Internal Revenue Bulletin 2016-4 (PDF rendition): IRS Revenue Procedures

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HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
REG–138344 –13, page 294.
This document withdraws proposed regulations that would
implement the statutory exception to the “contemporaneous
written acknowledgement” requirement for substantiating char-
itable contribution deductions of $250 or more. The withdrawal
affects persons that make charitable contributions and organi-
zations that receive charitable contributions.
Rev. Rul. 2016 – 02, page 284.
Insurance Companies; interest rate tables. Prevailing state
assumed interest rates are provided for the determination of
reserves under section 807 of the Internal Revenue Code for
contracts issued in 2015 and 2016. Rev. Rul. 92–19 is sup-
plemented in part.
Announcement 2016 – 03, page 294.
This announcement provides notice that the IRS will not impose
penalties under section 6721 or 6722 on eligible educational
institutions required to file Forms 1098 –T, Tuition Statement,
for the 2015 calendar year, solely because they fail to include
a student’s correct taxpayer identification number (TIN) on
Form 1098 –T.
EMPLOYMENT TAX
Notice 2016 – 06, page 287.
This notice provides a special administrative procedure that
allows employers that treated transit benefits in excess of
$130 per month per employee as wages in 2015 and have not
yet filed their fourth quarter From 941 for 2015 to make the
necessary corrections on the fourth quarter Form 941.
ADMINISTRATIVE
Announcement 2016 – 03, page 294.
This announcement provides notice that the IRS will not impose
penalties under section 6721 or 6722 on eligible educational
institutions required to file Forms 1098 –T, Tuition Statement,
for the 2015 calendar year, solely because they fail to include
a student’s correct taxpayer identification number (TIN) on
Form 1098 –T.
Rev. Proc. 2016 –13, page 290.
This revenue procedure updates Rev. Proc. 2015–16, 2015–7
I.R.B. 596, and identifies circumstances under which the dis-
closure on a taxpayer’s income tax return with respect to an
item or position is adequate for the purpose of reducing the
understatement of income tax under section 6662(d) of the
Internal Revenue Code (relating to the substantial understate-
ment aspect of the accuracy-related penalty), and for the
purpose of avoiding the tax return preparer penalty under
section 6694(a) (relating to understatements due to unreason-
able positions) with respect to income tax returns.
Finding Lists begin on page ii.
Bulletin No. 2016 – 4
January 25, 2016

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal practices and procedures that affect the rights and duties
of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings to
taxpayers or technical advice to Service field offices, identify-
ing details and information of a confidential nature are deleted
to prevent unwarranted invasions of privacy and to comply with
statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
January 25, 2016Bulletin No. 2016 – 4

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 807.—Rules for
Certain Reserves
Rev. Rul. 2016 – 02
For purposes of § 807(d)(4) of the In-
ternal Revenue Code, for taxable years
beginning after December 31, 2014, this
ruling supplements the schedules of pre-
vailing state assumed interest rates set
forth in Rev. Rul. 92–19, 1992–1 C.B.
227. This information is to be used by
insurance companies in computing their
reserves for (1) life insurance and supple-
mentary total and permanent disability
benefits, (2) individual annuities and pure
endowments, and (3) group annuities and
pure endowments. As § 807(d)(2)(B) re-
quires that the interest rate used to compute
these reserves be the greater of (1) the ap-
plicable federal interest rate, or (2) the pre-
vailing state assumed interest rate, the table
of applicable federal interest rates in Rev.
Rul. 92–19 is also supplemented.
Following are supplements to sched-
ules A, B, C, and D to Part III of Rev. Rul.
92–19, providing prevailing state assumed
interest rates for insurance products with
different features issued in 2015 and 2016,
and a supplement to the table in Part IV of
Rev. Rul. 92–19, providing the applicable
federal interest rates under § 807(d) for
2015 and 2016. This ruling does not sup-
plement Parts I and II of Rev. Rul. 92–19.
This is the twenty-fourth supplement to
the interest rates provided in Rev. Rul.
92–19. Earlier supplements were pub-
lished in Rev. Rul. 93–58, 1993–2 C.B.
241 (interest rates for insurance products
issued in 1992 and 1993); Rev. Rul. 94 –
11, 1994 –1 C.B. 196 (1993 and 1994);
Rev. Rul. 95– 4, 1995–1 C.B. 141 (1994
and 1995); Rev. Rul. 96 –2, 1996 –1 C.B.
141 (1995 and 1996); Rev. Rul. 97–2,
1997–1 C.B. 134 (1996 and 1997); Rev.
Rul. 98 –2, 1998 –1 C.B. 259 (1997 and
1998); Rev. Rul. 99 –10, 1999 –1 C.B. 671
(1998 and 1999); Rev. Rul. 2000 –17,
2000 –1 C.B. 842 (1999 and 2000); Rev.
Rul. 2001–11, 2001–1 C.B. 780 (2000 and
2001); Rev. Rul. 2002–12, 2002–1 C.B.
624 (2001 and 2002); Rev. Rul. 2003–24,
2003–1 C.B. 557 (2002 and 2003); Rev.
Rul. 2004 –14, 2004 –1 C.B. 511 (2003
and 2004); Rev. Rul. 2005–29, 2005–1
C.B. 1080 (2004 and 2005); Rev. Rul.
2006 –25, 2006 –1 C.B. 882 (2005 and
2006); Rev. Rul. 2007–10, 2007–1 C.B.
660 (2006 and 2007); Rev. Rul. 2008 –19,
2008 –1 C.B. 669 (2007 and 2008); Rev.
Rul. 2009 –3, 2009 –5 I.R.B. 382 (2008
and 2009); Rev. Rul. 2010 –7, 2010 – 8
I.R.B. 417 (2009 and 2010); Rev. Rul.
2011–23, 2011– 43 I.R.B. 585 (2010 and
2011); Rev. Rul. 2012– 6, 2012– 6 I.R.B.
349 (2011 and 2012); Rev. Rul. 2013– 4,
2013–9 I.R.B. 520 (2012 and 2013); Rev.
Rul. 2014 – 4, 2014 –5 I.R.B. 449 (2013
and 2014); and Rev. Rul. 2015– 02,
2015– 03 I.R.B. 325 (2014 and 2015).
Part III. Prevailing State Assumed Interest Rates—Products Issued in Years After 1982.*
Schedule A
STATUTORY VALUATION INTEREST RATES
BASED ON THE 1980 AMENDMENTS TO THE
NAIC STANDARD VALUATION LAW
A. Life insurance valuation:
Guarantee Duration (years)Calendar Year of Issue
2016
10 or fewer3.75**
More than 10 but not more than 203.75**
More than 203.50**
Source: Rates calculated from the monthly averages, ending June 30, 2015, of Moody’s Composite Yield on Seasoned
Corporate Bonds.
*The terms used in the schedules in this ruling and in Part III of Rev. Rul. 92–19 are those used in the Standard Valuation
Law; the terms are defined in Rev. Rul. 92–19.
**As these rates exceed the applicable federal interest rate for 2016 of 1.56 percent, the valuation interest rate to be used
for this product under § 807 is the applicable rate specified in this table.
January 25, 2016Bulletin No. 2016 – 4
284

Part III, Schedule B
STATUTORY VALUATION INTEREST RATES
BASED ON THE 1980 AMENDMENTS TO THE
NAIC STANDARD VALUATION LAW
B. Single premium immediate annuities and annuity benefits involving life contingencies arising from other annuities with
cash settlement options and from guaranteed interest contracts with cash settlement options:
Calendar Year of IssueValuation Interest Rate
20154.00*
Source: Rates calculated from the monthly averages, ending June 30, 2015, of Moody’s Composite Yield on Seasoned
Corporate Bonds.
*As this prevailing state assumed interest rate exceeds the applicable federal interest rate for 2015 of 1.68 percent, the
valuation interest rate of 4.00 percent is to be used for this product under § 807.
Part III, Schedule C24–2015
STATUTORY VALUATION INTEREST RATES
BASED ON NAIC STANDARD VALUATION LAW
FOR 2015 CALENDAR YEAR BUSINESS
GOVERNED BY THE 1980 AMENDMENTS
C. Valuation interest rates for other annuities and guaranteed interest contracts that are valued on an issue year basis:
Cash
Settlement
Options?
Future
Interest
Guarantee?Guarantee Duration (years)
Valuation Interest Rate For Plan Type
ABC
YesYes5 or fewer4.00*3.75*3.50*
More than 5, but not more than 104.00*3.75*3.50*
More than 10, but not more than 203.75*3.50*3.50*
More than 203.50*3.50*3.50*
YesNo5 or fewer4.00*3.75*3.75*
More than 5, but not more than 104.00*3.75*3.75*
More than 10, but not more than 203.75*3.75*3.50*
More than 203.50*3.50*3.50*
NoYes or No5 or fewer4.00*
More than 5, but not more than 104.00*NOT APPLICABLE
More than 10, but not more than 203.75*
More than 203.50*
Source: Rates calculated from the monthly averages, ending June 30, 2015, of Moody’s Composite Yield on Seasoned
Corporate Bonds.
*As these rates exceed the applicable federal interest rate for 2015 of 1.68 percent, the valuation interest rate to be used
for this product under § 807 is the applicable rate specified in the above table.
Bulletin No. 2016 – 4January 25, 2016
285

Part III, Schedule D24–2015
STATUTORY VALUATION INTEREST RATES
BASED ON NAIC STANDARD VALUATION LAW
FOR 2015 CALENDAR YEAR BUSINESS
GOVERNED BY THE 1980 AMENDMENTS
D. Valuation interest rates for other annuities and guaranteed interest contracts that are contracts with cash settlement
options and that are valued on a change in fund basis:
Cash
Settlement
Options?
Future
Interest
Guarantee?
Guarantee Duration
(years)
Valuation Interest Rate For Plan Type
ABC
Yes
Yes5 or fewer4.25*4.00*3.75*
More than 5, but not more than 104.00*4.00*3.75*
More than 10, but not more than 204.00*4.00*3.50*
More than 203.75*3.75*3.50*
YesNo5 or fewer4.25*4.00*3.75*
More than 5, but not more than 104.25*4.00*3.75*
More than 10, but not more than 204.00*4.00*3.75*
More than 203.75*3.75*3.50*
Source: Rates calculated from the monthly averages, ending June 30, 2015, of Moody’s Composite Yield on Seasoned
Corporate Bonds.
* As these rates exceed the applicable federal interest rate for 2015 of 1.68 percent, the valuation interest rate to be used
for this product under § 807 is the applicable rate specified in the above table.
Part IV. Applicable Federal Interest Rates.
TABLE OF
APPLICABLE FEDERAL INTEREST RATES
FOR PURPOSES OF § 807
YearInterest Rate
20151.68
20161.56
Sources: Rev. Rul. 2004–106, 2004–2 C.B. 893, for the 2005 rate; Rev. Rul. 2005–77, 2005–2 C.B. 1071, for the 2006
rate; Rev. Rul. 2006–61, 2006–2 C.B 1028 for the 2007 rate; Rev. Rul. 2007–70, 2007–2 C.B. 1158 for the 2008 rate;
Rev. Rul. 2008–53, 2008–2 C.B. 1231 for the 2009 rate; Rev. Rul. 2009–38, 2009–49 I.R.B. 736, for the 2010 rate; Rev.
Rul. 2010–29, 2010–50 I.R.B. 818 for the 2011 rate; Rev. Rul. 2011–31, 2011–49 I.R.B. 829 for the 2012 rate; Rev. Rul.
2012–31, 2012–49 I.R.B. 636 for the 2013 rate; Rev. Rul. 2013–26, 2013–50 I.R.B. 628 for the 2014 rate; Rev. Rul.
2014–31, 2014–50 I.R.B. 935 for the 2015 rate; and Rev. Rul. 2015–25, 2015–49 I.R.B. 695 for the 2016 rate.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 92–19 is supplemented by the
addition to Part III of that ruling of prevail-
ing state assumed interest rates under § 807
for certain insurance products issued in
2015 and 2016 and is further supplemented
by an addition to the table in Part IV of Rev.
Rul. 92–19 listing applicable federal interest
rates. Parts I and II of Rev. Rul. 92–19 are
not affected by this ruling.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Linda K. Boyd of the Office of
Associate Chief Counsel (Financial Insti-
tutions and Products). For further infor-
mation regarding this revenue ruling con-
tact Ms. Boyd at (202) 317-6995 (not a
toll-free number).
January 25, 2016Bulletin No. 2016 – 4
286

Part III. Administrative, Procedural, and Miscellaneous
Application of Retroactive
Increase in Excludable
Transit Benefits
Notice 2016 – 6
PURPOSE
This notice provides guidance related
to the enactment of § 105 of the Consol-
idated Appropriations Act, 2016, Public
Law No. 114 –113 (the “Act”). Section
105 of the Act amended § 132(f)(2) of the
Internal Revenue Code to create parity,
for periods after December 31, 2014, be-
tween the transit benefit exclusion for the
aggregate of transportation in a commuter
highway vehicle and any transit pass, and
the exclusion for qualified parking. As a
result of this amendment, the monthly
transit benefit exclusion under § 132(f)(2)(A)
for the aggregate of transportation in a
commuter highway vehicle and any transit
pass increased from $130 per participating
employee to $250 per participating em-
ployee for the period from January 1,
2015, through December 31, 2015. For
2016, the monthly exclusion under both
§ 132(f)(2)(A) (the aggregate of transpor-
tation in a commuter highway vehicle and
any transit pass) and § 132(f)(2)(B) (qual-
ified parking) is $255.
To address employers’ questions re-
garding the retroactive application of the
increased exclusion for 2015 and to re-
duce filing and reporting burdens, the In-
ternal Revenue Service (Service) is clari-
fying how the increase applies for 2015
and providing a special administrative
procedure for employers to use in filing
Form 941, Employer’s QUARTERLY
Federal Tax Return, for the fourth quarter
of 2015 to reflect changes in the exclud-
able amount for transit benefits provided
in all quarters of 2015 and in filing Forms
W–2, Wage and Tax Statement.
BACKGROUND
Section 132(a)(5) provides that any
fringe benefit that is a qualified transpor-
tation fringe is excluded from gross in-
come. Section 132(f)(1) provides in rele-
vantpartthattheterm“qualified
transportation fringe” includes (when pro-
vided by an employer to an employee): (1)
transportation in a commuter highway ve-
hicle between home and work, (2) any
transit pass, or (3) qualified parking.
1
Un-
der § 132(f)(3), cash reimbursements by
employers for transit passes constitute a
qualified transportation fringe only if a
voucher or similar item which may be
exchanged only for a transit pass is not
readily available for direct distribution by
the employer to the employee. Section
1.132–9(b) of the Income Tax Regulations
provides guidance on the exclusion for
qualifiedtransportationfringes.See
§ 1.132–9(b) Q/A 16(b)(4) for the mean-
ing of the term “readily available.”
Prior to the enactment of the Act,
§ 132(f)(2) provided that the amount of
fringe benefits which was provided by an
employer to any employee and which
could be excluded from gross income un-
der § 132(a)(5) could not exceed $100 per
month in the case of the aggregate of
transportation in a commuter highway ve-
hicle and any transit pass, and $175 per
month in the case of qualified parking,
adjusted, in each case, for inflation. Prior
to amendment by the Act, the adjusted
maximum monthly excludable amount for
2015 for the aggregate of transportation in
a commuter highway vehicle and any
transit pass was $130, and the adjusted
maximum monthly excludable amount for
qualified parking was $250. See § 3.17 of
Rev. Proc. 2014 – 61, 2014 – 47 I.R.B.
860.
The Act amended § 132(f) to create
parity in the amount of the exclusion for
these qualified transportation fringes. Af-
ter the amendment, the applicable statu-
tory limit on the amount of these qualified
transportation fringes that may be pro-
vided by an employer to any employee
and that may be excluded from gross in-
come under § 132(a)(5) is in each case
$175 per month, adjusted annually for in-
flation. Accordingly, after the enactment
of the Act, the maximum monthly exclud-
able amount for the aggregate of transpor-
tation in a commuter highway vehicle and
any transit pass is equal to the maximum
monthly excludable amount for qualified
parking.
2
The amendment is effective ret-
roactively to January 1, 2015.
Amounts that are excluded from gross
income under § 132 are also excluded
from Federal Insurance Contributions Act
(FICA) taxes (social security and Medi-
care, including Additional Medicare Tax)
and Federal income tax withholding. Sec-
tions 3121(a)(20) and 3401(a)(19).
Generally, corrections of overpay-
ments of FICA tax are made after an error
has been ascertained using the adjustment
process under § 6413 or using the refund
claim process under § 6402. An error is
ascertained when the employer has suffi-
cient knowledge of the error to be able to
correct it.
Under§§31.6413(a)–1(a)and
31.6413(a)–2(b) of the Employment Tax
Regulations, before making an adjustment
of an overpayment of FICA tax, an em-
ployer generally must repay or reimburse
its employee in the amount of the over-
collection prior to the expiration of the
period of limitations on credit or refund,
and, for FICA tax overcollected in a prior
year (other than Additional Medicare
Tax), must also secure the employee’s
written statement confirming that the em-
ployee has not made any previous claims
(or the claims were rejected) and will not
make any future claims for refund or
credit of the amount of the overcollected
FICA tax. An employer repays an em-
ployee by direct payment to the employee;
an employer reimburses an employee by
applying the amount of the overcollection
against the employee FICA tax which at-
taches to wages paid by the employer to
theemployee.Sections31.6413(a)–
1(a)(2)(ii) and 31.6413(a)–2(a)(1) provide
that withheld Additional Medicare Tax
can only be repaid or reimbursed and sub-
sequently adjusted during the same calen-
1
Section 132(f)(1)(D) also includes any qualified bicycle commuting reimbursement as a qualified transportation fringe, subject to a separate exclusion limit in §§ 132(f)(2)(C) and
132(f)(5)(F)(ii). The Act did not affect the qualified bicycle commuting reimbursement amount.
2
Although the Act did not amend the base year for the inflation adjustment of the excludable amount for the aggregate of transportation in a commuter highway vehicle and any transit pass
in § 132(f)(6)(A), the Act provides for parity in the amount of the exclusion for these qualified transportation fringes and qualified parking, and the limits are applied accordingly.
Bulletin No. 2016 – 4January 25, 2016
287

dar year in which it is withheld. Similarly,
§ 31.6413(a)–1(b) provides that employ-
ers cannot adjust overpayments of with-
held income tax after the end of the cal-
endaryear.Rather,thewithheld
Additional Medicare Tax and the withheld
income tax are applied against the taxes
shown on the employee’s individual in-
come tax return (for example, Form 1040,
U.S. Individual Income Tax Return) and
any excess will be refunded to the em-
ployee.
Section 31.6402(a)–2 prescribes rules
under which a refund claim for an over-
payment of FICA tax (other than Addi-
tional Medicare Tax) may be made. Pur-
suant to § 31.6402(a)–2(a), an employer
has a duty to assure that its employee’s
rights to recover overcollected taxes are
protected by repaying or reimbursing
overcollected amounts. Alternatively, an
employer may obtain the employee’s con-
sent to the filing of the refund claim. Un-
der § 31.6402(a)–2(a)(iii), no refund to
the employer is permitted with regard to
Additional Medicare Tax which the em-
ployer deducted or withheld from the em-
ployee. Similarly, under §§ 6414 and
31.6414 –1, no refund to the employer is
allowed for the overpayment of withheld
income tax which the employer deducted
or withheld from an employee.
To make employment tax corrections
for overpayments (that is, to make adjust-
ments or to claim refunds), an employer
uses the “X” form that corresponds to the
return being corrected. Thus, an employer
corrects overreported taxes on a previ-
ously filed Form 941 by filing Form
941–X, Adjusted Employer’s QUAR-
TERLY Federal Tax Return or Claim for
Refund. A separate X form must be filed
for each taxable period.
APPLICATION OF RETROACTIVE
INCREASE TO TRANSIT
BENEFITS PROVIDED IN 2015
For purposes of the remaining discus-
sion, “transit benefits” refers to the aggre-
gate benefits of transportation in a com-
muter highway vehicle and transit passes
that meet the requirements of § 132 and
the applicable regulations. Pursuant to the
change made by the Act, which was ret-
roactive to January 1, 2015, transit bene-
fits provided during 2015 by an employer
to an employee in excess of $130 (the
former maximum monthly excludable
amount) up to $250 (the amended maxi-
mum monthly excludable amount) are ex-
cluded from the employee’s gross income
and wages. These excess amounts are re-
ferred to as “excess transit benefits” in this
notice. The exclusion applies whether the
transit benefits were provided in 2015 by
the employer from its own funds or
through compensation reduction arrange-
ments as permitted by §§ 132(f)(4) and
1.132–9(b) Q/A 11–15.
For 2015, employers must reduce the
taxable wages of affected employees, as
reported on Forms 941 and W–2 and any
equivalent forms, by the amount of any
excess transit benefits. For example, if an
employer gave an employee a monthly
transit pass worth $200 for the month of
December 2015 and included $70 in the
employee’s taxable wages for the month
for withholding purposes, the employer
must subtract that $70 from the employ-
ee’s taxable wages reported on Forms 941
and W–2. As another example, if an em-
ployer maintained a salary reduction plan
and an employee purchased a $200 transit
pass for the month of December 2015 by
way of a pre-tax deduction of $130 and a
post-tax deduction of $70, the $70 post-
tax deduction must be treated as a pre-tax
deduction for purposes of reporting the
employee’s taxable wages on Forms 941
and W–2.
Neither § 132 nor the change made by
the Act mandates that employers provide
additional transit benefits to their employ-
ees for 2015. Also, the Act does not sep-
arately provide that additional benefits
provided to employees in 2016 to com-
pensate employees for transit expenses in-
curred in 2015 are automatically exclud-
able from income under § 132(f). With
regard to transit benefits provided pursu-
ant to compensation reduction arrange-
ments, § 1.132–9(b) Q/A 13 provides that,
each month, the amount of the compensa-
tion reduction may not exceed the com-
bined applicable statutory monthly limit
for transportation in a commuter highway
vehicle and transit passes. Section 1.132–
9(b) Q/A 14(b) provides that the compen-
sation reduction election must be made
before the employee is able to receive the
cash or other taxable amount at the em-
ployee’s discretion. Accordingly, employ-
ees may not retroactively increase their
compensation reduction for 2015 to take
advantage of the increase in the exclud-
able amount for transit benefits in 2015. In
addition, employees may not reduce their
compensation by more than $255 per
month in 2016 (the applicable statutory
monthly limit for 2016) in order to receive
any permissible reimbursement for transit
expenses incurred in 2015.
Furthermore, the Act did not change
the other requirements of § 132, including
the limitation on providing cash reim-
bursements for transit passes when transit
passes are readily available for direct dis-
tribution by the employer to the employee.
Consequently, cash reimbursements to
cover transit expenses up to $250 for pe-
riods during 2015 are not excludable un-
der § 132 if transit passes were readily
available for periods in 2015 for which the
cash reimbursements are provided.
SPECIAL ADMINISTRATIVE
PROCEDURE FOR EMPLOYERS
THAT DESIRE TO MAKE
ADJUSTMENTS FOR 2015 ON THE
FORM 941 FILED FOR THE
FOURTH QUARTER OF 2015
Employers that originally reported ex-
cess transit benefits as includible in gross
income and wages and withheld income
taxes and FICA taxes would normally be
required to file Form 941–X for each
quarter to make corrections.
In view of the timing of the statutory
change and the due dates for Forms 941
for the fourth quarter of 2015 and Forms
W–2, and in order to reduce administra-
tive burden, the Service is providing a
special administrative procedure for em-
ployers that treated excess transit benefits
as wages and that have not yet filed their
fourth quarter Form 941 for 2015. Em-
ployers desiring to use this special admin-
istrative procedure must repay or reim-
burse their employees for the overcollected
FICA tax (including any Additional Medi-
care Tax) on the excess transit benefits for
all four quarters of 2015 upon or before
filing the fourth quarter Form 941. The
employer, in reporting amounts on its
fourth quarter Form 941, may reduce the
fourth quarter Wages, tips and compensa-
tion reported on line 2, Taxable social
security wages reported on line 5a, Tax-
able Medicare wages and tips reported on
line 5c, and Taxable wages & tips subject
January 25, 2016Bulletin No. 2016 – 4
288

to Additional Medicare Tax withholding
reported on line 5d by the excess transit
benefits for all four quarters of 2015. By
taking advantage of this special adminis-
trative procedure, employers will avoid
having to file Forms 941–X, and will also
avoid having to file Forms W–2c as dis-
cussed below.
This procedure can be used only to the
extent that employers have repaid or re-
imbursed their employees for the em-
ployee share of FICA tax (including any
Additional Medicare Tax) attributable to
the excess transit benefits. Under this spe-
cial administrative procedure, employers
may correct the employer share of FICA
tax only if the employees’ share of FICA
tax has been repaid or reimbursed to the
employees. Employers using this special
procedure do not need to obtain written
statements from their employees confirm-
ing, for each employee, that the employee
did not make a claim (or if the employee
did make a claim, that the claim was re-
jected) and will not make a claim for
refund of FICA tax overcollected in a
prior year.
The repayment or reimbursement of
overwithheld social security tax and the
corresponding reduction for wages re-
ported on Form 941, line 5a, Taxable so-
cial security wages, must take into ac-
count that refunds or credits of social
security tax are limited to the amount paid
on that portion of the excess transit bene-
fits that, when added to other wages for
the year for an employee, did not exceed
the social security wage base for 2015
($118,500). Similarly, the repayment or
reimbursement of overwithheld Addi-
tional Medicare Tax and the correspond-
ing reduction for wages reported on Form
941, line 5d, Taxable wages & tips subject
to Additional Medicare Tax withholding,
must take into account that refunds or
credits of Additional Medicare Tax are
limited to the amount paid on that portion
of the excess transit benefits that, when
subtracted from the total of the excess
transit benefits and other wages paid or
provided to that employee for the year,
leaves a balance of Medicare wages and
tips equal to or greater than $200,000.
To ensure that use of this special ad-
ministrative procedure does not result in a
mismatch between the total taxes reported
on Form 941, line 10, Total taxes after
adjustments, and the Total liability for the
quarter reported on Form 941, line 14 (for
a monthly schedule depositor) or Sched-
ule B (Form 941) (for a semiweekly
schedule depositor), an employer should
use the following procedure. The em-
ployer should reduce the last liability of
the quarter reported (that is, Month 3 on
line 14 or the last liability entry on Sched-
ule B) by the amount of the tax reduction
due to use of the special administrative
procedure. If the amount of the tax reduc-
tion exceeds the last liability of the quarter
reported on line 14 or Schedule B, the
employer should apply the amount of the
tax reduction to reduce previous liabilities
in reverse order until the amount of the tax
reduction is completely used. Note that
negative numbers must not be entered on
line 14 or Schedule B.
The same procedures are available to
filers of other employment tax returns re-
porting FICA taxes (for example, the re-
lated Spanish-language return or return
for U.S. possessions) and to filers of em-
ployment tax returns reporting taxes under
the Railroad Retirement Tax Act.
NORMAL PROCEDURES FOR
EMPLOYERS THAT HAVE FILED
FOURTH QUARTER FORM 941 OR
HAVE NOT REPAID OR
REIMBURSED EMPLOYEES
PRIOR TO FILING FOURTH
QUARTER FORM 941
Employers that have already filed the
fourth quarter Form 941 must use Form
941–X and normal procedures to make an
adjustment or claim a refund for any quar-
ter in 2015 with regard to the overpay-
ment of tax on the excess transit benefits
after repaying or reimbursing their em-
ployees or, for claims for refund, securing
consents from their employees. Similarly,
to the extent employers have not repaid or
reimbursed their employees who received
excess transit benefits in 2015 prior to
filing the fourth quarter Form 941, the
employers must use Form 941–X to make
an adjustment or claim for refund with
respect to the excess transit benefits pro-
vided to those employees and must follow
the normal procedures.
Under the normal procedures, the em-
ployer must obtain the required statements
under §§ 31.6413(a)–1 or 31.6402(a)–2
(subject to the exception for making rea-
sonable efforts). Furthermore, the em-
ployer may not repay or reimburse, make
an adjustment with respect to, or seek a
refund of Additional Medicare Tax or in-
come tax deducted or withheld from the
employee in 2015.
EMPLOYER INSTRUCTIONS FOR
FORM W–2
Employers that paid excess transit ben-
efits in 2015 and have not furnished 2015
Forms W–2 to their employees must take
into account the increased exclusion for
2015 transit benefits in calculating the
amount of wages reported in box 1,
Wages, tips, other compensation; box 3,
Social security wages; and box 5, Medi-
care wages and tips. Employers that have
repaid or reimbursed their employees for
the overcollected FICA taxes prior to fur-
nishing Form W–2 (whether they utilized
the special administrative procedure or the
normal procedures) must reduce the
amounts of withheld tax reported in box 4,
Social security tax withheld, and box 6,
Medicare tax withheld, by the amounts of
the repayments or reimbursements. Note
that under the normal procedures, the
amount reported in box 6, Medicare tax
withheld, will not be reduced with regard
to any Additional Medicare Tax withheld
on the excess transit benefits because no
repayment or reimbursement of such
amount is permitted after the end of 2015.
In all cases, employers must report in
box 2, Federal income tax withheld, the
amount of income tax actually withheld
during 2015. The additional income tax
withholding will be applied against the
taxes shown on the employee’s individual
income tax return (Form 1040, U.S. Indi-
vidual Income Tax Return).
Employers that repaid or reimbursed
their employees for the overcollected
FICA taxes after furnishing Forms W–2 to
their employees but before filing Forms
W–2 with the Social Security Administra-
tion (SSA) must check the “Void” box at
the top of each incorrect Form W–2 (Copy
A). These employers must prepare new
Forms W–2 with the correct information,
and send these new Forms W–2 (Copy A)
to the SSA. The employers must write
“CORRECTED” on the employees’ new
copies (B, C, and 2) and furnish them to
the employees. See the 2015 General In-
structions for Forms W–2 and W–3.
Bulletin No. 2016 – 4January 25, 2016
289

Employers that have already filed 2015
Forms W–2 with SSA must file Forms
W–2c, Corrected Wage and Tax State-
ment, to take into account the increased
exclusion for transit benefits and to reflect
any repayments or reimbursements of the
withheld FICA tax and must furnish cop-
ies of the Forms W–2c to the employees.
DRAFTING INFORMATION
The principal author of this notice is
Jean M. Casey of the Office of Associate
Chief Counsel (Tax Exempt & Govern-
ment Entities). For further information re-
garding this notice contact Ms. Casey on
(202) 317-4774 (not a toll-free number).
Section 6413.—This notice
provides a special
administrative procedure
for the filing of the fourth
quarter Form 941 for
employers who treated
transit benefits in excess of
$130 per months as wages
in 2015.
This notice provides a special administrative pro-
cedure for the filing of the fourth quarter Form 941
for employers who treated transit benefits in excess
of $130 per months as wages in 2015. See Notice
2016 – 6, page 287.
26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of
correct tax liability.
(Also: Part 1, §§ 6662, 6694, 1.6662– 4, 1.6694 –2)
Adequate Disclosure
Revenue Procedure
Renewal
Rev. Proc. 2016 –13
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 2015–16, 2015–7 I.R.B. 596, and
identifies circumstances under which the
disclosure on a taxpayer’s income tax re-
turn with respect to an item or position is
adequate for the purpose of reducing the
understatement of income tax under sec-
tion 6662(d) of the Internal Revenue Code
(relating to the substantial understatement
aspect of the accuracy-related penalty),
and for the purpose of avoiding the tax
return preparer penalty under section
6694(a) (relating to understatements due
to unreasonable positions) with respect to
income tax returns. This revenue proce-
dure does not apply with respect to any
other penalty provisions (including but
not limited to the disregard provisions of
the section 6662(b)(1) accuracy-related
penalty, the section 6662(b)(6) accuracy-
related penalty and the section 6662(i)
increased accuracy-related penalty in the
case of nondisclosed noneconomic sub-
stance transactions, and the section
6662(j) increased accuracy-related pen-
alty in the case of undisclosed foreign
financial asset understatements). If this
revenue procedure does not include an
item, disclosure is adequate with respect
to that item only if made on a properly
completed Form 8275 or 8275–R, as ap-
propriate, attached to the return for the
year or to a qualified amended return.See
Treas. Reg. § 1.6664 –2(c) for information
about qualified amended returns.
This revenue procedure applies to any
income tax return filed on 2015 tax forms
for a taxable year beginning in 2015, and
to any income tax return filed in 2016 on
2015 tax forms for short taxable years
beginning in 2016.
SECTION 2. CHANGES FROM
REV. PROC. 2015–16
Editorial changes have been made
throughout this revenue procedure. In ad-
dition, section 4.02(3) has been updated to
reflect that for tax years ending December
31, 2014, or later, filers that (a) are re-
quired to file Schedule M–3 (Form 1120),
Net Income (Loss) Reconciliation for Cor-
porations With Total Assets of $10 Million
or More, and have less than $50 million in
total assets at the end of the tax year or (b)
are not required to file Schedule M–3 and
voluntarily file Schedule M–3, are not re-
quired to file Schedule B (Form 1120),
Additional Information for Schedule M–3
Filers. Section 4.02(3) has also been up-
dated to reflect that for tax years ending
on December 31, 2014, or later, partner-
ships that (a) are required to file Schedule
M–3 (Form 1065),Net Income (Loss)
Reconciliation for Certain Partnerships,
and have less than $50 million in total
assets at the end of the tax year or (b) are
not required to file Schedule M–3 and
voluntarily file Schedule M–3, are not re-
quired to file Schedule C (Form 1065),
Additional Information for Schedule M–3
Filers. No additional substantive changes
have been made.
SECTION 3. BACKGROUND
.01 If section 6662 applies to any por-
tion of an underpayment of tax required to
be shown on a return, an amount equal to
20 percent of the portion of the underpay-
ment is added to the tax. The penalty rate
increases to 40percent in the case of gross
valuationmisstatementsundersection
6662(h), nondisclosed noneconomic sub-
stance transactions under section 6662(i), or
undisclosed foreign financial asset under-
statements under section 6662(j). Section
6662(b)(2) applies to the portion of an un-
derpayment of tax that is attributable to a
substantial understatement of income tax.
.02 There is a substantial understatement
of income tax if the amount of the under-
statement exceeds the greater of (i) 10 per-
cent of the amount of tax required to be
shown on the return for the taxable year or
(ii) $5,000. Section 6662(d)(1). Section
6662(d)(1)(B) provides a special rule for
corporations. A corporation (other than an S
corporation or apersonal holding company)
has a substantial understatement of income tax
if the amount of the understatement exceeds
the lesser of (i) 10 percent of the tax required
to be shown on the return for a taxable year
(or, if greater, $10,000) or (ii) $10,000,000. An
understatement is the excess of the amount of
tax required to be shown on the return for the
taxable year over the amount of the tax that is
shown on the return reduced by any rebate.
Section 6662(d)(2).
.03 In the case of an item not attributable
to a tax shelter, if the taxpayer has a reason-
able basis for the tax treatment of the item,
the amount of the understatement is reduced
by the portion of the understatement attrib-
utable to the item with respect to which the
relevant facts affecting the item’s tax treat-
ment are adequately disclosed in the return
or in a statement attached to the return.
Section 6662(d)(2)(B)(ii).
.04 Section 6694(a) imposes a penalty
on a tax return preparer who prepares a
return or claim for refund reflecting an
understatement of liability due to an “un-
reasonable position” if the tax return pre-
January 25, 2016Bulletin No. 2016 – 4
290

parer knew (or reasonably should have
known) of the position. A position (other
than a position with respect to a tax shelter
or a reportable transaction to which sec-
tion 6662A applies) is generally treated as
unreasonable unless (i) there is or was
substantial authority for the position, or
(ii) the position was properly disclosed in
accordance with section 6662(d)(2)(B)(ii)(I)
and had a reasonable basis. If the position
is with respect to a tax shelter (as defined
in section 6662(d)(2)(C)(ii)) or a report-
able transaction to which section 6662A
applies, the position is treated as unrea-
sonable unless it is reasonable to believe
that the position would more likely than
not be sustained on the merits.SeeNotice
2009 –5, 2009 –3 I.R.B. 309, for interim
penalty compliance rules for tax shelter
transactions.
.05 In general, this revenue procedure
provides guidance for determining when
disclosure by return is adequate for pur-
poses of section 6662(d)(2)(B)(ii) and
section 6694(a)(2)(B). For purposes of
this revenue procedure, the taxpayer must
furnish all required information in accor-
dance with the applicable forms and in-
structions, and the money amounts en-
tered on these forms must be verifiable.
.06 This revenue procedure may apply
to a return for a fiscal tax year that begins
in 2015 and ends in 2016. This revenue
procedure may also apply to a short year
return for a period beginning in 2016 if
the return is to be filed before the 2016
forms are available. (Note that individuals
are generally not put in this position. The
most frequent situation in which a short
year arises is when filing a decedent’s
final return for a fractional part of a year.
In that situation, the 2016 form will be
available because the final return is due
the fifteenth day of the fourth month fol-
lowing the close of the 12-month period
that began with the first day of such frac-
tional part of the year (meaning the due
date is not accelerated).SeeTreas. Reg.
§ 1.6072–1(b).) In the case of fiscal year
and short year returns, the taxpayer must
take into account any tax law changes that
are effective for tax years beginning after
December 31, 2015, even though these
changes are not reflected on the form or
instructions.
.07 This document does not take into
account the effect of tax law changes ef-
fective for tax years beginning after De-
cember 31, 2015. If a line referenced in
this revenue procedure is affected by such
a change and requires additional report-
ing, a taxpayer may have to file Form
8275,Disclosure Statement, or Form
8275–R,Regulation Disclosure State-
ment, until the Service prescribes criteria
for complying with the requirement.
.08 A complete and accurate disclosure
of a tax position on the appropriate year’s
Schedule UTP,Uncertain Tax Position
Statement, will be treated as if the corpo-
ration filed a Form 8275 or Form 8275–R
regarding the tax position. The filing of a
Form 8275 or Form 8275–R, however,
will not be treated as if the corporation
filed a Schedule UTP.
SECTION 4. PROCEDURE
.01 General
(1) Additional disclosure of facts rele-
vant to, or positions taken with respect to,
issues involving any of the items set forth
below is unnecessary for purposes of re-
ducing any understatement of income tax
under section 6662(d) (except as other-
wise provided in section 4.02(3) concern-
ing Schedules M–1 and M–3), provided
that the forms and attachments are com-
pleted in a clear manner and in accordance
with their instructions.
(2) The money amounts entered on the
forms must be verifiable, and the informa-
tion on the return must be disclosed in the
manner described below. For purposes of
this revenue procedure, a number is veri-
fiable if, on audit, the taxpayer can prove
the origin of the amount (even if that
number is not ultimately accepted by the
Internal Revenue Service) and the tax-
payer can show good faith in entering that
number on the applicable form.
(3) The disclosure of an amount as
provided in section 4.02 below is not ad-
equate when the understatement arises
from a transaction between related parties.
If an entry may present a legal issue or
controversy because of a related-party
transaction, then that transaction and the
relationship must be disclosed on a Form
8275 or Form 8275–R.
(4) When the amount of an item is
shown on a line that does not have a
preprinted description identifying that
item (such as on an unnamed line under an
“Other Expense” category), the taxpayer
must clearly identify the item by including
the description on that line. For example,
to disclose a bad debt for a sole propri-
etorship, the words “bad debt” must be
written or typed on the line of Schedule C
that shows the amount of the bad debt.
Also, for Schedule M–3 (Form 1120), Part
II, line 25, Other income (loss) items with
differences, or Part III, line 37, Other ex-
pense/deduction items with differences,
the entry must provide descriptive lan-
guage; for example, “Cost of non-compete
agreement deductible not capitalizable,”
and the description must be provided on
an attachment. Similarly, for other forms,
if space limitations on a form do not allow
for an adequate description, the descrip-
tion must be continued on an attachment.
(5) Although a taxpayer may literally
meet the disclosure requirements of this
revenue procedure, the disclosure will
have no effect for purposes of the section
6662 accuracy-related penalty if the item
or position on the return: (1) does not have
a reasonable basis as defined in Treas.
Reg. § 1.6662–3(b)(3); (2) is attributable
to a tax shelter item as defined in section
6662(d)(2)(C)(ii); or (3) is not properly
substantiated or the taxpayer failed to
keep adequate books and records with re-
spect to the item or position.
(6) Disclosure also will have no effect
for purposes of the section 6694(a) pen-
alty as applicable to tax return preparers if
the position is with respect to a tax shelter
(as defined in section 6662(d)(2)(C)(ii)) or
a reportable transaction to which section
6662A applies.
.02 Items
(1) Form 1040, Schedule A,Itemized
Deductions:
(a) Medical and Dental Expenses:
Complete lines 1 through 4, supplying all
required information.
(b) Taxes: Complete lines 5 through 9,
supplying all required information. Line 8
must list each type of tax and the amount
paid.
(c) Interest Expenses: Complete lines
10 through 15, supplying all required in-
formation. This section 4.02(1)(c) does
not apply to (i) amounts disallowed under
section 163(d) unless Form 4952,Invest-
ment Interest Expense Deduction, is com-
Bulletin No. 2016 – 4January 25, 2016
291

pleted, or (ii) amounts disallowed under
section 265.
(d) Contributions: Complete lines 16
through 19, supplying all required infor-
mation. Enter the amount of the contribu-
tion reduced by the value of any substan-
tial benefit (goods or services) provided
by the donee organization in consider-
ation, in whole or in part, for the contri-
bution. Entering the contribution’s value,
unreduced by the value of the benefit re-
ceived, will not constitute adequate dis-
closure. If a contribution of $250 or more
is made, this section will not apply unless
a contemporaneous written acknowledg-
ment, as required by section 170(f)(8), is
obtained from the donee organization. If a
contribution of cash of less than $250 is
made, this section will not apply unless a
bank record or written communication
from the donee organization, as required
by section 170(f)(17), is obtained. If a
contribution of property other than cash is
made and the amount claimed as a deduc-
tion exceeds $500, attach a properly com-
pleted Form 8283,Noncash Charitable
Contributions, to the return. In addition to
the Form 8283, if a contribution of a qual-
ified motor vehicle, boat, or airplane has a
value of more than $500, this section will
not apply unless a contemporaneous writ-
ten acknowledgment, as required by sec-
tion 170(f)(12), is obtained from the do-
nee organization and attached to the
return. An acknowledgment under section
170(f)(8) is not required if an acknowl-
edgment under section 170(f)(12) is re-
quired.
(e) Casualty and Theft Losses: Com-
plete Form 4684,Casualties and Thefts,
and attach to the return. Each item or
article for which a casualty or theft loss is
claimed must be listed on Form 4684.
(2) Certain Trade or Business Ex-
penses (including, for purposes of this
section, the following six expenses as they
relate to the rental of property):
(a) Casualty and Theft Losses: The
procedure outlined in section 4.02(1)(e)
must be followed.
(b) Legal Expenses: The amount
claimed must be stated. This section does
not apply, however, to amounts properly
characterized as capital expenditures, per-
sonal expenses, or non-deductible lobby-
ing or political expenditures, including
amounts that are required to be (or that
are) amortized over a period of years.
(c) Specific Bad Debt Charge-off: The
amount written off must be stated.
(d) Reasonableness of Officers’ Com-
pensation: Form 1125–E,Compensation
of Officers, must be completed when re-
quired by its instructions. The time de-
voted to business must be expressed as a
percentage as opposed to “part” or “as
needed.” This section does not apply to
“golden parachute” payments, as defined
under section 280G. This section will not
apply to the extent that remuneration paid
orincurredexceedstheemployee-
remuneration deduction limitations under
section 162(m), if applicable.
(e) Repair Expenses: The amount
claimed must be stated. This section does
not apply, however, to any amount prop-
erly characterized as capital expenditures
or personal expenses.
(f) Taxes (other than foreign taxes):
The amount claimed must be stated.
(3) Differences in book and income tax
reporting.
For Schedule M–1 and all Schedules
M–3, including those listed in (a)-(f) be-
low, the information provided must rea-
sonably apprise the Service of the poten-
tialcontroversyconcerningthetax
treatment of the item. If the information
provided does not so apprise the Service,
a Form 8275 or Form 8275–R must be
used to adequately disclose the item (see
Part II of the instructions for those forms).
Note: An item reported on a line
withapre-printeddescription,
shown on an attached schedule or
“itemized” on Schedule M–1, may
represent the aggregate amount of
several transactions producing that
item (i.e.,a group of similar items,
such as amounts paid or incurred for
supplies by a taxpayer engaged in
business). In some instances, a po-
tentially controversial item may in-
volve a portion of the aggregate
amount disclosed on the schedule.
The Service will not be reasonably
apprised of a potential controversy
by the aggregate amount disclosed.
In these instances, the taxpayer
must use Form 8275 or Form
8275–R regarding that portion of
the item.
Combining unlike items, whether on
Schedule M–1 or Schedule M–3 (or on an
attachment when directed by the instruc-
tions), will not constitute an adequate dis-
closure.
Additionally, taxpayers that file the
Schedule M–3 (Form 1120),Net Income
(Loss) Reconciliation for Corporations
With Total Assets of $10 Million or More,
may be required to complete Schedule B
(Form 1120),Additional Information for
Schedule M–3 Filers. For further informa-
tion see Who Must File in the General
Instructions for Schedule B (Form 1120).
Taxpayers that file the Schedule M–3
(Form 1065),Net Income (Loss) Recon-
ciliation for Certain Partnerships, may be
required to complete Schedule C (Form
1065),Additional Information for Sched-
ule M–3 Filers. For further information
see Who Must File in the General Instruc-
tions for Schedule C (Form 1065). When
required, these schedules are necessary to
constitute adequate disclosure.
(a) Form 1065. Schedule M–3 (Form
1065),Net Income (Loss) Reconciliation
for Certain Partnerships: Column (a),In-
come (Loss) per Income Statement, of Part
II (reconciliation of income (loss) items)
and Column (a),Expense per Income
Statement, of Part III (reconciliation of
expense/deduction items); Column (b),
Temporary Difference, and Column (c),
Permanent Difference, of Part II (recon-
ciliation of income (loss) items) and Part
III (reconciliation of expense/deduction
items); and Column (d),Income (Loss)
per Tax Return, of Part II (reconciliation
of income (loss) items) and Column (d),
Deduction per Tax Return, of Part III (rec-
onciliation of expense/deduction items).
(b) Form 1120. (i) Schedule M–1,Rec-
onciliation of Income (Loss) per Books
With Income per Return.
(ii) Schedule M–3 (Form 1120),Net
Income (Loss) Reconciliation for Corpo-
rations With Total Assets of $10 Million
or More: Column (a),Income (Loss) per
Income Statement, of Part II (reconcilia-
tion of income (loss) items) and Column
(a),Expense per Income Statement,of
Part III (reconciliation of expense/deduc-
tion items); Column (b),Temporary Dif-
ference, and Column (c),Permanent Dif-
ference, of Part II (reconciliation of
income (loss) items) and Part III (recon-
ciliation of expense/deduction items); and
Column (d),Income (Loss) per Tax Re-
turn, of Part II (reconciliation of income
January 25, 2016Bulletin No. 2016 – 4
292

(loss) items) and Column (d),Deduction
per Tax Return, of Part III (reconciliation
of expense/deduction items).
(c) Form 1120 –L. Schedule M–3
(Form 1120 –L),Net Income (Loss) Rec-
onciliation for U.S. Life Insurance Com-
panies With Total Assets of $10 Million or
More: Column (a),Income (Loss) per In-
come Statement, of Part II (reconciliation
of income (loss) items) and Column (a),
Expense per Income Statement, of Part III
(reconciliationofexpense/deduction
items); Column (b),Temporary Differ-
ence, and Column (c),Permanent Differ-
ence, of Part II (reconciliation of income
(loss) items) and Part III (reconciliation of
expense/deduction items); and Column
(d),Income (Loss) per Tax Return, of Part
II (reconciliation of income (loss) items)
and Column (d),Deduction per Tax Re-
turn, of Part III (reconciliation of expense/
deduction items).
(d) Form 1120 –PC. Schedule M–3
(Form 1120 –PC),Net Income (Loss) Rec-
onciliation for U.S. Property and Casu-
alty Insurance Companies With Total As-
sets of $10 Million or More: Column (a),
Income (Loss) per Income Statement,of
Part II (reconciliation of income (loss)
items) and Column (a),Expense per In-
come Statement, of Part III (reconciliation
of expense/deduction items); Column (b),
Temporary Difference, and Column (c),
Permanent Difference, of Part II (recon-
ciliation of income (loss) items) and Part
III (reconciliation of expense/deduction
items); and Column (d),Income (Loss)
per Tax Return, of Part II (reconciliation
of income (loss) items) and Column (d),
Deduction per Tax Return, of Part III (rec-
onciliation of expense/deduction items).
(e) Form 1120 –S. Schedule M–3
(Form 1120 –S),Net Income (Loss) Rec-
onciliation for S Corporations With Total
Assets of $10 Million or More: Column
(a),Income (Loss) per Income Statement,
of Part II (reconciliation of income (loss)
items) and Column (a),Expense per In-
come Statement, of Part III (reconciliation
of expense/deduction items); Column (b),
Temporary Difference, and Column (c),
Permanent Difference, of Part II (recon-
ciliation of income (loss) items) and Part
III (reconciliation of expense/deduction
items); and Column (d),Income (Loss)
per Tax Return, of Part II (reconciliation
of income (loss) items) and Column (d),
Deduction per Tax Return, of Part III (rec-
onciliation of expense/deduction items).
(f) Form 1120 –F. Schedule M–3
(Form 1120 –F),Net Income (Loss) Rec-
onciliation for Foreign Corporations With
Reportable Assets of $10 Million or More:
Column (b),Temporary Differences, Col-
umn (c),Permanent Differences, and Col-
umn (d),Other Permanent Differences for
Allocations to Non-ECI and ECI,of Part
II (reconciliation of income (loss) items)
and Part III (reconciliation of expense/
deduction items).
(4) Foreign Tax Items:
(a) International Boycott Transactions:
Transactions disclosed on Form 5713,In-
ternational Boycott Report; Schedule A,
International Boycott Factor (Section
999(c)(1)); Schedule B,Specifically At-
tributable Taxes and Income (Section
999(c)(2)); and Schedule C,Tax Effect of
the International Boycott Provisions,
must be completed when required by their
instructions.
(b) Treaty-Based Return Position:
Transactions and amounts under section
6114 or section 7701(b) as disclosed on
Form 8833,Treaty-Based Return Position
DisclosureUnderSection6114or
7701(b), must be completed when re-
quired by its instructions.
(5) Other:
(a) Moving Expenses: Complete Form
3903,Moving Expenses, and attach to the
return.
(b) Employee Business Expenses:
Complete Form 2106,Employee Business
Expenses, or Form 2106 –EZ,Unreim-
bursed Employee Business Expenses, and
attach to the return. This section does not
apply to club dues or to travel expenses
for any non-employee accompanying the
taxpayer on the trip.
(c) Fuels Credit: Complete Form 4136,
Credit for Federal Tax Paid on Fuels, and
attach to the return.
(d) Investment Credit: Complete Form
3468,Investment Credit, and attach to the
return.
SECTION 5. EFFECTIVE DATE
This revenue procedure applies to any
income tax return filed on a 2015 tax form
for a taxable year beginning in 2015 and
to any income tax return filed on a 2015
tax form in 2016 for a short taxable year
beginning in 2016.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Mark A. Bond of the Office
of Associate Chief Counsel (Procedure &
Administration). For further information
regarding this revenue procedure, contact
Branch 2 of Procedure and Administration
at (202) 317-6844 (not a toll-free
number).
Bulletin No. 2016 – 4January 25, 2016
293

Part IV. Items of General Interest
Limited Penalty Relief for
Filers of Form 1098 –T,
Tuition Statement, Under
Section 6724(f).
Announcement 2016 – 03
This announcement provides notice
that the IRS will not impose penalties
under section 6721 or 6722 on eligible
educational institutions required to file
Forms 1098 –T,Tuition Statement, for the
2015 calendar year, solely because they
fail to include a student’s correct taxpayer
identification number (TIN) on Form
1098 –T. This announcement is limited to
2015 Forms 1098 –T required to be filed
by eligible educational institutions by
February 29, 2016, or March 31, 2016 (if
filed electronically). This announcement
does not provide penalty relief for any
other failure that would cause a filer to be
subject to penalties under section 6721 or
6722, or any other penalty under any pro-
vision of the Code.
Section 6050S(a)(1) requires eligible
educational institutions to file information
returns (Form 1098 –T) with the IRS and
to furnish written statements to taxpayers
relating to qualified tuition and related
expenses paid to or billed by the eligible
educational institution. Section 6050S(b)(2)
provides that these information returns
must contain, among other things, the
name, address, and TIN of any individual
who is enrolled at the institution and the
amount of qualified tuition and related
expenses paid or billed.
Section 6721 imposes a penalty on an
eligible educational institution that fails to
file correct and/or timely information re-
turns with the IRS. Section 6722 imposes
a penalty on an educational institution that
fails to furnish correct and/or timely writ-
ten statements to the student. However,
section 6724(a) provides that the penalty
under section 6721 or 6722 may be
waived if it is shown that the failure was
due to reasonable cause and not due to
willful neglect.
The Trade Preferences Extension Act
of 2015 (Public Law 114 –27 (129 Stat.
362 (Jun. 29, 2015)) (TPEA) recently
amended section 6724. Section 805 of
TPEA amended section 6724 by adding a
new subsection (f), which provides that no
penalty will be imposed under section
6721 or 6722 against an eligible educa-
tional institution solely by reason of fail-
ing to include an individual’s TIN on a
Form 1098 –T or related statement if the
institution contemporaneously certifies
under penalties of perjury in the form and
manner prescribed by the Secretary that it
has complied with the standards promul-
gated by the Secretary for obtaining such
individual’s TIN. The provision applies to
returns required to be made and state-
ments required to be furnished after De-
cember 31, 2015.
Relief under section 6724(f) applies
only to eligible educational institutions
and does not apply to insurers required to
fileForms1098 –Tundersection
6050S(a)(2) or to persons engaged in the
business of servicing student loans and
obligated under section 6050S(a)(3) to re-
port on Form 1098 –E student loan interest
aggregating $600 or more for a calendar
year.
The IRS is unable to make necessary
programming and form changes to imple-
ment section 6724(f) with respect to
Forms 1098 –T for the 2015 calendar year.
The IRS, therefore, will not impose pen-
alties under section 6721 or 6722 against
an eligible educational institution that
timely files or furnishes 2015 Forms
1098 –T or statements with missing or in-
correct TINs during 2016. This penalty
relief does not apply to other failures sub-
ject to a penalty under section 6721 or
6722, such as failure to file 2015 Forms
1098 –T timely, or a failure to include all
of the other information required to be
included on the Form 1098 –T.
In addition, this penalty relief does not
apply to Forms 1098 –T for years prior to
the 2015 calendar year that were required
to be filed before January 1, 2016, but are
actually filed during 2016. For informa-
tion about penalty relief related to Forms
1098 –T for calendar years prior to 2015,
see the IRS information release at,https://
www.irs.gov/uac/Newsroom/For-Colleges-
and-Universities:-IRS-Waives-Penalties-for-
Missing-or-Incorrect-Taxpayer-Identification-
Numbers.Procedures implementing section
6724(f) for Forms 1098 –T and statements
required to be filed after December 31,
2016, will be provided in separate guidance.
The principal author of this announce-
ment is James G. Hartford of the Office of
Associate Chief Counsel (Procedure &
Administration). For further information
regarding this announcement, contact
Gerald Semasek at (202) 317-6845 (not a
toll-free number).
Substantiation Requirement
for Certain Contributions;
Withdrawal
REG–138344 –13
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of pro-
posed rulemaking.
SUMMARY: This document withdraws
proposed regulations that would imple-
ment the statutory exception to the “con-
temporaneous written acknowledgement”
requirement for substantiating charitable
contribution deductions of $250 or more.
The withdrawal affects persons that make
charitable contributions and organizations
that receive charitable contributions.
DATES: As of January 8, 2016 the notice
of proposed rulemaking published on Sep-
tember 17, 2015 (80 FR 55802), is
withdrawn.
FOR FURTHER INFORMATION
CONTACT: Robert Basso at (202) 317-
7011 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 170(f)(8)(A) of the Internal
Revenue Code provides the statutory re-
quirement that a taxpayer who claims a
charitable contribution deduction for any
contribution of $250 or more obtain sub-
stantiation in the form of a contempora-
neous written acknowledgment (CWA)
from the donee organization. However, in
section 170(f)(8)(D), Congress provided
an exception to the CWA requirement.
Under the exception, a CWA is not re-
January 25, 2016Bulletin No. 2016 – 4
294

quired if the donee organization files a
return on such form and in accordance
with such regulations as the Treasury De-
partment may prescribe (donee reporting).
Section 1.170A–13(f) of the Income
Tax Regulations provides the rules issued
by the Treasury Department and the IRS
for substantiating charitable contributions
of $250 or more. See TD 8690 (1997–1
CB 68). When issuing TD 8690 in 1997,
the Treasury Department and the IRS spe-
cifically declined to issue regulations to
implement donee reporting under section
170(f)(8)(D). The IRS has consistently
maintained that the section 170(f)(8)(D)
exception is not available unless and until
the Treasury Department and the IRS is-
sue final regulations prescribing the
method for donee reporting. Nevertheless,
some taxpayers under examination for
their claimed charitable contribution de-
ductions have recently argued that a fail-
ure to comply with the CWA require-
ments of section 170(f)(8)(A) may be
cured if the donee organization files an
amended Form 990, “Return of Organiza-
tion Exempt From Income Tax,” that in-
cludes the donor’s contribution informa-
tion. These taxpayers argue that an
amended Form 990 constitutes permissi-
bledoneereportingundersection
170(f)(8)(D), even if the amended Form
990 is submitted to the IRS many years
after the purported charitable contribution
was made. In response to some donors’
requests, some donee organizations have
filed amended Forms 990 attempting to
effectuate donee reporting. The Treasury
Department and the IRS have concluded
that the Form 990 is an unsuitable report-
ing method for this purpose and may not
be used to effectuate donee reporting.
However, in response to the interest by
some taxpayers in donee reporting under
the statutory exception, the Treasury De-
partment and the IRS proposed regula-
tions to implement a framework address-
ing the manner and timing for donee
reporting under section 170(f)(8)(D). On
September 17, 2015, a notice of proposed
rulemaking (REG–138344 –13) was pub-
lished in theFederal Register(80 FR
55802). The proposed framework for do-
nee reporting was based on a specific-use
information return that would include,
among other things, the donor’s name,
address, and taxpayer identification num-
ber. Similar to other specific-use informa-
tion returns filed with the IRS, the donor’s
taxpayer identification number was re-
quired in order to properly associate the
donation information with the correct tax-
payer. Unlike a CWA, which is not sent to
the IRS, the donee reporting information
return would be sent to the IRS, which
must have a means to store, maintain, and
readily retrieve the return information for
a specific taxpayer if and when substanti-
ation is required in the course of an ex-
amination.
The proposed framework for donee re-
porting was intended to minimize the re-
porting burden on donee organizations by
making it voluntary, and to protect donor
privacy by not using the Form 990 series.
In the preamble to the proposed regula-
tions, the Treasury Department and the
IRS expressed concern about the potential
risk for identity theft with a donee reporting
system based on a specific-use information
return because donee organizations would
be collecting donors’ taxpayer identification
numbers and maintaining those numbers for
some period of time. TheTreasury Depart-
ment and the IRS requested comments,
including specifically on whether addi-
tional guidance was necessary regarding
the procedures a donee organization
should use to mitigate the risk of identity
theft of donor information.
The Treasury Department and the IRS
received a substantial number of public
comments in response to the notice of
proposed rulemaking. Many of these pub-
lic comments questioned the need for do-
nee reporting, and many comments ex-
pressed significant concerns about donee
organizations collecting and maintaining
taxpayer identification numbers for pur-
poses of the specific-use information re-
turn. In response to those comments, the
Treasury Department and the IRS have
decided against implementing the statu-
tory exception to the CWA requirement,
and therefore that exception remains un-
available unless and until final regulations
are issued prescribing the method for do-
nee reporting. Accordingly, the notice of
proposed rulemaking is being withdrawn.
*****
Withdrawal of Notice of Proposed
Rulemaking
Under the authority of 26 U.S.C. 7805,
the notice of proposed rulemaking (REG–
138344 –13) that was published in the
Federal Registeron September 17, 2015
(80 FR 55802) is withdrawn.
Karen M. Schiller,
Acting Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on January 7,
2016, 8:45 a.m., and published in the issue of the Federal
Register for September 17, 2015, 80 F.R. 55802)
Bulletin No. 2016 – 4January 25, 2016
295

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarifiedis used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified andclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Supersededdescribes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
supersededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE
—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Bulletin No. 2016 – 4January 25, 2016
i

Numerical Finding List
1
Bulletins 2016 –1 through 2016 – 4
Announcements:
2016-1, 2016-3 I.R.B.283
2016-2, 2016-3 I.R.B.283
2016-3, 2016-4 I.R.B.294
Notices:
2016-1, 2016-2 I.R.B.265
2016-2, 2016-2 I.R.B.265
2016-3, 2016-3 I.R.B.278
2016-4, 2016-3 I.R.B.279
2016-6, 2016-4 I.R.B.287
Proposed Regulations:
REG-138344-13, 2016-4 I.R.B.294
Revenue Procedures:
2016-1, 2016-1 I.R.B.1
2016-2, 2016-1 I.R.B.102
2016-3, 2016-1 I.R.B.126
2016-4, 2016-1 I.R.B.142
2016-5, 2016-1 I.R.B.188
2016-6, 2016-1 I.R.B.200
2016-7, 2016-1 I.R.B.239
2016-8, 2016-1 I.R.B.243
2016-10, 2016-2 I.R.B.270
2016-11, 2016-2 I.R.B.274
2016-13, 2016-4 I.R.B.290
Revenue Rulings:
2016-1, 2016-2 I.R.B.262
2016-2, 2016-4 I.R.B.284
2016-3, 2016-3 I.R.B.282
Treasury Decisions:
9745, 2016-2 I.R.B.256
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2015–27 through 2015–52 is in Internal Revenue Bulletin
2015–52, dated December 28, 2015.
January 25, 2016Bulletin No. 2016 – 4
ii

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2016 –1 through 2016 – 4
Announcements:
2007-21
Modified by
Ann. 2016-1, 2016-3 I.R.B.283
Notices:
2005-50
Modified by
Notice 2016-2, 2016-2 I.R.B.265
2014-79
Superseded by
Notice 2016-1, 2016-2 I.R.B.265
Revenue Procedures:
2015-1
Superseded by
Rev. Proc. 2016-2, 2016-1 I.R.B.1
2015-2
Superseded by
Rev. Proc. 2016-2, 2016-1 I.R.B.102
2015-3
Superseded by
Rev. Proc. 2016-3, 2016-1 I.R.B.126
2015-5
Superseded by
Rev. Proc. 2016-5, 2016-1 I.R.B.142
2015-7
Superseded by
Rev. Proc. 2016-7, 2016-1 I.R.B.188
2015-8
Superseded by
Rev. Proc. 2016-8, 2016-1 I.R.B.200
2015-9
Superseded by
Rev. Proc. 2016-5, 2016-1 I.R.B.239
2015-10
Superseded by
Rev. Proc. 2016-10, 2016-2 I.R.B.270
2015-22
Superseded by
Rev. Proc. 2016-8, 2016-1 I.R.B.243
2015-53
Modified by
Rev. Proc. 2016-11, 2016-2 I.R.B.274
Revenue Rulings:
2008-15
Revoked by
Rev. Rul. 2016-3, 2016-3 I.R.B.282
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2015–27 through 2015–52 is in Internal Revenue Bulletin
2015–52, dated December 28, 2015.
Bulletin No. 2016 – 4January 25, 2016
iii

INTERNAL REVENUE BULLETIN
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