Internal Revenue Bulletin 2006-16 (PDF rendition): IRS Announcements

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
6-16
April 17, 2006
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.
SPECIAL ANNOUNCEMENT
Announcement 2006–22, page 779.
This document contains the annual report to the public con-
cerning Advance Pricing Agreements (APAs) and the experi-
ence of the APA program during calendar year 2005. This
document does not provide guidance regarding the application
of the arm’s length standard. Instead, it reports on the struc-
ture and activities of the APA program.
INCOME TAX
Notice 2006–38, page 777.
This notice provides relief for persons who have rehabilitation
credit property in areas affected by Hurricanes Katrina, Rita,
or Wilma. First, the notice provides a safe harbor period of
three years for repair of rehabilitation credit property placed
in service prior to the hurricanes and damaged by the hurri-
canes during which time the property is not subject to rehabil-
itation credit recapture under Code section 50(a)(1) provided
that repairs to the property are actively ongoing. Second, for
property on which the rehabilitation had begun but has not yet
been placed in service on the date that the President declared
a major disaster in the area in which the property is located,
the running of the 24-month or 60-month period is tolled for a
period of 12 months.
EMPLOYEE PLANS
T.D. 9256, page 770.
Final regulations under section 417 of the Code concern con-
tent requirements applicable to explanations of qualified joint
and survivor annuities and qualified preretirement survivor an-
nuities payable under certain retirement plans.
EXEMPT ORGANIZATIONS
Announcement 2006–24, page 820.
Consumer Guidance Corp., of Sun Valley, CA, and Next Step
Foundation, Inc., of Little Rock, AR, no longer qualify as orga-
nizations to which contributions are deductible under section
170 of the Code.
Announcements of Disbarments and Suspensions begin on page 810.
Fi
nding Lists begin on page ii.

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.
April 17, 20062006–16 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 47.—Rehabilitation
Credit
A notice advises taxpayers of certain relief pro-
videdbytheSecretarytotaxpayers having rehabil-
itation credit property located within the Gulf Op-
portunity Zone (GO Zone), the Rita GO Zone, or
the Wilma GO Zone affectedby Hurricanes Katrina,
Rita, or Wilma in 2005. See Notice 2006-38, page
777.
Section 417.—Definitions
and Special Rules for
Purposes of Minimum
Survivor Annuity
Requirements
26 CFR 1.417(a)(3)–1: Required explanation of
qualified joint and survivor annuity and qualified
preretirement survivor annuity.
T.D. 9256
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Revised Regulations
Concerning Disclosure of
Relative Values of Optional
Forms of Benefit
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations under section 417(a)(3)
of the Internal Revenue Code concerning
content requirements applicable to ex-
planations of qualified joint and survivor
annuities and qualified preretirement sur-
vivor annuities payable under certain
retirement plans. These regulations affect
sponsors, administrators, participants, and
beneficiaries of certain retirement plans.
DATES:Effective Date:These regulations
are effective March 24, 2006.
Applicability Dates:The changes to
§1.401(a)–20, A–36, and §1.417(a)(3)–1
apply as if they had been included in T.D.
9099, 2004–1 C.B. 255 [68 FR 70141].
The change to §1.401(a)–20, Q&A–16,
applies as if it had been included in T.D.
8219, 1988–2 C.B. 48 [53 FR 31837].
FOR FURTHER INFORMATION
CONTACT:BrucePerlinor
Linda Marshall at (202) 622–6090
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in these final regulations have been
previously reviewed and approved by the
Office of Management and Budget in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)) under
control number 1545–0928.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
Section 417(a) provides rules under
which a participant (with spousal consent)
may elect to receive benefits in a form
other than a qualified joint and survivor
annuity (QJSA), including rules relating
to required distributions. Specifically,
section 417(a)(3) provides that a plan
must provide to each participant, within
a reasonable period before the annuity
starting date, a written explanation that
includes the following information: (1)
the terms and conditions of the QJSA; (2)
the participant’s right to make an election
to waive the QJSA form of benefit; (3) the
effect of such an election; (4) the rights of
the participant’s spouse; and (5) the right
torevokeanelectiontowaivetheQJSA
form of benefit.
Section 205 of the Employee Re-
tirement Income Security Act of 1974
(ERISA), Public Law 93–406 (88 Stat.
829), as subsequently amended, provides
rules that are parallel to the rules of sec-
tions 401(a)(11) and 417 of the Internal
Revenue Code (Code). In particular, sec-
tion 205(c)(3) of ERISA provides a rule
parallel to the rule of section 417(a)(3) of
the Code.
Section 1.401(a)–20, which provides
rules governing the requirements for a
waiver of the QJSA, was published in
theFederal Registeron August 19, 1988
(T.D. 8219) (53 FR 31837), effective
August 22, 1988. Section 1.401(a)–20,
Q&A–36, as published in 1988, set forth
requirements for the explanation that must
be provided under section 417(a)(3) as a
prerequisite to waiver of a QJSA. Under
those requirements, such a written expla-
nation must contain a general description
of the eligibility conditions and other ma-
terial features of the optional forms of
benefit and sufficient additional informa-
tion to explain the relative values of the
optional forms of benefit available under
the plan (e.g., the extent to which optional
forms are subsidized relative to the normal
form of benefit or the interest rates used to
calculate the optional forms). In addition,
§1.401(a)–20, Q&A–36, as published in
1988, provided that the written explana-
tion must comply with the requirements
set forth in §1.401(a)–11(c)(3). Section
1.401(a)–11(c)(3), which was issued prior
to the enactment of section 417, provides
rules relating to written explanations that
were required prior to a participant’s elec-
tion of a preretirement survivor annuity
or election to waive a joint and survivor
annuity. Section 1.401(a)–11(c)(3)(i)(C)
provides that such a written explanation
must contain a general explanation of the
relative financial effect of these elections
on a participant’s annuity.
For a married participant, the QJSA
must be at least as valuable as any other
optional form of benefit payable under the
plan at the same time. See §1.401(a)–20,
Q&A–16. Further, the anti-forfeiture rules
of section 411(a) prohibit a participant’s
benefit under a defined benefit plan from
being satisfied through payment of a form
of benefit that is actuarially less valuable
than the value of the participant’s accrued
2006–16 I.R.B.770April 17, 2006

benefit expressed in the form of an an-
nual benefit commencing at normal retire-
ment age. These determinations must be
made using reasonable actuarial assump-
tions. However, see section 417(e)(3) and
§1.417(e)–1(d) for actuarial assumptions
required for use in certain present value
calculations.
Final regulations under section
417(a)(3) regarding disclosure of the rela-
tive value and financial effect of optional
forms of benefit as part of QJSA expla-
nations provided to participants receiv-
ing qualified retirement plan distributions
were published in theFederal Registeron
December 17, 2003. See §1.417(a)(3)–1
(68 FR 70141). The 2003 regulations are
generally effective for QJSA explanations
provided with respect to annuity starting
dates beginning on or after October 1,
2004.
The 2003 regulations were issued in
response to concerns that, in certain
cases, the information provided to par-
ticipants under section 417(a)(3) regard-
ing available distribution forms pursuant
to §1.401(a)–20, Q&A–36, did not ad-
equately enable them to compare those
distribution forms without professional
advice. In particular, participants who
were eligible for early retirement benefits
in the form of both subsidized annuity
distributions and unsubsidized single-sum
distributions may have been receiving ex-
planations that do not adequately disclose
the value of the subsidy that is foregone if
the single-sum distribution is elected. In
such a case, merely disclosing the amount
of the single-sum distribution and the
amount of the annuity payments would
not adequately enable a participant to
make an informed comparison of the rel-
ative values of those distribution forms.
The 2003 regulations addressed this prob-
lem, as well as the problem of disclosure
in other cases where there are significant
differences in value among optional forms,
and also clarified the rules regarding the
disclosure of the financial effect of benefit
payments.
A number of commentators requested
that the effective date of the 2003 reg-
ulations be postponed. Among the rea-
sons cited was the need in some plans for
sponsors to complete an extensive review
and analysis of optional forms of benefit
in order to prepare proper comparisons of
the relative values of those optional forms
to the QJSA. After consideration of these
comments, the IRS issued Announcement
2004–58, 2004–2 C.B. 66, which post-
poned the effective date of the 2003 reg-
ulations under §1.417(a)(3)–1 for certain
QJSA explanations.
Consistent with Announcement
2004–58,proposedregulations
(REG–152914–04,2005–9 I.R.B.
650 [70 FR 4058]) were published in the
Federal Registeron January 28, 2005,
to provide that the 2003 regulations are
generally effective for QJSA explanations
provided with respect to annuity starting
dates beginning on or after February 1,
2006. On August 24, 2005, the IRS held
a public hearing on the proposed regula-
tions. Written comments responding to
the notice of proposed rulemaking were
also received. After consideration of all
the comments, the proposed regulations
are adopted, as amended by this Treasury
decision. The revisions are discussed
below.
Under section 101 of Reorganization
Plan No. 4 of 1978 (43 FR 47713), the Sec-
retary of the Treasury has interpretive ju-
risdiction over ERISA provisions that are
parallel to the Code provisions addressed
in these regulations. Therefore, these reg-
ulations apply for purposes of the paral-
lel rules in section 205(c)(3) of ERISA, as
well as for section 417(a)(3) of the Code.
Explanation of Provisions
As provided in the 2005 proposed regu-
lations, these final regulations provide that
the 2003 regulations are generally effec-
tive for QJSA explanations provided with
respect to annuity starting dates beginning
on or after February 1, 2006. However,
these regulations retain the effective date
for §1.417(a)(3)–1 under the 2003 regula-
tions for explanations with respect to any
optional form of benefit that is subject to
the requirements of section 417(e)(3) if
the actuarial present value of that optional
form is less than the actuarial present value
(as determined under section 417(e)(3)) of
theQJSA.Thus,forexample,aQJSAex-
planation provided with respect to an an-
nuity starting date on or after October 1,
2004, must comply with §1.417(a)(3)–1 to
the extent that the plan provides for pay-
ment to that participant in the form of a sin-
gle-sum distribution that does not reflect
an early retirement subsidy available under
the QJSA. If the October 1, 2004, effective
date applies to an optional form of benefit,
the plan must disclose the relative value
of the optional form of benefit compared
to the value of the QJSA for the partici-
pant even if the plan provides a disclosure
of relative values that is not tailored to the
participant’s marital status. Accordingly,
if a plan provides a relative value disclo-
sure based on the single life annuity (the
QJSA for a single participant) to a mar-
ried participant, the plan must also include
a comparison of the value of the QJSA to
the value of the single life annuity.
To illustrate the application of the mod-
ified effective date of §1.417(a)(3)–1, the
2005 proposed regulations contained a list
of examples of optional forms of benefit
that are subject to the minimum present
value requirements of section 417(e)(3),
and included a social security level in-
come option in that list.
1
A social secu-
rity level income option is the payment
of a participant’s benefit in the form of
an annuity with larger payments in ear-
lier years before an assumed social se-
curity commencement age to provide the
participant with approximately level re-
tirement income when the assumed so-
cial security payments are taken into ac-
count. Several commentators expressed
disagreement with the inclusion of social
security level income options in the list
of benefits that are subject to the mini-
mum present value requirements of sec-
tion 417(e)(3), based on their view that a
social security level income option is not
subject to those requirements. Commen-
tators requested that this interpretation be
withdrawn or, alternatively, that it be the
subject of a separate rulemaking process
1
Section 1.417(e)–1(d)(6) provides that the minimum present value requirements of section 417(e)(3) do not apply to the amount of a distribution paidin the form of an annual benefit that
does not decrease during the life of the participant, or that decreases during the life of the participant merely because of the death of the survivor annuitant or the cessation or reduction of
social security supplements or qualified disability benefits. A social security supplement is defined in §1.411(a)–7(c)(4) as a benefit for plan participants that commences before the age and
terminates at the age when participants are entitled to old-age insurance benefits, unreduced on account of age, under title II of the Social SecurityAct, and does not exceed such old-age
insurance benefit. Under section 411(a)(9) and §1.411(a)–7(c)(4), a plan’s early retirement benefit (and, therefore, a plan’s normal retirement benefit) is determined without regard to a social
security supplement.
April 17, 20067712006–16 I.R.B.

to allow adequate notice and comment.
In addition, commentators objected to the
placement of these examples in the effec-
tive date provisions of the relative value
regulations rather than in the regulations
regarding the minimum present value re-
quirements of section 417(e)(3).
These final regulations do not include a
list of examples of optional forms of bene-
fit that are subject to the minimum present
value requirements of section 417(e)(3)
in the provisions regarding the effective
date of these regulations. The omission
of this list reflects agreement with com-
mentators that this is not the appropriate
placement for guidance regarding the min-
imum present value requirements of sec-
tion 417(e)(3). Section 1.417(e)–1(d)(6)
identifies the types of payments that are
not subject to the minimum present value
requirements of section 417(e)(3). Under
§1.417(e)–1(d)(6)(ii)(B), the minimum
present value requirements of section
417(e)(3) do not apply to the amount of
a distribution paid in the form of an an-
nual benefit that decreases during the life
of the participant merely because of the
cessation or reduction of social security
supplements. However, no such exemp-
tion applies to social security level income
options.
As under the 2005 proposed regula-
tions, these final regulations include a
special rule that enables a plan to use the
delayed effective date rule even if there
are minor differences between the value
of an optional form and the value of the
QJSA for a married participant that are
caused by the calculation of the amount of
the optional form of benefit based on the
life annuity rather than on the QJSA. Un-
der this special rule, solely for purposes of
the effective date provisions, the actuarial
present value of an optional form is treated
as not being less than the actuarial present
value of the QJSA if the following two
conditions are met. First, using the appli-
cable interest rate and applicable mortality
table under §1.417(e)–1(d)(2) and (3), the
actuarial present value of that optional
form is not less than the actuarial present
value of the QJSA for an unmarried partic-
ipant. Second, using reasonable actuarial
assumptions, the actuarial present value of
the QJSA for an unmarried participant is
not less than the actuarial present value of
the QJSA for a married participant.
Like the 2005 proposed regulations,
these final regulations modify the 2003
regulations in two other respects. First, for
purposes of disclosing the normal form of
benefit as part of a disclosure made in the
form of generally applicable information,
reasonable estimates of the type permitted
to be used to disclose participant-specific
information may be used to determine the
normal form of benefit, but only if the
plan follows the requirements applicable
to reasonable estimates used in disclos-
ing participant-specific information (such
as offering a more precise calculation
upon request and revising previously of-
fered information consistent with the more
precise information). Second, a QJSA
explanation does not fail to satisfy the
requirements for QJSA explanations made
in the form of disclosures of generally
applicable information merely because
the QJSA explanation contains an item of
participant-specific information in place
of the corresponding generally applicable
information.
In response to the 2005 proposed regu-
lations, commentators requested a number
of other modifications to the 2003 regula-
tions that were not addressed in the 2005
proposed regulations. These regulations
adopt a number of these suggestions.
To address questions raised by com-
mentators, these regulations clarify which
optional forms of benefit that are available
with retroactive annuity starting dates are
required to be covered in a QJSA explana-
tion. Under these regulations, a QJSA ex-
planation must provide the required infor-
mation with respect to each of the optional
forms of benefit presently available to the
participant (i.e., optional forms of bene-
fit for which the QJSA explanation applies
that have an annuity starting date after the
providing of the QJSA explanation and op-
tional forms of benefitwith retroactive an-
nuity starting dates that are available with
payments commencing at that same time).
In addition, these regulations clarify that
the disclosure of the financial effect of an
optional form of benefit (including a ben-
efit available with a retroactive annuity
starting date) must describe the amounts
and timing of payments to the participant
under the form of benefit during the partic-
ipant’s lifetime, and the amounts and tim-
ing of payments after the death of the par-
ticipant.
Some commentators expressed con-
cerns over the fact that the regulations
permit any optional form of benefit that is
at least 95% as valuable as the QJSA for
a married participant to be described as
approximately equal in value to the QJSA,
even if that optional form of benefit is sub-
stantially more valuable than the QJSA.
These commentators expressed concerns
regarding compliance with the standards
of professional conduct for actuaries and
recommended that the regulations prohibit
employers from providing information
to participants that is misleading. Com-
mentators also objected to the difference
between this rule and the rule for disclo-
sures of relative values in comparison to
the single life annuity, under which op-
tional forms of benefit can be disclosed as
approximately equal in value to the single
life annuity only if all optional forms are
within a range of 95% to 102.5% of the
value of the single life annuity.
To address these concerns, these regu-
lations provide that the relative value of
all optional forms of benefit that have an
actuarial present value that is at least 95%
of the actuarial present value of the QJSA
and no greater than 105% of the actuar-
ial present value of the QJSA is permitted
to be described by stating that these op-
tional forms of benefit are approximately
equal in value to the QJSA, or that all of
these forms of benefit and the QJSA are
approximately equal in value. Thus, op-
tional forms of benefit that have greater
differences in present value may not be de-
scribed as having approximately the same
value. Moreover, this rule applies regard-
less of whether the comparison is made
to the QJSA for married participants or
the QJSA for unmarried participants. To
give employers sufficient time to perform
the additional calculations that may be re-
quired to implement this rule, a special ef-
fective date applies so that this change to
the regulations need not be applied for dis-
closures made before 2007.
Some commentators requested clarifi-
cation regarding the reasonable actuarial
assumptions that can be used to compare
the value of an optional form of benefit
to the value of the QJSA if that optional
form of benefit is not subject to the min-
imum present value requirements of sec-
tion 417(e)(3). In response, these regula-
tions clarify that, for this purpose, the rea-
sonableness of interest and mortality as-
2006–16 I.R.B.772April 17, 2006

sumptions is determined without regard to
the circumstances of the individual partic-
ipant. In addition, the applicable mortality
table and the applicable interest rate as de-
fined in §1.417(e)–1(d)(2) and (3) are con-
sidered reasonable actuarial assumptions
for this purpose and thus are permitted (but
not required) to be used.
Commentators requested that simpli-
fied disclosures of financial effect and
relative value be permitted under cer-
tain circumstances to enable employers
to make that information more useful for
participants in certain cases in which the
plan would otherwise be required to pro-
vide a confusing array of information to
a participant. To address these concerns,
these regulations permit simplified pre-
sentations of financial effect and relative
value for a plan that offers a significant
number of substantially similar optional
forms of benefit, and also permit simpli-
fied presentations of relative value and
financial effect for a plan that permits the
participant to make separate benefit elec-
tions with respect to parts of a benefit.
If a plan offers a significant number
of substantially similar optional forms of
benefit and disclosing the financial effect
and relative value of each such optional
form of benefit would provide a level of
detail that could be overwhelming rather
than helpful to participants, then the finan-
cial effect and relative value of those op-
tional forms of benefit can be disclosed
by explaining the relative value and finan-
cial effect of a representative range of ex-
amples of those optional forms of bene-
fit. For purposes of this rule, optional
forms of benefit are substantially similar if
those optional forms of benefit are identi-
cal except for a particular feature or fea-
tures (with associated adjustment factors)
and the feature or features vary linearly.
For example, if a plan offers joint and sur-
vivor annuity options with survivor pay-
ments available in all whole number per-
centages between 50% and 100%, those
joint and survivor annuity options are sub-
stantially similar. Similarly, if a partici-
pant is entitled under the plan to receive
a particular form of benefit with an annu-
ity starting date that is the first day of any
month beginning three years before com-
mencement of a distribution and ending on
the date of commencement of the distri-
bution, those forms of benefit are substan-
tially similar.
A range of examples with respect to
substantially similar optional forms of
benefit as permitted under this rule is rep-
resentative only if it includes examples
illustrating the relative value and financial
effect of the optional forms of benefit that
reflect each varying feature at both ex-
tremes of its linear range, plus at least one
example illustrating the relative value and
financial effect of the optional forms of
benefit that reflects each varying feature
at an intermediate point. However, if one
intermediate example is insufficient to
illustrate a pattern of variation in relative
value with respect to a varying feature,
examples that are sufficient to illustrate
the pattern must be provided. Thus, for
example, if a plan offers joint and survivor
annuity options with survivor payments
available in all whole number percentages
between 50% and 100%, and if all such
optional forms of benefit would be per-
mitted to be described as approximately
equal in value, the plan could satisfy the
requirement to disclose the relative value
and financial effect of a representative
range of examples of those optional forms
of benefit by disclosing the relative value
and financial effect with respect to the
joint and 50% survivor annuity, the joint
and 75% survivor annuity, and the joint
and 100% survivor annuity.
If the plan permits a participant to make
separate benefit elections with respect to
two or more portions of the participant’s
benefit, the description of the financial ef-
fect and relative values of optional forms
of benefit can be made separately for each
such portion of the benefit, rather than for
each optional form of benefit (i.e., each
combination of possible elections).
As under the 2005 proposed regula-
tions, these regulations include a change
to §1.401(a)–20, Q&A–16, to clarify the
interaction of the rule prohibiting a plan
from providing an option to a married in-
dividual that is worth more than the QJSA
with the requirement that certain optional
forms of benefit be calculated using spec-
ified actuarial assumptions. Under that
clarification, a plan would not fail to sat-
isfy the requirements of §1.401(a)–20,
Q&A–16, merely because the amount
payable under an optional form of benefit
that is subject to the minimum present
value requirement of section 417(e)(3) is
calculated using actuarial assumptions set
forthinsection417(e)(3)(i.e., the appli-
cable interest rate and, for periods that are
required, the applicable mortality table).
Dates of Applicability
As discussed above under the head-
ingExplanation of Provisions,these
regulations retain the effective date for
§1.417(a)(3)–1 under the 2003 regulations
(i.e., QJSA explanations with respect to
annuity starting dates on or after October
1, 2004) for explanations with respect to
any optional form of benefit that is subject
to the requirements of section 417(e)(3) if
the actuarial present value of that optional
form is less than the actuarial present value
(as determined under section 417(e)(3))
of the QJSA. See §1.417(a)(3)–1(f)(2).
Thus, for example, a QJSA explanation
provided with respect to an annuity start-
ing date on or after October 1, 2004, must
comply with §1.417(a)(3)–1 to the extent
that the plan provides for payment to that
participant in the form of a single-sum
distribution that does not reflect an early
retirement subsidy available under the
QJSA.
As under the 2005 proposed regula-
tions, these final regulations defer the
effective date of the 2003 regulations
with respect to all other QJSA explana-
tions. Under these final regulations, the
2003 regulations (as amended by these
regulations) generally apply to a QJSA
explanation with respect to any distribu-
tion with an annuity starting date that is
on or after February 1, 2006. However,
the change to §1.417(a)(3)–1(c)(2)(iii)(C)
(relating to disclosures of optional forms
of benefit that are approximately equal in
value to the QJSA) is not required to be
applied to QJSA explanations provided
before January 1, 2007.
A reasonable, good faith effort to com-
ply with these regulations will be deemed
to satisfy the requirements of these regula-
tions for QJSA explanations provided be-
fore January 1, 2007 (except with respect
to any portion of a QJSA explanation that
is subject to the earliereffective date rule
of §1.417(a)(3)–1(f)(2)). For this purpose,
a reasonable, good faith effort to comply
with these regulations includes substantial
compliance with the 2003 regulations.
These regulations do not change the ef-
fective date of the 2003 regulations with
respect to QPSA explanations. Thus, the
2003 regulations continue to apply to any
April 17, 20067732006–16 I.R.B.

QPSA explanation provided on or after
July 1, 2004.
The change to §1.401(a)–20, Q&A–16
(clarifying that a plan does not fail to
satisfy the requirements of Q&A–16 as
a result of complying with the minimum
present value requirements of section
417(e)(3)), applies as if it had been in-
cluded in the 1988 regulations (T.D. 8219,
53 FR 31837).
Special Analyses
It has been determined that this Trea-
sury Decision is not asignificant regula-
tory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It is hereby cer-
tified that the collection of information
in these regulations will not have a sig-
nificant economic impact on a substantial
number of small entities. This certifica-
tion is based upon the fact that qualified
retirement plans of small businesses typi-
cally commence distribution of benefits to
few, if any, plan participants in any given
year and, similarly, only offer elections
to waive a QPSA to few, if any, partic-
ipants in any given year. Thus, the col-
lection of information in these regulations
will only have a minimal economic im-
pact on most small entities. Therefore, an
analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking preced-
ing these regulations was submitted to the
Small Business Administration for com-
ment on its impact on small business.
Drafting Information
The principal authors of these
regulations are Bruce Perlin and
Linda S.F. Marshall of the Office of the Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
However, other personnel from the IRS
and Treasury participated in their devel-
opment.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.401(a)–20 is amended
by:
1. Adding a sentence to the end of
Q&A–16.
2. Adding a sentence to the end of
Q&A–36.
The additions read as follows:
§1.401(a)–20 Requirements of qualified
joint and survivor annuity and qualified
preretirement survivor annuity.
*****
A–16***Aplandoesnotfailto
satisfy the requirements of this Q&A–16
merely because the amount payable under
an optional form of benefit that is subject
to the minimum present value requirement
of section 417(e)(3) is calculated using the
applicable interest rate (and, for periods
when required, the applicable mortality ta-
ble) under section 417(e)(3).
*****
A–36 * * * However, the rules of
§1.401(a)–20, Q&A–36, as it appeared
in 26 CFR Part 1 revised April 1, 2003,
apply to the explanation of a QJSA under
section 417(a)(3) for an annuity starting
date prior to February 1, 2006.
*****
Par. 3. Section 1.417(a)(3)–1 is
amended by:
1. Revising the parenthetical in para-
graph (c)(1).
2. Revising the parenthetical in para-
graph (c)(1)(iii).
3. Removing the language “paragraph
(c)(3)(iii) of” from paragraph (c)(2)(ii)(A).
4. Revising paragraph (c)(2)(iii)(C).
5. Adding two sentences to the end of
paragraph (c)(2)(iv)(B).
6. Adding paragraph (c)(5).
7. Adding a sentence to the end of para-
graph (d)(2)(ii).
8. Adding paragraph (d)(5).
9. Revising paragraph (ii) ofExample
(4)in paragraph (e) by removing the lan-
guage “paragraph (c)(2)(ii) of this section”
and adding “paragraph (c)(2)(iii) of this
section” in its place.
10. Revising paragraph (f).
The additions and revisions read as fol-
lows:
§1.417(a)(3)–1 Required explanation of
qualified joint and survivor annuity and
qualified preretirement survivor annuity.
*****
(c)Participant-specific information
required to be provided—(1)In general.
***(i.e., optional forms of benefit for
which the QJSA explanation applies that
have an annuity starting date after the
providing of the QJSA explanation and
optional forms of benefit with retroactive
annuity starting dates that are available
with payments commencing at that same
time)***
*****
(iii) * * * (i.e., the amounts and tim-
ing of payments to the participant under
the form of benefit during the participant’s
lifetime, and the amounts and timing of
payments after the death of the participant)
***
(2) * * *
(iii) * * *
(C)Special rule for optional forms of
benefit that are close in value to the QJSA.
The relative value of all optional forms
of benefit that have an actuarial present
value that is at least 95% of the actuarial
present value of the QJSA and no greater
than 105% of the actuarial present value of
the QJSA is permitted to be described by
stating that those optional forms of bene-
fit are approximately equal in value to the
QJSA, or that all of those forms of benefit
and the QJSA are approximately equal in
value.
*****
(iv)***
(B) * * * For this purpose, the rea-
sonableness of interest and mortality as-
sumptions is determined without regard to
the circumstances of the individual partic-
ipant. In addition, the applicable mortality
table and the applicable interest rate as de-
fined in §1.417(e)–1(d)(2) and (3) are con-
sidered reasonable actuarial assumptions
for this purpose and thus are permitted (but
not required) to be used.
*****
(5)Simplified presentations of financial
effect and relative value to enhance clarity
for participants—(i)In general. This para-
graph (c)(5) permits certain simplified pre-
sentations of financial effect and relative
value of optional forms of benefit to per-
mit more useful presentations of informa-
2006–16 I.R.B.774April 17, 2006

tion to be provided to participants in cer-
tain cases in which a plan offers a range
of optional forms of benefit. Paragraph
(c)(5)(ii) of this section permits simplified
presentations of financial effect and rela-
tive value for a plan that offers a significant
number of substantially similar optional
forms of benefit. Paragraph (c)(5)(iii) of
this section permits simplified presenta-
tions of financial effect and relative value
for a plan that permits the participant to
make separate benefit elections with re-
spect to parts of a benefit.
(ii)Disclosure for plans offering a sig-
nificant number of substantially similar
optional forms of benefit—(A)In general.
If a plan offers a significant number of
substantially similar optional forms of
benefit within the meaning of paragraph
(c)(5)(ii)(B) of this section and disclosing
the financial effect and relative value of
each such optional form of benefit would
provide a level of detail that could be over-
whelming rather than helpful to partici-
pants, then the financial effect and relative
value of those optional forms of benefit
can be disclosed by disclosing the relative
value and financial effect of a representa-
tive range of examples of those optional
forms of benefit as described in paragraph
(c)(5)(ii)(C) of this section if the require-
ments of paragraph (c)(5)(ii)(D) of this
section (relating to additional information
available upon request) are satisfied.
(B)Substantially similar optional forms
of benefit. For purposes of this paragraph
(c)(5)(ii), optional forms of benefit are
substantially similar if those optional
forms of benefit are identical except for a
particular feature or features (with associ-
ated adjustment factors) and the feature or
features vary linearly. For example, if a
plan offers joint and survivor annuity op-
tions with survivor payments available in
every whole number percentage between
50% and 100%, those joint and survivor
annuity options are substantially similar
optional forms of benefit. Similarly, if a
participant is entitled under the plan to
receive a particular form of benefit with
an annuity starting date that is the first
day of any month beginning three years
before commencement of a distribution
and ending on the date of commencement
of the distribution, those forms of benefit
are substantially similar optional forms of
benefit.
(C)Representative range of examples.
A range of examples with respect to sub-
stantially similar optional forms of benefit
as permitted under this paragraph (c)(5) is
representative only if it includes examples
illustrating the financial effect and relative
value of the optional forms of benefit that
reflect each varying feature at both ex-
tremes of its linear range, plus at least one
example illustrating the financial effect
and relative value of the optional forms of
benefit that reflects each varying feature
at an intermediate point. However, if one
intermediate example is insufficient to il-
lustrate the pattern of variation in relative
value with respect to a varying feature, ex-
amples sufficient to illustrate such pattern
must be provided. Thus, for example, if a
plan offers joint and survivor annuity op-
tions with survivor payments available in
every whole number percentage between
50% and 100%, and if all such optional
forms of benefit would be permitted to be
disclosed as approximately equal in value
as described in paragraph (c)(5)(ii)(B)
of this section, the plan could satisfy the
requirement to disclose the financial ef-
fect and relative value of a representative
range of examples of those optional forms
of benefit by disclosing the financial effect
and relative value with respect to the joint
and 50% survivor annuity, the joint and
75% survivor annuity, and the joint and
100% survivor annuity.
(D)Requirement to provide informa-
tion with respect to other optional forms of
benefit upon request. If a QJSA explana-
tion discloses the financial effect and rela-
tive value of substantially similar optional
forms of benefit by disclosing the financial
effect and relative value of a representative
range of examples in accordance with this
paragraph (c)(5)(ii), the QJSA explanation
must explain that the plan will, upon the re-
quest of the participant, disclose the finan-
cial effect and relative value of any partic-
ular optional form of benefit from among
the substantially similar optional forms of
benefit and the plan must provide the par-
ticipant with the financial effect and rel-
ative value of any such optional form of
benefit if the participant so requests.
(iii)Separate presentations permitted
for elections that apply to parts of a ben-
efit. If the plan permits the participant to
make separate benefit elections with re-
spect to two or more portions of the partici-
pant’s benefit, the description of the finan-
cial effect and relative values of optional
forms of benefit can be made separately for
each such portion of the benefit, rather than
for each optional form of benefit (i.e., each
combination of possible elections).
(d) * * *
(2) * * *
(ii)Actual benefit must be disclosed.
***Reasonableestimatesofthetypede-
scribed in paragraph (c)(3)(i) of this sec-
tion may be used to determine the amount
payable to the participant under the normal
form of benefit for purposes of this para-
graph (d)(2)(ii) if the requirements of para-
graphs (c)(3)(ii) and (iii) of this section are
satisfied with respect to those estimates.
*****
(5)Use of participant-specific informa-
tion in generalized notice. A QJSA expla-
nation does not fail to satisfy the require-
ments of this paragraph (d) merely because
it contains an item of participant-specific
information in place of the corresponding
generally applicable information.
*****
(f)Effective date—(1)General effec-
tive date for QJSA explanations—(i)In
general. Except as otherwise provided in
this paragraph (f), this section applies to a
QJSA explanation with respect to any dis-
tribution with an annuity starting date that
is on or after February 1, 2006.
(ii)Reasonable, good faith transition
rule. Except with respect to any portion
of a QJSA explanation that is subject to
the earlier effective date rule of paragraph
(f)(2) of this section, a reasonable, good
faith effort to comply with these regula-
tions will be deemed to satisfy the require-
ments of these regulations for QJSA expla-
nations provided before January 1, 2007,
with respect to distributions with annu-
ity starting dates that are on or after Feb-
ruary 1, 2006. For this purpose, a rea-
sonable, good faith effort to comply with
these regulations includes substantial com-
pliance with §1.417(a)(3)–1 as it appeared
in 26 CFR Part 1 revised April 1, 2004.
(2)Special effective date for certain
QJSA explanations—(i)Application to
QJSA explanations with respect to cer-
tain optional forms that are less valuable
than the QJSA. This section also applies
to a QJSA explanation with respect to
any distribution with an annuity starting
date that is on or after October 1, 2004,
and before February 1, 2006, if the actu-
April 17, 20067752006–16 I.R.B.

arial present value of any optional form
of benefit that is subject to the require-
ments of section 417(e)(3) is less than
the actuarial present value (as determined
under §1.417(e)–1(d)) of the QJSA. For
purposes of this paragraph (f)(2)(i), the
actuarial present value of an optional form
is treated as not less than the actuarial
present value of the QJSA if—
(A) Using the applicable interest rate
and applicable mortality table under
§1.417(e)–1(d)(2) and (3), the actuarial
present value of that optional form is not
less than the actuarial present value of the
QJSA for an unmarriedparticipant; and
(B) Using reasonable actuarial assump-
tions, the actuarial present value of the
QJSA for an unmarried participant is not
less than the actuarial present value of the
QJSA for a married participant.
(ii)Requirement to disclose differences
in value for certain optional forms.A
QJSA explanation with respect to any dis-
tribution with an annuity starting date that
is on or after October 1, 2004, and before
February 1, 2006, is only required to be
provided under this section with respect
to—
(A) An optional form of benefit that
is subject to the requirements of section
417(e)(3) and that has an actuarial present
value that is less than the actuarial present
value of the QJSA (as described in para-
graph (f)(2)(i) of this section); and
(B) The QJSA (determined without ap-
plication of paragraph (c)(2)(ii) of this sec-
tion).
(iii)Application to QJSA explanations
with respect to optional forms that are
approximately equal in value to the QJSA.
Paragraph (c)(2)(iii)(C) of this section,
relating to disclosures of optional forms of
benefit that are permitted to be described
as approximately equal in value to the
QJSA, is not applicable to a QJSA expla-
nation provided before January 1, 2007.
However, §1.417(a)(3)–1(c)(2)(iii)(C), as
it appeared in 26 CFR part 1 revised April
1, 2004, applies to a QJSA explanation
with respect to any distribution with an
annuity starting date that is on or after Oc-
tober 1, 2004, and that is provided before
January 1, 2007.
(3)Annuity starting date. For purposes
of paragraphs (f)(1) and (2) of this section,
in the case of a retroactive annuity starting
date under section 417(a)(7), as described
in §1.417(e)–1(b)(3)(vi), the date of com-
mencement of the actual payments based
on the retroactive annuity starting date is
substituted for the annuity starting date.
(4)Effective date for QPSA explana-
tions. This section applies to any QPSA
explanation provided on or after July 1,
2004.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved March 15, 2006.
Eric Solomon,
Acting Deputy Assistant
Secretary of the Treasury.
(Filed by the Office of the Federal Register on March 23,
2006, 8:45 a.m., and published in the issue of the Federal
Register for March 24, 2006, 71 F.R. 14798)
2006–16 I.R.B.776April 17, 2006

Part III. Administrative, Procedural, and Miscellaneous
Rehabilitation Projects
Located in Areas Affected by
2005 Gulf Hurricanes
Notice 2006–38
I. PURPOSE
This notice is to advise taxpayers of cer-
tain relief provided by the Secretary to tax-
payers having rehabilitation credit prop-
erty located within the Gulf Opportunity
Zone (GO Zone), the Rita GO Zone, or the
Wilma GO Zone affected by Hurricanes
Katrina, Rita, or Wilma in 2005.
II. BACKGROUND
Section 38(b) of the Internal Revenue
Code provides a credit against income
taxes for certain business credits, includ-
ing the investment credit determined under
§ 46.
Section 46 provides that, for purposes
of § 38, the amount of the investment credit
includes the rehabilitation credit.
Section 47(a)(1) provides that the re-
habilitation credit for any taxable year
includes an amount equal to 10 percent of
the qualified rehabilitation expenditures
with respect to any qualified building
other than a certified historic structure.
Section 1400N(h)(1), added by section
101 of the Gulf Opportunity Zone Act
of 2005, Pub. L. No. 109–135, 119 Stat.
2577, increases the credit percentage to 13
percent for qualified rehabilitation expen-
ditures paid or incurred during the period
beginning on August 28, 2005, and ending
on December 31, 2008, with respect to any
qualified rehabilitated building located in
the Gulf Opportunity Zone.
Section 47(a)(2) provides that the re-
habilitation credit for any taxable year in-
cludes an amount equal to 20 percent of the
qualified rehabilitation expenditures with
respect to any certified historic structure.
Section 1400N(h)(2)increases the credit
percentage to 26 percent for qualified re-
habilitation expenditures paid or incurred
during the period beginning on August 28,
2005, and ending on December 31, 2008,
with respect to any certified historic struc-
ture located in the Gulf Opportunity Zone.
Section 47(b) provides that qualified re-
habilitation expenditures with respect to
any qualified rehabilitated building shall
be taken into account for the taxable year
in which the qualified rehabilitated build-
ing is placed in service.
Under § 47(c)(1) a qualified rehabili-
tated building must be a building that has
been substantially rehabilitated. Under
§ 47(c)(1)(C), the term substantially reha-
bilitated means that the qualified rehabil-
itation expenditures during the 24-month
period selected by the taxpayer must ex-
ceed the greater of the taxpayer’s adjusted
basis in the building or $5,000. For certain
rehabilitations to be completed in phases,
the taxpayer may use a 60-month period
rather than a 24-month period if the tax-
payer completes architectural plans and
specifications for the phases of the project
before the rehabilitation begins.
Section 50 provides generally that, if
investment credit property (including a
qualified rehabilitated building) is dis-
posed of or otherwise ceases to be invest-
ment credit property with respect to the
taxpayer before the close of the recapture
period, a percentage of the credit allowed
under § 38 must be recaptured. Casualty
losses are dispositions under the recapture
provisions.
Section 1.48–1(a) of the Income Tax
regulations generally requires “section 38
property” to be property for which depre-
ciation is allowable to the taxpayer. Gen-
erally, under § 1.48–1(b), depreciation is
allowable to the taxpayer if the property is
of a character subject to the allowance for
depreciation under § 167.
Section 167 provides generally that de-
preciation is allowed for property used in a
trade or business or held for the production
of income. Section 1.167(a)–10(b) pro-
vides that the period for depreciation of an
asset begins when the asset is placed in ser-
vice and ends when the asset is retired from
service.
Depreciation is not allowed for property
that is permanently retired either from ser-
vice in a trade or business or from being
held for the production of income, whether
retired because of casualty or otherwise.
§ 1.167(a)–8(a). Depreciation, however,
continues to be allowed for property which
has been damaged and is not currently in
actual use in a trade or business (or in the
production of income) but is not perma-
nently retired from the trade or business (or
being held for the production of income)
for a reasonable period during which the
property is being repaired or restored to
service.See§ 1.167(a)–8(a). If a quali-
fied rehabilitated building is permanently
retired less than five full years after it was
placed in service, the § 47 credit taken by
the taxpayer with respect to that property
is subject to recapture as provided in § 50.
The § 47 credit taken by a taxpayer on a
property that is damaged and not currently
in actual use does not cease to be section
38 property because of the lack of actual
use during a reasonable period in which the
property is being repaired or restored.
III. AFFECTED AREAS
This notice applies to rehabilitation
projects located in the GO Zone, the Rita
GO Zone, and the Wilma GO Zone, as
defined below.
Section 1400M(1) defines the GO Zone
as that portion of the Hurricane Katrina
disaster area determined by the Presi-
dent to warrant individual or individual
and public assistance from the Federal
Government under the Robert T. Stafford
Disaster and Emergency Assistance Act
(the Stafford Act) by reason of Hurricane
Katrina. Section 1400M(2) defines the
Hurricane Katrina disaster area as an area
with respect to which a major disaster
has been declared by the President before
September 14, 2005, under section 401 of
the Stafford Act by reason of Hurricane
Katrina.
Section 1400M(3) defines the Rita GO
Zone as that portion of the Hurricane Rita
disaster area determined by the President
to warrant individual or individual and
public assistance from the Federal Gov-
ernment under the Stafford Act by reason
of Hurricane Rita. Section 1400M(4) de-
fines the Hurricane Rita disaster area as an
area with respect to which a major disaster
has been declared by the President before
October 6, 2005, under section 401 of the
Stafford Act by reason of Hurricane Rita.
Section 1400M(5) defines the Wilma
GO Zone as that portion of the Hurricane
Wilma disaster area determined by the
President to warrant individual or individ-
ual and public assistance from the Fed-
eral Government under the Stafford Act
April 17, 20067772006–16 I.R.B.

by reason of Hurricane Wilma. Section
1400M(6) defines the Hurricane Wilma
disaster area as an area with respect to
which a major disaster has been declared
by the President before November 14,
2005, under section 401 of the Stafford
Act by reason of Hurricane Wilma.
IV. RELIEF PROVIDED
A. QUALIFIED REHABILITATED
BUILDINGS PLACED IN SERVICE
BEFORE HURRICANES KATRINA,
RITA, AND WILMA, AND DAMAGED
BY THOSE HURRICANES
Taxpayers generally have a reasonable
period to repair and restore qualified re-
habilitated buildings and to return those
buildings to actual service without those
buildings being considered permanently
retired from service. For qualified rehabil-
itated buildings located in the GO Zone,
the Rita GO Zone, or the Wilma GO Zone
that were placed in service prior to the date
on which the President declared a major
disaster in the area in which the property
is located, the Service will deem up to 36
months to be a reasonable period. The pe-
riod begins on the date that the President
declared a major disaster in the area in
which the building is located. In order to
qualify for this period, the taxpayer must
be engaged in the repair or restoration
of the qualified rehabilitated building be-
ginning120 days after the date this notice
is published. The term “engaged in the
repair or restoration of the qualified re-
habilitated building” means, with respect
to the building, ongoing physical repairs;
having entered into binding, written con-
tracts for the repair or restoration to be
completed within this 36-month period;
or, for the period before January 1, 2007,
active negotiation of contracts for the re-
pair or restoration.
B. PROPERTIES UNDERGOING
REHABILITATION AT THE TIME OF
HURRICANES KATRINA, RITA, AND
WILMA
In order for buildings to be qualified
rehabilitated buildings, they must be sub-
stantially rehabilitated. This means that
the qualified rehabilitation expenditures
during the 24-month or 60-month period
selected by the taxpayer must exceed the
greater of the taxpayer’s adjusted basis
in the building or $5,000. For buildings
located in the GO Zone, the Rita GO Zone,
or the Wilma GO Zone on which the re-
habilitation began, but had not been com-
pleted and the building placed in service
before the date on which the President de-
clared a major disaster in the area in which
the building is located, the running of the
24-month or 60-month period is tolled
for a period of 12 months. The period of
tolling begins on the date the President
declared a major disaster in the area in
which the property is located. Qualified
rehabilitation expenditures made during
the period of tolling are treated as having
been made during the relevant 24-month
or 60-month period for purposes of deter-
mining whether the property is substan-
tially rehabilitated within the meaning of
§ 47(c)(1)(C).
V. DRAFTING INFORMATION
The principal author of this notice
is Patrick S. Kirwan of the Office of
Associate Chief Counsel (Passthroughs
and Special Industries). For further in-
formation regarding this notice, contact
Patrick S. Kirwan at (202) 622–3110 (not
a toll-free call).
2006–16 I.R.B.778April 17, 2006

Part IV. Items of General Interest
Announcement and Report Concerning Advance Pricing Agreements
Announcement 2006–22
March 31, 2006
This Announcement is issued pursuant to § 521(b) of Pub. L. 106–170, the Ticket to Work and Work Incentives Improvement Act
of 1999, which requires the Secretary of the Treasury to report annually to the public concerning Advance Pricing Agreements
(APAs) and the APA Program. The first report covered calendar years 1991 through 1999. Subsequent reports covered calendar
years 2000, 2001, 2002, 2003 and 2004. This seventh report describes the experience, structure and activities of the APA Program
during calendar year 2005. It does not provide guidance regarding the application of the arm’s length standard.
Matthew W. Frank
Director, Advance Pricing Agreement Program
Background
Internal Revenue Code (IRC) § 482 providesthat the Secretary may distribute, apportion, or allocate gross income, deductions,
credits, or allowances between or among two or more commonly controlled businesses if necessary to reflect clearly the income
of such businesses. Under the § 482 regulations, the standard to beapplied in determining the true taxable income of a controlled
business is that of a business dealing at arm’s length with an unrelated business. The arm’s length standard has also been
adopted by the international community and is incorporated intothe transfer pricing guidelines issued by the Organization for
Economic Cooperation and Development (OECD). OECD,TRANSFER PRICING GUIDELINES FOR MULTINATIONAL
ENTERPRISES AND TAX ADMINISTRATORS (1995). Transfer pricing issues by their nature are highly factual and have
traditionally been one of the largest issues identified by the IRS in its audits of multinational corporations. The APA Program
is designed to resolve actual or potential transfer pricing disputes in a principled, cooperative manner, as an alternative to the
traditional examination process. An APA is a binding contract between the IRS and a taxpayer by which the IRS agrees not to
seek a transfer pricing adjustment under IRC § 482 for a Covered Transaction if the taxpayer files its tax return for a covered year
consistent with the agreed transfer pricing method (TPM). In 2005, the IRS and taxpayers executed 53 APAs and amended 1 APA.
Since 1991, with the issuance of Rev. Proc. 91–22, 1991–1 C.B. 526, the IRS has offered taxpayers, through the APA Program,
the opportunity to reach an agreement in advance of filing a tax return on the appropriate TPM to be applied to related party
transactions. In 1996, the IRS issued internal procedures for processing APA requests. Chief Counsel Directives Manual (CCDM),
¶¶ 42.10.10 — 42.10.16 (November 15, 1996). Also in 1996, theIRS updated Rev. Proc. 91–22 with the release of Rev. Proc.
96–53, 1996–2 C.B. 375. In 1998, the IRS published Notice 98–65, 1998–2 C.B. 803, which set forth streamlined APA procedures
for Small Business Taxpayers. Then on July 1, 2004, the IRS updated and superseded both Rev. Proc. 96–53 and Notice 98–65 by
issuing Rev. Proc. 2004–40, 2004–2 C.B. 50 (July 19, 2004), effective for all APA requests filed on or after August 19, 2004.
On December 19, 2005, the IRS again updatedthe procedural rules for processing and administering APAs with the release of
Rev. Proc. 2006–9, 2006–2 I.R.B. 278 (Jan. 9, 2006). Rev. Proc. 2006–9 supersedes Rev. Proc. 2004–40 and is effective for all
APA requests filed on or after February 1, 2006.
Also in 2005, the Office of Chief Counsel held two days of public hearings to solicit comments on the state of, and ideas for
improving, the APA Program. These hearings were announced in IRS Announcement 2004–98, 2004–2 C.B. 983 (December
13, 2004), and were held on February 1 and February 22, 2005. Twenty-three persons representing corporations, taxpayer
groups, and professional firms spoke. Written comments from these and other persons are available on the IRS website at
http://www.irs.gov/businesses/corporations/article/ 0,,id=134735,00.html.
Following these hearings, a number of steps were announced in May 2005 to strengthen APA Program operations. These steps
include (i) new case management procedures designed to minimize delays in case processing; (ii) the formation of industry/issue
coordination teams within the APA Office to promote efficiency, quality, and consistency; (iii) enhancement of APA Office
resources; and (iv) improving the APA Program’s ability to monitor compliance by requiring disclosure of standardized summary
information as part of the annual reportprocess. These steps have been implemented or are being implemented currently.
April 17, 20067792006–16 I.R.B.

Advance Pricing Agreements
An APA generally combines an agreement between a taxpayer andthe IRS on an appropriate TPM for the transactions at issue
(Covered Transactions) with an agreement between the U.S. andone or more foreign tax authorities (under the authority of the
mutual agreement process of our income tax treaties) that the TPM is correct. With such a“bilateral” APA, the taxpayer ordinarily
is assured that the income associated with the Covered Transactions will not be subject to double taxation by the IRS and the
foreign tax authority. It is the policy of the United States, as reflected in §§ 2.08 and 7 of Rev. Proc. 2006–9, to encourage
taxpayers that enter the APA Program to seek bilateral or multilateral APAs when competent authority procedures are available
with respect to the foreign country or countries involved. However, the IRS may execute an APA with a taxpayer without
reaching a competent authority agreement (a “unilateral” APA).
A unilateral APA is an agreement between a taxpayer and the IRS establishing an approved TPM for U.S. tax purposes. A
unilateral APA binds the taxpayer and the IRS, but does not prevent foreign tax administrations fromtaking different positions on
the appropriate TPM for a transaction. As stated in § 7.07 of Rev. Proc. 2006–9, should a transaction covered by a unilateral
APA be subject to double taxation as the result of an adjustment by a foreign tax administration,the taxpayer may seek relief by
requesting that the U.S. Competent Authority consider initiating a mutual agreement proceeding,provided there is an applicable
income tax treaty in force with the other country.
When a unilateral APA involves taxpayers operating in a country that is a treaty partner, information relevant to the APA
(including a copy of the APA and APA annual reports) may be provided to the treaty partner under normal rules and principles
governing the exchange of information under income tax treaties.
The APA Program
An IRS team headed by an APA team leader is responsible for the consideration of each APA. As of December 31, 2005, the
APA Program had 17 team leaders. The team leader is responsible for organizing the IRS APA team. The IRS APA team leader
arranges meetings with the taxpayer, secures whatever information is necessary from the taxpayer to analyze the taxpayer’s
related party transactions and the available facts under the arm’s length standard of IRC § 482 and the regulations thereunder
(Treas. Reg.), and leads the discussions with the taxpayer.
The APA team generally includes an economist, an internationalexaminer, LMSB field counsel, and, in a bilateral case, a U.S.
Competent Authority analyst who leads the discussions with the treaty partner. The economist may be from the APA Program or
the IRS field organization. As of December 31, 2005, the APA Program had five economists. The APA team may also include an
LMSB International Technical Advisor, other LMSB exam personnel, and an Appeals Officer.
The APA Process
The APA process is voluntary. Taxpayers submit an application for an APA, together with a user fee as set forth in Rev. Proc.
2006–9, § 4.12. The APA process can be broken into five phases: (1)application; (2) due diligence; (3) analysis; (4) discussion
and agreement; and (5) drafting, review, and execution.
(1)A
pplication
In many APA cases, the taxpayer’s application is preceded by a pre-file conference with the APA staff in which the taxpayer
can solicit the informal views of the APA Program. Pre-file conferences can occur on an anonymous basis, although a taxpayer
must disclose its identity when it applies for an APA. Taxpayers must file the appropriate user fee on or before the due date of
the tax return for the first taxable year that the taxpayer proposes to be covered by the APA. Many taxpayers file a user fee
first and then follow up with a full application later. The procedures for pre-file conferences, user fees, and applications can
be found in §§ 3 and 4 of Rev. Proc. 2006–9.
The APA application can be a relatively modest document for small businesses. Section 9 of Rev. Proc. 2006–9 describes the
special APA procedures for Small Business Taxpayers. For most taxpayers, however, the APA application is a substantial
document filling several binders. The APA Program makes everyeffort to reach an agreement on the basis of the information
provided in the taxpayer’s application.
2006–16 I.R.B.780April 17, 2006

The application is assigned to an APA team leader who is responsible for the case. The APAteam leader’s first responsibility is to
organize the APA team. This involves contacting the appropriate LMSB International Territory Manager to secure the assignment
of an international examiner to the APA case and the LMSB Counsel’s office to secure a field counsel lawyer. In a bilateral case,
the U.S. Competent Authority will assign a U.S. Competent Authority analyst to the team. In a large APA case, the international
examiner may invite his or her manager and other LMSB personnel familiar with the taxpayer to join the team. When the APA
may affect taxable years in Appeals, the appropriate appellate conferee will be invited to join the team. In all cases, the APA team
leader contacts the Manager, LMSB International Technical Advisors, to determine whether to include a technical advisor on
the team. The IRS APA team will generally include a technical advisor if the APA request concernscost sharing, intangibles,
or services. The APA team leader then distributes copies of the APA application to all team members and sets up an opening
conference with the taxpayer. The APA office strives to hold this opening conference within 45 days of the assignment of the
case to a team leader. At the opening conference, the APA team leader proposes a case plan designed, if feasible, to complete a
unilateral APA or, in the case of a bilateral APA, the recommended U.S. negotiating position within 12 months from the date the
full application is filed. The actual median and average times for completing unilateral APAs, recommended negotiating positions
for bilateral APAs, and APAs for Small Business Taxpayers are shown below in Tables 2, 5, and 10, respectively.
(2)D
ueDiligence
The APA team must satisfy itself that the relevant facts submittedby the taxpayer are complete and accurate. This due diligence
aspect of the APA is vital to the process.It is because of this due diligence that the IRS can reachadvance agreements with
taxpayers in the highly factual setting of transfer pricing. Due diligence can proceed in a number of ways. Typically, the taxpayer
and the APA team will agree to dates for future meetings during theopening conference. In advance of the opening conference,
the APA team leader will submit a list of questions to the taxpayer for discussion. The opening conference may result in a second
set of questions. These questions are developed by the APA teamand provided to the taxpayer through the APA team leader. It is
important to note that this due diligence is not an audit and is focused on the transfer pricing issues associated with the transactions
in the taxpayer’s application, or such other transactions that the taxpayer and the IRS may agree to add.
(3)A
nalysis
A significant part of the analytical work associated with anAPA is done typically by the APA economist and/or an IRS field
economist assigned to the case. The analysis may result in the need for additional information. Once the IRS APA team has
completed its due diligence and analysis, it begins discussions with the taxpayer over the various aspects of the APA including the
selection of comparable transactions, asset intensity and other adjustments, the TPM, which transactions to cover, the appropriate
critical assumptions, the APA term, and other key issues. The APA team leader will discuss particularly difficult issues with his or
her managers, but generally the APA teamleader is empowered to negotiate the APA.
(4)D
iscussionandAgreement
The discussion and agreement phase differs for bilateral and unilateral cases. In a bilateral case, the discussions proceed in two
parts and involve two IRS offices — the APA Program and the U.S. Competent Authority. In thefirst part, the APA team will
attempt to reach a consensus with the taxpayer regarding the recommended position that the U.S.Competent Authority should
take in negotiations with its treaty partner. This recommended U.S. negotiating position is a paper drafted by the APA team
leader and signed by the APA Director that provides the APA Program’s view of the best TPM for the Covered Transaction,
taking into account IRC § 482 and the regulations thereunder, the relevant tax treaty, and the U.S. Competent Authority’s
experience with the treaty partner.
The experience of the APA office and the U.S. Competent Authority is that APA negotiations are likely to proceed more rapidly
with a foreign competent authority if the U.S. negotiating position is fully supported by the taxpayer. Consequently, the APA
office works together with the taxpayer in developing the recommended U.S. negotiating position. On occasion, the APA team
will agree to disagree with a taxpayer. In these cases, the APA office will send a recommended U.S. negotiating position to the
U.S. Competent Authority thatincludes elements with which the taxpayer does not agree. This disagreement is noted in the
paper. The APA team leader also solicits the views of the field members of the APA team, and, in the vast majority of APA
cases, the international examiner, LMSB field counsel, and other IRS field team members concur in the position prepared by
the APA team leader.
Once the APA Program completes the recommended U.S. negotiating position, the APA process shifts from the APA Program
to the U.S. Competent Authority. The U.S. Competent Authority analyst assigned to theAPA takes the recommended U.S.
negotiating position and prepares the final U.S. negotiating position, which is then transmitted to the foreign competent authority.
The negotiations with the foreign competent authority are conducted by the U.S. Competent Authority analyst, most often in
face-to-face negotiating sessions conducted periodically throughout the year. At the request of the U.S. Competent Authority
analyst, the APA team leader may continue to assist the negotiations.
April 17, 20067812006–16 I.R.B.

In unilateral APA cases, the discussions proceed solely betweenthe APA Program and the taxpayer. In a unilateral case, the
taxpayer and the APA Program must reach agreement to conclude an APA. Like the bilateral cases, the APA team leader almost
always will achieve a consensus with the IRS field personnel assigned to the APA team regarding the final APA. The APA
Program has a procedure in which the IRS field personnel are solicited formally for their concurrence in the final APA. This
concurrence, or any item in disagreement, is noted in a cover memorandum prepared by the APA team leader that accompanies
the final APA sent forwardfor review and execution.
(5)D
rafting,Review,andExecution
Once the IRS and the taxpayer reach agreement, the drafting of the final APA generally takes little time because the APA Program
has developed standard language that is incorporated into every APA. The current, recently revised version of this language is
found in Attachment A. APAs are reviewed by the Branch Chief and the APA Director. In addition, the team leader prepares a
summary memorandum for the Associate Chief Counsel (International) (ACC(I)). On March 1, 2001, the ACC(I) delegated to
the APA Director the authority to execute APAs on behalf of the IRS.SeeChief Counsel Notice CC–2001–016. The APA is
executed for the taxpayer by an appropriate corporate officer.
Model APA at Attachment A
[§ 521(b)(2)(B)]
Attachment A contains the current version of the model APA language. As part of its continuing effort to improve its work
product, the APA Program recently revised the model language to reflect the program’scollective experiencewith substantive
and drafting issues. The most significant revisions are designed primarily to clarify how TPMs typically employed in APAs,
and adjustments that may be necessary to conform to such TPMs,are to be applied and reflected in the taxpayer’s tax returns.
Other significant revisions include those intended (a) to clarify that the common parent of a US consolidated return group is
the appropriate signatory for APAs covering members of the group, (b) to establish more clearly the taxpayer’s obligation to
file returns, or otherwise report results, consistent with theAPA, particularly for APA years that close before or near the APA
execution date; (c) to provide fixed, identified dates for filingannual reports, and (d) to reflect the new procedure requiring
disclosure of standardized summary information as part of the annual report process.
The Current APA Office Structure, Composition, and Operation
In 2005, the APA office consisted of four branches with Branches 1 and 3 staffed with APA team leaders and Branch 2 staffed
with economists and a paralegal. Branch 4, the APA West Coast branch, is headquartered in Laguna Niguel, California, with an
additional office in San Francisco, and is presently staffed with both team leaders and economists.
Overall, the APA staff increased by one, to 33 from 32, from the end of 2004 to the end of 2005. A second Special Counsel
was added to the Program, while the number of APA team leaders stayed constant at 17, and the number of APA economists
stayed constant at five.
As of December 31, 2005, the APA staff was as follows:
Director’s Office
1 Director
2 Special Counsels to the Director
1 Secretary to the Director
Branch 1Branch 2Branch 3Branch 4
1BranchChief
1 Secretary
6 Team Leaders
1BranchChief
1 Paralegal
3 Economists
1ActingBranchChief(also
Special Counsel)
1 Secretary
8 Team Leaders
1BranchChief
1 Secretary
3 Team Leaders
2 Economists
APATraining
In 2005, the APA office continued to emphasize training. Training sessions addressed APA-related current developments,
new APA office practices and procedures, and international tax law issues. The APA New Hire Training materials were
updated, as necessary, throughout the year. The updated materials are available to the public through the APA internet site
athttp://www.irs.gov/businesses/corporations/article/0,,id=96221,00.html. These materials do not constitute guidance on
the application of the arm’s length standard.
2006–16 I.R.B.782April 17, 2006

APA Program Statistical Data
[§ 521(b)(2)(C) and (E)]
The statistical information required under § 521(b)(2)(C) is contained in Tables 1 and 9 below; the information required under
§ 521(b)(2)(E) is contained in Tables 2 and 3 below:
TABLE 1: APA APPLICATIONS, EXECUTED APAs, AND PENDING APAs
UnilateralBilateralMultilateral
Year
Total
Cumulative
Total
APA applications filed during year
2005
216182928
APAs executed
Year 2005282553610
1991–20042542958557
APA renewals executed during year
2005
7916145
Revised or Amended APAs executed
during year 2005
10130
Pending requests for APAs45195240
Pending requests for new
APAs
25133158
Pending requests for renewal
APAs
206282
APAs canceled or revoked0005
APAs withdrawn6511105
TABLE 2: MONTHS TO COMPLETE APAs
Months to Complete Advance Pricing Agreements in Year 2005
All NewAll RenewalsAll Combined
Average35.0Average33.3Average34.3
Median34.1Median28.7Median27.2
Unilateral
New
Unilateral
Renewals
Unilateral
Combined
Average17.9Average24.3Average20.6
Median17.9Median18.3Median18.1
Bilateral/Multilateral
New
Bilateral/Multilateral
Renewals
Bilateral/Multilateral
Combined
Average51.0Average42.3Average47.4
Median49.3Median39.2Median45.1
April 17, 20067832006–16 I.R.B.

TABLE 3: APA COMPLETION TIME – MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
122243641
223444165
324245266
42514667
5126147168
62714869
712824970
82925071
9305172
102315273
112325374
1233154175
1334552761
14235561772
151365778
1623758179
17238259180
182392601811
19406182
204162831
211426384
TABLE 4: RECOMMENDED NEGOTIATING POSITIONS
Recommended Negotiating Positions Completed in Year 200547
TABLE 5: MONTHS TO COMPLETE RECOMMENDED NEGOTIATING POSITIONS
NewRenewalCombined
Average21.9Average20.0Average21.0
Median19.5Median19.1Median19.2
2006–16 I.R.B.784April 17, 2006

TABLE 6: RECOMMENDED NEGOTIATING POSITIONS COMPLETION TIME – MONTHS PER APA
MonthsNumberMonthsNumberMonthsNumberMonthsNumber
1116131146
217332147
31823348
41923449
52023550
622123651
7122237152
822313853
9124239541
102540155
111264156
122734257
1322843258
1432924459
1533024560
Tables 7 and 8 below show how long each APA request pending at the end of 2005 has been in the system as measured from
the filing date of the APA submission. We believe that reporting the age of both completed cases and pending cases reflects
more accurately the APA Program’s success or failure in moving cases and improves thepublic’s ability to evaluate the current
timeliness of the APA process. (The numbers in Tables 7 and 8 for pending unilateral and bilateral cases differ from the numbers
in Table 1 because whereas Table 1includes any case for which a user fee has been paid, Tables 7 and 8 reflect only cases for
which submissions have been received.)
TABLE 7: UNILATERAL APAs – TIME IN INVENTORY – MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
131623146
21723247
311833348
431934149
512013550
62213651
712213752
812338531
922423954
1022514055
112264156
April 17, 20067852006–16 I.R.B.

Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
125274257
132824358
142294459
15304560
TABLE 8: BILATERAL APAs – TIME IN INVENTORY – MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
12957185
2130158186
323125987
4232560188
523356189
663446290
753526391
8236164292
9103726593
1043826694
11339667951
12240268196
1314116997
1454227098
1584327199
16744372100
17445373101
184462741102
19547175103
2024876104
21449277105
22650278106
2375179107
24352280108
255381109
264543823110
275551831111
28856184112
2006–16 I.R.B.786April 17, 2006

TABLE 9: SMALL BUSINESS TAXPAYER APAs
Small Business Taxpayer APAs Completed in Year 200510
New4
Renewals6
Unilateral9
Bilateral1
TABLE 10: MONTHS TO COMPLETE SMALL BUSINESS TAXPAYER APAs
Months to Complete Small Business Taxpayer APAs in Year 2005
NewRenewalCombined
Average18.5Average16.7Average17.4
Median21.5Median15.6Median16.2
TABLE 11: INDUSTRIES COVERED
1
Industry Involved – NAICS CodesNumber
Computer and electronic product manufacturing – 3347–9
Electronic equipment, appliance and component manufacturing – 3357–9
Food manufacturing – 3114–6
Securities, commodity contracts and other intermediary and related activities – 5234–6
Wholesale trade, durable goods – 4211–3
Transportation equipment manufacturing – 3361–3
Wholesale trade, nondurable goods – 4221–3
Chemical manufacturing – 3251–3
Information service and data processing services – 5141–3
Motor vehicle and parts dealers – 4411–3
Miscellaneous manufacturing – 3391–3
Beverage and tobacco manufacturing – 3121–3
Fabricated metal manufacturing – 3321–3
Sporting goods, hobby, book and music stores – 4511–3
Food and beverage stores – 4451–3
Apparel manufacturing – 3151–3
Air transportation – 4811–3
Clothing and clothing accessories stores – 4481–3
Pipeline transportation – 4861–3
1
The categories in this table are drawn from the North American Industry Classification System (NAICS), which has replaced the U.S. Standard Industrial Classification (SIC) system. NAICS
was developed jointly by the U.S., Canada, and Mexico to provide new comparability in statistics about business activity across North America.
April 17, 20067872006–16 I.R.B.

Trades or Businesses
[§ 521(b)(2)(D)(i)]
The nature of the relationships between the related organizations, trades, or businesses covered by APAs executed in 2005 is
set forth in Table 12 below:
TABLE 12: NATURE OF RELATIONSHIPS BETWEEN RELATED ENTITIES
RelationshipNumber of APAs
Foreign Parent – U.S. Subsidiary (-ies)34
U.S. Parent – Foreign Subsidiary (-ies)16
Foreign Company and U.S. Branch(es)3
Covered Transactions
[§ 521(b)(2)(D)(ii)]
The controlled transactions covered by APAs executed in 2005 are set forth in Table 13 and Table 14 below:
TABLE 13: TYPES OF COVERED TRANSACTIONS
Transaction TypeNumber
Sale of tangible property into the U.S.28
Performance of services by U.S. entity17
Use of intangible property by Non-U.S. entity15
Performance of services by Non-U.S. entity8
Sale of tangible property from the U.S.8
Use of intangible property by U.S. entity≤3
Financial products - Non-U.S. parent≤3
Financial products - U.S. branch of foreign company≤3
R&D cost sharing≤3
Other4
TABLE 14: TYPES OF SERVICES INCLUDED IN COVERED TRANSACTIONS
Intercompany Services Involved in the Covered TransactionsNumber
Marketing13
Research and development13
Administrative10
Sales support9
Technical support services9
Distribution7
Product support7
2006–16 I.R.B.788April 17, 2006

Intercompany Services Involved in the Covered Transactions — ContinuedNumber
Accounting6
Headquarters costs6
Management5
Logistical support5
Legal4
License administration services4
Billing services≤3
Communication service≤3
Assembly≤3
Contract research & development≤3
Purchasing≤3
Warranty services≤3
“Destination services” - hotel & reservations≤3
Testing and installation services≤3
Loan guarantees≤3
Business Functions Performed and Risks Assumed
[§ 521(b)(2)(D)(ii)]
The general descriptions of the business functions performed and risks assumed by the organizations, trades, or businesses whose
results are tested in the Covered Transactions in the APAs executed in 2005 are set forth in Tables 15 and 16 below:
TABLE 15: FUNCTIONS PERFORMED BY THE TESTED PARTY
Functions PerformedNumber
Distribution functions42
Marketing functions26
Manufacturing19
Research and development19
Managerial, legal, accounting, finance,personnel, and other support services18
Purchasing and materials management13
Product assembly and/or packaging12
Transportation and warehousing11
Product design and engineering10
Licensing of intangibles10
Product testing and quality control9
Technical training and tech support for salesstaff (including sub-distributors)8
Product service (repairs, etc.)5
Trading and risk management of financial products4
Consulting services4
Process engineering4
April 17, 20067892006–16 I.R.B.

Functions Performed — ContinuedNumber
Telecom services≤3
Engineering and construction related services≤3
TABLE 16: RISKS ASSUMED BY THE TESTED PARTY
Risks AssumedNumber
Market risks, including fluctuations incosts, demand, pricing, & inventory62
General business risks (e.g., related to ownership of PP&E)57
Credit and collection risks54
Financial risks, including interest rates & currency32
Product liability risks23
R&D risks13
Discussion
The vast majority of APAs have Covered Transactions that involve numerous business functions and risks. For instance, with
respect to functions, companies that manufacture products have typically conducted research and development, engaged in
product design and engineering, manufactured the product, marketed and distributed the product, and performed support functions
such as legal, finance, and human resources services. Regardingrisks, companies have been subject to market risks, R&D risks,
financial risks, credit and collection risks, product liability risks, and general business risks. Inthe APA evaluation process, a
significant amount of time and effort is devoted to understanding how the functions and risks are allocated among the controlled
group of companies that are party to the Covered Transactions.
In its APA submission, the taxpayer must provide a functional analysis. The functional analysis identifies the economic activities
performed, the assets employed, the economic costs incurred, and the risks assumed by each of the controlled parties. The
importance of the functional analysis derives from the fact that economic theory posits that there is a positive relationship between
risk and expected return and that different functions provide different value and have different opportunity costs associated with
them. It is important that the functional analysis go beyond simplycategorizing the tested party as,say, a distributor. It should
provide more specific information because, in theexample of distributors, not all distributors undertake similar functions and risks.
Thus, the functional analysis is critical in determining the TPM (including the selection of comparables). Although functional
comparability is an essential factor in evaluating the reliability of the TPM (including the selection of comparables), the APA
evaluation process also involves consideration of economic conditions such as the economic condition of the particular industry.
In evaluating the functional analysis, the APA Program considers contractual terms betweenthe controlled parties and the
consistency of the conduct of the parties with respect to the allocation of risk. In accordance withthe section 482 regulations, the
APA Program also gives consideration to the ability of controlled parties to fund losses that might be expected to occur as a
result of the assumption of risk. Another relevant factor considered in evaluating the functional analysis is the extent to which a
controlled party exercises managerial oroperational control over the business activities that directly influence the amount of
income or loss realized. The section 482 regulations posit thatparties at arm’s length will ordinarily bear a greater share of
those risks over which they have relatively more control.
Related Organizations, Trades, or Businesses Whose Prices or Results are Tested to Determine
Compliance with APA Transfer Pricing Methods
[§ 521(b)(2)(D)(iii)]
The related organizations, trades, or businesses whose prices orresults are tested to determine compliance with TPMs prescribed
in APAs executed in 2005 are set forth in Table 17 below:
2006–16 I.R.B.790April 17, 2006

TABLE 17: RELATED ORGANIZATIONS, TRADES,
OR BUSINESSES WHOSE PRICES OR RESULTS ARE TESTED
2
Type of OrganizationNumber
U.S. distributor27
Multiple tested parties15
U.S. provider of services15
U.S. manufacturer11
Non-U.S. distributor8
Non-U.S. provider of services6
Non-U.S. dealer in financial products≤3
U.S. dealer in financial products≤3
U.S. licensee of intangible property≤3
U.S. licensor of intangible property≤3
U.S. participant in cost sharing agreement≤3
Non-U.S. manufacturer≤3
Non-U.S. licensor of intangible property≤3
Other≤3
Transfer Pricing Methods and the Circumstances Leading to the Use of Those Methods
[§ 521(b)(2)(D)(iv)]
The TPMs used in APAs executed in 2005 are set forth in Tables 18–20 below:
TABLE 18: TRANSFER PRICING METHODS USED FOR TRANSFERS OF
TANGIBLE AND INTANGIBLE PROPERTY
3
TPM UsedNumber
CPM: PLI is operating margin16
CPM: PLI is Berry ratio6
Residual profit split6
CUT (intangibles only)6
CPM: PLI is gross margin5
Resale Price Method (tangibles only)5
CPM: PLI is markup on total costs4
Other profit split≤3
CPM: PLI is other PLI≤3
CPM: PLI is return on assets or capital employed≤3
2
“Multiple tested parties” includes covered transactions that utilize profit splits, CUPs, and CUTs.
3
Profit Level Indicators (PLIs) used with the Comparable Profit Method ofTreas. Reg. § 1.482–5, and as used in these TPM tables, are as follows: (1) operating margin (ratio of operating
profit to sales); (2) Berry ratio (gross profit to operating expenses); (3) gross margin (ratio of gross profit to sales); (4) markup on total costs (percentage markup on total costs); and (5) rate
of return on assets or capital employed (ratio of operating profit to operating assets).
April 17, 20067912006–16 I.R.B.

TPM Used — ContinuedNumber
Comparable profit split≤3
Unspecified method≤3
Other≤3
TABLE 19: TRANSFER PRICING METHODS USED FOR SERVICES
TPM UsedNumber
Cost plus a markup8
Cost with no markup8
CPM: PLI is markup on total costs7
CPM: PLI is operating margin4
CPM: PLI is Berry ratio≤3
Other≤3
TABLE 20: TRANSFER PRICING METHODS USED FOR FINANCIAL PRODUCTS
TPM UsedNumber
Profit split≤3
Interbranch allocation (using indirect evidence of CUPs)≤3
Discussion
The TPMs used in APAs completed during 2005 were based on the section 482 regulations. Under Treas. Reg. § 1.482–3, the
arm’s length amount for controlled transfers of tangible property may be determinedusing the Comparable Uncontrolled Price
(CUP) method, the Resale Price Method, the Cost Plus Method, the Comparable Profits Method (CPM), or the Profit Split
Method. Under Treas. Reg. § 1.482–4, the arm’s length amount for controlled transfers of intangible property may be determined
using the Comparable Uncontrolled Transaction (CUT) method, CPM, or the Profit Split Method. An “Unspecified Method”
may be used for both tangible and intangible property if it provides a more reliable result than the enumerated methods under
the best method rule of Treas. Reg. § 1.482–1(c). For transfers involving the provision of services, Treas. Reg. § 1.482–2(b)
provides that services performed for the benefit of another member of a controlled group should bear an arm’s length charge,
either deemed to be equal to the cost of providing the services (when non-integral, see Treas. Reg. § 1.482–2(b)(3)) or which
should be an amount that would have been charged between independent parties.
In addition, Treas. Reg. § 1.482–2(a) provides rules concerning the proper treatment of loans or advances, and Treas. Reg.
§ 1.482–7 provides rules for qualified cost sharing arrangements under which the parties agree to share the costs of development
of intangibles in proportion to their shares of reasonably anticipated benefits. APAs involving cost sharing arrangements generally
address both the method of allocating costs among the parties as well as determining the appropriate amount of the “buy-in”
payment due for the transfer of pre-existing intangibles to the controlled participants.
In reviewing the TPMs applicable to transfers of tangible and intangible property reflected in Table 18, the majority of the APAs
followed the specified methods. However, several points should be made. The § 482 regulations note that for transfers of
tangible property, the Comparable Uncontrolled Price (CUP) method will generally be the most direct and reliable measure of
an arm’s length price for the Controlled Transaction if sufficiently reliable comparable transactions can be identified. Treas.
Reg. § 1.482–3(b)(2)(ii)(A). It was the experience of the APA Program in 2005, that in the cases that came into the APA
Program, sufficiently reliable CUP transactions were difficult to find. In APAs executed in 2005, no Covered Transaction
used the CUP method.
2006–16 I.R.B.792April 17, 2006

Similar to the CUP method, for transfers of intangible property, the CUT method will generally provide the most reliable measure
of an arm’s length result if sufficiently reliable comparables may be found. Treas. Reg. § 1.482–4(c)(2)(ii). It has generally been
difficult to identify external comparables, and APAs using the CUT method tend to rely on internal transactions between the
taxpayer and unrelated parties. In 2005, sixCovered Transactions utilized the CUT TPM.
The Cost Plus Method (tangibles only) and Resale Price Method were applied in 2005 in zero and five APAs, respectively.
See Treas. Reg. § 1.482–3(c), (d).
The CPM is frequently applied in APAs. This is because reliablepublic data on comparable business activities of independent
companies may be more readily available than potential CUP data, and comparability of resources employed, functions, risks, and
other relevant considerations are more likely to exist than comparability of product. The CPM also tends to be less sensitive than
other methods to differences in accounting practices between the tested party and comparable companies,e.g., classification of
expenses as cost of goods sold or operating expenses. Treas. Reg. §1.482–3(c)(3)(iii)(B), and –3(d)(3)(iii)(B). In addition, the
degree of functional comparability required to obtain a reliable result under the CPM is generally less than required under the
Resale Price or Cost Plus methods, because differences in functions performed often are reflected in operating expenses, and
thus taxpayers performing different functions may have very different gross profit margins but earn similar levels of operating
profit. Treas. Reg. § 1.482–5(c)(2).
Table 18 reflects more than 32 uses of the CPM (with varying PLIs) in Covered Transactions involving tangible or intangible
property. In some APAs, the CPM was also used concurrently with other methods.
The CPM has proven to be versatile in partbecause of the various PLIs that can be used in connection with the method. Reaching
agreement on the appropriate PLI has beenthe subject of much discussion in many ofthe cases, and it depends heavily on the
facts and circumstances. Some APAs have called for different PLIs to apply to different parts of the Covered Transactions
or with one PLI used as a check against the primary PLI.
The CPM was also used regularly with services as the Covered Transactions in APAsexecuted in 2005. There were at least 12
services Covered Transactions using the CPM method with variousPLIs according to the specific facts of the taxpayers involved.
Table 19 reflects the methods used to determine the arm’s length results for APAs involving services transactions.
In 2005, six APAs involving tangible or intangible property used the Residual Profit Split Method, Treas. Reg. § 1.482–6(c)(3).
In residual profit split cases, routine contributions by the controlled parties are allocated routine market returns, and the residual
income is allocated among the controlled taxpayers based upon the relative value of their contributions of non-routine intangible
property to the relevant business activity.
Profit splits have also been used in a number of financial product APAs in which the primary income-producing functions are
performed in more than one jurisdiction. Three or fewer financial product APAs executed in 2005 applied a profit split method.
Critical Assumptions
[§ 521(b)(2)(D)(v)]
Critical Assumptions used in APAs executed in 2005 are described in Table 21 below:
TABLE 21: CRITICAL ASSUMPTIONS
Crit
ical Assumptions involving the following:
Numb
er of APAs
Material changes to the business53
Material changes to tax and/or financial accounting practices53
Ass
ets will remain substantially same
5
Use of Mark-to-Market method≤3
Minimum sales volume≤3
Ne
w import/export non-tariff barriers
≤3
Sales projections or expectations≤3
Currency fluctuations≤3
Ra
tioofSG&Atosales
≤3
April 17, 20067932006–16 I.R.B.

Critical Assumptions involving the following: — ContinuedNumber of APAs
Other financial ratio≤3
Other12
Discussion
APAs include critical assumptions upon which their respective TPMs depend. A critical assumption is any fact (whether or not
within the control of the taxpayer) related to the taxpayer, a third party, an industry, or business and economic conditions, the
continued existence of which is material to the taxpayer’s proposed TPM. Critical assumptions might include, for example, a
particular mode of conducting business operations, a particularcorporate or business structure, or a range of expected business
volume. Rev. Proc. 2006–9, § 4.05. Failure to meet a critical assumption may render an APA inappropriate or unworkable.
A critical assumption may change (and/or fail to materialize) due to uncontrollable changes in economic circumstances, such as a
fundamental and dramatic change in the economic conditions of aparticular industry. In addition, a critical assumption may
change (and/or fail to materialize) due to a taxpayer’s actions thatare initiated for good faith business reasons, such as a change in
business strategy, mode of conducting operations, or the cessation or transfer of a business segment or entity covered by the APA.
If a critical assumption has not been met, the APA may be revisedby agreement of the parties. If such an agreement cannot be
achieved, the APA may be canceled. If a critical assumption has notbeen met, it requires taxpayer’s notice to and discussion with
the Service, and, in the case of a bilateral APA, competent authority consideration. Rev. Proc. 2006–9, § 11.05.
Sources of Comparables, Selection Criteria, and the Nature of Adjustments to Comparables and Tested Parties
[§ 521(b)(2)(D)(v), (vi), and (vii)]
The sources of comparables, selection criteria, and rationale used in determining the selection criteria for APAs executed in
2005 are described in Tables 22 through 24 below. Various formulas for making adjustments to comparables are included as
Attachment B.
TABLE 22: SOURCES OF COMPARABLES
Comparable Sources
Number of Times This
Source Used
Compustat46
Disclosure17
Worldscope12
Moody’s8
Taxpayer’s information on competition≤3
Amadeus≤3
Japan Company Handbook≤3
Mergent FIS≤3
Other4
2006–16 I.R.B.794April 17, 2006

TABLE 23: COMPARABLE SELECTION CRITERIA
Selection Criteria Considered
Number of Times This
Criterion Used
Comparable functions60
Comparable risks48
Comparable industry44
Comparable products37
Comparable intangibles36
Comparable terms9
TABLE 24: ADJUSTMENTS TO COMPARABLES OR TESTED PARTIES
AdjustmentNumber of Times Used
Balance sheet adjustments
Inventory36
Payables34
Receivables33
Property, plant, equipment5
Accounting adjustments
LIFO to FIFO inventory accounting13
Accounting reclassifications (e.g., from COGS to operating expenses)≤3
Other≤3
Profit level indicator adjustments (used to “back into” one PLI from another)
Operating expense4
Miscellaneous adjustments
Research & development≤3
Goodwill value or amortization≤3
Other≤3
Discussion
At the core of most APAs are comparables. The APA Program works closely with taxpayers to find the best and most reliable
comparables for each Covered Transaction. In some cases, CUPs or CUTs can be identified. In other cases, comparable business
activities of independent companies are utilized in applying the CPM or a profit split method. Generally, in the APA Program’s
experience since 1991, CUPs and CUTs have been most often derived from the internal transactions of the taxpayer.
For profit-based methods in which comparable business activities or functions of independent companies are sought, the APA
Program typically has applied a three-part process. First, a pool of potential comparables has been identified through broad
searches. From this pool, companies having transactions that are clearly not comparable to those of the tested party have
been eliminated through the use of quantitative and qualitative analyses,i.e., quantitative screens and business descriptions.
Then, based on a review of available descriptive and financialdata, a set of comparable transactions or business activities of
independent companies has been finalized. The comparability of the finalized set has then been enhanced through the application
of adjustments.
April 17, 20067952006–16 I.R.B.

SourcesofComparables
Comparables used in APAs can be U.S. or foreign, depending on the relevant market, the type of transaction being evaluated, and
the results of the functional and risk analyses. In general, comparables have been located by searching a variety of databases that
provide data on U.S. publicly traded companies and on a combination of public and private non-U.S. companies. Table 22 shows
the various databases and other sources used in selecting comparables for the APAs executed in 2005.
Although comparables were most often identified from the databases cited in Table 22, in some cases comparables were found
from other sources, such as comparables derived internally from taxpayer transactions with third parties.
S
electingComparables
Initial pools of potential comparables generally are derived from the databases using a combination of industry and keyword
identifiers. Then, the pool is refined using a variety of selection criteria specific to the transaction or business activity being
tested and the TPM being used.
The listed databases allow for searches byindustrial classification, by keywords, or by both. These searches can yield a number of
companies whose business activities may or may not be comparable to those of the entity being tested. Therefore, comparables
based solely on industry classification or keyword searches are rarely used in APAs. Instead, the pool of comparables is examined
closely, and companies are selected based on a combination of screens, business descriptions, andotherinformationfoundinthe
companies’ Annual Reports to shareholders and filings with the U.S. Securities and Exchange Commission (SEC).
Business activities are required to meet certain basic comparability criteria to be considered comparables. Functions, risks,
economic conditions, and the property (product or intangible) and services associated with the transaction must be comparable.
Determining comparability can be difficult — the goal has been to use comparability criteria restrictive enough to eliminate
business activities that are not comparable, but yet not so restrictive as to have no comparables remaining. The APA Program
normally has begun with relatively strict comparability criteria and then has relaxed them slightly if necessary to derive a pool
of reliable comparables. A determination on the appropriate size of the comparables set, as well as the business activities that
comprise the set, is highly fact specific anddepends on the reliability of the results.
In addition, the APA Program, consistent with the section 482 regulations, generally has looked at the results of comparables over
a multi-year period. Sometimes this has beena three-year period, but it has been more or less, depending on the circumstances of
the controlled transaction. Using a shorter period might result inthe inclusion of comparables in different stages of economic
development or use of atypical years of a comparabledue to cyclical fluctuations in business conditions.
Many Covered Transactions have been tested with comparables that have been chosen using additional criteria and/or screens.
These include sales level criteria and testsfor financial distress and product comparability. These common selection criteria and
screens have been used to increase the overall comparability of a group of companies and as a basis for further research. The sales
level screen, for example, has been used to remove companies that, due to their size, mightface fundamentally different economic
conditions from those of the transaction or business activities being tested. In addition, APA analyses have incorporated selection
criteria related to removing companies experiencing “financial distress” due to concerns that companies in financial distress often
have experienced unusual circumstances thatrender them not comparable to the business activity being tested. These criteria
include an unfavorable auditor’s opinion, bankruptcy, and, in certain circumstances, operating losses in a given number of years.
An additional important class of selection criteria is the development and ownership of intangible property. In some cases in
which the business activity being tested is a manufacturer, several criteria have been used to ensure, for example, that if the
controlled entity does not own significant manufacturing intangibles or conduct research and development (R&D), then neither
will the comparables. These selection criteria have included determining the importance of patents to a company or screening
for R&D expenditures as a percentage of sales. Again, quantitative screens related to identifying comparables with significant
intangible property generally have been used in conjunction with an understanding of the comparable derived from publicly
available business information.
Selection criteria relating to asset comparability and operating expense comparability have also been used at times. A screen of
property, plant, and equipment (PP&E) as a percentage of sales or assets, combined with a reading of a company’s SEC filings,
has been used to help ensure that distributors (generally lower PP&E) were not compared with manufacturers (generally higher
PP&E), regardless of their industry classification. Similarly, a test involving the ratio of operating expenses to sales has helped to
determine whether a company undertakes a significant marketing and distribution function.
Table 25 shows the number of times various screens were used in APAs executed in 2005:
2006–16 I.R.B.796April 17, 2006

TABLE 25: COMPARABILITY SCREENS
Comparability/Financial Distress ScreenTimes Used
Comparability screens used
Sales30
R&D/ sales21
SG&A/ sales7
Foreign sales/ total sales≤3
PP&E/ total assets≤3
Advertising expense/ sales≤3
Non-startup or start-up≤3
PP&E/ sales≤3
Financial distress
Bankruptcy31
Losses in one or more years17
Unfavorable auditor’s opinion13
Significant reorganization4
AdjustingComparables
After the comparables have been selected, theregulations require that “[i]f there are material differences between the controlled
and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained
with sufficient accuracy to improve the reliability of the results.” Treas. Reg. § 1.482–1(d)(2).In almost all cases involving
income-statement-based PLIs, certain “asset intensity” or “balance sheet” adjustments for factors that have generally agreed-upon
effects on profits are calculated. In addition, in specific cases, additional adjustments are performed to improve reliability.
The most common balance sheet adjustments used in APAs are adjustments for differences in accounts receivable, inventories,
and accounts payable. The APA Program generally has required adjustments for receivables, inventory, and payables based on
the principle that there is an opportunity cost for holding assets. For these assets, it is generally assumed that the cost is a
short-term debt interest rate.
To compare the profits of two business activities with different relative levels of receivables, inventory, or payables, the APA
Program estimates the carrying costs of eachitem and adjusts profits accordingly. Although different formulas have been used in
specific APA cases, Attachment B presents one set of formulas used in many APAs. Underlying these formulas are the notions that
(1) balance sheet items should be expressed as mid-year averages, (2) formulas should try to avoid using data items that are being
tested by the TPM (for example, if sales are controlled, then thedenominator of the balance sheetratio should not be sales), (3) a
short term interest rate should be used, and (4) an interest factor should recognize the average holding period of the relevant asset.
The APA Program also requires that data be compared on a consistent accounting basis. For example, although financial
statements may be prepared on a first-in first-out (FIFO) basis, cross-company comparisons are less meaningful if one or more of
the comparables use last-in first-out (LIFO) inventory accounting methods. This adjustment directly affects costs of goods sold
and inventories, and therefore affects both profitability measures and inventory adjustments.
Still important in some cases is the adjustment for differences in relative levels of PP&E between a tested business activity and
the comparables. Ideally, comparables and the business activity being tested will have fairly similar relative levels of PP&E,
since major differences can be a sign of fundamentally different functions and risks. Typically, the PP&E adjustment is made
using a medium term interest rate.
Additional adjustments used less frequently include those for differences in other balance sheet items, operating expenses, R&D,
or currency risk. Accounting adjustments, such as reclassifying items from cost of goods sold to operating expenses, are also
made when warranted to increase reliability. Often, data are not available for both the controlled and uncontrolled transactions
in sufficient detail to allow for these types of adjustments.
April 17, 20067972006–16 I.R.B.

The adjustments made to comparables or tested parties inAPAsexecutedin2005arereflectedinTable24above.
Nature of Ranges and Adjustment Mechanisms
[§ 521(b)(2)(D)(viii)-(ix)]
The types of ranges and adjustment mechanisms used in APAsexecuted in 2005 are described in Table 26 and 27 below.
TABLE 26: TYPES OF RANGES
4
Type of RangeNumber
Interquartile range52
Specific point (royalty)11
Floor (i.e., result must be no less than x)4
Specific point within CPM range (not floor or ceiling)4
Full range≤3
Financial products — statistical confidence interval to test against internal CUPs≤3
Other6
TABLE 27: ADJUSTMENTS WHEN OUTSIDE OF THE RANGE
Adjustment mechanismNumber
Taxpayer makes an adjustment: to closest edge of single year30
Taxpayer makes an adjustment: to closest edge of multi-year average14
Taxpayer makes an adjustment: to specified point13
Taxpayer makes an adjustment: to median of current year11
Taxpayer makes an adjustment: to other7
Taxpayer makes an adjustment:to median of multi-year average≤3
Taxpayer makes an adjustment: to nearest edge of a single year range≤3
Other≤3
Discussion
Treas. Reg. § 1.482–1(e)(1) states that sometimes a pricing method will yield “a single result that is the most reliable measure of
an arm’s length result.” Sometimes, however, a method may yield “a range of reliable results,” called the “arm’s length range.” A
taxpayer whose results fall within the arm’s length range will not be subject to adjustment.
4
The numbers do not include TPMs with cost or cost-plus methodologies.
2006–16 I.R.B.798April 17, 2006

Under Treas. Reg. § 1.482–1(e)(2)(i), such a range is normally derived by considering a set of more than one comparable
uncontrolled transaction of similar comparability and reliability. If these comparables are of very high quality, as defined in
the § 482 regulations, then under Treas. Reg. § 1.482–1(e)(2)(iii)(A), the arm’s length range includes the results of all of the
comparables (from the least to the greatest). However, the APA Program has only rarely identifiedcases meeting the requirements
for the full range. If the comparables are of lesser quality, then under Treas. Reg. § 1.482–1(e)(2)(iii)(B), “the reliability of the
analysis must be increased, when it is possible to do so, by adjusting the range through application of a valid statistical method to
the results of all of the uncontrolled comparables.” One such method, the “interquartile range,” is ordinarily acceptable, although
a different statistical method “may be applied if it provides a more reliable measure.” The “interquartile range” is defined as,
roughly, the range from the 25th to the 75th percentile of the comparables’ results. See Treas. Reg. § 1.482–1(e)(2)(iii)(C). The
interquartile range was used 52 times in 2005.
Nineteen Covered Transactions reflected on Table 26 specifieda single, specific result. Fourof these Covered Transactions
involved a CPM in which the taxpayer agreed to a “point.” Some APAs specify not a point or a range, but a “floor” or a “ceiling”.
When a floor is used, the tested party’s result must be greaterthan or equal to some particular value. When a ceiling is used,
the tested party’s result must be less than or equal to some particular value. Four APAs executed in 2005 used a floor and
none used a ceiling.
Some APAs look to a tested party’s results over a period of years (multi-year averaging) to determine whether a taxpayer
has complied with the APA. In 2005, rolling multi-year averaging was used for eleven Covered Transactions. Ten of those
used three-year averages. Three or fewer Covered Transactions used a cumulative multi-year average, while eight Covered
Transactions used term averages and three or fewer Covered Transactions used partial term averages.
A
djustments
Under Treas. Reg. § 1.482–1(e)(3), if a taxpayer’s results fall outside the arm’s length range, the Service may adjust the result “to
any point within the arm’s length range.” Accordingly, an APA may permit or require a taxpayer and its related parties to make an
adjustment after the year’s end to put the year’s results within the range, or at the point specified by the APA. Similarly, to enforce
the terms of an APA, the Service may make such an adjustment.When the APA specifies a range, the adjustment is sometimes to
the closest edge of the range, and sometimes to another point suchas the median of the interquartile range. Depending on the facts
of each case, automatic adjustments are notalways permitted. APAs may specify that in such a case there will be a negotiation
between the competent authorities involved to determine whether and to what extent an adjustment should be made. APAs may
permit automatic adjustments unless the result is far outside the range specified in the APA. Thus, APAs provide flexibility and
efficiency, permitting adjustments when normal business fluctuations and uncertaintiespush the result somewhat outside the range.
Where a taxpayer’s actual transactions do not comply with the TPM, a taxpayer must nonetheless report its taxable income in an
amount consistent with the TPM (an APA primary adjustment), as further discussed in § 11.02 of Rev. Proc. 2006–9.
APA Term and Rollback Lengths
[§ 521(b)(2)(D)(x)]
The various term lengths for APAs executed in 2005 are set forth in Table 28 below:
TABLE 28: TERMS OF APAs
APA Term in YearsNumber of APAs
10
20
32
43
527
64
711
83
April 17, 20067992006–16 I.R.B.

APA Term in Years — ContinuedNumber of APAs
91
10 or more2
The number of rollback years to which an APA TPM was applied in 2005 is set forth in Table 29 below:
TABLE 29: NUMBER OF YEARS COVERED BY ROLLBACK OF APA TPM
Number of Rollback YearsNumber of APAs
14
24
32
41
5ormore3
Nature of Documentation Required
[§ 521(b)(2)(D)(xi)]
APAs executed in 2005 required that taxpayers provide various documents with their annual reports. These documents are
described in Table 30 below:
TABLE 30: NATURE OF DOCUMENTATION REQUIRED
Documentation
Number of
Times
Required
Statement identifying all material differences between Taxpayer’s business operations during APA Year
and description of Taxpayer’s business operations contained in Taxpayer’s request for APA, or if there
have been no such material differences, a statement to that effect
53
Description of any failure to meet Critical Assumptions or, if there have been none, a statement to
that effect
53
Statement identifying all material changes in Taxpayer’s accounting methods and classifications,
and methods of estimation, from those described or used in Taxpayer’s request for APA, or if there
have been none, statement to that effect
53
Description of, reason for, and financial analysis of, any Compensating Adjustments with respect to
APA Year, including means by which any Compensating Adjustment has been or will be satisfied
53
Financial analysis demonstrating Taxpayer’s compliance with TPM53
Organizational chart52
Financial statements as prepared in accordance with US GAAP48
Certified public accountant’s opinion that financial statements present fairly financial position of
Taxpayer and the results of its operations, in accordance with US GAAP
47
Copy of the APA14
Various work papers11
Book to tax reconciliations8
2006–16 I.R.B.800April 17, 2006

Documentation — Continued
Number of
Times
Required
Change to entity classification8
Schedule of costs and expenses (e.g., intercompany allocations)7
Financial statements as prepared in accordance with a foreign GAAP5
Profit & Loss statement4
Certified public accountant’s opinion that financial statements present fairly financial position of
Taxpayer and the results of its operations, in accordance with a foreign GAAP
≤3
United States income tax return≤3
Pertinent intercompany agreements≤3
List of entities≤3
Cash Flow statement≤3
Form 5471 or 5472≤3
Other≤3
Approaches for Sharing of Currency or Other Risks
[§ 521(b)(2)(D)(xii)]
During 2005, there were 32 tested parties that faced financial risks, including interest rate and currency risks. In appropriate cases,
APAs may provide specific approaches for dealing with currency risk, such as adjustment mechanisms and/or critical assumptions.
Efforts to Ensure Compliance with APAs
[§ 521(b)(2)(F)]
As described in Rev. Proc. 2006–9, § 11.01, APA taxpayers are required to file annual reports to demonstrate compliance with the
terms and conditions of the APA. The filing and review of annual reports is a critical part of the APA process. Through annual
report review, the APA program monitors taxpayer compliance with the APA on a contemporaneous basis. Annual report review
provides current information on the success or problems associated with the various TPMs adopted in the APA process.
All reports received by the APA office are tracked by one designated APA team leader who also has the primary responsibility
for annual report review. Other APA team leaders and economists assist in this review, especially when the team leader who
negotiated the case is available, since that person will already be familiar with the relevant facts and terms of the agreement. Once
received by the APA office, the annual report is sent out to the district personnel with exam jurisdiction over the taxpayer.
The statistics for the review of APA annual reports are reflected in Table 31 below. As of December 31, 2005, there were 350
pending annual reports. In 2005, 146 reports were closed.
TABLE 31: STATISTICS OF ANNUAL REPORTS
Number of APA annual reports pending as of December 31, 2005350
Number of APA annual reports closed in Year 2005146
Number of APA annual reports requiring adjustment in Year 2005≤3
Number of taxpayers involved in adjustments≤3
Number of APA annual report cases over one year old275
April 17, 20068012006–16 I.R.B.

ATTACHMENT A
Model APA - Based on Revenue Procedure 2006–9
ADVANCE PRICING AGREEMENT
between
[Insert Taxpayer’s Name]
and
THE INTERNAL REVENUE SERVICE
PARTIES
The Parties to
this Advance Pricing Agreement (APA) are the Internal Revenue Service (IRS) and [Insert Taxpayer’s Name],
EIN
.
RECITALS
[Insert Taxpayer Name] is the common parent of an affiliated group filing consolidated U.S. tax returns (collectively referred to
as “Taxpayer”), and is entering into this APA on behalf of itself and other members of its consolidated group.
Taxpayer’s p
rincipal place of business is [City, State]. [Insert general description of taxpayer and other relevant parties].
This APA contains the Parties’ agreement on the best method for determining arm’s-length prices of the Covered Transactions
under I.R.C. section 482, any applicable tax treaties, and the Treasury Regulations.
{If renewal, add}[Taxpayer and IRS previously entered into an APA covering taxable years ending
to,
executed on
.]
AGREEMENT
The Parties agree as follows:
1.Covered Transactions. This APA applies to the Covered Transactions, as defined in Appendix A.
2.Transf
er Pricing Method. Appendix A sets forth the Transfer Pricing Method (TPM) for the Covered Transactions.
3.Term. This APA applies to Taxpayer’s taxable years ending
through(APA Term).
4.Operation.
a. Revenu
e Procedure 2006–9 governs the interpretation, legal effect, and administration of this APA.
b. Nonfactual oral and written representations, within themeaning of sections 10.04 and 10.05 of Revenue Procedure 2006–9
(including any proposals to use particular TPMs), made in conjunction with the APA Request constitute statements made in
compromise negotiations within the meaning of Rule 408 of the Federal Rules of Evidence.
5.Compliance.
a. Taxp
ayer must report its taxable income in an amount that is consistent with Appendix A and all other requirements of this
APA on i
ts timely filed U.S. Return. However, if Taxpayer’s timely filed U.S. Return for an APA Year is filed prior to, or no later
than 60
days after, the effective date of this APA, then Taxpayer must report its taxable income for that APA Year in an amount that
is cons
istent with Appendix A and all other requirements of this APA either on the original U.S. Return or on an amended U.S.
Return
filed no later than 120 days after the effective date of this APA, or through suchother means as may be specified herein.
b. {Insert when U.S. Group or Foreign Group contains more than one member.}[This APA addresses the arm’s-length
nature of prices charged or received in theaggregate between Taxpayer and ForeignParticipants with respect to the Covered
Transactions. Except as explicitly provided, this APA does notaddress and does not bind the IRS with respect to prices charged
or received, or the relative amounts of income or loss realized, by particular legal entities that are members of U.S. Group or
that are members of Foreign Group.]
c. For each taxable year covered by this APA (APA Year), if Taxpayer complies with the terms and conditions of this APA, then
the IRS will not make or propose any allocation or adjustment under I.R.C. section 482 to the amounts charged in the aggregate
between Taxpayer and Foreign Participant[s]with respect to the Covered Transactions.
2006–16 I.R.B.802April 17, 2006

d. If Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:
i. enforce the terms and conditions of this APA and make or propose allocations or adjustments under I.R.C. section 482
consistent with this APA;
ii. cancel or revoke this APA under section 11.06 of Revenue Procedure 2006–9; or
iii. revise this APA, if the Parties agree.
e. Taxpayer must timely file an Annual Report (an original and four copies) for each APA Year in accordance with Appendix C
and section 11.01 of Revenue Procedure 2006–9. Taxpayer must file the Annual Report for all APA Years through the APA Year
ending [insert year] by [insert date]. Taxpayer must file the Annual Report for each subsequent APA Year by [insert month and
day] immediately following the close of that APA Year. (If any date falls on a weekend or holiday, the Annual Report shall be
due on the next date that is not a weekend or holiday.) The IRS may request additional information reasonably necessary to
clarify or complete the Annual Report. Taxpayer will provide such requested information within 30 days. Additional time may
be allowed for good cause.
f. The IRS will determine whether Taxpayer has complied with this APA based on Taxpayer’s U.S. Returns, Financial
Statements, and other APA Records, for the APA Term and any other year necessary to verifycompliance. For Taxpayer to
comply with this APA, an independent certified public accountant must{use the following or an alternative}render an opinion
that Taxpayer’s Financial Statements present fairly, in all material respects, Taxpayer’s financial position under U.S. GAAP.
g. In accordance with section 11.04 of Revenue Procedure 2006–9, Taxpayer will (1) maintain its APA Records, and (2) make
them available to the IRS in connection with an examination under section 11.03. Compliance with this subparagraph constitutes
compliance with the record-maintenanceprovisions of I.R.C. sections 6038A and 6038C for the Covered Transactions for any
taxable year during the APA Term.
h. The True Taxable Income within the meaning of Treasury Regulations sections 1.482–1(a)(1) and (i)(9) of a member of an
affiliated group filing a U.S. consolidated return will be determined under the I.R.C. section 1502 Treasury Regulations.
i.{Optional for US Parent Signatories}To the extent that Taxpayer’s compliance with this APA depends on certain acts of
Foreign Group members, Taxpayer will ensure thateach Foreign Group member will perform such acts.
6.Critical Assumptions. This APA’s critical assumptions, within the meaning of Revenue Procedure 2006–9, section 4.05, appear
in Appendix B. If any critical assumption has not been met, then Revenue Procedure 2006–9, section 11.06, governs.
7.Disclosure. This APA, and any background information related to this APA or the APA Request, are: (1) considered “return
information” under I.R.C. section 6103(b)(2)(C); and (2) not subject to public inspection as a “written determination” under I.R.C.
section 6110(b)(1). Section 521(b) of Pub. L. 106–170 provides that the Secretary of the Treasury must prepare a report for public
disclosure that includes certain specifically designated information concerning all APAs, including this APA, in a form that does
not reveal taxpayers’ identities, trade secrets, and proprietary or confidential business or financial information.
8.Disputes. If a dispute arises concerning the interpretation of this APA, the Parties will seek a resolution by the IRS Associate
Chief Counsel (International) to the extent reasonably practicable, before seeking alternative remedies.
9.Materiality. In this APA the terms “material” and “materially” will be interpreted consistently with the definition of “material
facts” in Revenue Procedure 2006–9, section 11.06(4).
10.Section Captions. This APA’s section captions, which appear initalics, are for convenience and reference only. The captions
do not affect in any way the interpretation or application of this APA.
11.Terms and Definitions. Unless otherwise specified, terms in the plural include the singular and vice versa. Appendix D
contains definitions for capitalized terms not elsewhere defined in this APA.
12.Entire Agreement and Severability. This APA is the complete statement of the Parties’ agreement. The Parties will sever,
delete, or reform any invalid or unenforceable provision in this APA to approximate the Parties’ intent as nearly as possible.
13.Successor in Interest. This APA binds, and inures to the benefitof, any successor in interest to Taxpayer.
14.Notice. Any notices required by this APA or Revenue Procedure 2006–9 must be in writing. Taxpayer will send notices to the
IRS at the address and in the manner set forth in Revenue Procedure 2006–9, section 4.11. The IRS will send notices to:
April 17, 20068032006–16 I.R.B.

Taxpayer Corporation
Attn: Jane Doe, Sr. Vice President (Taxes)
1000 Any Road
Any City, USA 10000
(phone:
)
15.Effective Date and Counterparts. This APA is effective starting on the date, or later date of the dates, upon which all Parties
execute this APA. The Parties may execute this APA in counterparts, with each counterpart constituting an original.
WITNESS,
The Parties have executed this APA on the dates below.
[Taxpayer Name in all caps]
By:
Date:,20
Jane Doe
Sr. Vice President (Taxes)
IRS
By:
Date:,20
Matthew W. Frank
Director, Advance Pricing Agreement Program
APPENDIX A
COVERED TRANSACTIONS AND TRANSFER PRICING METHOD (TPM)
1. Cover
ed Transactions.
[Define the Covered Transactions.]
2. TPM.
{Note:
If appropriate, adapt language from the following examples.}
[The Tested Party is
.]
•CUP Method
The TPM
is the comparable uncontrolled price (CUP) method. The Arm’s Length Range of the price charged for
is bet
ween
andper unit.
•CUT Method
The TPM is the CUT Method. The Arm’s Length Range of the royalty charged for the license of
is between
%and% of [Taxpayer’s, Foreign Participants’, or other specified party’s] Net Sales Revenue. [Insert definition of net
sales revenue or other royalty base.]
•Res
ale Price Method (RPM)
The TPM is the resale price method (RPM). The Tested Party’s Gross Margin for any APA Year is defined as follows: the
Tested Party’s gross profit divided by its sales revenue (as those terms are defined in Treasury Regulations sections 1.482–5(d)(1)
and (2)) for that APA Year. The Arm’s Length Range is between
%and%, and the Median of the Arm’s Length
Range is
%.
2006–16 I.R.B.804April 17, 2006

•Cost Plus Method
The TPM is the cost plus method. The Tested Party’s Cost Plus Markup is defined as follows for any APA Year: the Tested
Party’s ratio of gross profit to production costs (as those terms are defined in Treasury Regulations sections 1.482–3(d)(1)
and (2)) for that APA Year. The Arm’s Length Range is between
%and%, and the Median of the Arm’s Length
Range is
%.
•CPM with Berry Ratio PLI
The TPM is the comparable profits method (CPM). The profit level indicator is a Berry Ratio. The Tested Party’s Berry
Ratio is defined as follows for any APA Year: the Tested Party’s gross profit divided by its operating expenses (as those terms
are defined in Treasury Regulations sections 1.482–5(d)(2) and (3)) for that APA Year. The Arm’s Length Range is between
and, and the Median of the Arm’s Length Range is.
•CPM using an Operating Margin PLI
The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s
Operating Margin is defined as follows for any APA Year: the Tested Party’s operating profit divided by its sales revenue (as
those terms are defined in Treasury Regulations section 1.482–5(d)(1) and (4)) for that APA Year. The Arm’s Length Range is
between
%and%, and the Median of the Arm’s Length Range is%.
•CPM using a Three-year Rolling Average Operating Margin PLI
The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s
Three-Year Rolling Average operating margin is defined as follows for any APA Year: the sum of the Tested Party’s operating
profit (within the meaning of Treasury Regulations section 1.482–5(d)(4) for that APA Year and the two preceding years,
divided by the sum of its sales revenue (within the meaning of Treasury Regulations section 1.482–5(d)(1)) for that APA
Year and the two preceding years. The Arm’s Length Range is between
%and%, and the Median of the Arm’s
Length Range is
%.
•Residual Profit Split Method
The TPM is the residual profit split method. [Insert description of routine profit level determinations and residual
profit-split mechanism].
[Insert additional provisions as needed.]
3. Application of TPM.
For any APA Year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate for the Covered
Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating
Margin for the Tested Party] within the Arm’s Length Range,then the amounts reported onTaxpayer’s U.S. Return must
clearly reflect such results.
For any APA year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate] [or] [Gross Margin,
Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin for the Tested Party] outside
the Arm’s Length Range, then amounts reported on Taxpayer’s U.S. Return must clearly reflect an adjustment that brings the
[price per unit, royalty rate] [or] [Tested Party’s Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year
Rolling Average Operating Margin] to the Median.
For purposes of this Appendix A, the “results of Taxpayer’s actual transactions” means the results reflected in Taxpayer’s and
Tested Party’s books and records as computed under U.S. GAAP [insert another relevant accounting standard if applicable], with
the following adjustments:
(a) [The fair value of stock-based compensation as disclosed in the Tested Party’s audited financial statements shall be treated as
an operating expense]; and
(b) To the extent that the results in any prior APA Year are relevant (for example, to compute a multi-year average), such results
shall be adjusted to reflect the amount of any adjustment made for that prior APA Year under this Appendix A.
4. APA Revenue Procedure Treatment.
If Taxpayer makes a primary adjustment under the terms of this Appendix A, Taxpayer mayelect APA Revenue Procedure
Treatment in accordance with section 11.02(3) of Revenue Procedure 2006–9.
[Insert additional provisions as needed.]
April 17, 20068052006–16 I.R.B.

APPENDIX B
CRITICAL ASSUMPTIONS
This APA’s critical assumptions are:
1. The business activities, functions performed, risks assumed,assets employed, and financial and tax accounting methods and
classifications [and methods of estimation]of Taxpayer in relation to the Covered Transactions will remain materially the same as
described or used in Taxpayer’s APA Request. A mere change in business results will not be a material change.
[Insert additional provisions as needed.]
APPENDIX C
APA RECORDS AND ANNUAL REPORT
APA RECORDS
The APA Records will consist of:
1. All documents listed below for inclusion in the Annual Report,as well as all documents, notes, work papers, records, or other
writings that support the information provided in such documents.
ANNUAL REPORT
The Annual Report will include two copies of a properly completed APA Annual Report Summary in the form of Exhibit E to this
APA, one copy of the form bound with, and one copy bound separately from, the rest of the Annual Report. In addition, the
Annual Report will include a table of contents and the information and exhibits identified below, organized as follows.
1. Statements that fully identify,describe, analyze, and explain:
a. All material differences between any of the U.S. Entities’ business operations (including functions, risks assumed, markets,
contractual terms, economic conditions, property, services, and assets employed) during the APA Year and the description of
the business operations contained in the APA Request. If there have been no material differences, the Annual Report will
include a statement to that effect.
b. All material changes in the U.S. Entities’ accounting methods and classifications, and methods of estimation, from those
described or used in Taxpayer’s request for this APA. If any such change was made to conform to changes in U.S. GAAP (or
other relevant accounting standards), Taxpayer will specifically identify such change. If there has been no material change in
accounting methods and classifications or methods of estimation, the Annual Report will include a statement to that effect.
c. Any change to the Taxpayer notice information in section 14 of this APA.
d. Any failure to meet any critical assumption. If there hasbeen no failure, the Annual Report will include a statement
to that effect.
e. Any change to any entity classification for federal income taxpurposes (including any change that causes an entity to be
disregarded for federal income tax purposes) of any Worldwide Group member that is a party to the Covered Transactions or
is otherwise relevant to the TPM.
f. The amount, reason for, and financial analysis of any compensating adjustments under paragraph 4 of Appendix A and
Revenue Procedure 2006–9, section 11.02(3), for the APA Year, including but not limited to:
i. the amounts paid or received by each affected entity;
ii. the character (such as capital, ordinary, income, expense) and country source of the funds transferred, and the specific
affected line item(s) of any affected U.S. Return; and
iii. the date(s) and means by which the payments are or will be made.
g. The amounts, description, reason for,and financial analysis of any book-tax difference relevant to the TPM for the APA
Year, as reflected on Schedule M–1 or Schedule M–3 of the U.S. Return for the APA Year.
2. The Financial Statements, and any necessary account detailto show compliance with the TPM, with a copy of the independent
certified public accountant’s opinion required by paragraph 5(f) of this APA.
2006–16 I.R.B.806April 17, 2006

3. A financial analysis that reflects Taxpayer’s TPM calculations for the APA Year. The calculations must reconcile with and
reference the Financial Statements in sufficient account detail to allow the IRS to determine whether Taxpayer has complied
with the TPM.
4. An organizational chart for the Worldwide Group, revised annually to reflect all ownership or structural changes of entities
that are parties to the Covered Transactions or are otherwise relevant to the TPM.
5. A copy of the APA.
APPENDIX D
DEFINITIONS
The following definitions control for all purposes of this APA. The definitions appear alphabetically below:
TermDefinition
Annual ReportA report within the meaning of Revenue Procedure 2006–9, section 11.01.
APAThis Advance Pricing Agreement, which is an “advance pricing agreement” within the
meaning of Revenue Procedure 2006–9, section 2.04.
APA RecordsThe records specified in Appendix C.
APA RequestTaxpayer’s request for this APA dated, including any amendments or
supplemental or additional information thereto.
Covered Transaction(s)This term is defined in Appendix A.
Financial StatementsFinancial statements preparedin accordance with U.S. GAAP and stated in U.S. dollars.
Foreign GroupWorldwide Group members that are not U.S. persons.
Foreign Participants[namethe foreign entities involved in Covered Transactions].
I.R.C.The Internal Revenue Code of 1986, 26 U.S.C., as amended.
Pub. L. 106–170The Ticket to Work and Work Incentives Improvement Act of 1999.
Revenue Procedure 2006–9Rev. Proc. 2006–9, 2006–2 I.R.B. 278.
Transfer Pricing Method (TPM)Atransfer pricing method within the meaning of Treasury Regulations section 1.482–1(b)
and Revenue Procedure 2006–9, section 2.04.
U.S. GAAPU.S. generally-accepted accounting principles.
U.S. GroupWorldwide Group members that are U.S. persons.
U.S. ReturnFor each taxable year, the “returns with respect to income taxes under subtitle A” that
Taxpayer must “make” in accordance with I.R.C. section 6012. {Or substitute for
partnership:For each taxable year, the “return” that Taxpayer must “make” in accordance
with I.R.C. section 6031.}
Worldwide GroupTaxpayer and all organizations, trades, businesses, entities, or branches (whether or not
incorporated, organized in the United States,or affiliated) owned or controlled directly or
indirectly by the same interests.
April 17, 20068072006–16 I.R.B.

APPENDIX E
APA ANNUAL REPORT SUMMARY FORM
The APA Annual Report Summary on the next page is a required APA Record. The APA Team Leader has supplied some of
the information requested on the form. Taxpayer is to supply the remaining information requested by the form and submit the
form as part of its Annual Report.
APA Annual
Report
SUMMARY
Department of the Treasury—
Internal Revenue Service
Office of Associate Chief Counsel
(International)
Advance Pricing Agreement Program
APA no.
Team Leader
Economist
Intl Examiner
CA Analyst
Taxpayer Name:
Taxpayer EIN:NAICS:
APA Term: Taxable years endingto.
Original APA [ ] Renewal APA [ ]
Annual Report due dates:
,200for all APA Years through APA Year ending in 200; for each APA Year
thereafter, on
[month and day] immediately following the close of the APA Year.
Principal foreign country(ies) involved in covered transaction(s):
Type of APA: [ ] unilateral [ ] bilateral with
Tested party is [ ] US [ ] foreign [ ] both
Approximate dollar volume of covered transactions (on an annual basis) involving tangible goods
and services:
[ ] N/A [ ] <$50 million [ ] $50–100 million [ ] $100–250 million [ ] $250–500 million
[ ] >$500 million
APA tests on (check all that apply):
[]annualbasis[]multi-year basis [ ] term basis
APA provides (check all that apply) a:
[ ] range [ ] point [ ] floor only [ ] ceiling only [ ] other
APA Information
APA provides for adjustment (check all that apply) to:
[ ] nearest edge [ ] median [ ] other point
2006–16 I.R.B.808April 17, 2006

APA date executed:,200
This APA Annual Report Summary is for APA Year(s) ending in 200and was filed on,
200
Check here [ ] if Annual Report was filed after original due date but in accordance with extension.
Has this APA been amended or changed? [ ] yes [ ] noEffective Date:
Has Taxpayer complied with all APA terms and conditions? [ ] yes [ ] no
Were all the critical assumptions met? [ ] yes [ ] no
Has a Primary Compensating Adjustment been made in any APA Year covered by this Annual
Report?
[ ] yes [ ] noIf yes, which year(s): 200
Have any necessary Secondary Compensating Adjustments been made? [ ] yes [ ] no
Did Taxpayer elect APA Revenue Procedure treatment? [ ] yes [ ] no
Any change to the entity classification of a party to the APA? [ ] yes [ ] no
Taxpayer notice information contained in the APA remains unchanged? [ ] yes [ ] no
APA Annual
Report
Information
(to be completed
by the Taxpayer)
Taxpayer’s current US principal place of business: (City, State)
Financial analysis reflecting TPM calculations[ ] yes [ ] no
Financial statements showing compliance with TPM(s)[ ] yes [ ] no
Schedule M–1 or M–3 book-tax differences[ ] yes [ ] no
Current organizational chart of relevant portion of world-wide group[ ] yes [ ] no
Attach copy of APA[ ] yes [ ] no
Other APA records and documents included:
[The information required in the following section should be tailored to the particular case]
[]yes[
]no
[]yes[]no
[]yes[]no
[]yes
[]no
APA Annual
Report
Checklist of
Key Contents
(to be completed
by the Taxpayer)
[]yes[]no
Authorized RepresentativePhoneNumberAffiliation and AddressContact
Information
April 17, 20068092006–16 I.R.B.

Announcement of Disciplinary Actions Involving
Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Suspensions, Censures,
Disbarments, and Resignations
Announcement 2006-23
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before
the Internal Revenue Service if the assis-
tance relates to a matter constituting prac-
tice before the Internal Revenue Service
and may not knowingly aid or abet another
person to practice before the Internal Rev-
enue Service during a period of suspen-
sion, disbarment, or ineligibility of such
other person.
To enable attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries to identify persons to whom
these restrictions apply, the Director, Of-
fice of Professional Responsibility, will
announce in the Internal Revenue Bulletin
their names, their city and state, their pro-
fessional designation, the effective date
of disciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
continue to appear in the weekly Bulletins
for five successive weeks.
Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid the institution
or conclusion of a proceeding for his or
her disbarment or suspension from prac-
tice before the Internal Revenue Service,
may offer his or her consent to suspension
from such practice. The Director, Office
of Professional Responsibility, in his dis-
cretion, may suspend an attorney, certified
public accountant, enrolled agent, or en-
rolled actuary in accordance with the con-
sent offered.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
NameAddressDesignationDate of Suspension
Hoft, James D.Nutley, NJCPAIndefinite
from
August 10, 2005
Salver, IsaacBay Harber Islands, FLCPASeptember 19, 2005
to
June 18, 2007
Woods, Dalton C.Carrollton, TXEnrolled AgentIndefinite
from
October 15, 2005
Morrissette, Doris G.Lowell,MAEnrolled AgentIndefinite
from
November 1, 2005
Dale, Edward R.Stockton, CACPAIndefinite
from
November 1, 2005
Grossman, Israel G.New York, NYAttorneyNovember 15, 2005
to
May 14, 2007
2006–16 I.R.B.810April 17, 2006

NameAddressDesignationDate of Suspension
Edmonds, Joseph M.Charlotte, NCEnrolled ActuaryNovember 16, 2005
to
March 15, 2006
Rubin, Stuart L.Coral Springs, FLCPAIndefinite
from
December 7, 2005
Sanger, Brett D.Oklahoma City, OKAttorneyIndefinite
from
January 1, 2006
Berkowitz, Ira T.Simi Valley, CACPAIndefinite
from
January 9, 2006
Caylor, John D.Long Lake, MNCPAIndefinite
from
January 12, 2006
Saldana, Oscar M.Laredo, TXCPAIndefinite
from
January 15, 2006
Bruck, Lawrence S.Newton, PACPAIndefinite
from
January 16, 2006
Sneathen, Lowell D.Orange, CACPAIndefinite
from
January 18, 2006
Roberson, GeorgeLeesburg, VACPAIndefinite
from
January 17, 2006
Dugan, Lawrence E.Alta, IAAttorneyIndefinite
from
February 1, 2006
Frascella, RussellPound Ridge, NYCPAIndefinite
from
February 1, 2006
Smith, David B.Kettering, OHEnrolled AgentIndefinite
from
February 13, 2006
Whiteside, Thomas L.Atlanta, GAAttorneyIndefinite
from
February 13, 2006
Bednarz, Jr., MichaelFramingham, MAAttorneyIndefinite
from
February 13, 2006
Alexander, Herald J.A.Atlanta, GAAttorneyIndefinite
from
February 20, 2006
April 17, 20068112006–16 I.R.B.

NameAddressDesignationDate of Suspension
Bartels, KyleNorth Salem, NYEnrolled AgentIndefinite
from
February 21, 2006
Baker, Jibade A.Indianapolis, INCPAMarch 13, 2006
to
March 12, 2008
Morris, R. ScottCorpus Christi, TXCPAIndefinite
from
March 16, 2006
Kenny, Stan M.Wichita, KSAttorneyIndefinite
from
May 1, 2006
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice before
the Internal RevenueService any practi-
tioner who, within five years from the date
the expedited proceeding is instituted (1)
has had a license to practice as an attor-
ney, certified public accountant, or actuary
suspended or revoked for cause or (2) has
been convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Haugabrook, EarlUpper Montclair, NJCPAIndefinite
from
September 27, 2005
Patterson, Kenneth R.Plano, TXCPAIndefinite
from
October 19, 2005
Blackburn, Randall D.Laurinburg, NCCPAIndefinite
from
October 19, 2005
Coe, Sean M.Sahuarita,AZAttorneyIndefinite
from
October 12, 2005
Lim, Ricarda L.Sacramento, CAAttorneyIndefinite
from
November 1, 2005
Bridges, Lynden P.Golden, COCPAIndefinite
from
November 14, 2005
Curcio, Gregory J.New York, NYAttorneyIndefinite
from
November 14, 2005
2006–16 I.R.B.812April 17, 2006

NameAddressDesignationDate of Suspension
Silverton, Ronald R.Pacific Palisades, CAAttorneyIndefinite
from
November 14, 2005
Hartigan, Seth P.Minneapolis, MNAttorneyIndefinite
from
November 14, 2005
Carlson, Richard E.Chappell, NEAttorneyIndefinite
from
November 14, 2005
Veres, Robert D.Phoenix, AZCPAIndefinite
from
November 14, 2005
Noble, Gregory P.Corvallis, ORAttorneyIndefinite
from
December 2, 2005
Parker, Oscie K.Thomasville, NCAttorneyIndefinite
from
December 15, 2005
Connor, Jr. William J.Kernersville, NCAttorneyIndefinite
from
December 15, 2005
Cassidy, Maureen E.Murphy, IDAttorneyIndefinite
from
December 15, 2005
Harrison, Rodney L.Urbana, ILAttorneyIndefinite
from
December 15, 2005
Cagle, Carol L.Alton, ILAttorneyIndefinite
from
December 15, 2005
Knaff, Philip J.Burr Ridge, ILAttorneyIndefinite
from
December 15, 2005
Pence, Thomas R.Cedar Rapids, IAAttorneyIndefinite
from
December 15, 2005
Tunney, John A.Freehold, NJAttorneyIndefinite
from
December 15, 2005
Dasent, CarltonMattapoisett, MAAttorneyIndefinite
from
December 15, 2005
Robeznieks, John O.Palatine, ILAttorneyIndefinite
from
December 15, 2005
April 17, 20068132006–16 I.R.B.

NameAddressDesignationDate of Suspension
Landman, Nathaniel M.St. Peters, MOAttorneyIndefinite
from
December 15, 2005
Levin, Herbert M.Bolingbrook, ILAttorneyIndefinite
from
December 15, 2005
Wade, Jeffrey L.Louisville, KYAttorneyIndefinite
from
December 15, 2005
Cozzarelli, Frank J.North Caldwell, NJAttorneyIndefinite
from
December 15, 2005
Brooks, Jane E.St. Paul, MNAttorneyIndefinite
from
December 15, 2005
Mulvahill, James P.Plymouth, MNAttorneyIndefinite
from
December 15, 2005
Bernstein, RalphChicago, ILAttorneyIndefinite
from
December 15, 2005
Tousey, Robert R.Ellicott City, MDAttorneyIndefinite
from
December 15, 2005
Schatz, Allen E.Shorewood, WIAttorneyIndefinite
from
December 16, 2005
Olson, David E.New Port Richey, FLAttorneyIndefinite
from
December 16, 2005
Shagory, Edward J.Boston, MAAttorneyIndefinite
from
December 20, 2005
Wintroub, Edward L.Omaha, NEAttorneyIndefinite
from
December 20, 2005
Johnson, Jr. Walter T.Greensboro, NCAttorneyIndefinite
from
December 27, 2005
Szaro, Stanley J.New York, NYAttorneyIndefinite
from
December 27, 2005
Recchione, LouisWoodcliff Lake, NJAttorneyIndefinite
from
December 27, 2005
Pepper, LouisGreat Neck, NYAttorneyIndefinite
from
January 2, 2006
2006–16 I.R.B.814April 17, 2006

NameAddressDesignationDate of Suspension
Fritzshall, Robert S.Skokie, ILAttorneyIndefinite
from
January 9, 2006
DiCaprio, Joseph A.Cherry Valley, ILAttorneyIndefinite
from
January 9, 2006
Rosenberg, Keith A.N. Bethesda, MDAttorneyIndefinite
from
January 9, 2006
Boudreau, Patricia L.Lexington, MAAttorneyIndefinite
from
January 9, 2006
Webb, Daniel F.Milwaukee, WIAttorneyIndefinite
from
January 9, 2006
Miranda, Jesse R.Phoenix, AZAttorneyIndefinite
from
January 9, 2006
Kuzel, GaryPlainfield, ILCPAIndefinite
from
January 9, 2006
Nomura, Edmund Y.Phoenix, AZAttorneyIndefinite
from
January 9, 2006
Mason, Robert J.Colorado Springs, COAttorneyIndefinite
from
January 9, 2006
Land, Janet P.Stedman, NCAttorneyIndefinite
from
January 9, 2006
Fitzgerald, MauriceLexington, MAAttorneyIndefinite
from
January 9, 2006
Valadez, Librado R.San Antonio, TXCPAIndefinite
from
January 9, 2006
Williams, Frank C.Houston, TXAttorneyIndefinite
from
January 9, 2006
LaGrand, TaraNaples, FLCPAIndefinite
from
January 9, 2006
Harris, Susan L.Houston, TXAttorneyIndefinite
from
January 9, 2006
Hobbs, James B.Amherst, NHAttorneyIndefinite
from
January 9, 2006
April 17, 20068152006–16 I.R.B.

NameAddressDesignationDate of Suspension
Momsen, JoelNapa, CAAttorneyIndefinite
from
January 10, 2006
Lambert, Brett J.Fort Collins, COAttorneyIndefinite
from
January 10, 2006
Lefevre, Keith H.Longwood, FLAttorneyIndefinite
from
January 13, 2006
Bronner, BernardGreat Neck, NYAttorneyIndefinite
from
January 18, 2006
Kuhnreich, Robert M.New York, NYAttorneyIndefinite
from
January 20, 2006
Walser, Vicki L.Valencia, CAAttorneyIndefinite
from
January 20, 2006
Menter, JeffreyCentennial, COAttorneyIndefinite
from
January 23, 2006
Catagnus, Patricia A.Richardson, TXCPAIndefinite
from
January 23, 2006
Matthews, Elizabeth B.Denver, COAttorneyIndefinite
from
January 23, 2006
Sisselman, Barry A.Temecula, CAAttorneyIndefinite
from
January 23, 2006
Armstrong, Thomas I.Irvine, CAAttorneyIndefinite
from
January 23, 2006
Chestnut, A. JohnsonFayetteville, NCCPAIndefinite
from
January 24, 2006
Kerby, John C.Desoto, TXCPAIndefinite
from
February 2, 2006
Phillips, John D.Albuquerque, NMAttorneyIndefinite
from
February 2, 2006
Broomas, JamesBaytown, TXAttorneyIndefinite
from
February 2, 2006
Wilson, Joel M.Denver, NCCPAIndefinite
from
February 2, 2006
2006–16 I.R.B.816April 17, 2006

NameAddressDesignationDate of Suspension
Olivieri Jr., Robert C.Bensalem, PACPAIndefinite
from
February 7, 2006
Scher, Robert A.Port Washington, NYAttorneyIndefinite
from
February 15, 2006
Mintz, David J.Evergreen, COAttorneyIndefinite
from
February 15, 2006
Abelson, Richard H.White Plains, NYAttorneyIndefinite
from
February 15, 2006
Drum, Joel A.Van Nuys, CAAttorneyIndefinite
from
February 17, 2006
Nissenbaum, SusanGrafton, MAAttorneyIndefinite
from
February 22, 2006
Mahon, Edward J.Warenville, ILAttorneyIndefinite
from
February 22, 2006
Nash, BruceChicago, ILAttorneyIndefinite
from
February 22, 2006
Duru, Ike E.Powder Springs, GAAttorneyIndefinite
from
February 22, 2006
Hirth, Gary E.Phoenix, AZAttorneyIndefinite
from
February 22, 2006
Madden, James G.Hudson, ILAttorneyIndefinite
from
February 22, 2006
Thomas, Robert C.Chicago,ILAttorneyIndefinite
from
February 22, 2006
Moore, Jr. William D.Libertyville, ILAttorneyIndefinite
from
February 22, 2006
Weit Jr., John V.Homewood, ILAttorneyIndefinite
from
February 22, 2006
Berlin, Marc D.Chicago, ILAttorneyIndefinite
from
February 22, 2006
Lebensbaum, HenryAndover, MDAttorneyIndefinite
from
February 22, 2006
April 17, 20068172006–16 I.R.B.

NameAddressDesignationDate of Suspension
Leonhart, Georgia L.Ocean View, DEAttorneyIndefinite
from
February 22, 2006
Wolf, Marvin H.Boynton Beach, FLAttorneyIndefinite
from
February 22, 2006
Dorsa, Lawrence R.Oceanside, CAAttorneyIndefinite
from
February 23, 2006
Battista Jr., Gerard F.Norwell, MAAttorneyIndefinite
from
February 27, 2006
Koehn, Charles R.Green Bay, WIAttorneyIndefinite
from
February 28, 2006
Phillips, Claudia L.Oak Park, CAAttorneyIndefinite
from
March 9, 2006
Zarate, Gustavo A.Pasadena, CAAttorneyIndefinite
from
March 9, 2006
Schorling, Douglas D.Fresno, CAAttorneyIndefinite
from
March 9, 2006
Bowman Jr., John J.Gibsonia, PAEnrolled AgentIndefinite
from
March 9, 2006
Jordan, Richard W.Austin, TXCPAIndefinite
from
March 9, 2006
Rothenberg, Steven G.Kingston, NYAttorneyIndefinite
from
March 24, 2006
Osterloh, Douglas D.Boring, ORAttorneyIndefinite
from
March 24, 2006
Benevenia, EugeneTucson, AZAttorneyIndefinite
from
March 24, 2006
Krombach, CharlesBrookfield, WIAttorneyIndefinite
from
March 24, 2006
Caldwell, David G.Austin, TXAttorneyIndefinite
from
March 24, 2006
2006–16 I.R.B.818April 17, 2006

NameAddressDesignationDate of Suspension
Zwibel, DavidLawrence, NYCPAIndefinite
from
March 31, 2006
Suspensions From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Reg-
ulations, Part 10, after notice and an op-
portunity for a proceeding before an ad-
ministrative law judge, the following indi-
viduals have been placed under suspension
from practice before the Internal Revenue
Service:
NameAddressDesignationEffective Date
Fitzpatrick, PamelaArroyo Grande, CACPANovember 14, 2005
to
November 13, 2009
Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an adminis-
trative law judge, the following individu-
als have been disbarred from practice be-
fore the Internal Revenue Service:
NameAddressDesignationEffective Date
Edgar, Richard A.Los Angeles, CACPAOctober 3, 2005
Censure Issued by Consent
Under Title 31, Code of Federal Reg-
ulations, Part 10, in lieu of a proceeding
being instituted or continued, an attorney,
certified public accountant, enrolled agent,
or enrolled actuary, may offer his or her
consent to the issuance of a censure. Cen-
sure is a public reprimand.
The following individuals have con-
sented to the issuance of a Censure:
NameAddressDesignationDate of Censure
Porter, Donald E.Burleson, TXCPAFebruary 10, 2006
April 17, 20068192006–16 I.R.B.

Resignations of Enrolled Agents
Under Title 31, Code of Federal Regu-
lations, Part 10, an enrolled agent, in or-
der to avoid the institution or conclusion
of a proceeding for his or her disbarment
or suspension from practice before the In-
ternal Revenue Service, may offer his or
her resignation as an enrolled agent. The
Director, Office of Professional Responsi-
bility, in his discretion, may accept the of-
fered resignation.
The Director, Office of Professional
Responsibility, has accepted offers of res-
ignation as an enrolled agent from the
following individuals:
NameAddressDate of Resignation
Casagna, Ronald M.Tustin, CANovember 25, 2005
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2006–24
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on March 20, 2006,
and would end on the date the court first
determines that the organization is not de-
scribed in section 170(c)(2) as more partic-
ularly set forth in section 7428(c)(1). For
individual contributors, the maximum de-
duction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.
Consumer Guidance Corp.
Sun Valley, CA
Next Step Foundation, Inc.
Little Rock, AR
2006–16 I.R.B.820April 17, 2006

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.
April 17, 2006i2006–16 I.R.B.

Numerical Finding List
1
Bulletin 2006–1 through 2006–16
Announcements:
2006-1, 2006-1 I.R.B.260
2006-2, 2006-2 I.R.B.300
2006-3, 2006-3 I.R.B.327
2006-4, 2006-3 I.R.B.328
2006-5, 2006-4 I.R.B.378
2006-6, 2006-4 I.R.B.340
2006-7, 2006-4 I.R.B.342
2006-8, 2006-4 I.R.B.344
2006-9, 2006-5 I.R.B.392
2006-10, 2006-5 I.R.B.393
2006-11, 2006-6 I.R.B.420
2006-12, 2006-6 I.R.B.421
2006-13, 2006-7 I.R.B.462
2006-14, 2006-8 I.R.B.516
2006-15, 2006-11 I.R.B.632
2006-16, 2006-12 I.R.B.653
2006-17, 2006-12 I.R.B.653
2006-18, 2006-12 I.R.B.654
2006-19, 2006-13 I.R.B.674
2006-20, 2006-13 I.R.B.675
2006-21, 2006-14 I.R.B.703
2006-22, 2006-16 I.R.B.779
2006-23, 2006-14 I.R.B.729
2006-24, 2006-16 I.R.B.820
Court Decisions:
2081, 2006-13 I.R.B.656
2082, 2006-14 I.R.B.697
Notices:
2006-1, 2006-4 I.R.B.347
2006-2, 2006-2 I.R.B.278
2006-3, 2006-3 I.R.B.306
2006-4, 2006-3 I.R.B.307
2006-5, 2006-4 I.R.B.348
2006-6, 2006-5 I.R.B.385
2006-7, 2006-10 I.R.B.559
2006-8, 2006-5 I.R.B.386
2006-9, 2006-6 I.R.B.413
2006-10, 2006-5 I.R.B.386
2006-11, 2006-7 I.R.B.457
2006-12, 2006-7 I.R.B.458
2006-13, 2006-8 I.R.B.496
2006-14, 2006-8 I.R.B.498
2006-15, 2006-8 I.R.B.501
2006-16, 2006-9 I.R.B.538
2006-17, 2006-10 I.R.B.559
2006-18, 2006-8 I.R.B.502
2006-19, 2006-9 I.R.B.539
2006-20, 2006-10 I.R.B.560
2006-21, 2006-12 I.R.B.643
Notices— Continued:
2006-22, 2006-11 I.R.B.593
2006-23, 2006-11 I.R.B.594
2006-24, 2006-11 I.R.B.595
2006-25, 2006-11 I.R.B.609
2006-26, 2006-11 I.R.B.622
2006-27, 2006-11 I.R.B.626
2006-28, 2006-11 I.R.B.628
2006-29, 2006-12 I.R.B.644
2006-31, 2006-15 I.R.B.751
2006-32, 2006-13 I.R.B.677
2006-33, 2006-15 I.R.B.754
2006-34, 2006-14 I.R.B.705
2006-35, 2006-14 I.R.B.708
2006-36, 2006-15 I.R.B.756
2006-38, 2006-16 I.R.B.777
Proposed Regulations:
REG-107722-00, 2006-4 I.R.B.354
REG-104385-01, 2006-5 I.R.B.389
REG-122380-02, 2006-10 I.R.B.563
REG-137243-02, 2006-3 I.R.B.317
REG-133446-03, 2006-2 I.R.B.299
REG-113365-04, 2006-10 I.R.B.580
REG-148568-04, 2006-6 I.R.B.417
REG-106418-05, 2006-7 I.R.B.461
REG-138879-05, 2006-8 I.R.B.503
REG-143244-05, 2006-6 I.R.B.419
REG-146459-05, 2006-8 I.R.B.504
REG-157271-05, 2006-12 I.R.B.652
REG-164247-05, 2006-15 I.R.B.758
Revenue Procedures:
2006-1, 2006-1 I.R.B.1
2006-2, 2006-1 I.R.B.89
2006-3, 2006-1 I.R.B.122
2006-4, 2006-1 I.R.B.132
2006-5, 2006-1 I.R.B.174
2006-6, 2006-1 I.R.B.204
2006-7, 2006-1 I.R.B.242
2006-8, 2006-1 I.R.B.245
2006-9, 2006-2 I.R.B.278
2006-10, 2006-2 I.R.B.293
2006-11, 2006-3 I.R.B.309
2006-12, 2006-3 I.R.B.310
2006-13, 2006-3 I.R.B.315
2006-14, 2006-4 I.R.B.350
2006-15, 2006-5 I.R.B.387
2006-16, 2006-9 I.R.B.539
2006-17, 2006-14 I.R.B.709
2006-18, 2006-12 I.R.B.645
2006-19, 2006-13 I.R.B.677
Revenue Rulings:
2006-1, 2006-2 I.R.B.261
2006-2, 2006-2 I.R.B.261
Revenue Rulings— Continued:
2006-3, 2006-2 I.R.B.276
2006-4, 2006-2 I.R.B.264
2006-5, 2006-3 I.R.B.302
2006-6, 2006-5 I.R.B.381
2006-7, 2006-6 I.R.B.399
2006-8, 2006-9 I.R.B.520
2006-9, 2006-9 I.R.B.519
2006-10, 2006-10 I.R.B.557
2006-11, 2006-12 I.R.B.635
2006-12, 2006-12 I.R.B.637
2006-13, 2006-13 I.R.B.656
2006-14, 2006-15 I.R.B.740
2006-15, 2006-13 I.R.B.661
2006-16, 2006-14 I.R.B.694
2006-17, 2006-15 I.R.B.748
2006-18, 2006-15 I.R.B.743
2006-19, 2006-15 I.R.B.749
2006-20, 2006-15 I.R.B.746
2006-21, 2006-15 I.R.B.745
2006-22, 2006-14 I.R.B.687
Tax Conventions:
2006-6, 2006-4 I.R.B.340
2006-7, 2006-4 I.R.B.342
2006-8, 2006-4 I.R.B.344
2006-19, 2006-13 I.R.B.674
2006-20, 2006-13 I.R.B.675
2006-21, 2006-14 I.R.B.703
Treasury Decisions:
9231, 2006-2 I.R.B.272
9232, 2006-2 I.R.B.266
9233, 2006-3 I.R.B.303
9234, 2006-4 I.R.B.329
9235, 2006-4 I.R.B.338
9236, 2006-5 I.R.B.382
9237, 2006-6 I.R.B.394
9238, 2006-6 I.R.B.408
9239, 2006-6 I.R.B.401
9240, 2006-7 I.R.B.454
9241, 2006-7 I.R.B.427
9242, 2006-7 I.R.B.422
9243, 2006-8 I.R.B.475
9244, 2006-8 I.R.B.463
9245, 2006-14 I.R.B.696
9246, 2006-9 I.R.B.534
9247, 2006-9 I.R.B.521
9248, 2006-9 I.R.B.524
9249, 2006-10 I.R.B.546
9250, 2006-11 I.R.B.588
9251, 2006-11 I.R.B.590
9252, 2006-12 I.R.B.633
9253, 2006-14 I.R.B.689
9254, 2006-13 I.R.B.662
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin
2005–52, dated December 27, 2005.
2006–16 I.R.B.iiApril 17, 2006

Treasury Decisions— Continued:
9255, 2006-15 I.R.B.741
9256, 2006-16 I.R.B.770
April 17, 2006iii2006–16 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletin 2006–1 through 2006–16
Announcements:
2000-48
Modified by
Notice 2006-35, 2006-14 I.R.B.708
Notices:
2001-4
Sections (V)(C), (D), and (E) superseded by
T.D. 9253, 2006-14 I.R.B.689
2001-11
Superseded by
T.D. 9253, 2006-14 I.R.B.689
2001-43
Modified by
Notice 2006-35, 2006-14 I.R.B.708
Sections 2 and 3 superseded by
T.D. 9253, 2006-14 I.R.B.689
2002-35
Clarified and modified by
Notice 2006-16, 2006-9 I.R.B.538
2005-30
Modified and superseded by
Notice 2006-31, 2006-15 I.R.B.751
2005-44
Supplemented by
Notice 2006-1, 2006-4 I.R.B.347
2005-66
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-73
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-81
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-98
Supplemented by
Notice 2006-7, 2006-10 I.R.B.559
Proposed Regulations:
REG-103829-99
Withdrawn by
Ann. 2006-16, 2006-12 I.R.B.653
REG-131739-03
Corrected by
Ann. 2006-10, 2006-5 I.R.B.393
Proposed Regulations— Continued:
REG-138647-04
Corrected by
Ann. 2006-4, 2006-3 I.R.B.328
REG-158080-04
Corrected by
Ann. 2006-11, 2006-6 I.R.B.420
Revenue Procedures:
96-52
Superseded by
Rev. Proc. 2006-10, 2006-2 I.R.B.293
97-27
Modified by
Rev. Proc. 2006-11, 2006-3 I.R.B.309
Modified and amplified by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2002-9
Modified by
Rev. Proc. 2006-11, 2006-3 I.R.B.309
Modified and amplified by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
Rev. Proc. 2006-14, 2006-4 I.R.B.350
Rev. Proc. 2006-16, 2006-9 I.R.B.539
2002-17
Modified by
Rev. Proc. 2006-14, 2006-4 I.R.B.350
2003-31
Superseded by
Rev. Proc. 2006-19, 2006-13 I.R.B.677
2003-38
Modified by
Rev. Proc. 2006-16, 2006-9 I.R.B.539
2004-23
Superseded for certain taxable years by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2004-40
Superseded by
Rev. Proc. 2006-9, 2006-2 I.R.B.278
2005-1
Superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
2005-2
Superseded by
Rev. Proc. 2006-2, 2006-1 I.R.B.89
2005-3
Superseded by
Rev. Proc. 2006-3, 2006-1 I.R.B.122
2005-4
Superseded by
Rev. Proc. 2006-4, 2006-1 I.R.B.132
Revenue Procedures— Continued:
2005-5
Superseded by
Rev. Proc. 2006-5, 2006-1 I.R.B.174
2005-6
Superseded by
Rev. Proc. 2006-6, 2006-1 I.R.B.204
2005-7
Superseded by
Rev. Proc. 2006-7, 2006-1 I.R.B.242
2005-8
Superseded by
Rev. Proc. 2006-8, 2006-1 I.R.B.245
2005-9
Superseded for certain taxable years by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2005-12
Section 10 modified and superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
2005-15
Obsoleted in part by
Rev. Proc. 2006-17, 2006-14 I.R.B.709
2005-24
Modified by
Notice 2006-15, 2006-8 I.R.B.501
2005-61
Superseded by
Rev. Proc. 2006-3, 2006-1 I.R.B.122
2005-68
Superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
Rev. Proc. 2006-3, 2006-1 I.R.B.122
Revenue Rulings:
55-355
Obsoleted by
T.D. 9244, 2006-8 I.R.B.463
74-503
Revoked by
Rev. Rul. 2006-2, 2006-2 I.R.B.261
77-230
Obsoleted by
T.D. 9249, 2006-10 I.R.B.546
91-5
Modified by
T.D. 9250, 2006-11 I.R.B.588
92-86
Modified by
T.D. 9250, 2006-11 I.R.B.588
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin 2005–52, dated December 27,
2005.
2006–16 I.R.B.ivApril 17, 2006

Treasury Decisions:
9192
Corrected by
Ann. 2006-15, 2006-11 I.R.B.632
9203
Corrected by
Ann. 2006-12, 2006-6 I.R.B.421
April 17, 2006v2006–16 I.R.B.
U.S. GPO: 2006—320–797/20053