Internal Revenue Bulletin 2007-3 (PDF rendition): IRS Revenue Rulings

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

Bulletin No. 200
7-3
January 16, 2007
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2007–1, page 265.
Credit card nonsufficient funds (NSF) fee.This ruling pro-
vides that a credit card nonsufficient funds (NSF) fee as de-
scribed in the ruling is not interest for federal income tax pur-
poses. Also, this ruling holds that a credit card NSF fee is
includible in income by the issuer of the credit card when the
NSF Event, as defined therein, occurs.
Rev. Rul.
2007–2, page 266.
Federal ra
tes; adjusted federal rates; adjusted federal
long-ter
mrateandthelong-termexemptrate.For pur-
poses of s
ections 382, 642, 1274, 1288, and other sections
of the Cod
e, tables set forth the rates for January 2007.
Notice 2007–5, page 269.
This notice partially modifies the effective date and provides
other clarifications of the section 482 temporary services reg-
ulations which were published in the Federal Register on August
4, 2006. Rev. Proc. 2007–13 is issued contemporaneously
with this notice.
Rev. Proc. 2007–9, page 278.
Insurance companies; loss reserves; discounting unpaid
losses.The loss payment patterns and discount factors are
set forth for the 2006 accident year. These factors will be used
to compute discounted unpaid losses under section 846 of the
Code.
Rev. Proc. 2007–10, page 289.
Insurance companies; discounting estimated salvage re-
coverable.The salvage discount factors are set forth for the
2006 accident year. These factors will be used to compute
discounted estimated salvagerecoverable under section 832
of the Code.
Rev. Proc. 2007–13, page 295.
This procedure finalizes Announcement 2006–50, 2006–34
I.R.B. 321, and identifies particular services that are eligible
to be evaluated at cost according to the temporary regulations
relating to services under section 482, which were released
concurrently with Notice 2007–5 (in this Bulletin).
EMPLOYEE PLANS
Notice 2007–6, page 272.
Cash balance defined benefit pension plans; transition
rules; request for comments.This notice announces that
the Service is beginning to process determination letter and
examination cases that were suspended relating to cash bal-
ance and other hybrid defined pension plans. The notice also
provides transitional guidance on the requirements of sections
411(a)(13) and 411(b)(5) of the Code as added by section
701(b) of the Pension Protection Act of 2006. In addition, this
notice requests comments on certain issues raised by sections
411(a)(13) and 411(b)(5).
(Continued on the next page)
Fi
nding Lists begin on page ii.

Notice 2007–8, page 276.
In-service distributions; section 905 of Pension Protec-
tion Act of 2006; request for comments.This notice states
that the Treasury Department and the Service are considering
proposing guidance under section 401(a)(36) of the Code, as
added by section 905 of the Pension Protection Act of 2006.
This notice requests comments on issues presented by section
401(a)(36) with respect to defined benefit plans.
ADMINISTRATIVE
Rev. Proc. 2007–15, page 300.
General rules and specifications for private printing of
substitute forms.This procedure provides requirements for
reproducing paper substitutes and for furnishing substitute
recipient statements for Forms 1096, 1098, 1099, 5498,
W–2G, and 1042–S. It will be reproduced as the next revision
of Publication 1179. Rev. Proc. 2005–69 superseded.
January 16, 20072007–3 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2007–3 I.R.B.January 16, 2007

Place missing child here.
January 16, 20072007–3 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of January 2007. See Rev.
Rul. 2007-2, page 266.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of January 2007. See Rev.
Rul. 2007-2, page 266.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
Section 451.—General Rule
for Taxable Year of Inclusion
26 CFR 1.451–1: Taxable year of inclusion.
(Also: §§ 61, 446.)
Credit card nonsufficient funds
(NSF) fee.This ruling provides that a
credit card nonsufficient funds (NSF) fee
asdescribedintherulingisnotinterest
for federal income tax purposes. Also,
this ruling holds that a credit card NSF
fee is includible in income by the issuer
of the credit card when the NSF Event, as
defined therein, occurs.
Rev. Rul. 2007–1
ISSU
ES
(1) If a credit card issuer becomes enti-
tled to a fee if it refuses to honor a credit
card convenience check that, if honored,
would leave the cardholder over the card-
holder’s credit limit, is the fee interest in-
come for federal income tax purposes?
(2) When is the credit card fee that is
described in Issue (1) includible in gross
income by the card issuer?
FACTS
X, a taxpayer that uses an overall ac-
crual method of accounting for federal in-
come tax purposes, issues a credit card to
A. The credit card allowsAto access a re-
volving line of credit to make purchases of
goods and services and to obtain cash ad-
vances, including cash advances obtained
throughA’s use of a convenience check
made available through A’s credit card ac-
count (an “account check”).
There is a written agreement betweenX
andAthat sets forth the terms and condi-
tions governingA’s use of the credit card
(the “Cardholder Agreement”). Under the
terms and conditions of the Cardholder
Agreement,Xis not required to honor one
ofA’s account checks if, when the account
check is presented toXfor payment, ei-
therAis overdrawn onA’s line of credit or
payment of the check would causeAto be-
come overdrawn. Under the agreementX
is entitled to impose a $25 fee (the “Credit
Card NSF Fee”) onAif an account check
is presented toXthat, if honored, would
leaveAoverdrawn andXdoes not in fact
honor the check (the “NSF Event”).
Awrites an account check and uses it
tomakeapaymenttoathirdparty.X
does not honorA’s account check when
the third party presents it for payment be-
causeAwould be overdrawn onA’s line
of credit ifXhonored the account check
at that time.Xis therefore entitled to im-
pose a $25 Credit Card NSF Fee onAin ac-
cordance with the terms ofX’s Cardholder
Agreement withA.
LAW AND ANALYSIS
For federal income tax purposes, inter-
est is an amount that is paid in compensa-
tion for the use or forbearance of money.
Deputy v. DuPont, 308 U.S. 488 (1940);
Old Colony Railroad Co. v. Commis-
sioner, 284 U.S. 552 (1932). Neither the
label used for the fee nor a taxpayer’s treat-
ment of the fee for financial or regula-
tory reporting purposes is determinative of
the proper federal income tax characteriza-
tion of that fee.See Thor Power Tool Co.
v. Commissioner, 439 U.S. 522, 542–43
(1979); Rev. Rul. 72–315, 1972–1 C.B.
49.
WhenX
determines that it will not
honorA’s account check that the third
party has presented for payment becauseA
would be overdrawn onA’s line of credit,
Xis denyingAthe use ofX’s funds. Thus,
the $25 Credit Card NSF Fee does not
compensateXfor the use or forbearance
of money, and it is not interest income for
federal income tax purposes.
Under § 451(a) of the Internal Revenue
Code, the amount of any item of gross in-
come is includible in gross income for the
taxable year in which it is received by the
taxpayer, unless that amount is to be prop-
erly accounted for in a different period un-
der the method of accounting used by the
taxpayer in computing taxable income.
Under § 1.451–1(a) of the Income Tax
Regulations, income is includible in gross
income by a taxpayer that uses an accrual
method of accounting when all events have
occurred that fix the taxpayer’s right to re-
ceive that income and the amount of that
income can be determined with reasonable
accuracy.See also§ 1.446–1(c)(1)(ii)(A).
Generally, all the events that fix the right
to receive income occur either when the re-
quired performance takes place, when pay-
ment is due, or when payment is made,
whichever occurs first (the “All Events
Test”).See,e.g., Rev. Rul. 2004–52,
2004–1 C.B. 973 (addressing credit card
issuers’ treatment of credit card annual
fees).
Xis required to include the Credit Card
NSF Fee in gross income under section
451 when the NSF Event occurs because
the NSF Event fixesX’s right to receive
theincomeandtheamountcanbedeter-
mined with reasonable accuracy. Thus, the
All Events Test is satisfied when the NSF
Event occurs.
A change in the treatment of Credit
Card NSF fees to comply with this revenue
ruling is a change in method of account-
ingwithinthemeaningof§§446and481
2007–3 I.R.B.265January 16, 2007

and the regulations issued thereunder. Ac-
cordingly, a taxpayer wishing to change its
treatment of Credit Card NSF fees to com-
ply with this revenue ruling must obtain
the consent of the Commissioner under
§ 446(e) and § 1.446–1(e)(2)(i) by follow-
ing the procedures in Rev. Proc. 97–27,
1997–1 C.B. 680 (or its successor).
HOLDINGS
(1) The Credit Card NSF Fee is not in-
terest for federal income tax purposes.
(2) The Credit Card NSF Fee is includi-
ble in gross income for federal income tax
purposes when the NSF Event occurs.
DRAFTING INFORMATION
The principal authors of this rev-
enue ruling are Jonathan Silver and
Tina Jannotta of the Office of Associate
Chief Counsel (Financial Institutions &
Products). For further information re-
garding this revenue ruling, contact the
principal authors at (202) 622–3930 (not a
toll-free call).
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of January 2007. See Rev.
Rul. 2007-2, page 266.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of January 2007. See Rev.
Rul. 2007-2, page 266.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
Section 832.—Insurance
Company Taxable Income
26 CFR 1.832–4: Gross income.
The salvage discount factors are set forth for 2006.
These factors must be used to compute discounted
estimated salvage recoverable for purposes of section
832 of the Code. See Rev. Proc. 2007-10, page 289.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
26 CFR 1.846–1: Application of discount factors.
The loss payment patterns and discount factors are
set forth for the 2006 accident year. These factors will
be used for computing discounted unpaid losses un-
der section 846 of the Code. See Rev. Proc. 2007-9,
page 278.
26 CFR 1.846–1: Application of discount factors.
The salvage discount factors are set forth for 2006.
These factors must be used to compute discounted
estimated salvage recoverable for purposes of section
832 of the Code. See Rev. Proc. 2007-10, page 289.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for January 2007.
Rev. Rul. 2007–2
This revenue ruling provides various
prescribed rates for federal income tax
purposes for January 2007 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Table
5 contains the federal rate for determin-
ing the present value of an annuity, an
interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520. Finally, Table
6 contains the deemed rate of return for
transfers made during calendar year 2007
to pooled income funds described in sec-
tion 642(c)(5) that have been in existence
for less than 3 taxable years immediately
preceding the taxable year in which the
transfer was made.
January 16, 20072662007–3 I.R.B.

REV. RUL. 2007–
2TABLE1
Applicable Federal Rates (AFR) for January 2007
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR4.88%4.82%4.79%4.77%
110% AFR5.37%5.30%5.27%5.24%
120% AFR5.86%5.78%5.74%5.71%
130% AFR6.37%6.27%6.22%6.19%
Mid-term
AFR4.58%4.53%4.50%4.49%
110% AFR5.04%4.98%4.95%4.93%
120% AFR5.51%5.44%5.40%5.38%
130% AFR5.98%5.89%5.85%5.82%
150% AFR6.92%6.80%6.74%6.71%
175% AFR8.09%7.93%7.85%7.80%
Long-te
rm
AFR4.73%4.68%4.65%4.64%
110% AFR5.22%5.15%5.12%5.10%
120% AFR5.70%5.62%5.58%5.56%
130% AFR6.17%6.08%6.03%6.00%
REV. RUL. 2007–2 TABLE 2
Adjusted AFR for January 2007
Perio
d for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted
AFR
3.39%3.36%3.35%3.34%
Mid-term adjusted AFR3.54%3.51%3.49%3.48%
Long-term adjusted
AFR
4.03%3.99%3.97%3.96%
RE
V. RUL. 2007–2 TABLE 3
Rates Under Section 382 for January 2007
Adjusted federal long-term rate for the current month4.03%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)4.15%
REV. RUL. 2007–2 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for January 2007
Appropriate percentage for the 70% present value low-income housing credit8.08%
Appropriate percentage for the 30% present value low-income housing credit3.46%
2007–3 I.R.B.267January 16, 2007

REV. RUL. 2007–
2TABLE5
Rate Under Section 7520 for January 2007
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest5.6%
REV. RUL. 2007–2 TABLE 6
Deemed Rate for Transfers to New Pooled Income Funds During 2007
Deemed rate
of return for transfers during 2007 to pooled income funds that have been in existence for
less than 3 t
axable years
4.8%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 2007. See Rev. Rul. 2007-2, page 266.
January 16, 20072682007–3 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
This Notice Clarifies and
Modifies Certain Provisions
of the Temporary and
Proposed Regulations
Under Section 482 of the
Code Relating to Controlled
Services Transactions, and
Section 6662 of the Code
Relating to Transfer Pricing
Documentation Penalties
Notice 2007–5
SECTION 1. PURPOSE
On August 4, 2006, the Treasury De-
partment and the IRS published T.D. 9278,
2006–34 I.R.B. 256, containing temporary
and proposed regulations that address con-
trolled services undersection 482 (71 Fed.
Reg. 44466). This notice makes several
clarifications concerning provisions in the
temporary and proposed regulations, pri-
marily relating to the services cost method.
In addition, this notice makes certain mod-
ifications to the effective date of the tem-
porary regulations.
SECTION 2. BACKGROUND
The temporary and proposed regula-
tions provided for a new transfer pricing
method applicable to certain controlled
services transactions, the services cost
method (SCM). Under specified circum-
stances, the SCM allows the arm’s length
charge for a controlled services transac-
tion to be determined by reference to total
services costs, without a markup. Two cat-
egories of covered services are potentially
eligible for this method, specified covered
services and low margin covered ser-
vices, both defined in Temp. Treas. Reg.
§ 1.482–9T(b)(4). To demonstrate that a
particular controlled service qualifies for
the SCM, the taxpayer must reasonably
conclude, in its business judgment, that the
service does not contribute significantly
to key competitive advantages, core capa-
bilities, or fundamental risks of success or
failure in one or more trades or businesses
of the renderer, the recipient, or both.
Temp. Treas. Reg. § 1.482–9T(b)(2)
(business judgment rule). Specified cov-
ered services are those controlled services
that the Commissioner identifies by means
of a revenue procedure. Low-margin
covered services are controlled services
transactions for which the arm’s length
mark-up, determined by reference to com-
parable uncontrolled transactions, equals
7% or less.
The Treasury Department and the IRS
issued a proposed revenue procedure that
identified specified covered services.See
Announcement 2006–50, 2006–34 I.R.B.
321 (August 21, 2006). That proposed rev-
enue procedure identified forty-eight ac-
tivities or groups of activities that consti-
tute specified covered services. Contem-
poraneously with the issuance of this no-
tice, the IRS intends to issue a final rev-
enue procedure on this topic before De-
cember 31, 2006. The revenue procedure
may be further updated, as appropriate, in-
cluding in connection with the conclusion
of the one-year transition period provided
by this notice and in the course of final-
ization of the temporary regulations in re-
sponse to comments.
The temporary and proposed regula-
tions also added a provision in Temp.
Treas. Reg. § 1.482–9T(b)(5) concern-
ing shared services arrangements (SSAs).
Provided that the taxpayer satisfies the
conditions for use of an SSA, which in-
cludes reasonably concluding that the
SSA utilizes the most reliable measure of
the participants’ respective shares of the
reasonably anticipated benefits from the
covered services, the IRS will not make
an adjustment to the taxpayer’s allocation.
An SSA must be structured such that: (1)
it includes two or more participants; (2)
each participant reasonably anticipates a
benefit from one or more covered services
specified in the SSA; and (3) each covered
service confers a benefit on at least one
participant in the SSA.SeeTemp. Treas.
Reg. § 1.482–9T(b)(5). Services eligible
to be included in an SSA are limited to
services that qualify for the SCM. Temp.
Treas. Reg. § 1.482–9T(b)(5)(i).
The temporary and proposed regula-
tions are generally effective for taxable
years that begin after December 31, 2006.
Temp. Treas. Reg. § 1.482–9T(n). A
taxpayer may elect to apply the temporary
regulations to open tax years that begin
after September 10, 2003.
SECTION 3. CLARIFICATIONS,
PARTIAL MODIFICATION OF
EFFECTIVE DATE
Numerous
public comments were sub-
mitted co
ncerning both Announcement
2006–50 a
nd the temporary and proposed
regulat
ions. In response to these com-
ments, t
his notice describes modifications
to the li
st of specified covered services,
as adopt
ed in the final revenue procedure.
The noti
ce also modifies the effective date
of the t
emporary regulations in several
respec
ts, as described below. Lastly, the
notice
makes several clarifications con-
cernin
g the intended application of the
regula
tions, as described below. These
clari
fications will be considered during
the pr
ocess of finalizing the temporary
regul
ations. In the interim, and pending
the is
suance of final regulations under
Trea
s. Reg. § 1.482–9, and other related
prov
isions, taxpayers may rely on the
guid
ance contained in this notice.
§ 3.01 Partial Modification of Effective
Date — SCM Provisions
The temporary and proposed regula-
tions are effective for tax years beginning
after December 31, 2006 (with retroactive
application for tax years beginning after
September 10, 2003, at the election of
the taxpayer).SeeTemp. Treas. Reg.
§ 1.482–9T(n). Several commentators
requested that the effective date of the en-
tire regulations be moved back one year,
whichintheirviewwouldprovidetaxpay-
ers sufficient time to modify accounting
systems and to take other steps, includ-
ing preparation of contractual agreements
and other transfer pricing documentation,
deemed necessary to comply fully with
the temporary regulations.
In response to these comments, this no-
tice partially modifies the effective date
of Temp. Treas. Reg. § 1.482–9T(b) of
the temporary regulations. Subject to the
exceptions described below, the effective
date of the temporary regulations, as they
pertain to the identification of controlled
services eligible to be priced at cost, is
moved back one year. The temporary reg-
ulations will thus apply to taxable years af-
ter December 31, 2007, for all provisions
related to the SCM in Temp. Treas. Reg.
2007–3 I.R.B.269January 16, 2007

§ 1.482–9T(b). The only SCM provision
that has immediate effect,i.e., for taxable
years beginning after December 31, 2006,
is the business judgment rule in Temp.
Treas. Reg. § 1.482–9T(b)(2).
The net effect of this modification is
that, for taxable years with beginning
dates from January 1, 2007 to December
31, 2007, taxpayers may apply the existing
regulations in Treas. Reg. § 1.482–2(b)
for purposes of identifying controlled ser-
vices that are eligible to be priced on a
cost basis, without a markup. For such
taxable years, services that are priced
on a cost basis must be “non-integral”
within the meaning of existing Treas.
Reg. § 1.482–2(b)(7), and they must also
satisfy the SCM business judgment test
in Temp. Treas. Reg. § 1.482–9T(b)(2).
Other SCM related provisions, including
the documentation provision in Temp.
Treas. Reg. § 1.482–9T(b)(3)(i) and the
excluded transactions in Temp. Treas.
Reg. § 1.482–9T(b)(3)(ii), are inapplica-
ble to transactions during this one-year
period. Consequently, in this context, the
existing documentation standards appli-
cable to controlled services will apply to
transactions during this one-year period.
Alternatively, for tax years beginning be-
tween January 1, 2007 and December 31,
2007, taxpayers may elect to apply the
SCM as set forth in Temp. Treas. Reg.
§ 1.482–9T(b), without taking into ac-
count any of the modifications described
above.
The provisions of Temp. Treas. Reg.
§ 1.482–9T(b) will be effective in all re-
spects for taxable years beginning after
December 31, 2007.
§ 3.02 Services Cost Method Applies Only
at Option of Taxpayer
Several commentators requested con-
firmation that application of the SCM
was a matter within the control of the
taxpayer, assuming that the underlying
transactions qualified for the SCM. Com-
mentators observed that the temporary
regulations could be interpreted asrequir-
inga taxpayer to apply the SCM, if all the
conditions for that method were satisfied.
In the view of commentators, this would
conflict with the ability of a taxpayer to
apply the best method rule, including by
applying a transfer pricing method other
than the SCM.
This notice confirms that under the tem-
porary regulations the SCM is elective by
taxpayers. A statement in its books and
records evidencing the taxpayer’s intent
to apply the SCM is required as a neces-
sary condition to applicability of the SCM.
Temp. Treas. Reg. § 1.482–9T(b)(3)(i)
(second sentence). This notice also con-
firms that there is no requirement for a tax-
payer to attach such statement to its tax re-
turn, as typically is the case with elections
that are to be flagged to the IRS’ attention.
§ 3.03 Listing of Specified Covered
Services in Announcement 2006–50
Several commentators contended that
the proposed list of specified covered ser-
vices in Announcement 2006–50 was too
narrow to be of practical use. Some com-
mentators suggested that the list should re-
fer to departments or to accounting classi-
fications, rather than to specific activities
or groups of activities. One commenta-
tor suggested that allactivities in particular
departments should be identified as eligi-
ble for the SCM. Other commentators sup-
ported the general approach taken in An-
nouncement 2006–50, but suggested that
the list include certain additional activities,
so as to describe the back office in a more
comprehensive manner.
The SCM is intended to provide a
practical and administrable means of iden-
tifying low-margin services that may be
evaluated by reference to total services
cost without a markup. The SSA provi-
sion affords taxpayers the flexibility to
analyze specified covered services and
low margin covered services that produce
benefits to multiple recipients, under a
joint-benefit approach. Flexible grouping
rules are adopted for purposes of the SCM
and the SSA provisions. Temp. Treas.
Reg. § 1.482–9T(b)(4) (first sentence
parenthetical) and (b)(5)(iii)(B). In the
view of the Treasury Department and the
IRS, these provisions afford flexibility to
analyze covered services in a way that
does not impose inappropriate compliance
burdens. Accordingly, the Treasury De-
partment and the IRS decline to adopt a
departmental approach to identification of
specified covered services eligible for the
SCM.
In response to public comments, how-
ever, the Treasury Department and the IRS
have concluded that certain modifications
to the list of specified covered services in
Announcement 2006–50 are appropriate.
Several further categories will be added,
and further activities will be specified
within the categories. In addition, the in-
dividual categories of specified covered
services will also include “other similar
activities.” This reflects the conclusion
of the Treasury Department and the IRS
that the list of specified covered services
should be structuredand interpreted in
a practical, common-sense manner. The
changes described in this paragraph are
reflected in Rev. Proc. 2007–13, which
is published contemporaneously with this
notice.
§ 3.04 Business Judgment Rule
In finalizing the regulations, the Trea-
sury Department and the IRS will incorpo-
rate provisions consistent with the follow-
ing interpretations of the business judg-
ment rule.
(1) Applies by Reference to Controlled
Group
In evaluating whether a controlled ser-
vices transaction qualifies for the SCM,
the temporary regulations provide that the
business judgment rule should be applied
by reference to “one or more trades or busi-
nessesof the renderer, recipient, or both.”
Temp. Treas. Reg. § 1.482–9T(b)(2) (em-
phasis added). Commentators observed
that this rule may yield incorrect results
in some cases, for example, where a dedi-
cated services subsidiary performs primar-
ily low margin covered services or speci-
fied covered services, and few other activ-
ities. The activities performed by such an
entity would potentially be ineligible for
the SCM under the business judgment rule,
because they would constitute the entity’s
core capability.
This notice provides that taxpayers are
to apply the business judgment rule by
reference to one or more trades or busi-
nesses of thecontrolled group, as defined
in Treas. Reg. § 1.482–1(i)(6), instead of
“the renderer, recipient, or both,” as stated
in Temp. Treas. Reg. § 1.482–9T(b)(2).
(2) Evaluates Contributions to Operat-
ing Profit
This notice provides that the business
judgment rule in Temp. Treas. Reg.
§ 1.482–9T(b)(2) should take into account
whether a particular activity contributes to
the operating profit of one or more con-
January 16, 20072702007–3 I.R.B.

trolled parties, as that term is defined in
Treas. Reg. § 1.482–5(d)(3). For exam-
ple, the activities performed by a corporate
tax department should not be disqualified
from the SCM, given that these activities
primarily affect foreign income taxes (as
defined in § 1.901–2(a)) and domestic
income taxes, which are not classified
as operating expenses.SeeTreas. Reg.
§ 1.482–5(d)(3).
(3) Taxpayer’s Reasonable Business
Judgment
Several commentators expressed con-
cern over how the business judgment
rule would be administered. They raised
questions concerning how to evidence the
necessary business judgment, for exam-
ple, whether an executive’s representation
must be preferred to the tax director’s.
Commentators also requested that state-
ments from the preamble to the temporary
regulations be incorporated in final regu-
lations.
The Treasury Department and the IRS
reiterate that the temporary regulations
already incorporateahighthresholdfor
application of the business judgment rule
to exclude services otherwise eligible for
the SCM. The exclusion is inapplicable so
long as the taxpayer reasonably concludes
in its business judgment that the covered
services do not contribute significantly to
key competitive advantages, core capabil-
ities, or fundamental risks of success or
failure in one or more trades or businesses
of the controlled group.
The test is satisfied by a reasonable ex-
ercise of the taxpayer’s business judgment,
not a reasonable exercise of the IRS’s
judgment in examining the taxpayer. In
the view of the Treasury Department and
the IRS, the gloss in the preamble to the
temporary regulations, such as that this is
a business judgment preeminently within
the business person’s own expertise, flows
directly from the regulations’ specification
that the matter lies in the taxpayer’s rea-
sonable business judgment. The evidence
necessary to establish the taxpayer’s rea-
sonable business judgment is determined
under all the facts and circumstances. No
source, executive or otherwise, is gener-
ally more probative than another.
§ 3.05 Shared Services Concept
Applicable to non-SCM Services
In general, commentators supported the
SSA provision as a useful mechanism for
allocation of costs from shared or cen-
tralized services. Commentators called
into question, however, the need to restrict
SSAs to covered services eligible to be an-
alyzed under the SCM. In the view of the
commentators, extending the SSA concept
to all controlled services would produce
accurate results and would also be con-
sistent with the OECDTransfer Pricing
Guidelines for Multinational Enterprises
and Tax Administrations, in particular, the
provisions pertaining to cost contribution
arrangements.
This notice confirms that taxpayers
may also make allocations of arm’s length
charges for services ineligible for the SCM
that yield a benefit to multiple members
of a controlled group. In such a case,
however, the flexible rules under the SCM
for establishing the joint benefits and se-
lecting the allocation key are inapplicable.
Instead, the more robust analysis under the
general transfer pricing rules applies for
purposes of determining the appropriate
arm’s length charges, benefits, allocation
keys, etc.
§ 3.06 Documentation Provisions
This notice clarifies that the docu-
mentation for services analyzed under
the SCM, described in Temp. Treas.
§ 1.482–9T(b)(3)(i) (adequate books and
records) need not be generated contempo-
raneously with the filing of the income tax
return.
In addition, for tax years beginning
after December 31, 2006, and on or be-
fore December 31, 2007, the written
contract specified by Temp. Treas. Reg.
§ 1.482–9T(i)(2) need not be entered into
prior to, or contemporaneous with the
start of the activity or group of activities.
Instead, the written contract need only
be prepared prior to, or contemporaneous
with the filing of the income tax return.
§3.07PenaltyReliefforCertain
Controlled Services Transactions
During a one-year transition period,
the Treasury Department and the IRS in-
tend that taxpayers’ reasonable efforts to
comply with the temporary regulations,
as modified by this notice, will avoid
the imposition of penalties for controlled
services transactions, except for those
evaluated under Treas. Reg. § 1.482–2(b),
as modified by section 3.01 of this notice.
Accordingly, this notice provides that
penalties, including but not limited to
penalties within the meaning of section
6662(e) and (h) of the Code, will not
apply to controlled services transactions
(except for those evaluated under Treas.
Reg. § 1.482–2(b)(3), as modified by
section 3.01 of this notice), for taxable
years beginning after December 31, 2006
and on or before December 31, 2007, pro-
vided that the taxpayer makes reasonable
efforts to comply with documentation pro-
visions in I.R.C. § 6001 and Treas. Reg.
§ 1.6662–6(d)(2)(iii).
In determining whether a taxpayer’s
efforts are reasonable, the Service will
take into consideration that a taxpayer
may not yet have all of its intercompany
agreements in place and may be imple-
menting changes to its accounting systems
during this one-year transition period. If,
however, the taxpayer fails to provide
the Service with any transfer pricing docu-
mentation in connection with its controlled
services transactionswithin the applicable
time period, such actions will be deemed
unreasonable.
This relief from penalties is intended
to provide a reasonable transition period
during which taxpayers may analyze the
temporary and proposed regulations, exe-
cute any required contractual agreements,
and prepare transfer pricing documenta-
tion for transactions subject to the regula-
tions. This clarification does not limit the
ability of the Commissioner to make sec-
tion 482 allocations with respect to charges
for services transactions that take place
during this period or to apply penalties
to controlled services transactions that are
evaluated under Treas. Reg. § 1.482–2(b),
as modified by section 3.01 of this notice.
SECTION 4. REQUEST FOR
COMMENTS
The Treasury Department and the IRS
request further comments from interested
persons on the rules announced in this no-
tice. In addition, the revenue procedure is-
sued contemporaneously with this notice is
intended to be an evolving list of services
2007–3 I.R.B.271January 16, 2007

that are eligible for the SCM. The Trea-
sury Department and the IRS contemplate
issuing updates as appropriate, including a
further revision of the revenue procedure
to coincide with the end of the one-year
transition period and in response to com-
ments received on the temporary regula-
tions. Comments are solicited on the cate-
gories and listed activities in the revenue
procedure, possible additions, and other
revisions. For example, comments are
solicited whether warehousing and other
functions that support distribution should
be eligible for the SCM in light of Temp.
Treas. Reg. § 1.482–9T(b)(3)(ii)(E) (re-
selling, distribution ineligible for SCM).
Written comments may be submitted
to CC:INTL:6 (Notice 2007–5), room
4607, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20224. Submissions may be hand
delivered Monday through Friday be-
tween the hours of 8 a.m. and 5 p.m. to:
CC:INTL:6 (Notice 2007–5) Courier’s
desk, Internal Revenue Service, 1111
Constitution Avenue, NW, Washington,
DC 20224. Alternatively, taxpayers may
submit comments electronically via the
following e-mail address:Notice.Com-
ments@irscounsel.treas.gov. Please in-
clude “Notice 2007–5” in the subject line
of any electronic communications.
SECTION 5. DRAFTING
INFORMATION
The principal authors of this notice are
Thomas A. Vidano and Carol B. Tan of the
Office of Associate Chief Counsel (Inter-
national). For further information regard-
ing this notice, contact Thomas A. Vidano
or Carol B. Tan at (202) 622–5265 (not a
toll-free call).
Cash Balance and Other
Hybrid Defined Benefit
Pension Plans
Notice 2007–6
I. PURPOSE
This notice announces that the Ser-
vice is beginning to process determination
letter and examination cases in which
an application for a determination letter
or a plan under examination involves an
amendment to change a traditional de-
fined benefit plan into a cash balance plan
and provides related guidance. This no-
tice also provides transitional guidance
on the requirements of §§ 411(a)(13) and
411(b)(5) of the Internal Revenue Code
(Code), as added by section 701(b) of the
Pension Protection Act of 2006, Public
Law 109–280 (PPA ’06), which was en-
acted on August 17, 2006. This guidance
generally relates to cash balance plans and
other hybrid defined benefit pension plans
and to amendments that convert defined
benefit pension plans to hybrid defined
benefit pension plans. This notice also re-
quests comments on certain issues raised
by §§ 411(a)(13) and 411(b)(5).
II. BACKGROUND
A defined benefit pension plan gen-
erally must satisfy the minimum vesting
standards of § 411(a) and the accrual re-
quirements of § 411(b) in order to be
qualified under § 401(a). Both sections
have been modified by section 701(b) of
PPA ’06, which added §§ 411(a)(13) and
411(b)(5) to the Code.
Section 411(a)(13)(A) provides that a
plan described in § 411(a)(13)(C) is not
treated as failing to meet either (i) the re-
quirements of § 411(a)(2) (subject to a spe-
cial vesting rule in § 411(a)(13)(B) with
respect to benefits derived from employer
contributions), or (ii) the requirements of
§ 411(c) or § 417(e) with respect to ben-
efits derived from employer contributions,
solely because the present value of the ac-
crued benefit (or any portion thereof) of
any participant is, under the terms of the
plan, equal to the amount expressed as the
balance in a hypothetical account or as
an accumulated percentage of the partici-
pant’s final average compensation.
Aplanisdescribedin
§ 411(a)(13)(C)(i) if the plan is a de-
fined benefit plan under which the accrued
benefit (or any portion thereof) of a
participant is calculated as the balance
of a hypothetical account maintained for
the participant or as an accumulated per-
centage of the participant’s final average
compensation. Under § 411(a)(13)(C)(ii),
the Secretary is to issue regulations
that treat any defined benefit plan (or
any portion of such a plan) that has
an effect similar to a plan described in
§ 411(a)(13)(C)(i) as if it were described
in § 411(a)(13)(C)(i). For purposes
of this notice, a plan described either
in § 411(a)(13)(C)(i) or in regulations
or other guidance issued pursuant to
§ 411(a)(13)(C)(ii) is referred to as a
statutory hybrid plan.
Section 411(b)(1)(H)(i) provides that
a defined benefit plan fails to comply
with § 411(b) if, under the plan, an em-
ployee’s benefit accrual is ceased, or the
employee’s rate of benefit accrual is re-
duced, because of the attainment of any
age. Section 411(b)(5)(A), as added by
section 701(b)(1) of PPA ’06, generally
provides that a plan will not be treated
as failing to meet the requirements of
§ 411(b)(1)(H)(i) if a participant’s ben-
efit accrued to date, as determined as
of any date under the terms of the plan,
would be equal to or greater than that of
any similarly situated, younger individ-
ual who is or could be a participant. For
purposes of this notice, a participant’s
benefit accrued to date is referred to as the
participant’saccumulated benefit. Under
§ 411(b)(5)(A)(iv), for purposes of the
safe harbor standard of § 411(b)(5)(A),
a participant’s accumulated benefit may,
under the terms of the plan, be expressed
as an annuity payable at normal retirement
age, the balance of a hypothetical account,
or the current value of the accumulated
percentage of the employee’s final aver-
age compensation.
Section 411(b)(5)(B) imposes several
requirementsonastatutoryhybridplanas
a condition of satisfying § 411(b)(1)(H).
First, § 411(b)(5)(B)(i) provides that a
statutory hybrid plan is treated as failing
to meet the requirements of § 411(b)(1)(H)
if the terms of the plan provide for an in-
terest credit (or an equivalent amount)
for any plan year at a rate that is greater
than a market rate of return. Second,
§ 411(b)(5)(B)(ii) and (iii) contain min-
imum benefit rules that apply if, after
June 29, 2005, an amendment is adopted
that converts a defined benefit plan to a
statutory hybrid plan. For purposes of
this notice, such an amendment is referred
to as aconversion amendment.Third,
§ 411(b)(5)(B)(vi) provides a special rule
for projecting variable interest crediting
rates in the case of a terminating statutory
hybrid plan. In addition, § 411(a)(13)(B)
requires a statutory hybrid plan to provide
that an employee who has completed at
least 3 years of service has a nonforfeitable
January 16, 20072722007–3 I.R.B.

right to 100 percent of the employee’s
accrued benefit derived from employer
contributions.
Section 411(b)(5)(E) provides that a
plan is not treated as failing to meet the
requirements of § 411(b)(1)(H) solely be-
cause the plan provides for indexing of
accrued benefits under the plan. Under
§ 411(b)(5)(E)(iii), indexing means, in
connection with an accrued benefit, the
periodic adjustment of the accrued benefit
by means of the application of a recog-
nized investment index or methodology.
Section 701(a) of PPA ’06 added provi-
sions to the Employee Retirement Income
Security Act of 1974, Public Law 93–406
(ERISA) that are parallel to the above
described sections of the Code that were
addedbysection701(b)ofPPA’06. The
guidance provided in this notice with re-
spect to the Code also applies for purposes
of the parallel amendments to ERISA
made by PPA ’06.
1
Section 701(c) of PPA ’06 added pro-
visions to the Age Discrimination in Em-
ployment Act of 1967, Public Law 90–202
(ADEA), that are parallel to § 411(b)(5)
of the Code. Executive Order 12067 re-
quires all Federal departments and agen-
cies to advise and offer to consult with the
Equal Employment Opportunity Commis-
sion (EEOC) during the development of
any proposed rules, regulations, policies,
procedures or orders concerning equal em-
ployment opportunity. Treasury and the
Service have consulted with the EEOC
prior to the issuance of this notice.
The amendments made by section 701
of PPA ’06 are generally effective for pe-
riods beginning on or after June 29, 2005.
There are a number of special effective
date rules, some of which are described
in this notice. Section 701(d) of PPA ’06
provides that nothing in the amendments
made by section 701 should be construed
to create an inference concerning the
treatment of statutory hybrid plans or con-
versions of plans into such plans under
§ 411(b)(1)(H), or concerning the deter-
mination of whether a statutory hybrid
plan fails to meet the requirements of
§ 411(a)(2), 411(c), or 417(e) as in effect
before such amendments solely because
the present value of the accrued benefit
(or any portion thereof) of any participant
is equal to the amount expressed as the
balance in a hypothetical account or as
an accumulated percentage of the partici-
pant’s final average compensation.
Section 702 of PPA ’06 requires the
Secretary to prescribe regulations for the
application of the provisions of section 701
of PPA ’06 in cases where the conversion
of a plan to a statutory hybrid plan is made
with respect to a group of employees who
become employees by reason of a merger,
acquisition, or similar transaction.
Proposed regulations (EE–184–86,
1988–1 C.B. 881) under §§ 411(b)(1)(H)
and 411(b)(2) were published by Treasury
and the Service in the Federal Register on
April 11, 1988 (53 F.R. 11876), as part of
a package of regulations that also included
proposed regulations under §§ 410(a),
411(a)(2), 411(a)(8), and 411(c) (relating
to the maximum age for participation,
vesting, normal retirement age, and actu-
arial adjustments after normal retirement
age, respectively).
2
Notice 96–8, 1996–1 C.B. 359, de-
scribed the application of §§ 411 and
417(e), prior to the enactment of PPA ’06,
to a single-sum distribution under a cash
balance plan where interest credits under
the plan are frontloaded (i.e., where future
interest credits to an employee’s hypothet-
ical account balance are not conditioned
upon future service and thus accrue at
the same time that the benefits attribut-
able to a hypothetical allocation to the
account accrue). Under the analysis set
forth in Notice 96–8, in order to comply
with §§ 411(a) and 417(e) in calculating
the amount of a single-sum distribution
under a cash balance plan, the balance of
an employee’s hypothetical account must
be projected to normal retirement age and
converted to an annuity under the terms of
the plan, and then the employee must be
paid at least the present value of the pro-
jected annuity, determined in accordance
with § 417(e). Under that analysis, where
a cash balance plan provides frontloaded
interest credits using an interest rate that is
higher than the § 417(e) applicable interest
rate, payment of a single-sum distribution
equal to the current hypothetical account
balance as a complete distribution of the
employee’s accrued benefit may result in a
violation of § 417(e) or a forfeiture in vio-
lation of § 411(a). In addition, Notice 96–8
proposed a safe harbor that provided that,
if frontloaded interest credits are provided
under a plan at a rate no greater than the
sum of identified standard indices and as-
sociated margins, no violation of § 411(a)
or 417(e) would result if the employee’s
entire accrued benefitis distributed in the
form of a single-sum distribution equal to
the employee’s hypothetical account bal-
ance, provided the plan uses appropriate
annuity conversion factors.
On September 15, 1999, the Service’s
Director, Employee Plans, issued a field
directive requiring that open determination
letter applications and examination cases
that involved the conversion of a defined
benefit plan formula into a benefit for-
mula commonly known as a cash balance
formula be submitted for technical advice
with respect to the conversion’s effect on
the qualified status of the plan (referred
to in this notice as the1999 Field Direc-
tive). The 1999 Field Directive identified
as a cash balance formula a benefit for-
mula in a defined benefit plan by whatever
name (e.g., personal account plan, pen-
sion equity plan, life cycle plan, cash ac-
count plan, etc.) that, rather than express-
ing the accrued benefit as a life annuity
commencing at normal retirement age, de-
fines benefits for each employee by refer-
ence to a single-sum distribution amount.
In Announcement 2003–1, 2003–1 C.B.
281, the Service announced that the cases
that were the subject of the 1999 Field Di-
rective would not be processed pending is-
suance of regulations addressing age dis-
crimination.
III. TRANSITIONAL GUIDANCE
This part III provides transitional guid-
ance with respect to rules in §§ 411(a)(13)
and 411(b)(5) that relate to statutory hybrid
plans and the conversion of a defined ben-
efit plan into a statutory hybrid plan. The
1
Under section 101 of Reorganization Plan No. 4 of 1978 (43 F.R. 47713), the Secretary has interpretive jurisdictionover the subject matter addressedby this notice for purposes of ERISA.
2
On December 11, 2002, Treasury and the Service issued proposed regulations (REG–209500–86; REG–164464–02, 2003–1 C.B. 262) regarding the age discrimination requirements of
§ 411(b)(1)(H) that specifically addressed cash balance plans as part of a package of regulations that also addressed § 401(a)(4) nondiscriminationcross-testing rules applicable to cash balance
plans (67 F.R. 76123). The 2002 proposal was intended to replace the 1988 proposal. In Announcement 2003–22, 2003–1 C.B. 847, Treasury and the Serviceannounced the withdrawal of the
2002 proposed regulations under § 401(a)(4), and in Announcement 2004–57,2004–2 C.B. 15, Treasury and the Service announced the withdrawal of the 2002 proposed regulations relating
to age discrimination.
2007–3 I.R.B.273January 16, 2007

transitional guidance provided in this part
III applies pending the issuance of further
guidance.
A.Section 411(a)(13)(C): Definition of
statutory hybrid plan.
1.In general. A statutory hybrid plan
described in § 411(a)(13)(C)(i) and (ii) is
a plan that is either a lump sum based plan
or a plan that has a similar effect to a lump
sum based plan. For purposes of this no-
tice, the termlump sum based planmeans
a defined benefit plan under the terms of
which the accumulated benefit of a partic-
ipant is expressed as the balance of a hypo-
thetical account maintained for the partici-
pant or as the current value of the accumu-
lated percentage of the participant’s final
average compensation, and includes a plan
under which the accrued benefit under the
terms of the plan is calculated as the actu-
arial equivalent of such a hypothetical ac-
count balance or accumulated percentage.
Whether a plan is a lump sum based plan
is determined based on how the accumu-
lated benefit of a participant is expressed
under the terms of the plan, and does not
depend on whether the plan provides for
an optional form of benefit in the form of
a lump sum payment.
2.Similar effect to a lump sum based
plan.
(i)Treated as having a similar ef-
fect. Except as provided below in part
IIIA(2)(ii) of this notice, a plan that is not
a lump sum based plan is treated as hav-
ing a similar effect to a lump sum based
plan if the plan provides that a partici-
pant’s accrued benefit (payable at normal
retirement age) is expressed as a benefit
that includes automatic periodic increases
through normal retirement age that re-
sults in the payment of a larger amount
at normal retirement age to a similarly
situated participant who is younger. This
includes a plan that provides for indexing
of accrued benefits within the meaning of
§ 411(b)(5)(E)(iii), such as a plan that ex-
presses the accrued benefit as an indexed
annuity.
(ii)Not treated as having a similar ef-
fect.
(I)Plan with post-retirement adjust-
ment. A plan described in § 411(b)(5)(E)
that solely provides for post-retirement
adjustment of the amounts payable to a
participant is not treated as having a simi-
lar effect to a lump sum based plan.
(II)Variable annuity plan.Avariable
annuity plan is not treated as having a sim-
ilar effect to a lump sum based plan if it has
an assumed interest rate used for purposes
of adjustment of amounts payable to a par-
ticipant that is at least five percent. For this
purpose, a variable annuity plan includes
any plan which provides that the amount
payable is periodically adjusted by refer-
ence to the difference between the rate of
return of plan assets (or specified market
indices) and the assumed interest rate.
B.Section 411(a)(13): Special rules for
the application of §§ 411(a)(2), 411(c),
and 417(e).
1.In general. Section 411(a)(13)(A)
provides special rules with respect to
§§ 411(a)(2), 411(c), and 417(e) for bene-
fits expressed as the balance of a hypothet-
ical account maintained for a participant
or as the current value of the accumulated
percentage of a participant’s final average
compensation under a lump sum based
plan. Specifically, with respect to such
benefits, a lump sum based plan is not
treated as failing to meet the requirements
of § 411(a)(2), or the requirements of
§§ 411(c) and 417(e) with respect to such
benefits derived from employer contri-
butions, solely because the present value
of such benefits of any participant is, un-
der the terms of the plan, equal to the
amount expressed as the balance in the hy-
pothetical account or as the accumulated
percentage of the participant’s final aver-
age compensation. Section 411(a)(13)(A)
does not apply to benefits under a statu-
tory hybrid plan that are expressed neither
as the balance of a hypothetical account
maintained for a participant nor as the cur-
rent value of the accumulated percentage
of a participant’s final average compensa-
tion.
2.Effective date. Section 411(a)
(13)(A) is effective for distributions made
after August 17, 2006. The Service ex-
pects to issue regulations shortly interpret-
ing the effective date of § 411(a)(13)(A).
3.Section 411(d)(6) relief. In the case
of a lump sum based plan that provides
for a single-sum distribution to a partici-
pant that exceeds the participant’s hypo-
thetical account balance or accumulated
percentage of final average compensation,
the plan may be amended to eliminate the
excess for distributions made after August
17, 2006, under the rules of section 1107
of PPA ’06. Because such an amend-
ment is made pursuant to section 701 of
PPA ’06, section 1107 of PPA ’06 applies
to the amendment if the amendment satis-
fies the requirements specified in section
1107. Thus, if the amendment is adopted
on or before the last day of the first plan
year beginning on or after January 1, 2009
(January 1, 2011, for a governmental plan),
and the plan is operated as if such amend-
ment were in effect as of the first date the
amendment is effective, then the amend-
ment does not violate section 411(d)(6)
with respect to distributions made after the
later of August 17, 2006, or the effective
date of the amendment.
4.Section 4980F. Pursuant to this no-
tice, in the case of an amendment described
in section B(3) of this part III, a notice re-
quired under § 4980F (and the parallel pro-
vision at section 204(h) of ERISA) must be
provided at least 30 days before the date
the amendment is first effective. Thus, if
an amendment described in section B(3)
of this part III that significantly reduces
the rate of future benefit accrual for pur-
poses of § 4980F is adopted retroactively
(i.e., is adopted after the effective date of
the amendment) as an amendment under
the rules of section 1107 of PPA ’06, then
the notice required under § 4980F must be
provided at least 30 days before the earli-
est date on which the plan is operated in
accordance with the amendment.
5.Vesting. See § 411(a)(13)(B) for a
special 3-year vesting schedule for statu-
tory hybrid plans.
C.Section 411(b)(5)(A)(iv): Scope
of rule. In applying the age discrimina-
tion test set forth in § 411(b)(5)(A)(i),
a lump sum based plan may under
§ 411(b)(5)(A)(iv) determine the accu-
mulated benefit of a participant as the
balance of a hypothetical account or the
current value of the accumulated per-
centage of the employee’s final average
compensation even if the plan defines the
participant’s accrued benefit as an annuity
at normal retirement age that is actuarially
equivalent to such balance or value.
D.Section 411(b)(5)(B)(i): Market rate
of return.
1.Future guidance on market rate of
return. During 2007, Treasury and the
Service expect to issue guidance that ad-
dresses the market rate of return rules at
§ 411(b)(5)(B)(i), including the special
rule regarding preservation of capital un-
der § 411(b)(5)(B)(i)(II) and the minimum
January 16, 20072742007–3 I.R.B.

rate of return rules in the second sentence
of § 411(b)(5)(B)(i)(I). The guidance is
also expected to address the extent to
which § 411(d)(6) relief provided under
section1107ofPPA’06appliestoan
amendment to a statutory hybrid plan that
changes the plan’s interest crediting rate
where such amendment is adopted after
August 17, 2006.
2.Safe harbor. Pending further guid-
ance, a market rate of return for pur-
poses of § 411(b)(5)(B)(i) includes the
rate of interest on long-term investment
grade corporate bonds (as described in
§ 412(b)(5)(B)(ii)(II) prior to amendment
by PPA ’06 for plan years beginning prior
to January 1, 2008, and the third segment
rate described in § 430(h)(2)(C)(iii) for
subsequent plan years) or the rate of inter-
est on 30-year Treasury securities (as de-
scribed in § 417(e)(3) prior to amendment
by PPA ’06). In addition, a market rate
of return for purposes of § 411(b)(5)(B)(i)
includes the sum of any of the standard
indices and the associated margin for that
index as described in part IV of Notice
96–8.
3.Certain plan termination require-
ments. See § 411(b)(5)(B)(vi) for required
plan terms related to termination of a statu-
tory hybrid plan.
E.Section 411(b)(5)(B)(ii) — (iv): Spe-
cial rules for conversion amendments.
1.In general. Section 411(b)(5)(B)(ii)
provides that if a conversion amend-
ment is adopted with respect to a plan
after June 29, 2005, the plan is treated
as failing to meet the requirements of
§ 411(b)(1)(H) unless the requirements of
§ 411(b)(5)(B)(iii) are met with respect to
each individual who was a participant in
the plan immediately before the adoption
of the conversion amendment.
2.Requirements of § 411(b)(5)(B)(iii).
Subject to § 411(b)(5)(B)(iv), § 411(b)(5)
(B)(iii) is satisfied with respect to any par-
ticipant if the accrued benefit of the partici-
pant under the terms of the plan as in effect
after the conversion amendment is not less
than the sum of—
(i) the participant’s accrued benefit for
years of service before the effective date
of the conversion amendment, determined
under the terms of the plan as in effect
before the amendment, and
(ii) the participant’s accrued benefit for
years of service after the effective date
of the amendment, determined under the
terms of the plan as in effect after the
amendment.
3.Requirements of § 411(b)(5)(B)(iv).
Under § 411(b)(5)(B)(iv), a plan must
credit the accumulation account or similar
account for purposes of the accrued benefit
described in part IIIE(2)(ii) of this notice
with the amount of any early retirement
benefit or retirement-type subsidy for the
plan year in which the participant retires
if, as of such time, the participant has
met the age, years of service, and other
requirements under the plan for entitle-
ment to such benefit or subsidy. For this
purpose, the date on which a participant
retires means the annuity starting date for
the participant’s benefit.
4.Effective date. Section 411(b)(5)
(B)(ii) applies to a conversion amendment
that is adopted after, and takes effect after,
June 29, 2005. See section 701(e)(5) of
PPA ’06 for a special election with respect
to § 411(b)(5)(B)(ii).
F.Safe harbor for conversions related
to mergers and acquisitions.
1.Future guidance on conversions re-
latedtomergersandacquisitions. In ac-
cordance with section 702 of PPA ’06, the
Service expects to issue regulations not
later than August 17, 2007, regarding an
amendment to convert a defined benefit
plan into a hybrid defined benefit plan with
respect to a group of employees who be-
come employees by reason of a merger, ac-
quisition, or similar transaction.
2.Safe harbor. Pending further guid-
ance, a plan amendment described in part
IIIE that is also described in part IIIF(1) of
this notice is not treated as failing to meet
the requirements of § 411(b)(1)(H) if the
benefit of each participant under the plan
as amended is not less than the sum of:
(A) the participant’s section 411(d)(6)
protected benefit (as defined in
§ 1.411(d)–3(g)(14)) with respect to ser-
vice before the effective date of the con-
version amendment, determined under the
terms of the plan as in effect before the
amendment, and
(B) the participant’s section 411(d)(6)
protected benefit with respect to service
on and after the effective date of the con-
version amendment, determined under the
terms of the plan as in effect after the
amendment.
For purposes of this paragraph F(2), the
benefits under clause (A) and the bene-
fits under clause (B) of this paragraph F(2)
must each be determined in the same man-
ner as if they were provided under separate
plans that are independent of each other
(e.g., without any benefit offsets).
IV. DETERMINATION LETTERS
In light of the enactment of section
701 of PPA ’06, the Service is no longer
applying the 1999 Field Directive and
Announcement 2003–1 and is beginning
to process the determination letters and
examination cases that were the subject
of such field directive and announcement
(referred to asmoratorium plansin this
notice). This part IV describes certain
rules that will be applied for purposes of
processing moratorium plans. Qualifica-
tion requirements that are not described in
this part IV (e.g., the backloading rules of
§ 411(b)(1)(A), (B), and (C)) continue to
apply.
A.Age discrimination.
1.In general. Except as provided in
part IVA(2) of this notice, a moratorium
plan will be reviewed as to whether accru-
als under the plan that relate to service per-
formed by the participant after the conver-
sion violate § 411(b)(1)(H). For this pur-
pose, a moratorium plan will not be treated
as failing to satisfy the requirements of
§ 411(b)(1)(H) merely because a morato-
rium plan that is frontloaded provides that
interest credits through normal retirement
age are accrued in the year of the related
hypothetical allocation.
2.Pre-6/30/05 conversions. For pur-
poses of processing a determination let-
ter application for a moratorium plan, the
plan will not be reviewed as to whether
the conversion of the plan satisfies the re-
quirements of § 411(b)(1)(H) if the amend-
ment that results in the conversion was
adopted prior to June 30, 2005. There-
fore, determination letters issued to mora-
torium plans will not consider, and may not
be relied on with respect to, whether such
a conversion satisfies the requirements of
§ 411(b)(1)(H), as in effect prior to the ad-
dition of § 411(b)(5) by PPA ’06, including
the effect of any wearaway.
3.Post-6/29/05 conversions.Inthe
case of a moratorium plan that involves a
conversion of the plan to a statutory hy-
brid plan pursuant to an amendment that
is adopted after June 29, 2005, the con-
version must satisfy the requirements of
2007–3 I.R.B.275January 16, 2007

§ 411(b)(5)(B)(ii) (described in part IIIE of
this notice).
B.Distributions before August 18,
2006. The Service expects to issue reg-
ulations interpreting the effective date of
§ 411(a)(13)(A) (described in part IIIB(2)
of this notice). Until this guidance is
issued, the Service will not process a
moratorium plan that does not satisfy the
requirements of Notice 96–8 with respect
to distributions made before August 18,
2006.
C.Terminating plans. Under Title IV of
ERISA, a standard termination may only
occur if, when the final distribution of as-
sets occurs, the plan is sufficient for bene-
fit liabilities determined as of the termina-
tion date.See§ 4041(b)(1)(D) of ERISA;
29 C.F.R. § 4041.8(a). The Pension Ben-
efit Guaranty Corporation (PBGC) has in-
formed the Service that, for purposes of Ti-
tle IV of ERISA, a terminating plan with a
termination date that is prior to August 18,
2006, cannot apply § 411(a)(13)(A) in de-
termining its benefit liabilities with respect
to any distributions made by the terminat-
ing plan.
V. COMMENTS REQUESTED AND
FUTURE REGULATIONS
Treasury and the Service expect to is-
sue regulations with respect to the transi-
tional guidance provided in this notice and
the issues described in part IIIB(2) of this
notice. These initial regulations may ad-
dress some additional issues, but will not
address all of the outstanding issues relat-
ing to §§ 411(a)(13) and 411(b)(5).
Comments are requested on the follow-
ing additional issues. These comments
will be considered in conjunction with the
comments received in response to the ini-
tial regulations in developing additional
guidance.
•Identification of when two or more
amendments, or the coordination of
two or more defined benefit plans,
have the effect of a conversion into a
statutory hybrid plan.
•The definition of market rate of return
for purposes of § 411(b)(5)(B)(i), in-
cluding the following related issues:
•The impact of the minimum rate of
return rules in the second sentence
of § 411(b)(5)(B)(i)(I) on the defi-
nition of market rate of return.
•The impact of the preservation of
capital rule in § 411(b)(5)(B)(i)(II)
on the definition of market rate of
return.
•The application of § 411(d)(6) to
an amendment to the interest cred-
iting rate specified in a statutory
hybrid plan, and the circumstances
under which the § 411(d)(6) re-
lief provided under section 1107 of
PPA ’06 should apply to such an
amendment.
•Application of the special rules for hy-
brid plans in the case of a plan in which
only certain participants’ accrued ben-
efits, or only a portion of a participant’s
accrued benefit, is determined by refer-
ence to a hypothetical account balance
or an accumulated percentage of final
average compensation, including plans
in which the benefit payable under one
plan is offset by the benefit provided
under another plan.
•The application of qualification re-
quirements other than §§ 411(b)(1)(H)
and 417(e) to a defined benefit plan
under which the accrued benefit is cal-
culated as an accumulated percentage
of the participant’s final average com-
pensation (commonly referred to as a
pension equity plan or PEP), including
the treatment of interest credited with
respect to terminated vested partici-
pants.
•The definition of a recognized in-
dex or methodology for purposes of
§ 411(b)(5)(E) and whether there are
any types of indexed plans that should
not be treated as statutory hybrid plans
other than those described in part
IIIA(2)(i) above.
Written comments should be submit-
ted by April 16, 2007. Send submissions
to CC:PA:LPD:DRU (Notice 2007–6),
Room 5203, Internal Revenue Service,
POB 7604 Ben Franklin Station, Wash-
ington, D.C. 20044. Comments may be
hand delivered to CC:PA:LPD:DRU (No-
tice 2007–6), Room 5203, Internal Rev-
enue Service, 1111 Constitution Avenue,
NW, Washington, DC. Alternatively, com-
ments may be submitted via the Internet
atnotice.comments@irscounsel.treas.gov
(Notice 2007–6). All comments will be
available for public inspection.
VI. DRAFTING INFORMATION
The principal authors of this notice are
Kathleen J. Herrmann of the Employee
Plans, Tax Exempt and Government Enti-
ties Division and Christopher A. Crouch,
Lauson C. Green, and Linda S. F. Marshall
of the Office of the Division Counsel/As-
sociate Chief Counsel (Tax Exempt and
Government Entities). For further in-
formation regarding this notice, contact
Ms. Herrmann at (202) 283–9888 and
Mr. Crouch, Mr. Green, and Ms. Marshall
at (202) 622–6090 (not toll-free numbers).
In-Service Benefits Permitted
to be Provided at Age 62 by
aPensionPlan
Notice 2007–8
I. PURPOSE
The Treasury Department and the In-
ternal Revenue Service are considering
proposing guidance under § 401(a)(36) of
the Internal Revenue Code, as added by
section 905 of the Pension Protection Act
of 2006, Public Law 109–280, 120 Stat.
780 (PPA ’06). This notice requests com-
ments on issues presented by § 401(a)(36)
of the Code with respect to defined benefit
plans.
II. BACKGROUND
In-service distributions from a pension
plan
Section 401(a) provides rules for
qualified pension plans, profit-sharing
plans, and stock bonus plans. Section
1.401–1(a)(2) of the Income Tax Regu-
lations provides that a qualified pension
plan (i.e., a qualified defined benefit plan
or money purchase pension plan) is a def-
inite written program and arrangement
that is communicated to employees and
that is established and maintained by an
employer to provide for the livelihood
of the employees or their beneficiaries
January 16, 20072762007–3 I.R.B.

after the retirement of such employees
through the payment of benefits. Under
§ 1.401–1(b)(1)(i), a qualified pension
plan must be established and maintained
by an employer primarily to provide sys-
tematically for the payment of definitely
determinable benefits for employees over
a period of years, usually for life, after
retirement. Following the enactment of
the Employee Retirement Income Secu-
rity Act of 1974 (ERISA), Public Law
93–406 (88 Stat. 829), the regulations
under § 401(a) were modified to pro-
vide that § 1.401–1(b)(1)(i) continues
to apply, except as otherwise provided.
See§ 1.401(a)–1(b)(1)(i). Accordingly, a
qualified pension plan is generally not per-
mitted to pay benefits before retirement.
See alsoRev. Rul. 56–693, 1956–2 C.B.
282, as modified by Rev. Rul. 60–323,
1960–2 C.B. 148.
A notice of proposed rulemaking
(REG–114726–04, 2004–2 C.B. 857)
under § 401(a) was published in the
Federal Register(69 FR 65108) (the
proposed regulations) on November 10,
2004. The proposed regulations would
permit a qualified pension plan to make
in-service distributions to a participant
before normal retirement age under abona
fidephased retirement program. In ad-
dition, the proposed regulations would
modify § 1.401(a)–1(b)(1) by permitting
a qualified pension plan to make in-ser-
vice distributions to a participant upon the
participant’s attainment of normal retire-
ment age and by clarifying that a plan’s
normal retirement age cannot be set so
low as to be a subterfuge for avoiding the
requirements of § 401(a). On March 14,
2005, the IRS held a public hearing on the
proposed regulations. Written comments
responding to the proposed rulemaking
were also received.
Section 401(a)(36), as added by section
905(b) of PPA ’06, provides that, for plan
years beginning after December 31, 2006,
a pension plan does not fail to qualify un-
der § 401(a) solely because the plan pro-
vides that a distribution may be made to
an employee who has attained age 62 and
who has not separated from employment at
the time of the distribution.
Application of § 411(a) and (b) to defined
benefit plans
Section 401(a)(7) provides that a plan
must satisfy the requirements of § 411.
1
Section 411(a) provides that a qualified
plan must provide that an employee’s right
to his or her normal retirement benefit is
nonforfeitable upon the attainment of nor-
mal retirement age, and also provides vest-
ing requirements with respect to an em-
ployee’s accrued benefit. For purposes of
a defined benefit plan, § 411(a)(7) gener-
ally defines the term “accrued benefit” as
an employee’s accrued benefit determined
under the plan and expressed in the form
of an annual benefit commencing at nor-
mal retirement age. Under § 411(a)(9),
the term “normal retirement benefit” is de-
fined as the greater of the early retirement
benefit under the plan or the benefit under
the plan commencing at normal retirement
age.
Under § 411(a), a defined benefit plan
must satisfy one of the three anti-back-
loading rules described §§ 411(b)(1)(A),
411(b)(1)(B), and 411(b)(1)(C). These
anti-backloading rules govern the mini-
mum rate at which a participant’s accrued
benefit accrues. These rules are designed
to ensure that the minimum vesting rules
of § 411(a) are not circumvented through
a plan formula under which accruals are
inappropriately deferred. In addition, un-
der § 411(b)(1)(G), a defined benefit plan
is not permitted to reduce a participant’s
accrued benefit on account of any increase
in the participant’sage or service, and un-
der § 411(b)(1)(H), a defined benefit plan
is not permitted to cease a participant’s
benefit accrual, or reduce the rate of an
employee’s benefit accrual, because of the
attainment of any age.
Section 411(d)(6) protections
Most of the § 411 requirements out-
lined above protect a participant’s accrued
benefit. Section 411(d)(6)(A) generally
provides that a plan is treated as not sat-
isfying the requirements of § 411 if the
accrued benefit of a participant is de-
creased by a plan amendment. In addition,
§ 411(d)(6)(B) provides that a plan amend-
ment that has the effect of eliminating or
reducing an early retirement benefit or a
retirement-type subsidy, or eliminating an
optional form of benefit, with respect to
benefits attributable to service before the
amendment is treated as impermissibly
reducing accrued benefits.
Sections 1.411(d)–3 and 1.411(d)–4
provide rules relating to § 411(d)(6) pro-
tected benefits. Section 1.411(d)–3(g)
distinguishes among the types of benefits
protected under § 411(d)(6). A § 411(d)(6)
protected early retirement benefit is de-
fined as the right to commence distribution
of a retirement-type benefit at a particular
date after severance from employment
with the employer and before normal
retirement age. Generally, under these
regulations, a § 411(d)(6) protected retire-
ment-type subsidy, such as a subsidized
early retirement benefit and a subsidized
qualified joint and survivor annuity, is the
excess of the actuarial present value of a
retirement-type benefit over the actuarial
present value of the accrued benefit com-
mencing at normal retirement age or at the
actual commencement date. A plan pro-
vision that permits aparticipant to receive
an in-service distribution is an optional
form of benefit that is protected under
§ 411(d)(6), but is not an early retire-
ment benefit.See§§ 1.411(d)–3(g)(6) and
1.411(d)–4, Q&A–1(a)(3), Q&A–1(b)(1),
and Q&A–2(a)(1).
III. COMMENTS REQUESTED
The Treasury Department and the Inter-
nal Revenue Service are considering issu-
ing guidance with respect to § 401(a)(36).
Comments are requested on the guidance
that should be issued. In particular, com-
ments on the following specific issues re-
lated to § 401(a)(36) and defined benefit
plans are requested:
•Should in-service distribution of a ben-
efit to a participant who has attained
age 62 but who has not attained normal
retirement age be limited to no greater
than the benefit to which the partici-
pant would be entitled at normal retire-
ment age, reduced in accordance with
reasonable actuarial assumptions (e.g.,
should only unsubsidized benefits be
permitted pursuant to § 401(a)(36))?
1
Under § 411(e), certain plans are treated as meeting the requirements of § 411if such plans meet the vesting requirements resulting from the application of §§ 401(a)(4) and 401(a)(7) as in
effect on September 1, 1974.
2007–3 I.R.B.277January 16, 2007

•If subsidized benefits are permitted to
be distributed to a participant who has
attained age 62 but is still in-service
and has not yet attained normal retire-
ment age, how should the subsidized
benefits be characterized for purposes
of § 411?
•For example, should the subsidized
benefits be treated as a subsidized
early retirement benefit despite the
fact that the participant has not yet
separated from employment?
•If the subsidized benefits are not
treated as a subsidized early retire-
ment benefit, should the subsidized
benefits be treated as a part of the
participant’s accrued benefit, or is
there some other characterization
of the subsidized benefits for pur-
poses of § 411?
•Whether final regulations permit-
ting in-service distributions under
abona fidephased retirement pro-
gram should be issued, in light of
the ability of plans to permit in-ser-
vice distributions after age 62 pur-
suant to § 401(a)(36)?
Written comments should be submit-
ted by April 16, 2007. Send submissions
to CC:PA:LPD:DRU (Notice 2007–8),
Room 5203, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, D.C. 20044. Comments may
be hand delivered between the hours of
8a.m. and5p.m.,MondaythroughFri-
day, to Courier’s Desk, Internal Revenue
Service, Attn: CC:PA:LPD:DRU (Notice
2007–8), 1111 Constitution Avenue, NW,
Washington, D.C. Alternatively, com-
ments may be submitted via the Internet
atnotice.comments@irscounsel.treas.gov
(Notice 2007–8). All comments will be
available for public inspection.
DRAFTING INFORMATION
The principal drafter of this notice
is Kathleen Herrmann of the Employee
Plans, Tax Exempt and Government En-
tities Division. For further information
regarding this notice, please contact the
Employee Plans’ taxpayer assistance tele-
phone service at 1–877–829–5500 (a
toll-free number) between the hours of
8:30 a.m. and 4:30 p.m. Eastern Time,
Monday through Friday. Ms. Herrmann
may be reached at (202) 283–9888 (not a
toll-free number).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, Sections 846; 1.846–1.)
Rev. Proc. 2007–9
SECTION 1. PURPOSE
This revenue procedure prescribes the
loss payment patterns and discount factors
for the 2006 accident year. These factors
will be used for computing discounted un-
paid losses under § 846 of the Internal Rev-
enue Code.SeeRev. Proc. 2003–17,
2003–1 C.B. 427, for background concern-
ing the loss payment patterns and applica-
tion of the discount factors.
SEC. 2. SCOPE
This revenue procedure applies to any
taxpayer that is required to discount its un-
paid losses under § 846 for a line of busi-
ness using discount factors published by
the Secretary.
SEC. 3. TABLES OF DISCOUNT
FACTORS
.01 The following tables present sepa-
rately for each line of business the discount
factors under § 846 for accident year 2006.
All the discount factors presented in this
section were determined using the appli-
cable interest rate under § 846(c) for 2006,
which is 3.98 percent, and by assuming all
loss payments occur in the middle of the
calendar year.
.02 If the groupings of individual
lines of business on the annual state-
ment change, taxpayers must discount the
unpaid losses on the affected lines of busi-
ness in accordance with the discounting
patterns that would have applied to those
unpaid losses based on their classification
on the 2000 annual statement.SeeRev.
Proc. 2003–17, 2003–1 C.B. 427, section
2, for additional background on discount-
ing under section 846 and the use of the
Secretary’s tables.
.03 Section V of Notice 88–100,
1988–2 C.B. 439, sets forth a composite
method for computing discounted unpaid
losses for accident years that are not sep-
arately reported on the annual statement.
The tables separately provide discount
factors for taxpayers who elect to use the
composite method of section V of Notice
88–100.SeeRev. Proc. 2002–74, 2002–2
C.B. 980.
.04 Section 2.03(4) of Rev. Proc
2003–17 requested comments as to
whether a methodology should be adopted
to smooth the raw payment data and thus
produce a more stable pattern of discount
factors. This issue will be addressed in the
new determination year, which is 2007.
Accordingly, taxpayers may still submit
comments that should include a reference
toRev. Proc. 2007–9on this issue to the
following address:
CC:PA:LPD:PR (Rev. Proc. 2007–9),
room 5203, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Comments may
be hand delivered between the hours
of8a.m. and4p.m. toCC:PA:LPD
(Rev. Proc. 2007–9), Courier’s Desk,
Internal Revenue Service, 1111 Consti-
tution Avenue, NW, Washington, DC
20224. Alternatively, e-mail comments to
Notice.Comments@irscounsel.treas.gov.
All comments will be available for public
inspection and copying.
.05 Tables.
January 16, 20072782007–3 I.R.B.

Tables of Factors to be Used to Discount
Unpaid Losses Incurred in
Accident Year 2006
(Interest rate: 3.98 percent)
Accident and Health
(Other Than Disability Income or Credit Disability Insurance)
Taxpayers that do not use the composite method of Notice 88–100 should use 98.0675 percent to discount unpaid losses incurred
in this line of business in the 2006 accident year and that are outstanding at theend of the 2006 and later taxable years.
Taxpayers that use the composite method of Notice 88–100 should use 98.0675 percent to discount all unpaid losses in this line of
business that are outstanding at the end of the 2006 taxable year.
Auto Physical Damage
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200689.646889.646810.353210.135697.8981
200799.684510.03770.31550.303596.1907
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later years0.15780.15780.154798.0675
Taxpayers
that use the composite method of Notice 88–100 should use 98.0675 percent to discount unpaid losses incurred in this
line of bu
siness in 2006 and prior years and that are outstanding at the end of the 2008 taxable year.
Commercial Auto/Truck Liability/Medical
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200628.824428.824471.175665.943992.6497
200754.987126.162645.012941.890393.0628
200872.803917.816827.196125.389693.3575
200985.057212.253314.942813.905493.0572
201091.62766.57048.37247.758992.6725
201194.95143.32395.04864.678492.6676
201297.045
3
2.09382.95472.729592.376
8
201398.15741.11211.84261.704192.4822
201498.73700.57961.26301.180993.4978
201599.10700.37000.89300.850695.2504
2007–3 I.R.B.279January 16, 2007

Commercial Auto/Truck Liability/Medical
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20160.37000.52300.507296.9692
2017 and later years0.37000.15300.150198.0675
Taxpayers tha
t use the composite method of Notice 88–100 should use 97.1689 percent to discount unpaid losses incurred in this
line of busine
ss in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
Composite
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200640.998540.998559.001553.759391.1153
200765.843924.845434.156130.563989.4832
200877.502311.658322.497719.892388.4193
200984.62217.119815.377913.423987.2935
201090.24555.62349.75458.223984.3094
201192.27802.03257.72206.478883.8997
201294.39742.11955.60264.575481.6658
201395.25260.85524.74743.885481.8439
201496.27921.02663.72082.993380.4470
201596.43230.15313.56772.956282.8624
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20160.15313.41452.917785.4512
20170.15313.26142.877788.236
3
20180.15313.10832.836191.2444
20190.15312.95512.792894.5083
2020 and later years0.15312.80202.747898.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 88.1508 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
Fidelity/Surety
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200638.332838.332861.667258.187994.3581
200758.848520.515641.151539.583996.1907
Tax
payers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
inc
urred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later years20.575820.575820.178198.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.0675 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2008 taxable year.
January 16, 20072802007–3 I.R.B.

Financial Guaranty/Mortgage Guaranty
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
20064.07234.072395.927790.781294.6350
200740.763936.691659.236156.979696.1907
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later
years
29.618029.618029.045798.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.0675 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2008 taxable year.
International (Composite)
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200640.998540.998559.001553.759391.1153
200765.843924.845434.156130.563989.4832
200877.502311.658322.497719.892388.4193
200984.62217.119815.377913.423987.2935
201090.24555.62349.75458.223984.3094
201192.27802.03257.72206.478883.8997
201294.39742.11955.60264.575481.6658
201395.25260.85524.74743.885481.8439
201496.27921.02663.72082.993380.4470
201596.43230.15313.56772.956282.8624
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20160.15313.41452.917785.4512
20170.15313.26142.877788.2363
20180.15313.10832.836191.2444
20190.153
1
2.955
1
2.792
8
94.50
83
2020 and later years0.15312.80202.747898.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 88.1508 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
2007–3 I.R.B.281January 16, 2007

Medical Malpractice — Claims-Made
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
20067.34477.344792.655383.459690.0754
200729.019121.674470.980964.679891.1228
200853.310824.291746.689242.483690.9925
200969.151715.840930.848328.021590.8363
201082.098112.946417.901915.935289.0139
201186.39954.301413.600512.183289.5793
201289.71113.311610.28899.291390.3038
201392.46882.75777.53126.849090.9420
201494.51632.04755.48375.033791.7950
201595.76351.24714.23653.962493.5285
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20161.24712.98942.848395.2819
20171.24711.74221.690097.0008
2018 and later years1.24710.49510.485598.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 95.9709 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
Medical
Malpractice — Occurrence
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
20060.83160.831699.168484.563085.2721
20077.45736.625792.542781.172387.7134
200823.557516.100276.442567.985688.9369
200941.006217.448758.993852.898989.6685
201055.583214.577044.416840.140090.37
12
201168.941313.358131.058728.116390.5261
201278.20959.268221.790519.784490.7937
201382.87274.663217.127315.816792.3480
201486.31783.445113.682212.933294.5260
201591.08344.76568.91668.588496.3200
Tax
payers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
inc
urred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
2016 and later years4.76564.15104.070898.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.0675 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
January 16, 20072822007–3 I.R.B.

Miscellaneous Casualty
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200679.779079.779020.221019.549196.6770
200794.941715.16275.05834.865696.1907
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later
years
2.52922.52922.480398.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.0675 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2008 taxable year.
Multiple Peril Lines
(Homeowners/Farmowners, Commercial Multiple Peril, and Special Liability
(Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200659.744559.744540.255537.434192.9914
200781.034721.290218.965317.214290.7672
200887.33256.297812.667511.477590.6059
200991.06593.73348.93418.127390.9698
201095.17814.11224.82194.257588.2964
201195.76050.58244.23953.833190.4149
201297.05391.29332.94612.666890.5202
201397.64410.59032.35592.171192.1567
201498.70371.05961.29631.177090.8007
201598.6217-0.08211.37831.307694.8644
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20160.52260.85580.826796.6061
2017 and later years0.52260.33320.326798.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 96.9550 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
2007–3 I.R.B.283January 16, 2007

Other (Including Credit)
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200669.172969.172930.827129.743196.4837
200791.216822.04398.78328.448796.1907
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later
years
4.39164.39164.306898.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.0675 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2008 taxable year.
Other Liability — Claims-Made
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200614.961814.961885.038275.335288.5898
200736.211321.249463.788756.665388.8328
200854.287618.076345.712440.488188.5713
200964.21639.928835.783731.975189.3567
201073.27329.056926.726824.012389.8438
201180.57487.301619.425217.522590.2054
201287.62007.045212.380011.035989.1433
201389.91552.295510.08459.134490.5790
201493.39463.47916.60545.950390.0827
201594.61701.22235.38304.940791.7827
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20161.22234.16073.890993.5158
20171.22232.93832.799395.2689
20181.22231.71601.664396.9877
2019 a
nd later years
1.222
3
0.493
6
0.484
1
98.06
75
Taxpayers that use the composite method of Notice 88–100 shoulduse 94.6440 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
January 16, 20072842007–3 I.R.B.

Other Liability — Occurrence
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200619.113319.113380.886769.701286.1714
200736.443417.330163.556654.803786.2281
200852.164815.721547.835240.953685.6140
200963.238311.073436.761731.291985.1209
201072.07808.839727.922023.523584.2469
201175.90213.824124.097920.560285.3195
201282.93057.028417.069514.211683.2573
201385.14412.213614.855912.520084.2763
201489.30064.156510.69948.779982.0597
201589.98980.689210.01028.426684.1796
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20160.68929.32108.059186.4622
20170.68928.63187.677188.9398
20180.68927.94267.279891.6560
20190.68927.25336.866894.6705
2020 and
later years
0.68926.56416.437398.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 90.4497 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
Private Passenger Auto Liability/Medical
Tax Yea
r
Estima
ted
Cumula
tive
Losses
Paid
(%)
Estima
ted
Losses
Paid
Each Ye
ar
(%)
Unpaid
Losses
at
Year En
d
(%)
Discou
nted
Unpaid
Losses
at
Year En
d
(%)
Discou
nt
Factor
s
(%)
200643.192643.192656.807453.526194.2237
200772.200829.008227.799226.076693.8032
200884.56
32
12.362515.436814.508393.98
56
200991.93167.36848.06847.572293.8501
201095.87293.94134.12713.854693.3975
201197.78041.90752.21962.062992.9415
201298.79571.01531.20431.109892.1473
201399.24910.45350.75090.691592.0971
201
4
99.
5195
0.27
03
0.48
05
0.44
34
92.
2703
201599.63530.11590.36470.342994.0275
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20160.11590.24880.238495.8137
20170.11590.13300.129797.5849
2018 and later years0.11590.01710.016898.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 96.3943 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
2007–3 I.R.B.285January 16, 2007

Products Liability — Claims-Made
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
20066.58046.580493.419680.296085.9520
200726.718320.137973.281762.957085.9110
200843.183416.465256.816648.673185.6671
200943.92090.737556.079149.858388.9071
201054.380610.459745.619441.176890.2617
201178.363023.982421.637018.360784.8579
201282.86434.501317.135714.501484.6271
201368.2184-14.645931.781630.013294.4355
201479.158210.939920.841820.052296.2118
201589.696310.538110.303710.104598.0675
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
2016 and later years98.0675
Taxpayer
s that use the composite method of Notice 88–100 should use 98.0675 percent to discount unpaid losses incurred in this
line of bu
siness in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
Products Liability — Occurrence
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
20069.41989.419890.580276.565984.5283
200720.584511.164779.415568.228585.9133
200836.780716.196263.219354.428686.0950
200955.597418.816744.402637.407484.2460
201066.623811.026333.376227.652682.8511
201177.263610.639922.736417.903678.7443
201279.18881.925120.81
12
16.65
31
80.01
97
201383.68164.492816.318412.734578.0378
201485.55071.869114.449311.335478.4496
201585.72910.178414.270911.604781.3169
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20160.178414.092511.884684.3329
201
7
0.1
784
13.
9141
12.
1757
87.
5062
20180.178413.735712.478490.8463
20190.178413.557312.793194.3632
2020 and later years0.178413.378913.120498.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 89.8177 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
January 16, 20072862007–3 I.R.B.

Reinsurance A (Nonproportional Assumed Property)
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200625.057125.057174.942969.525292.7708
200752.040226.983147.959844.777593.3645
200882.470930.430717.529115.529288.5910
200985.63873.167814.361312.917089.9434
201092.72287.08407.27726.207585.3001
201191.8604-0.86248.13967.333990.1015
201296.50164.64123.49842.893282.6989
201396.1872-0.31433.81283.328887.3078
201497.62061.43332.37941.999884.0432
201597.84190.22142.15811.853685.8925
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20160.22141.93671.701787.8641
20170.22141.71541.543789.9920
20180.22141.49401.379492.3296
20190.22141.27271.208694.9667
2020 and
later years
0.22141.05131.031098.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 90.9754 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
Reinsurance B (Nonproportional Assumed Liability)
Tax Yea
r
Estima
ted
Cumula
tive
Losses
Paid
(%)
Estima
ted
Losses
Paid
Each Ye
ar
(%)
Unpaid
Losses
at
Year En
d
(%)
Discou
nted
Unpaid
Losses
at
Year En
d
(%)
Discou
nt
Factor
s
(%)
20068.92238.922391.077776.368783.8500
200727.361818.439572.638260.605383.4344
200844.575817.214055.42
42
45.46
41
82.02
94
200953.87819.302346.121937.788081.9307
201060.88967.011539.110432.142282.1834
201169.73278.843030.267324.404280.6288
201276.62926.896523.370818.343178.4871
201379.40302.773820.597016.244778.8690
201
4
83.89
36
4.49
06
16.
1064
12.
3121
76.
4422
201580.1707-3.722919.829316.598383.7063
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
2007–3 I.R.B.287January 16, 2007

Reinsurance B (Nonproportional Assumed Liability)
20161.180518.648716.055286.0925
20171.180517.468215.490488.6775
20181.180516.287714.903191.4992
20191.180515.107214.292494.6071
2020 and later years1.180513.926613.657598.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 90.3273 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
Reinsurance C (Nonproportional Assumed Financial Lines)
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200617.119517.119582.880574.515989.9077
200746.659029.539553.341047.360188.7874
200867.713521.054532.286527.775786.0287
200978.137910.424421.862118.251383.4837
201089.734611.596710.26547.152469.6754
201192.12682.39217.87324.997863.4788
201289.7323-2.394510.26777.638474.3925
201390.04600.31379.95407.622576.5774
201494.88674.84075.11332.989858.4711
201586.7041-8.182713.295911.452786.1367
Taxpay
ers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurr
ed in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20161.427711.868310.452788.0727
20171.427710.44069.412990.1568
20181.427
7
9.01298.331792.44
21
20191.42777.58527.207595.0203
2020 and later years1.42776.15756.038598.0675
Taxp
ayers that use the composite method of Notice 88–100 should use 91.0632 percent to discount unpaid losses incurred in this
line
of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
Special Property
(Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200662.9
320
62.9
320
37.0
680
35.7
122
96.3
422
200788.495025.563111.505011.066796.1907
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
January 16, 20072882007–3 I.R.B.

Special Property
(Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
2008 and later years5.75255.75255.641398.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.0675 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2008 taxable year.
Workers’ Compensation
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
200628.248928.248971.751164.232589.5214
200757.873929.624942.126136.580386.8351
200871.299913.426028.700124.345584.8274
200977.75846.458522.241618.728784.2059
201081.93014.171718.069915.220284.2298
201183.77391.843716.226113.945985.9472
201286.53502.761113.465011.685486.7836
201388.43671.901711.563310.211388.3080
201489.59261.155910.40749.439090.6955
201591.64412.05158.35597.722892.4232
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2006 accident year and that are outstanding at the end of the tax year shown.
20162.05156.30455.938394.1919
20172.05154.25304.082895.9970
20182.05152.20162.153497.8116
2019 and later years2.05150.15010.147298.0675
Taxpayers that use the composite method of Notice 88–100 shoulduse 95.2214 percent to discount unpaid losses incurred in this
line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Katherine A. Hossofsky of
the Office of Associate Chief Counsel
(Financial Institutions & Products). For
further information regarding this revenue
procedure, contact Ms. Hossofsky at (202)
622–8435 (not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, Sections 832, 846; 1.832–4, 1.846–1.)
Rev. Proc. 2007–10
SECTION 1. PURPOSE
This revenue procedure prescribes the
salvage discount factors for the 2006 acci-
dent year. These factors must be used to
compute discounted estimated salvage re-
coverable under § 832 of the Internal Rev-
enue Code.
SEC. 2. BACKGROUND
Section 832(b)(5)(A) requires that all
estimated salvage recoverable (including
that which cannot be treated as an asset
for state accounting purposes) be taken
into account in computing the deduction
for losses incurred. Under § 832(b)(5)(A),
paid losses are to be reduced by salvage
and reinsurance recovered during the tax-
able year. This amount is adjusted to re-
flect changes in discounted unpaid losses
on nonlife insurance contracts and in un-
paid losses on life insurance contracts.
An adjustment is then made to reflect any
changes in discounted estimated salvage
recoverable and in reinsurance recover-
able.
Pursuant to § 832(b), the amount of es-
timated salvage is determined on a dis-
counted basis in accordance with proce-
dures established by the Secretary.
S
EC. 3. SCOPE
T
his revenue procedure applies to any
t
axpayer that is required to discount esti-
m
ated salvage recoverable under § 832.
SEC. 4. APPLICATION
.01 The following tables present sepa-
rately for each line of business the discount
factors under § 832 for the 2006 accident
year. All the discount factors presented
in this section were determined using the
applicable interest rate under § 846(c) for
2006, which is 3.98 percent, and by as-
suming all estimated salvage is recovered
in the middle of each calendar year.See
2007–3 I.R.B.289January 16, 2007

Rev. Proc. 2003–18, 2003–1 C.B. 439, for
background regarding the tables.
.02 These tables must be used by tax-
payers irrespective of whether they elected
to discount unpaid losses using their own
historical experience under § 846.
.03 Section V of Notice 88–100,
1988–2 C.B. 439, provides a composite
discount factor to be used in determining
the discounted unpaid losses for accident
years that are not separately reported on
the NAIC Annual Statement. The tables
separately provide discount factors for
taxpayers who elect to use the composite
method. Rev. Proc. 2002–74, 2002–2
C.B. 980, clarifies that for certain insur-
ance companies subject to tax under § 831
the composite method for discounting un-
paid losses set forth in Notice 88–100,
section V, 1988–2 C.B. 439, is permitted
but not required. This revenue procedure
further provides alternative methods for
computing discounted unpaid losses that
are permitted for insurance companies not
using the composite method, and sets forth
a procedure for insurance companies to
obtain automatic consent of the Commis-
sioner to change to one of the methods
described in Rev. Proc. 2002–74.
.04 Tables.
Tables of Factors to be Used to
Discount Salvage Recoverable
With Respect to Losses Incurred in
Accident Year 2006
(Interest rate: 3.98 percent)
Accident and Health (Other Than
Disability Income or Credit Disability
Insurance)
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
98.0675 percent to discount salvage re-
coverable with respect to losses incurred
in this line of business in the 2006 acci-
dent year as of the end of the 2006 and
later taxable years.
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount all salvage
recoverableinthislineofbusinessasof
the end of the 2006 taxable year.
Auto Physical Damage
Tax Year
Discount
Factors
(%)
200697.1334
200796.1907
Taxpayers tha
t do not use the compos-
ite method of
Notice 88–100 should use
the followin
g factor to discount salvage
recoverable
as of the end of the tax year
shownwithre
spect to losses incurred in
this line of
business in the 2006 accident
year.
2008 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2008
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Commerc
ial Auto/Truck
Liabili
ty/Medical
Tax Year
Discount
Factors
(%)
200692.1380
200791.8882
200891.6949
200992.1286
201092.58
60
201192.1065
201293.1945
201394.1358
201494.3956
201596.2168
Commercial Auto/Truck
Liability/Medical
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2016 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Composite
Tax Year
Discount
Factors
(%)
200692.0337
200790.8802
200890.4072
200989.8712
201088.8367
201188.9101
201288.6960
201388.67
34
201488.8118
201590.4886
Taxp
ayers that do not use the compos-
ite m
ethod of Notice 88–100 should use
the
following factors to discount salvage
rec
overable as of the end of the tax year
sho
wn with respect to losses incurred in
thi
s line of business in the 2006 accident
yea
r.
201692.2048
201793.9577
2
018
9
5.7372
201997.4944
2020 and later
years
98.0675
January 16, 20072902007–3 I.R.B.

Composite
Taxpayers that use the composite
method of Notice 88–100 should use
93.6350 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Fidelity/Surety
Tax Year
Discount
Factors
(%)
200694.2975
200796.1907
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2008 and
later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2008
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Financial Guaranty/Mortgage
Guaranty
Tax Ye
ar
Disc
ount
Facto
rs
(%)
200695.5547
200796.1907
Financial Guaranty/Mortgage
Guaranty
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2008 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2008
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
International (Composite)
Tax Year
Discount
Factors
(%)
200692.0337
200790.8802
200890.4072
200989.8712
201088.8367
201188.9101
201288.6960
201388.67
34
201488.8118
201590.4886
Taxp
ayers that do not use the compos-
ite m
ethod of Notice 88–100 should use
the
following factors to discount salvage
rec
overable as of the end of the tax year
sho
wn with respect to losses incurred in
thi
s line of business in the 2006 accident
yea
r.
201692.2048
201793.9577
2
018
9
5.7372
International (Composite)
201997.4944
2020 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
93.6350 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Medical Malpractice —
Claims-Made
Tax Year
Discount
Factors
(%)
200687.6804
200783.3538
200887.7437
200985.5621
201086.5072
201181.4476
201290.5680
201393.265
8
201496.4532
201598.0675
Taxpa
yers that do not use the compos-
ite me
thod of Notice 88–100 should use
the fo
llowing factor to discount salvage
recov
erable as of the end of the tax year
show
n with respect to losses incurred in
this
line of business in the 2006 accident
year
.
2016 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
2007–3 I.R.B.291January 16, 2007

Medical Malpractice — Occurrence
Tax Year
Discount
Factors
(%)
200683.9442
200785.0591
200888.4295
200989.8198
201078.2945
201187.5838
201292.3237
201395.1299
201496.7311
201598.0675
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2016 and
later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Miscellaneous Casualty
Tax Y
ear
Disc
ount
Fact
ors
(%)
200696.6963
200796.1907
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
Miscellaneous Casualty
2008 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2008
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Multiple Peril Lines (Homeown-
ers/Farmowners, Commercial
Multiple Peril, and Special Liability
(Ocean Marine, Aircraft (All Perils),
Boiler and Machinery))
Tax Year
Discount
Factors
(%)
200692.9300
200791.3642
200892.0510
200991.7902
201091.4227
201192.5705
201292.6261
201392.8131
201494.2424
201596.0540
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
201
6
97.
8851
2017 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
97.8836 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Other (Including Credit)
Tax Year
Discount
Factors
(%)
200696.8727
200796.1907
Taxpayers tha
t do not use the compos-
ite method of
Notice 88–100 should use
the followin
g factor to discount salvage
recoverable
as of the end of the tax year
shownwithre
spect to losses incurred in
this line of
business in the 2006 accident
year.
2008 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2008
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Other Li
ability — Claims-Made
Tax Year
Discount
Factors
(%)
200691.5341
200782.9787
200870.3678
200989.1316
201085.86
77
201185.2144
201290.8949
201394.0739
201491.1910
201592.9193
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
January 16, 20072922007–3 I.R.B.

Other Liability — Claims-Made
201694.6785
201796.4455
2018 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
95.5684 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Other Liability — Occurrence
Tax Year
Discount
Factors
(%)
200686.8418
200788.1391
200889.1356
200986.1576
201089.3069
201191.5372
201291.8852
201393.7371
201494.9176
201596.65
37
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2016 and later
years
98.0675
Tax
payers that use the composite
me
thod of Notice 88–100 should use
98
.0675 percent to discount salvage
re
coverable as of the end of the 2016
ta
xable year with respect to losses in-
cu
rred in this line of business in 2006
a
nd prior years.
Private Passenger Auto
Liability/Medical
Tax Year
Discount
Factors
(%)
200694.7409
200794.5642
200894.3153
200993.5866
201093.3908
201192.4796
201292.4373
201392.5029
201493.5781
201595.3333
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
201697.052
9
2017 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
97.2228 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Products Liability — Claims-Made
Tax Year
Discount
Factors
(%)
200688.1034
200788.1497
200889.6228
200921.8302
201082.4271
201188.1330
201292.1902
201395.8876
201437.3999
201596.2692
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2016 and
later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Products Liability — Occurrence
Tax Y
ear
Disc
ount
Fact
ors
(%)
200683.0564
200785.4302
200
8
86.
0203
200988.3994
201086.1113
201189.2324
201291.9553
201392.5997
2
014
8
7.8074
201589.4589
2007–3 I.R.B.293January 16, 2007

Products Liability — Occurrence
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
201691.1499
201792.8787
201894.6400
201996.4133
2020 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
92.7786 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Reinsurance A (Nonproportional
Assumed Property)
Tax Year
Discount
Factors
(%)
200687.5637
200785.0097
200888.6909
200992.01
50
201092.5920
201194.1411
201295.7082
201396.8174
201497.3356
201
5
98.
0675
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2016 and later
years
98.0675
Reinsurance A (Nonproportional
Assumed Property)
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Reinsurance B (Nonproportional
Assumed Liability)
Tax Year
Discount
Factors
(%)
200686.9992
200784.9315
200887.8351
200985.8777
201079.6478
201182.8774
201282.3201
201384.3658
201479.9064
201586.639
4
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
201688.5090
201790.5090
201892.6892
201995.1430
202
0andlater
ye
ars
98.
0675
Taxpayers that use the composite
method of Notice 88–100 should use
91.2561 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Reinsurance C (Nonproportional
Assumed Financial Lines)
Tax Year
Discount
Factors
(%)
200686.8509
200787.5301
200890.6247
200988.3441
201091.1866
201185.1209
201287.9777
201394.0073
201495.2074
201596.9266
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2016 an
d later
years
98.067
5
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Special Property (Fire, Allied Lines,
Inland Marine, Earthquake, Glass,
Burglary and Theft)
Tax Y
ear
Dis
count
Fact
ors
(%)
200694.6724
200796.1907
January 16, 20072942007–3 I.R.B.

Special Property (Fire, Allied Lines,
Inland Marine, Earthquake, Glass,
Burglary and Theft)
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
2008 and later
years
98.0675
Taxpayers that use the composite
method of Notice 88–100 should use
98.0675 percent to discount salvage
recoverable as of the end of the 2008
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
Workers’ Compensation
Tax Year
Discount
Factors
(%)
200687.6219
200788.7710
200889.1706
200989.1058
201088.5191
201189.2639
201289.0972
201389.26
83
201490.0193
201591.7175
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2006 accident
year.
201693.4488
201795.2002
201896.9195
2019 and later
years
98.0675
Workers’ Compensation
Taxpayers that use the composite
method of Notice 88–100 should use
94.5920 percent to discount salvage
recoverable as of the end of the 2016
taxable year with respect to losses in-
curred in this line of business in 2006
and prior years.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Katherine A. Hossofsky of
theOfficeoftheAssociateChiefCounsel
(Financial Institutions & Products). For
further information regarding this revenue
procedure, contact Ms. Hossofsky at (202)
622–8435 (not a toll-free call).
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also: Part I, §§ 482; 1.482–9T.)
Rev. Proc. 2007–13
SECTION 1. PURPOSE
This revenue procedure identifies spec
-
ified covered services within the meani
ng
of Temp. Treas. Reg. § 1.482–9T(b)(4)(i
).
The activities identified in this reven
ue
procedure are support services common
among taxpayers in a variety of industr
y
sectors, and generally do not involve
asig-
nificant arm’s length markup on total
ser-
vices costs. Services identified in t
his rev-
enue procedure must meet the other con
-
ditions set forth in Temp. Treas. Reg
.
§ 1.482–9T(b) to be evaluated under t
he
services cost method.
SECTION 2. BACKGROUND
The section 482 regulations provide
pricing methods for transactions between
controlled parties, including transactions
involving services. The existing regula-
tions for transactions involving services
were issued in 1968. Section 1.482–2(b)
of the existing regulations provides a “cost
safe harbor” that permits certain “non-in-
tegral” services to be priced at cost. In
2003, the Treasury Department and IRS
issued proposed regulations that set forth
a simplified cost based method (SCBM)
intended to preserve some benefits of the
current Treas. Reg. § 1.482–2(b) cost
safe harbor. A number of commentators
noted that SCBM called for quantitative
judgments that business people are not
qualified to make by themselves. As a
practical matter, taxpayers would be re-
quired to devote significant compliance
resources to enlist outside consultants or
otherwise to develop support for those
judgments.
In 2006, the Treasury Department and
the IRS issued temporary regulations that
eliminated the SCBM and replaced it with
the services cost method (SCM), as set
forth in Temp. Treas. Reg. § 1.482–9T(b).
The Treasury Department and IRS recog-
nized that because the section 482 services
regulations potentially affect a large vol-
ume of intragroup back office services that
are common across many industries, it is in
the interest of sound tax administration to
minimize the compliance burden of such
services, which would typically bear low
arm’s length markups.
The SCM evaluates whether the price
for covered services, as defined, is arm’s
length by reference to the total ser-
vices costs with no markup. Section
1.482–9T(b)(4) of the temporary regu-
lations provides for two categories of
covered services eligible for the SCM.
The first category is described in Temp.
Treas. Reg. § 1.482–9T(b)(4)(i) and con-
sists of specified covered services that will
be identified in this revenue procedure.
These specified covered services are so
identified because theyconstitute support
services of a type common across indus-
try sectors that generally do not involve
a significant arm’s length markup on to-
tal services costs. A second category of
services described in Temp. Treas. Reg.
§ 1.482–9T(b)(4)(ii), low margin covered
services, has a median comparable arm’s
length markup on total services costs of
less than or equal to 7 percent. The second
category is not addressed in this revenue
procedure.
The Internal Revenue Service identi-
fied forty-eight activities that constitute
specified covered services in a proposed
revenue procedure included in Announce-
ment 2006–50, 2006–34 I.R.B. 321, which
was published in the Internal Revenue
Bulletin on August 21, 2006. A number
of public comments were received with
2007–3 I.R.B.295January 16, 2007

respect to the SCM in general and An-
nouncement 2006–50.
Notice 2007–5, issued contemporane-
ously with this Revenue Procedure, con-
tains clarifications concerning several pro-
visions related to the SCM. In addition, the
notice partially modifies the effective date
of the temporary regulations. Subject to
the exceptions described below, the effec-
tive date of the temporary regulations, in-
sofar as they pertain to the identification of
controlled services eligible to be priced at
cost, is moved back one year. The provi-
sionsrelatedtotheSCMinTemp. Treas.
Reg. § 1.482–9T(b) will thus apply to tax-
able years beginning after December 31,
2007. The only SCM provision that has
immediate effect,i.e., for taxable years be-
ginning after December 31, 2006, is the
business judgment rule in Temp. Treas.
Reg. § 1.482–9T(b)(2).
The net effect of this modification is
that, for taxable years with beginning dates
from January 1, 2007 to December 31,
2007, taxpayers may apply the existing
regulations in Treas. Reg. § 1.482–2(b)
for purposes of identifying controlled ser-
vices that are eligible to be priced on a
cost basis, without a markup. For such
taxable years, any services priced at cost
must be “non-integral” within the meaning
of existing Treas. Reg. § 1.482–2(b)(7),
andtheymustalsosatisfytheSCMbusi-
ness judgment test in Temp. Treas. Reg.
§ 1.482–9T(b)(2).
Alternatively, for tax years beginning
between January 1, 2007 and December
31, 2007, taxpayers may elect to apply the
SCM as set forth in Temp. Treas. Reg.
§ 1.482–9T(b), without taking into account
any of the modifications described in the
previous two paragraphs.
A number of commentators stated that
the list of specified covered services in An-
nouncement 2006–50 was too narrow. In
response to comments, this revenue pro-
cedure significantly broadens the existing
categories and adds a number of new ac-
tivities to the list of specified covered ser-
vices. In addition, a provision covering
“other similar activities” has been added to
each category of activities.
SECTION 3. SCOPE
The following categories of services
are eligible for treatment as specified cov-
ered services under Temp. Treas. Reg.
§ 1.482–9T(b)(4)(i):
Payroll:
1. Compiling and posting em-
ployee time and other information
needed to calculate periodic com-
pensation to employees. Com-
puting employees’ time worked,
production, and commissions.
Computing and posting wages
and deductions to appropriate
accounting records. Preparing
paychecks, travel reimbursement
and expense reimbursement.
2. Preparing payroll tax forms (such
as the preparation of Forms 940,
941 and W–2 in order to comply
with U.S. requirements or similar
requirements under another coun-
try’s laws).
3. Administering garnishment and
other wage withholding orders.
4. Other activities similar to those
specified in paragraphs (1)
through (3).
Premium
s for Unemployment,
Disabil
ity and Workers Compensation:
5. Processing employees’ unem-
ployment insurance premiums,
disability premiums and workers
compensation premiums.
6. Other activities similar to those
specified in paragraph (5).
Accounts Receivable:
7. Compiling, analyzing and record-
ing current credit data and other
financial information regarding
individuals or firms (including
preparing reportswith this infor-
mation for use in decisionmak-
ing).
8. Compiling and recording billing,
accounting and other numerical
data for billing purposes. Prepar-
ing billing invoices for services
rendered or for delivery or ship-
ment of goods.
9. Locating and notifying cus-
tomer(s) of delinquent accounts
by mail (either electronic or oth-
erwise) or telephone to solicit
payment. Receiving payment
from customers and posting pay-
ment to customer accounts. If
customer fails to respond, prepar-
ingstatementstocreditdepart-
ment, initiating repossession pro-
ceedings or service disconnec-
tion. Keeping records of col-
lection activities and status of
accounts.
10. Other activities similar to those
specified in paragraphs (7)
through (9).
Accounts Payable:
11. Compiling information and
records to draw up purchase or-
ders for procurement of materials
and services.
12. Making pa
yment to vendors and
posting
payment to status of ac-
counts.
13. Other activities similar to those
specified in paragraphs (11) and
(12).
General Administrative:
14. Performing clerical and adminis-
trative functions such as drafting
correspondence, scheduling ap-
pointments, and organizing and
maintaining paperand electronic
files.
15. Performing data entry through
use of a keyboard or scanning de-
vice, including verifying data and
preparing materials for printing.
16. Using a word processor/computer
or typewriter to generate (without
substantial modification) letters,
reports, forms, or other mate-
rial from another person’s rough
draft, corrected copy, or voice
recording.
17. Performing duties relating to of-
fice management systems and
procedures, such as answering
telephones, bookkeeping, typing,
word processing, office machine
operation, and filing.
January 16, 20072962007–3 I.R.B.

18. Operating any of the following
office machines: photocopying,
scanning and facsimile machines.
19. Providing interoffice service/doc-
ument delivery, including mail-
room services, document man-
agement, and graphics, video,
and website preparation.
20. Other activities similar to those
specified in paragraphs (14)
through (19).
Corporate and Public Relations:
21. Planning an
d executing a pub-
lic relatio
ns program or corporate
communica
tion policy, including
the distri
bution of internal and ex-
ternal cor
porate communications,
but not to i
nclude specific adver-
tising and
/or marketing of a prod-
uct or ser
vice.
22. Other activities similar to those
specified in paragraph (21).
Meeting Coordination and Travel
Planning:
23. Coordinating activities of staff
and convention personnel to
make arrangements for group
meetings and conventions.
24. Negotiating airline, rental car,
and hotel contracts.
25. Assisting in travel arrangements,
including providing a system for
reservations and ticket purchases.
26. Managing motor pool and fleet.
27. Other activities similar to those
specified in paragraphs (23)
through (26).
Accounting and Auditing:
28. Gat
hering and reviewing infor-
mat
ion in accounting records for
use
in preparing financial state-
men
ts.
29. Computing, classifying, and
recording numerical data to main-
tain accurate and complete fi-
nancial records, performing any
combination of calculating, post-
ing, and verifying duties to obtain
primary financial data for use in
maintaining accounting records,
checking the accuracy of figures,
calculations, and postings per-
taining to business transactions
recorded by other workers; and
calculating investment perfor-
mance and net asset values of
investments.
30. Consolidating legal entity finan-
cial results per country for use
in statutory financial statements
and tax returns and consolidat-
ing worldwide results by business
area for use in management ac-
counting.
31. Developing a company-wide ac-
counting manual that prescribes
accounting policies and methods
to be used and providing related
advice.
32. Performing operational and fi-
nancial internal audits.
33. Preparing government census and
related forms required by a ser-
vice recipient’s home country.
34. Preparing reports required by es-
cheat laws required by a service
recipient’s home country.
35. Completing import/export docu-
mentation and arranging for cus-
toms payment.
36. Overseeing audits by customs au-
thorities.
37. Other activities similar to those
specified in paragraphs (28)
through (36).
Tax:
38. Pro
cessing tax payments accord-
ing
to prescribed laws and regu-
lat
ions.
39. Gathering information from ac-
counting records and including
that information in the prepa-
ration of income, property,
sales/use, VAT, excise and other
tax returns.
40. Overseeing audits conducted by
tax authorities.
41. Providing tax advice to busi-
nesses to ensure compliance with
tax laws, including access to elec-
tronic research and tax compli-
ance software.
42. Reviewing local country tax pro-
visions for purposes of inclusion
in the consolidated world-wide
provision and preparation of the
world-wide tax provision.
43. Negotiating advance pricing
agreements and other local incen-
tives that benefit the consolidated
organization.
44. Other activities similar to those
specified in paragraphs (38)
through (43).
Health, Safety, Environmental and
Regulatory Affairs:
45. Develo
ping company health,
safety
, and environment stan-
dards,
monitoring compliance
with su
ch standards, and training
affect
ed personnel.
46. Gathering information and
preparing documentation relat-
ing to eligibility for or compli-
ance with laws and regulations
governing contracts, licenses and
permits.
47. Gathering information, verifying
data and preparing documenta-
tion relating to compliance with
laws and regulations governing
financial and securities institu-
tions and financial and real es-
tate transactions. Examining and
verifying correctness of, or estab-
lishing authenticity of records.
48
.
Pr
oviding security services (e.g.,
ex
ecutive protection or global
he
adquarters security).
2007–3 I.R.B.297January 16, 2007

49. Providing common health risk
management systems develop-
ment, clinical services, industrial
hygiene, alcohol and drug test-
ing services (laboratory analyses
done by third parties), and ad-
vice to business management on
health issues.
50. Providing guidance and support
operations, integrity manage-
ment support implementation,
coaching, and conducting op-
erations integrity management
assessments, development and
implementation of safety behav-
ior based programs, and incident
reporting and accident investiga-
tions.
51. Providing strategies, resources,
and training for effective crisis
preparedness and response.
52. Other activities similar to those
specified in paragraphs (45)
through (51).
Budgeti
ng:
53. Compiling data for use by cost es-
timators in determining cost pro-
jections and in preparing budget
estimates, including verifying in-
formation for completeness, ac-
curacy, and conformance with in-
ternal procedures and regulations.
54. Compiling data to prepare budget
and accounting reports for man-
agement.
55. Other
activities similar to those
speci
fied in paragraphs (53) and
(54)
.
Treasury Activities:
56. Establishing bank accounts and
lock boxes for use by controlled
parties, including overdraft facil-
ities and lines of credit.
57. Providing staff and facilities to
hedge currency exposures that
arise from operations in the nor-
mal course of business. This
paragraph does not apply to banks
(including investment banks), in-
surance companies, investment
companies, similar entities that
provide financial services to the
public, and investment funds (in-
cluding hedge and private equity
funds).
58. Coordinating investment activi-
ties in connection with short-term
management of cash generated
from operations in the normal
course of business. This para-
graph does not apply to re-
lated-party factoring activities,
or to banks (including investment
banks), insurance companies,
investment companies, similar
entities that provide financial
services to the public, and invest-
ment funds (including hedge and
private equity funds).
59. Other activities that are ancillary
to the activities specified in para-
graphs (56) through (58).
Statistical Assistance:
60. Compil
ing data for use in statisti-
cal stu
dies.
61. Other activities similar to those
specified in paragraph (60).
Staffing and Recruiting:
62. Providing staffing support that
includes creating job announce-
ments, determining eligibility,
evaluating qualifications of can-
didates, conducting background
checks on final candidates, veri-
fying references, developing per-
formance evaluation procedures
and forms, and conducting exit
interviews for departed employ-
ees.
63. Coordinating with temporary em-
ployment agencies, applicants,
and management throughout the
recruiting process.
64. Providing information to appli-
cants regarding open positions,
the application and recruiting
process, and employment poli-
cies.
65. Providing administrative sup-
port that includes sourcing and
processing resumes, arranging
interview schedules for open po-
sitions, preparing offer letters,
and entering new employee infor-
mation into the human resource
system.
66. Establishing and maintaining em-
ployee files relating to payroll,
performance and other personnel
issues.
67. Assisting with new employee ori-
entations and paperwork.
68. Implementing recruiting plan and
locating potential candidates by
working with professional search
firms, colleges, universities and
professional associations. Orga-
nizing and attending job fairs and
other recruitment events.
69. Developing recruiting and mar-
keting materials and assisting in
developing and maintaining con-
tent for recruiting website.
70. Analyzing recruiting data and re-
view all job analysis, promotion
and placement products.
71. Posting job opening advertise-
ments in appropriate markets
through publications, journals
and other media.
72. Managing company-wide job
postings and employee referral
program.
73. Administering a compensation
policy, including grading and
determining salary ranges for po-
sitions.
74. Other activities similar to those
specified in paragraphs (62)
through (73).
January 16, 20072982007–3 I.R.B.

Training and Employee Development:
75. Assisting in training of personnel
including assessing development
and training needs, creating and
conducting internal development
and training programs and com-
municating training opportunities
to personnel.
76. Arranging for management train-
ing on employment law compli-
ance, employer liability avoid-
ance, interviewing, hiring, ter-
minations, promotions, perfor-
mance reviews, safety, and sexual
harassment.
77. Developing and implementing
plans regarding career-develop-
ment and succession.
78. Developing and implementing a
job evaluation process including
procedures and forms.
79. Other activities similar to those
specified in paragraphs (75)
through (78).
Benefits:
80. Develop
ing and implementing
employe
e compensation and
benefi
ts including healthcare,
life in
surance, 401(k), pension,
worker
’s compensation, unem-
ployme
nt, dental, profit sharing,
employ
ee incentive compensa-
tion,
and employee assistance
progr
ams.
81. Providing benchmarking studies
for compensation and other ben-
efit programs.
82. Providing guidance and direction
to employees regarding elections
for benefits, applications for ben-
efits and receipt of benefits (in-
cluding providing assistance to
employees in completing all nec-
essary forms).
83. Arr
anging annual benefit enroll-
men
t meetings and employee
ben
efit seminars.
84. Processing employee benefits in-
quiries and complaints, and rec-
onciling billing issues.
85. Coordinating with hospitals,
physicians, insurers, employ-
ees, and beneficiaries to facilitate
proper and complete utilization
of benefits for all employees.
86. Other activities similar to those
specified in paragraphs (80)
through (85).
Information and Technology (IT)
Services:
87. Supporting company-wide com-
puter systems including those
used in connection with opera-
tions, accounting, manufactur-
ing, customer service, human
resources, payroll, and email.
88. Formulati
ng guidelines with re-
spect to th
e use of IT systems.
89. Maintaining and repairing IT sys-
tems.
90. Providing telecommunications
facilities.
91. Providi
ng technical assistance
and trai
ning to users of computer
systems
and other information
technol
ogy devices. Answering
questio
ns or resolving technical
proble
ms relating to computer
system
s and other information
techno
logy devices in person,
via tel
ephone or from remote
locati
on. Providing assistance
conce
rning the use of computer
hardw
are and software, includ-
ing pr
inting, installation, word
proce
ssing, electronic mail, and
opera
ting systems, as well as dis-
aste
r recovery back-up services.
92. Maintaining and testing exist-
ing computer databases (includ-
ing implementing security mea-
sures to safeguard computer
databases), but not to include
analyzing user needs or devel-
oping hardware or software so-
lutions (such as systems inte-
gration, website design, writing
computer programs, modifying
general applications software, or
recommending the purchase of
commercially available hardware
or software).
93. Supporting an organization’s ex-
isting local area network (LAN),
wide area network (WAN), and
Internet system or a segment of a
network system, regular mainte-
nance of network hardware and
software, monitoring network to
ensure network availability to
all system users and perform-
ing necessary maintenance to
support network availability, su-
pervising other network support
and client server specialists (in-
cluding implementing network
security measures), but not to
include analyzing user needs or
developing hardware or software
solutions (such as systems inte-
gration, website design, writing
computer programs, modifying
general applications software,
or recommending commercially
available software).
94. Other activities similar to those
specified in paragraphs (87)
through (93).
Legal Services:
95. General legal services performed
on behalf of the taxpayer by
in-house legal counsel, including
but not limited to, drafting, nego-
tiating and reviewof contracts or
agreements, legal documents, and
opinions, representation and ad-
vocacy before courts, administra-
tive agencies, arbitrators, legisla-
tures, or other bodies, preparing
advice in respect of structuring
and reorganization, acquisition,
and divestment transactions, and
maintaining corporate books and
records. Support and administra-
tive functions associated with the
above activities (legal research,
secretarial, filing and document
retrieval, etc.).
96. Oth
er activities similar to those
spe
cified in paragraph (95).
2007–3 I.R.B.299January 16, 2007

Insurance Claims Management:
97. Securing insurance coverage for
general, product, and worker’s
compensation liability, property
loss, business interruption, and
other business risks.
98. Coordinating with third party
insurers, with respect to insur-
ance policies, including prepar-
ing claims for submission to such
third party insurers.
99. Other activities similar to those
specified in paragraphs (97) and
(98).
Purchasin
g:
100. Planning and executing procure-
ment of services and material pur-
suant to company standard for
support functions.
101. Other activities similar to those
specified in paragraph (100).
SECTION
4. APPLICATION
The services cost method (SCM) as set
forth in Temp. Treas. Reg. § 1.482–9T(b)
evaluates whether the price for covered
services, as defined, is arm’s length by
reference to the total services costs with
no markup. Two categories of covered
services are eligible for the SCM. The
first category, specified covered ser-
vices, is described in Temp. Treas. Reg.
§ 1.482–9T(b)(i) and is limited to services
that are described in this revenue proce-
dure. The second category, low margin
covered services, is not described in this
revenue procedure.
SECTION 5. EFFECTIVE DATE
This revenue procedure is generally
effective for taxable years beginning after
December 31, 2007. Taxpayers may elect
to apply retroactively the provisions of
Section 1.482–9T of the temporary regu-
lations to certain taxable years. See Temp.
Treas. Reg. §1.482–9T(n)(1). In the case
of a valid election, this revenue procedure
would also apply to the taxable years sub-
ject to such an election.
SECTION 6. REQUEST FOR
COMMENTS
The Treasury Department and the IRS
request further comments from interested
persons on the listing contained in this rev-
enue procedure. The revenue procedure is
intended to be an evolving list of services
that are eligible for the SCM. The Trea-
sury Department and the IRS contemplate
issuing updates as appropriate, including a
further revision of the revenue procedure
to coincide with the end of the one-year
transition period and in response to com-
ments received on the temporary regula-
tions. Comments are solicited on the cate-
gories and listed activities in the revenue
procedure, possible additions, and other
revisions. For example, comments are
solicited whether warehousing and other
functions that support distribution should
be eligible for the SCM in light of Temp.
Treas. Reg. §1.482–9T(b)(3)(ii)(E) (re-
selling, distribution ineligible for SCM).
Written comments may be submitted
to CC:INTL:Br6 (Rev. Proc. 2007–13),
room 4607, Internal Revenue Service, P.O.
Box7604,BenFranklinStation,Wash-
ington, DC 20224. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m.
to: CC:INTL:Br6 (Rev. Proc. 2007–13)
Courier’s desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224. Alternatively,
taxpayers may submit comments electron-
ically via the following e-mail address:
Notice.Comments@irscounsel.treas.gov.
Please include “Rev. Proc. 2007–13” in
the subject line of any electronic commu-
nications.
SECTION 7. DRAFTING
INFORMATION
The principal authors of this revenue
procedure are Thomas A. Vidano and
Carol B. Tan of the Office of Associate
Chief Counsel (International). For fur-
ther information regarding this revenue
procedure, contact Thomas A. Vidano or
Carol B. Tan at (202) 435–5265 (not a
toll-free call).
Note.This revenue procedure will be reproduced as the next revision of IRS Publication 1179, General Rules and Specifications for
Substitute Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S.
26 CFR 601.602: Forms and instructions.
(Also Part 1, Sections 220, 408, 408A, 529, 530(h), 1441, 6041, 6041A, 6042,6043, 6044, 6045, 6047, 6049, 6050A, 6050B, 6050D, 6050E, 6050H, 6050J, 6050N,
6050P, 6050Q, 6050R, 6050S, 1.408–5, 1.408–7, 1.408A–7, 1.1441–1 through 1.1441–5, 1.6041–1, 7.6041–1, 1.6042–2, 1.6042–4, 1.6044–2, 1.6044–5,1.6045–1,
5f.6045–1, 1.6045–2, 1.6045–4, 1.6047–1, 1.6049–4, 1.6049–6, 1.6049–7, 1.6050A–1, 1.6050B–1, 1.6050D–1, 1.6050E–1, 1.6050H–1, 1.6050H–2, 1.6050J–1T,
1.6050N–1, 1.6050P–1.)
Rev. Proc. 2007–15
TABLE OF CONTENTS
Part 1 General Information
SECTION 1.1 — OVERVIEW OF REVENUE PROCEDURE 2007–15..................................................... 301
SECTION 1.2 — GENERAL REQUIREMENTS FOR ACCEPTABLE SUBSTITUTE FORMS 1096, 1098, 1099,
5498, W-2G, AND 1042-S
................................................................................ 304
SECTION 1.3 — DEFINITIONS..................................................................................... 305
January 16, 20073002007–3 I.R.B.

Part 2 Specifications for SubstituteForms 1096 and Copies A of Forms 1098, 1099, and 5498 (All Filed with the IRS)
SECTION 2.1 — SPECIFICATIONS.................................................................................. 306
SECTION 2.2 — INSTRUCTIONS FOR PREPARINGPAPER FORMS THAT WILL BE FILED WITH THE
IRS
.................................................................................................. 309
Part 3 Specifications for Substitute Form W-2G (Filed with the IRS)
SECTION 3.1 — GENERAL......................................................................................... 310
SECTION 3.2 — SPECIFICATIONS FOR COPY A OF FORM W-2G..................................................... 311
Part 4 Substitute Statements to Form Recipients and Form Recipient Copies
SECTION 4.1 — SPECIFICATIONS.................................................................................. 311
SECTION 4.2 — COMPOSITE STATEMENTS........................................................................ 314
SECTIO
N 4.3 — REQUIRED LEGENDS
............................................................
.................. 315
SECTION 4.4 — MISCELLANEOUS INSTRUCTIO
NSFORCOPIESB,C,D,1,AND2
...................
.................. 317
SECTION 4.5 — ELECTRONIC DELIVERY OF FORM 1099 AND FORM 5498 PAYEE STATEME
NTS
.....
.................. 318
Part 5 Additional Instructions for Substitute Forms 1098, 1099, 5498, W-2G, and 1042-S
SECTION 5.1 — PAPER SUBSTITUTES FOR FORM 1042-S............................................................ 319
SECTION 5.2 — OMB REQUIREMENTS FOR ALL FORMS IN THIS REVENUE PROCEDURE............................ 321
SECTION 5.3 — REPRODUCIBLE COPIES OF FORMS............................................................... 322
SECTION 5.4 — EFFECT ON OTHER REVENUE PROCEDURES....................................................... 322
Part 6 Exhibits
SECTION 6.1 — EXHIBITS OF FORMS IN THE REVENUE PROCEDURE............................................... 322
Part 1
General Information
Section 1.1 — Overview of Revenue Procedure 2007–15
1.1.1 PurposeThe purpose of this revenue procedure is to set forth the 2006 requirements for:
•Using official Internal Revenue Service (IRS) forms to file information returns with the
IRS,
•Preparing acceptable substitutes of the official IRS forms to file information returns with
the IRS, and
•Using official or acceptable substitute forms to furnish information to recipients.
1.1.2 Which Forms Are Covered?This revenue procedure contains specifications for these information returns:
FormTitle
1096Annual Summary and Transmittal of U.S. Information Returns
1098Mortgage Interest Statement
1098-CContributions of Motor Vehicles, Boats, and Airplanes
1098-EStudent Loan Interest Statement
2007–3 I.R.B.301January 16, 2007

FormTitle
1098-TTuition Statement
1099-AAcquisition or Abandonment of Secured Property
1099-BProceeds From Broker and Barter Exchange Transactions
1099-CCancellation of Debt
1099-CAPChanges in Corporate Control and Capital Structure
1099-DIVDividends and Distributions
1099-GCertain Government Payments
1099-HHealth Coverage Tax Credit (HCTC) Advance Payments
1099-INTInterest Income
1099-LTCLong-Term Care and Accelerated Death Benefits
1099-MISCMiscellaneous Income
1099-OIDOriginal Issue Discount
1099-PATRTaxable Distributions Received From Cooperatives
1099-QPayments From Qualified Education Programs (Under Sections 529
and 530)
1099-RDistributions From Pensions, Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.
1099-SProceeds From Real Estate Transactions
1099-SADistributions From an HSA, Archer MSA, or Medicare Advantage MSA
5498IRA Contribution Information
5498-ESACoverdell ESA Contribution Information
5498-SAHSA, Archer MSA, or Medicare Advantage MSA Information
W-2GCertain Gambling Winnings
1042-SForeign Person’s U.S. Source Income Subject to Withholding
1.1.3 ScopeFor purposes of this revenue procedure, a substitute form or statement is one that is not
printed by the IRS. For a substitute form orstatement to be acceptable to the IRS, it must
conform to the official form orthe specifications outlined in this revenue procedure. Do not
submit any substitute forms or statements listed above to the IRS for approval. Privately printed
forms may not state, “This is an IRS approved form.”
Filers making payments to certain recipientsduring a calendar year are required by the In-
ternal Revenue Code (the Code) to file information returns with the IRS for these payments.
These filers must also provide this information to their recipients. In some cases, this also
applies to payments received. SeePart 4for specifications that apply to recipient statements
(generally Copy B).
In general, section 6011 of the Code contains requirements for filers of information returns.
A filer must file information returns on magneticmedia, through electronic media, or on paper.
A filer who is required to file 250 or more information returns of any one type during a calendar
year must file those returns by magnetic media or electronic media.
Although not required, small volume filers (fewer than 250 returns during a calendar year)
may file the forms on magnetic media or electronically. See the legal requirements for filing
information returns (and providing a copy to a payee) in the 2006 General Instructions for
Forms 1099, 1098, 5498, and W-2G and the 2006 Instructions for Form 1042-S. In addition, see
January 16, 20073022007–3 I.R.B.

Revenue Procedure 2006–33 published as Publication 1220,Specifications for Filing Forms
1098, 1099, 5498, and W-2G Electronically or Magnetically.
1.1.4 For More InformationThe IRS prints and provides the forms on which various payments must be reported. Alter-
natively, filers may prepare substitute copies of these IRS forms and use such forms to report
payments to the IRS.
•For copies of the official forms and instructions, call our toll-free number at
1–800–TAX–FORM (1–800–829–3676).
•The IRS operates a central call site to answer questions related to information returns, penal-
ties, and backup withholding. The hours of operation are Monday through Friday from
8:30 a.m. to 4:30 p.m., Eastern time. For your convenience, you may call the toll-free num-
ber, 1–866–455–7438. You may still use the original telephone number, 304–263–8700
(not toll-free). For TTY/TDD equipment, call 304–267–3367 (not toll-free). The call site
can also be reached by email atm
ccirp@irs.gov.
•For other tax information related to business returns or accounts, call 1–800–829–4933. If
you have access to TTY/TDD equipment, call 1–800–829–4059 to asktax account ques-
tions or to order forms and publications.
1.1.5 What’s NewThe following changes have been madeto this year’s Revenue Procedure:
•Form W-2G: The American Jobs Creation Act of 2004 Section 419 (P.L. 108–357) ex-
empted certain types of pari-mutuel winningsfrom withholding and reporting after Octo-
ber 22, 2004. See Foreign Persons in the W-2 instructions for these exemptions relating to
live dog racing and horse racing.
•Form 1098-C: New boxes 6a, 6b, and 6c have been added to comply with the new reporting
requirements added by the Gulf Opportunity Zone Act of 2005. New box 7 has been added
to Form 1098-C to allow this form to be used as the contemporaneous written acknowledg-
ment under section 170(f)(8) for a qualified vehicle with a claimed value of at least $250
but not more than $500.
•Form 1098-T: Box 3 has been revised to alert students that institutions have changed their
reporting method as required under new Revenue Procedure 2005–50 which is available on
page 272 of Internal Revenue Bulletin 2005–32 atw
ww.irs.gov/pub/irs-irbs/irb05–32.pdf.
•Form 1099-INT: Amendments to section 6049 have added two new items of reportable in-
terest income. Section 1303 of the Energy Tax Incentives Act of 2005 added new section
54 that allows for a credit to holders of clean renewable energy bonds. The Gulf Opportu-
nity Act of 2005 added new section 1400N that allows a credit to holders of Gulf bonds.
Both new items are treated as interest incomeas required by new section 6049(d)(8) and are
reported on Form 1099-INT, Interest income. Section 502 of the Tax Increase Prevention
and Reconciliation Act of 2006amended section 6049(d) and now requires the reporting
of certain tax-exempt interest. New boxes will be required to meet this new reporting re-
quirement.
•Form 1099-R: The title of box 5 has been revised to include the addition of the reporting
of the basis of distributions from designated Roth accounts. The untitled box to the left
of box 10 has been reserved for the reporting of the first year of the 5-year period that
is one of the conditions for a qualified designated Roth account distribution. Please note
that the following changes have been made to the Specific Instructions for Form 1099-R.
Box 2a Taxable Amount: The reporting instructions have been changed for distributions
under section 408(d)(5). The Designated Roth account distributions: Section 402, which
was added by the Economic Growth and Tax Reconciliation Act of 2001, provides that
a participant in a section 401(k) plan or a section 403(b) salary reduction agreement that
includes a Roth contribution program may elect to make designated Roth contributions
to the plan or program in lieu of elective deferrals. As a result of these changes, a new
distribution code has been added to report these distributions, Code B-Designated Roth
distribution.
•Form 5498: The following changes have been made to the Specific Instructions for Form
5498. Instructions for the reporting of an account closure have added to the discussion of
2007–3 I.R.B.303January 16, 2007

an IRA revocation. A caution has been added to remind filers that Form 5498 is required to
be filed even after required minimum distributions or other payments have started. Section
2 of the Heroes Earned Retirement Opportunities (HERO) Act of 2006 amended section
219(f) and allows combat pay that is excluded under section 112 to be included in com-
pensation for determining the amounts that may be contributed to both traditional and Roth
IRAs. These rules will be applied retroactively to allow contributions for tax years 2004
and 2005. For the special reporting rules, see page R–13 of the 1099-R instructions.
Section 1.2 — General Requirements for Acceptable Substitute Forms 1096, 1098, 1099, 5498, W-2G,
and 1042-S
1.2.1 IntroductionPaper substitutes for Form 1096 and Copy A of Forms 1098, 1099, 5498, W-2G, and 1042-S
that totally conform to the specifications listed in this revenue procedure may be privately
printed and filed as returns with the IRS. The reference to the Department of the Treasury —
Internal Revenue Service should be included on all such forms.
If you are uncertain of any specification and want it clarified, you may submit a letter cit-
ing the specification, stating your understanding and interpretation of the specification, and
enclosing an example of the form (if appropriate) to:
Internal Revenue Service
Attn: Substitute Forms Program
SE:W:CAR:MP:T:T:SP
1111 Constitution Ave., NW
Room 6406
Washington, DC 20224
Note.Allow at least 30 days for the IRS to respond.
You may also contact the Substitute Forms Program via e-mail at*
taxforms@irs.gov. Please
enter “Substitute Forms” on the Subject Line.
Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S are subject to annual review and possi-
ble change. Therefore, filers are cautioned against overstocking supplies of privately printed
substitutes. The specificationscontained in this revenue procedure apply to 2006 forms only.
1.2.2 Copy A SpecificationsProposed substitutes of Copy A must be an exact replica of the official IRS form with respect
to layout and content. Proposed substitutes forCopy A that do not conform to the specifications
in this revenue procedure are not acceptable. Further, if you file such forms with the IRS, you
may be subject to a penalty for failure to file a correct information return under section 6721
of the Code. Generally, the penalty is $50 foreach return where such failure occurs (up to
$250,000). No IRS office is authorized to allow deviations from this revenue procedure.
Caution:Overuse of proportional fonts may causeyou to be subject to penalties and delays
in processing.
1.2.3 Copy B and Copy C
Specifications
Copies B and Copies C of the following forms must contain the information inPart 4to be
considered a “statement” or “official form” under the applicable provisions of the Code. The
format of this information is at the discretion of the filer with the exception of the location of the
tax year, form number, form name, and the information for composite Form 1099 statements
as outlined underSection 4.2.
Copy B, of the forms below, are for the following recipients.
January 16, 20073042007–3 I.R.B.

FormRecipient
1098For Payer
1098-CFor Donor
1098-E; 1099-AFor Borrower
1098-TFor Student
1099-CFor Debtor
1099-CAPFor Shareholder
1099-LTCFor Policyholder
1099-R; W-2GIndicates that these forms may require Copy B to be
attached to the federal income tax return.
1099-SFor Transferor
All other Forms 1099; 1042-S For Recipient
5498; 5498-SAFor Participant
5498-ESAFor Beneficiary
Copy C of the following forms are:
FormRecipient
1098-CFor Donor’s Records
1099-CAPFor Corporation
1099-LTCFor Insured
1099-RFor Recipient’s Records
All other Forms 1099SeeSection 4.4.2
5498-ESAFor Trustee
W-2GFor Winner’s Records
Note.On Copy C, Form 1099-LTC, you may reverse the locations of the policyholder’s
and the insured’s name, street address, city, state, and ZIP code for easier mailing.
Section 1.3 — Definitions
1.3.1 Form RecipientForm recipient means the person to whom you are required by law to furnish a copy of
the official form or information statement. The form recipient may be referred to by different
names on various Forms 1099 and related forms (“payer,” “borrower,” “student,” “debtor,”
“policyholder,” “insured,” “transferor,” “recipient,” “participant,” “donor,” or, in the case of
Form W-2G, the “winner”). SeeSection 1.2.3,earlier.
1.3.2 FilerFiler means the person or organization required by law to file a form listed inSection 1.1.2
with the IRS. As outlined earlier, a filer may be a payer, creditor, recipient of mortgage or stu-
dent loan interest payments, educational institution, broker, barter exchange, person reporting
real estate transactions, trustee or issuer of any individual retirement arrangement or medical
savings account, lender who acquires an interest in secured property or who has reason to know
that the property has been abandoned, or certain donees of motor vehicles, boats, and airplanes.
2007–3 I.R.B.305January 16, 2007

1.3.3 Substitute FormSubstitute form means a paper substitute of Copy A of an official form listed inSection
1.1.2that totally conforms to the provisions in this revenue procedure.
1.3.4 Substitute Form Recipient
Statement
Substitute form recipient statement means a paper statement of the information reported on
a form listed inSection 1.1.2. This statement must be furnished to a person (form recipient),
as defined under the applicable provisions of the Code and the applicable regulations.
1.3.5 Composite Substitute
Statement
Composite substitute statement means one in which two or more required statements (for
example, Forms 1099-INT and 1099-DIV) are furnished to the recipient on one document.
However, each statement must be designated separately and must contain all the requisite Form
1099 information except as provided underSection 4.2. A composite statement may not be
filed with the IRS.
Part 2
Specifications for Substitute Forms 1096
and Copies A of Forms 1098, 1099,
and 5498 (All Filed with the IRS)
Section 2.1 — Specifications
2.1.1 General RequirementsForm identifying numbers (for example, 9191 for Form 1099-DIV) must be printed in non-
reflective black carbon-basedink in print positions 15 through 19 using an OCR A font. The
check boxes to the right of the form identifying numbers must be 10-point boxes. The “VOID”
checkbox is in print position 25. The “CORRECTED” check box is in position 33. Measure-
ments are made from the left edge of the paper, not including the perforated strip. SeeExhibits
EandN.
The substitute form must be an exact replica of the official IRS form with respect to layout
and content. To determine the correct form measurements, seeExhibits AthroughZat the end
of this publication.
Hot wax and cold carbon spots are not permitted on any of the internal form plies. These
spots are permitted on the back of a mailer top envelope ply.
Use of chemical transfer paper for Copy A is acceptable.
The Government Printing Office (GPO) symbol must be deleted.
2.1.2 Color and Paper QualityColor and paper quality for Copy A (cut sheets and continuous pinfeed forms) as speci-
fied by JCP Code 0–25, dated November 29,1978, must be white 100% bleached chemical
wood, optical character recognition (OCR) bond produced in accordance with the following
specifications.
Note.Reclaimed fiber in any percentage is permitted provided the requirements of this
standard are met.
• Acidity:Phvalue,average,notlessthan.............................4.5
• BasisWeight:17x22-500cutsheets ...............................18-20
• Metric equivalent–g/m
2
...........................................75
A tolerance of ±5 pct. is allowed.
January 16, 20073062007–3 I.R.B.

• Stiffness: Average, each direction, not less than-milligrams............50
• Tearing strength: Average, eachdirection, not less than-grams.........40
• Opacity:Average,notlessthan-percent .............................82
• Thickness:Average-inch .......................................... 0.0038
• Metricequivalent-mm.............................................0.097
A tolerance of +0.0005 inch (0.0127 mm) is allowed. Paper cannot vary
more than 0.0004 inch (0.0102 mm) from one edge to the other.
• Porosity:Average,notlessthan-seconds ............................10
• Finish (smoothness): Average, each side-seconds.....................20-55
• Forinformationonly,theSheffieldequivalent-units................... 170-100
• Dirt: Average, each side, not to exceed-parts per million...............8
2.1.3 Chemical Transfer PaperChemical transfer paper is permitted for Copy A only if the following standards are met:
•Only chemically backed paper is acceptable for Copy A. Front and back chemically treated
paper cannot be processed properly by machine.
•Carbon-coated forms are not permitted.
•Chemically transferred images must be black.
All copies must be clearly legible. Hot wax and cold carbon spots are not permitted for
Copy A. Interleaved carbon should be black and must be of good quality to assure legibility
on all copies and to avoid smudging. Fading must be minimized to assure legibility.
2.1.4 PrintingAll print on Copy A of Forms 1098, 1099, 5498, and the print on Form 1096 above the
statement, “Return this entire page to the Internal Revenue Service. Photocopies are not ac-
ceptable.” must be in Flint J–6983 red OCR dropout ink or an exact match. However, the
four-digit form identifying number must be in nonreflective carbon-based black ink in OCR A
font.
The shaded areas of any substitute form should generally correspond to the format of the
official form.
The printing for the Form 1096 statement and the following text may be in any shade or
tone of black ink. Black ink should only appear on the lower part of the reverse side of Form
1096, where it will not bleed through and interfere with scanning.
Note.The instructions on the front and back of Form 1096, which include filing addresses,
must be printed.
Separation between fields must be 0.1 inch.
Except for Form 1099-R and 1099-MISC, the numbered captions are printed as solid with
no shaded background.
Other printing requirements are discussed below.
2.1.5 OCR SpecificationsThe contractor must initiate or have a qualitycontrol program to assure OCR ink density.
Readings will be made when printed on approved 20 lb. white OCR bond with a reflectance of
not less than 80%. Black ink must not have a reflectance greater than 15%. These readings are
based on requirements of the “Scan-Optics Series 9000” Optical Scanner using Flint J–6983
red OCR dropout ink or an exact match.
The following testers and ranges are acceptable:
2007–3 I.R.B.307January 16, 2007

•MacBeth PCM-II. The tested Print Contrast Signal (PCS) values when using the MacBeth
PCM-II tester on the “C” scale must range from .01 minimum to .06 maximum.
•Kidder 082A. The tested PCS values when using the Kidder 082A tester on the Infra Red
(IR) scale must range from .12 minimum to .21 maximum. White calibration disc must be
100%. Sensitivity must be set at one (1).
•Alternative testers. Alternative testers must be approved by the Government so that tested
PCS values can be established. You may obtain approval by writing to the following ad-
dress:
Commissioner of Internal Revenue
Attn: SE:W:CAR:MP:P:B:T
Business Publishing – Tax Products
1111 Constitution Ave., NW
Washington, DC 20224
2.1.6
Typography
Type must be substantially identical in size and shape to the official form. All rules are
either
1
/2-point or
3
/4-point. Rules must be identical to those on the official IRS form.
Note.The form identifying number must be nonreflective carbon-based black ink in OCR
A font.
2.1.7 DimensionsGenerally, three Forms 1098, 1099, or 5498 (Copy A) are contained on a single page, 8
inches wide (without any snap-stubs and/or pinfeed holes) by 11 inches deep.
Exceptions.Forms 1098-C, 1099-B, 1099-DIV, 1099-MISC, 1099-R, and 1042-S contain
two documents per page.
There is a .33 inch top margin from the top of the corrected box, and a .25 inch right margin.
There is a
1
/32(0.0313) inch tolerance for the right margin. If the right and top margins are
properly aligned, the left margin for all forms will be correct. All margins must be free of
print. SeeExhibits AthroughZin this publication for the correct form measurements.
These measurements are constant for all Forms 1098, 1099, and 5498. These measurements
are shown only once in this publication, on Form 1098 (Exhibit B). Exceptions to these mea-
surements are shown on the rest of the exhibits.
The depth of the individual trimsize of each form on a page must be 3
2
/3inches, the same
depth as the official form.
Exceptions.The depth of Forms 1098-C, 1099-B, 1099-DIV, 1099-MISC, 1099-R, and
1042-S is 5
1
/2inches.
2.1.8 PerforationCopy A (three per page; two per page for Forms 1098-C, 1099-B, 1099-DIV, 1099-MISC,
1099-R, and 1042-S) of privately printed continuous substitute forms must be perforated at
each 11” page depth. No perforations are allowed between the 3
2
/3”forms(5
1
/2”forForms
1098-C, 1099-B, 1099-DIV, 1099-MISC, or 1099-R) on a single copy page of Copy A.
The words “Do Not Cut or Separate Forms on This Page” must be printed in red dropout ink
(as required by form specifications) betweenthe three forms (two for Forms 1098-C, 1099-B,
1099-DIV, 1099-MISC, or 1099-R).
N
ote.Perforations are required between all theother individual copies (Copies B and C, and
C
opies 1 and 2 for Forms 1099-R and 1099-MISC, and Copy D for Forms 1098-C, 1099-LTC
and 1099-R) in the set.
2.1.9 What To IncludeYou must include the OMB Number on Copies A and Form 1096 in the same location as
on the official form.
January 16, 20073082007–3 I.R.B.

The words “For Privacy Act and Paperwork Reduction Act Notice, see the 2006 General
Instructions for Forms 1099, 1098, 5498, and W-2G” must be printed on Copy A; “For more
information and the Privacy Act and Paperwork Reduction Act Notice, see the 2006 General
Instructions for Forms 1099, 1098, 5498, and W-2G” must be printed on Form 1096.
A postal indicia may be used if it meets the following criteria:
•It is printed in the OCR ink color prescribed for the form, and
•No part of the indicia is within one print position of the scannable area.
The printer’s symbol (GPO) must not be printed on substitute Copy A. Instead, the employer
identification number (EIN) of the forms printer must be entered in the bottom margin on the
face of each individual form of Copy A, or on the bottom margin on the back of each Form
1096.
The Catalog Number (Cat. No.) shown on the 2006 forms is used for IRS distribution
purposes and need not be printed on any substitute forms.
The form must not contain the statement “IRS approved” or any similar statement.
Section 2.2 — Instructions for Preparing Paper Forms That Will Be Filed with the IRS
2.2.1 Recipient InformationThe form recipient’s name, street address, city, state, ZIP code, and telephone number (if
required) should be typed or machine printed in black ink in the same format as shown on the
official IRS form. The city, state, and ZIP code must be on the same line.
The following rules apply to the form recipient’s name(s):
•The name of the appropriate form recipient must be shown on the first or second name line
in the area provided for the form recipient’s name.
•No descriptive information or other name may precede the form recipient’s name.
•Only one form recipient’s name may appear on the first name line of the form.
•If the multiple recipients’ names are required on the form, enter on the first name line
the recipient name that corresponds to the recipient taxpayer identification number (TIN)
shown on the form. Place the other form recipients’ names on the second name line (only
2 name lines are allowable).
Because certain states require that trust accounts be provided in a different format, generally
filers should provide information returns reflecting payments to trust accounts with the:
•Trust’s employer identification number (EIN) in the recipient’s TIN area,
•Trust’s name on the recipient’s first name line, and
•Name of the trustee on the recipient’s second name line.
Although handwritten forms will be accepted,the IRS prefers that filers type or machine
print data entries. Also, filers should insertdata in the middle of blocks well separated from
other printing and guidelines, and take measuresto guarantee clear, dark black, sharp images.
Carbon copies and photocopies are not acceptable.
2.2.2 Account Number BoxUse the account number box on all Forms 1098, 1099, 5498, and W-2G for an account
number designation when required by the official IRS form. The account number is required if
you have multiple accounts for a recipient for whom you are filing more than one information
return of the same type. Additionally, the IRS encourages you to include the recipients’ account
number on paper forms if your system of records uses the account number rather than the name
or TIN for identification purposes. Also, the IRS will include the account number in future
notices to you about backup withholding. If you use window envelopes and a reduced rate
2007–3 I.R.B.309January 16, 2007

to mail statements to recipients, be sure theaccount number does not appear in the window.
Otherwise, the Postal Service may not accept them for mailing.
Exception.Form 1098-T can have third party provider information.
2.2.3 Specifications and
Restrictions
Machine-printed forms should be printed using a 6 lines/inch option, and should be printed
in 10 pitch pica (10 print positions per inch) or12 pitch elite (12 print positions per inch).
Proportional spaced fonts are unacceptable.
Substitute forms prepared in continuous or strip form must be burst and stripped to conform
to the size specified for a single sheet before they are filed with the IRS. The size specified does
not include pin feed holes. Pin feed holes must not be present on forms filed with the IRS.
Do not:
•Use a felt tip marker. The machine used to “read” paper forms generally cannot read this
ink type.
•Use dollar signs ($), ampersands (&), asterisks (*), commas (,), or other special characters
in the numbered money boxes.
Exception.Use decimal points to indicate dollars and cents (for example, 2000.00 is
acceptable).
•Use apostrophes (’), asteriks (*), or otherspecial characters on the payee name line.
•Fold Forms 1096, 1098, 1099, or 5498 mailed to the IRS. Mail these forms flat in an ap-
propriately sized envelope or box. Folded documents cannot be readily moved through the
machine used in IRS processing.
•Staple Forms 1096 to the transmitted returns. Any staple holes near the return code number
may impair the IRS’s ability to machine scan the type of documents.
•Type other information on Copy A.
•Cut or separate the individual forms on the sheet of forms of Copy A (except Forms W-2G).
2.2.4 Where To FileMail completed paper forms to the IRS service center shown in the Instructions for Form
1096 and in the 2006 General Instructions for Forms 1099, 1098, 5498, and W-2G. Specific
information needed to complete the forms mentioned in this revenue procedure are given in
the specific form instructions. A chart is included in the 2006 General Instructions for Forms
1099, 1098, 5498, and W-2G giving a quick guide to which form must be filed to report a
particular payment.
Part 3
Specifications for Substitute Form
W-2G (Filed with the IRS)
Section 3.1 — General
3.1.1 PurposeThe following specifications give the format requirements for substitute Form W-2G (Copy
A only), which is filed with the IRS.
A filer may use a substitute Form W-2G to file with the IRS (referred to as “substitute Copy
A”). The substitute form must be an exact replica of the official form with respect to layout
and content.
January 16, 20073102007–3 I.R.B.

Section 3.2 — Specifications for Copy A of Form W-2G
3.2.1 Substitute Form W-2G
(Copy A)
You must follow these specifications when printing substitute Copy A of the Form W-2G.
ItemSubstitute Form W-2G (Copy A)
Paper Color and
Quality
Paper for Copy A must be white chemical wood bond, or equivalent,
20 pound (basis 17 x 22-500), plus or minus 5 percent. The paper
must consist substantially of bleached chemical wood pulp. It must
be free from unbleached or ground wood pulp or post-consumer
recycled paper. It also must be suitably sized to accept ink without
feathering.
Ink Color and
Quality
All printing must be in a high quality non gloss black ink.
TypographyThe type must be substantially identical in size and shape to the
official form. All rules on the document are either
1
/2point (.007
inch), 1 point (0.015 inch), or 3 point (0.045). Vertical rules must
be parallel to the left edge of the document, horizontal rules to the
top edge.
DimensionsThe official form is 8 inches wide x 3
2
/3inches deep, exclusive of a
2
/3inch snap stub on the left side of the form. Any substitute Copy
A must be the same dimensions. The snap feature is not required
on substitutes. All margins must be free of print. The top and right
margins must be
1
/4inch plus or minus .0313. If the top and right
margins are properly aligned, the left margin for all forms will be
correct. If the substitute forms are in continuous or strip form,
they must be burst and strippedto conform to the size specified
for a single form.
Hot Wax and Cold
Carbon Spots
Hot wax and cold carbon spots are not permitted on any of the
internal form plies. These spots are permitted on the back of a
mailer top envelope ply. Interleaved carbons, if used, should be
black and of good quality to avoid smudging.
Printer’s SymbolThe Government Printing Office (GPO) symbol must not be printed
on substitute Forms W-2G. Instead, the employer identification
number (EIN) of the forms printer must be printed in the bottom
margin on the face of each individual Copy A on a sheet. The
form must not contain the statement “IRS approved” or any similar
statement.
Catalog NumberThe Catalog Number (Cat. No.) shown on Form W-2G is used for
IRS distribution purposes and need not be printed on any substitute
forms.
Part 4
Substitute Statements to Form Recipients and
Form Recipient Copies
Section 4.1 — Specifications
4.1.1 IntroductionIf you do not use the official IRS form to furnishstatements to recipients, you must furnish
an acceptable substitute statement. To be acceptable, your substitute statement must comply
with the rules in this section. If you are furnishing a substitute form, see Regulations sections
1.6042–4, 1.6044–5, 1.6049–6, and 1.6050N–1 to determine how the following statements
2007–3 I.R.B.311January 16, 2007

must be provided to recipients for most Forms 1099-DIV and 1099-INT, all Forms 1099-OID
and 1099-PATR, and Form 1099-MISC or 1099-S for royalties. Generally, information returns
may be furnished electronically with the consent of the recipient. See Section 4.5.1.
Note.A trustee of a grantor-type trust may choose to file Forms 1099 and furnish a state-
ment to the grantor under Regulations sections 1.671–4(b)(2)(iii) and (b)(3)(ii). The statement
required by those regulations is not subjectto the requirements outlined in this section.
4.1.2 Substitute Statements to
Recipients for Certain Forms
1099-INT and 1099-DIV, and for
Forms 1099-OID and 1099-PATR
The rules in this section apply to Form 1099-INT(except for interest reportable under sec-
tion 6041), 1099-DIV (except for section 404(k) dividends), 1099-OID, and 1099-PATR only.
You may furnish form recipients with Copy B of the official Form 1099 or a substitute Form
1099 (form recipient statement) if it contains the same language as the official IRS form (such
as aggregate amounts paid to the form recipient, any backup withholding, the name, address,
and TIN of the person making the return, and any other information required by the official
form). Except for state income tax withholding information, information not required by the
official form should not be included on the substitute form.
You may enter a total of the individual accounts listed on the form only if they have been
paid by the same payer. For example, if you are listing interest paid on several accounts by
one financial institution on Form 1099-INT, you may also enter the total interest amount. You
may also enter a date next to the corrected box if that box is checked.
A substitute form recipient statement for Forms 1099-INT, 1099-DIV, 1099-OID, or
1099-PATR must comply with the following requirements:
(1) Box captions and numbers that are applicable must be clearly identified, using the same
wordingandnumberingasontheofficialform.
Note.For Form 1099-INT, if box 3 is not on your substitute form, you may drop “not included
in box 3” from the box 1 caption.
(2) The form recipient statement (Copy B) must contain all applicable form recipient in-
structions provided on the front and back of the official IRS form. You may provide those
instructions on a separate sheet of paper.
(3) The form recipient statement must contain the following in bold and conspicuous type:
This is important tax information and is being furnished to the Internal Revenue Ser-
vice. If you are required to file a return, a negligence penalty or other sanction may be
imposed on you if this income is taxable and the IRS determines that it has not been
reported.
(4) The box caption“Federal income tax withheld”must be in boldface type on the form
recipient statement.
(5) The form recipient statement must contain the Office of Management and Budget
(OMB) number as shown on the official IRS form. SeePart 5.
(6) The form recipient statement must contain the tax year (for example, 2006), form num-
ber (for example, Form 1099-INT), and form name (for example, Interest Income) of the offi-
cial IRS Form 1099. This information must be displayed prominently together in one area of
the statement. For example, the tax year, form number, and form name could be shown in the
upper right part of the statement. Each copy must be appropriately labeled (such as Copy B,
For Recipient). SeeSection 4.4for applicable labels and arrangement of assembly of forms.
Note.Do not include the words “Substitute for” or “In lieu of” on the form recipient statement.
(7) Layout and format of the form is at the discretion of the filer. However, the IRS en-
courages the use of boxes so that the statement has the appearance of a form and can be easily
distinguished from other non-tax statements.
(8) Each recipient statement of Forms 1099-DIV, 1099-INT, 1099-OID, and 1099-PATR
must include the direct access telephone number of an individual who can answer questions
about the statement. Include that telephone number conspicuously anywhere on the recipient
statement.
(9) Until new regulations are issued, the IRS will not assess penalties for use of a logo
(for example, the name of the payer in any typeface, font, or style, and/or a symbolic icon) or
slogan on a recipient statement if the logo or slogan is used by the payer in the ordinary course
January 16, 20073122007–3 I.R.B.

of its trade or business. In addition, use of the logo or slogan must not make it less likely for a
reasonable payee to recognize the importance of the statement for tax reporting purposes.
(10) A mutual fund family may state separatelyononedocument(for example, one piece
of paper) the dividend income earned by a recipient from each fund within the family of funds
as required by Form 1099-DIV. However, each fundand its earnings must be stated separately.
The form must contain an instruction to the recipient that each fund’s dividends and name, not
thenameofthemutualfundfamily,mustbereported on the recipient’s tax return. The form
cannot contain an aggregate total of all funds. In addition, a mutual fund family may furnish a
single statement (as a single filer) for Forms 1099-INT, 1099-DIV, and 1099-OID information.
Each fund and its earnings must be stated separately. The form must contain an instruction
to the recipient that each fund’s earnings and name, not the name of the mutual fund family,
must be reported on the recipient’s tax return. The form cannot contain an aggregate total of
all funds.
4.1.3 Substitute Statements to
Recipients for Certain Forms
1098, 1099, 5498, and W-2G
Statements to form recipients for Forms 1098, 1098-C, 1098-E, 1098-T, 1099-A, 1099-B,
1099-C, 1099-CAP, 1099-G, 1099-H, 1099-LTC, 1099-MISC, 1099-Q, 1099-R, 1099-S,
1099-SA, 5498, 5498-ESA, 5498-SA, W-2G, 1099-DIV (only for section 404(k) dividends
reportable under section 6047), and 1099-INT (only for interest of $600 or more made in the
course of a trade or business reportable under section 6041) can be copies of the official forms
or an acceptable substitute.
Caution.The IRS does not require a donee to use Form 1098-C as the written acknowledg-
ment for contributions of motor vehicles, boats, and airplanes. However, if you choose to use
copies of Form 1098-C or an acceptable substitute as the written acknowledgment, then you
must follow the requirements of this section 4.1.3.
To be acceptable, a substitute form recipient statement must meet the following require-
ments.
(1) The tax year, form number, and form name must be the same as the official form and
must be displayed prominently together in onearea on the statement. For example, they may
be shown in the upper right part of the statement.
(2) The filer’s and the form recipient’s identifying information required on the official IRS
form must be included.
(3) Each substitute recipient statement for Forms W-2G, 1098, 1098-C, 1098-E, 1098-T,
1099-A, 1099-B, 1099-CAP, 1099-DIV, 1099-G (excluding state and local income tax
refunds), 1099-H, 1099-INT, 1099-LTC, 1099-MISC (excluding fishing boat proceeds),
1099-OID, 1099-PATR, 1099-Q, and 1099-S must includethe direct access telephone number
of an individual who can answer questions about the statement. Include the telephone number
conspicuously anywhere on the recipient statement. Although not required, payers reporting
on Forms 1099-C, 1099-R, 1099-SA, 5498, 5498-ESA, and 5498-SA are encouraged to
furnish telephone numbers.
(4) All applicable money amounts and information, including box numbers, required to be
reported to the form recipient must be titled on the form recipient statement in substantially the
same manner as those on the official IRS form.The box caption “Federal income tax withheld”
must be in boldface type on the form recipient statement.
Exception.If you are reporting a payment as “Other income” in box 3 of Form 1099-MISC,
you may substitute appropriate language for the box title. For example, for payments of ac-
crued wages and leave to a beneficiary of a deceased employee, you might change the title of
box 3 to “Beneficiary payments” or something similar.
Note.You cannot make this change on Copy A.
Note.If federal income tax is withheld and shown on Form 1099-R or W-2G, Copy B and
Copy C must be furnished to the recipient. If federal income tax is not withheld, only Copy C
of Form 1099-R and W-2G must be furnished. However, for Form 1099-R, instructions similar
to those on the back of the official Copy B and Copy C of Form 1099-R must be furnished to the
recipient. For convenience, you may choose to provide both Copies B and C of Form 1099-R
to the recipient.
2007–3 I.R.B.313January 16, 2007

(5) You must provide appropriate instructionsto the form recipient similar to those on the
official IRS form, to aid in the proper reporting on the form recipient’s income tax return. For
payments reported on Forms 1099-B, and 1099-CAP, the requirement to include instructions
substantially similar to those on the official IRS form may be satisfied by providing form recip-
ients with a single set of instructions for all Forms 1099-B and 1099-CAP statements required
to be furnished in a calendar year.
(6) If you use carbonless sets to produce recipient statements, the quality of each copy in
the set must meet the following standards:
•All copies must be clearly legible,
•All copies must be able to be photocopied, and
•Fading must not diminish legibility and the ability to photocopy.
In general, black chemical transfer inks are preferred, but other colors are permitted if the above
standards are met. Hot wax and cold carbon spots are not permitted on any of the internal form
plies. The back of a mailer top envelope ply may contain these spots.
(7) A mutual fund family may state separately on one document (for example, one piece
of paper) the Form 1099-B information for a recipient from each fund as required by Form
1099-B. However, the gross proceeds, etc., from each transaction within a fund must be stated
separately. The form must contain an instruction to the recipient that each fund’s (not the
mutual fund family’s) name and amount must be reported on the recipient’s tax return. The
form cannot contain an aggregate total of all funds.
(8) You may use a Uniform Settlement Statement (under the Real Estate Settlement Proce-
dures Act of 1974 (RESPA)) for Form 1099-S. The Uniform Settlement Statement is acceptable
as the written statement to the transferorif you include the legend for Form 1099-S inSection
4.3.2and indicate which information on the Uniform Settlement Statement is being reported
to the IRS on Form 1099-S.
(9) For reporting state income tax withholding and state payments, you may add an addi-
tional box(es) to recipient copies as appropriate.
Note.You cannot make this change on Copy A.
(10) On Copy C of Form 1099-LTC, you may reverse the location of the policyholder’s and
the insured’s name, street address, city, state, and ZIP code for easier mailing.
(11) If an institution insurer uses a third party service provider to file Form 1098-T, then in
addition to the institution or insurers name, address, and telephone number, the same informa-
tion may be included for the third party service provider in the space provided on the form.
(12) Logos are permitted on substitute recipient statements for the forms listed in this section
(Section 4.1.3).
Section 4.2 — Composite Statements
4.2.1 Composite Substitute
Statements for Certain Forms
1099-INT, 1099-DIV, 1099-MISC,
and 1099-S, and for Forms
1099-OID and 1099-PATR
A composite form recipient statement is permitted for reportable payments of interest, div-
idends, original issue discount, patronage dividends, and royalties (Forms 1099-INT (except
for interest reportable under section 6041), 1099-DIV (except for section 404(k) dividends),
1099-MISC or 1099-S (for royalties only),1099-OID, or 1099-PATR) when one payer is re-
porting more than one of these payments during a calendar year to the same form recipient.
Generally, do not include any other Form 1099 information (for example, 1098 or 1099-A)
on a composite statement with the information required on the forms listed in the preceding
sentence.
Exception.A filer may include Form 1099-B information on a composite form with the
forms listed above.
Although the composite form recipient statement may be on one sheet, the format of the
composite form recipient statement must satisfy the following requirements in addition to the
requirements listed earlier inSection 4.1.2.
•All information pertaining to a particular type of payment must be located and blocked
together on the form and separate from any information covering other types of payments
January 16, 20073142007–3 I.R.B.

included on the form. For example, if you are reporting interest and dividends, the Form
1099-INT information must be presented separately from the Form 1099-DIV information.
•The composite form recipient statement must prominently display the tax year, form num-
ber, and form name of the official IRS form together in one area at the beginning of each
appropriate block of information.
•Any information required by the official IRS forms that would otherwise be repeated in
each information block is required to be listed only once in the first information block on
the composite form. For example, there is no requirement to report the name of the filer
in each information block. This rule does notapply to any money amounts (for example,
federal income tax withheld) or to any other information that applies to money amounts.
•A composite statement is an acceptable substitute only if the type of payment and the recip-
ient’s tax obligation with respect to the payment are as clear as if each required statement
were furnished separately on an official form.
4.2.2 Composite Substitute
Statements to Recipients for
Forms Specified in Section 4.1.3
A composite form recipient statement for the forms specified inSection 4.1.3is permitted
when one filer is reporting more than one type of payment during a calendar year to the same
form recipient. A composite statement is not allowed for a combination of forms listed in
Section 4.1.3and forms listed inSection 4.1.2.
Exceptions:
•Substitute payments in lieu of dividends reported in Box 8 of Form 1099-MISC may be
reported on a composite substitute statement with Form 1099-DIV.
•Form 1099-B information may be reported on a composite form with the forms specified
inSection 4.1.2as described inSection 4.2.1.
•Forms 1099-A and 1099-C transactions, if related, may be combined on Form 1099-C.
•Royalties reported on Form 1099-MISC or 1099-S may be reported on a composite form
only with the forms specified in Section 4.1.2.
Although the composite form recipient statement may be on one sheet, the format of the
composite form recipient statement must satisfy the requirements listed inSection 4.2.1as well
as the requirements inSection 4.1.3. A composite statement of Forms 1098 and 1099-INT (for
interest reportable under section 6049) is not allowed.
Section 4.3 — Required Legends
4.3.1 Required Legends for
Forms 1098
Form 1098 recipient statements (Copy B) must contain the following legends:
•Form 1098—
(1) “The information in boxes 1, 2, and 3 is important tax information and is being fur-
nished to the Internal Revenue Service. If you arerequired to file a return, a negligence penalty
or other sanction may be imposed on you if the IRS determines that an underpayment of tax
results because you overstated a deduction for this mortgage interest or for these points or be-
cause you did not report this refund of interest on your return.”
(2) “Caution.The amount shown may not be fully deductible by you. Limits based on the
loan amount and the cost and value of the secured property may apply. Also, you may only
deduct interest to the extent it was incurred by you, actually paid by you, and not reimbursed
by another person.”
•Form 1098-C:
Copy B — “In order to take a deduction of more than $500 for this for contribution, you
must attach this copy to your federal tax return.”
Copy C — “This information is being furnished to the Internal Revenue Service unless
box 7 is checked.”
•Form 1098-E — “This is important tax information and is being furnished to the Internal
Revenue Service. If you are required to file a return, a negligence penalty or other sanction
2007–3 I.R.B.315January 16, 2007

may be imposed on you if the IRS determines that an underpayment of tax results because
you overstated a deduction for student loan interest.”
•Form 1098-T — “This is important tax information and is being furnished to the Internal
Revenue Service.”
4.3.2 Required Legends for
Forms 1099 and W-2G
•Forms 1099-A, 1099-C, and 1099-CAP:
Copy B — “This is important tax information and is being furnished to the Internal Rev-
enue Service. If you are required to file a return, a negligence penalty or other sanction may
be imposed on you if taxable income results from this transaction and the IRS determines
that it has not been reported.”
•Forms 1099-B, 1099-DIV, 1099-G, 1099-INT, 1099-MISC, 1099-OID, 1099-PATR, and
1099-Q:
Copy B — “This is important tax information and is being furnished to the Internal
Revenue Service. If you are required to file a return, a negligence penalty or other sanction
may be imposed on you if this income is taxable and the IRS determines that it has not been
reported.”
•Forms 1099-H:
Copy B — “This is important tax information and is being furnished to the Internal
Revenue Service.”
•Form 1099-LTC:
Copy B — “This is important tax information and is being furnished to the Internal
Revenue Service. If you are required to file a return, a negligence penalty or other sanction
may be imposed on you if this item is required to be reported and the IRS determines that
it has not been reported.”
Copy C — “Copy C is provided to you for information only. Only the policyholder is
required to report this information on a tax return.”
•Form 1099-R:
Copy B — “Report this income on your federal tax return. If this form shows federal
income tax withheld in box 4, attach this copy to your return.”
Copy C — “This information is being furnished to the Internal Revenue Service.”
•Form 1099-S:
Copy B — “This is important tax information and is being furnished to the Internal
Revenue Service. If you are required to file a return, a negligence penalty or other sanction
may be imposed on you if this item is required to be reported and the IRS determines that
it has not been reported.”
•Form 1099-SA:
Copy B — “This information is being furnished to the Internal Revenue Service.”
•Form W-2G:
Copy B — “This information is being furnished to the Internal Revenue Service. Report
this income on your federal tax return. If this form shows federal income tax withheld in
box 2, attach this copy to your return.”
Copy C — “This is important tax information and is being furnished to the Internal
Revenue Service. If you are required to file a return, a negligence penalty or other sanction
may be imposed on you if this income is taxable and the IRS determines that it has not been
reported.”
4.3.3 Required Legends for
Forms 5498
Form 5498 recipient statements (Copy B) must contain the following legends:
•Form 5498 — “This information is being furnished to the Internal Revenue Service.”
Note.If you do not furnish another statement to the participant because no contributions
were made for the year, the statement of the fair market value and any required minimum
distribution, of the account must contain this legend and a designation of which information
is being furnished to the IRS.
January 16, 20073162007–3 I.R.B.

•Form 5498-ESA — “The information in boxes 1 and 2 is being furnished to the Internal
Revenue Service.”
•Form 5498-SA — “The information in boxes 1 through 6 is being furnished to the Internal
Revenue Service.”
Section 4.4 — Miscellaneous Instructions for Copies B, C, D, 1, and 2
4.4.1 CopiesCopies B, C, and in some cases, D, 1, and 2 are included in the official assembly for the
convenience of the filer. You are not legally required to include all these copies with the pri-
vately printed substitute forms. Furnishing Copies B and, in some cases, C will satisfy the
legal requirement to provide statements of information to form recipients.
Note.If an amount of federal income tax withheld is shown on Form 1099-R or W-2G,
Copy B (to be attached to the tax return) and Copy C must be furnished to the recipient. Copy
D (Forms 1099-R and W-2G) may be used for filer records. Only Copy A should be filed with
the IRS.
4.4.2 Arrangement of AssemblyCopy A (“For Internal Revenue Service Center”) of all forms must be on top. The rest of
the assembly must be arranged, from top to bottom, as follows.
•Form 1098 — Copy B “For Payer”; Copy C “For Recipient.”
•Form 1098-C — Copy B “For Donor”; Copy C “For Donor’s Records”; Copy D “For
Donee.”
•Form 1098-E — Copy B “For Borrower”; Copy C “For Recipient.”
•Form 1098-T — Copy B “For Student”; Copy C “For Filer.”
•Form 1099-A — Copy B “For Borrower”; Copy C “For Lender.”
•Forms 1099-B, 1099-DIV, 1099-G, 1099-H,1099-INT, 1099-OID, 1099-PATR, 1099-Q,
and 1099-SA — Copy B “For Recipient”; Copy C “For Payer.”
•Form 1099-C — Copy B “For Debtor”; Copy C “For Creditor.”
•Form 1099-CAP — Copy B “For Shareholder”; Copy C “For Corporation.”
•Form 1099-LTC — Copy B “For Policyholder”; Copy C “For Insured”; and Copy D “For
Payer.”
•Form1099-MISC—Copy1“ForStateTaxDepartment”; Copy B “ForRecipient”; Copy
2 “To be filed with recipient’s state incometax return, when required”; and Copy C “For
Payer.”
•Form 1099-R — Copy 1 “For State, City, or Local Tax Department”; Copy B “Report this
income on your federal tax return. If this form shows federal income tax withheld in box
4, attach this copy to your return”; Copy C “For Recipient’s Records”; Copy 2 “File this
copy with your state, city, or local income tax return, when required”; Copy D “For Payer.”
•Form 1099-S — Copy B “For Transferor”; Copy C “For Filer.”
•Form 5498 — Copy B “For Participant”; Copy C “For Trustee or Issuer.”
•Form 5498-ESA — Copy B “For Beneficiary”; Copy C “For Trustee.”
•Form 5498-SA — Copy B “For Participant”; Copy C “For Trustee.”
•Form W-2G — Copy 1 “For State Tax Department”; Copy B “Report this income on your
federal tax return. If this form shows federal income tax withheld in box 2, attach this copy
to your return”; Copy C “For Winner’s Records”; Copy 2 “Attach this copy to your state
income tax return, if required.”; Copy D “For Payer.”
4.4.3 PerforationsPerforations are required between forms on all copies except Copy A to make separating
the forms easier. (Copy A of Form W-2G may be perforated.)
2007–3 I.R.B.317January 16, 2007

Section 4.5 — Electronic Delivery of Form 1099 and Form 5498 Payee Statements
4.5.1 Electronic Recipient
Statements
If you are required to furnish a written statement (Copy B or an acceptable substitute) to a
recipient, then you may furnish the statement electronically instead of on paper. This includes
furnishing the statement to recipients of Forms 1098, 1098-E, 1098-T, 1099-A, B, C, CAP,
DIV, H, INT, G, LTC, MISC, OID, PATR, Q, R, S, SA, 5498, 5498-ESA, and 5498-SA. It also
includes Form W-2G (except for horse and dog racing, jai alai, sweepstakes, wagering pools,
and lotteries).
Note.Until further guidance is issued, you can not furnish Form 1098-C electronically.
If you meet the requirements listed below, you are treated as furnishing the statement timely.
ConsentThe recipient must consent in the affirmative and not have withdrawn the consent before
the statement is furnished. The consent by therecipient must be made electronically in a way
that shows that he or she can access the statement in the electronic format in which it will be
furnished.
You must notify the recipient of any hardware or software changes prior to furnishing the
statement. A new consent to receive the statement electronically is required after the new
hardware or software is put into service.
Prior to furnishing the statements electronically, you must provide the recipient a statement
with the following statements prominently displayed:
•If the recipient does not consent to receive the statement electronically, a paper copy will
be provided.
•The scope and duration of the consent. For example, whether the consent applies to every
year the statement is furnished or only for the January 31 immediately following the date
of the consent.
•How to obtain a paper copy after giving consent.
•How to withdraw the consent. The consent may be withdrawn at any time by furnishing
the withdrawal in writing (electronically oron paper) to the person whose name appears
on the statement. Confirmation of the withdrawal also will be in writing (electronically or
on paper).
•Notice of termination. The notice must state under what conditions the statements will no
longer be furnished to the recipient.
•Procedures to update the recipient’s information.
•A description of the hardware and software required to access, print and retain a statement,
and a date the statement will no longer be available on the website.
Format, Posting, and NotificationAdditionally, you must:
•Ensure the electronic format contains all therequired information and complies with the
guidelines in this document.
•Post, on or before the January 31 due date, theapplicable statement on a website accessible
to the recipient through October 15 of that year.
•Inform the recipient, electronically or by mail, of the posting and how to access and print
the statement.
For more information, see Regulations section 31.6051–1. For electronic furnishing of
Forms 1098-E and 1098-T, see Regulations section 1.6050S–2. For electronic furnishing
of Forms 1099-R, 1099-SA, 1099-Q, 5498, 5498-ESA, and 5498-SA, see Notice 2004–10,
2004–6 I.R.B. 433.
January 16, 20073182007–3 I.R.B.

Part 5
Additional Instructions for Substitute
Forms 1098, 1099, 5498, W-2G, and 1042-S
Section 5.1 — Paper Substitutes for Form 1042-S
5.1.1 Paper SubstitutesPaper substitutes of Copy A for Form 1042-S,Foreign Person’s U.S. Source Income Subject
to Withholding, that totally conform to the specifications contained in this procedure may be
privately printed without prior approval from the Internal Revenue Service. Proposed substi-
tutes not conforming to these specifications must be submitted for consideration.
Note.Copies B, C, D, and E of Form 1042-S may contain multiple income entries for the
same recipient, that is multiple rows of the top boxes 1-8 of the form.
5.1.2 Time Frame For Submission
of Form 1042-S
The request should be submitted by November 15 of the year prior to the year the form is
to be used. This is to allow the Service adequate time to respond and the submitter adequate
time to make any corrections. These requests should contain a copy of the proposed form, the
need for the specific deviation(s), and the number of information returns to be printed.
5.1.3 RevisionsForm 1042-S is subject to annual review and possible change. Withholding agents and form
suppliers are cautioned against overstocking supplies of the privately printed substitutes.
5.1.4 Obtaining CopiesCopies of the official form for the reporting year may be obtained from most Service offices.
The Service provides only cut sheets (no carbon interleaves) of these forms. Continuous fan-
fold/pin-fed forms are not provided.
5.1.5 Instructions For
Withholding Agents
Instructions for withholding agents:
•Only original copies may be filed with the Service. Carbon copies and reproductions are
not acceptable.
•The term “Recipient’s U.S. TIN” for an individual means the social security number (SSN)
or IRS individual taxpayer identification number (ITIN), consisting of nine digits sepa-
rated by hyphens as follows: 000–00–0000. For all other recipients, the term means em-
ployer identification number (EIN) or qualified intermediary employer identification num-
ber (QI-EIN). The QI-EIN designation includes a withholding foreign partnership employer
identification number (WP-EIN) and a withholding foreign trust employer identification
number (WT-EIN). The EIN and QI-EIN consist of nine digits separated by a hyphen as
follows: 00–0000000. The taxpayer identification number (TIN) must be in one of these
formats.
•Withholding agents are requested to type or machine print whenever possible, provide qual-
ity data entries on the forms (that is, use black ribbon and insert data in the middle of blocks
well separated from other printing and guidelines), and take other measures to guarantee a
clear, sharp image. Withholding agents are notrequired, however, to acquire special equip-
ment solely for the purpose of preparing these forms.
•The “VOID,” “CORRECTED,” and “PRO-RATA BASIS REPORTING” boxes must be
printed at the top center of the form underthe title and checked, if applicable.
•Substitute forms prepared in continuous or strip form must be burst and stripped to conform
to the size specified for a single form beforethey are filed with the Service. The dimen-
sions are found below. Computer cards are acceptable provided they meet all requirements
regarding layout, content, and size.
2007–3 I.R.B.319January 16, 2007

5.1.6 Substitute Form 1042-S
Format RequirementsPropertySubstitute Form 1042-S Format Requirements
PrintingPrivately printed substitute Forms 1042-S must be exact replicas
of the official forms with respect to layout and content. Only the
dimensions of the substitute form may differ. The Government
Printing Office (GPO) symbol must be deleted. The exact dimensions
are found below.
Box EntriesOnly one item of income may be represented on the copy submitted
to the Service (Copy A). Multiple income items may be shown on
copies provided to recipients or retained by withholding agent. All
boxes appearing on the official form must be present on the substitute
form, with appropriate captions.
Color and Quality
of Ink
All printing must be in high quality non-gloss black ink. Bar codes
should be free from picks and voids.
TypographyType must be substantially identical in size and shape to
corresponding type on the official form. All rules on the document
are either 1 point (0.015”) or 3 point (0.045”). Vertical rules must be
parallel to the left edge of the document; horizontal rules must be
parallel to the top edge.
CarbonsCarbonized forms or “spot carbons” are not permissible. Interleaved
carbons, if used, must be of good quality to preclude smudging and
should be black.
AssemblyIf all five parts are present, theparts of the assembly shall be arranged
from top to bottom as follows: Copy A (Original) “for Internal
Revenue Service,” Copies B, C, and D “for Recipient,” and Copy E
“for Withholding Agent.”
• Paper for Copy A must be white chemical wood bond, or
equivalent, 20 pound (basis 17 x 22–500), plus or minus 5
percent; or offset book paper, 50 pound (basis 25 x 38–500). No
optical brighteners may be added to the pulp or paper during
manufacture. The paper must consist of principally bleach
chemical wood pulp or recycled printed paper. It also must be
suitably sized to accept ink without feathering.
Color Quality of
Paper
• Copies B, C, D (for Recipient), and E (For Withholding Agent)
are provided in the official assembly solely for the convenience
of the withholding agent. Withholding agents may choose the
format, design, color, and quality of the paper used for these
copies.
January 16, 20073202007–3 I.R.B.

PropertySubstitute Form 1042-S Format Requirements
• The official form is 8 inches wide x 5
1
/2inches deep, exclusive
of a
1
/2inch snap stub on the left side of the form. The snap
feature is not required on substitutes.
• The width of a substitute Copy A must be a minimum of 7 inches
and a maximum of 8 inches, although adherence to the size of
the official form is preferred. If the width of substitute Copy A
is reduced from that of the official form, the width of each field
on the substitute form must be reduced proportionately. The left
margin must be
1
/2inch and free of all printing other than that
shown on the official form.
Dimensions
• The depth of a substitute Copy A must be a minimum of 5
1
/6
inches and a maximum of 5
1
/2inches.
Other CopiesCopies B, C, and D must be furnished for the convenience of payees
who must send a copy of the form with other federal and state returns
they file. Copy E may be used as a withholding agent’s record/copy.
Section 5.2 — OMB Requirements for All Forms in This Revenue Procedure
5.2.1 OMB RequirementsThe Paperwork Reduction Act (the Act) of 1995 (Public Law 104–13) requires that:
•OMB approves all IRS tax forms that are subject to the Act. Each IRS form contains
(in or near the upper right corner) the OMB approval number, if any. (The official OMB
numbers may be found on the official IRS printed forms and are also shown on the forms
in the exhibits inPart 6.)
•Each IRS form (or its instructions) states:
(1) Why the IRS needs the information,
(2) How it will be used, and
(3) Whether or not the information is required to be furnished to the IRS.
This information must be provided to any users of official or substitute IRS forms or in-
structions.
5.2.2 Substitute Form
Requirements
The OMB requirements for substitute IRS forms are:
•Any substitute form or substitute statement to a recipient must show the OMB number as
it appears on the official IRS form.
•For Copy A, the OMB number must appear exactly as shown on the official IRS form.
•For any copy other than Copy A, the OMB number must use one of the following formats.
(1) OMB No. XXXX-XXXX (preferred) or
(2) OMB # XXXX-XXXX (acceptable).
5.2.3 Required Explanation to
Users
All substitute forms (Copy A only) must state “For Privacy Act and Paperwork Reduction
Act Notice, see the 2006 General Instructions for Forms 1099, 1098, 5498, and W-2G.” (or
“For Privacy Act and Paperwork Reduction Act Notice, see separate instructions.” for Copy A
of Form 1042-S).
2007–3 I.R.B.321January 16, 2007

If no instructions are provided to users of your forms, you must furnish them with the exact
text of the Privacy Act and Paperwork Reduction Act Notice.
Section 5.3 — Reproducible Copies of Forms
5.3.1 IntroductionYou can order official IRS forms and publications24hoursaday,7daysaweek,bycalling
1–800–TAX–FORM (1–800–829–3676). Other ways to get federal tax material include:
•The Internet.
•CD-ROM.
•GPO Superintendent of Documents Bookstores.
Note.Several IRS forms are provided electronically on the IRS home page and on the
Federal Tax Forms CD-ROM, but Copy A of Forms 1096, the 1098 series, 1099 series, and
5498 series cannot be used for filing with the IRS when printed from a conventional printer.
These forms contain drop-out ink requirements as described in Part 2 of this publication.
5.3.2 InternetYou can download tax materials from the Internet by visiting the IRS web site at
w
ww.irs.gov.
5.3.3 IRS Federal Tax Forms
CD-ROM
The IRS also offers an alternative to downloading electronic files and provides current and
prior-year access to tax forms and instructions through itsFederal Tax Forms CD-ROM.The
CD, Pub. 1796,Federal Tax Products on CD-ROM, will be available for the upcoming fil-
ing season. You may buy the CD-ROM on the Internet atw
ww.irs.gov/cdordersor by calling
1–877–CDFORMS (1–877–233–6767).
5.3.4 GPO Supt. of Documents
Bookstores
The Government Printing Office (GPO) Superintendent of Documents Bookstores also sell
individual copies of tax forms, instructions, and publications.
Section 5.4 — Effect on Other Revenue Procedures
5.4.1 Other Revenue ProceduresRevenue Procedure 2005–69, 2005–2 C.B. 864, which provides rules and specifications for
private printing of 2005 substitute forms andstatements to recipients, is superseded.
Part 6
Exhibits
Section 6.1 — Exhibits of Forms in the Revenue Procedure
6.1.1 PurposeExhibits A through Z illustrate some of the specifications that were discussed earlier in this
revenue procedure. The dimensions apply to the actual size forms, but the exhibits have been
reduced in size.
Generally, the illustrated dimensions apply to all like forms. For example, Exhibit B shows
11.00” from the top edge to the bottom edge of Form 1098 and .85” between the bottom rule
of the top form and the top rule of the second form on the page. These dimensions apply to all
forms that are printed three to a page.
January 16, 20073222007–3 I.R.B.

6.1.2 GuidelinesKeep in mind the following guidelines when printing substitute forms.
•Closely follow the specifications to avoid delays in processing the forms.
•Always use the specifications as outlined in this revenue procedure and illustrated in the
exhibits.
•Do not add the text line “Do Not Cut or Separate Forms on This Page” to the bottom form.
This will cause inconsistency with the specifications.
2007–3 I.R.B.323January 16, 2007

January 16, 20073242007–3 I.R.B.

2007–3 I.R.B.325January 16, 2007

January 16, 20073262007–3 I.R.B.

2007–3 I.R.B.327January 16, 2007

January 16, 20073282007–3 I.R.B.

2007–3 I.R.B.329January 16, 2007

January 16, 20073302007–3 I.R.B.

2007–3 I.R.B.331January 16, 2007

January 16, 20073322007–3 I.R.B.

2007–3 I.R.B.333January 16, 2007

January 16, 20073342007–3 I.R.B.

2007–3 I.R.B.335January 16, 2007

January 16, 20073362007–3 I.R.B.

2007–3 I.R.B.337January 16, 2007

January 16, 20073382007–3 I.R.B.

2007–3 I.R.B.339January 16, 2007

January 16, 20073402007–3 I.R.B.

2007–3 I.R.B.341January 16, 2007

January 16, 20073422007–3 I.R.B.

2007–3 I.R.B.343January 16, 2007

January 16, 20073442007–3 I.R.B.

2007–3 I.R.B.345January 16, 2007

January 16, 20073462007–3 I.R.B.

2007–3 I.R.B.347January 16, 2007

January 16, 20073482007–3 I.R.B.

2007–3 I.R.B.349January 16, 2007

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
January 16, 2007i2007–3 I.R.B.

Numerical Finding List
1
Bulletins 2007–1 through 2007–3
Announcements:
2007-1, 2007-1 I.R.B.243
2007-2, 2007-2 I.R.B.263
Notices:
2007-1, 2007-2 I.R.B.254
2007-2, 2007-2 I.R.B.254
2007-3, 2007-2 I.R.B.255
2007-4, 2007-2 I.R.B.260
2007-5, 2007-3 I.R.B.269
2007-6, 2007-3 I.R.B.272
2007-8, 2007-3 I.R.B.276
Proposed Regulations:
REG-152043-05, 2007-2 I.R.B.263
Revenue Procedures:
2007-1, 2007-1 I.R.B.1
2007-2, 2007-1 I.R.B.88
2007-3, 2007-1 I.R.B.108
2007-4, 2007-1 I.R.B.118
2007-5, 2007-1 I.R.B.161
2007-6, 2007-1 I.R.B.189
2007-7, 2007-1 I.R.B.227
2007-8, 2007-1 I.R.B.230
2007-9, 2007-3 I.R.B.278
2007-10, 2007-3 I.R.B.289
2007-11, 2007-2 I.R.B.261
2007-13, 2007-3 I.R.B.295
2007-15, 2007-3 I.R.B.300
Revenue Rulings:
2007-1, 2007-3 I.R.B.265
2007-2, 2007-3 I.R.B.266
Treasury Decisions:
9300, 2007-2 I.R.B.246
9301, 2007-2 I.R.B.244
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2006–27 through 2006–52 is in Internal Revenue Bulletin
2006–52, dated December 26, 2006.
2007–3 I.R.B.iiJanuary 16, 2007

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2007–1 through 2007–3
Notices:
2005-29
Modified and superseded by
Notice 2007-4, 2007-2 I.R.B.260
2006-2
Modified and superseded by
Notice 2007-4, 2007-2 I.R.B.260
Proposed Regulations:
REG-142270-05
Corrected by
Ann. 2007-2, 2007-2 I.R.B.263
Revenue Procedures:
2005-69
Superseded by
Rev. Proc. 2007-15, 2007-3 I.R.B.300
2006-1
Superseded by
Rev. Proc. 2007-1, 2007-1 I.R.B.1
2006-2
Superseded by
Rev. Proc. 2007-2, 2007-1 I.R.B.88
2006-3
Superseded by
Rev. Proc. 2007-3, 2007-1 I.R.B.108
2006-4
Superseded by
Rev. Proc. 2007-4, 2007-1 I.R.B.118
2006-5
Superseded by
Rev. Proc. 2007-5, 2007-1 I.R.B.161
2006-6
Superseded by
Rev. Proc. 2007-6, 2007-1 I.R.B.189
2006-7
Superseded by
Rev. Proc. 2007-7, 2007-1 I.R.B.227
2006-8
Superseded by
Rev. Proc. 2007-8, 2007-1 I.R.B.230
Revenue Rulings:
2003-43
Modified by
Notice 2007-2, 2007-2 I.R.B.254
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2006–27 through 2006–52 is in Internal Revenue Bulletin 2006–52, dated December 26,
2006.
January 16, 2007iii2007–3 I.R.B.

2007–3 I.R.B.January 16, 2007

January 16, 20072007–3 I.R.B.

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