Internal Revenue Bulletin 2007-29 (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
7-29
July 16, 2007
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Notice 2007–57, page 87.
This notice describes a transaction in which a U.S. taxpayer
uses offsetting positions with respect to foreign currency or
other property for the purpose of importing a loss, but not the
corresponding gain, in determining U.S. taxable income. The
notice alerts taxpayers and their representatives that these
transactions are tax avoidance transactions and identifies
these transactions, and substantially similar transactions,
as listed transactions for purposes of regulations section
1.6011–4(b)(2) and sections 6111 and 6112 of the Code.
Notice 20
07–58, page 88.
This noti
ce solicits comments on potential revisions to the def-
initions
of financial services income, active financing income,
and finan
cial services entities as currently set forth in regula-
tions se
ction 1.904–4(e), issued under section 904(d) of the
Code. Th
e Treasury Department and the IRS are considering
the appr
opriateness of revising these provisions in light of statu-
tory cha
nges made as part of the American Jobs Creation Act
of 2004
to sections 864(f) and 904(d).
Rev. Proc. 2007–45, page 89.
Sample inter vivos charitable lead annuity trust (CLAT).
This procedure contains sample forms for inter vivos grantor
and nongrantor charitable lead annuity trusts. The procedure
also contains annotations to the sample trusts and alternate
provisions that may be integrated into the sample trusts.
Rev. Proc. 2007–46, page 102.
Sample testamentary charitable lead annuity trust
(CLAT).This procedure contains a sample form, annotations,
and alternate provisions for a testamentary charitable lead
annuity trust.
Rev. Proc. 2007–47, page 108.
This procedure sets forth conditions under which a research
agreement does not result in private business use under sec-
tion 141(b) of the Code. Rev. Proc. 97–14 modified and su-
perseded.
Rev. Proc. 2007–48, page 110.
Safe harbor method of accounting for rotable spare
parts.This procedure provides a safe harbor method of
accounting to treat rotable spare parts as depreciable assets
in accordance with Rev. Rul. 2003–37, 2003–1 C.B. 717,
and provides procedures for taxpayers to obtain automatic
consent to change to the safe harbor method of accounting.
Rev. Proc. 2002–9 modified and amplified.
Announcement 2007–62, page 115.
This announcement alerts the public to the fact that proposed
revisions to Form 1118,Foreign Tax Credit — Corporations,
are being posted on the IRS website and solicits comments
thereon. The revisions of Form 1118 were necessitated by
statutory changes made to section 904 of the Code as part of
the American Jobs Creation Act of 2004 relating to the num-
ber of separate foreign tax credit limitation categories and the
effect of overall domestic losses.
EXEMPT ORGANIZATIONS
Announcement 2007–64, page 125.
The IRS has revoked its determination that South Carolina
Benevolent Society, Inc., of Columbia, SC; Home Buyers
Assistance Foundation, Inc., of Woodstock, GA; Angel Wings
Cat Rescue and Sanctuary of Kingston, KY; and Brian Lees
Sports Spectrum of Grand Rapids, MI, qualify as organizations
described in sections 501(c)(3) and 170(c)(2) of the Code.
(Continued on the next page)
Fi
nding Lists begin on page ii.

ESTATE TAX
Rev. Proc. 2007–45, page 89.
Sample inter vivos charitable lead annuity trust (CLAT).
This procedure contains sample forms for inter vivos grantor
and nongrantor charitable lead annuity trusts. The procedure
also contains annotations to the sample trusts and alternate
provisions that may be integrated into the sample trusts.
Rev. Proc. 200
7–46, page 102.
Sample testam
entary charitable lead annuity trust
(CLAT).This p
rocedure contains a sample form, annotations,
and alternate
provisions for a testamentary charitable lead
annuity trus
t.
GIFT TAX
Rev. Proc. 2007–45, page 89.
Sample inter vivos charitable lead annuity trust (CLAT).
This procedure contains sample forms for inter vivos grantor
and nongrantor charitable lead annuity trusts. The procedure
also contains annotations to the sample trusts and alternate
provisions that may be integrated into the sample trusts.
ADMINISTRATIVE
Notice 2007–57, page 87.
This notice describes a transaction in which a U.S. taxpayer
uses offsetting positions with respect to foreign currency or
other property for the purpose of importing a loss, but not the
corresponding gain, in determining U.S. taxable income. The
notice alerts taxpayers and their representatives that these
transactions are tax avoidance transactions and identifies
these transactions, and substantially similar transactions,
as listed transactions for purposes of regulations section
1.6011–4(b)(2) and sections 6111 and 6112 of the Code.
Rev. Proc. 2007–47, page 108.
This procedure sets forth conditions under which a research
agreement does not result in private business use under sec-
tion 141(b) of the Code. Rev. Proc. 97–14 modified and su-
perseded.
July 16, 20072007–29 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.
2007–29 I.R.B.July 16, 2007

July 16, 20072007–29 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 167.—Depreciation
A revenue procedure provides a safe harbor
method of accounting to treat rotable spare parts
as depreciable assets in accordance with Rev. Rul.
2003–37, 2003–1 C.B. 717, and allows taxpayers to
obtain the automatic consent of the Commissioner to
change to the safe harbor method of accounting. See
Rev. Proc. 2007-48, page 110.
Section 168.—Accelerated
Cost Recovery System
A revenue procedure provides a safe harbor
method of accounting to treat rotable spare parts
as depreciable assets in accordance with Rev. Rul.
2003–37, 2003–1 C.B. 717, and allows taxpayers to
obtain the automatic consent of the Commissioner to
change to the safe harbor method of accounting. See
Rev. Proc. 2007-48, page 110.
Section 170.—Charitable,
etc., Cont
ributions and Gifts
26 CFR 1.17
0A–6: Charitable contribution in trust.
Sample int
er vivos charitable lead annuity
trusts.Th
is revenue procedure contains sample
declarat
ions of trust for nongrantor and grantor char-
itable le
ad annuity trusts. This revenue procedure
also cont
ains annotations to the sample trusts and
alternat
e provisions that may be integrated into the
sample tr
usts. See Rev. Proc. 2007-45, page 89.
Section 446.—General Rule
for Methods of Accounting
A revenue procedure provides a safe harbor
method of accounting to treat rotable spare parts
as depreciable assets in accordance with Rev. Rul.
2003–37, 2003–1 C.B. 717, and allows taxpayers to
obtain the automatic consent of the Commissioner to
change to the safe harbor method of accounting. See
Rev. Proc. 2007-48, page 110.
Section 481.—
Adjustments
Required by Changes in
Method of Accounting
A revenue procedure provides a safe harbor
method of accounting to treat rotable spare parts
as depreciable assets in accordance with Rev. Rul.
2003–37, 2003–1 C.B. 717, and allows taxpayers to
obtain the automatic consent of the Commissioner to
change to the safe harbor method of accounting. See
Rev. Proc. 2007-48, page 110.
Section 642.—Special
Rules for Credits and
Deductions
26 CFR 1.642(c)–1: Unlimited deduction for
amounts paid for a charitable purpose.
Sample inter vivos charitable lead annuity
trusts.This revenue procedure contains sample
declarations of trust for nongrantor and grantor char-
itable lead annuity trusts. This revenue procedure
also contains annotations to the sample trusts and
alternate provisions that may be integrated into the
sample trusts. See Rev. Proc. 2007-45, page 89.
26 CFR 1.642(c)–1: Unlimited deduction for
amounts paid for a charitable purpose.
Sample testamentary charitable lead annuity
trust.This revenue procedure contains a sample
declaration of trust for a testamentary charitable lead
annuity trust. This revenue procedure also contains
annotations to the sample trust and alternate provi-
sions that may be integrated into the sample trust.
See Rev. Proc. 2007-46, page 102.
Section 2055.—Transfers
for Public, Charitable, and
Religious Uses
26 CFR 20.2055–2: Transfers not exclusively for
charitable purposes.
Sample inter vivos charitable lead annuity
trusts.This revenue procedure contains sample
declarations of trust for nongrantor and grantor char-
itable lead annuity trusts. This revenue procedure
also contains annotations to the sample trusts and
alternate provisions that may be integrated into the
sample trusts. See Rev. Proc. 2007-45, page 89.
26 CFR 20.2055–2: Transfers not exclusively for
charitable purposes.
Sample testamentary charitable lead annuity
trust. This revenue procedure contains a sample
declaration of trust for a testamentary charitable lead
annuity trust. This revenue procedure also contains
annotations to the sample trust and alternate provi-
sions that may be integrated into the sample trust.
See Rev. Proc. 2007-46, page 102.
Section 25
22.—Charitable
and Simil
ar Gifts
26 CFR 25.
2522(c)–3: Transfers not exclusively for
charitab
le, etc., purposes in the case of gifts made
after Jul
y 31, 1969.
Sample in
ter vivos charitable lead annuity
trusts.T
his revenue procedure contains sample
declarat
ions of trust for nongrantor and grantor char-
itable l
ead annuity trusts. This revenue procedure
also con
tains annotations to the sample trusts and
alterna
te provisions that may be integrated into the
sample t
rusts. See Rev. Proc. 2007-45, page 89.
2007–29 I.R.B.86July 16, 2007

Part III. Administrative, Procedural, and Miscellaneous
Loss Importation Transaction
Notice 2007–57
The Internal Revenue Service and the
Treasury Department are aware of a type
of transaction, described below, in which
a U.S. taxpayer uses offsetting positions
with respect to foreign currency or other
property for the purpose of importing a
loss, but not the corresponding gain, in
determining U.S. taxable income. This
notice alerts taxpayers and their rep-
resentatives that these transactions are
tax avoidance transactions and identifies
these transactions, and substantially sim-
ilar transactions, aslisted transactions for
purposes of § 1.6011–4(b)(2) of the In-
come Tax Regulations and §§ 6111 and
6112 of the Internal Revenue Code. This
notice also alerts persons involved with
these transactions to certain responsibili-
ties that may arise from their involvement
with these transactions.
FACTS
In one variation of the loss importa-
tion transaction, a U.S. taxpayer (Tax-
payer) is a shareholder of an S corpo-
ration (S Corporation). S Corporation
acquires control of a foreign entity (For-
eign Entity) by purchasing from a foreign
shareholder stock of Foreign Entity meet-
ing the requirements of § 1504(a)(2).
When S Corporation purchases the For-
eign Entity stock, Foreign Entity is classi-
fied as a corporation for U.S. tax pur-
poses under § 301.7701–2(b)(2) and
§ 301.7701–3(b)(2)(i)(B) of the Proce-
dure and Administration Regulations, and
is a controlled foreign corporation (CFC)
within the meaning of § 957(a).
Foreign Entity enters into substantially
offsetting positions in foreign currency.
Next, Foreign Entity disposes of or closes
out some positions in the foreign currency
for a gain while retaining the offsetting
loss positions. Foreign Entity is not itself
subject to U.S. taxation on the gains from
the offsetting options. Foreign Entity may
use the proceeds from these dispositions
or closings out to enter into new positions
in foreign currency. By entering into the
new positions in foreign currency, Foreign
Entity can effectively preserve the retained
loss positions in the foreign currency and
virtually eliminate further economic risk.
After realizing gains from disposing of
or closing out some of the offsetting po-
sitions, Foreign Entity elects to be disre-
garded as an entity separate from its owner
for U.S. tax purposes. Based on the ef-
fective date of this election, Foreign En-
tity is not a CFC for an uninterrupted pe-
riod of 30 days during Foreign Entity’s
taxable year, and S Corporation is not re-
quired to include any of Foreign Entity’s
subpart F income in its gross income. See
§ 951(a). The gains are not otherwise sub-
ject to U.S. taxation. See,e.g., §§ 881 and
882. The election results in the distribu-
tion of all of Foreign Entity’s assets and
liabilities to its shareholder in a deemed
liquidation of Foreign Entity. See Treas.
Reg. § 301.7701–3(g)(1)(iii). After the
election, some or all of the loss positions
in the foreign currency are allowed to ex-
pire, are disposed of, or are closed out,
and some or all of the gain positions are
allowed to expire, are disposed of, or are
closed out, resultingin an aggregate net
loss. S Corporation passes Taxpayer’spro
ratashare of the loss through to Taxpayer.
Taxpayer purports to have sufficient ba-
sis in its S Corporation stock or in its in-
debtedness to S Corporation to enable Tax-
payer to claim the loss.
Variations exist in the types of entities
and forms of loss importation used in the
transaction described above. For example,
in one variation of the transaction, a C cor-
poration may be used instead of an S cor-
poration; or a foreign entity with more than
one owner may elect to be classified for
U.S. tax purposes as a partnership, rather
than as an entity disregarded as separate
from its owner. Further, the importation
of the loss may be accomplished by other
methods, such as a corporate reorganiza-
tion described in § 368(a) or a transfer to
which § 351 applies. Variations also exist
in how the offsetting positions may be used
in the transaction described above. For ex-
ample, taxpayers may use positions with
respect to property other than foreign cur-
rency.
DISCUSSION
The transactions described in this notice
are designed so that taxpayers may claim
losses without taking into account the cor-
responding gains attributable to the offset-
ting positions in foreign currency or other
property. In the loss importation trans-
action described above, taxpayers are at-
tempting to exploit the entity classifica-
tion rules and § 951(a) in order to claim
losses without taking into account the cor-
responding gains attributable to the offset-
ting positions in foreign currency. The Ser-
vice may challenge these transactions by,
for example, disallowing the loss or allo-
cating the loss to the CFC. The Service
may assert one or a combination of argu-
ments including, but not limited to, argu-
ments under §§ 165, 269, 482, and 988.
In addition, the Service may assert that
the transaction fails one or more judicial
doctrines, such as the economic substance
doctrine.
Transactions that are the same as, or
substantially similar to, the transactions
described in this notice are identified
as “listed transactions” for purposes of
§§ 1.6011–4(b)(2) and §§ 6111 and 6112
effective June 20, 2007, the date this notice
was released to the public. Independent
of their classification as listed transac-
tions, transactions that are the same as, or
substantially similar to, the transactions
described in this notice may already be
subject to the requirements of § 6011,
§ 6111, § 6112, or the regulations thereun-
der.
Persons required to disclose these trans-
actions under § 1.6011–4 who fail to do
so may be subject to the penalty under
§ 6707A which applies to returns and state-
ments due after October 22, 2004. Persons
required to disclose these transactions un-
der § 1.6011–4 who fail to do so may be
subject to an extended period of limitations
under § 6501(c)(10). Persons required to
disclose or register these transactions un-
der § 6111 who fail to do so may be sub-
ject to the penalty under § 6707(a). Per-
sons required to maintain lists of investors
under § 6112 who fail to do so (or who
fail to provide such lists when requested by
the Service) may be subject to the penalty
under § 6708(a). In addition, the Service
may impose penalties on persons involved
in these transactions or substantially simi-
lar transactions, including the accuracy-re-
lated penalty under § 6662 or § 6662A.
July 16, 2007872007–29 I.R.B.

The Service and Treasury recognize
that some taxpayers may have filed tax
returns taking the position that they were
entitled to the purported tax benefits of
the type of transactions described in this
notice. These taxpayers should take ap-
propriate correctiveaction and ensure that
their transactions are disclosed properly.
DRAFTING INFORMATION
The principal author of this notice is
Megan Stoner of the Office of Associate
Chief Counsel (Passthroughs and Special
Industries). For further information re-
garding this notice, contact Ms. Stoner at
(202) 622–3070 (not a toll-free call).
Request for Comments
Regarding Financial Services
Income Under Section 904(d)
Notice 2007–58
The Internal Revenue Service (IRS)
and the Treasury Department are studying
the appropriateness of updating Treasury
Regulation § 1.904–4(e) in light of recent
statutory changes. This notice invites pub-
lic comments relating to the definitions of
financial services income, active financing
income or financial services entities under
that regulation.
BACKGROUND
Section 404 of the American Jobs Cre-
ation Act of 2004, Public Law 108–357,
118 Stat. 1418 (October 22, 2004) (AJCA)
generally reduced the number of separate
foreign tax credit limitation categories un-
der section 904(d) of the Internal Revenue
Code (the Code) from eight to two, ef-
fective for taxable years beginning after
December 31, 2006. As a result, income
which would have been assigned to the
separate category for financial services in-
come had such income been earned in a
taxable year beginning before January 1,
2007, is now treated as general category
income. However, this applies only in the
case of a member of a financial services
group or any other person predominantly
engaged in the active conduct of a banking,
insurance, financing, or similar business.
Section 904(d)(2)(C)(i). Treasury Reg-
ulation § 1.904–4(e)(3)(i) currently pro-
vides that a person is considered to be pre-
dominantly engaged in the active financ-
ing business for any year if for that year at
least 80 percent of its gross income is ac-
tive financing income, as defined in Trea-
sury Regulation § 1.904–4(e)(2).
Section 401 of the AJCA modifies
present-law interest expense allocation
rules under section 864 of the Code to
provide taxpayers with a one-time election
under new section 864(f) to allocate and
apportion interest expense of the domestic
members of a worldwide affiliated group
(as defined in new section 864(f)(1)(C))
on a worldwide-group basis. Taxpayers
are allowed to apply present-law finan-
cial institution group rules to treat certain
financial institutions as a separate af-
filiated group for purposes of interest
allocation under the worldwide fungibil-
ity approach. In the alternative, section
401 of the AJCA also provides a one-time
election under section 864(f)(5) to expand
the present-law financial institution group
to include “financial corporations.” A fi-
nancial corporation, as defined in new
section 864(f)(5)(B), is any corporation
if at least 80 percent of its gross income
is financial services income, as described
in section 904(d)(2)(D)(ii) of the Code
and the regulations thereunder, derived
from transactions with persons who are
not related (within the meaning of section
267(b) or 707(b)(1))to the corporation.
This provision is effective for taxable
years beginning after December 31, 2008.
The IRS and the Treasury Department
believe that it is appropriate to review the
provisions relating to financial services in-
come and entities in Treasury Regulation
§ 1.904–4(e) in light of the amendments to
the foreign tax credit rules in the AJCA.
REQUEST FOR COMMENTS
The IRS and the Treasury Department
request comments specifically on whether
any items currently listed as active financ-
ing income under Treasury Regulation
§ 1.904–4(e)(2)(i) are over-inclusive or
under-inclusive and whether any of the
listed items should be clarified as applying
only to transactions involving customers.
More generally, comments are welcome
as to whether any other provisions of
Treasury Regulation § 1.904–4(e) relat-
ing to the definitions of financial services
income, active financing income or finan-
cial services entities should be modified
to take into consideration recent statutory
changes or any changes in the nature of
financial services that have taken place
since this regulation was originally pub-
lished.
Comments should be submitted on or
before September 10, 2007, and should
include a referenceto Notice 2007–58.
Send submissions to CC:PA:LPD:PR
(Notice 2007–58), room 5203, Inter-
nal Revenue Service, P.O. Box 7604,
Ben Franklin Station, Washington, DC
20044. Submissions may be hand de-
liveredMonday through Fridaybe-
tween the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (Notice 2007–58),
Courier’s desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224, or sent electron-
ically, via the following e-mail address:
Notice.comments@irscounsel.treas.gov.
Please include “Notice 2007–58” in the
subject line of any electronic communi-
cation. All material submitted will be
available for public inspection and copy-
ing.
DRAFTING INFORMATION
The principal author of this announce-
ment is Jeffrey L. Parry of the Office of
Associate Chief Counsel (International).
For further information regarding this an-
nouncement, contact Jeffrey L. Parry at
(202) 622–3850 (not a toll-free call).
2007–29 I.R.B.88July 16, 2007

26 CFR 601.201: Rulings and determination letters.
(Also: Part I, §§ 170, 642(c), 2055, 2522; §§ 1.170A–6, 20.2055–2, 25.2522(c)–3.)
Rev. Proc. 2007–45
SECTION 1. PURPOSE
This revenue procedure contains annotated sample declarations oftrust and alternate provisions that meet the requirements for an
inter vivos charitable lead annuity trust (CLAT) providing for annuity payments payable to one or more charitable beneficiaries for
the annuity period followed by the distribution of trust assets to one or more noncharitable remaindermen.
SECTION 2. BACKGROUND
The Internal Revenue Service (Service) is issuing sample forms for CLATs; annotations and alternate sample provisions are included
as further guidance. In addition to the sample trust instruments for inter vivos CLATs that are included in this revenue procedure, a
sample is provided in a separate revenue procedure for a testamentary CLAT (see Rev. Proc. 2007–46, 2007–29 I.R.B. 102).
SECTION 3. SCOPE
A CLAT is an irrevocable split-interest trust that provides for a specified amount to be paid to one or more charitable beneficiaries
during the term of the trust. The principal remaining in the trust at the end of the term is paid over to, or held in a continuing trust for,
a noncharitable beneficiary or beneficiaries identified in the trust. If the terms of a CLAT created during the donor’s life satisfy the
applicable statutory and regulatory requirements, a gift of the charitable lead annuity interest will qualify for the gift tax charitable
deduction under § 2522(c)(2)(B) and/or the estate tax charitablededuction under § 2055(e)(2)(B). In certain cases, the gift of the
annuity interest may also qualify for the income tax charitable deduction under § 170(a). The value of the remainder interest is a
taxable gift by the donor at the time of the donor’s contribution to the trust.
There are two types of inter vivos CLATs: a “nongrantor CLAT” and a “grantor CLAT.” The income tax consequences are different
for each.
A nongrantor CLAT is subject to the provisions of part I, subchapter J of chapter 1 of subtitle A of the Internal Revenue Code
(Code). Under the provisions of part I of subchapter J, a nongrantor CLAT is allowed a deduction under § 642(c)(1) in determining
its taxable income for any amount of gross income paid for purposes specified in § 170(c). Generally, the donor is not entitled to any
income tax charitable deduction.
Section 4 of this revenue procedure provides a sample declaration of trust for a nongrantor CLAT with a term of years annuity
period that is created by an individual who is acitizen or resident of the United States. Section 5 of this revenue procedure provides
annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of certain alternate provisions
concerning: (.01) an annuity period for the life of an individual; (.02) retention of the right to substitutethe charitable lead beneficiary;
(.03) apportionment of the annuity amount in the discretion of the trustee; (.04) the annuity amount as a specific dollar amount; and
(.05) designation of an alternate charitable beneficiary in the trust instrument. If a trust is substantially similar to the sample trust in
section 4 of this revenue procedure or properly integrates one or more alternate provisions from section 6 into a document substantially
similar to the sample trust in section 4, is a valid trust under applicable local law, and operates in a manner consistent with the terms
of the instrument, and if all other deductibility requirements are satisfied, the value of the charitable lead interest will be deductible
under § 2522(c)(2)(B) and/or § 2055(e)(2)(B) and payments of the annuity amount to the charitable lead beneficiary will be deductible
from the gross income of the trust to the extent provided by § 642(c)(1). In addition, a nongrantor CLAT will qualify for the safe
harbor created under this revenue procedure if the trust satisfiesall of the requirements set forth in the preceding sentence, except that
it defines the annuity amount as an increasing amount for which the value is ascertainable at the creation of the trust and/or provides
for a different disposition of trust assets upon the termination of the annuity period.
A CLAT is a grantor CLAT if the donor, who is a citizen or resident of the United States, is treated as the owner of the entire CLAT
under subpart E, part I of subchapter J, chapter 1, subtitle A. The value of the charitable lead annuity interest in a grantor CLAT may
be deductible by the donor under § 170(a) for the year in which thedonor made the contribution to the trust, provided that the other
requirements of § 170(f)(2)(B) and the regulations thereunder are satisfied. During theterm of the grantor CLAT, all trust income
and capital gains are taxed to the donor and the donor is entitled to no further charitable deduction for income tax purposes as the
charitable annuity payments are made to charitable organizations each year.
Section 7 of this revenue procedure provides a sample declaration of trust for a grantor CLAT that is created by an individual who
is a citizen or resident of the United States. Section 8 of this revenue procedure provides annotations to the provisions of the sample
trust. Section 9 of this revenue procedure provides samples of certain alternate provisions concerning: (.01) an annuity period for
the life of an individual; (.02) retention of the right to substitute the charitable lead beneficiary; (.03) apportionment of the annuity
amount in the discretion of the trustee; (.04) the annuity amount as a specific dollar amount; (.05) designation of an alternate charitable
beneficiary in the trust instrument; and (.06) restriction of the charitable beneficiary to a public charity. If a trust is substantially similar
July 16, 2007892007–29 I.R.B.

to the sample trust in section 7 of this revenue procedure or properly integrates one or more alternate provisions from section 9 into
a document substantially similar to the sample trust in section 7, is a valid trust under applicable local law, and operates in a manner
consistent with the terms of the instrument, and if all other requirements for deductibility are satisfied, the value of the charitable lead
annuity interest will be deductible under §§ 170(a), 2522(c)(2)(B) and/or 2055(e)(2)(B). In addition, a grantor CLAT will qualify for
the safe harbor created under this revenue procedure if the trust satisfies all of the requirements set forth in the preceding sentence,
except that it: (i) reflects the choice of a different power or provision sufficient to make the donor the owner of the entire CLAT under
subpart E, part I, subchapter J, chapter 1, subtitle A, provided that thepower or provision selected is consistent with the requirements
of a CLAT; (ii) defines the annuity amount as an increasing amount for which the value is ascertainable at the creation of the trust;
and/or (iii) provides for a different disposition of trust assets upon the termination of the annuity period.
Except as provided above, a trust that contains substantive provisions in addition to those provided in section 4 or section 7 of
this revenue procedure (other than properly integrated alternate provisions from section 6 or section 9, respectively, of this revenue
procedure or provisions necessary to establish a valid trust underapplicable local law that are not inconsistent with the applicable
federal tax requirements), or that omits any of the provisions of section 4 or section 7 of this revenue procedure (unless an alternate
provision from section 6 or section 9, respectively, of this revenue procedure is properly integrated), will not necessarily be ineligible
for the relevant charitable deduction(s), but neither will that trust(or contributions to it) be assured of qualification for the appropriate
charitable deductions. The Service generally will not issue a letter ruling on whether an inter vivos CLAT created by an individual
qualifies for income, estate, and/or gift tax charitable deductions.The Service, however, generally willissue letter rulings relating to
the tax consequences of the inclusion in a CLAT of substantive trust provisions other than those contained in sections 4, 6, 7, and 9
of this revenue procedure.
SECTION 4. SAMPLE INTER VIVOS NONGRANTOR CHARITABLE LEAD ANNUITY TRUST
On thisday of,20,I,(hereinafter “the Donor”), desiring to establish a
charitable lead annuity trust within the meaning of Rev. Proc. 2007–45, hereby enter into this trust agreement with
as
the initial trustee (hereinafter “the Trustee”). This trust shall be known as the
Nongrantor Charitable Lead Annuity
Trust. All references to “section” or “§” in this instrument shall refer to the Internal Revenue Code of 1986, 26 U.S.C. § 1,et seq.
1.Funding of Trust. The Donor hereby transfers and irrevocably assigns to the Trustee on the above date the property described
in Schedule A, and the Trustee accepts the property and agrees to hold, manage, and distribute the property under the terms set forth
in this trust instrument.
2.Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [designated
charitable recipient] an annuity amount equal to [number representing the annual annuity percentage to be paid to the designated
charitable recipient] percent of the initial net fair market value of all property transferred to the trust, valued as of the date of the
transfer. If [designated charitable recipient] is not an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any
payment is to be made to it, the Trustee shall instead distribute such payments to one or more organizations described in §§ 170(c),
2055(a), and 2522(a) as the Trustee shall select, and in such proportions as the Trustee shall decide, from time to time, in the Trustee’s
sole discretion. The term “the Charitable Organization” shall be used herein to refer collectively to the organization(s) then constituting
the charitable recipient, whether named in this paragraph or subsequently selected as the substitute charitable recipient. During the
trust term, no payment shall be made to any person other thanthe Charitable Organization. The annuity period is a term of [number of
years of annuity period] years. The first day of the annuity period shall be the date the property is transferred to the trust, and the last
day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period]anniversary
of that date. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income and,
to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount
shall be added to principal. If the initial net fair market value of the trust assets isincorrectly determined, then within a reasonable
period after the value is finally determinedfor federal tax purposes, the Trustee shall pay to the Charitable Organization (in the case
of an undervaluation) or receive from the Charitable Organization (in the case of an overvaluation) an amount equal to the difference
between the annuity amount(s) properly payable and the annuity amount(s) actually paid.
3.Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. In the
taxable year in which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of
the annuity period in that taxable year.
4.Distribution Upon Termination of Annuity Period. At the termination of the annuity period, the Trustee shall distribute all of
the then principal and income of the trust (other than any amount due to the Charitable Organization under the provisions above) to
[remainder beneficiary].
5.Additional Contributions. No additional contributions shall be made to the trust after the initial contribution.
6.Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of § 4941(d), as modified
by § 4947(a)(2), and shall not make any taxable expenditures within the meaning of § 4945(d), as modified by § 4947(a)(2). The
Trustee shall not retain any excess business holdings that wouldsubject the trust to tax under § 4943, as modified by §§ 4947(a)(2)
and 4947(b)(3). In addition, the Trustee shall not acquire any assets that would subject the trust to tax under § 4944, as modified by
2007–29 I.R.B.90July 16, 2007

§§ 4947(a)(2) and 4947(b)(3), or retain assets which, if acquired by the Trustee, would subject the Trustee to tax under § 4944, as
modified by §§ 4947(a)(2) and 4947(b)(3).
7.Taxable Year. The taxable year of the trustshall be the calendar year.
8.Governing Law. The operation of the trust shall be governed by the laws of the State of
. However, the Trustee
is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the requirements for the
charitable deductions available to a charitable lead annuity trust or for contributions to a charitable lead annuity trust.
9.Limited Power of Amendment. This trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend
the trust from time to time in any manner required for the sole purpose of ensuring that the annuity interest passing to the Charitable
Organization is a guaranteed annuity interest under §§ 2055(e)(2)(B) and 2522(c)(2)(B) and the regulations thereunder and that pay-
ments of the annuity amount to the Charitable Organization will be deductible from the gross income of the trust to the extent provided
by § 642(c)(1) and the regulations thereunder.
10.Investment of Trust Assets. Except as provided in paragraph 6 herein, nothingin this trust instrument shall be construed to
restrict the Trustee from investing the trust assets in a manner that could result in the annual realization of a reasonable amount of
income or gain from the sale or disposition of trust assets.
11.Retained Powers and Interests. Notwithstanding any other provision of this trust instrument to the contrary, no person shall
hold any power or possess any interest that would cause the Donor to be treated as the owner of any portion of the trust under the
provisions of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code.
SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS NONGRANTOR CHARITABLE
LEAD ANNUITY TRUST
.01Annotations for Introductory Paragraph and Paragraph 1, Funding of Trust
, of the Sample Trust in
Section 4.
(1)Types of charitable lead trusts. An inter vivos charitable lead trust may be established as either a grantor charitable lead
trust or a nongrantor charitable lead trust. The sample trust in section 4 is an example of a nongrantor charitable lead trust.
The sample trust in section 7 is an example of a grantor charitable lead trust.
(2)Income taxation of nongrantor charitable lead trusts. A nongrantor CLAT is a complex trust that is taxable as a separate
entity under the provisions of subchapter J of the Code. The trustee of the trust must apply for a tax identification number
for the trust.
(3)Deduction under § 642(c)(1) available for amounts paid for a charitable purpose. Under § 642(c)(1), a nongrantor CLAT
is allowed a deduction in computing its taxable income for any amount of gross income, without limitation, that under
the terms of the trust instrument is paid for a purpose specified in § 170(c) (determined without regard to § 170(c)(2)(A))
during the taxable year. This deduction is in lieu of the charitable deduction allowed by § 170. Section 642(c)(1) and
§ 1.642(c)–1(a). An amount paid to a corporation, trust, orcommunity chest, fund, or foundation otherwise described in
§ 170(c)(2) shall be considered paid for a purpose described in § 170(c) even though the corporation, trust, or community
chest, fund, or foundation is not created or organized in the United States, any state, the District of Columbia, or any pos-
session of the United States. Section 1.642(c)–1(a)(2). With regard to amounts of income paid to the charitable beneficiary
after the close of the taxable year in which the income was received (but on or before the last day of the next succeeding
taxable year), the trustee of a nongrantor CLAT may elect to take the charitable deduction for that payment for the year in
which the income was received, rather than for the year in which the payment was made. Section 642(c)(1). The election
is made by filing a statement with the income tax return for thetaxable year in which the charitable contribution is treated
as paid. See § 1.642(c)–1(b).
(4)Charitable lead beneficiary requirements. A deduction is allowed under § 642(c)(1) for any amount of the gross income of a
nongrantor CLAT that is paid for a purpose specified in § 170(c). Note that the class of permissible charitable recipients for
obtaining a deduction under § 642(c)(1) differs from the class of permissible charitable recipients for obtaining a deduction
under § 170(a). Compare § 170(c) and § 1.642(c)–1(a)(2).
(5)Unrelated business taxable income. Under § 681, a nongrantor charitable lead trust’s deduction under § 642(c)(1) is disal-
lowed in any year to the extent that the deduction is allocableto the trust’s unrelated business taxable income, as defined
in § 512, for that taxable year. See § 1.681(a)–2. However, a partial deduction is allowed under § 512(b)(11) for amounts
allocable to unrelated business taxable income. Section 512(b)(11). See § 512(b)(12) and § 1.681(a)–2(a).
(6)Computation of estate and gift tax charitable deductions. In general, the estate and gift taxcharitable deductions available
under §§ 2055(e)(2)(B) and 2522(c)(2)(B) with respect to contributions to a CLAT are equal to the present value of the
annuity interest. Section 7520 requires that an annuity interest must be valued using tables published by the Service. The
method for valuing a charitable lead annuity interest is set forth in the regulations. See §§ 20.7520–2 and 25.7520–2.
(7)Trustee provisions. The trust instrument may name alternate or successor trustees and/or may include a process for the
appointment of unnamed alternate or successor trustees. In addition, the trust instrument may contain certain administrative
provisions relating to the trustee’s duties and powers.
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(8)Identity of donor. For purposes of qualification under this revenue procedure, the donor may be an individual or a husband
and wife. Appropriate adjustments should be made to the introductory paragraph if a husband and wife are the donors.
Terms such as “grantor” or “settlor” may be substituted for “donor.”
.02Annotations for Paragraph 2, Payment of Annuity Amount, of the Sample Trust in Section 4.
(1)Guaranteed annuity. To qualify for the applicable estate and gift tax charitable deductions, a nongrantor CLAT must pro-
vide for the payment of a guaranteed annuity amount at least annually to a qualified charitable organization for each year
during the annuity period. See §§ 2055(e)(2)(B) and 2522(c)(2)(B). A guaranteed annuity isan arrangement under which
a determinable amount is paid periodically, but not less often than annually, for a specified term of years or for one or
more measuring lives. See section 5.02(4) for a discussion of the permissible term of a nongrantor CLAT. An amount is
determinable if the exact amount that must be paid under the conditions specified in the instrument of transfer may be
ascertained at the time of the transfer to the trust. Sections 20.2055–2(e)(2)(vi)(a) and 25.2522(c)–3(c)(2)(vi)(a). A chari-
table interest expressed as the right to receive an annual payment from a trust equal to the lesser of a sum certain or a fixed
percentage of the trust assets (determined annually) is nota guaranteed annuity interest. See §§ 20.2055–2(e)(2)(vi)(b)and
25.2522(c)–3(c)(2)(vi)(b). In addition, a charitable lead annuity interest is not a guaranteed annuity interest if the trustee
has the discretion to commute and prepay the charitable interest prior to the termination of the annuity period. Rev. Rul.
88–27, 1988–1 C.B. 331. If a charitable interest in the form of a guaranteed annuity interest is in trust and the present
value of the charitable interest on the date of gift exceeds 60 percent of the aggregate value of all amounts in the trust, the
charitable interest will not be considered a guaranteed annuity interest unless the governing instrument of the trust prohibits
the acquisition and retention of assets that would give rise to a tax under § 4943 or 4944, as modified by §§ 4947(a)(2) and
4947(b)(3). Sections 20.2055–2(e)(2)(vi)(e) and 25.2522(c)–3(c)(2)(vi)(e). These prohibitions are contained in the sample
trust in section 4. See section 5.06 for a further discussion of the 60 percent test. See section 6.04 for an alternate provision
that provides for an annuity amountstated as a specific dollar amount.
(2)Payment requirements. CLATs are not subject to any minimum or maximum payout requirements. The governing instru-
ment of a CLAT must provide for the payment to a charitable organization of a fixed dollar amount or a fixed percentage of
the initial net fair market value of the assets transferred to the trust. Alternatively, the governing instrument of a CLAT may
provide for an annuity amount that is initially stated as a fixed dollar or fixed percentage amount but increases during the
annuity period, provided that the value of the annuity amountis ascertainable at the time the trust is funded. The annuity
payments may be made in cash or in kind. If the trustee distributes appreciated property in satisfaction of the required
annuity payment, the trust will realize capital gain on the assets distributed to satisfy part or all of the annuity payment and
the trust will be allowed a § 642(c)(1) deduction for the realized capital gains. Rev. Rul. 83–75, 1983–1 C.B. 114.
(3)Rule against perpetuities. An interest payable for a specified term of years may qualify as a guaranteed annuity interest
even if the governing instrument contains a savings clause intended to ensure compliance with a rule against perpetuities.
However, any such savings clause must utilize a period of vesting of not more than 21 years after the deaths of the mea-
suring lives who are selected to maximize, rather than limit, the term of the trust. Sections 20.2055–2(e)(2)(vi)(a)and
25.2522(c)–3(c)(2)(vi)(a).
(4)Permissible term. Paragraph 2, Payment of Annuity Amount, of the sample trust in section 4 provides for payment of the
annuity amount for a specified term of years. Alternatively, the trust instrument may provide for payment of the annuity
amount for the life or lives of one or more measuring lives or for the life or lives of one or more measuring lives plus
a term of years. Rev. Rul. 85–49, 1985–1 C.B. 330. Only one or more of the following individuals may be used as
measuring lives: the donor, the donor’s spouse, and an individual who, with respect to all remainder beneficiaries (other
than charitable organizations described in § 170, 2055, or 2522), is either a lineal ancestor or the spouse of a lineal ancestor
of those beneficiaries. Each person used as a measuring life for the annuity period must be living on the date assets are
transferred to the trust. Sections 20.2055–2(e)(2)(vi)(a) and 25.2522(c)–3(c)(2)(vi)(a). See section 6.01 for an alternate
provision that provides for an annuity period based on the life of an individual.
(5)Permissible recipients. A CLAT must have one or more charitable lead beneficiaries. The failureto designate a specific
charitable beneficiary will not preclude the donor from receiving a charitable deduction if the trust instrument provides for
the selection by the trustee of a charitable beneficiary described in §§ 170(c), 2055(a), and 2522(a). Rev. Rul. 78–101,
1978–1 C.B. 301. If it is determined that a deduction under § 2055(a) will not be necessary in any event, all references to
§ 2055(a) in the trust instrument may be deleted. Note, that ifthe donor is serving as trustee of the trust, the trustee’s power
to select the charitable beneficiaries will cause the gift of the annuity interest to be incomplete for gift tax purposes and may
cause some or all of the trust property (depending on the date ofthe donor’s death) to be included in the donor’s gross estate.
See §§ 2035(a), 2036(a)(2), and 2038(a)(1) and § 25.2511–2(c). Further note that if the charitable beneficiary is a private
foundation and the donor is an officer or director of the private foundation or possesses certain decision making authority
in the private foundation, some or all of the trust property may be included in the donor’s gross estate. See § 2036(a)(2).
See section 6.02 for an alternate provisionthat provides for a donor’s retained right tosubstitute the charitable beneficiary.
2007–29 I.R.B.92July 16, 2007

See section 6.03 for an alternate provision that provides the trustee with the power to apportion the annuity amount among
charitable beneficiaries.
(6)Payment of annuity amount in installments. Paragraph 2, Payment of Annuity Amount, of the sample trust in section 4
specifies that the annuityamount is to be paid in equal quarterly installments at the end of each calendar quarter. Alterna-
tively, the trust instrument may specify that the annuity amount is to be paid in annual or other equal or unequal installments
throughout the year. See §§ 20.2055–2(e)(2)(vi)(a) and 25.2522(c)–3(c)(2)(vi)(a). The amount of the charitable deduction
will be affected by the frequency of the payment, by whetherthe installments are equal or unequal, and by whether each
installment is payable at the beginning or end of the period. See §§ 25.2512–5 and 20.2031–7.
(7)Excess income. Trust income in excess of the amount required to pay the annuity may be retained by the trust or distributed
currently to the charitable beneficiary. The sample trust in section 4 provides for the retention of excess income by the trust.
If, instead, the governing instrument of a nongrantor charitable lead trust provides for the payment of excess income to or
for the use of the charitable beneficiary,no additional estate or gift tax charitabledeductions are available for the excess
amounts of income distributed to the charitable beneficiary. See §§ 20.2055–2(e)(2)(vi)(d) and 25.2522(c)–3(c)(2)(vi)(d).
However, the trust is entitled to a charitable income tax deduction under § 642(c)(1) for any amounts of excess income paid
to the charitable beneficiary. See Situation 2 of Rev. Rul. 88–82, 1988–2 C.B. 336, for the gift tax consequences of the
payment of excess income to a noncharitable beneficiary. Seesection 5.06 for the private foundation rules applicable to
charitable lead trusts.
(8)Paymentofpartofannuityforprivatepurposes. In general, no part of a charitablelead annuity interest may be payable
for a private purpose before the expiration of all charitable lead annuity interests. However, there are two exceptions to
this rule. The first exception arises when the amount payable for a private purposeis in the form of a guaranteed annuity
interest and the trust’s governing instrument does not provide for any preference or priority in the payment of the private
annuity as opposed to the charitable annuity. The second exception arises when, under the trust’s governing instrument,
the amount that may be paid for a private purpose is payableonly from a group of assets that is devoted exclusively to
private purposes and to which § 4947(a)(2) is inapplicable by reason of § 4947(a)(2)(B). Note that an amount is not deemed
to have been paid for a private purpose if it was paid for full and adequate consideration in money or money’s worth.
Sections 20.2055–2(e)(2)(vi)(f) and 25.2522(c)–3(c)(2)(vi)(f). See section 5.06 for the private foundation rules applicable
to charitable lead trusts.
.03Annotation for Paragraph 3, Proration of Annuity Amount, of the Sample Trust in Section 4.
(1)Prorating the annuity amount. Paragraph 3, Proration of Annuity Amount, o
f the sample trust in section 4 provides for the
proration of the annuity amount in any short taxable year, including the l
ast year of the annuity period.
.04Annotation for Paragraph 4, Distribution Upon Termination of Annuity Period, of the Sample Trust in
Section 4.
(1)Generation-skipping transfer tax. If a CLAT has or may have a skip person, as defined in § 2613(a), as a remainder benefi-
ciary, the transfer to the trust will be subject to the generation-skipping transfer (GST) tax. Under § 2651(f)(3), a charitable
organization is deemed to be in the same generation as the donor to a charitable lead trust.Therefore, the GST potential
of a charitable lead trust is dependent upon whether any noncharitable beneficiary is a skip person. GST tax liability is
determined by multiplying the taxable amount by the applicable rate. The applicable rate is the inclusion ratio multiplied
by the maximum federal estate tax rate. Section 2641(a). Therules for determining the inclusion ratio for a CLAT are set
forth in § 2642(e), and confirm that the inclusion ratio is determined at the termination of the annuity period, rather than on
the funding of the trust.
.05Annotation for Paragraph 5, Additional Contributions, of the Sample Trust in Section 4.
(1)Additions to the trust. For purposes of qualification under this revenue procedure, the trust instrument must contain a
provision that prohibits additional contributions. A CLAT that permits additionalcontributions will not qualify for safe
harbor treatment under this revenue procedure.
.06Annotation for Paragraph 6, Prohibited Transactions, of the Sample Trust in Section 4.
(1)Prohibitions against certain investments and excess business holdings. Prohibitions against retaining any excess business
holdings within the meaning of § 4943, as modified by §§ 4947(a)(2) and 4947(b)(3), and against investments that jeop-
ardize the exempt purpose of the trust within the meaning of § 4944, as modified by §§ 4947(a)(2) and 4947(b)(3), are
generally required. The sample trust in section 4 contains prohibitions against §§ 4943 and 4944 transactions. If the present
value of the charitable interest does not exceed 60 percent of theaggregate value of all amounts in the trust, the trust instru-
ment does not provide for the payment of any of the income interest to a noncharitable beneficiary, and the trust instrument
July 16, 2007932007–29 I.R.B.

does not provide for the payment of excess income to a noncharitable beneficiary, the references to §§ 4943 and 4944
may be removed from the trust instrument. Section 4947(b)(3) and §§ 53.4947–2(b)(1)(i), 20.2055–2(e)(2)(vi)(e), and
25.2522(c)–3(c)(2)(vi)(e). See section 5.02(7) for a discussion of the payment of excess trust income to a noncharitable
beneficiary. See section 5.02(8) for a discussion of the payment of part of the annuity for a private purpose.
.07Annotation for paragraph 7, Taxable Year, of the Sample Trust in Section 4.
(1)Calendar year. The taxable year of a charitable lead trust must be a calendar year. Section 644(a).
.08Annotation for paragraph 10, Investment of Trust Assets, of the Sample Trust in Section 4.
(1)Capital gains. Gains from the sale or exchange of capital assets may be allocated to the income or the principal of the trust.
If the governing instrument is silent, capital gains are allocated in accordance with local law. Even if gains are allocated
to principal, they will be deductible under § 642(c)(1) if they are paid to the charitable beneficiary as part of a charitable
annuity payment. Rev. Rul. 83–75, 1983–1 C.B. 114.
.09Annotation for paragraph 11, Retained Powers and Interests, of the Sample Trust in Section 4.
(1)Trust not a grantor trust. Paragraph 11, Retained Powers and Interests, of the sample trust in section 4 prohi
bits any person
from holding any power or possessing any interest that would cause the donor to be treated as the owner of the tr
ust under
subpart E, part I, subchapter J, chapter 1, subtitle A ofthe Code. This prohibition should be included only in
nongrantor
charitable lead trusts. See section 7 for a sample grantor charitable lead annuity trust.
SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS NONGRANTOR CHARITABLE
LEAD ANNUITY TRUST
.01Annuity Period for the Life of One Individual.
(1)Explanation. As an alternative to establishing a CLAT for a term of years, the trust instrument of a nongrantor CLAT may
provide for payment of the annuity amount for the life or livesof an individual or individuals. However, only one or more
of the following individuals may be used as measuring lives: the donor, the donor’s spouse, and an individual who, with
respect to all remainder beneficiaries (other than charitable organizations described in § 170, 2055, or 2522), is either a lineal
ancestor or the spouse of a lineal ancestor of those beneficiaries. A trust will satisfy the requirement that each measuring
life is a lineal ancestor (or the spouse of a lineal ancestor) of all noncharitable remainder beneficiaries if there is a less
than 15 percent probability at the time of the contribution to the trust that individuals who are not lineal descendants of an
individual who is a measuring life will receive any trust principal. The probability must be computed under the applicable
tables in § 20.2031–7. Sections 20.2055–2(e)(2)(vi)(a) and 25.2522(c)–3(c)(2)(vi)(a).
(2)Instruction for use. Replace the fifth and sixth sentences of paragraph 2, Payment of Annuity Amount, of the sample trust
in section 4 with the following sentences:
The annuity period is the lifetime of [designated measuring life]. The first day of the annuity period shall be the date
the property is transferred to the trust and the last day of the annuity period shall be the date of death of [designated
measuring life].
.02Retention of the Right to Substitute the Charitable Lead Beneficiary.
(1)Explanation. The donor to a nongrantor CLAT may retain the right to substitute another charitable beneficiary for the
charitable beneficiary named in the trustinstrument. Note, however, that the retention of this right will cause the gift of
the annuity interest to be incomplete for gift tax purposes and may cause some or all of the trust property (depending upon
the date of the donor’s death) to be included in the donor’s gross estate. See §§ 2035(a), 2036(a)(2), and 2038(a)(1) and
§ 25.2511–2(c).
(2)Instruction for use. Replace the third sentence of paragraph 2, Payment of Annuity Amount, of the sample trust in section
4 with the following two sentences:
Notwithstanding the preceding sentence,the Donor reserves the right to designate as the charitable annuity recipient,
at any time and from time to time, in lieu of [designated charitable recipient], one or more organizations described
in §§ 170(c), 2055(a), and 2522(a) and shall make any such designation by giving written notice to the Trustee. The
term “the Charitable Organization” shall be used herein to refer collectively to the organization(s) then constituting the
charitable recipient, whether named in this paragraph or subsequentlyselected as the substitute charitable recipient.
2007–29 I.R.B.94July 16, 2007

.03Apportionment of the Annuity Amount in the Discretion of the Trustee.
(1)Explanation. The donor or the trustee of a nongrantor charitable leadtrust may be granted the power to apportion the annuity
payment from time to time among a class of qualifying charitable beneficiaries. See § 674(b)(4). A power to apportion the
annuity amount among a class of qualifying charitable beneficiaries that is retained by the donor or the donor’s spouse will
not cause the donor to be treated as the owner of the trust for income tax purposes. Section 674(b)(4). Note, however, that
a retained power of apportionment by the donor, but not the donor’s spouse, will cause the gift of the annuity interest to be
incomplete for gift tax purposes and will cause some or all of thetrust property to be included in the donor’s gross estate.
See §§ 2035(a), 2036(a)(2), and 2038(a)(1) and § 25.2511–2(c).
(2)Instruction for use. Replace the first three sentences of paragraph 2, Payment of Annuity Amount, of the sample trust in
section 4 with the following two sentences:
In each taxable year of the trust during the annuity period, the Trustee shall pay to one or more members of a class
comprised of organizations described in §§ 170(c), 2055(a),and 2522(a) (hereinafter, collectively “the Charitable Or-
ganization”) an annuity amount equal to [number representing the annual annuity percentage to be paid to the Charitable
Organization] percent of the initial net fair market value of all property transferred to the trust, valued as of the date of
the transfer. The Trustee may pay the annuity amount to one or more members of the class, in equal or unequal shares,
as the Trustee, in the Trustee’s sole discretion, from time to time may deem advisable.
.04Annuity Amount as a Specific Dollar Amount.
(1)Explanation. As an alternative to stating the annuity amount as a percentage of the initial net fair market value of the assets
transferred to the trust, the annuity amount may instead be stated as a specific dollar amount.
(2)Instructions for use.
(a)Replace the first sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section 4 with the following
sentence:
In each taxable year of the trust during the annuity period, the Trustee shall pay to [designated charitable recipient]
an annuity amount equal to [the stated dollar amount].
(b)Delete the last sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section 4 concerning the
incorrect valuation of trust assets.
.05Designation of an Alternate CharitableBeneficiary in the Trust Instrument.
(1)Explanation. The sample trust in section 4 provides that in the event the charitable beneficiary designated in the trust
instrument is not an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any payment is to be made to
it, the trustee shall distribute such payments to one or moreorganizations described in §§ 170(c), 2055(a), and 2522(a) as
the trustee shall select. As an alternative, the trust instrument may specifically designate one or more alternate charitable
beneficiaries.
(2)Instruction for use. Replace the second sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section
4 with the following two sentences:
If [designated charitable recipient] is not an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any
payment is to be made to it, the Trustee shall instead distribute such payments to [designated substitute charitable re-
cipient]. If neither [designated charitable recipient]nor[designated substitutecharitable recipient] is an organization
described in §§ 170(c), 2055(a), and 2522(a) at the time any payment is to be made to it, the Trustee shall instead distrib-
ute such payments to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) as the Trustee shall select,
and in such proportions as the Trustee shall decide, from time to time, in the Trustee’s sole discretion.
SECTION 7. SAMPLE INTER VIVOS GRANTOR CHARITABLE LEAD ANNUITY TRUST
On thisday of,20,I,(hereinafter “the Donor”), desiring to establish a
charitable lead annuity trust withinthe meaning of Rev. Proc.2007–45 hereby enter into this trust agreement with
as the initial trustee (hereinafter “the Trustee”). This trust shall be known as theGrantor Charitable Lead Annuity
Trust. All references to “section” or “§” in this instrument shall refer to the Internal Revenue Code of 1986, 26 U.S.C. § 1,et seq.
1.Funding of Trust. The Donor hereby transfers and irrevocably assigns to the Trustee on the above date, the property described
in Schedule A, and the Trustee accepts the property and agrees to hold, manage, and distribute the property under the terms set forth
in this trust instrument.
2.Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [designated
charitable recipient] an annuity amount equal to [number representing the annual annuity percentage to be paid to the designated
charitable recipient] percent of the initial net fair market value of all property transferred to the trust, valued as of the date of the
transfer. If [designated charitable recipient] is not an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any
July 16, 2007952007–29 I.R.B.

payment is to be made to it, the Trustee shall instead distribute such payments to one or more organizations described in §§ 170(c),
2055(a), and 2522(a) as the Trustee shall select, and in such proportions as the Trustee shall decide, from time to time, in the Trustee’s
sole discretion. The term “the Charitable Organization” shall be used herein to refer collectively to the organization(s) then constituting
the charitable recipient, whether named in this paragraph or subsequently selected as the substitute charitable recipient. During the
trust term, no payment shall be made to any person other thanthe Charitable Organization. The annuity period is a term of [number of
years of annuity period] years. The first day of the annuity period shall be the date the property is transferred to the trust, and the last
day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period]anniversary
of that date. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income and,
to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount
shall be added to principal. If the initial net fair market value of the trust assets isincorrectly determined, then within a reasonable
period after the value is finally determinedfor federal tax purposes, the Trustee shall pay to the Charitable Organization (in the case
of an undervaluation) or receive from the Charitable Organization (in the case of an overvaluation) an amount equal to the difference
between the annuity amount(s) properly payable and the annuity amount(s) actually paid.
3.Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. In the
taxable year in which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of
the annuity period in that taxable year.
4.Distribution Upon Termination of Annuity Period. At the termination of the annuity period, the Trustee shall distribute all of
the then principal and income of the trust (other than any amount due to the Charitable Organization under the provisions above) to
[remainder beneficiary].
5.Additional Contributions. No additional contributions shall be made to the trust after the initial contribution.
6.Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of § 4941(d), as modified
by § 4947(a)(2), and shall not make any taxable expenditures within the meaning of § 4945(d), as modified by § 4947(a)(2). The
Trustee shall not retain any excess business holdings that wouldsubject the trust to tax under § 4943, as modified by §§ 4947(a)(2)
and 4947(b)(3). In addition, the Trustee shall not acquire any assets that would subject the trust to tax under § 4944, as modified by
§§ 4947(a)(2) and 4947(b)(3), or retain assets which, if acquired by the Trustee, would subject the Trustee to tax under § 4944, as
modified by §§ 4947(a)(2) and 4947(b)(3).
7.Taxable Year. The taxable year of the trustshall be the calendar year.
8.Governing Law. The operation of the trust shall be governed by the laws of the State of
. However, the Trustee
is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the requirements for the
charitable deductions available for contributions to a charitable lead annuity trust.
9.Limited Power of Amendment. This trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend
the trust from time to time in any manner required for the sole purpose of ensuring that the annuity interest passing to the Charitable
Organization is a guaranteed annuity interestunder §§ 170(f)(2)(B), 2055(e)(2)(B), and 2522(c)(2)(B) and the regulations thereunder.
10.Investment of Trust Assets. Except as provided in paragraph 6 herein, nothingin this trust instrument shall be construed to
restrict the Trustee from investing the trust assets in a manner that could result in the annual realization of a reasonable amount of
income or gain from the sale or disposition of trust assets.
11.Retained Powers and Interests. During the Donor’s life, [individual other than the donor, the trustee, or a disqualified person
as defined in § 4946(a)(1)] shall have the right, exercisable only in a nonfiduciary capacity and without the consent or approval of any
person acting in a fiduciary capacity,toacquireanypropertyheldinthetrustbysubstituting other property of equivalent value.
SECTION 8. ANNOTATIONS REGARDING SAMPLE INTER VIVOS GRANTOR CHARITABLE LEAD
ANNUITY TRUST
.01Annotations for Introductory Paragraph and Paragraph 1, Fundin
gofTrust,oftheSampleTrustin
Section 7.
(1)Types of charitable lead trusts. An inter vivos charitable lead trust may be established as either a grantor charitable lead
trust or a nongrantor charitable lead trust. The sample trustin section 7 is an example of a grantor charitable lead trust.
The sample trust in section 4 is an example of a nongrantor charitable lead trust. In order for the donor to a charitable lead
trust to claim an income tax charitable deduction under § 170(a) in the year of the donor’s contribution to the trust for the
present value of the annuity interest passing to charity, the trust must be structured as a grantor charitable lead trust. See
§ 170(f)(2)(B). The rules governing grantorcharitable lead trusts are similar to thoserelating to nongrantor charitable lead
trusts. The most significant difference is the income tax treatment of the trust income. A charitable lead trust is a grantor
charitable lead trust if the donor to the trust is treated as the owner of the entire trust for income tax purposes. See section
8.09 for a discussion of the types of powers that maybe used to create a grantor charitable lead trust.
(2)Income taxation of grantor charitable lead trusts. The donor to a grantor charitable lead annuity trust may claim a federal
income tax charitable deduction under § 170(a) in the year thatassets are irrevocably transferredtothetrust. Duringthe
charitable lead annuity period, the donor is taxed on all income earned by the trust and does not receive any charitable
2007–29 I.R.B.96July 16, 2007

deduction under § 170 for the annuity payments to the charitable beneficiary as they are made. In addition, the trust does
not receive a charitable deduction under § 642(c)(1). See § 1.671–4 for the income tax reportingrequirements for a grantor
charitable lead annuity trust.
(3)Income tax deductibility limitations. The donor to a grantor charitable lead trust may claim an income tax charitable de-
duction under § 170(a) equal to the present value of all future payments that are to be made to the charitable beneficiary.
Section 1.170A–6(c). However, a contribution of a charitable income interest in property for which a deduction is allowable
under § 170(a) is considered to be made “for the use of” rather than “to” a charitable organization. Section 1.170A–8(a)(2).
Because the charitable lead interest of a grantor charitable lead trust is considered to be made “for the use of” the charita-
ble beneficiary, the income tax charitable deduction available to an individual taxpayer is generally limited as set forth in
§ 170(b)(1)(B) to 30 percent of the taxpayer’s contribution base as defined in § 170(b)(1)(G). However, if the property con-
tributed to the CLAT is capital gain property as defined in § 170(b)(1)(C)(iv) and thecharitable beneficiary (including any
alternate charitable beneficiaries named in the trust instrument or selected by the trustee) is not limited to an organization de-
scribed in § 170(b)(1)(A) (a “public charity”), the individual taxpayer’s income tax charitable deduction generally is limited
as set forth in § 170(b)(1)(D) to 20 percent of the taxpayer’s contribution base. Section 170(b)(1)(D). See §§ 1.170A–8(c)
and (d). In addition, the amount of a charitable contribution of certain types of property may be reduced under § 170(e).
See § 1.170A–4. See section 9.06 for an alternate provision that restricts the charitable beneficiary to apublic charity.
(4)Charitable lead beneficiary requirements. A deduction is allowed under § 170(a)for contributions to a grantor CLAT only
if the charitable lead beneficiary is an organization described in § 170(c). Note that the class of permissible charitable
recipients for obtaining a deduction under § 170(a) differs fromthe class of permissible charitable recipients for obtaining
a deduction under § 642(c)(1). Compare § 170(c) with § 1.642(c)–(1)(a)(2).
(5)Computation of charitable deduction. In general, the income, estate, and gift tax charitable deductions available under
§§ 170(a), 2055(e)(2)(B), and 2522(c)(2)(B) with respectto contributions to a CLAT are equal to the present value of
the annuity interest. Section 7520 generally requires that an annuity interest must be valued using tables published by
the Service. The method for valuing a charitable lead annuity interest is set forth in the regulations. See §§ 1.7520–2,
20.7520–2, and 25.7520–2. If, however, the circumstances surrounding the transfer to a charitable lead trust suggest that
the charitable beneficiary might not receive the beneficial enjoyment of the annuityinterest, an income tax deduction will
be allowed only for the minimum possible amount that the charity will receive. Section 1.170A–6(c)(3)(iii). If at any time
the donor ceases to be treated as the owner of the trust under subpart E, part I, subchapter J, chapter 1, subtitle A of the
Code, the donor shall be considered to have received an amount of income equal to the amount of any deduction the donor
received under § 170(a) for the contribution to the trust, reduced by the discounted value (as of the date of the contribution
to the trust) of all amounts of income earned by the trust andtaxable to the donor before the time that the donor ceased to be
treated as the owner of the trust under subpart E, part I, subchapter J, chapter 1, subtitle A of the Code. Section 170(f)(2)(B).
(6)Trustee provisions. The trust instrument may name alternate or successor trustees and/or may include a process for the
appointment of unnamed alternate or successor trustees. In addition, the trust instrument may contain certain other admin-
istrative provisions relating to the trustee’s duties and powers.
(7)Identity of donor. For purposes of qualification under this revenue procedure, the donor to a charitable lead annuity trust
may be an individual or a husband and wife. Appropriate adjustments should be made to the introductory paragraph if a
husband and wife are the donors. Terms such as “grantor” or “settlor” may be substituted for “donor.”
.02Annotations for Paragraph 2, Payment of Annuity Amount, of the Sample Trust in Section 7.
(1)Guaranteed annuity. To qualify for the applicable charitable deductions, a grantor CLAT must provide for the payment of
a guaranteed annuity amount at least annually to a qualified charitable organization for each year during the annuity pe-
riod. See §§ 170(c), 2055(e)(2)(B), and 2522(c)(2)(B). A guaranteed annuity is an arrangement under which a determinable
amount is paid periodically, but not less often than annually, for a specified term of years or for one or more measuring
lives. See section 8.02(4) for a discussion of the permissible term of a grantor CLAT. An amount is determinable if the
exact amount that must be paid under the conditions specified in the instrument of transfer may be ascertained at the time
of the transfer to the trust. Sections 1.170A–6(c)(2)(i)(A), 20.2055–2(e)(2)(vi)(a), and 25.2522(c)–3(c)(2)(vi)(a). A chari-
table interest expressed as the right to receive an annual payment from a trust equal to the lesser of a sum certain or a fixed
percentage of the trust assets (determined annually), is nota guaranteed annuity interest. See §§ 1.170A–6(c)(2)(i)(B),
20.2055–2(e)(2)(vi)(b), and 25.2522(c)–3(c)(2)(vi)(b). In addition, a charitable lead annuity interest is not a guaranteed
annuity interest if the trustee has the discretion to commute and prepay the charitable interest prior to the termination of the
annuity period. Rev. Rul. 88–27, 1988–1 C.B. 331. If a charitableinterest in the form of a guaranteed annuity interest is in
trust and the present value of the charitable interest on the date of gift exceeds 60 percent of the aggregate value of all amounts
in the trust, the charitable interest will not be considered a guaranteed annuity interest unless the governing instrument of
the trust prohibits the acquisition and retention of assets that would give rise to a tax under § 4943 or 4944, as modified
by §§ 4947(a)(2) and 4947(b)(3). Sections 1.170A–6(c)(2)(i)(D), 20.2055–2(e)(2)(vi)(e), and 25.2522(c)–3(c)(2)(vi)(e).
July 16, 2007972007–29 I.R.B.

These prohibitions are contained in the sample trust in section 7. See section 8.06 for a further discussion of the 60 percent
test. See section 9.04 for an alternate provision that provides for an annuity amount statedas a specific dollar amount.
(2)Payment requirements. CLATs are not subject to any minimum or maximum payout requirements. The governing instru-
ment of a CLAT must provide for the payment to a charitable organization of a fixed dollar amount or a fixed percentage of
the initial net fair market value of the assets transferred to the trust. Alternatively, the governing instrument of a CLAT may
provide for an annuity amount that is initially stated as a fixed dollar or fixed percentage amount but increases during the
annuity period, provided that the value of the annuity amountis ascertainable at the time the trust is funded. The annuity
payments may be made in cash or in kind. If the trustee distributes appreciated property in satisfaction of the required
annuity payment, the donor will realize capital gain on the assets distributed to satisfy part or all of the annuity payment.
(3)Rule against perpetuities. An interest payable for a specified term of years may qualify as a guaranteed annuity interest even
if the governing instrument contains a savings clause intended to ensure compliance with a rule against perpetuities. How-
ever, any such savings clause must utilize a period of vesting of not more than 21 years after the deaths of measuring lives
who are selected to maximize, rather than limit, the term of thetrust. Sections 1.170A–6(c)(2)(i)(A), 20.2055–2(e)(2)(vi)(a),
and 25.2522(c)–3(c)(2)(vi)(a).
(4)Permissible term. Paragraph 2, Payment of Annuity Amount, of the sample trust in section 7 provides for payment of the
annuity amount for a specified term of years. Alternatively, the trust instrument may provide for payment of the annuity
amount for the life or lives of one or more measuring lives or for the life or lives of one or more measuring lives plus
a term of years. Rev. Rul. 85–49, 1985–1 C.B. 330. Only one or more of the following individuals may be used as
measuring lives: the donor, the donor’s spouse, and an individual who, with respect to all remainder beneficiaries (other
than charitable organizations described in § 170, 2055, or 2522), is either a lineal ancestor or the spouse of a lineal ancestor
of those beneficiaries. Each person used as a measuring life for the annuity period must be living on the date assets are
transferred to the trust. Sections 1.170A–6(c)(2)(i)(A), 20.2055–2(e)(2)(vi)(a) and 25.2522(c)–3(c)(2)(vi)(a). See section
9.01 for an alternate provision that provides for an annuity period based on the life of an individual.
(5)Permissible recipients. A CLAT must have one or more charitable lead beneficiaries. The failureto designate a specific
charitable beneficiary will not preclude the donor from receiving a charitable deduction if the trust instrument provides for
the selection by the trustee of a charitable beneficiary described in §§ 170(c), 2055(a), and 2522(a). Rev. Rul. 78–101,
1978–1 C.B. 301. If it is determined that a deduction under § 2055(a) will not be necessary in any event, all references to
§ 2055(a) in the trust instrument may be deleted. Note, that ifthe donor is serving as trustee of the trust, the trustee’s power
to select the charitable beneficiaries will cause the gift of the annuity interest to be incomplete for gift tax purposes and may
cause some or all of the trust property (depending on the date ofthe donor’s death) to be included in the donor’s gross estate.
See §§ 2035(a), 2036(a)(2), and 2038(a)(1) and § 25.2511–2(c). Further note that if the charitable beneficiary is a private
foundation and the donor is an officer or director of the private foundation or possesses certain decision making authority
in the private foundation, some or all of the trust property may be included in the donor’s gross estate. See § 2036(a)(2).
See section 8.01(3) for a discussion of the income tax deductibility limitations. See section 9.02 for an alternate provision
that provides for a donor’s retained right to substitute the charitable beneficiary. See section 9.03 for an alternate provision
that provides the trustee with the power to apportion the annuity amount among charitable beneficiaries. See section 9.06
for an alternate provision that limits the charitable beneficiary to a public charity.
(6)Payment of annuity amount in installments. Paragraph 2, Payment of Annuity Amount, of the sample trust in section 7
specifies that the annuityamount is to be paid in equal quarterly installments at the end of each calendar quarter. Alterna-
tively, the trust instrument may specify that the annuity amount is to be paid in annual or other equal or unequal installments
throughout the year. See §§ 1.170A–6(c)(2)(i)(A), 20.2055–2(e)(2)(vi)(a), and 25.2522(c)–3(c)(2)(vi)(a). The amount of
the charitable deduction will be affected by the frequency of the payment, by whether the installments are equal or un-
equal, and by whether each installment is payable at the beginning or end of the period. See §§ 1.170A–6, 25.2512–5, and
20.2031–7.
(7)Excess income. Trust income in excess of the amount required to pay the annuity may be retained by the trust or distributed
to the charitable beneficiary. The sample trust in section 7 provides for the retention of excess income by the trust. If,
instead, the governing instrument of a grantor charitable lead trust provides for the payment of excess income to or for the
use of the charitable beneficiary, the donor will receive an income tax charitable deduction each year for amounts paid to a
charitable beneficiary to the extent that such amounts exceed the guaranteed annuityamount. Section 1.170A–6(d)(2)(ii).
However, the donor is not entitled to any additional estate or gift tax charitable deductions for the excess amounts of income
distributed to the charitable beneficiary. See §§ 20.2055–2(e)(2)(vi)(d) and 25.2522(c)–3(c)(2)(vi)(d). See Situation 2 of
Rev. Rul. 88–82, 1988–2 C.B. 336, for the gift tax consequences of the payment of excess income to a noncharitable
beneficiary. See section 8.06 for the private foundation rules applicable to charitable lead trusts.
(8)Paymentofpartofannuityforprivatepurposes. In general, no part of a charitablelead annuity interest may be payable
for a private purpose before the expiration of all charitable lead annuity interests. However, there are two exceptions to
this rule. The first exception arises when the amount payable for a private purposeis in the form of a guaranteed annuity
interest and the trust’s governing instrument does not provide for any preference or priority in the payment of the private
annuity as opposed to the charitable annuity. The second exception arises when, under the trust’s governing instrument, the
2007–29 I.R.B.98July 16, 2007

amount that may be paid for a private purpose is payable only from a group of assets that is devoted exclusively to private
purposes and to which § 4947(a)(2) is inapplicable by reason of § 4947(a)(2)(B). Note that an amount is not deemed to
have been paid for a private purpose if it was paid for full and adequate consideration in money or money’s worth. Sections
1.170A–6(c)(2)(i)(E), 20.2055–2(e)(2)(vi)(f), and 25.2522(c)–3(c)(2)(vi)(f). See section 8.06 for the private foundation
rules applicable to charitable lead trusts.
.03Annotation for Paragraph 3, Proration of Annuity Amount, of the Sample Trust in
Section 7.
(1)Prorating the annuity amount. Paragraph 3, Proration of Annuity Amount, of the sample trust in section 7 provides for the
proration of the annuity amount in any short taxable year, including the last year of the annuity period.
.04Annotation for Paragraph 4, Distribution Upon Termination of Annuity Period, of the Sample Trust in
Section 7.
(1)Generation-skipping transfer tax. If a CLAT has or may have a skip person, as defined in § 2613(a), as a remainder benefi-
ciary, the transfer to the trust will be subject to the generation-skipping transfer (GST) tax. Under § 2651(f)(3), a charitable
organization is deemed to be in the same generation as the donor of a charitable lead trust. Therefore, the GST potential
of a charitable lead trust is dependent upon whether any noncharitable beneficiary is a skip person. GST tax liability is
determined by multiplying the taxable amount by the applicable rate. The applicable rate is the inclusion ratio multiplied
by the maximum federal estate tax rate. Section 2641(a). Therules for determining the inclusion ratio for a CLAT are set
forth in § 2642(e) and confirm that the inclusion ratio is determined at the termination of the annuity period, rather than on
the funding of the trust.
.05Annotation for Paragraph 5, Additional Contributions, of the Sample Trust in Section 7.
(1)Additions to the trust. For purposes of qualification under this revenue procedure, the tr
ustinstrumentmustcontaina
provision that prohibits additional contributions. A charitable lead trust that permits
additional contributions will not qualify
for safe harbor treatment under this revenue procedure.
.06Annotation for Paragraph 6, Prohibited Transactions, of the Sample Trust in Section 7.
(1)Prohibitions against certain investments and excess business holdings. Prohibitions against retaining any excess business
holdings within the meaning of § 4943, as modified by §§ 4947(a)(2) and 4947(b)(3), and against investments that jeopar-
dize the exempt purpose of the trust within the meaning of § 4944, as modified by §§ 4947(a)(2) and 4947(b)(3) are generally
required. The sample trust in section 7 contains prohibitionsagainst §§ 4943 and 4944 transactions. If the present value
of the charitable interest does not exceed 60 percent of the aggregate value of all amounts in the trust, the trust instrument
does not provide for the payment of any of the income interest to a noncharitable beneficiary, and the trust instrument does
not provide for the payment of excess income to a noncharitable beneficiary, the references to §§ 4943 and 4944 may be
removed from the trust instrument. Sections 4947(b)(3), 53.4947–2(b)(1)(i), 1.170A–6(c)(2)(i)(D), 20.2055–2(e)(2)(vi)(e),
and 25.2522(c)–3(c)(2)(vi)(e). See section 8.02(7) for a discussion of the payment of excess trust income to a noncharitable
beneficiary. See section 8.02(8) for a discussion of the payment of part of the annuity for a private purpose.
.07Annotation for paragraph 7, Taxable Year, of the Sample Trust in Section 7.
(1)Calendar year. The taxable year of a charitable lead trust must be a calendar year. Section 644(a).
.08Annotation for paragraph 10, Investment of Trust Assets, of the Sample Trust in Section 7.
(1)Capital gains. Gains from the sale or exchange of capital assets may be allocated to the income or the principal of the trust.
If the governing instrument is silent, capital gains are allocated in accordance with local law.
.09Annotation for Paragraph 11, Retained Powers and Interests, of the Sample Trust in Section 7.
(1)Power to substitute trust assets. The donor to a CLAT may claim an income tax charitable deduction under § 170(a) if the
donor is treated as the owner ofthe entire CLAT under the provisions of subpart E, part I, subchapter J, chapter 1, subtitle A
of the Code. Paragraph 11, Retained Powers and Interests, of the sample trust in section 7 creates a grantor CLAT through
the use of a power to substitute trust assets under § 675(4) that is held by a person other than the donor, the trustee, or
a disqualified person as defined in § 4946(a)(1), and is exercisable only in a nonfiduciary capacity. The circumstances
surrounding the administration of a CLAT will determine whether a § 675(4) substitution power is exercised in a fiduciary
July 16, 2007992007–29 I.R.B.

or nonfiduciary capacity. This is a question of fact. Note, that the exercise of a § 675(4) power may result in an act of
self-dealing under § 4941.
(2)Other powers or provisions to create a grantor trust. As noted above, the sample trust in section 7 includes a § 675(4)
power that is held by someone other than donor, the trustee, ora disqualified person as defined in § 4946(a)(1), and that
may be exercised only in a nonfiduciary capacity. The CLAT instrument may instead incorporate a power or provision,
other than the one provided in sample trust in section 7, that will cause the donor to be treated as the owner of the entire
CLAT under the provisions of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code. See § 671et seq. However,
practitioners should exercise caution when choosing a particular power or provision because certain methods of creating a
grantor trust may have unforeseen tax consequences.
SECTION 9. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS GRANTOR CHARITABLE
LEAD ANNUITY TRUST
.01Annuity Period for the Life of One Individual.
(1)Explanation. As an alternative to establishing a CLAT for a term of years, the trust instrument of a grantor CLAT may
provide for payment of the annuity amount for the life or livesof an individual or individuals. However, only one or more
of the following individuals may be used as measuring lives: the donor, the donor’s spouse, and an individual who, with
respect to all remainder beneficiaries (other than charitable organizations described in § 170, 2055, or 2522), is either a lineal
ancestor or the spouse of a lineal ancestor of those beneficiaries. A trust will satisfy the requirement that each measuring
life is a lineal ancestor (or the spouse of a lineal ancestor) of all noncharitable remainder beneficiaries if there is a less
than 15 percent probability at the time of the contribution to the trust that individuals who are not lineal descendants of an
individual who is a measuring life will receive any trust principal. The probability must be computed under the applicable
tables in § 20.2031–7. Sections 1.170A–6(c)(2)(i)(A), 20.2055–2(e)(2)(vi)(a), and 25.2522(c)–3(c)(2)(vi)(a).
(2)Instruction for use. Replace the fifth and sixth sentences of paragraph 2, Payment of Annuity Amount, of the sample trust
in section 7 with the following sentences:
The annuity period is the lifetime of [designated measuring life]. The first day of the annuity period shall be the date
the property is transferred to the trust, and the last day of the annuity period shall be the date of death of [designated
measuring life].
.02Retention of the Right to Substitute the Charitable Lead Beneficiary.
(1)Explanation. The donor to a grantor CLAT may retain the right to substitute another charitable beneficiary for the charitable
beneficiary named in the trust instrument and still claim a deduction under § 170(a) in the year of the transfer to the CLAT.
Note, however, that the retention of this right will cause the gift of the annuity interest to be incomplete for gift tax purposes
and may cause some or all of the trust property (depending on the date of the donor’s death) to be included in the donor’s
gross estate. See §§ 2035, 2036(a)(2), and 2038(a)(1) and § 25.2511–2(c). See section 8.01(3) for a discussion of the
income tax deductibility limitations applicable to contributions to a grantor CLAT.
(2)Instruction for use. Replace the third sentence of paragraph 2, Payment of Annuity Amount, of the sample trust in section
7 with the following two sentences:
Notwithstanding the preceding sentence,the Donor reserves the right to designate as the charitable annuity recipient,
at any time and from time to time, in lieu of [designated charitable recipient named above], one or more organizations
described in §§ 170(c), 2055(a), and 2522(a) and shall make any such designation by giving written notice to the Trustee.
The term “the Charitable Organization” shall be used herein to refer collectively to the organization(s) then constituting
the charitable recipient, whether named in this paragraph or subsequently selected as the substitute charitable recipient.
.03Apportionment of the Annuity Amount in the Discretion of the Trustee.
(1)Explanation. The donor or the trustee of a grantor charitable lead trust may be granted the power to apportion the annuity
payment from time to time among a class of qualifying charitable beneficiaries. Note that a retained power of apportionment
by the donor will cause the gift of the annuity interest to be incomplete for gift tax purposes and may cause some or all of
the trust property to be included in the donor’s gross estate. See §§ 2035(a), 2036(a)(2), and 2038(a)(1) and § 25.2511–2(c).
(2)Instruction for use. Replace the first three sentences of paragraph 2, Payment of Annuity Amount, of the sample trust in
section 7 with the following two sentences:
In each taxable year of the trust during the annuity period, the Trustee shall pay to one or more members of a class
comprised of organizations described in §§ 170(c), 2055(a),and 2522(a) (hereinafter, collectively “the Charitable Or-
ganization”) an annuity amount equal to [number representing the annual annuity percentage to be paid to the Charitable
Organization] percent of the initial net fair market value of all property transferred to the trust, valued as of the date of
2007–29 I.R.B.100July 16, 2007

the transfer. The Trustee may pay the annuity amount to one or more members of the class, in equal or unequal shares,
as the Trustee, in the Trustee’s sole discretion, from time to time may deem advisable.
.04Annuity Amount as a Specific Dollar Amount.
(1)Explanation. As an alternative to stating the annuity amount as a percentage of the initial net fair market value of the assets
transferred to the trust, the annuity amount may be stated as a specific dollar amount.
(2)Instructions for use.
(a)Replace the first sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section 7 with the following
sentence:
In each taxable year of the trust during the annuity period, the Trustee shall pay to [designated charitable recipient]
an annuity amount equal to [the stated dollar amount].
(b)Delete the last sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section 7 concerning the
incorrect valuation of trust assets.
.05Designation of an Alternate CharitableBeneficiary in the Trust Instrument.
(1)Explanation. The sample trust in section 7 provides that if the charitable beneficiary designated in the trust instrument is
not an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any payment is to be made to it, the trustee
shall distribute such payments to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) as the trustee shall
select. As an alternative, the trust instrument may specificallydesignate one or more alternate charitable beneficiaries. See
section 8.01(3) for a discussion of the income tax deductibility limitations applicable to contributions to a grantor CLAT.
(2)Instruction for use. Replace the second sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section
7 with the following two sentences:
If [designated charitable recipient] is not an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any
payment is to be made to it, the Trustee shall instead distribute such payments to [designated substitute charitable re-
cipient]. If neither [designated charitable recipient]nor[designated substitutecharitable recipient] is an organization
described in §§ 170(c), 2055(a), and 2522(a) at the time any payment is to be made to it, the Trustee shall instead distrib-
ute such payments to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) as the Trustee shall select,
and in such proportions as the Trustee shall decide, from time to time, in the Trustee’s sole discretion.
.06Restriction of the Charitable Beneficiary to a Public Charity.
(1)Explanation. Because the charitable lead interest of a grantor charitable lead trust is considered to be made “for the use of”
the charitable beneficiary, the income tax charitable deduction available to an individual taxpayer is generally limited as
set forth in § 170(b)(1)(B) to 30 percent of the taxpayer’s contribution base as defined in § 170(b)(1)(G). However, if the
property contributed to the CLAT is capital gain property as defined in § 170(b)(1)(C)(iv) and the charitable beneficiary
(including any alternate charitable beneficiaries named in the trust instrument orselected by the trustee) is not limited to a
public charity, the individual taxpayer’s income tax charitable deduction generally is limited as set forth in § 170(b)(1)(D) to
20 percent of the taxpayer’s contribution base. Section 170(b)(1)(D). See §§ 1.170A–8(c) and (d). In addition, the amount
of a charitable contribution of certain types of property may be reduced under § 170(e). See § 1.170A–4.
(2)Instructions for use. To restrict the charitable beneficiary to a public charity, each and every time the phrase “an organiza-
tion described in §§ 170(c), 2055(a), and 2522(a) of the Code”appears in the sample trust, replace it with the phrase “an
organization described in §§170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code.”
SECTION 10. DRAFTING INFORMATION
The principal author of this revenue procedure is Stephanie N. Bland of the Office of Associate Chief Counsel (Passthroughs &
Special Industries). For further informationregarding this revenue procedure, contact Stephanie N. Bland at (202) 622–3090 or (202)
622–7830 (not a toll-free call).
July 16, 20071012007–29 I.R.B.

26 CFR 601.201: Rulings and determination letters.
(Also: Part I, §§ 642(c), 2055; § 20.2055–2.)
Rev. Proc. 2007–46
SECTION 1. PURPOSE
This revenue procedure contains an annotated sample declaration of trus
t and alternate provisions that meet the requirements for a
testamentary charitable lead annuity trust (CLAT) providing for annu
ity payments payable to one or more charitable beneficiaries for
the annuity period followed by the distribution of trust assets to one o
r more noncharitable remaindermen.
SECTION 2. BACKGROUND
The Internal Revenue Service (Service) is issuing sample forms for CLATs; annotations and alternate sample provisions are included
as further guidance. In addition to the sample trust instrument for a testamentary CLAT that is included in this revenue procedure,
samples are provided in a separate revenue procedure for grantor and nongrantor inter vivos CLATs (see Rev. Proc. 2007–45, 2007–29
I.R.B. 89).
SECTION 3. SCOPE
A CLAT is an irrevocable split-interest trust that provides for a specified amount to be paid to one or more charitable beneficiaries
during the term of the trust. The principal remaining in the trust at the end of the term is paid over to, or held in a continuing trust for,
a noncharitable beneficiary or beneficiaries identified in the trust. If the terms of a CLAT created on the decedent’s death satisfy the
applicable statutory and regulatory requirements, the value of the charitable lead annuity interest will be deductible by the decedent’s
estate under § 2055(e)(2)(B) and payments of the annuity amount to the charitable lead beneficiary will be deductible from the gross
income of the trust to the extent provided by § 642(c)(1).
A testamentary CLAT is subject to the provisions of part I, subchapter J of chapter 1 of subtitle A of the Internal Revenue Code
(Code). Under the provisions of part I of subchapter J, a CLAT is allowed a deduction under § 642(c)(1) in determining its taxable
income for any amount of gross income paid for purposes specified in § 170(c).
Section 4 of this revenue procedure provides a sample declaration of trust for a testamentaryCLAT with a term of years annuity
period that is created by a decedent who was a citizen or resident of the United States. Section 5 of this revenue procedure provides
annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of certain alternate provisions
concerning: (.01) an annuity period for the life of an individual; (.02) apportionment of the annuity amount in the discretion of the
trustee; (.03) the annuity amount as a specific dollar amount; and (.04) designation of an alternate charitable beneficiary in the trust
instrument. If a trust is substantially similar to the sample trust in section 4 of this revenue procedure or properly integrates one or
more alternate provisions from section 6 into a document substantially similar to the sample trust in section 4, is a valid trust under
applicable local law, and operates in a manner consistent with the terms of the instrument, and if all other deductibility requirements
are satisfied, the value of the charitable lead interest will be deductible by the decedent’s estate under § 2055(e)(2)(B) and payments
of the annuity amount to the charitable lead beneficiary will be deductible from the gross income of the trust to the extent provided by
§ 642(c)(1). In addition, a testamentary CLAT will qualify for the safeharbor created under this revenue procedure if the trust satisfies
all of the requirements set forth in the preceding sentence, except that it defines the annuity amountas an increasing amount for which
the value is ascertainable at the creation of the trust and/or provides for a different disposition of trust assets upon the termination of
the annuity period.
Except as provided above, a trust that contains substantive provisions in addition to those provided in section 4 of this revenue
procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure or provisions necessary to
establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits
any of the provisions of section 4 of this revenue procedure (unless analternate provision from section 6 of this revenue procedure is
properly integrated), will not necessarily be ineligible for the relevant charitable deduction(s), but neither will that trust (or contribu-
tions to it) be assured of qualification for the appropriate charitable deductions. The Service generally will not issue a letter ruling on
whether a testamentary CLAT qualifies for income and estate tax charitable deductions. The Service, however, generally will issue
letter rulings relating to the tax consequences of the inclusion in a CLAT of substantive trust provisions other than those contained in
sections 4 and 6 of this revenue procedure.
SECTION 4. SAMPLE TESTAMENTARY CHARITABLE LEAD ANNUITY TRUST
I give, devise, and bequeath [property bequeathed] to my Trustee in trust to be administered under this provision. I intend this
bequest to establish a charitable lead annuity trust, within themeaning of Rev. Proc.2007–46. This trust shall be known as the
2007–29 I.R.B.102July 16, 2007

Charitable Lead Annuity Trust, and I hereby designateas the initial trustee (hereinafter “the
Trustee”). All references to “section” or “§” in this instrument shall refer to the Internal Revenue Code of 1986, 26 U.S.C. § 1,et seq.
1.Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [designated
charitable recipient] an annuity amount equal to [number representing the annual annuity percentage to be paid to the designated
charitable recipient] percent of the initial net fair market value of all propertypassing to this trust, as finally determined for federal
estate tax purposes. If [designated charitable recipient] is not an organization described in §§ 170(c) and 2055(a) at the time any
payment is to be made to it, the Trustee shall instead distribute such payments to one or more organizations described in §§ 170(c)
and 2055(a) as the Trustee shall select, andin such proportions as the Trustee shall decide, from time to time, in the Trustee’s sole
discretion. The term “the Charitable Organization” shall be used herein to refer collectively to the organization(s) then constituting
the charitable recipient, whether named in this paragraph or subsequently selected as the substitute charitable recipient. During the
trust term, no payment shall be made to any person other than the Charitable Organization. The annuity period is a term of [number
of years of annuity period] years. The first day of the annuity period shall be the date of my death, and the last day of the annuity
period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date. The
annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income and, to the extent income
is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal.
If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally
determined for federal estate tax purposes, the Trustee shall payto the Charitable Organization (in the case of an undervaluation)
or receive from the Charitable Organization (in the case of an overvaluation) an amount equal to thedifference between the annuity
amount(s) properly payable and theannuity amount(s) actually paid.
2.Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the
annuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within
a reasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Charitable
Organization the difference between any annuity amounts actually paid and the annuity amounts payable, plus interest. The interest
for any period shall be computed at the § 7520 rate of interest in effect for the date of my death. All interest shall be compounded
annually.
3.Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. In the
taxable year in which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of
the annuity period in that taxable year.
4.Distribution Upon Termination of Annuity Period. At the termination of the annuity period, the Trustee shall distribute all of
the then principal and income of the trust (other than any amount due to the Charitable Organization under the provisions above) to
[remainder beneficiary].
5.Additional Contributions. No additional contributions shall be made to the trust after the initial contribution. The initial contri-
bution, however, shall be deemed to consist of all property passing to the trust by reason of my death.
6.Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of § 4941(d), as modified
by § 4947(a)(2), and shall not make any taxable expenditures within the meaning of § 4945(d), as modified by § 4947(a)(2). The
Trustee shall not retain any excess business holdings that wouldsubject the trust to tax under § 4943, as modified by §§ 4947(a)(2)
and 4947(b)(3). In addition, the Trustee shall not acquire any assets that would subject the trust to tax under § 4944, as modified by
§§ 4947(a)(2) and 4947(b)(3), or retain assets which, if acquired by the Trustee, would subject the Trustee to tax under § 4944, as
modified by §§ 4947(a)(2) and 4947(b)(3).
7.Taxable Year. The taxable year of the trustshall be the calendar year.
8.Governing Law. The operation of the trust shall be governed by the laws of the State of
. However, the Trustee
is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the requirements for the
charitable deductions available to a charitable lead annuity trust or for contributions to a charitable lead annuity trust.
9.Limited Power of Amendment. This trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend
the trust from time to time in any manner required for the sole purpose of ensuring that the annuity interest passing to the Charitable
Organization is a guaranteed annuity interest under § 2055(e)(2)(B)and the regulations thereunder and that payments of the annuity
amount to the Charitable Organization will be deductible from the gross income of the trust to the extent provided by § 642(c)(1) and
the regulations thereunder.
10.Investment of Trust Assets. Except as provided in paragraph 6 herein, nothingin this trust instrument shall be construed to
restrict the Trustee from investing the trust assets in a manner that could result in the annual realization of a reasonable amount of
income or gain from the sale or disposition of trust assets.
July 16, 20071032007–29 I.R.B.

SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLE LEAD ANNUITY
TRUST
.01Annotations for Introductory Paragraph of the Sample Trust.
(1)Income taxation of testamentary charitable lead trusts. A testamentary CLAT is a complex trust that is taxable as a separate
entity under the provisions of subchapter J of the Code. The trustee of the trust must apply for a tax identification number
for the trust.
(2)Deduction under § 642(c)(1) available for amounts paid for a charitable purpose. Under § 642(c)(1), a testamentary CLAT
is allowed a deduction in computing its taxable income for any amount of gross income, without limitation, that under the
terms of the trust instrument is paid for a purpose specified in §170(c) (determined without regard to § 170(c)(2)(A)) during
the taxable year. Section 642(c)(1) and § 1.642(c)–1(a). An amount paid to a corporation, trust, or community chest, fund,
or foundation otherwise described in § 170(c)(2) shall be considered paid for a purpose described in § 170(c) even though
the corporation, trust, or community chest, fund, or foundation is not created or organized in the United States, any state, the
District of Columbia, or any possession of the United States. Section 1.642(c)–1(a)(2). With regard to amounts of income
paid to the charitable beneficiary after the close of the taxable year in which the income was received (but on or before the
last day of the next succeeding taxable year), the trustee of a testamentary CLAT mayelect to take the charitable deduction
for that payment for the year in which the income was received, rather than for the year in which the payment was made.
Section 642(c)(1). The election is made by filing a statement with the income tax return for the taxable year in which the
charitable contribution is treated as paid. See § 1.642(c)–1(b).
(3)Charitable lead beneficiary requirements. A deduction is allowed under § 642(c)(1) for any amount of the gross income of a
testamentary CLAT that is paid for a purpose specified in § 170(c). Note that the class of permissible charitable recipients for
obtaining a deduction under § 642(c)(1) differs from the class of permissible charitable recipients for obtaining a deduction
under § 170(a). Compare § 170(c) and § 1.642(c)–1(a)(2).
(4)Unrelated business taxable income. Under § 681, a testamentary charitable lead trust’s deduction under § 642(c)(1) is
disallowed in any year to the extent that the deduction is allocable to the trust’s unrelated business taxable income, as
defined in § 512, for that taxable year. See § 1.681(a)–2. However, a partial deduction is allowed under § 512(b)(11) for
amounts allocable to unrelated business taxable income. Section 512(b)(11). See § 512(b)(12) and § 1.681(a)–2(a).
(5)Computation of estate tax charitable deduction. In general, the estate tax charitable deduction available under
§ 2055(e)(2)(B) with respect to contributions to a CLAT is equalto the present value of the annuity interest. Section 7520
requires that an annuity interest must be valued using tables published by the Service. The method for valuing a charitable
lead annuity interest is set forth in theregulations. See § 20.7520–2. If estate or other death taxes are paid from the assets
used to fund a testamentary CLAT, the amount deductible under § 2055 is the amount that passes to charity, reduced by
the amount of estate or death taxes paid. Section 2055(c).
(6)Trustee provisions. The trust instrument may name alternate or successor trustees and/or may include a process for the
appointment of unnamed alternate or successor trustees. In addition, the trust instrument may contain certain administrative
provisions relating to the trustee’s duties and powers.
.02Annotations for Paragraph 1, Payment of Annuity Amount, of the Sample Trust.
(1)Guaranteed annuity. To qualify for an estate tax charitable deduction, a CLAT must provide for the payment of a guaran-
teed annuity amount at least annually to aqualified charitable organization for each year during the annuity period. See
§ 2055(e)(2)(B). A guaranteed annuity is an arrangement under which a determinable amount is paid periodically, but not
less often than annually, for a specified term of years or forone or more measuring lives. See section 5.02(4) for a dis-
cussion of the permissible term of a testamentary CLAT. An amount is determinable if the exact amount that must be paid
under the conditions specified in the instrument of transfer maybe ascertained as of the appropriate valuation date. Section
20.2055–2(e)(2)(vi)(a). A charitable interest expressed as the right to receive an annual payment from a trust equal to the
lesser of a sum certain or a fixed percentage of the trust assets(determined annually) is not a guaranteed annuity interest.
See § 20.2055–2(e)(2)(vi)(b). In addition, a charitable lead annuity interest is not a guaranteed annuity interest if the trustee
has the discretion to commute and prepay the charitable interest prior to the termination of the annuity period. Rev. Rul.
88–27, 1988–1 C.B. 331. If a charitable interest in the form of a guaranteed annuity interest is in trust and the present
value of the charitable interest on the appropriate valuation date exceeds 60 percent of the aggregate value of all amounts
in the trust, the charitable interest will not be considered a guaranteed annuity interest unless the governing instrument of
the trust prohibits the acquisition and retention of assets that would give rise to a tax under § 4943 or 4944, as modified
by §§ 4947(a)(2) and 4947(b)(3). Section 20.2055–2(e)(2)(vi)(e). These prohibitions are contained in the sample trust in
section 4. See section 5.07 for a further discussion of the 60 percent test. See section 6.03 for an alternate provision that
provides for an annuity amount stated as a specific dollar amount.
2007–29 I.R.B.104July 16, 2007

(2)Payment requirements. CLATs are not subject to any minimum or maximum payout requirements. The governing instru-
ment of a CLAT must provide for the payment to a charitable organization of a fixed dollar amount or a fixed percentage of
the initial net fair market value of the assets transferred to the trust. Alternatively, the governing instrument of a CLAT may
provide for an annuity amount that is initially stated as a fixed dollar or fixed percentage amount but increases during the
annuity period, provided that the value of the annuity amount is ascertainable at the time of the decedent’s death. The an-
nuity payments may be made in cash or in kind. If the trustee distributes appreciated property insatisfaction of the required
annuity payment, the trust will realize capital gain on the assets distributed to satisfy part or all of the annuity payment and
the trust will be allowed a § 642(c)(1) deduction for the realized capital gains. Rev. Rul. 83–75, 1983–1 C.B. 114. See
section 5.03 for a discussion of the deferral of the requirement to pay the annuity amount until the end of the taxable year
in which the trust is completely funded.
(3)Rule against perpetuities. An interest payable for a specified term of years may qualify as a guaranteed annuity interest
even if the governing instrument contains a savings clause intended to ensure compliance with a rule against perpetuities.
However, any such savings clause must utilize a period of vesting of not more than 21 years after the deaths of the measuring
lives who are selected to maximize, rather than limit, the term of the trust. Section 20.2055–2(e)(2)(vi)(a).
(4)Permissible term. Paragraph 1, Payment of Annuity Amount, of the sample trust provides for payment of the annuity amount
for a specified term of years. Alternatively, the trust instrument may provide for payment of the annuity amount for the life
or lives of one or more measuring lives or for the life or lives of one or more measuring lives plus a term of years. Rev. Rul.
85–49, 1985–1 C.B. 330. Only one or more of the following individuals maybe used as measuring lives: the decedent’s
spouse and an individual who, with respect to all remainder beneficiaries (other than charitable organizations described in
§ 170 or 2055), is either a lineal ancestor or the spouse of a lineal ancestor of those beneficiaries. Each person used as a
measuring life for the annuity period must be living on thedecedent’s date of death. Section 20.2055–2(e)(2)(vi)(a). See
section 6.01 for an alternate provision that provides for an annuity period based on the life of an individual.
(5)Permissible recipients. A CLAT must have one or more charitable lead beneficiaries. The failureto designate a specific
charitable beneficiary willnot preclude the decedent’s estate from receiving a charitable deduction if the trust instrument
provides for the selection by the trustee of a charitable beneficiary described in §§ 170(c) and 2055(a). Rev. Rul. 78–101,
1978–1 C.B. 301. See section 6.02 for analternate provision that provides thetrustee with the power to apportion the
annuity amount among charitable beneficiaries.
(6)Payment of annuity amount in installments. Paragraph 1, Payment of Annuity Amount, of the sample trust specifies that
the annuity amount is to be paid in equal quarterly installments at the end of each calendar quarter. Alternatively, the trust
instrument may specify that the annuity amount is to be paid in annual or other equal or unequal installments throughout
the year. See § 20.2055–2(e)(2)(vi)(a). The amount of the charitable deduction will be affected by the frequency of the
payment, by whether the installments are equal or unequal,and by whether each installment is payable at the beginning or
end of the period. See § 20.2031–7.
(7)Excess income.Trust income in excess of the amount required to pay the annuity may be retained by the trust or distributed
currently to the charitable beneficiary. The sample trust in section 4 provides for the retention of excess income by the
trust. If, instead, the governing instrument provides for the payment of excess income to or for the use of the charitable
beneficiary, no additional estate tax charitable deduction is available for the excess amounts of income distributed to the
charitable beneficiary.See § 20.2055–2(e)(2)(vi)(d). However, the trust is entitled to a charitable income tax deduction
under § 642(c)(1) for any amounts of excess income paid to thecharitable beneficiary. See Situation 2 of Rev. Rul. 88–82,
1988–2 C.B. 336, for the transfer tax consequences of the payment of excess income to a noncharitable beneficiary. See
section 5.07 for the private foundation rules applicable to charitable lead trusts.
(8)Paymentofpartofannuityforprivatepurposes. In general, no part of a charitablelead annuity interest may be payable
for a private purpose before the expiration of all charitable lead annuity interests. However, there are two exceptions to
this rule. The first exception arises when the amount payable for a private purposeis in the form of a guaranteed annuity
interest and the trust’s governing instrument does not provide for any preference or priority in the payment of the private
annuity as opposed to the charitable annuity. The second exception arises when, under the trust’s governing instrument, the
amount that may be paid for a private purpose is payable only from a group of assets that is devoted exclusively to private
purposes and to which § 4947(a)(2) is inapplicable by reason of § 4947(a)(2)(B). Note that an amount is not deemed to
have been paid for a private purpose if it was paid for full and adequate consideration in money or money’s worth. Section
20.2055–2(e)(2)(vi)(f). See section 5.07 for the private foundation rules applicable to charitable lead trusts.
.03Annotations for Paragraph 2, Deferral Provision, of the Sample Trust.
(1)Deferral of requirement to pay annuity amount. The deferral provision in paragraph 2 of the sample trust authorizes the
trustee to defer the payment of the annuity amount until the end of the taxable year of the trust in which the trust is com-
pletely funded.
(2)Interest on annuity payments. The deferral provision in paragraph 2 of the sample trust provides for the payment of interest,
compounded annually, with respect to any underpayment of theannuity amount during the period of estate administration.
July 16, 20071052007–29 I.R.B.

The sample trust requires that interest be computed at the § 7520 rate in effect on the date of the decedent’s death. To the
extent that interest payable under state law exceeds the applicable § 7520 rate, the payment of interest at the rate prescribed
by state law will be deemed to satisfy the interest payment requirement set forth in the trust instrument.
.04Annotation for Paragraph 3, Proration of Annuity Amount, of the Sample Trust.
(1)Prorating the annuity amount. Paragraph 3, Proration of Annuity Amount, of the sample trust provides for the proration of
the annuity amount in any short taxable year, including the last year of the annuity period.
.05Annotation for Paragraph 4, Distribution Upon Termination of Annuity Period, of the Sample Trust.
(1)Generation-skipping transfer tax. If a CLAT has or may have a skip person, as defined in § 2613(a), as a remainder benefi-
ciary, the transfer to the trust will be subject to the generation-skipping transfer (GST) tax. Under § 2651(f)(3), a charitable
organization is deemed to be in the same generation as the decedent/donor of a charitable leadtrust. Therefore, the GST po-
tential of a charitable lead trust is dependent upon whether any noncharitable beneficiary is a skip person. GST tax liability
is determined by multiplying the taxable amount by the applicable rate. The applicable rate is the inclusion ratio multiplied
by the maximum federal estate tax rate. Section 2641(a). Therules for determining the inclusion ratio for a CLAT are set
forth in § 2642(e) and confirm that the inclusion ratio is determined at the termination of the annuity period, rather than on
the funding of the trust.
.06Annotation for Paragraph 5, Additional Contributions, of the Sample Trust.
(1)Additions to the trust. For purposes of qualification under this revenue procedure, the trust instrument must contain a
provision that prohibits additional contributions. A CLAT that permits additionalcontributions will not qualify for safe
harbor treatment under this revenue procedure.
.07Annotation for Paragraph 6, Prohibited Transactions, of the Sample Trust.
(1)Prohibitions against certain investments and excess business holdings. Prohibitions against retaining any excess business
holdings within the meaning of § 4943, as modified by §§ 4947(a)(2) and 4947(b)(3), and against investments that jeop-
ardize the exempt purpose of the trust within the meaning of § 4944, as modified by §§ 4947(a)(2) and 4947(b)(3), are
generally required. The sample trust in section 4 contains prohibitions against §§ 4943 and 4944 transactions. If the present
value of the charitable interest does not exceed 60 percent of theaggregate value of all amounts in the trust, the trust instru-
ment does not provide for the payment of any of the income interest to a noncharitable beneficiary, and the trust instrument
does not provide for the payment of excess income to a noncharitable beneficiary, the references to §§ 4943 and 4944 may
be removed from the trust instrument. Section 4947(b)(3) and §§ 53.4947–2(b)(1)(i) and 20.2055–2(e)(2)(vi)(e). See sec-
tion 5.02(7) for a discussion of the payment of excess trust income to a noncharitable beneficiary. See section 5.02(8) for
a discussion of the payment of part of the annuity for a private purpose.
.08Annotation for paragraph 7, Taxable Year, of the Sample Trust.
(1)Calendar year. The taxable year of a charitable lead trust must be a calendar year. Section 644(a).
.09Annotation for paragraph 10, Investment of Trust Assets, of the Sample Trust.
(1)Capi
tal gains. Gains from the sale or exchange of capital assets may be allocated to the income or the principal of the trust.
If t
he governing instrument is silent, capital gains are allocated in accordance with local law. Even if gains are allocated
to p
rincipal, they will be deductible under § 642(c)(1) if they arepaid to the charitable beneficiary as part of a charitable
ann
uity payment. Rev. Rul. 83–75, 1983–1 C.B. 114.
SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLE LEAD
ANNUITY TRUST
.01Annuity Period for the Life of One Individual
.
(1)Explanation.AsanalternativetoestablishingaCLATforatermofyears, the trust instrument of a testamentary CLAT may
provide for payment of the annuity amount for the life or livesof an individual or individuals. However, only one or more
of the following individuals may be used as measuring lives: the decedent’s spouse and an individual who, with respect
to all remainder beneficiaries (other than charitable organizations described in § 170 or 2055), is either a lineal ancestor or
the spouse of a lineal ancestor of those beneficiaries. A trustwill satisfy the requirement that each measuring life is a lineal
2007–29 I.R.B.106July 16, 2007

ancestor (or the spouse of a linealancestor) of all noncharitable remainder beneficiaries, if on decedent’s date of death there
is a less than 15 percent probability that individuals who arenot lineal descendants of an individual who is a measuring
life will receive any trust principal. The probability must be computed under the applicable tables in § 20.2031–7. Section
20.2055–2(e)(2)(vi)(a).
(2)Instruction for use. Replace the fifth and sixth sentences of paragraph 1, Payment of Annuity Amount, of the sample trust
with the following sentences:
The annuity period is the lifetime of [designated measuring life]. The first day of the annuity period shall be the date of
my death, and the last day of the annuity period shall be the date of death of [designated measuring life].
.02Apportionment of the Annuity Amount in the Discretion of the Trustee.
(1)Explanation. The trustee of a testamentary charitable lead trust may be granted the power to apportion the annuity payment
from time to time among a class of qualifying charitable beneficiaries.
(2)Instruction for use. Replace the first three sentences of paragraph 1, Payment of Annuity Amount, of the sample trust with
the following two sentences:
In each taxable year of the trust during the annuity period, the Trustee shall pay to one or more members of a class
comprised of organizations described in §§ 170(c) and 2055(a) (hereinafter, collectively “the Charitable Organization”)
an annuity amount equal to [number representing the annual annuity percentage to be paid to the Charitable Organiza-
tion] percent of the initial net fair market value of all property passing to this trust,as finally determined for federal tax
purposes. The Trustee may pay the annuity amount to one or more members of the class, in equal or unequal shares, as
the Trustee, in the Trustee’s sole discretion, from time to time may deem advisable.
.03Annuity Amount as a Specific Dollar Amount.
(1)Explanation. As an alternative to stating the annuity amount as a percentage of the initial net fair market value of the assets
transferred to the trust, the annuity amount may instead be stated as a specific dollar amount.
(2)Instructions for use.
(a)Replace the first sentence in paragraph 1, Payment of Annuity Amount, of the sample trust with the following sentence:
In each taxable year of the trust during the annuity period, the Trustee shall pay to [designated charitable recipient]
an annuity amount equal to [the stated dollar amount].
(b)Delete the last sentence in paragraph 1, Payment of AnnuityAmount, of the sample trust concerning the incorrect valu-
ation of trust assets.
.04Designation of an Alternate CharitableBeneficiary in the Trust Instrument.
(1)Explanation. The sample trust provides that in the event the charitable beneficiary designated in the trust instrument is not
an organization described in §§ 170(c) and 2055(a) at the time any payment is to be made to it, the trustee shall distribute
such payments to one or more organizations described in §§ 170(c) and 2055(a) as the trustee shall select. As an alternative,
the trust instrument may specifically designate one or more alternate charitable beneficiaries.
(2)Instruction for use. Replace the second sentence in paragraph 1, Payment of Annuity Amount, of the sample trust with the
following two sentences:
If [designated charitable recipient] is not an organization described in §§ 170(c) and 2055(a) at the time any payment
is to be made to it, the Trustee shall instead distribute such payments to [designated substitute charitable recipient]. If
neither [designated charitable recipient] nor [designated substitute charitable recipient] is an organization described in
§§ 170(c) and 2055(a) at the time any payment is to be made to it, the Trustee shall insteaddistribute such payments to
one or more organizations described in §§ 170(c) and 2055(a)as the Trustee shall select, and in such proportions as the
Trustee shall decide, from time to time, in the Trustee’s sole discretion.
SECTION 7. DRAFTING INFORMATION
The principal author of this revenue procedure is Stephanie N. Bland of the Office of Associate Chief Counsel (Passthroughs &
Special Industries). For further informationregarding this revenue procedure, contact Stephanie N. Bland at (202) 622–3090 or (202)
622–7830 (not a toll-free call).
July 16, 20071072007–29 I.R.B.

26 CFR 1.141–3: Definition of private business use.
(Also: §§ 103, 141,145; 1.141–3, 1.145–2.)
Rev. Proc. 2007–47
SECTION 1. PURPOSE
The purpose of this revenue procedure
is to set forth conditions under which a re-
search agreement does not result in private
business use under § 141(b) of the Inter-
nal Revenue Code of 1986 (the Code).
This revenue procedure also addresses
whether a research agreement causes
the modified private business use test in
§ 145(a)(2)(B) of the Code to be met for
qualified 501(c)(3) bonds. This revenue
procedure modifies and supersedes Rev.
Proc. 97–14, 1997–1 C.B. 634.
SECTION 2. BACKGROUND
.01Private Business Use.
(1) Under § 103(a) of the Code, gross
income does not include interest on any
State or local bond. Under § 103(b)(1),
however, § 103(a) does not apply to a pri-
vate activity bond, unless it is a qualified
bond under § 141(e). Section 141(a)(1)
defines “private activity bond” as any
bond issued as part of an issue that meets
both the private business use and the pri-
vate security or payment tests. Under
§ 141(b)(1), an issue generally meets the
private business use test if more than
10 percent of the proceeds of the issue
aretobeusedforanyprivatebusiness
use. Under § 141(b)(6)(A), private busi-
ness use means direct or indirect use in a
trade or business carried on by any person
other than a governmental unit. Section
150(a)(2) provides that the term “govern-
mental unit” does not include the United
States or any agency or instrumentality
thereof. Section 145(a) also applies the
private business use test of § 141(b)(1)
to qualified 501(c)(3) bonds, with certain
modifications.
(2) Section 1.141–3(b)(1) of the Income
Tax Regulations provides that both actual
and beneficial use by a nongovernmental
person may be treated as private business
use. In most cases, the private business use
test is met only if a nongovernmental per-
son has special legal entitlements to use the
financed property under an arrangement
with the issuer. In general, a nongovern-
mental person is treated as a private busi-
ness user of proceeds and financed prop-
erty as a result of ownership; actual or
beneficial use of property pursuant to a
lease, or a management or incentive pay-
ment contract; or certain other arrange-
ments such as a take or pay or other out-
put-type contract.
(3) Section 1.141–3(b)(6)(i) provides
generally that an agreement by a non-
governmental person to sponsor research
performed by a governmental person may
result in private business use of the prop-
erty used for the research, based on all the
facts and circumstances.
(4) Section 1.141–3(b)(6)(ii) provides
generally that a research agreement with
respect to financed property results in pri-
vate business use of that property if the
sponsor is treated as the lessee or owner of
financed property for Federal income tax
purposes.
(5) Section 1.141–1(b) provides that the
term “governmental person” means a State
or local governmental unit as defined in
§ 1.103–1 or any instrumentality thereof.
Section 1.141–1(b) further provides that
governmental person does not include the
United States or any agency or instrumen-
tality thereof. Section 1.141–1(b) further
provides that “nongovernmental person”
means a person other than a governmen-
tal person.
(6) Section 1.145–2 provides that
§§ 1.141–0 through 1.141–15 apply to
qualified 501(c)(3) bonds under § 145(a)
of the Code with certain modifications and
exceptions.
(7) Section 1.145–2(b)(1) provides that,
in applying §§ 1.141–0 through 1.141–15
to § 145(a) of the Code, references to gov-
ernmental persons include § 501(c)(3) or-
ganizations with respect to their activities
that do not constitute unrelated trades or
businesses under § 513(a).
.02Federal Government rights under
the Bayh-Dole Act.
(1) The Patent and Trademark Law
Amendments Act of 1980, as amended,
35 U.S.C. § 200et seq.(2006) (the
“Bayh-Dole Act”), generally applies to
any contract, grant, or cooperative agree-
ment with any Federal agency for the
performance of research funded by the
Federal Government.
(2) The policies and objectives of the
Bayh-Dole Act include promoting the uti-
lization of inventions arising from feder-
ally supported research and development
programs, encouraging maximum partic-
ipation of small business firms in feder-
ally supported research and development
efforts, promoting collaboration between
commercial concerns and nonprofit orga-
nizations, ensuring that inventions made
by nonprofit organizations and small busi-
ness firms are used in a manner to pro-
mote free competition and enterprise, and
promoting the commercialization and pub-
lic availability of inventions made in the
United States by United States industry
and labor.
(3) Under the Bayh-Dole Act, the Fed-
eral Government and sponsoring Federal
agencies receive certain rights to inven-
tions that result from federally funded
research activities performed by non-spon-
soring parties pursuant to contracts, grants,
or cooperative research agreements with
the sponsoring Federal agencies. The
rights granted to the Federal Government
and its agencies under the Bayh-Dole
Act generally include, among others,
nonexclusive, nontransferable, irrevoca-
ble, paid-up licenses to use the products of
federally sponsored research and certain
so-called “march-in rights” over licensing
under limited circumstances. Here, the
term “march-in rights” refers to certain
rights granted to the sponsoring Federal
agencies under the Bayh-Dole Act, 35
U.S.C. § 203 (2006), to take certain ac-
tions, including granting licenses to third
parties to ensure public benefits from the
dissemination and use of the results of
federally sponsored research in circum-
stances in which the original contractor or
assignee has not taken, or is not expected
to take within a reasonable time, effective
steps to achieve practical application of
the product of that research. The general
purpose of these rights is to ensure the
expenditure of Federal research funds in
accordance with the policies and objec-
tives of the Bayh-Dole Act.
SECTION 3. DEFINITIONS
.01Basic research, for purposes of
§ 141 of the Code, means any original
investigation for the advancement of sci-
entific knowledge not having a specific
commercial objective. For example, prod-
uct testing supporting the trade or business
of a specific nongovernmental person is
not treated as basic research.
2007–29 I.R.B.108July 16, 2007

.02Qualified usermeans any State
or local governmental unit as defined in
§ 1.103–1 or any instrumentality thereof.
The term also includes a § 501(c)(3) or-
ganization if the financed property is not
used in an unrelated trade or business
under § 513(a) of the Code. The term
does not include the United States or any
agency or instrumentality thereof.
.03Sponsormeans any person, other
than a qualified user, that supports or spon-
sors research under a contract.
SECTION 4. CHANGES
This revenue procedure modifies and
supersedes Rev. Proc. 97–14 by making
changes that are described generally as fol-
lows:
.01 Section 6.03 of this revenue pro-
cedure modifies the operating guidelines
on cooperative research agreements to
include agreements regarding industry or
federally sponsored research with either a
single sponsor or multiple sponsors.
.02 Section 6.04 of this revenue pro-
cedure provides special rules for applying
the revised operating guidelines under sec-
tion 6.03 of this revenue procedure to fed-
erally sponsored research. These special
rules provide that the rights of the Federal
Government and its agencies mandated by
the Bayh-Dole Act will not cause research
agreements to fail to meet the requirements
of section 6.03, upon satisfaction of the re-
quirements of section 6.04 of this revenue
procedure. Thus, under the stated condi-
tions, such rights themselves will not re-
sult in private business use by the Fed-
eral Government or its agencies of prop-
erty used in research performed under re-
search agreements. These special rules do
not address the use by third parties that
actually receive more than non-exclusive,
royalty-free licenses as the result of the ex-
ercise by a sponsoring Federal agency of
its rights under the Bayh-Dole Act, such
as its march-in rights.
SECTION 5. SCOPE
This revenue procedure applies when,
under a research agreement, a sponsor uses
property financed with proceeds of an is-
sue of State or local bonds subject to § 141
or § 145(a)(2)(B) of the Code.
SECTION 6. OPERATING
GUIDELINES FOR RESEARCH
AGREEMENTS
.01In general. If a research agree-
ment is described in either section 6.02
or 6.03 of this revenue procedure, the re-
search agreement itself does not result in
private business use. In applying the op-
erating guidelines under section 6.03 of
this revenue procedure to federally spon-
sored research, the special rules under sec-
tion 6.04 of this revenue procedure (re-
garding the effect of the rights of the Fed-
eral Government and its agencies under the
Bayh-Dole Act) apply.
.02Corporate-sponsored research.A
research agreement relating to property
used for basic research supported or spon-
sored by a sponsor is described in this
section 6.02 if any license or other use
of resulting technology by the sponsor is
permitted only on the same terms as the
recipient would permit that use by any
unrelated, non-sponsoring party (that is,
the sponsor must pay a competitive price
for its use), and the price paid for that use
must be determined at the time the license
or other resulting technology is available
for use. Although the recipient need not
permit persons other than the sponsor to
use any license or other resulting technol-
ogy, the price paid by the sponsor must be
no less than the price that would be paid by
any non-sponsoring party for those same
rights.
.03Industry or federally-sponsored re-
search agreements. A research agreement
relating to property used pursuant to an in-
dustry or federally-sponsored research ar-
rangement is described in this section 6.03
if the following requirements are met, tak-
ing into account the special rules set forth
in section 6.04 of this revenue procedure in
the case of federally sponsored research —
(1) A single sponsor agrees, or multi-
ple sponsors agree, to fund governmentally
performed basic research;
(2) The qualified user determines the
research to be performed and the manner in
which it is to be performed (for example,
selection of the personnel to perform the
research);
(3) Title to any patent or other prod-
uct incidentally resulting from the basic re-
search lies exclusively with the qualified
user; and
(4) The sponsor or sponsors are enti-
tled to no more than a nonexclusive, roy-
alty-free license to use the product of any
of that research.
.04Federal Government rights under
the Bayh-Dole Act. In applying the op-
erating guidelines on industry and feder-
ally-sponsored research agreements under
section 6.03 of this revenue procedure to
federally sponsored research, the rights of
the Federal Government and its agencies
mandated by the Bayh-Dole Act will not
cause a research agreement to fail to meet
the requirements of section 6.03, provided
that the requirements of sections 6.03(2),
and (3) are met, and the license granted
to any party other than the qualified user
to use the product of the research is no
more than a nonexclusive, royalty-free li-
cense. Thus, to illustrate, the existence
of march-in rights or other special rights
of the Federal Government or the spon-
soring Federal agency mandated by the
Bayh-Dole Act will not cause a research
agreement to fail to meet the requirements
of section 6.03 of this revenue procedure,
provided that the qualified user determines
the subject and manner of the research
in accordance with section 6.03(2), the
qualified user retains exclusive title to any
patent or other product of the research in
accordance with section 6.03(3), and the
nature of any license granted to the Fed-
eral Government or the sponsoring Federal
agency (or to any third party nongovern-
mental person) to use the product of the
research is no more than a nonexclusive,
royalty-free license.
SECTION 7. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 97–14 is modified and su-
perseded.
SECTION 8. EFFECTIVE DATE
This revenue procedure is effective for
any research agreement entered into, ma-
terially modified, or extended on or after
June 26, 2007. In addition, an issuer may
apply this revenue procedure to any re-
search agreement entered into prior to June
26, 2007.
July 16, 20071092007–29 I.R.B.

SECTION 9. DRAFTING
INFORMATION
The principal authors of this rev-
enue procedure are Vicky Tsilas and
Johanna Som de Cerff of the Office of
Associate Chief Counsel (Financial In-
stitutions & Products). For further infor-
mation regarding this revenue procedure,
contact Johanna Som de Cerff at (202)
622–3980 (not a toll-free call).
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, §§ 167, 168, 446, 481; 1.446–1,
1.481–1.)
Rev. Proc. 2007–48
SECTION 1. PURPOSE
This revenue procedure provides a
safe harbor method of accounting to treat
rotable spare parts as depreciable assets
in accordance with Rev. Rul. 2003–37,
2003–1 C.B. 717, and provides proce-
dures for taxpayers to obtain the automatic
consent of the Commissioner of Inter-
nal Revenue to change to the safe harbor
method of accounting.
SECTION 2. BACKGROUND
.01InbothHewlett-Packard Co.. v.
United States, 71 F.3d 398 (Fed. Cir.
1995),rev’g Apollo Computer, Inc. v.
United States, 32 Fed. Cl. 334 (1994),
andHoneywell, Inc. v. Commissioner,
T.C. Memo. 1992–453,aff’d per curiam,
27 F.3d 571 (8
th
Cir. 1994), the courts
held that the taxpayers properly treated
their pools of rotable spare parts as de-
preciable assets, rather than as inventory.
The taxpayers inHewlett-Packardand
Honeywellwere engaged in the trade or
business of manufacturing computers and
computer parts, and also in the business
of repairing and servicing computers pur-
chased or leased by their customers. Most
of the taxpayers’ computer maintenance
operations were conducted pursuant to
standardized maintenance agreements that
obligated the taxpayers to provide all parts
and labor, product upgrades, preventive
maintenance, and telephone assistance
necessary to keep a customer’s computer
operational for the duration of the con-
tract (usually one year) in exchange for
a predetermined fee. In conducting their
computer maintenance operations, the
taxpayers sent repair technicians to a cus-
tomer’s location to diagnose and repair
the customer’s computer. The taxpayers’
repair technicians used a supply of rotable
spare parts to diagnose problems in a
customer’s equipment, and then would
exchange a working part for any mal-
functioning part. The malfunctioning part
removed from the customer’s equipment
would then be repaired and placed in the
taxpayers’ rotable spare parts pools for
continued use in the maintenance opera-
tion. The taxpayers followed this practice
of exchanging their rotable spare parts
for malfunctioning parts in a customer’s
computer to avoid rendering a customer’s
computer inoperative while the original
part was being repaired.
The parts in the taxpayers’ rotable
spare parts pools were obtained from
the taxpayers’ manufacturing facilities.
However, the taxpayers operated their
computer maintenance operations sepa-
rate from their manufacturing operations
and at all times the rotable spare parts were
physically segregatedfrom the taxpayers’
regular manufacturing inventories.
.02 In Rev. Rul. 2003–37, the Inter-
nal Revenue Service announced that it will
follow the judgments inHewlett-Packard
andHoneywell, and that a taxpayer may
treat rotable spare parts as depreciable as-
sets, provided the taxpayer’s facts are sub-
stantially similar to the facts in those cases.
.03 The Service and Department of the
Treasury are aware that the treatment of
rotable spare parts as depreciable assets
has continued to be the subject of contro-
versy in situations when a taxpayer, as part
of its maintenance operations, sells rotable
spare parts from the taxpayer’s pool of
rotable spare parts that are treated as de-
preciable assets. For reasons of admin-
istrative convenience, and to reduce fur-
ther controversy, if a taxpayer within the
scope of this revenue procedure maintains
one or more pools of rotable spare parts
that it treats as depreciable assets and sells
rotable spare parts from these pools, the
Service will not challenge the taxpayer’s
treatment of the pools of rotable spare parts
as depreciable assets for a particular tax-
able year if, for that year, the taxpayer uses
the method of accounting provided in sec-
tion 4 of this revenue procedure.
.04 Section 167(a) of the Internal Rev-
enue Code provides a depreciation al-
lowance for the exhaustion, wear and
tear, and obsolescence of property used
in a trade or business. The depreciation
deduction provided by § 167(a) for tangi-
ble property placed inservice after 1986
generally is determined under § 168. De-
preciation allowances under § 168 are
determined using either: (1) the general
depreciation system (GDS) in § 168(a);
or (2) the alternative depreciation system
(ADS) in § 168(g). Under either depreci-
ation system, the depreciation deduction
is computed by using a prescribed de-
preciation method, recovery period, and
convention. For purposes of either GDS
or ADS, the applicable recovery period is
determined by reference to class life or by
statute.
.05 Rev. Proc. 87–56, 1987–2 C.B.
674, as clarified and modified by Rev.
Proc. 88–22, 1988–1 C.B. 785, sets forth
the class lives of depreciable tangible
property that are necessary to determine
the recovery period of that property under
§ 168. The revenue procedure establishes
two broad categories of depreciable assets:
(1) asset classes 00.11 through 00.4 that
consist of specific assets used in all busi-
ness activities; and (2) asset classes 01.1
through 80.0 that consist of assets used in
specific business activities.
.06 Pursuant to § 167(c), the basis on
which exhaustion, wear and tear, and ob-
solescence are to be allowed in respect
of any property generally is the adjusted
basis provided in § 1011 for the purpose
of determining the gain on the sale or
other disposition of such property. See
also § 1.168(b)–1(a)(3) and (a)(4) of the
Income Tax Regulations for the defini-
tions of unadjusted depreciable basis and
adjusted depreciable basis, respectively,
for purposes of § 168.
.07 Under § 446(b), the Commissioner
has broad authority to determine whether
a method of accounting clearly reflects in-
come. Section 1.446–1(c)(2)(ii) provides
that the Commissioner may authorize a
taxpayer to adopt or change to a permis-
sible method of accounting although the
method is not specifically permitted if,
in the opinion of the Commissioner, that
method clearly reflects income.
2007–29 I.R.B.110July 16, 2007

.08 Section 446(e) and § 1.446–
1(e)(2)(i) state that, except as otherwise
provided, a taxpayer must secure the con-
sent of the Commissioner before changing
a method of accounting for federal income
tax purposes. Section 1.446–1(e)(3)(ii)
authorizes the Commissioner to prescribe
administrative procedures setting forth the
limitations, terms, and conditions neces-
sary to obtain the Commissioner’s consent
to effect the change in method of account-
ing and to prevent amounts from being
duplicated or omitted. The terms and con-
ditions the Commissioner may prescribe
include the year of change, whether the
change is to be made with a § 481(a)
adjustment or on a cut-off basis, and the
§ 481(a) adjustment period.
.09 Rev. Proc. 2002–9, 2002–1 C.B.
327 (as modified and amplified by Rev.
Proc. 2002–19, 2002–1 C.B. 696, mod-
ified and clarified by Announcement
2002–17, 2002–1 C.B. 561, and ampli-
fied, clarified, and modified by Rev. Proc.
2002–54, 2002–2 C.B. 432), provides pro-
cedures by which a taxpayer may obtain
automatic consent to change to a method
of accounting described in the Appendix
of Rev. Proc. 2002–9.
.10 Section 481(a) requires adjust-
ments necessary to prevent amounts from
being duplicated or omitted by reason of a
change in method of accounting.
SECTION 3. SCOPE
This revenue procedure applies to a tax-
payer that —
(1) repairs customer-owned (or cus-
tomer-leased) equipment under warranty
or maintenance agreements that are pro-
vided to the customer for either no charge
or a predetermined fee that does not
change during the term of the agreement
(regardless of the taxpayer’s costs to com-
ply with the agreement);
(2) is obligated under the warranty or
maintenance agreements to repair the cus-
tomer’s equipment (including all parts and
labor related to the repair) for either no
charge or a nominal service fee that is un-
related to the actual cost of parts and labor
provided;
(3) maintains a pool or pools of spare
parts that are used primarily in the tax-
payer’s maintenance operation of repair-
ing customer-owned (or customer-leased)
equipment under warranty or maintenance
agreements, exchanges the spare parts for
defective parts in the customer-owned (or
customer-leased) equipment, and gener-
ally repairs and reuses the defective parts
in its pool of spare parts (the “rotable spare
parts”); and
(4) has a depreciable interest in the
rotable spare parts and has placed in ser-
vice the rotable spare parts after 1986.
SECTION 4. SAFE HARBOR METHOD
OF ACCOUNTING FOR ROTABLE
SPARE PARTS
.01In General. This section 4 describes
a safe harbor method of accounting for
rotable spare parts. A taxpayer is eligible
to use the safe harbor method of account-
inginanytaxableyearinwhichthetax-
payer —
(a) is within the scope of section 3 of
this revenue procedure; and
(b) has gross sales (less returns) of
rotable spare parts from the taxpayer’s
maintenance operation that do not exceed
10 percent of the taxpayer’s total gross
revenues (less returns) from its mainte-
nance operation for the taxable year.
.02Description of Safe Harbor Method
of Accounting. A taxpayer using the safe
harbor method of accounting for rotable
spare parts must —
(1) capitalize the cost of the rotable
spare parts under § 263(a) and depreciate
these parts under § 168 in accordance with
section 4.03 of this revenue procedure;
(2) establish one or more pools for the
rotable spare parts in accordance with sec-
tion 4.04 of this revenue procedure;
(3) identify the disposed rotable spare
parts in accordance with section 4.05 of
this revenue procedure; and
(4) determine the depreciable basis of
the rotable spare parts for depreciation pur-
poses in accordance with § 167(c), § 1011,
and § 1.168(b)–1(a)(3) and (a)(4).
.03Depreciation Allowable.
(1)In general. For purposes of deter-
mining the depreciation allowable for the
rotable spare parts under the safe harbor
method of accounting described in section
4.02 of this revenue procedure, the appli-
cable depreciation method for the rotable
spare parts is determined under § 168(b)(1)
or (2), as applicable, unless either (a) the
taxpayer made a timely valid election un-
der § 168(b)(5) to use the straight line
method of depreciation for the class of
property (as set forth in § 168(e)) in which
the rotable spare parts are included, or
(b) the rotable spare parts are required to
be depreciated under the alternative de-
preciation system in § 168(g). Rotable
spare parts required to be depreciated un-
der the alternative depreciation system in-
clude rotable spare parts in a class of prop-
erty (as set forth in § 168(e)) for which the
taxpayer made a timely valid election un-
der § 168(g)(7). In addition, the applicable
recovery period for the rotable spare parts
is determined under § 168(c) or 168(g), as
applicable, by including the rotable spare
parts in the following asset class of Rev.
Proc. 87–56:
(a) the asset class in Rev. Proc.
87–56 applicable to the taxpayer’s man-
ufacturing activity if the taxpayer, under
warranty or maintenance agreements,
repairs only customer-owned (or cus-
tomer-leased) equipment that is manufac-
turedonlybythetaxpayer;or
(b) asset class 57.0,Distributive
Trades or Services, if: (i) the taxpayer, un-
der warranty or maintenance agreements,
repairs both customer-owned (or cus-
tomer-leased) equipment that is manufac-
tured by the taxpayer and customer-owned
(or customer-leased) equipment that is
manufactured by others; (ii) the taxpayer
is not a manufacturer of the type of cus-
tomer-owned (or customer-leased) equip-
ment that is being repaired; or (iii) the
taxpayer (including a taxpayer described
in section 4.03(1)(a) of this revenue pro-
cedure) charges the customer a nominal
service fee (that is unrelated to the actual
cost of parts and labor provided) to re-
pair customer-owned (or customer-leased)
equipment under warranty or maintenance
agreements.
(2)Additional first year depreciation
deduction. In determining the amount of
the § 481(a) adjustment as described in
section 5.04 of this revenue procedure, the
additional first year depreciation deduc-
tion allowable under § 168(k), 1400L(b),
or 1400N(d) is taken into account for
any qualifying rotable spare part. How-
ever, the deemed placed-in-service date
referred to in section 5.04(2)(b) of this rev-
enue procedure for the rotable spare part
is not the acquisition date of the rotable
spare part for purposes of the acquisition
date requirement in § 168(k), 1400L(b),
or 1400N(d).
July 16, 20071112007–29 I.R.B.

.04Establishment of Pools.
(1)In general. Under the safe harbor
method of accounting described in section
4.02 of this revenue procedure, a taxpayer
must establish one or more pools for the
rotable spare parts. Each pool must in-
clude only the rotable spare parts that are
placed in service by the taxpayer in the
same taxable year and have the same: (a)
asset class under Rev. Proc. 87–56, (b)
applicable depreciation method, (c) appli-
cable recovery period, and (d) applicable
convention. Additionally, rotable spare
parts subject to the mid-quarter conven-
tion may only be grouped into a pool with
rotable spare parts that are placed in ser-
vice in the same quarter of the taxable year.
(2)Generalassetaccountelection.If
a taxpayer within the scope of this rev-
enue procedure is changing the treatment
of its rotable spare parts to the safe harbor
method of accounting described in section
4.02 of this revenue procedure, the tax-
payer also may elect to establish general
asset accounts for the rotable spare parts
beginning in the year of change, provided
the terms and conditions in section 5.02(5)
of this revenue procedure are satisfied be-
ginning in the year of change.
.05Dispositions.
(1)In general. Under the safe harbor
method of accounting described in section
4.02 of this revenue procedure, a taxpayer
must use a method of accounting provided
in this section 4.05 for identifying the dis-
posed rotable spare parts. Any method
other than one provided in this section 4.05
(including the “net additions” method) is
not a permissible method of accounting for
dispositions.
(2)Permissible methods of identifying
disposed rotable spare parts. For purposes
of the safe harbor method of accounting
described in section 4.02 of this revenue
procedure, a taxpayer must use one of the
following methods of accounting to iden-
tify its disposed rotable spare parts:
(a) Specific identification of each
disposed rotable spare part; or
(b) A first-in, first-out method of
accounting if, in the case of rotable spare
parts that are mass assets, the total rotable
spare parts dispositions during a particular
taxable year are readily determined from
a taxpayer’s records but it is impractica-
ble for the taxpayer to maintain records
from which the taxpayer can determine the
particular taxable year in which the dis-
posed rotable spare parts were placed in
service by the taxpayer. A taxpayer using
the first-in, first-out method of accounting
under this section 4.05(2)(b) must identify
the rotable spare parts disposed of in a tax-
able year from the pool with the earliest
placed-in-service year existing at the be-
ginning of the taxable year of the disposi-
tion. For purposes of this paragraph, mass
assets are a mass or group of individual
items of depreciable property —
(i) that are not necessarily
homogeneous;
(ii) each of which is minor in
value relative to the total value of the mass
or group;
(iii) numerous in quantity;
(iv) usually accounted for
only on a total dollar or quantity basis;
(v) with respect to which sep-
arate identification is impracticable; and,
(vi) that are placed in service
by the taxpayer in the same taxable year.
SECTION 5. CHANGES IN METHOD
OF ACCOUNTING
.01In General. Any change in a tax-
payer’s treatment of rotable spare parts
pursuant to this revenue procedure is a
change in method ofaccounting to which
§ 446 and (except as otherwise provided in
this section 5) § 481, and the regulations
thereunder, apply. This section 5 applies
to a taxpayer within the scope of this rev-
enue procedure that —
(1) currently does not capitalize and
depreciate the cost of its rotable spare parts
and wants to changetothesafeharbor
method of accounting described in section
4.02 of this revenue procedure;
(2) currently treats its rotable spare
parts in accordance with sections 4.02(1),
(3), and (4) of this revenue procedure and
wants to establish rotable spare parts pools
in accordance with section 4.04(1) of this
revenue procedure;
(3) currently treats its rotable spare
parts in accordance with sections 4.02(1),
(2), and (4) of this revenue procedure and
wants to change to a method of account-
ing described in section 4.05(2) of this
revenue procedure for identifying the dis-
posed rotable spare parts; or
(4) currently treats its rotable spare
parts in accordance with sections 4.02(1)
and (4) of this revenue procedure and
wants to establish rotable spare parts pools
in accordance with section 4.04(1) of this
revenue procedure and change to a method
of accounting described in section 4.05(2)
of this revenue procedure for identifying
the disposed rotable spare parts.
.02Automatic Change. A taxpayer
within the scope of this revenue procedure
is granted the consent of the Commis-
sioner to make a change in method of
accounting described in section 5.01 of
this revenue procedure provided that the
taxpayer follows the automatic change in
method of accounting provisions in Rev.
Proc. 2002–9 (or any successor), with the
following modifications:
(1) The scope limitations in section
4.02 of Rev. Proc. 2002–9 do not apply to
a taxpayer that wants to make the change
in method of accounting for its first or
second taxable year ending on or after
December 31, 2006, provided the tax-
payer’s method of accounting for rotable
spare parts is not an issue under consider-
ation for taxable years under examination,
within the meaning of section 3.09 of Rev.
Proc. 2002–9, at the time the Form 3115,
Application for Change in Accounting
Method, is filed with the national office.
(2) For purposes of completing line 1a
of Form 3115, the designated automatic
accounting method change number for the
changes in method ofaccounting provided
in section 5.01 of this revenue procedure is
No. 109.
(3) The taxpayer must compute any
applicable § 481(a) adjustment in accor-
dance with section 5.04 of this revenue
procedure.
(4) The taxpayer must own the rotable
spare parts as of the beginning of the year
of change and must determine the adjusted
depreciable basis of the rotable spare parts
as of the beginning of the year of change in
accordance with § 167(c), § 1011(a), and
§ 1.168(b)–1(a)(3) and (a)(4). The reduc-
tions required by § 1016(a)(2) for the de-
preciation allowable for the rotable spare
parts must be determined under the method
of accounting for depreciation allowable
under section 4.03 of this revenue proce-
dure for all open and closed taxable years
prior to the year of change.
(5) If a taxpayer described in section
4.04(2) of this revenue procedure elects
to establish general asset accounts for the
rotable spare parts, the taxpayer must meet
all of the following requirements begin-
ning in the year of change:
2007–29 I.R.B.112July 16, 2007

(a) The taxpayer must consent
to, and agree to apply, all of the provi-
sions of § 1.168(i)–1 to the rotable spare
parts included in the general asset ac-
counts, beginning with the year of change.
Thus, pursuant to § 1.168(i)–1(k)(1), the
establishment of general asset accounts
beginning with the year of change is ir-
revocable and will be binding on the
taxpayer for computing taxable income
for the year of change and for all subse-
quent taxable years, except as provided
in § 1.168(i)–1(c)(1)(ii)(A), (e)(3), (g), or
(h)(1).
(b) The taxpayer must use a
method of accounting described in sec-
tion 4.05(2) of this revenue procedure for
identifying the disposed rotable spare parts
for purposes of applying § 1.168(i)–1(i).
(c) The taxpayer must group the
rotable spare parts into one or more general
asset accounts in accordance with the rules
in § 1.168(i)–1(c) and each general asset
account must include a beginning balance
for both the unadjusted depreciable basis
and the depreciation reserve of the general
asset account. The beginning balance for
the unadjusted depreciable basis of each
general asset account is equal to the sum
of the unadjusted depreciable bases as of
the beginning of the year of change for all
rotable spare parts included in that general
asset account. The beginning balance of
the depreciation reserve of each general as-
set account is equal to the portion of the ac-
cumulated depreciation component of the
net § 481(a) adjustment that is allocable to
the rotable spare parts included in that gen-
eral asset account.
.03Changes Made on a Cut-off Method.
A taxpayer making a change in method of
accounting described in section 5.01(2),
(3), or (4) of this revenue procedure must
make the change on a cut-off method.
Thus, the new method of accounting
applies to rotable spare parts placed in
service, or disposed of, by the taxpayer
beginning in the year of change.
.04ChangesMadeUsinga§481(a)
Adjustment.
(1)In general. A taxpayer making
a change in method of accounting under
section 5.01(1) of this revenue procedure
to the safe harbor method of accounting
must make the change using a § 481(a)
adjustment. As required by the Form
3115, the taxpayer must attach a summary
of the computation and an explanation of
the methodology used to determine the
§ 481(a) adjustment. To use the safe har-
bor method of accounting, the taxpayer
also must include in the required attach-
ment the amount of the taxpayer’s total
gross sales (less returns)ofrotablespare
parts and gross revenues (less returns)
from the taxpayer’s maintenance opera-
tion for the year of change and every year
of the qualifying period used to compute
the § 481(a) adjustment.
(2)Computation of § 481(a) Adjust-
ment.
(a) In computing the § 481(a)
adjustment, the taxpayer must use the
adjusted depreciable basis of the rotable
spare parts computed under the safe har-
bor method, as of the first day of the
year of change taking into account the
placed-in-service date provided for in sub-
paragraph (2)(b) of this section 5.04 and
the qualifying period described in sub-
paragraph (3) of this section 5.04.
(b) Any rotable spare parts that
were: (i) placed in service by the taxpayer
after 1986 and in a taxable year prior to the
earliest taxable year of the qualifying pe-
riod, and (ii) owned by the taxpayer as of
the beginning of the earliest taxable year
of the qualifying period, must be treated
as placed in service by the taxpayer in the
earliest taxable year of the qualifying pe-
riod. A taxpayer that does not have the
books and records to determine whether
it meets the requirements of section 4.01
of this revenue procedure in every year in
which the rotable spare parts on hand as of
the beginning of the year of change were
placed in service and in every subsequent
year prior to the year of change, must com-
pute the § 481(a) adjustment using a qual-
ifying period that can be established based
onitsbooksandrecords.
(3)Qualifying period. For purposes
of this section 5.04, a “qualifying period”
consists of the taxableyear, or consecutive
taxable years, immediately preceding the
year of change during which the taxpayer
can establish that it meets the requirements
of section 4.01 of this revenue procedure.
.05Nonautomatic Changes.Ifatax-
payer is not eligible to change to the safe
harbor method of accounting provided in
this revenue procedure, the taxpayer may
request to change its method of account-
ing for treating rotable spare parts by fil-
ing a Form 3115 with the Commissioner
in accordance with the requirements of
§ 1.446–1(e)(3)(i) and Rev. Proc. 97–27,
1997–1 C.B. 680 (as modified and ampli-
fied by Rev. Proc. 2002–19, 2002–1 C.B.
696, and amplified and clarified by Rev.
Proc. 2002–54, 2002–2 C.B. 432).
.06Requirement to Change From the
Safe Harbor Method. A taxpayer that
changes to the safe harbor method un-
der this revenue procedure and subse-
quently fails to meet the requirements of
section 4.01 of this revenue procedure
must change its method of accounting
for rotable spare parts to an appropri-
ate inventory method of accounting for
the first taxable year in which the tax-
payer becomes ineligible to use the safe
harbor method of accounting for rotable
spare parts. A taxpayer that is required
to change its method of accounting under
this section 5.06 must file a Form 3115 in
accordance with the automatic change in
method of accounting provisions of Rev.
Proc. 2002–9 (or any successor), with the
following modifications:
(1) the scope limitations in section
4.02 of Rev. Proc. 2002–9 do not apply;
and
(2) the designated automatic account-
ing method change number for changes in
method of accounting from the safe har-
bor method of accounting made pursuant
to this section 5.06 is No. 110.
SECTION 6. EFFECT ON OTHER
DOCUMENTS
.01 Rev. Proc. 2002–9 is modified
and amplified to include the accounting
method changes described in this revenue
procedure in section 3 of the APPENDIX.
.02 Section 2.01(1)(d)(xiii)(A) of the
APPENDIX of Rev. Proc. 2002–9 (as
modified by Rev. Proc. 2004–11, 2004–1
C.B. 311) is modified to read as follows:
(A) a change in inventory costs (for
example, when property is reclassified
from inventory property to depreciable
property, or vice versa) (but see section
3.02 of this APPENDIX for making a
change in method of accounting from in-
ventory property to depreciable property
for unrecoverable line pack gas or unre-
coverable cushion gas, and Rev. Proc.
2007–48, 2007–29 I.R.B. 110, for making
achangeinmethodofaccountingfrom
inventory property to depreciable property
for rotable spare parts);
July 16, 20071132007–29 I.R.B.

SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for
taxable years ending on or after December
31, 2006. The Service will not challenge
a taxpayer’s use of the safe harbor method
of accounting described in section 4.02 of
this revenue procedure in an earlier tax-
able year if the taxpayer, for that taxable
year, meets the requirements of section
4.01 of this revenue procedure. Moreover,
if a taxpayer currently uses the safe harbor
method of accounting described in section
4.02 of this revenue procedure and the use
of such method is an issue under consider-
ation (within the meaning of section 3.09
of Rev. Proc. 2002–9) in examination, be-
fore an appeals office, or before the U.S.
Tax Court and the taxpayer meets the re-
quirements of section 4.01 of this revenue
procedure for the taxable years under ex-
amination, before an appeals office, or be-
fore the U.S. Tax Court, the issue will not
be further pursued.
SECTION 8. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–2070. An agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information un-
less the collection of information displays
a valid OMB control number.
The collection of information in this
revenue procedure is in section 5.04(1).
This information is required to determine
whether the taxpayer qualifies to use the
safe harbor method of accounting. The
collection of information is required to
obtain a benefit. The likely respondents
are business or other for-profit institu-
tions. The estimated total annual reporting
and/or recordkeeping burden is 75 hours.
The estimated annual frequency of re-
sponses is 300.
Books or records relating to a collection
of information must be retained as long as
their contents may become material in the
administration of any internal revenue law.
Generally, tax returns and tax information
are confidential, as required by 26 U.S.C.
6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Gwen Turner of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, con-
tact Ms. Turner at (202) 622–5020 (not
a toll-free call). For further information
regarding the method of computing depre-
ciation for rotable spare parts, the estab-
lishment of pools or general asset accounts
for rotable spare parts, or the method of
identifying the disposed rotable spare
parts, contact Douglas Kim of the Office
of Associate Chief Counsel (Income Tax
and Accounting) at (202) 622–4930 (not a
toll-free call).
2007–29 I.R.B.114July 16, 2007

Part IV. Items of General Interest
Proposed Form 1118, Foreign
Tax Credit — Corporations
Announcement 2007–62
The Internal Revenue Service (IRS)
announces that it is requesting comments
from the public on proposed revisions
to Form 1118,“Foreign Tax Credit —
Corporations.”This Form is used by U.S.
corporate taxpayers to compute the foreign
tax credit for certain taxes paid or accrued
to foreign countries or U.S. possessions.
Form 1118 is being revised as a result of
amendments to section 904 of the Internal
Revenue Code (Code) relating to the num-
ber of separate foreigntax credit limitation
categories and the effect of overall domes-
tic losses. Attached to this announcement
is a copy of the proposed form, with
respect to which the IRS is requesting
comments from the public. The proposed
revisions have also been posted on the IRS
website, athttp://www.irs.gov/taxpros/
lists/0,,id=97782,00.html.
BACKGROUND
Section 404 of the American Jobs Cre-
ation Act of 2004, Public Law 108–357,
118 Stat. 1418 (October 22, 2004) (AJCA)
generally reduced the number of separate
categories under section 904(d) from eight
to two, effective for tax years beginning
after December 31, 2006. This provision
does not, however, affect the separate com-
putation of foreign tax credit limitations
under special provisions of the Code relat-
ing to, for example, treaty-based sourcing
rules or specified countries under section
901(j).
Section 402(a) of the AJCA added new
section 904(g), which provides for the
recharacterization of U.S. source income
as foreign source income in cases in which
a taxpayer’s foreign tax credit limitation
has been reduced in an earlier year as a re-
sult of an overall domestic loss. The new
section 904(g) provides parity in the treat-
ment of overall foreign losses and overall
domestic losses in order to mitigate the
double taxation of foreign source income.
PROPOSED REVISIONS TO FORM
1118
Form 1118 has generally been revised
to eliminate information reporting regard-
ing section 904(d) separate categories that
have been eliminated by the AJCA. In ad-
dition, several other revisions have been
made to the Form to reflect the overall
domestic loss provisions of new section
904(g). For example, a new column has
been added to Schedule A to more clearly
reflect deductions for NOL carryovers and
several other specific revisions have been
made to Schedule J.
A new column has been added to
Schedule J for U.S. source income or loss.
This column is intended to be helpful in
determining U.S. income subject to rechar-
acterization from the recapture of overall
domestic losses and otherwise tracking the
balances of overall domestic losses.
In Part I, the step for allocating current
year U.S. source losses on line 10 of the
current Schedule J is moved to line 5 and
renamed “allocation of domestic losses.”
Placing this step before the recapture of
overall foreign losses is a departure from
the ordering rules set forth in Notice 89–3,
1989–1 C.B. 623. A new step has also
been added to Part I on line 10 for the re-
capture of overall domestic losses now re-
quired under the new section 904(g). The
instructions to Schedule J will clarify that
the recapture amount is determined based
on the U.S. income subtotal from line 6,
which does not take into account the effect
of any recapture of overall foreign losses.
A new Part IV has been added to Sched-
ule J to track additions and reductions to
overall domestic loss account balances that
are needed in applying the provisions of
new section 904(g).
REQUEST FOR PUBLIC COMMENT
The IRS requests comments on the pro-
posed revisions to the current Form 1118.
The IRS is particularly interested in receiv-
ing comments on the ordering rules as re-
flected on the proposed Schedule J. Such
comments will be useful in the drafting of
proposed regulations under section 904(f)
and (g), which will include detailed order-
ing rules as well as other guidance under
these provisions.
Written comments should be sent
to: Tax Products Coordinating Com-
mittee, Internal Revenue Service,
SE:W:CAR:MP:T, Room 6406, 1111 Con-
stitution Avenue, N.W., Washington, D.C.
20224. Alternatively, comments may be
e-mailed totfpmail@publish.no.irs.gov.
Comments must be received by September
10, 2007.
The principal author of this announce-
ment is Jeffrey L. Parry of the Office of
Associate Chief Counsel (International).
However, other personnel from the Trea-
sury Department and the IRS participated
in its development. For further informa-
tion regarding this announcement, contact
Jeffrey L. Parry at (202) 622–3850 (not a
toll-free call).
July 16, 20071152007–29 I.R.B.

2007–29 I.R.B.116July 16, 2007

July 16, 20071172007–29 I.R.B.

2007–29 I.R.B.118July 16, 2007

July 16, 20071192007–29 I.R.B.

2007–29 I.R.B.120July 16, 2007

July 16, 20071212007–29 I.R.B.

2007–29 I.R.B.122July 16, 2007

July 16, 20071232007–29 I.R.B.

2007–29 I.R.B.124July 16, 2007

Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2007–64
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on July 16, 2007, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
South Carolina Benevolent Society, Inc.
Columbia, SC
Home Buyers Assistance Foundation, Inc.
Woodstock, GA
Angel Wings Cat Rescue and Sanctuary
Kingston, KY
Brian Lees Sports Spectrum
Grand Rapids, MI
July 16, 20071252007–29 I.R.B.

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.
2007–29 I.R.B.iJuly 16, 2007

Numerical Finding List
1
Bulletins 2007–27 through 2007–29
Announcements:
2007-61, 2007-28 I.R.B.84
2007-62, 2007-29 I.R.B.115
2007-64, 2007-29 I.R.B.125
Notices:
2007-54, 2007-27 I.R.B.12
2007-55, 2007-27 I.R.B.13
2007-56, 2007-27 I.R.B.15
2007-57, 2007-29 I.R.B.87
2007-58, 2007-29 I.R.B.88
Proposed Regulations:
REG-119097-05, 2007-28 I.R.B.74
REG-103842-07, 2007-28 I.R.B.79
Revenue Procedures:
2007-42, 2007-27 I.R.B.15
2007-43, 2007-27 I.R.B.26
2007-44, 2007-28 I.R.B.54
2007-45, 2007-29 I.R.B.89
2007-46, 2007-29 I.R.B.102
2007-47, 2007-29 I.R.B.108
2007-48, 2007-29 I.R.B.110
Revenue Rulings:
2007-42, 2007-28 I.R.B.44
2007-43, 2007-28 I.R.B.45
2007-44, 2007-28 I.R.B.47
2007-45, 2007-28 I.R.B.49
Treasury Decisions:
9327, 2007-28 I.R.B.50
9328, 2007-27 I.R.B.1
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin
2007–26, dated June 25, 2007.
July 16, 2007ii2007–29 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2007–27 through 2007–29
Notices:
2007-26
Modified by
Notice 2007-56, 2007-27 I.R.B.15
Revenue Procedures:
97-14
Modified and superseded by
Rev. Proc. 2007-47, 2007-29 I.R.B.108
2002-9
Modified and amplified by
Rev. Proc. 2007-48, 2007-29 I.R.B.110
2005-16
Modified by
Rev. Proc. 2007-44, 2007-28 I.R.B.54
2005-66
Clarified, modified, and superseded by
Rev. Proc. 2007-44, 2007-28 I.R.B.54
2006-25
Superseded by
Rev. Proc. 2007-42, 2007-27 I.R.B.15
2006-55
Superseded by
Rev. Proc. 2007-43, 2007-27 I.R.B.26
Revenue Rulings:
92-17
Modified by
Rev. Rul. 2007-42, 2007-28 I.R.B.44
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin 2007–26, dated June 25, 2007.
2007–29 I.R.B.iiiJuly 16, 2007

July 16, 20072007–29 I.R.B.

2007–29 I.R.B.July 16, 2007

July 16, 20072007–29 I.R.B.

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