraph (i)(6) of
this section, if applicable) the supporting
organization provided to the supported
organization during the supporting orga-
nization’s taxable year immediately pre-
ceding the Reporting Year (and during any
other taxable year of the supporting orga-
nization ending after December 28, 2012,
for which such support information has
not previously been provided), including
a brief narrative description of the support
provided and sufficient financial detail
for the recipient to identify the types and
amounts of support being reported;
* * * * *
(iii) Due date. The notification doc-
uments required by this paragraph (i)
(2) must be delivered or electronically

October 30, 2023 1188 Bulletin No. 2023–44
transmitted by the last day of the fifth cal-
endar month of the Reporting Year.
* * * * *
(3) * * *
(i) General rule. A supporting organi-
zation meets the responsiveness test only
if it is responsive to the needs or demands
of each of its supported organizations.
Except as provided in paragraph (i)(3)(v)
of this section, in order to meet this test,
a supporting organization must satisfy the
requirements of paragraphs (i)(3)(ii) and
(iii) of this section with respect to each of
its supported organizations.
* * * * *
(iv) * * *
(C) Example 3. Z is described in section 501(c)
(3). Z’s organizational documents provide that it
supports ten different organizations, each of which
is described in section 509(a)(1). One of the direc-
tors of S (one of the supported organizations) is a
voting member of Z’s board of directors and par-
ticipates in Z’s regular board meetings. Officers
of Z hold regularly scheduled face-to-face or tele-
phonic meetings during the year, to which officers
of all the supported organizations are invited. Z’s
meetings with the supported organizations may be
held jointly or separately. Prior to the meetings,
Z makes available to the supported organizations
(including by email) up-to-date information about
its activities, including its assets and liabilities,
receipts and distributions, and investment policies
and returns. In the meetings, officers of each of
the supported organizations have an opportunity
to ask questions and discuss with officers of Z
the projected needs of their organizations, as well
as Z’s investment and grant making policies and
practices. In addition to holding these meetings
with the supported organizations, Z provides the
contact information of one of its officers to each of
the supported organizations and encourages them
to contact that officer if they have questions, or if
they wish to schedule additional meetings to dis-
cuss the projected needs of their organization and
how Z should distribute its income and invest its
assets. Z provides the information required under
paragraph (i)(2) of this section and a copy of its
annual audited financial statements to the prin-
cipal officers of the supported organizations. Z
meets the relationship requirement of paragraph
(i)(3)(ii)(B) or (C) of this section with respect
to each of its supported organizations. Based on
these facts, Z also satisfies the significant voice
requirement of paragraph (i)(3)(iii) of this section,
and therefore meets the responsiveness test of this
paragraph (i)(3) with respect to each of its ten sup-
ported organizations.
* * * * *
(4) * * *
(ii) * * *
(A) * * *
(1) Directly further the exempt pur-
poses of one or more supported organi-
zations by performing the functions of,
or carrying out the purposes of, such sup-
ported organization(s); and
* * * * *
(B) Meaning of substantially all. For
purposes of paragraph (i)(4)(ii)(A) of this
section, in determining whether substan-
tially all of a supporting organization’s
activities directly further the exempt
purposes of one or more supported orga-
nization(s), all pertinent facts and circum-
stances will be taken into consideration.
* * * * *
(iii) Parent of supported organiza-
tion(s)—(A) In general. For purposes
of paragraph (i)(4)(i)(B) of this section,
in order for a supporting organization to
qualify as the parent of each of its sup-
ported organizations—
(1) The supporting organization and its
supported organizations must be part of an
integrated system (such as, for example, a
hospital system);
(2) The supporting organization must
direct the overall policies, programs, and
activities of the supported organizations
(such as, for example, coordinating the
activities of the supported organizations
and engaging in overall planning, policy
development, budgeting, and resource
allocation); and
(3) The supporting organization’s
governing body, members of the gov-
erning body, or officers (acting in their
official capacities) must appoint or elect,
directly or indirectly, a majority of the
officers, directors, or trustees of each sup-
ported organization and have the power
to remove and replace such directors,
officers, or trustees, or otherwise have an
ongoing power to appoint or elect such
directors, officers or trustees with reason-
able frequency.
(B) Subsidiary organizations. A sup-
porting organization may meet the require-
ments of paragraph (i)(4)(iii)(A)(3) of
this section with respect to a second-tier
(or lower) subsidiary provided that the
supporting organization, by control of
its first-tier subsidiary, has the power to
appoint or elect (as described in paragraph
(i)(4)(iii)(A)(3) of this section) a majority
of the officers, directors, or trustees of the
lower-tier subsidiary. For example, if the
board of directors of supporting organiza-
tion A elects a majority of the directors of
supported organization B, and the board
of directors of B, in turn elect, by a simple
majority vote, a majority of the directors
of supported organization C, the direc-
tors of supporting organization A will be
treated as electing a majority of the direc-
tors of both supported organization B and
supported organization C.
(iv) Supporting a governmental sup-
ported organization—(A) In general.
A supporting organization satisfies the
requirements of this paragraph (i)(4)(iv)
if—
(1) The supporting organization only
supports one or more governmental sup-
ported organizations;
(2) In any case in which the supporting
organization supports more than one gov-
ernmental supported organization, all of
the governmental supported organizations
either—
(i) Operate within the same city, county,
or metropolitan area; or
(ii) Work in close coordination or col-
laboration with one another to conduct a
service, program, or activity that the sup-
porting organization supports; and
(3) A substantial part of the supporting
organization’s total activities are activ-
ities that directly further, as defined by
paragraph (i)(4)(ii)(C) of this section, the
exempt purposes of at least one govern-
mental supported organization.
(B) Governmental supported organi-
zation defined. For purposes of paragraph
(i)(4)(iv)(A) of this section, the term gov-
ernmental supported organization means
a supported organization that is:
(1) A governmental unit described
in section 170(c)(1), including all of its
agencies, departments, and divisions (all
of which will be treated as one govern-
mental supported organization for pur-
poses of this paragraph (i)(4)(iv)); or
(2) An organization described in sec-
tion 170(c)(2) and (b)(1)(A) (other than in
clauses (vii) and (viii)) that is an instru-
mentality of one or more governmental
units described in section 170(c)(1).
(C) Close coordination or collabora-
tion. To satisfy the close coordination or
collaboration requirement of paragraph (i)
(4)(iv)(A)(2) of this section, the support-
ing organization must maintain on file a
letter from each of the governmental sup-
ported organizations (or a joint letter from
all of them) describing their coordination
or collaboration efforts with respect to the
particular service, program, or activity.

Bulletin No. 2023–44 1189 October 30, 2023
(D) Substantial part. For purposes of
paragraph (i)(4)(iv)(A)(3) of this section,
in determining whether a substantial part
of a supporting organization’s activities
directly further the exempt purposes of
one or more governmental supported orga-
nization(s), all pertinent facts and circum-
stances will be taken into consideration.
(E) Exception for organizations sup-
porting a governmental supported organi-
zation on or before February 19, 2016. A
Type III supporting organization in exis-
tence on or before February 19, 2016, will
be treated as meeting the requirements of
this paragraph (i)(4)(iv) if it met and con-
tinues to meet the following requirements:
(1) It supports one or more governmen-
tal supported organizations described in
paragraph (i)(4)(iv)(B) of this section and
does not support more than one supported
organization that is not a governmental
supported organization;
(2) Each of the supported organizations
is designated by the supporting organiza-
tion as provided in paragraph (d)(4) of this
section on or before February 19, 2016;
and
(3) A substantial part (as defined in
paragraph (i)(4)(iv)(D) of this section) of
the supporting organization’s total activi-
ties are activities that directly further (as
defined by paragraph (i)(4)(ii)(C) of this
section) the exempt purposes of its gov-
ernmental supported organization(s).
(F) Transition rule for supporting
organizations in existence on or before
February 19, 2016. Until the first day of
the organization’s second taxable year
beginning after February 19, 2016, a Type
III supporting organization in existence
on or before February 19, 2016, will be
treated as meeting the requirements of
this paragraph (i)(4)(iv) if it continuously
met the following requirements prior to
the first day of the organization’s second
taxable year beginning after February 19,
2016—
(1) It supported at least one supported
organization that was a governmental
entity to which the supporting organiza-
tion was responsive within the meaning of
paragraph (i)(3) of this section; and
(2) It engaged in activities for or on
behalf of the governmental supported
organization described in paragraph (i)(4)
(iv)(E)(1) of this section that performed
the functions of, or carried out the pur-
poses of, that governmental supported
organization and that, but for the involve-
ment of the supporting organization,
would normally have been engaged in by
the governmental supported organization
itself.
* * * * *
(v) * * *
(F) Example 6. X, an organization described in
section 501(c)(3), is organized and operated as a
supporting organization to two organizations, City
and Park. X meets the responsiveness test described
in paragraph (i)(3) of this section with respect to
both City and Park. City and Park are both gov-
ernmental units described in section 170(c)(1).
Park maintains a state park located within the same
county as City. X does not support any other orga-
nizations. X supports Park by operating an infor-
mation center for visitors to Park. The information
center provides educational material and informa-
tional sessions to visitors to Park. X’s activities
related to operating the Park information center
constitute a substantial part of X’s activities. X also
makes grants directly to City to fund City’s other
programs. X’s grant making activities constitute
a substantial part of X’s activities. X meets the
requirements of paragraph (i)(4)(iv)(A)(1) of this
section because X only supports City and Park,
both of which are governmental supported organi-
zations described in paragraph (i)(4)(iv)(B) of this
section. X meets the requirements of paragraph (i)
(4)(iv)(A)(2) of this section because City and Park
operate within the same county in accordance with
paragraph (i)(4)(iv)(A)(2)(i) of this section. Finally,
X meets the requirements of paragraph (i)(4)(iv)
(A)(3) of this section because a substantial part of
X’s activities directly further (within the meaning
of paragraph (i)(4)(ii)(C) of this section) Park’s
exempt purposes, even though X’s grants to City
are also a substantial part of X’s activities. Based
on these facts, X qualifies as functionally integrated
under paragraph (i)(4)(iv) of this section.
(5) * * *
(ii) * * *
(A) Annual distribution. With respect
to each taxable year, a supporting organi-
zation must make distributions described
in paragraph (i)(6) of this section in a
total amount equaling or exceeding the
supporting organization’s distributable
amount for the taxable year, as defined in
paragraph (i)(5)(ii)(B) of this section, on
or before the last day of the taxable year.
(B) Distributable amount. Except as
provided in paragraphs (i)(5)(ii)(D) and
(E) of this section, the distributable amount
for a taxable year is an amount equal to
the greater of 85 percent of the support-
ing organization’s adjusted net income (as
determined by applying the principles of
section 4942(f) and §53.4942(a)-2(d) of
this chapter) for the taxable year imme-
diately preceding the taxable year of the
required distribution (immediately pre-
ceding taxable year) or its minimum asset
amount (as defined in paragraph (i)(5)(ii)
(C) of this section) for the immediately
preceding taxable year.
* * * * *
(iii) * * *
(A) General rule. With respect to each
taxable year, a non-functionally integrated
Type III supporting organization must
distribute one-third or more of its distrib-
utable amount to one or more supported
organizations that are attentive to the
operations of the supporting organization
(within the meaning of paragraph (i)(5)
(iii)(B) of this section).
* * * * *
(D) * * *
(4) Example 4. O is an organization described
in section 501(c)(3). O is organized to support five
private universities, V, W, X, Y, and Z, each of
which is described in section 509(a)(1). O meets the
responsiveness test described in paragraph (i)(3) of
this section with respect to each of its supported
organizations. Each year, O distributes an aggre-
gate amount that equals its distributable amount
described in paragraph (i)(5)(ii)(B) of this section
and distributes an equal amount to each of the five
universities. O distributes annually to each of V and
W an amount that equals more than 10 percent of
each university’s total annual support received in
its most recently completed taxable year. Based on
these facts, O meets the requirements of paragraph
(i)(5)(iii) of this section because it distributes two-
fifths (more than the required one-third) of its dis-
tributable amount to supported organizations that
are attentive to O.
* * * * *
(6) * * * Distributions by the support-
ing organization that count toward the
distribution requirement imposed in para-
graph (i)(5)(ii) of this section are limited
to—
* * * * *
(iii) Any reasonable and necessary—
(A) Administrative expenses paid to
accomplish the exempt purposes of the
supported organization, which do not
include expenses incurred in the produc-
tion of investment income or expenses
incurred in the conduct of fundraising
activities (except solicitation expenses
described in paragraph (i)(6)(iii)(B) of
this section); and
(B) Expenses incurred to solicit con-
tributions that are received directly by a
supported organization (rather than by the

October 30, 2023 1190 Bulletin No. 2023–44
supporting organization), but only to the
extent the amount of the reasonable and
necessary expenses the supporting orga-
nization incurs for each solicitation does
not exceed the amount of contributions
that are actually received by the supported
organization directly from donors as a
result of each such solicitation, as substan-
tiated in a written report by the supported
organization to the supporting organiza-
tion that is postmarked or electronically
transmitted by the due date of the support-
ing organization’s Form 990 (or successor
form) for the year of the solicitation(s)
(without regard to extensions);
* * * * *
(v) Any amount set aside for a specific
project that accomplishes the exempt pur-
poses of a supported organization, with
such set-aside counting toward the distri-
bution requirement for the taxable year in
which the amount is set aside but not in
the year in which it is actually paid, if at
the time of the set-aside, the supporting
organization—
* * * * *
(l) Applicability dates. (1) Paragraphs
(a)(6), (f)(5), and (i) of this section
are applicable on December 28, 2012,
except—
(i) Paragraphs (i)(4)(ii)(C), (i)(5)(ii)(C)
and (D), (i)(6)(iv), (i)(7)(ii), and (i)(8) of
this section are applicable on December
21, 2015; and
(ii) Paragraphs (d)(4)(i)(C), (f)(5)(ii),
(i)(2)(i) and (iii), (i)(3)(i), (i)(3)(iv)(C)
(Example 3), (i)(4)(ii)(A)(1), (i)(4)(ii)(B),
(i)(4)(iii) and (iv), (i)(4)(v)(F) (Example
6), (i)(5)(ii)(A) and (B), (i)(5)(iii)(A), (i)
(5)(iii)(D)(4) (Example 4), (i)(6) intro-
ductory text, and (i)(6)(iii) and (v) of this
section are applicable to taxable years
beginning on or after October 16, 2023.
(2) Taxpayers may choose to apply the
paragraphs listed in paragraph (I)(1)(ii)
of this section to taxable years beginning
on or after February 19, 2016, and before
October 16, 2023, provided the taxpayer
applies the provisions listed in paragraph
(l)(1)(ii) of this section in their entirety
and in a consistent manner.
(3) See paragraphs (i)(5)(ii)(B) and
(C) and (i)(8) of §1.509(a)–4T con-
tained in 26 CFR part 1, revised as of
April 1, 2015, for certain rules regard-
ing non-functionally integrated Type III
supporting organizations effective before
December 21, 2015. See paragraphs (i)
(5)(ii)(A) and (B) and (i)(5)(iii)(D) of
§1.509(a)-4 contained in 26 CFR part 1,
revised as of April 1, 2023, for certain
rules regarding non-functionally inte-
grated Type III supporting organizations
effective before October 16, 2023.
PART 53—FOUNDATION AND
SIMILAR EXCISE TAXES
Par. 3. The authority citation for part 53
continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§53.4947-1 [Amended]
Par. 4. Section 53.4947-1 is amended
in paragraph (b)(3) by removing the lan-
guage “§§ 1.509(a)–4(d)(2)(iv)(a), and
1.509(a)–4(i)(1) (ii) and (iii)(c)” and “the
regulations under section 507(b)(1)” and
adding in their places “§ 1.509(a)–4(d)(2)
(iv)(A) and (i)(1)(ii) of this chapter” and
“the regulations in this part under section
507(b)(1)”, respectively.
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
Approved: August 20, 2023.
Lily L. Batchelder,
Assistant Secretary of the Treasury (Tax
Policy).
(Filed by the Office of the Federal Register October
13, 2023, 8:45 a.m., and published in the issue of the
Federal Register for October 16, 2023, 88 FR 71287)

Bulletin No. 2023–44 1191 October 30, 2023
Part III
Relief for Taxpayers
Affected by the Terroristic
Action in the State of Israel
Notice 2023-71
SECTION I. PURPOSE
This notice provides relief under sec-
tion 7508A of the Internal Revenue Code
(Code)
1
for persons that the Secretary of
the Treasury (Secretary) has determined
to be affected by the terroristic action in
the State of Israel beginning on October
7, 2023. The Department of the Treasury
and the Internal Revenue Service (IRS)
may provide additional relief in the
future.
SECTION II. BACKGROUND
Section 7508A(a) provides the
Secretary with authority to postpone the
time (up to one year) for performing cer-
tain acts under the internal revenue laws
for a taxpayer determined by the Secretary
to be affected by a terroristic or military
action as defined in section 692(c)(2).
Section 692(c)(2) defines a terroristic
action as “any terroristic activity which a
preponderance of the evidence indicates
was directed against the United States or
any of its allies.”
Section 4.01(1) of Revenue Procedure
2004-26, 2004-1 C.B. 890, provides that
prior to publishing a determination that an
event outside the United States constitutes
a terroristic action within the meaning of
section 692(c)(2), the Secretary will ascer-
tain whether the Department of State and
the Department of Justice believe that a
preponderance of the evidence indicates
that the event resulted from terrorist activ-
ity directed against the United States or its
allies. In accordance with the procedures
described in Revenue Procedure 2004-
26, the Secretary has determined that the
terrorist attacks beginning on October 7,
2023, against the State of Israel (October
7, 2023 Terrorist Attacks) constitute ter-
roristic action within the meaning of sec-
tion 692(c)(2).
SECTION III. GRANT OF RELIEF
With respect to taxpayers described
in section III.A of this notice (affected
taxpayers), this notice postpones the due
dates for the actions described in section
III.B of this notice (postponed acts) until
October 7, 2024.
A. Affected Taxpayers
Section 301.7508A-1(d)(1) describes
several types of “affected taxpayers” eli-
gible for relief under section 7508A. The
Secretary has determined that the follow-
ing types of taxpayers are affected taxpay-
ers with respect to the October 7, 2023
Terrorist Attacks eligible for the relief
provided in this notice:
• Any individual whose principal res-
idence, and any business entity or
sole proprietor whose principal place
of business, is located in the State of
Israel, the West Bank or Gaza (cov-
ered area);
• Any individual affiliated with a rec-
ognized government or philanthropic
organization and who is assisting
in the covered area, such as a relief
worker;
• Any individual, business entity or sole
proprietor, or estate or trust whose tax
return preparer or records necessary
to meet a deadline for postponed acts
are located in the covered area;
• Any spouse of an affected taxpayer,
solely with regard to a joint return of
two married individuals; and
• Any individual visiting the covered
area who was killed, injured, or taken
hostage as a result of the October 7,
2023 Terrorist Attacks.
The IRS automatically identifies taxpay-
ers whose principal residence or principal
place of business is located in the covered
area based on previously filed returns
and applies relief. Affected taxpayers
whose principal residence or principal
place of business is not located in the
covered area should call the IRS disaster
hotline at (866) 562-5227 to request relief.
Alternatively, international callers may
call (267) 941-1000.
B. Postponement of Due Dates with
Respect to Certain Taxpayer Acts
Affected taxpayers have until October
7, 2024, to file tax returns, make tax pay-
ments, and perform certain time-sensitive
acts listed in § 301.7508A-1(c)(1) and
Rev. Proc. 2018-58, 2018-50 I.R.B. 990
(December 10, 2018), that are due to be
performed on or after October 7, 2023,
and before October 7, 2024. Any taxpayer
acts that are due to be performed on or
after October 7, 2023, and before October
7, 2024, are postponed until October 7,
2024. These acts include, but are not lim-
ited to:
• Filing any return of income tax, estate
tax, gift tax, generation-skipping
transfer tax, excise tax (other than
firearms tax), harbor maintenance
tax, or employment tax;
• Paying any income tax, estate tax, gift
tax, generation-skipping transfer tax,
excise tax (other than firearms tax),
harbor maintenance tax, or employ-
ment tax, or any installment of those
taxes;
• Making contributions to a qualified
retirement plan;
• Filing a petition with the Tax Court;
• Filing a claim for credit or refund of
any tax; and
• Bringing suit upon a claim for credit
or refund of any tax.
This is not an exhaustive list. For further
information, see § 301.7508A-1(c)(1) and
Rev. Proc. 2018-58.
C. Postponement of Due Dates with
Respect to Certain Government Acts
This notice also provides the IRS
with additional time to perform certain
time-sensitive actions with respect to
1
Unless otherwise specified, all “Section” or “§” references are to sections of the Code or the Procedure and Administration Regulations (26 CFR part 301).

October 30, 2023 1192 Bulletin No. 2023–44
affected taxpayers. Any government acts
described in § 301.7508A-1(c)(2) that are
due to be performed on or after October
7, 2023, and before October 7, 2024, are
postponed until October 7, 2024. These
acts include:
• Assessing any tax;
• Giving or making any notice or
demand for the payment of any tax,
or with respect to any liability to the
United States in respect of any tax;
• Collecting by the IRS, by levy or oth-
erwise, of the amount of any liability
in respect of any tax; and
• Bringing suit by the United States, or
any officer on its behalf, in respect of
any liability in respect of any tax; and
allowing a credit or refund of any tax.
SECTION IV. DRAFTING
INFORMATION
The principal author of this notice is
the Office of Associate Chief Counsel
(Procedure and Administration). For fur-
ther information regarding this notice, you
may call (202) 317-3400 (not a toll-free
call).

Bulletin No. 2023–44 1193 October 30, 2023
Part IV
Notice of Proposed
Rulemaking
Guidance under Section
367(b) Related to
Certain Triangular
Reorganizations and
Inbound Nonrecognition
Transactions
REG-117614-14
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document proposes
regulations announced and described in
Notice 2014-32 and Notice 2016-73, with
modifications. The proposed regulations
relate to the treatment of property used
to acquire parent stock or securities in
connection with certain triangular reorga-
nizations involving one or more foreign
corporations; the consequences to per-
sons that receive parent stock or securities
pursuant to such reorganizations; and the
treatment of certain subsequent inbound
nonrecognition transactions following
such reorganizations and certain other
transactions. The proposed regulations
affect corporations engaged in certain tri-
angular reorganizations involving one or
more foreign corporations, certain share-
holders of foreign corporations acquired
in such reorganizations, and foreign
corporations that participate in certain
inbound nonrecognition transactions.
DATES: Written or electronic comments
and requests for a public hearing must be
received by December 5, 2023. Requests
for a public hearing must be submitted
as prescribed in the “Comments and
Request for Public Hearing” section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic sub-
missions via the Federal eRulemaking
Portal at www.regulations.gov (indicate
IRS and REG-117614-14) by follow-
ing the online instructions for submit-
ting comments. Once submitted to the
Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comments sub-
mitted electronically and on paper, to its
public docket. Send paper submissions
to: CC:PA:LPD:PR (REG-117614-14),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Brady Plastaras at (202) 317-
6937; concerning submission of com-
ments, requests for a public hearing, and
access to a public hearing, Vivian Hayes
at (202) 317-5306 (not toll-free numbers)
or by email at publichearings@irs.gov
(preferred).
SUPPLEMENTARY INFORMATION:
Background
On May 19, 2011, the Treasury
Department and the IRS published final
regulations (TD 9526) in the Federal
Register (76 FR 28890) under section
367(b) that relate to the treatment of
property used to acquire parent stock or
securities in certain triangular reorgani-
zations involving one or more foreign
corporations (the Final Regulations). On
April 25, 2014, the Treasury Department
and the IRS issued Notice 2014-32 (2014-
20 IRB 1006), which identified transac-
tions designed to exploit certain aspects
of the Final Regulations and announced
that regulations would be issued under
section 367 to address these transac-
tions. On December 2, 2016, the Treasury
Department and the IRS issued Notice
2016-73 (2016-52 IRB 908), which
identified other transactions designed to
exploit the Final Regulations, as modified
by the rules announced in Notice 2014-32,
and announced that additional regulations
would be issued under section 367. The
Treasury Department and the IRS believe
that the transactions described in each
notice raise significant policy concerns.
This document sets forth the regula-
tions described in Notice 2014-32 and
Notice 2016-73, modified as discussed in
this preamble. In response to a request for
comments in Notice 2016-73, one com-
ment was received and is discussed in this
preamble. No comments were received on
Notice 2014-32.
Explanation of Provisions; Summary
of Comment in Response to Notice
2016-73
I. Overview
A. Section 367—in general
Section 367(a)(1) provides that if, in
connection with any exchange described
in section 332, 351, 354, 356, or 361, a
United States person transfers property to
a foreign corporation, such foreign cor-
poration shall not, for purposes of deter-
mining the extent to which gain shall be
recognized on such transfer, be considered
to be a corporation. Under section 367(a)
(5), the Secretary has broad authority to
exempt transactions from the application
of section 367(a)(1) in order to carry out
the purposes of section 367(a).
Section 367(b)(1) provides that, in the
case of any exchange described in section
332, 351, 354, 355, 356, or 361 in con-
nection with which there is no transfer of
property described in section 367(a)(1),
a foreign corporation shall be considered
to be a corporation except to the extent
provided in regulations prescribed by the
Secretary which are necessary or appro-
priate to prevent the avoidance of Federal
income taxes. Section 367(b)(2) provides
that the regulations prescribed pursuant to
section 367(b)(1) shall include (but shall
not be limited to) regulations dealing with
the sale or exchange of stock or securities
in a foreign corporation by a United States
person, including regulations providing
the circumstances under which gain is rec-
ognized currently, amounts are included in
gross income as a dividend, or both; and
the extent to which adjustments are made

October 30, 2023 1194 Bulletin No. 2023–44
to earnings and profits, the basis of stock
or securities, and the basis of assets.
B. Policies of section 367(b)
Section 367(b) was enacted to help
ensure that international tax consider-
ations are adequately addressed when the
provisions in chapter 1, subchapter C, of
subtitle A of the Internal Revenue Code
(the Code) apply to an exchange involv-
ing a foreign corporation. Thus, the reg-
ulations under section 367(b) require that
adjustments or inclusions be made to pre-
vent the material distortions of income
that can occur when the subchapter C pro-
visions apply to an exchange involving a
foreign corporation.
The legislative history to section
367(b) describes Congress’s particular
concern with the need “to protect against
tax avoidance . . . upon the repatriation of
previously untaxed foreign earnings” and
its intent to grant the Treasury Department
broad authority to promulgate regula-
tions to prevent the avoidance of Federal
income taxes. H.R. Rep. No. 94-658, at
241 (1975). Moreover, Congress specif-
ically identified “transfers constituting a
repatriation of foreign earnings” as a type
of transfer to be covered by such regula-
tions. Id. at 245. The Final Regulations
were promulgated in part to address these
concerns. More specifically, one of the
purposes of the Final Regulations is to
require adjustments to address the avoid-
ance of U.S. tax, including the repatriation
of foreign earnings without being sub-
ject to U.S. tax, through the separation of
earnings and profits of a corporation from
property distributed by such corpora-
tion in connection with certain triangular
reorganizations.
C. Effect of the Tax Cuts and Jobs Act
In 2017, Congress passed the Tax
Cuts and Jobs Act (TCJA) (Pub. L. No.
115-97), which added and amended a
number of international tax provisions.
One effect of these new provisions, and
in particular sections 951A and 965, was
to increase the amount of foreign earn-
ings or income subject to immediate U.S.
taxation. Section 965 imposed a one-
time transition tax on certain earnings
and profits of foreign corporations, and
section 951A subjects certain income of a
controlled foreign corporation (CFC) (as
defined in section 957(a)) to current U.S.
taxation in the hands of the CFC’s United
States shareholders (as defined in section
951(b)). The TCJA also generally retained
the existing anti-deferral rules in subpart
F of the Code (sections 951 through 965,
as amended), under which, for example, a
CFC’s passive income, subject to certain
exceptions, is similarly subject to cur-
rent U.S. taxation. The combined effect
of sections 951, 951A, and 965 is that an
increased amount of foreign earnings and
profits will have been subject to U.S. tax
regardless of whether the earnings and
profits are in fact repatriated. Under sec-
tion 959, such previously taxed earnings
and profits (PTEP) are not again subject to
U.S. tax upon their repatriation.
The TCJA also added section 245A
to the Code, under which certain United
States shareholders of a specified 10-per-
cent owned foreign corporation (SFC) (as
defined in section 245A(b)(1)) generally
are entitled to a 100-percent dividends
received deduction with respect to divi-
dends received from the SFC. As a result
of the TCJA, an increased amount of earn-
ings and profits of foreign corporations are
thus not taxable when distributed—either
because the earnings and profits constitute
PTEP or give rise to dividends (including
deemed dividends under section 367(b))
that are eligible for the section 245A divi-
dends received deduction.
Although as a result of the TCJA a
lesser amount of earnings and profits of
foreign corporations may give rise to tax-
able dividends when distributed, the Final
Regulations remain necessary to carry out
the policies of section 367(b). The adjust-
ments required by the Final Regulations
are intended to ensure that property trans-
fers that are in substance distributions
are treated as such, and thus give rise to
income, capital gain, or a reduction in
basis under section 301(c). Furthermore,
incentives to avoid treating property trans-
fers as distributions remain. For example,
a taxpayer may seek to avoid distribution
treatment because the distribution would
not qualify for the section 245A dividends
received deduction due to the application
of the hybrid dividend rules under section
245A(e) or the extraordinary disposition
rules under §1.245A-5, or because the
taxpayer seeks to, for example, preserve
PTEP or other earnings and profits to
cover a future distribution.
D. The Final Regulations
The Final Regulations apply to cer-
tain triangular reorganizations in which
a subsidiary (S) purchases, in connection
with the reorganization, stock or securities
of its parent corporation (P) in exchange
for property and exchanges the stock or
securities of P for the stock or property of
a target corporation (T), but only if P or
S (or both) is a foreign corporation. The
Final Regulations and this preamble refer
to such exchange of stock or securities of
P for property as the “P acquisition.” This
preamble also refers to the P acquisition
together with the related triangular reor-
ganization as an “applicable triangular
reorganization.”
When applicable, the Final Regulations
require that adjustments be made that have
the effect of a distribution of property from
S to P under section 301 (deemed distri-
bution), followed by a contribution from
P to S of an amount equal to the deemed
distribution (deemed contribution). The
amount of the deemed distribution is the
sum of the amount of money transferred
by S, the amount of any liabilities that are
assumed by S and constitute property, and
the fair market value of other property
that S transferred to P in the P acquisition.
The deemed distribution is treated as a
dividend to the extent of S’s earnings and
profits.
There are several exceptions to the
application of the Final Regulations. Under
§1.367(b)-10(a)(2)(iii) (the section 367(a)
priority rule), the Final Regulations do not
apply to transactions otherwise described
in the Final Regulations if the amount
of gain that T’s shareholders would rec-
ognize under section 367(a)(1) is at least
equal to the sum of the amount of the
deemed distribution that P would treat as
a dividend under section 301(c)(1) and the
amount of the deemed distribution that P
would treat as gain under section 301(c)
(3) were the Final Regulations to apply.
This preamble refers to the hypothetical
amount of gain recognized under section
367(a)(1) and the hypothetical amount
of the deemed distribution treated either
as dividend or gain under section 301(c)

Bulletin No. 2023–44 1195 October 30, 2023
as “section 367(a) income” and “section
367(b) income,” respectively. Section
1.367(a)-3(a)(2)(iv) provides a similar
priority rule (the section 367(b) priority
rule) that turns off the application of sec-
tion 367(a)(1) with respect to transactions
described in the Final Regulations if the
amount of section 367(a) income that T’s
shareholders would otherwise recognize
under section 367(a)(1) (without regard
to any exceptions thereto) is less than
the amount of section 367(b) income that
would result from the deemed distribu-
tion. In this way, the priority rules subject
an applicable triangular reorganization to
whichever section 367 regime would give
rise to the most income under section 367.
Section 1.367(b)-10(a)(2)(ii) provides
another exception to the application of the
Final Regulations. Under this exception,
the Final Regulations generally do not
apply if S is a domestic corporation and
P would not be subject to U.S. tax on a
dividend received from S. This preamble
refers to this exception as the “no-U.S.-tax
exception.”
The Final Regulations also contain a
broad anti-abuse rule under which appro-
priate adjustments are made if, in connec-
tion with a triangular reorganization, a
transaction is engaged in with a view to
avoid the purpose of the Final Regulations.
See §1.367(b)-10(d). The anti-abuse rule
contains an example illustrating that the
earnings and profits of S may, under cer-
tain circumstances, be deemed to include
the earnings and profits of a corporation
related to P or S for purposes of determin-
ing the consequences of the adjustments
provided for in the Final Regulations.
E. Notice 2014-32
Notice 2014-32 identified transactions
designed to exploit certain aspects of the
Final Regulations. In particular, Notice
2014-32 described transactions in which
taxpayers applied the section 367(a) and
(b) priority rules and no-U.S.-tax exception
in a manner that, contrary to their intended
operation, resulted in the taxpayer being
subject to the more favorable of the sec-
tion 367(a) or (b) regimes. Notice 2014-
32 accordingly announced that regulations
would be issued under section 367(b) to
(i) modify the priority rules such that only
section 367(b) income that would actually
be subject to U.S. tax would be considered
and (ii) narrow the scope of the no-U.S.-
tax exception. Notice 2014-32 further
announced that regulations would be
issued to remove the deemed contribution
rule in §1.367(b)-10(b)(2) and clarify the
broad application of the anti-abuse rule in
§1.367(b)-10(d).
F. Notice 2016-73
Notice 2016-73 identified additional
transactions designed to exploit the
Final Regulations, as modified by the
rules announced in Notice 2014-32. The
transactions identified in Notice 2016-73
include, as one example, a two-step trans-
action where an applicable triangular reor-
ganization is followed by a purportedly
unrelated inbound nonrecognition trans-
action to which §1.367(b)-3 applies.
In that example, USP, a domestic cor-
poration, owns all of the stock of FP, and
FP owns all of the stock of FS. Both FP
and FS are foreign corporations. USP also
owns all of the stock of USS, a domes-
tic corporation, and USS owns all of the
stock of FT, a foreign corporation. In step
one of the example transaction, FP, FS,
and FT engage in an applicable triangular
reorganization that is designed to result in
no section 367(b) income and only a de
minimis amount of section 367(a) income.
Specifically, FS acquires newly issued
stock of FP for property and transfers the
stock of FP to USS in exchange for all the
stock of FT in a triangular reorganization
described in section 368(a)(1)(B). In addi-
tion, USS files a gain recognition agree-
ment with respect to its transfer of the
stock of FT. The taxpayer takes the posi-
tion that the section 367(a) priority rule
applies to turn off the Final Regulations
with respect to the applicable triangular
reorganization and therefore does not treat
FP as having received a deemed distribu-
tion. Under this position, the effect of this
first step of the transaction is a transfer of
property from FS to FP without a distribu-
tion that would result in a corresponding
decrease in the earnings and profits of FS
and increase in the earnings and profits of
FP associated with that property.
In step two of the example transac-
tion, on a later date FP transfers its assets
(including the cash, note, or other property
received from FS) to USP or a domestic
corporation whose stock is owned directly
or indirectly by USP in a nonrecognition
transaction described in §1.367(b)-3. The
taxpayer asserts that USP accordingly
includes in its income a deemed dividend
of the “all earnings and profits amount”
(as described in §1.367(b)-2(d)) with
respect to its stock in FP, but, because
that amount does not take into account the
earnings and profits of lower-tier foreign
corporations, the deemed dividend does
not include the earnings and profits asso-
ciated with the property that FP received
from FS in the P acquisition (because such
earnings and profits remain at FS under
the position taken by the taxpayer). The
desired effect of the overall transaction is
a repatriation of property from FS to USP
(or a domestic corporation held by USP)
without a corresponding income inclusion
attributable to untaxed earnings and prof-
its of FS.
Notice 2016-73 announced that addi-
tional regulations would be issued under
section 367(b) to address transactions
such as these types of two-step transac-
tions. To address step one of the transac-
tion, the regulations would, in addition
to the modifications described in Notice
2014-32, prevent the section 367(a) prior-
ity rule from applying where T is foreign
and instead subject certain T sharehold-
ers to rules under §1.367(b)-4 that could
result in an income inclusion or gain rec-
ognition with respect to their exchange of
T stock. To address step two of the trans-
action, the regulations would subject any
inbound nonrecognition transaction to
a new set of “excess asset basis” (EAB)
rules to be issued under §1.367(b)-3 that,
for purposes of determining the all earn-
ings and profits amount, would take into
account certain earnings and profits of
lower-tier foreign corporations. Step two
of the transaction was subject to the EAB
rules because a taxpayer may have com-
pleted an applicable triangular reorgani-
zation described in step one (but not yet
an inbound nonrecognition transaction
described in step two) before the issu-
ance of Notice 2016-73. Such partially
completed transactions would go unad-
dressed if the regulations were limited to
modifying the section 367(a) priority rule.
Notice 2016-73 further announced that the
EAB rules would apply to any inbound
nonrecognition transaction, regardless

October 30, 2023 1196 Bulletin No. 2023–44
of whether the taxpayer had previously
engaged in an applicable triangular reor-
ganization, out of concern that transac-
tions other than applicable triangular
reorganizations might also position tax-
payers to achieve an improper repatriation
of property through a subsequent inbound
nonrecognition transaction.
Notice 2016-73 also described a varia-
tion of the foregoing two-step transaction
where the P acquisition is between FP and
USP. In this variation of the transaction,
FP (which has no earnings and profits)
acquires stock of USP in exchange for
nonqualified preferred stock of FP, and FP
uses the stock of USP to acquire the stock
of FT in an applicable triangular reorga-
nization. After the applicable triangular
reorganization, the taxpayer causes FP to
redeem its nonqualified preferred stock
from USP in exchange for cash or a note.
The taxpayer takes the position that (i) the
Final Regulations do not apply to FP’s
transfer of nonqualified preferred stock
to USP because nonqualified preferred
stock is not “property” under the Final
Regulations, and (ii) FP’s redemption of
the nonqualified preferred stock does not
cause USP to have an income inclusion
because FP has no earnings and profits.
The desired effect of this variation is sim-
ilarly a repatriation of property from FP to
USP at no U.S. tax cost.
To address this type of transaction,
Notice 2016-73 announced that future
regulations would modify the definition
of property in §1.367(b)-10(a)(3)(ii) to
include stock of S that is nonqualified pre-
ferred stock (as defined in section 351(g)
(2)).
II. Rules Applicable to Inbound
Nonrecognition Transactions
A. §1.367(b)-3 and Notice 2016-73
Section 1.367(b)-3 generally applies
to an acquisition by a domestic corpora-
tion (the domestic acquiring corporation)
of the assets of a foreign corporation (the
foreign acquired corporation) in a liquida-
tion described in section 332 or an asset
acquisition described in section 368(a)(1)
(in each case, an inbound nonrecognition
transaction). Upon an inbound nonrecog-
nition transaction, §1.367(b)-3 requires
certain shareholders of the foreign
acquired corporation to include in income
as a deemed dividend the all earnings and
profits amount with respect to their stock
in the foreign acquired corporation.
1
Under
§1.367(b)-2(d), that amount is generally
determined under the principles of section
1248 when computing the amount of earn-
ings and profits attributable to stock, sub-
ject to certain adjustments. For example,
the all earnings and profits amount does
not take into account earnings and profits
of subsidiaries of the foreign acquired cor-
poration notwithstanding section 1248(c)
(2). See §1.367(b)-2(d)(3)(ii).
Section 1.367(b)-3 is intended to ensure
the appropriate carryover of tax attributes
from the foreign acquired corporation to
the domestic acquiring corporation. The
preamble to proposed regulations issued
in 1991 describes the section 367(b) prin-
ciples relevant to inbound nonrecognition
transactions and specifically identifies the
prevention of “the repatriation of earnings
and profits without tax” as one such prin-
ciple. 56 FR 41993, 41996. The 1991 pro-
posed regulations accordingly introduced
the concept of including in income the all
earnings and profits amount, which was
intended to reflect “the proper measure
of the earnings and profits [of the foreign
acquired corporation] that should be sub-
ject to tax.” Id. The preamble to final reg-
ulations issued in 2000 further explained
that the inclusion of the all earnings and
profit amount “generally ensures that
the section 381 carryover basis reflects
an after-tax amount” and describes “the
appropriate carryover of attributes from
foreign to domestic corporations” as “the
principal policy consideration of section
367(b) with respect to inbound nonrec-
ognition transactions.” TD 8862, 65 FR
3589, 3590. Section 1.367(b)-3 therefore
ensures that when asset basis is repa-
triated the basis either reflects after-tax
earnings and profits or is accompanied
by an income inclusion attributable to the
untaxed earnings and profits that gave rise
to that basis.
As illustrated in Notice 2016-73 and
summarized above in Part I.F of the
Explanation of Provisions section of
this preamble, there are some circum-
stances where the earnings and profits of
the foreign acquired corporation do not
accurately reflect the basis in its assets.
In particular, the earnings and profits of
the foreign acquired corporation may be
insufficient to the extent that earnings
and profits that gave rise to the foreign
acquired corporation’s asset basis reside
in lower-tier foreign corporations as a
result of an applicable triangular reorgani-
zation that does not give rise to a deemed
distribution. Because the all earnings and
profits amount does not account for the
earnings and profits of lower-tier foreign
corporations, a deemed dividend of the all
earnings and profits amount will not have
the intended effect of ensuring the appro-
priate carryover of asset basis in such
cases.
To address this concern, Notice 2016-
73 announced that §1.367(b)-3 would be
modified to require certain shareholders of
the foreign acquired corporation to adjust
their all earnings and profits amount upon
an inbound nonrecognition transaction.
Specifically, an exchanging shareholder
that exchanges stock in a foreign acquired
corporation with respect to which there is
EAB would increase its all earnings and
profits amount by certain earnings and
profits of lower-tier foreign corporations,
referred to in Notice 2016-73 as “specified
earnings.” Notice 2016-73 defined EAB
as the amount by which the inside asset
basis of the foreign acquired corporation
exceeded the sum of its earnings and prof-
its, its outside stock basis, and its liabilities
assumed by the domestic acquiring corpo-
ration. The EAB concept is in furtherance
of a balanced tax-basis balance sheet. In
other words, the EAB concept recognizes
that the tax basis in a corporation’s assets
generally is derived from these three
sources, with outside stock basis serving
as a proxy for contributed capital. While
basis derived from contributed capital
reflects after-tax amounts (or, in the case
of liabilities assumed by the domestic
acquiring corporation, is expected to
1
Certain other shareholders of the foreign acquired corporation may be required to recognize realized gain with respect to their exchanged stock. See §1.367(b)-3(c)(2).

Bulletin No. 2023–44 1197 October 30, 2023
be satisfied by after-tax amounts of the
domestic acquiring corporation), basis
derived from a foreign corporation’s
untaxed earnings and profits might not
be subject to U.S. tax until those earnings
are repatriated. For this reason, a foreign
corporation’s untaxed earnings and profits
are subject to tax via a deemed dividend
of the all earnings and profits amount.
This deemed dividend inclusion in effect
requires that the exchanging shareholder
“pay for” the tax basis in repatriated assets
before that basis is used within the U.S.
tax system.
Specified earnings are defined in
Notice 2016-73 as the least of the follow-
ing amounts: (i) the aggregate earnings
and profits of foreign subsidiaries of the
foreign acquired corporation attributable
to the exchanging shareholder, (ii) the
amount of the foreign acquired corpora-
tion’s EAB attributable to the exchang-
ing shareholder, and (iii) the exchanging
shareholder’s built-in gain in the stock
of the foreign acquired corporation. The
addition of specified earnings to the all
earnings and profits amount is thereby
intended to correct the basis imbalance
of the foreign acquired corporation by
taking into account certain earnings and
profits residing in foreign subsidiaries
that are presumed to have given rise
to the EAB. Thus, the all earnings and
profits amount, after taking into account
specified earnings, should more accu-
rately reflect the asset basis of the foreign
acquired corporation that is repatriated
pursuant to the inbound nonrecognition
transaction.
The proposed regulations generally
would adopt the rules described in Notice
2016-73, modified as discussed in the
remainder of this preamble. This pream-
ble uses the term “EAB rules” to refer
collectively to the modifications that are
proposed to be made to §1.367(b)-3.
B. General scope of the EAB rules
As described in Notice 2016-73, the
EAB rules would apply to any inbound
nonrecognition transaction regardless
of whether the taxpayer had previously
engaged in an applicable triangular reor-
ganization. This scope reflected the possi-
bility that EAB policy concerns could arise
as a result of other transactions and that
taxpayers may attempt to achieve similar
results through such other transactions.
The comment recommended that the
EAB rules be applied to a narrower set
of transactions, citing, among other rea-
sons, the significant compliance burden
that would otherwise be imposed on legit-
imate business transactions. The comment
thus recommended that the EAB rules be
applied only to taxpayers that had com-
pleted an applicable triangular reorganiza-
tion before the issuance of Notice 2016-73
that involved a foreign target corporation;
did not make adjustments that have the
effect of a distribution of property from
S to P; and engage in a future inbound
nonrecognition transaction. If narrowed in
this way, the comment further suggested
that the EAB rules apply on only a transi-
tional basis; for example, for the 10-year
period following Notice 2016-73. The
comment asserted that a broader applica-
tion of the EAB rules would be unneces-
sary in light of Notice 2016-73’s proposed
modification to the section 367(a) priority
rule, which, by requiring adjustments for
a deemed distribution whenever the tar-
get is a foreign corporation, should pre-
vent taxpayers from separating basis from
earnings and profits in future transactions.
As an alternative, the comment suggested
that the EAB rules be applied only to
inbound nonrecognition transactions that
follow an applicable triangular reorgani-
zation or other specifically enumerated
transactions.
The Treasury Department and the IRS
agree that it would be appropriate to nar-
row the scope of the EAB rules for the rea-
sons noted in the comment. In general, the
proposed regulations accordingly would
limit the application of the EAB rules
to those inbound nonrecognition trans-
actions where (i) S previously acquired
stock or securities of P in exchange for
property in connection with a triangular
reorganization and (ii) adjustments were
not made that have the effect of a distribu-
tion of property from S to P under section
301. See proposed §1.367(b)-3(g)(1)(i).
However, to address avoidance situations
that would have been subject to the EAB
rules under the broad scope announced
in Notice 2016-73 (which did not predi-
cate the application of the EAB rules on
there having been an applicable triangular
reorganization), the proposed regulations
would also provide that the EAB rules
apply to inbound nonrecognition transac-
tions where EAB was previously created
in connection with a transaction other than
a triangular reorganization if the principal
purpose of such other transaction was to
create EAB. See proposed §1.367(b)-3(g)
(1)(ii). This more limited application of
the EAB rules is anticipated to relieve tax-
payers from the need to comply with the
EAB rules with respect to non-tax moti-
vated transactions while still addressing
the policy concerns identified in Notice
2016-73.
The proposed regulations would not
adopt the comment’s suggestion to apply
the EAB rules only to situations where
an applicable triangular reorganization
involving a foreign target was completed
before the issuance of Notice 2016-73.
The Treasury Department and the IRS are
concerned that such a limitation would
prevent the application of the EAB rules
to future transactions designed to create
EAB. For example, a subsequent applica-
ble triangular reorganization could give
rise to EAB where the target corporation
is domestic because the section 367(a) pri-
ority rule continues to apply in that con-
text. EAB could thus arise if the section
367(a) priority rule applies to prevent the
application of the Final Regulations and
P and S are both foreign corporations. An
ongoing application of the EAB rules is
also necessary to address the case where
the target is a foreign corporation but the
taxpayer asserts that its transaction is not
subject to §1.367(b)-10 under a novel or
unforeseen theory. For this reason, the
proposed regulations also would not con-
dition the applicability of the EAB rules
on the taxpayer having participated in
an applicable triangular reorganization.
The proposed regulations instead would
provide that the EAB rules may apply to
EAB created by any triangular reorgani-
zation (provided that the other conditions
described in the preceding paragraph are
met—that is, S acquired stock or securi-
ties of P for property in connection with
the reorganization, and adjustments were
not made that have the effect of a dis-
tribution of property from S to P under
section 301) and to EAB created in
other transactions that have a principal
purpose of creating EAB. See proposed
§1.367(b)-3(g)(1).

October 30, 2023 1198 Bulletin No. 2023–44
C. EAB reduction rule
Under Notice 2016-73, all EAB with
respect to a foreign acquired corporation
is taken into account upon an inbound
nonrecognition transaction, regardless of
how the EAB arose. However, if the tax-
payer could demonstrate that EAB was
not attributable to property provided by a
foreign subsidiary, then EAB is reduced to
the extent of such EAB (the EAB reduc-
tion rule).
The comment asserted that the EAB
reduction rule amounted to a presump-
tion that all EAB originated from the
earnings and profits of foreign subsid-
iaries. The comment stated that over-
coming this presumption would place a
significant burden on taxpayers because
it would require a comprehensive review
of the foreign acquired corporation’s his-
toric transactions to determine the extent
to which EAB should be reduced. The
comment therefore recommended that the
EAB rules be revised such that taxpayers
be permitted to take into account only the
EAB created by an applicable triangular
reorganization (or any other specifically
identified transaction).
The Treasury Department and the IRS
expect that the more limited scope of the
EAB rules set forth in the proposed regula-
tions would address the concern reflected
in the comment. As proposed in these
regulations and discussed in Part II.B of
the Explanation of Provisions section of
this preamble, the EAB rules would apply
only to those inbound nonrecognition
transactions that follow certain triangu-
lar reorganizations (or other transactions
having a principal purpose of creating
EAB) as opposed to any inbound nonrec-
ognition transaction. This narrower scope
would substantially reduce the burden of
complying with the proposed EAB rules
by eliminating the need for many taxpay-
ers to determine whether EAB exists with
respect to a foreign acquired corporation.
This narrowed scope also would obvi-
ate the rationale for the EAB reduction
rule, which was intended to provide relief
where a taxpayer could demonstrate that
EAB was not attributable to an avoid-
ance transaction. Such a relief measure
would not be appropriate under the pro-
posed regulations, however, because the
proposed regulations would apply only
to tax-motivated transactions. The EAB
reduction rule would therefore be removed
with respect to transactions completed
after the issuance of the proposed regu-
lations. But see the EAB reduction rule
in proposed §1.367(b)-3(g)(7)(ii)(C) for
certain transactions completed before the
issuance of the proposed regulations. The
proposed regulations accordingly would
provide that a taxpayer subject to the
EAB rules by reason of having engaged
in a triangular reorganization must take
into account all EAB with respect to the
foreign acquired corporation, regardless
of how that EAB arose and without the
ability to reduce EAB to the extent it is
not attributable, directly or indirectly, to
property provided by a foreign subsidiary
of the foreign acquired corporation.
D. Treatment of unrelated minority
shareholders
As discussed in Part II.A of the
Explanation of Provisions section of this
preamble, one element of the EAB compu-
tation is the amount of aggregate outside
basis in the stock of the foreign acquired
corporation. An exchanging shareholder
that would be subject to the EAB rules
would thus potentially need to identify the
outside bases of other, unrelated share-
holders of the foreign acquired corpora-
tion to calculate the amounts of EAB and
specified earnings. The comment asserted
that it may not be possible for an exchang-
ing shareholder to obtain this information
and accordingly suggested that the outside
bases of such unrelated minority share-
holders be disregarded (along with any
related share of inside basis, liabilities,
and earnings and profits) when calculating
EAB and specified earnings.
The Treasury Department and the IRS
recognize that the presence of unrelated
minority shareholders may create some
uncertainty but expect that narrowing
the application of the EAB rules to only
a limited set of inbound nonrecognition
transactions would appropriately address
the concern reflected in the comment.
The transactions of which the Treasury
Department and the IRS are aware,
and which the proposed regulations are
generally intended to address, are typi-
cally internal restructurings that by their
nature are unlikely to involve unrelated
shareholders. See Notice 2016-73, Section
3. Moreover, modifying the EAB rules as
the comment suggests would require addi-
tional rules to specify how an exchanging
shareholder would disregard unrelated
minority shareholders, thereby adding
complexity to the EAB calculations to
accommodate an unlikely fact pattern.
Therefore, the proposed regulations would
not adopt this suggestion.
E. Computation of specified earnings
As discussed in Part II.A of the
Explanation of Provisions section of this
preamble, the rules described in Notice
2016-73 seek to correct the basis imbal-
ance of the foreign acquired corporation
by increasing an exchanging sharehold-
er’s all earnings and profits amount by the
amount of “specified earnings.” Specified
earnings are limited, in part, to the sum
of the earnings and profits with respect
to each foreign subsidiary of the foreign
acquired corporation that are attributable
under section 1248(c)(2) to the stock of
the foreign acquired corporation that is
exchanged pursuant to the inbound non-
recognition transaction. Accordingly,
specified earnings under the notice are
not sourced from PTEP of foreign subsid-
iaries of the foreign acquired corporation
because PTEP is not included in earnings
and profits for purposes of section 1248.
See section 1248(d)(1). In other words, the
rules described in Notice 2016-73 would
not allow the foreign acquired corpora-
tion’s basis imbalance to be corrected by
a deemed distribution of lower-tier PTEP,
even though a taxpayer may have created
EAB by separating asset basis from earn-
ings and profits that are characterized as
PTEP.
In light of the TCJA, which increased
the prevalence of PTEP, the Treasury
Department and the IRS are of the view
that the policies of the EAB rules are
better served if, instead of adjusting an
exchanging shareholder’s all earnings
and profits amount as described in Notice
2016-73, the foreign acquired corporation
is treated as receiving a deemed distribu-
tion under section 301 from its foreign
subsidiaries, and the exchanging share-
holder then accounts for the effects of the
deemed distribution in the inbound non-
recognition transaction. Such a deemed

Bulletin No. 2023–44 1199 October 30, 2023
distribution more accurately addresses the
basis imbalance of the foreign acquired
corporation because the deemed distribu-
tion may be sourced from both PTEP and
non-PTEP earnings and profits, reflecting
that the basis imbalance may be associ-
ated with either type of earnings and prof-
its. A deemed distribution from a foreign
subsidiary to the foreign acquired corpo-
ration is also more likely to align the EAB
rules with the substance of the taxpayer’s
transaction because EAB generally arises
where a taxpayer fails to treat a property
transfer as a distribution under section
301. Furthermore, taking into account the
effects of a section 301 distribution is con-
sistent with the Final Regulations, which
address applicable triangular reorganiza-
tions by taking into account the effects of
a deemed distribution under section 301
from S to P.
The proposed regulations accordingly
would modify the EAB rules by providing
that an exchanging shareholder of the for-
eign acquired corporation computes its all
earnings and profits amount after account-
ing for the effects of a deemed distribu-
tion from the foreign subsidiaries of the
foreign acquired corporation to the for-
eign acquired corporation. See proposed
§1.367(b)-3(g)(1). The deemed distribu-
tion, which occurs immediately before
the inbound nonrecognition transaction,
would be equal to the amount of “specified
earnings.” The term specified earnings
would be defined under the proposed reg-
ulations as the lesser of (i) the aggregate
earnings and profits of foreign subsidiaries
of the foreign acquired corporation (with
no exclusion for those earnings and prof-
its characterized as PTEP) (collectively,
lower-tier earnings), and (ii) the EAB
of the foreign acquired corporation. See
proposed §1.367(b)-2(g)(2)(vii). The lim-
itations on specified earnings described
in Notice 2016-73 and Part II.A of the
Explanation of Provisions section of this
preamble (other than the EAB limitation,
which is retained with modification) are
removed because those limitations, which
were designed in part to approximate
a reasonable allocation of EAB among
the shareholders of the foreign acquired
corporation, are not necessary where
the foreign acquired corporation’s basis
imbalance is addressed by a deemed dis-
tribution. Thus, for example, the definition
of specified earnings in the proposed reg-
ulations would not be limited to the earn-
ings and profits of each foreign subsidiary
attributable under section 1248(c)(2) to
the stock of the foreign acquired corpora-
tion exchanged, but instead would include
all of the earnings and profits of lower-tier
foreign subsidiaries (and therefore does
not exclude PTEP). The proposed regula-
tions would adopt this approach because
under the deemed distribution model all
such earnings and profits would be avail-
able to increase the earnings and profits of
the foreign acquired corporation if actu-
ally distributed to it through the chain of
ownership.
Where specified earnings are drawn
from multiple foreign subsidiaries, spec-
ified earnings would be drawn from all
foreign subsidiaries on a pro rata basis (in
proportion to each foreign subsidiary’s
share of aggregate earnings and profits
of the foreign subsidiaries). See proposed
§1.367(b)-3(g)(3). In addition, and con-
sistent with §1.367(b)-2(e)(2), specified
earnings drawn from foreign subsidiaries
would be treated as being distributed to
the foreign acquired corporation through
all tiers of intermediate owners, rather
than directly to the foreign acquired cor-
poration. See proposed §1.367(b)-3(g)
(1).
The Treasury Department and the IRS
are aware that limiting the amount of the
deemed distribution by the amount of
lower-tier earnings would preclude the
deemed distribution from giving rise to
a return of basis under section 301(c)(2)
or gain recognition under section 301(c)
(3) and in that respect would differ from
the deemed distribution described in the
Final Regulations. See §1.367(b)-10(b).
The approach taken in the proposed reg
-
ulations reflects administrability concerns
that could arise from adopting a more
complete distribution model which could
require, for example, rules to allocate the
appropriate amount of basis recovery and
section 301(c)(3) gain among tiers of for-
eign subsidiaries. That additional com-
plexity may not be justified when balanced
against the limited application of the EAB
rules, which apply only where a taxpayer
has previously engaged in a transaction
described in proposed §1.367(b)-3(g)(1).
The Treasury Department and the IRS
continue to study transactions that could
give rise to EAB, including whether EAB
principles should be applied to other types
of inbound nonrecognition transactions.
F. Definition of foreign subsidiary
Notice 2016-73 used, but did not
define, the term “foreign subsidiary”
when referring to entities held by the for-
eign acquired corporation for purposes of
computing specified earnings and making
adjustments to EAB. The proposed reg-
ulations similarly use the term “foreign
subsidiary” for purposes of the EAB rules
and would define the term based, in part,
on the ownership rules in section 1248(c)
(2)(B). See proposed §1.367(b)-3(g)(2)
(ii).
G. EAB anti-abuse rule and prohibition
against affirmative use
Notice 2016-73 announced that an
anti-abuse rule would address transactions
engaged in with a view to avoid the pur-
poses of the EAB rules. As described in
Notice 2016-73, the anti-abuse rule would
provide for adjustments, including dis-
regarding the effects of transactions, to
carry out the purposes of the EAB rules.
As one example, the anti-abuse rule stated
that a transaction engaged in with a view
to reduce EAB would be disregarded for
purposes of computing EAB.
The comment requested that the
Treasury Department and the IRS clarify
the scope of the anti-abuse rule and pur-
pose of the EAB rules. While the com-
ment acknowledged that §1.367(b)-3 is
intended to ensure that a domestic acquir-
ing corporation does not succeed to the
asset basis of the foreign acquired corpo-
ration unless the earnings and profits asso-
ciated with such basis have been subject to
U.S. tax, the comment asserted that it was
unclear if certain transactions that would
reduce EAB would violate this purpose.
The comment provided several examples
of such transactions, including a section
332 liquidation of a foreign subsidiary
into the foreign acquired corporation. The
comment explained that, if the liquidated
subsidiary has high outside basis in its
stock but low inside basis in its assets,
then the liquidation would reduce the for-
eign acquired corporation’s EAB because
the subsidiary’s high outside stock basis

October 30, 2023 1200 Bulletin No. 2023–44
would be eliminated and replaced with its
low inside asset basis.
The Treasury Department and the IRS
are of the view that the more limited scope
of the EAB rules set forth in the proposed
regulations would largely mitigate the
concern reflected in the comment, because
under the proposed regulations, the EAB
rules would apply only where a taxpayer
has created EAB in an earlier tax-moti-
vated transaction, thereby significantly
narrowing the context in which the anti-
abuse rule may apply. With respect to the
limited cases that would be subject to the
EAB rules, the Treasury Department and
the IRS continue to see a need to prevent
transactions engaged in with a view to
reducing EAB, which could lead to results
inconsistent with the purposes articulated
in Notice 2016-73 and in Part II.A of the
Explanation of Provisions section of this
preamble; that is, ensuring the appropriate
carryover of tax attributes from the for-
eign acquired corporation to the domestic
acquiring corporation.
The Treasury Department and the IRS
are also aware of transactions that may
attempt to affirmatively apply the EAB
rules to avoid Federal income tax. The
proposed regulations accordingly would
provide that a taxpayer may not apply the
EAB rules to a transaction if the taxpayer
created EAB with a principal purpose of
avoiding any tax imposed under the Code.
See proposed §1.367(b)-3(g)(5).
H. Notice reporting
Section 1.367(b)-1(c) requires that
certain participants to a “section 367(b)
exchange” (as defined in §1.367(b)-1(a))
disclose information concerning such
exchange on a statement attached to a
timely filed Federal tax return or Form 5471
(Information Return of U.S. Persons With
Respect to Certain Foreign Corporations),
as applicable, in the taxable year in which
income is realized in the exchange (such
statement, the section 367(b) notice). To
enhance compliance and administration
with respect to the EAB rules, the proposed
regulations would require that the section
367(b) notice include certain information
related to EAB, including how it arose
and how the amount was determined.
See proposed §1.367(b)-1(c)(4)(ix). The
proposed regulations also would extend
the section 367(b) notice requirement to
participants in transactions that implicate
§1.367(b)-10, as discussed in Part III.E of
the Explanation of Provisions section of
this preamble.
I. Exchange gain or loss with respect to
PTEP
In general, §1.367(b)-2(j)(2)(ii) pro-
vides that, if an exchanging shareholder
that is a foreign corporation includes in
income a deemed dividend of either the
all earnings and profits amount under
§1.367(b)-3 or the section 1248 amount
under §1.367(b)-4, the exchanging share-
holder is treated as receiving a deemed
distribution of PTEP from the appropri-
ate foreign corporation (deemed PTEP
distribution). However, if the exchanging
shareholder that has an income inclusion
is a United States person, the exchang-
ing shareholder is treated as receiving
the deemed PTEP distribution solely
for the purpose of computing exchange
gain or loss under section 986(c). See
§1.367(b)-2(j)(2)(i). Because the deemed
PTEP distribution is created where there is
an income inclusion, however, a taxpayer
might assert that no exchange gain or loss
is recognized under §1.367(b)-2(j)(2)(i)
where the all earnings and profits amount
or section 1248 amount is zero, even
though the exchange gain or loss would
have been recognized had all the earnings
and profits or the section 1248 amount
been a positive number. The proposed
regulations therefore would clarify that
there is a deemed PTEP distribution under
§1.367(b)-2(j)(2)(i) regardless of whether
the all earnings and profits amount or
the section 1248 amount is greater than
zero. A similar change would be made to
§1.367(b)-2(j)(2)(ii).
The Treasury Department and the IRS
are studying more broadly the treatment
of section 986(c) amounts and PTEP in
transactions subject to section 367(b) and
request comments on the application of
§1.367(b)-2(j)(2) more generally.
J. Calculation of net investment income
under section 1411
The Treasury Department and the
IRS are also concerned that in certain
exchanges subject to section 367(b),
earnings and profits that are characterized
as PTEP might not be taken into account
for purposes of calculating net investment
income (NII) under section 1411. In cases
where an exchanging shareholder does not
make the election described in §1.1411-
10(g), a distribution that would otherwise
constitute a distribution of PTEP under
section 959(a)—and thus would not be
treated as a dividend for purposes of chap-
ter 1 of the Code under section 959(d)—
generally is treated as a dividend for
purposes of calculating NII. See §1.1411-
10(c)(1)(i)(A)(1). This rule seeks to pre-
serve the NII tax base, as amounts that are
characterized as PTEP will not also have
been previously taxed under section 1411
(absent the election in §1.1411-10(g)) and
so should be included in NII.
The NII tax base may not be fully pre-
served, however, in certain exchanges
subject to section 367(b). For example,
an inbound asset reorganization subject
to §1.367(b)-3 will eliminate earnings
and profits that are characterized as PTEP
without creating a deemed distribution of
those earnings, because PTEP is excluded
from the all earnings and profits amount.
See §1.367(b)-2(d)(2)(ii). An exchanging
shareholder would thus never recognize
a dividend of those earnings for purposes
of calculating NII; further, gain that the
exchanging shareholder may recognize on
a subsequent sale of stock of the domes-
tic acquiring corporation may be netted
against certain losses (as NII includes net
gains, but gross income from dividends).
Certain foreign-to-foreign transactions
described in §1.367(b)-4, or section 355
distributions described in §1.367(b)-5,
could similarly fail to preserve the NII
tax base because PTEP is also excluded
from the section 1248 amount. See
§1.367(b)-2(c)(1). For example, while an
exchanging shareholder’s annual PTEP
accounts would not be eliminated as a
result of a foreign-to-foreign transac-
tion that results in a loss of section 1248
shareholder or CFC status, an exchanging
shareholder could nevertheless distort the
character of its NII by selling its stock
in the foreign acquiror before its PTEP
is distributed. The proposed regulations
therefore would modify §1.1411-10(c)
(3) such that (with respect to stock of a
foreign corporation for which an election
under §1.1411-10(g) is not in effect) the

Bulletin No. 2023–44 1201 October 30, 2023
all earnings and profits amount and the
section 1248 amount include PTEP for
purposes of section 1411, consistent with
how section 1248 is applied in this con-
text. See proposed §1.1411-10(c)(3)(ii).
The proposed regulations also would pro-
vide for conforming basis adjustments for
purposes of section 1411. See proposed
§1.1411-10(d)(5).
2
III. Rules Applicable to Triangular
Reorganizations
A. Priority rules
As discussed in Notice 2016-73 and
summarized in Part I.F of the Explanation
of Provisions section of this preamble,
the Treasury Department and the IRS are
aware of transactions that are designed to
repatriate basis without a corresponding
repatriation of the earnings and profits
associated with that basis. As part of these
transactions, the taxpayer exploits the sec-
tion 367(a) priority rule by filing a gain
recognition agreement with respect to all,
or all but a de minimis amount, of the for-
eign target corporation stock exchanged in
the applicable triangular reorganization.
The taxpayer accordingly recognizes no,
or a de minimis amount of, section 367(a)
income with respect to the target stock.
Because the taxpayer also takes the posi-
tion that a deemed distribution would not
result in any section 367(b) income, the
taxpayer applies the section 367(a) prior-
ity rule to prevent the application of the
Final Regulations. The taxpayer also takes
the position that the anti-abuse rule would
not apply to cause this transaction to be
subject to §1.367(b)-10 and therefore does
not make adjustments that have the effect
of a distribution of property from S to P,
with the result that S would have trans-
ferred property to P without a correspond-
ing transfer of the earnings and profits
associated with that property.
Notice 2016-73 announced that future
regulations would modify the section
367(a) priority rule such that it would not
apply to an applicable triangular reorga-
nization involving a foreign target cor-
poration. Any such applicable triangular
reorganization would thus be subject to
the Final Regulations with the result that
adjustments would be made that have the
effect of a distribution of property from S
to P under section 301. A similar modifi-
cation was announced with respect to the
section 367(b) priority rule.
The comment supported the proposed
modification to the section 367(a) priority
rule. As an alternative, the comment sug-
gested that the existing formulation of the
section 367(a) priority rule (that is, with-
out taking into account the modifications
described in Notice 2014-32 that would
limit the “amount” of section 367(a)
income to the amount giving rise to U.S.
tax) be retained in cases where the target
is a foreign corporation. Under that for-
mulation , the “amount” of section 367(a)
income is compared to the “amount”
of section 367(b) income, regardless of
whether such amounts are subject to U.S.
tax. The comment asserted that this for-
mulation would cause a greater amount
of section 367(b) income to be taken into
account, thereby making it more diffi-
cult for taxpayers to exploit the section
367(a) priority rule to avoid the Final
Regulations.
The Treasury Department and the
IRS expect that the modification to the
section 367(a) priority rule described in
Notice 2016-73 would best address such
exploitation by ensuring that adjustments
that have the effect of a deemed distri-
bution of property from S to P are made
whenever the target is a foreign corpora-
tion. This result would reinforce one of
the purposes of the Final Regulations by
ensuring that property transfers that are in
substance distributions are treated as such,
thereby preventing the separation of prop-
erty from the earnings and profits associ-
ated with that property. The comment’s
alternative approach could also, as the
comment acknowledged, invite the avoid-
ance of section 301(c)(2) basis reduction
in situations where a small amount of
section 367(a) income is compared to a
large amount of section 301(c)(2) basis
reduction. Because a return of basis is not
considered section 367(b) income, a small
amount of section 367(a) income could
be sufficient to trigger the section 367(a)
priority rule. Accordingly, the proposed
regulations would adopt the modifications
to the section 367(a) and section 367(b)
priority rules described in Notice 2016-
73. See proposed §§1.367(a)-3(a)(2)(iv)
and 1.367(b)-10(a)(2)(iii).
As discussed in Part I.E of the
Explanation of Provisions section of this
preamble, Notice 2014-32 announced that
the section 367(a) and section 367(b) pri-
ority rules would be modified to take into
account only the portion of a distribution
that would be actually subject to U.S.
tax, including the extent to which a dis-
tribution would give rise to an inclusion
under section 951(a) that would be sub-
ject to U.S. tax. In light of the TCJA, the
proposed regulations also would modify
the priority rules to take into account the
extent to which a distribution would give
rise to an inclusion under section 951A(a)
that would be subject to U.S. tax (even
though it is unlikely that a distribution
from S to P would give rise to a section
951A(a) inclusion).
B. §1.367(b)-4 and Notice 2016-73
1. Overview
Notice 2016-73 announced that regula-
tions to be issued under §1.367(b)-4 would
apply to the exchange of a foreign target
corporation’s stock that occurs in connec-
tion with an applicable triangular reorga-
nization. As described in Notice 2016-73,
the regulations under §1.367(b)-4 would
require all shareholders of the target
corporation to both include in income
as a deemed dividend the section 1248
amount with respect to the target stock
exchanged and, after taking into account
the increase in basis resulting from such
deemed dividend, recognize all realized
gain with respect to such stock that would
not otherwise be recognized. This treat-
ment would be required only to the extent
that the target shareholders exchanged
target stock for P stock or securities that
S previously acquired for property in the
P acquisition (tainted P stock or securi-
ties); section 367(a) would continue to
apply to the exchange of target stock to
the extent the target shareholders did not
receive such tainted P stock or securities.
2
The Treasury Department and the IRS recognize that certain rules in §1.1411-10 involving domestic partnerships and certain S corporations have not been updated to reflect changes made
to the application of §1.958-1 pursuant to TD 9866, 84 FR 29288, and TD 9960, 87 FR 3648, and intend to update them in a future guidance project.

October 30, 2023 1202 Bulletin No. 2023–44
The proposed regulations would adopt the
rules as described in Notice 2016-73 with-
out significant modification. See proposed
§1.367(b)-4(g).
2. Authority under section 367
The comment questioned whether sec-
tion 367(b) could be applied to an applica-
ble triangular reorganization in a manner
that both requires adjustments that have
the effect of a distribution of property from
S to P and requires the shareholders of a
foreign target corporation to recognize the
full amount of gain with respect to the tar-
get corporation stock that is exchanged for
tainted P stock or securities. The comment
asserted that this application of section
367(b) effectively achieves the same result
as if the applicable triangular reorganiza-
tion were concurrently subject to taxation
under both section 367(b) (with respect
to the P acquisition) and section 367(a)
(with respect to the target shareholders’
exchange of target stock). According to
the comment, section 367 may not apply
to cause such concurrent taxation because
the statutory language in section 367(b)
(1) provides that section 367(b) may
apply only where there is no transfer of
property described in section 367(a). The
comment cited to §1.367(a)-3(b)(2), under
which transactions that could be subject to
tax under both section 367(a) and (b) are
subject to taxation under only one of those
sections. The comment also noted that
the section 367(a) and (b) priority rules,
as currently effective, likewise operate in
a manner that results in only one or the
other of section 367(a) or (b) applying to
an applicable triangular reorganization.
The Treasury Department and the IRS
are of the view that the proposed appli-
cation of §1.367(b)-4 is appropriate and
within section 367’s statutory grant of
authority. Under section 367(a)(5), the
Secretary has broad authority to exempt
certain transactions from the application of
section 367(a)(1) in order to carry out the
purposes of section 367(a). Deliberately
failing to file a gain recognition (or filing
a partial gain recognition agreement) to
exploit the section 367(a) priority rule is
inconsistent with the purposes of section
367(a), and section 367(b) is better suited
to address these transactions. Accordingly,
it is appropriate to exercise the authority
in section 367(a)(5) to make the section
367(a) priority rule inapplicable to certain
exchanges of target stock. Section 367(b)
may therefore apply to the target share-
holders’ exchange of target stock because
the exchange, by virtue of section 367(a)
(5), is not described in section 367(a)(1).
See section 367(b)(1). Furthermore, sec-
tion 367(b)(1) is clear that the Secretary
may issue any regulations “which are nec-
essary or appropriate to prevent the avoid-
ance of Federal income taxes.” Section
367(b)(2) provides that such regulations
“shall include . . . the circumstances under
which gain shall be recognized currently,
or amounts included in gross income cur-
rently as a dividend, or both . . . .” Nothing
within this broad grant of rulemaking
authority prevents section 367(b) from
concurrently applying to both the P acqui-
sition and the exchange of target stock
such that both of these components of an
applicable triangular reorganization give
rise to income or gain.
3. Section 367(b) policy
The comment further asserted that
requiring adjustments that have the effect
of a distribution of property from S to P
where the target is a foreign corporation
sufficiently addresses the concerns raised
in Notice 2016-73 and thus questioned
the rationale in also subjecting the target
shareholders to current taxation under
§1.367(b)-4. According to the comment,
the target shareholders remain subject to
U.S. taxing jurisdiction through their car-
ryover basis in the stock of P and contin-
ued indirect equity interest in the target.
The comment claimed that historic section
367(b) policy has recognized the permissi-
bility of deferral where U.S. taxing rights
remain intact, and in particular where sec-
tion 1248 amounts are preserved.
The Treasury Department and the IRS
maintain that it is appropriate for the
proposed regulations to require all target
shareholders to recognize the full amount
of their gain with respect to the stock of
target exchanged for tainted stock or secu-
rities of P. As noted above, section 367(b)
provides the Secretary with a broad grant
of authority to issue regulations applica-
ble to nonrecognition transactions that are
subject to section 367(b), and the exercise
of this broad rulemaking authority is not
conditioned on addressing a particular
or historic policy concern. The Treasury
Department and the IRS further note that
applicable triangular reorganizations have
long been identified as tax-motivated
transactions, not only with respect to S’s
acquisition of the stock of P but also with
respect to the exchange of stock of T. See
Notice 2006-85; Notice 2014-32 (address-
ing situations where taxpayers attempted
to manipulate the section 367(b) prior-
ity rule to effectuate an inversion with-
out the T shareholders being subject to
§1.367(a)-3(c)). Moreover, a more limited
application of the rules under section 367
has led to repeated attempts by taxpayers
to structure around the rules. Requiring all
target shareholders to recognize the full
amount of their gain in the stock of the
target corporation in connection with such
transactions limits opportunities to selec-
tively trigger this gain.
C. Deemed contribution rule
Initially proposed in Notice 2007-48
(2007-25 IRB 1428), the deemed con-
tribution rule in §1.367(b)-10(b)(2) was
intended to address the scenario where
S purchases P stock or securities from a
person other than P (for example, from
the public on the open market) instead
of directly from P itself. In such cases,
the adjustments required by the deemed
distribution effectively adopt a “consent
dividend” model, which would treat P as
receiving a distribution of property from S
even though P did not actually receive the
property transferred in the P acquisition.
The deemed contribution rule, under this
model, accounts for P’s lack of property
by requiring adjustments that have the
effect of a contribution of property (with
no built-in gain or loss) by P to S in an
amount equal to the amount of the deemed
distribution. In particular, these adjust-
ments require that P increase its basis in its
S stock by the amount of the deemed con-
tribution. Under the Final Regulations, the
deemed contribution rule applies regard-
less of whether S acquires P stock or secu-
rities from P or from a person other than P.
As discussed in Notice 2014-32, the
Treasury Department and the IRS are
aware of transactions designed to avoid
U.S. tax by exploiting the deemed con-
tribution rule. In one such transaction,

Bulletin No. 2023–44 1203 October 30, 2023
for example, S has no earnings and prof-
its but a high outside stock basis. The
taxpayer effects an applicable triangu-
lar reorganization where the amount of
property transferred to P in the P acqui-
sition is less than the amount of the
outside stock basis in S. The taxpayer
applies the Final Regulations to make
the adjustments required by the deemed
distribution, which results solely in
a return of the outside stock basis in S
under section 301(c)(2). The adjustments
required by the deemed contribution rule,
however, immediately restore that basis.
The applicable triangular reorganization
thus does not result in a net reduction to
the outside stock basis in S, effectively
negating the intended consequences of
the deemed distribution. Further, the tax-
payer could attempt to repeatedly effect
applicable triangular reorganizations to
transfer property from S to P with no net
reduction to the outside stock basis in S
despite each transaction being treated as a
deemed distribution. As a result, and con-
sistent with the regulations announced in
Notice 2014-32, the proposed regulations
remove the deemed contribution rule.
D. Anti-abuse rule
The Final Regulations contain an
anti-abuse rule under which appropriate
adjustments are made if, in connection
with a triangular reorganization, a trans-
action is engaged in with a view to avoid
the purpose of the Final Regulations.
See §1.367(b)-10(d). The anti-abuse rule
contains an example illustrating that the
earnings and profits of S may, under cer-
tain circumstances, be deemed to include
the earnings and profits of a corporation
related to P or S for purposes of determin-
ing the consequences of the adjustments
provided for in the Final Regulations.
As illustrated in Notice 2014-32 and
Notice 2016-73, taxpayers have taken
the position that the anti-abuse rule does
not apply to a given transaction under
the theory that the one example provided
by the anti-abuse rule does not explicitly
describe the transaction. Notice 2014-32
accordingly announced that future regula-
tions would clarify that the anti-abuse rule
may apply broadly to support a variety of
adjustments, including adjusting earnings
and profits between previously unrelated
corporations. The proposed regulations
would implement the clarifications to
the anti-abuse rule described in Notice
2014-32.
To illustrate the broad application of
the anti-abuse rule, the proposed regula-
tions would include additional examples.
First, the proposed regulations would add
an example illustrating that the anti-abuse
rule may apply to a “downstream” trans-
fer of property made in connection with
a triangular reorganization. Because a
downstream transfer (whereby property
being separated from earnings and prof-
its is initially transferred downstream,
rather than upstream from S to P) can be
structured so as not to fall within the lit-
eral application of the Final Regulations,
which equate the P acquisition with a
section 301 distribution, taxpayers oth-
erwise might assert that a downstream
transfer of property made in connection
with a triangular reorganization cannot
be subject to the Final Regulations. See
proposed §1.367(b)-10(d)(3) (Example 2).
The proposed regulations also would add
an example illustrating that certain debt
exchanges may implicate the anti-abuse
rule. See proposed §1.367(b)-10(d)(4)
(Example 3).
For the avoidance of doubt, the applica-
tion of the anti-abuse rule is not limited to
the particular fact patterns described in the
examples. In addition, the proposed reg-
ulations would not modify the operative
text of the anti-abuse rule, which remains
unchanged from the Final Regulations,
such that the examples included in the
proposed regulations would illustrate
transactions subject to the anti-abuse rule.
E. Other rules
Notice 2014-32 described transactions
designed to avoid the application of the
no-U.S.-tax exception in §1.367(b)-10(a)
(2)(ii) and also expressed a concern that
taxpayers may attempt to interpret that
exception in a narrower manner than was
intended or is appropriate. Notice 2014-
32 accordingly announced that future
regulations would modify the no-U.S.-
tax exception, in part to clarify its scope.
The proposed regulations would adopt the
modifications to the no-U.S.-tax excep-
tion described in Notice 2014-32. See pro-
posed §1.367(b)-10(a)(2)(ii).
As noted above in Part I.F of the
Explanation of Provisions section of this
preamble, Notice 2016-73 announced
that the definition of “property” in
§1.367(b)-10(a)(3)(ii) would be modified
to include nonqualified preferred stock of
S. The proposed regulations would adopt
this rule without modification. See pro-
posed §1.367(b)-10(a)(3)(ii)(C).
Section 1.367(b)-10(b)(3) provides
that the deemed distribution is generally
treated as occurring immediately before
the P acquisition, and Notice 2016-73
requested comments on whether this rule
should be modified in light of the modi-
fications announced in the notice. The
comment suggested that the current rule
be retained because no reason has been
identified to warrant its modification.
The Treasury Department and the IRS
agree with the comment and therefore no
changes would be made with respect to
this rule.
The proposed regulations also would
modify the reporting requirements under
§1.367(b)-1(c) to require corporations that
acquire stock or securities of P in a trans-
action described in the Final Regulations
to disclose such acquisitions by attach-
ing a section 367(b) notice (within the
meaning of §1.367(b)-1(c)) to the cor-
poration’s tax return (or Form 5471, as
applicable) for the year in which the
stock or securities of P are acquired. See
proposed §1.367(b)-1(c)(2)(vi). Under
the proposed regulations, corporations
would be required to describe the cir-
cumstances of the acquisition of stock or
securities of P, any related transactions
involving the acquired stock or securities,
and whether any adjustments were made
pursuant to §1.367(b)-10. See proposed
§1.367(b)-1(c)(4)(viii). The information
required to be disclosed would supple-
ment (rather than replace) any information
already required to be disclosed in the sec-
tion 367(b) notice.
IV. Applicability Dates
With respect to those rules described
in Notice 2014-32, the proposed regu-
lations generally would be applicable to
transactions completed on or after April
25, 2014, subject to limited exceptions.
See proposed §§1.367(a)-3(g)(1)(viii) and
1.367(b)-10(e)(2).

October 30, 2023 1204 Bulletin No. 2023–44
With respect to those rules described in
Notice 2016-73, the proposed regulations
generally would be applicable to transac-
tions completed on or after December 2,
2016. See proposed §§1.367(a)-3(g)(1)
(viii), 1.367(b)-3(g)(7)(i), 1.367(b)-4(i),
and 1.367(b)-10(e)(3). To the extent the
proposed regulations contain rules not
previously announced in Notice 2016-73,
the proposed regulations would be appli-
cable to transactions completed on or after
the date the proposed regulations are filed
in the Federal Register. See proposed
§§1.367(b)-3(g)(7)(i), 1.367(b)-6(a)(1)
(v) and (vi), and 1.1411-10(i); see also
proposed §1.367(b)-3(g)(7)(ii) for tran-
sition rules for certain transactions com-
pleted before the issuance of the proposed
regulations.
Taxpayers and their related parties
(within the meaning of sections 267(b)
and 707(b)(1)) may choose to apply
the rules of Notice 2014-32 and Notice
2016-73 or the proposed regulations to
any open taxable year beginning before
the date the proposed regulations are
filed as final regulations in the Federal
Register, provided that taxpayers and
their related parties consistently apply
either the entirety of Notice 2014-32 and
Notice 2016-73 or the entirety of the pro-
posed regulations for such years and each
subsequent taxable year beginning before
the date the proposed regulations are
filed as final regulations in the Federal
Register.
The comment requested that the
Treasury Department and IRS reconsider
the December 2, 2016, applicability date
given that Notice 2016-73 proposed to
apply the EAB rules to all inbound non-
recognition transactions, regardless of
whether the taxpayer had previously
effected an applicable triangular reorgani-
zation. The comment did, however, recog-
nize the immediate need for the EAB rules
to apply to already-completed applicable
triangular reorganizations where the tax-
payer did not apply the Final Regulations.
Because the proposed regulations would
apply the EAB rules only to those inbound
nonrecognition transactions that follow
certain triangular reorganizations and
other transactions designed to create EAB,
the Treasury Department and IRS main-
tain that the December 2, 2016, effective
date is appropriate.
No inference is intended regarding the
treatment of applicable triangular reorga-
nizations, transactions undertaken with
a principal purpose of creating EAB,
or subsequent inbound nonrecognition
transactions completed before the appli-
cability date of the proposed regulations.
Such transactions may be subject to chal-
lenge before the applicability dates, for
example, under the anti-abuse rule in
§1.367(b)-10(d), applicable Code provi-
sions, or judicial doctrines.
Effect on Other Documents
The proposed regulations would, as
of the date they are filed as final reg-
ulations with the Federal Register,
obsolete Notice 2014-32 and Notice
2016-73. Until such time, taxpayers may
continue to rely on Notice 2014-32 and
Notice 2016-73 as noted in Part IV of the
Explanation of Provisions section of this
preamble.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
Pursuant to the Memorandum
of Agreement, Review of Treasury
Regulations under Executive Order 12866
(June 9, 2023), tax regulatory actions
issued by the IRS are not subject to the
requirements of section 6 of Executive
Order 12866, as amended. Therefore,
a regulatory impact assessment is not
required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) requires
that a Federal agency obtain the approval
of the OMB before collecting information
from the public, whether such collection
of information is mandatory, voluntary, or
required to obtain or retain a benefit.
The collections of information in the
proposed regulations are in proposed
§1.367(b)-1(c)(4)(viii) and (ix) and
apply to taxpayers that engage in trans-
actions described in §1.367(b)-3(g) or
§1.367(b)-10. This information is nec-
essary for the IRS’s audit and exam-
ination purposes, and in particular to
identify transactions that should be
subject to the proposed regulations.
The proposed information collection is
a statement by corporations attached to
their timely filed Federal tax returns (or
Form 5471, as applicable) that describes
certain transactions and computations
relevant to the proposed regulations.
Because such statements have not been
required for transactions that predate
the proposed regulations, the Treasury
Department and the IRS are limited in
their ability to estimate how many tax-
payers are likely to be affected by the
proposed information collection. Based
on available data and the profile of tax-
payers that have historically undertaken
the types of transactions at issue (large,
publicly traded corporations), it is esti-
mated that no more than 50 taxpay-
ers would be affected by the proposed
information collection in a given year.
The likely respondents are foreign and
domestic corporations.
Because the collections of information
in proposed §1.367(b)-1(c)(4)(viii) and
(ix) are proposed to apply to taxable years
ending on or after the date the proposed
regulations are filed with the Federal
Register, the Treasury Department and
the IRS have submitted the collection of
information in proposed §1.367(b)-1(c)
(4)(viii) and (ix) to the OMB for review
in accordance with the PRA and requested
a temporary OMB control number (1545-
NEW). After the rulemaking is finalized,
burdens associated with the proposed
information collection will be incorpo-
rated into OMB control number 1545-
0123. OMB control number 1545-0123
represents a total estimated burden time
for all forms and schedules and regula-
tions for corporations. REG-117614-14
will be included in the future; however,
the burden estimates in 1545-0123 will
not isolate the estimated burden for the
information collection contained in these
proposed, and subsequent final, regula-
tions. The Treasury Department and the
IRS estimate burdens based on a taxpay-
er-type basis rather than a provision-spe-
cific basis.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.

Bulletin No. 2023–44 1205 October 30, 2023
Commenters are strongly encouraged
to submit public comments electronically.
Comments and recommendations for the
proposed information collection should
be sent to www.reginfo.gov/public/do/
PRAMain, with electronic copies to the
IRS at pra.comments@irs.gov (indicate
“REG-117614-14” on the subject line).
This particular information collection can
be found by selecting “Currently under
Review - Open for Public Comments”
then by using the search function.
Comments can also be mailed to OMB,
Attn: Desk Officer for the Department
of the Treasury, Office of Information
and Regulatory Affairs, Washington, DC
20503, with copies mailed to the IRS,
Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington,
DC 20224. Comments on the collection
of information should be received by
December 5, 2023.
III. Regulatory Flexibility Act
When an agency issues a rulemaking
proposal, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) (RFA) requires the
agency “to prepare and make available
for public comment an initial regulatory
flexibility analysis” that will “describe the
impact of the proposed rule on small enti-
ties.” See 5 U.S.C. 603(a). Section 605
of the RFA provides an exception to this
requirement if the agency certifies that the
proposed rulemaking will not have a sig-
nificant economic impact on a substantial
number of small entities. A small entity is
defined as a small business, small nonprofit
organization, or small governmental juris-
diction. See 5 U.S.C. 601(3) through (6).
The Treasury Department and the IRS do
not have data readily available to assess the
number of small entities potentially affected
by the proposed regulations. However, the
taxpayers affected by the proposed regula-
tions would generally be domestic and for-
eign corporations that participate in certain
triangular reorganizations. The triangular
reorganizations at issue represent a narrow
set of abusive transactions that have typi-
cally been engaged in by large, publicly
traded corporations. Such transactions are
highly sophisticated and are thus unlikely to
involve small domestic entities. Therefore,
the Treasury Department and the IRS cer-
tify that the proposed regulations would
not have a significant economic impact on
a substantial number of small entities. The
Treasury Department and the IRS invite the
public to comment on the impact of these
regulations on small entities.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Internal Revenue Code, this regulation
has been submitted to the Chief Counsel
for Advocacy of the Small Business
Administration for comment on its impact
on small business.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in
any one year by a State, local, or Tribal
government, in the aggregate, or by the
private sector, of $100 million in 1995
dollars, updated annually for inflation.
This proposed rule does not include any
Federal mandate that may result in expen-
ditures by State, local, or Tribal govern-
ments, or by the private sector in excess of
that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
State and local governments, and is not
required by statute, or preempts State
law, unless the agency meets the con-
sultation and funding requirements of
section 6 of the Executive order. This
proposed rule does not have federalism
implications, does not impose substantial
direct compliance costs on State and local
governments, and does not preempt State
law within the meaning of the Executive
order.
Comments and Requests for Public
Hearing
Before the proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the ADDRESSES
section. The Treasury Department and
the IRS request comments on all aspects
of the proposed rules. The Treasury
Department and the IRS also invite com-
ments on section 367(b) more generally,
including whether, and if so, how, any of
the existing regulations issued under sec-
tion 367(b) should be modified in light
of the Tax Cuts and Jobs Act. Any elec-
tronic or paper comments submitted will
be made available at www.regulations.gov
or upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing are
encouraged to be made electronically. If a
public hearing is scheduled, notice of the
date and time for the public hearing will
be published in the Federal Register.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, Notices, and other guidance
cited in this document are published
in the Internal Revenue Bulletin or
Cumulative Bulletin and are available
from the Superintendent of Documents,
U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the
IRS website at http://www.irs.gov.
Drafting Information
The principal author of the proposed
regulations is Brady Plastaras of the
Office of the Associate Chief Counsel
(International). However, other person-
nel from the Treasury Department and the
IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:

October 30, 2023 1206 Bulletin No. 2023–44
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry for
§1.1411-10 in numerical order to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.1411-10 also issued under 26
U.S.C. 367(b).
* * * * *
Par. 2. Section 1.367(a)-3 is amended
by revising paragraphs (a)(2)(iv) and (g)
(1)(viii) to read as follows:
§1.367(a)-3 Treatment of transfers
of stock or securities to foreign
corporations.
(a) * * *
(2) * * *
(iv) Certain triangular reorganiza-
tions described in §1.367(b)-10. If, in an
exchange under section 354 or 356, one or
more U.S. persons exchange stock or secu-
rities of T (as defined in §1.367(b)-10(a)
(3)(i)) in connection with a transaction
described in §1.367(b)-10 (applying to
certain acquisitions of parent stock or
securities for property in triangular reor-
ganizations), section 367(a)(1) does not
apply to such U.S. persons with respect to
the exchange of the stock or securities of
T if the condition in paragraph (a)(2)(iv)
(A) or (B) of this section is satisfied. See
§1.367(b)-10(a)(2)(iii) (providing a simi-
lar rule that excludes certain transactions
from the application of §1.367(b)-10).
(A) The amount of gain in the T stock
or securities that would otherwise be rec-
ognized under section 367(a)(1) (without
regard to any exceptions thereto) pursuant
to the indirect stock transfer rules of para-
graph (d) of this section is less than the sum
of the amount of the deemed distribution
under §1.367(b)-10 that would be treated
and subject to U.S. tax as a dividend under
section 301(c)(1) (or would give rise to an
inclusion under section 951(a)(1)(A) or
951A(a) that would be subject to U.S. tax)
and the amount of such deemed distribu-
tion that would be treated and subject to
U.S. tax as gain from the sale or exchange
of property under section 301(c)(3) (or
would give rise to an inclusion under sec-
tion 951(a)(1)(A) or 951A(a) that would
be subject to U.S. tax) if §1.367(b)-10
would otherwise apply to the triangular
reorganization.
(B) T is a foreign corporation, but only
to the extent that the stock or securities
of T are exchanged for stock or securities
of P that were acquired by S in exchange
for property in the P acquisition (as the
terms P, S, property, and P acquisition
are defined in §1.367(b)-10(a)). Such
exchange of T stock or securities is sub-
ject to the rules under §1.367(b)-4(g).
Section 367(a) applies to the exchange
of T stock or securities to the extent that
such stock or securities are exchanged
for P stock or securities that were not
acquired by S in exchange for property in
the P acquisition.
* * * * *
(g) * * *
(1) * * *
(viii) Except as provided in this
paragraph (g)(1)(viii), paragraph (a)(2)
(iv) of this section applies to exchanges
occurring on or after May 17, 2011. For
exchanges that occur prior to May 17,
2011, see §1.367(a)-3T(b)(2)(i)(C) as
contained in 26 CFR part 1 revised as of
April 1, 2011. Paragraph (a)(2)(iv)(A)
of this section, to the extent it relates to
amounts that would be subject to U.S.
tax or give rise to an inclusion under sec-
tion 951(a)(1)(A) that would be subject
to U.S. tax, applies to triangular reorga-
nizations that are completed on or after
April 25, 2014, unless T was not related
to P or S (within the meaning of section
267(b)) immediately before the triangu-
lar reorganization; the triangular reorga-
nization was entered into either pursuant
to a written agreement that was (sub-
ject to customary conditions) binding
before April 25, 2014, and at all times
afterwards, or pursuant to a tender offer
announced before April 25, 2014, that is
subject to section 14(d) of the Securities
and Exchange Act of 1934 (15 U.S.C.
78n(d)(1)) and Regulation 14(D) (17
CFR 240.14d-1 through 240.14d-101)
or that is subject to comparable foreign
laws; and to the extent the P acquisition
that occurs pursuant to the plan of reor-
ganization is not completed before April
25, 2014, the P acquisition was included
as part of the plan before April 25, 2014.
Paragraph (a)(2)(iv)(B) of this section
applies to transactions completed on or
after December 2, 2016. Paragraph (a)
(2)(iv)(A) of this section, to the extent it
relates to amounts that would give rise to
an inclusion under section 951A(a) that
would be subject to U.S. tax, applies to
triangular reorganizations that are com-
pleted on or after October 5, 2023.
* * * * *
Par. 3. Section 1.367(b)-1 is amended
by:
1. Removing the language “and” at the
end of paragraph (c)(2)(iv)(B);
2. Removing the period at the end of
paragraph (c)(2)(v) and adding the lan-
guage “; and” in its place;
3. Adding paragraph (c)(2)(vi);
4. In paragraph (c)(3)(ii)(A), removing
the language “paragraph (c)(2)(i) or (v)”
and adding in its place the language “para-
graph (c)(2)(i), (v), or (vi)”;
5. Revising paragraph (c)(4)(v);
6. Removing the language “and” at the
end of paragraph (c)(4)(vi);
7. Removing the period at the end of
paragraph (c)(4)(vii)(B) and adding a
semicolon in its place; and
8. Adding paragraphs (c)(4)(viii) and
(ix).
The additions and revision read as
follows:
§1.367(b)-1 Other transfers.
* * * * *
(c) * * *
(2) * * *
(vi) A domestic or foreign corporation
(S) that acquires stock or securities of
another corporation (P) in a transaction
described in §1.367(b)-10(a)(1), without
regard to the exceptions in §1.367(b)-10(a)
(2).
* * * * *
(4) * * *
(v) Any information that is or would
be required to be furnished with a Federal
income tax return pursuant to regulations
or other guidance under section 332, 351,
354, 355, 356, 361, 368, or 381 (whether
or not a Federal income tax return is
required to be filed), if such information
has not otherwise been provided by the
person filing the section 367(b) notice;
* * * * *
(viii) In the case of a corporation (S)
described in paragraph (c)(2)(vi) of this
section, the rules of this paragraph (c)(4)
apply by treating the acquisition of the

Bulletin No. 2023–44 1207 October 30, 2023
stock or securities of P in exchange for
property as the section 367(b) exchange
referred to in paragraph (a) of this sec-
tion. The section 367(b) notice must
also include a complete description of
the acquisition of the stock or securities
of P in exchange for property, including
a description of the property provided
in exchange for the stock or securities
and any related transactions involving
the acquisition of the stock or securi-
ties. The section 367(b) notice must
describe any adjustments made pursuant
to §1.367(b)-10 or, if no adjustments are
made, explain why no such adjustments
were made; and
(ix) In the case of an exchange to
which §1.367(b)-3(g) applies, a statement
describing how any excess asset basis (as
defined in §1.367(b)-3(g)(2)(i)) arose,
the amount of excess asset basis, and a
description of the computation of the
amount of excess asset basis.
* * * * *
Par. 4. Section 1.367(b)-2 is amended
by:
1. In paragraph (c)(1), adding a sen-
tence after the current first sentence;
2. Adding a sentence to the end of para-
graph (d)(2)(ii);
3. In paragraph (d)(3)(ii), removing
the language “subsidiaries of” and add-
ing in its place the language “corporations
owned by”;
4. Adding a sentence to the end of para-
graph (d)(3)(ii);
5. In paragraph (e)(4) Example 2,
removing the language “foreign subsidi-
ary” and adding in its place the language
“foreign corporation”; and
6. In paragraphs (j)(2)(i) and (ii),
removing the language “is required to
include in income either the all earn-
ings and profits amount or the section
1248 amount under the provisions of
§1.367(b)-3 or 1.367(b)-4” and adding in
its place the language “exchanges stock
pursuant to a transaction described in
§1.367(b)-3 or §1.367(b)-4(b)(1)(i), (b)
(2)(i), (b)(3), (e), or (g)”.
The additions read as follows:
§1.367(b)-2 Definitions and special
rules.
* * * * *
(c) * * *
(1) * * * But see §1.1411-10(c)(3)(ii),
which for certain exchanges modifies the
section 1248 amount for purposes of sec-
tion 1411. * * *
* * * * *
(d) * * *
(2) * * *
(ii) * * * But see §1.1411-10(c)(3)(ii),
which for certain exchanges modifies the
all earnings and profits amount for pur-
poses of section 1411.
* * * * *
(3) * * *
(ii) * * * But see §1.367(b)-3(g)(1),
which adjusts the all earnings and profits
amount through a deemed distribution of
certain earnings and profits of foreign sub-
sidiaries owned by the foreign acquired
corporation.
* * * * *
Par. 5. Section 1.367(b)-3 is amended
by adding paragraph (g) to read as follows:
§1.367(b)-3 Repatriation of
foreign corporate assets in certain
nonrecognition transactions.
* * * * *
(g) All earnings and profits amount
adjusted for excess asset basis—(1)
General rule. If there is excess asset basis
with respect to a foreign acquired cor-
poration and the condition described in
paragraph (g)(1)(i) or (ii) of this section is
satisfied, then, except as provided in para-
graph (g)(5) of this section, an exchang-
ing shareholder to which paragraph (b)(3)
(i) of this section applies must compute
the all earnings and profits amount with
respect to its stock in the foreign acquired
corporation as if the foreign acquired cor-
poration had received a distribution of
property from a foreign subsidiary under
section 301 in an amount equal to the
specified earnings, immediately before
the inbound nonrecognition transaction.
The deemed distribution described in the
preceding sentence is treated as occurring
for all purposes of the Internal Revenue
Code. For purposes of this paragraph (g)
(1), the amount of the distribution from a
foreign subsidiary is equal to the amount
of earnings and profits of that foreign
subsidiary that is designated as specified
earnings under paragraph (g)(3) of this
section. In the case of a foreign subsidiary
the stock of which is not held directly by
the foreign acquired corporation, the dis-
tribution is treated as being made through
any intermediate owners. For purposes
of this paragraph (g)(1), references to the
foreign acquired corporation, S, and a for-
eign subsidiary include any predecessor
corporation.
(i) S previously acquired in exchange
for property stock or securities of the
foreign acquired corporation in con-
nection with a triangular reorganization
described in §1.358-6(b)(2), and the for-
eign acquired corporation and S did not
make adjustments that have the effect
of a distribution of property from S to
the foreign acquired corporation under
§1.367(b)-10(b)(1).
(ii) The excess asset basis is attribut-
able, directly or indirectly, to property pre-
viously provided by a foreign subsidiary
of the foreign acquired corporation in con-
nection with a transaction not described
in paragraph (g)(1)(i) of this section and
undertaken with a principal purpose to
create such excess asset basis.
(2) Definitions. The following defini-
tions apply for purposes of this paragraph
(g).
(i) Excess asset basis. The term excess
asset basis means, with respect to a for-
eign acquired corporation, the amount by
which the inside asset basis of that corpo-
ration exceeds the sum of the following
amounts:
(A) The earnings and profits of the
foreign acquired corporation attributable
to its outstanding stock. For purposes of
paragraph (g)(2)(i) of this section, such
earnings and profits are determined under
the principles of §1.367(b)-2(d) but with-
out regard to whether the exchanging
shareholder is described in paragraph (b)
(1) of this section or whether the exchang-
ing shareholder is a U.S. person or a for-
eign person; and such earnings and profits
include amounts described in section
1248(d)(3) or (4).
(B) The aggregate basis in the out-
standing stock of the foreign acquired
corporation determined immediately
before the nonrecognition transaction
described in paragraph (a) of this section
(the inbound nonrecognition transaction)
and therefore without regard to any basis
increase described in §1.367(b)-2(e)(3)(ii)
resulting from such inbound nonrecogni-
tion transaction.

October 30, 2023 1208 Bulletin No. 2023–44
(C) The aggregate amount of liabilities
of the foreign acquired corporation that
are assumed (determined under the prin-
ciples of section 357(d)) by the domestic
acquiring corporation in the inbound non-
recognition transaction.
(ii) Foreign subsidiary. The term for-
eign subsidiary means, with respect to a
foreign acquired corporation, a foreign
corporation with respect to which the
foreign acquired corporation satisfies
the ownership requirements of section
1248(c)(2)(B) but for this purpose treat-
ing the foreign acquired corporation as the
United States person referred to in section
1248(c)(2)(B).
(iii) Inbound nonrecognition transac-
tion. The term inbound nonrecognition
transaction has the meaning set forth in
paragraph (g)(2)(i)(B) of this section.
(iv) Inside asset basis. The term inside
asset basis means, with respect to a for-
eign acquired corporation, the aggregate
of the adjusted basis of all the assets of that
corporation in the hands of the domestic
acquiring corporation determined imme-
diately after the inbound nonrecognition
transaction.
(v) Lower-tier earnings. The term low-
er-tier earnings means, with respect to a
foreign acquired corporation, the sum of
the earnings and profits (including defi-
cits) of each foreign subsidiary.
(vi) S. The term S has the same mean-
ing as in §1.367(b)-10(a)(3)(i).
(vii) Specified earnings. The term spec-
ified earnings means, with respect to a for-
eign acquired corporation, the lesser of the
following amounts:
(A) Lower-tier earnings; and
(B) The excess asset basis of the for-
eign acquired corporation.
(viii) Property. The term property has
the same meaning as in §1.367(b)-10(a)
(3)(ii).
(3) Designation of specified earnings.
If lower-tier earnings exceed specified
earnings, then the portion of lower-tier
earnings that is designated as specified
earnings is determined by reference to the
earnings and profits of each foreign sub-
sidiary on a pro rata basis in proportion
to each subsidiary’s share of lower-tier
earnings.
(4) Anti-abuse rule. Appropriate adjust-
ments are made pursuant to this section if
a transaction is engaged in with a view to
avoid the purposes of this paragraph (g).
For example, if a transaction is engaged in
with a view to reduce excess asset basis,
including by increasing the basis in the
stock of the foreign acquired corporation
without a corresponding increase in the
basis of the assets of the foreign acquired
corporation, that increase in the basis in
the stock of the foreign acquired corpo-
ration will be disregarded for purposes of
computing excess asset basis.
(5) Prohibition against affirmative use.
This paragraph (g) does not apply to an
inbound nonrecognition transaction if a
transaction described in paragraph (g)(1)
of this section was entered into with a prin-
cipal purpose of subjecting the inbound
nonrecognition transaction to this para-
graph (g). For example, this paragraph (g)
will not apply to an inbound nonrecogni-
tion transaction if a taxpayer engaged in a
transaction described in paragraph (g)(1)
of this section with a principal purpose of
accessing tax attributes of lower-tier for
-
eign subsidiaries by reason of a deemed
distribution of lower-tier earnings of the
foreign acquired corporation.
(6) Examples. The application of this
paragraph (g) is illustrated by the exam-
ples in this paragraph (g)(6). In each
example, all corporations have a calendar
year-end and use the United States dollar
as their functional currency.
(i) Example 1—(A) Facts. USP, a domestic cor-
poration, owns all of the stock of USS, also a domes-
tic corporation, and 80 percent of the stock of FP,
a foreign corporation. USS owns the remaining 20
percent of the stock of FP. FP owns all of the stock
of FS1, which in turn owns all of the stock of FS2.
Both FS1 and FS2 are foreign corporations. In a
reorganization described in section 368(a)(1)(F) (F
reorganization), US Newco, a newly formed domes-
tic corporation, acquires all of the assets of FP solely
in exchange for stock of US Newco, which FP dis-
tributes to USP and USS in liquidation. Immediately
before the F reorganization, the stock of FP owned
by USP has a fair market value of $80x and an
adjusted basis of $4x. The stock of FP owned by
USS has a fair market value of $20x and an adjusted
basis of $1x. The all earnings and profits amounts
with respect to USP’s stock of FP and USS’s stock
of FP, determined before any adjustments required
by paragraph (g) of this section, are $32x and $8x,
respectively. FP holds assets with an adjusted basis
of $95x, has no liabilities, and has $40x of earnings
and profits attributable to its outstanding stock. FS1
and FS2 have $30x and $70x of earnings and prof-
its, respectively, all of which are described in section
959(c)(3). Dividends paid by FS2 to FS1, and by
FS1 to FP, would qualify for the exception to foreign
personal holding company income under section
954(c)(6). Before the applicability date described in
paragraph (g)(7)(i) of this section, and separate from
the F reorganization, FS1 provided property to FP in
exchange for stock of FP in connection with a tri-
angular reorganization described in §1.358-6(b)(2),
and neither FP nor FS1 made adjustments that had
the effect of a distribution of property from FS1 to
FP under §1.367(b)-10(b)(1).
(B) Analysis—(1) All earnings and profits
amount. The F reorganization is an asset acquisition
described in section 368(a)(1) and is thus subject to
section 367(b) and this section. Under paragraph (b)
(3) of this section, USP and USS each must include
in income as a deemed dividend the all earnings
and profits amount with respect to their stock of FP.
Because there is excess asset basis with respect to
FP (as determined in paragraph (g)(6)(i)(B)(2) of this
section), USP and USS must compute the all earn-
ings and profits amounts attributable to their stock
of FP as if FP had received a distribution of specified
earnings, immediately before the F reorganization.
Because the stock of FS2 is indirectly owned by FP,
to the extent the specified earnings are determined by
reference to the earnings and profits of FS2, FS2 is
treated as making a distribution to FS1 under section
301, and FS1 is then treated as making a distribu-
tion to FP under section 301 in an amount equal to
the sum of the amount of specified earnings deter-
mined by reference to the earnings and profits of FS1
(determined without regard to the deemed distribu-
tion from FS2) and the amount of the deemed distri-
bution received from FS2.
(2) Excess asset basis. The amount of excess
asset basis is $50x, calculated as the amount by
which FP’s inside asset basis ($95x) exceeds the sum
of FP’s earnings and profits ($40x), the aggregate
basis in the outstanding stock of FP ($5x), and the
amount of liabilities of FP assumed by US Newco in
the F reorganization ($0).
(3) Deemed distribution of specified earnings.
The amount of specified earnings equals $50x, the
lesser of the following amounts: $100x, the sum of
the earnings and profits of FS1 and FS2; and $50x,
the amount of excess asset basis with respect to FP.
FP is accordingly treated as receiving a distribution
of $50x from FS1. Under paragraph (g)(3) of this
section, $15x ($50x x ($30x / $100x)) of FS1’s earn-
ings and profits and $35x ($50x x ($70x / $100x)) of
FS2’s earnings and profits are designated as specified
earnings. FS2 is treated as distributing $35x to FS1.
Under sections 301(c)(1) and 954(c)(6), the $35x
deemed distribution from FS2 to FS1 is treated as a
dividend that does not give rise to foreign personal
holding company income. FS1 must accordingly
increase its earnings and profits described in section
959(c)(3) by $35x to $65x, and FS2 must decrease
its earnings and profits described in section 959(c)(3)
by the same amount. FS1 is then treated as making a
distribution of $50x to FP. Under sections 301(c)(1)
and 954(c)(6), the $50x deemed distribution is also
treated as a dividend that does not give rise to foreign
personal holding company income. FP must accord-
ingly increase its earnings and profits described in
section 959(c)(3) by $50x to $90x, and FS1 must
decrease its earnings and profits described in section
959(c)(3) by the same amount.
(4) Adjusted all earnings and profits amount
attributable to USP’s FP stock. Under paragraph
(g)(1) of this section, USP must compute the all

Bulletin No. 2023–44 1209 October 30, 2023
earnings and profits amount attributable to its stock
of FP after taking into account the $50x increase
to FP’s earnings and profits that resulted from the
deemed distribution of specified earnings. Because
USP owns 80% of the stock of FP, $40x (calculated
as 80% of $50x) of the specified earnings are attrib-
utable to USP’s stock of FP and are included in the
all earnings and profits amount attributable to USP’s
stock of FP. The all earnings and profits amount that
USP must include in income as a deemed dividend is
therefore $72x ($32x + $40x).
(5) Adjusted all earnings and profits amount
attributable to USS’s FP stock. Under paragraph (g)
(1) of this section, USS must compute the all earn-
ings and profits amount attributable to its stock of FP
after taking into account the $50x increase to FP’s
earnings and profits that resulted from the deemed
distribution of specified earnings. Because USS
owns 20% of the stock of FP, $10x (calculated as
20% of $50x) of the specified earnings are attribut-
able to USS’s stock of FP and are included in the
all earnings and profits amount attributable to USS’s
stock of FP. The all earnings and profits amount that
USS must include in income as a deemed divided is
therefore $18x ($8x + $10x).
(ii) Example 2—(A) Facts. USP, a domestic
corporation, owns all of the stock of FP, which in
turn owns all of the stock of FS. Both FP and FS
are foreign corporations. The all earnings and prof-
its amount with respect to USP’s stock of FP, deter-
mined before any adjustments required by paragraph
(g) of this section, is $50x. FP has no other earnings
and profits other than the $50x that reflect USP’s all
earnings and profits amount. FS has $200x of earn-
ings and profits, all of which are earnings and profits
described in section 959(c)(2) (PTEP) because those
earnings and profits gave rise to an earlier income
inclusion under section 951 with respect to USP.
Increases in stock basis were made under section
961 by reason of USP’s section 951 inclusion. FP
has excess asset basis of $100x as a result of a previ-
ous transaction that was undertaken with a principal
purpose of creating excess asset basis in which FS
provided $100x of property to FP. In a liquidation
described in section 332, FP distributes all of its
assets to USP and the stock of FP is cancelled (the
FP liquidation).
(B) Analysis—(1) All earnings and profits
amount. The FP liquidation is subject to section
367(b) and this section. Under paragraph (b)(3)
of this section, USP must include in income as a
deemed dividend the all earnings and profits amount
with respect to its stock of FP. Because there is
excess asset basis with respect to FP, USP must com-
pute the all earnings and profits amount attributable
to its stock of FP as if FP had received a distribu-
tion of specified earnings immediately before the FP
liquidation.
(2) Deemed distribution of specified earnings. The
amount of specified earnings equals $100x, the lesser
of the following amounts: $200x, the earnings and
profits of FS; and $100x, the amount of excess asset
basis with respect to FP. FS is accordingly treated as
making a distribution of $100x to FP. Under sections
301(c)(1) and 959(b), the $100x deemed distribution
from FS to FP is treated as a distribution of PTEP
that is not included in the gross income of FP for pur-
poses of section 951. The distribution reduces FS’s
earnings and profits and PTEP with respect to USP
by $100x and increases FP’s earnings and profits and
PTEP with respect to USP by $100x. Furthermore,
appropriate adjustments are made under section 961
for the distribution of PTEP.
(3) Adjusted all earnings and profits amount
attributable to USP’s stock of FP. Under para-
graph (g)(1) of this section, USP must compute
the all earnings and profits amount attributable to
its stock of FP after taking into account the $100x
increase to FP’s earnings and profits that resulted
from the deemed distribution of specified earnings.
Because the deemed distribution consisted entirely
of PTEP with respect to USP, the deemed distribu-
tion does not affect USP’s all earnings and profits
amount of $50x. See §1.367(b)-2(d)(2)(ii). USP
must therefore include $50x in income as a deemed
dividend under this section. USP must also recog-
nize any foreign currency gain or loss under section
986(c) with respect to the $100x of PTEP of FP. See
§1.367(b)-2(j)(2).
(7) Applicability date—(i) In general.
Paragraph (g) of this section (other than
paragraphs (g)(2)(vii), (g)(3), and (5) of
this section) applies to transactions com-
pleted on or after December 2, 2016, and
to any transactions treated as completed
before December 2, 2016, as a result of an
entity classification election made under
§301.7701-3 of this chapter that is filed
on or after December 2, 2016. Paragraphs
(g)(2)(vii), (g)(3), and (5) of this section
apply to transactions completed on or
after October 5, 2023.
(ii) Transactions completed (or elec-
tions made) on or after December 2,
2016, and before October 5, 2023. Except
as provided in paragraph (g)(7)(iii) of
this section, the following definitions
(in lieu of the corresponding definitions
or in addition to the definitions in para-
graph (g)(2) of this section) and rules
apply with respect to transactions com-
pleted on or after December 2, 2016, and
to any transactions treated as completed
before December 2, 2016, as a result of an
entity classification election made under
§301.7701-3 of this chapter that is filed
on or after December 2, 2016, but before
October 5, 2023:
(A) The term specified earnings means,
with respect to the stock of a foreign
acquired corporation that is exchanged
by an exchanging shareholder, the lesser
of the following amounts (but not below
zero):
(1) The sum of the earnings and profits
(including a deficit) with respect to each
foreign subsidiary of the foreign acquired
corporation that are attributable under
section 1248(c)(2) to the stock of the
foreign acquired corporation exchanged
(lower-tier earnings). For purposes of
the preceding sentence, the modifications
described in §1.367(b)-2(d)(2) and (d)(3)
(i) apply. Thus, for example, the amount
of the earnings and profits of a foreign
subsidiary that are attributable to stock of
the foreign acquired corporation is deter-
mined without regard to whether the for-
eign subsidiary was a controlled foreign
corporation at any time during the five
years preceding the inbound nonrecogni-
tion transaction.
(2) The product of the excess asset
basis of the foreign acquired corporation,
multiplied by the exchanging sharehold-
er’s specified percentage.
(3) The amount of gain that would be
realized by the exchanging shareholder
if, immediately before the inbound non-
recognition transaction, the exchanging
shareholder had sold the stock of the for-
eign acquired corporation for fair market
value, reduced by the exchanging share-
holder’s all earnings and profits amount
(for this purpose, determined without
regard to the modifications described in
this paragraph (g)) (specified stock gain).
(B) The term specified percentage
means, with respect to an exchanging
shareholder, a fraction (expressed as a
percentage), the numerator of which is
the sum of the aggregate of the specified
stock gain with respect to all exchang-
ing shareholders to which §1.367(b)-3(b)
(3) applies and the aggregate of the gain
realized (regardless of whether such
gain is recognized) with respect to the
stock exchanged by all other exchanging
shareholders.
(C) If there is excess asset basis with
respect to a foreign acquired corporation,
as determined under paragraph (g)(2)(i)
of this section, a taxpayer may reduce
the excess asset basis to the extent that
the excess asset basis is not attributable,
directly or indirectly, to property provided
by a foreign subsidiary of the foreign
acquired corporation. For example, if there
was a transfer of property to the foreign
acquired corporation described in section
362(e)(2), and the election described in
section 362(e)(2)(C) was made to limit the
basis in the stock received in the foreign
acquired corporation to its fair market
value, then, for purposes of determining

October 30, 2023 1210 Bulletin No. 2023–44
excess asset basis, the basis in the stock of
the foreign acquiring corporation may be
determined without regard to the applica-
tion of section 362(e)(2).
(iii) Early application. A taxpayer and
its related parties (within the meaning
of sections 267(b) and 707(b)(1)) may
choose to apply paragraphs (g)(1) through
(6) of this section to all open taxable years
beginning before the date these regula-
tions are filed as final regulations in the
Federal Register, provided that the tax-
payer and its related parties consistently
apply paragraphs (g)(1) through (6) of this
section and §1.367(b)-1(c)(4)(ix) for such
years.
Par. 6. Section 1.367(b)-4 is amended
by:
1. In paragraph (a), adding a sentence
after the fifth sentence;
2. In paragraph (a), removing the lan-
guage “paragraph (g)” in the current sixth
sentence and adding in its place the lan-
guage “paragraph (h)” and removing the
language “paragraph (h)” in the current
seventh sentence and adding in its place
the language “paragraph (i)”;
3. In paragraph (e)(5) Example 2 (ii)
(B), removing the language “paragraph
(g)(1)” wherever it appears and adding in
its place the language “paragraph (h)(1)”;
4. In paragraph (f)(3) Example 2 (ii),
removing the language “paragraph (g)(1)”
wherever it appears and adding in its place
the language “paragraph (h)(1)”;
5. Redesignating paragraph (h) as para-
graph (i);
6. Redesignating paragraph (g) as para-
graph (h) and adding a new paragraph (g);
7. Adding a sentence to the end of
newly redesignated paragraph (i); and
8. In newly redesignated paragraph (i),
removing the language “paragraph (h)”
and adding in its place the language “para-
graph (i)”, and removing the language
“paragraphs (f) and (g)(5)” and adding in
its place the language “paragraphs (f) and
(h)(5)”.
The additions read as follows:
§1.367(b)-4 Acquisition of foreign
corporate stock or assets by a foreign
corporation in certain nonrecognition
transactions.
(a) * * * Paragraph (g) of this section
provides rules regarding exchanges that
occur pursuant to a transaction described
in §1.367(b)-10(a)(1), without regard to
the exceptions in §1.367(b)-10(a)(2). * * *
* * * * *
(g) Income inclusion and gain recogni-
tion in exchanges occurring in connection
with certain triangular reorganizations—
(1) Rule. If, in an exchange under section
354 or 356 that occurs in connection with
a transaction described in §1.367(b)-10,
an exchanging shareholder exchanges
stock or securities of a foreign acquired
corporation, then, to the extent that the
exchanging shareholder receives stock or
securities of P acquired by S in exchange
for property in the P acquisition, the share-
holder must:
(i) Include in income as a deemed
dividend the section 1248 amount attrib-
utable to the stock that the shareholder
exchanges; and
(ii) After taking into account the
increase in basis in the stock provided in
§1.367(b)-2(e)(3)(ii) resulting from the
deemed dividend (if any), recognize all
realized gain with respect to the stock or
securities that would not otherwise be
recognized.
(2) Special rules and definitions. For
the purposes of this paragraph (g), an
exchanging shareholder is a United States
person or foreign person that exchanges
stock of a foreign acquired corporation
in a prescribed exchange, regardless of
whether such United States person is a
section 1248 shareholder or such foreign
person is a foreign corporation in which
a United States person is a section 1248
shareholder. As used in this paragraph
(g), the terms P, S, property, and P acqui-
sition have the meanings provided in
§1.367(b)-10(a), and the term foreign per-
son means a person that is not a United
States person.
(3) Example. The following example
illustrates the rules of this paragraph (g):
(i) Facts. USP, a domestic corporation, owns
all of the stock of FP and USS. FP is a foreign cor-
poration that owns all of the stock of FS, a foreign
corporation. USS is a domestic corporation that
owns all of the stock of FT, a foreign corporation.
USS owns 100 shares of stock of FT, which consti-
tutes a single block of stock with a fair market value
of $100x, an adjusted basis of $20x, and a section
1248 amount of $50x. FS has earnings and profits of
$60x. A dividend from FS to FP would qualify for
the exception to foreign personal holding company
income under section 954(c)(6). FP issues 100 shares
of voting stock with a fair market value of $100x
to FS, $40x of which (the 40-percent FP block) is
issued in exchange for $40x of newly issued com-
mon stock of FS and $60x of which (the 60-percent
FP block) is issued in exchange for $60x of cash. FS
acquires all of the stock of FT held by USS solely in
exchange for the $100x of voting stock of FP (that
is, FS exchanges both the 40-percent FP block and
the 60-percent FP block) in a triangular reorganiza-
tion described in section 368(a)(1)(B) (triangular B
reorganization).
(ii) Analysis—(A) Application of §1.367(b)-
10. The triangular B reorganization is described
in §1.367(b)-10, and the $60x of cash constitutes
property under §1.367(b)-10(a)(3)(ii). Pursuant to
§1.367(b)-10(b)(1), adjustments must be made that
have the effect of a distribution of property in the
amount of $60x from FS to FP under section 301.
The $60x deemed distribution is treated as separate
from, and occurring immediately before, FS’s acqui-
sition of the 60-percent FP block used in the triangu-
lar B reorganization. The $60x deemed distribution
from FS to FP results in $60x of dividend income
to FP under section 301(c)(1) that is not foreign per-
sonal holding company income under section 954(c)
(6).
(B) Application of paragraph (g) of this section.
Pursuant to §1.367(a)-3(a)(2)(iv)(B), paragraph
(g) of this section applies to $60x of the stock of
FT (the 60-percent FT block) exchanged for the
60-percent FP block. Thus, under paragraph (g)(1)
(i) of this section, USS must include in income a
$30x deemed dividend (representing 60 percent of
USS’s $50x section 1248 amount) with respect to
the 60-percent FT block exchanged for the 60-per-
cent FP block. In addition, under paragraph (g)(1)
(ii) of this section, USS must recognize its realized
gain that would not otherwise be recognized with
respect to the 60-percent FT block. USS’s fair mar-
ket value and adjusted basis in the 60-percent FT
block are $60x (60 percent of the $100x fair market
value of the stock of FT) and $12x (60 percent of
the $20x adjusted basis of the stock of FT), respec-
tively. USS’s initial built-in gain with respect to
the 60-percent FT block is accordingly $48x ($60x
fair market value less $12x adjusted basis). The
$30x deemed dividend increases USS’s basis in the
60-percent FT block to $42 ($12x + $30x), leav-
ing $18x ($60x - $42x) of built-in gain. USS must
therefore recognize the remaining $18x of gain with
respect to the 60-percent FT block.
(C) Application of paragraph (b) of this section
and regulations under section 367(a). USS has $32x
of built-in gain in the remaining $40x of stock of
FT (the 40-percent FT block) that USS exchanged
for the 40-percent FP block, calculated as USS’s
initial $80 of built-in gain in all of its stock of FT
less the $48x of initial built-in gain attributable to
the 60-percent FT block. USS’s section 1248 amount
in the 40-percent FT block is $20x, calculated as 40
percent of USS’s $50x section 1248 amount. USS
does not recognize a deemed dividend of the $20x
section 1248 amount under paragraph (b) of this
section because FT remains a controlled foreign
corporation with respect to which USS is a section
1248 shareholder immediately after the triangular B
reorganization. Unless USS properly files a gain rec-
ognition agreement pursuant to §§1.367(a)-3(b) and
1.367(a)-8, USS recognizes the $32x of built-in gain

Bulletin No. 2023–44 1211 October 30, 2023
under section 367(a)(1) with respect to the 40-per-
cent FT block.
* * * * *
(i) * * * Paragraph (g) of this section
applies to transactions completed on or
after December 2, 2016.
Par. 7. Section 1.367(b)-6 is amended
by adding paragraphs (a)(1)(v) and (vi) to
read as follows:
§1.367(b)-6 Effective/applicability
dates and coordination rules.
(a) * * *
(1) * * *
(v) Section 1.367(b)-2(j)(2) applies to
transactions completed on or after October
5, 2023 and to any transactions treated as
completed before October 5, 2023 as a
result of an entity classification election
made under §301.7701-3 of this chapter
that is filed on or after October 5, 2023.
(vi) Section 1.367(b)-1(c)(2)(vi), (c)
(4)(viii), and (c)(4)(ix) apply to taxable
years ending on or after October 5, 2023.
However, a taxpayer and its related parties
(within the meaning of sections 267(b) and
707(b)(1)) may choose to apply the rules
referred to in the preceding sentence to all
open taxable years ending before October
5, 2023, provided that the taxpayer and
its related parties consistently apply such
rules and §1.367(b)-3(g) for such years.
* * * * *
Par. 8. Section 1.367(b)-10 is amended
by:
1. Adding two sentences to the end of
paragraph (a)(1);
2. Revising paragraphs (a)(2)(ii) and
(iii);
3. Removing the language “and” at the
end of paragraph (a)(3)(ii)(A), removing
the period at the end of paragraph (a)(3)
(ii)(B) and adding the language “; and” in
its place;
4. Adding paragraph (a)(3)(ii)(C);
5. Removing paragraph (b)(2);
6. Redesignating paragraphs (b)(3),
(4), and (5) as paragraphs (b)(2), (3), and
(4), respectively;
7. Revising newly redesignated para-
graph (b)(2);
8. Adding two sentences to the end of
newly redesignated paragraph (b)(3);
9. In newly redesignated paragraph
(b)(4)(ii), removing the sixth sentence,
revising the current seventh sentence, and
adding two sentences at the end of the
paragraph; and
10. Revising paragraphs (c), (d), and
(e).
The revisions and additions read as
follows:
§1.367(b)-10 Acquisition of parent
stock or securities for property in
triangular reorganizations.
(a) * * *
(1) * * * See §1.367(b)-3(g) for the
treatment of certain inbound nonrec-
ognition transactions following trans-
actions described in this section. See
§1.367(b)-4(g) for rules applicable to
certain exchanging shareholders that
exchange stock of T in connection with a
transaction described in this section.
(2) * * *
(ii) S is a domestic corporation, P is not
a controlled foreign corporation (within
the meaning of §1.367(b)-2(a)), P’s stock
in S is not a United States real property
interest (within the meaning of section
897(c)), and the deemed distribution that
would result from the application of this
section would not be treated as a dividend
under section 301(c)(1) that would be sub-
ject to U.S. tax under either section 881
(for example, by reason of an applicable
treaty or by reason of an absence of earn-
ings and profits) or section 882; or
(iii) In an exchange under section
354 or 356, one or more U.S. persons
exchange stock or securities of T and the
amount of gain in the T stock or securi-
ties that would otherwise be recognized
under section 367(a)(1) is equal to or
greater than the sum of the amount of the
deemed distribution under this section that
would be treated and subject to U.S. tax
as a dividend under section 301(c)(1) (or
would give rise to an inclusion under sec-
tion 951(a)(1)(A) or 951A(a) that would
be subject to U.S. tax) and the amount
of such deemed distribution that would
be treated and subject to U.S. tax as gain
from the sale or exchange of property
under section 301(c)(3) (or would give
rise to an inclusion under section 951(a)
(1)(A) or 951A(a) that would be subject to
U.S. tax) if this section would otherwise
apply to the triangular reorganization.
The exception provided in this paragraph
(a)(2)(iii) does not apply if T is a foreign
corporation. See §1.367(a)-3(a)(2)(iv)
(providing a similar rule that excludes
certain transactions from the application
of section 367(a)(1)).
(3) * * *
(ii) * * *
(C) Stock of S that is nonqualified pre-
ferred stock (as defined in section 351(g)
(2)).
* * * * *
(b) * * *
(2) Timing of deemed distribution. If
P controls (within the meaning of section
368(c)) S at the time of the P acquisition,
the adjustments described in paragraph
(b)(1) of this section are made as if the
deemed distribution is a separate transac-
tion occurring immediately before the P
acquisition. If P does not control (within
the meaning of section 368(c)) S at the
time of the P acquisition, the adjustments
described in paragraph (b)(1) of this sec-
tion are made as if the deemed distribution
is a separate transaction occurring imme-
diately after P acquires control of S, but
before the reorganization.
(3) * * * Thus, P’s adjustment to the
basis in its S stock under §1.358-6 is
determined as if P provided the P stock or
securities pursuant to the plan of reorga-
nization, notwithstanding that S acquired
the P stock or securities in exchange for
property in the P acquisition. See also
§1.367(b)-13.
(4) * * *
(ii) * * * Pursuant to paragraph (b)(2) of this sec-
tion, the adjustment described in paragraph (b)(1) of
this section is made as if the deemed distribution is
a separate transaction occurring immediately before
FS’s purchase of the P stock on the open market. *
* * US1’s transfer of its FT stock in exchange for P
stock is subject to §1.367(b)-4(g). If, contrary to the
facts in this paragraph (b)(4), US1 had built-in gain
with respect to its FT stock, then such gain would be
recognized in accordance with §1.367(b)-4(g).
(c) Collateral adjustments. This para-
graph (c) provides additional rules that
apply by reason of the deemed distribu-
tion described in paragraph (b)(1) of this
section. A deemed distribution described
in paragraph (b)(1) of this section is
treated as occurring for all purposes of the
Internal Revenue Code. Thus, for exam-
ple, the ordering rules of section 301(c)
apply to characterize the deemed distribu-
tion to P as a dividend from the earnings
and profits of S, return of stock basis, or
gain from the sale or exchange of property,
as the case may be. Furthermore, section

October 30, 2023 1212 Bulletin No. 2023–44
959 may apply to the deemed distribution
if S is a foreign corporation, and sections
881, 882, 897, 1442, or 1445 may apply to
the deemed distribution if S is a domestic
corporation. Appropriate corresponding
adjustments must be made to S’s earnings
and profits consistent with the principles
of section 312.
(d) Anti-abuse rule—(1) Rule.
Appropriate adjustments must be made
pursuant to this section if, in connection
with a triangular reorganization, a trans-
action is engaged in with a view to avoid
the purpose of this section. For exam-
ple, if S is created, organized, or funded
to avoid the application of this section
with respect to the earnings and profits
of another corporation, the earnings and
profits of S (or any successor corporation)
may be deemed to include the earnings
and profits of such other corporation (or
any successor corporation) for purposes
of determining the consequences of the
adjustments provided in this section,
and appropriate corresponding adjust-
ments may be made to account for the
application of this section to the earnings
and profits of such other corporation (or
any successor corporation). Adjustments
may be made under this paragraph (d)
whether S is funded before or after a tri-
angular reorganization, and such fund-
ing may include capital contributions,
loans, and distributions. The following
examples illustrate the application of this
paragraph (d), the application of which
is not limited to the particular situations
described in the examples.
(2) Example 1: Deemed increase to S’s earnings
and profits—(i) Facts. FP is a foreign corporation
that owns all of the stock of USS, a domestic cor-
poration. USS has no assets, liabilities, or earnings
and profits. FP issues $10x of voting stock to USS
in exchange for $10x of newly issued stock of USS,
and FP also issues $90x of voting stock to USS in
exchange for a note newly issued by USS with a fair
market value of $90x (USS note). FP would be sub-
ject to U.S. tax under section 881 on a distribution
from USS if, contrary to the facts, USS had earnings
and profits for purposes of applying section 301(c)
to the distribution. USS acquires all the stock of
UST, a domestic corporation that is unrelated to FP
and USS, from a foreign person in exchange for the
$100x of voting stock of FP in a triangular reorgani-
zation described in section 368(a)(1)(B) (triangular
B reorganization). UST has $100x of earnings and
profits. USS’s purchase of the $90x of stock of FP
in exchange for the USS note in connection with the
triangular B reorganization is engaged in with a view
to avoid the purpose of this section.
(ii) Analysis. Because USS’s purchase of the
$90x of stock of FP in exchange for the USS note is
engaged in with a view to avoid the purpose of this
section, the anti-abuse rule applies and appropriate
adjustments are made. In particular, for purposes of
determining the consequences of the deemed distri-
bution provided for in paragraph (b)(1) of this sec-
tion, the earnings and profits of USS are deemed
to include the earnings and profits of UST. USS is
therefore treated as having made a deemed distri-
bution equal to $90x, which reflects the portion of
the stock of FP that USS acquired in exchange for
property (the USS note). Because USS is deemed
to have $100x of earnings and profits, the entire
$90x deemed distribution is treated as a dividend
under section 301(c)(1). The deemed distribution is
treated as separate from, and occurring immediately
before, USS’s acquisition of the stock of FP used in
the triangular B reorganization. No adjustments are
made by FP to the basis in its stock of USS except as
provided in §1.358-6. Under paragraph (b)(3) of this
section, FP’s adjustment to the basis in its stock of
USS under §1.358-6 is determined as if FP provided
all $100x of the stock of FP pursuant to the plan of
reorganization.
(3) Example 2: Downstream property trans-
fer—(i) Facts. USP is a domestic corporation that
owns all of the stock of FS1, a foreign corporation,
FS1 holds a note receivable issued by USP with a
fair market value of $100x (USP note), and FS1 has
more than $100x of earnings and profits. USP has
no income inclusion under section 951(a)(1)(B)
with respect to the USP note after the application of
§1.956-1(a)(2). FS1 forms USS Newco, a domes-
tic corporation, to which it transfers the USP note
in exchange for voting stock of USS Newco. USS
Newco then forms FS2 Newco, a foreign corpora-
tion, and FS1 transfers all of its remaining assets
(except for its stock in USS Newco) to FS2 Newco
in exchange for additional voting stock of USS
Newco in a transaction intended to qualify as a tri-
angular reorganization described in section 368(a)
(1)(C) (triangular C reorganization). FS1 liquidates
into USP pursuant to the triangular C reorganiza-
tion, and USP receives the stock of USS Newco
held by FS1. FS1’s transfer of the USP note to USS
Newco in connection with the intended triangular
C reorganization is engaged in with a view to avoid
the purpose of this section.
(ii) Analysis. Because FS1’s transfer of the USP
note to USS Newco is in connection with a trian-
gular reorganization and is engaged in with a view
to avoid the purpose of this section, the anti-abuse
rule applies and appropriate adjustments are made.
FS1’s formation of USS Newco and transfer of the
USP note to USS Newco, together with the distri-
bution of the shares of USS Newco pursuant to the
liquidation of FS1, is treated under the anti-abuse
rule as a distribution of $100x, consistent with its
substance. Accordingly, adjustments are made con-
sistent with there having been such a distribution.
Because FS1 has more than $100x of earnings and
profits, the adjustments made are consistent with
USS Newco having received a $100x dividend
from FS1 separate from, and immediately before,
the triangular C reorganization. USS Newco must
therefore include $100x in gross income as if it had
received that amount as a dividend and increase its
earnings and profits by the same amount. FS1 must
decrease its earnings and profits by $100x. For pur-
poses of determining USS Newco’s basis in its stock
of FS2 Newco, §1.367(b)-13 applies by treating USS
Newco as P (within the meaning of §1.367(b)-13(a)
(2)(ii)). Under paragraph (b)(3) of this section, USS
Newco’s adjustment to the basis in its FS2 Newco
stock under §1.367(b)-13 is determined as if USS
Newco provided the stock of USS Newco stock pur-
suant to the plan of reorganization.
(4) Example 3: Taxable debt exchange—(i)
Facts. USP is a domestic corporation that owns all
of the stock of FP, a foreign corporation, and USS,
a domestic corporation. Furthermore, FP owns all of
the stock of FS, a foreign corporation, and USS owns
all of the stock of UST, a domestic corporation. FP
has no earnings and profits, and FS has more than
$100x of earnings and profits. USP has held its stock
in FP for fewer than 365 days and thus does not sat-
isfy the requirements of sections 245A and 246(c)
with respect to dividends received from FP. FS trans-
fers a note issued by FS with a fair market value of
$100x (FS note) to FP in exchange for $100x of vot-
ing stock of FP, and FS then uses the stock of FP
to acquire all of the stock of UST held by USS in a
triangular reorganization described in section 368(a)
(1)(B) (triangular B reorganization). Because a div-
idend from FS to FP would not constitute foreign
personal holding company income under section
954(c)(6), the taxpayer asserts that the exception
in paragraph (a)(2)(iii) of this section applies and
therefore does not make any adjustments pursuant to
this section. FP then transfers the FS note to USP in
exchange for a note issued by USP with a fair market
value of $100x (USP note). The USP note constitutes
United States property within the meaning of section
956(c), and USP would otherwise have an inclusion
under section 951(a)(1)(B) and §1.956-1(a)(2) if FP
had earnings and profits. FS’s transfer of the FS note
to FP, and FP’s subsequent transfer of the FS note to
USP in connection with the triangular B reorganiza-
tion, are engaged in with a view to avoid the purpose
of this section.
(ii) Analysis. Because the transfers of the FS
note are in connection with a triangular reorgani-
zation and are engaged in with a view to avoid the
purpose of this section, the anti-abuse rule applies
and appropriate adjustments are made. FS is there-
fore treated as having made a distribution to FP of
$100x, reflecting the value of the stock of FP that
FS acquired in exchange for property (the FS note).
The deemed distribution is treated as separate from,
and occurring immediately before, FS’s acquisition
of the stock of FP stock used in the triangular B
reorganization. Because FS has more than $100x
of earnings and profits, the entire deemed distribu-
tion is treated as a dividend under section 301(c)
(1). The deemed dividend causes FP to increase its
earnings and profits by $100x but does not consti-
tute foreign personal holding company income to
FP under section 954(c)(6). FP thus has $100x of
earnings and profits available to support inclusions
under section 951(a)(1)(B) in connection with FP’s
subsequent acquisition of the USP note. No adjust-
ments are made by FP to the basis in its stock of FS
except as provided in §1.358-6. Under paragraph
(b)(3) of this section, FP’s adjustment to the basis
in its stock of FS under §1.358-6 is determined as

Bulletin No. 2023–44 1213 October 30, 2023
if FP provided the stock of FP pursuant to the plan
of reorganization.
(e) Applicability dates—(1) General
rule. This section applies to triangular
reorganizations occurring on or after
May 17, 2011. For triangular reorganiza-
tions that occur before May 17, 2011, see
§1.367(b)-14T as contained in 26 CFR
part 1 revised as of April 1, 2011.
(2) Triangular reorganizations com-
pleted on or after April 25, 2014. The
following paragraphs apply to triangu-
lar reorganizations that are completed
on or after April 25, 2014, unless T was
not related to P or S (within the meaning
of section 267(b)) immediately before
the triangular reorganization; the trian-
gular reorganization was entered into
either pursuant to a written agreement
that was (subject to customary condi-
tions) binding before April 25, 2014,
and at all times afterwards, or pursu-
ant to a tender offer announced before
April 25, 2014, that is subject to section
14(d) of the Securities and Exchange
Act of 1934 (15 U.S.C. 78n(d)(1)) and
Regulation 14(D) (17 CFR 240.14d-1
through 240.14d-101) or that is subject
to comparable foreign laws; and to the
extent the P acquisition that occurs pur-
suant to the plan of reorganization is not
completed before April 25, 2014, the P
acquisition was included as part of the
plan before April 25, 2014:
(i) Paragraph (a)(2)(ii) of this section,
to the extent it does not apply where P is a
controlled foreign corporation, and to the
extent it relates to dividends that would be
subject to U.S. tax;
(ii) Paragraph (a)(2)(iii) of this section,
to the extent it relates to amounts that
would be subject to U.S. tax or give rise
to an inclusion under section 951(a)(1)(A)
that would be subject to U.S. tax;
(iii) Paragraph (b)(3) of this section, to
the extent it relates to P’s provision of its
stock or securities pursuant to the plan of
reorganization; and
(iv) Paragraphs (b) and (c) of this sec-
tion, to the extent they do not reference
the rule described in former paragraph (b)
(2) of this section (relating to the deemed
contribution), as contained in 26 CFR part
1 revised as of April 1, 2021.
(3) Transactions completed on or
after December 2, 2016. The following
paragraphs apply to transactions com-
pleted on or after December 2, 2016:
(i) Paragraph (a)(2)(iii) of this section,
to the extent it does not apply where T is a
foreign corporation; and
(ii) Paragraph (a)(3)(ii)(C) of this
section.
(4) Deemed distributions that occurred
in taxable years ending before November
2, 2020. Former paragraph (c)(1) of this
section, as contained in 26 CFR part 1
revised as of April 1, 2021, to the extent it
references section 902, applies to deemed
distributions that occur in taxable years
ending before November 2, 2020.
(5) Triangular reorganizations com-
pleted on or after October 5, 2023.
Paragraph (a)(2)(iii) of this section, to
the extent it relates to amounts that would
give rise to an inclusion under section
951A(a) that would be subject to U.S.
tax, applies to triangular reorganizations
that are completed on or after October 5,
2023.
Par. 9. Section 1.1248-1 is amended by
adding a sentence to the end of paragraph
(a)(1) to read as follows:
§1.1248-1 Treatment of gain from
certain sales or exchanges of stock in
certain foreign corporations.
(a) * * *
(1) * * * See §1.1411-10(c)(3) for addi-
tional rules concerning the application of
section 1248 for purposes of section 1411.
* * * * *
Par. 10. Section 1.1411-10 is amended
by:
1. Revising the heading of paragraph
(c)(3);
2. In paragraph (c)(3), removing the
language “With respect to stock of a CFC”
and adding in its place “With respect to
stock of a foreign corporation that is a
CFC (or that was a CFC at any time during
the 5-year period ending on the date of
sale or exchange)”;
3. Revising paragraph (c)(3)(i) and the
introductory text of paragraph (c)(3)(ii);
4. Adding paragraph (d)(5); and
5. Adding a sentence to the end of para-
graph (i).
The revisions and additions read as
follows:
§1.1411-10 Controlled foreign
corporations and passive foreign
investment companies.
* * * * *
(c) * * *
(3) Application of sections 1248 and
367(b). * * *
(i) In determining the amount of gain
recognized on the sale or exchange of
stock of a foreign corporation under
section 1248(a) or the amount of gain
realized on the exchange of stock of a
foreign corporation under §1.367(b)-4
or 1.367(b)-5, basis is determined in
accordance with the provisions of para-
graph (d) of this section; and (ii) Section
1248(a), and §1.367(b)-2(c)(1) and (d)
(2)(ii) apply without regard to the exclu-
sions for certain earnings and profits
under section 1248(d)(1) and (d)(6),
except that those exclusions will apply
with respect to the earnings and profits
of a foreign corporation that are attrib-
utable to:
* * * * *
(d) * * *
(5) Basis adjustments under section
367(b). With respect to stock of a for-
eign corporation that is exchanged in a
transaction subject to section 367(b), the
portion of the basis increase provided by
§1.367(b)-2(e)(3)(ii) by reason of para-
graph (c)(3)(ii) of this section is made
solely for purposes of section 1411.
* * * * *
(i) * * * Paragraph (c)(3) of this sec-
tion, to the extent it references regulations
issued under section 367(b), and paragraph
(d)(5) of this section, apply to transactions
completed on or after October 5, 2023 and
to any transactions treated as completed
before October 5, 2023 as a result of an
entity classification election made under
§301.7701-3 of this chapter that is filed on
or after October 5, 2023.
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
(Filed by the Office of the Federal Register October
5, 2023, 8:45 a.m., and published in the issue of the
Federal Register for October 6, 2023, 88 FR 69559)

October 30, 2023 1214 Bulletin No. 2023–44
Notice of Proposed
Rulemaking
Modernizing Regulations
on Sales of Seized Property
REG-127391-16
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed amendments to modernize reg-
ulations regarding the sale of a taxpayer’s
property that the IRS seizes by levy. The
proposed amendments would allow the
IRS to maximize sale proceeds for the
benefit of the taxpayer whose property
the IRS has seized and the public fisc.
The proposed regulations would affect all
sales of property the IRS seizes by levy.
DATES: Electronic or written comments
and requests for a public hearing must be
received by December 15, 2023.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic sub-
missions via the Federal eRulemaking
Portal at www.regulations.gov (IRS
REG-127391-16). Once submitted to
the Federal eRulemaking Portal, com-
ments cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish any
comments submitted electronically, and
on paper, to the public docket. Paper sub-
missions may be sent to: CC:PA:LPD:PR
(REG-127391-16), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Micah A. Levy, (202) 317-
6832; concerning the submission of com-
ments or requests for a public hearing,
Vivian Hayes (202) 317-6901 (not toll-
free numbers) or by sending an email to
publichearings@irs.gov.
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Procedure and
Administration Regulations (26 CFR part
301) under section 6335 of the Internal
Revenue Code (Code) relating to the sale
of property that is seized by levy (seized
property).
I. Statutory Background
Section 6335 of the Code governs
how the IRS sells seized property. It was
enacted as part of the Internal Revenue
Code of 1954, Public Law 83–591, ch.
736, 68A Stat. 3, 785–86 (1954), though
many of its provisions date back to 1866.
See Act of July 3, 1866, ch. 184, 14 Stat.
106, 107–110 (1866).
Section 6335(a) requires the Secretary
of the Treasury or her delegate (Secretary),
as soon as practicable after a seizure, to
give written notice of the seizure to the
owner of the property that was seized (or,
in the case of personal property, to the
property’s possessor). The notice must
specify the sum demanded and contain, in
the case of personal property, an account
of the property seized and, in the case
of real property, a description with rea-
sonable certainty of the seized property.
Notice must be given to the owner (or
possessor) either in person, by leaving it at
the owner’s (or possessor’s) usual place of
abode or business, or, in certain instances,
by mail.
Section 6335(b) requires the Secretary,
as soon as practicable after a seizure, to
give the property’s owner written notice
of the forthcoming sale. The notice must
be provided in the same manner pre-
scribed in section 6335(a) for the notice of
seizure. Section 6335(b) also requires that
the Secretary publicize the sale to the gen-
eral public by publishing notice “in some
newspaper published or generally circu-
lated within the county wherein such sei-
zure is made,” or if such a newspaper does
not exist, by posting “notice at the post
office nearest the place where the seizure
is made and in not less than two other pub-
lic places.” The notice of sale must specify
the property to be sold and the time, place,
manner, and conditions of the sale.
Section 6335(c) provides that if seized
property is not divisible in a way that
would allow for a sale of part of the prop-
erty to fully satisfy the whole amount of
the tax and expenses, the Secretary is to
sell the whole property.
Section 6335(d) requires that the time
of sale be not less than 10 days nor more
than 40 days from the time public notice
of the sale is provided under section
6335(b). The place of sale must be within
the county in which the property is seized
except by special order of the Secretary.
Section 6335(e) specifies the manner
and conditions of sale. Section 6335(e)
(1) provides general rules about determi
-
nations relating to the minimum price, a
sale being made to the highest bidder at
or above the minimum price, the instances
in which property will be deemed sold to
the United States at the minimum price,
and the instances in which the property
will be released to the owner. Section
6335(e)(2) further directs the Secretary
to prescribe by regulation the following
additional rules applicable to the manner
and other conditions of sale: requiring the
sale not to be conducted in any manner
other than by public auction or by pub-
lic sale under sealed bids; in the case of
the seizure of several items of property
whether the property is to be offered sep-
arately, in groups, or in the aggregate, and
sold under whichever method produces
the highest aggregate amount; whether
the announcement of the minimum price
may be delayed until the receipt of the
highest bid; whether payment in full is to
be required at the time of acceptance of
a bid or whether a part of such payment
may be deferred for a period not to exceed
one month; the extent to which additional
methods (including advertising) may be
used in giving notice of a sale; and under
what circumstances the Secretary may
adjourn a sale from time to time not to
exceed in all one month. Congress dele-
gated this authority to allow the IRS “lat-
itude to provide modern rules for selling
property in the best manner possible.”
H.R. Rep. No. 83-1337, at 410 (1954); S.
Rep. No. 83-1622, at 578 (1954). Section
6335(e)(3) specifies what is to occur if a
winning bidder fails to pay the bid amount.

Bulletin No. 2023–44 1215 October 30, 2023
Section 6335(f) provides that the
owner of seized property may request the
Secretary to sell the property within 60
days after such request (or within a longer
period as may be specified by the owner).
The Secretary must comply with the
request unless the Secretary determines
(and thereafter notifies the owner within
the period) that doing so would not be in
the best interests of the United States.
II. Regulatory Background
The current regulations implementing
section 6335 are set forth in §301.6335-1.
Section 301.6335-1, which dates to 1954,
has not been revised except to incorporate
minor statutory changes. See T.D. 6119,
20 FR 28 (Jan. 4, 1955) (initial publica-
tion); T.D. 7180, 37 FR 7316 (Apr. 13,
1972) (amending §301.6335-1(b) to con-
form to an amendment to section 6335(b)
made by section 104(d) of the Federal Tax
Lien Act of 1966, Public Law 89-719, 80
Stat. 1137 (1966), by expanding notice
of sale publication to include newspapers
that are “generally circulated” within the
county); T.D. 8398, 57 FR 7545 (Mar. 3,
1992) (implementing section 6236(g) of
Technical and Miscellaneous Revenue
Act of 1988, Public Law 100-647, 102
Stat. 3342 (1988), which enacted sec-
tion 6335(f), by adding §301.6335-1(d)
to address the right of the owner of any
seized property to request sale within 60
days); T.D. 8691, 61 FR 66217 (Dec. 17,
1996) (revisions to reflect amendment of
section 6335(e) concerning the setting of
a minimum price for seized property made
by section 1570 of the Tax Reform Act of
1986, Public Law 99-514, 100 Stat. 2764
(1986)); and T.D. 8939, 66 FR 2821 (Jan.
12, 2001) (adding a cross-reference in
§301.6335-1(b) to §301.6212-2 regarding
the definition of “last known address”).
Some provisions of §301.6335-1 are
dated, while others do not accommodate
technological advances such as the advent
of the Internet and electronic payment
processing. These proposed amendments
would conform the prescribed manner and
conditions of sales of seized property with
modern practices. In comparison to the
existing procedures, the proposed amend-
ments would benefit taxpayers by making
the sales process both more efficient and
more likely to produce higher sales prices.
Explanation of Provisions
A. Place of Sale
Section 6335(d) of the Internal
Revenue Code (Code) requires that the
place of sale be “within the county” in
which the seizure of the subject property
took place, “except by special order of
the Secretary.” Section 301.6335-1(c)(1)
currently requires that the place of sale
be within the county in which the seizure
took place unless “substantially higher
bids” can be obtained by holding the sale
elsewhere, in which case the district direc-
tor may order that the sale be held in that
other place. Section 6335(d) and current
§301.6335-1(c)(1) do not expressly con-
template online sales. But online sales
can attract a wider range of potential pur-
chasers, and thus potentially higher bids,
while conserving IRS resources. Given
that section 6342(a) of the Code provides
that money realized by the sale of seized
property is applied against the expenses
of the levy and sale before any remaining
amount is made available to satisfy the
liability of the taxpayer, taxpayers whose
seized property is being sold benefit both
when the IRS realizes more money from a
sale and when the IRS incurs less expense
in conducting the sale.
Proposed §301.6335-1(d)(1) would
provide that the sale will be held at the
time and place stated in the notice of sale.
Proposed §301.6335-1(d)(1) would fur-
ther provide that the place of an in-person
sale must be within the county in which
the property is seized, except the sale may
be held in a different county if the IRS
determines, by special order, that sub-
stantially higher bids may be obtained by
holding the sale in that different county.
For online sales, proposed §301.6335-
1(d)(1) would provide that the place of
sale will generally be within the county
in which the property is seized such that
a special order is not needed. For exam-
ple, under the IRS’s current practice for
online sales (which uses the special-order
process), bids are solicited from in-county
bidders, there is in-county advertising, the
property is stored in the county, inspection
of the property (when permitted) occurs
in the county, and the winning bidder
must retrieve the property from within the
county. Under the proposed regulations,
the place of sale for such online sales would
be considered to be within the county in
which the property was seized, and no
special order would be needed. However,
in the unusual situation in which an online
sale deviates from current practice, such
as if the seized property is moved out of
the county for storage and remains out of
the county during any allowable period
for pre-sale inspection or if the Internet is
not generally available within the county,
then proposed §301.6335-1(d)(1) would
require that such sale may be conducted
on the Internet only by special order when
doing so would be more efficient or would
likely result in more competitive bids.
B. Offering of Property
In the case of the seizure of several
items of property, section 6335(e)(2)(B)
of the Code allows the IRS to choose how
to group the property for sale. In gen
-
eral, the property may be sold as separate
items, as groups of items, or in the aggre-
gate. Section 6335(e)(2)(B) of the Code
also permits the IRS to offer property both
separately (or in groups) and in the aggre-
gate during the same sale, provided that
the IRS sells the property “under which-
ever method produces the highest aggre-
gate amount.”
Section 301.6335-1(c)(5) currently
restricts the situations in which both real
and personal property may be grouped.
This limits the IRS’s ability to determine
on a case-by-case basis how to group
property to produce the highest sale price.
Proposed §301.6335-1(d)(5) would pro-
vide that the IRS will choose the method
of grouping property (or selling items
separately) that will likely produce that
highest overall sale amount and is most
feasible.
C. Terms of Payment
Section 6335(e)(2)(D) of the Code
states that regulations are to provide
whether payment in full is required at the
time of acceptance of the bid, or whether
a part of such payment may be deferred
for a period, not to exceed one month, as
may be determined by the Secretary to be
appropriate. In section 301.6335-1, para-
graphs (c)(5)(iv) and (c)(7) are proposed
to be amended to allow for payment terms

October 30, 2023 1216 Bulletin No. 2023–44
that may specifically accommodate the
different types of property offerings and
methods of sale. For example, in the con-
text of an online sale, the notice of sale
may specify the time period in which the
winning bidder must submit payment after
being notified of the bid’s acceptance.
Allowing such a period, which is consis-
tent with the IRS’s current sales practice,
allows time for the winning bidder to be
notified of the accepted bid and to remit
payment.
Currently, §301.6335-1(c)(5)(iv)(b)
provides that if the aggregate price of
all property purchased by a successful
bidder at a sale is more than $200, the
bidder must make an initial payment of
$200 or 20 percent of the purchase price,
whichever is greater. These thresholds
are not required by statute. To give the
IRS greater flexibility to set the terms
for payment, §301.6335-1(c)(5)(iv)(b),
which is proposed to be redesignated as
§301.6335-1(d)(5)(iv)(B), is proposed
to be amended to remove the $200 or 20
percent requirements, and provide that the
public notice of sale, or the instructions
referenced in the notice, will specify the
amount of the initial payment that must be
made when full payment is not required
upon acceptance of the bid.
D. Method of Sale
Section 6335(e)(2)(A) of the Code
specifies that sales of seized property
cannot be conducted in any manner other
than by public auction or by public sale
under sealed bids. Sections 301.6335-1(c)
(6)(i) and (ii) reiterate that rule. Section
301.6335-1(c)(6)(ii) provides procedures
applicable to public sales under sealed
bids. Some of those procedures apply to
public auctions. For example, under cur-
rent IRS practice, in a public auction sale,
the IRS may accept mail-in bids, so long
as the form of payment, the amount of the
bid, and the location and time for a bid’s
submission comply with the terms in the
public notice of sale. I.R.M. 5.10.4.4.1
(Aug. 29, 2017). Those rules closely
align with the procedures for submitting
bids for sealed bid sales. Accordingly ,
in §301.6335-1, paragraphs (c)(6)(i) and
(ii) are proposed to be collapsed into one
paragraph, proposed (d)(6), and, except
where specifically noted, the provisions
under §301.6335-1(c)(6)(ii) are proposed
to be revised (and redesignated as provi-
sions under §301.6335-1(d)(6)) as follows
to apply to all sales under section 6335 of
the Code.
1. Form for Use by Bidders
Section 301.6335-1(c)(6)(ii)(b) cur-
rently requires that bidders use the form
provided by the IRS upon the bidder’s
request. The provision, which is proposed
to be redesignated §301.6335-1(d)(6)(ii),
is proposed to be amended to provide that
the bidder should use the form or submis-
sion method specified in the notice of sale
or in instructions referenced by the notice.
For example, the notice of sale may direct
bidders to a specific website for the form
or method of bid submission.
2. Remittance and Payment Methods
In section 301.6335-1, paragraphs (c)
(6)(ii)(c) and (c)(7) currently specify how
bid remittances and payments of bid prices
are to be made. Those sections require
that remittances and payments be made by
check or money order. This requirement
precludes other commercially acceptable
payment options—such as electronic pay-
ments, credit or debit card payments, or
any other commercially acceptable means
authorized by the IRS—even though
section 6335 of the Code does not limit
the methods by which bidders can make
remittances or pay the bid price. Section
301.6335-1(c)(6)(ii)(c), which is proposed
to be redesignated §301.6335-1(d)(6)(iii),
and §301.6335-1(c)(7), which is proposed
to be redesignated §301.6335-1(d)(7), are
thus proposed to be amended to provide
that remittances and payments are to be
made in the manner specified in the notice
of sale or in instructions referenced by the
notice. For example, the public notice of
sale or its instructions could specify that
all remittances or payments for a partic-
ular sale must be made by check, credit
or debit card, or a particular form of elec-
tronic payment.
3. Amount of Remittance with Bid
Section 301.6335-1(c)(6)(ii)(c) cur-
rently specifies the amount of money a
bidder must remit with a sealed bid. Under
that section, if the total bid is $200 or less,
then the bidder must remit the full amount
and, if the total bid is more than $200, then
the bidder must remit the greater of $200
or 20 percent of the bid.
Section 6335 of the Code does not
specify any amount that must be remit-
ted with a bid except where full payment
is required. Additionally, as previously
stated, the amounts currently required by
§301.6335-1(c)(6)(ii)(c) have never been
updated. To give the IRS flexibility to set
the terms for bidding, §301.6335-1(c)(6)
(ii)(c), which is proposed to be redesig-
nated §301.6335-1(d)(6)(iii), is proposed
to be amended by removing the specific
$200 threshold. This provision is proposed
to provide that the public notice of sale, or
instructions referenced in the notice, will
specify the amount, if any, required as a
remittance with a bid.
4. Method of Submitting and Withdrawing
Bids
Section 301.6335-1(c)(6)(ii)(d) spec-
ifies the manner for submitting sealed
bids. The provision requires that sealed
bids be submitted in a sealed envelope.
That requirement precludes electronic
submission of sealed bids. The provision
also does not address how bidders in a
public auction should submit bids. The
provision, which is proposed to be redes-
ignated §301.6335-1(d)(6)(iv), is pro-
posed to provide that bids for a particular
sale—whether public auction or public
sale under sealed bids and whether online
or not—be submitted in the manner pre-
scribed by the IRS in the notice of sale or
in instructions referenced by the notice.
Section 301.6335-1(c)(6)(ii)(f) speci-
fies that sealed bids may be withdrawn in
writing or by telegraphic request before
the time fixed for the opening of bids.
To permit electronic bid withdrawals, the
provision, which is proposed to be redes-
ignated §301.6335-1(d)(6)(vi), is pro-
posed to be amended to provide that bid
withdrawals may be made in any manner
that is specified in the notice of sale or in
instructions referenced by the notice.
5. Consideration of Bids
Section 301.6335-1(c)(6)(ii)(e) cur-
rently provides that if, at a public sale

Bulletin No. 2023–44 1217 October 30, 2023
under sealed bids, there is a tie amongst
bids for the highest amount the IRS will
determine the successful bidder by draw-
ing lots. The provision, which is proposed
to be redesignated §301.6335-1(d)(6)(v),
is proposed to be amended to provide that
the IRS will reopen the bidding until a
highest bid is submitted without any ties.
This change is consistent with the IRS’s
current practice.
E. Personnel Involved in Sale
Section 3443 of the Internal Revenue
Service Restructuring and Reform Act
(Act), Public Law No. 105-206, 112
Stat. 685, 762 (1998), requires the IRS
to “implement a uniform asset disposal
mechanism for sales under section 6335”
that “should be designed to remove any
participation in such sales by revenue offi-
cers.” Section 3443 of the Act does not
apply to sales of perishable goods under
section 6336 of the Code.
To implement section 3443 of the Act,
the IRS created the position of Property
Appraisal and Liquidation Specialist
(PALS). A PALS conducts sales of prop-
erty seized under section 6335 of the
Code. In doing so, they often receive
assistance from other IRS employees in
performing certain ministerial activities,
such as delivering notices of sale and log-
ging the receipt of sealed bids. Revenue
officers have long been called on to assist
an assigned PALS with those ministerial
activities.
In enacting section 3443 of the Act,
Congress sought to address a lack of uni-
formity and fairness in the sales process,
such as that caused by potential bias of the
revenue officer who seized the property to
be sold. In the Conference Report to the
Restructuring and Reform Act, the confer-
ees recognized that tax sales were “often
conducted by the revenue officer charged
with collecting the tax liability.” H.R. Rep.
No. 105-559, at 284 (1998). Additionally,
the Senate Report accompanying the
Restructuring and Reform Act stated that
the Finance Committee “believes that it
is important for fairness and the appear-
ance of propriety that the revenue officers
charged with collecting unpaid tax liabil-
ity are not personally involved with the
sale of seized property.” S. Rep. No. 105-
174, at 85 (1998). Those statements reflect
the concern that the revenue officer who
seized the property does not participate in
the property’s sale.
New proposed §301.6335-1(d)(11)
would address that concern by precluding
any revenue officer who participated in
the seizure of the property to be sold from
participating in the sale. This proposed
amendment is intended to provide clar-
ity to the IRS in making decisions about
which employees will be assigned to con-
duct sales or perform related ministerial
duties and that the restriction on partici-
pation in sales does not apply to sales of
perishable goods conducted under section
6336 of the Code.
F. Other Changes
This proposed regulation would also
make non-substantive updates throughout
§301.6335-1. First, current §301.6335-
1(a) is proposed to be redesignated and
divided into two paragraphs, §301.6335-
1(b)(1) and (2). Second, current
§301.6335-1(a) and (b)(1) use the term
“internal revenue district.” The usage
matches that in sections 6335(a) and (b)
of the Code. But changes to the IRS’s
organizational structure following the
Internal Revenue Service Restructuring
and Reform Act eliminated “internal rev-
enue districts.” See section 1001(a), 112
Stat. at 689; Grunsted v. Commissioner,
136 T.C. 455, 461 (2011). The current
analogous successor to an internal reve-
nue district is a field collection territory.
See I.R.M. 1.1.16.3.1.1.1 (June 1, 2016);
I.R.M. 5.10.3.9 (May 23, 2016); I.R.M.
5.10.4.9 (Aug. 29, 2017). Proposed
§301.6335-1(b)(1) would thus provide
that the term “internal revenue district”
includes a field collection territory or
other successor IRS subdivision or office.
Third, where the current regulation refers
to various job titles within the IRS, some
of which no longer exist, the references
have been replaced with more general ref-
erences to territories or to the IRS or to
its employees. Fourth, where the current
regulation, in §301.6335-1(a) and (b),
refers to giving a notice of seizure or sale
to an individual (in their role as owner or
possessor), the references are proposed to
be replaced with references to the owner
or possessor because an entity could
also be an owner or possessor. Fifth, this
proposed regulation would also elimi-
nate §301.6335-1(c)(3)(iii) and (c)(4)
(iv), which deal with effective dates of
the current regulation for sales made after
December 17, 1996. Since all sales going
forward will occur after that date, those
provisions are no longer necessary. Sixth,
some four-level headings in the current
regulation have differing capitalization
in their numbering. Compare §301.6335-
1(c)(3)(ii)(a) and (d)(2)(ii)(A). This
proposed regulation would align the
capitalization of those headings by, for
example, redesignating §301.6335-1(c)
(3)(ii)(a) as §301.6335-1(d)(3)(ii)(A) and
§301.6335-1(c)(5)(ii)(a) as §301.6335-
1(d)(5)(ii)(A). And seventh, cross-refer-
ences to entries that are proposed to be
redesignated would be revised to match
the redesignations.
Proposed Applicability Date
The proposed rules are proposed to
apply to sales of property seized on or after
the date of publication of the Treasury
decision adopting the proposed rules as
final regulations in the Federal Register.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum
of Agreement, Review of Treasury
Regulations under Executive Order 12866
(June 9, 2023), tax regulatory actions
issued by the IRS are not subject to the
requirements of section 6(b) of Executive
Order 12866, as amended. Therefore,
a regulatory impact assessment is not
required.
II. Regulatory Flexibility Act
It is hereby certified that these proposed
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6). This
certification is based on the fact that the
proposed regulations solely conform the
prescribed manner and conditions of sales
of seized property with modern practices.
In comparison to the existing procedures,
the proposed regulations benefit tax-
payers by making the sales process both

October 30, 2023 1218 Bulletin No. 2023–44
more efficient and more likely to produce
higher sales prices.
Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of
proposed rulemaking has been submit-
ted to the Chief Counsel of the Office
of Advocacy of the Small Business
Administration for comment on its impact
on small businesses.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a State,
local, or Tribal government, in the aggre-
gate, or by the private sector, of $100 mil-
lion in 1995 dollars, updated annually for
inflation. This rule does not include any
Federal mandate that may result in expen-
ditures by State, local, or Tribal govern-
ments, or by the private sector in excess of
that threshold.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Executive
Order. These proposed regulations do
not have federalism implications and do
not impose substantial direct compliance
costs on State and local governments or
preempt State law within the meaning of
the Executive Order.
Comments and Requests for Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to comments that
are submitted timely to the Treasury
Department and the IRS as prescribed in
the preamble under the “ADDRESSES”
section. The Treasury Department and
the IRS request comments on all aspects
of the proposed regulations. Any elec-
tronic and paper comments submitted
will be available at www.regulations.
gov or upon request. A public hearing
will be scheduled if requested in writ-
ing by any person that timely submits
written comments. If a public hearing
is scheduled, notice of the date, time,
and place for the public hearing will
be published in the Federal Register.
Announcement 2023-16, 2023-20 I.R.B.
854 (May 15, 2023), provides that pub-
lic hearings will be conducted in person,
although the IRS will continue to pro-
vide a telephonic option for individuals
who wish to attend or testify at a hearing
by telephone. Any telephonic hearing
will be made accessible to people with
disabilities.
Drafting Information
The principal author of this regu-
lation is Micah A. Levy, Office of the
Associate Chief Counsel (Procedure and
Administration). However, other person-
nel from the IRS and Treasury Department
participated in the development of this
regulation.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 301 as follows:
Part 301—PROCEDURE AND
ADMINISTRATION
1. The authority citation for part 301
continues to read in part as follows:
Authority: 26 U.S.C. 7805.
2. Amend § 301.6335-1 by:
a. Redesignating paragraphs (a)
through (d) as paragraphs (b) through (e),
respectively.
b. Adding a new paragraph (a);
c. Revising newly designated para-
graphs (b) and (c)(1) and (2);
d. Adding a subject heading to newly
redesignated paragraph (c)(3);
e. Revising newly redesignated para-
graphs (d)(1) and (2) and (d)(3)(i) and (ii);
f. Removing newly redesignated para-
graph (d)(3)(iii);
g. Revising newly redesignated para-
graph (d)(4)(iii);
h. Removing newly redesignated para-
graph (d)(4)(iv);
i. Revising newly redesignated para-
graphs (d)(5)(i), (ii), and (iv), (d)(6), (7),
and (9);
j. Adding paragraph (d)(11);
k. Revising newly redesignated para-
graphs (e)(1) and (3); and
l. Adding paragraph (f).
The revisions and addition read as
follows:
§301.6335-1 Sale of seized property.
(a) In general. Section 6335 of the
Internal Revenue Code (Code) and this
section provide the rules under which the
Internal Revenue Service (IRS) conducts
sales of property seized by levy.
(b) Notice of seizure–(1) Issuance and
delivery. As soon as practicable after sei-
zure of property, the IRS must give writ-
ten notice to the property’s owner (or,
in the case of personal property, to the
property’s possessor). The written notice
must be delivered to the owner (or to the
possessor, in the case of personal prop-
erty) or left at the owner’s usual place of
abode or business if there is such within
the internal revenue district in which
the seizure is made. If the owner cannot
be readily located or has no dwelling or
place of business within such district,
the notice may be mailed to the owner’s
last known address. For purposes of this
section, the term internal revenue district
means an internal revenue district within
the meaning of section 7621 of the Code
and includes an IRS field collection terri-
tory or other successor IRS subdivision or
office.
(2) Contents. The notice of seizure
must specify the sum demanded and con-
tain, in the case of personal property, a list
sufficient to identify the property seized
and, in the case of real property, a descrip-
tion with reasonable certainty of the prop-
erty seized.
(c) * * *

Bulletin No. 2023–44 1219 October 30, 2023
(1) In general. As soon as practica-
ble after seizure of the property, the IRS
must give notice of sale in writing to the
owner. Such notice will be delivered to the
owner or left at the owner’s usual place
of abode or business if located within the
internal revenue district in which the sei-
zure is made. If the owner cannot be read-
ily located or has no dwelling or place of
business within such district, the notice
may be mailed to the owner’s last known
address. For further guidance regarding
the definition of last known address, see
§301.6212–2. The notice must specify the
property to be sold, and the time, place,
manner, and conditions of the sale thereof,
and must expressly state that only the
right, title, and interest of the delinquent
taxpayer in and to such property is to be
offered for sale. The notice will also be
published in some newspaper published
in the county wherein the seizure is made
or in a newspaper generally circulated in
that county. For example, if a newspaper
of general circulation in a county but not
published in that county will reach more
potential bidders for the property to be
sold than a newspaper published within
the county, or if there is a newspaper of
general circulation within the county
but no newspaper published within the
county, the IRS may publish the notice of
sale in the newspaper of general circula-
tion within the county. If there is no news-
paper published or generally circulated
in the county, the notice will be posted at
the post office nearest the place where the
seizure is made, to the extent authorized
under law, and in not less than two other
public places.
(2) Alternative methods. The IRS may
use other methods of giving notice of
sale and of advertising seized property, in
addition to those referred to in paragraph
(c)(1) of this section, if the IRS believes
that the nature of the seized property to be
sold is such that a wider or more special-
ized advertising coverage will enhance the
possibility of obtaining a higher price for
the seized property.
(3) Exception. * * *
(d) * * *
(1) Time and place of sale. The sale
will be held at the time and place stated
in the notice of sale. The time of sale will
not be less than ten days nor more than
40 days from the time of giving public
notice under section 6335(b) of the Code
and paragraph (c) of this section. The
place of an in-person sale will be within
the county in which the property is seized,
except such sale may be held at a place
outside that county if the IRS determines,
by special order of a delegated official,
that substantially higher bids may be
obtained for the property by holding the
sale in such other county. The place of an
online sale will generally be the county in
which the property is seized. If, based on
the facts and circumstances, the IRS deter-
mines that the place of an online sale is not
within the county in which the property is
seized, the sale may be conducted online
by special order when doing so would be
more efficient or would likely result in
more competitive bids.
(2) Adjournment of sale. When it
appears that an adjournment of the sale
will best serve the interest of the United
States or that of the taxpayer, the IRS may
adjourn the sale from time to time, but the
date of the sale will not be later than one
month after the date fixed in the original
notice of sale.
(3) * * *
(i) Minimum price. Before the sale
of property seized by levy, the IRS will
determine a minimum price, taking into
account the expenses of levy and sale, for
which the property must be sold. The IRS
will either announce the minimum price
before the sale begins or defer announce-
ment of the minimum price until after the
receipt of the highest bid, in which case,
if the highest bid is greater than the mini-
mum price, no announcement of the mini-
mum price will be made.
(ii) Purchase by the United States.
Before the sale of seized property, the
IRS will determine whether the purchase
of the property by the United States at
the minimum price would be in the best
interest of the United States. In determin-
ing whether the purchase of the property
would be in the best interest of the United
States, the IRS may consider all relevant
facts and circumstances including, for
example—
(A) Marketability of property;
(B) Cost of maintaining the property;
(C) Cost of repairing or restoring the
property;
(D) Cost of transporting the property;
(E) Cost of safeguarding the property;
(F) Cost of potential toxic waste
cleanup; and
(G) Other factors pertinent to the type
of property.
* * * * *
(4) * * *
(iii) Release to owner. If the property
is not declared to be sold under paragraph
(d)(4)(i) or (ii) of this section, the property
will be released to the owner of the prop-
erty and the expense of the levy and sale
will be added to the amount of tax for the
collection of which the United States made
the levy. Any property released under this
paragraph (d)(4)(iii) will remain subject to
any lien imposed by subchapter C of chap-
ter 64 of subtitle F of the Code.
(5) * * *
(i) Sale of indivisible property. If any
property levied upon is not divisible, so as
to enable the IRS by sale of a part thereof
to raise the whole amount of the tax and
expenses of levy and sale, the whole of
such property will be sold. For application
of surplus proceeds of sale, see section
6342(b) of the Code.
(ii) Separately, in groups, or in the
aggregate. The IRS, in selecting how
seized property will be offered for sale,
will consider which method is likely to
produce the highest total sales price as
well as which method is most feasible.
The seized property may be offered for
sale—
(A) As separate items,
(B) As groups of items,
(C) In the aggregate, or
(D) Both as separate items (or in
groups) and in the aggregate, in which
case, the property will be sold under the
method that produces the highest aggre-
gate amount.
* * * * *
(iv) Terms of payment. The property
will be offered for sale in accordance with
whichever of the following terms is fixed
by the IRS in the public notice of sale:
(A) Payment in full upon acceptance of
the highest bid, or
(B) An initial payment upon accep-
tance of the highest bid if the payment is
in the amount (either the dollar amount
or the percentage of the purchase price)
specified in the notice of sale and followed
by payment of the balance (including all
costs incurred for the protection or pres-
ervation of the property subsequent to the

October 30, 2023 1220 Bulletin No. 2023–44
sale and prior to final payment) within a
specified period, not to exceed one month
from the date of the sale.
* * * * *
(6) Method of sale and sale procedures.
The IRS will sell the property either at a
public auction (at which open competitive
bids will be received) or at a public sale
under sealed bids.
(i) Invitation to bidders. Bids will be
solicited through a public notice of sale.
(ii) Form for use by bidders. A bid must
be submitted in the manner specified by
the IRS in the notice of sale or in instruc-
tions referenced by that notice.
(iii) Remittance with bid. The notice
of sale, or instructions referenced in the
notice, will specify the initial payment
amount, acceptable forms of the remit-
tance (such as check, credit or debit card,
electronic payment, or other means), and
the address (physical or online) at which
the bid and remittance must be submitted.
(iv) Time for receiving bids. A bid will
not be considered unless it is received in
the manner and before the time specified
in the notice of sale, instructions refer-
enced in the notice, or in the announce-
ment of the adjournment of the sale.
(v) Consideration of bids. The pub-
lic notice of sale will specify whether
the property is to be sold separately, by
groups, or in the aggregate, or by a com-
bination of these methods, as provided in
paragraph (d)(5)(ii) of this section. If the
notice, or instructions referenced in the
notice, specifies an alternative method,
bidders may submit bids under one or
more of the alternatives. In case of error
in computing the total price of a group of
property in any bid, the unit price of each
piece of property will control. The IRS has
the right to waive any technical defects in
a bid. A technical defect in a bid is deemed
waived if the IRS treats it as the winning
bid. In the event two or more highest bids
are equal in amount, the IRS will reopen
the bidding until a high bid is submitted
without any ties. After the opening, exam-
ination, and consideration of all bids,
the IRS will announce the amount of the
highest bid or bids and the name of the
successful bidder or bidders. Any remit-
tance submitted in connection with an
unsuccessful bid will be returned at the
conclusion of the sale.
(vi) Withdrawal of bids. A bid may be
withdrawn only in the manner specified
in the notice of sale or in instructions ref-
erenced in the notice. A technical defect
in a bid confers no right on the bidder for
the withdrawal of the bid after it has been
opened or accepted.
(7) Payment of bid price. All payments
for property sold under this section must
be made in the form and manner (whether
by check, credit or debit card, electronic
payment, or other means) specified by
the IRS in the public notice of sale or in
instructions referenced in the notice. If
payment in full is required upon accep-
tance of the highest bid, the payment must
be made at the time and in accordance with
the terms specified in the notice of sale. If
deferred payment is permitted, the initial
payment must be made upon acceptance
of the bid at the time and in accordance
with the terms specified in the notice of
sale, and the balance must be paid on or
before the date fixed for payment thereof.
Any remittance submitted with a success-
ful bid will be applied toward the purchase
price.
* * * * *
(9) Default in payment. If payment in
full is required upon acceptance of the
bid and is not paid when due, the IRS will
proceed again to sell the property in the
manner provided in section 6335(e) of the
Code and this section. If the conditions
of the sale permit part of the payment to
be deferred, and if such part is not paid
within the prescribed period, suit may be
instituted against the purchaser for the
purchase price or such part thereof as
has not been paid, together with interest
at the rate of six percent per annum from
the date of the sale; or, in the discretion of
the IRS, the sale may be declared null and
void for failure to make full payment of
the purchase price and the property may
again be advertised and sold as provided
in subsections (b), (c), and (e) of section
6335 of the Code and this section. In the
event of such readvertisement and sale,
any new purchaser will receive such prop-
erty or rights to property free and clear of
any claim or right of the former default-
ing purchaser, of any nature whatsoever,
and the amount paid upon the bid price by
such defaulting purchaser will be forfeited
to the United States.
* * * * *
(11) Participation in sale by revenue
officers. No revenue officer who seized
the property to be sold at a sale conducted
under section 6335 of the Code and this
section may participate in the sale of that
seized property. This restriction does not
apply to sales of perishable goods con-
ducted under section 6336 of the Code.
(e) * * *
(1) In general. The owner of any prop-
erty seized by levy may request that the
IRS sell such property within 60 days after
such request, or within any longer period
specified by the owner. The IRS must
comply with such a request unless it deter-
mines that compliance with the request is
not in its best interests. If the IRS decides
not to comply with the request, it must
notify the owner of the determination
within the 60-day period, or any longer
period specified by the owner.
* * * * *
(3) Notification to owner. The IRS will
respond in writing to a request for sale
of seized property as soon as practicable
after receipt of such request and in no
event later than 60 days after receipt of
the request, or, if later, the date specified
by the owner for the sale.
(f) Applicability date. The rules of this
section apply to sales of property seized
on or after [DATE OF PUBLICATION
OF FINAL RULE].
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
(Filed by the Office of the Federal Register October
13, 2023, 8:45 a.m., and published in the issue of the
Federal Register for October 16, 2023, 88 FR 71323)

Bulletin No. 2023–44 i October 30, 2023
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 be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing 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 transactions.
This term is most commonly used in a ruling
that lists previously published rulings 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
period 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 previous-
ly 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 rul-
ings 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
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

October 30, 2023 ii Bulletin No. 2023–44
Numerical Finding List
1
Bulletin 2023–44
Announcements:
2023-18, 2023-30 I.R.B. 366
2023-19, 2023-30 I.R.B. 367
2023-20, 2023-30 I.R.B. 368
2023-17, 2023-31 I.R.B. 412
2023-21, 2023-31 I.R.B. 413
2023-22, 2023-32 I.R.B. 429
2023-23, 2023-34 I.R.B. 569
2023-24, 2023-35 I.R.B. 661
2023-25, 2023-37 I.R.B. 821
2023-26, 2023-37 I.R.B. 822
2023-28, 2023-37 I.R.B. 823
2023-29, 2023-41 I.R.B. 1064
Notices:
2023-29, 2023-29 I.R.B. 1
2023-45, 2023-29 I.R.B. 317
2023-47, 2023-29 I.R.B. 318
2023-37, 2023-30 I.R.B. 359
2023-50, 2023-30 I.R.B. 361
2023-51, 2023-30 I.R.B. 362
2023-54, 2023-31 I.R.B. 382
2023-53, 2023-32 I.R.B. 424
2023-55, 2023-32 I.R.B. 427
2023-57, 2023-34 I.R.B. 560
2023-58, 2023-34 I.R.B. 563
2023-59, 2023-34 I.R.B. 564
2023-52, 2023-35 I.R.B. 650
2023-61, 2023-35 I.R.B. 651
2023-62, 2023-37 I.R.B. 817
2023-56, 2023-38 I.R.B. 824
2023-63, 2023-39 I.R.B. 919
2023-64, 2023-40 I.R.B. 974
2023-66, 2023-40 I.R.B. 992
2023-68, 2023-41 I.R.B. 1060
2023-65, 2023-42 I.R.B. 1067
2023-67, 2023-42 I.R.B. 1074
2023-69, 2023-42 I.R.B. 1079
2023-71, 2023-44 I.R.B. 1191
Proposed Regulations:
REG-124123-22, 2023-30 I.R.B. 369
REG-124930-21, 2023-31 I.R.B. 431
REG-120730-21, 2023-33 I.R.B. 491
REG-134420-10, 2023-34 I.R.B. 571
REG-109348-22, 2023-35 I.R.B. 662
REG-120727-21, 2023-36 I.R.B. 670
REG-122793-19, 2023-38 I.R.B. 829
REG-100908-23, 2023-39 I.R.B. 931
REG-115559-23, 2023-42 I.R.B. 1082
REG-106203-23, 2023-43 I.R.B. 1143
REG-113064-23, 2023-43 I.R.B. 1144
Proposed Regulations:—Continued
REG-117614-14, 2023-44 I.R.B. 1193
REG-127391-16, 2023-44 I.R.B. 1214
Revenue Procedures:
2023-31, 2023-25 I.R.B. 386
2023-26, 2023-33 I.R.B. 486
2023-27, 2023-35 I.R.B. 655
2023-17, 2023-37 I.R.B. 819
2023-30, 2023-40 I.R.B. 995
2023-31, 2023-40 I.R.B. 1057
2023-32, 2023-41 I.R.B. 1064
2023-35, 2023-42 I.R.B. 1079
2023-28, 2023-43 I.R.B. 1092
2023-33, 2023-43 I.R.B. 1135
Revenue Rulings:
2023-13, 2023-32 I.R.B. 413
2023-14, 2023-33 I.R.B. 484
2023-15, 2023-34 I.R.B. 559
2023-15, 2023-34 I.R.B. 559
2023-16, 2023-37 I.R.B. 796
2023-17, 2023-37 I.R.B.
798
2023-18, 2023-40 I.R.B. 972
2023-19, 2023-41 I.R.B. 1059
Treasury Decisions:
9976, 2023-30 I.R.B. 354
9977, 2023-31 I.R.B. 375
9978, 2023-32 I.R.B. 415
9979, 2023-35 I.R.B. 602
9980, 2023-43 I.R.B. 1087
9981, 2023-44 I.R.B. 1174
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin
2023–52, dated December 27, 2023.

Bulletin No. 2023–44 iii October 30, 2023
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2023–44
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin
2023–52, dated December 27, 2023.

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