Internal Revenue Bulletin 2019-33 (PDF rendition): IRS Revenue Procedures

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# INTERNAL REVENUE BULLETIN

IRS

Bulletin No. 2019-33
August 12, 2019

## HIGHLIGHTS OF THIS ISSUE

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

## ADMINISTRATIVE

### REV PROC 2019-30, page 638.

This revenue procedure provides simplified procedures for
an insurance company to obtain automatic consent of the
Commissioner of Internal Revenue to change its methods
of accounting for discounting unpaid losses and expenses
unpaid, estimated salvage recoverable, and unearned premi-
ums attributable to title insurance, as applicable, to comply
with § 846, as amended by section 13523 of the Tax Cuts
and Jobs Act, Public Law 115-97 (131 Stat. 2054, 2152)
for taxable years beginning after December 31, 2017, and
ending on or before December 31, 2019.

### REV PROC 2019-31, page 643.

The revenue procedure prescribes revised discount factors
for the 2018 accident year, as well as discount factors for
the 2019 accident year. These discount factors will be used
to compute discounted unpaid losses under § 846 of the
Internal Revenue Code and discounted estimated salvage
recoverable under § 832. The discount factors prescribed
in the revenue procedure are determined under § 846, as
amended by section 13523 of the Tax Cuts and Jobs Act,
Public Law 115-97 (131 Stat. 2054, 2152), and final regula-
tions under § 846 published in the Federal Register (84 FR
27947) on June 17, 2019.

# ADMINISTRATIVE, INCOME TAX

## REV PROC 2019-32, page 659.

This revenue procedure grants an extension of time to eligi-
ble BBA partnerships to file a superseding Form 1065, U.S.
Return of Partnership Income, and furnish a corresponding
Schedule K-1 (Form 1065), Partner's Share of Income, De-
ductions, Credits, etc., to each of its partners.

# EXEMPT ORGANIZATIONS

## T.D. 9873, page 630.

These final regulations prescribe the manner in which an or-
ganization operating under IRC section 501(c)(4) must sub-
mit the notification required by IRC section 506.

# INCOME TAX

## T.D. 9871, page 624.

These final regulations provide rules that improve the oper-
ation of an existing safe harbor rule that is used for deter-
mining whether partnership allocations of creditable foreign
tax expenditures are deemed to be in accordance with the
partners' interests in the partnership.

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# The IRS Mission

Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.

## Introduction

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, 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 sub-
stantive 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 inter-
nal management 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 rul-
ings 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 .- 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,
Legislation 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
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury's Office of the Assistant
Secretary (Enforcement).

### Part IV .- Items of General Interest.

This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

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## Part I.

26 CFR 1.704-1: Allocation of Creditable Foreign
Taxes

### T.D. 9871

### DEPARTMENT OF THE TREASURY

Internal Revenue Service

#### 26 CFR Part 1

#### Allocation of Creditable Foreign Taxes

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulations and removal
of temporary regulations.

SUMMARY: This document contains fi-
nal regulations with respect to a provision
of the Internal Revenue Code (Code) that
addresses the allocation by a partnership
of foreign income taxes. These regulations
are necessary to improve the operation of
an existing safe harbor rule that deter-
mines whether allocations of creditable
foreign tax expenditures are deemed to be
in accordance with the partners' interests
in the partnership. The regulations affect
partnerships that pay or accrue foreign in-
come taxes and partners in such partner-
ships.

DATES: Effective date: These regulations
are effective on July 24, 2019.

Applicability dates: For dates of applica-
bility, see §1.704-1(b)(1)(ii)(b)(1).

FOR FURTHER INFORMATION CON-
TACT: Suzanne M. Walsh, (202) 317-
6936 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

##### Background

On February 4, 2016, a notice of pro-
posed rulemaking by cross-reference to
temporary regulations (REG-100861-15)

under section 704 of the Code and tem-
porary regulations (T.D. 9748) (2016 tem-
porary regulations) were published in the
Federal Register at 81 FR 5966 and 81
FR 5908, respectively.

Section 1.704-1(b)(4)(viii) provides
a safe harbor under which allocations of
creditable foreign tax expenditures ("CFT-
Es") are deemed to be in accordance with
the partners' interests in the partnership.
The 2016 temporary regulations revised
the rules under this section to clarify the
effect of section 743(b) adjustments on the
determination of net income in a CFTE
category. The 2016 temporary regulations
also include special rules regarding how
deductible allocations and nondeductible
guaranteed payments (that is, allocations
that give rise to a deduction under foreign
law, and guaranteed payments that do not
give rise to a deduction under foreign law)
are taken into account for purposes of de-
termining net income in a CFTE category.
Finally, the 2016 temporary regulations
include a clarification of the rules regard-
ing the treatment of disregarded payments
between branches of a partnership for pur-
poses of determining income attributable
to an activity included in a CFTE category.

A public hearing was not requested and
none was held. However, the Department
of the Treasury ("Treasury Department")
and the Internal Revenue Service ("IRS")
received a written comment in response to
the notice of proposed rulemaking. After
consideration of the comment, the pro-
posed regulations under section 704 are
adopted as amended by this Treasury de-
cision. The revisions are discussed in this
preamble.

###### Explanation of Revisions and Summary of Comments

The comment requested revising the
regulations to provide that disregarded
payments between CFTE categories are
taken into account in computing the net
income in a CFTE category. The comment
argued that the placement of a disregarded
payment rule in a paragraph that discusses
attribution of income to an activity is po-
tentially confusing and requested that the
language be moved to the portion of the
regulation that addresses the basic defi-

nition of activities and that in its place a
statement be added providing that disre-
garded payments between CFTE catego-
ries will reduce net income in one CFTE
category and increase net income in the
other category.

The Treasury Department and the
IRS have determined the rule is clear as
originally drafted in the 2016 temporary
regulations. Income in a CFTE category
is determined first by assigning items of
income to activities. Activities are then
grouped together in a CFTE category to
the extent the income attributable to ac-
tivities is allocated using the same allo-
cation percentages. Section 1.704-1(b)(4)
(viii)(c)(3). Disregarded payments are not
taken into account in determining income
assigned to an activity. However, if a part-
nership makes allocations to give eco-
nomic regard to the disregarded payment,
it can result in more than one allocation
percentage being applied to income with-
in the same activity. Section 1.704-1(b)(4)
(viii)(c)(3)(iv). This will result in the ac-
tivity being subdivided and the subdivided
portions being assigned to different CFTE
categories. See Example 24 in §1.704-1(b)
(5)(xxiv). In other words, while the 2016
temporary regulations do not literally pro-
vide that a disregarded payment "reduces"
the net income in a CFTE category in that
case, the 2016 temporary regulations pro-
vide for a result similar to the result sug-
gested by the comment by instead subdi-
viding an activity and then assigning one
sub-activity to a different CFTE category.
This approach is more consistent with
the fact that income items are determined
based on regarded items and not disregard-
ed items, including disregarded payments.
These final regulations add a cross refer-
ence to the disregarded payment rule for
assigning income to an activity in §1.704-
1(b)(4)(viii)(c)(3)(iv) in the paragraph that
provides the basic definition of an activity
to further highlight the interaction of those
two paragraphs. See §1.704-1(b)(4)(viii)
(c)(2)(iii).

The 2016 temporary regulations un-
intentionally deleted §1.704-1(b)(4)(viii)
(d)(1)(i) and (ii). Those paragraphs are
restored without change by these regula-
tions. In order to comply with new Feder-
al Register formatting requirements, Ex-

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amples 25, 36 and 37 in §1.704-1T(b)(5)
in the 2016 temporary regulations appear
without further changes in §1.704-1(b)(6)
(i) through (iii) of these final regulations,
Examples 1, 2, and 3, respectively.

## Special Analyses

This regulation is not subject to review
under section 6(b) of Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) between the
Treasury Department and the Office of
Management and Budget regarding re-
view of tax regulations. Therefore, a reg-
ulatory impact assessment is not required.
Because the regulations do not impose a
collection of information on small en-
tities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursu-
ant to section 7805(f), the proposed rule
preceding these final regulations was sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business
and no comments were received.

## Drafting Information

The principal author of these regula-
tions is Suzanne M. Walsh of the Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and the Treasury Department participated
in their development.

*****

## Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amend-
ed as follows:

## PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.704-1 is amended as
follows:

1\. In paragraph (b)(0):

i. Add a heading for the table.

ii. Revise the entries for §1.704-
1(b)(1)(ii)(b)(1),
(b)(4)(viii)
(c)(1) through (4), and (b)(4)
(viii)(d)(1) and add an entry for
§1.704-1(b)(6) at the end of the
table.

2\.
Revise paragraph (b)(1)(ii)(b)(1).

3\. Redesignate paragraphs (b)(1)(ii)(b)
(3)(A) and (B) as paragraphs (b)(1)(ii)
(b)(3)(i) and (ii), respectively.

4\. Revise newly redesignated paragraph
(b)(1)(ii)(b)(3)(ii) and paragraphs (b)
(4)(viii)(a)(1),(b)(4)(viii)(c)(1), (b)
(4)(viii)(c)(2)(ii) and (iii), (b)(4)(viii)
(c)(3) and (4), and (b)(4)(viii)(d)(1).

5\. Add paragraph (b)(6).

The revisions and additions read as fol-
lows:

§1.704-1 Partner's distributive share.

* * * * *

(b) * * *
(0) * * *

Table 1 to paragraph (b)(0)

Heading

Section

*******

In general

1.704-1(b)(1)(ii)(b)(1)

*******

In general

1.704-1(b)(4)(viii)(c)(1)

CFTE category

1.704-1(b)(4)(viii)(c)(2)

Net income in a CFTE category

1.704-1(b)(4)(viii)(c)(3)

CFTE category share of income

1.704-1(b)(4)(viii)(c)(4)

*******

In general

1.704-1(b)(4)(viii)(d)(1)

*******

Examples

1.704-1(b)(6)

(1) * * *

(ii) * * *

(b) * * *

(1) In general. Except as otherwise
provided in this paragraph (b)(1)(ii)(b)(1),
the provisions of paragraphs (b)(3)(iv)
and (b)(4)(viii) of this section (regarding
the allocation of creditable foreign taxes)
apply for partnership taxable years begin-
ning on or after October 19, 2006. The
rules that apply to allocations of creditable

foreign taxes made in partnership taxable
years beginning before October 19, 2006
are contained in §1.704-1T(b)(1)(ii)(b)(1)
and (b)(4)(xi) as in effect before October
19, 2006 (see 26 CFR part 1 revised as of
April 1, 2005). However, taxpayers may
rely on the provisions of paragraphs (b)
(3)(iv) and (b)(4)(viii) of this section for
partnership taxable years beginning on
or after April 21, 2004. The provisions of
paragraphs (b)(4)(viii)(a)(1), (b)(4)(viii)

(c)(1), (b)(4)(viii)(c)(2)(ii) and (iii), (b)(4)
(viii)(c)(3) and (4), (b)(4)(viii)(d)(1), and
Examples 1, 2, and 3 in paragraphs (b)(6)
(i), (ii), and (iii) of this section apply for
partnership taxable years that both begin
on or after January 1, 2016, and end after
February 4, 2016. For the rules that apply
to partnership taxable years beginning
on or after October 19, 2006, and before
January 1, 2016, and to taxable years that
both begin on or after January 1, 2016,

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and end on or before February 4, 2016,
see §1.704-1(b)(1)(ii)(b), (b)(4)(viii)(a)
(1), (b)(4)(viii)(c)(1),(b)(4)(viii)(c)(2)(ii)
and (iii), (b)(4)(viii)(c)(3) and (4), (b)(4)
(viii)(d)(1), and (b)(5), Example 25 (as
contained in 26 CFR part 1 revised as of
April 1, 2015).

* * * * *

(3) * * *

(ii) Transition rule. Transition relief is
provided by this paragraph (b)(1)(ii)(b)
(3)(ii) to partnerships whose agreements
were entered into before February 14,
2012. In such cases, if there has been no
material modification to the partnership
agreement on or after February 14, 2012,
then, for taxable years beginning on or af-
ter January 1, 2012, and before January 1,
2016, and for taxable years that both begin
on or after January 1, 2012, and end on
or before February 4, 2016, these partner-
ships may apply the provisions of §1.704-
1(b)(4)(viii)(c)(3)(ii) and (b)(4)(viii)(d)
(3) (see 26 CFR part 1 revised as of April
1, 2011). For taxable years that both be-
gin on or after January 1, 2016, and end
after February 4, 2016, these partnerships
may apply the provisions of §1.704-1(b)
(4)(viii)(d)(3) (see 26 CFR part 1 revised
as of April 1, 2011). For purposes of this
paragraph (b)(1)(ii)(b)(3), any change in
ownership constitutes a material modifi-
cation to the partnership agreement. The
transition rule in this paragraph (b)(1)(ii)
(b)(3)(ii) does not apply to any taxable
year in which persons bearing a relation-
ship to each other that is specified in sec-
tion 267(b) or section 707(b) collectively
have the power to amend the partnership
agreement without the consent of any un-
related party (and all subsequent taxable
years).

** * * *

(4) * * *

(viii) * * *

(a) * * *

(1) The CFTE is allocated (whether or
not pursuant to an express provision in the
partnership agreement) to each partner
and reported on the partnership return in
proportion to the partners' CFTE category
shares of income to which the CFTE re-
lates; and

** * * *

(c) Income to which CFTEs relate -- (1)
In general. For purposes of paragraph (b)
(4)(viii)(a) of this section, CFTEs are re-

lated to net income in the partnership's
CFTE category or categories to which the
CFTE is allocated and apportioned in ac-
cordance with the rules of paragraph (b)(4)
(viii)(d) of this section. Paragraph (b)(4)
(viii)(c)(2) of this section provides rules
for determining a partnership's CFTE
categories. Paragraph (b)(4)(viii)(c)(3) of
this section provides rules for determining
the net income in each CFTE category.
Paragraph (b)(4)(viii)(c)(4) of this section
provides rules for determining a partner's
CFTE category share of income, includ-
ing rules that require adjustments to net
income in a CFTE category for purposes
of determining the partners' CFTE cate-
gory share of income with respect to cer-
tain CFTEs. Paragraph (b)(4)(viii)(c)(5)
of this section provides a special rule for
allocating CFTEs when a partnership has
no net income in a CFTE category.

(2) * * *

(ii) Different allocations. Different al-
locations of net income (or loss) generally
will result from provisions of the partner-
ship agreement providing for different
sharing ratios for net income (or loss)
from separate activities. Different alloca-
tions of net income (or loss) from separate
activities generally will also result if any
partnership item is shared in a different
ratio than any other partnership item. A
guaranteed payment described in para-
graph (b)(4)(viii)(c)(4)(ii) of this section,
gross income allocation, or other prefer-
ential allocation will result in different al-
locations of net income (or loss) from sep-
arate activities only if the amount of the
payment or the allocation is determined
by reference to income from less than all
of the partnership's activities.

(iii) Activity. Whether a partnership has
one or more activities, and the scope of
each activity, is determined in a reasonable
manner taking into account all the facts
and circumstances. In evaluating wheth-
er aggregating or disaggregating income
from particular business or investment
operations constitutes a reasonable meth-
od of determining the scope of an activity,
the principal consideration is whether the
proposed determination has the effect of
separating CFTEs from the related foreign
income. Relevant considerations include
whether the partnership conducts business
in more than one geographic location or
through more than one entity or branch,

and whether certain types of income are
exempt from foreign tax or subject to pref-
erential foreign tax treatment. In addition,
income from a divisible part of a single
activity is treated as income from a sepa-
rate activity if necessary to prevent sepa-
rating CFTEs from the related foreign in-
come, such as when income from divisible
parts of a single activity is subject to dif-
ferent allocations. See, for example, para-
graph (b)(4)(viii)(c)(3)(iv) of this section
(special allocations related to disregarded
payments can give rise to subdivision of
an activity into divisible parts). A guar-
anteed payment, gross income allocation,
or other preferential allocation of income
that is determined by reference to all the
income from a single activity generally
will not result in the division of an activi-
ty into divisible parts. See Example 22 in
paragraph (b)(5)(xxii) of this section and
Example 1 in paragraph (b)(6)(i) of this
section. The partnership's activities must
be determined consistently from year to
year absent a material change in facts and
circumstances.

(3) Net income in a CFTE catego-
ry -- (i) In general. A partnership computes
net income in a CFTE category as follows:
First, the partnership determines for U.S.
Federal income tax purposes all of its part-
nership items, including items of gross in-
come, gain, loss, deduction, and expense,
and items allocated pursuant to section
704(c). For the purpose of this paragraph
(b)(4)(viii)(c)(3)(i), the items of the part-
nership are determined without regard to
any adjustments under section 743(b) that
its partners may have to the basis of prop-
erty of the partnership. However, if the
partnership is a transferee partner that has
a basis adjustment under section 743(b) in
its capacity as a direct or indirect partner
in a lower-tier partnership, the partnership
does take such basis adjustment into ac-
count. Second, the partnership must as-
sign those partnership items to its activ-
ities pursuant to paragraph (b)(4)(viii)(c)
(3)(ii) of this section. Third, partnership
items attributable to each activity are ag-
gregated within the relevant CFTE cate-
gory as determined under paragraph (b)(4)
(viii)(c)(2) of this section in order to com-
pute the net income in a CFTE category.

(ii) Assignment of partnership items
to activities. The items of gross income
attributable to an activity must be deter-

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mined in a consistent manner under any
reasonable method taking into account
all the facts and circumstances. Except
as otherwise provided in paragraph (b)(4)
(viii)(c)(3)(iii) of this section, expenses,
losses, or other deductions must be allo-
cated and apportioned to gross income
attributable to an activity in accordance
with the rules of §§1.861-8 and 1.861-8T.
Under the rules §§1.861-8 and 1.861-8T,
if an expense, loss, or other deduction is
allocated to gross income from more than
one activity, such expense, loss, or de-
duction must be apportioned among each
such activity using a reasonable method
that reflects to a reasonably close extent
the factual relationship between the de-
duction and the gross income from such
activities. See §1.861-8T(c). For the effect
of disregarded payments in determining
the amount of net income attributable to
an activity, see paragraph (b)(4)(viii)(c)
(3)(iv) of this section.

(iii) Interest expense and research
and experimental expenditures. The part-
nership's interest expense and research
and experimental expenditures described
in section 174 may be allocated and ap-
portioned under any reasonable method,
including but not limited to the methods
prescribed in §§1.861-9 through 1.861-
13T (interest expense) and §1.861-17 (re-
search and experimental expenditures).

(iv) Disregarded payments. An item
of gross income is assigned to the activ-
ity that generates the item of income that
is recognized for U.S. Federal income
tax purposes. Consequently, disregarded
payments are not taken into account in
determining the amount of net income
attributable to an activity, although a spe-
cial allocation of income used to make
a disregarded payment may result in the
subdivision of an activity into divisible
parts. See paragraph (b)(4)(viii)(c)(2)(iii)
of this section, Example 24 in paragraph
(b)(5)(xxiv) of this section, and Examples
2 and 3 in paragraphs (b)(6)(ii) and (iii),
respectively, of this section (relating to in-
ter-branch payments).

(4) CFTE category share of income --
(i) In general. CFTE category share of in-
come means the portion of the net income
in a CFTE category, determined in accor-
dance with paragraph (b)(4)(viii)(c)(3) of
this section as modified by paragraphs (b)
(4)(viii)(c)(4)(ii) through (iv) of this sec-

tion, that is allocated to a partner. To the
extent provided in paragraph (b)(4)(viii)
(c)(4)(ii) of this section, a guaranteed pay-
ment is treated as an allocation to the re-
cipient of the guaranteed payment for this
purpose. If more than one partner receives
positive income allocations (income in ex-
cess of expenses) from a CFTE category,
which in the aggregate exceed the total net
income in the CFTE category, then such
partner's CFTE category share of income
equals the partner's positive income allo-
cation from the CFTE category, divided
by the aggregate positive income alloca-
tions from the CFTE category, multiplied
by the net income in the CFTE category.
Paragraphs (b)(4)(viii)(c)(4)(ii) through
(iv) of this section require adjustments
to the net income in a CFTE category
for purposes of determining the partners'
CFTE category share of income if one or
more foreign jurisdictions impose a tax
that provides for certain exclusions or
deductions from the foreign taxable base.
Such adjustments apply only with respect
to CFTEs attributable to the taxes that al-
low such exclusions or deductions. Thus,
net income in a CFTE category may vary
for purposes of applying paragraph (b)
(4)(viii)(a)(1) of this section to different
CFTEs within that CFTE category.

(ii) Guaranteed payments. Except as
otherwise provided in this paragraph (b)
(4)(viii)(c)(4)(ii), solely for purposes of
applying the safe harbor provisions of
paragraph (b)(4)(viii)(a)(1) of this sec-
tion, net income in the CFTE category
from which a guaranteed payment (within
the meaning of section 707(c)) is made is
increased by the amount of the guaranteed
payment that is deductible for U.S. Feder-
al income tax purposes, and such amount
is treated as an allocation to the recipient
of such guaranteed payment for purposes
of determining the partners' CFTE catego-
ry shares of income. If a foreign tax allows
(whether in the current or in a different
taxable year) a deduction from its taxable
base for a guaranteed payment, then solely
for purposes of applying the safe harbor
provisions of paragraph (b)(4)(viii)(a)(1)
of this section to allocations of CFTEs that
are attributable to that foreign tax, net in-
come in the CFTE category is increased
only to the extent that the amount of the
guaranteed payment that is deductible for
U.S. Federal income tax purposes exceeds

the amount allowed as a deduction for pur-
poses of the foreign tax, and such excess
is treated as an allocation to the recipient
of the guaranteed payment for purposes of
determining the partners' CFTE category
shares of income. See Example 1 in para-
graph (b)(6)(i) of this section.

(iii) Preferential allocations. To the ex-
tent that a foreign tax allows (whether in
the current or in a different taxable year)
a deduction from its taxable base for an
allocation (or distribution of an allocated
amount) to a partner, then solely for pur-
poses of applying the safe harbor provi-
sions of paragraph (b)(4)(viii)(a)(1) of
this section to allocations of CFTEs that
are attributable to that foreign tax, the net
income in the CFTE category from which
the allocation is made is reduced by the
amount of the allocation, and that amount
is not treated as an allocation for purposes
of determining the partners' CFTE cate-
gory shares of income. See Example 1 in
paragraph (b)(6)(i) of this section.

(iv) Foreign law exclusions due to sta-
tus of partner. If a foreign tax excludes an
amount from its taxable base as a result
of the status of a partner, then solely for
purposes of applying the safe harbor pro-
visions of paragraph (b)(4)(viii)(a)(1) of
this section to allocations of CFTEs that
are attributable to that foreign tax, the net
income in the relevant CFTE category is
reduced by the excluded amounts that are
allocable to such partners. See Example 27
in paragraph (b)(5)(xxvii) of this section.

* * * * *

(d) Allocation and apportionment of
CFTEs to CFTE categories -- (1) In gener-
al. CFTEs are allocated and apportioned
to CFTE categories in accordance with the
principles of §1.904-6. Under these prin-
ciples, a CFTE is related to income in a
CFTE category if the income is included
in the base upon which the foreign tax is
imposed. See Examples 2 and 3 in para-
graphs (b)(6)(ii) and (iii) of this section,
respectively, which illustrate the applica-
tion of this paragraph in the case of serial
disregarded payments subject to withhold-
ing tax. In accordance with §1.904-6(a)(1)
(ii) as modified by this paragraph (b)(4)
(viii)(d), if the foreign tax base includes
income in more than one CFTE catego-
ry, the CFTEs are apportioned among the
CFTE categories based on the relative
amounts of taxable income computed

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under foreign law in each CFTE catego-
ry. For purposes of this paragraph (b)(4)
(viii)(d), references in §1.904-6 to a sepa-
rate category or separate categories mean
"CFTE category" or "CFTE categories"
and the rules in §1.904-6(a)(1)(ii) are
modified as follows:

(i) The related party interest expense
rule in §1.904-6(a)(1)(ii) shall not apply in
determining the amount of taxable income
computed under foreign law in a CFTE
category.

(ii) If foreign law does not provide for
the direct allocation or apportionment of
expenses, losses or other deductions al-
lowed under foreign law to a CFTE cat-
egory of income, then such expenses,
losses or other deductions must be allo-
cated and apportioned to gross income as
determined under foreign law in a manner
that is consistent with the allocation and
apportionment of such items for purpos-
es of determining the net income in the
CFTE categories for U.S. tax purposes
pursuant to paragraph (b)(4)(viii)(c)(3) of
this section.

** * * *

(6) Examples -- (i) Example 1. (a) A contributes
$750,000 and B contributes $250,000 to form AB, a
country X eligible entity (as defined in §301.7701-
3(a) of this chapter) treated as a partnership for U.S.
Federal income tax purposes. AB operates business
M in country X. Country X imposes a 20 percent tax
on the net income from business M, which tax is a
CFTE. In 2016, AB earns $300,000 of gross income,
has deductible expenses of $100,000, and pays or
accrues $40,000 of country X tax. Pursuant to the
partnership agreement, the first $100,000 of gross
income each year is specially allocated to A as a pre-
ferred return on excess capital contributed by A. All
remaining partnership items, including CFTEs, are
split evenly between A and B (50 percent each). The
gross income allocation is not deductible in deter-
mining AB's taxable income under country X law.
Assume that allocations of all items other than CFT-
Es are valid.

(b) AB has a single CFTE category because all of
AB's net income is allocated in the same ratio. See
paragraph (b)(4)(viii)(c)(2) of this section. Under
paragraph (b)(4)(viii)(c)(3) of this section, the net
income in the single CFTE category is $200,000.
The $40,000 of taxes is allocated to the single CFTE
category and, thus, is related to the $200,000 of
net income in the single CFTE category. In 2016,
AB's partnership agreement results in an allocation
of $150,000 or 75 percent of the net income to A
($100,000 attributable to the gross income allocation
plus $50,000 of the remaining $100,000 of net in-
come) and $50,000 or 25 percent of the net income to
B. AB's partnership agreement allocates the country
X taxes in accordance with the partners' shares of
partnership items remaining after the $100,000 gross
income allocation. Therefore, AB allocates the coun-

try X taxes 50 percent to A ($20,000) and 50 percent
to B ($20,000). AB's allocations of country X taxes
are not deemed to be in accordance with the partners'
interests in the partnership under paragraph (b)(4)
(viii) of this section because they are not in propor-
tion to the allocations of the CFTE category shares of
income to which the country X taxes relate. Accord-
ingly, the country X taxes will be reallocated accord-
ing to the partners' interests in the partnership. As-
suming that the partners do not reasonably expect to
claim a deduction for the CFTEs in determining their
U.S. Federal income tax liabilities, a reallocation of
the CFTEs under paragraph (b)(3) of this section
would be 75 percent to A ($30,000) and 25 percent to
B ($10,000). If the reallocation of the CFTEs causes
the partners' capital accounts not to reflect their con-
templated economic arrangement, the partners may
need to reallocate other partnership items to ensure
that the tax consequences of the partnership's allo-
cations are consistent with their contemplated eco-
nomic arrangement over the term of the partnership.

(c) The facts are the same as in paragraph (b)(6)(i)
(a) of this section, except that country X allows a de-
duction for the $100,000 allocation of gross income
and, as a result, AB pays or accrues only $20,000 of
foreign tax. Under paragraph (b)(4)(viii)(c)(4)(iii) of
this section, the net income in the single CFTE cate-
gory is $100,000, determined by reducing the net in-
come in the CFTE category by the $100,000 of gross
income that is allocated to A and for which country
X allows a deduction in determining AB's taxable
income. Pursuant to the partnership agreement, AB
allocates the country X tax 50 percent to A ($10,000)
and 50 percent to B ($10,000). This allocation is in
proportion to the partners' CFTE category shares of
the $100,000 net income. Accordingly, AB's alloca-
tions of country X taxes are deemed to be in accor-
dance with the partners' interests in the partnership
under paragraph (b)(4)(viii)(a) of this section.

(d) The facts are the same as in paragraph (b)
(6)(i)(c) of this section, except that, in addition to
$20,000 of country X tax, AB is subject to $30,000
of country Y withholding tax with respect to the
$300,000 of gross income that it earns in 2016.
Country Y does not allow any deductions for purpos-
es of determining the withholding tax. As described
in paragraph (b)(6)(i)(b) of this section, there is a sin-
gle CFTE category with respect to AB's net income.
Both the $20,000 of country X tax and the $30,000
of country Y withholding tax relate to that income
and are therefore allocated to the single CFTE cat-
egory. Under paragraph (b)(4)(viii)(c)(4)(iii) of this
section, however, net income in a CFTE category is
reduced by the amount of an allocation for which a
deduction is allowed in determining a foreign tax-
able base, but only for purposes of applying para-
graph (b)(4)(viii)(a) of this section to allocations of
CFTEs that are attributable to that foreign tax. Ac-
cordingly, because the $100,000 allocation of gross
income is deductible for country X tax purposes but
not for country Y tax purposes, the allocations of the
CFTEs attributable to country X tax and country Y
tax are analyzed separately. For purposes of apply-
ing paragraph (b)(4)(viii)(a)(1) of this section to al-
locations of the CFTEs attributable to the $20,000
tax imposed by country X, the analysis described
in paragraph (b)(6)(i)(c) of this section applies. For
purposes of applying paragraph (b)(4)(viii)(a)(1) of
this section to allocations of the CFTEs attributable

to the $30,000 tax imposed by country Y, which did
not allow a deduction for the $100,000 gross income
allocation, the net income in the single CFTE cate-
gory is $200,000. Pursuant to the partnership agree-
ment, AB allocates the country Y tax 50 percent to
A ($15,000) and 50 percent to B ($15,000). These
allocations are not deemed to be in accordance with
the partners' interests in the partnership under para-
graph (b)(4)(viii) of this section because they are not
in proportion to the partners' CFTE category shares
of the $200,000 of net income in the category, which
is allocated 75 percent to A and 25 percent to B under
the partnership agreement. Accordingly, the country
Y taxes will be reallocated according to the partners'
interests in the partnership as described in paragraph
(b)(6)(i)(b) of this section.

(e) If, rather than being a preferential gross in-
come allocation, the $100,000 was a guaranteed pay-
ment to A within the meaning of section 707(c), the
amount of net income in the single CFTE category
of AB for purposes of applying paragraph (b)(4)(viii)
(a)(1) of this section to allocations of CFTEs would
be the same as in the fact patterns described in para-
graphs (b)(6)(i)(b), (c), and (d) of this section. See
paragraph (b)(4)(viii)(c)(4)(ii) of this section.

(ii) Example 2. (a) A, B, and C form ABC, an
eligible entity (as defined in §301.7701-3(a) of this
chapter) treated as a partnership for U.S. Federal in-
come tax purposes. ABC owns three entities, DEX,
DEY, and DEZ, which are organized in, and treated
as corporations under the laws of, countries X, Y,
and Z, respectively, and as disregarded entities for
U.S. Federal income tax purposes. DEX operates
business X in country X, DEY operates business Y
in country Y, and DEZ operates business Z in coun-
try Z. Businesses X, Y, and Z relate to the licensing
and sublicensing of intellectual property owned by
DEZ. During 2016, DEX earns $100,000 of royalty
income from unrelated payors on which it pays no
withholding taxes. Country X imposes a 30 percent
tax on DEX's net income. DEX makes royalty pay-
ments of $90,000 during 2016 to DEY that are de-
ductible by DEX for country X purposes and subject
to a 10 percent withholding tax imposed by country
X. DEY earns no other income in 2016. Country Y
does not impose income or withholding taxes. DEY
makes royalty payments of $80,000 during 2016 to
DEZ. DEZ earns no other income in 2016. Country
Z does not impose income or withholding taxes. The
royalty payments from DEX to DEY and from DEY
to DEZ are disregarded for U.S. Federal income tax
purposes.

(b) As a result of these payments, DEX has tax-
able income of $10,000 for country X purposes on
which $3,000 of taxes are imposed, and DEY has
$90,000 of income for country X withholding tax
purposes on which $9,000 of withholding taxes are
imposed. Pursuant to the partnership agreement, all
partnership items from business X, excluding CFTEs
paid or accrued by business X, are allocated 80 per-
cent to A and 10 percent each to B and C. All partner-
ship items from business Y, excluding CFTEs paid or
accrued by business Y, are allocated 80 percent to B
and 10 percent each to A and C. All partnership items
from business Z, excluding CFTEs paid or accrued
by business Z, are allocated 80 percent to C and 10
percent each to A and B. Because only business X
has items that are regarded for U.S. Federal income
tax purposes (the $100,000 of royalty income), only

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business X has partnership items. Accordingly A is
allocated 80 percent of the income from business X
($80,000) and B and C are each allocated 10 percent
of the income from business X ($10,000 each). There
are no partnership items of income from business Y
or Z to allocate.

(c) Because the partnership agreement provides
for different allocations of partnership net income
attributable to businesses X, Y, and Z, the net in-
come attributable to each of businesses X, Y, and
Z is income in separate CFTE categories. See para-
graph (b)(4)(viii)(c)(2) of this section. Under para-
graph (b)(4)(viii)(c)(3)(iv) of this section, an item
of gross income that is recognized for U.S. Federal
income tax purposes is assigned to the activity that
generated the item, and disregarded inter-branch
payments are not taken into account in determining
net income attributable to an activity. Consequent-
ly, all $100,000 of ABC's income is attributable to
the business X activity for U.S. Federal income tax
purposes, and no net income is in the business Y
or Z CFTE category. Under paragraph (b)(4)(viii)
(d)(1) of this section, the $3,000 of country X tax-
es imposed on DEX is allocated to the business X
CFTE category. The additional $9,000 of country
X withholding tax imposed with respect to the in-
ter-branch payment to DEY is also allocated to the
business X CFTE category because for U.S. Federal
income tax purposes the related $90,000 of income
on which the country X withholding tax is imposed
is in the business X CFTE category. Therefore,
$12,000 of taxes ($3,000 of country X income taxes
and $9,000 of the country X withholding taxes) is
related to the $100,000 of net income in the busi-
ness X CFTE. See paragraph (b)(4)(viii)(c)(1) of
this section. The allocations of country X taxes will
be in proportion to the CFTE category shares of in-
come to which they relate and will be deemed to
be in accordance with the partners' interests in the
partnership if such taxes are allocated 80 percent to
A and 10 percent each to B and C.

(iii) Example 3. (a) Assume that the facts are the
same as in paragraph (b)(5)(ii)(a) of this section, ex-
cept that in order to reflect the $90,000 payment from
DEX to DEY and the $80,000 payment from DEY to
DEZ, the partnership agreement treats only $10,000
of the gross income as attributable to the business X
activity, which the partnership agreement allocates
80 percent to A and 10 percent each to B and C. Of
the remaining $90,000 of gross income, the partner-
ship agreement treats $10,000 of the gross income
as attributable to the business Y activity, which the
partnership agreement allocates 80 percent to B
and 10 percent each to A and C; and the partnership
agreement treats $80,000 of the gross income as at-
tributable to the business Z activity, which the part-
nership agreement allocates 80 percent to C and 10
percent each to A and B. In addition, the partnership
agreement allocates the country X taxes among A, B,
and C in accordance with which disregarded entity
is considered to have paid the taxes for country X
purposes. The partnership agreement allocates the
$3,000 of country X income taxes 80 percent to A
and 10 percent to each of B and C, and allocates the
$9,000 of country X withholding taxes 80 percent to
B and 10 percent to each of A and C. Thus, ABC
allocates the country X taxes $3,300 to A (80 percent
of $3,000 plus 10 percent of $9,000), $7,500 to B
(10 percent of $3,000 plus 80 percent of $9,000), and

$1,200 to C (10 percent of $3,000 plus 10 percent
of $9,000).

(b) In order to prevent separating the CFTEs
from the related foreign income, the special allo-
cations of the $10,000 and $80,000 treated under
the partnership agreement as attributable to the
business Y and the business Z activities, respec-
tively, which do not follow the allocation ratios that
otherwise apply under the partnership agreement
to items of income in the business X activity, are
treated as divisible parts of the business X activity
and, therefore, as separate activities. See paragraph
(b)(4)(viii)(c)(2)(iii) of this section. Because the di-
visible part of the business X activity attributable to
the portion of the disregarded payment received by
DEY and not paid on to DEZ ($10,000) and the net
income from the business Y activity ($0) are both
shared 80 percent to B and 10 percent each to A and
C, that divisible part of the business X activity and
the business Y activity are treated as a single CFTE
category. Because the divisible part of the business
X activity attributable to the disregarded payment
paid to DEZ ($80,000) and the net income from the
business Z activity ($0) are both shared 80 percent
to C and 10 percent each to A and B, that divisible
part of the business X activity and the business Z
activity are also treated as a single CFTE category.
See paragraph (b)(4)(viii)(c)(2)(i) of this section.
Accordingly, $10,000 of net income attributable
to business X is in the business X CFTE category,
$10,000 of net income of business X attributable to
the net disregarded payments of DEY is in the busi-
ness Y CFTE category, and $80,000 of net income
of business X attributable to the disregarded pay-
ment to DEZ is in the business Z CFTE category.

(c) Under paragraph (b)(4)(viii)(d)(1) of this
section, the $3,000 of country X tax imposed on
DEX's income is allocated to the business X CFTE
category. Because the $90,000 on which the country
X withholding tax is imposed is split between the
business Y CFTE category and the business Z CFTE
category, those withholding taxes are allocated on a
pro rata basis, $1,000 [$9,000 x ($10,000 / $90,000)]
to the business Y CFTE category and $8,000 [$9,000
x ($80,000 /$90,000)] to the business Z CFTE cate-
gory. See paragraph (b)(4)(viii)(d)(1) of this section.
To satisfy the safe harbor of paragraph (b)(4)(viii) of
this section, the $3,000 of country X taxes allocated
to the business X CFTE category must be allocated
in proportion to the CFTE category shares of income
to which they relate, and therefore would be deemed
to be in accordance with the partners' interests in the
partnership if such taxes were allocated 80 percent
to A and 10 percent each to B and C. The allocation
of the $1,000 of country X withholding taxes allo-
cated to the business Y CFTE category would be in
proportion to the CFTE category shares of income
to which they relate, and therefore would be deemed
to be in accordance with the partners' interests in the
partnership if such taxes were allocated 80 percent
to B and 10 percent each to A and C. The allocation
of the $8,000 of country X withholding taxes allo-
cated to the business Z CFTE category would be in
proportion to the CFTE category shares of income
to which they relate, and therefore would be deemed
to be in accordance with the partners' interests in the
partnership if such taxes were allocated 80 percent to
C and 10 percent each to A and B. Thus, to satisfy the
safe harbor, ABC must allocate the country X taxes

$3,300 to A (80 percent of $3,000 plus 10 percent of
$1,000 plus 10 percent of $8,000), $1,900 to B (10
percent of $3,000 plus 80 percent of $1,000 plus 10
percent of $8,000), and $6,800 to C (10 percent of
$3,000 plus 10 percent of $1,000 plus 80 percent of
$8,000).

(d) ABC's allocations of country X
taxes are not deemed to be in accordance
with the partners' interests in the partner-
ship under paragraph (b)(4)(viii) of this
section because they are not in proportion
to the partners' CFTE category shares of
income to which the country X taxes re-
late. Accordingly, the country X taxes will
be reallocated according to the partners'
interests in the partnership.

* * * * *

Par. 3. Section 1.704-1T is amended
by:

1\. Removing reserved paragraphs (a)
through (b)(1)(ii)(a), paragraph (b)
(1)(ii)(b), and reserved paragraphs (b)
(1)(iii) through (b)(2)(iv)(f)(5).

2\. Adding paragraphs (a), (b)(1), and
(b)(2) introductory text and reserved
paragraphs (b)(2)(i) through (b)(2)
(iv)(e) and (b)(2)(iv)(f)(1) through
(5).

3\. Removing reserved paragraphs (b)(2)
(iv)(g) through (b)(4)(viii)(a) intro-
ductory text, paragraph (b)(4)(viii)(a)
(1), reserved paragraphs (b)(4)(viii)
(a)(2) through (b)(4)(viii)(b), para-
graph (b)(4)(viii)(c), paragraph (b)
(4)(viii)(d) heading, paragraph (b)
(4)(viii)(d)(1), reserved paragraphs
(b)(4)(viii)(d)(1)(i) through (b)(5)
Example 24, paragraphs (b)(5) Ex-
amples 24 through 37, and reserved
paragraphs (c) through (e).

4\. Adding paragraph (b)(2)(iv)(g),
reserved paragraphs (b)(2)(iv)(h)
through (s), paragraph (b)(3), re-
served paragraphs (b)(4) through
(6), paragraph (c), and reserved para-
graphs (d) through (e).

5\. Removing paragraph (g).

The additions read as follows:

§1.704-1T Partner's distributive share
(temporary).

(a) For further guidance, see §1.704-
1(a).
(b)(1) For further guidance, see §1.704-
1(b)(1).
(2) For further guidance, see §1.704-
1(b)(2)(i) through (b)(2)(iv)(f)(5).

(i) through (iii) [Reserved]

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(iv)(a) through (e) [Reserved]
(f)(1) through (5) [Reserved]

* * * * *

(g) For further guidance, see §1.704-
1(b)(2)(iv)(g) through (s).

(h) through (s) [Reserved]

(3) For further guidance, see §1.704-
1(b)(3) through (6).

(4) through (6) [Reserved]

(c) For further guidance, see §1.704-
1(c) through (e).

(d) through (e) [Reserved]

** * * *

Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.

Approved: May 30, 2019.

David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).

(Filed by the Office of the Federal Register on July
23, 2019, 8:45 a.m., and published in the issue of the
Federal Register for July 24, 2019, 84 F.R. 35539)

26 CFR §1.506-1 Organizations required to noti-
fy Commissioner of intent to operate under section
501(c)(4)

### T.D. 9873

DEPARTMENT OF THE
TREASURY

Internal Revenue Service
26 CFR Parts 1 and 602

Regulations on the
Requirement to Notify the
IRS of Intent to Operate
as a Section 501(c)(4)
Organization

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulations and removal
of temporary regulations.

SUMMARY: This document contains
final regulations relating to the section
506 requirement, added by the Protecting
Americans from Tax Hikes Act of 2015
(the PATH Act), enacted on December
18, 2015, that organizations described in
section 501(c)(4) of the Internal Revenue
Code (Code) must notify the IRS, no later
than 60 days after their establishment, of
their intent to operate under section 501(c)
(4).

DATES: Effective Date: These regulations
are effective on July 19, 2019.

Applicability Date: For date of applicabil-
ity, see § 1.506-1(f).

FOR FURTHER INFORMATION CON-
TACT: Melinda Williams at (202) 317-
6172 or Peter A. Holiat at (202) 317-5800
(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

#### Background

This document contains final regula-
tions amending 26 CFR Parts 1 and 602,
to specify the notification requirement of
section 501(c)(4) organizations under sec-
tion 506 of the Code. Section 506, which
was added by the PATH Act (Pub. L. 114-
113, div. Q), requires an organization to
notify the IRS of its intent to operate as a
section 501(c)(4) organization.

##### 1. Section 501(c)(4) Organizations

Section 501(a) of the Code generally
provides that an organization described in
section 501(c) is exempt from federal in-
come tax. Section 501(c)(4) describes cer-
tain civic leagues or organizations operat-
ed exclusively for the promotion of social
welfare and certain local associations of
employees. An organization is described
in section 501(c)(4) and exempt from tax
under section 501(a) if it satisfies the re-
quirements applicable to such status. Sub-
ject to certain exceptions, section 6033, in
part, requires organizations exempt from
taxation under section 501(a) to file annu-
al information returns or notices, as appli-
cable.

Although an organization may apply to
the IRS for recognition that the organiza-

tion qualifies for tax-exempt status under
section 501(c)(4), there is no requirement
to do so (except as provided in section
6033(j)(2), which requires organizations
that lose tax-exempt status for failure to
file required annual information returns
or notices and want to regain tax-exempt
status to apply to obtain reinstatement
of such status). Accordingly, a section
501(c)(4) organization that files annual
information returns or notices (Form 990,
"Return of Organization Exempt From In-
come Tax," or, if eligible, Form 990-EZ,
"Short Form Return of Organization Ex-
empt From Income Tax," or Form 990-N
(e-Postcard)), as required under section
6033, need not seek an IRS determination
of its qualification for tax-exempt status in
order to be described in and operate as a
section 501(c)(4) organization.

##### 2. The PATH Act

Section 405(a) of the PATH Act added
section 506 to the Code, requiring an or-
ganization to notify the IRS of its intent
to operate as a section 501(c)(4) organiza-
tion. In addition, section 405(b) and (c) of
the PATH Act amended sections 6033(f)
and 6652(c), relating to information that
section 501(c)(4) organizations may be
required to include on their annual infor-
mation returns and penalties for certain
failures by tax-exempt organizations to
comply with filing or disclosure require-
ments, respectively.

Section 506(a) requires a section
501(c)(4) organization, no later than 60
days after the organization is established,
to notify the Secretary of the Department
of the Treasury (Secretary) that it is oper-
ating as a section 501(c)(4) organization
(the notification). Section 506(b) provides
that the notification must include: (1) The
name, address, and taxpayer identification
number of the organization; (2) the date
on which, and the state under the laws of
which, the organization was organized;
and (3) a statement of the purpose of the
organization. Section 506(c) requires the
Secretary to send the organization an ac-
knowledgment of the receipt of its noti-
fication within 60 days. Section 506(d)
permits the Secretary to extend the 60-day
notification period in section 506(a) for
reasonable cause. Section 506(e) provides
that the Secretary shall impose a reason-

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able user fee for submission of the notifi-
cation. Section 506(f) provides that, upon
request by an organization, the Secretary
may issue a determination with respect to
the organization's treatment as a section
501(c)(4) organization and that the organi-
zation's request will be treated as an appli-
cation for exemption from taxation under
section 501(a) subject to public inspection
under section 6104.1

In addition, the PATH Act amended sec-
tion 6033(f) to require a section 501(c)(4)
organization submitting the notification to
include with its first annual information
return after submitting the notification
any additional information prescribed by
regulation that supports the organization's
treatment as a section 501(c)(4) organiza-
tion.

The PATH Act also amended section
6652(c) to impose penalties for failure to
submit the notification by the date and in
the manner prescribed in regulations. In
particular, section 6652(c)(4)(A) imposes
a penalty on an organization that fails to
submit the notification equal to $20 per
day for each day such failure continues,
up to a maximum of $5,000. Additionally,
section 6652(c)(4)(B) imposes a similar
penalty on persons who fail to timely sub-
mit the notification in response to a writ-
ten request by the Secretary.

Section 405(f)(1) of the PATH Act
provides that, in general, the requirement
to submit the notification and the related
amendments to sections 6033 and 6652
apply to section 501(c)(4) organizations
that are established after December 18,
2015, the date of enactment of the PATH
Act. Section 405(f)(2) of the PATH Act
provides that these provisions also apply
to any other section 501(c)(4) organiza-
tions that had not, on or before the date of
enactment of the PATH Act: (1) Applied
for a written determination of recogni-
tion as a section 501(c)(4) organization;
or (2) filed at least one annual informa-
tion return or notice required under sec-
tion 6033(a)(1) or (i). Organizations de-
scribed in section 405(f)(2) of the PATH
Act must submit the notification within
180 days after the date of enactment of
the PATH Act.

3\. Notice 2016-09

The Treasury Department and the IRS
issued Notice 2016-09, 2016-6 IRB 306,
to provide interim guidance regarding
section 405 of the PATH Act. Specifically,
Notice 2016-09 extended the due date for
submitting the notification until at least
60 days from the date that implementing
regulations are issued in order to provide
adequate transition time for organizations
to comply with the new requirement to
submit the notification. With respect to the
separate procedure by which an organiza-
tion may request a determination from the
IRS that it qualifies for tax-exempt status
under section 501(c)(4), Notice 2016-09
stated that organizations seeking IRS rec-
ognition of section 501(c)(4) status should
continue using IRS Form 1024, Applica-
tion for Recognition of Exemption Under
Section 501(a)2 until further guidance was
issued. Notice 2016-09 also clarified that
the filing of Form 1024 does not relieve an
organization of the requirement to submit
the notification.

4\. Temporary Regulations, Notice of
Proposed Rulemaking, and Rev. Proc.
2016-41

On July 12, 2016, the Department of
Treasury and the IRS published in the
Federal Register (81 FR 45008) tempo-
rary regulations under section 506 (TD
9775) that prescribe the manner in which
a section 501(c)(4) organization must sub-
mit notification under section 506 of its
intent to operate under section 501(c)(4).
The temporary regulations were effective
and applicable on July 8, 2016. Also on
July 12, 2016, the Department of Trea-
sury and the IRS published in the Fed-
eral Register (81 FR 45088) a notice of
proposed rulemaking (REG-101689-16)
cross-referencing the temporary regula-
tions and soliciting public comments and
requests for a hearing. In conjunction with
the issuance of the temporary regulations
and the notice of proposed rulemaking,
the Department of Treasury and the IRS
issued Rev. Proc. 2016-41, 2016-30 IRB
165, which sets forth the procedure for

an organization to notify the IRS that it is
operating as a section 501(c)(4) organiza-
tion. Specifically, the preamble to the tem-
porary regulations noted that the revenue
procedure provides that the notification
must be submitted on Form 8976, "Notice
of Intent to Operate Under Section 501(c)
(4)" (or its successor). Revenue Procedure
2016-41 provides additional informa-
tion on the procedure for submitting the
form and information on requesting relief
from a failure to file penalty under section
6652(c)(4), including an example of a sit-
uation in which reasonable cause relief
would be appropriate.

The temporary regulations, in accor-
dance with section 506(a), generally re-
quired a section 501(c)(4) organization to
submit the notification to the IRS on Form
8976 no later than 60 days after the date
the organization is organized. Because the
Form 8976 was not previously available,
the temporary regulations provided transi-
tional relief from the notification require-
ment for organizations that, on or before
July 8, 2016, either (1) applied for a writ-
ten determination of recognition as a sec-
tion 501(c)(4) organization (using a Form
1024 application); or (2) filed at least one
annual return or notice required under sec-
tion 6033(a)(1) (that is, a Form 990, or if
eligible, Form 990-EZ or Form 990-N)
("Form 990 series return or notice"). For
organizations that did not qualify for this
relief, the temporary regulations also pro-
vided a transition rule that extended the
due date of the notification to September
6, 2016.

Consistent with section 506(b), the
temporary regulations specified that the
notification must include: (1) the name,
address, and taxpayer identification num-
ber of the organization; (2) the date on
which, and the state or other jurisdiction
under the laws of which, the organization
was organized; and (3) a statement of the
purpose of the organization. In addition,
the temporary regulations provided that
the notification must include such addi-
tional information as may be specified in
published guidance in the Internal Reve-
nue Bulletin or in other guidance, such as
forms or instructions, issued with respect

" The separate procedure by which an organization may request a determination of tax-exempt status is currently prescribed in Rev. Proc. 2019-5, 2019-1 IRB 230 and will be set forth in
successor annual updates of that Revenue Procedure.

2 As of 2018, the successor to Form 1024 for section 501(c)(4) organizations is new IRS Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal
Revenue Code.

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to the notification. To ensure that the statu-
torily required items of information in
the notification are correlated accurately
within existing IRS systems, Form 8976
requires organizations to provide their an-
nual accounting period.

The temporary regulations also provid-
ed that the notification must be accompa-
nied by payment of the user fee authorized
by section 506(e), which will be set forth
by published guidance in the Internal Rev-
enue Bulletin or in other guidance, such as
forms or instructions, issued with respect
to the notification. Consistent with section
506(d), the temporary regulations stated
that the 60-day period for submitting the
notification may be extended for reason-
able cause.

Further, the temporary regulations pro-
vided that, within 60 days after receipt
of the notification, the IRS will send the
organization an acknowledgment of such
receipt. The temporary regulations spec-
ified that this acknowledgment is not a
determination with respect to tax-exempt
status. Thus, it is not a determination on
which an organization may rely or a de-
termination or a failure to make a deter-
mination with respect to which the orga-
nization may seek declaratory judgment
under section 7428. Furthermore, the
temporary regulations specified that the
process by which an organization may
request an IRS determination that it quali-
fies for section 501(c)(4) exempt status is
separate from the procedure for submit-
ting the notification. Section 506(f) pro-
vides that an organization subject to the
section 506 notification requirement may
request a determination to be treated as an
organization described in section 501(c)
(4). This indicates that the procedure by
which an organization may request a de-
termination that it is described in section
501(c)(4) is separate from the procedure
for submitting the notification required
by section 506. Accordingly, the tempo-
rary regulations provided that submission
of the notification does not constitute
a request for an IRS determination that
the organization qualifies for tax-exempt
status under section 501(c)(4). Rather, an
organization that seeks IRS recognition of
tax-exempt status under section 501(c)(4)
must separately request a determination in
the manner prescribed in Rev. Proc. 2019-
5, (2019-1 IRB 230), or its successor.

The temporary regulations also re-
ferred to section 6652(c)(4) through (6)
for information on the applicable penalties
for failure to submit the section 506 notifi-
cation. The temporary regulations specifi-
cally referred to section 6652(c)(5), which
provides a reasonable cause exception,
and section 6652(c)(6), which provides
other special rules that generally apply for
purposes of section 6652(c) penalties.

The IRS received three comments
in response to the notice of proposed
rulemaking, two that addressed several is-
sues, which are discussed in detail below,
and one that was withdrawn from regula-
tions.gov. The two comments that were
not withdrawn are available at www.reg-
ulations.gov or upon request. No public
hearing was requested or held.

The IRS has considered all the issues
addressed in the comments. The proposed
regulations that cross-referenced the text
of the temporary regulations are adopted
without substantive change by this Trea-
sury decision, except that this Treasury
decision removes the temporary regula-
tions.

###### Summary of Comments and Explanation of Provisions

This section discusses comments re-
ceived in response to the notice of pro-
posed rulemaking.

1.Exception for organizations that filed a
Form 990 series return or notice on or
before July 8, 2016

One commenter recommended that fi-
nal regulations clarify whether an organi-
zation that is included as a subordinate or-
ganization on a group return on Form 990
filed on or before July 8, 2016, is exempt
from the requirement to submit Form
8976. The commenter also suggested that
final regulations clarify whether an organi-
zation that merely filed an application for
extension of time to file Form 990 (Form
8868) on or before July 8, 2016, and not
the Form 990 itself, is exempt from the re-
quirement to submit Form 8976.

The PATH Act provides that the re-
quirement to submit the notification does
not apply to certain organizations that
notified the IRS of their existence on or
before December 18, 2015. The Treasury

Department and the IRS recognized that
additional organizations may have noti-
fied the IRS of their existence, after the
enactment of the PATH Act but before the
availability of the new electronic Form
8976 for submitting the notification, by
applying for a written determination of
tax-exempt status or filing a required in-
formation return or notice. Accordingly, §
1.506-1T(b) provided two special rules for
organizations that were organized on or
before July 8, 2016. First, the temporary
regulations noted that the requirement to
submit the notification does not apply to a
section 501(c)(4) organization that, on or
before December 18, 2015, either (i) ap-
plied for a written determination of recog-
nition as a section 501(c)(4) organization;
or (ii) filed at least one annual information
return or notice required under section
6033(a)(1) or (i). Second, the temporary
regulations provided that a section 501(c)
(4) organization is not required to submit
the notification if, on or before July 8,
2016, the organization either (i) applied
for a written determination of recognition
as a 501(c)(4) organization; or (ii) filed at
least one annual information return or an-
nual electronic notification required under
section 6033(a)(1) or (i).

Under § 1.6033-2(d)(4), a group return
is considered the return of each subsidiary
organization included on the return. Con-
sequently, an organization that is included
as a subordinate organization on a group
return on Form 990 filed on or before July
8, 2016, qualified for the special rules in §
1.506-1T(b), and an additional provision
in the regulations is not required. Howev-
er, filing an extension of time to file Form
990 does not provide the IRS with the
information required under section 506,
including the date of organization. Ac-
cordingly, the special rules apply only to
a Form 990 series return or notice, not to
a request for an extension of time to file.
For these reasons, the commenter's sug-
gestions are not incorporated into the final
regulations.

##### 2. Treatment of disregarded entities

One commenter suggested that the fi-
nal regulations confirm that a single-mem-
ber limited liability company (LLC), the
sole member of which is a section 501(c)
(4) organization and that is disregarded as

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an entity separate from its owner, is not
required to submit Form 8976.

Unless the entity elects otherwise, a
domestic eligible entity that has a single
owner is disregarded as an entity separate
from its owner. See § 301.7701-2(c)(2)(i).
For this reason, the instructions to Form
990 provide that an LLC treated as a dis-
regarded entity by its tax-exempt member
should not file a separate Form 990; in-
stead the sole member includes activities
conducted by the disregarded entity LLC

on its Form 990. Similarly, a single-mem-
ber LLC organization, the sole member of
which is a section 501(c)(4) organization,
should not submit a separate Form 8976
if it intends to be disregarded as an entity
separate from its owner and only the sole
member section 501(c)(4) organization
should submit a Form 8976. Therefore,
any further clarification in the final regu-
lations is not necessary.

###### 3. Exception for organizations terminated or dissolved before September 6, 2016

One commenter requested that the final
regulations include an exception from the
requirement to submit Form 8976 for or-
ganizations terminated or dissolved before
September 6, 2016 (the extended due date
for organizations as provided in § 1.506-
1T(b)(3)). Although there is no statutory
basis for exempting organizations that
terminated by a certain date from the re-
quirement to submit Form 8976, the com-
menter suggested that it would serve little
purpose for the organization to notify the
IRS that it intended to operate as an or-
ganization described in section 501(c)(4)
if the organization had already terminat-
ed by the time it was required to submit
Form 8976. However, such organizations
may still be included in the IRS's Exempt
Organizations Business Master File, and a
filed Form 8976 would serve the purpose
of notifying the IRS that it operated as an
organization described in section 501(c)
(4). Thus, these final regulations do not
provide the requested exception.

##### 4. Option to file application for exemption in lieu of Form 8976

One commenter requested that the final
regulations provide that an organization
should be treated as satisfying the require-

ment under section 506 if it files Form
1024-A, rather than Form 8976, within the
60-day notice period.

The notification requirement under
section 506(a) is separate and distinct
from the application process. See section
506(f). In addition, it is not administrable
for the IRS to treat Form 1024-A as the
notification required under section 506.
First, there is no systemic process for the
IRS to use the Form 1024-A both as a re-
quired notification under section 506 and
as an optional application for exempt sta-
tus. Second, the Service is required under
section 506(c) to acknowledge receipt of
the notification within 60 days, but re-
view of an application for exempt status
may require more time than 60 days (as
reflected in the 270-day period under the
declaratory judgment procedures in sec-
tion 7428). Thus, the timeline for process-
ing an application for exempt status does
not align with the timeline for processing
Form 8976 and it would be impractical
for the Service to maintain two separate
processes for responding to Form 1024-A.
Therefore, these final regulations do not
adopt the suggestion.

##### 5. Group ruling organizations

Both commenters inquired whether
a subordinate organization included in a
group exemption letter is excepted from
the requirement to submit Form 8976, or
in the alternative, whether the requirement
to notify the IRS that a subordinate orga-
nization intends to operate under section
501(c)(4) is satisfied if the central organi-
zation informs the IRS that it is adding the
subordinate organization to the group ex-
emption letter within 60 days from when
the subordinate is organized.

A group exemption letter is a ruling or
determination letter that is issued to a cen-
tral organization recognizing, on a group
basis, the exemption from federal income
tax under section 501(a) of subordinate
organizations on whose behalf the central
organization has applied for recognition
of exemption (see Rev. Proc. 80-27, 1980-
1 C.B. 677). Under the group ruling pro-
cedures of Rev. Proc. 80-27, the central
organization is required to submit annual-
ly to the IRS at least 90 days before the
close of its annual accounting period any
changes to the subordinates in the group

ruling, including any subordinates that are
no longer included in the group exemption
letter and any subordinates that are to be
added to the group exemption letter.

As discussed in the Background sec-
tion, the PATH Act provided that the re-
quirement to submit the notification does
not apply to organizations that either filed
Form 1024 or filed at least one Form 990
series return or notice on or before De-
cember 18, 2015. To reduce the burden on
organizations and the IRS, the temporary
regulations similarly relieved from the
notification requirement any organization
that filed Form 1024 or filed a Form 990
series return or notice on or before July
8, 2016, the date that Form 8976 became
available. Unlike the transition relief pro-
vided in the temporary regulations, there
is no similar statutory basis for relieving
subordinates included in a group exemp-
tion letter from the requirement to sub-
mit Form 8976 if they do not meet one of
these special rules. For the administrative
convenience of taxpayers and the IRS,
Rev. Proc. 80-27 relieves each of the sub-
ordinates covered by a group exemption
letter from filing its own application for
recognition of exemption. However, this
administrative relief from the application
requirements does not apply with respect
to section 506 because the process for rec-
ognition of exemption is separate from the
section 506 notification process. See sec-
tion 506(f).

Similar to annual Form 990 series
returns or notices, an annual group ex-
emption update as required by Rev. Proc.
80-27, may replicate the information pro-
vided on Form 8976. However, the annu-
al group exemption update also requires
different information than the organiza-
tion initially provides on the Form 8976,
such as detailed information on the orga-
nization's activities, and the annual group
exemption update may be filed signifi-
cantly later than the 60 days required by
section 506 and the Form 8976 depending
on when the subordinate joins the group
exemption and the due date of the annual
group exemption update.

Furthermore, Rev. Proc. 80-27 pro-
vides that a central organization must sub-
mit information on subordinate organiza-
tions to be added to the group exemption
letter in an annual update that is due at
least 90 days before the end of the central

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organization's annual accounting period.
There is not a procedure for updating the
group exemption letter within 60 days of a
subordinate organization's date of organi-
zation. Allowing such updates to serve in
place of the statutory notification required
under section 506 would lead to additional
administrative burdens on central organi-
zations and the IRS to process changes to
group exemption letters multiple times per
year rather than once annually.

Accordingly, these final regulations do
not adopt the suggestions.

##### 6. Date of organization

One commenter recommended that
final regulations define the "date of orga-
nization" of an organization that was not
initially formed as a section 501(c)(4) or-
ganization as the date the change in status
to section 501(c)(4) is accomplished (such
as the date that the organization's govern-
ing document is amended) or in the case
of a foreign organization, the date that
the foreign organization first commences
activities or receives income that would
cause it to have a filing requirement under
section 6033.

The section 506(a) notification require-
ment applies no later than 60 days after the
organization is established. Section 506(b)
(2) further provides that the 506(a) noti-
fication shall include the date on which,
and the state under the laws of which, the
organization was organized. Section 506
did not indicate that any difference was
intended between the use of "established"
in section 506(a) and the reference to "or-
ganized" in section 506(b). Accordingly,
the temporary regulations provided that,
except as provided in paragraph (b) of this
section, an organization (whether domes-
tic or foreign) described in section 501(c)
(4) must, no later than 60 days after the
date the organization is organized, notify
the Commissioner that it is operating as an
organization described in section 501(c)
(4) by submitting a completed Form 8976.
See § 1.506-1T(a)(1). Following the long-
standing approach on forms used to apply
for exemption and for entering data into
the IRS system, the temporary regulations
in § 1.506-1T(a)(2)(ii) clarify that the date
an organization is "organized" for section
506 purposes is the date on which it is
formed as a legal entity.

It would be administratively difficult if
the date of organization reported on Form
8976 were different from the date of le-
gal formation reflected on organizational
documents and used for other reporting
purposes. For this reason, these final regu-
lations do not adopt the suggestion. How-
ever, see section 7 of this Summary of
Comments and Explanation of Provisions
for discussion of availability of reasonable
cause relief.

##### 7. Reasonable cause relief

One commenter suggested that the
IRS extend automatic reasonable cause
relief to: (1) organizations formed before
December 18, 2015, that timely submit a
first Form 990 after July 8, 2016; (2) for-
eign organizations that file Forms 8976
within 60 days after first commencing
activities or receiving income that would
cause them to have a section 6033 filing
requirement; (3) small organizations; and
(4) organizations formed as organiza-
tions described in another paragraph of
section 501(c) that file Form 8976 within
60 days after amending their organizing
document to qualify under section 501(c)
(4). With regard to small organizations,
the commenter recommended that the
IRS provide small organizations with
automatic reasonable cause relief similar
to the relief provided under Rev. Proc.
2014-11 regarding reinstatement of ex-
empt status after automatic revocation
under section 6033(j). Alternatively, the
commenter recommended that the IRS
expand the example of reasonable cause
relief provided in Rev. Proc. 2016-41 to
include a non-exhaustive list of factors
that will weigh in favor of finding "rea-
sonable cause" for a failure to timely sub-
mit Form 8976.

Section 6652(c)(5) provides that no
penalty shall be imposed under this sub-
section with respect to any failure if it is
shown that such failure is due to reason-
able cause. Reasonable cause is deter-
mined based on all the facts and circum-
stances. This reasonable cause provision
does not include a provision for automatic
reasonable cause.

Furthermore, Rev. Proc. 2014-11 does
not provide a helpful model for a proce-
dure to establish automatic reasonable
cause relief from section 6652(c) penal-

ties for small organizations because the
IRS does not have similar information
for Form 8976 as it does for organiza-
tions under Rev. Proc. 2014-11 relief.
Under section 4.01 of Rev. Proc. 2014-
11, the IRS determined that it may ret-
roactively reinstate an organization's
exempt status without requiring the orga-
nization to show reasonable cause for the
failure to file a Form 990 series return or
notice for three consecutive years. In this
situation, the IRS already has informa-
tion in its systems and obtains additional
information as part of the application for
retroactive reinstatement of exempt sta-
tus that shows that the size of the organi-
zation made it eligible to file Form 990-
EZ or 990-N for each of the three years.
By contrast, the IRS does not have simi-
lar information at the time Form 8976 is
filed that would enable the IRS to iden-
tify the organization as a "small organi-
zation" eligible for the relief requested
by the commenter. Thus, the streamlined
procedure described in section 4 of Rev.
Proc. 2014-11 is not adaptable to the sec-
tion 506 notification requirement.

Although the final regulations do not
provide for a procedure for automatic rea-
sonable cause relief, organizations (includ-
ing organizations formed before Decem-
ber 18, 2015, foreign organizations, small
organizations, and organizations that orig-
inally operated under sections other than
section 501(c)(4)) may seek reasonable
cause relief by following the instructions
in the penalty letter, as provided in Rev.
Proc. 2016-41. Rev. Proc. 2016-41 in-
cludes an example of a situation in which
reasonable cause relief would be appro-
priate regarding foreign organizations.
The reasonable cause example included in
Rev. Proc. 2016-41 is just one example of
reasonable cause for purposes of section
506 only. Similar to the foreign organiza-
tion discussed in the example provided in
Rev. Proc. 2016-41, an organization (other
than a section 501(c)(3) organization) that
did not originally intend to operate under
section 501(c)(4) is subject to the require-
ment to submit Form 8976 once it begins
to operate as a section 501(c)(4) organi-
zation. Such an organization that files a
Form 8976 within 60 days of amending
its organizing document to be described in
section 501(c)(4) would have reasonable
cause for not filing a Form 8976 within 60

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days of formation. The organization may
obtain relief from the penalty described
under section 6652(c)(4) by submitting a
request in response to the correspondence
from the IRS regarding the penalty. Be-
cause reasonable cause is determined on a
case by case basis, it was not intended that
Rev. Proc. 2016-41 would provide all sit-
uations where reasonable cause relief may
be appropriate.

Accordingly, the final regulations do
not adopt these suggestions.

8\. Individual authorized to submit Form
8976

One commenter requested the final
regulations clarify that Form 8976 may
be submitted by any individual authorized
by the organization to submit the form on
its behalf and that the authorized individ-
ual may receive certain communications
regarding Form 8976, including the ac-
knowledgment required by section 506(c).
The commenter further requested that
guidance clarify that the Form 8976 does
not need to be submitted by an officer or
a person holding a power of attorney on
file with the IRS. Lastly, the commenter
recommended that a central organization
may submit Form 8976 on behalf of its
subordinate organization.

The temporary regulations did not ad-
dress authorization to submit Form 8976
on behalf of an organization. However,
Rev. Proc. 2016-41, section 4.01(2) pro-
vides that the individual submitting Form
8976 on behalf of a section 501(c)(4) or-
ganization must establish an account at
www.irs.gov to submit Form 8976 elec-
tronically. The IRS may then send elec-
tronically to the account of the individ-
ual submitting the Form 8976 on behalf
of the organization (1) the confirmation
of transmittal of Form 8976 described in
section 6.02 of Rev. Proc. 2016-41, (2)
the notice of non-acceptance for process-
ing of Form 8976 described in section
5 of Rev. Proc. 2016-41, and/or (3) the
acknowledgement of receipt of Form
8976 described in section 6.01 of Rev.
Proc. 2016-41. Accordingly, just like any
communications regarding a taxpayer's
filing obligations, an organization should
ensure that the individual submitting the
Form 8976 is not only authorized by the
organization to submit the Form 8976

on its behalf, but also to receive com-
munications from the IRS relating to the
organization's submission. This would
also apply to a subordinate organization
included in a group exemption letter, as
the organization should ensure that any
individual (including an individual who
represents the central organization) is au-
thorized by the subordinate organization
to submit Form 8976 on behalf of the
subordinate organization and to receive
communications from the IRS. No addi-
tional clarification within the final regu-
lations is needed; thus, the final regula-
tions do not adopt these suggestions.

##### 9. Correction to Form 8976

Lastly, one commenter requested clari-
fication in the final regulations that there is
no obligation to update Form 8976 if any
of the information on the Form 8976 was
originally correct, but later changes. The
temporary regulations did not address cor-
rections to Form 8976 as this issue is more
appropriately addressed, if necessary, in
non-regulatory guidance or the instruc-
tions to the form.

The Treasury Department and the IRS
note, however, that Rev. Proc. 2016-41,
section 4.04 provides that a Form 8976
submitted by an organization is complete
if it provides accurate responses for each
required line item of the form, consis-
tent with the form instructions, and sec-
tion 5.03 provides that if an organization
attempts to submit more than one Form
8976, only the first Form 8976 will be
accepted for processing. Thus, Rev. Proc.
2016-41 indicates that there is no obliga-
tion to submit a new Form 8976 if the or-
ganization's information changes, or if the
Form 8976 was accepted for processing.
Rather, any updated information should
be reported on the organization's annual
information return or notice, as provided
in the instructions to that form. Therefore,
the final regulations do not adopt this sug-
gestion.

### Effective/Applicability Dates

The temporary regulations have ap-
plied since July 8, 2016, and this Treasury
decision adopts the proposed regulations
that cross-referenced the text of those
temporary regulations without substantive

change. Thus, for clarity and continuity in
application, the final regulations apply on
and after July 8, 2016.

### Special Analyses

This regulation is not subject to review
under section 6(b) of Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) between the
Department of the Treasury and the Office
of Management and Budget regarding re-
view of tax regulations.

#### Paperwork Reduction Act

The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget under control
number 1545-2268 in accordance with
the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). The collection of infor-
mation is in § 1.506-1(a)(2). The likely
respondents are organizations described
in section 501(c)(4) of the Code (section
501(c)(4) organizations). The collection
of information in § 1.506-1(a)(2) flows
from section 506(b) of the Code, which
requires a section 501(c)(4) organization
to submit a notification including the
following items of information: (1) the
name, address, and taxpayer identifica-
tion number of the organization; (2) the
date on which, and the state under the
laws of which, the organization was orga-
nized; and (3) a statement of the purpose
of the organization. The final regulations
provide that the notification must be sub-
mitted on Form 8976, "Notice of Intent
to Operate Under Section 501(c)(4)," or
its successor. In addition to the specific
information required by statute, the final
regulations require that an organization
provide any additional information that
may be specified in published guidance
in the Internal Revenue Bulletin or in
other guidance, such as forms or instruc-
tions, issued with respect to the notifica-
tion. Form 8976 requires an organization
to provide its annual accounting period to
ensure that the statutorily-required items
of information in the notification are cor-
related accurately within existing IRS
systems.

For purposes of the Paperwork Reduc-
tion Act, the reporting burden associated

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with the collection of information with re-
spect to section 506(b), will be reflected in
the IRS Form 8976 Paperwork Reduction
Act Submission (OMB control number
1545-2161, published in the Federal Reg-
ister on 10/21/2016). The IRS Form 8976
Paperwork Reduction Act Submission es-
timated for 2016 the total number of filers
at 2,500, with an estimated average time
per filer of 45 minutes to complete Form
8976, and with an estimated total annual
burden of 1,875 hours. A valuation of the
burden hours leads to a Paperwork Reduc-
tion Act estimate of the reporting costs to
taxpayers of $85,031. This is a one-time
paperwork burden, as the Treasury De-
partment and the IRS anticipate that sub-
stantially all paperwork burdens related
to these final regulations will only be in-
curred by the taxpayer in the year of for-
mation. All organizations operating under
section 501(c)(4), regardless of their size,
are required to notify the Commissioner
utilizing Form 8976.

An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and return in-
formation are confidential, as required by
26 U.S.C. 6103.

##### Regulatory Flexibility Act

It is hereby certified that this rule will
not have a significant economic impact
on a substantial number of small entities.
Therefore, a Regulatory Flexibility Anal-
ysis under the Regulatory Flexibility Act
(5 U.S.C. chapter 6) is not required. This
certification is based on the fact that the
registration and filing fee for Form 8976 is
$50.00 and the IRS Form 8976 Paperwork
Reduction Act Submission (OMB control
number 1545-2161) estimates the time to
complete Form 8976 at 45 minutes, which
should not constitute an economic burden
upon small organizations. Pursuant to sec-
tion 7805(f), the temporary and proposed
regulations preceding these final regula-
tions were submitted to the Chief Counsel
for Advocacy of the Small Business Ad-

ministration for comment on their impact
on small business and no comments were
received.

### Drafting Information

The principal authors of these regu-
lations are Peter A. Holiat and Melinda
Williams of the Office of Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel from
the IRS and the Treasury Department par-
ticipated in their development.

### Statement of Availability of IRS Documents

IRS Revenue Procedures, Revenue
Rulings, notices and other guidance cited
in this preamble are published in the In-
ternal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Su-
perintendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
http://www.irs.gov.

*****

### Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602
are amended as follows:

PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *

Par 2. Section 1.506-1 is added to read
as follows:

§1.506-1 Organizations required to
notify Commissioner of intent to oper-
ate under section 501(c)(4).

(a) Notification requirement -- (1) In
general. Except as provided in para-
graph (b) of this section, an organization
(whether domestic or foreign) described
in section 501(c)(4) must, no later than
60 days after the date the organization is
organized, notify the Commissioner that it
is operating as an organization described
in section 501(c)(4) by submitting a com-
pleted Form 8976, "Notice of Intent to Op-
erate Under Section 501(c)(4)," or its suc-
cessor (the notification). The notification
must be submitted in accordance with the

form and its instructions. The notification
must include the information specified in
paragraph (a)(2) of this section and be ac-
companied by payment of the user fee de-
scribed in paragraph (a)(3) of this section.
Additional guidance on the procedure for
submitting the notification may be provid-
ed in published guidance in the Internal
Revenue Bulletin (see §601.601(d)(2) of
this chapter) or in other guidance, such as
forms or instructions, issued with respect
to the notification.

(2) Contents of the notification. The
notification must include the following
information:

(i) The name, address, and taxpayer
identification number of the organization.

(ii) The date on which, and the state or
other jurisdiction under the laws of which,
the organization was organized (that is,
formed as a legal entity). For an organiza-
tion formed outside the United States, the
jurisdiction is the foreign country under
the laws of which it is organized.

(iii) A statement of the purpose of the
organization.

(iv) Such additional information as
may be specified in published guidance
in the Internal Revenue Bulletin (see
§601.601(d)(2) of this chapter) or in other
guidance, such as forms or instructions,
issued with respect to the notification.

(3) User fee. The notification must be
accompanied by payment of the user fee
set forth by published guidance in the In-
ternal Revenue Bulletin (see §601.601(d)
(2) of this chapter) or in other guidance,
such as forms or instructions, issued with
respect to the notification.

(4) Extension for reasonable cause. The
Commissioner may, for reasonable cause,
extend the 60-day period for submitting
the notification.

(b) Special rules for organizations
that were organized on or before July 8,
2016-(1) Notification requirement does
not apply to organizations that filed with
the IRS on or before December 18, 2015.
The requirement to submit the notifica-
tion does not apply to any organization
described in section 501(c)(4) that, on or
before December 18, 2015, either-

(i) Applied for a written determina-
tion of recognition as an organization de-
scribed in section 501(c)(4) in accordance
with §1.501(a)-1 and all applicable guid-
ance published in the Internal Revenue

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Bulletin (see §601.601(d)(2) of this chap-
ter), forms, and instructions; or

(ii) Filed at least one annual informa-
tion return or annual electronic notifica-
tion required under section 6033(a)(1) or
(i).

(2) Transition relief available for or-
ganizations that filed with the IRS on or
before July 8, 2016. An organization de-
scribed in section 501(c)(4) is not required
to submit the notification if, on or before
July 8, 2016, the organization either --

(i) Applied for a written determina-
tion of recognition as an organization de-
scribed in section 501(c)(4) in accordance
with §1.501(a)-1 and all applicable guid-
ance published in the Internal Revenue
Bulletin (see §601.601(d)(2) of this chap-
ter), forms, and instructions; or

(ii) Filed at least one annual informa-
tion return or annual electronic notifica-
tion required under section 6033(a)(1) or
(i).

(3) Extended due date. An organiza-
tion that was organized on or before July
8, 2016, and is not described in paragraph
(b)(1) or (2) of this section, satisfies the

requirement to submit the notification if
the notification was submitted on or be-
fore September 6, 2016.

(c) Failure to submit the notification.
For information on the penalties for fail-
ure to submit the notification, the applica-
ble reasonable cause exception, and appli-
cable special rules, see section 6652(c)(4)
through (6).

(d) Acknowledgment of receipt. With-
in 60 days after receipt of the notification,
the Commissioner will send the organiza-
tion an acknowledgment of such receipt.
This acknowledgment is not a determina-
tion by the Commissioner that the organi-
zation qualifies for exemption under sec-
tion 501(a) as an organization described
in section 501(c)(4). See paragraph (e) of
this section.

(e) Separate procedure by which an or-
ganization may request an IRS determina-
tion that it qualifies for section 501(c)(4)
tax-exempt status. Submission of the no-
tification does not constitute a request by
an organization for a determination by the
Commissioner that the organization qual-
ifies for exemption under section 501(a)

as an organization described in section
501(c)(4). An organization seeking IRS
recognition of its tax-exempt status must
separately request such a determination in
accordance with §1.501(a)-1 and all appli-
cable guidance published in the Internal
Revenue Bulletin (see §601.601(d)(2) of
this chapter), forms, and instructions.

(f) Effective/applicability date. This
section applies on and after July 8, 2016.

## Section 1.506-1T [Removed]

Par. 3. Section 1.506-1T is removed.

PART 602 -- OMB CONTROL NUM-
BERS UNDER THE PAPERWORK RE-
DUCTION ACT

Par. 4. The authority for part 602 con-
tinues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 5. In §602.101, paragraph (b) is
amended by adding an entry in numerical
order for § 1.506-1 and removing the en-
try for §1.506-1T to read as follows:

§602.101 OMB Control numbers.

* * * * *

(b) * * *

CFR part or section where

Current OMB

Identified and described

control no.

* * * * *

1.506-1

1545-2268

* * * * *

Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.

Approved: July 9, 2019.

David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).

(Filed by the Office of the Federal Register on July
19, 2019, 4:15 a.m., and published in the issue of the
Federal Register for July 23, 2019, 84 F.R. 35301)

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# Part III.

26 CFR 601.204: Changes in accounting periods
and in methods of accounting.

(Also: Part I, Sections 446, 846.)

## Rev. Proc. 2019-30

### SECTION 1. PURPOSE

This revenue procedure provides sim-
plified procedures under § 446 of the In-
ternal Revenue Code (Code) and § 1.446-
1(e) of the Income Tax Regulations for an
insurance company to obtain automatic
consent of the Commissioner of Internal
Revenue (Commissioner) to change its
methods of accounting for discounting
unpaid losses and expenses unpaid, esti-
mated salvage recoverable, and unearned
premiums attributable to title insurance,
as applicable, to comply with § 846 of
the Code, as amended by Pub. L. No.
115-97 (131 Stat. 2054, 2152), commonly
referred to as the Tax Cuts and Jobs Act
(TCJA). For taxable years beginning after
December 31, 2017, and ending on or be-
fore December 31, 2019, these simplified
procedures are the exclusive procedures
for a taxpayer within the scope of sec-
tion 3 of this revenue procedure to obtain
consent of the Commissioner to change
a method of accounting described in this
revenue procedure.

### SECTION 2. BACKGROUND

#### .01 Discounting Rules.

(1) In general, to compute a non-life
(property and casualty) insurance compa-
ny's taxable income for Federal income
tax purposes under § 832 of the Code,
the insurance company's underwriting
income is reduced by the amount of its

discounted unpaid losses (as defined in
§ 846) and increased by the amount of
its estimated salvage recoverable for the
taxable year.1 Under § 832(b)(6), unpaid
loss adjustment expenses shown on the
annual statement are included in unpaid
losses and are, therefore, discounted under
§ 846. Section 832(b)(5) provides that es-
timated salvage recoverable is determined
on a discounted basis in accordance with
procedures established by the Secretary of
the Treasury or his delegate (Secretary).
Section 1.832-4(c) provides that, except
as otherwise provided in guidance pub-
lished by the Commissioner in the Inter-
nal Revenue Bulletin, estimated salvage
recoverable generally must be discounted
by using the discount factors published by
the Commissioner for estimated salvage
recoverable or, alternatively, by using the
loss payment pattern for a line of business
as the salvage recovery pattern for that
line of business and by using the appli-
cable interest rate for calculating unpaid
losses under § 846(c).

(2) To compute a life insurance com-
pany's taxable income for Federal income
tax purposes, all losses incurred during the
taxable year on insurance and annuity con-
tracts are deductible under § 805(a)(1) of
the Code. Also, under § 807 of the Code,
the life insurance company must take into
account the change over a taxable year in
the company's unpaid losses described in
§ 807(c)(2).2 For purposes of §§ 805(a)
(1) and 807(c)(2), the amount of unpaid
losses (other than losses on life insurance
contracts) is the amount of the discounted
unpaid losses as defined in § 846.

(3) Section 846 provides that discount-
ed unpaid losses must be separately deter-
mined for each accident year of each line

of business by applying the annual rate
determined under § 846(c) and the appro-
priate loss payment pattern to the amount
of unpaid losses as measured at the end of
the taxable year. Section 846(d) directs the
Secretary to use the most recent aggregate
loss payment data of property and casual-
ty insurance companies to determine and
publish a loss payment pattern for each
line of business every five years. This
loss payment pattern is used to discount
unpaid losses for the accident year ending
with a determination year and for each of
the four succeeding accident years. Dis-
count factors are determined for each line
of business for each accident year using
the applicable loss payment pattern and
annual rate.

(4) In general, to compute a property
and casualty insurance company's taxable
income for Federal income tax purposes
under § 832, underwriting income is re-
duced by discounted unearned premiums
attributable to title insurance.3 Under
§ 832(b)(8), the amount of the discount-
ed unearned premiums attributable to ti-
tle insurance is the present value of such
premiums determined by using the annual
rate determined under § 846(c)(2) for the
calendar year in which the premiums are
received and the applicable statutory pre-
mium recognition pattern.

(5) Section 13523 of the TCJA amend-
ed § 846 for taxable years beginning af-
ter December 31, 2017. Section 13523(a)
and (b) amended the definition of annual
rate under § 846(c) and the computation-
al rules for loss payment patterns under
§ 846(d), respectively. Section 13523(c)
repealed the election that was previously
set forth in § 846(e) to use the insurance
company's own historical loss payment

1 Under § 832, the taxable income of a property and casualty insurance company, including a title insurance company, is the sum of its underwriting income and investment income (as well
as gains and other income items), reduced by allowable deductions. Under § 832(b)(3), a property and casualty insurance company's "losses incurred" is a component of the company's un-
derwriting income. Under § 832(b)(5)(A), the change over a taxable year in the company's discounted unpaid losses (as defined in § 846) is a component of its losses incurred for the taxable
year. An increase in discounted unpaid losses over the year increases losses incurred and thereby reduces underwriting income. A decrease in discounted unpaid losses over the year decreases
losses incurred and thereby increases underwriting income. Section 832(b)(5)(A) also requires that the change in estimated salvage recoverable be taken into account in computing the losses
incurred component of underwriting income, with an increase in estimated salvage recoverable reducing losses incurred (and thereby increasing underwriting income) and a decrease in
estimated salvage recoverable increasing losses incurred (and thereby reducing underwriting income).

2 Under § 807(c)(2), a life insurance company must take into account the unearned premiums and unpaid losses included in total reserves under § 816(c)(2). Under § 816(c)(2), total reserves
include unearned premiums and unpaid losses (whether or not ascertained) not included in life insurance reserves. Under § 807(a), a decrease in the items described in § 807(c)(2) over the
taxable year is included in life insurance company gross income under § 803(a)(2). Under § 807(b), an increase in the items described in § 807(c)(2) over the taxable year is deductible under
§ 805(a)(2).

3 Under § 832(b)(3), a property and casualty insurance company's "premiums earned" is a component of the company's underwriting income. Under § 832(b)(4)(b) and (8), the change over a
taxable year in the company's discounted unearned premiums attributable to title insurance is a component of its premiums earned for the taxable year, with an increase in discounted unearned
premiums reducing premiums earned (and thereby reducing underwriting income) and a decrease in discounted unearned premiums increasing premiums earned (and thereby increasing
underwriting income).

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pattern instead of the pattern published
by the Secretary. Section 846, as amended
by the TCJA, is referred to in this revenue
procedure as Amended § 846.

(6) Section 13523(e) of the TCJA
provides a transition rule for the applica-
tion of the amendments made by section
13523 to unpaid losses and expenses un-
paid (as defined in § 832(b)(5) and (6)) or
unpaid losses (as defined in §§ 805(a)(1)
and 807(c)(2)). References to unpaid loss-
es hereinafter in this revenue procedure
refer to unpaid losses and expenses un-
paid (as defined in § 832(b)(5) and (6)) or
unpaid losses (as defined in §§ 805(a)(1)
and 807(c)(2)), as applicable. For the first
taxable year beginning after December
31, 2017 (First TCJA Year), the discount-
ed unpaid losses at the end of the preced-
ing taxable year (Pre-TCJA Year) are de-
termined as if the amendments made by
section 13523 had applied to such unpaid
losses in the Pre-TCJA Year and by using
the annual rate and loss payment patterns
applicable to accident years ending with
calendar year 2018. The resulting adjust-
ment, if any, is included in the insurance
company's gross income ratably over
an eight-year period, beginning with the
First TCJA Year and continuing through
the seven succeeding taxable years. Sec-
tion 13523(e) also provides that, for sub-
sequent taxable years, the amendments
made by section 13523 are applied with
respect to such unpaid losses by using the
annual rate and loss payment patterns ap-
plicable to accident years ending with cal-
endar year 2018.

(7) On November 7, 2018, the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) published proposed regulations un-
der Amended § 846 (REG-103163-18, 83
FR 55646) (Proposed Regulations). Un-
der the Proposed Regulations, the annual
rate determined under Amended § 846(c)
is based on a specific range of maturities
(from one-half year to seventeen and one-
half years) from the corporate bond yield
curve.

(8) On January 7, 2019, the Treasury
Department and the IRS published Rev.
Proc. 2019-06, 2019-02 I.R.B. 284, which
prescribes unpaid loss discount factors for
the 2018 accident year and earlier accident
years for use in computing discounted un-
paid losses under Amended § 846. The

unpaid loss discount factors also serve as
salvage discount factors for the 2018 acci-
dent year and earlier accident years for use
in discounting estimated salvage recover-
able under § 832. The unpaid loss discount
factors (Proposed Discount Factors) pre-
scribed in Rev. Proc. 2019-06 were deter-
mined under Amended § 846 and the Pro-
posed Regulations using the annual rate
and loss payment patterns applicable to
2018 under the Proposed Regulations. The
annual rate for the 2018 calendar year de-
termined under the Proposed Regulations
(Proposed Annual Rate) was 3.12 percent,
compounded semiannually.

(9) On June 17, 2019, the Treasury
Department and the IRS published final
regulations under Amended § 846 (T.D.
9863, 84 FR 27947) (Final Regulations).
The Final Regulations apply to taxable
years beginning after December 31, 2017.
Under the Final Regulations, the annual
rate determined under Amended § 846(c)

is based on a specific range of maturities
(from four and one-half years to ten years)
from the corporate bond yield curve. The
guidance regarding loss payment patterns
is the same under the Proposed Regula-
tions and the Final Regulations.

(10) Rev. Proc. 2019-31, 2019-33
I.R.B. _ , published in the same edi-
tion of the Internal Revenue Bulletin as
this revenue procedure, provides revised
unpaid loss discount factors for the 2018
accident year and earlier accident years,
determined under Amended § 846 and the
Final Regulations (Revised Discount Fac-
tors). The Revised Discount Factors were
determined using the same loss payment
patterns as in Rev. Proc. 2019-06, but a
different annual rate. The Revised Dis-
count Factors were determined using the
annual rate for the 2018 calendar year de-
termined under the Final Regulations (Re-
vised Annual Rate), which is 2.94 percent,
compounded semiannually.

(11) An insurance company must use
the Revised Discount Factors for all lines
of business for the 2018 accident year and
earlier accident years for purposes of dis-
counting both unpaid losses and estimated
salvage recoverable for taxable years end-
ing on or after June 17, 2019. See sections
1 and 6 of Rev. Proc. 2019-06. In any tax-
able year beginning after December 31,
2017, and ending before June 17, 2019, an
insurance company must consistently use

either the Revised Discount Factors or the
Proposed Discount Factors for all lines of
business for all accident years for purpos-
es of discounting both unpaid losses and
estimated salvage recoverable.

(12) An insurance company must use
the Revised Annual Rate to determine the
amount of discounted unearned premiums
attributable to title insurance with respect
to premiums received in the 2018 calen-
dar year for taxable years ending on or
after June 17, 2019. In any taxable year
beginning after December 31, 2017, and
ending before June 17, 2019, an insurance
company may use either the Revised An-
nual Rate or the Proposed Annual Rate to
determine the amount of discounted un-
earned premiums attributable to title in-
surance with respect to premiums received
in the 2018 calendar year. However, in any
such taxable year, an insurance company
must either use the Revised Discount Fac-
tors for purposes of discounting unpaid
losses or estimated salvage recoverable
and the Revised Annual Rate for purposes
of determining the amount of discounted
unearned premiums attributable to title
insurance in that year, or must use the Pro-
posed Discount Factors and the Proposed
Annual Rate for such purposes.

.02 Changes in Methods of Accounting.

(1) A change in method of discounting
unpaid losses, estimated salvage recover-
able, or unearned premiums attributable
to title insurance to comply with Amend-
ed § 846 changes the proper time for the
inclusion of the item in income or the
taking of the item as a deduction and is a
change in method of accounting subject to
§ 446(e) and § 1.446-1.

(2) Section 446(e) and § 1.446-1(e)
(2)(i) state that, except as otherwise pro-
vided, a taxpayer must secure the con-
sent of the Commissioner before chang-
ing a method of accounting for any item
for Federal income tax purposes. Under
§ 1.446-1(e)(3), to obtain the Commis-
sioner's consent to change a method of ac-
counting, a taxpayer generally must file a
Form 3115, Application for Change in Ac-
counting Method, during the taxable year
for which the taxpayer desires to make the
proposed change in method of accounting
(year of change). Section 1.446-1(e)(3)
provides that the Commissioner may pre-
scribe terms and conditions for effecting
a change in method of accounting. Rev.

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Proc. 2015-13, 2015-5 I.R.B. 419, as clar-
ified and modified by Rev. Proc. 2015-33,
2015-24 I.R.B. 1067, as modified by Rev.
Proc. 2017-59, 2017-48 I.R.B. 543, and
as modified by Rev. Proc. 2019-1, 2019-1
I.R.B. 1, provides the current general pro-
cedures, including terms and conditions
by which a taxpayer may obtain consent
of the Commissioner to change its method
of accounting through the filing of a Form
3115. Unless specifically authorized by
the Commissioner or by statute, a taxpay-
er may not change an established method
of accounting by amending any prior Fed-
eral income tax return. See Rev. Rul. 90-
38, 1990-1 C.B. 57.

(3) Section 481(a) provides that in com-
puting a taxpayer's taxable income for any
taxable year, if such computation is under
a method of accounting different from the
method under which the taxpayer's taxable
income for the preceding taxable year was
computed, those adjustments that are de-
termined to be necessary solely by reason
of the change in order to prevent amounts
from being duplicated or omitted must be
taken into account. The § 481(a) adjust-
ment is computed as of the beginning of the
year of change and taken into account over
the § 481(a) adjustment period provided in
the applicable administrative guidance.

(4) The timing of the issuance of the
Proposed Regulations and Final Regula-
tions implementing the amendments to
§ 846 made by section 13523 of the TCJA
poses unique challenges for taxpayers
subject to the discounting rules of § 846
in making changes in methods of account-
ing to comply with Amended § 846. In the
interest of sound tax administration and in
order to reduce the administrative and tax
compliance burdens on taxpayers affected
by the amendments to § 846 made by sec-
tion 13523 of the TCJA, this revenue pro-
cedure provides simplified procedures for
an insurance company to obtain consent
of the Commissioner to change its meth-
ods of accounting for discounting unpaid
losses and expenses unpaid, estimated sal-
vage recoverable, and unearned premiums
attributable to title insurance, as applica-
ble, to comply with Amended § 846. For
example, this revenue procedure provides
that the requirement of § 1.446-1(e)(3) to
file a Form 3115 is waived for a taxpayer
making a change in method of accounting
under this revenue procedure.

## SECTION 3. SCOPE

.01 Discounted Unpaid Losses and Es-
timated Salvage Recoverable.

This revenue procedure applies to any
property and casualty insurance company
that changes its method of accounting for
discounting unpaid losses under § 846,
discounting salvage recoverable under
§ 832, or both to comply with Amended
§ 846, and to any life insurance company
that changes its method of accounting for
discounting unpaid losses to comply with
Amended § 846, provided the taxpay-
er (whether a life insurance company or
property and casualty insurance company)
has a taxable year beginning after Decem-
ber 31, 2017, and ending before June 17,
2019, and satisfies the conditions set forth
in section 3.01(1) or (2) of this revenue
procedure.

(1) Taxpayer using Revised Discount
Factors in First TCJA Year.

(a) The taxpayer uses the Revised Dis-
count Factors to determine, as applicable,
its discounted unpaid losses under § 846
(as of the end of both the First TCJA Year
and the Pre-TCJA Year) and its estimated
salvage recoverable under § 832 (as of the
end of the First TCJA Year) on its timely
filed (including any extension) Federal in-
come tax return for its First TCJA Year, or
on an amended Federal income tax return
for its First TCJA Year filed on or before
the date the taxpayer timely files (includ-
ing any extension) its Federal income tax
return for the succeeding taxable year
(Second TCJA Year); and

(b) The taxpayer takes into account the
§ 481(a) adjustment described in section
6.01(1) of this revenue procedure in the
manner prescribed in section 6.02(1) of
this revenue procedure and follows the
procedures prescribed in section 7 of this
revenue procedure.

(2) Taxpayer using Proposed Discount
Factors in First TCJA Year and Revised
Discount Factors in Second TCJA Year.

(a) The taxpayer uses the Proposed Dis-
count Factors to determine, as applicable,
its discounted unpaid losses under § 846
(as of the end of both the First TCJA Year
and the Pre-TCJA Year) and estimated sal-
vage recoverable under § 832 (as of the
end of the First TCJA Year) on its timely
filed (including any extension) Federal in-
come tax return for its First TCJA Year;

(b) The taxpayer uses the Revised Dis-
count Factors to determine its discounted
unpaid losses under § 846 (as of the end of
both the Second TCJA Year and the First
TCJA Year) and estimated salvage recov-
erable under § 832 (as of the end of both
the Second TCJA Year and the First TCJA
Year), as applicable, on its timely filed (in-
cluding any extension) Federal income tax
return for its Second TCJA Year; and

(c) The taxpayer takes into account the
§ 481(a) adjustments described in section
6.01(2) of this revenue procedure in the
manner prescribed in section 6.02(2) of
this revenue procedure and follows the
procedures prescribed in section 7 of this
revenue procedure.

.02 Discounted Unearned Premiums
Attributable to Title Insurance.

This revenue procedure applies to any
property and casualty insurance company
that changes its method of accounting for
discounted unearned premiums attribut-
able to title insurance under § 832(b)(8)
to comply with Amended § 846, provided
the taxpayer has a taxable year beginning
after December 31, 2017, and ending be-
fore June 17, 2019, and satisfies the con-
ditions set forth in section 3.02(1) or (2) of
this revenue procedure.

(1) Taxpayer using Revised Annual
Rate in First TCJA Year. The taxpayer
uses the Revised Annual Rate to determine
its discounted unearned premiums attrib-
utable to title insurance under § 832 for
its First TCJA Year on its timely filed (in-
cluding any extension) Federal income tax
return, or on an amended Federal income
tax return for its First TCJA Year filed on
or before the date the taxpayer timely files
(including any extension) its Federal in-
come tax return for its Second TCJA Year,
and follows the procedures prescribed in
section 7 of this revenue procedure.

(2) Taxpayer using Proposed Annual
Rate in First TCJA Year and Revised An-
nual Rate in Second TCJA Year.

(a) The taxpayer uses the Proposed
Annual Rate to determine its discounted
unearned premiums attributable to title
insurance under § 832 for its First TCJA
Year on its timely filed (including any ex-
tension) Federal income tax return;

(b) The taxpayer uses the Revised
Annual Rate to determine its discounted
unearned premiums attributable to title in-
surance under § 832 for its Second TCJA

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Year on its timely filed (including any ex-
tension) Federal income tax return; and

(c) The taxpayer takes into account the
§ 481(a) adjustment described in section
6.01(4) of this revenue procedure in the
manner prescribed in section 6.02(3) of
this revenue procedure and follows the
procedures prescribed in section 7 of this
revenue procedure.

## SECTION 4. CONSENT TO CHANGE

Under § 1.446-1(e)(2)(i), the consent
of the Commissioner is hereby granted to
any taxpayer within the scope of section
3 of this revenue procedure to change its
methods of accounting for discounting
unpaid losses, estimated salvage recover-
able, and unearned premiums attributable
to title insurance, as applicable, to comply
with Amended § 846, provided the tax-
payer complies with the provisions of this
revenue procedure.

## SECTION 5. APPLICABILITY OF REV. PROC. 2015-13

.01 Except as otherwise provided in
this revenue procedure, the provisions of
Rev. Proc. 2015-13 apply to a taxpayer
within the scope of section 3 of this rev-
enue procedure.

.02 The limitations in section 5 of Rev.
Proc. 2015-13 do not apply to a change
in method of accounting made under this
revenue procedure. Therefore, a taxpayer
within the scope of this revenue procedure
is eligible to make a change in method of
accounting under this revenue procedure
even if the requested year of change is the
final year of the taxpayer's trade or busi-
ness as described in section 5.03(1) of
Rev. Proc. 2015-13 or the taxpayer engag-
es in a liquidation or reorganization trans-
action to which § 381 applies as described
in section 5.02(1) of Rev. Proc. 2015-13.

## SECTION 6. TERMS AND CONDITIONS OF CHANGE

.01 Year of Change and Section 481(a)
Adjustment.

(1) Taxpayer using Revised Discount
Factors in First TCJA Year. For a taxpay-
er described in section 3.01(1) of this rev-
enue procedure, the First TCJA Year is the

year of change, and the § 481(a) adjust-
ment is the TCJA Adjustment described in
section 6.01(1)(a) of this revenue proce-
dure, the Salvage Adjustment described in
section 6.01(1)(b) of this revenue proce-
dure, or both, as applicable. The taxpay-
er must take the § 481(a) adjustment into
account in the manner provided in section
6.02(1) of this revenue procedure.

(a) The TCJA Adjustment is the differ-
ence between the amount of discounted
unpaid losses at the end of the Pre-TC-
JA Year determined using the Revised
Discount Factors and the amount of dis-
counted unpaid losses at the end of the
Pre-TCJA Year reported on the taxpayer's
Pre-TCJA Year Federal income tax return.

(b) The Salvage Adjustment is deter-
mined as follows:

(i) If the taxpayer, for its First TCJA
Year, determines estimated salvage re-
coverable at the end of its Pre-TCJA Year
using the Revised Discount Factors, the
Salvage Adjustment is the difference be-
tween that amount and the amount of esti-
mated salvage recoverable at the end of its
Pre-TCJA Year reported on its Pre-TCJA
Year Federal income tax return; or

(ii) If the taxpayer, for its First TCJA
Year, determines estimated salvage re-
coverable at the end of its Pre-TCJA Year
using the amount reported on its Pre-TC-
JA Year Federal income tax return, the
Salvage Adjustment is zero because no
amounts will be duplicated or omitted by
reason of the change in the First TCJA
Year to use the Revised Discount Factors
to discount estimated salvage recoverable.

(2) Taxpayer using Proposed Discount
Factors in First TCJA Year and Revised
Discount Factors in Second TCJA Year.
For a taxpayer described in section 3.01(2)
of this revenue procedure, the First TCJA
Year is the first year of change. The
§ 481(a) adjustment for the First TCJA
Year is the Partial TCJA Adjustment, de-
scribed in section 6.01(2)(a) of this reve-
nue procedure, the Partial Salvage Adjust-
ment, described in section 6.01(2)(b) of
this revenue procedure, or both, as appli-
cable. The Second TCJA Year is the sec-
ond year of change. The § 481(a) adjust-
ment for the Second TCJA Year is the sum
of the Remainder TCJA Adjustment and
the Supplemental Adjustment, described
in section 6.01(2)(c) and (d) of this rev-
enue procedure, respectively. The taxpay-

er must take the § 481(a) adjustment into
account in the manner provided in section
6.02(2) of this revenue procedure.

(a) The Partial TCJA Adjustment is
the difference between the amount of dis-
counted unpaid losses at the end of the
Pre-TCJA Year determined using the Pro-
posed Discount Factors and the amount of
discounted unpaid losses at the end of the
Pre-TCJA Year reported on the taxpayer's
Pre-TCJA Year Federal income tax return.

(b) The Partial Salvage Adjustment is
determined as follows:

(i) If the taxpayer, for its First TCJA
Year, determines estimated salvage re-
coverable at the end of its Pre-TCJA Year
using the Proposed Discount Factors, the
Partial Salvage Adjustment is the differ-
ence between that amount and the amount
of estimated salvage recoverable at the
end of its Pre-TCJA Year reported on its
Pre-TCJA Year Federal income tax return.

(ii) If the taxpayer, for its First TCJA
Year, determines estimated salvage recov-
erable at the end of its Pre-TCJA Year us-
ing the amount reported on its Pre-TCJA
Year Federal income tax return, the Par-
tial Salvage Adjustment is zero because
no amounts will be duplicated or omitted
by reason of the change in the First TCJA
Year to using the Proposed Discount Fac-
tors to discount estimated salvage recov-
erable.

(c) The Remainder TCJA Adjustment
is the difference between the Partial TCJA
Adjustment described in section 6.01(2)
(a) of this revenue procedure and the
TCJA Adjustment described in section
6.01(1)(a) of this revenue procedure.

(d) The Supplemental Adjustment is the
adjustment necessary to prevent amounts
from being duplicated or omitted by rea-
son of the change from using the Proposed
Discount Factors in the First TCJA Year
to using the Revised Discount Factors
in the Second TCJA Year. For example,
the Supplemental Adjustment generally
would reflect: (i) the difference between
the discounted unpaid losses at the end of
the First TCJA Year computed using the
Proposed Discount Factors and computed
using the Revised Discount Factors, ad-
justed to account for amounts reflected in
the Remainder TCJA Adjustment, and (ii)
the difference between estimated salvage
at the end of the First TCJA Year comput-
ed using the Revised Discount Factors and

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computed using the Proposed Discount
Factors.

(3) Taxpayer using Revised Annual
Rate in First TCJA Year. For a taxpayer
described in section 3.02(1) of this reve-
nue procedure, the First TCJA Year is the
year of change. The change in method of
accounting for discounting unearned pre-
miums attributable to title insurance is
made using a cut-off method and applies
to premiums received in the 2018 calendar
year or a later calendar year. Accordingly,
a § 481(a) adjustment is neither required
nor permitted.

(4) Taxpayer using Proposed Annual
Rate in First TCJA Year and Revised An-
nual Rate in Second TCJA Year. For a tax-
payer described in section 3.02(2) of this
revenue procedure, the First TCJA Year
is the first year of change. The change
in method of accounting for discounting
unearned premiums attributable to title
insurance to initially implement the pro-
visions of the TCJA and the Proposed
Regulations in the First TCJA Year is
made using a cut-off method and applies
to premiums received in the 2018 calen-
dar year. Accordingly, a § 481(a) adjust-
ment is neither required nor permitted for
this change in method of accounting. The
Second TCJA Year is the second year of
change. A § 481(a) adjustment is neces-
sary for the Second TCJA Year to prevent
amounts from being duplicated or omitted
by reason of the change from using the
Proposed Annual Rate in the First TCJA
Year to determine discounted unearned
premiums attributable to title insurance
for title insurance premiums received in
2018 to using the Revised Annual Rate in
the Second TCJA Year for that purpose.
The taxpayer must take the § 481(a) ad-
justment (Title Adjustment) into account
in the manner provided in section 6.02(3)
of this revenue procedure.

.02 Section 481 (a) Adjustment Period.

(1) Taxpayers using Revised Discount
Factors in First TCJA Year. The § 481(a)
adjustment periods set forth in section
6.02(1)(a) and (b) of this revenue proce-
dure apply to any taxpayer described in
section 3.01(1) of this revenue procedure.

(a) The § 481(a) adjustment period
for the TCJA Adjustment is eight taxable
years (the First TCJA Year and the seven
succeeding taxable years).

(b) The § 481(a) adjustment period for
the Salvage Adjustment, if any, is one tax-
able year (the First TCJA Year) for a neg-
ative § 481(a) adjustment and four taxable
years (the First TCJA Year and the three
succeeding taxable years) for a positive
§ 481(a) adjustment.

(2) Taxpayer using Proposed Discount
Factors in First TCJA Year and Revised
Discount Factors in Second TCJA Year.
The § 481(a) adjustment periods set forth
in section 6.02(2)(a), (b), (c), and (d) of
this revenue procedure apply to any tax-
payer described in section 3.01(2) of this
revenue procedure.

(a) The § 481(a) adjustment period for
the Partial TCJA Adjustment is eight tax-
able years (the First TCJA Year and the
seven succeeding taxable years).

(b) The § 481(a) adjustment period for
the Partial Salvage Adjustment, if any, is
one taxable year (the First TCJA Year) for
a negative § 481(a) adjustment and four
taxable years (the First TCJA Year and the
three succeeding taxable years) for a posi-
tive § 481(a) adjustment.

(c) The § 481(a) adjustment period for
the Remainder TCJA Adjustment is seven
taxable years (the Second TCJA Year and
the six succeeding taxable years).

(d) The § 481(a) adjustment period
for the Supplemental Adjustment is ei-
ther one taxable year (the Second TCJA
Year) or seven taxable years (the Second
TCJA Year and the six succeeding taxable
years). The taxpayer may choose the ad-
justment period to use.

(3) Taxpayer using Proposed Annu-
al Rate for First TCJA Year and Revised
Annual Rate for Second TCJA Year. For
a taxpayer described in section 3.02(2) of
this revenue procedure, the § 481(a) ad-
justment period for the Title Adjustment is
one taxable year (the Second TCJA Year)
for a negative § 481(a) adjustment and
four taxable years (the Second TCJA Year
and the three succeeding taxable years)
for a positive § 481(a) adjustment.

(4) General rules. For purposes of this
revenue procedure, with respect to any
§ 481(a) adjustment described in section
6.01 of this revenue procedure:

(a) Except as otherwise provided in this
revenue procedure, the taxpayer must take
the § 481(a) adjustment into account rat-
ably over the applicable § 481(a) adjust-

ment period described in section 6.02(1),
(2), or (3) of this revenue procedure.

(b) If the year of change or any other
taxable year during the applicable § 481(a)
adjustment period described in section
6.02(1), (2), or (3) of this revenue proce-
dure is a short taxable year, the taxpayer
must take the applicable § 481(a) adjust-
ment described in section 6.01 of this
revenue procedure into account as if that
short taxable year were a full 12-month
year. See Rev. Rul. 78-165, 1978-1 C.B.
276.

(c) The applicable § 481(a) adjustment
period described in section 6.02(1), (2), or
(3) of this revenue procedure may not be
shortened under the provisions of section
7.03(3) of Rev. Proc. 2015-13.

(d) The applicable § 481(a) adjustment
period described in section 6.02(1), (2), or
(3) of this revenue procedure is acceler-
ated in the situations described in section
7.03(4)(a) and (d) of Rev. Proc. 2015-13.

## SECTION 7. PROCEDURE FOR MAKING THE CHANGE

In accordance with § 1.446-1(e)(3)(ii),
the requirement of § 1.446-1(e)(3)(i) to
file a Form 3115 is waived for a taxpayer
making a change in method of accounting
under this revenue procedure, provided
the taxpayer satisfies all of the applicable
terms and conditions set forth in section 6
of this revenue procedure; properly reports
the amount of any adjustment described in
section 6.01 of this revenue procedure, as
applicable, on its Federal income tax re-
turns; and, except as otherwise provided
in this revenue procedure, satisfies all of
the applicable terms and conditions set
forth in Rev. Proc. 2015-13.

## SECTION 8. AUDIT PROTECTION

Except as otherwise provided herein,
the IRS will not require a taxpayer that
makes a change in method of accounting
for discounting unpaid losses, estimated
salvage recoverable, or unearned pre-
miums attributable to title insurance un-
der this revenue procedure to change its
method of accounting for the same item
(that is, discounting of unpaid losses, es-
timated salvage recoverable, or unearned
premiums attributable to title insurance,
as applicable) for taxable years prior to

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the year of change, provided the taxpayer
complies with the provisions of this rev-
enue procedure. The IRS may change a
taxpayer's method of accounting for the
same item that is the subject of a change
in method of accounting made under this
revenue procedure if the taxpayer's meth-
od of accounting for the same item (that
is, discounting of unpaid losses, estimated
salvage recoverable, or unearned premi-
ums attributable to title insurance, as ap-
plicable) is an issue under consideration
(whether under examination, before an
Appeals office, or before a federal court),
within the meaning of section 3.08 of
Rev. Proc. 2015-13, on July 22, 2019. The
exceptions in section 8.02 of Rev. Proc.
2015-13 do not apply to a taxpayer with-
in the scope of section 3 of this revenue
procedure with respect to the taxpayer's
method of accounting for the same item
that is the subject of a change in method
of accounting made under this revenue
procedure (that is, discounting of unpaid
losses, estimated salvage recoverable, or
unearned premiums attributable to title in-
surance, as applicable).

## SECTION 9. EFFECT ON OTHER REVENUE PROCEDURES

Section 26.04(1) of Rev. Proc. 2018-
31, 2018-22 I.R.B. 637 (as modified by
Rev. Proc. 2019-10, 2019-02 I.R.B. 296),
is modified to provide that section 26.04
of Rev. 2018-31 is inapplicable to any
change in method of accounting made un-
der this revenue procedure.

## SECTION 10. EFFECTIVE DATE

This revenue procedure is effective for
taxable years beginning after December
31, 2017, and ending on or before Decem-
ber 31, 2019.

## SECTION 11. DRAFTING INFORMATION

The principal author of this revenue
procedure is Kathryn M. Sneade of the
Office of Associate Chief Counsel (Finan-
cial Institutions & Products). For further
information regarding this revenue pro-
cedure contact Ms. Sneade at (202) 317-
6995 (not a toll free number).

26 CFR 601.201: Rulings and determination letters.

(Also: Part I, Sections 832, 846; 1.832-4, 1.846-1.)

## Rev. Proc. 2019-31

### SECTION 1. PURPOSE

This revenue procedure prescribes re-
vised unpaid loss discount factors for the
2018 accident year and earlier accident
years for use by insurance companies in
computing discounted unpaid losses un-
der § 846 of the Internal Revenue Code
(Code). The revised unpaid loss discount
factors also serve as revised salvage dis-
count factors for the 2018 accident year
and earlier accident years for use in com-
puting estimated salvage recoverable un-
der § 832 of the Code. Additionally, this
revenue procedure prescribes discount
factors for the 2019 accident year for
use by insurance companies in comput-
ing discounted unpaid losses under § 846
and estimated salvage recoverable under
§ 832. The discount factors prescribed
herein were determined under § 846, as
amended by section 13523 of Pub. L. No.
115-97 (131 Stat. 2054, 2152), commonly
referred to as the Tax Cuts and Jobs Act
(TCJA), and final regulations under § 846
(T.D. 9863, 84 FR 27947) (Final Regula-
tions) published on June 17, 2019.

## SECTION 2. BACKGROUND

### .01 Discounting rules and discount fac- tors.

(1) The discounting rules of § 846 are
used to determine discounted unpaid loss-
es under § 832(b)(5), including unpaid
loss adjustment expenses included in un-
paid losses under § 832(b)(6), and esti-
mated salvage recoverable of property and
casualty insurance companies for Federal
income tax purposes under § 832(b)(5), as
well as discounted unpaid losses of life in-
surance companies for Federal income tax
purposes under §§ 805(a)(1) and 807(c)
(2) of the Code. References to unpaid
losses hereinafter in this revenue proce-
dure refer to unpaid losses and expenses
unpaid (as defined in § 832(b)(5) and (6))
or unpaid losses (as defined in §§ 805(a)
(1) and 807(c)(2)), as applicable.

(2) Section 846 provides that discount-
ed unpaid losses must be separately deter-

mined for each accident year for each line
of business by applying the annual rate
determined under § 846(c) and the appro-
priate loss payment pattern to the amount
of unpaid losses as measured at the end of
the taxable year. Section 846(d) directs the
Secretary to use the most recent aggregate
loss payment data of property and casualty
insurance companies to determine a loss
payment pattern for each line of business
every five years. This payment pattern is
used to discount unpaid losses for the ac-
cident year ending with a determination
year and for each of the four succeeding
accident years. For every accident year,
the Secretary publishes guidance in the
Internal Revenue Bulletin that provides
discount factors for each line of business
based on the annual rate and loss payment
patterns determined under § 846.

(3) Section 13523 of the TCJA amend-
ed § 846 for taxable years beginning af-
ter December 31, 2017. Section 846, as
amended by the TCJA, is referred to in
this revenue procedure as Amended § 846.
Section 13523(a) and (b) amended the
definition of annual rate under § 846(c)
and the computational rules for loss pay-
ment patterns under § 846(d), respective-
ly. Section 13523(c) repealed the election
that was previously set forth in § 846(e)
to use the insurance company's own his-
torical loss payment pattern instead of the
pattern published by the Secretary.

(4) Section 13523(e) of the TCJA pro-
vides a transition rule for the application of
the amendments made by section 13523.
For the first taxable year beginning after
December 31, 2017, the unpaid losses at
the end of the preceding taxable year are
determined as if the amendments made by
section 13523 had applied to the unpaid
losses in the preceding taxable year and
by using the annual rate and loss payment
patterns applicable to accident years end-
ed with calendar year 2018. The resulting
adjustment, if any, is included in the in-
surance company's gross income ratably
over eight taxable years, beginning with
the insurance company's first taxable year
beginning after December 31, 2017, and
continuing through the seven succeeding
taxable years. Section 13523(e) also pro-
vides that, for subsequent taxable years,
the amendments made by section 13523
are applied with respect to unpaid losses
for accident years ended with or before

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calendar year 2018 by using the annual
rate and loss payment patterns applicable
to accident years ended with calendar year
2018.

(5) On November 7, 2018, the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) published proposed regulations un-
der Amended § 846 (REG-103163-18, 83
FR 55646) (Proposed Regulations).

(6) On January 7, 2019, the Treasury
Department and the IRS published Rev.
Proc. 2019-06, which prescribes unpaid
loss discount factors for the 2018 accident
year and earlier accident years for use in
computing discounted unpaid losses under
Amended § 846. The unpaid loss discount
factors also serve as salvage discount fac-
tors for the 2018 accident year and earlier
accident years for use in computing esti-
mated salvage recoverable under § 832.
The unpaid loss discount factors pre-
scribed in Rev. Proc. 2019-06 (Proposed
Discount Factors) were determined under
Amended § 846 and the Proposed Regula-
tions. In Rev. Proc. 2019-06, the Treasury
Department and the IRS announced the
intent to publish revised unpaid loss dis-
count factors, if necessary, following the
publication of the Proposed Regulations
as final regulations. In Rev. Proc. 2019-06,
the Treasury Department and the IRS also
announced the intent to issue guidance
on the use of revised discount factors,
including the adjustment to be taken into
account by certain taxpayers that used the
Proposed Discount Factors in a taxable
year ended before the date of publication
of final regulations.

(7) Under the Proposed Regulations,
the annual rate determined under Amend-
ed § 846(c) is based on a specific range
of maturities (from one-half year to sev-
enteen and one-half years) from the cor-
porate bond yield curve prescribed in
Amended § 846(c)(2). Under the Final
Regulations, the annual rate determined
under Amended § 846(c) is based on a
specific range of maturities (from four
and one-half years to ten years) from the
prescribed corporate bond yield curve.
The loss payment patterns for the 2017
determination year are the same under
the Proposed Regulations and Final Reg-
ulations. The annual rate determined for
the 2018 calendar year under the Pro-
posed Regulations is 3.12 percent, com-

pounded semiannually, while the annual
rate determined for the 2018 calendar
year under the Final Regulations is 2.94
percent, compounded semiannually. Be-
cause the annual rate determined under
the Final Regulations is different from
the annual rate determined under the Pro-
posed Regulations, this revenue proce-
dure prescribes revised discount factors
determined under Amended § 846 and
the Final Regulations (Revised Discount
Factors) and provides guidance on the
use of the Revised Discount Factors. Sec-
tion 6.01(2) of Rev. Proc. 2019-30, 2019-
33 I.R.B. _ , published in the same
edition of the Internal Revenue Bulletin
as this revenue procedure, describes the
adjustments to be taken into account by
certain taxpayers that used the Proposed
Discount Factors in any taxable year end-
ed before June 17, 2019.

(8) This revenue procedure also pre-
scribes discount factors for the 2019 ac-
cident year determined under Amended
§ 846 and the Final Regulations for use
by insurance companies in computing
discounted unpaid losses under Amended
§ 846 and estimated salvage recoverable
under § 832. These discount factors must
be used in taxable years ending on or after
June 17, 2019.

.02 Changes in methods of accounting.

In addition to describing the adjust-
ments to be taken into account by certain
taxpayers that used the Proposed Discount
Factors, Rev. Proc. 2019-30 provides sim-
plified procedures under § 446 of the Code
and § 1.446-1(e) of the Income Tax Regu-
lations for an insurance company to obtain
automatic consent of the Commissioner of
Internal Revenue to change its methods of
accounting for discounting unpaid losses
and estimated salvage recoverable, as ap-
plicable, to comply with Amended § 846.

## SECTION 3. SCOPE

This revenue procedure applies to any
insurance company that is required to dis-
count unpaid losses under Amended § 846
for a line of business using the discount
factors published by the Secretary, and
also applies to any insurance company
that is required to discount estimated sal-
vage recoverable under § 832. This rev-
enue procedure applies to taxable years
beginning after December 31, 2017.

## SECTION 4. REVISED DISCOUNT FACTORS

.01 The tables in this section 4 present
separately for each line of business the Re-
vised Discount Factors. All of the Revised
Discount Factors presented in the tables
in this section 4 are determined by using
the applicable interest rate for 2018 under
Amended § 846(c) and the Final Regula-
tions, which is 2.94 percent, compounded
semiannually, and the payment patterns
for the 2017 determination year deter-
mined by the Secretary under Amended
§ 846(d) and the Final Regulations. All of
the Revised Discount Factors presented in
these tables are determined by assuming
all loss payments occur in the middle of
the calendar year.

.02 An insurance company may use ei-
ther the Revised Discount Factors or the
Proposed Discount Factors for its first
taxable year beginning after December
31, 2017, if the company's first taxable
year beginning after December 31, 2017,
ended before June 17, 2019. However, the
insurance company must consistently use
the Revised Discount Factors or consis-
tently use the Proposed Discount Factors.
An insurance company that uses the Pro-
posed Discount Factors in its first taxable
year beginning after December 31, 2017,
must take into account the adjustments
described in section 6.01(2) of Rev. Proc.
2019-30 in the manner prescribed in sec-
tion 6.02(2) of Rev. Proc. 2019-30 if the
company does not amend the return filed
for that year to use the Revised Discount
Factors.

.03 Tables 1 and 2 present separately
for each line of business the Revised Dis-
count Factors for losses incurred in the
2018 accident year and earlier accident
years for use in the first taxable year be-
ginning after December 31, 2017, for pur-
poses of determining discounted unpaid
losses under Amended § 846 and estimat-
ed salvage recoverable under § 832.

.04 Tables 3 and 4 present separately
for each line of business the Revised Dis-
count Factors for losses incurred in the
2017 accident year and earlier accident
years for use in the first taxable year be-
ginning after December 31, 2017, for pur-
poses of determining the unpaid losses at
the end of the preceding taxable year, as
well as the adjustments described in sec-

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tion 2.01(4) of this revenue procedure and
section 6.01(1) and (2) of Rev. Proc. 2019-
30, which must be taken into account in
the manner prescribed in section 6.02(1)
and (2) of Rev. Proc. 2019-30.

.05 Tables 5 and 6 present separate-
ly for each line of business the Revised
Discount Factors for losses incurred in

the 2018 accident year for use in tax-
able years beginning after December 31,
2017, for purposes of determining dis-
counted unpaid losses under Amended
§ 846 and estimated salvage recoverable
under § 832.

.06 Section V of Notice 88-100, 1988-2
C.B. 439, sets forth a composite method

for computing discounted unpaid losses
for accident years that are not separately
reported on the annual statement. Tables
2, 4, 5, and 6 separately provide discount
factors for insurance companies that have
elected to use the composite method of
Notice 88-100. See Rev. Proc. 2002-74,
2002-2 C.B. 980.

Table 1 (part A) Revised Discount Factors Under Amended Section 846 (percent) For the First Taxable Year Beginning After December 31, 2017 Short-Tail Lines of Business

Accident Year

Auto Physical Damage

Fidelity/Surety

Financial Guaranty/ Mortgage Guaranty

International

Other*

2018

98.3892

95.9894

95.7530

96.3010

97.1014

2017

97.1339

97.1339

97.1339

97.1339

97.1339

Years before 2017

98.5513

98.5513

98.5513

98.5513

98.5513

\* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount fac-
tor for taxable year 2018 is 98.5513 percent.

Table 1 (part B) Revised Discount Factors Under Amended Section 846 (percent) For the First Taxable Year Beginning After December 31, 2017 Short-Tail Lines of Business

Accident Year

Reinsurance - Nonproportional Assumed Financial Lines

Reinsurance - Nonproportional Assumed Liability

Reinsurance - Nonproportional Assumed Property

Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Burglary &amp; Theft)

Warranty

Short-Tail Composite

2018

95.6050

94.8379

96.2833

97.5135

98.1947

96.9951

2017

97.1339

97.1339

97.1339

97.1339

97.1339

97.1339

Years before 2017

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

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Table 2 (part A) Revised Discount Factors Under Amended Section 846 (percent) For the First Taxable Year Beginning After December 31, 2017 Long-Tail Lines of Business

Accident Year

Commercial Auto/Truck Liability/Medical

Medical Professional Liability - Claims-Made

Medical Professional Liability - Occurrence

Multiple Peril Lines

Other Liability - Claims-Made

Other Liability - Occurrence

2018

94.0556

91.6544

86.8932

95.3058

90.8915

89.3683

2017

94.7607

92.6388

88.9529

93.6724

91.6944

90.2053

2016

95.2819

92.8576

90.4811

93.9651

92.1992

90.7535

2015

95.3204

93.1388

91.8194

93.2041

92.2415

90.9196

2014

95.2024

93.2805

92.7664

91.4064

92.0976

90.6836

2013

95.0498

93.3035

93.5069

91.6039

92.6040

90.7542

2012

95.3260

94.2423

94.3189

91.3154

93.0770

90.7788

2011

94.9804

95.1291

94.9993

91.0177

93.8378

91.9830

2010

96.4102

96.0160

96.1220

93.5200

94.9264

92.6228

2009

98.3585

97.7503

97.7902

94.8530

96.6876

94.4974

Taxpayer Not Using the Composite Method

2008

98.5513

98.5513

98.5513

96.1895

98.0033

95.8511

2007

98.5513

98.5513

98.5513

97.5045

98.5513

97.2176

Years before 2007

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

Years before 2009

98.5513

98.5513

98.5513

96.9185

98.0920

96.7300

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# Table 2 (part B) Revised Discount Factors Under Amended Section 846 (percent) For the First Taxable Year Beginning After December 31, 2017

Long-Tail Lines of Business

Accident Year

Private Passenger Auto Liability/ Medical

Products Liability - Claims-Made

Products Liability - Occurrence

Workers' Compensation

Long-Tail Composite

2018

95.6745

85.8982

87.8191

88.0401

92.7568

2017

95.2920

86.3600

89.1417

86.5393

91.7292

2016

95.2520

88.1407

89.8860

85.4517

91.4469

2015

94.8920

83.8076

91.1924

83.9662

90.2933

2014

94.2325

85.0889

89.8810

83.4129

88.7546

2013

94.2824

86.4184

89.9309

82.8905

88.6421

2012

94.5205

87.8040

90.8527

83.2567

88.6258

2011

95.0550

89.0388

91.8072

84.1036

89.1661

2010

95.6473

90.2969

92.1992

84.7150

90.3858

2009

97.7282

91.5785

94.4133

86.5946

92.1457

Taxpayer Not Using the Composite Method

2008

98.5513

92.8838

95.7739

87.8065

93.4541

2007

98.5513

94.2124

97.1571

89.0414

94.7812

2006

98.5513

95.5629

98.5513

90.2995

96.1195

2005

98.5513

96.9299

98.5513

91.5813

97.4421

2004

98.5513

98.2868

98.5513

92.8867

98.5513

2003

98.5513

98.5513

98.5513

94.2154

98.5513

2002

98.5513

98.5513

98.5513

95.5661

98.5513

2001

98.5513

98.5513

98.5513

96.9334

98.5513

2000

98.5513

98.5513

98.5513

98.2913

98.5513

Years before 2000

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

Years before 2009

98.5513

94.7288

96.6903

91.2579

95.0968

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Table 3 (part A) Revised Discount Factors Under Amended Section 846 (percent) For the Taxable Year Preceding the First Taxable Year Beginning After December 31, 2017 Short-Tail Lines of Business

Accident Year

Auto Physical Damage

Fidelity/Surety

Financial Guaranty/ Mortgage Guaranty

International

Other*

2017

98.3892

95.9894

95.7530

96.3010

97.1014

2016

97.1339

97.1339

97.1339

97.1339

97.1339

Years before 2016

98.5513

98.5513

98.5513

98.5513

98.5513

\* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount fac-
tor for taxable year 2017 is 98.5513 percent.

Table 3 (part B) Revised Discount Factors Under Amended Section 846 (percent) For the Taxable Year Preceding the First Taxable Year Beginning After December 31, 2017 Short-Tail Lines of Business

Accident Year

Reinsurance - Nonproportional Assumed Financial Lines

Reinsurance - Nonproportional Assumed Liability

Reinsurance - Nonproportional Assumed Property

Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Burglary &amp; Theft)

Warranty

Short-Tail Composite

2017

95.6050

94.8379

96.2833

97.5135

98.1947

96.9951

2016

97.1339

97.1339

97.1339

97.1339

97.1339

97.1339

Years before 2016

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

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# Table 4 (part A) Revised Discount Factors Under Amended Section 846 (percent) For the Taxable Year Preceding the First Taxable Year Beginning After December 31, 2017 Long-Tail Lines of Business

Accident Year

Commercial Auto/Truck Liability/Medical

Medical Professional Liability - Claims-Made

Medical Professional Liability - Occurrence

Multiple Peril Lines

Other Liability - Claims-Made

Other Liability - Occurrence

2017

94.0556

91.6544

86.8932

95.3058

90.8915

89.3683

2016

94.7607

92.6388

88.9529

93.6724

91.6944

90.2053

2015

95.2819

92.8576

90.4811

93.9651

92.1992

90.7535

2014

95.3204

93.1388

91.8194

93.2041

92.2415

90.9196

2013

95.2024

93.2805

92.7664

91.4064

92.0976

90.6836

2012

95.0498

93.3035

93.5069

91.6039

92.6040

90.7542

2011

95.3260

94.2423

94.3189

91.3154

93.0770

90.7788

2010

94.9804

95.1291

94.9993

91.0177

93.8378

91.9830

2009

96.4102

96.0160

96.1220

93.5200

94.9264

92.6228

2008

98.3585

97.7503

97.7902

94.8530

96.6876

94.4974

Taxpayer Not Using the Composite Method

2007

98.5513

98.5513

98.5513

96.1895

98.0033

95.8511

2006

98.5513

98.5513

98.5513

97.5045

98.5513

97.2176

Years before 2006

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

Years before 2008

98.5513

98.5513

98.5513

96.9185

98.0920

96.7300

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# Table 4 (part B) Revised Discount Factors Under Amended Section 846 (percent) For the Taxable Year Preceding the First Taxable Year Beginning After December 31, 2017 Long-Tail Lines of Business

Accident Year

Private Passenger Auto Liability/ Medical

Products Liability - Claims-Made

Products Liability - Occurrence

Workers' Compensation

Long-Tail Composite

2017

95.6745

85.8982

87.8191

88.0401

92.7568

2016

95.2920

86.3600

89.1417

86.5393

91.7292

2015

95.2520

88.1407

89.8860

85.4517

91.4469

2014

94.8920

83.8076

91.1924

83.9662

90.2933

2013

94.2325

85.0889

89.8810

83.4129

88.7546

2012

94.2824

86.4184

89.9309

82.8905

88.6421

2011

94.5205

87.8040

90.8527

83.2567

88.6258

2010

95.0550

89.0388

91.8072

84.1036

89.1661

2009

95.6473

90.2969

92.1992

84.7150

90.3858

2008

97.7282

91.5785

94.4133

86.5946

92.1457

Taxpayer Not Using the Composite Method

2007

98.5513

92.8838

95.7739

87.8065

93.4541

2006

98.5513

94.2124

97.1571

89.0414

94.7812

2005

98.5513

95.5629

98.5513

90.2995

96.1195

2004

98.5513

96.9299

98.5513

91.5813

97.4421

2003

98.5513

98.2868

98.5513

92.8867

98.5513

2002

98.5513

98.5513

98.5513

94.2154

98.5513

2001

98.5513

98.5513

98.5513

95.5661

98.5513

2000

98.5513

98.5513

98.5513

96.9334

98.5513

1999

98.5513

98.5513

98.5513

98.2913

98.5513

Years before 1999

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

Years before 2008

98.5513

94.7288

96.6903

91.2579

95.0968

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Table 5 (part A) Revised Discount Factors Under Amended Section 846 (percent) For Losses Incurred in Accident Year 2018 in Short-Tail Lines of Business

Taxable Year Beginning in

Auto Physical Damage

Fidelity/Surety

Financial Guaranty/ Mortgage Guaranty

International

Other*

2018

98.3892

95.9894

95.7530

96.3010

97.1014

2019

97.1339

97.1339

97.1339

97.1339

97.1339

Taxpayer Not Using Composite Method

Years after 2019

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

2020

98.5513

98.5513

98.5513

98.5513

98.5513

Years after 2020

Use composite discount factors published for the relevant accident year .**

\* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount fac-
tor for taxable year 2018 is 98.5513 percent. For later years, the discount factor for losses incurred in 2018 is the discount
factor published for Accident and Health lines of business for losses incurred in the accident year coinciding with the
taxable year.

** The relevant accident year is the accident year that is two years prior to the specified taxable year.

Table 5 (part B) Revised Discount Factors Under Amended Section 846 (percent) For Losses Incurred in Accident Year 2018 in Short-Tail Lines of Business

Taxable Year Beginning in

Reinsurance - Nonproportional Assumed Financial Lines

Reinsurance - Nonproportional Assumed Liability

Reinsurance - Nonproportional Assumed Property

Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Burglary &amp; Theft)

Warranty

Short-Tail Composite

2018

95.6050

94.8379

96.2833

97.5135

98.1947

96.9951

2019

97.1339

97.1339

97.1339

97.1339

97.1339

97.1339

Taxpayer Not Using Composite Method

Years after

98.5513

98.5513

98.5513

98.5513

2019

98.5513

98.5513

Taxpayer Using the Composite Method

2020

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

Years after

2020

Use composite discount factors published for the relevant accident year .**

** The relevant accident year is the accident year that is two years prior to the specified taxable year.

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# Table 6 (part A) Revised Discount Factors Under Amended Section 846 (percent)

For Losses Incurred in Accident Year 2018 in Long-Tail Lines of Business

Taxable Year

Commercial Auto/Truck Liability/Medical

Medical Professional Liability - Claims-Made

Medical Professional Liability - Occurrence

Multiple Peril Lines

Other Liability - Claims-Made

Other Liability - Occurrence

2018

94.0556

91.6544

86.8932

95.3058

90.8915

89.3683

2019

94.7607

92.6388

88.9529

93.6724

91.6944

90.2053

2020

95.2819

92.8576

90.4811

93.9651

92.1992

90.7535

2021

95.3204

93.1388

91.8194

93.2041

92.2415

90.9196

2022

95.2024

93.2805

92.7664

91.4064

92.0976

90.6836

2023

95.0498

93.3035

93.5069

91.6039

92.6040

90.7542

2024

95.3260

94.2423

94.3189

91.3154

93.0770

90.7788

2025

94.9804

95.1291

94.9993

91.0177

93.8378

91.9830

2026

96.4102

96.0160

96.1220

93.5200

94.9264

92.6228

2027

98.3585

97.7503

97.7902

94.8530

96.6876

94.4974

Taxpayer Not Using Composite Method

2028

98.5513

98.5513

98.5513

96.1895

98.0033

95.8511

2029

98.5513

98.5513

98.5513

97.5045

98.5513

97.2176

Years after

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

2029

Taxpayer Using the Composite Method

2028

98.5513

98.5513

98.5513

96.9185

98.0920

96.7300

Years after
2028

Use composite discount factors published for the relevant accident year .*

*The relevant accident year is the accident year that is ten years prior to the specified taxable year.

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# Table 6 (part B) Revised Discount Factors Under Amended Section 846 (percent)

For Losses Incurred in Accident Year 2018 in Long-Tail Lines of Business

Taxable Year

Private Passenger Auto Liability/ Medical

Products Liability - Claims-Made

Products Liability - Occurrence

Workers' Compensation

Long-Tail Composite

2018

95.6745

85.8982

87.8191

88.0401

92.7568

2019

95.2920

86.3600

89.1417

86.5393

91.7292

2020

95.2520

88.1407

89.8860

85.4517

91.4469

2021

94.8920

83.8076

91.1924

83.9662

90.2933

2022

94.2325

85.0889

89.8810

83.4129

88.7546

2023

94.2824

86.4184

89.9309

82.8905

88.6421

2024

94.5205

87.8040

90.8527

83.2567

88.6258

2025

95.0550

89.0388

91.8072

84.1036

89.1661

2026

95.6473

90.2969

92.1992

84.7150

90.3858

2027

97.7282

91.5785

94.4133

86.5946

92.1457

Taxpayer Not Using Composite Method

2028

98.5513

92.8838

95.7739

87.8065

93.4541

2029

98.5513

94.2124

97.1571

89.0414

94.7812

2030

98.5513

95.5629

98.5513

90.2995

96.1195

2031

98.5513

96.9299

98.5513

91.5813

97.4421

2032

98.5513

98.2868

98.5513

92.8867

98.5513

2033

98.5513

98.5513

98.5513

94.2154

98.5513

2034

98.5513

98.5513

98.5513

95.5661

98.5513

2035

98.5513

98.5513

98.5513

96.9334

98.5513

2036

98.5513

98.5513

98.5513

98.2913

98.5513

Years after 2036

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

2028

98.5513

94.7288

96.6903

91.2579

95.0968

Years after 2028

Use composite discount factors published for the relevant accident year .*

*The relevant accident year is the accident year that is ten years prior to the specified taxable year.

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# SECTION 5. DISCOUNT FACTORS FOR TAXABLE YEARS BEGINNING IN 2019

.01 The tables in this section 5 pres-
ent separately for each line of business
discount factors for losses incurred in the
2019 accident year and earlier accident
years for use by insurance companies in
computing discounted unpaid losses un-
der Amended § 846 and estimated salvage
recoverable under § 832 in taxable years
beginning in 2019. Insurance companies

must use these discount factors in taxable
years ending on or after June 17, 2019.
The discount factors for losses incurred in
accident year 2019 presented in these ta-
bles are determined by using the applica-
ble interest rate for 2019 under Amended
§ 846(c) and the Final Regulations, which
is 3.09 percent, compounded semiannual-
ly. Consistent with the transition rule in
section 13523(3) of the TCJA, all other
discount factors presented in these tables
are determined by using the applicable in-
terest rate for 2018, which is 2.94 percent,

compounded semiannually. All of the dis-
count factors presented in these tables are
determined by using the payment patterns
for the 2017 determination year deter-
mined by the Secretary under Amended
§ 846(d) and the Final Regulations and by
assuming all loss payments occur in the
middle of the calendar year.

.02 Tables 8, 9, and 10 separately pro-
vide discount factors for insurance com-
panies that have elected to use the com-
posite method of Notice 88-100. See Rev.
Proc. 2002-74.

Table 7 (part A) Discount Factors Under Amended Section 846 (percent) For Taxable Year(s) Beginning in 2019 Short-Tail Lines of Business

Accident Year

Auto Physical Damage

Fidelity/Surety

Financial Guaranty/ Mortgage Guaranty

International

Other*

2019

98.3085

95.7921

95.5443

96.1189

96.9581

2018

97.1339

97.1339

97.1339

97.1339

97.1339

Years before 2018

98.5513

98.5513

98.5513

98.5513

98.5513

\* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount fac-
tor for taxable year 2019 is 98.4785 percent.

Table 7 (part B) Factors for Discounting Unpaid Losses Under Section 846 (percent) For Taxable Year(s) Beginning in 2019 Short-Tail Lines of Business

Accident Year

Reinsurance - Nonproportional Assumed Financial Lines

Reinsurance - Nonproportional Assumed Liability

Reinsurance - Nonproportional Assumed Property

Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Burglary &amp; Theft)

Warranty

Short-Tail Composite

2019

95.3891

94.5848

96.1004

97.3903

98.1046

96.8468

2018

97.1339

97.1339

97.1339

97.1339

97.1339

97.1339

Years before 2018

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

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Table 8 (part A) Discount Factors Under Amended Section 846 (percent) For Taxable Year(s) Beginning in 2019 Long-Tail Lines of Business

Accident Year

Commercial Auto/Truck Liability/Med- ical

Medical Professional Liability - Claims-Made

Medical Professional Liability - Occurrence

Multiple Peril Lines

Other Liability - Claims-Made

Other Liability - Occurrence

2019

93.7704

91.2627

86.2902

95.0826

90.4676

88.8810

2018

94.7607

92.6388

88.9529

93.6724

91.6944

90.2053

2017

95.2819

92.8576

90.4811

93.9651

92.1992

90.7535

2016

95.3204

93.1388

91.8194

93.2041

92.2415

90.9196

2015

95.2024

93.2805

92.7664

91.4064

92.0976

90.6836

2014

95.0498

93.3035

93.5069

91.6039

92.6040

90.7542

2013

95.3260

94.2423

94.3189

91.3154

93.0770

90.7788

2012

94.9804

95.1291

94.9993

91.0177

93.8378

91.9830

2011

96.4102

96.0160

96.1220

93.5200

94.9264

92.6228

2010

98.3585

97.7503

97.7902

94.8530

96.6876

94.4974

Taxpayer Not Using the Composite Method

2009

98.5513

98.5513

98.5513

96.1895

98.0033

95.8511

2008

98.5513

98.5513

98.5513

97.5045

98.5513

97.2176

Years before 2008

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

Years before 2010

98.5513

98.5513

98.5513

96.9185

98.0920

96.7300

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Table 8 (part B) Discount Factors Under Amended Section 846 (percent) For Taxable Year(s) Beginning in 2019 Long-Tail Lines of Business

Accident Year

Private Passenger Auto Liability/ Medical

Products Liability - Claims-Made

Products Liability - Occurrence

Workers' Compensation

Long-Tail Composite

2019

95.4657

85.2754

87.2645

87.5213

92.4228

2018

95.2920

86.3600

89.1417

86.5393

91.7292

2017

95.2520

88.1407

89.8860

85.4517

91.4469

2016

94.8920

83.8076

91.1924

83.9662

90.2933

2015

94.2325

85.0889

89.8810

83.4129

88.7546

2014

94.2824

86.4184

89.9309

82.8905

88.6421

2013

94.5205

87.8040

90.8527

83.2567

88.6258

2012

95.0550

89.0388

91.8072

84.1036

89.1661

2011

95.6473

90.2969

92.1992

84.7150

90.3858

2010

97.7282

91.5785

94.4133

86.5946

92.1457

Taxpayer Not Using the Composite Method

2009

98.5513

92.8838

95.7739

87.8065

93.4541

2008

98.5513

94.2124

97.1571

89.0414

94.7812

2007

98.5513

95.5629

98.5513

90.2995

96.1195

2006

98.5513

96.9299

98.5513

91.5813

97.4421

2005

98.5513

98.2868

98.5513

92.8867

98.5513

2004

98.5513

98.5513

98.5513

94.2154

98.5513

2003

98.5513

98.5513

98.5513

95.5661

98.5513

2002

98.5513

98.5513

98.5513

96.9334

98.5513

2001

98.5513

98.5513

98.5513

98.2913

98.5513

Years before 2001

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

Years before 2010

98.5513

94.7288

96.6903

91.2579

95.0968

# SECTION 6. DISCOUNT FACTORS FOR THE 2019 ACCIDENT YEAR

.01 The tables in this section 6 present
separately for each line of business the
discount factors for losses incurred in the
2019 accident year for use by insurance
companies in computing discounted un-
paid losses under Amended § 846 and esti-

mated salvage recoverable under § 832. All
of the discount factors presented in these
tables are determined by using the applica-
ble interest rate for 2019 under Amended
§ 846(c) and the Final Regulations, which
is 3.09 percent, compounded semiannual-
ly, and the payment patterns for the 2017
determination year determined by the Sec-
retary under Amended § 846(d) and the Fi-

nal Regulations. All of the discount factors
presented in these tables are determined by
assuming all loss payments occur in the
middle of the calendar year.

.02 Tables 9 and 10 separately provide
discount factors for insurance companies
who have elected to use the composite
method of Notice 88-100. See Rev. Proc.
2002-74.

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Table 9 (part A) Discount Factors Under Amended Section 846 (percent) For Losses Incurred in Accident Year 2019 in Short-Tail Lines of Business

Taxable Year Beginning in

Auto Physical Damage

Fidelity/Surety

Financial Guar- anty/ Mortgage Guar- anty

International

Other*

2019

98.3085

95.7921

95.5443

96.1189

96.9581

2020

96.9916

96.9916

96.9916

96.9916

96.9916

Taxpayer Not Using Composite Method

Years after 2020

98.4785

98.4785

98.4785

98.4785

98.4785

Taxpayer Using the Composite Method

2021

98.4785

98.4785

98.4785

98.4785

98.4785

Years after 2021

Use composite discount factors published for the relevant accident year .**

\* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount fac-
tor for taxable year 2019 is 98.4785 percent. For later years, the discount factor for losses incurred in 2019 is the discount
factor published for Accident and Health lines of business for losses incurred in the accident year coinciding with the
taxable year.

** The relevant accident year is the accident year that is two years prior to the specified taxable year.

Table 9 (part B) Discount Factors Under Amended Section 846 (percent) For Losses Incurred in Accident Year 2019 in Short-Tail Lines of Business

Taxable Year Beginning in

Reinsurance - Nonproportional Assumed Financial Lines

Reinsurance - Nonpropor- tional Assumed Liability

Reinsurance - Nonpropor- tional Assumed Property

Special Property (Fire, Allied Lines, Inland Marine, Earth- quake, Burglary &amp; Theft)

Warranty

Short-Tail Composite

2019

95.3891

94.5848

96.1004

97.3903

98.1046

96.8468

2020

96.9916

96.9916

96.9916

96.9916

96.9916

96.9916

Taxpayer Not Using Composite Method

Years after 2020

98.4785

98.4785

98.4785

98.4785

98.4785

98.4785

Taxpayer Using the Composite Method

2021

98.4785

98.4785

98.4785

98.4785

98.4785

98.4785

Years after 2021

Use composite discount factors published for the relevant accident year .**

** The relevant accident year is the accident year that is two years prior to the specified taxable year.

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# Table 10 (part A) Discount Factors Under Amended Section 846 (percent)

For Losses Incurred in Accident Year 2019 in Long-Tail Lines of Business

Taxable Year

Commercial Auto/Truck Liability/Med- ical

Medical Professional Liability - Claims-Made

Medical Professional Liability - Occurrence

Multiple Peril Lines

Other Liability - Claims-Made

Other Liability - Occurrence

2019

93.7704

91.2627

86.2902

95.0826

90.4676

88.8810

2020

94.5084

92.2917

88.4392

93.3741

91.3061

89.7544

2021

95.0543

92.5197

90.0344

93.6815

91.8334

90.3264

2022

95.0945

92.8130

91.4323

92.8864

91.8764

90.4989

2023

94.9707

92.9600

92.4216

91.0050

91.7240

90.2502

2024

94.8102

92.9821

93.1951

91.2099

92.2519

90.3215

2025

95.0988

93.9636

94.0439

90.9051

92.7450

90.3437

2026

94.7349

94.8913

94.7551

90.5890

93.5395

91.6011

2027

96.2326

95.8197

95.9308

93.2071

94.6782

92.2678

2028

98.2762

97.6382

97.6800

94.6020

96.5238

94.2296

Taxpayer Not Using Composite Method

2029

98.4785

98.4785

98.4785

96.0017

97.9036

95.6470

2030

98.4785

98.4785

98.4785

97.3803

98.4785

97.0794

Years after

98.4785

98.4785

98.4785

98.4785

98.4785

98.4785

2030

Taxpayer Using the Composite Method

2029

98.4785

98.4785

98.4785

96.8165

98.0085

96.6260

Years after
2029

Use composite discount factors published for the relevant accident year .*

*The relevant accident year is the accident year that is ten years prior to the specified taxable year.

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## Table 10 (part B) Discount Factors Under Amended Section 846 (percent)

For Losses Incurred in Accident Year 2019 in Long-Tail Lines of Business

Taxable Year

Private Passenger Auto Liability/ Medical

Products Liability - Claims-Made

Products Liability - Occurrence

Workers' Compensation

Long-Tail Composite

2019

95.4657

85.2754

87.2645

87.5213

92.4228

2020

95.0654

85.7548

88.6442

85.9577

91.3501

2021

95.0239

87.6130

89.4203

84.8235

91.0564

2022

94.6472

83.0836

90.7854

83.2721

89.8512

2023

93.9560

84.4151

89.4118

82.6909

88.2413

2024

94.0072

85.7981

89.4605

82.1401

88.1205

2025

94.2553

87.2412

90.4215

82.5155

88.0992

2026

94.8139

88.5278

91.4175

83.3929

88.6595

2027

95.4330

89.8399

91.8241

84.0243

89.9313

2028

97.6150

91.1778

94.1415

85.9823

91.7704

Taxpayer Not Using Composite Method

2029

98.4785

92.5418

95.5661

87.2439

93.1382

2030

98.4785

93.9314

97.0159

88.5305

94.5268

2031

98.4785

95.3452

98.4785

89.8427

95.9284

2032

98.4785

96.7777

98.4785

91.1807

97.3148

2033

98.4785

98.2011

98.4785

92.5447

98.4785

2034

98.4785

98.4785

98.4785

93.9345

98.4785

2035

98.4785

98.4785

98.4785

95.3485

98.4785

2036

98.4785

98.4785

98.4785

96.7814

98.4785

2037

98.4785

98.4785

98.4785

98.2057

98.4785

Years after 2037

98.4785

98.4785

98.4785

98.4785

98.4785

Taxpayer Using the Composite Method

2029

98.4785

94.6171

96.5859

91.1466

94.9858

Years after 2029

Use composite discount factors published for the relevant accident year .*

*The relevant accident year is the accident year that is ten years prior to the specified taxable year.

### SECTION 7. EFFECTIVE DATE

This revenue procedure is effective for
taxable years beginning after December
31, 2017.

### SECTION 8. DRAFTING INFORMATION

The principal author of this revenue
procedure is Kathryn M. Sneade of the
Office of Associate Chief Counsel (Finan-
cial Institutions & Products). For further
information regarding this revenue pro-

cedure contact Ms. Sneade at (202) 317-
6995 (not a toll free number).

Rev. Proc. 2019-32

#### SECTION 1. PURPOSE

This revenue procedure grants an
extension of time to eligible partner-
ships to file a superseding Form 1065,
U.S. Return of Partnership Income, and
furnish a corresponding Schedule K-1

(Form 1065), Partner's Share of In-
come, Deductions, Credits, etc., to each
of its partners. This relief only applies to
partnerships satisfying the requirements
of section 3 of this revenue procedure
that, for the applicable taxable year:
(1) have not elected the application of
section 6221(b) of the Internal Reve-
nue Code (Code), (2) have timely filed
Form 1065, and (3) have timely fur-
nished all Schedules K-1 required to be
furnished (without regard to the exten-
sions of time provided by this revenue
procedure).

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# SECTION 2. BACKGROUND

Section 1101(a) of the Bipartisan
Budget Act of 2015 (BBA), P.L. 114-74,
Title XI (November 2, 2015), removed
subchapter C of chapter 63 of subtitle F
of the Code effective for partnership tax-
able years beginning after December 31,
2017. Prior to the enactment of the BBA,
subchapter C of chapter 63 contained
the unified partnership audit and litiga-
tion rules enacted by the Tax Equity and
Fiscal Responsibility Act of 1982 (TE-
FRA), P.L. 97-248 (September 3, 1982),
that were commonly referred to as the
TEFRA partnership procedures. Section
1101(c) of the BBA replaced the TEFRA
partnership procedures with a centralized
partnership audit regime that, in general,
determines, assesses, and collects tax at
the partnership level. The centralized part-
nership audit procedures enacted by the
BBA are found at sections 6221 through
6241 of the Code. The centralized part-
nership audit procedures apply to all part-
nerships, unless the partnership makes a
valid election under section 6221(b) not to
have those procedures apply. Only certain
partnerships that are required to issue few-
er than 100 Schedules K-1 are eligible to
make the election under section 6221(b).
Partnerships subject to the centralized
partnership audit regime are referred to as
BBA partnerships.

Section 6222(a) of the Code requires
partners in a BBA partnership to treat
partnership-related items, as defined in
section 6241 and the corresponding reg-
ulations, consistently on the partner's re-
turn with how the BBA partnership treated
such items on its return. This consistency
requirement applies to partners that are
pass-through entities, such as partnerships
and S corporations, as well as non-pass-
through persons, such as individuals and
C corporations.

Section 6031(a) of the Code requires
every partnership to file a return for each
taxable year stating specifically the items
of its gross income and the deductions al-
lowable by subtitle A of the Code and such
other information as required by forms
and regulations, including information
about the partners in the partnership. For a
partnership, the return required by section
6031(a) is the Form 1065, which includes
Schedules K-1. Schedule K-1 provides

the name of the partner and the partner's
distributive share of taxable income and
other information related to the partner re-
garding the partnership. Section 6031(b)
requires that a partnership required to file
a return under section 6031(a) furnish a
copy of the Schedule K-1 to each partner
that includes such information as may be
required to be shown by regulations. In
general, section 6031(b) also prohibits
BBA partnerships from amending the in-
formation required to be furnished to its
partners after the due date of the return.

Section 6072(b) of the Code provides
that the deadline for filing Form 1065
and furnishing Schedules K-1 to partners
is generally the fifteenth day of the third
month after the end of the partnership's
taxable year. For a calendar-year partner-
ship this deadline is March 15. Section
6081(a) of the Code permits the Secretary
of the Treasury or his delegate to grant a
reasonable extension of time, generally no
more than six months, for filing any return,
statement, or other required document.
Generally, to receive an extension of time
to file a return, § 1.6081-2(b) of the Income
Tax Regulations provides that a partnership
must submit an application before the date
prescribed for filing the Form 1065 (taking
into account certain extensions). Certain
partnerships that keep their records and
books of account outside the United States
and Puerto Rico are granted a three-month
extension automatically without submit-
ting an application under § 1.6081-5T(a)
(1). This three-month extension runs con-
currently with any six-month extension
granted under § 1.6081-2.

For calendar-year partnerships that
timely request a six-month extension,
the extended deadline is September 15.
A partnership that files its Form 1065
and furnishes Schedules K-1 to its part-
ners prior to the deadline for filing the
Form 1065 (including extensions) may
file a superseding Form 1065 and furnish
corresponding Schedules K-1 to its part-
ners prior to the deadline, including ex-
tensions. Joint Committee on Taxation,
General Explanation of Tax Legislation
Enacted in 2015 (March 2016) (JCT Blue-
book), JCS-1-16, at 82 (“Schedules K-1 .
. . may not be amended after the due date
of the partnership return . . . [but] [t]he
due date takes into account the permitted
extension period."). A timely filed super-

seding Form 1065 is considered the orig-
inal return of the partnership. See, e.g.,
Haggar Co. v. Helvering, 308 U.S. 389,
395-96 (1940); Rev. Rul. 78-256, 1978-1
C.B. 438 (amended corporate return filed
before due date including extensions is the
corporation's return for that taxable year
for purposes of estimated tax penalties).

Taxable years of partnerships begin-
ning in 2018 were the first taxable years
for which the centralized partnership au-
dit regime was mandatory and the first
taxable years for which restrictions on
amending Schedules K-1 under section
6031(b) were effective.

The Department of the Treasury and the
Internal Revenue Service (IRS) are aware
that many BBA partnerships requested an
extension of the filing deadline and may file
an original Form 1065 (and furnish original
Schedules K-1 to their partners) or a super-
seding Form 1065 (and furnish correspond-
ing Schedules K-1 to their partners) until
the extended due date for the 2018 taxable
year. Generally, if any partners filed returns
for the 2018 taxable year prior to receiving
an original or revised Schedule K-1 from
a BBA partnership, those partners may
amend their returns if inconsistent with the
Schedule K-1.

However, certain BBA partnerships
timely filed Form 1065 for the 2018 tax-
able year and timely furnished Schedules
K-1 to their partners. Some partnerships
that already filed Form 1065 for the 2018
taxable year may have made errors, in-
cluding not properly reporting all of the
required information on the Schedules
K-1. These BBA partnerships, having
timely filed, did not request an extension
of the deadline to file and, due to the re-
strictions on amending Schedules K-1 un-
der section 6031(b), may not amend the
Schedules K-1, including for the 2018
taxable year. The ability of the partners
of such BBA partnerships to amend their
own returns for the 2018 taxable year is
not affected by the restrictions under sec-
tion 6031(b); however, if the partner is a
BBA partnership, the restrictions under
section 6031(b) may apply.

# SECTION 3. RELIEF PROVIDED TO ELIGIBLE BBA PARTNERSHIPS

.01 Scope. The filing and furnishing
extensions provided by section 3.02 of

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this revenue procedure apply to BBA part-
nerships described in section 3.03 of this
revenue procedure for the taxable years
described in section 3.04 of this revenue
procedure.

.02 Relief. The IRS will treat the timely
filing of Form 1065 by a BBA partnership
described in section 3.03 of this revenue
procedure as a timely and appropriately
filed request for a six-month extension
of the deadline to file the Form 1065.
BBA partnerships that timely filed a Form
1065 and timely furnished all required
Schedules K-1 (without regard to the ex-
tensions of time provided by this revenue
procedure) may file a superseding Form
1065 and furnish corresponding Sched-
ules K-1 before the expiration of the ex-
tended deadline.

.03 Eligible BBA partnerships. The
filing and furnishing extensions provided

in section 3.02 of this revenue procedure
are available only to BBA partnerships
that timely filed Form 1065 and timely
furnished Schedules K-1 prior to appli-
cation of this revenue procedure and also
file a superseding Form 1065 and furnish
corresponding Schedules K-1 on or be-
fore the date that is six-months after the
non-extended deadline. For purposes of
section 6222, the superseding return re-
places any prior return for the taxable
year for purposes of determining the
partnership's treatment of partnership-re-
lated items.

.04 Eligible taxable years. The filing
and furnishing extensions provided in this
revenue procedure apply only to partner-
ship taxable years that ended prior to the
issuance of this revenue procedure and for
which the extended due date for such part-
nership taxable year is after July 25, 2019.

# SECTION 4. PROCEDURE

To take advantage of the relief provid-
ed by section 3 of this revenue procedure,
file a superseding Form 1065 and furnish
corresponding Schedules K-1 in the same
manner as the original return and Sched-
ules K-1 and write on the top of the su-
perseding Form 1065 “SUPERSEDING
FORM 1065 PURSUANT TO REVE-
NUE PROCEDURE 2019-32."

# SECTION 5. DRAFTING INFORMATION

The principal author of this revenue
procedure is Alexander Wu of the Office
of the Associate Chief Counsel (Procedure
and Administration). For further informa-
tion, please contact 202-317-6845 (not a
toll free number).

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# Definition of Terms

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

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

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

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

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

new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).

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

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

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

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

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

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

# Abbreviations

The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

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.

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.

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.

X-Corporation.

Y-Corporation.

Z-Corporation.

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## Numerical Finding List1

Bulletin 2019-33

### Announcements:

2019-07, 2019-27 I.R.B. 62
2019-08, 2019-32 I.R.B. 621

### Notices:

2019-12, 2019-27 I.R.B. 57
2019-40, 2019-27 I.R.B. 59
2019-41, 2019-28 I.R.B. 256
2019-42, 2019-29 I.R.B. 352
2019-27, 2019-31 I.R.B. 484
2019-43, 2019-31 I.R.B. 487
2019-24, 2019-31 I.R.B. 489
2019-45, 2019-32 I.R.B. 593

### Proposed Regulations:

REG-105476-18, 2019-27 I.R.B. 63
REG-106282-18, 2019-28 I.R.B. 259
REG-101828-19, 2019-29 I.R.B. 412
REG-106877-18, 2019-30 I.R.B. 441
REG-121508-18, 2019-30 I.R.B. 456
REG-105474-18, 2019-31 I.R.B. 493
REG-118425-18, 2019-31 I.R.B. 539

### Revenue Rulings:

2019-16, 2019-28 I.R.B. 96
2019-17, 2019-32 I.R.B. 583

### Revenue Procedures:

2019-24, 2019-29 I.R.B. 353
2019-28, 2019-32 I.R.B. 596
2019-29, 2019-32 I.R.B. 620
2019-30, 2019-33 I.R.B. 638
2019-31, 2019-33 I.R.B. 643
2019-32, 2019-33 I.R.B. 659

### Treasury Decisions:

9863, 2019-27 I.R.B. 1

9864, 2019-27 I.R.B. 6
9865, 2019-27 I.R.B. 27

9867, 2019-28 I.R.B. 98
9868, 2019-28 I.R.B. 252
9866, 2019-29 I.R.B. 261
9861, 2019-30 I.R.B. 433
9869, 2019-30 I.R.B. 438
9862, 2019-31 I.R.B. 477
9872, 2019-32 I.R.B. 585
9871, 2019-33 I.R.B. 624
9873, 2019-33 I.R.B. 630

<!-- PageFooter="1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018-27 through 2018-52 is in Internal Revenue Bulletin 2018-52, dated December 27, 2018." -->
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# Finding List of Current Actions on Previously Published Items1

Bulletin 2019-33

<!-- PageFooter="1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018-27 through 2018-52 is in Internal Revenue Bulletin 2018-52, dated December 27, 2018." -->
<!-- PageFooter="Bulletin No. 2019-33" -->

<!-- PageFooter="August 12, 2019" -->
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# INTERNAL REVENUE BULLETIN

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