Internal Revenue Bulletin 2007-51 (PDF rendition): IRS Revenue Procedures

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

Bulletin No. 200
7-51
December 17, 200
7
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9364, page 1177.
REG–115910–07, page 1214.
Temporary and proposed regulations under section 6039I of
the Code will implement the authority given the Secretary to re-
quire information reporting on employer-owned life insurance.
REG–15188
4–03, page 1200.
Proposed r
egulations under section 381 of the Code provide
guidance r
egarding the accounting method or combination of
methods, i
ncluding inventory methods, to use following certain
corporate
reorganizations and tax-free liquidations. The regu-
lations wi
ll clarify and simplify the existing regulations.
EMPLOYEE PLANS
Notice 2007–94, page 1179.
Retirement plans; qualification, list of changes.This no-
tice sets forth a list of changes referred to in Rev. Proc.
2007–44, 2007–28 I.R.B. 54, pertaining to the statutory, reg-
ulatory, and guidance changes needed for certain requests to
the Service for opinion, advisory, and determination letters for
the 12–month period beginning February 1, 2008.
Rev. Pro
c. 2007–71, page 1184.
Tax-she
ltered annuities; written program; public
schools
; model amendments.This procedure sets forth
model am
endments that may be adopted in order to satisfy
certain
requirements for a definite written program for certain
tax-sh
eltered annuities under section 403(b) of the Code. This
revenu
e procedure also provides additional relief for certain
sectio
n 403(b) tax-sheltered annuity contracts.
EXEMPT ORGANIZATIONS
Announcement 2007–113, page 1215.
This announcement is a public notice of the suspension of the
federal tax exemption under section 501(p) of the Code of a
certain organization that has been designated as supporting
or engaging in terrorist activity or supporting terrorism. Contri-
butions made to this organization during the period that the or-
ganization’s tax-exempt status is suspended are not deductible
for federal tax purposes.
Announce
ment 2007–115, page 1216.
The IRS ha
s revoked its determination that Somolian Women’s
Associat
ion of Hopkins, MN; The Charitable ASP Family Foun-
dation of
Sun City, AZ; Prisma Zona Explorotia De Puerto Rico
of San Jua
n, PR; Design Coalition, Inc., of Madison, WI; RVing
Women of A
pache Junction, AZ; Black Heritage Society, Inc., of
Houston
, TX; Affordable Housing USA, Inc., of Camarillo, CA;
Consume
r Credit Education and Counseling, Inc., of Huntsville,
AL; Unit
ed Debt Counseling, Inc., of Fort Lauderdale, FL; and
Chicago
Principals and Administrators of Chicago, IL, qualify
as orga
nizations described in section 501(c)(3) and 170(c)(2)
of the C
ode.
Announcement 2007–117, page 1217.
A list is provided of organizations now classified as private foun-
dations.
ADMINI
STRATIVE
Announ
cement 2007–116, page 1216.
This do
cument contains a correction to proposed regulations
(REG–1
40206–06, 2007–46 I.R.B. 1006) relating to a with-
holdi
ng agent’s obligation to withhold and report tax under
Chapt
er 3 of the Code.
Fi
nding 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 by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
December 17, 20072007–51 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 403.—Taxation of
Employee Annuities
26 CFR 1.403(b)–3: Exclusion for contributions to
purchase section 403(b) contracts.
Whether there are model amendments for pub-
lic schools that address the provisions of section
1.403(b) of the Income Tax Regulations. See Rev.
Proc. 2007-71, page 1184.
Section 6039.—Returns
Required in Connection
With Certain Options
26 CFR 1.6039–1T: Reporting of certain employer-
owned life insurance contracts (temporary).
T.D. 9364
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Information Reporting
on Employer-Owned Life
Insurance Contracts
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations concerning infor-
mation reporting on employer-owned life
insurance contracts under section 6039I of
the Internal Revenue Code (Code). This
temporary regulation is necessary to pro-
vide taxpayers with immediate guidance
as to how the requirements of section
6039I should be applied. The temporary
regulations generally apply to taxpayers
that are engaged in a trade or business and
that are directly or indirectly a beneficiary
of a life insurance contract covering the
life of an insured who is an employee of
the trade or business on the date the con-
tract is issued. The text of these temporary
regulations also serves as the text of pro-
posed regulations (REG–115910–07) set
forth in the notice of proposed rulemaking
on this subject elsewhere in this issue of
the Bulletin.
DATES:Effective Date:These regulations
are effective on November 13, 2007.
Applicability Date:For date of applica-
bility, see §1.6039I–1T(b).
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Linda K. Boyd, 202–622–3970 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
The Pension Protection Act of 2006,
Public Law 109–280, 120 Stat. 780
(2006), added sections 101(j) and 6039I
to the Internal Revenue Code (Code) con-
cerning employer-owned life insurance
contracts.
Section 101(j)(1) provides that, in the
case of an employer-owned life insurance
contract, the amount of death benefits
excluded from gross income under sec-
tion 101(a)(1) shall not exceed an amount
equal to the sum of the premiums and
other amounts paid by the policyholder
for the contract. For this purpose, an em-
ployer-owned life insurance contract is a
life insurance contract that (i) is owned by
a person engaged in a trade or business
and under which such person is directly or
indirectly a beneficiary under the contract,
and (ii) covers the life of an insured who
is an employee with respect to the trade or
business on the date thecontract is issued.
An applicable policyholder is generally a
person who owns an employer-owned life
insurance contract, or a related person as
described in section 101(j)(3).
Section 101(j)(2) provides exceptions
to the general rule of section 101(j)(1) in
the case of certain employer-owned life
insurance contracts with respect to which
certain notice and consent requirements
are met. Those exceptions are based either
on(i)theinsured’sstatusasanemployee
within 12 months of death or as a highly
compensated employee or highly compen-
sated individual, or (ii) the extent to which
death benefits are paid to a family member,
trust, or estate of the insured employee, or
are used to purchase an equity interest in
the applicable policyholder from a family
member, trust or estate.
Section 6039I provides that every appli-
cable policyholder that owns one or more
employer-owned life insurance contracts
shall file a return, at such time and in such
manner as the Secretary shall prescribe by
regulations, showing for each year the con-
tracts are owned—
(1) The number of employees of the
applicable policyholder at the end of the
year;
(2) The number of such employees in-
sured under such contracts at the end of the
year;
(3) The total amount of insurance in
force at the end of the year under such
contracts;
(4) The name, address, and taxpayer
identification number of the applicable
policyholder and the type of business in
which the policyholder is engaged; and
(5) That the policyholder has a valid
consent for each insured employee (or,
if not all such consents are obtained, the
number of insured employees for whom
such consent was not obtained).
Section 6039I(c) provides that any term
used in section 6039I that is used in section
101(j) has the same meaning given that
term by section 101(j).
Sections 101(j) and 6039I apply to life
insurance contracts issued after August 17,
2006, except for a contract issued after that
date pursuant to a section 1035 exchange
for a contract issued before that date. For
this purpose, a material increase in the
death benefit or other material change
causes the contract to be treated as a new
contract except that, in the case of a mas-
ter contract within the meaning of section
264(f)(4)(E), the addition of covered lives
is treated as a new contract only with re-
spect to those additional covered lives.
These temporary regulations provide
that the Commissioner may prescribe the
form and manner of satisfying the re-
porting requirements imposed by section
6039I on applicable policyholders owning
one or more employer-owned life insur-
ance contracts issued after August 17,
2006. The regulations are effective on
November 13, 2007, and apply to taxable
years ending after that date.
2007–51 I.R.B.1177December 17, 2007

Special Analyses
It has been determined that this tempo-
rary regulation is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to this regulation.
The Regulatory Flexibility Act
(5 U.S.C. chapter 6) does not apply to
this temporary regulation because the
regulation does not impose a collection
of information on small entities. Even
though a substantial number of small busi-
nesses may be subject to the requirements
of section 6039I, it is anticipated that
whatever requirements the Commissioner
may prescribe pursuant to this regulation
will not impose a “significant economic
impact” because the information requested
will already be available to taxpayers and
the burden of compliance will be minimal.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, this regulation has been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Linda K. Boyd, Office of Asso-
ciate Chief Counsel (Financial Institutions
& Products). However, other personnel
from the IRS and Treasury Department
participated in their development.
*****
Amendments to the Regulations
Accordingly
, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6039I–1T also issued under
26 U.S.C. 6039I. * * *
Par. 2. Section 1.6039I–1T is added to
read as follows:
§1.6039I–1T Reporting of certain
employer-owned life insurance contracts
(temporary).
(a)In general. The Commissioner may
prescribe the form and manner of satisfy-
ing the reporting requirements imposed by
section 6039I on applicable policyholders
owning one or more employer-owned life
insurance contracts issued after August 17,
2006.
(b)Effective/applicability date.These
regulations are applicable for tax years
ending after November 13, 2007.
(c)Expiration date.The applicability
of this section expires on or before Novem-
ber 9, 2010.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved November 2, 2007.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register for November
9, 2007, 8:45 a.m., and published in the issue of the Federal
Register for November 13, 2007, 72 F.R. 63806)
December 17, 200711782007–51 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
2007 Cumulative List of
Changes in Plan Qualification
Requirements
Notice 2007–94
I. PURPOSE
This notice contains the 2007 Cumu-
lative List of Changes in Plan Qualifi-
cation Requirements (2007 Cumulative
List) described in section 4 of Rev. Proc.
2007–44, 2007–28 I.R.B. 54. The 2007
Cumulative List is to be used primarily
by plan sponsors of individually designed
plans that are in Cycle C. An individually
designed plan is in Cycle C if it is a single
employer plan where the last digit of the
employer identification number of the plan
sponsor is 3 or 8, or it is a § 414(d) gov-
ernmental plan (including a governmental
multiemployer plan or governmental mul-
tiple employer plan).
The list of changes in section V of this
notice does not extend the deadline by
which a plan must be amended to com-
ply with any statutory, regulatory, or guid-
ance changes. The general deadline for
timely adoption of an interim or discre-
tionary amendment canbe found in section
5.05 of Rev. Proc. 2007–44.
II. BACKGROUND
Rev. Proc. 2007–44 sets forth pro-
cedures for issuing opinion, advisory,
and determination letters and describes
the five-year remedial amendment cycle
for individually designed plans and the
six-year remedial amendment cycle for
pre-approved plans.In addition, section
5.05 of Rev. Proc. 2007–44 provides the
deadline for timely adoption of an interim
amendment or discretionary amendment
Under section 4 of Rev. Proc. 2007–44,
the Internal Revenue Service intends to
annually publish a Cumulative List to
identify statutory, regulatory and guidance
changes that must be taken into account
in submissions by plan sponsors to the
Service for opinion, advisory and determi-
nation letters whose remedial amendment
period begins on February 1st following
issuance of the Cumulative List.
In Notice 2007–3, 2007–2 I.R.B. 255,
the Service published the 2006 Cumula-
tive List of Changes in Plan Qualification
Requirements (2006 Cumulative List). In
Notice 2005–101, 2005–2 C.B. 1219, the
Service published the 2005 Cumulative
List of Changes in Plan Qualification Re-
quirements (2005 Cumulative List). In
Notice 2004–84, 2004–2 C.B. 1030, the
Service published the 2004 Cumulative
List of Changes in Plan Qualification Re-
quirements (2004 Cumulative List).
III. APPLICATION OF 2007
CUMULATIVE LIST
This notice is being issued for purposes
of the determination letter program for
plans submitted for determination letters
during the Cycle C submission period.
In Rev. Proc. 2005–66, the Service an-
nounced the opening of the initial five-year
remedial amendment cycle. In accordance
with Rev. Proc. 2007–44, the Service
will start accepting determination letter
applications for Cycle C plans beginning
on February 1, 2008. The 12-month sub-
mission period for Cycle C plans will end
January 31, 2009.
The 2007 Cumulative List, set forth
in section V of this notice, informs plan
sponsors of issues the Service has specif-
ically identified for review in determining
whether a plan filing in Cycle C has been
properly updated. Specifically, the 2007
Cumulative List reflects law changes un-
der the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA),
Pub. L. 107–16 (with technical correc-
tionsmadebytheJobCreationandWorker
Assistance Act of 2002 (JCWAA), Pub.
L. 104–147, the Pension Funding Equity
Act of 2004 (PFEA), Pub. L. 108–218,
the American Jobs Creation Act of 2004
(AJCA), Pub. L. 108–357, the Gulf Op-
portunity Zone Act of 2005 (GOZA), Pub.
L. 109–135, and the U.S. Troop Readiness,
Veterans’ Care, Katrina Recovery, and Iraq
Accountability Appropriations Act, 2007,
Pub. L. 110–28.
The Service will not consider in its re-
view of any determination letter applica-
tion, for the submission period that begins
February 1, 2008, any:
(1) guidance published after October 1,
2007;
(2) statutes enacted after October 1,
2007;
(3) qualification requirements first ef-
fective in 2009 or later; or
(4) statutory provisions that are first ef-
fective in 2008, for which there is no guid-
ance identified in this notice.
The 2007 Cumulative List does not in-
clude any items described in (1) through
(4) above. However, in order to be quali-
fied, a plan must comply with all relevant
qualification requirements, not just those
on the 2007 Cumulative List.
Terminating plans must include all law
changes in effect at the time of termination.
See section 8 of Rev. Proc. 2007–44 re-
garding plan termination.
IV. SPECIAL RULES FOR THE
PENSION PROTECTION ACT OF 2006
Under section 1107 of the Pension Pro-
tection Act of 2006 (PPA ’06), Pub. L.
109–280, a plan amendment made pur-
suant to any amendment made by PPA ’06
generally may be retroactively effective,
if, in addition to meeting the other applica-
ble requirements, the amendment is made
on or before the last day of the first plan
year beginning on or after January 1, 2009
(January 1, 2011 in the case of a govern-
mental plan). Section VI of this notice in-
cludes certain PPA ’06 law changes effec-
tive in 2008 or earlier.
Plans submitting in Cycle C can be
amended, at the option of plan sponsors,
to include the applicable PPA ’06 provi-
sions listed in section VI of this notice.
Cycle C plans must identify which PPA ’06
provisions the plan has been amended to
include and the plan provision that reflects
the PPA ’06 provision when submitting
the determination letter application. How-
ever, the Service will not consider PPA ’06
in issuing determination letters for Cycle
C plans, and such letters cannot be relied
on with respect to any plan provision iden-
tified as reflecting PPA ’06, regardless
of whether the plan has been amended to
reflect PPA ’06 provisions.
Terminating plans must include the ap-
plicable PPA ’06 provisions that are in ef-
fect at the time of termination.
2007–51 I.R.B.1179December 17, 2007

V. 2007 CUMULATIVE LIST OF
CHANGES IN PLAN QUALIFICATION
REQUIREMENTS
The following list consists of statutory
provisions and associated guidance which
reflect changes to plan qualification re-
quirements. Miscellaneous guidance is
also provided. The Service has identi-
fied below plan qualification requirements
which were not on the 2006 Cumulative
List as “(New)”. Thus, the 2007 Cumu-
lative List contains those plan qualifica-
tion requirements listed in the 2004, 2005,
and2006CumulativeListsaswellasad-
ditional 2007 plan qualification require-
ments.
1.72(p): Section 1.72(p)–1 of the In-
come Tax Regulations relating to plan
loans was published on December 3,
2002 (67 Fed. Reg. 71821). (2004
C. L.).
2.401(a): Final Regulations under
§ 401(a) of the Code regarding per-
missible normal retirement ages were
published May 22, 2007 (72 Fed.
Reg. 28604). (2006 C. L.).
•Notice 2007–69, 2007–35 I.R.B.
468, provides temporary relief,
until the first day of the first plan
year that begins after June 30,
2008, for certain pension plans un-
der which the definition of normal
retirement age may be required
to be changed to comply with the
regulations. Accordingly, the fi-
nal regulations will not be taken
into account in the Service’s re-
view of plans submitted for deter-
mination letters during the Cycle
C submission period unless the
plan, by its terms, is ineligible for
the relief under Notice 2007–69 or
the relief ends for the plan before
December 31, 2008. (New).
3.401(a)(4):
•Amendments to § 1.401(a)(4)–8
of the Regulations relating to new
comparability plans were pub-
lished on June 29, 2001 (66 Fed.
Reg. 34535). (2004 C. L.).
•Rev. Rul. 2001–30, 2001–2
C.B. 46. (2004 C. L.).
•Amendments to § 1.401(a)(4)–9
of the Regulations relating to new
comparability plans were pub-
lished on June 29, 2001 (66 Fed.
Reg. 34535). (2005 C. L.).
•Rev. Rul. 2004–21, 2004–1 C.B.
544. (2005 C. L.).
4.401(a)(9):
•Sections 1.401(a)(9)–1 through –9
of the Regulations were published
on April 17, 2002 and June 15,
2004 (67 Fed. Reg. 18988 and 69
Fed. Reg. 33288). (2004 C. L.).
5.401(a)(17):
Section 401(a)(17) of the Code was
amended by § 611(c) of EGTRRA
to increase the compensation limit to
$200,000. (2004 C. L.).
•Notice 2001–56, 2001–2 C.B.
277. (2004 C. L.).
6.401(a)(31):
•Section 401(a)(31) was amended
by§643(b)ofEGTRRAtoallow
employees’ after-tax contribu-
tions to be rolled over under cer-
tain circumstances. (2004 C. L.).
•Section 401(a)(31)(B) was
amended by § 657(a) of EGTRRA
(asamendedby§411(t)of
JCWAA) to provide for the au-
tomatic rollover of certain manda-
tory distributions. The effective
date is March 28, 2005. (2004
C. L.).
•Notice 2005–2, 2005–1 C.B.
337. (2004 C. L.).
•Sections 641, 642 and 643
of EGTRRA (as amended by
§411(q)ofJCWAA)amended
the definition of eligible retire-
ment plan in § 402 of the Code to
include a § 403(b) annuity con-
tract and eligible governmental
§ 457(b) plan. (2004 C. L.).
•Section 636(b) of EGTRRA mod-
ified the definition of eligible
rollover distribution to exclude
hardship distributions. (2004
C. L.).
7.401(k) & 401(m):
•Section401(k)(2)and
§ 401(k)(10) of the Code were
amended by § 646(a)(1) of
EGTRRA to permit distribu-
tions of elective deferrals from
a § 401(k) plan upon severance
from employment. (2004 C. L.).
•Notice 2002–4, 2002–1 C.B.
298. (2004 C. L.).
•Section 636(a) of EGTRRA di-
rected the Secretary of the Trea-
sury to revise the regulations relat-
ing to safe harbor hardship distri-
butions of elective deferrals from
§ 401(k) plans so that the time the
employee is prohibited from mak-
ing elective and employee contri-
butions is reduced from one year
to six months after a hardship dis-
tribution. (2004 C. L.).
•Notice 2001–56. (2004 C. L.).
•Notice 2002–4. (2004 C. L.).
•Section 401(k)(11) of the Code
wasamendedby§611(f)of
EGTRRA to increase the maxi-
mum amount of qualified salary
reduction contributions that can
be made to SIMPLE 401(k) plans.
(2004 C. L.).
•Section402(g)oftheCodewas
amended by § 611(d) of EGTRRA
to increase the applicable dollar
amount. (2004 C. L.).
•Section 401(m)(9) of the Code
was amended by § 666 of
EGTRRA to eliminate the mul-
tiple use test. (2004 C. L.).
•Final Regulations under § 401(k)
and § 401(m) of the Code were
published on December 29, 2004
(69 Fed. Reg. 78144). (2004
C. L.).
•Announcement2007–59,
2007–25 I.R.B. 1448, provides
that a plan will not fail to satisfy
the requirements of a § 401(k)
safe harbor plan because of a
mid-year change to implement a
designated Roth contribution pro-
gram. (New).
8.402A: Section 402A of the Code was
addedby§617ofEGTRRAtooffer
optional treatment of elective defer-
rals as designated Roth contributions
to defined contribution plans, effec-
tive for taxable years beginning after
December 31, 2005. (2004 C. L.).
•Final Regulations under § 401(k)
and § 401(m) of the Code relating
December 17, 200711802007–51 I.R.B.

to designated Roth contributions
were published on January 3, 2006
(71 Fed. Reg. 6). (2005 C. L.).
•Notice 2006–44, 2006–1
C.B. 889, provides a sample
amendment for Roth § 401(k)
plans. (2006 C. L.).
•Final Regulations under § 402A of
the Code were published on April
30, 2007 (72 Fed. Reg. 21103).
1
(2006 C. L.).
9.404:
•Section 404(k)(2)(A) of the
Code was amended by § 662(a)
of EGTRRA (as amended by
§ 411(w) of JCWAA) to allow
ESOP dividends to be reinvested
without the loss of dividend de-
ductions. (2005 C. L.).
•Notice 2002–2, 2002–1 C.B.
285, provides guidance with
respect to the changes made to
§ 404(k) of the Code and on
theeffectivedateof§409(p)
of the Code. (2005 C. L.).
10.408(q):Section 408(q) of the Code
was added by § 602 of EGTRRA (as
amended by § 411(i) of JCWAA) to al-
low for deemed individual retirement
accounts (IRAs) in an eligible retire-
ment plan. (2004 C. L.).
•Section 1.408(q)–1 of the Regu-
lations was published on July 22,
2004 (69 Fed. Reg. 43735).
(2004 C. L.).
11.409: Section 409(p) of the Code was
added by § 656 of EGTRRA relating
to restrictions on the allocation of em-
ployer securities in an ESOP main-
tained by an S corporation. (2005
C. L.).
•Section 1.409(p)–1T of the Regu-
lations was published on July 21,
2003 (68 Fed. Reg. 42970).
(2005 C. L.).
•Section 1.409(p)–1T of the Reg-
ulations was published on De-
cember 17, 2004 (69 Fed. Reg.
75455). (2005 C. L.).
•Rev. Proc. 2003–23, 2003–1 C.B.
599, as modified and superseded
by Rev. Proc. 2004–14, 2004–1
C.B. 489, allows a direct rollover
from an ESOP maintained by an
S corporation to an individual re-
tirement plan (IRA). (2005 C. L.).
•Rev. Rul. 2003–6, 2003–1 C.B.
286, provides guidance with re-
spect to whether an ESOP main-
tained by an S corporation is eligi-
ble for the delayed effective date
of § 409(p) under § 656(d)(2) of
EGTRRA. (2005 C. L.).
•Rev. Rul. 2004–4, 2004–1 C.B.
414, provides guidance relating to
synthetic equity owned by a dis-
qualified person in a nonallocation
year of an ESOP maintained by an
S corporation. (2005 C. L.).
•Final Regulations were published
on December 20, 2006 (71 Fed.
Reg. 76134) that provide guid-
ance concerning requirements un-
der § 409(p) for ESOPs holding
stock of S corporations. (2006
C. L.).
12.410(b): Final Regulations were pub-
lished on July 21, 2006 (71 Fed. Reg.
41357) permitting some employees
of tax-exempt organizations to be ex-
cluded when determining whether a
§ 401(k) plan meets the § 410(b) min-
imum coverage requirements. (2006
C. L.).
13.411(a):
•Section411(a)oftheCodewas
amended by § 633 of EGTRRA
(as amended by § 411(o) of
JCWAA) to provide for faster
vesting of matching contributions.
(2004 C. L.).
•Rev. Rul. 2003–65, 2003–1 C.B.
1035. (2005 C. L.).
•Amendmentsto§1.411(d)–3of
the Final Regulations were pub-
lished on August 9, 2006 (71 Fed.
Reg. 45379) with respect to the
interaction between the anti-cut-
back rules of § 411(d)(6) and the
nonforfeitability requirements of
§ 411(a). (2006 C. L.).
14.411(a)(11): Section 411(a)(11)(D) of
the Code was added by § 648(a) of
EGTRRA (as amended by § 411(r)
of JCWAA) to allow amounts attrib-
utable to rollover contributions to be
disregarded in determining the value
of an account balance for involuntary
distributions. (2004 C. L.).
15.411(d)(3):
•Rev. Rul. 2007–43, 2007–28
I.R.B. 45, provides guidance re-
garding the partial termination of a
defined contribution plan. (New).
16.411(d)(6):
•Central Laborers’ Pension Fund v.
Heinz, 124 S. Ct. 2230 (2004).
(2005 C. L.).
•Rev. Proc. 2005–23, 2005–1
C.B. 991, as modified by Rev.
Proc. 2005–76, 2005–2 C.B.
1139. (2005 C. L.).
•Amendments to § 1.411(d)–3
of the Final Regulations were
published on August 9, 2006
(71 Fed. Reg. 45379) with
respect to the interaction be-
tween the anti-cutback rules
of § 411(d)(6) and the non-
forfeitability requirements of
§ 411(a). (2006 C. L.).
•Section 645(b)(3) of EGTRRA
directed the Secretary of the Trea-
sury to issue regulations under
§ 411(d)(6)(B). (2005 C. L.).
•Section 1.411(d)–3 of the Reg-
ulations was published on Au-
gust 12, 2005 (70 Fed. Reg.
47109). (2005 C. L.).
•Amendments to § 1.411(d)–3
of the Final Regulations were
published on August 9, 2006
(71 Fed. Reg. 45379) with
respect to a utilization test.
(2006 C. L.).
•Section 411(d)(6)(D) and
§ 411(d)(6)(E) of the Code were
addedby§645ofEGTRRAto
permit the elimination of certain
optional forms of benefit under
certain conditions. (2005 C. L.).
•Section 1.411(d)–4, Q&A–
2(e) of the Regulations was
published on January 25, 2005
(70 Fed. Reg. 3475) to imple-
ment § 411(d)(6)(E). (2005
C. L.).
1
Proposed Regulations under § 402A were published on January 26, 2006 (71 Fed. Reg. 4320). (2005 C. L.).
2007–51 I.R.B.1181December 17, 2007

17.412:
•Rev. Rul. 2004–20, 2004–1 C.B.
546, provides guidance with re-
spect to whether a qualified pen-
sion plan can be a § 412(i) plan
if the plan holds life insurance
contracts and annuity contracts for
benefits at normal retirement age
in excess of a participant’s bene-
fits at normal retirement age under
the plan. (2005 C. L.).
•Notice 2004–59, 2004–2 C.B.
447, provides guidance with re-
spect to restrictions placed on
plan amendments following an
employer’s election of an alterna-
tive deficit reduction contribution.
(2005 C. L.).
18.414(v): Section 414(v) of the Code
was added by § 631 of EGTRRA (as
amended by § 411(o) of JCWAA) to
allow for catch-up contributions for
individuals age 50 or older. (2004
C. L.).
•Regulations under § 414(v) were
published on July 8, 2003 (68 Fed.
Reg. 40510). (2004 C. L.).
•Notice 2002–4. (2004 C. L.).
19.415:
•Section 415(b) of the Code was
amendedby§611ofEGTRRA
to increase the dollar limit and
change the age when the limit
is reduced or increased. (2005
C. L.).
•Rev. Rul. 2001–51, 2001–2
C.B. 427. (2004 C. L.).
•Section 415(b)(2)(E)(ii) of the
Code was amended by § 101(b)(4)
of PFEA to fix the percentage at
5.5%. (2005 C. L.).
•Notice 2004–78, 2004–2 C.B.
879, provides the actuarial as-
sumptions that must be used
for distributions with annuity
starting dates occurring during
the plans years beginning in
2004 and 2005. (2005 C. L.).
•Section 415(c) of the Code was
amendedby§§611(b)and632
of EGTRRA (as amended by
§411(p)ofJCWAA)toincrease
the maximum annual additions
permitted to the lesser of $40,000
or 100% of compensation. (2004
C. L.).
•Rev. Rul. 2001–51, 2001–2
C.B. 427. (2004 C. L.).
•Rev. Rul. 2002–27, 2002–1
C.B. 925, provided that “com-
pensation” within the meaning of
§ 415(c) could in certain situations
include “deemed § 125 compen-
sation”. (2004 C. L.).
•Final Regulations under § 415
with respect to pre-PPA ’06 law
were published April 5, 2007 (72
Fed. Reg. 16878).
2
(2006 C. L.).
•See section VI of this notice
for PPA ’06 provisions related
to § 415 that are reflected in
the § 415 Final Regulations.
(2006 C. L.).
20.416: Section 416 of the Code was
amended by § 613 of EGTRRA (as
amended by § 411(k) of JCWAA) to
make several changes to the top-heavy
rules. (2004 C. L.).
•Section 416(g)(4)(H) of the
Code was added by § 613(d)
of EGTRRA to provide certain
safe harbor § 401(k) plans and
§ 401(m) plansan exemption
from the top-heavy rules. (2004
C. L.).
•Rev. Rul. 2004–13, 2004–1
C.B. 485. (2004 C. L.).
•Section 416(c)(1)(C) of the
Code was amended by § 613(e)
of EGTRRA (as amended by
§ 411(k)(1) of JCWAA) to provide
when a frozen defined benefit plan
is exempt from the minimum ben-
efit requirements. (2005 C. L.).
21.417:
•Section 1.417(e)–1 of the Regu-
lations was published on July 16,
2003 (68 Fed. Reg. 41906) relat-
ing to retroactive annuity starting
dates. (2005 C. L.).
•FinalRegulationsunder
§ 417(a)(3) were published on
March24,2006(71Fed. Reg.
14798) regarding the disclosure
of the relative value of optional
forms of benefit. (2006 C. L.).
22.420(c)(3)(A): Section 6613 of the
U.S. Troop Readiness, Veterans’
Care, Katrina Recovery, and Iraq
Accountability Appropriations Act,
2007, amends § 420(c)(3)(A) regard-
ing minimum cost requirements for
transfers of excess pension assets to
retiree health accounts. (New)
23.4975:
•Section 4975 of the Code was
amended by § 612 of EGTRRA to
allow plan loans for Subchapter
S shareholder-employees. (2004
C. L.).
•Section 4975(f) of the Code was
amendedby§240ofAJCAto
allow an S corporation distribu-
tion on allocated shares to pay off
an exempt loan as long as equal
amounts are allocated to partici-
pant accounts. (2005 C. L.).
24.Hurricane Relief:
•Katrina Emergency Tax Relief Act
of 2005, Pub. L. 109–73. (2005
C. L.).
•Notice 2005–92, 2005–2 C.B.
1165. (2005 C. L.).
•Announcement 2005–70, 2005–2
C.B. 682. (2005 C. L.).
•Gulf Opportunity Zone Act of
2005, Pub. L. 109–135, added
§ 1400M and § 1400Q to the Code
to provide certain tax benefits to
those areas affected by Hurricanes
Katrina, Wilma, and Rita. (2006
C. L.).
25.Miscellaneous:
•Rev. Rul. 2001–62, 2001–2 C.B.
632, provides guidance with re-
spect to the mortality table un-
der § 415(b)(2)(E)(v) of the Code
and the applicable mortality table
under § 417(e)(3)(A)(ii)(I) of the
Code. (2005 C. L.).
•Rev. Rul. 2002–42, 2002–1 C.B.
76, provides guidance with re-
spect to a situation where a money
2
Section 1.415(c)–2(e) of the Proposed Regulations under § 415 was published on May 31, 2005 (70 Fed. Reg. 31214). (2004 C. L.).
December 17, 200711822007–51 I.R.B.

purchase pension plan is merged
or converted into a profit sharing
plan. (2004 C. L.).
•Rev. Proc. 2002–21, 2002–1 C.B.
911, provides guidance with re-
spect to defined contribution re-
tirement plans maintained by pro-
fessional employer organizations.
(2004 C. L.).
•Rev. Proc. 2003–86, 2003–2
C.B. 1211, amplifies Rev. Proc.
2002–21 relating to relief pro-
vided for certain defined contri-
bution plans maintained by pro-
fessional employer organizations.
(2004 C. L.).
•Rev. Rul. 2003–11, 2003–1 C.B.
285, provides guidance with re-
spect to satisfying the nondiscrim-
ination rules under § 401(a)(4) of
the Code and the minimum cover-
age requirements under § 410(b)
of the Code when applying the in-
creased compensation limit to for-
mer employees. (2005 C. L.).
•Rev. Rul. 2004–10, 2004–1 C.B.
484, provides guidance with re-
spect to charging administrative
expenses to former and current
employees. (2004 C. L.).
•Rev. Rul. 2004–12, 2004–1 C.B.
478, provides guidance with re-
spect to the distribution restric-
tions applicable to rollover contri-
butions. (2004 C. L.).
•Rev. Rul. 2005–55, 2005–2 C.B.
284, provides guidance with re-
spect to medical reimbursement
accounts under a profit sharing
plan. (2005 C. L.).
•Section 1.401(a)–21 of the Final
Regulations were published on
October 20, 2006 (71 Fed. Reg.
61877) setting forth standards for
the use of an electronic medium
to applicable notices to recipients
or to make participant elections.
(2006 C. L.).
The following guidance contains
sample or model amendments: Notice
2001–57, 2001–1 C.B. 279 (miscella-
neous EGTRRA amendments); Rev. Rul.
2001–62, 2001–2 C.B. 632 (applicable
mortality table); Rev. Proc. 2002–29,
2002–2 C.B. 1176 (required minimum
distribution amendments); Rev. Proc.
2003–13, 2003–1 C.B. 317 (required lan-
guage for deemed IRAs); Notice 2005–5
(automatic rollover); and Notice 2006–44,
2006–1 C.B. 889 (Roth § 401(k) plans).
VI. PENSION PROTECTION ACT OF
2006 PROVISIONS
As provided in section IV of this no-
tice, plans submitting in Cycle C may be
amended for PPA ’06, but the Service will
not consider PPA ’06 in issuing determi-
nation letters. The following list includes
PPA ’06 provisions effective in 2008 or
earlier and guidance relating to those PPA
’06 provisions (other than proposed guid-
ance and guidance issued after October 1,
2007).
1.401(a)(35): PPA ’06 § 901(a)(1)
added § 401(a)(35) requiring that
defined contribution plans provide
employees with the freedom to di-
vest publicly traded securities. (2006
C. L.).
•Notice 2006–107, 2006–51 I.R.B.
1114. (2006 C. L.).
2.401(a)(36): PPA ’06 § 905(b) added
§ 401(a)(36) regarding distributions to
a participant who has attained age 62
and who has not separated from em-
ployment at the time of the distribu-
tion. (New).
3.401(k): PPA ’06 § 826 modified the
rules relating to distributions from a
§ 401(k) plan on account of a partic-
ipant’s hardship to permit the plan to
treat a participant’sbeneficiary under
the plan the same as the participant’s
spouse or dependent. (2006 C. L.).
•Notice 2007–7, 2007–5 I.R.B.
395, provides guidance regarding
PPA ’06 § 826. (2006 C. L.).
•Announcement2007–59,
2007–25 I.R.B. 1448, provides
that a plan will not fail to satisfy
the requirements of a § 401(k) safe
harbor plan because of a mid-year
change to implement the PPA
’06§826hardshipwithdrawals.
(New).
4.401(k)(2)(B)(i)(V):PPA’06§827per-
mits reservists called to active duty
after September 11, 2001 and before
2008 to take in-service distributions
from a § 401(k) plan. (2006 C. L.).
5.401(k)(8)(A)(i): PPA ’06 § 902(e)(3)
eliminates the gap period income rule
for excess contributions. (New).
6.401(k)(13): PPA’06§902added
§ 401(k)(13) with respect to automatic
contribution arrangements. (New).
7.401(m)(6)(A): PPA ’06 § 902(e)(3)
eliminates the gap period income rule
for excess aggregate contributions.
(New).
8.401(m)(12): PPA ’06 § 902 added
§ 401(m)(12) with respect to au-
tomatic contribution arrangements.
(New).
9.402(c)(2)(A): PPA ’06 § 822(a)
amended § 402(c)(2)(A) to permit
nontaxable distributions from a qual-
ified plan to be directly rolled over
tax-free to either another qualified
plan or a § 403(b) plan if the sepa-
rate accounting requirements are met.
(2006 C. L.).
10.402(c)(11): PPA ’06 § 829(a)(1)
added § 402(c)(11) to allow non-
spouse beneficiaries to directly roll
over distributions from a qualified
plan to an individual retirement plan.
(2006 C. L.).
•Notice 2007–7, 2007–5 I.R.B.
395, provides guidance regarding
§ 402(c)(11). (2006 C. L.).
11.402(f): PPA ’06 § 1102(a) provides
that notice required to be provided un-
der § 402(f) may be provided as much
as 180 days before the annuity starting
date. (2006 C. L.).
•Notice 2007–7, 2007–5 I.R.B.
395, provides guidance regarding
PPA ’06 § 1102. (2006 C. L.).
12.408A(e): PPA ’06 § 824 added
§ 408A(e) which permits rollovers
to Roth IRAs from qualified plans,
§ 403(b) plans, and § 457 plans.
(New).
13.411: PPA ’06 § 701 provides rules for
cash balance plans and other hybrid
defined benefit plans. (2006 C. L.).
•Notice 2007–6, 2007–3 I.R.B.
272, provides guidance regarding
2007–51 I.R.B.1183December 17, 2007

cash balance plans and other hy-
brid defined benefit plans. (2006
C. L.).
14.411(a): Section 411(a) of the Code
was amended by § 904 of PPA ’06 to
provide for faster vesting of employer
nonelective contributions. (2006
C. L.).
•Notice 2007–7, 2007–5 I.R.B.
395, provides guidance regarding
§ 411(a), as amended by § 904 of
PPA ’06. (2006 C. L.).
15.411(a)(11): PPA ’06 § 1102(a) pro-
vides that notice required to be pro-
vided under § 411(a)(11) may be pro-
vided as much as 180 days before the
annuity starting date. Section 1102(b)
of PPA ’06 provides that the notice
under § 411(a)(11) also include a de-
scription of the consequences of fail-
ing to defer receipt of a distribution.
(2006 C. L.).
•Notice 2007–7, 2007–5 I.R.B.
395, provides guidance regarding
PPA ’06 § 1102. (2006 C. L.).
16.414(d): PPA ’06 § 906(a)(1) added
language to the definition of govern-
mental plan in § 414(d) with respect
to Indian tribal governments. (New).
•Notice 2006–89, 2006–43 I.R.B.
772, provides transition relief for
plans subject to PPA ’06 § 906.
(New).
•Notice 2007–67, 2007–35 I.R.B.
467, extends the transition re-
lief provided in Notice 2006–89.
(New).
17.414(f)(6): PPA ’06 § 1106(b) added
§ 414(f)(6) with respect to a mul-
tiemployer statuselection. Section
6611(a)(2) and (b)(2) of the U.S.
Troop Readiness, Veterans’ Care,
Katrina Recovery, and Iraq Account-
ability Appropriations Act, 2007
amends § 414(f)(6). (New).
18.414(w): PPA ’06 § 902(d)(1) added
§ 414(w) with respect to automatic
contribution arrangements. (New).
19.415(b)(2)(E)(ii): Section 415(b)(2)
(E)(ii) of the Code was amended by
§ 303 of PPA ’06 regarding the in-
terest rate assumption for applying
benefit limitations to lump sum distri-
butions. (2006 C. L.).
•Final Regulations under § 415
were published April 5, 2007
(72 Fed. Reg. 16878), which
provide guidance regarding
§ 415(b)(2)(E)(ii), as amended
by PPA ’06. (2006 C. L.).
20.415(b)(11): PPA ’06 § 867(a) re-
moved the 100% of compensation
limitation for a church plan partici-
pant if the participant has never been
a highly compensated employee of
the church. (2006 C. L.).
•Final Regulations under § 415
were published April 5, 2007 (72
Fed. Reg. 16878), which provide
guidance regarding § 415(b)(11),
asaddedbyPPA’06.(2006C.L.).
21.415(n): PPA ’06 § 821 retroactively
clarified the rules in § 415(n) relating
to the purchase of permissive service
credit under defined benefit govern-
mental plans. (New).
22.417: PPA ’06 § 1102(a) provides that
notice required to be provided under
§ 417 may be provided as much as
180 days before the annuity starting
date. (2006 C. L.).
•Notice 2007–7, 2007–5 I.R.B.
395, provides guidance regarding
PPA ’06 § 1102. (2006 C. L.).
23.417(e)(3): PPA ’06 § 302(b) amended
the applicable interest rate and mor-
tality table to be used for determining
the present value of lump sum distri-
butions. (New).
24.417(g): PPA ’06 § 1004(a)(2) added
§ 417(g), the qualified optional sur-
vivor annuity benefit. (New).
25.420(e)(2): PPA ’06 § 114(d)(1) modi-
fied the definition of the term “excess
pension assets.” Section 6612(b) of
the U.S. Troop Readiness, Veterans’
Care, Katrina Recovery, and Iraq Ac-
countability Appropriations Act, 2007
amends § 420(e)(2)(B). (New).
26.432(c): PPA ’06 § 212(a) added
§ 432(c) which requires that a fund-
ing improvement plan be adopted for
multiemployer plans in endangered
status. (New).
27.432(e): PPA ’06 § 212(a) added
§ 432(e) which requires that a re-
habilitation plan be adopted for mul-
tiemployer plans in critical status.
(New).
28.436: PPA ’06 § 113(a)(1)(B) added
§ 436 with respect to funding-based
limits on benefits and benefit accruals
under defined benefit single employer
plans. (New).
DRAFTING INFORMATION
The principal author of this notice is
Angelique Carrington of the Employee
Plans, Tax Exempt and Government En-
tities Division. For further information
regarding this notice, please contact the
Employee Plans taxpayer assistance an-
swering service at 1–877–829–5500 (a
toll-free number) or Ms. Carrington at
RetirementPlanQuestions@irs.gov.
26 CFR 601.201: Rulings and determination letters.
(Also, Part I, § 403; § 1.403(b)–3.)
Rev. Proc. 2007–71
SECTION 1. PURPOSE
This revenue procedure provides model
plan language that may be used by pub-
lic schools either to adopt a written plan
to reflect the requirements of § 403(b) and
the regulations thereunder or to amend its
§ 403(b) plan to reflect the requirements
of § 403(b) and the regulations thereun-
der. This revenue procedure also provides
rules for when plan amendments or a writ-
ten plan are required to be adopted by pub-
lic schools or other eligible employers to
comply with the recently published final
regulations under § 403(b) (72 FR 41128;
T.D. 9340). This revenue procedure also
provides guidance relating to the applica-
tion of § 403(b) to certain contracts issued
before 2009.
SECTION 2. BACKGROUND AND
GENERAL INFORMATION
.01 Section 403(b) applies to contribu-
tions made for employees who are per-
forming services for a public school of a
December 17, 200711842007–51 I.R.B.

State or a local government or for em-
ployees of employers that are tax-exempt
organizations under § 501(c)(3). Section
403(b) also applies to contributions made
for certain ministers. Under § 403(b), con-
tributions are excluded from gross income
only if made to certain funding arrange-
ments: (1) contracts issued by an insur-
ance company qualified to issue annuities
in a State that includes payment in the form
of an annuity; (2) custodial accounts that
are exclusively invested in stock of a reg-
ulated investment company (as defined in
§ 851(a) relating to mutual funds); or (3)
a retirement income account for employ-
ees of a church-related organization (as de-
fined in §1.403(b)–2 of the Income Tax
Regulations).
.02 Final regulations under § 403(b)
(T.D. 9340, 2007–36 I.R.B. 487) were
published in theFederal Register(72
FR 41128) on July 26, 2007 (2007 regu-
lations). The 2007 regulations replaced
existing regulations that were published
in theFederal Register(29 FR 18356)
on December 24, 1964, 1965–1 C.B. 180,
that provided guidance for complying
with § 403(b), as well as certain provi-
sions of regulations that were published
in theFederal Register(60 FR 49199)
on September 22, 1995, relating to eligi-
ble rollover distributions and regulations
that were that were published in theFed-
eral Register(67 FR 18987) on April 17,
2002, relating to minimum distributions
under § 401(a)(9). The 2007 regulations
reflected the numerous amendments made
to § 403(b) by legislation enacted since
1964. Subject to a number of special ef-
fective date rules, the 2007 regulations
are generally effective for taxable years
beginning after December 31, 2008.
.03 The 2007 regulations include com-
prehensive guidance relating to § 403(b),
including the requirement that § 403(b)
contracts must be maintained pursuant to
a written plan. (References in this revenue
procedure to a contract or an issuer include
a custodial account under § 403(b)(7) and
an issuer of such an account, respectively.)
As indicated in the preamble to the regula-
tions, while § 403(b) contracts that are sub-
ject to the Employee Retirement Income
Security Act of 1974 (ERISA) are already
maintained pursuant to written plans, there
may be a potential cost associated with
satisfying the written plan requirement for
those employers that do not have existing
plan documents, such as public schools.
This revenue procedure is intended to ad-
dress this concern by providing model plan
language that may be used for this purpose
by public schools.
.04 Section 1.403(b)–3(b)(3) of the
2007 regulations requires that contracts be
issued under a plan, which, in both form
and operation, satisfies the requirements
of the 2007 regulations and which contains
all the material terms and conditions for
eligibility, benefits, applicable limitations,
the contracts available under the plan, and
the time and form under which benefit
distributions would be made. Section
1.403(b)–10(b) of the 2007 regulations in-
cludes a special rule for situations in which
a contract has been exchanged for another
contract, under whichthe successor con-
tract (an “exchange contract”) is treated
as part of the plan if certain conditions are
satisfied, including an information sharing
agreement between the employer and the
issuer. Section 1.403(b)–11(g) of the 2007
regulations provides that those conditions
are not imposed with respect to a contract
if the exchange occurred before Septem-
ber 25, 2007, and the exchange satisfied
applicable requirements at that time (a
“grandfathered exchange contract”).
SECTION 3. USE OF MODEL PLAN
LANGUAGE BY PUBLIC SCHOOLS
.01 Any public school employer with
respect to its employees performing ser-
vices for it, to the extent provided, may
comply with the written plan requirements
of the 2007 regulations by adopting the
model provision(s) contained in the Ap-
pendix to this revenue procedure. The
model language has been prepared to take
into account the general requirement that a
§ 403(b) plan include all the material terms
and conditions for benefits under the plan.
For example, the model language does not
incorporate the applicable legal require-
ments by reference, but instead describes
them in a manner intended to enable the
plan administrator to implement the plan
provisions on the basis of the model lan-
guage to the extent feasible.
.02 The 2007 regulations provide that a
§ 403(b) plan, including one established by
a public school employer, may contain cer-
tain optional features not required to sat-
isfy § 403(b), such as in-service distribu-
tions from rollover accounts, distributions
for financial hardships, loans, contract ex-
changes,andplantoplantransfers. If
optional provisions are used, the optional
provisions must meet, in both form and
operation, the relevant requirements under
the Code and the 2007 regulations, as well
as operate in accordance with the terms
of the plan. If a public school employer
adopts one or more of these optional model
plan language provisions for its § 403(b)
plan, the form of the plan will be treated as
meeting the requirements under § 403(b)
with respect to those provisions.
SECTION 4. RELIANCE BY PUBLIC
SCHOOL EMPLOYERS ON MODEL
PLAN LANGUAGE
.01Amendments.(a)Reliance.Ifa
public school employer amends its plan
language to include any portion of the
model language, the form of the writ-
ten plan will be treated as meeting the
requirements of § 403(b), to the extent
covered by the model plan language that
is adopted. This reliance applies only if
the employer adopts the model language
on a word-for-word basis or adopts an
amendment that is substantially similar in
all material respects.
(b)Effect on public schools. If a public
school employer adopts any portion of the
model plan language, the written plan must
also be operated in accordance with the
amendment, from and after the effective
date of the amendment, and the § 403(b)
plan must continue to satisfy, in both form
and operation, all other requirements of
§ 403(b) in order to maintain § 403(b) sta-
tus. To the extent a public school em-
ployer’s § 403(b) plan does not include
the model plan language or an amendment
that is substantially similar in all respects,
a public school that requests a private let-
ter ruling from the Internal Revenue Ser-
vice (IRS) with respect to the qualification
of its § 403(b) written plan must clearly
highlight and describe in the written re-
quest how its plan provisions differ from
the model language.
.02Adoption of written plan.The
model language is also designed for use
by a public school that does not have
a written § 403(b) plan. Thus, adop-
tion of the entire model language (on a
word-for-word basis or using language
that is substantially similar in all mate-
rial respects) by a public school has the
2007–51 I.R.B.1185December 17, 2007

same status as a private letter ruling which
provides that the written form of the plan
satisfies § 403(b). However, if a public
school employer adopts the entire model
plan language, the § 403(b) written plan
must also be operated in accordance with
that language, from and after the effective
date of adoption, and must continue to
satisfy in both form and operation all other
requirements of § 403(b) in order for the
plan to maintain its § 403(b) status.
SECTION 5. USE OF THE MODEL
PLAN LANGUAGE BY EMPLOYERS
THAT ARE NOT PUBLIC SCHOOLS
.01 The model plan language in the Ap-
pendix to this revenue procedure is de-
signed for use by a public school employer
with respect to its employees. The model
language is intended for a basic plan under
which contributions are limited to pre-tax
elective deferrals (without any designated
Roth, employer matching, or other em-
ployer nonelective contributions). An el-
igible employer that is not a public school
may use the provisions of the Appendix
as sample language to comply with one or
more of the requirements imposed by the
2007 regulations issued under § 403(b).
.02 Because the model plan language
in the Appendix has been designed for a
State or local government with respect to
its employees performing services for a
public school, a § 501(c)(3) organization
must determine the extent to which the
model language is appropriate for use in
connection with its § 403(b) plan to com-
ply with one or more of the requirements
imposed by the regulations issued under
§ 403(b). Notes in the Appendix iden-
tify the principal provisions which require
modificationforusebyaneligibleem-
ployer that is not a public school main-
taining a § 403(b) arrangement. More-
over, if an eligible employer that is not a
public school uses the model language in
the Appendix, additional or revised pro-
visions may be necessary or appropriate
in order to comply with the 2007 regula-
tions and, if applicable, ERISA, especially
if either (i) the plan is not limited to elec-
tive deferrals, (ii) the plan is designed to
not be an employee pension benefit plan
under ERISA in accordance with 29 CFR
2510.3–2(f) of the Department of Labor
Regulations, or (iii) the plan is maintained
by a church (or a church-related organiza-
tion described in § 414(e)(3)(A) or a qual-
ified church-controlled organization under
§ 3121(w)(3)(B)) or applies with respect to
oneormoreministers.
1
.03Adoptionofthemodelplanlan-
guage contained in the Appendix by an el-
igible employer that is not a public school
does not have the same status as a private
letter ruling with respect to the adopted
language. However, if an eligible em-
ployer that is not a public school has re-
ceived from the IRS a favorable private
letter ruling under § 403(b), then, except
as provided in section 5.02 of this revenue
procedure, the eligible employer’s adop-
tion of appropriate plan model language
contained in the Appendix will not result
in the loss of its reliance on the private let-
ter ruling for periods prior to the effective
date of the 2007 regulations.
SECTION 6. DATE AMENDMENTS
ARE ADOPTED
Pursuant to this revenue procedure, a
§ 403(b) plan will be treated as having
been amended timely to reflect a require-
ment of the 2007 regulations if an amend-
ment that satisfies that requirement (such
as the model language in the Appendix of
this revenue procedure that reflects that re-
quirement) is adopted no later than the first
day of the first taxable year beginning af-
ter December 31, 2008, the amendment is
effective as of the applicable effective date
of the requirement under the 2007 regula-
tions, and the written plan is operated as if
that amendment is in effect. This section 6
applies to the requirement to have a writ-
ten plan. However, for a special rule with
respect to amendments made pursuant to
the Pension Protection Act of 2006, Public
Law 109–280 (PPA ’06), see section 1107
of the PPA ’06.
SECTION 7. AREAS NOT COVERED
BY SECTIONS 3 AND 4 OF THIS
REVENUE PROCEDURE
Exceptasprovidedinsection5ofthis
revenue procedure, the model plan lan-
guage referenced in sections 3 and 4 of this
revenue procedure is not designed to apply
to any employer other than a State or local
government with respect to its employees
performing services for a public school.
SECTION 8. GUIDANCE REGARDING
CERTAIN CONTRACTS ISSUED
BEFORE 2009
.01Contracts issued before 2009 as
part of employer’s plan. In the case of a
contract issued after December 31, 2004
and before January 1, 2009 by an issuer
that does not receive contributions under
the plan in a year after the contract was
issued (e.g., due to the issuer having been
discontinued as an issuer under the plan or
the issuer having become an issuer under
the plan due to the contract having been
issued in a post-September 24, 2007 ex-
change permitted under Rev. Rul. 90–24,
1990–1 C.B. 97), the contract will not fail
to satisfy § 403(b) for the year merely be-
cause the contract is not part of a written
plan that satisfies § 1.403(b)–3(b)(3) of the
2007 regulations if the employer makes
a reasonable, good faith effort to include
the contract as part of the employer’s plan
that satisfies § 1.403(b)–3(b)(3) of the
2007 regulations. For this purpose, a rea-
sonable, good faith effort to include those
contracts as part of the employer’s plan
includes collecting available information
concerning those issuers (for which pur-
pose, the information is not required to be
collected for issuers that ceased to receive
contributions before January 1, 2005) and
notifying them of the name and contact
informationforthepersoninchargeof
administering the employer’s plan for
the purpose of coordinating information
necessary to satisfy § 403(b). As an al-
ternative to the actions described in the
preceding sentence, a reasonable, good
faith effort to include that contract as part
of the employer’s plan also includes the
issuer taking action before making any
distribution or loan to the participant or
beneficiary which constitutes a reasonable,
good faith effort to contact the employer
and exchange any information that may
be needed in order to satisfy § 403(b) with
the person in charge of administering the
employer’s plan.
.02Contracts issued before 2009 held
for former employees or beneficiaries.In
the case of an issuer that holds § 403(b)
contracts under a § 403(b) plan, but which
1
SeeUnited States Department of Labor Field Assistance Bulletin No. 2007–02.
December 17, 200711862007–51 I.R.B.

ceases to receive contributions before Jan-
uary 1, 2009 (e.g., due to the issuer hav-
ing been discontinued as an issuer under
the plan, the employer having ceased to
exist, or the issuer having become an is-
suer under the plan due to the contract
having been issued in a post-September
24, 2007 exchange permitted under Rev.
Rul. 90–24, 1990–1 C.B. 97), those con-
tracts continue to be subject to the require-
ments of § 403(b) and the 2007 regulations
to the extent applicable. However, pur-
suant to this revenue procedure, a § 403(b)
plan will not be treated as failing to satisfy
the requirements of § 1.403(b)–3(b)(3) if
the plan does not include terms relating to
those contracts. If the participant or bene-
ficiary requests a loan from the contract in
accordance with § 72(p)(2), this relief ap-
plies only if the issuer makes such a loan
only after the issuer has made reasonable
efforts to determine: (1) whether the par-
ticipant or beneficiary has in the prior 12
months had any other outstanding loans
from qualified employer plans of the em-
ployer (taking intoaccount §§ 72(p)(2)(D)
and 72(p)(5)); and (2) if the participant
or beneficiary has had any such loans, the
highest outstanding balance of such loans
during that period. For this purpose, as-
suming the employer is still in existence
at the time of the loan, mere reliance on
information from the participant or ben-
eficiary about outstanding loans does not
constitute reasonableefforts to determine
whether the participant or beneficiary has
other outstanding loans from plans of the
employer.
The special rules in this section 8.02 ap-
ply only with respect to a contract that has
been issued before January 1, 2009, under
a § 403(b) plan that is held on behalf of
a participant who, on January 1, 2009, is
a former employee of the employer or for
a beneficiary. For this purpose, the issuer
can rely on information from the partici-
pant as to whether the participant is a for-
mer employee, assuming that reliance on
that information is not unreasonable under
the facts and circumstances.
8.03.Re-exchange back into plan.If,
after September 24, 2007 and before Jan-
uary 1, 2009, a contract is issued in an ex-
change permitted under Rev. Rul. 90–24
(an “intermediate contract”) and, before
July 1, 2009, the contract is exchanged in
accordance with Rev. Rul. 90–24 for a
contract issued by an issuer which is either
receiving contributions as part of the plan
or has an information sharing agreement as
set forth in § 1.403(b)–10(b)(2)(i)(C)(1)
and (2) of the 2007 regulations, then
the information sharing conditions in
§ 1.403(b)–10(b)(2)(i)(C)(1)and(2)of
the 2007 regulations do not apply to the
intermediate contract.
8.04.Information sharing agreements.
The model plan in this revenue proce-
dure includes optional provisions in Sec-
tion 6.4(a) through (d) to allow contract
exchanges with an issuer that is not re-
ceiving contributions. See Section 6.4(d)
of the model language for the type of
information that would satisfy the infor-
mation sharing agreement conditions in
§ 1.403(b)–10(b)(2)(i)(C)(1)and(2)ofthe
2007 regulations.
SECTION 9. COMMENTS
REQUESTED
Treasury and IRS are interested in re-
ceiving comments on the model language
contained in this revenue procedure and
any other model language that interested
parties believe should be added to this rev-
enue procedure. Comments are specifi-
cally requested on the following questions.
While the model language has generally
been prepared for use by employers based
on provisions commonly found in defined
contribution retirement plans, are there ad-
ditional provisions which should be added
to reflect features that are widely used?
Are there changes that should especially
be made to reflect the circumstances ap-
plicable to public schools, including not
only revised versions of the model lan-
guage, but also whether additional pro-
visions are necessary or appropriate for
them? Should the provisions found in sec-
tion 7.3 of the model language, which have
been prepared to satisfy the 2007 final reg-
ulations requirements for the plan docu-
ment to reflect the available vendors, be
expanded, including changes to reflect the
special relief in section 8 of this revenue
procedure?
Comments should be sent to the fol-
lowing address: Internal Revenue Ser-
vice, Attn: CC:PA:LPD:PR (Rev. Proc.
2007–71), Room 5203, P. O. Box 7604,
Ben Franklin Station, Washington, DC
20044. Written comments may be hand
delivered Monday through Friday between
8a.m. and4p.m. to: InternalRevenue
Service, Courier’s Desk, Attn: CC:PA:RU
(Section 403(b) Plans), 1111 Constitution
Avenue, NW, Washington, DC 20224.
Alternatively, written comments may be
submitted electronically via the Internet
tonotice.comments@irscounsel.treas.gov
(Rev. Proc. 2007–71). Comments should
be received by March 16, 2008.
SECTION 10. EFFECTIVE DATE
This revenue procedure is effective De-
cember 17, 2007.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Robert Architect of the
Employee Plans, Tax Exempt and Gov-
ernment Entities Division. For further
information regarding this revenue proce-
dure, please contact the Employee Plans
taxpayer assistance telephone service at
(877) 829–5500 (a toll-free number) be-
tween the hours of 8:30 am and 4:30
pm Eastern Time, Monday through Fri-
day. Mr. Architect may be e-mailed at
RetirementPlanQuestions@irs.gov.
2007–51 I.R.B.1187December 17, 2007

APPENDIX FOR REVENUE PROCEDURE 2007–71
MODEL PLAN LANGUAGE
Note to sponsors: The model language in this Appendix is designed primarily for use by a public school in order for it to offer its
employees the ability to elect to make pre-tax elective deferrals in accordance with § 403(b) of the Internal Revenue Code. (See
section 5 of the revenue procedure for use of the model language by an organization that is a tax-exempt organization under
§ 501(c)(3) or for a church entity.) In addition, the contributions permitted under the model language are limited to pre-tax
elective deferrals, and it is assumed that the plan is maintained on the basis of the calendar year. This model language is not
designed for a plan that provides for matching contributions or other employer nonelective contributions, or for adoption by any
other type of employer. The model language also includes certain optional alternatives, including an alternative under which the
plan may automatically enroll employees for elective deferrals (or alternatively to enroll only employees who file an affirmative
election) and an alternative under which the plan may permit a contract issued under the plan by a vendor to whom contributions
are made to be exchanged for a contract issued by vendors to whom contributions are not made under the plan.
The portions of this Appendix printed in italics are explanatory notes for the benefit of the public school plan sponsor and thus
are not to be included in the model plan document. In addition,certain items indicated by brackets can be filled in by the
plan sponsor as appropriate.
Section 403(b) Model Plan Language for a Public School
Section 1
Definition of Terms Used
The following words and terms, when used in the Plan, have the meaning set forth below.
1.1“Account”: The account or accumulation maintained for the benefitof any Participant or Beneficiary under an Annuity
Contract or a Custodial Account.
1.2“Account Balance”: The bookkeeping account maintained for each Participant which reflects the aggregate amount credited
to the Participant’s Account under all Accounts, including the Participant’s Elective Deferrals, theearnings or loss of each Annuity
Contract or a Custodial Account (net of expenses) allocable to the Participant, any transfers for the Participant’s benefit, and any
distribution made to the Participant or the Participant’s Beneficiary. If a Participant has more than one Beneficiary at the time of
the Participant’s death, then a separate Account Balance shall be maintained for each Beneficiary. The Account Balance includes
any account established under Section 6 for rollover contributions and plan-to-plan transfers made for a Participant, the account
established for a Beneficiary after a Participant’s death, and any account or accounts established for an alternate payee (as defined
in section 414(p)(8) of the Code).
Note:A vendor is not required to maintain a separate account for each beneficiary in order to satisfy § 401(a)(9), but this sample
plan language provides for such separate accounts so that installment payments are permitted to be made over each beneficiary’s
life expectancy as permitted under § 1.401(a)(9)–8, A–2(a)(2) ofthe Income Tax Regulations. However, because, under the sample
plan language, each separate account is permitted to have only a single beneficiary, certain beneficiary designations are not per-
mitted under the sample plan language, such as a death benefit in the form of a fixed dollar payment that is not determined as of
the date of death and that is not to be maintained in a separate account to which gains and losses are credited.
1.3“Administrator”: [INSERT IDENTITY OF PERSON, COMMITTEE, OR ORGANIZATION APPOINTED TO ADMIN-
ISTER THE PLAN].
1.4“Annuity Contract”: A nontransferable contract as defined in section 403(b)(1) of the Code, established for each Participant
by the Employer, or by each Participant individually, that is issued by an insurance company qualified to issue annuities in [Insert
name of State] and that includes payment in the form of an annuity.
1.5“Beneficiary”: The designated person who is entitled to receive benefits under the Plan after the death of a Participant,
subject to such additional rules as may be set forth in the Individual Agreements.
1.6“Custodial Account”: The group or individual custodial account or accounts, as defined in section 403(b)(7) of the Code,
established for each Participant by the Employer, or by eachParticipant individually, to hold assets of the Plan.
1.7“Code”: The Internal Revenue Code of 1986, as now in effect or as hereafter amended. All citations to sections of the Code
are to such sections as they may from time to time be amended or renumbered.
December 17, 200711882007–51 I.R.B.

1.8“Compensation”: All cash compensation for services to the Employer, including salary, wages, fees, commissions, bonuses,
and overtime pay, that is includible in the Employee’s gross income for the calendar year, plus amounts that would be cash com-
pensation for services to the Employer includible in the Employee’s gross income for the calendar year but for a compensation
reduction election under section 125, 132(f), 401(k), 403(b),or 457(b) of the Code (including an election under Section 2 made to
reduce compensation in order to haveElective Deferrals under the Plan).
1.9“Disabled”: The definition of disability provided in the applicable Individual Agreement.
1.10“Elective Deferral”: The Employer contributions made to the Plan at the election of the Participant in lieu of receiving
cash compensation. Elective Deferrals are limited to pre-tax salary reduction contributions.
1.11“Employee”: Each individual, whether appointedor elected, who is a common law employee of the Employer performing
services for a public school as an employee of the Employer. This definition is not applicable unless the employee’s compensation
for performing services for a public school is paid by the Employer. Further, a person occupying an elective or appointive public
office is not an employee performing services for a public school unless such office is one to which an individual is elected or
appointed only if the individual has received training, or is experienced, in the field of education. A public office includes any
elective or appointive officeof a State or local government.
1.12“Employer”: [NAME OF PUBLIC SCHOOL].
Note:The definitions of “Employee” and “Employer” are specifically tailored for use by a State or local government maintain-
ing a § 403(b) plan for its employees who perform services for a public school and must bemodified for use by any other employer.
1.13“Funding Vehicles”: The Annuity Contracts or Custodial Accounts issued for funding amounts held under the Plan and
specifically approvedby the Employer for use under the Plan.
1.14“Includible Compensation”: An Employee’s actual wages in box 1 of FormW–2 for a year for services to the Employer,
but subject to a maximum of $200,000 (or such higher maximum as may apply under section 401(a)(17) of the Code) and increased
(up to the dollar maximum) by any compensation reduction election under section 125, 132(f), 401(k), 403(b), or 457(b) of the
Code (including any Elective Deferral under the Plan). The amount of Includible Compensation is determined without regard to
any community property laws.
1.15“Individual Agreement”: The agreements between a Vendor and the Employer or a Participant that constitutes or governs
a Custodial Account or an Annuity Contract.
1.16“Participant”: An individual for whom Elective Deferrals are currently being made, or for whom Elective Deferrals have
previously been made, under the Plan and who has not received a distribution of his or her entire benefit under the Plan.
1.17“Plan”: [INSERT NAME OF PLAN].
1.18“Plan year”: The calendar year.
1.19“Related Employer”: The Employer and any other entity which is under common control with the Employer under sec-
tion 414(b) or (c) of the Code. For this purpose, the Employer shall determine which entities are Related Employers based on a
reasonable, good faith standard and taking into account the special rules applicable under Notice 89–23, 1989–1 C.B. 654.
Note:Thedefinitionof“RelatedEmployer”isspecificallytailoredforusebyaStateorlocalgovernmentmaintaininga§403(b)
plan for its employees who perform services for a public school and must be modified for use by any other employer by deleting
thesentenceinSection1.19thatbegins“Forthispurpose...”because Notice 89–23 only applies to employers that are State or
local public schools and churches. See § 1.414(c)–5 of the Income Tax Regulations (and the related discussion at pages 41137 and
41138 of theFederal Register(72 FR 41128) in the preamble to those regulations).
1.20“Severance from Employment”: For purpose of the Plan, Severance fromEmployment means Severance from Employ-
ment with the Employer and any Related Entity. However, a Severance from Employment also occurs on any date on which an
Employee ceases to be an employee of a public school, even though the Employee may continue to be employed by a Related
Employer that is another unit of the State or local government that is not a public school or in a capacity that is not employment
withapublicschool(e.g., ceasing to be an employee performing services for apublic school but continuing to work for the same
State or local government employer).
2007–51 I.R.B.1189December 17, 2007

Note:The definition of “Severance from Employment” is specifically tailored for use by a State or local government maintaining
a § 403(b) plan for its employees who perform services for a public school and must be modified for use by any other employer.
1.21“Vendor”: The provider of an Annuity Contract or Custodial Account.
1.22“Valuation Date”: [Each business day/The last day of the calendar month/The last day of the calendar quarter/ Each De-
cember 31].
Section 2
Participation and Contributions
2.1Eligibil
ity.Each Employee shall be eligible to participate in the Plan and elect to have Elective Deferrals made on his or her
behalf hereu
nder immediately upon becoming employed by the Employer. However, an Employee who is a student-teacher (i.e.,a
person provi
ding service as a teacher’s aid on a temporary basis while attending a school, college oruniversity) or who normally
works fewer
than 20 hours per week is not eligible to participate in the Plan. An Employee normally works fewer than 20 hours per
week if, for
the 12-month period beginning on the date the employee’s employment commenced, the Employer reasonably expects
the Employe
e to work fewer than 1,000 hours of service (as defined under section 410(a)(3)(C) of the Code) and, for each plan year
ending afte
r the close of that 12-month period, the Employee has worked fewer than 1,000 hours of service.
Note:This model language assumes that the plan has immediate eligibility, that the plan is limited to pre-tax elective deferrals,
and that the plan has no matching or other employer non-elective contributions.
The model language in Section 2.1 also assumes that employees who normally work fewer than 20 hours per week or who are
student-teachers are not eligible. Either of these exclusionsmay be deleted on a uniform basis for all employees. If this model
language is used by a § 501(c)(3) employer that is not a public school and the plan is subject to ERISA, the plan should delete the
exclusion for employees who normally work fewer than 20 hours per week.
2.2Compensation Reduction Election.(a)General Rule.An Employee elects to become a Participant by executing an election
to reduce his or her Compensation (and havethat amount contributed as an Elective Deferral on his or her behalf) and filing it
with the Administrator. This Compensation reduction election shall be made on the agreement provided by the Administrator
under which the Employee agrees to be bound by all the terms and conditions of the Plan. The Administrator may establish an
annual minimum deferral amount no higher than $200, and may change such minimum to a lower amount from time to time. The
participation election shall also include designation of the Funding Vehicles and Accountstherein to which Elective Deferrals are to
be made and a designation of Beneficiary. Any such election shallremain in effect until a new election is filed. Only an individual
who performs services for the Employer as an Employee may reduce his or her Compensation under the Plan. Each Employee
will become a Participant in accordance with the terms and conditions of the Individual Agreements. All Elective Deferrals shall
be made on a pre-tax basis. An Employee shall become a Participant as soon as administratively practicable following the date
applicable under the employee’s election.
(b)Special Rule for New Employees.(1)Automatic Enrollment for New Employees.For purposes of applying this Section
2.2, a new Employee is deemed to have elected to become a Participant and to have his or her Compensation reduced by [5%] (and
have that amount contributed as an Elective Deferral on his or her behalf), at the time the Employee is hired, and to have agreed
to be bound by all the terms and conditions of the Plan. Contributionsmade under this automatic participation provision shall be
made to the Funding Vehicle or Vehicles selected for this purpose for all new Employees by the Administrator. Any Employee who
automatically becomes a Participant under this Section 2.2(b) shall file a designation of Beneficiary with the Funding Vehicle or
Vehicles to which contributions are made.
(2)Right to File a Different Election; Notice to Employee. This Section 2.2(b) shall not apply to the extent an Employee files an
election for a different percentage reduction or elects to have no Compensation reduction, or designates a different Funding Vehicle
to receive contributions made on his or herbehalf. Any new Employee shall receive a statement at the time he or she is hired
that describes the Employee’s rights and obligations under this Section 2.2(b) (including the information in this Section 2.2(b) and
identification of how the Employee can file an election or make a designation as described in the preceding sentence, and the refund
right under Section 2.2(b)(3), including the specific name and location of the person to whom any such election or designation may
be filed), and how the contributions under this Section 2.2(b) will be invested.
December 17, 200711902007–51 I.R.B.

(3)Refund of Contributions. An Employee for whom contributions have been automatically made under Section 2.2(b)(1) may
elect to withdraw all of the contributions made on his or her behalfunder Section 2.2(b)(1), including earnings thereon to the date
of the withdrawal. This withdrawal right is available only if the withdrawal election is made within 90 days after the date of the
first contribution made under Section 2.2(b)(1).
Note:Section
2.2(b) is an optional provision that provides for any new employee to be automatically enrolled in the Plan, with
5% of Compensa
tion to be contributed to the Plan, unless the employee elects otherwise. See §§ 414(w) and 4979(f) of the Code
for special re
lief that applies to a plan that uses automatic enrollment, as provided in Section 2.2(b). Plan sponsors should make
any revision
s in this optional provision that may be necessary in order to take into account any additional guidance that may be
provided by t
he Treasury Department or the IRS regarding automatic enrollment under §§ 414(w) and 4979(f) of the Code.
2.3Information Provided by the Employee.Each Employee enrolling in the Plan should provide to the Administrator at the time
of initial enrollment, and later if there areany changes, any information necessary or advisable for the Administrator to administer
the Plan, including any information required under the Individual Agreements.
2.4Change in Elective Deferrals Election.Subject to the provisions of the applicable Individual Agreements, an Employee
may at any time revise his or her participation election, including a change of the amount of his or her Elective Deferrals, his or
her investment direction, and his or her designated Beneficiary. A change in the investment direction shall take effect as of the
date provided by the Administrator on a uniform basis for all Employees. A change in the Beneficiary designation shall take effect
when the election is accepted by the Vendor.
2.5Contributions Made Promptly.Elective Deferrals under the Plan shall be transferred to the applicable Funding Vehicle
within 15 business days following the end of the month in which the amount would otherwise have been paid to the Participant.
2.6Leave of Absence. Unless an election is otherwise revised, if an Employee is absent from work by leave of absence, Elective
Deferrals under the Plan shall continue to the extent that Compensation continues.
Note:If this Section 2 is adopted separately, the following definitions from Section 1 should also be adopted: Account, Admin-
istrator, Beneficiary, Compensation, Elective Deferral, Employee, Employer, Funding Vehicles, Individual Agreement, Participant,
Plan, and Vendor.
Sectio
n3
Limita
tions on Amounts Deferred
3.1Basic Annual Limitation.Except as provided in Sections 3.2 and 3.3, the maximum amount of the Elective Deferral under
the Plan for any calendar year shall not exceed the lesser of (a) the applicable dollar amount or (b)the Participant’s Includible
Compensation for the calendar year. The applicable dollar amount is the amount established under section 402(g)(1)(B) of the
Code, which is $15,500 for 2007, and is adjusted for cost-of-living after 2007 to the extent provided under section 415(d) of the
Code.
3.2Special Section 403(b) Catch-up Limitation for Employees With 15 Years of Service. Because the Employer is a qualified
organization (within the meaning of § 1.403(b)–4(c)(3)(ii) of the Income Tax Regulations), theapplicable dollar amount under
Section 3.1(a) for any “qualified employee” is increased (to the extent provided in the Individual Agreements) by the least of:
(a)
$3,000;
(b) The excess of:
(1) $15,000, over
(2
) The total special 403(b) catch-up elective deferrals made for the qualified employee by the qualified
org
anization for prior years; or
(c) The excess of:
(1) $5,000 multiplied by the number of years of service ofthe employee with the qualified organization, over
(2
) The total Elective Deferrals made for the employee by the qualified organization for prior years.
2007–51 I.R.B.1191December 17, 2007

For purposes of this Section 3.2, a “qualified employee” means an employee who has completed at least 15 years of service
taking into account only employment with the Employer.
Note: Section 3.2 is specifically written for use by a State or local government maintaining a §403(b) plan for its employees
who perform services for a public school and, if used by a § 501(c)(3) employer, must be limited to cases in which the Employer is
a “qualified organization” under § 1.403(b)–4(c)(3)(iii) of the Income Tax Regulations.
3.3Age 50 Catch-up Elective Deferral Contributions.An Employee who is a Participant who will attain age 50 or more by
the end of the calendar year is permitted to elect an additional amount of Elective Deferrals, up to the maximum age 50 catch-up
Elective Deferrals for the year. The maximum dollar amount of theage 50 catch-up Elective Deferrals for a year is $5,000 for 2007,
and is adjusted for cost-of-living after 2007 to the extent provided under the Code.
3.4Coordination. Amounts in excess of the limitation set forth in Section 3.1 shall be allocated first to the special 403(b)
catch-up under Section 3.2 and next as an age50 catch-up contribution under Section 3.3. However, in no event can the amount of
the Elective Deferrals for a year be more than the Participant’s Compensation for the year.
3.5Specia
l Rule for a Participant Covered by Another Section 403(b) Plan.ForpurposesofthisSection3,iftheParticipant
is or has be
en a participant in one or more other plans under section 403(b) of the Code (and any other plan that permits elective
deferrals
under section 402(g) of the Code), then this Plan and all such other plans shall be considered as one plan for purposes of
applying t
he foregoing limitations of this Section 3. For this purpose,the Administrator shall take into account any other such plan
maintain
ed by any Related Employer and shall also take into account any other such plan for which the Administrator receives from
the Parti
cipant sufficient information concerning his or her participation in such other plan. Notwithstanding the foregoing, another
plan main
tained by a Related Entity shall be takeninto account for purposes of Section 3.2 only if the other plan is a § 403(b) plan.
3.6Correction of Excess Elective Deferrals.If the Elective Deferral on behalf of a Participant for any calendar year exceeds
the limitations described above, or the Elective Deferral on behalf of a Participant for any calendar year exceeds the limitations
described above when combined with other amounts deferred by the Participant under another plan of the employer under section
403(b) of the Code (and any other plan that permits elective deferrals under section 402(g)oftheCodeforwhichtheParticipant
provides information that is accepted by the Administrator), then the Elective Deferral,to the extent in excess of the applicable
limitation (adjusted for any income or loss in value, if any, allocable thereto), shall be distributed to the Participant.
Note:Corrective distributions are generally required to be made within 2
1
/2months after the end of the calendar year, but can
be made within 6 months after the end of the calendar year if the plan uses the optional provision at Section 2.2(b) and otherwise
constitutes an eligible automatic contribution arrangement. See §§ 414(w)(3) and 4979(f) of the Code.
3.7Pr
otection of Persons Who Serve in a Uniformed Service.An Employee whose employment is interrupted by qualified
milit
ary service under section 414(u) of the Code or who is on a leave of absence for qualified military service under section 414(u)
of the
Code may elect to make additional Elective Deferrals upon resumption of employment with the Employer equal to the maxi-
mum E
lective Deferrals that the Employee could have elected during that period if the Employee’s employment with the Employer
had c
ontinued (at the same level of Compensation) without the interruption or leave, reduced by the Elective Deferrals, if any,
actu
ally made for the Employee during the period of the interruption or leave. Except to the extent provided under section 414(u)
of th
e Code, this right applies for five years following the resumption of employment (or, if sooner, for a period equal to three times
the p
eriod of the interruption or leave).
Note:If this Section 3 is adopted separately, the following definitions from Section 1 should also be adopted: Administrator,
Code, Compensation, Elective Deferral, Employee, Employer, Includible Compensation, Participant, Plan, and Related Employer.
Section 4
Loans
4.1
Loans. Loans shall be permitted under the Plan to the extent permitted by the Individual Agreements controlling the Account
as
sets from which the loan is made and by which the loan will be secured.
December 17, 200711922007–51 I.R.B.

4.2Information Coordination Concerning Loans.Each Vendor is responsible for all information reporting and tax withhold-
ing required by applicable federal and state law in connection with distributions and loans. To minimize the instances in which
Particpants have taxable income as a result of loans from the Plan, the Administrator shall take such steps as may be appropriate to
coordinate the limitations on loans set forthin Section 4.3, including the collection of information from Vendors, and transmission
of information requested by any Vendor, concerning the outstanding balance of any loans made to a Participant under the Plan or
any other plan of the Employer. The Administrator shall also take such steps as may be appropriate to collect information from
Vendors, and transmission of information to any Vendor, concerning any failure by a Participant to repay timely any loans made to
a Participant under the Plan orany other plan of the Employer.
4.3Maximum L
oan Amount.No loan to a Participant under the Plan may exceed the lesser of:
(a) $50,000, reduced by the greater of (i) the outstanding balance on any loan from the Plan to the Participant on the date the
loan is made or (ii) the highest outstanding balance on loans from the Plan to the Participant during the one-year period ending on
the day before the date the loan is approved by the Administrator (not taking into account any payments made during such one-year
period); or
(b) one half of the value of the Participant’s vested Account Balance (as of the valuation date immediately preceding the date
on which such loan is approved by the Administrator).
For purpos
es of this Section 4.3, any loan from any other plan maintained by the Employer and any Related Employer shall be
treated as
if it were a loan made from the Plan, and the Participant’s vested interest under any such other plan shall be considered
avestedi
nterest under this Plan; provided, however, that the provisions of this paragraph shall not be applied so as to allow the
amount of
a loan to exceed the amount that would otherwisebe permitted in the absence of this paragraph.
Note:Loans are included in taxable income under certain conditions, including: if the loan, when combined with the balance of
all other loans from plans of the employer, exceeds the limitations described in Section 4.3; or if there is a failure to repay the loan
in accordance with the repayment schedule. Because the tax treatment of a loan depends on information concerning aggregate loan
balances under all annuity contracts and custodial accounts within the Plan (and under all plans of the employer), information
about loan balances under the contracts and accounts of other vendors is needed before making a loan. That information may be
obtained from the participant, but this sample language providesfor the Administrator also to collect and coordinate that informa-
tion in order to decrease the instances in which participants have taxable income from plan loans.
Note:See § 1.72(p)–1 of the Income Tax Regulations for thefederal income tax treatment of loans generally.
Note:I
f this Section 4 is adopted separately, the following definitions from Section 1 should also be adopted: Account, Admin-
istra
tor, Account Balance, Employer, Individual Agreement, Participant, Plan, Related Employer, Valuation Date, and Vendor.
Section 5
Benefit Distributions
5.1Benefit Distributions At Severance from Employment or Other Distribution Event. Except as permitted under Section
3.6 (relating to excess Elective Deferrals), Section 5.4 (relating to withdrawals of amounts rolled over into the Plan), Section 5.5
(relating to hardship), or Section 8.3 (relating to termination of the Plan), distributions from a Participant’s Account may not be
made earlier than the earliest of the date on which the Participation has a Severance from Employment, dies, becomes Disabled, or
attains age 59
1
/2. Distributions shall otherwise be made in accordance with the terms of the Individual Agreements.
5.2S
mall Account Balances. The terms of the Individual Agreement may permit distributions to be made in the form of a
lum
p-sum payment, without the consent of the Participant or Beneficiary, but no such payment may be made without the consent
of t
he Participant or Beneficiary unless the Account Balance does not exceed $5,000 (determined without regard to any separate
acc
ount that holds rollover contributions under Section 6.1) and any such distribution shall comply with the requirements of section
401
(a)(31)(B) of the Code (relating to automatic distribution as a direct rollover to an individual retirement plan for distributions
in e
xcess of $1,000).
5.3Minimum Distributions. Each Individual Agreement shall comply with the minimum distribution requirements of section
401(a)(9) of the Code and the regulations thereunder. For purposesof applying the distribution rules of section 401(a)(9) of the
Code, each Individual Agreement is treated as an individual retirement account (IRA) and distributions shall be made in accor-
dance with the provisions of § 1.408–8 of the Income Tax Regulations, except as provided in § 1.403(b)–6(e) of the Income Tax
Regulations.
2007–51 I.R.B.1193December 17, 2007

Note: This Section 5.3 assumes that each individual agreement with a vendor complies with the minimum distribution require-
ments of § 401(a)(9) of the Code. See section 5 of the Appendixfor Rev. Proc. 2004–56, 2004–2 C.B. 376, for model language that
may be used to set forth the minimum distribution requirements of § 401(a)(9) of the Code.
5.4In-Servic
e Distributions From Rollover Account.If a Participant has a separate account attributable to rollover contributions
to the plan, to
the extent permitted by the applicable Individual Agreement, the Participant may at any time elect to receive a
distribution
of all or any portion of the amount held in the rollover account.
Note:A plan is not required to permit in-service distribution from a rollover account. See Rev. Rul. 2004–12, 2004–1 C.B. 478.
5.5Hardship Withdrawals. (a) Hardship withdrawals shall be permitted underthe Plan to the extent permitted by the Individual
Agreements controlling the Account assets to be withdrawn to satisfy the hardship. If applicable under an Individual Agreement,
no Elective Deferrals shall be allowed under the Plan during the 6-month period beginning on the date the Participant receives a
distribution on account of hardship.
(b) The Individual Agreements shall provide for the exchange ofinformation among the Employer and the Vendors to the extent
necessary to implement the Individual Agreements, including, in the case of a hardship withdrawal that is automatically deemed to
be necessary to satisfy the Participant’s financial need (pursuant to § 1.401(k)–1(d)(3)(iv)(E) of the Income Tax Regulations), the
Vendor notifying the Employer of the withdrawal in order for the Employer to implement the resulting 6-month suspension of the
Participant’s right to make Elective Deferrals under the Plan. In addition, in the case of a hardship withdrawal that is not automat-
ically deemed to be necessary to satisfy the financial need (pursuant to § 1.401(k)–1(d)(3)(iii)(B) ofthe Income Tax Regulations),
the Vendor shall obtain information from the Employer or other Vendors to determine the amount of any plan loans and rollover
accounts that are available to the Participantunder the Plan to satisfythe financial need.
5.6Rollover Distributions. (a) A Participant or the Beneficiary of a deceasedParticipant (or a Participant’s spouse or former
spouse who is an alternate payee under a domestic relations order,asdefinedinsection414(p)oftheCode)whoisentitledtoan
eligible rollover distribution may elect to have any portion of an eligible rollover distribution (as defined in section 402(c)(4) of the
Code) from the Plan paid directly to an eligible retirement plan (as defined in section 402(c)(8)(B)oftheCode)specifiedbythe
Participant in a direct rollover. In the case ofadistributiontoaBeneficiarywhoatthetime of the Participant’s death was neither
the spouse of the Participant nor the spouse or former spouse of the Participant who is an alternate payee under a domestic relations
order, a direct rollover is payable only to an individual retirement account or individual retirement annuity (IRA) that has been
established on behalf of the Beneficiary as an inherited IRA(within the meaning of section 408(d)(3)(C) of the Code).
(b) Each Vendor shall be separately responsible for providing, within a reasonable time period before making an initial eligible
rollover distribution, an explanation to the Participant of his or her right to elect a direct rollover and the income tax withholding
consequences of not electing a direct rollover.
Note:
Section 402(f) of the Code requires a plan administrator to provide a written explanation to any recipient of an eligible
rollo
ver distribution. The written explanation must cover the direct rollover rules, the mandatory income tax withholding on distri-
buti
ons not directly rolled over, the tax treatment of distributionsnot rolled over (including the special tax treatment available for
cert
ain lump sum distributions), and when distributions may be subject to different restrictions and tax consequences after being
roll
ed over. Section 402(f) provides that this explanation must be given within a reasonable period of time before the plan makes
an el
igible rollover distribution. See Notice 2002–3, 2002–1 C.B.289, that contains a Safe Harbor Explanation that plan admin-
istr
ators may provide to recipients of eligible rollover distributionsfrom employer plans in order to satisfy the notice requirement.
Note:See generally § 1.403(b)–6 of the Income Tax Regulationsfor rules relating to restrictions on distributions.
Note:If this Section 5 is adopted separately, the following definitions from Section 1 should also be adopted: Account, Account
Balance, Beneficiary, Code, Disabled, Elective Deferral, Employer, Individual Agreement, Participant, Plan, Severance from Em-
ployment, and Vendor.
Se
ction 6
Ro
llovers to the Plan and Transfers
6.1Eligible Rollover Contributions to the Plan.
December 17, 200711942007–51 I.R.B.

(a)Eligible Rollover Contributions. To the extent provided in the Individual Agreements, an Employee who is a Participant who
is entitled to receive an eligible rollover distribution from another eligibleretirement plan may request to have all or a portion of the
eligible rollover distribution paid to the Plan. Such rollover contributions shall be made in the form of cash only. The Vendor may
require such documentation from the distributing plan as it deems necessary to effectuate the rollover in accordance with section
402 of the Code and to confirm that such plan is an eligible retirement plan within the meaning of section 402(c)(8)(B) of the
Code. However, in no event does the Planaccept a rollover contribution from a Roth elective deferral account under an applicable
retirement plan described in section 402A(e)(1) of the Code or a Roth IRA described in section 408A of the Code.
Note:This pr
ovision does not permit rollovers to be accepted from aRoth elective deferral account or a Roth IRA because the
Plan does not
provide for designated Roth contributions.
(b)Eligible Rollover Distribution. For purposes of Section 6.1(a), an eligible rollover distribution means any distribution of
all or any portion of a Participant’s benefit under another eligible retirement plan, except that an eligible rollover distribution does
not include (1) any installment payment for a period of 10 years or more, (2) any distribution made as a result of an unforeseeable
emergency or other distribution which is made upon hardship of theemployee, or (3) for any other distribution, the portion, if any,
of the distribution that is a required minimum distribution under section 401(a)(9) of the Code. In addition, an eligible retirement
plan means an individual retirement account described in section408(a) of the Code, an individual retirement annuity described in
section 408(b) of the Code, a qualified trust described in section 401(a) of the Code, an annuity plan described in section 403(a)
or 403(b) of the Code, or an eligible governmental plan described in section 457(b) of the Code, that accepts the eligible rollover
distribution.
(c)Separate Accounts. The Vendor shall establish and maintain for the Participant a separate account for any eligible rollover
distribution paid to the Plan.
6.2Plan
-to-Plan Transfers to the Plan. (a) At the direction of the Employer, fora class of Employees who are participants
or benef
iciaries in another plan under section 403(b) of the Code, theAdministrator may permit a transfer of assets to the Plan as
provide
d in this Section 6.2. Such a transfer is permitted only if theother plan provides for the direct transfer of each person’s
entire i
nterest therein to the Plan and the participant is an employeeor former employee of the Employer. The Administrator and
any Ven
dor accepting such transferred amounts may require that the transfer be in cash or other property acceptable to it. The
Admini
strator or any Vendor accepting such transferred amounts may require such documentation from the other plan as it deems
necess
ary to effectuate the transfer in accordance with § 1.403(b)–10(b)(3) of the Income Tax Regulations and to confirm that the
other p
lan is a plan that satisfies section 403(b) of the Code.
(b) The amount so transferred shall be credited to the Participant’s Account Balance, so that the Participant or Beneficiary whose
assets are being transferred has an accumulated benefit immediately after the transfer at least equal to the accumulated benefit with
respect to that Participant or Beneficiary immediately before the transfer.
(c) To the extent provided in the Individual Agreements holding such transferred amounts, the amount transferred shall be held,
accounted for, administered and otherwise treated in the same manner as an Elective Deferral by the Participant under the Plan,
except that (1) the Individual Agreement which holds any amount transferred to the Plan must provide that, to the extent any amount
transferred is subject to any distribution restrictions required under section 403(b) of the Code, the Individual Agreement must
impose restrictions on distributions to the Participant or Beneficiary whose assets are being transferred that are not less stringent
than those imposed on the transferor plan and (2) the transferred amount shall not be considered an Elective Deferral under the Plan
in determining the maximum deferral under Section 3.
Not
e:This provision limits transfer to the plan to cases involving a class of participants whose entire benefit is being transferred,
suc
h as where employees are being transferred from another employer to employment with the employer maintaining this plan and
the
portion of the other plan held on their behalf is being merged into this plan. Plan-to-plan transfers are not required to be
lim
ited to such situations. See § 1.403(b)–10(b)(3) of the Income Tax Regulations for rules relating to plan-to-plan transfers among
§40
3(b) plans and, in the case of plans that are subject to ERISA, see also § 1.414(l)–1 of the Income Tax Regulations.
6.3Plan-to-Plan Transfers from the Plan.
2007–51 I.R.B.1195December 17, 2007

(a) At the direction of the Employer, the Administrator may permit a class of Participants and Beneficiaries to elect to have all
or any portion of their Account Balance transferred to another plan that satisfies section 403(b) of the Code in accordance with
§ 1.403(b)–10(b)(3) of the Income Tax Regulations. A transfer ispermitted under this Section 6.3(a) only if the Participants or
Beneficiaries are employees or former employees of the employer (or the business of the employer) under the receiving plan and
the other plan provides for the acceptance of plan-to-plan transfers with respect to the Participants and Beneficiaries and for each
Participant and Beneficiary to have an amount deferred under the other plan immediately after the transfer at least equal to the
amount transferred.
(b) The other plan must provide that, to the extent any amount transferred is subject to any distribution restrictions required
under section 403(b) of the Code, the other plan shall impose restrictions on distributions to the Participant or Beneficiary whose
assets are transferred that are not less stringent than those imposed under the Plan. In addition, if the transfer does not constitute
a complete transfer of the Participant’s or Beneficiary’s interest in the Plan, the other plan shall treat the amount transferred as a
continuation of a pro rata portion of the Participant’s or Beneficiary’s interest in the transferor plan (e.g., a pro rata portion of the
Participant’s or Beneficiary’s interestin any after-tax employee contributions).
(c) Upon the transfer of assets under this Section 6.3, the Plan’s liability to pay benefits to the Participant or Beneficiary under this
Plan shall be discharged to the extent of the amount so transferred for the Participant or Beneficiary. The Administrator may require
such documentation from the receiving plan as it deems appropriate or necessary to comply with this Section 6.3 (for example, to
confirm that the receiving plan satisfies section 403(b) of the Codeand to assure that the transfer is permitted under the receiving
plan) or to effectuate the transfer pursuant to § 1.403(b)–10(b)(3) of the Income Tax Regulations.
Note:This provision limits transfer from the plan to cases involving a class of participants whose entire benefit is being trans-
ferred, such as where employees are being transferred from employment with the employer maintaining this plan to another employer
and the portion of the plan held on their behalf is being merged into another plan. Plan-to-plan transfers are not required to be
limited to such situations. See § 1.403(b)–10(b)(3) of the Income Tax Regulations for rules relating to plan-to-plan transfers among
§ 403(b) plans and, in the case of plans that are subject to ERISA, see also § 1.414(l)–1 of the Income Tax Regulations.
6.4Cont
ract and Custodial Account Exchanges. (a) A Participant or Beneficiary is permitted to change the investment of his or
her Acco
unt Balance among the Vendors under the Plan, subject to the terms of the Individual Agreements. However, an investment
change t
hat includes an investment with a Vendor that is not eligibleto receive contributions under Section 2 (referred to below as
an exch
ange) is not permitted unless the conditions in paragraphs (b) through (d) of this Section 6.4 are satisfied.
(b) The Participant or Beneficiary must have an Account Balance immediately after the exchange that is at least equal to the
Account Balance of that Participant or Beneficiary immediately before the exchange (taking into account the Account Balance of
that Participant or Beneficiary under both section 403(b) contracts or custodial accounts immediately before the exchange).
(c) The Individual Agreement with the receiving Vendor has distribution restrictions with respectto the Participant that are not
less stringent than those imposed on the investment being exchanged.
(d) Th
e Employer enters into an agreement with the receiving Vendor for the other contract or custodial account under which
the Em
ployer and the Vendor will from time to time in the future provide each other with the following information:
(1) Information necessary for theresulting contract or custodial account, or any other contract or custodial accounts to which
contributions have been made by the Employer, to satisfy section 403(b) of the Code, including the following: (i) the Employer
providing information as to whether the Participant’s employment with the Employer is continuing, and notifying the Vendor when
the Participant has had a Severance from Employment (for purposes of the distribution restrictions in Section 5.1); (ii) the Vendor
notifying the Employer of any hardship withdrawal under Section 5.5 if the withdrawal results in a 6-month suspension of the
Participant’s right to make Elective Deferrals under the Plan; and (iii) the Vendor providing information to the Employer or other
Vendors concerning the Participant’s or Beneficiary’s section 403(b) contracts or custodial accounts or qualified employer plan
benefits (to enable a Vendor to determine the amount of any plan loans and any rollover accounts that are available to the Participant
under the Plan in order to satisfy the financial need under the hardship withdrawal rules of Section 5.5); and
December 17, 200711962007–51 I.R.B.

(2) Information necessary in order for the resulting contract or custodial account and any other contract or custodial account to
which contributions have been made for the Participant by the Employer to satisfy other tax requirements, including the following:
(i) the amount of any plan loan that is outstanding to the Participant in order for a Vendor to determine whether an additional
plan loan satisfies the loan limitations of Section 4.3, so that anysuch additional loan is not a deemed distribution under section
72(p)(1); and (ii) information concerning the Participant’s or Beneficiary’s after-tax employee contributions in order for a Vendor
to determine the extent to which a distribution is includible in gross income.
(e) If any Vendor ceases to be eligible to receive Elective Deferrals under the Plan, the Employer will enter into an information
sharing agreement as described in Section 6.4(d) to the extent the Employer’s contract with the Vendor does not provide for the
exchange of information described in Section 6.4(d)(1) and (2).
Note:Section 6.4(a) through (d) are optional provisions for a plan that chooses to allow participants to exchange all or a portion
of their account balance with vendors with respect to which the plan has no regular contact, i.e., insurance companies or mutual
funds that do not receive regular contributions made for participants. Note also thatadditional information would be necessary in
the case of an exchange involving a designated Roth account. See generally § 1.403(b)–10(b)(2) of the Income Tax Regulations for
rules relating to exchanges of contracts.
6.5Permissive Service Credit Transfers.
(a) If a Par
ticipant is also a participant in a tax-qualified defined benefit governmental plan (as defined in section 414(d) of the
Code) that
provides for the acceptance of plan-to-plan transfers with respect to the Participant, then the Participant may elect to
have any p
ortion of the Participant’s Account Balance transferred to thedefined benefit governmentalplan. A transfer under this
Section 6
.5(a) may be made before the Participanthas had a Severance from Employment.
(b) A transfer may be made under Section 6.5(a) only if the transfer is either for the purchase of permissive service credit (as
defined in section 415(n)(3)(A) of the Code) under the receiving defined benefit governmental plan or a repayment to which section
415 of the Code does not apply by reason of section 415(k)(3) of the Code.
(c) In addition, if a plan-to-plan transfer does not constitute a complete transfer of the Participant’s or Beneficiary’s interest
in the transferor plan, the Plan shall treat the amount transferred as a continuation of a pro rata portion of the Participant’s or
Beneficiary’s interest in the transferor plan (e.g., a pro rata portion of the Participant’s orBeneficiary’s interest in any after-tax
employee contributions).
Note:S
ee § 1.403(b)–10(b)(4) of the Income Tax Regulations for rules relating to transfers for permissive service credit.
Note:If this Section 6 is adopted separately, the following definitions from Section 1 should also be adopted: Administrator,
Account Balance, Beneficiary, Code, Elective Deferral, Employee, Employer, Individual Agreement,Participant, Plan, Severance
from Employment, and Vendor.
Section 7
Investment of Contributions
7.1Manner of Investment. All Elective Deferrals or other amounts contributed to the Plan, all property and rights purchased with
such amounts under the Funding Vehicles, and all income attributable to such amounts, property, or rights shall be held and invested
in one or more Annuity Contracts or Custodial Accounts. Each Custodial Account shall provide for it to be impossible, prior to the
satisfaction of all liabilities with respect to Participants and their Beneficiaries, for any part of the assets and income of the Custodial
Account to be used for, or diverted to, purposes other than for the exclusive benefit of Participants and their Beneficiaries.
7.2Investment of Contributions. Each Participant or Beneficiary shall directthe investment of his or her Account among the
investment options available under the Annuity Contract or Custodial Account in accordance with the termsof the Individual
Agreements. Transfers among Annuity Contracts and CustodialAccounts may be made to the extent provided in the Individual
Agreements and permitted under applicable Income Tax Regulations.
Note:See generally § 1.403(b)–8 of the Income Tax Regulations for rules relating to funding.
No
te:If this Section 7 is adopted separately, the following definitions from Section 1 should also be adopted: Annuity Contract,
Be
neficiary, Custodial Account, Individual Agreement, Elective Deferral, Participant, and Plan.
2007–51 I.R.B.1197December 17, 2007

7.3Current and Former Vendors. The Administrator shall maintain a list of all Vendors under the Plan. Such list is hereby
incorporated as part of the Plan. Each Vendorand the Administrator shall exchange suchinformation as may be necessary to satisfy
section 403(b) of the Code or other requirements of applicable law. In the case of a Vendor which is not eligible to receive Elective
Deferrals under the Plan (including a Vendor which has ceased to be a Vendor eligible toreceive Elective Deferrals under the Plan
and a Vendor holding assets under the Plan in accordance with Section 6.2 or 6.4), the Employer shall keep the Vendor informed of
the name and contact information of the Administrator in order tocoordinate information necessary to satisfy section 403(b) of the
Code or other requirements of applicable law.
Section 8
Amendment an
d Plan Termination
8.1Termination of Contributions. The Employer has adopted the Plan with the intention and expectation that contributions will
be continued indefinitely. However, the Employer has no obligation or liability whatsoever to maintain the Plan for any length of
time and may discontinue contributions under the Plan at any time without any liability hereunder for any such discontinuance.
8.2Amendment and Termination. The Employer reserves the authority to amend or terminate this Plan at any time.
8.3Distribution upon Termination of the Plan. The Employer may provide that, in connection with a termination of the Plan
and subject to any restrictions contained in the Individual Agreements, all Accounts will be distributed, provided that the Employer
and any Related Employer on the date of termination do not make contributions to an alternative section 403(b) contract that is not
part of the Plan during the period beginning on the date of plan termination and ending 12 months after the distribution of all assets
from the Plan, except as permitted by the Income Tax Regulations.
Note:See generally § 1.403(b)–10(a) of the Income Tax Regulations for rules relating to discontinuance of contributions and
plan termination.
Note:If this Section 8 is adopted separately, the following definitions from Section 1 should also be adopted: Account, Employer,
Individual Agreement, Plan, and Related Employer.
Section 9
Miscellaneous
9.1Non-Assignability.Except as provided in Section 9.2 and 9.3, the interests of each Participant or Beneficiary under the Plan
are not subject to the claims of the Participant’s or Beneficiary’screditors; and neither the Participant nor any Beneficiary shall
have any right to sell, assign, transfer, or otherwise convey theright to receive any payments hereunder or any interest under the
Plan, which payments and interest are expressly declared to be non-assignable and non-transferable.
Note:The anti-alienation rules of section 401(a)(13) of the Code generally do not apply to § 403(b) plans of public schools, but
the parallel rule at section 206(d) of ERISA applies to plans that are subject to ERISA.
9.2Domestic Relation Orders.Notwithstanding Section 9.1, if a judgment, decree or order (including approval of a property
settlement agreement) that relates to the provision of child support, alimony payments, or the marital property rights of a spouse
or former spouse, child, or other dependent of a Participant is made pursuant to the domestic relations law of any State (“domestic
relations order”), then the amount of the Participant’s Account Balance shall be paid in the manner and to the person or persons
so directed in the domestic relations order.Such payment shall be made without regard to whether the Participant is eligible for a
distribution of benefits under the Plan. The Administrator shallestablish reasonable proceduresfor determining the status of any
such decree or order and for effectuating distribution pursuant to the domestic relations order.
Note:Section 9.2 is specifically written for use by a State or local government maintaining a § 403(b) plan for its employees
who perform services for a public school and, if used by a § 501(c)(3) employer, must be revised to be limited to cases in which the
domestic relations order is “qualified” under § 414(p) of the Code.
Note:See generally § 414(p) of the Code and § 1.403(b)–10(c) of the Income Tax Regulations for rules regarding domestic
relations orders.
9.3IRS Levy.Notwithstanding Section 9.1, the Administrator may pay from a Participant’s or Beneficiary’s Account Balance
the amount that the Administrator finds is lawfully demanded under a levy issued by the Internal Revenue Service with respect to
that Participant or Beneficiary or is sought to be collected by the United States Government under a judgment resulting from an
unpaid tax assessment against the Participant or Beneficiary.
December 17, 200711982007–51 I.R.B.

9.4Tax Withholding. Contributions to the Plan are subject to applicableemployment taxes (including, if applicable, Federal
Insurance Contributions Act (FICA) taxes with respect to Elective Deferrals, which constitute wages under section 3121 of the
Code). Any benefit payment made under the Plan is subject to applicable income tax withholding requirements (including section
3401 of the Code and the Treasury Regulations thereunder). A payee shall provide such information as the Administrator may need
to satisfy income tax withholding obligations, and any other information that may be required by guidance issued under the Code.
9.5Payments to Minors and Incompetents.If a Participant or Beneficiary entitled to receive any benefits hereunder is a minor
or is adjudged to be legally incapable of giving valid receipt and discharge for such benefits, or is deemed so by the Administrator,
benefits will be paid to such person as the Administrator may designate for the benefit of such Participant or Beneficiary. Such
payments shall be considered a payment to such Participant or Beneficiary and shall, to the extent made, be deemed a complete
discharge of any liability for such payments under the Plan.
9.6Mistaken Contributions.If any contribution (or any portion of a contribution) is made to the Plan by a good faith mistake
of fact, then within one year after the payment of the contribution, and upon receipt in good order of a proper request approved by
the Administrator, the amount of the mistaken contribution (adjusted for any income or loss in value, if any, allocable thereto) shall
be returned directly to the Participant or, to the extent required or permitted by the Administrator, to the Employer.
9.7Procedure When Distributee Cannot Be Located.The Administrator shall make all reasonable attempts to determine the
identity and address of a Participant or a Participant’s Beneficiary entitled to benefits under the Plan. For this purpose, a reason-
able attempt means (a) the mailing by certified mail of a notice to the last known address shown on [INSERT NAME OF THE
EMPLOYER]’s or the Administrator’s records,(b) notification sent to the Social Security Administration or the Pension Benefit
Guaranty Corporation (under their programto identify payees under retirement plans), and (c) the payee has not responded within
6 months. If the Administrator is unable to locate such a person entitled to benefits hereunder, or if there has been no claim made
for such benefits, the funding vehicle shall continue to hold the benefits due such person.
9.8Inco
rporation of Individual Agreements. The Plan, together with the Individual Agreements, is intended to satisfy the
require
ments of section 403(b) of the Code and the Income Tax Regulations thereunder. Terms and conditions of the Individual
Agreem
ents are hereby incorporated by referenceinto the Plan, excluding those terms that are inconsistent with the Plan or section
403(b)
of the Code.
9.9Governing Law. The Plan will be construed, administered and enforced according to the Code and the laws of the State in
which the Employer has its principal place of business.
9.10Headings. Headings of the Plan have been inserted for convenience of reference only and are to be ignored in any con-
struction of the provisions hereof.
9.11
Gender. Pronouns used in the Plan in the masculine or feminine gender include both genders unless the context clearly
indi
cates otherwise.
IN WITNESS WHEREOF, the Employer has caused this Plan to be executed this
day of,.
Employer:
By:
Title:
Date signed:
Ef
fective Date of the Plan:
Note: The provisions in Section 9 are optional provisions that are not required to be adopted.
Note:If this Section 9 is adopted separately, the following definitions from Section 1 should also be adopted: Administrator,
Account Balance, Beneficiary, Employer, Individual Agreement, Participant, and Plan.
2007–51 I.R.B.1199December 17, 2007

Part IV. Items of General Interest
Notice of Proposed
Rulemaking
Update and Revision of
Sections 1.381(c)(4)–1 and
1.381(c)(5)–1
REG–151884–03
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations that provide guidance
under sections 381(c)(4) and (c)(5) of the
Internal Revenue Code (Code) relating to
the accounting method or combination of
methods, including the inventory method,
to use after certain corporate reorgani-
zations and tax-free liquidations. These
proposed regulations clarify and simplify
the existing regulations under sections
381(c)(4) and (c)(5). The regulations af-
fect corporations that acquire the assets
of other corporations in transactions de-
scribedinsection381(a).
DATES: Written or electronic comments
and requests for a public hearing must be
received by February 14, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–151884–03),
Room 5203, Internal Revenue Service, PO
Box 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–151884–03),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC, or sent electroni-
cally via the Federal eRulemaking Por-
tal athttp://www.regulations.gov/(IRS
REG–151884–03).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Cheryl Oseekey at (202)
622–4970; concerning submissions of
comments and requests for a hearing,
Kelly Banks at (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Overview
Section 381 of the Code was enacted in
1954 to provide statutory authority for de-
termining the carryover of certain tax at-
tributes, including accounting methods, in
certain corporate reorganizations and tax-
free liquidations. Regulations implement-
ing section 381(c)(4) were issued on Au-
gust 5, 1964 (T.D. 6750, 1964–2 C.B. 96
[29 FR 11263]). On August 23, 1972, the
IRS proposed to revise these regulations
(37 FR 16947). On December 23, 1998,
the IRS withdrew the regulations that had
been proposed in 1972 (REG–116099–98,
1999–2 C.B. 822 [63 FR 71047]). Regula-
tions implementing section 381(c)(5) were
issued on January 15, 1975 (40 FR 2684).
Section 1.381(c)(4)–1 generally pro-
vides that after a section 381(a) trans-
action, the accounting method or com-
bination of methods used by the parties
to the section 381(a) transaction prior to
the transaction will continue. However,
when the accounting methods used prior
to the section 381(a) transaction cannot
continue to be used after the transaction,
§1.381(c)(4)–1 identifies the accounting
method(s) to use after the transaction. Sec-
tion 1.381(c)(5)–1 provides similar rules
regarding inventory accounting methods.
The IRS and the Treasury Department
are aware that the current regulations are
inconsistent in the treatment of adjust-
ments for inventory methods and for other
accounting methods, andthat there is con-
fusion regarding the appropriate procedure
for making accounting method changes
requiredbysection381. Inanoticeof
proposed rulemaking (REG–142605–02,
2003–1 C.B. 1010 [68 FR 25310]) is-
sued on May 12, 2003, regarding sections
263A and 448, the IRS and the Treasury
Department indicated that guidance re-
garding the accounting method(s) to be
used after a section 381(a) transaction was
contemplated. This notice of proposed
rulemaking provides that guidance.
This notice of proposed rulemaking
generally continues many of the provi-
sions of the regulations originally issued
in 1964 and 1975 regarding the account-
ing method or combination of methods to
be used by the corporation that acquires
the assets of another corporation in a sec-
tion 381(a) transaction. However, the
following changes to these regulations are
proposed.
Consistency Between Sections 381(c)(4)
and (c)(5)
Under the current regulations, there are
several inconsistencies between the rules
that apply to accounting method changes
made pursuant to section 381(c)(4) and
those made under section 381(c)(5).
The proposed regulations generally
make the rules that apply to account-
ing method changes made pursuant to
section 381(c)(4) consistent with the rules
that apply to changes made under section
381(c)(5).
Determining the Method to be used after
the Section 381(a) Transaction
In general, the current regulations under
both sections 381(c)(4) and (c)(5) provide
that the accounting method to be used af-
ter a section 381(a) transaction by the party
that survives the reorganization or liqui-
dation (acquiring corporation) will depend
on whether (1) The parties to the section
381(a) transaction used (or did not use)
the same accounting method on the date
of the section 381(a) transaction, and (2)
The businesses of the parties to the section
381(a) transaction are combined after the
transaction by the party that survives the
transaction. If different methods are used
and the combined corporations are oper-
ated as a single trade or business after the
section 381(a) transaction, then the princi-
pal and special method (including the in-
ventory method) rules apply.
The parties to the section 381(a) trans-
action determine theprincipalmethod
by applying various tests under the reg-
ulations. The applicable test depends on
whether the method under consideration is
the overall accounting method, the method
for a particular type of goods for which
the Code or regulations provide a spe-
cial method or methods, or an inventory
December 17, 200712002007–51 I.R.B.

method. The rules under the current reg-
ulations also address situations in which
there is no principal method, or the princi-
pal method does not clearly reflect income.
Currently, the regulations provide that if
there is no principal method after applying
the appropriate test or if that method is
impermissible, the Commissioner shall
select a suitable accounting method to use
after the transaction.
The IRS and the Treasury Department
believe that the various tests in the regu-
lations and the need for the Commissioner
in some situations to select a suitable ac-
countingmethodtobeusedafterthetrans-
action have caused confusion and have led
to controversies between taxpayers and the
IRS. In order to eliminate the confusion
and uncertainty and provide simplicity and
uniformity, the IRS and the Treasury De-
partment propose to provide rules that are
similar to the current regulations but have
a default rule to determine the principal
method.
The proposed regulations generally
provide under both sections 381(c)(4) and
(c)(5) that the accounting method to be
used after a section 381(a) transaction by
the acquiring corporation will depend on
whether (1) The businesses of the parties
to the section 381(a) transaction are com-
bined after the transaction by the acquiring
corporation, and (2) The method is per-
missible. As under the current regulations,
if the trades or businesses of the parties to
the section 381(a) transaction are operated
as separate trades or businesses after the
section 381(a) transaction, an accounting
method used by the parties prior to the
section 381(a) transaction carries over and
is used by the acquiring corporation pro-
vided the method is permissible (carryover
method). If the trades or businesses of the
parties to the section 381(a) transaction
are not operated as separate trades or busi-
nesses after the section 381(a) transaction,
then the acquiring corporation must deter-
mine and use the principal method.
The proposed regulations provide a
general rule that the principal method gen-
erally is the accounting method used by the
acquiring corporation prior to the section
381(a) transaction. However, there are two
exceptions. First, if the acquiring corpora-
tion does not have an accounting method
for a particular item or type of goods, the
principal method is the accounting method
for the item or type of goods used by the
distributor or transferor corporation prior
to the section 381(a) transaction. Second,
if the distributor or transferor corporation
is larger than the acquiring corporation,
the principal methods for the overall ac-
counting method and for the accounting
method for a particular item or type of
goods are the methods used by the distrib-
utor or transferor corporation prior to the
section 381(a) transaction. The principal
method continues to be determined sepa-
rately for the overall accounting method
and for any special accounting methods,
such as an accounting method used for a
long-term contract.
Under the proposed regulations,
whether the distributor or transferor
corporation is larger than the acquiring
corporation is determined using the test
in §1.381(c)(4)–1 of the current regula-
tions for determining the overall principal
method for methods other than inven-
tory. Therefore, the parties to the section
381(a) transaction will compare their rel-
ative sizes in terms of total asset bases
and gross receipts for both the overall
accounting method and for special ac-
counting methods. For inventory, whether
the distributor or transferor corporation is
larger than the acquiring corporation will
be determined based on the value of the
inventory using a test similar to the test in
§1.381(c)(5)–1 of the current regulations.
The principal method is the inventory
method used by the party with the largest
fair market value of a particular type of
goods. The regulations provide a sim-
plified election that allows the acquiring
corporation to apply the principal method
test by comparing the value of the entire
inventories of the parties to the section
381(a) transaction rather than the value of
each particular type of goods.
Under the proposed regulations, if the
carryover method or principal method is
an impermissible method, the acquiring
corporation generally must file a request
to change to a permissible accounting
method. However, if the carryover method
is impermissible solely because only a sin-
gle accounting method with respect to a
particular item may be used by the acquir-
ing corporation on the date of the section
381(a) transaction regardless of the num-
ber of separate and distinct trades or busi-
nesses operated on that date, the acquiring
corporation must use the principal method
as determined under §1.381(c)(4)–1(c) of
the proposed regulations.
All parties to a section 381(a) trans-
action may request permission to change
their accounting methods for the taxable
year in which the transaction occurs or is
expected to occur under section 446(e).
However, the acquiring corporation need
not secure the Commissioner’s consent to
continue a carryover method or use the
principal method.
Additionally, there is confusion under
the current regulations as to whether an
accounting method is established immedi-
ately upon use of a carryover method or
principal method if the method is imper-
missible, and as to the appropriate rem-
edy if an acquiring corporation discovers
after the deadline for filing a request to
change an accounting method for the year
of the section 381(a) transaction that the
carryover method or principal method is
an impermissible method. The proposed
regulations make it clear that every ac-
counting method, whether it is a carryover
method or a principal method, and whether
the method is a permissible or impermis-
sible method, is an established accounting
method. Therefore, if an acquiring cor-
poration discovers after the deadline for
filing a request tochange an accounting
method for the year of the section 381(a)
transaction that it is using an impermissi-
ble method, the acquiring corporation must
file for an accounting method change to
a permissible accounting method for the
taxable year following the section 381(a)
transaction.
Determining Adjustments Arising from a
Change in an Accounting Method under
Sections 381(c)(4) and (c)(5)
Under the current regulations in
§1.381(c)(4)–1, once a principal method is
determined,anypartytothesection381(a)
transaction that is required to change its
accounting method to the principal method
must compute the adjustment necessary
to reflect the change by determining the
difference between its tax liability as re-
flected on its actual return computed using
its old accounting method, and the tax
liability reflected on a hypothetical federal
income tax return using the new account-
ing method. This adjustment is computed
as if, on the date of the section 381(a)
transaction, each changing corporation
2007–51 I.R.B.1201December 17, 2007

initiates an accounting method change.
If there is an increase or decrease in tax
liability, the acquiring corporation takes
into account the hypothetical increase or
decrease in tax in the taxable year that
includes the date of the section 381(a)
transaction.
The procedures are different for in-
ventory under the current regulations in
§1.381(c)(5)–1. In lieu of the acquiring
corporation taking into account the hypo-
thetical increase or decrease in tax in the
taxable year that includes the date of the
section 381(a) transaction, the acquiring
corporation takes the increase or decrease
in income attributable to the accounting
method change directly into account.
The IRS and the Treasury Department
believe that the procedures for implement-
ing changes to a principal method under
the current regulations have been incon-
sistently applied and are another source
of confusion. The proposed regulations
modify §1.381(c)(4)–1 and generally ap-
ply the adjustment methodology used
under section 446(e) and §1.381(c)(5)–1
of the current regulations. The proposed
regulations generally make accounting
method changes to a principal method and
the resulting section 481(a) adjustment,
if any, procedurally consistent with ac-
counting method changes made pursuant
to section 446(e). Accordingly, the ac-
quiring corporation computes the section
481(a) adjustment necessary to reflect
the accounting method change, if any, as
if it had initiated an accounting method
change for the trade or business required to
implement the principal method. The ac-
quiring corporation takes into account the
appropriate amount of the section 481(a)
adjustment, if any, computed as of the date
of the section 381(a) transaction, from the
accounting method change as an increase
or decrease to its taxable income on the
date of the section 381(a) transaction.
Furthermore, to simplify the proce-
dures under section 381(a) for accounting
method changes, the proposed regulations
provide that the rules governing account-
ing method changes under section 446(e)
apply to determine (1) Whether the sec-
tion 381(a) accounting method change is
implemented with a section 481(a) ad-
justment or on a cut-off basis, (2) The
computation of the section 481(a) adjust-
ment, and (3) The appropriate period of
taxable years over which the adjustment
is included in taxable income. These rules
are contained in applicable administrative
published procedures that govern volun-
tary accounting method changes under
section 446(e). (See, for example, Rev.
Proc. 2002–9, 2002–1 C.B. 327, (see
§601.601(d)(2)(ii)(b)ofthischapter),as
modified and clarified by Announcement
2002–17, 2002–1 C.B. 561, modified and
amplified by Rev. Proc. 2002–19, 2002–1
C.B. 696, (see §601.601(d)(2)(ii)(b)of
this chapter), and amplified, clarified and
modified by Rev. Proc. 2002–54, 2002–2
C.B. 432, and Rev. Proc. 97–27, 1997–1
C.B. 680, (see §601.601(d)(2)(ii)(b)of
this chapter), as modified and amplified
by Rev. Proc. 2002–19, as amplified and
clarified by Rev. Proc. 2002–54). For
example, if the current administrative pro-
cedures allow a section 481(a) adjustment
to be taken into account over a period
of four years for a particular accounting
method change, an acquiring corpora-
tion will take into account one-fourth of
the section 481(a) adjustment in the tax-
able year that includes the section 381(a)
transaction, and one-fourth of the section
481(a) adjustment in each of the subse-
quent three years.
Time and Manner of Requesting
Permission to Change an Accounting
Method under §1.381(c)(4)–1 or
§1.381(c)(5)–1
Under the current regulations, if the
acquiring corporation cannot use a prin-
cipal method because it is impermissible,
that is, it does not clearly reflect income
or it conflicts with a closing agreement, or
the acquiring corporation does not want
to use the principal method even though
it is permissible, there is confusion as to
the manner in which a taxpayer requests
the Commissioner’s permission to use a
different accounting method. Specifically,
it is unclear whether an acquiring corpo-
ration may file a Form 3115,Application
for Change in Accounting Method,tore-
quest the Commissioner’s permission or
whether the acquiring corporation must
file a request for a private letter ruling.
The proposed regulations make it clear
that a taxpayer must request an accounting
method change consistent with the manner
in which accounting method changes are
requested pursuant to section 446(e), that
is, on a Form 3115.
The regulations under section
446(e) currently allow taxpayers
to request an accounting method
change at any time during the taxable
year. See §1.446–1(e)(3)(i). Under
§§1.381(c)(4)–1(d) and 1.381(c)(5)–1(d)
of the current regulations, the time for
filing a request for an accounting method
change is inconsistent with the section
446(e) regulations. Although the times
for filing under these two regulations
were consistent when the regulations were
initially published, the section 446(e)
regulations were subsequently amended
without making conforming changes to
§§1.381(c)(4)–1(d) and 1.381(c)(5)–1(d)
of the current regulations. This incon-
sistency also has caused confusion. Rev.
Proc. 2005–63, 2005–2 C.B. 491, (see
§601.601(d)(2)(ii)(b) of this chapter) was
issued to address the problem. The rev-
enue procedure extends the time to file a
request to change an accounting method
to the later of (1) The last day of the
taxable year in which the distribution or
transfer occurred, or (2) The earlier of (a)
the day that is 180 days after the section
381(a) transaction date, or (b) the day on
which the acquiring corporation files its
tax return for the taxable year in which the
distribution or transfer occurred.
The proposed regulations generally in-
corporate the time provided in Rev. Proc.
2005–63 for requesting the Commis-
sioner’s consent to change an accounting
method. The IRS and the Treasury De-
partment intend by this revision generally
to conform the due dates for requesting an
accounting method change under sections
381(c)(4) and (c)(5) to the due dates for re-
questing other accounting method changes
under section 446(e), while providing suf-
ficient time to request the Commissioner’s
consent if the section 381(a) transaction
occurs at or near the end of a taxable year.
Changing Accounting Methods in the
Taxable Year of the Section 381(a)
Transaction
The existing regulations under sections
381(c)(4) and (c)(5) require certain ad-
justments attributable to an accounting
method change to be taken into account
entirely in one taxable year. The adjust-
ment required of the acquiring corporation
under the existing section 381(c)(4) reg-
ulations is to take into account the hypo-
December 17, 200712022007–51 I.R.B.

thetical tax increase due to the accounting
method change rather than a section 481(a)
adjustment. The administrative proce-
dures applicable to voluntary accounting
method changes historically have required
a section 481(a) adjustment to be taken
into account over a period of taxable years.
This discrepancy in when the adjustments
are taken into account produced an incen-
tive for taxpayers to request a voluntary
accounting method change in the year in
which the section 381(a) transaction oc-
curred for changes that would result in a
positive adjustment while making changes
that would result in a negative adjust-
ment under the rules in §1.381(c)(4)–1 or
§1.381(c)(5)–1 of the current regulations.
The IRS generally declined to entertain
requests for an accounting method change
that otherwise would be effected pursuant
to sections 381(c)(4) and (c)(5). More
recently, however, the administrative pro-
cedures that apply to voluntary accounting
method changes have provided for taking
positive section 481(a) adjustments into
account over a period of taxable years
while allowing negative section 481(a)
adjustments to be taken into account in
the year in which the method change is
effected, which lessens the incentive to
make an accounting method change under
section 446(e) in lieu of section 381(a).
Generally, the proposed regulations
provide that the acquiring corporation
will be permitted to request an account-
ing method change for the taxable year
in which the section 381(a) transaction
occurs. The proposed regulations also
provide that the other parties to a sec-
tion 381(a) transaction will be allowed
to request accounting method changes
for the taxable year that ends with the
section 381(a) transaction. For trades
or businesses that will not operate as
separate trades or businesses after the
section 381(a) transaction, an account-
ing method change will be granted only
if the requested method is the method
that will continue to be used after the
section 381(a) transaction. For exam-
ple, an acquiring corporation will be
granted permission to change an account-
ing method only if the proposed method
will be the principal method on the date
of the section 381(a) transaction. The
IRS generally will not grant an account-
ing method change to a distributor or
transferor corporation for the taxable year
that ends with the section 381(a) trans-
action if that method must change to
a different method under the principal
method rules of §§1.381(c)(4)–1(c) and
1.381(c)(5)–1(c) of the proposed regula-
tions. Similarly, the IRS generally will not
grant an accounting method change to an
acquiring corporation in the taxable year
that includes the section 381(a) transaction
if that method must change to a different
method under the principal method rules of
§§1.381(c)(4)–1(c) and 1.381(c)(5)–1(c)
of the proposed regulations. If and when
the proposed regulations are finalized, the
IRS and the Treasury Department intend to
make changes to the administrative proce-
dures applicable to voluntary accounting
methods to generally allow changes dur-
ing the year of a section 381(a) transaction
as previously described and will change
relevant terms and conditions, as needed,
particularly for taxpayers who are under
exam or in appeals.
Audit Protection
Changes to the principal method un-
der §§1.381(c)(4)–1 and 1.381(c)(5)–1 of
the current regulations are made without
audit protection. The IRS and the Trea-
sury Department believe that audit protec-
tion is not warranted when either the carry-
over method or principal method, as appli-
cable, is used in the context of voluntary
compliance under sections 381(c)(4) and
(c)(5). Unlike accounting method changes
under section 446(e) for which a taxpayer
must disclose its use of an improper ac-
counting method as part of the accounting
method change process, changes to a prin-
cipal method pursuant to §§1.381(c)(4)–1
and 1.381(c)(5)–1 of the current regula-
tions are made by the taxpayer on the tax
return without disclosing the change on a
Form 3115,Application for Change in Ac-
counting Method.
The IRS and the Treasury Department,
however, believe that audit protection is
warranted when an accounting method
other than the carryover method or princi-
pal method is used in the context of volun-
tary compliance under sections 381(c)(4)
and (c)(5). Under the proposed regula-
tions, a taxpayer using an improper ac-
counting method may request permission
to change the method at any time before
the end of its taxable year. Thus, if the
acquiring corporation is using an improper
accounting method or would be required
to use an improper accounting method be-
cause of the application of §1.381(c)(4)–1
or §1.381(c)(5)–1 of the proposed regula-
tions, it can request consent to change to
a proper accounting method. That change
will be accorded the usual audit protection
procedures provided in guidance issued
under section 446(e) for the requested
change. Similarly, if another party to the
section 381(a) transaction is using an im-
proper accounting method, it may request
consent to change to a proper accounting
method at any time prior to the section
381(a) transaction. That change also will
be accorded the usual audit protection pro-
cedures provided in guidance issued under
section 446(e) for the requested change.
Proposed Effective/Applicability Date
These regulations are proposed to apply
to corporate reorganizations and tax-free
liquidations described in section 381(a)
that occur on or after the date these regu-
lations are published as final regulations
in theFederal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It is hereby cer-
tified that these regulations will not have a
significant economic impact on a substan-
tial number of small entities. Therefore,
a regulatory flexibility analysis under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Although there
is a lack of available data regarding the
extent to which small entities engage in
the corporate reorganizations and tax-free
liquidations described in section 381(a),
this certification is based on the belief of
the IRS and the Treasury Department that
these transactions generally involve larger
entities. Notwithstanding this certifica-
tion that only large entities are affected,
these proposed regulations will not have
a significant economic impact on large or
small taxpayers. These proposed regula-
tions will reduce burden on taxpayers by
clarifying existing rules and simplifying
the procedures for requesting changes in
accounting methods to methods other than
the carryover or principal methods. Addi-
tionally, these proposed regulations make
2007–51 I.R.B.1203December 17, 2007

the implementation rules more consistent
with the general rules for changes in ac-
counting methods. Therefore, because
these proposed regulations would gener-
ally clarify and simplify existing rules,
these regulations will not have a signif-
icant economic impact on a substantial
number of small entities. The IRS and
the Treasury Department specifically so-
licit comment from any party, particularly
affected small entities, on the accuracy
of this certification. Pursuant to section
7805(f) of the Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed orig-
inal and 8 copies) or electronic comments
that are submitted timely to the IRS. The
IRS and the Treasury Department want to
provide clear, consistent, and administra-
ble rules that will reduce the uncertainty
and controversy in this area. Thus, the
IRS and the Treasury Department request
comments on the clarity of the proposed
rules and how they can be made easier to
understand. Topics on which comments
are requested include (1) In determining
the relative sizes of the parties to a sec-
tion 381(a) transaction, is it appropriate to
calculate the gross receipts for a represen-
tative period by examining the gross re-
ceipts that are properly recognized under
the acquiring corporation’s and the distrib-
utor or transferor corporation’s accounting
method used for that period for federal in-
come tax purposes, and (2) For a taxpayer
using the last-in, first-out (LIFO) inven-
tory method, should the principal method
be applied at the level of each particular
type of goods, or to pools of goods? All
comments will be made available for pub-
lic inspection and copying. A public hear-
ing will be scheduled if requested in writ-
ing by any person that timely submits writ-
ten comments. If a public hearing is sched-
uled, notice of the date, time, and place for
the public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regula-
tions is Cheryl Oseekey, Office of Asso-
ciate Chief Counsel (Income Tax and Ac-
counting). However, other personnel from
the IRS and the Treasury Department par-
ticipated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.381(c)(4)–1 also issued under
26 U.S.C. 381(c)(4). * * *
Section 1.381(c)(5)–1 also issued under
26 U.S.C. 381(c)(5). * * *
Par. 2. In §1.381(a)–1, paragraph
(b)(1)(i) is revised and paragraph (e) is
added to read as follows:
§1.381(a)–1 General rule relating
to carryovers in certain corporate
acquisitions.
*****
(b) * * *
(1) * * * (i) The complete liquidation
of a subsidiary corporation upon which no
gain or loss is recognized in accordance
with the provisions of section 332;
*****
(e)Effective/applicability date.The
rules of paragraph (b)(1)(i) of this sec-
tion apply to corporate reorganizations
and tax-free liquidations described in sec-
tion 381(a) that occur on or after the date
of publication of the Treasury decision
adopting these rules as final regulations in
theFederal Register.
Par. 3. Section 1.381(c)(4)–1 is revised
to read as follows:
§1.381(c)(4)–1 Accounting method.
(a)Introduction—(1)Purpose.This
section provides guidance regarding the
accounting method or combination of
methods (other than inventory and depre-
ciation accounting methods) an acquiring
corporation must use following a dis-
tribution or transfer to which sections
381(a) and (c)(4) apply and how to imple-
ment any associated accounting method
changes. See §1.381(c)(5)–1 for guid-
ance regarding the inventory accounting
methods an acquiring corporation must
use following a distribution or transfer
to which sections 381(a) and (c)(5) apply.
See §1.381(c)(6)–1 for guidance regarding
the depreciationaccounting methods an
acquiring corporation must use following
a distribution or transfer to which sections
381(a) and (c)(6) apply.
(2)Carryover requirement—(i)In gen-
eral. In a transaction to which section
381(a) applies, if an acquiring corporation
operates the trades or businesses of the
partiestothesection381(a)transactionas
separate and distinct trades or businesses
after the date of distribution or transfer,
then the acquiring corporation generally
must use the same accounting method(s)
used by the distributor or transferor cor-
poration(s) on the date of distribution or
transfer for the acquired trade or business
(carryover method). If an acquiring corpo-
ration does not operate the trades or busi-
nesses of the parties to the section 381(a)
transaction as separate and distinct trades
or businesses after the date of distribu-
tion or transfer, then the acquiring corpo-
ration must use a principal method as de-
termined under paragraph (c) of this sec-
tion and must take into account any sec-
tion 481(a) adjustment, if applicable, as re-
quired under paragraph (d)(1) of this sec-
tion. The acquiring corporation need not
secure the Commissioner’s consent to con-
tinue or to use a permissible carryover
method or principal method.
(ii)Carryover method or principal
method not permissible. In general, if
a carryover method or principal method
is an impermissible accounting method,
the acquiring corporation must secure the
Commissioner’s consent to change to a
different accounting method as provided
in paragraph (d)(2) of this section. If, how-
ever, a carryover method is impermissible
solely because only a single accounting
method with respect to a particular item
maybeusedbytheacquiringcorporation
after the date of the section 381(a) transac-
tion regardless of the number of separate
and distinct trades or businesses operated
on that date, the acquiring corporation
December 17, 200712042007–51 I.R.B.

must use a principal method as determined
under paragraph (c) of this section.
(iii)Voluntary change.Allpartiestoa
section 381(a) transaction may request per-
mission under section 446(e) to change an
accounting method for the taxable year in
which the transaction occurs or is expected
to occur. For trades or businesses that will
not operate as separate trades or businesses
after the section 381(a) transaction, an ac-
counting method change will be granted
only if the requested method is the method
that the acquiring corporation must use af-
ter the date of the distribution or transfer in
the taxable year thatincludes the section
381(a) transaction. The time and manner
of obtaining the Commissioner’s consent
to change to a different accounting method
is described in paragraph (d)(2) of this sec-
tion.
(iv)Examples. The following examples
illustrate the rules of this paragraph (a):
Example 1.Separate and distinct trades or
businesses after the date of the distribution or
transfer—(i)Facts. X Corporation operates an em-
ployment agency that uses the overall cash receipts
and disbursements accounting method. T Corpora-
tion operates an educational institution that uses an
overall accrual method. X Corporation acquires the
assets of T Corporation in a transaction to which
section 381(a) applies. X Corporation operates the
employment agency and educational institution as
separate and distinct trades or businesses after the
date of the section 381(a) transaction.
(ii)Conclusion. After the section 381(a) trans-
action, X Corporation will use the cash receipts and
disbursements method for the employment agency
and an accrual method for the educational institution.
X Corporation need not secure the Commissioner’s
consent to continue either accounting method.
Example 2.Carryover of special accounting
method—(i)Facts. X Corporation provides personal
grooming consulting and T Corporation provides
weight management consulting. Both X Corporation
and T Corporation use an overall accrual method. X
Corporation acquires all of the assets of T Corpora-
tion in a transaction to which section 381(a) applies.
X Corporation operates the personal grooming and
weight management consulting businesses as sepa-
rate and distinct trades or businesses after the date
of the section 381(a) transaction. X Corporation has
made an election to use the recurring item exception
under §1.461–4(h). T Corporation has not.
(ii)Conclusion. After the section 381(a) trans-
action, X Corporation will use an overall accrual
method for both the personal grooming consulting
business and the weight management consulting
business. X Corporation must continue to use the
recurring item exception under §1.461–4(h) for the
personal grooming consulting business. X Corpora-
tion need not secure the Commissioner’s consent to
continue its overall accrual method and the recurring
item exception under §1.461–4(h) for the personal
grooming consulting business.
Example 3.One accounting method allowed—(i)
Facts. X Corporation is an engineering firm that
uses the overall cash receipts and disbursements ac-
counting method and has elected under section 171
to amortize bond premium with respect to its tax-
able bonds acquired at a premium. T Corporation is
a manufacturer that uses an overall accrual account-
ing method and has not made a section 171 election
to amortize bond premium with respect to its tax-
able bonds acquired at a premium. X Corporation
acquires the assets of T Corporation in a transaction
to which section 381(a) applies. X Corporation op-
erates the engineering firm and manufacturing opera-
tions as separate and distinct trades or businesses after
the date of the section 381(a) transaction.
(ii)Conclusion. After the section 381(a) trans-
action, X Corporation will use the cash receipts and
disbursements method for the engineering firm and
an overall accrual method for the manufacturing op-
erations. X Corporation may not continue separate
accounting methods for amortizable bond premium,
notwithstanding that it has two separate and district
trades or businesses, because a taxpayer is permit-
ted only one accounting method for amortizable bond
premium. For both trades or businesses, X Corpora-
tion must use the principal method for bond premium
as determined under paragraph (c) of this section. X
Corporation will make the necessary changes to this
principal method using the procedures described in
paragraph (d)(1) of this section. Further, if the princi-
pal method is not to amortize bond premium, X Cor-
poration may make an election to amortize bond pre-
mium to the extent permitted by section 171. See
paragraph (e)(2) of this section.
Example 4.Voluntary change—(i)Facts.The
facts are the same as inExample 1except that X
Corporation wants to cease using an overall accrual
method for the educational institution and change to
the cash receipts and disbursements method.
(ii)Conclusion. X Corporation must secure the
Commissioner’s consent to use the cash receipts and
disbursements method for the educational institution
by filing a Form 3115,Application for Change in Ac-
counting Method, as described in paragraph (d)(2) of
this section.
(b)Definitions—(1)Accounting
methodhas the same meaning as pro-
videdinsection446and any applicable
regulations.
(2)Special accounting methodis a
method expressly permitted or required
by the Code, Income Tax Regulations,
or administrative guidance published in
the Internal Revenue Bulletin that devi-
ates from the normal application of the
cash receipts and disbursements method
or an accrual method. For example, the
installment method under section 453 and
the mark-to-market method under section
475 are special accounting methods. See
§1.446–1(c)(1)(iii).
(3)Principal methodis an accounting
method that is determined under paragraph
(c)ofthissection.
(4)Adopting an accounting method
has the same meaning as provided in
§1.446–1(e)(1).
(5)Changing an accounting method
has the same meaning as provided in
§1.446–1(e)(2).
(6)Acquiring corporationhas the same
meaning as provided in §1.381(a)–1(b)(2).
(7)Distributor corporationmeans the
corporation, foreign or domestic, that dis-
tributes its assets to another corporation
described in section 332(b) in a distribu-
tion to which section 332 (relating to liq-
uidations of subsidiaries) applies.
(8)Transferor corporationmeans the
corporation, foreign or domestic, that
transfers its assets to another corporation
in a transfer to which section 361 (relating
to nonrecognition of gain or loss to corpo-
rations) applies, but only if—
(i) The transfer is in connection with
a reorganization described in section
368(a)(1)(A),(C),or(F),or
(ii) The transfer is in connection with
a reorganization described in section
368(a)(1)(D) or (G), provided the re-
quirements of section 354(b) are met.
(9)Partiestothesection381(a)trans-
actionmeans the acquiring corporation
and the distributor or transferor corpora-
tion(s) that participate in a transaction to
which section 381(a) applies.
(10)Date of distribution or transferhas
the same meaning as provided in section
381(b)(2) and §1.381(b)–(1)(b).
(11)Separate and distinct trades or
businesseshas the same meaning as pro-
vided in §1.446–1(d).
(12)Gross receiptsmeans all the re-
ceipts in the appropriate period that must
be recognized under the acquiring corpo-
ration’s and the distributor or transferor
corporation’s accounting method actually
used in that period (determined without re-
gard to this section) for federal income tax
purposes. For example, gross receipts in-
cludes income from investments, amounts
received for services, rents, total sales (net
of returns and allowances) and interest.
(13)Audit protectionmeans that the
IRS will not require the corporation re-
quired to change its accounting method un-
der this section to change its method for
the same item for a taxable year prior to
the taxable year of the section 381(a) trans-
action requiring the change in accounting
method.
2007–51 I.R.B.1205December 17, 2007

(14)Section 481(a) adjustmentmeans
an adjustment that must be taken into ac-
count as required under section 481(a) to
prevent amounts from being duplicated or
omitted when the taxable income of a tax-
payer is computed under an accounting
method different from the method used to
compute taxable income for the preceding
taxable year.
(15)Cut-off basismeans an account-
ing method change made without a sec-
tion 481(a) adjustment and under which
only the items arising on or after the date
the accounting method change is made are
accounted for under the new accounting
method.
(16)Adjustment periodmeans the num-
ber of taxable years for taking into account
the section 481(a) adjustment required as a
result of an accounting method change.
(c)Principal method—(1)In general.
The principal methods for the overall ac-
counting method and for all accounting
methods for particular items generally
are the accounting methods used by the
acquiring corporation immediately prior
to the date of the section 381(a) transac-
tion (acquiring corporation’s carryover
method(s)). If, however, the acquiring
corporation does not have an accounting
method for a particular item or if the dis-
tributor or transferor corporation is larger,
the principal methods are the methods
used by the distributor or transferor cor-
poration immediately prior to the date of
the transaction (distributor or transferor
corporation’s carryover method). The dis-
tributor or transferor corporation is larger
if the—
(i) Adjusted bases of the distributor
or transferor corporation’s assets (deter-
mined under section 1011 and the regu-
lations thereunder) exceed the adjusted
bases of the acquiring corporation’s assets
immediately prior to the date of distribu-
tion or transfer, and
(ii) The distributor or transferor corpo-
ration’s gross receipts for a representative
period (generally the most recent period of
12 consecutive calendar months ending on
the date of distribution or transfer) exceed
the acquiring corporation’s gross receipts
for the same period.
(2)Examples. The following examples
illustrate the rules of this paragraph (c):
Example 1.Principal method is the acquiring
corporation’s carryover method—(i)Facts.XCor-
poration and T Corporation operate employment
agencies. X Corporation uses the overall cash re-
ceipts and disbursements accounting method while
T Corporation uses an overall accrual method. X
Corporation acquires the assets of T Corporation in a
transaction to which section 381(a) applies. The ad-
justed bases of X Corporation’s assets immediately
prior to the transaction exceed the adjusted bases of
T Corporation’s assets and X Corporation’s gross
receipts for the representative period are more than
T Corporation’s gross receipts for the period. The
employment agencies are not operated as separate
and distinct trades or businesses after the date of the
distribution or transfer.
(ii)Conclusion. Because the adjusted bases of the
assets and the gross receipts of X Corporation exceed
the adjusted bases of the assets and the gross receipts
of T Corporation, the accounting method used by X
Corporation immediately prior to the date of the sec-
tion 381(a) transaction is the principal method. Af-
ter the section 381(a) transaction, X Corporation uses
the cash receipts and disbursements method for the
employment agency business operated by X Corpo-
ration prior to the section 381(a) transaction. X Cor-
poration need not secure the Commissioner’s consent
to use this method. However, X Corporation must
change the accounting method for the employment
agency business acquired from T Corporation to the
cash receipts and disbursements method and take into
account the applicable section 481(a) adjustment as
provided in paragraph (d)(1) of this section.
Example 2.Principal method is the acquiring
corporation’s carryover method—(i)Facts.The
facts are the same as inExample 1except that T
Corporation’s gross receipts for the representative
period exceed X Corporation’s gross receipts.
(ii)Conclusion. Because the gross receipts of T
Corporation exceed the gross receipts of X Corpora-
tion but the adjusted bases of the assets of T Corpo-
ration do not exceed the adjusted bases of the assets
of X Corporation, the accounting method used by X
Corporation immediately prior to the date of the sec-
tion 381(a) transaction is the principal method. After
the section 381(a) transaction, X Corporation will use
the cash receipts and disbursements method for the
employment agency business operated by X Corpo-
ration prior to the section 381(a) transaction. X Cor-
poration need not secure the Commissioner’s consent
to use this method. However, X Corporation must
change the accounting method for the employment
agency business acquired from T Corporation to the
cash receipts and disbursements method and take into
account the applicable section 481(a) adjustment as
provided in paragraph (d)(1) of this section.
Example 3.Principal method is the distributor
or transferor corporation’s carryover method—(i)
Facts. The facts are the same as inExample 1except
that the adjusted bases of T Corporation’s assets
immediately prior to the section 381(a) transaction
exceed the adjusted bases of Corporation X’s assets
and T Corporation’s gross receipts for the represen-
tative period are more than X Corporation’s gross
receipts for the period.
(ii)Conclusion. Because the adjusted bases of the
assets and the gross receipts of T Corporation exceed
the adjusted bases of the assets and the gross receipts
of X Corporation, the accounting method used by T
Corporation immediately prior to the date of the sec-
tion 381(a) transaction is the principal method. After
the section 381(a) transaction, X Corporation uses an
overall accrual method for the employment agency
business operated by T Corporation prior to the sec-
tion 381(a) transaction. X Corporation need not se-
cure the Commissioner’s consent to use this method.
However, X Corporation must change the account-
ing method for the employment agency business op-
erated by X Corporation prior to the section 381(a)
transaction to an overall accrual method and take into
account the applicable section 481(a) adjustment as
provided in paragraph (d)(1) of this section. If X Cor-
poration chooses, it may request the Commissioner’s
consent to change to the cash receipts and disburse-
ments method, if permissible, or some other permis-
sible method as provided in paragraph (d)(2) of this
section.
Example 4.Impermissible method—(i)Facts.
ThefactsarethesameasinExample 1except that
X Corporation is prohibited under section 448 from
using the cash receipts and disbursements method
after the date of the section 381(a) transaction.
(ii)Conclusion. Because X Corporation is not
permitted under section 448 to use the cash receipts
and disbursements method, X Corporation must re-
quest permission to change to a permissible method
as provided in paragraph (d)(2) of this section.
Example 5.Principal method is the acquiring
corporation’s carryover method with a special ac-
counting method—(i)Facts. X Corporation and T
Corporation publish magazines. X Corporation ac-
quires the assets of T Corporation in a transaction to
which section 381(a) applies. Both X Corporation
and T Corporation use anoverall accrual method. X
Corporation has elected to defer income from its sub-
scription sales under section 455. T Corporation has
not elected to defer income from its subscription sales
under section 455 and instead has recognized the in-
come from these sales in accordance with section 451.
The adjusted bases of X Corporation’s assets immedi-
ately prior to the section 381(a) transaction exceed the
adjusted bases of T Corporation’s assets and X Cor-
poration’s gross receipts for the representative period
are more than T Corporation’s gross receipts for the
period. The publication businesses are not operated
as separate and distinct trades or businesses after the
date of the distribution or transfer.
(ii)Conclusion. Because the adjusted bases of the
assets and the gross receipts of X Corporation exceed
the adjusted bases of the assets and the gross receipts
of T Corporation, the accounting method used by X
Corporation immediately prior to the date of the sec-
tion 381(a) transaction is the principal method. Af-
ter the section 381(a) transaction, X Corporation will
continue to use its overall accrual method and the sec-
tion 455 deferral method. X Corporation need not se-
cure the Commissioner’s consent to continue to use
its overall accrual method and the section 455 de-
ferral method. However, under paragraph (d)(1) of
this section X Corporation must change its account-
ing method for the magazine business acquired from
T Corporation to the section 455 deferral method us-
ing a cut-off basis.
Example 6.Principal method is the acquiring
corporation’s carryover method with a special ac-
counting method—(i)Facts. The facts are the same
as inExample 5except that T Corporation’s gross re-
ceipts for the representative period exceed X Corpo-
ration’s gross receipts for the period.
(ii)Conclusion. Because the gross receipts of T
Corporation exceed the gross receipts of X Corpora-
December 17, 200712062007–51 I.R.B.

tion but the adjusted bases of the assets of T Corpo-
ration do not exceed the adjusted bases of the assets
of X Corporation, the accounting method used by X
Corporation immediately prior to the date of the sec-
tion 381(a) transaction is the principal method. Af-
ter the section 381(a) transaction, X Corporation con-
tinues to use an overall accrual method and the sec-
tion 455 deferral method. X Corporation need not se-
cure the Commissioner’s consent to continue to use
an overall accrual method and the section 455 de-
ferral method. However, under paragraph (d)(1) of
this section X Corporation must change its account-
ing method for the magazine business acquired from
T Corporation to the section 455 deferral method us-
ing a cut-off basis.
(d)Procedures for changing account-
ing methods—(1)Change made to prin-
cipal method—(i)Section 481(a) adjust-
ment—(A)In general. The acquiring
corporation does notneed to secure the
Commissioner’s consent to use a principal
method. To the extent use of a prin-
cipal method constitutes a change in an
accounting method, thechange in account-
ing method is treated as a change initiated
by the acquiring corporation for purposes
of section 481(a)(2). Any change to a
principal method under paragraph (c)(1)
of this section, whether the change relates
to the trade or business of the acquiring
corporation or the trade or business of the
distributor or transferor corporation, must
be reflected on the acquiring corporation’s
federal income tax return for the taxable
year that includes the date of distribution
or transfer. The amount of the section
481(a) adjustment and the adjustment pe-
riod, if any, necessary to implement this
accounting method change are determined
under §1.446–1(e) and the applicable ad-
ministrative procedures that govern volun-
tary changes in accounting methods under
section 446(e). The appropriate section
481(a) adjustment as determined above
is included in the taxable income of the
acquiring corporation for the taxable year
that includes the date of distribution or
transfer and subsequent taxable year(s), as
necessary. Thus, if the administrative pro-
cedures require that an accounting method
change be implemented on a cut-off basis,
the acquiring corporation must implement
the change, on a cut-off basis as of the
date of distribution or transfer, on its fed-
eral income tax return for the taxable year
that includes the date of distribution or
transfer. If the administrative procedures
require a section 481(a) adjustment, the
acquiring corporation must determine the
section 481(a) adjustment and include the
appropriate amount of the section 481(a)
adjustment on its federal income tax re-
turn for the taxable year that includes the
date of distribution or transfer and subse-
quent taxable year(s), as necessary. This
adjustment is determined by the acquiring
corporation as of the beginning of the day
that is immediately after the day on which
the section 381(a) transaction occurs.
(B)Example. The following exam-
ple illustrates the rules of this paragraph
(d)(1)(i):
Example. X Corporation uses the overall cash re-
ceipts and disbursements accounting method while T
Corporation uses an overall accrual method. X Cor-
poration acquires the assets of T Corporation in a
transaction to which section 381(a) applies. X Cor-
poration determines that under the rules of paragraph
(c)(1) of this section, X Corporation must change the
accounting method for the business acquired from T
Corporation to the cash receipts and disbursements
method. X Corporation will determine the section
481(a) adjustment pertaining to the change to the cash
receipts and disbursements method by consolidating
the adjustments (whether the amounts thereof repre-
sent increases or decreases in items of income or de-
ductions) arising with respect to balances in the vari-
ous accounts, such as accounts receivable, as of the
beginning of the day that immediately follows the
day on which X Corporation acquires the assets of T
Corporation. This adjustment, or an appropriate part
thereof, will be reflected on the federal income tax re-
turn filed by X Corporation for the taxable year that
includes this section 381(a) transaction.
(ii)Audit protection. Notwithstanding
any other provision in any other regulation
or administrative procedure, no audit pro-
tection is provided for any change in ac-
counting method under paragraph (d)(1)(i)
of this section.
(iii)Other terms and conditions.Ex-
cept as otherwise provided in this section,
other terms and conditions provided in
§1.446–1(e) and the applicable adminis-
trative procedures that govern voluntary
accounting method changes under section
446(e) apply to a change in accounting
method under this section. Thus, for
example, if the administrative procedures
that govern a particular accounting method
change have a term and condition that pro-
vides for the acceleration of the section
481(a) adjustment period, this term and
condition applies to changes made under
this paragraph (d)(1). Similarly, if the ad-
ministrative procedures provide as a term
and condition that anidentical accounting
method change is barred for a period of
years, this term and condition applies to
changes made under this paragraph (d)(1)
to bar future changes of that accounting
method, if identical, for the same period,
but not changes to the principal method
under this section.
(2)Change made to an accounting
method other than the principal method
or a carryover method. Apartytoa
section 381(a) transaction that desires to
change to an accounting method other
than the principal method as determined
under paragraph (c) of this section, or a
carryover method within the meaning of
paragraph (a)(2)(i) of this section, must
follow the provisions of §1.446–(1)(e) that
govern the accounting method change, ex-
cept that for an accounting method change
requiring advance consent—
(i) Under the authority of
§1.446–1(e)(3)(ii),the application
for accounting method change (for exam-
ple, Form 3115) must be filed with the
IRS on or before the later of—
(A) The due date for filing a Form 3115
as specified in §1.446–1(e), for example,
the last day of the taxable year in which
the distribution or transfer occurred, or
(B)Theearlierof—
(1) The day that is 180 days after the
date of the distribution or transfer, or
(2) The day on which the acquiring cor-
poration files its federal income tax return
for the taxable year in which the distribu-
tion or transfer occurred; and
(ii)AnapplicationonForm3115filed
with the IRS should be labeled “Filed un-
der section 381(c)(4)” at the top.
(e)Rules and procedures—(1)No ac-
counting method. Ifapartytoasection
381(a) transaction is not using an account-
ing method, does not have an accounting
method for a particular item, or came into
existence as a result of the transaction, the
party will not be treated as having an ac-
counting method different from that used
by the other parties to the section 381(a)
transaction.
(2)Elections and adoptions allowed.
An acquiring corporation is not precluded
by section 381(c)(4) or these regulations
from making any election for the taxable
year that includes the date of distribu-
tion or transfer that does not require the
Commissioner’s consent and that is other-
wise permissible. Similarly, an acquiring
corporation may adopt any accounting
method in that year that is otherwise per-
missible.
(3)Elections continue after section
381(a) transaction—(i)General rule.The
2007–51 I.R.B.1207December 17, 2007

acquiring corporation is not required to
renew any election previously made by it
or by a distributor or transferor corpora-
tion with respect to a carryover method or
principal method if the acquiring corpora-
tion uses the method after a section 381(a)
transaction. Furthermore, an election pre-
viously made by an acquiring corporation
or by a distributor or transferor corpora-
tion with respect to a method that is in
effect immediately prior to the date of
distribution or transfer continues to the
same extent as though the distribution or
transfer had not occurred.
(ii)Examples. The following examples
illustrate the rules of this paragraph (e)(3):
Example 1.Election continues. The acquiring
corporation, X Corporation, has previously elected to
treat animals purchased for dairy purposes as prop-
erty used in its trade or business subject to depreci-
ation after maturity while otherwise using the unit-
livestock-price method. X Corporation’s accounting
method continues after its merger with T Corporation
in a transaction to which section 381(a) applies. X
Corporation is not required to renew its election, and
is bound by it, after the section 381(a) transaction.
Example 2.Election continues. The acquiring
corporation, X Corporation, has previously elected
under section 171 to amortize bond premium with re-
spect to taxable bonds. X Corporation’s method for
bond premium continues after T Corporation merges
with X Corporation in a transaction to which section
381(a) applies. X Corporation is not required to re-
new its election, and is bound by it, after the section
381(a) transaction.
(4)Appropriate times for determining
the method used and trade or business
character—(i)Determining the account-
ing method. The accounting method exist-
ing at the time of a section 381(a) transac-
tion is the method used immediately prior
to the distribution or transfer by the parties
to the transaction.
(ii)Determining whether there are sep-
arate trades or businesses after a section
381(a) transaction. Whether an acquiring
corporation will operate the trades or busi-
nesses of the parties to a section 381(a)
transaction as separate and distinct trades
or businesses after the distribution or trans-
fer will be determined as of the time of
the transaction based upon the facts and
circumstances. Intent to combine books
and records of the trades or businesses
may be demonstrated by contemporane-
ous records and documents or by other ob-
jective evidence that reflects the acquiring
corporation’s ultimate plan of operation,
even though the actual combination of the
books and records may extend beyond the
end of the taxable year in which the section
381(a) transaction occurs.
(5)Representative period for accumu-
lating gross receipts.Ifapartytothesec-
tion 381(a) transaction was not in exis-
tence for the 12 consecutive months im-
mediately prior to the date of distribution
or transfer, then all parties to the section
381(a) transaction will compare their gross
receipts for the period that the party was
in existence. For example, if the acquir-
ing corporation was formed in August and
the section 381(a) transaction occurred in
December of the same year, the gross re-
ceipts for those five months will be com-
pared with the gross receipts of the other
partiestothesection381(a)transactionfor
thesameperiod.
(6)Establishing an accounting method.
Notwithstanding any other provision in
any other regulation or administrative pro-
cedure, an accounting method used by the
distributor or transferor corporation im-
mediately prior to the date of distribution
or transfer that continues to be used by
the acquiring corporation in the taxable
year that includes the date of distribution
or transfer is an established method of
accounting for purposes of section 446(e).
(7)Other applicable provisions. Sec-
tion 381(c)(4) and these regulations do
not preempt any other section of the Code
or regulations that is applicable to the ac-
quiring corporation’s circumstances. For
example, income, deductions, credits, al-
lowances, and exclusions may be allocated
among the parties to a section 381(a) trans-
action and other taxpayers under sections
269 and 482, if appropriate. Similarly,
transfers of contracts accounted for using
a long-term contract accounting method
are governed by the rules provided in
§1.460–4(k). Further, if other paragraphs
of section 381(c) apply for purposes of
determining accounting methods that car-
ryover in a section 381(a) transaction,
section 381(c)(4) and this §1.381(c)(4)–1
will not apply to the tax treatment of the
items. For example, section 381(c)(4)
and these regulations do not apply to in-
ventories that an acquiring corporation
obtains in a transaction to which section
381(a) applies. Instead, the rules of sec-
tion 381(c)(5) and §1.381(c)(5)–1 govern
the inventory method to be used by the
acquiring corporation after the distribu-
tion or transfer. Similarly, if the acquiring
corporation assumes an obligation of the
distributor or transferor corporation that
gives rise to a liability, within the meaning
of §1.381(c)(16)–1(a)(4), the deductibility
of the item is determined under section
381(c)(4) and these regulations only after
the rules of section 381(c)(16) and its reg-
ulations are applied.
(8)Character of items of income and
deduction. Items of income and deduction
have the same character in the hands of
the acquiring corporation as they would
have had in the hands of the distributor or
transferor corporation if no distribution or
transfer had occurred.
(9)Accounting method selected by
project or job. If other sections of the
Code or regulations permit an acquiring
corporation to elect an accounting method
on a project-by-project, job-by-job, or
other similar basis, the method elected
with respect to each project or job is the
established method only for that project
or job. For example, the election under
section 460 to classify a “hybrid contract,”
that is, a contract to perform both manu-
facturing and construction activities, as a
long-term construction contract if at least
95 percent of the estimated total allocable
contract costs are reasonably allocated to
the construction activities is made on a
contract-by-contract basis. Accordingly,
the accounting method previously elected
for a project or job generally continues
after the section 381(a) transaction. How-
ever, if the trades or businesses of the
parties to a section 381(a) transaction are
not operated as separate and distinct trades
or businesses after the date of distribution
or transfer, and two or more of the parties
to the section 381(a) transaction previ-
ously worked on the same project or job
and used different accounting methods for
the project or job immediately before the
distribution or transfer, then the acquiring
corporation must determine the method to
use after the section 381(a) transaction as
provided in paragraph (c) of this section.
(10)Prohibited accounting methods.
An acquiring corporation may not use
the accounting method determined un-
der paragraph (a)(2) of this section if the
method fails to reflectclearly the acquiring
corporation’s income within the meaning
of section 446(b). Thus, section 381(c)(4)
and these regulations do not limit, restrict,
or otherwise prevent the Commissioner
from requiring the use of another account-
ing method.
December 17, 200712082007–51 I.R.B.

(f)Effective/applicability date.The
rules of this section apply to corporate
reorganizations and tax-free liquidations
described in section 381(a) that occur on
or after the date of publication of the Trea-
sury decision adopting these rules as final
regulations in theFederal Register.
Par. 4. Section 1.381(c)(5)–1 is revised
to read as follows:
§1.381(c)(5)–1 Inventory method.
(a)Introduction—(1)Purpose.This
section provides guidance regarding the
inventory accounting method an acquir-
ing corporation must use following a
distribution or transfer to which sections
381(a) and (c)(5) apply and how to imple-
ment any associated accounting method
changes. See §1.381(c)(4)–1 for guid-
ance regarding the accounting method
or combination of methods (other than
inventory and depreciation accounting
methods) an acquiring corporation must
use following a distribution or transfer
to which sections 381(a) and (c)(4) apply.
See §1.381(c)(6)–1 for guidance regarding
the depreciation accounting methods an
acquiring corporation must use following
a distribution or transfer to which sections
381(a) and (c)(6) apply.
(2)Carryover requirement—(i)In gen-
eral. In a transaction to which section
381(a) applies, if an acquiring corporation
operates the trades or businesses of the
parties to the section 381(a) transaction as
separate and distinct trades or businesses
after the date of distribution or transfer,
then the acquiring corporation generally
must use the same accounting method(s)
for inventory used by the distributor or
transferor corporation(s) on the date of
distribution or transfer for the acquired
trade or business (carryover method). If
the acquiring corporation does not operate
the trades or businesses of the parties to
the section 381(a) transaction as separate
and distinct trades or businesses after the
date of distribution or transfer, then the
acquiring corporation must use a principal
method as determined under paragraph (c)
of this section and must take into account
any section 481(a) adjustment, if appli-
cable, as required under paragraph (d)(1)
of this section. The acquiring corporation
need not secure the Commissioner’s con-
sent to continue or to use a permissible
carryover method or principal method.
(ii)Carryover method or principal
method not permissible. In general, if
a carryover method or principal method
is an impermissible accounting method,
the acquiring corporation must secure
the Commissioner’s consent to change
to a different accounting method as pro-
vided in paragraph (d)(2) of this section.
If, however, a carryover method is im-
permissible solely because only a single
inventory method with respect to a par-
ticular type of goods may be used by the
acquiring corporation after the date of the
section 381(a) transaction regardless of
the number of separate and distinct trades
or businesses operated on that date, the
acquiring corporation must use a principal
method as determined under paragraph (c)
of this section.
(iii)Voluntary change. All parties
to a section 381(a) transaction may re-
quest permission under section 446(e) to
change an inventory accounting method
for the taxable year in which the transac-
tion occurs or is expected to occur. For
trades or businesses that will not operate
as separate trades or businesses after the
section 381(a) transaction, an accounting
method change will be granted only if the
requested change is the method that the ac-
quiring corporation must use after the date
of the distribution or transfer in the taxable
year that includes the section 381(a) trans-
action. The time and manner of obtaining
the Commissioner’s consent to change to
a different inventory accounting method
is described in paragraph (d)(2) of this
section.
(iv)Examples. The following examples illustrate
the rules of this paragraph (a):
Example 1.Separate and distinct trades or
businesses after the date of the distribution or trans-
fer—(i)Facts. X Corporation manufactures radios
and television sets. X Corporation uses the first-in,
first-out (FIFO) inventory method to identify its
inventory goods, values the goods at cost, and cap-
italizes costs under section 263A. T Corporation
manufactures washing machines and dryers. T Cor-
poration uses the last-in, first-out (LIFO) inventory
method to identify its inventory goods, values the
goods at cost, and capitalizes costs under section
263A using methods other than those used by X
Corporation. X Corporation acquires the inventory
of T Corporation in a transaction to which section
381(a) applies. X Corporation operates the two man-
ufacturing operations as separate and distinct trades
or businesses after the date of the section 381(a)
transaction.
(ii)Conclusion. After the section 381(a) trans-
action, for the business of manufacturing radios and
television sets X Corporation will use the same FIFO
inventory method to identify its inventory goods,
value the goods at cost, and capitalize costs under
section 263A using the methods it had previously
used. For the business of manufacturing washing
machines and dryers X Corporation will use the
same LIFO inventory method to identify its inven-
tory goods, value the goods at cost, and capitalize
costs under section 263A using the methods previ-
ously used by T Corporation. X Corporation need
not secure the Commissioner’s consent to continue
the inventory methods.
Example 2.Impermissible method—(i)Facts.X
Corporation manufactures food and beverages. X
Corporation uses the FIFO inventory method to iden-
tify its inventory goods, values the goods at cost,
and capitalizes costs under section 263A. T Corpo-
ration sells sporting equipment. T Corporation uses
the FIFO inventory method to identify its inventory
goods, and values the goods at cost. T Corporation
did not capitalize costs under section 263A because it
met the small reseller exception under section 263A.
X Corporation acquires the inventory of T Corpo-
ration in a transaction to which section 381(a) ap-
plies. X Corporation operates the food and bever-
age business and the sporting goods business as sep-
arate trades or businesses after the date of the section
381(a) transaction. After the section 381(a) transac-
tion, X Corporation does not qualify for the small re-
seller exception under section 263A for its sporting
equipment business.
(ii)Conclusion. After the section 381(a) transac-
tion, X Corporation will continue to identify its food
and beverage inventory goods by using the FIFO
inventory method, value the inventory at cost, and
use its previously selected cost capitalization meth-
ods under section 263A as provided in paragraph
(a)(2)(i) of this section. X Corporation will continue
to identify its sporting equipment inventory goods
by using the FIFO inventory method and value the
inventory at cost in the same manner as T Corpo-
ration did prior to the section 381(a) transaction. X
Corporation need not secure the Commissioner’s
consent to continue these inventory methods. Be-
cause X Corporation does not qualify for the small
reseller exception under section 263A for its sporting
equipment business, X Corporation must secure the
Commissioner’s consent to change to a permissible
cost capitalization method under section 263A for
the sporting equipment business. X Corporation
must request this consent by filing a Form 3115, Ap-
plication for Change in Accounting Method, using
the procedures inparagraph (d)(2) of this section.
Example 3.Voluntary change—(i)Facts.The
facts are the same as inExample 1except that X Cor-
poration wants to cease valuing the radios and tele-
vision sets at cost and change to the cost or market,
whichever is lower, method.
(ii)Conclusion. X Corporation must secure the
Commissioner’s consent to use the cost or market,
whichever is lower, method and must do so by filing
a Form 3115 as described in paragraph (d)(2) of this
section.
(b)Definitions—(1)Inventory method
is a method used to account for merchan-
dise on hand (including finished goods,
work in process, and raw materials) at the
beginning of a year for purposes of com-
puting taxable income for that year. The
term includes not only the method for iden-
2007–51 I.R.B.1209December 17, 2007

tifying inventory, for example, the FIFO
inventory method or the LIFO inventory
method, but also all other methods neces-
sary to account for merchandise.
(2)Principal methodis an accounting
method that is determined under paragraph
(c)ofthissection.
(3)Adopting an accounting method
has the same meaning as provided in
§1.446–1(e)(1).
(4)Changing an accounting method
has the same meaning as provided in
§1.446–1(e)(2).
(5)Acquiring corporationhas the same
meaning as provided in §1.381(a)–1(b)(2).
(6)Distributor corporationmeans the
corporation, foreign or domestic, that dis-
tributes its assets to another corporation
described in section 332(b) in a distribu-
tion to which section 332 (relating to liq-
uidations of subsidiaries) applies.
(7)Transferor corporationmeans the
corporation, foreign or domestic, that
transfers its assets to another corporation
in a transfer to which section 361 (relating
to nonrecognition of gain or loss to corpo-
rations) applies, but only if—
(i) The transfer isin connection with
a reorganization described in section
368(a)(1)(A), (C), or (F), or
(ii) The transfer is in connection with
a reorganization described in section
368(a)(1)(D) or (G), provided the re-
quirements of section 354(b) are met.
(8)Parties to the section 381(a) trans-
actionmeans the acquiring corporation
and the distributor or transferor corpora-
tion(s)involvedinthetransactiontowhich
section 381(a) applies.
(9)Date of distribution or transferhas
the same meaning as provided in section
381(b)(2) and §1.381(b)–1(b).
(10)Separate and distinct trades or
businesseshasthesamemeaningaspro-
vided in §1.446–1(d).
(11)Audit protectionmeans that the
IRS will not require the corporation re-
quired to change its accounting method
under this section to change its method
for the same item for a taxable year prior
to the taxable year of the section 381(a)
transaction requiring the change in ac-
counting method.
(12)Section 481(a) adjustmentmeans
an adjustment that must be taken into ac-
count as required under section 481(a) to
prevent amounts from being duplicated or
omitted when the taxable income of a tax-
payer is computed under an accounting
method different from the method used to
compute taxable income for the preceding
taxable year.
(13)Cut-off basismeans an account-
ing method change made without a sec-
tion 481(a) adjustment and under which
only the goods arising on or after the date
the accounting method change is made are
accounted for under the new accounting
method.
(14)Adjustment periodmeans the num-
ber of taxable years for taking into account
the section 481(a) adjustment required as a
result of an accounting method change.
(c)Principal method—(1)In general.
The principal method for a particular type
of goods generally is the method used by
the acquiring corporation for that type of
goods immediately prior to the date of the
section 381(a) transaction (acquiring cor-
poration’s carryover method). If, however,
the acquiring corporation does not have an
inventory accounting method for a partic-
ular type of goods or if the distributor or
transferor corporation holds more inven-
tory of that type of goods, the principal
method for that type of goods is the method
used by the distributor or transferor cor-
poration for that type of goods immedi-
ately prior to the date of the transaction
(distributor or transferor corporation’s car-
ryover method). The distributor or trans-
feror corporation holds more inventory if,
for a particular type of goods, the fair mar-
ket value of the goods held by the dis-
tributor or transferorcorporation exceeds
the fair market value of the goods held
by the acquiring corporation immediately
prior to the date of distribution or trans-
fer. Alternatively, as a simplifying conven-
tion, the acquiring corporation may elect to
apply the preceding sentence to the value
of the entire inventories of the distributor
or transferor corporation and the acquiring
corporation rather than to each particular
type of goods.
(2)Examples. The following examples
illustrate the rules of this paragraph (c):
Example 1.Principal method is the acquiring
corporation’s carryover method—(i)Facts.XCor-
poration and T Corporation are manufacturers of ten-
nis equipment. Both X Corporation and T Corpo-
ration value their inventories at cost but use differ-
ent methods to capitalize costs under section 263A.
X Corporation uses the simplified production method
without the historic absorption ratio election provided
in §1.263A–2(b)(3). T Corporation uses the simpli-
fied production method with the historic absorption
ratio election provided in §1.263A–2(b)(4). Further-
more, X Corporation identifies its inventory using the
FIFO inventory method, while T Corporation identi-
fies its inventory using the LIFO inventory method.
X Corporation acquires the inventory of T Cor-
poration in a transaction to which section 381(a) ap-
plies. The manufacturing businesses are not operated
as separate and distinct trades or businesses after the
date of the distribution or transfer. Immediately prior
to the acquisition, the fairmarket value of each partic-
ular type of goods in X Corporation’s inventory ex-
ceeds the fair market value of each particular type of
goods in T Corporation’s inventory.
(ii)Conclusion. After the section 381(a) transac-
tion, X Corporation will continue to identify its in-
ventory using the FIFO inventory method, value its
inventory at cost, and use the simplified production
method without the historic absorption ratio election
because the FIFO inventorymethod is the principal
method for identifying inventory, cost is the princi-
pal method for valuing inventories, and the simpli-
fied production method without the historic absorp-
tion ratio election is the principal method for allo-
cating costs to ending inventory under section 263A.
X Corporation need not secure the Commissioner’s
consent to use these methods. However, with respect
to the inventory acquired from T Corporation, X Cor-
poration will change the method of identifying inven-
tory to the FIFO inventory method, use the simpli-
fied production method without the historic absorp-
tion ratio election, and take into account the appli-
cable section 481(a) adjustment as provided in para-
graph (d)(1) of this section. If X Corporation chooses,
it may request the Commissioner’s consent to change
to another permissible method as provided in para-
graph (d)(2) of this section.
Example 2.Principal method is the distributor
or transferor corporation’s carryover method—(i)
Facts.ThefactsarethesameasinExample 1except
that the fair market value of each particular type of
goods in T Corporation’s inventory is in excess of
the fair market value of each particular type of goods
in X Corporation’s inventory.
(ii)Conclusion. After the section 381(a) transac-
tion, X Corporation will identify its inventory using
the LIFO inventory method used by T Corporation,
value its inventories at cost, and use the simplified
production method with the historic absorption ratio
election, because the LIFO inventory method used by
T Corporation is the principal method for identify-
ing inventory, cost is the principal method for valu-
ing inventories, and the simplified production method
with the historic absorption ratio election is the prin-
cipal method for allocating costs to ending inventory
under section 263A. X Corporation need not secure
the consent of the Commissioner to use these meth-
ods. However, with respect to the inventory manu-
factured by X Corporation prior to the section 381(a)
transaction, X Corporation will change its methods as
needed by using the procedures of paragraph (d)(1) of
this section. Specifically, X Corporation will change
its method of identifying inventory to the LIFO in-
ventory method using a cut-off basis and change its
cost capitalization method to the simplified produc-
tion method with the historic absorption ratio election
by taking into account the applicable section 481(a)
adjustment. If X Corporation chooses, it may request
the Commissioner’s consent to change to another per-
missiblemethodasprovidedinparagraph(d)(2)of
this section.
December 17, 200712102007–51 I.R.B.

Example 3.Principal method is the acquiring
corporation’s carryover method—(i)Facts.The
facts are the same as inExample 1except that the fair
market values of the inventories of X Corporation
and T Corporation are identical.
(ii)Conclusion. After the section 381(a) transac-
tion, X Corporation will continue to identify its in-
ventory using the FIFO inventory method, value its
inventory at cost, and use the simplified production
method without the historic absorption ratio election
because the FIFO inventory method is the principal
method for identifying inventory, cost is the princi-
pal method for valuing inventories, and the simpli-
fied production method without the historic absorp-
tion ratio election is the principal method for allo-
cating costs to ending inventory under section 263A.
X Corporation need not secure the Commissioner’s
consent to use these methods. However, with respect
to the inventory acquired from T Corporation, X Cor-
poration will change the method of identifying inven-
tory to the FIFO inventory method, use the simpli-
fied production method without the historic absorp-
tion ratio election, and take into account the appli-
cable section 481(a) adjustment as provided in para-
graph (d)(1) of this section. If X Corporation chooses,
it may request the Commissioner’s consent to change
to another permissible method as provided in para-
graph (d)(2) of this section.
Example 4.Inventory convention elected—(i)
Facts. X Corporation manufactures planes and T
Corporation manufactures planes and pool tables. X
Corporation identifies its inventory using the FIFO
inventory method and values it at cost or market,
whichever is lower, while T Corporation identifies
its inventory using the LIFO inventory method and
values it at cost. Both X Corporation and T Corpo-
ration use the same method to capitalize costs under
section 263A.
X Corporation acquires the inventory of T Cor-
poration in a transaction to which section 381(a) ap-
plies. The manufacturing businesses are not operated
as separate and distinct trades or businesses after the
date of the distribution or transfer. In lieu of deter-
mining the fair market value of each particular type
of goods held on the date of distribution or transfer,
X Corporation elects to value the entire inventories
held by itself and T Corporation. Immediately prior
to the acquisition, the fair market value of T Corpo-
ration’s inventory exceeds the fair market value of X
Corporation’s inventory.
(ii)Conclusion. After the section 381(a) transac-
tion, X Corporation will identify its inventory using
the LIFO inventory method used by T Corporation
and value this inventory at cost because the LIFO in-
ventory method used by T Corporation is the prin-
cipal method for identifying inventory and cost is the
principal method for valuing inventories. X Corpora-
tion need not secure the consent of the Commissioner
to use these methods. However, with respect to the in-
ventory manufactured by X Corporation prior to the
section 381(a) transaction, X Corporation will change
the method of identifying inventory to the LIFO in-
ventory method on a cut-off basis and will take into
account the change in the inventory amount resulting
from the valuing of the inventory at cost as required
under section 472(d) as provided in paragraph (d)(1)
of this section. The method used prior to the sec-
tion 381(a) transaction to capitalize costs under sec-
tion 263A continues after the transaction. If X Cor-
poration chooses, it may request the Commissioner’s
consent to change to another permissible method as
provided in paragraph (d)(2) of this section.
(d)Procedures for changing account-
ing methods—(1)Change made to prin-
cipal method—(i)Section 481(a) adjust-
ment—(A)In general. The acquiring
corporation does not need to secure the
Commissioner’s consent to use a prin-
cipal method. To the extent use of a
principal method constitutes a change in
an accounting method, the change in ac-
counting method is treated as a change
initiated by the acquiring corporation for
purposes of section 481(a)(2). Any change
to a principal method under paragraph (c)
of this section, whether the change relates
to the trade or business of the acquiring
corporation or the trade or business of the
distributor or transferor corporation, must
be reflected on the acquiring corporation’s
federal income tax return for the taxable
year that includes the date of distribution
or transfer. The amount of the section
481(a) adjustment and the adjustment pe-
riod, if any, necessary to implement this
accounting method change are determined
under §1.446–1(e) and the applicable ad-
ministrative procedures that govern volun-
tary changes in accounting methods under
section 446(e). The appropriate section
481(a) adjustment as determined above
is included in the taxable income of the
acquiring corporation for the taxable year
that includes the date of distribution or
transfer and subsequent taxable year(s), as
necessary. Thus, if the administrative pro-
cedures require that an accounting method
change be implemented on a cut-off basis,
the acquiring corporation must implement
the change, on a cut-off basis as of the
date of distribution or transfer, on its fed-
eral income tax return for the taxable year
that includes the date of distribution or
transfer. If the administrative procedures
require a section 481(a) adjustment, the
acquiring corporation must determine the
section 481(a) adjustment and include the
appropriate amount of the section 481(a)
adjustment on its federal income tax re-
turn for the taxable year that includes the
section 381(a) transaction and subsequent
taxable year(s), as necessary. This ad-
justment is determined by the acquiring
corporation as of the beginning of the day
that is immediately after the day on which
the section 381(a) transaction occurs.
(B)Example. The following exam-
ple illustrates the rules of this paragraph
(d)(1)(i):
Example. X Corporation uses the FIFO inventory
method while T Corporation uses the LIFO inven-
tory method. X Corporation acquires the assets of T
Corporation in a transaction to which section 381(a)
applies on July 15th. X Corporation determines that
under the rules of paragraph (c)(1) of this section, X
Corporation must change the inventory method for
the business acquired from T Corporation to the FIFO
inventory method. X Corporation will determine the
section 481(a) adjustment pertaining to the change
to the FIFO inventory method (whether the amounts
thereof represent increases or decreases in income) as
of the beginning of July 16th. This adjustment, or an
appropriate part thereof, will be included in X Corpo-
ration’s federal income tax return for the taxable year
that includes July 15th.
(ii)Audit protection. Notwithstanding
any other provision in any other regulation
or administrative procedure, no audit pro-
tection is provided for any change in ac-
counting method under paragraph (d)(1)(i)
of this section.
(iii)Other terms and conditions.Ex-
cept as otherwise provided in this section,
other terms and conditions provided in
§1.446–1(e) and the applicable adminis-
trative procedures that govern voluntary
changes in accounting methods under sec-
tion 446(e) apply to a change in account-
ing method under this section. Thus, for
example, if the administrative procedures
that govern a particular accounting method
change have a term and condition that pro-
vides for the acceleration of the section
481(a) adjustment period, this term and
condition applies to changes made under
this paragraph (d)(1). Similarly, if the ad-
ministrative procedures provide as a term
and condition that anidentical accounting
method change is barred for a period of
years, this term and condition applies to
changes made under this paragraph (d)(1)
to bar future changes of that accounting
method, if identical, for the same period,
but not changes to the principal method
under this section.
(2)Change made to an accounting
method other than the principal method
or a carryover method. Apartytoa
section 381(a) transaction that desires to
change to an accounting method other
than the principal method as determined
under paragraph (c) of this section, or a
carryover method within the meaning of
paragraph (a)(2)(i) of this section, must
follow the provisions of §1.446–(1)(e) that
govern the accounting method change, ex-
2007–51 I.R.B.1211December 17, 2007

cept that for an accounting method change
requiring advance consent—
(i) Under the authority of
§1.446–1(e)(3)(ii),the application
for accounting method change (for exam-
ple, Form 3115) must be filed with the
IRS on or before the later of—
(A) The due date for filing a Form 3115
as specified in §1.446–1(e), for example,
the last day of the taxable year in which
the distribution or transfer occurred, or
(B) The earlier of—
(1) The day that is 180 days after the
date of the distribution or transfer, or
(2) The day on which the acquiring cor-
poration files its federal income tax return
for the taxable year in which the distribu-
tion or transfer occurred; and
(ii)AnapplicationonForm3115filed
with the IRS should be labeled “Filed un-
der section 381(c)(5)” at the top.
(e)Rules and procedures—(1)Inven-
tory method selected for a particular type
of goods. If other sections of the Code or
Income Tax Regulations allow a taxpayer
to elect an inventory method for a particu-
lar type of goods, the method elected with
respect to those goods is the established in-
ventory method only for those goods. For
example, an election to use the LIFO in-
ventory method to identify specified goods
in inventory, such as certain products in
finished goods, is the inventory method
only for those products.
(2)No accounting method.Ifaparty
to a section 381(a) transaction is not using
an inventory method, does not have a par-
ticular type of goods immediately prior to
the date of distribution or transfer, or came
into existence as a result of the transac-
tion, the party will not be treated as having
an inventory accounting method different
from that used by the other parties to the
section 381(a) transaction.
(3)Elections and adoptions allowed.
An acquiring corporation is not precluded
by section 381(c)(5) or these regulations
from making any election for the taxable
year that includes the date of distribu-
tion or transfer that does not require the
Commissioner’s consent and that is other-
wise permissible. Similarly, an acquiring
corporation may adopt any accounting
method in that year that is otherwise
permissible. For example, an acquiring
corporation may electto identify its inven-
tory using the LIFO inventory method in
the year of the distribution or transfer.
(4)Elections continue after section
381(a) transaction. The acquiring corpo-
ration is not required to renew any election
previously made by it or by a distributor
or transferor corporation with respect to a
carryover method or principal method if
the acquiring corporation uses the method
after a section 381(a) transaction. Further-
more, an election previously made by an
acquiring corporationorbyadistributor
or transferor corporation with respect to
a method that is in effect immediately
prior to the date of distribution or transfer
continues to the same extent as though the
distribution or transfer had not occurred.
For example, when the acquiring corpora-
tion has elected to use the LIFO inventory
method under section 472 prior to the date
of the section 381(a) transaction and the
method continues after the transaction, the
acquiring corporation need not renew this
inventory election and is bound by it after
the date of the transaction.
(5)Adopting the LIFO inventory
method. Apartytoasection381(a)
transaction will be deemed to be using the
LIFO inventory method with respect to
a particular type of goods on the date of
distribution or transfer if such party elects
under section 472 to adopt that inventory
method with respect to those goods for
its taxable year within which the date of
distribution or transfer occurs. See sec-
tion 472 for the requirements to adopt the
LIFO inventory method.
(6)Inventory layers treatment—(i)Ad-
justments required after a section 381(a)
transaction. An acquiring corporation
that determines the principal method of
taking an inventory after a section 381(a)
transaction under paragraph (c) of this
section may need to integrate inventories
and make appropriate adjustments as pro-
vided in paragraphs (e)(6)(ii) and (iii) of
this section.
(ii)LIFO inventory method used af-
ter the section 381(a) transaction—(A)
LIFO inventory method used by the dis-
tributor or transferor corporation—(1)
Dollar-value method. If an acquiring
corporation is required to use the LIFO
dollar-value method of pricing inventories
(dollar-value method) for a particular type
of goods for its taxable year that includes
the date of the section 381(a) transaction,
and immediately prior to the distribution
or transfer the distributor or transferor cor-
poration used the specific goods method of
pricing inventories for that particular type
of goods, the inventory of the distributor
or transferor corporation shall be placed
on the dollar-value method as provided in
§1.472–8(f), and then the inventory shall
be integrated with the inventory of the
acquiring corporation. If pools of each
corporation are required to be combined,
the pools shall be combined as provided
in §1.472–8(g)(2). For purposes of com-
bining pools, all base-year inventories or
layers of increment that occur in taxable
years including the same December 31
shall be combined. A base-year inventory
or layer of increment occurring in any
short taxable year not including a Decem-
ber 31, or in the final taxable year of a
distributor or transferor corporation, shall
be merged with and considered a layer of
increment of its immediately preceding
taxable year.
(2)Specific goods method. If an acquir-
ingcorporationisrequiredtousethespe-
cific goods method of pricing inventories
for a particular type of goods for its taxable
year that includes the date of the section
381(a) transaction, and immediately prior
to the distribution or transfer the distribu-
torortransferorcorporationusedtheLIFO
inventory method for that particular type
of goods, the inventory shall be treated by
the acquiring corporation as having the ac-
quisition dates and costs of the distributor
or transferor corporation.
(B)LIFO inventory method not used by
the distributor or transferor corporation.
If an acquiring corporation is required to
use the LIFO inventory method for a par-
ticular type of goods for its taxable year
that includes the date of the section 381(a)
transaction, and immediately prior to the
distribution or transfer the distributor or
transferor corporation did not use the LIFO
inventory method for that particular type
of goods, the inventory shall be treated by
the acquiring corporation as having been
acquired at their average unit cost in a sin-
gle transaction on the date of the distri-
bution or transfer. Thus, if an inventory
of a particular type of goods is combined
in an existing dollar-value pool, the goods
shall be treated as if they were purchased
by the acquiring corporation at the average
unit cost on the date of the distribution or
transfer with respect to such pool. Alter-
natively, if the goods are not combined in
an existing pool, the goods will be treated
as if they were purchased by the acquiring
December 17, 200712122007–51 I.R.B.

corporation at the average unit cost on the
date of the distribution or transfer with re-
spect to a new pool, with the base-year be-
ing the year of the section 381(a) transac-
tion. Adjustments resulting from a restora-
tion to cost of any write-down to market
value of the inventories of a distributor or
transferor corporation shall be taken into
account by the distributor or transferor cor-
poration in its final taxable year ending on
the date of the distribution or transfer. See
section 472(d).
(iii)FIFO inventory method used after
the section 381(a) transaction—(A)FIFO
inventory method used by the distributor
or transferor corporation. If an acquir-
ingcorporationisrequiredtousetheFIFO
inventory method for a particular type of
goods for its taxableyear that includes
the date of the section 381(a) transaction,
and immediately prior tothe distribution or
transfer the distributor or transferor corpo-
ration used the FIFO inventory method for
that particular type of goods, the inventory
of that type of goods shall be treated by the
acquiring corporation as having the same
acquisition dates and costs as the distrib-
utor or transferor corporation. However,
if the acquiring corporation values its in-
ventories at cost or market, whichever is
lower, the acquiring corporation shall treat
the inventories of the distributor or trans-
feror corporation as having been acquired
at cost or market, whichever is lower.
(B)FIFO inventory method not used by
the distributor or transferor corporation.
If an acquiring corporation is required to
use the FIFO inventory method for a par-
ticular type of goods for its taxable year
that includes the date of the section 381(a)
transaction, and immediately prior to the
distribution or transfer the distributor or
transferor corporation did not use the FIFO
inventory method for that particular type
of goods, the inventory of the distributor
or transferor corporation shall be treated
by the acquiring corporation as having the
same acquisition dates and costs that the
inventory would have had if the distribu-
tor or transferor corporation had been us-
ing the FIFO inventory method for its tax-
able year ending on the date of distribu-
tion or transfer. However, if the acquiring
corporation values its inventories at cost or
market, whichever islower, the acquiring
corporation shall treat the acquired inven-
tories as having been acquired at cost or
market, whichever is lower.
(7)Appropriate times for determining
the method used and trade or business
character—(i)Determining the account-
ing method. The accounting method exist-
ing at the time of a section 381(a) transac-
tion is the method used immediately prior
to the date of distribution or transfer by the
parties to the transaction.
(ii)Determining whether there are sep-
arate trades or businesses after a section
381(a) transaction. Whether an acquir-
ing corporation will operate the trades
or businesses of the parties to a section
381(a) transaction as separate and distinct
trades or businesses after the distribution
or transfer will be determined at the time
of the transaction based upon the facts and
circumstances. Intent to combine books
and records of the trades or businesses
may be demonstrated by contemporane-
ous records and documents or by other ob-
jective evidence that reflects the acquiring
corporation’s ultimate plan of operation,
even though the actual combination of
the books and records may extend beyond
the end of the taxable year in which the
section 381(a) transaction occurs.
(8)Establishing an accounting method
for taking an inventory. Notwithstanding
any other provision in any other regulation
or administrative procedure, an account-
ing method used by the distributor or trans-
feror corporation immediately prior to the
date of distribution or transfer that contin-
uestobeusedbytheacquiringcorporation
in the taxable year that includes the date
of distribution or transfer is an established
method of accounting for purposes of sec-
tion 446(e).
(9)Other applicable provisions. Sec-
tion 381(c)(5) and these regulations do
not preempt any other section of the Code
or regulations that is applicable to the
acquiring corporation’s circumstances.
Section 381(c)(5) and this §1.381(c)(5)–1
determine only the inventory method to
be used after a section 381(a) transac-
tion. Specifically, section 381(c)(5) and
this §1.381(c)(5)–1 do not apply to assets
other than inventory that an acquiring cor-
poration obtains in a transaction to which
section 381(a) applies.
(10)Use of the cash receipts and dis-
bursements method. Ifapartytoasec-
tion 381(a) transaction uses the cash re-
ceipts and disbursements method within
the meaning of section 446(c)(1) and
§1.446–1(c)(1)(i), or is not required to
use inventory accounting methods for its
goods, immediately prior to the date of
distribution or transfer, section 381(c)(5)
and §1.381(c)(5)–1 do not apply. Section
381(c)(4) and §1.381(c)(4)–1 must be ap-
plied to determine the accounting methods
that continue after the transaction.
(11)Character of items of income and
deduction. Items of income and deduction
have the same character in the hands of
the acquiring corporation as they would
have had in the hands of the distributor or
transferor corporation if no distribution or
transfer had occurred.
(12)Prohibited methods. An acquir-
ing corporation may not use the account-
ing method determined under paragraph
(a)(2) of this section if the method fails
to reflect clearly theacquiring corpora-
tion’s income within the meaning of sec-
tion 446(b). Thus, section 381(c)(5) and
these regulations do not limit, restrict, or
otherwise prevent the Commissioner from
requiring the use of another accounting
method.
(f)Effective/applicability date.The
rules of this section apply to corporate
reorganizations and tax-free liquidations
described in section 381(a) that occur on
or after the date of publication of the Trea-
sury decision adopting these rules as final
regulations in theFederal Register.
Par. 5. Section 1.446–1 is amended by:
1. Revising the first sentence in para-
graph (e)(3)(i) and adding a second new
sentence.
2. Revising the first sentence in para-
graph (e)(4)(i).
3. Adding paragraph (e)(4)(iii).
The revisions and addition read as fol-
lows:
§1.446–1 General rule for methods of
accounting.
*****
(e) * * *
(3) * * *(i) Except as otherwise pro-
vided under the authority of paragraph
(e)(3)(ii) of this section, to secure the
Commissioner’s consent to a taxpayer’s
change in method of accounting, the tax-
payer generally must file an application on
Form 3115 with the Commissioner during
the taxable year in which the taxpayer
desires to make the change in method of
accounting. See §§1.381(c)(4)–1(d)(2)
and 1.381(c)(5)–1(d)(2) for rules allowing
2007–51 I.R.B.1213December 17, 2007

additional time, in some circumstances,
for the filing of an application on Form
3115 with respect to a transaction to which
section 381(a) applies.
*****
(4) * * *(i)In general. Except as pro-
vided in paragraphs (e)(3)(iii), (e)(4)(ii)
and (e)(4)(iii) of this section, paragraph (e)
of this section applies on or after Decem-
ber 30, 2003.
*****
(iii)Effective/applicability date for
paragraph (e)(3)(i). The rules of para-
graph (e)(3)(i) of this section apply to
corporate reorganizations and tax-free liq-
uidations described in section 381(a) that
occur on or after the date of publication
of the Treasury decision adopting these
rulesasfinalregulationsintheFederal
Register.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on November 15,
2007, 8:45 a.m., and published in the issue of the Federal
Register for November 16, 2007, 72 F.R. 64545)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Information Reporting
on Employer-Owned Life
Insurance Contracts
REG–115910–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY:Elsewhereinthisissueof
the Bulletin, the IRS is issuing temporary
regulations concerning information report-
ing on employer-owned life insurance con-
tracts under section 6039I of the Inter-
nal Revenue Code (Code). The tempo-
rary regulations generally apply to taxpay-
ers that are engaged in a trade or business
and that are directly or indirectly a benefi-
ciary of a life insurance contract covering
the life of an insured who is an employee
of the trade or business on the date the con-
tract is issued. The text of those temporary
regulations (T.D. 9364) also serves as the
text of these proposed regulations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by January 14, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–115910–07), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–115910–07),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton DC, or sent the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–115910–07).
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Linda K. Boyd, 202–622–3970; con-
cerning submissions and requests for
a public hearing, contact Kelly Banks,
202–622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
The Pension Protection Act of 2006,
Public Law No. 109–280, 120 Stat. 780
(2006), added sections 101(j) and 6039I to
the Internal Revenue Code concerning em-
ployer-owned life insurance contracts.
Section 101(j)(1) provides that in the
case of an employer-owned life insurance
contract, the amountof death benefits ex-
cluded from gross income under section
101(a) shall not exceed an amount equal
to the sum of the premiums and other
amounts paid by the policyholder for the
contract. Section 101(j)(2), however, sets
forth exceptions to this rule for certain
contracts for which notice and consent
and other requirements are met. Section
6039I requires information reporting with
respect to certain employer-owned life in-
surance contracts at such time and in such
manner as the Secretary shall by regula-
tions prescribe.
Temporary regulations in this issue of
the Bulletin provide that the Commis-
sioner may prescribe the form and manner
of satisfying the reporting requirements
imposedbysection6039I.Thepreamble
to the temporary regulations explains the
temporary regulations.
Special Analyses
It has been determined that this pro-
posed regulation is not a significant regu-
latory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to this regulation.
The Regulatory Flexibility Act
(5 U.S.C. chapter 6) does not apply to
this proposed regulation because the regu-
lation does not impose a collection of in-
formation on small entities. Even though
a substantial number of small businesses
may be subject to the requirements of sec-
tion 6039I, it is anticipated that whatever
requirements the Commissioner may pre-
scribe pursuant to this regulation will not
impose a “significant economic impact”
because the information requested will
already be available to taxpayers and the
burden of compliance will be minimal.
Pursuant to section 7805(f) of the In-
ternal Revenue Code, this Regulation has
been submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to
the IRS. The IRS and Treasury Depart-
ment request comments on the clarity of
the proposed rules and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing will be sched-
uled if requested in writing by any person
that timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the public hearing
will be published in theFederal Register.
December 17, 200712142007–51 I.R.B.

The IRS and Treasury Department are
aware that guidance may be needed un-
der section 101(j) and request comments
on that provision as well. In particu-
lar, comments are requested on the need
for guidance concerning (1) determina-
tion of the status of insured individuals
as “highly compensated employees” or
“highly compensated individuals;” (2)
requirements a taxpayer must meet to sat-
isfy the notice and consent requirements
of section 101(j)(4); and (3) the conse-
quences of a section 1035 exchange of
an employer-owned life insurance con-
tract. The IRS and Treasury Department
anticipate that future guidance, if any,
under section 101(j) will not be applied
retroactively to the detriment of taxpayers
whomakeagoodfaithefforttocomply
with section 101(j) based on a reasonable
interpretation of that provision.
Drafting Information
The principal author of these regula-
tions is Linda K. Boyd, Office of Asso-
ciate Chief Counsel (Financial Institutions
& Products). However, other personnel
from the IRS and Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6039I–1 also issued under 26
U.S.C. 6039I. * * *
Par. 2. Section 1.6039I–1 is added to
read as follows:
§1.6039I–1 Reporting of certain
employer-owned lifeinsurance contracts.
[The text of this proposed section is the
same as the text of §1.6039I–1T published
elsewhere in this issue of the bulletin].
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on November 9,
2007, 8:45 a.m., and published in the issue of the Federal
Register for November 13, 2007, 72 F.R. 63838)
Suspension of Tax-Exempt
Status of an Organization
Identified With Terrorism
Announcement 2007–113
I. Purpose
This announcement is a public notice of
the suspension under section 501(p) of the
Internal Revenue Code of the federal tax
exemption of a certain organization that
has been designated as supporting or en-
gaging in terrorist activity or supporting
terrorism. Contributions made to an organ-
ization during the period that the organiza-
tion’s tax-exempt status is suspended are
not deductible for federal tax purposes.
II. Background
The federal government has designated
a number of organizations as supporting or
engaging in terrorist activity or supporting
terrorism under the Immigration and Na-
tionality Act, the International Emergency
Economic Powers Act, and the United Na-
tions Participation Act of 1945. Federal
law prohibits most contributions to orga-
nizations that have been so designated.
Section 501(p) of the Code was enacted
as part of the Military Family Tax Relief
Act of 2003 (P. L. 108–121), effective
November 11, 2003. Section 501(p)(1)
suspends the exemption from tax un-
der section 501(a) of any organization
described in section 501(p)(2). An organ-
ization is describedin section 501(p)(2)
if the organization is designated or oth-
erwise individually identified (1) under
certain provisions of the Immigration and
Nationality Act as a terrorist organization
or foreign terrorist organization; (2) in or
pursuant to an Executive Order which is
related to terrorism and issued under the
authority of the International Emergency
Economic Powers Act or section 5 of the
United Nations Participation Act of 1945
for the purpose of imposing on such or-
ganization an economic or other sanction;
or (3) in or pursuant to an Executive Order
issued under the authority of any federal
law, if the organization is designated or
otherwise individually identified in or pur-
suant to the Executive Order as supporting
or engaging in terrorist activity (as de-
fined in the Immigration and Nationality
Act) or supporting terrorism (as defined in
the Foreign Relations Authorization Act)
and the Executive Order refers to section
501(p)(2).
Under section 501(p)(3) of the Code,
suspension of an organization’s tax ex-
emption begins on the date of the first pub-
lication of a designation or identification
with respect to the organization, as de-
scribed above, or the date on which section
501(p) was enacted, whichever is later.
This suspension continues until all desig-
nations and identifications of the organiza-
tion are rescinded under the law or Exec-
utive Order under which such designation
or identification was made.
Under section 501(p)(4) of the Code,
no deduction is allowed under any pro-
vision of the Internal Revenue Code for
any contribution to an organization during
any period in which the organization’s
tax exemption is suspended under section
501(p). Thus, for example, no charitable
contribution deduction is allowed under
section 170 (relating to the income tax),
section 545(b)(2) (relating to undistributed
personal holding company income), sec-
tion 556(b)(2) (relating to undistributed
foreign personal holding company in-
come), section 642(c) (relating to chari-
table set asides), section 2055 (relating to
the estate tax), section 2106(a)(2) (relating
to the estate tax for nonresident aliens)
and section 2522 (relating to the gift tax)
for contributions made to the organization
during the suspension period.
On November 15, 2007, the organi-
zation listed below was designated under
Executive Order 13224, entitled “Block-
ing Property and Prohibiting Transactions
With Persons Who Commit, Threaten To
Commit, or Support Terrorism.”
III. Notice of Suspension and
Non-deductibility of Contributions
The organization whose tax exemption
has been suspended under section 501(p)
and the effective date of such suspension
are listed below. Contributions made to
this organization during the period of sus-
pension are not deductible for federal tax
purposes.
2007–51 I.R.B.1215December 17, 2007

Tamils Rehabilitation Organization Inc.
Cumberland, MD
Effective date: 11–15–07
IV. Federal Tax Filings
An organization whose exempt status
has been suspended under section 501(p)
does not file Form 990 and is required to
file the appropriate Federal income tax re-
turns for the taxable periods beginning on
the date of the suspension. The organi-
zation must continue to file all other ap-
propriate federal tax returns, including em-
ployment tax returns, and may also have to
file federal unemployment tax returns.
V. Contact Information
For additional information regarding
the designation or identification of an or-
ganization described in section 501(p)(2),
contact the Compliance Division at the Of-
fice of Foreign Assets Control of the U.S.
Treasury Department at 202–622–2490.
Additional information is also available
for download from the Office’s Inter-
netHomePageatwww.treas.gov/offices/
eotffc/ofac/index.html
For additional information regarding
the suspension of the federal tax exemp-
tion of an organization under section
501(p), contact Ward L. Thomas at (202)
283–8913 at the Internal Revenue Service.
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2007–115
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on December 17,
2007, and would end on the date the court
first determines that the organization is
not described in section 170(c)(2) as more
particularly set forth in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.
Somolian Women’s Association
Hopkins, MN
The Charitable ASP Family Foundation
Sun City, AZ
Prisma Zona Explorotia De Puerto Rico
San Juan, PR
Design Coalition, Inc.
Madison, WI
RVing Women
Apache Junction, AZ
Black Heritage Society, Inc.
Houston, TX
Affordable Housing USA, Inc.
Camarillo, CA
Consumer Credit Education
and Counseling, Inc.
Huntsville, AL
United Debt Counseling, Inc.
Fort Lauderdale, FL
Chicago Principals and Administrators
Chicago, IL
Withholding Procedure Under
Section 1441 for Certain
Distributions to Which Section
302 Applies; Correction
Announcement 2007–116
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to notice of pro-
posed rulemaking.
SUMMARY: This document contains
corrections to proposed regulations
(REG–140206–06, 2007–46 I.R.B. 1006)
that were published in theFederal Reg-
isteron Wednesday, October 17, 2007
(72 FR 58781) regarding a withholding
agent’s obligation to withhold and report
tax under Chapter 3 of the Internal Rev-
enue Code when there is a distribution
in redemption of stock of a corporation
that is actively traded on an established
financial market.
FOR FURTHER INFORMATION
CONTACT: Kathryn Holman at (202)
622–3840 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The notice of proposed rulemaking
(REG–140206–06) that is the subject of
this correction is under section 1441 of the
Internal Revenue Code.
Need for Correction
As published, this notice of proposed
rulemaking (REG–140206–06) contains
an error that may prove to be misleading
and is in need of clarification.
Correction of Publication
Accordingly, the notice of proposed
rulemaking (REG–140206–06) that was
the subject of FR. Doc. E7–20504 is cor-
rected as follows:
On page 58781, column 3, in the pream-
ble, under the caption “FOR FURTHER
INFORMATION CONTACT:”, line 2,
the language “Kathryn Holman, (202)
622–3440 (not a” iscorrected to read
“Kathryn Holman, (202) 622–3840 (not
a”.
December 17, 200712162007–51 I.R.B.

LaNita Van Dyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on November 7,
2007, 8:45 a.m., and published in the issue of the Federal
Register for November 8, 2007, 72 F.R. 63143)
Foundations Status of Certain
Organizations
Announcement 2007–117
The following organizations have failed
to establish or have been unable to main-
tain their status as public charities or as op-
erating foundations. Accordingly, grantors
and contributors may not, after this date,
rely on previous rulings or designations
in the Cumulative List of Organizations
(Publication 78), or on the presumption
arising from the filing of notices under sec-
tion 508(b) of the Code. This listing does
notindicate that the organizations have lost
their status as organizations described in
section 501(c)(3), eligible to receive de-
ductible contributions.
Former Public Charities.The follow-
ing organizations (which have been treated
as organizations thatare not private foun-
dations described in section 509(a) of the
Code) are now classified as private foun-
dations:
African Alliance of Aid for Development,
Oak Park, MI
Arch Way Housing Program, Inc.,
Kennesaw, GA
Arkansas Hope Incorporation,
Little Rock, AR
Bereavement Care Foundation,
Orange, NJ
B L House of Rufuge Outreach, Inc.,
Selma, AL
Bless the Beasts and the Children
Foundation, Henderson, NV
Blessed & Highly Favoured Corporation,
Cincinnati, OH
Blue Solutions, Austin, TX
By My Side Ltd., Philadelphia, PA
Chester Youth Development Foundation,
Columbia, SC
Cindy M. Beaudoin Scholarship Fund,
Plainfield, CT
Community Transportation Service, Inc.,
Idaho Falls, ID
Computer Knowledge 4 Kids,
Arlington, TX
Cornerstone Ministries, Inc.,
McKinney, TX
Deliverance House, Inc., Atlanta, GA
Fordney Foundation, Anaheim, CA
Friends for Life Corporation,
Moreno Valley, CA
Friends of the Fairview Bridge,
Fairview, MT
Gethsemane Betterment Foundation,
Vallejo, CA
Hair for Humanity, Los Angeles, CA
Heavenly Good Catering Community
Development Corporation,
Chesapeake, VA
H E R S Alliance and Resource Center,
Inc., Coconut Creek, FL
J Maxwell & Associates, Inc.,
Londonderry, NH
Joshua Generation Child & Family
Development Corporation, Durham, NC
Kiobvi Soul Society, Inc.,
Springfield Gardens, NY
Loja Health Specialist, Inc.,
Sykesville, MD
Lower Little River Watershed Coalition,
Ashdown, AR
Mater Tech Workforce Development
Center, Milwaukee, WI
New York Institute for Cognitive and
Behavioral Therapies, Brooklyn, NY
Non Profit Assistance, Inc.,
Burnsville, MN
Our Forgotten Heritage, Inc., Bremen, OH
Peachcrest, Inc., Atlanta, GA
Project New Ground, Inc., Brooklyn, NY
Self Motivated Individuals,
Philadelphia, PA
Shinyanga Health Aide and Medical
Assistance, Inc., Houston, TX
Skin Cancer Awareness Foundation,
Minden, NV
Unity Hope Centers, Inc., Detroit, MI
Wisconsin Education for Children
and Adults Food Programs, Inc.,
Madison, WI
Workplace Education Institute, Inc.,
North Canton, OH
Yanks Air Museum Foundation,
Baldwin Park, CA
Youths Working for Change,
Long Beach, CA
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as
a private operating foundation, the Inter-
nalRevenueServicewillissuearulingor
determinationletterwiththerevisedclas-
sification as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as pro-
videdinsection1.509(a)–7oftheIncome
Tax Regulations. It is not the practice of
the Service to announce such revised clas-
sification of foundation status in the Inter-
nal Revenue Bulletin.
2007–51 I.R.B.1217December 17, 2007

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 ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
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 withmodi-
fied,below).
Clarifiedis 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
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis 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 fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
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—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
December 17, 2007i2007–51 I.R.B.

Numerical Finding List
1
Bulletins 2007–27 through 2007–51
Announcements:
2007-61, 2007-28 I.R.B.84
2007-62, 2007-29 I.R.B.115
2007-63, 2007-30 I.R.B.236
2007-64, 2007-29 I.R.B.125
2007-65, 2007-30 I.R.B.236
2007-66, 2007-31 I.R.B.296
2007-67, 2007-32 I.R.B.345
2007-68, 2007-32 I.R.B.348
2007-69, 2007-33 I.R.B.371
2007-70, 2007-33 I.R.B.371
2007-71, 2007-33 I.R.B.372
2007-72, 2007-33 I.R.B.373
2007-73, 2007-34 I.R.B.435
2007-74, 2007-35 I.R.B.483
2007-75, 2007-36 I.R.B.540
2007-76, 2007-36 I.R.B.560
2007-77, 2007-38 I.R.B.662
2007-78, 2007-38 I.R.B.663
2007-79, 2007-40 I.R.B.749
2007-80, 2007-38 I.R.B.667
2007-81, 2007-38 I.R.B.667
2007-82, 2007-40 I.R.B.749
2007-83, 2007-40 I.R.B.752
2007-84, 2007-41 I.R.B.797
2007-85, 2007-39 I.R.B.719
2007-86, 2007-39 I.R.B.719
2007-87, 2007-40 I.R.B.753
2007-88, 2007-42 I.R.B.801
2007-89, 2007-41 I.R.B.798
2007-90, 2007-42 I.R.B.856
2007-91, 2007-42 I.R.B.857
2007-92, 2007-42 I.R.B.857
2007-93, 2007-42 I.R.B.858
2007-94, 2007-42 I.R.B.858
2007-95, 2007-43 I.R.B.894
2007-96, 2007-42 I.R.B.859
2007-97, 2007-43 I.R.B.895
2007-98, 2007-43 I.R.B.896
2007-99, 2007-43 I.R.B.896
2007-100, 2007-44 I.R.B.922
2007-101, 2007-43 I.R.B.898
2007-102, 2007-44 I.R.B.922
2007-103, 2007-44 I.R.B.923
2007-104, 2007-44 I.R.B.924
2007-105, 2007-45 I.R.B.984
2007-106, 2007-46 I.R.B.1021
2007-107, 2007-46 I.R.B.989
2007-108, 2007-47 I.R.B.1044
2007-109, 2007-47 I.R.B.1045
2007-110, 2007-48 I.R.B.1082
2007-111, 2007-49 I.R.B.
1153
2007-112, 2007-50 I.R.B.1175
Announcements— Continued:
2007-113, 2007-51 I.R.B.1215
2007-114, 2007-50 I.R.B.1176
2007-115, 2007-51 I.R.B.1216
2007-116, 2007-51 I.R.B.1216
2007-117, 2007-51 I.R.B.1217
Court Decisions:
2083, 2007-46 I.R.B.986
2084, 2007-47 I.R.B.1032
Notices:
2007-54, 2007-27 I.R.B.12
2007-55, 2007-27 I.R.B.13
2007-56, 2007-27 I.R.B.15
2007-57, 2007-29 I.R.B.87
2007-58, 2007-29 I.R.B.88
2007-59, 2007-30 I.R.B.135
2007-60, 2007-35 I.R.B.466
2007-61, 2007-30 I.R.B.140
2007-62, 2007-32 I.R.B.331
2007-63, 2007-33 I.R.B.353
2007-64, 2007-34 I.R.B.385
2007-65, 2007-34 I.R.B.386
2007-66, 2007-34 I.R.B.387
2007-67, 2007-35 I.R.B.467
2007-68, 2007-35 I.R.B.468
2007-69, 2007-35 I.R.B.468
2007-70, 2007-40 I.R.B.735
2007-71, 2007-35 I.R.B.472
2007-72, 2007-36 I.R.B.544
2007-73, 2007-36 I.R.B.545
2007-74, 2007-37 I.R.B.585
2007-75, 2007-39 I.R.B.679
2007-76, 2007-40 I.R.B.735
2007-77, 2007-40 I.R.B.735
2007-78, 2007-41 I.R.B.780
2007-79, 2007-42 I.R.B.809
2007-80, 2007-43 I.R.B.867
2007-81, 2007-44 I.R.B.899
2007-82, 2007-44 I.R.B.904
2007-83, 2007-45 I.R.B.960
2007-84, 2007-45 I.R.B.963
2007-85, 2007-45 I.R.B.965
2007-86, 2007-46 I.R.B.990
2007-87, 2007-45 I.R.B.966
2007-88, 2007-46 I.R.B.993
2007-89, 2007-46 I.R.B.998
2007-90, 2007-46 I.R.B.1003
2007-91, 2007-48 I.R.B.1069
2007-92, 2007-47 I.R.B.1036
2007-93, 2007-48 I.R.B.1072
2007-94, 2007-51 I.R.B.1179
2007-95, 2007-49 I.R.B.1091
2007-96, 2007-49 I.R.B.1091
2007-97, 2007-49 I.R.B.1092
Notices— Continued:
2007-98, 2007-50 I.R.B.1160
Proposed Regulations:
REG-209020-86, 2007-48 I.R.B.1075
REG-107592-00, 2007-44 I.R.B.908
REG-121475-03, 2007-35 I.R.B.474
REG-128274-03, 2007-33 I.R.B.356
REG-151884-03, 2007-51 I.R.B.1200
REG-114084-04, 2007-33 I.R.B.359
REG-149036-04, 2007-33 I.R.B.365
REG-149036-04, 2007-34 I.R.B.411
REG-101001-05, 2007-36 I.R.B.548
REG-119097-05, 2007-28 I.R.B.74
REG-128843-05, 2007-37 I.R.B.587
REG-142695-05, 2007-39 I.R.B.681
REG-143326-05, 2007-43 I.R.B.873
REG-143397-05, 2007-41 I.R.B.790
REG-147171-05, 2007-32 I.R.B.334
REG-148951-05, 2007-36 I.R.B.550
REG-163195-05, 2007-33 I.R.B.366
REG-118886-06, 2007-37 I.R.B.591
REG-128224-06, 2007-36 I.R.B.551
REG-138707-06, 2007-32 I.R.B.342
REG-139268-06, 2007-34 I.R.B.415
REG-140206-06, 2007-46 I.R.B.1006
REG-142039-06, 2007-34 I.R.B.415
REG-144540-06, 2007-31 I.R.B.296
REG-148393-06, 2007-39 I.R.B.714
REG-103842-07, 2007-28 I.R.B.79
REG-106143-07, 2007-43 I.R.B.881
REG-113891-07, 2007-42 I.R.B.821
REG-114125-07, 2007-46 I.R.B.1012
REG-115910-07, 2007-51 I.R.B.1214
REG-116215-07, 2007-38 I.R.B.659
REG-118719-07, 2007-37 I.R.B.593
REG-127770-07, 2007-50 I.R.B.1171
REG-129916-07, 2007-43 I.R.B.891
REG-133300-07, 2007-49 I.R.B.1140
REG-134923-07, 2007-47 I.R.B.1037
REG-138637-07, 2007-45 I.R.B.977
Revenue Procedures:
2007-42, 2007-27 I.R.B.15
2007-43, 2007-27 I.R.B.26
2007-44, 2007-28 I.R.B.54
2007-45, 2007-29 I.R.B.89
2007-46, 2007-29 I.R.B.102
2007-47, 2007-29 I.R.B.108
2007-48, 2007-29 I.R.B.110
2007-49, 2007-30 I.R.B.141
2007-50, 2007-31 I.R.B.244
2007-51, 2007-30 I.R.B.143
2007-52, 2007-30 I.R.B.222
2007-53, 2007-30 I.R.B.233
2007-54, 2007-31 I.R.B.293
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin
2007–26, dated June 25, 2007.
2007–51 I.R.B.iiDecember 17, 2007

Revenue Procedures— Continued:
2007-55, 2007-33 I.R.B.354
2007-56, 2007-34 I.R.B.388
2007-57, 2007-36 I.R.B.547
2007-58, 2007-37 I.R.B.585
2007-59, 2007-40 I.R.B.745
2007-60, 2007-39 I.R.B.679
2007-61, 2007-40 I.R.B.747
2007-62, 2007-41 I.R.B.786
2007-63, 2007-42 I.R.B.809
2007-64, 2007-42 I.R.B.818
2007-65, 2007-45 I.R.B.967
2007-66, 2007-45 I.R.B.970
2007-67, 2007-48 I.R.B.1072
2007-68, 2007-49 I.R.B.1093
2007-69, 2007-49 I.R.B.1137
2007-70, 2007-50 I.R.B.1162
2007-71, 2007-51 I.R.B.1184
Revenue Rulings:
2007-42, 2007-28 I.R.B.44
2007-43, 2007-28 I.R.B.45
2007-44, 2007-28 I.R.B.47
2007-45, 2007-28 I.R.B.49
2007-46, 2007-30 I.R.B.126
2007-47, 2007-30 I.R.B.127
2007-48, 2007-30 I.R.B.129
2007-49, 2007-31 I.R.B.237
2007-50, 2007-32 I.R.B.311
2007-51, 2007-37 I.R.B.573
2007-52, 2007-37 I.R.B.575
2007-53, 2007-37 I.R.B.577
2007-54, 2007-38 I.R.B.604
2007-55, 2007-38 I.R.B.604
2007-56, 2007-39 I.R.B.668
2007-57, 2007-36 I.R.B.531
2007-58, 2007-37 I.R.B.562
2007-59, 2007-37 I.R.B.582
2007-60, 2007-38 I.R.B.606
2007-61, 2007-42 I.R.B.799
2007-62, 2007-41 I.R.B.767
2007-63, 2007-41 I.R.B.778
2007-64, 2007-45 I.R.B.953
2007-65, 2007-45 I.R.B.949
2007-66, 2007-45 I.R.B.956
2007-67, 2007-48 I.R.B.1047
2007-69, 2007-49 I.R.B.1083
2007-70, 2007-50 I.R.B.1158
2007-71, 2007-50 I.R.B.1155
2007-72, 2007-50 I.R.B.1154
Social Security Contribution and Benefit
Base; Domestic Employee Coverage
Threshold:
2007-92, 2007-47 I.R.B.1036
Tax Conventions:
2007-75, 2007-36 I.R.B.540
2007-88, 2007-42 I.R.B.801
Tax Conventions— Continued:
2007-107, 2007-46 I.R.B.989
Treasury Decisions:
9326, 2007-31 I.R.B.242
9327, 2007-28 I.R.B.50
9328, 2007-27 I.R.B.1
9329, 2007-32 I.R.B.312
9330, 2007-31 I.R.B.239
9331, 2007-32 I.R.B.298
9332, 2007-32 I.R.B.300
9333, 2007-33 I.R.B.350
9334, 2007-34 I.R.B.382
9335, 2007-34 I.R.B.380
9336, 2007-35 I.R.B.461
9337, 2007-35 I.R.B.455
9338, 2007-35 I.R.B.463
9339, 2007-35 I.R.B.437
9340, 2007-36 I.R.B.487
9341, 2007-35 I.R.B.449
9342, 2007-35 I.R.B.451
9343, 2007-36 I.R.B.533
9344, 2007-36 I.R.B.535
9345, 2007-36 I.R.B.523
9346, 2007-37 I.R.B.570
9347, 2007-38 I.R.B.624
9348, 2007-37 I.R.B.563
9349, 2007-39 I.R.B.668
9350, 2007-38 I.R.B.607
9351, 2007-38 I.R.B.616
9352, 2007-38 I.R.B.621
9353, 2007-40 I.R.B.721
9354, 2007-41 I.R.B.759
9355, 2007-37 I.R.B.577
9356, 2007-39 I.R.B.675
9357, 2007-41 I.R.B.773
9358, 2007-41 I.R.B.769
9359, 2007-45 I.R.B.931
9360, 2007-43 I.R.B.860
9361, 2007-47 I.R.B.1026
9362, 2007-48 I.R.B.1050
9363, 2007-49 I.R.B.1084
9364, 2007-51 I.R.B.1177
December 17, 2007iii2007–51 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2007–27 through 2007–51
Announcements:
84-26
Obsoleted by
T.D. 9336, 2007-35 I.R.B.461
84-37
Obsoleted by
T.D. 9336, 2007-35 I.R.B.461
Notices:
89-110
Modified by
REG-142695-05, 2007-39 I.R.B.681
96-13
Superseded by
Notice 2007-96, 2007-49 I.R.B.1091
99-6
Obsoleted as of January 1, 2009 by
T.D. 9356, 2007-39 I.R.B.675
2002-45
Modified by
REG-142695-05, 2007-39 I.R.B.681
2003-81
Modified and supplemented by
Notice 2007-71, 2007-35 I.R.B.472
2005-1
Modified by
Notice 2007-89, 2007-46 I.R.B.998
2006-1
Modified by
Notice 2007-70, 2007-40 I.R.B.735
2006-43
Modified by
T.D. 9332, 2007-32 I.R.B.300
2006-56
Clarified by
Notice 2007-74, 2007-37 I.R.B.585
2006-79
Section 3 modified and superseded by
Notice 2007-86, 2007-46 I.R.B.990
2006-89
Modified by
Notice 2007-67, 2007-35 I.R.B.467
2007-3
Modified by
Notice 2007-69, 2007-35 I.R.B.468
2007-26
Modified by
Notice 2007-56, 2007-27 I.R.B.15
Notices— Continued:
2007-78
Modified by
Notice 2007-86, 2007-46 I.R.B.990
Proposed Regulations:
EE-16-79
Withdrawn by
REG-142695-05, 2007-39 I.R.B.681
EE-130-86
Withdrawn by
REG-142695-05, 2007-39 I.R.B.681
REG-243025-96
Withdrawn by
REG-142695-05, 2007-39 I.R.B.681
REG-105964-98
Withdrawn by
REG-107592-00, 2007-44 I.R.B.908
REG-117162-99
Withdrawn by
REG-142695-05, 2007-39 I.R.B.681
REG-157711-02
Corrected by
Ann. 2007-74, 2007-35 I.R.B.483
REG-119097-05
Hearing location change by
Ann. 2007-81, 2007-38 I.R.B.667
REG-142695-05
Hearing location change by
Ann. 2007-91, 2007-42 I.R.B.857
REG-148951-05
Corrected by
Ann. 2007-94, 2007-42 I.R.B.858
REG-109367-06
Hearing scheduled by
Ann. 2007-66, 2007-31 I.R.B.296
REG-128224-06
Hearing location change by
Ann. 2007-92, 2007-42 I.R.B.857
Corrected by
Ann. 2007-95, 2007-43 I.R.B.894
REG-138707-06
Corrected by
Ann. 2007-79, 2007-40 I.R.B.749
Cancellation of hearing by
Ann. 2007-101, 2007-43 I.R.B.898
REG-140206-06
Corrected by
Ann. 2007-116, 2007-51 I.R.B.1216
REG-143601-06
Corrected by
Ann. 2007-71, 2007-33 I.R.B.372
Proposed Regulations— Continued:
REG-143797-06
Cancellation of hearing by
Ann. 2007-85, 2007-39 I.R.B.719
REG-148393-06
Corrected by
Ann. 2007-98, 2007-43 I.R.B.896
REG-103842-07
Corrected by
Ann. 2007-77, 2007-38 I.R.B.662
REG-116215-07
Corrected by
Ann. 2007-97, 2007-43 I.R.B.895
Revenue Procedures:
90-12
Modified by
Rev. Proc. 2007-66, 2007-45 I.R.B.970
90-27
Superseded by
Rev. Proc. 2007-52, 2007-30 I.R.B.222
95-28
Superseded by
Rev. Proc. 2007-54, 2007-31 I.R.B.293
97-14
Modified and superseded by
Rev. Proc. 2007-47, 2007-29 I.R.B.108
97-27
Modified by
Rev. Proc. 2007-67, 2007-48 I.R.B.1072
98-48
Modified by
T.D. 9353, 2007-40 I.R.B.721
2002-9
Modified and amplified by
Rev. Proc. 2007-48, 2007-29 I.R.B.110
Rev. Proc. 2007-53, 2007-30 I.R.B.233
2002-41
Modified by
Rev. Proc. 2007-66, 2007-45 I.R.B.970
2003-43
Supplemented by
Rev. Proc. 2007-62, 2007-41 I.R.B.786
2004-42
Superseded by
Notice 2007-59, 2007-30 I.R.B.135
2004-48
Supplemented by
Rev. Proc. 2007-62, 2007-41 I.R.B.786
2005-16
Modified by
Rev. Proc. 2007-44, 2007-28 I.R.B.54
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin 2007–26, dated June 25, 2007.
2007–51 I.R.B.ivDecember 17, 2007

Revenue Procedures— Continued:
2005-27
Superseded by
Rev. Proc. 2007-56, 2007-34 I.R.B.388
2005-66
Clarified, modified, and superseded by
Rev. Proc. 2007-44, 2007-28 I.R.B.54
2006-25
Superseded by
Rev. Proc. 2007-42, 2007-27 I.R.B.15
2006-27
Modified by
Rev. Proc. 2007-49, 2007-30 I.R.B.141
2006-33
Superseded by
Rev. Proc. 2007-51, 2007-30 I.R.B.143
2006-41
Superseded by
Rev. Proc. 2007-63, 2007-42 I.R.B.809
2006-45
Modified and clarified by
Rev. Proc. 2007-64, 2007-42 I.R.B.818
2006-49
Superseded by
Rev. Proc. 2007-70, 2007-50 I.R.B.1162
2006-53
Modified by
Rev. Proc. 2007-60, 2007-39 I.R.B.679
2006-55
Superseded by
Rev. Proc. 2007-43, 2007-27 I.R.B.26
2007-4
Modified by
Notice 2007-69, 2007-35 I.R.B.468
2007-15
Superseded by
Rev. Proc. 2007-50, 2007-31 I.R.B.244
2007-24
Superseded by
Rev. Proc. 2007-68, 2007-49 I.R.B.1093
Revenue Rulings:
54-378
Clarified by
Rev. Rul. 2007-51, 2007-37 I.R.B.573
65-18
Revoked by
Rev. Rul. 2007-69, 2007-49 I.R.B.1083
67-93
Obsoleted by
T.D. 9347, 2007-38 I.R.B.624
Revenue Rulings— Continued:
69-141
Modified by
REG-142695-05, 2007-39 I.R.B.681
72-605
Amplified by
Rev. Rul. 2007-69, 2007-49 I.R.B.1083
74-299
Amplified by
Rev. Rul. 2007-48, 2007-30 I.R.B.129
75-425
Obsoleted by
Rev. Rul. 2007-60, 2007-38 I.R.B.606
76-278
Obsoleted by
T.D. 9354, 2007-41 I.R.B.759
76-288
Obsoleted by
T.D. 9354, 2007-41 I.R.B.759
76-450
Obsoleted by
T.D. 9347, 2007-38 I.R.B.624
78-257
Obsoleted by
T.D. 9347, 2007-38 I.R.B.624
78-369
Revoked by
Rev. Rul. 2007-53, 2007-37 I.R.B.577
89-96
Amplified by
Rev. Rul. 2007-47, 2007-30 I.R.B.127
92-17
Modified by
Rev. Rul. 2007-42, 2007-28 I.R.B.44
94-62
Supplemented by
Rev. Rul. 2007-58, 2007-37 I.R.B.562
2001-48
Modified by
T.D. 9332, 2007-32 I.R.B.300
2001-62
Modified by
Rev. Rul. 2007-67, 2007-48 I.R.B.1047
2002-41
Modified by
REG-142695-05, 2007-39 I.R.B.681
2003-102
Modified by
REG-142695-05, 2007-39 I.R.B.681
2005-24
Modified by
REG-142695-05, 2007-39 I.R.B.681
Revenue Rulings— Continued:
2006-36
Modified by
REG-142695-05, 2007-39 I.R.B.681
2006-57
Modified by
Notice 2007-76, 2007-40 I.R.B.735
2007-54
Suspended by
Rev. Rul. 2007-61, 2007-42 I.R.B.799
2007-59
Amplified by
Notice 2007-74, 2007-37 I.R.B.585
Treasury Decisions:
8073
Removed by
T.D. 9349, 2007-39 I.R.B.668
9321
Corrected by
Ann. 2007-68, 2007-32 I.R.B.348
Ann. 2007-78, 2007-38 I.R.B.663
9330
Corrected by
Ann. 2007-80, 2007-38 I.R.B.667
9332
Corrected by
Ann. 2007-83, 2007-40 I.R.B.752
Ann. 2007-84, 2007-41 I.R.B.797
9334
Corrected by
Ann. 2007-93, 2007-42 I.R.B.858
9340
Corrected by
Ann. 2007-102, 2007-44 I.R.B.922
9353
Corrected by
Ann. 2007-103, 2007-44 I.R.B.923
December 17, 2007v2007–51 I.R.B.

2007–51 I.R.B.December 17, 2007

December 17, 20072007–51 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Under information for: select Businesses. Under
related topics, select More Topics. Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to
six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BUL
LETIN
If you have c
omments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,
we would be p
leased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.g
ov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224
Internal Revenue Service
W
ashington,DC20224
Official B
usiness
Penalty for
Private Use, $300