Internal Revenue Bulletin 2023-17 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 2023–17
April 24, 2023
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
REG 121709-19, page 789.
This document contains proposed regulations regarding
supervisory approval of penalties. The proposed regulations
are necessary to address uncertainty regarding various
aspects of supervisory approval of penalties that have arisen
due to recent judicial decisions. The proposed regulations
affect the IRS and persons assessed certain penalties by
the IRS.
ADMINISTRATIVE, INCOME TAX
Announcement 2023-12, page 799.
Announcement 2023-12 informs taxpayers and practitioners
that the Internal Revenue Service has revised Form 3115,
Application for Change in Accounting Method, and its instruc-
tions. The Form 3115 (Rev. December 2022) is the current
Form 3115 (December 2022 Form 3115) and replaces the
December 2018 version of the Form 3115. Announcement
2023-12 also provides guidance to allow for a reasonable
period for taxpayers to transition to the December 2022
Form 3115.
ADMINISTRATIVE, SPECIAL
ANNOUNCEMENT
Announcement 2023-11, page 798.
This announcement notifies the public that a proposed reg-
ulation is being issued that identifies certain micro-captive
transactions as listed transactions within the meaning of
§ 1.6011-4(b)(2) of the Income Tax Regulations, and that
certain other micro-captive transactions are being identified
as transactions of interest within the meaning of § 1.6011-
4(b)(6).
EXEMPT ORGANIZATIONS
Rev. Proc. 2023-12, page 768.
This revenue procedure has been drafted in order to modify
specific language in Rev. Proc. 2023-5 to allow for the new
electronic submission process of the Form 8940, Request
for Miscellaneous Determination. This revenue procedure
also provides a 90-day transition relief period, during which
paper Form 8940 and letter applications will be accepted
and processed by EO Determinations.
EXEMPT ORGANIZATIONS,
INCOME TAX
Notice 2023-30, page 766.
This notice publishes the safe harbor deed language for extin-
guishment and boundary line adjustment clauses required by
§ 605(d)(1) of the SECURE 2.0 Act of 2022, enacted as Divi-
sion T of the Consolidated Appropriations Act, 2023, Public
Law 117-328, 136 Stat. 4459 (December 29, 2022). This
notice also clarifies the process certain donors may use to
amend an easement deed to substitute the safe harbor lan-
guage for the corresponding language in the original deed,
as provided by § 605(d)(2) of the SECURE 2.0 Act.
Finding Lists begin on page ii.

INCOME TAX
Announcement 2023-7, page 797.
This announcement informs Federal civilian employees
and other civilians who are not employed by the Federal
government who received certain payments in 2022 and
2023 from the Department of Defense (DOD) in reimburse-
ment for lodging, meals, and personal property damage
expenses after the release of petroleum from the Red Hill
Bulk Fuel Storage Facility on O‘ahu, Hawaii (Red Hill Fuel
Spill) that such payments are excludable from gross income
for Federal income tax purposes under § 139 of the Internal
Revenue Code.
REG 109309-22, page 770.
The proposed regulations identify transactions that are
the same as, or substantially similar to, certain micro-cap-
tive transactions as listed transactions and certain other
micro-captive transactions as transactions of interest for
purposes of §1.6011-4 and sections 6111 and 61112,
and provides guidance as to the reporting requirements
for participants in and material advisors to the identified
transactions.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial 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
substantive rulings necessary to promote a uniform appli-
cation 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
otherwise indicated. Procedures relating solely to matters
of internal management are not published; however, state-
ments 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.
April 24, 2023 Bulletin No. 2023–17

Part III
Conservation
Easements – Safe
Harbor Deed Language
for Extinguishment and
Boundary Line Adjustment
Clauses
Notice 2023-30
SECTION 1. OVERVIEW
.01 This notice sets forth the safe har-
bor deed language for extinguishment and
boundary line adjustment clauses required
by § 605(d)(1) of the SECURE 2.0 Act of
2022 (SECURE 2.0 Act), enacted as Divi-
sion T of the Consolidated Appropriations
Act, 2023, Public Law 117-328, 136 Stat.
4459 (December 29, 2022). This notice
also describes the process donors may use
to amend an original eligible easement
deed to substitute the safe harbor lan-
guage for the corresponding language in
the original deed, as provided by § 605(d)
(2) of the SECURE 2.0 Act.
.02 This safe harbor notice addresses
only amendments to extinguishment
and boundary line adjustment clauses in
accordance with § 605(d) of the SECURE
2.0 Act. This safe harbor notice does not
address any other deed amendments.
Donors are not required to make the
amendments described in this notice.
SECTION 2. BACKGROUND
.01 Section 170(a) of the Internal
Revenue Code (Code) provides, subject
to certain limitations and requirements,
a deduction for any charitable contribu-
tion, as defined in § 170(c), payment of
which is made within the taxable year.
1

Section 170(f)(3)(A) denies a deduction
under § 170 in the case of a contribution
of a partial interest in property, except as
provided in § 170(f)(3)(B). Section 170(f)
(3)(B)(iii) provides an exception to the
deduction denial in the case of a qualified
conservation contribution as defined in
§ 170(h).
.02 Under § 170(h)(1), the term qual-
ified conservation contribution means a
contribution of a qualified real property
interest to a qualified organization exclu-
sively for conservation purposes. For this
purpose, a qualified real property interest
is defined in § 170(h)(2)(C) to include a
restriction (granted in perpetuity) on the
use that may be made of the real property.
Under § 1.170A-14(b)(2), a perpetual
conservation restriction includes an ease-
ment or other interest in real property that
under state law has attributes similar to an
easement. Section 170(h)(3) defines the
term qualified organization (donee orga-
nization). Section 170(h)(4) defines the
term conservation purpose, which must
be protected in perpetuity for the qualified
conservation contribution to be treated
as exclusively for conservation purposes
pursuant to § 170(h)(5).
.03 Section 1.170A-14 provides further
guidance on qualified conservation con-
tributions. Section 1.170A-14(g) requires
that such a restriction be enforceable in
perpetuity. Section 1.170A-14(g)(6)(i)
provides a rule pertaining to extinguish-
ment. It provides that if a subsequent
unexpected change in the conditions sur-
rounding the property that is the subject
of a perpetual conservation restriction
makes it impossible or impractical to
continue to use the property for conser-
vation purposes, the conservation purpose
can nonetheless be treated as protected in
perpetuity if (1) the restrictions are extin-
guished by judicial proceeding and (2) all
of the donee’s proceeds (determined under
§ 1.170A-14(g)(6)(ii)) from a subsequent
sale or exchange of the property are used
by the donee organization in a manner
consistent with the conservation purposes
of the original contribution.
.04 Section 1.170A-14(g)(6)(ii) pro-
vides that, for a deduction to be allowed
under § 170(a), at the time of the gift,
the donor must agree that the donation
of the perpetual conservation restriction
gives rise to a property right, immediately
vested in the donee organization, with a
fair market value that is at least equal to
the proportionate value that the perpetual
conservation restriction at the time of the
gift bears to the value of the property as
a whole at that time. That proportionate
value of the donee’s property rights must
remain constant. Accordingly, under §
1.170A-14(g)(6)(ii), if a change in condi-
tions gives rise to the extinguishment of
a perpetual conservation restriction under
§ 1.170A-14(g)(6)(i), the donee organi-
zation, on a subsequent sale, exchange,
or involuntary conversion of the subject
property, must be entitled to a portion of
the proceeds at least equal to that propor-
tionate value of the perpetual conservation
restriction, unless state law provides that
the donor is entitled to the full proceeds
from the conversion without regard to the
terms of the prior perpetual conservation
restriction.
.05 Neither the Code nor the regula-
tions specifically address boundary line
adjustments. Under § 170(h)(2)(C), how-
ever, the restriction the donor grants on
the use of the real property subject to the
conservation easement must be made in
perpetuity. See also § 170(h)(5)(A).
.06 The SECURE 2.0 Act was signed
into law on December 29, 2022. Sec-
tion 605(d)(1) of the SECURE 2.0 Act
directs the Secretary of the Treasury or
her delegate (Secretary) to publish safe
harbor deed language for extinguishment
clauses and boundary line adjustment
clauses within 120 days after the date of
the enactment of the SECURE 2.0 Act
(that 120th day is April 28, 2023). Sec-
tion 605(d)(2) of the SECURE 2.0 Act
provides that, beginning on the date the
safe harbor language is published by the
Secretary, donors have a 90-day period in
which to amend an original eligible ease-
ment deed to substitute the safe harbor
language for the corresponding language
in the original deed. Since this notice is
published in the Internal Revenue Bulle-
tin on April 24, 2023, the 90th day is July
22, 2023. Because that date is a Saturday,
§ 7503 extends the date until Mon-
day, July 24, 2023. The amended deed
must be signed by the donor and donee
and recorded by July 24, 2023, and the
amendment must be treated as effective
1
Unless otherwise specified, all “section” and “§” references are to the Internal Revenue Code or the Income Tax Regulations (26 CFR Part 1).
April 24, 2023 766 Bulletin No. 2023–17

as of the date of the recording of the orig-
inal easement deed.
.07 Section 3 of this notice describes
the process donors may use to amend
an eligible easement deed to substitute
the safe harbor language for the corre-
sponding language in the original eligible
easement deed, and which easement deeds
are eligible to be amended, as provided
by § 605(d)(2) of the SECURE 2.0 Act.
Section 4 of this notice sets forth safe
harbor deed language for extinguishment
and boundary line adjustment clauses as
required by § 605(d)(1) of the SECURE
2.0 Act.
SECTION 3. PROCEDURE TO AMEND
ELIGIBLE EASEMENT DEEDS
.01 In general. In accordance with
§ 605(d)(2) of the SECURE 2.0 Act, to
amend an original eligible easement deed
to substitute the safe harbor language in
section 4.01 or 4.02 of this notice for the
corresponding language in the original
deed—
(1) The amended deed must be signed
by the donor and donee and recorded on or
before July 24, 2023; and
(2) The amendment must be treated as
effective as of the date of the recording of
the original easement deed. See section
3.03 of this notice.
.02 Exceptions. The term eligible ease-
ment deed does not include an easement
deed relating to any contribution—
(1) Which is part of a reportable trans-
action (as defined in § 6707A(c)(1)), or
is described in Notice 2017-10, 2017-4
I.R.B. 544;
(2) Which, by reason of § 170(h)(7),
is not treated as a qualified conservation
contribution;
(3) If a deduction under § 170 has been
disallowed by the Secretary, and the donor
is contesting such disallowance in a case
that is docketed in a Federal court on a
date before the date the amended deed is
recorded by the donor; or
(4) If a claimed deduction for such
contribution under § 170 resulted in an
underpayment to which a penalty under
§ 6662 or § 6663 applies and either—
(i) The penalty has been finally deter-
mined administratively; or
(ii) If the penalty is challenged in
court, the judicial proceeding with respect
to such penalty has been concluded by a
decision or judgment which has become
final.
.03 Effect of correction. If a donor
substitutes the safe harbor language in
sections 4.01 or 4.02 (or sections 4.01 and
4.02) of this notice for the corresponding
language in the original eligible easement
deed and the amended deed is signed by
the donor and donee and recorded on or
before July 24, 2023, the amended eligible
easement deed will be treated as effective
for purposes of § 170, § 605(d)(2) of the
SECURE 2.0 Act, and section 3.01(2)
of this notice as of the date the eligible
easement deed was originally recorded,
regardless of whether the amended
eligible easement deed is effective retro-
actively under relevant state law.
SECTION 4. SAFE HARBOR DEED
LANGUAGE
.01 Extinguishment clause. The safe
harbor deed language for extinguishment
clauses is:
Pursuant to Notice 2023-30, Donor
and Donee agree that, if a subsequent
unexpected change in the condi-
tions surrounding the property that
is the subject of a donation of the
perpetual conservation restriction

renders impossible or impractical the
continued use of the property for con-
servation purposes, the conservation
purpose can nonetheless be treated
as protected in perpetuity if (1) the
restrictions are extinguished by judi-
cial proceeding and (2) all of Donee’s
portion of the proceeds (as deter-
mined below) from a subsequent sale
or exchange of the property are used
by the Donee in a manner consistent
with the conservation purposes of the
original contribution.
Determination of Proceeds. Donor
and Donee agree that the donation of
the perpetual conservation restriction
gives rise to a property right, imme-
diately vested in Donee, with a fair
market value that is at least equal to
the proportionate value that the per-
petual conservation restriction, at the
time of the gift, bears to the fair mar-
ket value of the property as a whole at
that time. The proportionate value of
Donee’s property rights remains con-
stant such that if a subsequent sale,
exchange, or involuntary conversion
of the subject property occurs, Donee
is entitled to a portion of the proceeds
at least equal to that proportionate
value of the perpetual conservation
restriction, unless state law provides
that the donor is entitled to the full
proceeds from the conversion without
regard to the terms of the prior per-
petual conservation restriction.
.02 Boundary line adjustments clause.
The safe harbor boundary line adjustment
clause is:
Pursuant to Notice 2023-30, Donor
and Donee agree that boundary line
adjustments to the real property sub-
ject to the restrictions may be made
only pursuant to a judicial proceed-
ing to resolve a bona fide dispute
regarding a boundary line’s location.
.03 Similar terms with the same mean-
ing. In substituting deed language, the
donor may use the precise terms used in
sections 4.01 and 4.02 of this notice, or the
donor may use terms that have the same
meaning as the terms in sections 4.01 and
4.02. For example, if the original deed
uses the terms “Grantor” and “Grantee”
instead of “Donor” and “Donee,” the
donor can use either “Grantor” and
“Grantee” or “Donor” and “Donee”
because these terms have the same mean-
ing. Also, for example, if the original deed
uses the term “easement” or “servitude”
instead of “restriction,” the donor may
use any of those terms, provided the term
refers to a qualified real property interest
within the meaning of § 170(h)(2)(C) and
§ 1.170A-14(b)(2).
SECTION 5. DRAFTING AND
CONTACT INFORMATION
The principal authors of this notice
are Elizabeth Boone and Hannah Kim
of the Office of Associate Chief Counsel
(Income Tax & Accounting). For further
information regarding this notice, contact
Ms. Boone at (202) 317-5100, or Ms. Kim
at (202) 317-7003 (not toll-free numbers).
Bulletin No. 2023–17 767 April 24, 2023

April 24, 2023 768 Bulletin No. 2023–17
26 CFR 601.201: Rulings and determination letters.
Rev. Proc. 2023-12
SECTION 1. PURPOSE
This revenue procedure modifies Rev-
enue Procedure 2023-5, 2023-1 I.R.B.
265, updating the procedures for Exempt
Organizations determination letters with
respect to the electronically submitted
Form 8940, Request for Miscellaneous
Determination, which is the form used
to request miscellaneous determinations.
The modifications to Rev. Proc. 2023-5
made by this revenue procedure provide
that the electronic submission process
is the exclusive means of submitting a
completed Form 8940, except for sub-
missions eligible for the 90-day transition
relief provided in section 4 of this revenue
procedure.
Additionally, this revenue procedure
modifies existing procedures so that
Form 8940 will be used by government
entities to request voluntary termination
of exempt status under § 501(c)(3) (pre-
viously a letter request), by Canadian
registered charities to request inclusion in
Tax Exempt Organization Search database
of organizations eligible to receive tax-de-
ductible charitable contributions (Pub. 78
data) or a determination on public charity
classification (previously a letter request),
and by private foundations giving notice
of intent to terminate private foundation
status under § 507(b)(1)(B) (previously
provided on Form 8940 or by general
correspondence).
SECTION 2. CHANGED
SUBMISSION PROCESS
The IRS revised and updated Form
8940 and provided for it to be electron-
ically submitted at www.pay.gov. The
electronic submission process for Form
8940 replaces the paper submission pro-
cess for Form 8940 effective for Forms
8940 submitted on or after April 4, 2023,
subject to the transition relief provided in
section 4 of this revenue procedure. Sec-
tion 3 of this revenue procedure modifies
Rev. Proc. 2023-5 to set forth proce-
dures for issuing determination letters
in response to electronically submitted
Form 8940 applications. Unless otherwise
modified in this revenue procedure, the
provisions of Rev. Proc. 2023-5 continue
to apply.
SECTION 3. MODIFICATIONS TO
REVENUE PROCEDURE 2023-5
.01 Section 4.02(6) of Rev. Proc.
2023-5 is modified to read as follows:
(6) Form 8940 request for miscella-
neous determination. An organization
seeking a miscellaneous determination
or a request must electronically submit a
completed Form 8940, Request for Mis-
cellaneous Determination, at www.pay.
gov. The Form 8940 is used for the fol-
lowing determination letter requests and
notices—
(a) Advance approval of certain set-
asides described in § 4942(g)(2);
(b) Advance approval of voter registra-
tion activities described in § 4945(f);
(c) Advance approval of scholarship
procedures described in § 4945(g);
(d) Exception from Form 990 filing
requirements;
(e) Advance approval that a poten-
tial grant or contribution constitutes an
unusual grant;
(f) Change in Type (or initial deter-
mination of Type) of a § 509(a)(3)
organization;
(g) Reclassification of foundation sta-
tus, including a voluntary request from
a public charity for private foundation
status;
(h) Termination of private foundation
status under § 507(b)(1)(B)—advance rul-
ing request;
(i) Notice Only – Termination of pri-
vate foundation status under section
507(b)(1)(B);
(j) Termination of private foundation
status under § 507(b)(1)(B)—60-month
period ended;
(k) Voluntary termination of § 501(c)
(3) recognition by a government entity;
and
(l) Canadian registered charities: list-
ing on Pub. 78 Data and/or public charity
classification.
.02 The first paragraph of section
4.09(1) of Rev. Proc. 2023-5 is modified
to read as follows:
(1) Procedures for requesting
expedited handling. In the case of the
electronically submitted Form 1023,
Form 1024, Form 1024-A, or Form 8940,
a request for expedited handling must be
indicated on the form and a supporting
written statement must be submitted as an
attachment with the completed form.
.03 Section 7.02 of Rev. Proc. 2023-5
is modified to read as follows:
.02 A request described in section
4.02(6) of this revenue procedure must
be electronically submitted on Form
8940 at www.pay.gov (except where
otherwise permitted, including when
such request is made as part of an appli-
cation for recognition of exemption),
along with all information, documen-
tation, and other materials required by
Form 8940 and the instructions thereto,
as well as the appropriate user fee pro-
vided in Appendix A. Form 8940 must
be electronically signed by an authorized
individual under penalties of perjury (see
sections 4.04 and 4.06 of this revenue
procedure). For complete information
about filing requirements and the sub-
mission process, refer to Form 8940 and
the Instructions for Form 8940.
.04 Section 14.03 of Rev. Proc. 2023-5
is modified to read as follows:
.03 Actions that do not require the
payment of a user fee include—
(1) Elections pertaining to automatic
extensions of time under Treas. Reg. §
301.9100-1;
(2) Confirmation of tax-exempt status
(affirmation letter) (to replace lost tax-ex-
empt status letter and to reflect name and
address changes); and
(3) Notice of intent to terminate private
foundation status under § 507(b)(1)(B)
without a request for an advance ruling.
.05 Section 14.06(1) of Rev. Proc.
2023-5 is modified to read as follows:
(1) Payment of user fees for appli-
cations of recognition of exemption on
Form 1023, Form 1023-EZ, Form 1024,
Form 1024-A, or requests on Form
8940. User fees for applications for recog-
nition of exemption on Form 1023, Form
1023-EZ, Form 1024, Form 1024-A, or
requests on Form 8940 must be paid at
www.pay.gov.
.06 Section 14.07 of Rev. Proc. 2023-5
is modified to read as follows:
.07 Form 8718 should be attached to
applications or requests other than those
made on Form 1023, Form 1023-EZ,
Form 1024, Form 1024-A, or Form 8940,

Bulletin No. 2023–17 769 April 24, 2023
to transmit a check in the amount of the
required user fee.
.07 Section 15.01(1) of Rev. Proc.
2023-5 is modified to read as follows:
(1) The following types of requests and
applications handled by the EO Deter-
minations Office should be sent to the
Internal Revenue Service Center, at the
address in section 15.01(2):
(a) applications for recognition of
exemption on Form 1028; and
(b) requests submitted by letter.
.08 Section 15.02 of Rev. Proc. 2023-5
is modified to read as follows:
.02 Applications for recognition of
exemption on Form 1023, Form 1023-EZ,
Form 1024, Form 1024-A, and requests
on Form 8940 are handled by the EO
Determinations Office but must be sub-
mitted electronically online at www.pay.
gov. Paper submissions of Form 1023,
Form 1023-EZ, Form 1024, Form 1024-
A, and Form 8940 will not be accepted for
processing.
.09 Section 15.03 of Rev. Proc. 2023-5
is modified to read as follows:
.03 Requests for exempt status affirma-
tion letters should be sent to the Internal
Revenue Service at the address shown
below.
Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201
.10 The Note of Appendix A, item (4)
of Rev. Proc. 2023-5 is modified to read
as follows:
Note: In accordance with the income
tax treaty between the United States and
Canada, and pursuant to a mutual arrange-
ment between the competent authorities
of the two countries, Canadian registered
charities are automatically recognized as
exempt under § 501(c)(3) without filing
an application for recognition of exemp-
tion. For details, see Notice 99-47, 1999-2
CB 391. Therefore, no user fee is required
when a Canadian registered charity sub-
mits a Form 8940 to request to be listed in
Tax Exempt Organization Search database
for organizations eligible to receive tax-de-
ductible charitable contributions (Pub. 78
data), or to request a determination on its
public charity classification. For additional
information about the submission process,
refer to the Form 8940 Instructions.
.11 Appendix A of Rev. Proc. 2023-5
is modified to include new item (15) as
follows:
(15) Notice of intent to
terminate private foundation
status under § 507(b)(1)None
(B) without a request for an
advance ruling.
SECTION 4. TRANSITION RELIEF
.01 Except as provided in section 4.02,
an organization seeking a miscellaneous
determination using Form 8940 must
electronically submit the form and user
fee online at www.pay.gov.
.02 The Internal Revenue Service will
accept for processing a completed paper
Form 8940, letter request from a gov-
ernment entity voluntarily terminating §
501(c)(3) recognition, letter request from
a Canadian registered charity, or corre-
spondence providing notice of intent to
terminate private foundation status under
§ 507(b)(1)(B), accompanied by the cor-
rect user fee (if any), as described in Rev.
Proc. 2023-5, if the submission is post-
marked on or before the date that is 90
days after the effective date of this reve-
nue procedure.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2023-5 is modified.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective
April 4, 2023.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Ingrid Vatamanu of the Office
of Associate Chief Counsel (Employee
Benefits, Exempt Organizations, and
Employment Taxes). For further infor-
mation regarding this revenue procedure
contact Ms. Vatamanu at (202) 317-4541
(not a toll-free number).

April 24, 2023 770 Bulletin No. 2023–17
Part IV
Notice of Proposed
Rulemaking
Micro-captive Listed
Transactions and Micro-
captive Transactions of
Interest
REG-109309-22
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations that identify transac-
tions that are the same as, or substantially
similar to, certain micro-captive trans-
actions as listed transactions, a type of
reportable transaction, and certain other
micro-captive transactions as transactions
of interest, another type of reportable
transaction. Material advisors and certain
participants in these listed transactions
and transactions of interest are required to
file disclosures with the IRS and are sub-
ject to penalties for failure to disclose. The
proposed regulations affect participants
in these transactions as well as material
advisors. This document also provides
notice of a public hearing on the proposed
regulations.
DATES: Electronic or written comments
must be received by June 12, 2023. The
public hearing on these proposed reg-
ulations is scheduled to be held by
teleconference on July 19, 2023, at 10
a.m. ET. Requests to speak and outlines of
topics to be discussed at the public hear-
ing must be received by June 12, 2023.
If no outlines are received by June 12,
2023, the public hearing will be cancelled.
Requests to attend the public hearing
must be received by 5 p.m. ET on July 17,
2023. The telephonic public hearing will
be made accessible to people with dis-
abilities. Requests for special assistance
during the telephonic hearing must be
received by July 14, 2023.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at https://www.regulations.gov (indicate
IRS and REG-109309-22). Once submit-
ted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
The Department of the Treasury (Trea-
sury Department) and the IRS will publish
any comments to the public docket. Send
paper submissions to: CC:PA:LPD:PR
(REG-109309-22), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC, 20044.
For those requesting to speak during
the hearing, send an outline of topic
submissions, electronically via the Fed-
eral eRulemaking Portal at https://
www.regulations.gov (indicate IRS and
REG-109309-22).
Individuals who want to testify (by
telephone) at the public hearing must
send an email to publichearings@irs.
gov to receive the telephone number and
access code for the hearing. The sub-
ject line of the email must contain the
regulation number REG-109309-22 and
the word TESTIFY. For example, the
subject line may say: Request to TES-
TIFY at Hearing for REG-109309-22.
The email should include a copy of the
speaker’s public comments and outline
of discussion topics. Individuals who
want to attend (by telephone) the pub-
lic hearing must also send an email to
publichearings@irs.gov to receive the
telephone number and access code for
the hearing. The subject line of the email
must contain the regulation number
REG-109309-22 and the word ATTEND.
For example, the subject line may say:
Request to ATTEND hearing for REG-
109309-22. To request special assistance
during the telephonic hearing, contact
the Publications and Regulations Branch
of the Office of Associate Chief Counsel
(Procedure and Administration) by send-
ing an email to publichearings@irs.gov
(preferred) or by telephone at (202) 317-
6901 (not a toll-free number).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Elizabeth M. Hill of the Office
of Associate Chief Counsel (Financial
Institutions & Products), (202) 317-4458;
concerning the submission of comments
or the hearing, Vivian Hayes at (202) 317-
6901 (not toll-free numbers) or by email at
publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
additions to 26 CFR part 1 (Income Tax
Regulations) under section 6011 of the
Internal Revenue Code (Code) regard-
ing transactions identified as listed
transactions and transactions of interest
for purposes of section 6011.
I. Overview of the Reportable
Transaction Regime
Section 6011(a) generally provides that,
when required by regulations prescribed
by the Secretary of the Treasury or her
delegate (Secretary), “any person made
liable for any tax imposed by this title, or
with respect to the collection thereof, shall
make a return or statement according to
the forms and regulations prescribed by
the Secretary. Every person required to
make a return or statement shall include
therein the information required by such
forms or regulations.”
On February 28, 2000, the Treasury
Department and the IRS issued a series
of temporary regulations (TD 8877;
TD 8876; TD 8875) and cross-refer-
encing notices of proposed rulemaking
(REG-103735-00; REG-110311-98;
REG-103736-00) under sections 6011,
6111, and 6112. The temporary regulations
and cross-referencing notices of proposed
rulemaking were published in the Federal
Register (65 FR 11205, 65 FR 11269; 65
FR 11215, 65 FR 11272; 65 FR 11211, 65
FR 11271) on March 2, 2000 (2000 Tem-
porary Regulations). The 2000 Temporary
Regulations were modified several times
before March 4, 2003, the date on which
the Treasury Department and the IRS,
after providing notice and opportunity
for public comment and considering the

Bulletin No. 2023–17 771 April 24, 2023
comments received, published final regu-
lations (TD 9046) in the Federal Register
(68 FR 10161) under sections 6011, 6111,
and 6112 (2003 Final Regulations). The
2000 Temporary Regulations and 2003
Final Regulations consistently provided
that reportable transactions include listed
transactions and that a listed transaction is
a transaction that is the same as or sub-
stantially similar to one of the types of
transactions that the IRS has determined
to be a tax avoidance transaction and has
identified by notice, regulation, or other
form of published guidance as a listed
transaction.
Following the 2003 promulgation of
§1.6011-4, Congress passed the American
Jobs Creation Act of 2004 (AJCA), Pub-
lic Law 108-357, 118 Stat. 1418 (October
22, 2004), which added sections 6707A,
6662A, and 6501(c)(10) to the Code, and
revised sections 6111, 6112, 6707, and
6708 of the Code. See sections 811-812
and 814-817 of the AJCA. The AJCA’s
legislative history explains that Congress
incorporated in the statute the method
that the Treasury Department and the
IRS had been using to identify reportable
transactions, and provided incentives, via
penalties, to encourage taxpayer compli-
ance with the new disclosure reporting
obligations. As the Committee on Ways
and Means explained in its report accom-
panying H.R. 4520, which became the
AJCA:
The Committee believes that the best
way to combat tax shelters is to be
aware of them. The Treasury Depart-
ment, using the tools available, issued
regulations requiring disclosure of
certain transactions and requiring orga-
nizers and promoters of tax-engineered
transactions to maintain customer
lists and make these lists available to
the IRS. Nevertheless, the Committee
believes that additional legislation is
needed to provide the Treasury Depart-
ment with additional tools to assist its
efforts to curtail abusive transactions.
Moreover, the Committee believes
that a penalty for failing to make the
required disclosures, when the imposi-
tion of such penalty is not dependent
on the tax treatment of the underlying
transaction ultimately being sustained,
will provide an additional incentive
for taxpayers to satisfy their reporting
obligations under the new disclosure
provisions.
House Report 108-548(I), 108th Cong.,
2nd Sess. 2004, at 261 (June 16, 2004)
(House Report).
In Footnote 232 of the House Report,
the Committee on Ways and Means notes
that the statutory definitions of “reportable
transaction” and “listed transaction” were
intended to incorporate the pre-AJCA reg-
ulatory definitions while providing the
Secretary with leeway to make changes to
those definitions:
The provision states that, except as pro-
vided in regulations, a listed transaction
means a reportable transaction, which
is the same as, or substantially similar
to, a transaction specifically identified
by the Secretary as a tax avoidance
transaction for purposes of section
6011. For this purpose, it is expected
that the definition of “substantially
similar” will be the definition used in
Treas. Reg. sec. 1.6011–4(c)(4). How-
ever, the Secretary may modify this
definition (as well as the definitions
of “listed transaction” and “reportable
transactions”) as appropriate.
Id. at 261 n.232.
Section 6707A(c)(1) defines a “report-
able transaction” as “any transaction with
respect to which information is required
to be included with a return or statement
because, as determined under regulations
prescribed under section 6011, such trans-
action is of a type which the Secretary
determines as having a potential for tax
avoidance or evasion.” A “listed trans-
action” is defined by section 6707A(c)
(2) as “a reportable transaction which is
the same as, or substantially similar to, a
transaction specifically identified by the
Secretary as a tax avoidance transaction
for purposes of section 6011.”
Section 6111(a), as revised by the
AJCA, provides that each material
advisor with respect to any reportable
transaction must make a return setting
forth (1) information identifying and
describing the transaction, (2) informa-
tion describing any potential tax benefits
expected to result from the transaction,
and (3) such other information as the
Secretary may prescribe. Such return
must be filed not later than the date spec-
ified by the Secretary. Section 6111(b)(2)
provides that a reportable transaction has
the meaning given to such term by sec-
tion 6707A(c).
Section 6112(a), as revised by the
AJCA, provides that each material advisor
with respect to any reportable transaction
(as defined in section 6707A(c)) must
(whether or not required to file a return
under section 6111 with respect to such
transaction) maintain a list (1) identifying
each person with respect to whom such
advisor acted as a material advisor, and
(2) containing such other information as
the Secretary may by regulations require.
On November 2, 2006, the Treasury
Department and the IRS published a
notice of proposed rulemaking (REG-
103038-05) in the Federal Register (71
FR 64488) under section 6011 (November
2006 Transaction of Interest (TOI) Regu-
lations) proposing to add a new category of
reportable transaction requiring disclosure
under section 6011. The preamble to the
November 2006 TOI Regulations (71 FR
64488) explains that these transactions,
referred to as transactions of interest, are
transactions that the Treasury Department
and the IRS believe have the potential for
tax avoidance or evasion, but for which
the Treasury Department and the IRS lack
enough information to determine whether
the transaction should be identified as a
listed transaction. The November 2006
TOI Regulations proposed that transac-
tions of interest would be identified by the
IRS via notice, regulation, or other form
of published guidance.
On the same date that the November
2006 TOI Regulations were published,
the Treasury Department and the IRS
also published two separate notices of
proposed rulemaking (REG-103039-05;
REG-103043-05) in the Federal Regis-
ter (71 FR 64496, 71 FR 64501) under
sections 6111 and 6112, respectively
(November 2006 Regulations). The
November 2006 Regulations proposed
to modify the then-existing regulations
relating to the disclosure of reportable
transactions by material advisors under
section 6111, and the list maintenance
requirements of material advisors with
respect to reportable transactions under
section 6112, in part, to account for the
changes made by the AJCA and, in part,
to make corresponding updates to the
material advisor rules to account for the
treatment of transactions of interest as

April 24, 2023 772 Bulletin No. 2023–17
reportable transactions as proposed by the
November 2006 TOI Regulations.
After providing notice and opportunity
for public comment and considering the
comments received, on August 3, 2007,
the Treasury Department and the IRS pub-
lished the November 2006 Regulations
and the November 2006 TOI Regulations
as final regulations (TD 9350, TD 9351,
and TD 9352) in the Federal Register
(72 FR 43146, 72 FR 43157, and 72 FR
43154) under sections 6011, 6111, and
6112.
II. Disclosure of Reportable Transactions
by Participants and Penalties for Failure
to Disclose
Section 1.6011-4(a) provides that
every taxpayer that has participated in a
reportable transaction within the mean-
ing of §1.6011-4(b) and who is required
to file a tax return must file a disclosure
statement within the time prescribed in
§1.6011-4(e).
Sections 1.6011-4(d) and (e) provide
that the disclosure statement — Form
8886, Reportable Transaction Disclosure
Statement (or successor form) — must be
attached to the taxpayer’s tax return for
each taxable year for which a taxpayer
participates in a reportable transaction. A
copy of the disclosure statement must be
sent to IRS’s Office of Tax Shelter Anal-
ysis (OTSA) at the same time that any
disclosure statement is first filed by the
taxpayer pertaining to a particular report-
able transaction.
Reportable transactions include listed
transactions, confidential transactions,
transactions with contractual protec-
tion, loss transactions, and transactions
of interest. See §1.6011-4(b)(2) through
(6). Consistent with the definitions pre-
viously provided in the 2000 Temporary
Regulations and later in the 2003 Final
Regulations, as promulgated in 2007,
§1.6011-4(b)(2) continues to define a
“listed transaction” as a transaction that
is the same as or substantially similar to
one of the types of transactions that the
IRS has determined to be a tax avoid-
ance transaction and identified by notice,
regulation, or other form of published
guidance as a listed transaction. Section
1.6011-4(b)(6) defines a “transaction of
interest” as a transaction that is the same
as or substantially similar to one of the
types of transactions that the IRS has iden-
tified by notice, regulation, or other form
of published guidance as a transaction of
interest.
Section 1.6011-4(c)(4) provides that a
transaction is “substantially similar” if it
is expected to obtain the same or similar
types of tax consequences and is either
factually similar or based on the same or
similar tax strategy. Receipt of an opin-
ion regarding the tax consequences of the
transaction is not relevant to the determi-
nation of whether the transaction is the
same as or substantially similar to another
transaction. Further, the term substantially
similar must be broadly construed in favor
of disclosure. For example, a transaction
may be substantially similar to a listed
transaction or a transaction of interest even
though it may involve different entities or
use different Code provisions.
Section 1.6011-4(c)(3)(i)(A) provides
that a taxpayer has participated in a listed
transaction if the taxpayer’s tax return
reflects tax consequences or a tax strategy
described in the published guidance that
lists the transaction under §1.6011-4(b)
(2). Published guidance also may iden-
tify other types or classes of persons that
will be treated as participants in a listed
transaction. Published guidance may iden-
tify types or classes of persons that will
not be treated as participants in a listed
transaction. Section 1.6011-4(c)(3)(i)(E)
provides that a taxpayer has participated
in a transaction of interest if the taxpayer
is one of the types or classes of persons
identified as participants in the transaction
in the published guidance describing the
transaction of interest.
Section 1.6011-4(e)(2)(i) provides that
if a transaction becomes a listed transac-
tion or a transaction of interest after the
filing of a taxpayer’s tax return reflecting
the taxpayer’s participation in the trans-
action and before the end of the period of
limitations for assessment for any taxable
year in which the taxpayer participated in
the transaction, then a disclosure state-
ment must be filed with OTSA within 90
calendar days after the date on which the
transaction becomes a listed transaction or
transaction of interest. This requirement
extends to an amended return and exists
regardless of whether the taxpayer par-
ticipated in the transaction in the year the
transaction became a listed transaction or
transaction of interest. The Commissioner
of Internal Revenue may also determine
the time for disclosure of listed trans-
actions and transactions of interest in
the published guidance identifying the
transaction.
Participants required to disclose these
transactions under §1.6011-4 who fail to
do so are subject to penalties under sec-
tion 6707A. Section 6707A(b) provides
that the amount of the penalty is 75 per-
cent of the decrease in tax shown on the
return as a result of the reportable transac-
tion (or which would have resulted from
such transaction if such transaction were
respected for Federal tax purposes), sub-
ject to minimum and maximum penalty
amounts. The minimum penalty amount is
$5,000 in the case of a natural person and
$10,000 in any other case. For listed trans-
actions, the maximum penalty amount is
$100,000 in the case of a natural person
and $200,000 in any other case. For other
reportable transactions, including transac-
tions of interest, the maximum penalty is
$10,000 in the case of a natural person and
$50,000 in any other case.
Additional penalties may also apply.
In general, section 6662A imposes a
20 percent accuracy-related penalty on
any understatement (as defined in sec-
tion 6662A(b)(1)) attributable to an
adequately disclosed reportable transac-
tion. If the taxpayer had a requirement
to disclose participation in the report-
able transaction but did not adequately
disclose the transaction in accordance
with the regulations under section 6011,
the taxpayer is subject to an increased
penalty rate equal to 30 percent of the
understatement. See section 6662A(c).
Section 6662A(b)(2) provides that sec-
tion 6662A applies to any item which is
attributable to any listed transaction and
any reportable transaction (other than a
listed transaction) if a significant purpose
of such transaction is the avoidance or
evasion of Federal income tax.
Participants required to disclose listed
transactions who fail to do so are also sub-
ject to an extended period of limitations
under section 6501(c)(10). That section
provides that the time for assessment of
any tax with respect to the transaction
shall not expire before the date that is one
year after the earlier of the date the partic-

Bulletin No. 2023–17 773 April 24, 2023
ipant discloses the transaction or the date
a material advisor discloses the participa-
tion pursuant to a written request under
section 6112(b)(1)(A).
III. Disclosure of Reportable
Transactions by Material Advisors and
Penalties for Failure to Disclose
Section 301.6111-3(a) of the Proce-
dure and Administration Regulations
provides that each material advisor with
respect to any reportable transaction, as
defined in §1.6011-4(b), must file a return
as described in §301.6111-3(d) by the date
described in §301.6111-3(e).
Section 301.6111-3(b)(1) provides that
a person is a material advisor with respect
to a transaction if the person provides any
material aid, assistance, or advice with
respect to organizing, managing, promot-
ing, selling, implementing, insuring, or
carrying out any reportable transaction,
and directly or indirectly derives gross
income in excess of the threshold amount
as defined in §301.6111-3(b)(3) for the
material aid, assistance, or advice. Under
§301.6111-3(b)(2)(i) and (ii), a person
provides material aid, assistance, or advice
if the person provides a tax statement,
which is any statement (including another
person’s statement), oral or written, that
relates to a tax aspect of a transaction that
causes the transaction to be a reportable
transaction as defined in §1.6011-4(b)(2)
through (7).
Material advisors must disclose trans-
actions on Form 8918, Material Advisor
Disclosure Statement (or successor form),
as provided in §301.6111-3(d) and (e).
Section 301.6111-3(e) provides that the
material advisor’s disclosure statement for
a reportable transaction must be filed with
OTSA by the last day of the month that
follows the end of the calendar quarter in
which the advisor becomes a material advi-
sor with respect to a reportable transaction
or in which the circumstances necessi-
tating an amended disclosure statement
occur. A person may become a material
advisor with respect to transactions that
are later identified as listed transactions
or transactions of interest. See §301.6111-
3(b)(4). The disclosure statement must be
sent to OTSA at the address provided in
the Instructions for Form 8918 (or succes-
sor form).
Section 301.6111-3(d)(2) provides
that the IRS will issue to a material advi-
sor a reportable transaction number with
respect to the disclosed reportable trans-
action. Receipt of a reportable transaction
number does not indicate that the dis-
closure statement is complete, nor does
it indicate that the transaction has been
reviewed, examined, or approved by the
IRS. Material advisors must provide the
reportable transaction number to all tax-
payers and material advisors for whom the
material advisor acts as a material advisor
as defined in §301.6111-3(b). The report-
able transaction number must be provided
at the time the transaction is entered into,
or, if the transaction is entered into prior
to the material advisor receiving the
reportable transaction number, within 60
calendar days from the date the reportable
transaction number is mailed to the mate-
rial advisor.
Additionally, material advisors must
prepare and maintain lists identifying each
person with respect to whom the advisor
acted as a material advisor with respect
to the reportable transaction in accor-
dance with §301.6112-1(b) and furnish
such lists to the IRS in accordance with
§301.6112-1(e).
Section 6707(a) provides that a mate-
rial advisor who fails to file a timely
disclosure, or files an incomplete or
false disclosure statement, is subject to
a penalty. Pursuant to section 6707(b)
(2), for listed transactions, the penalty
is the greater of (A) $200,000, or (B) 50
percent of the gross income derived by
such person with respect to aid, assis-
tance, or advice which is provided with
respect to the listed transaction before
the date the return is filed under section
6111. Pursuant to section 6707(b)(1),
the penalty for other reportable transac-
tions, including transactions of interest,
is $50,000.
A material advisor may also be sub-
ject to a penalty under section 6708 for
failing to maintain a list under section
6112(a) and failing to make the list avail-
able upon written request to the Secretary
in accordance with section 6112(b) within
20 business days after the date of such
request. Section 6708(a) provides that the
penalty is $10,000 per day for each day
of the failure after the 20th day. However,
no penalty will be imposed with respect to
the failure on any day if such failure is due
to reasonable cause.
IV. Micro-captive Transactions and
Notice 2016-66
As enacted by section 1024 of the Tax
Reform Act of 1986, Public Law 99-514,
100 Stat. 2085, 2405 (October 22, 1986),
section 831(a) generally imposes tax on
the taxable income (determined under
the special rules for calculating taxable
income of insurance companies in part II
of subchapter L of chapter 1 of the Code)
of every insurance company other than a
life insurance company (nonlife insurance
company), for each taxable year computed
as provided in section 11 of the Code.
However, certain small nonlife insurance
companies may elect to be subject to the
alternative tax imposed by section 831(b).
Upon election by an eligible nonlife
insurance company (eligible electing com-
pany) to be taxed under section 831(b), in
lieu of the tax otherwise imposed by sec-
tion 831(a), section 831(b) imposes tax on
the company’s income computed by mul-
tiplying the taxable investment income of
the eligible electing company (determined
under section 834 of the Code) for the tax-
able year by the rates provided in section
11(b) of the Code. Premium income of a
nonlife insurance company is included
in taxable income under section 831(a),
but not taxable investment income under
section 834. Thus, an eligible electing
company pays no tax on premium income
for taxable years for which its election is
in effect.
Congress enacted section 333 of the
Protecting Americans from Tax Hikes
Act of 2015 (PATH Act), div. Q. of Pub-
lic Law 114-113, 129 Stat. 2242, 3040
(December 18, 2015), to both tighten
and expand the requirements for quali-
fying under section 831(b), effective for
taxable years beginning after December
31, 2016. As amended by the PATH Act,
section 831(b) requires an eligible elect-
ing company to be an insurance company
(within the meaning of section 816(a) of
the Code) having net written premiums or,
if greater, direct written premiums, for the
taxable year not exceeding $2.2 million as
adjusted for inflation (net written premium
limitation) and to meet the diversification
requirements of section 831(b)(2)(B). The

April 24, 2023 774 Bulletin No. 2023–17
last sentence of section 831(b)(2)(A) pro-
vides that an election under section 831(b)
applies to the taxable year for which it is
made and all subsequent taxable years for
which the net written premium limitation
and the diversification requirements are
met and may be revoked only with the
Secretary’s consent. In addition, section
831(d) requires every eligible electing
company that has a section 831(b) elec-
tion in effect to furnish to the Secretary
“at such time and in such manner as the
Secretary shall prescribe such information
for such taxable year as the Secretary may
require with respect to” the diversification
requirements of section 831(b)(2)(B).
On November 21, 2016, the Treasury
Department and the IRS published Notice
2016-66, 2016-47 I.R.B 745, which iden-
tified certain micro-captive transactions
as transactions of interest. On January 17,
2017, the IRS published Notice 2017-08,
2017-3 I.R.B. 423, which modified Notice
2016-66 by providing for an extension of
time for participants and material advisors
to file their disclosures.
Notice 2016-66 alerted taxpayers and
their representatives pursuant to §1.6011-
4(b)(6) and for purposes of §1.6011-4(b)
(6) and sections 6111 and 6112, that the
Treasury Department and the IRS iden-
tified as transactions of interest certain
micro-captive transactions in which a
taxpayer attempts to reduce the aggregate
taxable income of the taxpayer, related
persons, or both, using contracts that the
parties treat as insurance contracts and a
related company that the parties treat as an
insurance company. Notice 2016-66 also
alerted persons involved with the identified
transactions that certain responsibilities
may arise from their involvement.
Notice 2016-66 describes the following
micro-captive transaction as a transaction
of interest: (1) a company that the parties
treat as an insurance company (Captive)
elects to exclude premiums from taxable
income under section 831(b); (2) at least
20 percent of the voting power or value
of the outstanding stock of Captive is
directly or indirectly owned by the insured
entity (Insured), owners of Insured, or
persons related to Insured or its owners
(20-percent relationship factor); and (3)
either or both of the following apply: (i)
Captive has at any time during a defined
Computation Period (referred to as the
Notice Computation Period) directly or
indirectly made available as financing,
or otherwise conveyed or agreed to make
available or convey, to certain related per-
sons in a transaction that did not result in
taxable income or gain to the recipient
any portion of the payments treated as
premiums, such as through a guarantee, a
loan, or other transfer of Captive’s capi-
tal (financing factor), or (ii) the amount of
liabilities incurred by Captive for insured
losses and claim administration expenses
during the Notice Computation Period is
less than 70 percent of the amount equal to
premiums earned by Captive during that
period less policyholder dividends paid
by Captive during that period (70-percent
loss ratio factor).
Notice 2016-66 defines the Notice
Computation Period as the most recent
five taxable years of Captive or, if Captive
has been in existence for less than five tax-
able years, the entire period of Captive’s
existence. For purposes of the preceding
sentence, if Captive has been in existence
for less than five taxable years and Cap-
tive is a successor to one or more Captives
created or availed of in connection with
a transaction described in the notice, tax-
able years of such predecessor entities are
treated as taxable years of Captive. A short
taxable year is treated as a taxable year.
Notice 2016-66 also provides that the
arrangement is not treated as a transaction
of interest if the micro-captive arrange-
ment provides insurance for employee
compensation or benefits and the arrange-
ment is one for which the Employee
Benefits Security Administration of the
U.S. Department of Labor has issued a
Prohibited Transaction Exemption. A Pro-
hibited Transaction Exemption may be
granted by the U.S. Department of Labor
on an individual basis or may fall under
the class exemption for captives. The
Prohibited Transaction Exemption pro-
cedures are published as final regulations
in the Federal Register (76 FR 66637).
The Department of Labor’s proposed
amendments to the Prohibited Transaction
Exemption procedures were published on
March 15, 2022, in the Federal Register
(87 FR 14722).
Notice 2016-66 requires disclosure of
the information specified in §1.6011-4(d)
and the Instructions to Form 8886 (or suc-
cessor form), which includes identifying
and describing the transaction in sufficient
detail for the IRS to be able to understand
the tax structure of the reportable transac-
tion and identity of all parties involved in
the transaction. Notice 2016-66 provides
that for all participants, describing the
transaction in sufficient detail includes,
but is not limited to, describing on Form
8886 (or successor form) when and how
the taxpayer became aware of the trans-
action. The notice further provides that
for Captive, describing the transaction in
sufficient detail includes, but is not limited
to, describing the following on Form 8886
(or successor form): (1) whether Captive
is reporting because (i) the 70-percent loss
ratio factor is met for the taxable year; (ii)
the financing factor is met for the taxable
year; or (iii) both (i) and (ii); (2) under
what authority Captive is chartered;
(3) all the type(s) of coverage provided by
Captive during the year or years of partic-
ipation (if disclosure pertains to multiple
years); (4) how the amounts treated as pre-
miums for coverage provided by Captive
during the year or years of participation
(if disclosure pertains to multiple years)
were determined, including the name
and contact information of any actuary or
underwriter who assisted in these deter-
minations; (5) any claims paid by Captive
during the year or years of participation (if
disclosure pertains to multiple years), and
the amount of, and reason for, any reserves
reported by Captive on the annual state-
ment; and (6) the assets held by Captive
during the year or years of participation (if
disclosure pertains to multiple years).
V. Comments Submitted in Response to
Notice 2016-66
Comments submitted in response to
Notice 2016-66 were carefully consid-
ered in the development of these proposed
regulations. Although the Administrative
Procedure Act (APA), 5 U.S.C. 551-559,
does not require a response to those com-
ments, the comments are described here
in an effort to assist taxpayers in under-
standing the provisions of the proposed
regulations described in the Explanation
of Provisions section.
First, some commenters suggested that
changes to the Form 1120-PC, U.S. Prop-
erty and Casualty Insurance Company
Income Tax Return, would be better suited

Bulletin No. 2023–17 775 April 24, 2023
to capture the information sought by
Notice 2016-66. Other commenters indi-
cated that the information sought could be
readily obtained from the existing Forms
1120-PC being filed, so any additional
reporting would be unnecessarily duplica-
tive and burdensome. However, changes
to the Form 1120-PC would at a minimum
impact all nonlife insurance companies
that make section 831(b) elections, not
only participants in the micro-captive
transactions described in the proposed
regulations. Also, some of the requested
information is not readily available from
filed Forms 1120-PC, such as the descrip-
tions of the types of coverages provided
by a Captive and the name and contact
information of any actuary or underwriter
who assisted Captive in the determina-
tion of amounts treated as premiums.
Additionally, limiting the collection of
information to only those entities filing
the Form 1120-PC would be insufficient
to gather relevant information, as infor-
mation regarding Insureds and promoters
of the transactions would not be included.
Second, commenters also suggested
that the reporting requirements under
Notice 2016-66 are contrary to Congres-
sional intent in enacting section 333 of
the PATH Act, which, as noted earlier,
effective for taxable years beginning after
December 31, 2016, modified the sec-
tion 831(b) eligibility rules for a property
and casualty insurance company to elect
to be taxed only on taxable investment
income. The provision increased the limit
on net written premiums (or, if greater,
direct written premiums) from $1,200,000
to $2,200,000 and indexed that amount for
inflation. The provision also added diver-
sification requirements to the eligibility
rules. However, nothing in the statutory
language or legislative history of the
PATH Act suggests that Congress intended
to provide the benefits of section 831(b) to
companies that do not qualify as insurance
companies for Federal income tax pur-
poses. As exemplified by the transactions
described in Avrahami v. Commissioner,
149 T.C. 144 (2017), Syzygy Insurance
Co., Inc. v. Commissioner, T.C. Memo.
2019-34, and Caylor Land & Develop-
ment, Inc. v. Commissioner, T.C. Memo.
2021-30, some companies claiming the
benefits of section 831(b) do not meet
these basic eligibility requirements for
such treatment. See also Reserve Mechan-
ical Corp. v. Commissioner, 34 F.4th 881
(10th Cir. 2022) (concluding company fil-
ing as a tax-exempt entity under section
501(c)(15) did not qualify as an insurance
company for Federal income tax purposes
using similar analysis). The proposed
regulations, like Notice 2016-66, would
apply to entities that claim the benefits of
section 831(b) when certain factors indi-
cate that they do not or may not qualify as
insurance companies for Federal income
tax purposes.
Third, other commenters indicated that
the reporting requirements were unduly
burdensome, as well as duplicative,
because the information sought could be
readily obtained from a smaller subgroup
of the participants in a transaction. How-
ever, the reporting and recordkeeping
required for reportable transactions from
each participant ensure that the Service
can identify all of the participants of a
particular transaction and that all partic-
ipants are aware of their participation in
a reportable transaction. Nevertheless, the
proposed regulations significantly narrow
the information sought from participants
compared to that required by Notice 2016-
66 and provide a disclosure safe harbor
to a significant number of participants,
thereby reducing the burden in reporting
to the maximum extent consistent with
sound tax administration. See proposed
§1.6011-10(e)(2) and (f) and proposed
§1.6011-11(e)(2) and (f).
Fourth, additional commenters on
Notice 2016-66 expressed concerns
regarding certain arrangements in which
a service provider, automobile dealer,
lender, or retailer (Seller) sells insurance
contracts to its customers in connection
with the products or services being sold
(Consumer Coverage). These comment-
ers recommended that such Consumer
Coverage arrangements be excepted from
the disclosure requirements. The proposed
regulations provide a limited exception
for certain participants in Consumer
Coverage arrangements. See proposed
§§1.6011-10(d)(2) and 1.6011-11(d)(2).
Finally, commenters argued that the
20-percent relationship factor and the
70-percent loss ratio factor described in
sections 2.01(d) and 2.01(e)(2) of Notice
2016-66, respectively, are overly broad
and arbitrary. However, the Treasury
Department and the IRS have deter-
mined that the factors are objective and
reasonably determined based on existing
statutory provisions and available industry
data. The 20-percent relationship factor
was based on the diversification require-
ments established by section 333 of the
PATH Act. While one part of the PATH
Act diversification requirements is based
on the percentage of premiums from
related insureds, requiring that no more
than 20 percent of net written premiums
(or if greater, direct written premiums) for
a taxable year is attributable to any one
policyholder, the 20-percent threshold in
Notice 2016-66 is based on concentra-
tion of ownership of stock in a Captive
when Insured or Insured’s owner owns
Captive’s stock or is related to Captive’s
owner. Both requirements are based on
a lack of diversification and identify a
threshold at which a lack of diversification
may facilitate abuse.
Similarly, the 70-percent loss ratio
factor was informed by, but is less bur-
densome than, the 85 percent medical
loss ratio test enacted by Congress in sec-
tion 833(c)(5) of the Code for Blue Cross
and Blue Shield organizations and other
health insurers that are entitled to certain
tax benefits that are not available to other
nonlife insurance companies, as well as
the medical loss ratio computed under
section 2718(b) of the Public Health Ser-
vice Act, 42 U.S.C. 300gg-18. The loss
ratio factor in Notice 2016-66 compares
claims and expenses to premiums charged
in a manner similar to the medical loss
ratio test in section 833(c)(5) of the Code
and the medical loss ratio computed under
section 2718(b) of the Public Health Ser-
vice Act. However, the medical loss ratio
has a narrower focus than the Notice
2016-66 loss ratio factor and is computed
as a percentage of the total premium rev-
enue (excluding Federal and State taxes
and licensing or regulatory fees) an issuer
expends (1) on reimbursement for clin-
ical services provided to enrollees under
such coverage and (2) for activities that
improve health care quality of enrollees.
The Treasury Department and IRS
also considered data from the National
Association of Insurance Commissioners
(NAIC) in determining the applicable loss
ratio factor. The NAIC, in its 2021 Annual
Property & Casualty and Title Insurance

April 24, 2023 776 Bulletin No. 2023–17
Industries Report (2021 NAIC P&C
Report), indicated that annual loss ratios for
property and casualty companies averaged
72.5 percent for that year. See Insurance
Industry Snapshots and Analysis Reports
(July 21, 2022), https://content.naic.org/
cipr_topics/topic_insurance_industry_
snapshots_and_analysis_reports.htm (last
visited April 3, 2023). The 2021 NAIC
P&C Report is “produced from insurer
statutory filings and represent[s] approx-
imately 99% of all insurers expected to
file the NAIC Financial Data Repository.”
Id. The single-year average loss ratio for
property and casualty companies ranged
between 67.2 and 76.2 percent per year
from 2012 to 2021. See U.S. Property &
Casualty and Title Insurance Industries
– 2021 Full Year Results (2022), https://
content.naic.org/sites/default/files/inline-
files/2021%20Annual%20Property%20
%26%20Casualty%20and%20Title%20
Insurance%20Industry%20Report.pdf
(last visited April 3, 2023).
Commenters indicated that some Cap-
tives electing the alternative tax under
section 831(b) have loss ratios that fall
below the industry-wide average during
a given year of operation and suggested
that the loss ratio in Notice 2016-66 is set
too high. However, the average loss ratio
reported by the NAIC and the loss ratio
factor in Notice 2016-66 are computed
differently and are not directly compara-
ble. First, the average loss ratio reported
by the NAIC reflects the ratio of net losses
incurred and loss expenses incurred to
net premiums earned, without adjustment
for policyholder dividends paid, whereas
Captive’s loss ratio factor under Notice
2016-66 subtracts policyholder dividends
paid from premiums earned by Captive.
This means that, for an entity that pays
policyholder dividends, the loss ratio
factor under Notice 2016-66 would be
higher than its NAIC loss ratio. Second,
the loss ratio factor in Notice 2016-66
reflects the ratio of insured losses and
claims administration expenses during the
Notice Computation Period, which may
be as long as five years. By contrast, the
average loss ratio reported by the NAIC is
a single-year average. Accordingly, even
Captives electing the alternative tax under
section 831(b) that have loss ratios that
fall below the industry-wide average for
property and casualty companies in any
particular year may not have loss ratio fac-
tors that cause a transaction to be described
in Notice 2016-66 or the proposed reg-
ulations. The Treasury Department and
the IRS therefore view the average loss
ratio data reported by the NAIC as sup-
portive of the loss ratio factors provided
in Notice 2016-66 and in these proposed
regulations. See proposed §§1.6011-10(c)
(2) and 1.6011-11(c).
Despite commenters’ objections to the
20-percent relationship factor and 70-per-
cent loss ratio factor, the commenters did
not identify different factors or indus-
try-wide standards for small insurers that
would distinguish abusive from non-abu-
sive transactions or provide examples of
non-abusive transactions for which dis-
closure was required as a result of these
factors. These objective factors in Notice
2016-66 have been effective in identifying
transactions for which disclosure should
be required and are reasonable given
existing statutory provisions and available
industry data.
To better ensure non-abusive trans-
actions are not required to be reported
under the proposed regulations, how-
ever, the proposed regulations lower the
loss ratio factor for both the micro-cap-
tive transactions identified in proposed
§1.6011-10(a) as listed transactions
(Micro-captive Listed Transactions) and
the micro-captive transactions identified
in proposed §1.6011-11(a) as transactions
of interest (Micro-captive Transactions
of Interest) from 70 percent to 65 per-
cent. See proposed §§1.6011-10(c)(2) and
1.6011-11(c). Additionally, the computa-
tion period used to determine the loss ratio
factor is extended from a Notice Compu-
tation Period of up to five taxable years
to a computation period of up to nine
taxable years (referred to as the Transac-
tion of Interest Computation Period) for
the Micro-captive Transaction of Inter-
est. See proposed §1.6011-11(b)(2). For
the Micro-captive Listed Transaction, the
computation period used to determine the
loss ratio factor (referred to as the Loss
Ratio Factor Computation Period) is ten
taxable years. See proposed §1.6011-
10(b)(2)(ii).
For the foregoing reasons, the IRS
intends to challenge the purported tax
benefits from transactions identified in
proposed §1.6011-10(c) as listed trans-
actions, and the IRS may challenge the
purported tax benefits from transactions
identified in proposed §1.6011-11(c) as
transactions of interest. The IRS may also
challenge the purported tax benefits from
these transactions based on the economic
substance, business purpose, or other rules
or doctrines if applicable based on the
facts of a particular case.
VI. Purpose of Proposed Regulation
On March 3, 2022, the Sixth Circuit
issued an order in Mann Construction v.
United States, 27 F.4th 1138, 1147 (6th
Cir. 2022), holding that Notice 2007-83,
2007-2 C.B. 960, which identified certain
trust arrangements claiming to be welfare
benefit funds and involving cash value life
insurance policies as listed transactions,
violated the APA, because the notice was
issued without following the notice-and-
comment procedures required by section
553 of the APA. The Sixth Circuit con-
cluded that Congress did not clearly
express an intent to override the notice-
and-comment procedures required by
section 553 of the APA when it enacted the
AJCA. 27 F.4th at 1148. The Sixth Circuit
reversed the decision of the district court,
which held that Congress had authorized
the IRS to identify listed transactions
without notice and comment. See Mann
Construction, Inc. v. United States, 539
F.Supp.3d 745, 763 (E.D. Mich. 2021).
In CIC Services, LLC v. IRS, the United
States District Court for the Eastern Dis-
trict of Tennessee, which is located in the
Sixth Circuit, viewed the analysis in Mann
Construction as controlling and vacated
Notice 2016-66, holding that the IRS
failed to comply with the APA’s notice-
and-comment procedures. The Court
also held that the IRS acted arbitrarily
and capriciously based on the adminis-
trative record. CIC Services, LLC v. IRS,
2022 WL 985619 (E.D. Tenn. March 21,
2022), as modified by 2022 WL 2078036
(E.D. Tenn. June 2, 2022); see also Green
Valley Investors, LLC, et al. v. Commis-
sioner, 159 T.C. No. 5 (Nov. 9, 2022)
(relying on Mann Construction in holding
that Notice 2017-10, 2017-4 I.R.B. 544
(identifying certain syndicated conserva-
tion easements as listed transactions) was
improperly issued because it was issued
without following the APA’s notice-and-

Bulletin No. 2023–17 777 April 24, 2023
comment procedures); Green Rock, LLC
v. IRS, No. 2:21-cv-01320-ACA, 2023
U.S. Dist. LEXIS 17670 (N.D. Ala. Feb.
2, 2023) (holding that notice and comment
procedures were required before issuance
of Notice 2017-10).
In light of the decision by the district
court in CIC Services, the IRS will not
enforce the disclosure requirements or
penalties that are dependent upon the pro-
cedural validity of Notice 2016-66. Thus,
the Treasury Department and the IRS are
issuing these proposed regulations to iden-
tify certain micro-captive transactions as
Micro-captive Transactions of Interest. In
addition, this document obsoletes Notice
2016-66 (as modified by Notice 2017-08).
The obsoletion of the notice, however, has
no effect on the merits of the tax benefits
claimed from the transactions themselves
and related litigation, or income tax exam-
inations and promoter investigations
relating to micro-captive transactions.
The Treasury Department and the IRS
disagree with the Sixth Circuit’s deci-
sion in Mann Construction and the Tax
Court’s decision in Green Valley and
are continuing to defend the validity of
notices identifying transactions as listed
transactions in circuits other than the
Sixth Circuit. However, to help allow for
consistent enforcement throughout the
nation, the Treasury Department and the
IRS are proposing to identify certain other
micro-captive transactions as Micro-cap-
tive Listed Transactions by regulation.
Explanation of Provisions
A. Micro-captive Listed Transactions and
Micro-captive Transactions of Interest
This section generally describes the
micro-captive transactions that are the
focus of the proposed regulations and
why the Micro-captive Listed Transac-
tions are abusive and the Micro-captive
Transactions of Interest have the poten-
tial for abuse. This section also describes
the proposed regulations identifying
Micro-captive Listed Transactions and
Micro-captive Transactions of Interest.
1. In general
The Treasury Department and the IRS
are aware of a micro-captive transaction,
in which a taxpayer attempts to reduce
the aggregate taxable income of the tax-
payer, persons related to the taxpayer, or
both, using contracts that the parties treat
as insurance contracts and a related Cap-
tive. In some cases, Captive enters into a
contract with a related entity that the par-
ties treat as an insurance contract. In other
cases, Captive and a related entity enter
into separate contracts with one or more
unrelated intermediaries. For example,
the related entity and an intermediary may
enter into a contract that the parties treat
as an insurance contract, and Captive may
then enter into a separate contract with
the intermediary that the parties treat as a
reinsurance contract covering the “risks”
under the contract between the related
entity and the intermediary. Each entity
that makes payments to an intermediary
or Captive under these contracts treats
the payments as insurance premiums that
are within the scope of §1.162-1(a) and
deducts the payments as ordinary and nec-
essary business expenses under section
162. Captive treats the payments received
from the related entity or intermediary
under a contract treated as an insurance
contract or reinsurance contract as premi-
ums for insurance coverage.
Captive asserts that it is taxable as
a nonlife insurance company under the
Code and, if it is not a domestic corpo-
ration, makes an election under section
953(d) of the Code to be treated as a
domestic corporation for purposes of the
Code. Captive makes an election under
section 831(b) to be taxed only on taxable
investment income (defined in section
834). Captive accordingly excludes from
the computation of its taxable income the
payments received from the related entity
or intermediary treated as premiums. For
each taxable year in which the micro-cap-
tive transaction is in effect, the transaction
is structured so that Captive does not have
net premiums written (or, if greater, direct
premiums written) that exceed the statu-
tory limit. For taxable years beginning
after December 31, 2016, the statutory
limit is $2,200,000, adjusted annually for
inflation ($2,650,000 for taxable years
beginning in 2023).
Since the publication of Notice 2016-
66, examinations of taxpayers and
promoters and information received
through disclosures filed in response to
Notice 2016-66 have clarified the Treasury
Department’s and the IRS’s understanding
of micro-captive transactions, including
the scope of participation. Further, in the
three section 831(b) micro-captive cases
decided on their merits since the publica-
tion of Notice 2016-66, the U.S. Tax Court
held that the micro-captive transactions
at issue did not meet the requirements
for treatment as insurance for Federal
income tax purposes. See Avrahami v.
Commissioner, 149 T.C. at 144; Syzygy
v. Commissioner, T.C. Memo. 2019-34;
and Caylor v. Commissioner, T.C. Memo.
2021-30; see also Reserve Mechanical
Corp. v. Commissioner, 34 F.4th at 881
(concluding transactions entered into by
company filing as a tax-exempt entity
under section 501(c)(15) did not meet the
requirements for treatment as insurance
for Federal income tax purposes using
similar analysis). Taking into account
only the years in issue in these decisions,
the information included in the Court’s
opinions indicates that the transactions
at issue had the elements that would
require disclosure under Notice 2016-66.
Accordingly, the Treasury Department
and the IRS have determined that certain
micro-captive transactions are abusive tax
avoidance transactions and certain other
micro-captive transactions have the poten-
tial for tax avoidance or evasion.
As further discussed in sections B.1.
through B.3. of this Explanation of Pro-
visions, the Treasury Department and the
IRS have determined that two categories
of micro-captive transactions, described
in proposed §1.6011-10(c)(1) and (c)(2),
are tax avoidance transactions, and thus
propose to identify such transactions as
listed transactions. The transactions in
both categories involve related parties,
including a Captive, at least 20 percent
of the voting power or the value of the
outstanding stock or equity interest of
which is owned, directly or indirectly, by
an Insured, an Owner, or persons Related
to an Insured or an Owner. See proposed
§1.6011-10(b)(1)(iii). The first category
of these transactions is identified by the
presence of a financing factor, described
in proposed §1.6011-10(c)(1). The second
category of these transactions is identi-
fied by a loss ratio factor that falls below
65 percent based on a Loss Ratio Com-
putation Period of ten taxable years, as

April 24, 2023 778 Bulletin No. 2023–17
described in proposed §1.6011-10(c)(2).
The proposed regulations therefore iden-
tify transactions that are the same as, or
substantially similar to, the Micro-captive
Listed Transaction described in proposed
§1.6011-10(a) as listed transactions for
purposes of §1.6011-4. As noted pre-
viously, a transaction is “substantially
similar” if it is expected to obtain the same
or similar types of tax consequences and
is either factually similar or based on the
same or similar tax strategy, even though it
may involve different entities or use differ-
ent Code provisions.
As further discussed in sections B.1.
and B.3. of this Explanation of Provi-
sions, the Treasury Department and the
IRS have also determined that a third
category of micro-captive transactions,
described in proposed §1.6011-11(c), has
a potential for tax avoidance or evasion,
and thus propose to identify such trans-
actions as transactions of interest. This
category of micro-captive transactions
also involves related parties as described
in proposed §1.6011-10(b)(1)(iii) and is
identified by the presence of a loss ratio
factor that falls below 65 percent over a
shorter Transaction of Interest Computa-
tion Period, generally because Captives
involved have been in operation for
a shorter period of time. With respect
to this third category of transactions,
the Treasury Department and the IRS
require more information to determine
if the transactions are being used for tax
avoidance or evasion. The proposed reg-
ulations therefore identify transactions
that are the same as, or substantially
similar to, the Micro-captive Transac-
tion of Interest described in proposed
§1.6011-11(a) as transactions of interest
for purposes of §1.6011-4(b)(6).
2. Abuses
In Micro-captive Listed Transac-
tions and Micro-captive Transactions of
Interest, related parties claim the Fed-
eral income tax benefits of treating the
contracts as insurance (or reinsurance)
contracts. Insured deducts premiums paid
to Captive under section 162, while the
related Captive excludes the premium
income from its taxable income by elect-
ing under section 831(b) to be taxed only
on its taxable investment income.
Neither the Code nor the regulations
thereunder define the terms “insurance”
or “insurance contract.” The Supreme
Court has explained that for an arrange-
ment to constitute insurance for Federal
income tax purposes, both risk shifting
and risk distribution must be present.
Helvering v. Le Gierse, 312 U.S. 531
(1941). The risk transferred must be risk
of economic loss. Allied Fidelity Corp. v.
Commissioner, 572 F.2d 1190, 1193 (7th
Cir. 1978). The risk must contemplate the
fortuitous occurrence of a stated contin-
gency, Commissioner v. Treganowen, 183
F.2d 288, 290-91 (2d Cir. 1950), and must
not be merely an investment or business
risk. Rev. Rul. 2007-17, 2007-2 C.B. 127.
In addition, the arrangement must consti-
tute insurance in the commonly accepted
sense. See, e.g., Rent-A-Center, Inc. v.
Commissioner, 142 T.C. 1, 10-13 (2014).
In many micro-captive transactions,
however, the manner in which the con-
tracts are interpreted, administered, and
applied is inconsistent with arm’s length
transactions and sound business practices.
Captive typically does not behave as an
insurance company commonly would,
indicating that Captive is not issuing
insurance contracts and the transaction
does not constitute insurance for Federal
income tax purposes. For example, Cap-
tive may fail to adequately distribute risk
or fail to employ actuarial techniques to
establish premium rates that appropriately
reflect the risk of loss and costs of con-
ducting an insurance business. Captive
may also use its premium income for pur-
poses other than administering and paying
claims under the contract(s), including
routing funds that have not been taxed
to the Insured or a person related to the
Insured or its owners. A micro-captive
transaction may share other characteristics
with the purported insurance transactions
considered by the Tax Court in Avrahami,
Syzygy, and Caylor, or with the transac-
tions considered in other cases in which
the courts determined the transactions
were not insurance for Federal income
tax purposes. See, e.g., Reserve Mechan-
ical Corp. v. Commissioner, 34 F.4th 881
(10th Cir. 2022). The net effect of par-
ticipating in this transaction is that the
Insured claims a tax deduction for trans-
ferring amounts treated as premiums to
Captive, which is owned by parties related
to Insured, and Captive is not taxed on the
corresponding income.
If the transaction does not constitute
insurance, Insured is not entitled to deduct
under section 162 as a trade or business
expense the amount treated as an insur-
ance premium. In addition, if Captive does
not actually provide insurance, it does not
qualify as an insurance company and its
elections to be taxed only on its taxable
investment income under section 831(b)
and to be treated as a domestic insurance
company under section 953(d) are invalid.
These proposed regulations inform
taxpayers that participate in transactions
described in proposed §§1.6011-10(c)
and 1.6011-11(c), and substantially sim-
ilar transactions, and persons who act as
material advisors with respect to these
transactions, and substantially simi-
lar transactions, that they must disclose
in accordance with the rules provided
in §1.6011-4(a) and section 6111(a),
respectively. Material advisors must also
maintain lists as required by section 6112.
As previously noted, the IRS intends
to challenge the claimed tax benefits from
Micro-captive Listed Transactions, and
may challenge the claimed tax benefits
from Micro-captive Transactions of Inter-
est. Examinations of these micro-captive
transactions may result in adjustments
including full disallowance of claimed
micro-captive insurance premium deduc-
tions, inclusion in income of amounts
received by Captive, imposition of with-
holding tax liability under section 1461 of
the Code for failing to deduct and with-
hold tax on payments made to a foreign
Captive, imposition of a 20 percent or 40
percent penalty for lack of economic sub-
stance under section 6662(b)(6) or (i)(1)
of the Code, which may not be avoided
by a reasonable cause exception, and
imposition of other applicable taxes and
penalties.
3. Micro-captive Listed Transactions
Proposed §1.6011-10(a) provides
that transactions that are the same as,
or substantially similar to, transactions
described in proposed §1.6011-10(c)
are identified as listed transactions for
purposes of §1.6011-4(b)(2), except as
provided in proposed §1.6011-10(d). Pro-
posed §1.6011-10(b) provides definitions

Bulletin No. 2023–17 779 April 24, 2023
of terms used to describe Micro-captive
Listed Transactions, including Captive,
Financing Computation Period, Loss Ratio
Computation Period, Contract, Insured,
Intermediary, Recipient, and Related. In
particular, Captive is defined as an entity
that elects under section 831(b) to be
taxed as an insurance company only on its
taxable investment income; issues a Con-
tract to an Insured, reinsures a Contract
of an Insured issued by an Intermedi-
ary, or both; and has at least 20 percent
of its assets or voting power or the value
of its outstanding stock or equity inter-
ests directly or indirectly, individually
or collectively, owned by an Insured, an
Owner, or persons Related to an Insured
or Owner. The term Related is defined in
proposed §1.6011-10(b)(8) by reference
to sections 267(b), 707(b), 2701(b)(2)(C),
and 2704(c)(2). The definition incorpo-
rates the constructive ownership rules in
those sections. Proposed §1.6011-10(b)
also provides the rules for persons that
hold derivatives and for the treatment of
beneficiaries of trusts and estates. The
treatment of beneficiaries of trusts in pro-
posed §1.6011-10(b) does not affect the
application of Subpart E of Subchapter
J of Chapter 1 of Subtitle A, which pro-
vides rules concerning when a grantor or
another person is treated as the owner of a
portion of that trust.
A transaction is described in proposed
§1.6011-10(c) if it is described in pro-
posed §1.6011-10(c)(1), or (c)(2), or both.
Proposed §1.6011-10(c)(1) describes
transactions that involve a Captive that,
at any time during the Financing Com-
putation Period, directly or indirectly
made available as financing or otherwise
conveyed or agreed to make available or
convey to a Recipient, in a transaction that
did not result in taxable income or gain to
the Recipient, any portion of the payments
under the Contract, such as through a
guarantee, a loan, or other transfer of Cap-
tive’s capital, including such financings or
conveyances made prior to the Financing
Computation Period that remain out-
standing as of the taxable year in which
disclosure is required. Any amounts that
a Captive made available as financing or
otherwise conveyed or agreed to make
available or convey to a Recipient are
presumed to be portions of the payments
under the Contract to the extent such
amounts when conveyed or made avail-
able are in excess of Captive’s cumulative
after-tax net investment earnings minus
any outstanding financings or convey-
ances. See section B.2. of this Explanation
of Provisions. The Financing Computation
Period is the most recent five taxable years
of Captive, or all taxable years of Captive,
if Captive has been in existence for less
than five taxable years. For purposes of
determining the Financing Computation
Period, each short taxable year is a sep-
arate taxable year and taxable years of
predecessor entities are treated as taxable
years of Captive.
Proposed §1.6011-10(c)(2) describes
transactions that involve a Captive for
which the amount of liabilities incurred for
insured losses and claim administration
expenses during a Loss Ratio Computa-
tion Period is less than 65 percent of the
amount equal to premiums earned by Cap-
tive during the Loss Ratio Computation
Period less policyholder dividends paid
by Captive during the Loss Ratio Com-
putation Period. See section B.3. of this
Explanation of Provisions. The Loss Ratio
Computation Period is the most recent ten
taxable years of Captive, each short tax-
able year is a separate taxable year, and
the taxable years of predecessor entities
are treated as taxable years of Captive.
Proposed §1.6011-10(c)(2) does not apply
to any Captive that has been in existence
for less than ten taxable years, including
taxable years of predecessor entities.
Proposed §1.6011-10(d) provides
that a transaction described in proposed
§1.6011-10(c) is not classified as a listed
transaction if the transaction (1) provides
insurance for employee compensation or
benefits and is one for which the Employee
Benefits Security Administration of the
U.S. Department of Labor has issued a
Prohibited Transaction Exemption, or
(2) is a Consumer Coverage reinsur-
ance arrangement described in proposed
§1.6011-10(d)(2). See section B.6. of this
Explanation of Provisions.
Proposed §1.6011-10(e)(1) provides
the rules for determining who is a par-
ticipant in a listed transaction described
in proposed §1.6011-10(a). Proposed
§1.6011-10(e)(2) provides a safe har-
bor from the disclosure requirements for
certain persons. See section B.5. of this
Explanation of Provisions.
Proposed §1.6011-10(f) describes
information that participants must pro-
vide to satisfy the disclosure requirements
of §1.6011-4(d). See section B.4. of this
Explanation of Provisions.
Proposed §1.6011-10(g) provides
the applicability date for the proposed
regulations.
4. Micro-captive Transactions of Interest
Proposed §1.6011-11(a) provides
that transactions that are the same as,
or substantially similar to, transactions
described in proposed §1.6011-11(c) are
identified as transactions of interest for
purposes of §1.6011-4(b)(6), except as
provided in proposed §1.6011-11(d). Pro-
posed §1.6011-11(b) provides definitions
of terms used to describe Micro-captive
Transactions of Interest by reference to the
relevant definitions in proposed §1.6011-
10(b), except for the definition of the
computation period. Proposed §1.6011-
11(b)(2) defines the Transaction of Interest
Computation Period for Micro-captive
Transactions of Interest as the most recent
nine taxable years, or the entire period of
Captive’s existence if Captive has been in
existence for less than nine taxable years.
For this purpose, each short taxable year
is a separate taxable year, and the taxable
years of predecessor entities are treated as
taxable years of Captive.
A transaction is described in proposed
§1.6011-11(c) if it involves the issuance of
a Contract to an Insured by a Captive, or
the reinsurance by a Captive of a Contract
issued to an Insured by an Intermediary,
and involves a Captive for which the
amount of liabilities incurred for insured
losses and claim administration expenses
during the Transaction of Interest Com-
putation Period is less than 65 percent
of the amount equal to premiums earned
by Captive during the Transaction of
Interest Computation Period less policy-
holder dividends paid by Captive during
the Transaction of Interest Computation
Period. See section B.3. of this Explana-
tion of Provisions.
Proposed §1.6011-11(d) provides
that a transaction described in proposed
§1.6011-11(c) is not classified as a
“transaction of interest” if the transac-
tion (1) provides insurance for employee
compensation or benefits and is one for

April 24, 2023 780 Bulletin No. 2023–17
which the Employee Benefits Security
Administration of the U.S. Department of
Labor has issued a Prohibited Transaction
Exemption, or (2) is a Consumer Cover-
age reinsurance arrangement described in
proposed §1.6011-11(d)(2). See section
B.6. of this Explanation of Provisions.
Additionally, proposed §1.6011-11(d)(3)
provides that a transaction described in
proposed §1.6011-11(c) is not classified as
a “transaction of interest” if the transac-
tion is identified as a “listed transaction” in
proposed §1.6011-10(a). Under proposed
§1.6011-11(d)(3), a transaction that would
(but for that subsection) be identified as
both a “listed transaction” under proposed
§1.6011-10 and a “transaction of interest”
under proposed §1.6011-11, is identified
as a “listed transaction” only, and partic-
ipants in the transaction must disclose it
as such. Material advisors that are uncer-
tain about whether the transaction they are
required to disclose should be reported
as a Micro-captive Listed Transaction or
as a Micro-captive Transaction of Inter-
est should disclose the transaction as a
Micro-captive Listed Transaction, and
will not be required to disclose the trans-
action a second time if it is determined
later that the transaction should have been
disclosed as a Micro-captive Transaction
of Interest.
Proposed §1.6011-11(e)(1) provides
the rules for determining who is a partici-
pant in a transaction of interest described
in proposed §1.6011-11(a). Proposed
§1.6011-11(e)(2) provides a safe har-
bor from the disclosure requirements for
certain persons. See section B.5. of this
Explanation of Provisions.
Proposed §1.6011-11(f) describes
information that participants must provide
to satisfy the disclosure requirements of
§1.6011-4(d) by reference to the informa-
tion described in proposed §1.6011-10(f).
See section B.4. of this Explanation of
Provisions.
Proposed §1.6011-11(g) provides
the applicability date for the proposed
regulations.
B. Changes to Transaction Identified in
Notice 2016-66
Examinations of taxpayers and pro-
moters and information received through
disclosures filed in response to Notice
2016-66 have clarified the Treasury
Department’s and the IRS’s understanding
of micro-captive transactions, includ-
ing the scope of participation. Based on
such information, the Treasury Depart-
ment and the IRS have determined that
certain changes to the micro-captive
transaction identified in Notice 2016-
66 are appropriate for the proposed
regulations. The transactions described
in proposed §1.6011-10 and proposed
§1.6011-11 share common features with
the micro-captive transactions described
in Notice 2016-66, but with modifications
to the scope of the 20-percent relationship
factor and the factors used to distinguish
between listed transactions, transactions
of interest, and transactions that are not
reportable transactions under the proposed
regulations.
1. Changes to the Definition of Captive
The Treasury Department and the
IRS are aware that some promoters have
structured transactions in which Insureds,
Owners, or persons Related to an Insured
or an Owner do not have a direct or indi-
rect interest in Captive’s voting power or
value of its outstanding stock or equity
interests, but have a relationship with
Captive that provides substantially similar
benefits and risks. For example, Captive
may issue various types of instruments
representing rights to all or a portion of
the assets held by Captive but not rights
to the voting power or equity interests in
Captive. All equity interests and voting
stock are held by individuals or entities
related to the promoter, not the taxpayers.
The promoters thereby seek to avoid the
20 percent related interest in the voting
stock or equity interests in Captive nec-
essary for a transaction to be described in
Notice 2016-66. The proposed regulations
expand the scope of the definition of Cap-
tive to clarify that derivatives and interests
in the assets of Captive are taken into
account. See proposed §§1.6011-10(b)(1)
(A) – (C) and 1.6011-11(b)(1).
2. Changes to the Financing Factor
Transactions in which the financing fac-
tor is met based on a computation period
of Captive’s most recent five taxable years
(or all years of Captive’s existence if Cap-
tive has been in existence for less than five
taxable years), referred to as the Financing
Computation Period in the proposed reg-
ulations, are identified as transactions of
interest in Notice 2016-66 but are identi-
fied as listed transactions in the proposed
regulations. See proposed §1.6011-10(c)
(1). Presence of the financing factor in
related party micro-captive insurance
transactions indicates tax avoidance and
abuse of Captive’s status as a section
831(b)-electing insurance company.
3. Changes to the Loss Ratio Factor and
Computation Period
Notice 2016-66 identifies transactions
in which the loss ratio factor is less than
70 percent based on a Notice Computa-
tion Period of Captive’s most recent five
taxable years (or all years of Captive’s
existence if it has been in existence for less
than five taxable years) as transactions of
interest. The proposed regulations, how-
ever, identify as listed transactions those
transactions in which the loss ratio factor
is less than 65 percent for a computation
period extended to Captive’s most recent
ten taxable years (referred to as the Loss
Ratio Computation Period). See proposed
§1.6011-10(c)(2). Further, the proposed
regulations identify transactions in which
the loss ratio factor is less than 65 percent
based on a Transaction of Interest Compu-
tation Period consisting of Captive’s most
recent nine taxable years (or all years of
Captive’s existence if Captive has been in
existence for less than nine taxable years)
as transactions of interest. See proposed
§1.6011-11(c).
Regarding the reduction of the loss
ratio threshold from 70 percent to 65 per-
cent, the Treasury Department and the
IRS are not aware of any non-abusive
transactions for which disclosure was
required under Notice 2016-66 as a result
of the 70-percent loss ratio factor set forth
therein. Nevertheless, for purposes of the
proposed regulations and to ensure that
disclosure is not required for non-abusive
transactions, the Treasury Department and
the IRS are lowering the applicable loss
ratio factor to 65 percent. See proposed
§§1.6011-10(c)(2) and 1.6011-11(c). The
loss ratio factor helps to identify transac-
tions involving circumstances inconsistent
with insurance in the commonly accepted

Bulletin No. 2023–17 781 April 24, 2023
sense, including excessive pricing of pre-
miums and artificially low or nonexistent
claims activity. The primary purpose of
premium pricing is to ensure funds are
available should a claim arise. The pricing
of premiums should naturally reflect the
economic reality of insurance operations.
Pricing premiums far in excess of what is
reasonably needed to fund insurance oper-
ations results in a lower loss ratio and is
a strong indicator of abuse. Any Captives
that would be required to disclose as a
result of the loss ratio factor may consider
paying policyholder dividends to increase
the loss ratio and eliminate the need to
disclose.
The Treasury Department and the
IRS are considering whether a combined
ratio may be a better indicator for distin-
guishing abusive transactions from other
captive transactions. A combined ratio is
“an indication of the profitability of an
insurance company, calculated by adding
the loss and expense ratios.” NAIC Glos-
sary of Insurance Terms, https://content.
naic.org/consumer_glossary#C (last vis-
ited April 3, 2023). The 2021 NAIC P&C
Report provides that the combined ratios
for property and casualty insurance com-
panies ranged from 96 percent to 103.9
percent over the ten-year period from 2012
to 2021, for a ten-year average of approx-
imately 99.5 percent. See U.S. Property &
Casualty and Title Insurance Industries
– 2021 Full Year Results (2022), https://
content.naic.org/sites/default/files/inline-
files/2021%20Annual%20Property%20
%26%20Casualty%20and%20Title%20
Insurance%20Industry%20Report.pdf
(last visited April 3, 2023). The combined
ratio would compare losses incurred, plus
loss adjustment expenses incurred and
other underwriting expenses incurred by
Captive during the relevant computation
period to Captive’s earned premiums, less
policyholder dividends, for the relevant
computation period. For this purpose,
Captive’s other underwriting expenses
incurred would equal Captive’s expenses
incurred in carrying on an insurance busi-
ness, other than loss adjustment expenses
and investment-related expenses. Transac-
tions in which Captive’s combined ratio is
less than a certain percentage for a Loss
Ratio Computation Period of the most
recent ten taxable years of Captive would
be identified as listed transactions. Trans-
actions in which Captive’s combined
ratio is less than a certain percentage for
a Transaction of Interest Computation
Period of the most recent nine taxable
years (or all years of Captive’s existence
if it has been in existence for less than
nine taxable years) would be identified
as transactions of interest. The Treasury
Department and the IRS invite comments
on whether a combined ratio would bet-
ter distinguish abusive transactions than
the proposed loss ratio factor, and if so,
what combined ratio threshold would be
most effective in distinguishing abusive
transactions.
Regarding the computation periods for
the loss ratio factor, the Treasury Depart-
ment and the IRS understand that it is
possible that a Captive with a loss history
of fewer than ten taxable years could have
a loss ratio that falls below 65 percent
solely because Captive provides coverage
for low frequency, high severity losses
and Insureds purchasing policies from
such Captive do not incur such losses in
every year. In recognition of this fact, the
proposed regulations categorize transac-
tions as either transactions of interest or
listed transactions based on the length of
the computation period on which the loss
ratio is based. The Notice Computation
Period used by Notice 2016-66 to iden-
tify transactions of interest based on a loss
ratio factor was five taxable years, and it
has been more than five years since Notice
2016-66 was published. The Treasury
Department and the IRS have determined
that extending the computation period
by five years to a Loss Ratio Computa-
tion Period of ten taxable years (doubling
the Notice Computation Period) allows
Captives significant time to develop a rea-
sonable loss history that supports the use
of Captive for legitimate insurance pur-
poses, and a loss ratio that remains below
65 percent for a Loss Ratio Computation
Period of ten taxable years indicates a tax
avoidance transaction. Accordingly, the
proposed regulations identify transac-
tions in which the loss ratio is less than 65
percent based on an extended Loss Ratio
Computation Period of Captive’s most
recent ten taxable years as listed transac-
tions. See proposed §1.6011-10(b)(2).
However, the Treasury Department
and the IRS also have determined that
related party transactions in which the
loss ratio is less than 65 percent over a
shorter period of time have a potential for
tax avoidance or evasion. The proposed
regulations therefore identify transactions
in which Captive has a loss ratio of less
than 65 percent based on a Transaction
of Interest Computation Period of Cap-
tive’s most recent nine taxable years (or
all years of Captive’s existence if it has
been in existence for less than nine taxable
years) as transactions of interest, provided
such transactions are not otherwise char-
acterized as listed transactions (that is,
due to the presence of the financing fac-
tor described in proposed §1.6011-10(c)
(1) or due to having a loss ratio factor of
less than 65 percent based on a Loss Ratio
Computation Period of Captive’s most
recent ten taxable years). See proposed
§1.6011-11(c) and (d)(3). Identification of
these transactions as transactions of inter-
est will permit the Treasury Department
and the IRS to gather more information to
determine if these transactions are being
used for tax avoidance or evasion.
4. Information Sought from Participants
The proposed regulations significantly
reduce the information required to be
reported by Captives under §1.6011-4(d)
as compared to Notice 2016-66. See pro-
posed §§1.6011-10(f) and 1.6011-11(f).
Unlike Notice 2016-66, the proposed
regulations do not require Captive par-
ticipants to identify which factors of the
proposed regulations apply, state under
what authority Captive is chartered,
describe how amounts treated as premi-
ums for coverage provided by Captive
were determined, provide the amounts of
reserves reported by Captive on its annual
statement, or describe the assets held by
Captive. The proposed regulations do,
however, require Captive to identify the
types of policies issued or reinsured, the
amounts treated as premiums written, the
name and contact information of actuar-
ies and underwriters involved, and the
total amount of claims paid by Captive.
Additionally, proposed §§1.6011-10(b)(1)
and 1.6011-11(b)(1) include a 20-percent
relationship test in the definition of Cap-
tive, and the proposed regulations require
Captive participants to identify the name
and percentage of interest held directly or
indirectly by each person whose interest

April 24, 2023 782 Bulletin No. 2023–17
in Captive meets the 20 percent thresh-
old or is taken into account in meeting
the 20 percent threshold under proposed
§1.6011-10(b)(1)(iii). Also, the proposed
regulations require each Insured (as
defined in proposed §§1.6011-10(b)(4)
and 1.6011-11(b)(4)) subject to the disclo-
sure requirements set forth in §1.6011-4(d)
to provide the amounts treated by Insured
as insurance premiums for coverage pro-
vided to Insured, directly or indirectly, by
Captive.
5. Disclosure Requirement Safe Harbor
for Owners
The Treasury Department and the IRS
believe that it is now feasible to generally
limit the persons from whom reporting
would be required under the proposed reg-
ulations to Captive, Insured, and material
advisors to the transaction. Accordingly,
the proposed regulations provide that any
person who, solely by reason of their direct
or indirect ownership interest in Insured,
is subject to the disclosure requirements
set forth in §1.6011-4 as a participant in
a Micro-captive Listed Transaction or a
Micro-captive Transaction of Interest, is not
required under §1.6011-4 to file a disclosure
statement with respect to that transaction
provided that person receives written or
electronic acknowledgment that Insured
has or will comply with its separate dis-
closure obligation under §1.6011-4(a) with
respect to the transaction. See proposed
§§1.6011-10(e)(2) and 1.6011-11(e)(2). The
acknowledgment can be a copy of the Form
8886, Reportable Transaction Disclosure
Statement (or successor form), filed (or to
be filed) by Insured and must be received by
Owner prior to the time set forth in §1.6011-
4(e) in which Owner would otherwise be
required to provide disclosure. See pro-
posed §§1.6011-10(e)(2) and 1.6011-11(e)
(2). However, the receipt of an acknowledg-
ment that Insured has or will comply with
its disclosure obligation does not relieve
the Owners of Insured of their disclosure
obligations if Insured fails to disclose the
transaction in a timely manner.
6. Exception for Consumer Coverage
Arrangements
The proposed regulations provide a
limited exception from classification as
a Micro-captive Listed Transaction or
Micro-captive Transaction of Interest for
certain Consumer Coverage reinsurance
arrangements. See proposed §§1.6011-
10(d)(2) and 1.6011-11(d)(2). In Consumer
Coverage arrangements, a “Seller” (that
is, a service provider, automobile dealer,
lender, or retailer) sells products or ser-
vices to “Unrelated Customers” (that is,
customers who do not own an interest in
and are not wholly or partially owned by
Seller, an owner of Seller, or individuals
or entities related (within the meaning of
one or more of sections 267(b), 707(b),
2701(b)(2)(C), or 2704(c)(2)) to Seller or
owners of Seller). An Unrelated Customer
may also purchase an insurance contract
in connection with those products or ser-
vices (Consumer Coverage contract). The
Consumer Coverage contract generally
provides coverage for repair or replace-
ment costs if the product breaks down or
is lost, stolen, or damaged; coverage for
the customer’s payment obligations if
the customer dies or becomes disabled or
unemployed; coverage for the difference
between all or a portion of the value of the
product and the amount owed on the prod-
uct’s financing, including a lease, if the
product suffers a covered peril; or a com-
bination of one or more of the foregoing
types of coverage.
An entity related to or affiliated with
Seller may issue or reinsure the Consumer
Coverage contracts. In some arrange-
ments, the Consumer Coverage contracts
name an unrelated third party, which may
be referred to as a “Fronting Company,” as
the provider of the coverage, and an entity
related to or affiliated with Seller reinsures
the Consumer Coverage contracts. In
other arrangements, the Consumer Cover-
age contracts may name an entity related
to or affiliated with Seller as the provider
of the coverage. In these arrangements,
an unrelated third party may reinsure the
contracts and may also then retrocede risk
under the contracts to the entity related to
or affiliated with Seller. The parties may
treat the entity related to or affiliated with
Seller as an insurance company that elects
under section 831(b) (and section 953(d)
if the corporation is foreign) to exclude
premium payments from taxable income.
As a general matter, participation in
this type of reinsurance arrangement is
neither a Micro-captive Listed Transac-
tion nor a Micro-captive Transaction of
Interest because the insured is not suf-
ficiently related to the insurer or any
reinsurer. Generally, the Consumer Cover-
age contracts insure Unrelated Customers
of Seller, and Unrelated Customers, their
owners, and persons related to Unrelated
Customers or their owners do not directly
or indirectly own at least 20 percent of the
voting power or value of the outstanding
stock of any entity issuing or reinsuring
the Consumer Coverage contract. How-
ever, the 20-percent relationship factor in
proposed §§1.6011-10(b)(1) and 1.6011-
11(b)(1) may be met in some of these
reinsurance arrangements. For instance,
in “dealer obligor” arrangements in which
the Seller would be legally required to pay
a claim under certain conditions, such as a
total loss of the covered product within a
certain time frame, the Seller could poten-
tially be considered an Insured under a
Contract issued or reinsured by a Captive,
and thus be required to disclose.
The Treasury Department and the IRS
have determined that a limited exception
for taxpayers in Consumer Coverage
arrangements is appropriate, provided
commissions paid for Consumer Cover-
age contracts issued or reinsured by the
Seller’s Captive are comparable to the
commissions paid for Consumer Cover-
age contracts covering Seller’s products
or services that are not issued or reinsured
by the Seller’s Captive. See proposed
§§1.6011-10(d)(2) and 1.6011-11(d)(2).
C. Effect of Transaction Becoming a
Listed Transaction or a Transaction of
Interest Under these Regulations
Participants required to disclose these
transactions under §1.6011-4 who fail
to do so are subject to penalties under
section 6707A. Participants required to
disclose the listed transactions under
§1.6011-4 who fail to do so are also sub-
ject to an extended period of limitations
under section 6501(c)(10). Material advi-
sors required to disclose these transactions
under section 6111 who fail to do so are
subject to the penalty under section 6707.
Material advisors required to maintain lists
of investors under section 6112 who fail
to do so (or who fail to provide such lists
when requested by the IRS) are subject to
the penalty under section 6708(a). In addi-

Bulletin No. 2023–17 783 April 24, 2023
tion, the IRS may impose other penalties
on persons involved in these transac-
tions or substantially similar transactions,
including accuracy-related penalties under
section 6662 or section 6662A, the section
6694 penalty for understatements of a tax-
payer’s liability by a tax return preparer,
the section 6700 penalty for promoting
abusive tax shelters, and the section 6701
penalty for aiding and abetting understate-
ment of a tax liability.
Taxpayers who have filed a tax return
(including an amended return (or Admin-
istrative Adjustment Request (AAR) for
certain partnerships)) reflecting their par-
ticipation in these transactions prior to the
date the Treasury decision adopting these
regulations as final regulations is pub-
lished in the Federal Register and who
have not otherwise finalized a settlement
agreement with the Internal Revenue Ser-
vice with respect to the transaction must
disclose the transactions as provided in
§1.6011-4(d) and (e) provided that the
period of limitations for assessment of
tax, including any applicable extensions,
for any taxable year in which the taxpayer
participated in the transaction has not
ended on or before the date the Treasury
decision adopting these regulations as
final regulations is published in the Fed-
eral Register.
In addition, material advisors have
disclosure requirements with regard to
transactions occurring in prior years.
However, notwithstanding §301.6111-
3(b)(4)(i) and (iii), material advisors are
required to disclose only if they have
made a tax statement on or after six years
before the date of the Treasury decision
adopting these regulations as final regula-
tions is published in the Federal Register.
A participant in a transaction that is a
Micro-captive Listed Transaction must
file a disclosure statement with OTSA
when required to do so under §1.6011-
4(e), regardless of whether the participant
has previously disclosed the transaction
to OTSA pursuant to Notice 2016-66.
A participant in a transaction that is a
Micro-captive Transaction of Interest that
has previously filed a disclosure statement
with OTSA pursuant to Notice 2016-66
will be treated as having made the dis-
closure pursuant to the final regulations
for taxable years for which the taxpayer
filed returns before the final regulations
are published in the Federal Register.
However, if a taxpayer described in the
preceding sentence participates in the
Micro-captive Transaction of Interest
in a taxable year for which the taxpayer
files a return on or after the date the final
regulations are published in the Federal
Register, the taxpayer must file a disclo-
sure statement with OTSA at the same
time the taxpayer files their return for the
first such taxable year.
A material advisor with respect to a
transaction that is a Micro-captive Listed
Transaction or Micro-captive Transaction
of Interest must file a disclosure statement
with OTSA when required to do so under
§301.6111-3(e), regardless of whether
the material advisor has previously dis-
closed the transaction to OTSA pursuant
to Notice 2016-66.
The Treasury Department and the IRS
recognize that some taxpayers may have
filed tax returns taking the position that
they were entitled to the purported tax ben-
efits of the types of transactions described
in these proposed regulations. Because the
IRS will take the position that taxpayers
are not entitled to the purported tax ben-
efits of the listed transactions described
in the proposed regulations, and may take
such a position with respect to the transac-
tions of interest described in the proposed
regulations, taxpayers should consider fil-
ing amended returns or AARs for certain
partnerships and ensure that their trans-
actions are disclosed properly. Taxpayers
filing an amended individual return should
write “Microcaptive” at the top of the first
page of the amended return and mail the
amended return to:
Internal Revenue Service
2970 Market Street
Philadelphia, PA 19104
Taxpayers filing amended business
returns on paper should write “Micro-
captive” at the top of the first page of the
amended return and mail to the address
listed in the instructions for the amended
return. Taxpayers filing amended busi-
ness returns electronically should include
“Microcaptive” when explaining the rea-
son for the changes.
Proposed Applicability Dates
Proposed §1.6011-10(a) would iden-
tify certain micro-captive transactions
described in proposed §1.6011-10(c) as
listed transactions effective as of the date
of publication in the Federal Register of
a Treasury decision adopting these reg-
ulations as final regulations. Similarly,
proposed §1.6011-11(a) would iden-
tify certain micro-captive transactions
described in proposed §1.6011-11(c) as
transactions of interest as of the date of
publication in the Federal Register of a
Treasury decision adopting these regula-
tions as final regulations.
Effect on Other Documents
This document obsoletes Notice 2016-
66 (2016-47 I.R.B. 745), as modified by
Notice 2017-08 (2017-3 I.R.B. 423), as of
April 11, 2023.
Special Analyses
I. Regulatory Planning and Review
The proposed regulations are 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 Bud-
get (OMB) regarding the review of tax
regulations.
II. Paperwork Reduction Act
The collection of information contained
in these proposed regulations is reflected
in the collection of information for Forms
8886 and 8918 that have been reviewed
and approved by OMB in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507(c)) under control numbers
1545-1800 and 1545-0865. Any disclo-
sures with respect to the safe harbor for
owners as provided in §§1.6011-10(e)(2)
and 1.6011-11(e)(2) are in the nature of an
acknowledgment per 5 CFR 1320.3(h)(1),
and therefore do not constitute a collec-
tion of information under the Paperwork
Reduction Act.
To the extent there is a change in bur-
den as a result of these regulations, the
change in burden will be reflected in the
updated burden estimates for the Forms
8886 and 8918. The requirement to
maintain records to substantiate informa-
tion on Forms 8886 and 8918 is already

April 24, 2023 784 Bulletin No. 2023–17
contained in the burden associated with
the control numbers for the forms and is
unchanged.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number assigned by OMB.
III. Regulatory Flexibility Act
The Secretary of the Treasury hereby
certifies that the proposed regulations will
not have a significant economic impact on
a substantial number of small entities pur-
suant to the Regulatory Flexibility Act (5
U.S.C. chapter 6).
As previously explained, the basis
for these proposed regulations is Notice
2016-66, 2016-47 I.R.B. 745 (as mod-
ified by Notice 2017-08, 2017-3 I.R.B.
423). The following chart sets forth the
gross receipts of respondents to Notice
2016-66, based on data for tax year
2020:
Notice 2016-66 Respondents by Size
ReceiptsFirmsFilings
Under 5M78.65%75.26%
5M to 10M9.36%10.20%
10M to 15M4.39%5.10%
15M to 20M2.34%2.55%
20M to 25M1.17%1.53%
Over 25M4.09%5.36%
TOTAL100%100%
This chart shows that the majority
of respondents reported gross receipts
under $5 million. Even assuming that
these respondents constitute a substantial
number of small entities, the proposed
regulations will not have a significant eco-
nomic impact on these entities because the
proposed regulations implement sections
6111 and 6112 and §1.6011-4 by spec-
ifying the manner in which and time at
which an identified Micro-captive Listed
Transaction or Micro-captive Transaction
of Interest must be reported. Accordingly,
because the regulations are limited in
scope to time and manner of information
reporting and definitional information,
the economic impact of the proposal is
expected to be minimal.
Further, the Treasury Department and
the IRS expect that the reporting burden is
low; the information sought is necessary
for regular annual return preparation and
ordinary recordkeeping. The estimated
burden for any taxpayer required to file
Form 8886 is approximately 10 hours,
16 minutes for recordkeeping, 4 hours,
50 minutes for learning about the law or
the form, and 6 hours, 25 minutes for pre-
paring, copying, assembling, and sending
the form to the IRS. The IRS’s Research,
Applied Analytics, and Statistics division
estimates that the appropriate wage rate
for this set of taxpayers is $77.50 (2020
dollars) per hour. Thus, it is estimated that
a respondent will incur costs of approxi-
mately $1,667.27 per filing. Disclosures
received to date by the Treasury Depart-
ment and the IRS in response to the
reporting requirements of Notice 2016-66
indicate that this small amount will not
pose any significant economic impact for
those taxpayers now required to disclose
under the proposed regulations.
For the reasons stated, a regulatory
flexibility analysis under the Regula-
tory Flexibility Act is not required. The
Treasury Department and the IRS invite
comments on the impact of the proposed
regulations on small entities. Pursuant to
section 7805(f) of the Code, this notice
of proposed rulemaking has been submit-
ted to the Chief Counsel for the Office of
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes any
Federal mandate that may result in expen-
ditures in any one year by a State, local, or
Tribal government, in the aggregate, or by
the private sector, of $100 million (updated
annually for inflation). This proposed rule
does not include any Federal mandate that
may result in expenditures by State, local,
or Tribal governments or by the private
sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts state law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. This proposed rule does not
have federalism implications and does
not impose substantial direct compliance
costs on state and local governments or
preempt state law within the meaning of
the Executive order.
Comments and Public Hearing
Before these proposed amendments to
the regulations are adopted as final regu-
lations, consideration will be given to any
comments that are submitted timely to the
IRS as prescribed in the preamble under
the ADDRESSES section. The Treasury

Bulletin No. 2023–17 785 April 24, 2023
Department and the IRS request comments
on all aspects of the proposed regulations.
The Treasury Department and the IRS spe-
cifically request comments on the following:
1. What are the specific and objective
metrics, factors, or standards, if any, that,
if reported, would allow for the IRS to
better identify and distinguish abusive
micro-captive transactions from other
micro-captive transactions?
2. With respect to proposed §§1.6011-
10(c)(2) and 1.6011-11(c), whether the
loss ratio described therein, which com-
pares “the amount of liabilities incurred
by Captive for insured losses and claim
administration expenses during the
[applicable] Computation Period” to the
“premiums earned by Captive during the
[applicable] Computation Period less poli-
cyholder dividends paid by Captive during
the [applicable] Computation Period”,
should be replaced by a combined ratio,
which compares “losses incurred, plus
loss adjustment expenses incurred and
other underwriting expenses incurred by
Captive during the [applicable] Com-
putation Period” to “Captive’s earned
premiums, less policyholder dividends, for
the [applicable] Computation Period”, and
if so, what percentage would be an effec-
tive threshold for purposes of identifying
abusive transactions. For this purpose,
Captive’s “other underwriting expenses
incurred” would equal Captive’s expenses
incurred in carrying on an insurance busi-
ness, other than loss adjustment expenses
and investment-related expenses.
3. With respect to the percentage
of premiums retained as commissions
for contracts as described at proposed
§§1.6011-10(d)(2) and 1.6011-11(d)(2),
what, if any, are the specific metrics, fac-
tors, or standards that, if reported, would
allow for the IRS to better identify and
distinguish abusive micro-captive trans-
actions of this type from other such
micro-captive transactions?
Any comments submitted will be made
available at https://www.regulations.gov
or upon request.
A public hearing is scheduled to be
held by teleconference on July 19, 2023,
beginning at 10:00 a.m. ET unless no out-
lines are received by June 12, 2023.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
comment by telephone at the hearing must
submit written or electronic comments and
an outline of the topics to be discussed as
well as the time to be devoted to each topic
by June 12, 2023, as prescribed in the pre-
amble under the ADDRESSES section.
A period of ten minutes will be allo-
cated to each person for making comments.
After the deadline for receiving outlines
has passed, the IRS will prepare an agenda
containing the schedule of speakers. Cop-
ies of the agenda will be made available
at https://www.regulations.gov, search
IRS and REG-109309-22. Copies of the
agenda will also be available by emailing a
request to publichearings@irs.gov. Please
put “REG-109309-22 Agenda Request” in
the subject line of the email.
Announcement 2020-4, 2020-17 I.R.B.
667 (April 20, 2020), provides that until
further notice, public hearings conducted
by the IRS will be held telephonically.
Any telephonic hearing will be made
accessible to people with disabilities.
Statement of Availability of IRS
Documents
The notices and revenue ruling cited
in this document are published in the
Internal Revenue Bulletin (or Cumula-
tive Bulletin) and are available from the
Superintendent of Documents, U.S. Gov-
ernment Publishing Office, Washington,
DC 20402, or by visiting the IRS website
at https://www.irs.gov.
Drafting Information
The principal author of these proposed
regulations is Elizabeth M. Hill, Office
of Associate Chief Counsel (Financial
Institutions & Products). However, other
personnel from the Treasury Department
and the IRS participated in the develop-
ment of these regulations.
List of Subjects in 26 CFR Part 1
Income Taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.6011-10 also issued under 26
U.S.C. 6001 and 26 U.S.C. 6011.
Section 1.6011-11 also issued under 26
U.S.C. 6001 and 26 U.S.C. 6011.
* * * * *
Par. 2. Section 1.6011-10 is added to
read as follows:
§ 1.6011-10 Micro-captive listed
transaction.
(a) Identification as listed transaction.
Transactions that are the same as, or sub-
stantially similar to, transactions described
in paragraph (c) of this section are identi-
fied as listed transactions for purposes of
§ 1.6011-4(b)(2), except as provided in
paragraph (d) of this section.
(b) Definitions. The following defini-
tions apply for purposes of this section:
(1) Captive means any entity that:
(i) Elects under section 831(b) of the
Internal Revenue Code (Code) to exclude
premiums from taxable income;
(ii) Issues a Contract to an Insured,
reinsures a Contract of an Insured issued
by an Intermediary, or both; and
(iii) Has at least 20 percent of its assets
or the voting power or value of its out-
standing stock or equity interests directly
or indirectly owned, individually or collec-
tively, by an Insured, an Owner, or persons
Related to an Insured or an Owner. For
purposes of this paragraph (b)(1)(iii), the
following rules apply to the extent appli-
cation of a rule (or rules) would increase
such direct or indirect ownership:
(A) A person that holds a derivative is
treated as indirectly owning the assets ref-
erenced by the derivative; and
(B) The interest of each beneficiary of
a trust or estate in the assets of such trust
or estate must be determined by assuming
the maximum exercise of discretion by the
fiduciary in favor of such beneficiary and
the maximum use of the trust’s or estate’s
interest in the company to satisfy the inter-
ests of such beneficiary.
(2) Computation periods—(i) Financ-
ing Computation Period. The Financing
Computation Period is the most recent five

April 24, 2023 786 Bulletin No. 2023–17
taxable years of Captive (or all taxable
years of Captive, if Captive has been in
existence for less than five taxable years).
(ii) Loss Ratio Computation Period.
The Loss Ratio Computation Period is the
most recent ten taxable years of Captive.
A Captive that does not have at least ten
taxable years cannot have a Loss Ratio
Computation Period, and therefore is
not described in paragraph (c)(2) of this
section.
(iii) Rules for computation periods.
This paragraph (b)(2)(iii) applies for
purposes of determining the Financing
Computation Period and the Loss Ratio
Computation Period. Each short taxable
year is a separate taxable year. If Captive is
a successor to one or more other Captives,
taxable years of each such other Captive
are treated as taxable years of Captive. A
successor is any of the following:
(A) A successor corporation as defined
in § 1.382-2(a)(5);
(B) An entity that, directly or indi-
rectly, acquires (or is deemed to acquire)
the assets of another entity and succeeds
to and takes into account the other entity’s
earnings and profits or deficit in earnings
and profits; or
(C) An entity that receives (or is
deemed to receive) any assets from another
entity if such entity’s basis is determined,
directly or indirectly, in whole or in part,
by reference to the other entity’s basis.
(3) Contract means any contract that
is treated by a party to the contract as an
insurance contract or reinsurance contract
for Federal income tax purposes.
(4) Insured means any person that
conducts a trade or business, enters into
a Contract with a Captive or enters into
a Contract with an Intermediary that is
directly or indirectly reinsured by a Cap-
tive, and treats amounts paid under the
Contract as insurance premiums for Fed-
eral income tax purposes.
(5) Intermediary means any entity that
issues a Contract to an Insured, or reinsures
a Contract that is issued to an Insured, and
such Contract is reinsured, directly or
indirectly, by a Captive. A transaction may
have more than one Intermediary.
(6) Owner means any person who,
directly or indirectly, holds an owner-
ship interest in an Insured or its assets.
For purposes of this paragraph (b)(6), the
following rules apply to the extent appli-
cation of a rule (or rules) would increase
such direct or indirect ownership:
(i) The interest of a person that holds a
derivative must be determined as provided
in paragraph (b)(1)(iii)(A) of this section;
and
(ii) The interest of each beneficiary of
a trust or estate in the assets of such trust
or estate must be determined as provided
in paragraph (b)(1)(iii)(B) of this section.
(7) Recipient means any Owner,
Insured, or person Related to an Owner
or an Insured engaged in a transaction
described in paragraph (c)(1) of this
section.
(8) Related means having a rela-
tionship described in one or more of
sections 267(b), 707(b), 2701(b)(2)(C),
and 2704(c)(2) of the Code.
(9) Seller means a service provider,
automobile dealer, lender, or retailer that
sells products or services to Unrelated
Customers who purchase insurance con-
tracts in connection with those products or
services.
(10) Seller’s Captive means a Captive
Related to Seller, an owner of Seller, or
individuals or entities Related to Seller or
owners of Seller.
(11) Unrelated Customers means per-
sons who do not own an interest in, and
are not wholly or partially owned by,
Seller, an owner of Seller, or individuals
or entities Related to Seller or owners of
Seller.
(c) Transaction description. A transac-
tion is described in this paragraph (c) if
the transaction is described in paragraph
(c)(1) of this section, paragraph (c)(2) of
this section, or both.
(1) The transaction involves a Captive
that, at any time during the Financing
Computation Period, directly or indirectly
made available as financing or otherwise
conveyed or agreed to make available or
convey to a Recipient, in a transaction that
did not result in taxable income or gain
to the Recipient, any portion of the pay-
ments under the Contract, such as through
a guarantee, a loan, or other transfer of
Captive’s capital, or made such financings
or conveyances prior to the Financing
Computation Period that remain outstand-
ing or in effect at any point in the taxable
year for which disclosure is required. Any
amounts that a Captive made available
as financing or otherwise conveyed or
agreed to make available or convey to a
Recipient are presumed to be portions of
the payments under the Contract to the
extent such amounts when made available
or conveyed are in excess of Captive’s
cumulative after-tax net investment earn-
ings minus any outstanding financings or
conveyances.
(2) The transaction involves a Cap-
tive for which the amount of liabilities
incurred for insured losses and claim
administration expenses during the Loss
Ratio Computation Period is less than 65
percent of the amount equal to premiums
earned by Captive during the Loss Ratio
Computation Period less policyholder
dividends paid by Captive during the Loss
Ratio Computation Period.
(d) Exceptions. A transaction described
in paragraph (c) of this section is not clas-
sified as a listed transaction for purposes
of this section and §1.6011-4(b)(2) if the
transaction:
(1) Provides insurance for employee
compensation or benefits and is one for
which the Employee Benefits Security
Administration of the U.S. Department of
Labor has issued a Prohibited Transaction
Exemption under the procedures provided
at 76 FR 66637 (Oct. 27, 2011) (or subse-
quent procedures); or
(2) Is an arrangement in which a Captive
meets all of the following requirements:
(i) Captive is a Seller’s Captive:
(ii) The Seller’s Captive issues or rein-
sures some or all of the Contracts sold to
Unrelated Customers in connection with
the products or services being sold by the
Seller:
(iii) 100 percent of the business of the
Seller’s Captive is insuring or reinsuring
Contracts in connection with products or
services being sold by the Seller or per-
sons Related to the Seller: and
(iv) With respect to the Contracts issued
or reinsured by the Seller’s Captive, the
fee, commission, or other remuneration
earned by any person or persons, in the
aggregate, for the sale of the Contracts,
described as a percentage of the premiums
paid by the Seller’s customers, is at least
equal to the greater of:
(A) 50 percent; or
(B) The unrelated commission percent-
age (which is the highest percentage fee,
commission, or other remuneration known
to the Seller that is earned by any person

Bulletin No. 2023–17 787 April 24, 2023
or persons, in the aggregate, for the sale of
any extended warranty, insurance, or other
similar Contract sold to a customer cover-
ing products or services sold by the Seller.
(e) Special participation rules—(1) In
general. Whether a taxpayer has partici-
pated in the listed transaction identified
in paragraph (a) of this section will be
determined under § 1.6011-4(c)(3)(i)(A).
Participants include, but are not limited to,
any Owner, Insured, Captive, or Interme-
diary with respect to the transaction whose
tax return reflects tax consequences or a
tax strategy described in paragraph (a) of
this section, except as otherwise provided
in paragraph (e)(2) of this section.
(2) Disclosure safe harbor for Own-
ers. An Owner who, solely by reason of
the Owner’s direct or indirect ownership
interest in an Insured, has participated
in the listed transaction described in this
section will not be required to disclose par-
ticipation in the transaction under section
6011(a), notwithstanding § 1.6011-4(c)
(3), if the Owner receives an acknowledg-
ment, in writing or electronically, from
the Insured that the Insured has or will
comply with the Insured’s separate dis-
closure obligation under § 1.6011-4 with
respect to the transaction and the Insured
discloses the transaction in a timely man-
ner. The acknowledgment can be a copy
of the Form 8886, Reportable Transaction
Disclosure Statement (or successor form),
filed (or to be filed) by the Insured and
must be received by the Owner prior to the
time set forth in § 1.6011-4(e) in which
the Owner would otherwise be required
to provide disclosure. Owners who meet
the requirements of this safe harbor will
not be treated as having participated in an
undisclosed listed transaction for purposes
of § 1.6664-2(c)(3)(ii) or as having failed
to include information on any return or
statement with respect to a listed transac-
tion for purposes of section 6501(c)(10).
(f) Disclosure requirements—(1)
Information required of all participants.
Participants must provide the informa-
tion required under § 1.6011-4(d) and the
Instructions to Form 8886 (or successor
form). For all participants, describing the
transaction in sufficient detail includes,
but is not limited to, describing on Form
8886 (or successor form) when, how, and
from whom the participant became aware
of the transaction, and how the participant
participated in the transaction (for exam-
ple, as an Insured, a Captive, or other
participant). Paragraphs (f)(2) and (3) of
this section describe information required
of a Captive and an Insured, respectively.
(2) Information required of a Captive.
For a Captive, describing the transaction
in sufficient detail includes, but is not lim-
ited to, describing the following on Form
8886 (or successor form):
(i) All the type(s) of policies issued or
reinsured by Captive during the year of
participation or years of participation (if
disclosure pertains to multiple years);
(ii) The amounts treated by Captive as
premiums written for coverage provided
by Captive during the year of participation
or each year of participation (if disclosure
pertains to multiple years);
(iii) The name and contact information
of each and every actuary or underwriter
who assisted in the determination of the
amounts treated as premiums for cover-
age provided by Captive during the year
or each year of participation (if disclosure
pertains to multiple years);
(iv) The total amount of claims paid by
Captive during the year of participation or
each year of participation (if disclosure
pertains to multiple years); and
(v) The name and percentage of interest
directly or indirectly held by each person
whose interest in Captive meets the 20
percent threshold or is taken into account
in meeting the 20 percent threshold under
§ 1.6011-10(b)(1)(iii).
(3) Information required of Insured.
For Insured, describing the transaction
in sufficient detail includes, but is not
limited to, describing on Form 8886 (or
successor form) the amounts treated by
Insured as premiums for coverage pro-
vided to Insured, directly or indirectly, by
Captive or by each Captive (if disclosure
pertains to multiple Captives) during the
year or each year of participation (if dis-
closure pertains to multiple years), as well
as the identity of all persons identified as
Owners to whom the Insured provided an
acknowledgment described in paragraph
(e)(2) of this section.
(g) Applicability date—(1) In general.
This section identifies transactions that
are the same as, or substantially similar
to, the transactions described in paragraph
(a) of this section as listed transactions for
purposes of § 1.6011-4(b)(2) effective the
date the regulations are published as final
regulations in the Federal Register.
(2) Obligations of participants with
respect to prior periods. Pursuant to §
1.6011-4(d) and (e), taxpayers who have
filed a tax return (including an amended
return) reflecting their participation in
transactions described in paragraph (a) of
this section prior to the date these regula-
tions are published as final regulations in
the Federal Register, who have not other-
wise finalized a settlement agreement with
the Internal Revenue Service with respect
to the transaction, must disclose the trans-
actions as required by § 1.6011-4(d) and
(e) provided that the period of limitations
for assessment of tax (as determined
under section 6501 of the Code, includ-
ing section 6501(c)) for any taxable year
in which the taxpayer participated has not
ended on or before the date the regulations
are published as final regulations in the
Federal Register.
(3) Obligations of material advisors
with respect to prior periods. Material
advisors defined in § 301.6111-3(b) of
this chapter who have previously made a
tax statement with respect to a transaction
described in paragraph (a) of this section
have disclosure and list maintenance obli-
gations as described in §§ 301.6111-3 and
301.6112-1 of this chapter, respectively.
Notwithstanding § 301.6111-3(b)(4)(i)
and (iii) of this chapter, material advisors
are required to disclose only if they have
made a tax statement on or after the date
that is six years before the date the regu-
lations are published as final regulations
in the Federal Register. Material advisors
that are uncertain whether the transaction
they are required to disclose should be
reported under this section or §1.6011-
11 should disclose under this section, and
will not be required to disclose a second
time if it is later determined that the trans-
action should have been disclosed under
§1.6011-11.
Par. 3. Section 1.6011-11 is added to
read as follows:
§ 1.6011-11 Micro-captive transaction
of interest.
(a) Identification as transaction of
interest. Transactions that are the same
as, or substantially similar to, transactions
described in paragraph (c) of this section

April 24, 2023 788 Bulletin No. 2023–17
are identified as transactions of interest for
purposes of § 1.6011-4(b)(6), except as
provided in paragraph (d) of this section.
(b) Definitions. The following defini-
tions apply for purposes of this section:
(1) Captive has the same meaning as
provided in § 1.6011-10(b)(1).
(2) Transaction of Interest Computa-
tion Period means the most recent nine
taxable years of a Captive (or all taxable
years of Captive, if Captive has been in
existence for less than nine taxable years).
For purposes of this paragraph (b)(2),
each short taxable year is a separate tax-
able year, and if Captive is a successor to
one or more other Captives, taxable years
of each such other Captive are treated
as taxable years of Captive. A successor
has the same meaning as provided in §
1.6011-10(b)(2)(iii) for purposes of this
paragraph (b)(2).
(3) Contract has the same meaning as
provided in § 1.6011-10(b)(3).
(4) Insured has the same meaning as
provided in § 1.6011-10(b)(4).
(5) Intermediary has the same meaning
as provided in § 1.6011-10(b)(5).
(6) Owner has the same meaning as
provided in § 1.6011-10(b)(6).
(7) Related has the same meaning as
provided in § 1.6011-10(b)(8).
(8) Seller has the same meaning as pro-
vided in § 1.6011-10(b)(9).
(9) Seller’s Captive has the same mean-
ing as provided in § 1.6011-10(b)(10).
(10) Unrelated Customers has the same
meaning as provided in § 1.6011-10(b)
(11).
(c) Transaction description. A trans-
action is described in this paragraph (c)
if the transaction involves a Captive for
which the amount of liabilities incurred
for insured losses and claim administra-
tion expenses during the Transaction of
Interest Computation Period is less than 65
percent of the amount equal to premiums
earned by Captive during the Transac-
tion of Interest Computation Period less
policyholder dividends paid by Captive
during the Transaction of Interest Compu-
tation Period.
(d) Exceptions. A transaction described
in paragraph (c) of this section is not
classified as a transaction of interest for
purposes of this section and § 1.6011-4(b)
(6) if the transaction:
(1) Is described in § 1.6011-10(d)(1);
(2) Is described in § 1.6011-10(d)(2);
or
(3) Is identified as a listed transac-
tion in § 1.6011-10(a), in which case the
transaction must be reported as a listed
transaction under § 1.6011-10.
(e) Special participation rules—(1)
In general. Whether a taxpayer has par-
ticipated in the transaction of interest
identified in paragraph (a) of this section
will be determined under § 1.6011-4(c)
(3)(i)(E). Participants include, but are
not limited to, any Owner, Insured, Cap-
tive, or Intermediary with respect to the
transaction whose tax return reflects tax
consequences or a tax strategy described
in paragraph (a) of this section, except as
otherwise provided in paragraph (e)(2) of
this section.
(2) Disclosure safe harbor for Own-
ers. An Owner who, solely by reason of
the Owner’s direct or indirect ownership
interest in an Insured, has participated
in the transaction of interest described
in this section will not be required to
disclose participation in the transaction
under section 6011(a), notwithstanding
§ 1.6011-4(c)(3), if the Owner receives
acknowledgment, in writing or electroni-
cally, from the Insured that the Insured has
or will comply with Insured’s separate dis-
closure obligation under § 1.6011-4 with
respect to the transaction and the Insured
discloses the transaction in a timely man-
ner. The acknowledgment can be a copy
of the Form 8886, Reportable Transaction
Disclosure Statement (or successor form),
filed (or to be filed) by the Insured and
must be received by the Owner prior to the
time set forth in § 1.6011-4(e) in which
the Owner would otherwise be required to
provide disclosure.
(f) Disclosure requirements. Par-
ticipants must provide the information
required under § 1.6011-4(d) and the
Instructions to Form 8886 (or successor
form). For all participants, describing the
transaction in sufficient detail includes, but
is not limited to, describing on Form 8886
(or successor form) when, how, and from
whom the participant became aware of the
transaction, and how the participant par-
ticipated in the transaction (for example,
as an Insured, a Captive, or other partic-
ipant). A Captive and an Insured must
also provide the information required in §
1.6011-10(f)(2) and (3), respectively.
(g) Applicability date—(1) In general.
This section identifies transactions that are
the same as, or substantially similar to, the
transaction described in paragraph (a) of
this section as transactions of interest for
purposes of § 1.6011-4(b)(6) effective the
date the regulations are published as final
regulations in the Federal Register.
(2) Obligations of participants with
respect to prior periods. Pursuant to §
1.6011-4(d) and (e), taxpayers who have
filed a tax return (including an amended
return) reflecting their participation in
transactions described in paragraph (a) of
this section prior to the date the regula-
tions are published as final regulations in
the Federal Register, who have not other-
wise finalized a settlement agreement with
the Internal Revenue Service with respect
to the transaction, must disclose the trans-
actions as required by § 1.6011-4(d) and
(e) provided that the period of limitations
for assessment of tax (as determined under
section 6501, including section 6501(c))
for any taxable year in which the taxpayer
participated has not ended on or before the
date the regulations are published as final
regulations in the Federal Register. How-
ever, taxpayers who have filed a disclosure
statement regarding their participation
in the transaction with the Office of Tax
Shelter Analysis pursuant to Notice 2016-
66, 2016-47 I.R.B. 745, will be treated as
having made the disclosure pursuant to
the final regulations for the taxable years
for which the taxpayer filed returns before
the final regulations are published in the
Federal Register. If a taxpayer described
in the preceding sentence participates in
the Micro-captive Transaction of Interest
in a taxable year for which the taxpayer
files a return on or after the date the final
regulations are published in the Federal
Register, the taxpayer must file a dis-
closure statement with the Office of Tax
Shelter Analysis at the same time the tax-
payer files their return for the first such
taxable year.
(3) Obligations of material advisors
with respect to prior periods. Material
advisors defined in § 301.6111-3(b) of
this chapter who have previously made a
tax statement with respect to a transaction
described in paragraph (a) of this section
have disclosure and list maintenance obli-
gations as described in §§ 301.6111-3 and
301.6112-1 of this chapter, respectively.

Bulletin No. 2023–17 789 April 24, 2023
Notwithstanding § 301.6111-3(b)(4)(i)
and (iii) of this chapter, material advisors
are required to disclose only if they have
made a tax statement on or after the date
six years before the date the regulations
are published as final regulations in the
Federal Register. Material advisors that
are uncertain whether the transaction they
are required to disclose should be reported
under this section or § 1.6011-10 should
disclose under § 1.6011-10, and will not
be required to disclose a second time if
it is later determined that the transaction
should have been disclosed under this
section.
Douglas W. O’Donnell,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register April
10, 2023, 8:45a.m., and published in the issue of the
Federal Register for April 11, 2023, 88 FR 21547)
Notice of Proposed
Rulemaking
Rules for Supervisory
Approval of Penalties
REG-121709-19
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations regarding supervi-
sory approval of certain penalties assessed
by the IRS. The proposed regulations are
necessary to address uncertainty regarding
various aspects of supervisory approval of
penalties that have arisen due to recent
judicial decisions. The proposed regula-
tions affect the IRS and persons assessed
certain penalties by the IRS.
DATES: Electronic or written comments
and requests for a public hearing must be
received by July 10, 2023. Requests for a
public hearing must be submitted as pre-
scribed in the “Comments and Requests
for a Public Hearing” section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic sub-
missions via the Federal eRulemaking
Portal at www.regulations.gov (indicate
IRS and REG-121709-19) by following
the online instructions for submitting
comments. Once submitted to the Federal
eRulemaking Portal, comments cannot
be edited or withdrawn. The Department
of the Treasury (Treasury Department)
and the IRS will publish any comments
submitted electronically and comments
submitted on paper, to the public docket.
Send paper submissions to: CC:PA:LP-
D:PR (REG-121709-19), Room 5203,
Internal Revenue Service, P.O. Box 7604,
Ben Franklin Station, Washington, DC
20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, David Bergman, (202)
317-6845; concerning submissions of
comments and requests for a public hear-
ing, Vivian Hayes (202) 317-5306 (not
toll-free numbers) or by email at publi-
chearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Regulations on Pro-
cedure and Administration (26 CFR part
301) under section 6751(b) of the Internal
Revenue Code (Code). No regulations
have previously been issued under section
6751.
1. Legislative overview.
Section 6751 was added to the Code
by section 3306 of the Internal Revenue
Service Restructuring and Reform Act of
1998 (1998 Act), Public Law 105-206,
112 Stat. 685, 744 (1998). Section 6751(a)
sets forth the content of penalty notices.
Section 6751(b) provides procedural
requirements for the Secretary of the Trea-
sury or her delegate (Secretary) to assess
certain penalties, including additions to
tax or additional amounts under the Code.
See section 6751(c).
Section 6751(b)(1), as added by the
1998 Act, provides that “[n]o penalty
under this title shall be assessed unless
the initial determination of such assess-
ment is personally approved (in writing)
by the immediate supervisor of the indi-
vidual making such determination or
such higher level official as the Secretary
may designate.” As an exception to this
rule, section 6751(b)(2), as added by the
1998 Act, provides that section 6751(b)
(1) “shall not apply to-- (A) any addition
to tax under section 6651, 6654, or 6655
[of the Code]; or (B) any other penalty
automatically calculated through elec-
tronic means.”
The report of the United States Senate
Committee on Finance regarding the 1998
Act (1998 Senate Finance Committee
Report) provides that Congress enacted
section 6751(b)(1) because of its concern
that, “[i]n some cases, penalties may be
imposed without supervisory approval.”
S. Rep. No. 105-174, at 65 (1998), 1998-3
C.B. 537, 601. The report further states
that “[t]he Committee believes that pen-
alties should only be imposed where
appropriate and not as a bargaining chip.”
Id. The report provides that, to achieve
this goal, section 6751(b)(1) “requires the
specific approval of IRS management to
assess all non-computer generated penal-
ties unless excepted.”
Section 212 of the Taxpayer Certainty
and Disaster Tax Relief Act of 2020,
which was enacted as Division EE of the
Consolidated Appropriations Act, 2021,
Public Law 116-260, 134 Stat. 1182, 3067
(2020), expanded the list of penalties
in section 6751(b)(2)(A) excepted from
the supervisory approval requirement of
section 6751(b)(1) by revising the end
of section 6751(b)(2)(A) to read “6654,
6655, or 6662 (but only with respect to an
addition to tax by reason of subsection (b)
(9) thereof);” (relating to the addition to
tax under section 6662(b)(9) of the Code
with regard to the special charitable con-
tribution deduction under section 170(p)
of the Code for taxable years of individ-
uals beginning in 2021). Section 605 of
Division T of the Consolidated Appropria-
tions Act, 2023, Public Law 117-328, 136
Stat. 4459, 5395 (2022), further amended
section 6751(b)(2)(A) by striking “sub-
section (b)(9)” and inserting “paragraph
(9) or (10) of subsection (b).” Section
6662(b)(10) imposes an accuracy-related
penalty on underpayments attributable to

April 24, 2023 790 Bulletin No. 2023–17
any disallowance of a deduction by reason
of section 170(h)(7).
2. Judicial treatment.
In 2016, a United States Tax Court (Tax
Court) majority read section 6751(b)(1)’s
silence about when supervisory approval
is required to mean that no specific timing
requirement exists and, thus, the approval
need only be obtained at some time, but
no particular time, prior to assessment.
Graev v. Commissioner, 147 T.C. 460,
477-81 (2016), superseded by 149 T.C.
485 (2017).
The United States Court of Appeals
for the Second Circuit (Second Circuit)
rejected the Graev court’s interpretation
of section 6751(b)(1), finding ambi-
guity in the statute’s phrase “initial
determination of such assessment.” Chai
v. Commissioner, 851 F.3d 190, 218-19
(2d Cir. 2017). The Second Circuit held
that, with respect to penalties subject to
deficiency procedures, section 6751(b)
(1) requires written approval of the ini-
tial penalty determination no later than
the date the IRS issues the notice of defi-
ciency (or files an answer or amended
answer asserting such penalty). Id. at
221. The Second Circuit reasoned that for
supervisory approval to be given force,
it must be obtained when the supervisor
has the discretion to give or withhold it,
and, for penalties determined in a notice
of deficiency, this discretion no longer
exists upon the issuance of the notice.
Id. at 220. In Graev III, 149 T.C. 485
(2017), the Tax Court reversed its earlier
interpretation of section 6751(b) and fol-
lowed Chai. Since then, the Tax Court has
imposed increasingly earlier deadlines by
which supervisory approval of the initial
penalty determination must be obtained
to be considered timely under the statute,
formulating tests that are difficult for IRS
employees to apply.
In Clay v. Commissioner, 152 T.C.
223, 249-50 (2019), the Tax Court held
that supervisory approval of penalties
was too late where it was obtained before
the IRS issued a notice of deficiency but
after the revenue agent sent the petitioner
a “30-day letter” proposing penalties and
giving the petitioner an opportunity to
request an administrative appeal. In Belair
Woods, LLC v. Commissioner, 154 T.C. 1,
13 (2020), the Tax Court held that super-
visory approval must be obtained before
the IRS sends a notice that “formally
communicates to the taxpayer, the [IRS]
Examination Division’s unequivocal deci-
sion to assert a penalty.” In subsequent
cases, the Tax Court has held that supervi-
sory approval must be obtained before the
first communication to the taxpayer that
demonstrates that an initial determination
has been made. See, e.g., Beland v. Com-
missioner, 156 T.C. 80 (2021); Kroner
v. Commissioner, T.C. Memo. 2020-73,
rev’d 48 F. 4th 1272 (11th Cir. 2022);
Carter v. Commissioner, T.C. Memo.
2020-21, rev’d 2022 WL 4232170 (11th
Cir. Sept. 14, 2022). The Tax Court has
applied this timing rule to penalties sub-
ject to pre-assessment review in the Tax
Court, as well as to assessable penalties.
Recently the United States Court of
Appeals for the Ninth Circuit (Ninth Cir-
cuit), the United States Court of Appeals
for the Tenth Circuit (Tenth Circuit), and
the United States Court of Appeals for
the Eleventh Circuit (Eleventh Circuit)
reversed the Tax Court’s “formal commu-
nication” timing rule, noting that it has no
basis in the text of the statute. Laidlaw’s
Harley Davidson Sales, Inc. v. Commis-
sioner, 29 F.4th 1066 (9th Cir. 2022),
reh’g en banc denied, No. 20-73420 (9th
Cir. July 14, 2022); Minemyer v. Commis-
sioner, Nos. 21-9006 & 21-9007, 2023
WL 314832 (10th Cir. Jan. 19, 2023); Kro-
ner v. Commissioner, 48 F. 4th 1272 (11th
Cir. 2022). In Laidlaw’s, the Ninth Circuit
held that the statute requires approval
before the assessment of a penalty or, if
earlier, before the relevant supervisor
loses discretion whether to approve the
penalty assessment, and noted that “[t]he
statute does not make any reference to the
communication of a proposed penalty to
the taxpayer, much less a ‘formal’ com-
munication.” Laidlaw’s, 29 F. 4th at 1072.
In Minemyer, the Tenth Circuit, in an
unpublished opinion, held that the statute
requires approval before the IRS issues a
notice of deficiency asserting a penalty.
Minemyer, 2023 WL 314832 at *4-5. In
Kroner, the Eleventh Circuit held that
the statute only requires approval before
assessment, finding that a deadline of
assessment is “consistent with the mean-
ing of the phrase ‘initial determination of
such assessment,’. . . . reflects the absence
of any express timing requirement in the
statute . . . [and] is a workable reading in
light of the statute’s purpose.” Kroner, 48
F.4th at 1276. The Tax Court has continued
to use its “formal communication” timing
rule subsequent to Laidlaw’s and Kroner.
See, e.g., Simpson v. Commissioner, T.C.
Memo 2023-4; Castro v. Commissioner,
T.C. Memo. 2022-120.
Recent cases have also addressed other
issues under section 6751(b)(1), including
(but not limited to) clarification as to who
is an immediate supervisor, see, e.g., Sand
Investment Co. v. Commissioner, 157 T.C.
136 (2021); what constitutes personal,
written approval, see, e.g., PBBM-Rose
Hill, Ltd. v. Commissioner, 900 F.3d 193
(5th Cir. 2018); whether particular Code
sections impose a “penalty” subject to
section 6751(b)(1), see, e.g., Grajales v.
Commissioner, 156 T.C. 55 (2021), aff’d
2022 WL 3640274 (2d Cir. 2022); and
what constitutes a penalty “automatically
calculated through electronic means.” See,
e.g., Walquist v. Commissioner, 152 T.C.
61 (2019).
Explanation of Provisions
The Treasury Department and the IRS
have concluded that it is in the interest of
sound tax administration to have clear and
uniform regulatory standards regarding
the penalty approval requirements under
section 6751(b). In the absence of such
regulatory standards, caselaw has devel-
oped rules for the application of section
6751(b). Such judicial holdings are sub-
ject to unanticipated but frequent change,
making it difficult for IRS employees to
apply them in a consistent manner. The
difficulty in applying or anticipating
how courts will construe these rules has
resulted in otherwise appropriate pen-
alties on taxpayers not being sustained
and has undermined the efficacy of these
penalties as a tool to enhance voluntary
compliance by taxpayers. In addition, the
evolving standards regarding interpreta-
tions of section 6751(b) have served to
increase litigation, which consumes sig-
nificant government resources. The recent
Ninth Circuit and Eleventh Circuit rulings
also create a different test to satisfy the
requirements of section 6751(b) in cases
appealable to those circuits as opposed
to other cases that come before the Tax

Bulletin No. 2023–17 791 April 24, 2023
Court. See Laidlaw’s Harley Davidson
Sales, 29 F.4th at 1066; Kroner v. Com-
missioner,48 F. 4th at 1276. The proposed
regulations are intended to clarify the
application of section 6751(b) in a manner
that is consistent with the statute and its
legislative history, has nationwide unifor-
mity, is administrable for the IRS, and is
easily understood by taxpayers.
1. Timing issues
The proposed regulations would adopt
three rules regarding the timing of super-
visory approval of penalties under section
6751(b) that are based on objective and
clear standards. One rule addresses penal-
ties that are included in a pre-assessment
notice that is subject to the Tax Court’s
review, such as a statutory notice of defi-
ciency. One rule is for penalties that the
IRS raises in an answer, amended answer,
or amendment to the answer to a Tax
Court petition. And one rule is for penal-
ties assessed without prior opportunity for
review by the Tax Court.
A. Penalties subject to pre-assessment
review in the Tax Court
Proposed §301.6751(b)-1(c) provides
that, for penalties that are included in a
pre-assessment notice issued to a taxpayer
that provides the basis for jurisdiction in
the Tax Court upon timely petition, super-
visory approval may be obtained at any
time before the notice is issued by the
IRS. Section 6751(b) clearly provides
that there be supervisory approval before
the assessment of a penalty and contains
no express requirement that the “written
approval be obtained at any particular
time prior to assessment.” Chai, 851 F.3d
at 218. Courts have noted that there is
ambiguity in the statutory phrase “initial
determination of such assessment [of the
penalty]” that a supervisor must approve.
See, e.g., Chai, 851 F.3d at 218-19 (noting
that since an “assessment” is the formal
recording of a taxpayer’s tax liability, one
can determine a deficiency and whether
to make an assessment, but one cannot
“determine” an assessment); Roth v. Com-
missioner, 922 F.3d 1126, 1132 (10th Cir.
2019) (“[W]e agree with the Second Cir-
cuit that the plain language of § 6751(b)
is ambiguous . . . .”). But courts have not
agreed that an ambiguity about what con-
stitutes an initial determination provides
an opportunity to craft a deadline for
approval of an initial determination from
the statute’s legislative history. Compare
Chai, 851 F.3d at 219 with Laidlaw’s
Harley Davidson Sales, 29 F.4th at 1072.
Instead, courts have agreed that a super-
visor can approve a penalty only at a time
that the supervisor has discretion to give
or withhold approval. See, e.g., Chai, 851
F.3d at 220; Laidlaw’s Harley Davidson
Sales, 29 F.4th at 1074; Cf., Kroner, 48 F.
4th at 1276, n.1 (holding that approval is
required before assessment but declining
to address whether the supervisor must
have discretion at the time of approval
because it was undisputed in that case that
the supervisor did).
Prior to the Second Circuit’s ruling in
Chai, the Tax Court interpreted section
6751(b) merely to require supervisory
approval prior to assessment, which is
the only definitive deadline provided in
the statute and which, for penalties deter-
mined in a notice of deficiency, occurs
after the opportunity for Tax Court review
of a penalty. See Graev v. Commissioner,
147 T.C. 460 (2016), superseded by 149
T.C. 485 (2017). The Treasury Department
and the IRS acknowledge that approval
of a penalty after the IRS issues a notice
subject to Tax Court review is counter to
the statutory scheme for Tax Court review.
Once a taxpayer petitions to the Tax Court
a notice that includes a penalty, section
6215(a) of the Code directs that the Tax
Court decides whether the penalty will
be assessed. In that case, a supervisor no
longer has discretion that will control. Fur-
ther, as a practical matter, the IRS has no
general process for supervisory approval
of a penalty after issuing a pre-assessment
notice to a taxpayer subject to review by
the Tax Court that includes the penalty,
such as a notice of deficiency. If a tax-
payer does not timely petition the Tax
Court, the IRS will simply assess any
penalty determined in the notice. There-
fore, the Treasury Department and the
IRS conclude that a penalty appearing in
a pre-assessment notice issued to a tax-
payer subject to Tax Court review should
be subject to supervisory approval before
the notice is issued. This interpretation
is consistent with the Second Circuit’s
holding in Chai and provides for penalty
review while the IRS still has discretion
regarding penalties. See also Laidlaw’s
Harley Davidson Sales, 29 F.4th at 1074
(“Accordingly, we hold that §6751(b)
(1) requires written supervisory approval
before the assessment of the penalty or,
if earlier, before the relevant supervisor
loses discretion whether to approve the
penalty assessment.”).
The proposed regulations do not
require written approval of an initial deter-
mination of a penalty that is subsequently
included in a pre-assessment notice sub-
ject to review by the Tax Court by any
deadline earlier than the issuance of the
notice to the taxpayer. As already men-
tioned, no language in the statute imposes
any such earlier deadline, and the statu-
tory scheme for assessing such penalties
does not deprive a supervisor of discretion
to approve an initial determination before
the issuance of a pre-assessment notice
subject to review by the Tax Court.
The Treasury Department and the IRS
have concluded that an earlier deadline for
approval of an initial determination of a
penalty would not best serve the legisla-
tive purpose of section 6751(b). The lack
of any deadline in the statute other than the
deadline that approval must come before
assessment indicates that Congress did
not intend an earlier deadline. No earlier
deadline is mentioned in the legislative
history. To create earlier deadlines, the
caselaw relies on a single statement in the
limited legislative history that “[t]he Com-
mittee believes that penalties should only
be imposed where appropriate and not as
a bargaining chip.” See Belair Woods, 154
T.C. at 7 (citing S. Rep. No. 105-174, at 65
(1998)). But the earlier deadlines created
by the Tax Court do not ensure that penal-
ties are only imposed where appropriate.
First, the supervisory approval dead-
lines the Tax Court has created are unclear
in application. One formulation sets the
deadline for approval to occur before
the IRS “formally communicates to the
taxpayer, the Examination Division’s
unequivocal decision to assert a penalty.”
Belair Woods, 154 T.C. at 13. Prior to
assessment, it is unclear what constitutes
this unequivocal decision other than a
notice that gives the taxpayer the right
to petition the Tax Court. For any notice
before the right to petition the Tax Court,
the taxpayer is free to present more evi-

April 24, 2023 792 Bulletin No. 2023–17
dence or arguments to the Examination
Division as to why a penalty should not
apply, which could lead the IRS super-
visor charged with approving an initial
determination to conclude that a penalty
should not be asserted.
Second, if the “Examination Division’s
unequivocal decision to assert a penalty,”
id., means that the Examination Division
was finished with its work and could or
would not change its mind upon receiving
further information, there is no harm in
delaying approval in writing until some-
time after that moment. There would be
no possibility of a change to the penalty
during the period after the Examination
Division has completed its work. The Tax
Court’s imposition of an approval dead-
line immediately after the Examination
Division has completed its work rather
than sometime later would do nothing to
prevent an attempt to bargain because the
Examination Division could not consider
a bargain if it has already completed its
work
Third, none of the deadlines the Tax
Court has imposed actually ensure that
penalties could never be used as a bar-
gaining chip because each formulation of
what constitutes an “initial determination”
has been tied to a written communication.
Although it would violate longstanding
IRS Policy Statements and would contra-
dict the Internal Revenue Manual’s (IRM)
instructions, in theory a penalty could be
used as a bargaining chip if conveyed
orally, and the deadlines the Tax Court
has created do not come into play without
written communication. As a result, the
Tax Court opinions imposing deadlines
are not effective to prevent bargaining.
Fourth, the courts’ struggles to deter-
mine a consistent deadline has undermined
the legislative purpose that penalties be
imposed “where appropriate.” S. Rep.
No. 105-714 at 65. The Tax Court has
found no evidence that an IRS employee
actually attempted to use a penalty as
a bargaining chip in any of the cases in
which it invalidated a penalty for section
6751(b) noncompliance. Instead, the Tax
Court has consistently removed penalties
when IRS employees simply obtained
written supervisory approval after dead-
lines the Tax Court created and applied
retroactively without any indication that
the penalty was improper. See, e.g., Kro-
ner, T.C. Memo. 2020-73, rev’d 48 F.
4th 1272 (11th Cir. 2022); Carter, T.C.
Memo. 2020-21, rev’d 2022 WL 4232170
(11th Cir. Sept. 14, 2022). In one case, the
Tax Court explicitly noted that imposition
of the penalty would be proper but for the
IRS’s failure to obtain written supervisory
approval by the deadline created by the
Tax Court. See Becker v. Commissioner,
T.C. Memo. 2018-69 (stating that “Mr.
Becker’s fraud is evident” and that, but for
section 6751(b) compliance, the court’s
analysis “would normally lead to a hold-
ing that sustains the Commissioner’s civil
fraud penalty determinations. . .”).
In contrast, by allowing a supervi-
sor to approve the initial determination
of a penalty up until the time the IRS
issues a pre-assessment notice subject to
review by the Tax Court, the proposed
rule ensures that penalties are “only [
] imposed where appropriate.” S. Rep.
No. 105-714 at 65. With this deadline,
the supervisor has the opportunity to
consider a taxpayer’s defense against a
penalty, if applicable, and decide whether
to approve the penalty. If the facts of the
case suggest that a penalty should have
been considered but none is imposed, the
supervisor’s later review would allow the
supervisor to question why none was rec-
ommended. Furthermore, this bright-line
rule relieves supervisors from having to
predict whether approval at a certain point
will be too early or too late, thereby risk-
ing that an otherwise appropriate penalty
may not be upheld by a court. Pre-as-
sessment notices that provide a basis for
Tax Court jurisdiction are well known to
supervisors, and the proposed rule will be
clear in application to both IRS employees
and taxpayers.
Finally, the rule in proposed
§301.6751(b)-1(c) is consistent with long-
standing IRS Policy Statements. Penalty
Policy Statement 20-1 has, since 2004,
included the following direction to IRS
employees:
“The [IRS] will demonstrate the fair-
ness of the tax system to all taxpayers by:
a. Providing every taxpayer against
whom the [IRS] proposes to assess
penalties with a reasonable oppor-
tunity to provide evidence that the
penalty should not apply;
b. Giving full and fair consideration to
evidence in favor of not imposing the
penalty, even after the [IRS]’s initial
consideration supports imposition of
a penalty; and
c. Determining penalties when a full
and fair consideration of the facts and
the law support doing so.
Note: This means that penalties are not a
“bargaining point” in resolving the tax-
payer’s other tax adjustments. Rather,
the imposition of penalties in appropriate
cases serves as an incentive for taxpayers
to avoid careless or overly aggressive tax
reporting positions.”
IRM 1.2.1.12.1 (9). As reflected in
this Policy Statement and the language
of section 6751(b) itself, it may not be
until the IRS has had the opportunity to
develop the facts in support of or against
the penalty that a supervisor is in the best
position to approve an initial determina-
tion to assert a penalty as appropriate.
Therefore, the Treasury Department and
the IRS have concluded that the dead-
line for providing approval for penalties
appearing in a pre-assessment notice that
entitles a taxpayer to petition the Tax
Court should be no earlier than issuance
of such notice.
B. Penalties raised in the Tax Court after
a petition
Proposed §301.6751(b)-1(d) pro-
vides that, for penalties raised in the
Tax Court after a petition, supervisory
approval may be obtained at any time
prior to the Commissioner requesting
that the court determine the penalty. The
proposed rule gives full effect to the lan-
guage in both sections 6214 and 6751(b)
(1) because once a penalty is raised, the
Tax Court decision will control whether
it is assessed. Section 6214(a) permits
the Commissioner to raise penalties in
an answer or amended answer that were
not included in a notice that provides
the basis for Tax Court jurisdiction upon
timely petition. The proposed rule allows
the exercise of this statutory grant of inde-
pendent judgment by the IRS Office of
Chief Counsel (Counsel) attorney, while
maintaining the intent of Congress that
penalties be imposed only where appro-
priate, and with meaningful supervisory
review. Any concern about a Counsel
attorney using penalties raised in an
answer or amended answer as a bargain-

Bulletin No. 2023–17 793 April 24, 2023
ing chip is mitigated by the requirement
in proposed §301.6751(b)-1(d) for
supervisory approval within Counsel
before the answer or amended answer is
filed. Moreover, by raising a penalty on
answer, amended answer, or amendment
to the answer to , the Commissioner will
likely bear the burden of proof at trial
regarding the application of the penalty,
thus reducing further the possibility that
Counsel will attempt to use a penalty as
a bargaining chip in a docketed case. See
Tax Court Rule 142. Furthermore, Tax
Court Rule 33(b) provides that signature
of counsel on a pleading constitutes a
certificate by the signer that the pleading
is not interposed for any improper pur-
pose, thus diminishing the potential for
abuse. No case has found that a penalty
raised on answer, amended answer, or
amendment to the answer was untimely
under section 6751(b).
C. Penalties not subject to pre-
assessment review in the Tax Court
Proposed §301.6751(b)-1(b) provides
that supervisory approval for penalties
that are not subject to pre-assessment
review in the Tax Court may be obtained
at any time prior to assessment. This
includes penalties that could have been
included in a pre-assessment notice that
provides the basis for Tax Court jurisdic-
tion upon timely petition, but which were
not included in such a notice because
the taxpayer agreed to their immediate
assessment.
Unlike penalties subject to deficiency
procedures before assessment, there is no
Tax Court or potential Tax Court decision
that would make approval of an imme-
diately assessable penalty by an IRS
supervisor meaningless. Instead, consis-
tent with the language of section 6751(b),
supervisory approval can be made at any
time before assessment without causing
any tension in the statutory scheme for
assessing penalties.
The proposed rule is also consistent
with congressional intent that penalties
not be used as a bargaining chip. Most
penalties not subject to pre-assessment
review in the Tax Court cannot be used as
a bargaining chip because they are not in
addition to a tax liability. Rather, the pen-
alty is the sole liability at issue.
2. Exceptions to the rule requiring
supervisory approval of penalties
Proposed §301.6751(b)-1(a)(2) pro-
vides a list of penalties excepted from
the requirements of section 6751(b). Pro-
posed §301.6751(b)-1(a)(2) excepts those
penalties listed in section 6751(b)(2)(A),
along with penalties imposed under sec-
tion 6673 of the Code. Penalties under
section 6673 are imposed at the discretion
of the court and are designed to deter bad
behavior in litigation and conserve judicial
resources. Section 6673 penalties are not
determined by the Commissioner, and the
applicable Federal court may impose them
regardless of whether the Commissioner
moves for their imposition. The proposed
rule excepts penalties under section 6673
from the requirements of section 6751(b)
(1) because section 6751(b)(1) was not
intended as a mechanism to restrain Fed-
eral courts. This rule is consistent with the
Tax Court’s holding in Williams v. Com-
missioner, 151 T.C. 1 (2018).
3. Definitions
A. Immediate supervisor and designated
higher level officials
Section 6751(b)(1) requires approval
by “the immediate supervisor” of the
individual who makes the initial penalty
determination, or such higher level offi-
cial as the Secretary may designate. The
statute does not define the term immedi-
ate supervisor. The 1998 Senate Finance
Committee Report only provides that sec-
tion 6751(b) requires the approval of “IRS
management.” In Sand Investment, the
Tax Court held that for purposes of sec-
tion 6751(b) the “immediate supervisor”
is the individual who directly supervises
the examining agent’s work in an exam-
ination. In the Tax Court’s view, the
legislative history of section 6751(b) sup-
ports the conclusion that the person with
the greatest familiarity with the facts and
legal issues presented by the case is the
immediate supervisor. 157 T.C. at 142.
Proposed §301.6751(b)-1(a)(3)(iii)
defines the term “immediate supervisor”
as any individual with responsibility to
approve another individual’s proposal of
penalties without the proposal being sub-
ject to an intermediary’s approval. The
proposed rule does not limit the term imme-
diate supervisor to a single individual. To
limit the term to a single individual within
the IRS would restrict section 6751(b)(1)
in a way that does not reflect how the IRS
operates and would invite unwarranted
disputes about which specific individ-
ual was most appropriate in situations
where multiple individuals could fairly
be considered an “immediate supervisor.”
Instead, the term is better understood to
refer to any person who, as part of their
job, directly approves a penalty proposed
by another. This includes acting supervi-
sors operating under a proper delegation
of authority. This approach is consistent
with the intent of Congress to prevent IRS
examining agents from operating alone.
The proposed rule further ensures that the
person giving the approval has appropri-
ate supervisory responsibility with respect
to the penalty.
Proposed §301.6751(b)-1(a)(4) desig-
nates as a higher level official authorized
to approve an initial penalty determination
for purposes of section 6751(b)(1) any
person who has been directed via the IRM
or other assigned job duties to approve
another individual’s proposal of penalties
before they are included in a notice prereq-
uisite to Tax Court jurisdiction, an answer
to a Tax Court petition, or are assessed
without need for such inclusion. Proposed
§301.6751(b)-1(a)(3)(iv) defines a higher
level official as any person designated as
such under proposed §301.6751(b)-1(a)
(4).
With respect to “higher level offi-
cials” who may provide penalty approval
in lieu of the immediate supervisor, the
statute does not specify whether the offi-
cial needs to be at a “higher level” than
the individual making the initial penalty
determination, or at a higher level than
that individual’s supervisor. Read in light
of the statute’s legislative purpose and
the structure and operations of the IRS,
it is appropriate to understand that term
as referring to an official at a higher level
than the individual making the initial pen-
alty determination. To do otherwise would
be to exclude a large group of individuals
the IRS has assigned to review proposed
penalties. This approach is consistent with
the legislative history and allows IRS
employees to operate within the scope of
their assigned duties.

April 24, 2023 794 Bulletin No. 2023–17
To be able to identify which super-
visor should approve an initial penalty
determination, it must be clear which
individual made the “initial determina-
tion of [a penalty] assessment.” Proposed
§301.6751(b)-1(a)(3)(ii) provides that the
individual who first proposes a penalty
is the individual who section 6751(b)(1)
references as the individual making the
initial determination of a penalty assess-
ment. Proposed §301.6751(b)-1(a)(3)(ii)
also provides that a proposal includes
those made either to a taxpayer or to
the individual’s supervisor or a desig-
nated higher level official. This approach
will allow for easy identification of the
appropriate supervisor or higher level
official. Proposed §301.6751(b)-1(a)(3)
(ii) also makes clear that the assessment
of a penalty must be attributable to an
individual’s proposal for that individual
to be considered as the individual who
made the “initial determination of such
assessment.” If a proposal of a penalty is
not tied to an ultimate assessment, then
it should not be treated as the “initial
determination of such assessment.” This
approach allows the IRS the flexibility to
pursue penalties when new information
is received that alters earlier thinking on
whether a penalty is appropriate. It also
allows for more than one set of an individ-
ual employee and supervisor to exercise
independent judgment about whether a
penalty should be assessed. This situation
is illustrated by an example in proposed
§301.6751(b)-1(e)(4).
B. Personally approved (in writing)
Section 6751(b)(1) requires that
the immediate supervisor “personally
approve (in writing)” the initial deter-
mination to assert a penalty. Proposed
§301.6751(b)-1(a)(3)(v) provides that
“personally approved (in writing)” means
any writing, including in electronic form,
that is made by the writer to signify the
writer’s assent and that reflects that it was
intended as approval. The proposed rule
reflects a straightforward, plain language
interpretation of the term, and is consistent
with the legislative history’s requirement
that “specific approval” be given. The
plain language of the statute requires
only personal approval in writing, not
any particular form of signature or even
any signature at all. The plain language of
the statute also contains no requirement
that the writing contain the supervisor’s
substantive analysis, nor does the statute
require the supervisor to follow any spe-
cific procedure in determining whether to
approve the penalty. Thus, for example, a
supervisor’s signature on a cover mem-
orandum or a letter transmitting a report
containing penalties is sufficient approval
of the penalties contained in the report.
The proposed rule is consistent with exist-
ing caselaw on this issue. See PBBM-Rose
Hill, 900 F.3d at 213; Deyo v. Commis-
sioner, 296 Fed. Appx. 157 (2d Cir. 2008);
Thompson v. Commissioner, T.C. Memo.
2022-80; Raifman v. Commissioner, T.C.
Memo. 2018-101.
C. Automatically calculated through
electronic means
Section 6751(b)(2) exempts from the
penalty approval requirements penalties
under sections 6651, 6654, 6655, 6662(b)
(9), and 6662(b)(10) and “any other pen-
alty automatically calculated through
electronic means.” The term is not defined
in the statute and the legislative history
only provides that approval is required of
“all non-computer generated penalties.”
Proposed §301.6751(b)-1(a)(3)(vi)
provides that a penalty is “automatically
calculated through electronic means” if it
is proposed by an IRS computer program
without human involvement. Proposed
§301.6751(b)-1(a)(3)(vi) provides that
a penalty is no longer considered “auto-
matically calculated through electronic
means” if a taxpayer responds to a com-
puter-generated notice proposing a penalty
and challenges the penalty or the amount
of tax to which the penalty is attributable,
and an IRS employee works the case.
Current IRS computer software,
including but not limited to the Automated
Correspondence Exam (ACE) program
using Report Generation Software (RGS)
and the Automated Underreporter (AUR)
program, is capable of automatically
proposing certain penalties to taxpayers
without the involvement of an IRS exam-
iner. Penalties that can be proposed in this
way are then assessed without review by
an IRS examiner. Requiring supervisory
approval for these penalties would dis-
rupt the automated process of determining
a penalty and would not square with the
statutory text requiring approval by the
immediate supervisor of the “individual”
making an initial penalty determination.
When an IRS computer program sends
a taxpayer a notice proposing a penalty
and the taxpayer responds to that notice,
an IRS examiner often considers the tax-
payer’s response. If the taxpayer’s response
questions the validity of the penalty or the
adjustments to which the penalty relates,
and an examiner considers the response,
any subsequent assessment of the penalty
would not be based solely on the automatic
calculation of the penalty by the computer
program. Instead, it would be at least par-
tially based on a choice made by an IRS
employee as to whether the penalty is
appropriate. Therefore, the exception for
penalties automatically calculated through
electronic means does not apply, and super-
visory approval is required in that situation.
This rule is consistent with the Tax Court’s
holding in Walquist, 152 T.C. at 73.
Proposed Applicability Dates
The proposed rules are proposed to
apply to penalties assessed on or after the
date of publication of the Treasury deci-
sion adopting the proposed rules as final
regulations in the Federal Register.
Special Analyses
I. Regulatory Planning and Review
It has been determined that this notice
of proposed rulemaking 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
review of tax regulations.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6), it is hereby
certified that this regulation will not have
a significant economic impact on a sub-
stantial number of small entities. This
certification is based on this regulation
imposing no obligations on small entities
and the effectiveness of the regulation in
having supervisors ensure that penalties for

Bulletin No. 2023–17 795 April 24, 2023
violations of other provisions of tax law are
appropriate and not used as a bargaining
chip. Because only appropriate penalties
will apply with the proper application of
this regulation, the proposed regulations do
not impose a significant economic impact
on a substantial number of small entities.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, this notice of proposed
rulemaking has been submitted to the
Chief Counsel for the Office of Advocacy
of the Small Business Administration for
comment on its impact on small business.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes any
Federal mandate that may result in expen-
ditures in any one year by a State, local, or
Tribal government, in the aggregate, or by
the private sector, of $100 million in 1995
dollars, updated annually for inflation. This
rule does not include any Federal mandate
that may result in expenditures by State,
local, or Tribal governments, or by the pri-
vate sector in excess of that threshold.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. These proposed regulations do
not have federalism implications and do
not impose substantial direct compliance
costs on state and local governments or
preempt State law within the meaning of
the Executive order.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the ADDRESSES
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed rules. All comments will
be available at www.regulations.gov or
upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing also
are encouraged to be made electronically.
If a public hearing is scheduled, notice of
the date and time for the public hearing
will be published in the Federal Register.
Announcement 2020-4, 2020-17 I.R.B 1,
provides that, until further notice, public
hearings conducted by the IRS will be
held telephonically. Any telephonic hear-
ing will be made accessible to people with
disabilities.
Drafting Information
The principal author of these regula-
tions is David Bergman of the Office of
the Associate Chief Counsel (Procedure
and Administration). However, other per-
sonnel from the Treasury Department and
the IRS participated in their development.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Proposed Amendment to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 301 as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805.
Par. 2. Section 301.6751(b)-1 is added
to read as follows:
§301.6751(b)-1 Supervisory and higher
level official approval for penalties.
(a) Approval requirement--(1) In gen-
eral. Except as provided in paragraph (a)
(2) of this section, section 6751(b) of the
Internal Revenue Code (Code) generally
bars the assessment of a penalty unless
the initial determination of the assessment
of the penalty is personally approved (in
writing) by the immediate supervisor of
the individual making the initial determi-
nation or such higher level official as the
Secretary of the Treasury or her delegate
(Secretary) may designate. Paragraph
(a)(2) of this section lists penalties not
subject to section 6751(b)(1) and this
paragraph (a)(1). Paragraph (a)(3) of this
section provides definitions of terms used
in section 6751(b) and this section. Para-
graph (a)(4) of this section designates
the higher level officials described in this
paragraph (a)(1). Paragraphs (b), (c), and
(d) of this section apply section 6751(b)
(1) and this paragraph (a)(1) to penalties
not subject to pre-assessment review in
the Tax Court, penalties that are subject to
pre-assessment review in the Tax Court,
and penalties raised in the Tax Court after
a petition, respectively. Paragraph (e) of
this section provides examples illustrating
the application of section 6751(b) and this
section. Paragraph (f) of this section pro-
vides dates of applicability of this section.
(2) Exceptions. Under section 6751(b)
(2), section 6751(b)(1) and this section do
not apply to:
(i) Any penalty under section 6651,
6654, 6655, 6673, 6662(b)(9), or 6662(b)
(10) of the Code; or
(ii) Any other penalty automatically
calculated through electronic means.
(3) Definitions. For purposes of section
6751(b) and this section, the following
definitions apply--
(i) Penalty. The term penalty means
any penalty, addition to tax, or additional
amount under the Code.
(ii) Individual who first proposed the
penalty. Except as otherwise provided
in this paragraph (a)(3)(ii), the individ-
ual who first proposed the penalty is the
individual who section 6751(b)(1) and
paragraph (a)(1) of this section refer-
ence as the individual making the initial
determination of a penalty assessment.
A proposal of a penalty can be made to
either a taxpayer (or the taxpayer’s repre-
sentative) or to the individual’s supervisor
or designated higher level official. A pro-
posal of a penalty, as defined in paragraph
(a)(3)(i) of this section, to a taxpayer does

April 24, 2023 796 Bulletin No. 2023–17
not include mere requests for information
relating to a possible penalty or inquiries
of whether a taxpayer wants to participate
in a general settlement initiative for which
the taxpayer may be eligible, but does
include offering the taxpayer an oppor-
tunity to agree to a particular penalty in
a particular amount other than a penalty
under a settlement initiative offered to a
class of taxpayers. An individual who first
proposed the penalty is not the individual
whom section 6751(b)(1) and paragraph
(a)(1) of this section reference as the indi-
vidual making the initial determination
of a penalty assessment if the assessment
of the penalty is attributable to an inde-
pendent proposal made by a different
individual.
(iii) Immediate supervisor. The term
immediate supervisor means any individ-
ual with responsibility to approve another
individual’s proposal of penalties, as
defined in paragraph (a)(3)(i) of this sec-
tion, without the proposal being subject to
an intermediary’s approval.
(iv) Higher level official. The term
higher level official means any person
designated under paragraph (a)(4) of this
section as a higher level official autho-
rized to approve a penalty for purposes of
section 6751(b)(1).
(v) Personally approved (in writing).
The term personally approved (in writing)
means any writing, including in electronic
form, made by the writer to signify the
writer’s assent. No signature or particular
words are required so long as the circum-
stances of the writing reflect that it was
intended as approval.
(vi) Automatically calculated through
electronic means. A penalty, as defined
in paragraph (a)(3)(i) of this section, is
automatically calculated through elec-
tronic means if an IRS computer program
automatically generates a notice to the
taxpayer that proposes the penalty. If a
taxpayer responds in writing or otherwise
to the automatically-generated notice
and challenges the proposed penalty,
or the amount of tax to which the pro-
posed penalty is attributable, and an IRS
employee considers the response prior to
assessment (or the issuance of a notice
of deficiency that includes the penalty),
then the penalty is no longer considered
“automatically calculated through elec-
tronic means.”
(4) Higher level official. Any person
who has been directed by the Internal
Revenue Manual or other assigned job
duties to approve another individual’s pro-
posal of penalties before they are included
in a pre-assessment notice prerequisite to
United States Tax Court (Tax Court) juris-
diction, an answer, amended answer, or
amendment to the answer to a Tax Court
petition, or are assessed without need for
such inclusion, is designated as a higher
level official authorized to approve the
penalty for purposes of section 6751(b)
(1).
(b) Penalties not subject to pre-as-
sessment review in the Tax Court. The
requirements of section 6751(b)(1) and
paragraph (a)(1) of this section are sat-
isfied for a penalty that is not subject to
pre-assessment review in the Tax Court if
the immediate supervisor of the individual
who first proposed the penalty personally
approves the penalty in writing before the
penalty is assessed. Alternatively, a per-
son designated as a higher level official as
described in paragraph (a)(4) of this sec-
tion may provide the approval otherwise
required by the immediate supervisor.
(c) Penalties subject to pre-assessment
review in the Tax Court. The requirements
of section 6751(b)(1) and paragraph (a)
(1) of this section are satisfied for a pen-
alty that is included in a pre-assessment
notice that provides a basis for Tax Court
jurisdiction upon timely petition if the
immediate supervisor of the individual
who first proposed the penalty person-
ally approves the penalty in writing on
or before the date the notice is mailed.
Alternatively, a person designated as a
higher level official as described in para-
graph (a)(4) of this section may provide
the approval otherwise required by the
immediate supervisor. Examples of a
pre-assessment notice described in this
paragraph (c) include a statutory notice
of deficiency under section 6212 of the
Code, a notice of final partnership admin-
istrative adjustment under former section
6223 of the Code, and a notice of final
partnership adjustment under section 6231
of the Code.
(d) Penalties raised in the Tax Court
after a petition. The requirements of sec-
tion 6751(b)(1) and paragraph (a)(1) of
this section are satisfied for a penalty that
the Commissioner raises in the Tax Court
after a petition (see section 6214(a) of the
Code) if the immediate supervisor of the
individual who first proposed the penalty
personally approves the penalty in writing
no later than the date on which the Com-
missioner requests that the court determine
the penalty. Alternatively, a person desig-
nated as a higher level official as described
in paragraph (a)(4) of this section may
provide the approval otherwise required
by the immediate supervisor.
(e) Examples. The following examples
illustrate the rules of this section.
(1) Example 1. In the course of an audit regard-
ing a penalty not subject to pre-assessment review
in the Tax Court, Revenue Agent A concludes that
Taxpayer T should be subject to the penalty under
section 6707A of the Code for failure to disclose a
reportable transaction. A sends T a letter giving T
the options to agree to the penalty; submit additional
information to A about why the penalty should not
apply; or request within 30 days that the matter be
sent to the Independent Office of Appeals (Appeals)
for consideration. After T requests that Appeals con-
sider the case, A prepares the file for transmission,
and B (who is A’s immediate supervisor, as defined
in paragraph (a)(3)(iii) of this section) signs a cover
memorandum informing Appeals of the Office of
Examination’s proposed penalty and asking Appeals
to consider it. The Appeals Officer upholds the pen-
alty, and it is assessed. The requirements of section
6751(b)(1) are satisfied because B’s signature on the
cover memorandum is B’s personal written assent to
the penalty proposed by A and was given before the
penalty was assessed.
(2) Example 2. In the course of an audit, Revenue
Agent A concludes that Taxpayer T should be subject
to an accuracy-related penalty for substantial under-
statement of income tax under section 6662(b)(2). A
sends T a Letter 915, Examination Report Transmit-
tal, along with an examination report that includes
the penalty. The Letter 915 gives T the options to
agree to the examination report; provide additional
information to be considered; discuss the report with
A or B (who is A’s immediate supervisor, as defined
in paragraph (a)(3)(iii) of this section); or request
a conference with an Appeals Officer. T agrees to
assessment of the penalty and signs the examina-
tion report to consent to the immediate assessment
and collection of the amounts shown on the report.
B provides written supervisory approval of the pen-
alty after T signs the examination report, but before
the penalty is assessed. Paragraph (b) of this section
applies because T’s agreement to assessment of the
penalty excepts it from pre-assessment review in
the Tax Court. Because B provided written supervi-
sory approval before assessment of the penalty, the
requirements of section 6751(b) are satisfied.
(3) Example 3. In the course of an audit of
Taxpayer T by a team of revenue agents, Revenue
Agent A concludes that T should be subject to an
accuracy-related penalty for negligence under sec-
tions 6662(b)(1) and 6662(c). Supervisor B is the
issue manager and is assigned the duty to approve
the Notice of Proposed Adjustment for any penalty
A would propose. A reports to B, but B is not respon-

Bulletin No. 2023–17 797 April 24, 2023
sible for the overall management of the audit of T.
C is the case manager of the team auditing T and
is responsible for the overall management of the
audit of T. C may assign tasks to A and other team
members, and has responsibility for approving any
examination report presented to T.
(i) Only B approves the penalty in writing
before the mailing to T of a notice of deficiency that
includes the penalty. Under paragraph (a)(3)(iii) of
this section, B qualifies as the immediate supervisor
of A with respect to A’s penalty proposal, and the
requirements of section 6751(b)(1) are met.
(ii) Only C approves the penalty in writing before
the mailing to T of a notice of deficiency that includes
the penalty. Because C has responsibility to approve
A’s proposal of the penalty as part of approving the
examination report, C qualifies as a higher level
official designated under paragraph (a)(4) of this sec-
tion to approve the penalty proposed by A, and the
requirements of section 6751(b)(1) are met.
(4) Example 4. In the course of an audit, Rev-
enue Agent A concludes that Taxpayer T should
be subject to a penalty for negligence under sec-
tion 6662(c). A recommends the penalty to her
immediate supervisor B, who thinks more factual
development is needed to support the penalty but
must close the audit immediately due to the lim-
itations period on assessment expiring soon. The
IRS issues a statutory notice of deficiency with-
out the penalty and T petitions the Tax Court. In
reviewing the case file and conducting discovery,
IRS Chief Counsel Attorney C concludes that the
facts support imposing a negligence penalty under
section 6662(c). Attorney C proposes to her imme-
diate supervisor, D, that the penalty should apply
and should be raised in an Answer pursuant to sec-
tion 6214(a). D agrees and signs the Answer that
includes the penalty before it is filed. The section
6662(c) penalty at issue is subject to pre-assess-
ment review in the Tax Court and was raised in
the Tax Court after a petition under paragraph
(d) of this section. Therefore, written supervisory
approval under paragraph (d) of this section was
required prior to filing the written pleading that
includes the penalty. Attorney C is the individual
who first proposed the penalty for purposes of sec-
tion 6751(b)(1) and paragraphs (d) and (a)(3)(ii) of
this section, and she secured timely written supervi-
sory approval from D, the immediate supervisor, as
defined in paragraph (a)(3)(iii) of this section, so the
requirements of section 6751(b)(1) are met. Reve-
nue Agent A did not make the initial determination
of the penalty assessment because any assessment
would not be attributable to A’s proposal but would
be based on the independent proposal of Attorney C
raised pursuant to section 6214(a).
(5) Example 5. The IRS’s Automated Under-
reporter (AUR) computer program detects a
discrepancy between the information received
from a third party and the information contained
on Taxpayer T’s return. AUR automatically gener-
ates a CP2000, Notice of Underreported Income,
that includes an adjustment based on the unre-
ported income and a proposed penalty under
section 6662(d) that is mailed to T. The CP2000
gives T 30 days to respond to contest the pro-
posed adjustments and the penalty. T submits a
response to the CP2000, asking only for more time
to respond. More time is granted but no further
response is received from T, and a statutory notice
of deficiency that includes the adjustments and the
penalty is automatically generated and issued to T.
The section 6662(d) penalty at issue is automat-
ically calculated through electronic means under
paragraphs (a)(2)(ii) and (a)(3)(vi) of this section.
The penalty was proposed by the AUR computer
program, which generated a notice to T that pro-
posed the penalty. Although T submitted a response
to the CP2000, the response did not challenge the
proposed penalty, or the amount of tax to which
the proposed penalty is attributable. Therefore, the
penalty was automatically calculated through elec-
tronic means and written supervisory approval was
not required.
(f) Applicability date. The rules of this
section apply to penalties assessed on or
after [the date of publication of the Trea-
sury decision adopting these rules as final
regulations in the Federal Register].
Douglas W. O’Donnell,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register April
10, 2023, 8:45a.m., and published in the issue of the
Federal Register for April 11, 2023, 88 FR 21564)
FEDERAL TAX TREATMENT
OF CERTAIN RED HILL
FUEL SPILL PAYMENTS
Announcement 2023-7
This announcement informs Federal
civilian employees and other civilians
who are not employed by the Federal gov-
ernment who received certain payments
in 2022 and 2023 from the Department
of Defense (DOD) in reimbursement for
lodging, meals, and personal property
damage expenses after the release of
petroleum from the Red Hill Bulk Fuel
Storage Facility on Oʻahu, Hawaii (Red
Hill Fuel Spill) that such payments are
excludable from gross income for Federal
income tax purposes under § 139 of the
Internal Revenue Code.
On November 28, 2021, the United
States Navy detected the Red Hill Fuel
Spill and subsequent contamination of
the Joint Base Pearl Harbor-Hickam
(JBPHH) Water System servicing
Red Hill and surrounding areas. On
December 3, 2021, the Commander,
Navy Region Hawaii issued an
evacuation authorization (CNRH Evac-
uation Authorization) for DOD civilian
employees and their dependents, civil-
ians nonaffiliated with DOD, and
dependents of active-duty personnel
not accompanying such personnel liv-
ing in communities serviced by the
JBPHH Water System. The duration
of the order was extended twice, on
December 14, 2021, and December 23,
2021. On December 9, 2021, the Com-
manding General of U.S. Army Pacific
issued an evacuation authorization (CG
USARPAC Evacuation Authorization)
for residents of the Aliamanu Military
Reservation, Red Hill, and surrounding
areas, effective December 2, 2021, in
light of unusual and emergency circum-
stances arising from the Red Hill Fuel
Spill. The CG USARPAC Evacuation
Authorization applied to all DOD per-
sonnel and civilian employees and their
dependents living in the relevant areas.
Additional communities were added to
the CG USARPAC Evacuation Autho-
rization pursuant to addenda issued on
December 10, 2021, and December 11,
2021. The CG USARPAC Evacuation
Authorization authorized but did not
direct evacuation, allowing individuals
to choose to remain in their residences
without use of potable water utilities.
On February 18, 2022, the Com-
mander, Navy Installations Command
sought authority from the Secretary of
the Navy (SECNAV) to make payments
to the civilians who were covered by the
CNRH Evacuation Authorization and the
CG USARPAC Evacuation Authoriza-
tion and addenda thereto (collectively,
Affected Civilians) pursuant to SEC-
NAV’s “Emergency and Extraordinary
Expense” authority under 10 U.S.C. §
127 (EEE Payments). SECNAV approved
the making of EEE Payments to Affected
Civilians in a memorandum dated Febru-
ary 25, 2022.
Starting in 2022, DOD made three
types of EEE Payments to Affected Civil-
ians. First, DOD made EEE Payments to
reimburse lodging and meal expenses of
Affected Civilians who did not have pota-
ble water in their homes and who opted
to relocate pursuant to the CNRH Evac-
uation Authorization and CG USARPAC
Evacuation Authorization. Second, DOD

April 24, 2023 798 Bulletin No. 2023–17
made EEE Payments to reimburse meal
expenses of Affected Civilians who opted
to remain in their housing without the use
of potable water utilities. Third, DOD
made EEE Payments to reimburse per-
sonal property damage expenses of some
Affected Civilians.
To respond to questions raised con-
cerning the Federal income tax treatment
of EEE Payments made by DOD to
Affected Civilians, this announcement
explains that Affected Civilians receiving
EEE Payments may exclude such pay-
ments from gross income, to the extent
the cost reimbursed by the EEE Pay-
ment was not also compensated for by
insurance or otherwise, because they are
qualified disaster relief payments within
the meaning of § 139 of the Internal Rev-
enue Code.
Specifically, the Department of the
Treasury (Treasury Department) and the
Internal Revenue Service (IRS) have
determined that the Red Hill Fuel Spill
is a qualified disaster for purposes of
§ 139(c)(4) that was determined by SEC-
NAV (an applicable Federal authority) to
warrant assistance from DOD (a Federal
agency or instrumentality). Additionally,
the Treasury Department and the IRS
have determined that the EEE Payments
are qualified disaster relief payments
for purposes of § 139(b)(4), as they are
amounts paid to or for the benefit of an
Affected Civilian (an individual) by DOD
(a Federal agency or instrumentality) in
connection with the Red Hill Fuel Spill (a
qualified disaster) in order to promote the
general welfare (and are not compensation
for services).
Accordingly, EEE Payments made
by DOD to Affected Civilians in con-
nection with the Red Hill Fuel Spill,
including reimbursement of lodging and
meal expenses for those Affected Civilians
who did not have potable water in their
homes and who opted to relocate, reim-
bursement for meal expenses for those
Affected Civilians who opted to remain in
their homes, and reimbursement for per-
sonal property damage expenses of some
Affected Civilians, are qualified disaster
relief payments within the meaning of
§ 139(b)(4) that are excludable from the
gross income of Affected Civilians to the
extent not compensated for by insurance
or otherwise.
INSTRUCTIONS FOR AFFECTED
CIVILIANS WHO HAVE NOT
YET FILED TAXABLE YEAR 2022
INDIVIDUAL FEDERAL INCOME
TAX RETURNS
Affected Civilians who have not filed
their taxable year 2022 individual Federal
income tax returns should not include any
EEE Payment amounts (reflected on Form
1099-MISC, Miscellaneous Income) in
gross income on their taxable year 2022
returns, except to the extent the cost reim-
bursed by the EEE Payment was also
compensated for by insurance or otherwise.
INSTRUCTIONS FOR AFFECTED
CIVILIANS WHO ALREADY HAVE
FILED TAXABLE YEAR 2022
INDIVIDUAL FEDERAL INCOME
TAX RETURNS
Affected Civilians may amend their
taxable year 2022 Federal income tax
returns by filing Form 1040-X, Amended
U.S. Individual Income Tax Return, to
exclude EEE Payment amounts (reflected
on Form 1099-MISC, Miscellaneous
Income) that were previously included on
original taxable year 2022 individual Fed-
eral income tax returns, to the extent the
cost reimbursed by the EEE Payment was
not also compensated for by insurance
or otherwise. The IRS accepts paper and
electronically filed Forms 1040-X.
• If filing Form 1040-X electronically,
include “Red Hill Relief” at the
beginning of Part IV, Explanation of
Changes.
• If filing Form 1040-X on paper:
○Include “Red Hill Relief” at
the top of Form 1040-X. Also,
include “Red Hill Relief” at the
beginning of Part III, Explana-
tion of Changes, and
○Mail the Form 1040-X to:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0052
The principal author of this announce-
ment is Jonathan A. Dunlap of the Office
of Associate Chief Counsel (Income Tax
& Accounting). For further information
regarding this announcement contact Mr.
Dunlap at 202-317-4718 (not a toll-free
number).
Listed Transactions and
Transactions of Interest
Announcement 2023-11
The identification of “listed trans-
actions”—transactions that the Internal
Revenue Service (IRS) has determined
to be abusive tax avoidance transactions
within the meaning of § 1.6011-4(b)(2) of
the Income Tax Regulations—and “trans-
actions of interest”—transactions that the
IRS has determined have the potential for
tax avoidance or evasion within the mean-
ing of § 1.6011-4(b)(6)—is an important
tool in combatting the use of abusive tax
avoidance transactions. Since 2000, the
IRS has identified more than 30 of these
transactions by publishing a notice or
other subregulatory guidance as provided
in § 1.6011-4. One of these notices, Notice
2016-66, 2016-47 I.R.B. 745 (as modified
by Notice 2017-8, 2017-3 I.R.B. 423),
identified certain micro-captive transac-
tions as transactions of interest.
Recent court decisions have held that
the IRS’s longstanding practice of issuing
notices to identify listed transactions and
transactions of interest does not comply
with the Administrative Procedure Act
(APA), 5 U.S.C. 551-559. On March 3,
2022, the U.S. Court of Appeals for the
Sixth Circuit issued an order holding
that Notice 2007-83, 2007-2 C.B. 960,
which identified certain trust arrange-
ments as listed transactions, violated the
APA because the notice was issued with-
out following the notice-and-comment
procedures required by section 553 of the
APA. Mann Construction v. United States,
27 F.4th 1138, 1147 (6th Cir. 2022). Sub-
sequently, the U.S. District Court for the
Eastern District of Tennessee, which is
located in the Sixth Circuit, vacated Notice
2016-66 on the ground that the IRS failed
to comply with the APA’s notice-and-com-
ment procedures, viewing the analysis in
Mann Construction as controlling. CIC
Services, LLC v. IRS, 2022 WL 985619
(E.D. Tenn. March 21, 2022), as modified
by 2022 WL 2078036 (E.D. Tenn. June 2,
2022). The Court also held that the IRS
acted arbitrarily and capriciously, based on
the administrative record. On November
9, 2022, the U.S. Tax Court, in a reviewed

Bulletin No. 2023–17 799 April 24, 2023
decision with two judges dissenting, relied
on Mann Construction in holding that
Notice 2017-10, 2017-4 I.R.B. 544, which
identifies certain syndicated conservation
easements as listed transactions, is invalid
because it was issued without following
notice-and-comment rulemaking proce-
dures. See Green Valley Investors, LLC v.
Commissioner, 159 T.C. No. 5 (2022). See
also Green Rock, LLC v. IRS, 2023 WL
1478444 (N.D. AL., February 2, 2023).
The Department of the Treasury (Trea-
sury Department) and the IRS disagree
with the recent court decisions holding
that listed transactions cannot be identified
by notice or other subregulatory guidance.
However, the Treasury Department and
IRS will no longer take the position that
transactions of interest can be identified
without complying with APA notice-
and-comment procedures. Accordingly,
the IRS is obsoleting Notice 2016-66 (as
modified by Notice 2017-8), and will
not enforce the disclosure requirements
or penalties that are dependent upon the
procedural validity of Notice 2016-66.
Consistent with this determination, the
Treasury Department and the IRS are
today issuing proposed regulations that
identify certain micro-captive trans-
actions as transactions of interest. The
proposed regulations also identify certain
other micro-captive transactions as listed
transactions.
The Treasury Department and the IRS
continue to take the position that listed
transactions can be identified by notice
or other subregulatory guidance because
Congress, in enacting the American Jobs
Creation Act of 2004, exempted the iden-
tification of such transactions from the
APA’s notice-and-comment procedure.
As stated in Announcement 2022-28,
2022-52 I.R.B. 659 (Dec. 27, 2022), the
Treasury Department and IRS will con-
tinue to defend existing listing notices in
cases in which Mann Construction is not
controlling precedent. Consistent with the
aim expressed in Announcement 2022-
28 of avoiding confusion and preventing
disruption of the IRS’s ongoing efforts to
identify and examine abusive tax shelters,
the Treasury Department and the IRS are
following notice and comment procedures
in identifying certain micro-captive trans-
actions as listed transactions in order to
eliminate any confusion and ensure that
the IRS’s efforts to combat abusive tax
shelters throughout the nation continue
undisrupted.
The Treasury Department and the IRS
intend to finalize these regulations, after
due consideration of public comments,
in 2023 and intend to issue proposed
regulations identifying additional listed
transactions in the near future.
Taxpayers should take note that, if a
transaction becomes a listed transaction
or a transaction of interest after a taxpayer
files a tax return (including an amended
return) reflecting the taxpayer’s partici-
pation in the transaction, § 1.6011-4(e)
(2)(i) generally requires the participant
to file a disclosure statement (Form
8886, Reportable Transaction Disclosure
Statement) with the Office of Tax Shelter
Analysis (OTSA) within 90 days of the
transaction becoming a listed transaction
or a transaction of interest if the assess-
ment limitations period remains open for
any taxable year in which the taxpayer
participated in the transaction. Accord-
ingly, any taxpayer who has participated
in a transaction in any year for which
the assessment limitation period remains
open when the regulation identifying
the transaction as a listed transaction or
a transaction of interest is finalized will
have an obligation to disclose the trans-
action, unless otherwise provided in the
final regulations. Failure to disclose will
subject the taxpayer to the penalty under
section 6707A of the Internal Revenue
Code (Code). Participants required to
disclose listed transactions who fail to do
so are also subject to an extended period
of limitations under section 6501(c)(10)
of the Code. That section provides that
the time for assessment of any tax with
respect to the transaction will not expire
before the date that is one year after the
earlier of the date the participant discloses
the transaction or the date a material advi-
sor discloses the participation pursuant to
a written request under section 6112(b)(1)
(A) of the Code.
Likewise, if a regulation identifying
a transaction as a listed transaction or a
transaction of interest is finalized after
the occurrence of the events described
in § 301.6111-3(b)(4)(i) of the Procedure
and Administration Regulations, a mate-
rial advisor will be treated as becoming a
material advisor on the date the regulation
is finalized pursuant to § 301.6111-3(b)(4)
(iii) (if not deemed a material advisor ear-
lier pursuant to a valid listing notice). A
material advisor is required to file a Form
8918, Material Advisor Disclosure State-
ment, with OTSA by the last day of the
month that follows the end of the calen-
dar quarter in which the advisor became a
material advisor with respect to the trans-
action. See § 301.6111-3(d) and (e).
In addition, a material advisor must
maintain a list identifying each person
with respect to whom the advisor acted as
a material advisor with respect to a listed
transaction or transaction of interest, if
the person advised by the material advi-
sor entered into the transaction within six
years before the date the transaction was
identified as a listed transaction or trans-
action of interest in published guidance.
See § 301.6112-1(b)(2).
Drafting Information
The principal author of this announce-
ment is Stephanie W. Chernoff of the
Office of the Associate Chief Counsel
(Procedure & Administration). For further
information regarding this announcement,
contact Stephanie W. Chernoff at (202)
317-5670 (not a toll-free number).
Announcement 2023-12
The Internal Revenue Service (IRS)
has revised Form 3115, Application
for Change in Accounting Method, and
its instructions. The Form 3115 (Rev.
December 2022) is the current Form 3115
(December 2022 Form 3115) and replaces
the December 2018 version of the Form
3115 (December 2018 Form 3115). Con-
sistent with sections 3.07 and 6.01 of Rev.
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, and as modified by
Rev. Proc. 2021-34, 2021-35 I.R.B. 337,
Rev. Proc. 2021-26, 2021-22 I.R.B. 1163,
Rev. Proc. 2017-59, 2017-48 I.R.B. 543,
and section 17.02 of Rev. Proc. 2016-1,
2016-1 I.R.B. 1; and with § 601.602 of
the Statement of Procedural Rules, a tax-
payer generally must apply for consent to
change a method of accounting for federal
income tax purposes by completing and

April 24, 2023 800 Bulletin No. 2023–17
filing a current Form 3115 with the Com-
missioner of Internal Revenue.
The IRS encourages all taxpayers
to use the December 2022 Form 3115.
However, to allow for a reasonable
period for taxpayers to transition to the
December 2022 Form 3115, the IRS will
accept either the December 2022 Form
3115 or the December 2018 Form 3115
if filed by a taxpayer on or before April
18, 2023, unless the use of the Decem-
ber 2022 Form 3115 is specifically
required by guidance published in the
Internal Revenue Bulletin. Taxpayers
filing Forms 3115 after April 18, 2023,
must use the December 2022 Form
3115. Regardless of the version of Form
3115 used, taxpayers must provide all
the information required by Rev. Proc.
2015-13. See section 6.02(2) of Rev.
Proc. 2015-13.
Section 6.03(1)(a)(i) of Rev. Proc.
2015-13 requires a taxpayer filing a
request for an automatic change to file its
original Form 3115 with its return and a
duplicate of that Form 3115 with the IRS
in Ogden, Utah. See the Address Chart for
Form 3115 on page 2 of the Instructions
for the December 2022 Form 3115. For
duplicate Forms 3115 that are mailed, the
address is:
Internal Revenue Service
Ogden, UT 84201
M/S 6111
For duplicate Forms 3115 that are deliv-
ered by private delivery service, the
address is:
Internal Revenue Service
1973 N. Rulon White Blvd.
Ogden, UT 84201
Attn: M/S 6111
For duplicate Forms 3115 that are deliv-
ered by facsimile, the number is (844)
249-8134. Delivery by encrypted elec-
tronic mail is not available for automatic
change requests.
If prior to April 19, 2023, a taxpayer
filed its duplicate copy of Form 3115 with
the IRS in Ogden, Utah, using the Decem-
ber 2018 Form 3115, the taxpayer may
file its original Form 3115 with its return
using either the December 2018 Form
3115 or the December 2022 Form 3115,
even if the taxpayer files the completed
original Form 3115 after April 18, 2023.
See, however, section 6.03(1)(e) of Rev.
Proc. 2015-13 for correspondence regard-
ing a previously filed Form 3115.
Taxpayers may download the Decem-
ber 2022 Form 3115 and its instructions
from the IRS website, https://www.irs.gov/
forms-pubs/about-form-3115, or order
them from the IRS website www.irs.gov/
orderforms.
The principal author of this announce-
ment is Christian Lagorio of the Office
of Associate Chief Counsel (Income Tax
& Accounting). For further information
regarding this announcement contact Mr.
Lagorio at (202) 317-7005 (not a toll-free
number).

Bulletin No. 2023–17 i April 24, 2023
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published 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.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI
—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

April 24, 2023 ii Bulletin No. 2023–17
Numerical Finding List
1
Bulletin 2023–17
Announcements:
2023-2, 2023-2 I.R.B. 344
2023-1, 2023-3 I.R.B. 422
2023-3, 2023-5 I.R.B. 447
2023-4, 2023-7 I.R.B. 470
2023-5, 2023-9 I.R.B. 499
2023-6, 2023-9 I.R.B. 501
2023-8, 2023-14 I.R.B. 632
2023-9, 2023-15 I.R.B. 639
2023-10, 2023-16 I.R.B. 663
2023-7, 2023-17 I.R.B. 797
2023-11, 2023-17 I.R.B. 798
2023-12, 2023-17 I.R.B. 799
AOD:
2023-1, 2023-10 I.R.B. 502
2023-2, 2023-11 I.R.B. 529
Notices:
2023-4, 2023-2 I.R.B. 321
2023-5, 2023-2 I.R.B. 324
2023-6, 2023-2 I.R.B. 328
2023-8, 2023-2 I.R.B. 341
2023-1, 2023-3 I.R.B. 373
2023-2, 2023-3 I.R.B. 374
2023-3, 2023-3 I.R.B. 388
2023-7, 2023-3 I.R.B. 390
2023-9, 2023-3 I.R.B. 402
2023-10, 2023-3 I.R.B. 403
2023-11, 2023-3 I.R.B. 404
2023-12, 2023-6 I.R.B. 450
2023-13, 2023-6 I.R.B. 454
2023-16, 2023-8 I.R.B. 479
2023-17, 2023-10 I.R.B. 505
2023-18, 2023-10 I.R.B. 508
2023-20, 2023-10 I.R.B. 523
2023-19, 2023-11 I.R.B. 560
2023-21, 2023-11 I.R.B. 563
2023-22, 2023-12 I.R.B. 569
2023-23, 2023-13 I.R.B. 571
2023-24, 2023-13 I.R.B. 571
2023-26, 2023-13 I.R.B. 577
2023-25, 2023-14 I.R.B. 629
2023-27, 2023-15 I.R.B. 634
2023-28, 2023-15 I.R.B. 635
2023-31, 2023-16 I.R.B. 661
2023-30, 2023-17 I.R.B. 766
Proposed Regulations:
REG-100442-22, 2023-3 I.R.B. 423
REG-146537-06, 2023-3 I.R.B. 436
REG-114666-22, 2023-4 I.R.B. 437
REG 122286-18, 2023-11 I.R.B. 565
Proposed Regulations:—Continued
REG-120653-22, 2023-15 I.R.B. 640
REG-105954-22, 2023-16 I.R.B. 713
REG-120080-22, 2023-16 I.R.B. 746
REG 109309-22, 2023-17 I.R.B. 770
REG 121709-19, 2023-17 I.R.B. 789
Revenue Procedures:
2023-1, 2023-1 I.R.B. 1
2023-2, 2023-1 I.R.B. 120
2023-3, 2023-1 I.R.B. 144
2023-4, 2023-1 I.R.B. 162
2023-5, 2023-1 I.R.B. 265
2023-7, 2023-1 I.R.B. 305
2023-8, 2023-3 I.R.B. 407
2023-10, 2023-3 I.R.B. 411
2023-11, 2023-3 I.R.B. 417
2023-14, 2023-6 I.R.B. 466
2023-9, 2023-7 I.R.B. 471
2023-13, 2023-13 I.R.B. 581
2023-17, 2023-13 I.R.B. 604
2023-18, 2023-13 I.R.B. 605
2023-19, 2023-13 I.R.B. 626
2023-20, 2023-15 I.R.B. 636
2023-12, 2023-17 I.R.B. 768
Revenue Rulings:
2023-1, 2023-2 I.R.B. 309
2023-3, 2023-6 I.R.B. 448
2023-4, 2023-9 I.R.B. 480
2023-5, 2023-10 I.R.B. 503
2023-6, 2023-14 I.R.B. 627
2023-7, 2023-15 I.R.B. 633
2023-2, 2023-16 I.R.B. 658
Treasury Decisions:
9970, 2023-2 I.R.B. 311
9771, 2023-3 I.R.B. 346
9772, 2023-11 I.R.B. 530
9773, 2023-11 I.R.B. 557
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2022–27 through 2022–52 is in Internal Revenue Bulletin
2022–52, dated December 27, 2022.

Bulletin No. 2023–17 iii April 24, 2023
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2023–17
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2022–27 through 2022–52 is in Internal Revenue Bulletin
2022–52, dated December 27, 2022.

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