rp-10-40.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.602: Tax forms and instructions.
(Also Part I, §§ 1, 36C, 42, 59, 62, 135, 137, 146, 147, 148, 170, 213, 220, 512, 513,
877, 877A, 911, 2032A, 2503, 2523, 4161, 6033, 6039F, 6323, 6334, 6601, 7430,
7702B; 1.148-3, 1.148-5.)

Rev. Proc. 2010-40

Table of Contents
SECTION 1. PURPOSE
SECTION 2. CHANGES
SECTION 3. 2011 ADJUSTED ITEMS
Code Section

.01 Unearned Income of Minor Children Taxed as if Parent’s 1(g)
Income ("Kiddie Tax")
.02 Adoption Credit 36C
.03 Rehabilitation Expenditures Treated as Separate New Building 42(e)
.04 Low-Income Housing Credit 42(h)
.05 Alternative Minimum Tax Exemption for a Child Subject to the 59(j)
“Kiddie Tax”
.06 Transportation Mainline Pipeline Construction Industry Optional 62(c)
Expense Substantiation Rules for Payments to Employees under
Accountable Plans

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.07 Income from United States Savings Bonds for Taxpayers Who 135
Pay Qualified Higher Education Expenses
.08 Adoption Assistance Programs 137
.09 Private Activity Bonds Volume Cap 146(d)
.10 Loan Limits on Agricultural Bonds 147(c)(2)
.11 General Arbitrage Rebate Rules 148(f)
.12 Safe Harbor Rules for Broker Commissions on Guaranteed 148
Investment Contracts or Investments Purchased for a Yield
Restricted Defeasance Escrow
.13 Eligible Long-Term Care Premiums 213(d)(10)
.14 Medical Savings Accounts 220
.15 Treatment of Dues Paid to Agricultural or Horticultural 512(d)
Organizations
.16 Insubstantial Benefit Limitations for Contributions Associated 513(h)
with Charitable Fund-Raising Campaigns
.17 Expatriation to Avoid Tax 877
.18 Tax Responsibilities of Expatriation 877A
.19 Foreign Earned Income Exclusion 911
.20 Valuation of Qualified Real Property in Decedent's Gross Estate 2032A
.21 Annual Exclusion for Gifts 2503 & 2523
.22 Tax on Arrow Shafts 4161
.23 Reporting Exception for Certain Exempt Organizations with 6033(e)(3)
Nondeductible Lobbying Expenditures
.24 Notice of Large Gifts Received from Foreign Persons 6039F
.25 Persons Against Whom a Federal Tax Lien Is Not Valid 6323

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.26 Property Exempt from Levy 6334
.27 Interest on a Certain Portion of the Estate Tax Payable 6601(j)
in Installments
.28 Attorney Fee Awards 7430
.29 Periodic Payments Received under Qualified Long-Term Care 7702B(d)
Insurance Contracts or under Certain Life Insurance Contracts
SECTION 4. EFFECTIVE DATE
SECTION 5. DRAFTING INFORMATION

SECTION 1. PURPOSE
This revenue procedure sets forth inflation adjusted items for 2011.
SECTION 2. CHANGES
.01 This revenue procedure does not include the following items: the tax rate tables
under § 1 of the Internal Revenue Code (Code), the child tax credit under § 24, the
Hope Scholarship and Lifetime Learning Credits under § 25A, the earned income credit
under § 32, the standard deduction under § 63, the overall limitation on itemized
deductions under § 68, the qualified transportation fringe under § 132, the personal
exemption under § 151, and the interest on education loans under § 221. Those items
will be addressed in future guidance.
.02 Sections 10909(a)(1) and (b) of the Patient Protection and Affordable Care Act of
2010, Pub. L. No. 111-148, 124 Stat. 119 (PPACA), redesignated § 23 of the Code as
§ 36C, made the adoption credit refundable, and for taxable years beginning in 2010,
increased the maximum adoption credit from $10,000 (as adjusted for inflation under

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former § 23(h)) to $13,170. For taxable years beginning after December 31, 2010, the
maximum adoption credit amounts in § 36C(a)(3) and (b)(1) are adjusted for inflation
under § 36C(h). (See section 3.02 of this revenue procedure and Rev. Proc. 2010-35,
2010-42 I.R.B. 438).
.03 For taxable years beginning in 2010, § 10909(a)(2) of PPACA increased the
maximum adoption assistance exclusion under § 137(a)(2) and (b)(1) of the Code from
$10,000 (as adjusted for inflation under former § 137(f)) to $13,170, and amended the
inflation adjustment provisions of § 137(f). For taxable years beginning after December
31, 2010, the amounts under § 137(a)(2) and (b)(1) are adjusted for inflation under
amended § 137(f). (See section 3.08 of this revenue procedure and Rev. Proc. 2010-
35.)
.04 For taxable years beginning after December 31, 2009, and before January 1,
2011, § 201(a) of the Hiring Incentives to Restore Employment Act of 2010, Pub. L. No.
111-147, 124 Stat. 71 (HIRE), amended § 179(b) of the Code to temporarily increase
the amount of § 179 property placed into service during the taxable year that a taxpayer
may elect to expense. In addition, for taxable years beginning after December 31,
2009, § 201(a) of HIRE eliminated the inflation adjustment to the dollar amounts under §
179(b)(1) and (2). Accordingly, those amounts are no longer included in this revenue
procedure. (See Rev. Proc. 2010-24, 2010-25 I.R.B. 764.)
.05 The passenger air transportation excise taxes imposed under § 4261(b) and (c),
as extended by § 2(b)(1) of the Airport and Airway Extension Act of 2010, Part III, Pub.
L. No. 111-249, 124 Stat. 2627, apply to transportation taken through December 31,

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2010, and to amounts paid on or before December 31, 2010, for transportation
beginning after that date. Accordingly, the amounts in § 4261(b) and (c) are not
included in this revenue procedure.
SECTION 3. 2010 ADJUSTED ITEMS
.01 Unearned Income of Minor Children Taxed as if Parent's Income (the "Kiddie
Tax"). For taxable years beginning in 2011, the amount in § 1(g)(4)(A)(ii)(I), which is
used to reduce the net unearned income reported on the child's return that is subject to
the "kiddie tax," is $950. The same $950 amount is used for purposes of § 1(g)(7) (that
is, to determine whether a parent may elect to include a child's gross income in the
parent's gross income and to calculate the "kiddie tax"). For example, one of the
requirements for the parental election is that a child's gross income is more than the
amount referenced in § 1(g)(4)(A)(ii)(I) but less than 10 times that amount; thus, a
child's gross income for 2011 must be more than $950 but less than $9,500.
.02 Adoption Credit
. For taxable years beginning in 2011, under § 36C(a)(3) the
credit allowed for an adoption of a child with special needs is $13,360. For taxable
years beginning in 2011, under § 36C(b)(1) the maximum credit allowed for other
adoptions is the amount of qualified adoption expenses up to $13,360. The available
adoption credit begins to phase out under § 36C(b)(2)(A) for taxpayers with modified
adjusted gross income in excess of $185,210 and is completely phased out for
taxpayers with modified adjusted gross income of $225,210 or more. (See section 3.08
of this revenue procedure for the adjusted items relating to adoption assistance
programs.)

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.03 Rehabilitation Expenditures Treated as Separate New Building
. For calendar year
2011, the per low-income unit qualified basis amount under § 42(e)(3)(A)(ii)(II) is
$6,100.
.04 Low-Income Housing Credit
. For calendar year 2011, the amount used under
§ 42(h)(3)(C)(ii) to calculate the State housing credit ceiling for the low-income housing
credit is the greater of (1) $2.15 multiplied by the State population, or (2) $2,465,000.
.05 Alternative Minimum Tax Exemption for a Child Subject to the "Kiddie Tax
." For
taxable years beginning in 2011, for a child to whom the § 1(g) "kiddie tax" applies, the
exemption amount under §§ 55 and 59(j) for purposes of the alternative minimum tax
under § 55 may not exceed the sum of (1) the child's earned income for the taxable
year, plus (2) $6,800.
.06 Transportation Mainline Pipeline Construction Industry Optional Expense
Substantiation Rules for Payments to Employees under Accountable Plans. For
calendar year 2011, an eligible employer may pay certain welders and heavy equipment
mechanics an amount of up to $16 per hour for rig-related expenses that is deemed
substantiated under an accountable plan if paid in accordance with Rev. Proc. 2002-41,
2002-1 C.B. 1098. If the employer provides fuel or otherwise reimburses fuel expenses,
up to $10 per hour is deemed substantiated if paid under Rev. Proc. 2002-41.
.07 Income from United States Savings Bonds for Taxpayers Who Pay Qualified
Higher Education Expenses. For taxable years beginning in 2011, the exclusion under
§ 135, regarding income from United States savings bonds for taxpayers who pay
qualified higher education expenses, begins to phase out for modified adjusted gross

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income above $106,650 for joint returns and $71,100 for other returns. The exclusion is
completely phased out for modified adjusted gross income of $136,650 or more for joint
returns and $86,100 or more for other returns.
.08 Adoption Assistance Programs. For taxable years beginning in 2011, under
§ 137(a)(2) the amount that can be excluded from an employee’s gross income for the
adoption of a child with special needs is $13,360. For taxable years beginning in 2011,
under § 137(b)(1) the maximum amount that can be excluded from an employee’s gross
income for the amounts paid or expenses incurred by an employer for qualified adoption
expenses furnished pursuant to an adoption assistance program for other adoptions by
the employee is $13,360. The amount excludable from an employee’s gross income
begins to phase out under § 137(b)(2)(A) for taxpayers with modified adjusted gross
income in excess of $185,210 and is completely phased out for taxpayers with modified
adjusted gross income of $225,210 or more. (See section 3.02 of this revenue
procedure for the adjusted items relating to the adoption credit.)
.09 Private Activity Bonds Volume Cap
. For calendar year 2011, the amounts used
under § 146(d)(1) to calculate the State ceiling for the volume cap for private activity
bonds is the greater of (1) $95 multiplied by the State population, or (2) $277,820,000.
.10 Loan Limit on Agricultural Bonds
. For calendar year 2011, the loan limit amount
on agricultural bonds under § 147(c)(2)(A) for first-time farmers is $477,000.
.11 General Arbitrage Rebate Rules
. For bond years ending in 2011, the amount of
the computation credit determined under § 1.148-3(d)(4) of the proposed Income Tax
Regulations is $1,520.

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.12 Safe Harbor Rules for Broker Commissions on Guaranteed Investment Contracts
or Investments Purchased for a Yield Restricted Defeasance Escrow. For calendar
year 2011, under § 1.148-5(e)(2)(iii)(B)(1), a broker’s commission or similar fee for the
acquisition of a guaranteed investment contract or investments purchased for a yield
restricted defeasance escrow is reasonable if (1) the amount of the fee that the issuer
treats as a qualified administrative cost does not exceed the lesser of (A) $36,000, and
(B) 0.2 percent of the computational base (as defined in § 1.148-5(e)(2)(iii)(B)(2)) or, if
more, $4,000; and (2) the issuer does not treat more than $101,000 in brokers’
commissions or similar fees as qualified administrative costs for all guaranteed
investment contracts and investments for yield restricted defeasance escrows
purchased with gross proceeds of the issue.
.13 Eligible Long-Term Care Premiums
. For taxable years beginning in 2011, the
limitations under § 213(d)(10), regarding eligible long-term care premiums includible in
the term "medical care," are as follows:
Attained Age Before the Close of the Taxable Year
Limitation on Premiums
40 or less $340
More than 40 but not more than 50 $640
More than 50 but not more than 60 $1,270
More than 60 but not more than 70 $3,390
More than 70 $4,240
.14 Medical Savings Accounts
.
(1) Self-only coverage
. For taxable years beginning in 2011, the term "high

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deductible health plan" as defined in § 220(c)(2)(A) means, for self-only coverage, a
health plan that has an annual deductible that is not less than $2,050 and not more than
$3,050, and under which the annual out-of-pocket expenses required to be paid (other
than for premiums) for covered benefits do not exceed $4,100.
(2) Family coverage. For taxable years beginning in 2011, the term "high deductible
health plan" means, for family coverage, a health plan that has an annual deductible
that is not less than $4,100 and not more than $6,150, and under which the annual out-
of-pocket expenses required to be paid (other than for premiums) for covered benefits
do not exceed $7,500.
.15 Treatment of Dues Paid to Agricultural or Horticultural Organizations
. For taxable
years beginning in 2011, the limitation under § 512(d)(1), regarding the exemption of
annual dues required to be paid by a member to an agricultural or horticultural
organization, is $148.
.16 Insubstantial Benefit Limitations for Contributions Associated with Charitable
Fund-Raising Campaigns.
(1) Low cost article
. For taxable years beginning in 2011, the unrelated business
income of certain exempt organizations under § 513(h)(2) does not include a "low cost
article" of $9.70 or less.
(2) Other insubstantial benefits
. For taxable years beginning in 2011, the $5, $25,
and $50 guidelines in section 3 of Rev. Proc. 90-12, 1990-1 C.B. 471 (as amplified by
Rev. Proc. 92-49, 1992-1 C.B. 987, and modified by Rev. Proc. 92-102, 1992-2 C.B.
579), for disregarding the value of insubstantial benefits received by a donor in return

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for a fully deductible charitable contribution under § 170, are $9.70, $48.50, and $97,
respectively.
.17 Expatriation to Avoid Tax. For calendar year 2011, an individual with “average
annual net income tax” of more than $147,000 for the five taxable years ending before
the date of the loss of United States citizenship under § 877(a)(2)(A) is a covered
expatriate for purposes of § 877A(g)(1).
.18 Tax Responsibilities of Expatriation
. For taxable years beginning in 2011, the
amount that would be includible in the gross income of a covered expatriate by reason
of § 877A(a)(1) is reduced (but not below zero) by $636,000.
.19 Foreign Earned Income Exclusion. For taxable years beginning in 2011, the
foreign earned income exclusion amount under § 911(b)(2)(D)(i) is $92,900.
.20 Valuation of Qualified Real Property in Decedent's Gross Estate
. For an estate of
a decedent dying in calendar year 2011, if the executor elects to use the special use
valuation method under § 2032A for qualified real property, the aggregate decrease in
the value of qualified real property resulting from electing to use § 2032A for purposes
of the estate tax cannot exceed $1,020,000.
.21 Annual Exclusion for Gifts
.
(1) For calendar year 2011, the first $13,000 of gifts to any person (other than gifts
of future interests in property) are not included in the total amount of taxable gifts under
§ 2503 made during that year.
(2) For calendar year 2011, the first $136,000 of gifts to a spouse who is not a
citizen of the United States (other than gifts of future interests in property) are not

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included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during
that year.
.22 Tax on Arrow Shafts. For calendar year 2011, the tax imposed under
§ 4161(b)(2)(A) on the first sale by the manufacturer, producer, or importer of any shaft
of a type used in the manufacture of certain arrows is $0.45 per shaft.
.23 Reporting Exception for Certain Exempt Organizations with Nondeductible
Lobbying Expenditures. For taxable years beginning in 2011, the annual per person,
family, or entity dues limitation to qualify for the reporting exception under § 6033(e)(3)
(and section 5.05 of Rev. Proc. 98-19, 1998-1 C.B. 547), regarding certain exempt
organizations with nondeductible lobbying expenditures, is $103 or less.
.24 Notice of Large Gifts Received from Foreign Persons
. For taxable years
beginning in 2011, recipients of gifts from certain foreign persons may be required to
report these gifts under § 6039F if the aggregate value of gifts received in a taxable
year exceeds $14,375.
.25 Persons Against Whom a Federal Tax Lien Is Not Valid
. For calendar year 2011,
a federal tax lien is not valid against (1) certain purchasers under § 6323(b)(4) who
purchased personal property in a casual sale for less than $1,400, or (2) a mechanic's
lienor under § 6323(b)(7) that repaired or improved certain residential property if the
contract price with the owner is not more than $6,990.
.26 Property Exempt from Levy. For calendar year 2011, the value of property
exempt from levy under § 6334(a)(2) (fuel, provisions, furniture, and other household
personal effects, as well as arms for personal use, livestock, and poultry) cannot exceed

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$8,370. The value of property exempt from levy under § 6334(a)(3) (books and tools
necessary for the trade, business, or profession of the taxpayer) cannot exceed $4,180.
.27 Interest on a Certain Portion of the Estate Tax Payable in Installments. For an
estate of a decedent dying in calendar year 2011, the dollar amount used to determine
the "2-percent portion" (for purposes of calculating interest under § 6601(j)) of the estate
tax extended as provided in § 6166 is $1,360,000.
.28 Attorney Fee Awards
. For fees incurred in calendar year 2011, the attorney fee
award limitation under § 7430(c)(1)(B)(iii) is $180 per hour.
.29 Periodic Payments Received under Qualified Long-Term Care Insurance
Contracts or under Certain Life Insurance Contracts. For calendar year 2011, the
stated dollar amount of the per diem limitation under § 7702B(d)(4), regarding periodic
payments received under a qualified long-term care insurance contract or periodic
payments received under a life insurance contract that are treated as paid by reason of
the death of a chronically ill individual, is $300.
SECTION 4. EFFECTIVE DATE
.01 General Rule
. Except as provided in section 4.02, this revenue procedure applies
to taxable years beginning in 2011.
.02 Calendar Year Rule
. This revenue procedure applies to transactions or events
occurring in calendar year 2011 for purposes of sections 3.03 (rehabilitation
expenditures treated as separate new building), 3.04 (low-income housing credit), 3.06
(transportation mainline pipeline construction industry optional expense substantiation
rules for payments to employees under accountable plans), 3.09 (private activity bonds

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volume cap), 3.10 (loan limit on agricultural bonds), 3.11 (general arbitrage rebate
rules), 3.12 (safe harbor rules for broker commissions on guaranteed investment
contracts or investments purchased for a yield restricted defeasance escrow), 3.17
(expatriation to avoid tax), 3.20 (valuation of qualified real property in decedent's gross
estate), 3.21 (annual exclusion for gifts), 3.22 (tax on arrow shafts), 3.25 (persons
against whom a federal tax lien is not valid), 3.26 (property exempt from levy), 3.27
(interest on a certain portion of the estate tax payable in installments), 3.28 (attorney fee
awards), and 3.29 (periodic payments received under qualified long-term care insurance
contracts or under certain life insurance contracts).
SECTION 5. DRAFTING INFORMATION
The principal author of this revenue procedure is Christina M. Glendening of the
Office of Associate Chief Counsel (Income Tax & Accounting). For further information
regarding this revenue procedure, contact Ms. Glendening at (202) 622-4920 (not a toll-
free call).