Internal Revenue Bulletin 2007-2 (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
7-2
January 8, 2007
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9300, page 246.
Final regulations under section 6011 of the Code eliminate reg-
ulatory obstacles to the electronic filing of certain business in-
come tax returns and other forms. Requiring signatures on
attachments to a tax return, for example, can impede a tax-
payer’s ability to file the return electronically. The regulations
provide that in a number of situations, the signature on a tax-
payer’s return covers attachments to that return.
T.D. 9301
, page 244.
REG–1520
43–05, page 263.
Temporary
and proposed regulations under section 63 of the
Code prov
ide rules relating to the reduction in taxable income
under sec
tion 302 of the Katrina Emergency Tax Relief Act of
2005. The
regulations affect taxpayers who provide housing in
their pri
ncipal residences to individuals displaced by Hurricane
Katrina
.
Notice 2007–1, page 254.
This notice permits foreign corporations engaged, or treated
as engaged, in a trade or business within the United States
whose tax year end is on or after September 30, 2005, and
whose original tax return due date (including extensions) was on
or after June 15, 2006, and on or before August 17, 2006, to
elect to apply the provisions of T.D. 9281, 2006–39 I.R.B. 517,
for such tax return filing period. Such taxpayers may adopt
the rules provided in T.D. 9281 only if the rules are adopted
in their entirety on an amended return filed within 180 days of
December 18, 2006.
Notice 2007–2, page 254.
This notice provides transition relief for the use of debit cards
for medical expense reimbursements at certain merchants with
non-health care related merchant category codes (MCC) and
addresses the use of debit cards for medical expense reim-
bursements at stores with the Drug Stores and Pharmacies
MCC. Rev. Rul. 2003–43 modified.
Notice 2007–4, page 260.
Extension of transition relief for certain partnerships and
other pass-thru entities under section 470.This notice ex-
tends to taxable years that begin before January 1, 2007, the
transition relief under section 470 of the Code provided un-
der Notice 2005–29, 2005–1 C.B. 796, and Notice 2006–2,
2006–2 I.R.B. 278, to partnerships and certain other pass-
thru entities that are treated as holding tax-exempt use prop-
erty because of the application of section 168(h)(6). Notices
2005–29 and 2006–2 modified and superseded.
EMPLOYEE PLANS
Notice 2007–3, page 255.
Retirement plans; qualification, list of changes.This no-
tice sets forth a list of changes referred to in Rev. Proc.
2005–66, 2005–2 C.B. 509, pertaining to the statutory, reg-
ulatory, and guidance changes needed for certain requests to
the Service.
(Continued on the next page)
Fi
nding Lists begin on page ii.

ADMINISTRATIVE
T.D. 9300, page 246.
Final regulations under section 6011 of the Code eliminate reg-
ulatory obstacles to the electronic filing of certain business in-
come tax returns and other forms. Requiring signatures on
attachments to a tax return, for example, can impede a tax-
payer’s ability to file the return electronically. The regulations
provide that in a number of situations, the signature on a tax-
payer’s return covers attachments to that return.
Rev. Proc. 20
07–11, page 261.
This procedur
e provides the maximum vehicle values using the
special valu
ation rules under sections 1.61–21(d) and (e) of the
regulations
. These values are indexed for inflation and must
be adjusted a
nnually by referring to the Consumer Price Index
(CPI).
Announcement 2007–2, page 263.
This document cancels a public hearing on proposed regula-
tions (REG–142270–05, 2006–43 I.R.B. 791) relating to the
railroad track maintenance credit determined for qualified rail-
road track maintenance expenditures paid or incurred by a
Class II or Class III railroad and other eligible taxpayers dur-
ing the taxable year.
January 8, 20072007–2 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2007–2 I.R.B.January 8, 2007

January 8, 20072007–2 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 61.—Gross Income
Defined
26 CFR 1.61–21(e): Vehicle cents-per-mile valua-
tion.
A revenue procedure provides maximum vehicle
values for which the special valuation rules of regu-
lations sections 1.61–21(d) and (e) may be used. See
Rev. Proc. 2007-11, page 261.
Section 63.—Taxable
Income Defined
26 CFR 1.9300–1T: Reduction in taxable income for
housing Hurricane Katrina displaced individuals.
T.D. 9301
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
ReductioninTaxableIncome
for Housing Hurricane Katrina
Displaced Individuals
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations relating to the re-
duction in taxable income under section
302 of the Katrina Emergency Tax Re-
lief Act of 2005. The regulations affect
taxpayers who provide housing in their
principal residences to individuals dis-
placed by Hurricane Katrina. The text
of the temporary regulations also serves
as the text of the proposed regulations
(REG–152043–05) set forth in the notice
of proposed rulemaking on this subject in
this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective December 11, 2006.
Applicability Date:For date of applica-
bility, see §1.9300–1T(g).
FOR FURTHER INFORMATION
CONTACT: Marnette M. Myers,
202–622–4920 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to the Income Tax Regulations (26 CFR
Part 1) relating to the reduction in tax-
able income for housing provided to dis-
placed individuals under section 302 of
the Katrina Emergency Tax Relief Act
of 2005 (Pub. L. No. 109–73, 119 Stat.
2016) (KETRA).
For taxable years beginning in 2005 and
2006, a taxpayer may reduce taxable in-
come by $500 for each Hurricane Katrina
displaced individual to whom the taxpayer
provides free housing in the taxpayer’s
principal residence for a period of 60 con-
secutive days that ends in the taxable year.
No reduction is allowed if the taxpayer
receives rent or other compensation from
any source for providing the housing.
A taxpayer may not claim a reduction
in taxable income with respect to the same
Hurricane Katrina displaced individual in
more than one taxable year and must in-
clude the Hurricane Katrina displaced in-
dividual’s tax identification number on the
taxpayer’s return. Generally, the total re-
duction for all taxable years is $2,000.
A Hurricane Katrinadisplaced individ-
ual is defined as a natural person who was
displaced from a principal place of abode
that, on August 28, 2005, was in the Hur-
ricane Katrina core disaster area. A Hur-
ricane Katrina displaced individual also is
defined as an individual whose principal
place of abode was located in the Hurri-
cane Katrina disaster area, but outside the
core disaster area, if the abode was dam-
aged by Hurricane Katrina or the individ-
ual was evacuated from the abode because
of Hurricane Katrina. A Hurricane Katrina
displaced individual may not be the tax-
payer’s spouse or dependent.
Undersection2(1)ofKETRA,theHur-
ricane Katrina disaster area is the area with
respect to which a major disaster by reason
of Hurricane Katrinahas been declared by
the President before September 14, 2005,
under section 401 of the Robert T. Stafford
Disaster Relief and Emergency Assistance
Act (42 U.S.C. 5170) (Stafford Act). For
purposes of relief provided under KETRA,
this area comprises thestates of Louisiana,
Mississippi, Alabama, and Florida. Un-
der section 2(2) of KETRA, the Hurricane
Katrina core disaster area is the portion
of the Hurricane Katrina disaster area de-
termined by the President to warrant in-
dividual or individual and public assis-
tance from the federal government under
the Stafford Act. See Appendix to No-
tice 2005–73, 2005–2 C.B. 723, (Oct. 17,
2005) (listing parishes and counties des-
ignated for assistance under the Stafford
Act).
Explanation of Provisions
Provision of Housing
The temporary regulations provide that
a taxpayer is considered to provide hous-
ing if the housing is provided either in,
or on the site of, the taxpayer’s princi-
pal residence. In addition, the taxpayer
must be an owner or lessee of the resi-
dence to be treated as providing housing
to a Hurricane Katrinadisplaced individ-
ual. The termprincipal residencehas the
samemeaningasinsection121andthe
regulations thereunder. Amounts in con-
nection with the provision of housing (for
which the taxpayer may not be reimbursed
or compensated) include rent and utilities.
Amounts for telephone calls, food, cloth-
ing and transportation are not amounts in
connection with the provision of housing
for this purpose.
Limitations on Amount of Reduction
The temporary regulations provide that
the $2,000 aggregate limit on the reduc-
tion in taxable income applies to unmar-
ried individuals and married taxpayers fil-
ing a joint tax return. Married taxpayers
who file separate returns may reduce tax-
able income by $1,000 each for all taxable
years.
The temporary regulations clarify that a
taxpayer may reduce taxable income with
respect to a specific Hurricane Katrina dis-
placed individual in 2005 or 2006, but
not both years. Additionally, the tempo-
rary regulations provide that a Hurricane
Katrina displaced individual may be taken
2007–2 I.R.B.244January 8, 2007

into account by only one taxpayer occupy-
ing the same principal residence.
Effective Date
The temporary regulations apply to tax-
able years beginning after December 31,
2004, and before January 1, 2007, and end-
ing on or after December 11, 2006, which
is the date the temporary regulations were
filed with theFederal Register. Taxpay-
ers may rely on the temporary regulations
with respect to taxable years ending before
the filing date, but may not rely on the ab-
sence of regulations for taxable years end-
ing before the filing date for a result con-
trary to that under the temporary regula-
tions.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. Please refer
to the cross-referenced notice of proposed
rulemaking published elsewhere in this is-
sue of the Bulletin for applicability of the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6). Pursuant to section 7805(f) of the
Code, these temporary regulations will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on their impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tionsisMarnetteM.MyersoftheOfficeof
the Associate Chief Counsel (Income Tax
and Accounting). However, other person-
nel from the IRS and Treasury Department
participated in their development.
*****
Adoption of 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 * * *
Section 1.9300–1T also issued under
26 U.S.C. 6001. * * *
Par. 2. Section 1.9300–1T is added to
read as follows:
§1.9300–1T Reduction in taxable income
for housing Hurricane Katrina displaced
individuals.
(a)In general. For a taxable year be-
ginning in 2005 or 2006, a taxpayer who
is a natural person may reduce taxable in-
come by $500 for each Hurricane Katrina
displaced individual (as defined in para-
graph (e)(1) of this section) to whom the
taxpayer provides housing free of charge
in, or on the site of, the taxpayer’s prin-
cipal residence for a period of 60 consecu-
tive days ending in the taxable year. A tax-
payer may not claim the reduction in tax-
able income unless the taxpayer includes
the taxpayer identification number of the
Hurricane Katrina displaced individual on
the taxpayer’s income tax return.
(b)Provision of housing—(1)Principal
residence. For purposes of this section,
the termprincipal residencehas the same
meaning as in section 121 and the regula-
tions thereunder. See §1.121–1(b)(1) and
(b)(2).
(2)Legal interest required. A taxpayer
is treated as providing housing for pur-
poses of this section only if the taxpayer is
an owner or lessee (including a co-owner
or co-lessee) of the residence.
(3)Compensation for providing hous-
ing—(i)In general. Noreductionintax-
able income is allowed under this section
to a taxpayer who receives rent or any
other amount from any source in connec-
tion with the provision of housing.
(ii)Amounts in connection with the pro-
vision of housing. For purposes of this
section, amounts in connection with the
provision of housing include (but are not
limited to) amounts for rent and utilities.
Amounts for telephone calls, food, cloth-
ing, and transportation are examples of
amounts not in connection with the provi-
sion of housing.
(c)Limitations—(1)Dollar limita-
tion—(i)In general. The reduction under
paragraph (a) of this section may not
exceed the maximum dollar limitation
reduced by the amount of the reduction
under this section for all prior taxable
years. The maximum dollar limitation
is—
(A) $2,000 in the case of an unmarried
individual;
(B) $2,000 in the case of a husband and
wife who file a joint income tax return; and
(C)$1,000inthecaseofamarriedindi-
vidual who files a separate income tax re-
turn.
(ii)Married individuals with separate
principal residences. The limitations in
paragraphs (c)(1)(i)(B) and (c)(1)(i)(C)
of this section apply without regard to
whether the married individuals occupy
the same principal residence. A person is
treated as married for purposes of this sec-
tion if the individual is treated as married
under section 7703.
(2)Spouse or dependent of the tax-
payer. No reduction is allowed for a
Hurricane Katrina displaced individual
who is the spouse or dependent of the
taxpayer.
(3)Individual taken into account only
once. A taxpayer may not reduce taxable
income under paragraph (a) of this section
with respect to a Hurricane Katrina dis-
placed individual who was taken into ac-
count by the taxpayer for any prior taxable
year.
(4)Taxpayers occupying the same prin-
cipal residence. A Hurricane Katrina dis-
placed individual may be taken into ac-
count by only one taxpayer occupying the
same principal residence for all taxable
years.
(d)Substantiation. A taxpayer claim-
ing a reduction under this section must
prepare and maintain records sufficient to
show entitlement to the reduction as pro-
vided in Form 8914(Exemption Amount
for Taxpayers Housing Individuals Dis-
placed by Hurricane Katrina)or other
forms, instructions, publications or guid-
ance published by the IRS.
(e)Definitions. The following defini-
tions apply for purposes of this section.
(1)Hurricane Katrina displaced in-
dividual.ThetermHurricane Katrina
displaced individualmeans any natural
person if the following requirements are
met—
(i) The person’s principal place of
abode on August 28, 2005, was in the
Hurricane Katrina disaster area (as de-
fined in paragraph (e)(2) of this section);
(ii) The person was displaced from that
abode; and
January 8, 20072452007–2 I.R.B.

(iii) If the abode was located outside
the Hurricane Katrinacore disaster area
(as defined in paragraph (e)(3) of this sec-
tion)—
(A) The abode was damaged by Hurri-
cane Katrina; or
(B) The person was evacuated from that
abode by reason of Hurricane Katrina.
(2)Hurricane Katrina disaster area.
The termHurricane Katrina disaster area
means the states of Alabama, Florida,
Louisiana, and Mississippi.
(3)Hurricane Katrina core disaster
area.ThetermHurricane Katrina core
disaster areameans the portion of the
Hurricane Katrina disaster area designated
by the President to warrant individual or
individual and public assistance from the
federal government under the Robert T.
Stafford Disaster Relief and Emergency
Assistance Act (42 U.S.C. 5170).
(f)Examples. The provisions of this
section are illustrated by the following ex-
amples in which each Hurricane Katrina
displaced individual, who is not a depen-
dent or spouse of the taxpayer, is provided
housing (within the meaning of paragraph
(b) of this section) in, or on the site of, the
taxpayer’s principal residence for a period
of at least 60 consecutive days ending in
the applicable taxable year. The examples
are as follows:
Example 1. Taxpayer A provides housing to
N, a Hurricane Katrina displaced individual, from
September 1, 2005, until March 10, 2006. Under
paragraphs (a) and (c)(3) of this section, A may
reduce taxable income by $500 on A’s 2005 income
tax return or A’s 2006 income tax return, but not
both, with respect to N.
Example 2. The facts are the same as inExample
1except that A and B, A’s unmarried roommate and
co-lessee, provide housing to N. Under paragraphs (a)
and (c)(4) of this section, either A or B, but not both,
may reduce taxable income by $500 for 2005 with re-
spect to N. If either A or B reduces taxable income for
2005 with respect to N, neither A nor B may reduce
taxable income with respect to N for 2006.
Example 3. Unmarried roommates and co-lessees
C and D provide housing to eight Hurricane Katrina
displaced individuals during 2005. Under paragraphs
(a) and (c)(1)(i)(A) of this section, C and D each may
reduce taxable income by $2,000 on their 2005 in-
come tax returns.
Example 4. (i) H and W are married to each other
and provide housing to a Hurricane Katrina displaced
individual, O, in 2005. H and W file their 2005 in-
come tax return married filing jointly. Under para-
graphs (a) and (c)(4) of this section, H and W may
reduce taxable income by $500 on their 2005 income
tax return with respect to O.
(ii) In 2006, H and W provide housing to O and to
another Hurricane Katrina displaced individual, P. H
and W file their 2006 income tax return married filing
separately. Because H and W reduced their 2005 tax-
able income with respect to O, under paragraph (c)(3)
of this section, neither H nor W may reduce taxable
income on their 2006 income tax return with respect
to O. Under paragraphs (a) and (c)(4) of this section,
either H or W, but not both, may reduce taxable in-
come by $500 on his or her 2006 income tax return
with respect to P.
(g)Effective date. This section applies
for taxable years beginning after Decem-
ber 31, 2004, and before January 1, 2007,
and ending on or after December 11, 2006.
Linda M. Kroening,
Acting Deputy Commissioner for
Services and Enforcement.
Approved December 1, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on December 11,
2006, 8:45 a.m., and published in the issue of the Federal
Register for December 12, 2006, 71 F.R. 74467)
Section 280F.—Limitation
on Depreciation for Luxury
Automobiles; Limitation
Where Certain Property
Used for Personal Purposes
A revenue procedure provides maximum vehicle
values for which the special valuation rules of regu-
lations sections 1.61–21(d) and (e) may be used. See
Rev. Proc. 2007-11, page 261.
Section 6011.—General
Requirement of Return,
Statement, or List
26 CFR 1.556–2: Adjustments to taxable income.
T.D. 9300
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301 and 602
Guidance Necessary to
Facilitate Business Electronic
Filing
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains final
regulations designed to eliminate regula-
tory impediments to the electronic filing of
certain income tax returns and other forms.
These regulations affect business taxpay-
ers who file income tax returns electroni-
cally. This document also makes conform-
ing changes to certain current regulations.
DATES:Effective Date:These regula-
tions are effective on December 8, 2006.
Applicability Date:These reg-
ulations apply with respect to tax-
able years beginning after Decem-
ber 31, 2002. The applicability of
§§1.170A–11T, 1.556–2T, 1.565–1T,
1.936–7T, 1.1017–1T, 1.1368–1T,
1.1377–1T, 1.1502–21T(b)(3)(i) and
(b)(3)(ii)(B), 1.1502–75T, 1.1503–2T,
1.6038B–1T(b)(1)(ii) and 301.7701–3T
will expire on December 8, 2006.
FOR FURTHER INFORMATION
CONTACT: Nathan Rosen, (202)
622–4910 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these regulations has been re-
viewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545–1868. The collection of
information in these final regulations is
in §1.170A–11(b)(2). The information
required in §1.170A–11(b)(2) concerning
the date on which a corporation’s board
of directors authorizes a certain type of
charitable contribution assists the IRS in
determining the deductibility of such con-
tributions. Responses to this collection of
information are mandatory.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number assigned by the Office of
Management and Budget.
The estimated annual burden per re-
spondent is .25 hours.
Comments concerning the accuracy
of this burden estimate and sugges-
tions for reducing this burden should
be sent to theInternal Revenue Service,
Attn: IRS Reports, Clearance Officer,
2007–2 I.R.B.246January 8, 2007

SE:W:CAR:MP:T:T:SP, Washington, DC
20224, and to theOffice of Manage-
ment and Budget, Attn: Desk Officer for
the Department of the Treasury, Office
of Information and Regulatory Affairs,
Washington, DC 20503.
Books and records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as re-
quired by 26 U.S.C. 6103.
Background
This document contains amendments
to 26 CFR part 1 and 26 CFR part 301
designed to eliminate regulatory impedi-
ments to the electronic submission of tax
returns and other forms filed by corpora-
tions, partnerships, other business entities,
and their owners.
In 1998, Congress enacted the Internal
Revenue Service Restructuring and Re-
form Act of 1998 (RRA 1998), Pub. L. No.
105–206 (112 Stat. 685) (1998). RRA
1998 states a Congressional policy to pro-
mote the paperless filing of Federal tax
returns. Section 2001(a) of RRA 1998
set a goal for the IRS to have at least 80
percent of all Federal tax and information
returns filed electronically by 2007. Sec-
tion 2001(b) of RRA 1998 requires the
IRS to establish a 10-year strategic plan to
eliminate barriers to electronic filing.
Finalization of December 2003
Regulations Facilitating Electronic Filing
On December 19, 2003, the IRS and
Treasury published in theFederal Regis-
ter(T.D. 9100, 2004–1 C.B. 297 [68 FR
70701]) temporary and final regulations
modifying the regulations under sections
170, 556, 565, 936, 1017, 1368, 1377,
1502, 1503, 6038B and 7701 of the Inter-
nal Revenue Code. In the same issue of the
Federal Register, the IRS and Treasury
published a notice of proposed rulemak-
ing (REG–116664–01, 2004–1 C.B. 319
[68 FR 70747]) proposing to amend regu-
lations under the code sections noted in the
previous sentence. The temporary, final,
and proposed regulations published on De-
cember 19, 2003, are collectively referred
to as the December 2003 Regulations.
The December 2003 Regulations gen-
erally affect taxpayers who must file any
of the following forms: Form 926, “Re-
turn by a U.S. Transferor of Property to a
Foreign Corporation”; Form 972, “Con-
sent of Shareholder To Include Specific
Amount in Gross Income”; Form 973,
“Corporation Claim for Deduction for
Consent Dividends”; Form 982, “Reduc-
tion of Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Basis Ad-
justment)”; Form 1120, “U.S. Corporation
Income Tax Return”; Form 1120S, “U.S.
Income Tax Return for an S Corporation”;
Form 1122, “Authorization and Consent of
Subsidiary Corporation To Be Included in
a Consolidated Income Tax Return”; Form
5471, “Information Return of U.S. Persons
With Respect To Certain Foreign Corpo-
rations”; Form 5712–A, “Election and
Verification of the Cost Sharing or Profit
Split Method Under Section 936(h)(5)”;
and Form 8832, “Entity Classification
Election.”
Prior to the changes adopted by the De-
cember 2003 Regulations, certain regula-
tions under the code sections cited above
impeded electronic filing of returns. Some
of these regulations, for example, impeded
electronic filing by requiring taxpayers to
include third-party signatures on their tax
returns or by requiring taxpayers to at-
tach documents or statements generated by
a third party. Other regulations required
ataxpayertosignanIRSformandfile
it as an attachment to the taxpayer’s in-
come tax return. To address certain situ-
ations in which regulations required tax-
payers to attach documents or statements
to their tax returns, for example, the De-
cember 2003 Regulations allowed taxpay-
ers to retain such items in their books and
records. Taxpayers would be obligated, of
course, to make the items available for in-
spectionbytheIRS.
The IRS received no comments re-
sponding to the December 2003 Regu-
lations, and no public hearing regarding
the proposed regulations was requested
or held. Accordingly, the temporary and
proposed regulations are adopted with
no substantive change by this Treasury
decision, and the corresponding tempo-
rary regulations are removed. These final
regulations make certain non-substantive
changes to the December 2003 Regula-
tions as described below.
Section 556 was repealed by the Amer-
ican Jobs Creation Act, Pub. L. No.
108–357 (118 Stat. 1418), effective for
taxable years of foreign corporations be-
ginning after December 31, 2004, and
effective for taxable years of United States
shareholders with or within which such
taxable years of foreign corporations end.
The provision in the December 2003 Reg-
ulations eliminating an electronic filing
impediment under section 556 applied to
tax years ending before the repeal of sec-
tion 556. Therefore, these final regulations
amend section 1.556–2 of the Income Tax
Regulations despite the repeal of section
556 itself.
These final regulations remove cer-
tain portions of section 1.1502–21T
and place such language in sections
1.1502–21(b)(3)(i) and (b)(3)(ii)(B), so
as to eliminate impediments to the elec-
tronic filing of Form 1120. Other portions
of that temporary regulation, however,
predate the December 2003 Regulations
or relate to matters other than electronic
filing, and this document does not revise
those portions.
The regulations as finalized by this
Treasury decision clarify that refer-
ences in the following regulations to
tax return due dates include extensions
of such due dates: See 1.565–1(b)(3),
1.936–7(b), Q. & A. 1, 1.1368–1(f)(5)(iii)
and (g)(2)(iii) and 1.1503–2(g)(2)(i) and
(iv)(B)(3)(iii).
January 2006 Final Regulations
Facilitating Electronic Filing
On January 23, 2006, the IRS and
Treasury released final regulations (T.D.
9243, 2006–8 I.R.B. 475 [71 FR 4276])
(the January 2006 Final Regulations)
which, among otherthings, removed an
impediment to electronic filing of Form
926. In the December 2003 Regula-
tions, the IRS and Treasury had previously
amended both sections 1.6038B–1(b)(1)(i)
and 1.6038B–1(b)(1)(ii) of the Income
Tax Regulations to eliminate an im-
pediment to electronic filing of Form
926. The January 2006 Final Regula-
tions amended section 1.6038B–1(b)(1)(i)
and removed temporary regulations sec-
tion 1.6038B–1T(b)(1)(i). Therefore,
because the amendment in the December
2003 Regulations to 1.6038B–1T(b)(1)(i)
has already been adopted in final
regulations, these final regulations
amend 1.6038B–1(b)(1)(ii) and remove
January 8, 20072472007–2 I.R.B.

1.6038B–1T(b)(1)(ii), but do not address
section 1.6038B–1(b)(1)(i).
May 2006 Regulations Facilitating
Electronic Filing
On May 26, 2006, the IRS and Treasury
Department released final and temporary
regulations (T.D. 9264, 2006–26 I.R.B.
1150 [71 FR 30591]) (the May 2006
Regulations), which contained numerous
temporary regulations amending or re-
placing final regulations. Some of these
final regulations had required taxpayers
to provide detailed information about a
transaction. In other cases, the scope of
various reporting requirements was not
clear. The May 2006 Regulations sim-
plified, clarified or, in some cases, elimi-
nated these reporting burdens.
The May 2006 Regulations also elimi-
nated regulatory impediments to the elec-
tronic filing of certain statements that tax-
payers are required to include on or with
their Federal income tax returns. In some
cases, this impediment was removed by
deleting the requirement that the taxpayer
sign such statement. In other cases, where
the taxpayer and a third party were both
required to sign such statement, this im-
pediment was removed by requiring each
partytoindicateonsuchstatementthat
it had entered into an agreement with the
other party addressing the substantive mat-
ters covered by the final regulations. Re-
quiring such a statement from the parties in
place of the dual signatures eliminates an
e-file impediment, but to protect the Ser-
vice’s interests, the May 2006 regulations
require each party to keep either the origi-
nal or a copy of the underlying agreement
in its records.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. It is hereby
certified 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 on the fact that the collec-
tion of information in these regulations in-
volves an insignificant expenditure of time
by taxpayers, as noted above under the
heading “Paperwork Reduction Act.” Ac-
cordingly, a Regulatory Flexibility Anal-
ysis under the Regulatory Flexibility Act
(5 U.S.C. chapter 6) is not required. Pur-
suant to section 7805(f) of the Code, the
December 2003 Regulations and the De-
cember 2003 notice of proposed rulemak-
ing were submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on their impact
on small business.
Drafting Information
The principal author of these regula-
tions is Nathan Rosen, Office of Associate
Chief Counsel (Procedure and Administra-
tion), Administrative Provisions and Judi-
cial Practice Division.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 301 and
602 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 1.170A–11 is amended
by revising paragraph (b)(2) to read as fol-
lows:
§1.170A–11 Limitation on, and carryover
of, contributions by corporations.
*****
(b) * * *
(2) The election must be made at the
time the return for the taxable year is filed,
by reporting the contribution on the re-
turn. There shall be attached to the re-
turn when filed a written declaration stat-
ing that the resolution authorizing the con-
tribution was adopted by the board of di-
rectors during the taxable year. For taxable
years beginning before January 1, 2003,
the declaration shall be verified by a state-
ment signed by an officer authorized to
sign the return that it is made under penal-
ties of perjury, and there shall also be at-
tached to the return when filed a copy of
the resolution of the board of directors
authorizing the contribution. For taxable
years beginning after December 31, 2002,
the declaration must also include the date
of the resolution, the declaration shall be
verified by signing the return, and a copy
of the resolution of the board of directors
authorizing the contribution is a record that
the taxpayer must retain and keep available
for inspection in the manner required by
§1.6001–1(e).
*****
§1.170A–11T [Removed]
Par. 3. Section 1.170A–11T is re-
moved.
Par. 4. Section 1.556–2 is amended by
revising paragraph (e)(2)(vii) and adding
paragraph (e)(3) to read as follows:
§1.556–2 Adjustments to taxable income.
*****
(e) * * *
(2) * * *
(vii) In the case of a return for a taxable
year beginning before January 1, 2003, a
copy of the contract, lease, or rental agree-
ment;
*****
(3) If the statement described in
§1.556–2(e)(2) is attached to a taxpayer’s
income tax return for a taxable year be-
ginning after December 31, 2002, a copy
of the applicable contract, lease or rental
agreement is not required to be submitted
with the return, but must be retained by the
taxpayer and kept available for inspection
in the manner required by §1.6001–1(e).
*****
§1.556–2T [Removed]
Par. 5. Section 1.556–2T is removed.
Par. 6. Section 1.565–1 is amended
by revising paragraph (b)(3) to read as fol-
lows:
§1.565–1 General rule.
*****
(b) * * *
(3) A consent may be filed at any time
not later than the due date (including ex-
tensions) of the corporation’s income tax
return for the taxable year for which the
dividends paid deduction is claimed. With
such return, and not later than the due
date (including extensions) thereof, the
corporation must file Forms 972 for each
2007–2 I.R.B.248January 8, 2007

consenting shareholder, and a return on
Form 973 showing by classes the stock
outstanding on the first and last days of
the taxable year, the dividend rights of
such stock, distributions made during the
taxable year to shareholders, and giving all
the other information required by the form.
For taxable years beginning before Jan-
uary 1, 2003, the Form 973 filed with the
corporation’s income tax return shall con-
tain or be verified by a written declaration
that is made under the penalties of perjury
and the Forms 972 filed with the return
must be duly executed by the consenting
shareholders. For taxable years beginning
after December 31, 2002, the Form 973
filed with the corporation’s income tax re-
turn shall be verified by signing the return
and the Forms 972 filed with the return
must be duly executed by the consenting
shareholders or, if unsigned, must contain
the same information as the duly executed
originals. If the corporation submits un-
signed Forms 972 with its return for a
taxable year beginning after December
31, 2002, the duly executed originals are
records that the corporation must retain
and keep available for inspection in the
manner required by §1.6001–1(e).
*****
§1.565–1T [Removed]
Par. 7. Section 1.565–1T is removed.
Par. 8. Section 1.936–7 is amended by
revising paragraph (b), Q. & A. 1, to read
as follows:
§1.936–7 Manner of making election
under section 936(h)(5); special election
for export sales; revocation of election
under section 936(a).
*****
(b)Manner of making election.
Q. 1: How does a possessions corpora-
tion make an election to use the cost shar-
ing method or profit split method?
A. 1: A possessions corporation makes
an election to use the cost sharing or
profit split method by filing Form 5712–A
(“Election and Verification of the Cost
Sharing or Profit Split Method Under Sec-
tion 936(h)(5)”)and attaching it to its tax
return. Form 5712–A must be filed on or
before the due date (including extensions)
of the tax return of the possessions corpo-
ration for its first taxable year beginning
after December 31, 1982. The electing
corporation must set forth on the form
the name and the taxpayer identification
number or address of all members of the
affiliated group (including foreign affili-
ates not required to file a U.S. tax return).
All members of the affiliated group must
consent to the election. For elections filed
with respect to taxable years beginning
before January 1, 2003, an authorized of-
ficer of the electing corporation must sign
the statement of election and must declare
that he has received a signed statement of
consent from an authorized officer, direc-
tor, or other appropriate official of each
member of the affiliated group. Elections
filed for taxable years beginning after
December 31, 2002, must incorporate a
declaration by the electing corporation
that it has received a signed consent from
an authorized officer, director, or other
appropriate official of each member of
the affiliated group and will be verified
by signing the return. The election is not
valid for a taxable year unless all affiliates
consent. A failure to obtain an affiliate’s
written consent will not invalidate the
election out if the possessions corpora-
tion made a good faith effort to obtain
all the necessary consents or the failure
to obtain the missing consent was inad-
vertent. Subsequently created or acquired
affiliates are bound by the election. If
an election out is revoked under section
936(h)(5)(F)(iii),a new election out with
respect to that product area cannot be
made without the consent of the Commis-
sioner. The possessions corporation shall
file an amended Form 5712–A with its
timely filed (including extensions) income
taxreturntoreflectanychangesinthe
names or number of the members of the
affiliated group for any taxable year after
the first taxable year to which the election
out applies. By consenting to the election
out, all affiliates agree to provide informa-
tion necessary to compute the cost sharing
payment under the cost sharing method or
combined taxable income under the profit
split method, and failure to provide such
information shall be treated as a request
to revoke the election out under section
936(h)(5)(F)(iii).
*****
§1.936–7T [Removed]
Par. 9. Section 1.936–7T is removed.
Par. 10. Section 1.1017–1 is amended
by revising paragraph (g)(2)(iii)(B) to read
as follows:
§1.1017–1 Basis reductions following a
discharge of indebtedness.
*****
(g) * * *
(2) * * *
(iii) * * *
(B)Taxpayer’s requirement.For
taxable years beginning before Jan-
uary 1, 2003, statements described in
§1.1017–1(g)(2)(iii)(A) must be attached
to a taxpayer’s timely filed (including
extensions) Federal income tax return for
the taxable year in which the taxpayer has
COD income that is excluded from gross
income under section108(a). For taxable
years beginning after December 31, 2002,
taxpayers must retain the statements and
keep them available for inspection in the
manner required by §1.6001–1(e), but are
not required to attach the statements to
their returns.
*****
§1.1017–1T [Removed]
Par. 11. Section 1.1017–1T is removed.
Par. 12. Section 1.1368–1 is amended
by revising paragraphs (f)(5)(iii) and
(g)(2)(iii) to read as follows:
§1.1368–1 Distributions by
S corporations.
*****
(f) * * *
(5) * * *
(iii)Corporate statement regarding
elections. A corporation makes an election
for a taxable year under §1.1368–1(f) by
attaching a statement to a timely filed (in-
cluding extensions) original or amended
return required to be filed under section
6037 for that taxable year. In the state-
ment, the corporation must identify the
election it is making under §1.1368–1(f)
and must state that each shareholder con-
sents to the election. In the case of elec-
tions for taxable years beginning before
January 1, 2003, an officer of the corpora-
tion must sign under penalties of perjury
the statement on behalf of the corpora-
tion. In the case of elections for taxable
years beginning after December 31, 2002,
the statement described in this paragraph
January 8, 20072492007–2 I.R.B.

(f)(5)(iii) shall be verified by signing the
return. A statement of election to make
a deemed dividend under §1.1368–1(f)
must include the amount of the deemed
dividend that is distributed to each share-
holder.
*****
(g) * * *
(2) * * *
(iii)Time and manner of making elec-
tion. A corporation makes an election
under §1.1368–1(g)(2)(i) for a taxable
year by attaching a statement to a timely
filed (including extensions) original or
amended return required to be filed
under section 6037 for a taxable year
(without regard to the election under
§1.1368–1(g)(2)(i)). In the statement, the
corporation must state that it is electing for
the taxable year under §1.1368–1(g)(2)(i)
to treat the taxable year as if it consisted
of separate taxable years. The corporation
also must set forth facts in the statement
relating to the qualifying disposition (e.g.,
sale, gift, stock issuance, or redemption),
and state that each shareholder who held
stock in the corporation during the tax-
able year (without regard to the election
under §1.1368–1(g)(2)(i)) consents to this
election. For purposes of this election,
a shareholder of the corporation for the
taxable year is a shareholder as described
in section 1362(a)(2). A single election
statement may be filed for all elections
made under §1.1368–1(g)(2)(i) for the
taxable year. An election made under
§1.1368–1(g)(2)(i) is irrevocable. In the
case of elections for taxable years begin-
ning before January 1, 2003, the statement
through which a corporation makes an
election under §1.1368–1(g)(2)(i) must
be signed by an officer of the corporation
under penalties of perjury. In the case
of elections for taxable years beginning
after December 31, 2002, the statement
described in the preceding sentence shall
be verified by signing the return.
*****
§1.1368–1T [Removed]
Par. 13. Section 1.1368–1T is removed.
Par. 14. Section 1.1377–1 is amended
by revising paragraph (b)(5)(i)(C) to read
as follows:
§1.1377–1 Pro rata share .
*****
(b) * * *
(5) * * *
(i) * * *
(C) The signature on behalf of the
S corporation of an authorized officer of
the corporation under penalties of perjury,
except that for taxable years beginning
after December 31, 2002, the election
statement described in §1.1377–1(b)(5)(i)
of this section shall be verified, and the
requirement of this paragraph (b)(5)(i)(C)
is satisfied, by the signature on the Form
1120S filed by the S corporation.
*****
§1.1377–1T [Removed]
Par. 15. Section 1.1377–1T is removed.
Par. 16. Section 1.1502–21 is amended
by revising paragraphs (b)(3)(i) and
(b)(3)(ii)(B) to read as follows:
§1.1502–21 Net operating losses.
*****
(b)
***
(3)Special rules—(i)Election to re-
linquish carryback. A group may make
an irrevocable election under section
172(b)(3) to relinquish the entire carry-
back period with respect to a CNOL for
any consolidated return year. Except as
provided in §1.1502–21(b)(3)(ii)(B), the
election may not be made separately for
any member (whether or not it remains a
member), and must be made in a separate
statement entitled “THIS IS AN ELEC-
TION UNDER §1.1502–21(b)(3)(i) TO
WAIVE THE ENTIRE CARRYBACK
PERIOD PURSUANT TO SECTION
172(b)(3) FOR THE [insert consolidated
return year] CNOLs OF THE CONSOL-
IDATEDGROUPOFWHICH[insert
name and employer identification number
of common parent] IS THE COMMON
PARENT.” The statement must be filed
with the group’s income tax return for the
consolidated return year in which the loss
arises. If the consolidated return year in
which the loss arises begins before Jan-
uary 1, 2003, the statement making the
electionmustbesignedbythecommon
parent. If the consolidated return year in
which the loss arises begins after Decem-
ber 31, 2002, the election may be made in
an unsigned statement.
(ii) * * *
(B)Acquisition of member from an-
other consolidated group. If one or more
members of a consolidated group becomes
a member of another consolidated group,
the acquiring group may make an irrevo-
cable election to relinquish, with respect
to all consolidated net operating losses
attributable to the member, the portion of
the carryback period for which the cor-
poration was a member of another group,
provided that any other corporation join-
ing the acquiring group that was affiliated
with the member immediately before it
joined the acquiring group is also included
in the waiver. This election is not a yearly
election and applies to all losses that
would otherwise be subject to a carryback
to a former group under section 172. The
election must be made in a separate state-
ment entitled “THIS IS AN ELECTION
UNDER §1.1502–21(b)(3)(ii)(B)(2)TO
WAIVE THE PRE-[insert first taxable
year for which the member (or members)
was not a member of another group] CAR-
RYBACK PERIOD FOR THE CNOLs
attributable to [insert names and employer
identification number of members].” The
statement must be filed with the acquiring
consolidated group’s original income tax
return for the year the corporation (or cor-
porations) became a member. If the year
in which the corporation (or corporations)
became a member begins before January
1, 2003, the statement must be signed
by the common parent and each of the
members to which it applies. If the year
in which the corporation (or corporations)
became a member begins after December
31, 2002, the election may be made in an
unsigned statement.
*****
Par. 17. Section 1.1502–21T is
amended by revising paragraphs (a)
through (b)(3)(ii)(B) to read as follows:
§1.1502–21T Net operating losses
(Temporary).
(a) through (b)(3)(ii)(B) [Reserved].
For further guidance, see §1.1502–21(a)
through (b)(3)(ii)(B).
2007–2 I.R.B.250January 8, 2007

*****
Par. 18. Section 1.1502–75 is amended
by revising paragraph (h)(2) to read as fol-
lows:
§1.1502–75 Fil
ing of consolidated
returns.
*****
(h) * * *
(2)FilingofForm1122forfirstyear.If,
under the provisions of paragraph (a)(1) of
this section, a group wishes to file a con-
solidated return for a taxable year, then a
Form 1122 (“Authorization and Consent
of Subsidiary Corporation To Be Included
in a Consolidated Income Tax Return”)
must be executed by each subsidiary. For
taxable years beginning before January 1,
2003, the executed Forms 1122 must be at-
tached to the consolidated return for the
taxable year. For taxable years begin-
ning after December 31, 2002, the group
must attach either executed Forms 1122 or
unsigned copies of the completed Forms
1122 to the consolidated return. If the
group submits unsigned Forms 1122 with
its return, it must retain the signed origi-
nals in its records in the manner required
by §1.6001–1(e). Form 1122 is not re-
quired for a taxable year if a consolidated
return was filed (or was required to be
filed) by the group for the immediately
preceding taxable year.
*****
§1.1502–75T [Removed]
Par. 19. Section 1.1502–75T is re-
moved.
Par. 20. Section 1.1503–2 is
amended by revising paragraphs (g)(2)(i),
(g)(2)(iv)(B)(3)(iii) and (g)(2)(vi)(B) to
read as follows:
§1.1503–2 Dual consolidated loss.
*****
(g) * * *
(2) * * *
(i)In general. Paragraph (b) of this
section shall not apply to a dual consoli-
dated loss if the consolidated group, unaf-
filiated dual resident corporation, or unaf-
filiated domestic owner elects to be bound
by the provisions of this paragraph (g)(2).
In order to elect relief under this paragraph
(g)(2), the consolidated group, unaffiliated
dual resident corporation, or unaffiliated
domestic owner must attach to its timely
filed (including extensions) U.S. income
tax return for the taxable year in which the
dual consolidated lossis incurred an agree-
ment described in paragraph (g)(2)(i)(A)
of this section. The agreement must be
signed under penalties of perjury by the
person who signs the return. For taxable
years beginning after December 31, 2002,
the agreement attached to the income tax
return of the consolidated group, unaffili-
ated dual resident corporation or unaffili-
ated domestic owner pursuant to the pre-
ceding sentence may be an unsigned copy.
If an unsigned copy is attached to the re-
turn, the consolidated group, unaffiliated
dual resident corporation, or unaffiliated
domestic owner must retain the original
in its records in the manner specified by
§1.6001–1(e). The agreement must in-
clude the following items, in paragraphs
labeled to correspond with the items set
forth in paragraph (g)(2)(i)(A) through (F)
of this section.
(A) A statement that the document sub-
mitted is an election and an agreement un-
der the provisions of paragraph (g)(2) of
this section.
(B) The name, address, identifying
number, and place and date of incorpo-
ration of the dual resident corporation,
and the country or countries that tax the
dual resident corporation on its worldwide
income or on a residence basis, or, in the
case of a separate unit, identification of the
separate unit, including the name under
which it conducts business, its principal
activity, and the country in which its prin-
cipal place of business is located.
(C) An agreement by the consolidated
group, unaffiliated dual resident corpo-
ration, or unaffiliated domestic owner
to comply with all of the provisions of
§1.1503–2(g)(2)(iii)–(vii).
(D) A statement of the amount of the
dual consolidated loss covered by the
agreement.
(E) A certification that no portion of
the dual resident corporation’s or sepa-
rate unit’s losses, expenses, or deductions
taken into account in computing the dual
consolidated loss has been, or will be, used
to offset the income of any other person un-
der the income tax laws of a foreign coun-
try.
(F) A certification that arrangements
have been made to ensure that no portion
of the dual consolidated loss will be used to
offset the income of another person under
the laws of a foreign country and that the
consolidated group, unaffiliated dual resi-
dent corporation, or unaffiliated domestic
owner will be informed of any such foreign
use of any portion of the dual consolidated
loss.
*****
(iv)***
(B) * * *
(3)***
(iii) The unaffiliated domestic corpo-
ration or new consolidated group must
file, with its timely filed (including ex-
tensions) income tax return for the tax-
able year in which the event described in
paragraph (g)(2)(iv)(B)(1)or(2)ofthis
section occurs, an agreement described in
paragraph (g)(2)(i) of this section (new
(g)(2)(i) agreement), whereby it assumes
the same obligations with respect to the
dual consolidated loss as the corporation
or consolidated group that filed the orig-
inal (g)(2)(i) agreement with respect to
that loss. The new (g)(2)(i) agreement
must be signed under penalties of per-
jury by the person who signs the return
and must include a reference to this para-
graph (g)(2)(iv)(B)(3)(iii). For taxable
years beginning after December 31, 2002,
the agreement attached to the return pur-
suant to the preceding sentence may be
an unsigned copy. If an unsigned copy is
attached to the return, the corporation or
consolidated group must retain the origi-
nal in its records in the manner specified
by §1.6001–1(e).
*****
(vi)***
(B)Annual certification. Except as
provided in §1.1503–2(g)(2)(vi)(C), until
and unless Form 1120 or the Schedules
thereto contain questions pertaining to
dual consolidated losses, the consolidated
group, unaffiliated dual resident corpora-
tion, or unaffiliated domestic owner must
file with its income tax return for each of
the 15 taxable years following the taxable
year in which the dual consolidated loss
is incurred a certification that the losses,
expenses, or deductions that make up the
dual consolidated loss have not been used
to offset the income of another person
under the tax laws of a foreign country.
For taxable years beginning before Jan-
uary 1, 2003, the annual certification must
be signed under penalties of perjury by a
January 8, 20072512007–2 I.R.B.

person authorized to sign the agreement
described in §1.1503–2(g)(2)(i). For tax-
able years beginning after December 31,
2002, the certification is verified by sign-
ing the return with which the certification
is filed. The certification for a taxable
year must identify the dual consolidated
loss to which it pertains by setting forth
the taxpayer’s year in which the loss was
incurred and the amount of such loss. In
addition, the certification must warrant
that arrangements have been made to en-
sure that the loss will not be used to offset
the income of another person under the
laws of a foreign country and that the
taxpayer will be informed of any such
foreign use of any portion of the loss. If
dual consolidated losses of more than one
taxable year are subject to the rules of this
paragraph (g)(2)(vi)(B), the certifications
for those years may be combined in a sin-
gle document but each dual consolidated
loss must be separately identified.
*****
§1.1503–2T [Removed]
Par. 21. Section 1.1503–2T is removed.
Par. 22. Section 1.6038B–1 is amended
by revising paragraph (b)(1)(ii) to read as
follows:
§1.6038B–1 Reporting of certain transfers
to foreign corporations.
*****
(b) * * *
(1) * * *
(ii)Reporting by corporate transferor.
For transfers by corporations in taxable
years beginning before January 1, 2003,
Form926mustbesignedbyanauthorized
officer of the corporation if the transferor
is not a member of an affiliated group un-
der section 1504(a)(1) that files a consoli-
dated Federal income tax return and by an
authorized officer of the common parent
corporation if the transferor is a member
of such an affiliated group. For transfers
by corporations in taxable years beginning
after December 31, 2002, Form 926 shall
be verified by signing the income tax re-
turn to which the form is attached.
*****
Par. 23. Section 1.6038B–1T is
amended by revising paragraphs (a)
through (b)(3) to read as follows:
§1.6038B–1T Reporting of certain
transactions to foreign corporations
(Temporary).
(a) through (b)(3) [Reserved]. For fur-
ther guidance, see §1.6038B–1(a) through
(b)(3).
*****
PART 301 — PROCEDURE AND
ADMINISTRATION
Par. 24. The authority citation for part
301 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 25. Section 301.7701–3 is
amended by revising paragraph (c)(1)(ii)
to read as follows:
§301.7701–3 Classification of certain
business entities.
*****
(c)***(1)***
(ii)Further notification of elections.
An eligible entity required to file a Federal
tax or information return for the taxable
year for which an election is made under
§301.7701–3(c)(1)(i) must attach a copy
of its Form 8832 to its Federal tax or in-
formation return for that year. If the entity
is not required to file a return for that year,
a copy of its Form 8832(“Entity Classifi-
cation Election”)must be attached to the
Federal income tax or information return
of any direct or indirect owner of the entity
for the taxable year of the owner that in-
cludes the date on which the election was
effective. An indirect owner of the entity
does not have to attach a copy of the Form
8832 to its return if an entity in which it has
an interest is already filing a copy of the
Form 8832 with its return. If an entity, or
one of its direct or indirect owners, fails to
attach a copy of a Form 8832 to its return
as directed in this section, an otherwise
valid election under §301.7701–3(c)(1)(i)
will not be invalidated, but the non-fil-
ing party may be subject to penalties,
including any applicable penalties if the
Federal tax or information returns are
inconsistent with the entity’s election un-
der §301.7701–3(c)(1)(i). In the case of
returns for taxable years beginning after
December 31, 2002, the copy of Form
8832 attached to a return pursuant to this
paragraph (c)(1)(ii) is not required to be a
signed copy.
*****
§301.7701–3T [Removed]
Par. 26. Section 301.7701–3T is re-
moved.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 27. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 28. In §602.101, paragraph (b)
is amended by removing the entry for
“1.170A–11T” and revising the entry for
“1.170A–11” to read as follows:
§602.101 OMB Control numbers
*****
(b) * * *
CFR part or section where
identified and described
Current OMB
control No.
*****
1.170A–11........................................................... 1545–0123
1545–0074
1545–1868
*****
2007–2 I.R.B.252January 8, 2007

Linda M. Kroening,
Acting Deputy Commissioner for
Services and Enforcement.
Approved November 29, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on December 7,
2006, 8:45 a.m., and published in the issue of the Federal
Register for December 8, 2006, 71 F.R. 71040)
January 8, 20072532007–2 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
T.D. 9281 Effective Date
Notice 2007–1
On August 17, 2006, the Treasury De-
partment and the IRS published temporary
and proposed income tax regulations T.D.
9281, 2006–39 I.R.B. 517 [71 FR 47443]
under §1.882–5 regarding the determina-
tion of the interest expense allocable to ef-
fectively connected income of foreign cor-
porations engaged, or treated as engaged
in a trade or business within the United
States, and under §1.884–1(e)(3) regard-
ing the determination of branch profits
tax under a liability reduction election.
The temporary and proposed regulations
revised final regulations under §1.882–5
issued in T.D. 8658, 1996–1 C.B. 161 [61
FR 15891] and under §1.884–1 issued
in T.D. 8432, 1992–2 C.B. 157 [57 FR
41644].
The temporary regulations provided in
T.D. 9281 are effective for the first tax
year end for which a foreign corporate
taxpayer’s original tax return due date
(including extensions) is after August 17,
2006. Accordingly, for calendar-year tax-
payers, the applicability date for T.D. 9281
is the tax year ended December 31, 2005,
for which an original tax return due date
(including extensions) was September 15,
2006. The temporary regulations provide
a one-time, additional period for taxpayers
whose original tax return due date (includ-
ing extensions) is after August 17, 2006,
and not later than December 31, 2006, to
adopt the tax return elections covered by
the temporary regulations on an amended
income tax return within 180 days after
the original allowable extended due date
(whether or not the taxpayer timely filed
its tax return by the original due date
(without regard to extensions)).
This notice permits foreign corpora-
tions engaged, or treated as engaged in a
trade or business within the United States
whose tax year end is on or after Septem-
ber 30, 2005, and whose original tax return
due date (including extensions) was on or
after June 15, 2006, and on or before
August 17, 2006, to elect to apply the
provisions of T.D. 9281 for such earlier
taxreturnfilingperiod. Suchtaxpay-
ers may adopt the rules provided in T.D.
9281, including the one-time amended re-
turn elections of §§1.882–5T(a)(7)(iii),
1.882–5T(d)(5)(ii)(B) and 1.884–1T
(e)(3)(iv), and the mandatory conform-
ing election in §1.882–5(b)(2)(ii)(A)(2)
for such year only if the rules are adopted
in their entirety on an amended return
filed within 180 days of December 18,
2006. Accordingly,a taxpayer may not
file an amended return for the tax period
provided in this notice to adopt the an-
nual published LIBOR rate election of
§1.882–5T(d)(5)(ii)(B) and also remain
on the 93-percent fixed ratio election and
branch profits tax rules that were amended
by the temporary rules in T.D. 9281. This
notice does not change any of the tem-
porary and proposed rules provided in
T.D. 9281 other than allowing eligible tax-
payers to elect to apply such rules to the
earlier tax return filing period provided in
this notice within 180 days of December
18, 2006.
The principal author of this notice is
Gregory A. Spring of the Office of As-
sociate Chief Counsel (International).
For further information regarding this
notice, contact Gregory A. Spring or
Paul S. Epstein at (202) 622–3870 (not a
toll-free call).
Amounts Received Under
Accident and Health Plans
Notice 2007–2
PURPOSE
This notice provides transition relief
with respect to the use of debit cards
for medical expense reimbursements at
certain merchants with non-health care
related merchant category codes. It also
addresses the use of debit cards for medi-
cal expense reimbursements at stores with
the Drug Stores and Pharmacies merchant
category code.
BACKGROUND
Rev. Rul. 2003–43, 2003–1 C.B. 935,
sets forth rules for determining whether
employer-provided medical expense re-
imbursements made through debit cards
and other electronic media (debit cards)
are excludable from gross income under
§105(b) of the Internal Revenue Code.
Situation 1 of the ruling describes an
employer who sponsors both a health flex-
ible spending arrangement (health FSA)
and a health reimbursement arrangement
(HRA). In conjunction with the health
FSA and HRA, the employer permits elec-
tronic reimbursement of medical expenses
through the use of debit cards. Under the
arrangement, the cardholder’s use of the
card is limited to merchants and service
providers with specific merchant category
codes related to health care. The ruling
states that, “the card’s use is limited to
physicians, pharmacies, dentists, vision
care offices, hospitals, and other medical
care providers.” Thus, the use of the card
at other than these merchants or service
providers would be rejected.
Situation 1 of Rev. Rul. 2003–43 also
sets forth rules for substantiation of med-
ical expenses and provides that debit card
charges other than matched copayments,
recurring expenses and real-time substan-
tiation are treated asconditional pending
confirmation of the charges through addi-
tional third-party information. If the debit
card charges are subsequently identified
as not qualifying for medical reimburse-
ment, the employer must follow certain
correction procedures with respect to the
improper payments. The after-the-fact
substantiation and correction procedures
described in Situation 1 of Rev. Rul.
2003–43 are sometimes referred to as
“pay and chase.” The ruling holds that
employer-provided medical expense re-
imbursements made through the cards, as
described in Situation 1, are excludable
from gross income under § 105(b).
Notice 2006–69, 2006–31 I.R.B. 107,
describes an inventory information ap-
proval system that may be used by mer-
chants with non-health care related mer-
chant category codes for substantiating
employees’ claimed medical expenses. It
has been determined that transition relief
is warranted for a limited period, in or-
der for these non-health care merchants
to implement the inventory information
approval system.
TRANSITION RELIEF
All supermarkets, grocery stores, dis-
count stores, and wholesale clubs that do
2007–2 I.R.B.254January 8, 2007

not have a merchant category code related
to health care will nevertheless be deemed
to be an “other medical care provider”
within the meaning of Situation 1 of Rev.
Rul. 2003–43 with respect to debit card
transactions occurring on or before De-
cember 31, 2007. In addition, mail order
vendors and web-based vendors that sell
prescription drugs will also be deemed to
be an “other medical care provider” with
respect to debit card transactions occurring
on or before December 31, 2007. As re-
quired in Rev. Rul. 2003–43, employ-
ers must substantiate all debit card charges
incurred during the relief period and fol-
low the correction procedures in Rev. Rul.
2003–43 with respect to any unsubstanti-
ated payment. After December 31, 2007,
health FSA or HRA debit cards may not be
used at any store, vendor or merchant that
does not have health care related merchant
category codes unless the store, vendor or
merchant has implemented an inventory
information approval system as described
in Notice 2006–69.
STORES WITH DRUG STORES
AND PHARMACIES MERCHANT
CATEGORY CODE
Under Rev. Rul. 2003–43, health FSA
and HRA debit cards may be used at stores
with the merchant category code for Drug
Stores and Pharmacies. However, many
stores with this code also sell a significant
number of items which do not qualify as
medical expenses under § 213(d). In order
to curtail the ability to purchase non-med-
ical items with such debit cards, as well
as to provide a level playing field, the IRS
and Treasury have determined that it is ap-
propriate to require similar substantiation
rules for all stores that sell a significant
number of items which do not qualify as
medical expenses under § 213(d).
Accordingly, after December 31, 2008,
health FSA and HRA debit cards may not
be used at stores with the Drug Stores and
Pharmacies merchant category code un-
less (1) the store participates in the inven-
tory information approval system as de-
scribed in Notice 2006–69, or (2) on a store
location by store location basis, 90 per-
cent of the store’s gross receipts during
the prior taxable year consisted of items
which qualify as expenses for medical care
under § 213(d) (including nonprescription
medications as described in Rev. Rul.
2003–102, 2003–2 C.B. 559).
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 2003–43, 2003–1 C.B. 935,
is modified.
DRAFTING INFORMATION
The principal author of this notice is
Stephanie L. Caden of the Office of Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
For further information regarding this no-
tice, contact Ms. Caden at (202) 622–6080
(not a toll-free call).
2006 Cumulative List of
Changes in Plan Qualification
Requirements
Notice 2007–3
I. PURPOSE
This notice contains the 2006 Cumu-
lative List of Changes in Plan Qualifi-
cation Requirements (2006 Cumulative
List) described in section 4 of Rev. Proc.
2005–66, 2005–2 C.B. 509. The 2006
Cumulative List is to be used primarily by
(1) plan sponsors of individually designed
plans (that is, single employer individu-
ally designed defined contribution plans,
including employee stock ownership plans
(ESOPs), and single employer individu-
ally designed defined benefit plans) and
plan sponsors of multiple employer plans
that fall in Cycle B and (2) plan sponsors
and practitioners indrafting defined ben-
efit pre-approved plans (that is, defined
benefit plans that are master and prototype
(M&P)orvolumesubmitter(VS)plans)
for their first submission under the initial
remedial amendment cycle under Rev.
Proc. 2005–66. An individually designed
plan is in Cycle B if the last digit of the
employer identification number is 2 or 7.
Multiple employer plans are also in Cycle
B, pursuant to section 10.03 of Rev. Proc.
2005–66.
The list of changes in section V of this
notice does not extend the deadline by
which a plan must be amended to com-
ply with any statutory, regulatory, or guid-
ance changes. The general deadline for
timely adoption of an interim or discre-
tionary amendment can be found in sec-
tion 5.05 of Rev. Proc. 2005–66. Section
III of Notice 2005–95, 2005–2 C.B. 1172,
provides that the general timing rules to
adopt a plan amendment described in sec-
tion 5.05 of Rev. Proc. 2005–66 do not
apply if a statutory provision or guidance
issued by the Service provides an earlier
or later date than the deadline set forth in
Rev. Proc. 2005–66.
II. BACKGROUND
Rev. Proc. 2005–66 sets forth pro-
cedures for issuing opinion, advisory,
and determination letters and establishes
the five-year remedial amendment cycle
for individually designed plans and the
six-year remedial amendment cycle for
pre-approved plans. In addition, section
5.05 of Rev. Proc. 2005–66 provides the
deadline for timely adoption of an interim
amendment or discretionary amendment.
Notice 2005–95 clarifies the interaction of
the Rev. Proc. 2005–66 amendment tim-
ing deadlines for qualified plans with the
deadlines set forth in statutory provisions
or guidance issued by the Service.
Under section 4 of Rev. Proc. 2005–66,
the Internal Revenue Service intends to
annually publish a Cumulative List to
identify statutory, regulatory and guidance
changes that must be taken into account
in submissions by plan sponsors to the
Service for opinion, advisory and determi-
nation letters whose remedial amendment
period begins on February 1st following
issuance of the Cumulative List.
In Notice 2005–101, 2005–2 C.B.
1219, the Service published the 2005
Cumulative List of Changes in Plan Qual-
ification Requirements (2005 Cumulative
List). The 2005 Cumulative List is used
primarily by plan sponsors of individu-
ally designed plans that fall in Cycle A
that must be submitted to the Service for
review by January 31, 2007. Thus, the
2005 Cumulative List set forth those plan
qualification requirements that applied to
individually designed defined contribution
plans, including ESOPs, and individually
designed defined benefit plans. Plan qual-
ification requirements included statutory
changes and guidance that became effec-
tive after December 31, 2001. The Service
stated that plan language for guidance is-
sued after December 13, 2005 would not
January 8, 20072552007–2 I.R.B.

be reviewed, unless it was on the 2005
Cumulative List.
In Notice 2004–84, 2004–2 C.B. 1030,
the Service published the 2004 Cumula-
tive List of Changes in Plan Qualification
Requirements (2004 Cumulative List).
The 2004 Cumulative List was used pri-
marily by plan sponsors and practitioners
in drafting defined contribution pre-ap-
proved plans (that is, defined contribution
plans that are master and prototype or vol-
ume submitter plans) that were required
to be submitted to the Service for review
by January 31, 2006. Thus, the 2004 Cu-
mulative List set forth only those plan
qualification requirements that applied to
defined contribution pre-approved plans.
Plan qualification requirements included
statutory changes and guidance that be-
came effective after December 31, 2001
and any relevant qualification require-
ments not contained in the 2004 Cumula-
tive List. The Service also stated that plan
language for guidance issued after De-
cember 14, 2004 would not be reviewed,
unless it was on the 2004 Cumulative List.
III. APPLICATION OF 2006
CUMULATIVE LIST
This notice is being issued in con-
junction with the determination letter
program for individually designed plans
and multiple employer plans eligible for
Cycle B and the opinion and advisory
letter programs for M&P and VS de-
fined benefit pre-approved plans. In Rev.
Proc. 2005–66, the Service announced the
opening of the initial five-year remedial
amendment cycle. In accordance with
Rev. Proc. 2005–66, the Service will start
accepting determinationletter applications
for Cycle B individually designed plans
(i.e., the last digit of the plan sponsor’s
employer identification number is 2 or 7)
and multiple employer plans beginning on
February 1, 2007. The 12-month submis-
sion period for Cycle B individually de-
signed plans and multiple employer plans
will end January 31, 2008. In addition, the
Service will start accepting opinion and
advisory letter applications for defined
benefit pre-approved plans beginning on
February 1, 2007. The 12-month sub-
mission period for non-mass submitter
sponsors and practitioners, word-for-word
identical adopters, and M&P minor modi-
fier placeholder applications will end Jan-
uary 31, 2008. The 9-month submission
period for mass-submitters and national
sponsors will end October 31, 2007, as
provided in section 18.02 of Rev. Proc.
2005–66.
The 2006 Cumulative List, set forth
in sections V and VI of this notice, in-
forms plan sponsors of issues the Service
has specifically identified for review in
determining whether an individually de-
signed plan, multiple employer plan or
defined benefit pre-approved plan has
been properly updated. Specifically,
the 2006 Cumulative List reflects law
changes under the Economic Growth
and Tax Relief Reconciliation Act of
2001 (EGTRRA), Pub. L. 107–16 (with
technical corrections made by the Job
Creation and Worker Assistance Act
of 2002 (JCWAA), Pub. L. 104–147),
the Pension Funding Equity Act of
2004 (PFEA), Pub. L. 108–218, the
American Jobs Creation Act of 2004
(AJCA), Pub. L. 108–357, the Gulf Op-
portunity Zone Act of 2005 (GOZA),
Pub. L. 109–135, and certain law changes
under the Pension Protection Act of 2006
(PPA ’06), Pub. L. 109–280, described
below. In order to be qualified, a plan
must comply with all relevant qualifica-
tion requirements, not just those on the
2006 Cumulative List. The following
items on the 2006 Cumulative List include
guidance that has not yet been published:
2, 8, 11, 18, 25, 28, 29, 30, 31, 32, and 33.
Except for the items listed in section V
and the items listed in section VI (to the ex-
tent provided in section IV) of this notice,
the Service will not consider in its review
of any opinion, advisory or determination
letter application, for the submission pe-
riod that begins February 1, 2007, any:
1. guidance published after December
14, 2006;
2. statutes enacted after December 14,
2006;
3. qualification requirements first effec-
tive in 2008 or later; or
4. statutory provisions that are first ef-
fective in 2007, for which there is no
guidance identified in this notice.
Terminating plans must include all law
changes in effect at the time of termination.
See section 8 of Rev. Proc. 2005–66 re-
garding plan termination.
IV. SPECIAL RULES FOR THE
PENSION PROTECTION ACT OF 2006
Under section 1107 of PPA ’06, a plan
amendment made pursuant to any amend-
ment made by PPA ’06 generally may be
retroactively effective, if, in addition to
meeting the other applicable requirements,
the amendment is made on or before the
last day of the first plan year beginning on
or after January 1, 2009 (January 1, 2011 in
the case of a governmental plan). Section
VI of the notice includes certain PPA ’06
law changes effective in 2006 and 2007.
Master and prototype plan sponsors
and VS practitioners are required to in-
clude applicable PPA ’06 provisions listed
in section VI of this notice in plan doc-
uments submitted with their opinion and
advisory letter applications for pre-ap-
proved defined benefit plans. The Service
will consider PPA ’06 in issuing opinion
and advisory letters, and such letters may
be relied on with respect to PPA ’06, but
only for the PPA ’06 provisions listed in
section VI of this notice under items 27,
28, 31, 32, and 33.
Individually designed plans and multi-
ple employer plans can be amended, at the
option of plan sponsors, to include the ap-
plicable PPA ’06 provisions listed in sec-
tion VI of this notice. Individually de-
signed plans and multiple employer plans
must identify which PPA ’06 provisions
the plan has been amended to include and
the plan provision that reflects the PPA ’06
provision when submitting the determina-
tion letter application. However, the Ser-
vice will not consider PPA ‘06 in issuing
determination letters for individually de-
signed plans and multiple employer plans,
and such letters cannot be relied on with re-
spect to any plan provision identified as re-
flecting PPA ’06, regardless of whether the
plan has been amended to reflect PPA ’06
provisions.
Terminating plans must include the ap-
plicable PPA ’06 provisions that are in ef-
fect at the time of termination.
V. 2006 CUMULATIVE LIST OF
CHANGES IN PLAN QUALIFICATION
REQUIREMENTS
The following list consists of statutory
provisions and associated guidance which
2007–2 I.R.B.256January 8, 2007

reflect changes to plan qualification re-
quirements. Miscellaneous guidance is
also provided. The Service has identi-
fied below plan qualification requirements
which were not on the 2005 Cumulative
List as “(New)”. Thus, the 2006 Cumula-
tive List contains those plan qualification
requirements listed in the 2004 and 2005
Cumulative Lists as well as additional
2006 plan qualification requirements.
1. 7
2(p):Section 1.72(p)–1 of the In-
come Tax Regulations relating to
plan loans was published on Decem-
ber 3, 2002 (67 Fed. Reg. 71821).
(2004 C. L.).
2. 4
01(a):Final Regulations under
§ 401(a) of the Code regarding per-
missible normal retirement ages will
be published soon. (New).
3. 4
01(a)(4):
•Amendments to § 1.401(a)(4)–8
of the Regulations relating to new
comparability plans were pub-
lished on June 29, 2001 (66 Fed.
Reg. 34535). (2004 C. L.).
•Rev. Rul. 2001–30, 2001–2
C.B. 46. (2004 C. L.).
•Amendments to § 1.401(a)(4)–9
of the Regulations relating to new
comparability plans were pub-
lished on June 29, 2001 (66 Fed.
Reg. 34535). (2005 C. L.).
•Rev. Rul. 2004–21, 2004–1
C.B. 544. (2005 C. L.).
4. 4
01(a)(9):
•Sections 1.401(a)(9)–1 through
–9 of the Regulations were pub-
lished on April 17, 2002 and
June 15, 2004 (67 Fed. Reg.
18988 and 69 Fed. Reg. 33288).
(2004 C. L.).
5. 4
01(a)(17):Section 401(a)(17) of the
Code was amended by § 611(c) of
EGTRRA to increase the compensa-
tion limit to $200,000. (2004 C. L.).
•Notice 2001–56, 2001–2 C.B.
277. (2004 C. L.).
6. 4
01(a)(31):
•Section 401(a)(31) was amended
by§643(b)ofEGTRRAtoallow
employees’ after-tax contribu-
tions to be rolled over under cer-
tain circumstances. (2004 C. L.).
•Section 401(a)(31)(B) was
amended by § 657(a) of EGTRRA
(asamendedby§411(t)of
JCWAA) to provide for the au-
tomatic rollover of certain manda-
tory distributions. The effec-
tive date is March 28, 2005.
(2004 C. L.).
•Notice 2005–5, 2005–1 C.B.
337. (2004 C. L.).
•Sections 641, 642 and 643
of EGTRRA (as amended by
§411(q)ofJCWAA)amended
the definition of eligible retire-
ment plan in § 402 to include a
§ 403(b) annuity contract and eli-
gible governmental § 457(b) plan.
(2004 C. L.).
•Section 636(b) of EGTRRA
modified the definition of el-
igible rollover distribution to
exclude hardship distributions.
(2004 C. L.).
7. 4
01(k)&401(m):
•Section401(k)(2)and
§ 401(k)(10) of the Code were
amended by § 646(a)(1) of
EGTRRA to permit distribu-
tions of elective deferrals from
a § 401(k) plan upon severance
from employment. (2004 C. L.).
•Notice 2002–4, 2002–1 C.B.
298. (2004 C. L.).
•Section 636(a) of EGTRRA di-
rected the Secretary of the Trea-
sury to revise the regulations relat-
ing to safe harbor hardship distri-
butions of elective deferrals from
§ 401(k) plans so that the time the
employee is prohibited from mak-
ing elective and employee contri-
butions is reduced from one year
to six months after a hardship dis-
tribution. (2004 C. L.).
•Notice 2001–56. (2004 C. L.).
•Notice 2002–4. (2004 C. L.).
•Section 401(k)(11) of the Code
wasamendedby§611(f)of
EGTRRA to increase the maxi-
mum amount of qualified salary
reduction contributions that can
be made to SIMPLE 401(k) plans.
(2004 C. L.).
•Section402(g)oftheCodewas
amended by § 611(d) of EGTRRA
to increase the applicable dollar
amount. (2004 C. L.).
•Section 401(m)(9) of the Code
was amended by § 666 of
EGTRRA to eliminate the mul-
tiple use test. (2004 C. L.).
•Final Regulations under § 401(k)
and § 401(m) of the Code
were published on Decem-
ber 29, 2004 (69 Fed. Reg.
78144). (2004 C. L.).
8. 4
02A:Section 402A of the Code was
addedby§617ofEGTRRAtooffer
optional treatment of elective defer-
rals as designated Roth contributions
to defined contribution plans, effec-
tive for taxable years beginning after
December 31, 2005. (2004 C. L.).
•Final Regulations under § 401(k)
and § 401(m) of the Code relating
to designated Roth contributions
were published on January 3, 2006
(71 Fed. Reg. 6). (2005 C. L.).
•Notice 2006–44, 2006–20
I.R.B. 889, provides a sample
amendment for Roth § 401(k)
plans. (New).
•Final Regulations under § 402A
will be issued soon.
1
(New).
9. 4
04:
•Section 404(k)(2)(A) of the
Code was amended by § 662(a)
of EGTRRA (as amended by
§411(w)ofJCWAA)toallow
ESOP dividends to be reinvested
without the loss of dividend de-
ductions. (2005 C. L.).
•Notice 2002–2, 2002–1 C.B.
285, provides guidance with
respect to the changes made to
§ 404(k) of the Code and on
theeffectivedateof§409(p)
of the Code. (2005 C. L.).
1
Proposed Regulations under § 402A were publishedon January 26, 2006 (71 Fed. Reg. 4320). (2005 C. L.).
January 8, 20072572007–2 I.R.B.

10. 408(q):Section 408(q) of the Code
was added by § 602 of EGTRRA (as
amended by § 411(i) of JCWAA) to al-
low for deemed individual retirement
accounts (IRAs) in an eligible retire-
ment plan. (2004 C. L.).
•Section 1.408(q)–1 of the Reg-
ulations was published on
July 22, 2004 (69 Fed. Reg.
43735). (2004 C. L.).
11. 4
09:Section 409(p) of the Code
was added by § 656 of EGTRRA
relating to restrictions on the allo-
cation of employer securities in an
ESOP maintained by an S corpora-
tion. (2005 C. L.).
•Section 1.409(p)–1T of the
Regulations was published on
July 21, 2003 (68 Fed. Reg.
42970). (2005 C. L.).
•Section 1.409(p)–1T of the Reg-
ulations was published on De-
cember 17, 2004 (69 Fed. Reg.
75455). (2005 C. L.).
•Rev. Proc. 2003–23, 2003–1 C.B.
599, as modified and superseded
by Rev. Proc. 2004–14, 2004–1
C.B. 489, allows a direct rollover
from an ESOP maintained by an
S corporation to an individual re-
tirement plan (IRA). (2005 C. L.).
•Rev. Rul. 2003–6, 2003–1 C.B.
286, provides guidance with re-
spect to whether an ESOP main-
tained by an S corporation is eligi-
ble for the delayed effective date
of § 409(p) under § 656(d)(2) of
EGTRRA. (2005 C. L.).
•Rev. Rul. 2004–4, 2004–1 C.B.
414, provides guidance relating to
synthetic equity owned by a dis-
qualified person in a nonallocation
year of an ESOP maintained by an
S corporation. (2005 C. L.).
•Final Regulations will be pub-
lished soon that provide guidance
concerning requirements under
§ 409(p) for ESOPs holding stock
of S corporations. (New).
12. 4
10(b):Final Regulations were pub-
lished on July 21, 2006 (71 Fed. Reg.
41357) permitting some employees
of tax-exempt organizations to be ex-
cluded when determining whether a
§ 401(k) plan meets the § 410(b) min-
imum coverage requirements. (New).
13. 4
11(a):
•Section411(a)oftheCodewas
amended by § 633 of EGTRRA
(as amended by § 411(o) of
JCWAA) to provide for faster
vesting of matching contributions.
(2004 C. L.).
•Rev. Rul. 2003–65, 2003–1 C.B.
1035. (2005 C. L.).
•Amendmentsto§1.411(d)–3of
the Final Regulations were pub-
lished on August 9, 2006 (71 Fed.
Reg. 45379) with respect to the
interaction between the anti-cut-
back rules of § 411(d)(6) and the
nonforfeitability requirements of
§ 411(a). (New).
14. 4
11(a)(11):Section 411(a)(11)(D) of
the Code was added by § 648(a) of
EGTRRA (as amended by § 411(r)
of JCWAA) to allow amounts attrib-
utable to rollover contributions to be
disregarded in determining the value
of an account balance for involuntary
distributions. (2004 C. L.).
15. 4
11(d)(6):
•Central Laborers’ Pension Fund
v. Heinz, 124 S.Ct. 2230 (2004).
(2005 C. L.).
•Rev. Proc. 2005–23, 2005–1
C.B. 991, as modified by Rev.
Proc. 2005–76, 2005–2 C.B.
1139. (2005 C. L.).
•Amendments to § 1.411(d)–3
of the Final Regulations were
published on August 9, 2006
(71 Fed. Reg. 45379) with
respect to the interaction be-
tween the anti-cutback rules
of § 411(d)(6) and the non-
forfeitability requirements of
§ 411(a). (New).
•Section 645(b)(3) of EGTRRA
directed the Secretary of the Trea-
sury to issue regulations under
§ 411(d)(6)(B). (2005 C. L.).
•Section 1.411(d)–3 of the Reg-
ulations was published on Au-
gust 12, 2005 (70 Fed. Reg.
47109). (2005 C. L.).
•Amendments to § 1.411(d)–3
of the Final Regulations were
published on August 9, 2006
(71 Fed. Reg. 45379) with
respect to a utilization test.
(New).
•Section 411(d)(6)(D) and
§ 411(d)(6)(E) of the Code were
addedby§645ofEGTRRAto
permit the elimination of certain
optional forms of benefit under
certain conditions. (2005 C. L.).
•Section 1.411(d)–4, Q&A–
2(e) of the Regulations was
published on January 25, 2005
(70 Fed. Reg. 3475) to
implement § 411(d)(6)(E).
(2005 C. L.).
16. 4
12:
•Rev. Rul. 2004–20, 2004–1 C.B.
546, provides guidance with re-
spect to whether a qualified pen-
sion plan can be a § 412(i) plan
if the plan holds life insurance
contracts and annuity contracts for
benefits at normal retirement age
in excess of a participant’s bene-
fits at normal retirement age under
the plan. (2005 C. L.).
•Notice 2004–59, 2004–2 C.B.
447, provides guidance with re-
spect to restrictions placed on
plan amendments following an
employer’s election of an alterna-
tive deficit reduction contribution.
(2005 C. L.).
17. 4
14(v):Section 414(v) of the Code
was added by § 631 of EGTRRA (as
amendedby§411(o)ofJCWAA)
to allow for catch-up contributions
for individuals age 50 or older.
(2004 C. L.).
•Regulations under § 414(v) were
published on July 8, 2003 (68 Fed.
Reg. 40510). (2004 C. L.).
•Notice 2002–4. (2004 C. L.).
18. 4
15:
•Section415(b)oftheCodewas
amended by § 611 of EGTRRA
to increase the dollar limit
and change the age when the
limit is reduced or increased.
(2005 C. L.).
•Rev. Rul. 2001–51, 2001–2
C.B. 427. (2004 C. L.).
2007–2 I.R.B.258January 8, 2007

•Section 415(b)(2)(E)(ii) of the
Code was amended by § 101(b)(4)
of PFEA to fix the percentage at
5.5%. (2005 C. L.).
•Notice 2004–78, 2004–2 C.B.
879, provides the actuarial as-
sumptions that must be used
for distributions with annuity
starting dates occurring during
the plans years beginning in
2004 and 2005. (2005 C. L.).
•Section 415(c) of the Code was
amendedby§§611(b)and632
of EGTRRA (as amended by
§411(p)ofJCWAA)toin-
crease the maximum annual ad-
ditions permitted to the lesser of
$40,000 or 100% of compensa-
tion. (2004 C. L.).
•Rev. Rul. 2001–51, 2001–2
C.B. 427. (2004 C. L.).
•Rev. Rul. 2002–27, 2002–1
C.B. 925, provided that “com-
pensation” within the meaning of
§ 415(c) could in certain situations
include “deemed § 125 compen-
sation”. (2004 C. L.).
•Final Regulations under § 415
with respect to pre-PPA ’06 law
will be published soon.
2
(New).
•See section VI of this notice
for PPA ’06 provisions related
to § 415 that will be reflected
in the § 415 Final Regulations.
(New).
19. 4
16:Section 416 of the Code was
amended by § 613 of EGTRRA (as
amended by § 411(k) of JCWAA) to
make several changes to the top-heavy
rules. (2004 C. L.).
•Section 416(g)(4)(H) of the
Code was added by § 613(d)
of EGTRRA to provide certain
safe harbor § 401(k) plans and
§ 401(m) plans an exemption from
the top-heavy rules. (2004 C. L.).
•Rev. Rul. 2004–13, 2004–1
C.B. 485. (2004 C. L.).
•Section 416(c)(1)(C) of the
Code was amended by § 613(e)
of EGTRRA (as amended by
§ 411(k)(1) of JCWAA) to provide
when a frozen defined benefit plan
is exempt from the minimum ben-
efit requirements. (2005 C. L.).
20. 4
17:
•Section 1.417(e)–1 of the Reg-
ulations was published on
July 16, 2003 (68 Fed. Reg.
41906) relating to retroactive an-
nuity starting date. (2005 C. L.).
•FinalRegulationsunder
§ 417(a)(3) were published on
March 24, 2006 (71 Fed. Reg.
14798) regarding the disclosure
of the relative value of optional
forms of benefit. (New).
21. 4
975:
•Section 4975 of the Code was
amendedby§612ofEGTRRAto
allow plan loans for Subchap-
ter S shareholder-employees.
(2004 C. L.).
•Section 4975(f) of the Code was
amendedby§240ofAJCAto
allow an S corporation distribu-
tion on allocated shares to pay off
an exempt loan as long as equal
amounts are allocated to partici-
pant accounts. (2005 C. L.).
22. H
urricaneRelief:
•Katrina Emergency Tax Re-
lief Act of 2005, P.L. 109–73.
(2005 C. L.).
•Notice 2005–92, 2005–2 C.B.
1165. (2005 C. L.).
•Announcement 2005–70, 2005–2
C.B. 682. (2005 C. L.).
•Gulf Opportunity Zone Act
of 2005, P.L. 109–135, added
§ 1400M and § 1400Q to the Code
to provide certain tax benefits to
those areas affected by Hurricanes
Katrina, Wilma, and Rita. (New).
23. M
iscellaneous:
•Rev. Rul. 2001–62, 2001–2 C.B.
632, provides guidance with re-
spect to the mortality table un-
der § 415(b)(2)(E)(v) of the Code
and the applicable mortality table
under § 417(e)(3)(A)(ii)(I) of the
Code. (2005 C. L.).
•Rev. Rul. 2002–42, 2002–1 C.B.
76, provides guidance with re-
spect to a situation where a money
purchase pension plan is merged
or converted into a profit sharing
plan. (2004 C. L.).
•Rev. Proc. 2002–21, 2002–1 C.B.
911, provides guidance with re-
spect to defined contribution re-
tirement plans maintained by pro-
fessional employer organizations.
(2004 C. L.).
•Rev. Proc. 2003–86, 2003–2
C.B. 1211, amplifies Rev. Proc.
2002–21 relating to relief pro-
vided for certain defined contri-
bution plans maintained by pro-
fessional employer organizations.
(2004 C. L.).
•Rev. Rul. 2003–11, 2003–1 C.B.
285, provides guidance with re-
spect to satisfying the nondiscrim-
ination rules under § 401(a)(4) of
the Code and the minimum cover-
age requirements under § 410(b)
of the Code when applying the in-
creased compensation limit to for-
mer employees. (2005 C. L.).
•Rev. Rul. 2004–10, 2004–1 C.B.
484, provides guidance with re-
spect to charging administrative
expenses to former and current
employees. (2004 C. L.).
•Rev. Rul. 2004–12, 2004–1 C.B.
478, provides guidance with re-
spect to the distribution restric-
tions applicable to rollover contri-
butions. (2004 C. L.).
•Rev. Rul. 2005–55, 2005–2 C.B.
284, provides guidance with re-
spect to medical reimbursement
accounts under a profit sharing
plan. (2005 C. L.).
•Section 1.401(a)–21 of the Final
Regulations were published on
October 20, 2006 (71 Fed. Reg.
61877) setting forth standards for
the use of an electronic medium
to applicable notices to recipients
or to make participant elections.
(New).
The following guidance contains
sample or model amendments: Notice
2001–57, 2001–1 C.B. 279 (miscella-
neous EGTRRA amendments); Rev. Rul.
2001–62, 2001–2 C.B. 632 (applicable
mortality table); Rev. Proc. 2002–29,
2002–2 C.B. 1176 (required minimum
distribution amendments); Rev. Proc.
2
Section 1.415(c)–2(e) of the Proposed Regulations under § 415 was published on May 31, 2005 (70 Fed. Reg. 31214). (2004 C. L.).
January 8, 20072592007–2 I.R.B.

2003–13, 2003–1 C.B. 317 (required lan-
guage for deemed IRAs); Notice 2005–5
(automatic rollover); and Notice 2006–44,
2006–20 I.R.B. 889 (Roth section 401(k)
plans).
VI. PENSION PROTECTION ACT OF
2006 PROVISIONS
The following is a list of PPA ’06 provi-
sions effective in 2007 or earlier. See sec-
tion IV of this notice for rules that apply to
the PPA ’06 provisions identified below:
24. 4
01(a)(35):PPA ’06 § 901(a)(1)
added § 401(a)(35) requiring that
defined contribution plans provide
employees with the freedom to divest
publicly traded securities. (New).
•Notice 2006–107, 2006–51
I.R.B. 1114 (December 18, 2006).
(New).
25. 4
01(k):PPA’06§826modifiedthe
rules relating to distributions from a
§ 401(k) plan on account of a partic-
ipant’s hardship to permit the plan to
treat a participant’sbeneficiary under
the plan the same as the participant’s
spouse or dependent. (New).
•Guidance regarding PPA ’06
§ 826 will be issued soon. (New).
26. 4
01(k)(2)(B)(i)(V):PPA ’06 § 827
permits reservists called to active
duty after September 11, 2001 and
before 2008 to take in-service distri-
butions from a § 401(k) plan. (New).
27. 4
02(c)(2)(A):PPA ’06 § 822(a)
amended § 402(c)(2)(A) to permit
nontaxable distributions from a qual-
ifiedplantobedirectlyrolledover
tax-free to either another qualified
plan or a § 403(b) plan if the separate
accounting requirements are met.
(New).
28. 4
02(c)(11):PPA ’06 § 829(a)(1)
added § 402(c)(11) to allow non-
spouse beneficiaries to roll over dis-
tributions from a qualified plan to an
individual retirement plan. (New).
•Guidance regarding § 402(c)(11)
will be issued soon. (New).
29. 4
11:PPA ’06 § 701 provides rules for
cash balance plans and other hybrid
defined benefit plans. (New).
•Guidance will be issued regard-
ing cash balance plans and other
hybrid defined benefit plans
soon. (New).
30. 4
11(a):Section411(a)oftheCode
was amended by § 904 of PPA ’06
to provide for faster vesting of em-
ployer nonelective contributions.
(New).
•Guidance regarding § 411(a), as
amended by § 904 of PPA ’06,
will be issued soon. (New).
31. 4
15(b)(2)(E)(ii):Section 415(b)(2)
(E)(ii) of the Code was amended by
§ 303 of PPA ‘06 regarding the inter-
est rate assumption for applying ben-
efit limitations to lump sum distribu-
tions. (New).
•Guidance regarding § 415(b)(2)
(E)(ii), as amended by PPA ’06,
will be included in the § 415 Final
Regulations, to be issued soon.
(New).
32. 4
15(b)(11):PPA ’06 § 867(a) re-
moved the 100% of compensation
limitation for a church plan partici-
pant if the participant has never been
a highly compensated employee of
the church. (New).
•Guidance regarding § 415(b)(11),
as added by PPA ’06, will be
included in the § 415 Final
Regulations, to be issued soon.
(New).
33. PPA ’06 § 1102(a) provides that no-
tice required to be provided under
§§ 402(f), 411(a)(11), or 417 may be
provided as much as 180 days be-
fore the annuity starting date. Sec-
tion 1102(b) of PPA ’06 provides that
the notice under § 411(a)(11) also
include a description of the conse-
quences of failing to defer receipt of
a distribution. (New).
•Guidance regarding PPA ’06
§ 1102 will be issued soon.
(New).
DRAFTING INFORMATION
The principal author of this notice is
Angelique V. Carrington of the Employee
Plans, Tax Exempt and Government En-
tities Division. For further information
regarding this notice, please contact the
Employee Plans’ taxpayer assistance tele-
phone service at 1–877–829–5500 (a
toll-free number) between the hours of
8:30 a.m. and 4:30 p.m. Eastern Time,
Monday through Friday. Ms. Carrington
may be reached at (202) 283–9888 (not a
toll-free number).
Transition Relief for Certain
Partnerships and Other
Pass-Thru Entities Under
§470
Notice 2007–4
PURPOSE
This notice extends by one year the
transition relief in Notice 2006–2, 2006–2
I.R.B. 278, and Notice 2005–29, 2005–1
C.B. 796, provided previously to part-
nerships and other pass-thru entities that
are treated under § 470 of the Internal
Revenue Code as holding tax-exempt use
property solely as a result of the applica-
tion of § 168(h)(6).
BACKGROUND
Section 848 of the American Jobs Cre-
ation Act of 2004, Pub. L. No. 108–357,
118 Stat. 1418, 1602 (AJCA), enacted on
October 22, 2004, added § 470, which im-
poses new limitations on the deductibility
of losses relating to tax-exempt use prop-
erty. Under § 470(c)(2), “tax-exempt use
property” has the meaning provided un-
der § 168(h) (with certain modifications).
Under § 168(h)(6), if any property that is
not otherwise “tax-exempt use property”
under § 168(h) is owned by a partnership
that has both a tax-exempt entity and a per-
son who is not a tax-exempt entity as part-
ners, and any allocation to the tax-exempt
entity of partnership items is not a qual-
ified allocation, an amount equal to the
tax-exempt entity’s proportionate share of
the property generally is treated as tax-ex-
empt use property. Section 168(h)(6)(E)
provides that, for purposes of determining
2007–2 I.R.B.260January 8, 2007

whether property is tax-exempt use prop-
erty, rules similar to those applicable to
partnerships apply to other pass-thru enti-
ties. Section 849(a) of the AJCA provides
that § 470 generally applies to leases en-
tered into after March 12, 2004. Section
403(ff) of the Gulf Opportunity Zone Act
of 2005, Pub. L. No. 109–135, 119 Stat.
2632, amended § 849(a) of the AJCA to
provide that, in the case of property treated
as tax-exempt use property solely by rea-
son of § 168(h)(6), § 470 applies to prop-
erty acquired after March 12, 2004.
Notice 2006–2 and Notice 2005–29
provide transition relief to partnerships
and other pass-thru entities that are treated
by § 470 as holding tax-exempt use
property as a result of the application of
§ 168(h)(6). Specifically, Notice 2006–2
and Notice 2005–29 provide that, in the
case of partnerships and pass-thru entities
described in § 168(h)(6)(E), for taxable
years that begin before January 1, 2006,
and January 1, 2005, respectively, the
Internal Revenue Service will not apply
§ 470 to disallow losses associated with
property that is treated as tax-exempt use
property solely as a result of the applica-
tion of § 168(h)(6). Notice 2006–2 was
issued subsequent to the receipt by the
Treasury Department of a letter from the
Chairmen and Ranking Members of both
the Senate Finance Committee and House
Ways and Means Committee requesting
that the Treasury Department consider
extending the transition relief provided in
Notice 2005–29 for taxable years begin-
ning before January 1, 2006.
On September 29, 2006, the Tax Tech-
nical Corrections Act of 2006 was in-
troduced in Congress. This legislation
addresses, among other things, the appli-
cation of § 470 to partnerships and other
pass-thru entities with tax-exempt use
property as a result of § 168(h)(6). See
H.R. 6264, 109th Cong. 2nd Sess. § 6(e)
(2006) and S. 4026, 109th Cong. 2nd Sess.
§ 6(e) (2006). The Chairmen of the Senate
Finance Committee and House Ways and
Means Committee solicited comments re-
garding the legislation. As of the date of
this notice, no congressional action has
been taken on the legislation.
If enacted in its current form, the legis-
lation will be effective retroactively, in the
case of property treated as tax-exempt use
property solely by reason of § 168(h)(6),
to property acquired after March 12, 2004.
However, the DESCRIPTION OF THE
TAX TECHNICAL CORRECTIONS
ACT OF 2006, as prepared by the Staff of
the Joint Committee on Taxation (October
2, 2006, JCX–48–06), provides that it is
not intended that the effective date of the
legislation supersede the rules set forth in
Notice 2006–2 and Notice 2005–29, with
respect to the application of § 470 in the
case of partnerships and other pass-thru
entities, for taxable years of these entities
beginning in 2005 and 2004, respectively.
The Service will continue to apply the
rules set forth in Notice 2005–29 and
Notice 2006–2. Additionally, in the case
of partnerships and pass-thru entities de-
scribed in § 168(h)(6)(E), for taxable years
beginning before January 1, 2007, the Ser-
vice will not apply § 470 to disallow losses
associated with property that is treated as
tax-exempt use property solely as a result
of the application of § 168(h)(6).
EXTENSION OF TRANSITION RELIEF
In the case of partnerships and
other pass-thru entities described in
§ 168(h)(6)(E), for taxable years that
begin before January 1, 2007, the Service
will not apply § 470 to disallow losses
associated with property that is treated as
tax-exempt use property solely as a result
of the application of § 168(h)(6). Abusive
transactions involving partnerships and
other pass-thru entities remain subject to
challenge by the Service under other pro-
visions of the tax law.
EFFECT ON OTHER DOCUMENTS
Notice 2006–2 and Notice 2005–29 are
modified and superseded.
DRAFTING INFORMATION
For further information regarding this
notice, contact John Aramburu of the
Office of the Associate Chief Counsel
(Income Tax & Accounting) at (202)
622–4960 (not a toll-free call).
26 CFR 1.61–21: Taxation of fringe benefits.
(Also Internal Revenue Code §§ 61, 280F.)
Rev. Proc. 2007–11
SECTION 1. PURPOSE
.01 This revenue procedure provides:
(1) the maximum value of employer-pro-
vided vehicles first made available to em-
ployees for personal use in calendar year
2007 for which the vehicle cents-per-mile
valuation rule provided under section
1.61–21(e) of the Income Tax Regula-
tions may be applicable is $15,100 for a
passenger automobile and $16,100 for a
truck or van; (2) the maximum value of
employer-provided vehicles first made
available to employees for personal use in
calendar year 2007 for which the fleet-av-
erage valuation rule provided under sec-
tion 1.61–21(d) of the regulations may
be applicable is $20,100 for a passenger
automobile and $21,100 for a truck or van.
SECTION 2. BACKGROUND
.01 If an employer provides an em-
ployee with a vehicle that is available
to the employee for personal use, the
value of the personal use must generally
be included in the employee’s income
and wages. Internal Revenue Code § 61;
Treas. Reg. § 1.61–21.
.02 For employer-provided passen-
ger automobiles (including trucks and
vans) made available to employees for
personal use that meet the requirements
of section 1.61–21(e)(1) of the regula-
tions, generally the value of the personal
use may be determined under the vehicle
cents-per-mile valuation rule of section
1.61–21(e). However, regulations section
1.61–21(e)(1)(iii)(A) provides that for a
passenger automobile first made avail-
able after 1988 to any employee of the
employer for personal use, the value of
the personal use may not be determined
under the vehicle cents-per-mile valuation
rule for a calendar year if the fair market
value of the passenger automobile (de-
termined pursuant to regulations section
1.61–21(d)(5)(i) through (iv)) on the first
date the passenger automobile is made
available to the employee exceeds a spec-
ified dollar limit.
.03 For employer-provided vehicles
available to employees for personal use
January 8, 20072612007–2 I.R.B.

for an entire year, generally the value of
the personal use may be determined un-
der the automobile lease valuation rule
of section 1.61–21(d) of the regulations.
Under this valuation rule, the value of
the personal use is the Annual Lease
Value. Provided the requirements of reg-
ulations section 1.61–21(d)(5)(v) are met,
an employer with a fleet of 20 or more
automobiles may use a fleet-average value
for purposes of calculating the Annual
Lease Values of the automobiles in the
employer’s fleet. The fleet-average value
is the average of the fair market values of
all the automobiles in the fleet. However,
section 1.61–21(d)(5)(v)(D) of the regula-
tions provides that for an automobile first
made available after 1988 to an employee
of the employer for personal use, the value
of the personal use may not be determined
under the fleet-average valuation rule for a
calendar year if the fair market value of the
automobile (determined pursuant to reg-
ulations section 1.61–21(d)(5)(i) through
(v)) on the first date the passenger auto-
mobile is made available to the employee
exceeds a specified dollar limit.
.04 The maximum passenger auto-
mobile values for applying the vehicle
cents-per-mile and the fleet-average value
rules reflect the automobile price inflation
adjustment of Code section 280F(d)(7).
The method of calculating this price in-
flation amount for automobiles other than
trucks and vans uses the “new car” com-
ponent of the Consumer Price Index (CPI)
“automobile component”. When calcu-
lating this price inflation adjustment for
trucks and vans, the “new trucks” com-
ponent of the CPI is used. This results
in somewhat higher maximum values for
trucks and vans. This change reflects the
higher rate of price inflation that trucks
and vans have been subject to since 1988,
and is consistent with the change an-
nounced in Rev. Proc. 2003–75, 2003–2
C.B. 1018, for purposes of calculating de-
preciation deductions. See also Rev. Proc.
2004–20, 2004–1 C.B. 642, Rev. Proc.
2005–13, 2005–1 C.B. 759, and Rev.
Proc. 2006–18, 2006–12 I.R.B. 645. For
purposes of this revenue procedure, the
term “trucks and vans” refers to passenger
automobiles that are built on a truck chas-
sis, including minivans and sport utility
vehicles (SUVs) that are built on a truck
chassis.
SECTION 3. PROCEDURE
.01 Maximum Automobile Value for
Using the Cents-per-mile Valuation Rule.
An employer providing a passenger auto-
mobile for the first time in calendar year
2007 for the personal use of any employee
may determine the value of the personal
use by using the vehicle cents-per-mile
valuation rule in section 1.61–21(e) of the
regulations if its fair market value on the
date it is first made available does not
exceed $15,100 for a passenger automo-
bile other than a tuck or van, or $16,100
foratruckorvan. Ifthefairmarket
value of the passenger automobile exceeds
this amount, the employer may determine
the value of the personal use under the
general valuation rules of regulations sec-
tion 1.61–21(b) or under the special valua-
tion rules of section 1.61–21(d) (Automo-
bile lease valuation) or section 1.61–21(f)
(Commuting valuation) if the applicable
requirements are met. See Rev. Proc.
2005–48, 2005–2 C.B. 271, for guidance
on determining the maximum value of pas-
senger automobiles first made available
during calendar year 2005, and Rev. Proc.
2006–15, 2006–5 I.R.B. 387, for guidance
on determining the maximum value of pas-
senger automobiles first made available
during calendar year 2006.
.02 Maximum Automobile Value for
Using the Fleet-Average Valuation Rule.
An employer with a fleet of 20 or more
automobiles providing an automobile for
the first time in calendar year 2007 for
the personal use of any employee for an
entire year may determine the value of
the personal use by using the fleet-aver-
age valuation rule in regulations section
1.61–21(d)(5)(v) to calculate the Annual
Lease Values of the automobiles in the
fleet. The fleet-average valuation rule may
not be used to determine the Annual Lease
Value of any automobile if its fair market
value on the date it is first made available
exceeds $20,100 for a passenger automo-
bile other than a truck or van, or $21,100
for a truck or van. If all other appli-
cable requirements are met, an employer
with a fleet of 20 or more vehicles consist-
ing of passenger automobiles other than
trucks or vans as well as trucks and vans
may use the fleet-average valuation rule
as long as none of the vehicles exceed
their respective maximum allowable val-
ues. If the fair market value of any passen-
ger automobile in the fleet exceeds these
amounts, the employer may determine the
value of the personal use under regulations
section 1.61–21(f) (Commuting valuation)
or the general valuation rules of section
1.61–21(b) or may determine the Annual
Lease Value of such automobile separately
under the automobile lease valuation rule
of section 1.61–21(d)(2) if the applicable
requirements are met.
SECTION 4. EFFECTIVE DATE
This revenue procedure applies to em-
ployer-provided passenger automobiles
first made available to employees for per-
sonal use in calendar year 2007.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Don M. Parkinson of the
Office of the Division Counsel/Associate
Chief Counsel (Tax Exempt & Govern-
ment Entities). For further information
regarding the maximum automobile value
for applying the valuation rules of reg-
ulations section 1.61–21(e)(1)(iii)(A)
(the vehicle cents-per-mile valuation
rule), and section 1.61–21(d)(5)(v)(D)
(the fleet average valuation rule), contact
Don M. Parkinson at (202) 622–6040 (not
a toll-free call).
2007–2 I.R.B.262January 8, 2007

Part IV. Items of General Interest
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
ReductioninTaxableIncome
for Housing Hurricane Katrina
Displaced Individuals
REG–152043–05
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9301) relating to the reduction in
taxable income under section 302 of the
Katrina Emergency Tax Relief Act of
2005. The regulations affect taxpayers
that provide housing in their principal
residences to individuals displaced by
Hurricane Katrina. The text of those reg-
ulations also serves as the text of these
proposed regulations.
DATES: Written or electronic comments
must be received by March 12, 2007.
ADDRESSES: Send submissions to:
CC:PA:LPD:RU(REG–152043–05),
Internal Revenue Service, POB 7604,
Ben Franklin Station, Washington, DC
20044. Submissions may be hand-de-
livered Monday through Friday be-
tween the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–152043–05),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC. Alternatively, taxpayers may
submit comments electronically via the
IRS Internet site atwww.irs.gov/regs
or the Federal eRulemaking Portal
athttp://www.regulations.gov(IRS
REG–152043–05).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Marnette M. Myers, (202)
622–4920 (not a toll-free number); con-
cerning submission of comments and/or to
request a public hearing, Richard Hurst at
Richard.A.Hurst@irscounsel.treas.gov.
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in this issue of
the Bulletin amend the Income Tax Regu-
lations (26 CFR part 1). The text of those
regulations also serves as the text of these
proposed regulations. The preamble to the
temporary regulationsexplains the amend-
ments.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regu-
lations, and, becausethe regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Code,
this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submitted
timely to the IRS. The IRS and Treasury
Department specifically request comments
on the clarity of the proposed rule and how
it may be made easier to understand. All
comments will be available for public in-
spection and copying. A public hearing
will be scheduled if requested in writing
by any person that timely submits written
comments. If a public hearing is sched-
uled, notice of the date, time and place for
the public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regula-
tions is Marnette M. Myers of the Office
of Associate Chief Counsel (Income Tax
& Accounting). However, other person-
nel from the IRS and Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be 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 1.9300–1 is added to
read as follows:
[The text of proposed §1.9300–1 is the
same as the text of §1.9300–1T published
elsewhere in this issue of the Bulletin.]
Linda M. Kroening,
Acting Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register for December
11, 2006, 8:45 a.m., and published in the issue of the Federal
Register for December 12, 2006, 71 F.R. 74482)
Railroad Track Maintenance
Credit; Hearing Cancellation
Announcement 2007–2
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Cancellation of notice of public
hearing on proposed rulemaking by cross-
reference to temporary regulations.
SUMMARY: This document cancels a
public hearing on proposed regulations
(REG–142270–05, 2006–43 I.R.B. 791)
by cross-reference to temporary regula-
tions relating to the railroad track main-
tenance credit determined for qualified
railroad track maintenance expenditures
paid or incurred by a Class II or Class
III railroad and other eligible taxpayers
during the taxable year.
January 8, 20072632007–2 I.R.B.

DATES: The public hearing, originally
scheduled for January 9, 2007 at 10 a.m.
is cancelled.
FOR FURTHER INFORMATION
CONTACT: Kelly Banks of the Publi-
cations and Regulations Branch, Legal
Processing Division, Associate Chief
Counsel (Procedure and Administration)
at (202) 622–0392 (not a toll-free num-
ber).
SUPPLEMENTARY INFORMATION: A
notice of proposed rulemaking by cross-
reference to temporary regulations and no-
tice of public hearing that appeared in the
Federal Registeron Friday, September
8, 2006 (71 FR 53053), announced that
a public hearing was scheduled for Jan-
uary 9, 2006, at 10 a.m. in the IRS Au-
ditorium, New Carrollton Federal Build-
ing, 5000 Ellin Road, Lanham, MD 20706.
The subject of the public hearing is under
section 45G of the Internal Revenue Code.
The public comment period expired on
December 7, 2006. The notice of proposed
rulemaking by cross-reference to tempo-
rary regulations and notice of public hear-
ing instructed those interested in testify-
ing at the public hearing to submit an out-
line of the topics to be addressed. As of
Monday, December 11, 2006, no one has
requested to speak. Therefore, the public
hearing scheduled for January 9, 2007, is
cancelled.
LaNita Van Dyke,
Branch Chief, Publications
and Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 26,
2006, 8:45 a.m., and published in the issue of the Federal
Register for December 27, 2006, 71 F.R. 77654)
2007–2 I.R.B.264January 8, 2007

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
January 8, 2007i2007–2 I.R.B.

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

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

2007–2 I.R.B.January 8, 2007

January 8, 20072007–2 I.R.B.

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