Internal Revenue Bulletin 2009-8 (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
9-8
February 23, 200
9
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9443, page 564.
Final regulations under section 7508A of the Code relate to
postponement of certain tax-related deadlines either due to ser-
vice in a combat zone or due to a federally declared disaster.
REG–143686–07, page 579.
Proposed regulations under section 358 of the Code provide
guidance relating to the allocation and recovery of stock ba-
sis in distributions under section 301 and transactions under
sections 302, 304, 354, 355, and 356. The regulations also
provide guidance regarding qualification of a transaction under
section 368, the determination of gain under section 351(b),
and adjustments to basis in certain capital contributions.
Notice 2009–17, page 575.
This notice invites public comments regarding guidance to
be provided to brokers, transferors, issuers, customers, and
other affected persons concerning new requirements with
respect to the reporting of a customer’s basis in securities
transactions and new rules for determining the basis of certain
securities subject to the new reporting requirements. These
new requirements and rules generally begin to take effect
on January 1, 2011. Interested parties are invited to submit
comments on this notice by Monday, March 2, 2009.
EMPLOYEE PLANS
Notice 2009–16, page 572.
Weighted average interest rate update; corporate bond
indices; 30-year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in February
2009; the 24-month average segment rates; the funding
transitional segment rates applicable for February 2009; and
the minimum present value transitional rates for January 2009.
ESTATE TAX
T.D. 9443, page 564.
Final regulations under section 7508A of the Code relate to
postponement of certain tax-related deadlines either due to ser-
vice in a combat zone or due to a federally declared disaster.
GIFT TAX
T.D. 9443, page 564.
Final regulations under section 7508A of the Code relate to
postponement of certain tax-related deadlines either due to ser-
vice in a combat zone or due to a federally declared disaster.
EMPLOYMENT TAX
T.D. 9443, page 564.
Final regulations under section 7508A of the Code relate to
postponement of certain tax-related deadlines either due to ser-
vice in a combat zone or due to a federally declared disaster.
(Continued on the next page)
Announcements of Disbarments and Suspensions begin on page 598.
Fi
nding Lists begin on page ii.
Index for January through February begins on page iv.

EXCISE TAX
T.D. 9443, page 564.
Final regulations under section 7508A of the Code relate to
postponement of certain tax-related deadlines either due to ser-
vice in a combat zone or due to a federally declared disaster.
TAX CONVENTIONS
Announcement 2009–5, page 569.
This announcement provides the tax rates for various types
of income under new tax treaties with Bulgaria and Iceland
and a new protocol with Canada. The tables in this announce-
ment provide supplemental withholding tax rates and exempt
personal service income for Publication 515,Withholding of
Tax on Nonresident Aliens and Foreign Entities (For Withhold-
ing in 2008), and Publication 901,U.S. Tax Treaties (Rev. April
2008).
ADMINISTRATIVE
Notice 2009–17, page 575.
This notice invites public comments regarding guidance to
be provided to brokers, transferors, issuers, customers, and
other affected persons concerning new requirements with
respect to the reporting of a customer’s basis in securities
transactions and new rules for determining the basis of certain
securities subject to the new reporting requirements. These
new requirements and rules generally begin to take effect
on January 1, 2011. Interested parties are invited to submit
comments on this notice by Monday, March 2, 2009.
Announcement 2009–4, page 597.
This document withdraws proposed regulations
(REG–149519–03, 2004–2 C.B. 1009) under section 707 of
the Code regarding the treatment of transactions between a
partnership and its partners as disquised sales of partnership
interests between the partners under section 707(a)(2)(B).
The withdrawal affects partnerships and their partners.
February 23, 20092009–8 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d 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 Secre-
tary (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.
2009–8 I.R.B.February 23, 2009

February 23, 20092009–8 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 301.—
Distributions
of Property
A proposed reg
ulation describes that a dividend
distribution
is made pro rata with respect to the class
of stock upon w
hich the distribution is made. See
REG-143686-
07, page 579.
Section 302.—Distributions
in Redemption of Stock
26 CFR 1.302–5: Redemptions taxable as dividends.
A proposed regulation describes the timing and ef-
fect on shareholders in dividend equivalent redemp-
tions, including the treatment of unrecovered basis.
See REG-143686-07, page 579.
Section 304.—Redemption
Through Use of Related
Corporations
26 CFR 1.304–2: Acquisition by related corporation
(other than a subsidiary).
A proposed regulation describes the timing and ef-
fect on shareholders in dividend equivalent redemp-
tions involving related corporations that are not sub-
sidiaries. A proposed regulation also describes the
applicability of section 318(a) to determine control.
See REG-143686-07, page 579.
Section 351.—Transfer
to Corporation Controlled
by Transferor
26 CFR 1.351–2: Receipt of property.
A proposed regulation describes the way to allo-
cate consideration received for purposes of determin-
ing gain under section 351(b). See REG-143686-07,
page 579.
Section 354.—Exchanges
of Stock and Securities in
Certain Reorganizations
26 CFR 1.354–1: Exchanges of stock and securities
in certain reorganizations.
A proposed regulation describes the treatment of
consideration received for shares of stock or securi-
ties that are exchanged solely or partly for money or
other property. See REG-143686-07, page 579.
Section 355.—
Distribution
of Stock and Se
curities of
a Controlled C
orporation
26 CFR 1.355–1: Distribution of stock and securities
of a controlled corporation.
A proposed regulation describes that a share-
holder’s exchange of all of the shareholders shares of
stock within a class solely for cash is not an exchange
described in section 355. See REG-143686-07, page
579.
Section 356.—Receipt of
Additional Consideration
26 CFR 1.356–1: Receipt ofadditional consideration
in connecting with an exchange.
A proposed regulation describes how considera-
tion received must be allocatedif the distribution of
other property or money has the effect of a distribu-
tion of a dividend for purposes of determining gain
under section 356. See REG-143686-07, page 579.
Section 358.—Basis to
Distributees
26 CFR 1.358–2: Allocation of basis among non-
recognition property in certain exchanges or distri-
butions.
A proposed regulation describes how considera-
tion received must be allocatedif the distribution of
other property or money has the effect of a distribu-
tion of a dividend for purposes of determining basis
under section 358. A proposed regulation describes
the section 351 transactions and the manner in which
the basis in stock transferred is traced to shares re-
ceived. See REG-143686-07, page 579.
Section 368.—Definitions
Relating to Corporate
Reorganizations
26 CFR 1.368–1: Purpose and scope of exception of
reorganization exchanges.
A proposed regulation describes when the terms
of an exchange can determine whether a transaction
qualifies as a reorganization. See REG-143686-07,
page 579.
Section 1001.
—Determi-
nation of Amou
nt of and
Recognition o
fGainorLoss
26 CFR 1.1001–
6: Sales or exchanges.
A proposed reg
ulation reflects the repeal of section
1002 and desc
ribes when the terms of an exchange
can determin
e whether sections 354 or 361 (as op-
posed to sect
ion 1001) apply to an exchange. See
REG-143686-
07, page 579.
Section 7508A.—Authority
to Postpone
Certain
Deadlines by Reason of
Presidentially Declared
Disaster or Terroristic or
Military Actions
26 CFR 301.7508A–1: Postponement of certain tax-
related deadlines by reasons of a federally declared
disaster or terroristic or military action.
T.D. 9443
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Postponement of Certain
Tax-Related Deadlines by
Reason of a Federally
Declared Disaster or
Terroristic or Military Action
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulation.
SUMMARY: This document contains fi-
nal regulations relating to postponement
of certain tax-related deadlines either due
to service in a combat zone or due to a
federally declared disaster. The regula-
tions reflect changes in the law made by
the Victims of Terrorism Tax Relief Act
of 2001, the Tax Extenders and Alterna-
tive Minimum Tax Relief Act of 2008
(TEAMTRA), and current IRS practice.
The regulations affect taxpayers serving
2009–8 I.R.B.564February 23, 2009

in a combat zone and taxpayers affected
by a federally declared disaster.
DATES:Effective Date:These regulations
are effective on January 15, 2009.
Applicability Dates:For dates of appli-
cability, see §301.7508A–1(g).
FOR FURTHER INFORMATION
CONTACT: Mary Ellen Keys, (202)
622–4570 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Procedure and Administration Regula-
tions (26 CFR part 301). Section 7508A of
the Internal Revenue Code (Code) relates
to the postponement of certain tax-related
acts by reason of a federally declared dis-
aster or terroristic or military action. Sec-
tion 7508A was added by section 911(a)
of the Taxpayer Relief Act of 1997, Pub-
lic Law 105–34 (111 Stat. 788, 877–78
(1997)) (the 1997 Act), which was effec-
tive for any period for performing an act
that had not expired before December 5,
1997.
A notice of proposed rulemaking
(REG–142680–06, 2008–35 I.R.B. 565)
was published in theFederal Register
(73 FR 40471–01) on July 15, 2008. No
comments were received from the pub-
lic in response to the notice of proposed
rulemaking, and no public hearing was re-
quested or held. In this Treasury decision,
the proposed regulations are adopted as
revised.
Explanation of Revisions
Section 301.7508A–1 of these final
regulations is revised throughout to use
the term “federally declared disaster” in-
stead of the term “Presidentially declared
disaster” when referring to any disas-
ter determined by the President of the
United States to warrant assistance by the
Federal Government under the Robert T.
Stafford Disaster Relief and Emergency
Assistance Act, 42 U.S.C. §§5121,et seq.
(the “Stafford Act”). Prior versions of
these regulations and the proposed regu-
lations included the term “Presidentially
declared disaster” as defined in former
Code section 1033(h)(3). Sec. 706(a)
of TEAMTRA, Div. C of Public Law
110–343 (122 Stat. 3765, 3920), amended
Code section 1033(h)(3) by replacing the
term “Presidentially declared disaster”
with “federally declared disaster” and pro-
viding that the term shall have the meaning
given such term by section 165(h)(3)(C).
Section 165(h)(3)(C), added by section
706(a) of TEAMTRA, defines the term
“federally declared disaster” to mean any
disaster subsequently determined by the
President of the United States to warrant
assistance by the Federal Government un-
der the Stafford Act. This definition is
substantially the same as the definition of
“Presidentially declared disaster” under
former section 1033(h)(C). Thus, these
statutory changes in terminology do not
materially impact the meaning of either
the proposed or final regulations.
Section 301.7508A–1(d)(1) of the final
regulations is revised to expand the def-
inition of “affected taxpayer” to include
any individual, business entity, or sole pro-
prietorship not located in a covered dis-
aster area, but whose records necessary
to meet a deadline for an act specified
in paragraph (c) of §301.7508A–1 are lo-
cated in the covered disaster area. Sec-
tion 301.7508A–1(d)(1) of the final regu-
lations further expands the definition ofaf-
fected taxpayerto include any individual
visiting the covered disaster area who was
killed or injured as a result of the disaster.
These changes reflect current IRS practice
of broadly defining the term “affected tax-
payer.”
Section 301.7508A–1(f) of the final
regulations is revised to include a new
Example 9.Example 9, which reflects
current IRS practice,explains the impact
of disaster relief on installment agreement
payments that become due during the post-
ponement period.Example 9explains that
the affected taxpayer’s obligation to make
installment agreement payments is sus-
pended during the postponement period.
Example 9further explains that, because
installment agreement payments pertain
to pre-existing tax liabilities, interest and
penalties continue to accrue during the
postponement period.
Special Analyses
It has been determined that these final
regulations are not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. The reg-
ulations do not impose a collection of
information requirement on small busi-
ness entities, thus the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding these regulations was submitted
to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal author of these final reg-
ulations is Mary Ellen Keys of the Office
of the Associate Chief Counsel (Procedure
and Administration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7508A–1 is
amended by:
1. Revising the section heading and
paragraphs (b), (d)(1)(vii), (d)(2), and (e).
2. Adding paragraphs (d)(1)(viii) and
(d)(1)(ix), and (d)(3).
3. Removing paragraph (f), redesignat-
ing paragraphs (g) and (h) as paragraphs (f)
and (g), respectively, and revising them.
The revisions and additions read as fol-
lows:
§301.7508A–1 Postponement of certain
tax-related deadlines by reasons of a
federally declared disaster or terroristic
or military action.
*****
(b)Postponed deadlines—(1)In gen-
eral. In the case of a taxpayer determined
by the Secretary to be affected by a feder-
ally declared disaster (as defined in section
February 23, 20095652009–8 I.R.B.

1033(h)(3)) or a terroristic or military ac-
tion (as defined in section 692(c)(2)), the
Secretary may specifya postponement pe-
riod (as defined in paragraph (d)(1) of this
section) of up to one year that may be dis-
regarded in determining under the internal
revenue laws, in respect of any tax liabil-
ity of the affected taxpayer (as defined in
paragraph (d)(1) of this section)—
(i) Whether any or all of the acts de-
scribed in paragraph (c) of this section
were performed within the time pre-
scribed;
(ii) The amount of interest, penalty, ad-
ditional amount, or addition to the tax; and
(iii) The amount of credit or refund.
(2)Effect of postponement period.
When an affected taxpayer is required to
perform a tax-related act by a due date
that falls within the postponement period,
the affected taxpayer is eligible for post-
ponement of time to perform the act until
the last day of the period. The affected
taxpayer is eligible for relief from interest,
penalties, additional amounts, or additions
to tax during the postponement period.
(3)Interaction between postponement
period and extensions of time to file or
pay—(i)In general. The postponement
period under section 7508A runs concur-
rently with extensions of time to file and
pay, if any, under other sections of the In-
ternal Revenue Code.
(ii)Original due date prior to, but ex-
tended due date within, the postponement
period. When the original due date pre-
cedes the first day of the postponement
period and the extended due date falls
within the postponement period, the fol-
lowing rules apply. If an affected taxpayer
received an extension of time to file, filing
will be timely on or before the last day
of the postponement period, and the tax-
payer is eligible for relief from penalties
or additions to tax related to the failure
to file during the postponement period.
Similarly, if an affected taxpayer received
an extension of time to pay, payment will
be timely on or before the last day of the
postponement period, and the taxpayer is
eligible for relief from interest, penalties,
additions to tax, or additional amounts
related to the failure to pay during the
postponement period.
(4)Duedatenotextended. The post-
ponement of the deadline of a tax-related
act does not extend the due date for the act,
but merely allows the IRS to disregard a
time period of up to one year for perfor-
mance of the act. To the extent that other
statutes may rely on the date a return is due
to be filed, the postponement period will
not change the due date of the return.
(5)Additional relief.Therulesofthis
paragraph (b) demonstrate how the IRS
generally implements section 7508A. The
IRS may determine, however, that addi-
tional relief to taxpayers is appropriate and
may provide additional relief to the extent
allowed under section 7508A. To the ex-
tent that the IRS grantsadditional relief,
the IRS will provide specific guidance on
the scope of relief in the manner provided
in paragraph (e) of this section.
*****
(d)***(1)***
(vii) Any individual, business entity, or
sole proprietorship not located in a covered
disaster area, but whose records necessary
to meet a deadline for an act specified in
paragraph (c) of this section are located in
the covered disaster area;
(viii) Any individual visiting the cov-
ered disaster area who was killed or injured
as a result of the disaster; or
(ix) Any other person determined by
the IRS to be affected by a federally de-
clared disaster (within the meaning of sec-
tion 1033(h)(3)).
(2)Covered disaster areameans an area
of a federally declared disaster (within the
meaning of section 1033(h)(3)) to which
the IRS has determined paragraph (b) of
this section applies.
(3)Postponement periodmeans the pe-
riod of time (up to one year) that the IRS
postpones deadlines for performing tax-re-
lated acts under section 7508A.
(e)Notice of postponement of certain
acts. If a tax-related deadline is post-
poned under section 7508A and this sec-
tion, the IRS will publish a revenue rul-
ing, revenue procedure, notice, announce-
ment, news release, or other guidance (see
§601.601(d)(2) of this chapter) describing
the acts postponed, the postponement pe-
riod, and the location of the covered dis-
aster area. Guidance under this paragraph
(e) will be published as soon as practicable
after the occurrence ofa terroristic or mili-
tary action or declaration of a federally de-
clared disaster.
(f)Examples. Therulesofthissection
are illustrated by the following examples:
Example 1. (i) Corporation X, a calendar year
taxpayer, has its principal place of business in County
M in State W. Pursuant to a timely filed request for
extension of time to file, Corporation X’s 2008 Form
1120,“U.S. Corporation Income Tax Return,”is due
on September 15, 2009. Also due on September
15, 2009, is Corporation X’s third quarter estimated
tax payment for 2009. Corporation X’s 2009 third
quarter Form 720,“Quarterly Federal Excise Tax
Return,”and third quarter Form 941,“Employer’s
QUARTERLY Federal Tax Return,”are due on Oc-
tober 31, 2009. In addition, Corporation X has an
employment tax deposit due on September 15, 2009.
(ii) On September 1, 2009, a hurricane strikes
County M in State W. On September 7, 2009, certain
counties in State W (including County M) are deter-
mined to be disaster areas within the meaning of sec-
tion 1033(h)(3) that are eligible for assistance by the
Federal government under the Stafford Act. Also on
September 7, 2009, the IRS determines that County
M in State W is a covered disaster area and publishes
guidance announcing that the time period for affected
taxpayers to file returns, pay taxes, and perform other
time-sensitive acts falling on or after September 1,
2009, and on or before November 30, 2009, has been
postponed to November 30, 2009, pursuant to section
7508A.
(iii) Because Corporation X’s principal place of
business is in County M, Corporation X is an affected
taxpayer. Accordingly, Corporation X’s 2008 Form
1120 will be timely if filed on or before November
30, 2009. Corporation X’s 2009 third quarter esti-
mated tax payment will be timely if made on or before
November 30, 2009. In addition, pursuant to para-
graph (c) of this section, Corporation X’s 2009 third
quarter Form 720 and third quarter Form 941 will be
timely if filed on or before November 30, 2009. How-
ever, because deposits of taxes are excluded from the
scope of paragraph (c) of this section, Corporation
X’s employment tax deposit is due on September 15,
2009. In addition, Corporation X’s deposits relating
to the third quarter Form 720 are not postponed. Ab-
sent reasonable cause, Corporation X is subject to the
failure to deposit penalty under section 6656 and ac-
crual of interest.
Example 2.ThefactsarethesameasinExample
1, except that because of the severity of the hurricane,
the IRS determines that postponement of government
acts is necessary. During 2009, Corporation X’s 2005
Form 1120 is being examined by the IRS. Pursuant
to a timely filed request for extension of time to file,
Corporation X timely filed its 2005 Form 1120 on
September 15, 2006. Without application of this sec-
tion, the statute of limitation on assessment for the
2005 income tax year will expire on September 15,
2009. However, pursuant to paragraph (c) of this sec-
tion, assessment of tax is one of the government acts
for which up to one year may be disregarded. Be-
cause September 15, 2009, falls within the period in
which government acts are postponed, the statute of
limitation on assessment for Corporation X’s 2005 in-
come tax will expire on November 30, 2009. Because
Corporation X did not timely file an extension of time
to pay, payment of its 2005 income tax was due on
March 15, 2006. As such, Corporation X will be sub-
ject to the failure to pay penalty and related interest
beginning on March 15, 2006. The due date for pay-
ment of Corporation X’s 2005 income tax preceded
the postponement period. Therefore, Corporation X
is not entitled to the suspension of interest or penal-
2009–8 I.R.B.566February 23, 2009

ties during the disaster period with respect to its 2005
income tax liability.
Example 3. ThefactsarethesameasinExam-
ple 2, except that the examination of the 2005 taxable
year was completed earlier in 2009, and on July 28,
2009, the IRS mailed a statutory notice of deficiency
to Corporation X. Without application of this section,
Corporation X has 90 days (or until October 26, 2009)
to file a petition with the Tax Court. However, pur-
suant to paragraph (c) of this section, filing a peti-
tion with the Tax Court is one of the taxpayer acts for
which a period of up to one year may be disregarded.
Because Corporation X is an affected taxpayer, Cor-
poration X’s petition to the Tax Court will be timely
if filed on or before November 30, 2009, the last day
of the postponement period.
Example 4. (i) H and W, individual calendar year
taxpayers, intend to file a joint Form 1040,“U.S. In-
dividual Income Tax Return,”for the 2008 taxable
year and are required to file a Schedule H,“House-
hold Employment Taxes.”The joint return is due on
April 15, 2009. H and W’s principal residence is in
County M in State Q.
(ii) On April 2, 2009, a severe ice storm strikes
County M. On April 5, 2009, certain counties in State
Q (including County M) are determined to be disaster
areas within the meaning of section 1033(h)(3) that
are eligible for assistance by the Federal government
under the Stafford Act. Also on April 5, 2009, the IRS
determines that County M in State Q is a covered dis-
aster area and publishes guidance announcing that the
time period for affected taxpayers to file returns, pay
taxes, and perform other time-sensitive acts falling on
or after April 2, 2009, and on or before June 2, 2009,
has been postponed to June 2, 2009.
(iii) Because H and W’s principal residence is in
County M, H and W are affected taxpayers. April 15,
2009, the due date for the filing of H and W’s 2008
Form 1040 and Schedule H, falls within the postpone-
ment period described in the IRS published guidance.
Thus, H and W’s return will be timely if filed on or
before June 2, 2009. If H and W request an extension
of time to file under section 6081 on or before June
2, 2009, the extension is deemed to have been filed
by April 15, 2009. Thus, H and W’s return will be
timely if filed on or before October 15, 2009.
(iv) April 15, 2009, is also the due date for the
payment due on the return. This date falls within the
postponement period described in the IRS published
guidance. Thus, the payment of tax due with the re-
turn will be timely if paid on or before June 2, 2009,
the last day of the postponement period. If H and W
fail to pay the tax due on the 2008 Form 1040 by June
2, 2009, and do not receive an extension of time to
pay under section 6161, H and W will be subject to
failure to pay penalties and accrual of interest begin-
ning on June 3, 2009.
Example 5. (i) H and W, residents of County D in
StateG,intendtofileanamendedreturntorequesta
refund of 2008 taxes. H and W timely filed their 2008
income tax return on April 15, 2009. Under section
6511(a), H and W’s amended 2008 tax return must be
filed on or before April 16, 2012 (because April 15,
2012, falls on a Sunday, H and W’s amended return
was due to be filed on April 16, 2012).
(ii) On April 2, 2012, an earthquake strikes
County D. On April 6, 2012, certain counties in State
G (including County D) are determined to be disaster
areas within the meaning of section 1033(h)(3) that
are eligible for assistance by the Federal government
under the Stafford Act. Also on April 6, 2012, the
IRS determines that County D in State G is a covered
disaster area and publishes guidance announcing that
the time period for affected taxpayers to file returns,
pay taxes, and perform other time-sensitive acts
falling on or after April 2, 2012, and on or before
October 2, 2012, has been postponed to October 2,
2012.
(iii) Under paragraph (c) of this section, filing a
claim for refund of tax is one of the taxpayer acts for
which the IRS may disregard a period of up to one
year. The postponement period for this disaster be-
gins on April 2, 2012, and ends on October 2, 2012.
Accordingly, H and W’s claim for refund for 2008
taxes will be timely if filed on or before October 2,
2012. Moreover, in applying the lookback period in
section 6511(b)(2)(A), which limits the amount of the
allowable refund, the period from October 2, 2012,
back to April 2, 2012, is disregarded under para-
graph (b)(1)(iii) of this section. Thus, if the claim is
filed on or before October 2, 2012, amounts deemed
paid on April 15, 2009, under section 6513(b), such
as estimated tax and tax withheld from wages, will
have been paid within the lookback period of section
6511(b)(2)(A).
Example 6. (i) A is an unmarried, calendar year
taxpayer whose principal residence is located in
County W in State Q. A intends to file a Form 1040
for the 2008 taxable year. The return is due on April
15, 2009. A timely files Form 4868,“Application for
Automatic Extension of Time To File U.S. Individual
Income Tax Return.”Due to A’s timely filing of
Form 4868, the extended filing deadline for A’s 2008
tax return is October 15, 2009. Because A timely
requested an extension of time to file, A will not be
subject to the failure to file penalty under section
6651(a)(1), if A files the 2008 Form 1040 on or
before October 15, 2009. However, A failed to pay
the tax due on the return by April 15, 2009, and did
not receive an extension of time to pay under section
6161. Absent reasonable cause, A is subject to the
failure to pay penalty under section 6651(a)(2) and
accrual of interest.
(ii) On September 30, 2009, a blizzard strikes
County W. On October 5, 2009, certain counties
in State Q (including County W) are determined
to be disaster areas within the meaning of section
1033(h)(3) that are eligible for assistance by the
Federal government under the Stafford Act. Also on
October 5, 2009, the IRS determines that County W
in State Q is a covered disaster area and announces
that the time period for affected taxpayers to file
returns, pay taxes, and perform other time-sensitive
acts falling on or after September 30, 2009, and on
or before December 2, 2009, has been postponed to
December 2, 2009.
(iii) Because A’s principal residence is in County
W, A is an affected taxpayer. Because October 15,
2009, the extended due date to file A’s 2008 Form
1040, falls within the postponement period described
in the IRS’s published guidance, A’s return is timely
if filed on or before December 2, 2009. However, the
payment due date, April 15, 2009, preceded the post-
ponement period. Thus, A will continue to be subject
to failure to pay penalties and accrual of interest dur-
ing the postponement period.
Example 7. (i) H and W, individual calendar year
taxpayers, intend to file a joint Form 1040 for the
2008 taxable year. The joint return is due on April
15, 2009. After credits for taxes withheld on wages
and estimated tax payments, H and W owe tax for the
2008 taxable year. H and W’s principal residence is
in County J in State W.
(ii) On March 3, 2009, severe flooding strikes
County J. On March 6, 2009, certain counties in State
W (including County J) are determined to be disaster
areas within the meaning of section 1033(h)(3) that
are eligible for assistanceby the Federal government
under the Stafford Act. Also on March 6, 2009, the
IRS determines that County J in State W is a cov-
ered disaster area and publishes guidance announcing
that the time period for affected taxpayers to file re-
turns, pay taxes, and perform other time-sensitive acts
falling on or after March 3, 2009, and on or before
June 1, 2009, has been postponed to June 1, 2009.
(iii) Because H and W’s principal residence is in
County J, H and W are affected taxpayers. April 15,
2009, the due date for filing the 2008 joint return, falls
within the postponement period described in the IRS
published guidance. Therefore, H and W’s joint re-
turn without extension will be timely if filed on or
before June 1, 2009. Similarly, H and W’s 2008 in-
come taxes will be timely paid if paid on or before
June 1, 2009.
(iv) On April 30, 2009, H and W timely file Form
4868,“Application for Automatic Extension of Time
To File U.S. Individual Income Tax Return.”Hand
W’s extension will be deemed to have been filed on
April 15, 2009. Thus, H and W’s 2008 income tax
return will be timely if filed on or before October 15,
2009.
(v) H and W did not request or receive an exten-
sion of time to pay. Therefore, the payment of tax due
with the 2008 joint return will be timely if paid on or
before June 1, 2009. If H and W fail to pay the tax
due on the 2008 joint return by June 1, 2009, H and
W will be subject to failure to pay penalties and ac-
crual of interest beginning on June 2, 2009.
Example 8. ThefactsarethesameasinExam-
ple 7except that H and W file the joint 2008 re-
turn and pay the tax due on April 15, 2009. Later,
H and W discover additional deductions that would
lower their taxable income for 2008. On June 1,
2012, H and W file a claim for refund under sec-
tion 6511(a). The amount of H and W’s overpay-
ment exceeds the amount of taxes paid on April 15,
2009. Section 6511(a) generally requires that a claim
for refund be filed within three years from the time
the return was filed or two years from the time the
tax was paid, whichever period expires later. Sec-
tion 6511(b)(2)(A) includes within the lookback pe-
riod the period of an extension of time to file. Thus,
payments that H and W made on or after June 1, 2009,
would be eligible to be refunded. Because the pe-
riod from April 15, 2009, to June 1, 2009, is disre-
garded, the payments H and W made on April 15,
2009 (including withholding or estimated tax pay-
ments deemed to have been made on April 15, 2009)
would also be included in the section 6511(b)(2)(A)
lookback period. Thus, H and W are entitled to a full
refund in the amount of their overpayment.
Example 9. (i) H and W, individual calendar year
taxpayers, entered into an installment agreement with
respect to their 2006 tax liabilities. H and W’s install-
ment agreement required H and W to make regularly
scheduled installment payments on the 15
th
day of the
February 23, 20095672009–8 I.R.B.

month for the next 60 months. H and W’s principal
residence is in County K in State X.
(ii) On May 1, 2009, severe flooding strikes
County K. On May 5, 2009, certain counties in State
X including County K) are determined by the Federal
government to be disaster areas within the meaning
of section 1033(h)(3), and are eligible for assistance
under the Stafford Act. Also on May 5, 2009, the
IRS determines that County K in State X is a covered
disaster area and publishes guidance announcing
that the time period for affected taxpayers to file
returns, pay taxes, and perform other time-sensitive
acts falling on or after May 1, 2009, and on or before
July 1, 2009, has been postponed to July 1, 2009.
(iii) Because H and W’s principal residence is
in County K, H and W are affected taxpayers. Pur-
suant to the IRS’s grant of relief under section 7508A,
H and W’s installment agreement payments that be-
come due during the postponement period are sus-
pended until after the postponement period has ended.
H and W will be required to resume payments no
later than August 15, 2009. Skipped payments will
be tacked on at the end of the installment payment
period. Because the installment agreement pertains
to prior year tax liabilities, interest and penalties will
continue to accrue. H and W may, however, be en-
titled to abatement of the failure to pay penalties in-
curred during the postponement period upon estab-
lishing reasonable cause.
(g)Effective/applicability date.This
section applies to disasters declared after
January 15, 2009.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved January 6, 2009.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on January 14,
2009, 8:45 a.m., and published in the issue of the Federal
Register for January 15, 2009, 74 F.R. 2370)
2009–8 I.R.B.568February 23, 2009

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
Supplemental Tables of
Income Tax Rates Under New
Income Tax Conventions
Announcement 2009–5
The United States recently exchanged
instruments of ratification for new income
tax treaties with Bulgaria and Iceland and a
new protocol to the income tax treaty with
Canada. The effective dates are as follows:
Bulgaria.The provisions for withhold-
ing tax at source are effective for amounts
paid or credited on or after January 1,
2009. For other taxes, the treaty is effec-
tive for tax periods beginning on or after
January 1, 2009.
Canada.The provisions for withhold-
ing tax at source are generally effective for
amounts paid or credited on or after Feb-
ruary 1, 2009. For other taxes, the proto-
col is effective for tax periods beginning
on or after January 1, 2009. Certain pro-
visions, none of which are discussed in
this announcement, have different effec-
tive dates.
Iceland.The provisions for withhold-
ing tax at source are effective for amounts
derivedonorafterJanuary1,2009. For
other taxes, the new treaty is effective for
tax years beginning on or after January 1,
2009.
An individual who was otherwise en-
titled to benefits under Article 21 (Teach-
ers) of the former treaty can continue to ap-
ply those provisions. A person entitled to
benefits under the former treaty can elect
to have that treaty apply in its entirety for
a twelve-month period following the date
the new treaty would otherwise apply.
Tables 1 and 2.The following tables
can be used to supplement Tables 1 and
2 in Publication 515,Withholding of Tax
on Nonresident Aliens and Foreign Entities
(For Withholding in 2008), and Publication
901, U.S. Tax Treaties.The footnotes in
those publications that relate to the column
headings in these tables generally apply to
these entries. These tables are intended
only as a summary, and the full text of
the relevant income tax treaty and protocol
should be consulted.
The complete texts of the Bulgaria and
Iceland treaties and the Canada proto-
col are available on the IRS website at
www.irs.gov.
Table 1. Withholding Tax Rates on Income Other Than Personal Service Income
Income code number
1236
7
9 101112131421
Country/Code
BulgariaBU
5
a,b,c
5
a,b,c,d
5
a,b,c
10
a,c,e
5
a,c,e
0
a
5
a
5
a
5
a
30 0
f,g
30
CanadaCA0
a,b,k
0
a,b,d,k
0
a,b,k
15
a,e,
5
a,e
0
i
0
a
10
a
0
a
30
15
0
IcelandIC0
a,j
0
a,d,j
0
a,j
15
a,c,e
5
a,c,e
0
a
0
a,h
5
a
0
a
30 0
g
30
IncomeCodes
1 Interest paid by U.S. obligors —General10 Industrial royalties
2 Interest on real property mortgages11 Copyright royalties — Motion pictures and Television
3 Interest paid to controlling foreign corporations12 Copyright royalties — Other
6 Dividends paid by U.S. corporations — General13 Real property income and Natural resources royalties
7 Dividends qualifying for direct dividend rate14 Pensions and annuities
9 Capital gains21 Social security payments
F
ootnotes
aThe exemption or reduction in rate does not apply if the recipient has a permanent establishment in the United States
and the income paid is attributable to this permanent establishment.
b
The rate is 10% (15% for Canada)for contingent interest that does not qualifyas portfolio interest. Generally, this is
interest based on receipts, sales, income, or changes in the value of property.
cAmounts paid to a pension fund that are not derived from the carrying on of a business by the pension fund are
exempt. For Bulgaria, interest paid to a financial institution is exempt.
dThe exemp
tion or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage
investme
nt conduit (REMIC).
February 23, 20095692009–8 I.R.B.

eThe rate in column 6 applies to dividends paid by a regulated investment company (RIC) or real estate investment
trust (REIT). However, that rate applies to dividends paidby a REIT only if the beneficial owner of the dividends is
(a) an individual (and for Bulgaria, a pension fund) holding not more than a 10% interest in the REIT, (b) a person
holding not more than 5% of any class of the REIT’s stock andthe dividends are paid on stock that is publicly traded,
or (c) a person holding not more than a 10% interest in the REIT and the REIT is diversified. For Bulgaria, dividends
paid to pension fund from a RIC, or a REIT that meets the above conditions, are exempt.
fIncludes alimony.
gA 30% rate applies to U.S. government pensions (federal,state, or local); however, pensions paid to an individual
who is both a resident and national of thetreaty country are exempt from U.S. tax.
h
The rate is 5% for trademarks and any information for rentals of industrial, commercial, or scientific equipment.
iGenerally, if the property was owned by the Canadian resident on September 26, 1980, not as part of the business
property of a permanent establishment in the U.S., the taxable gain is limited to the appreciation after 1984. Capital
gains on personal property not belonging to a permanent establishment of the taxpayer in the U.S. are exempt.
j
The rate is 15% for interest determined with reference to (a) receipts, sales, income, profits or other cash flow of the
debtor or a related person, (b) any change in the value of any property of the debtor or a related person, or (c) any
dividend, partnership distribution, or similar payment made by the debtor or related person.
kIf the payor and the beneficial owner are related, the rate for interest paid or credited in 2009 is 4%.
Table 2. Com
pensation for Personal Services Performed in United States Exempt from Withholding and U.S. Income Tax
Under Inco
me Tax Treaties
Category of personal
services
Maximum
presence in
U.S.
Required Employer
or Payer
Maximum
Amount of
Compensation
Article
No.
CountryCodePurpose
Bulgaria16Independe
nt personal
services
1
No limitAny contra
ctor
No limit7
17Dependent
personal
services
4,5
183 daysAny foreig
n resident
No limit14
20Public ent
ertainment
No limitAny U.S. or
foreign
resident
$15,000 p.a.
6
16
18Teaching
2
2 yearsU.S. educa
tional or
research i
nstitution
No limit19(2)
19Studying a
nd training:
8
Remittanc
es
or
allowance
s
No limit
3
Any foreig
n resident
No limit19(1)(a)
Compensati
on
during stud
y
or training
No limit
3
Any U.S. or f
oreign
resident
9
$9,000 p.a.
19(1)(b)
2009–8 I.R.B.570February 23, 2009

Category of personal
services
Maximum
presence in
U.S.
Required Employer
or Payer
Maximum
Amount of
Compensation
Article
No.
CountryCodePurpose
Canada16Independent personal
services
1
No limitAny contractorNo limitVII
20Public entertainmentNo limitAny contractor
$15,000 p.a.
6
XVI
17Dependent personal
services
No limitAny U.S. or foreign
resident
$10,000
XV
183 daysAny foreign resident
5
No limit
7
XV
20Public entertainmentNo limitAny U.S. or foreign
resident
$15,000 p.a.
6
XVI
19Studying and training:
Remittances
or
allowances
8
No limit
3
Any foreign resident No limitXX
Iceland
15
Scholarship or fellowship
grant
5 years
Any U.S. or foreign
resident
10
No limit19(1)
16Independent personal
services
1
No limitAny contractorNo limit7
17Dependent personal
services
4,5
183 daysAny foreign resident No limit14
20Public entertainmentNo limitAny U.S. or foreign
resident
$20,000 p.a.
6
16
19Studying and training:
Remittances
or
allowances
5 yearsAny foreign resident No limit19(1)
Compensation during
study or training
5 years
Any U.S. or foreign
resident
$9,000 p.a.
19(1)
Compensation while
gaining experience
12 consec.
mo.
Any U.S. or foreign
resident
9
$9,000
19(2)
Compensation under
U.S. Government
program
1 yearU.S. Government or
its contractor
$9,000
19(3)
Footnotes
1The exemption does not apply to any amounts attributable to a permanent establishment in the United States.
2Does not apply to income from researchwork primarily forprivate benefit.
3Exemption applies to a business apprentice (trainee) only for a period not exceeding 2 years (1 year for Canada) from the
date of arrival in the United States.
4The exemption does not apply to fees paid to a director of a U.S. corporation.
5
The exemption does not apply if the employee’s compensation is borne by a permanent establishment that the employer
has in the United States.
6The exemption d
oes not apply if gross receipts (including reimbursements) exceed this amount during the year.
7Does not apply to compensation paid to public entertainers.
8Applies only to full-time student or trainee.
9Applies only if training or experience is received from a person other than the alien’s employer.
10 Grant must be from nonprofit organization.
February 23, 20095712009–8 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2009–16
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the corpo-
rate bond monthly yield curve (and the
corresponding spot segment rates), the
24-month average segment rates, and
the funding transitional segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections412(b)(5)(B)(ii)and
412(l)(7)(C)(i), as amended by the Pen-
sion Funding Equity Act of 2004 and by
the Pension Protection Act of 2006 (PPA),
provide that the interest rates used to cal-
culate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the rates
of interest on amounts invested conser-
vatively in long term investment grade
corporate bonds during the 4-year period
ending on the last day before the beginning
of the plan year.
Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
January 2009 is 6.47 percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
February20096.32
5.69
6.32
YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,
105, and 106 of PPA), § 430 of the Code
specifies the minimum funding require-
ments that apply to single employer plans
pursuant to § 412. Section 430(h)(2) spec-
ifies the interest rates that must be used
to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined us-
ing three 24-month average interest rates
(“segment rates”), each of which applies
to cash flows during specified periods.
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates. For
plan years beginning in 2008 and 2009, a
transitional rule under § 430(h)(2)(G) pro-
vides that the segment rates are blended
with the corporate bond weighted average
as specified above. An election may be
made under § 430(h)(2)(G)(iv) to use the
segment rates without applying the transi-
tional rule.
Notice 2007–81, 2007–44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, the
24-month average corporate bond seg-
ment rates, and the funding transitional
segment rates used to compute the tar-
get normal cost and the funding target.
Pursuant to Notice 2007–81, the monthly
corporate bond yield curve derived from
January 2009 data is in Table I at the end
of this notice. The spot first, second, and
third segment rates for the month of Jan-
uary 2009 are, respectively, 5.20, 6.80,
and 6.31. The three 24-month average
corporate bond segment rates applicable
for February 2009 under the election of
§ 430(h)(2)(G)(iv) are as follows:
First
Segment
Second
Segment
Third
Segment
5.31
6.496.69
2009–8 I.R.B.572February 23, 2009

The transitional segment rates under
§ 430(h)(2)(G) applicable for February
2009, taking into account the corporate
bond weighted average of 6.32 stated
above, are as follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
2008
5.98
6.386.44
2009
5.65
6.43
6.57
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
ble interest rate for a month is the annual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for January 2009 is 3.13 percent.
The Service has determined this rate as the
monthly average of the daily determina-
tion of yield on the 30-year Treasury bond
maturing in May 2038.
Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B)specifies a minimum
amount for the full-funding limitation
described in section 431(c)(6)(A), based
on the plan’s current liability. Section
431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 percent
below the weighted average of the rates of
interest on 30-year Treasury securities dur-
ing the four-year period ending on the last
day before the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The following rates
were determined for plan years beginning
in the month shown below.
For Plan Years
Beginning inPermissible Range
MonthYear
30-Year
Treasury
Weighted
Average
90%to
105%
February2009
4.54
4.094.77
MINIMUM PR
ESENT VALUE
SEGMENT RA
TES
Generally
for plan years beginning af-
ter Decem
ber 31, 2007, the applicable in-
terest ra
tes under § 417(e)(3)(D) are seg-
ment rate
s computed without regard to a
24-month a
verage. For plan years begin-
ning in 200
8 through 2011, the applica-
ble intere
st rate is the monthly spot seg-
ment rate b
lended with the applicable rate
under § 41
7(e)(3)(A)(ii)(II) as in effect
for plan y
ears beginning in 2007. Notice
2007–81 p
rovides guidelines for determin-
ing the min
imum present value segment
rates. Pur
suant to that notice, the min-
imum prese
nt value transitional segment
rates dete
rmined for January 2009, tak-
ingintoa
ccount the January 2009 30-year
Treasury
rate of 3.13 stated above, are as
follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
2008
3.54
3.863.77
20093.964.604.40
DRAFTING INFORMATION
The principal author of this notice is
Tony Montanaro of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. Mr. Montanaro may be e-mailed at
RetirementPlanQuestions@irs.gov.
February 23, 20095732009–8 I.R.B.

Table I
Monthly Yield Curve for January 2009
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
3.90
20.5
6.76
40.5
6.26
60.5
6.11
80.5
6.03
1.04.3821.06.7341.0
6.25
61.06.1181.06.03
1.5
4.79
21.56.7141.56.2561.56.1081.56.03
2.0
5.11
22.06.6842.06.2462.06.1082.06.03
2.55.3422.5
6.66
42.5
6.24
62.5
6.10
82.5
6.03
3.05.4923.06.6443.06.2363.06.1083.06.02
3.55.6123.5
6.61
43.5
6.23
63.5
6.09
83.5
6.02
4.0
5.70
24.06.5944.06.2264.0
6.09
84.06.02
4.55.8024.56.5744.56.2264.5
6.09
84.56.02
5.0
5.90
25.06.5645.0
6.21
65.0
6.09
85.0
6.02
5.5
6.00
25.56.5445.5
6.21
65.5
6.08
85.5
6.02
6.06.1126.0
6.52
46.06.2066.06.0886.06.02
6.5
6.22
26.56.5146.5
6.20
66.5
6.08
86.5
6.02
7.06.3327.0
6.49
47.06.2067.06.0887.06.01
7.56.4427.56.4847.5
6.19
67.56.0887.56.01
8.0
6.54
28.06.4748.06.1968.06.0788.06.01
8.5
6.64
28.56.4548.5
6.18
68.5
6.07
88.5
6.01
9.0
6.72
29.0
6.44
49.0
6.18
69.0
6.07
89.0
6.01
9.56.8029.56.4349.56.1869.56.0789.56.01
10.06.8730.06.42
50.0
6.1770.06.07
90.0
6.01
10.5
6.92
30.56.4150.56.1770.56.0690.56.01
11.06.9731.06.40
51.0
6.1671.06.0691.06.00
11.5
7.01
31.5
6.39
51.5
6.16
71.5
6.0691.56.00
12.07.0332.06.38
52.0
6.1672.06.06
92.0
6.00
12.57.0532.5
6.37
52.56.1572.5
6.0692.56.00
13.07.0633.06.36
53.06.15
73.06.06
93.0
6.00
13.57.0733.56.3653.56.1573.56.0593.56.00
14.07.0634.0
6.3554.0
6.1474.0
6.05
94.06.00
14.5
7.06
34.5
6.34
54.5
6.14
74.56.05
94.56.00
15.0
7.04
35.0
6.33
55.0
6.14
75.06.05
95.06.00
15.5
7.02
35.5
6.32
55.5
6.14
75.56.05
95.56.00
16.07.0036.06.32
56.0
6.1376.06.04
96.0
5.99
16.5
6.98
36.56.3156.56.1376.56.0496.55.99
17.06.9537.06.30
57.0
6.1377.06.0497.05.99
17.5
6.93
37.5
6.30
57.5
6.12
77.5
6.0497.55.99
18.0
6.90
38.0
6.29
58.0
6.1278.06.04
98.0
5.99
18.5
6.87
38.5
6.28
58.5
6.12
78.5
6.0498.55.99
19.0
6.84
39.0
6.2859.06.12
79.0
6.04
99.0
5.99
19.56.8139.56.2759.56.1179.56.0399.55.99
20.0
6.79
40.06.2760.06.1180.06.03100.05.99
2009–8 I.R.B.574February 23, 2009

Information Reporting of
Customer’s Basis in Securities
Transactions
Notice 2009–17
PURPOSE
This notice invites public comments re-
garding guidance to be provided to bro-
kers, transferors, issuers, customers, and
other affected persons concerning new re-
quirements with respect to the reporting
of a customer’s basis in securities trans-
actions. The new reporting requirements
are in sections 6045(g) and (h), 6045A,
and 6045B of the Internal Revenue Code,
which were added by section 403 of the
Energy Improvement and Extension Act of
2008, Div. B of Pub. L. No. 110–343, 122
Stat. 3765 (the Act). This portion of the
Act also amended section 1012 to provide
new rules for determining the basis of cer-
tain securities subject to the new reporting
requirements. The new reporting require-
ments and basis rules generally begin to
take effect on January 1, 2011.
The Department of the Treasury and In-
ternal Revenue Service propose to issue
guidance on compliance with the new re-
porting requirements and basis rules. To
assist them in drafting guidance under the
new provisions, they are requesting com-
ments from all affected persons.
BACKGROUND
Section 6045(a) requires brokers to file
with the Service annual information re-
turns showing the gross proceeds realized
by customers from various sales transac-
tions. Under new section 6045(g), every
broker that is required to file a return under
section 6045(a) from the sale of a covered
security must include in the return the cus-
tomer’s adjusted basis in the security and
whether any gain or loss with respect to
that security is long-term or short-term.
Section 6045(g)(3)(A) provides that a
“covered security” is any specified secu-
rity acquired on or after the applicable date
if the security (1) was acquired through a
transaction in the account of which the se-
curity was held, or (2) was transferred to
that account from an account in which the
security was a covered security, but only
if the transferee broker received a state-
ment under section 6045A (described be-
low) with respect to the transfer. Section
6045(g)(3)(B) provides that a “specified
security” is: (1) any share of stock in a
corporation (including stock of a regulated
investment company); (2) any note, bond,
debenture, or other evidence of indebted-
ness; (3) any commodity, or a contract or a
derivative with respect to the commodity,
if the Secretary determines that adjusted
basis reporting is appropriate; and (4) any
other financial instrument with respect to
which the Secretary determines that ad-
justed basis reporting is appropriate. In
the case of a short sale, section 6045(g)(5)
provides that gross proceeds and basis re-
porting under section 6045 generally is re-
quired in the year in which the short sale
is closed (rather than, as under the present
law rule for gross proceeds reporting, the
year in which the short sale is entered into).
In addition, section 6045(h) provides that
gross proceeds and basis reporting is re-
quired when there is a lapse of, or a clos-
ing transaction with respect to, an option
on a specified security or an exercise of a
cash-settled option on aspecified security.
For stock in a corporation (other than
stockinaregulatedinvestmentcom-
pany or stock acquired in connection
with a dividend reinvestment plan), sec-
tion 6045(g)(3)(C)(i) provides that the
applicable date is January 1, 2011. For
stock in a regulated investment company
orstockacquiredinconnectionwitha
dividend reinvestment plan (for which
additional rules are described below),
section 6045(g)(3)(C)(ii) provides that
the applicable date is January 1, 2012.
For any other specified security, section
6045(g)(3)(C)(iii) provides that the appli-
cable date is January 1, 2013, or such later
date as determined by the Secretary. The
reporting rules related to options trans-
actions apply only to options granted or
acquired on or after January 1, 2013, as
provided in section 6045(h)(3).
The customer’s adjusted basis re-
quired to be reported is determined un-
der the following rules. Under section
6045(g)(2)(B)(i)(I), the adjusted basis
of any security (other than stock in a
regulated investment company or stock
acquired in connection with a dividend
reinvestment plan) is determined under
the first-in first-out method unless the
customer notifies the broker by means of
making an adequate identification of the
stock sold or transferred at the time of
sale. Under section 6045(g)(2)(B)(i)(II),
the adjusted basis of stock in a regulated
investment company or stock acquired
in connection with a dividend reinvest-
ment plan is determined in accordance
with the broker’s default method under
section 1012 unless the customer notifies
the broker that the customer elects another
permitted method.
For any sale, exchange, or other dis-
position of a specified security on or after
the applicable date, section 1012(c) pro-
vides that the conventions prescribed by
regulations under section 1012 for deter-
mining adjusted basis (the first-in first-out,
specific identification, and average basis
conventions) apply on an account-by-ac-
count basis. Section 1012(c)(2) allows a
regulated investment company, however,
to elect (at the time and in the form and
manner prescribed by the Secretary), on
a stockholder-by-stockholder basis, to
treat as covered securities all stock in the
company held by the stockholder without
regard to when the stock was acquired.
When this election applies, the average
basis of a customer’s regulated investment
company stock is determined by taking
into account shares of stock acquired be-
fore, on, and after January 1, 2012. A
similar election is allowed for any broker
holding stock in a regulated investment
company as a nominee of the beneficial
owner of the stock.
If stock is acquired on or after January
1, 2011, in connection with a dividend
reinvestment plan, section 1012(d)(1) pro-
vides that the basis of that stock is de-
termined under one of the basis compu-
tation methods permissible for stock in a
regulated investment company. Accord-
ingly, an average cost method may be used
for determining the basis of stock acquired
in connection with a dividend reinvest-
ment plan. Section 1012(d)(4)(A) pro-
vides that a dividend reinvestment plan is
any arrangement under which dividends
on stock are reinvested in stock identical
to the stock with respect to which the div-
idends are paid. Section 1012(d)(4)(B)
further provides that stock is treated as
acquired in connection with a dividend
reinvestment plan if the stock is acquired
pursuant to the plan or if the dividends
paid on the stock are subject to the plan.
Under section 1012(d)(3), in determining
basis under this rule, the account-by-ac-
count rules of section 1012(c), including
February 23, 20095752009–8 I.R.B.

the election available to regulated invest-
ment companies, apply. The special rule
forstockacquiredinconnectionwitha
dividend reinvestment plan, however, ap-
plies only while the stock is held as part
of the plan. If stock to which this rule
applies is transferred to another account,
section 1012(d)(2) provides that the stock
will have a cost basis in that other ac-
count equal to its basis in the dividend
reinvestment plan immediately before the
transfer (with any proper adjustment for
charges incurred in connection with the
transfer). After the transfer, however, the
transferee broker may use the otherwise
applicable convention (that is, the first-in
first-out method or thespecific identifica-
tion method) for determining which shares
are sold when a sale is made of some but
not all shares of a particular security.
Section 6045(g)(2)(B)(ii) provides that,
unless the Secretary provides otherwise, a
customer’s adjusted basis in a covered se-
curity generally is determined without tak-
ing into account the effect on basis of the
wash sale rules of section 1091 unless the
acquisition and sale transactions resulting
in a wash sale occur in the same account
and are in identical securities (rather than
substantially identical securities).
Section 6045(g)(4) provides that, for
purposes of section 6045, an S corporation
(other than a financial institution) is treated
in the same manner as a partnership. This
rule applies to any sale of a covered se-
curity acquired by an Scorporation (other
than a financial institution) after Decem-
ber 31, 2011. It is expected that, when this
rule takes effect, brokers generally will be
required to report gross proceeds and basis
information to customers that are S corpo-
rations.
The Act also amended section 6045(b)
to extend the deadline from January 31 to
February 15 for furnishing certain infor-
mation statements to customers, effective
for statements required to be furnished
after December 31, 2008. Section 6045(b)
provides that the statements to which the
new February 15 deadline applies are (1)
statements showing gross proceeds (under
section 6045(a)) or substitute payments
(under section 6045(d)) and (2) statements
with respect to reportable items (including,
but not limited to, interest, dividends, and
royalties) that are furnished with consoli-
dated reporting statements (as defined in
regulations). See Notice 2009–11, 2009–5
I.R.B. 420 (providing that, with respect to
reportable items from calendar year 2008,
brokers have until February 17, 2009,
to report all items that they customarily
report on their annual composite form re-
cipient statements).
Under new section 6045A, a broker and
any other person specified in Treasury reg-
ulations that transfers to a broker a secu-
rity that is a covered security when held
by that broker or other person must furnish
to the transferee broker a written statement
that allows the transferee broker to satisfy
the basis and holding period reporting re-
quirements of section 6045(g). Section
6045A(c) provides that, unless the Secre-
tary provides otherwise, the statement re-
quired by this rule must be furnished to the
transferee broker not later than fifteen days
after the date of the transfer of the covered
security.
Under new section 6045B, an issuer of
specified securities must file a return ac-
cording to forms or regulations prescribed
by the Secretary setting forth a descrip-
tion of any organizational action (such as
a stock split or a merger or acquisition)
that affects the basis of the specified secu-
rity, the quantitative effect on the basis of
that specified security, and any other infor-
mation required by the Secretary. Section
6045B(b) provides that this return must be
filed within forty-five days after the date
of the organizational action or, if earlier, by
January 15 of the yearfollowing the calen-
dar year during which the action occurred.
Additionally, section 6045B(c) pro-
vides that the issuer must furnish, accord-
ing to forms or regulations prescribed by
the Secretary, to the nominee with respect
to that security (or to a certificate holder
if there is no nominee) a written statement
showing (1) the name, address, and tele-
phone number of the information contact
of the person required to file the return,
(2) the information required to be included
on the return with respect to the security,
and (3) any other information required
by the Secretary. This statement must be
furnished to the nominee or certificate
holder on or before January 15 of the year
following the calendar year in which the
organizational action took place.
Section 6045B(e) provides that the
Secretary may waive the return filing and
information statement requirements if the
person to which the requirements apply
makes publicly available, in the form and
manner determined by the Secretary, the
name, address, telephone number, and
e-mail address of the information contact
of that person, and the information about
the organizational action and its effect on
basis otherwise required to be included in
the return.
REQUEST FOR PUBLIC COMMENTS
The Treasury Department and the Ser-
vice request comments on issues that
should be addressed in guidance imple-
menting the new requirements with respect
to the reporting of a customer’s basis in
securities transactions. The Treasury De-
partment and the Service request specific
comments regarding:
Applicability of Reporting Requirements
1. How to determine who is a “middle-
man” subject to the broker reporting and
transfer reporting statement requirements
and how to minimize duplication of report-
ing by multiple brokers;
2. Who, in addition to brokers, should
be treated as “applicable persons” subject
to the transfer reporting requirements;
3. Whether the issuer’s classification
of an instrument (e.g., as stock or debt)
should determine which effective date ap-
plies;
Basis Method Elections
4. How to ensure that customers are
adequately informed of the broker’s de-
fault basis determination method and that
brokers are adequately notified of a cus-
tomer’s election of a different acceptable
method for an account;
5. How to facilitate customer elections
of acceptable basis determination meth-
ods, including average cost basis, for an
account to maximize customer flexibility
and minimize broker burden;
6. Whether and under what circum-
stances a customer may elect to change
from the average cost basis method to the
first-in first-out or specific identification
method and, if so, what cost basis rules and
adjustments should apply;
7. What it means to apply the ba-
sis determination conventions on an “ac-
count-by-account” basis;
2009–8 I.R.B.576February 23, 2009

Dividend Reinvestment Plans
8. How to determine what qualifies as
an “arrangement under which dividends on
any stock are reinvested in stock identical
to the stock with respect to which the div-
idends are paid” (that is, as a “dividend
reinvestment plan”);
9. How to determine which stock quali-
fies as “acquired in connection with” a div-
idend reinvestment plan, for which the av-
erage cost basis method is available begin-
ning in 2011, and to which the later effec-
tive date of 2012 for information reporting
applies;
10. Whether and to what extent the av-
erage cost basis method applies to subse-
quent additions to dividend reinvestment
plan accounts by purchase or transfer;
11. How to maximize the utility of
the single-account election for stock ac-
quired in connection with a dividend rein-
vestment plan or stock held in a regulated
investment company,particularly where
basis and holding period information for
pre-effective date stock is weak or unclear;
Reconciliation with Customer Reporting
12. How to ensure that broker report-
ing on Form 1099–B and customer report-
ing on Schedule D of Form 1040 are max-
imally consistent, including whether bro-
kers should report separately for securities
subject to basis reporting or report the ba-
sisofsecuritiesthatare not covered secu-
rities, for example, securities purchased by
their customers prior to 2011;
13. How to ensure consistency between
customers making specific identification
of securities sold or transferred and broker
reporting;
14. How to ensure that reconciliation is
possible if broker reporting should differ
from customer reporting;
15. Whether customers, after a sale,
may identify or change the identification
of specific stock sold and, if so, for what
period of time or by what deadline;
Special Rules and Mechanical Issues
16. The scope of the wash sales excep-
tion, including the definition of “identical
securities” (including identical options),
the wash-sale period, and anyde minimis
or other exceptions;
17. How to apply the rules for basis
reporting of options;
18. Whether rules, including transition
rules, are required to address the change in
timing for reporting of short sales from the
date the short sale is entered into to the date
theshortsalecloses;
19. How to address mechanical is-
sues relating to the computation of basis,
such as adjustments for debt securities
(for example, as a result of original is-
sue discount, market discount, acquisition
premium, or bond premium), gift-related
adjustments, death-related adjustments,
section 1043 basis rollovers, regulated
investment company and real estate invest-
ment trust distributions representing return
of capital, regulated investment company
load adjustments, and the mark-to-market
method of accounting for securities;
20. What, if any, translation conven-
tions or computation adjustments should
be allowed when securities are purchased
with foreign currency in an account subject
to United States taxation at the time of pur-
chase or in an account that later becomes
subject to United States taxation, for exam-
ple, when an owner of securities becomes
a United States citizen;
Transfer Reporting
21. What information about the trans-
ferring person, the customer, the security
transferred, and the underlying lots should
be required on the transfer reporting state-
ments;
22. Whether fifteen days is the proper
period for furnishing transfer reporting
statements, and under what circumstances
a different time period, if any, should ap-
ply;
23. Whether the basis determination
rules and customer elections governing
sales of securities should apply equally to
transfers of securities, for example, when
a customer transfers some, but not all,
holdings of a security to another broker;
24. Whether electronic transfer report-
ing may be appropriate and, if so, whether
a common format should apply;
25. Whether brokers and transferring
parties may utilize reporting services of
third-party intermediaries to meet their
transfer reporting requirements;
26. Whether the transferring person
should communicate any information or
justification to the transferee broker when
no transfer reporting statement is required
because the security is not a covered secu-
rity;
Issuer Reporting
27. What information about the is-
suer and organizational action should be
required on the issuer returns and report-
ing statements;
28. How to maximize the timeliness of
issuer returns and statements and promote
public reporting by issuers in lieu of return
filing;
29. How to account for basis-changing
organizational actions by foreign issuers of
securities to the extent that foreign issuers
are not subject to the issuer reporting re-
quirements;
30. How to coordinate broker transfer
reporting with issuer corporate action re-
porting to avoid duplicate broker adjust-
ments when accounts are transferred and
whether a universal timing standard should
apply;
Broker Practices and Procedures
31. To what extent a broker should ver-
ify the reasonableness of basis information
and what document retention requirements
should apply;
32. What procedures a broker should
follow if the broker derives basis and hold-
ing period information for or from cus-
tomers with respect to a security that is not
a covered security, including potential re-
porting of such information to either the
customer or the Service;
33. What procedures a transferee bro-
ker should follow if the broker does not re-
ceive a transfer reporting statement;
34. What procedures a transferee bro-
ker should follow if the broker receives
transfer reporting information with respect
to a security that is not a covered security,
or from a transferor who is not subject to
the transfer reporting requirements;
35. What procedures a broker should
follow with respect to basis adjustments if
an issuer report on a corporate action is
insufficient or untimely; and
36. Under what circumstances penal-
ties may apply to brokers or other report-
ing entities and when relief from penalties
should be available.
Interested parties are invited to sub-
mit comments on this notice by Mon-
day, March 2, 2009. Written comments
February 23, 20095772009–8 I.R.B.

should be submitted to: Internal Rev-
enue Service, CC:PA:LPD:PR (Notice
2009–17), Room 5203, P.O. Box 7604,
Ben Franklin Station, Washington, DC
20044. Alternatively, comments may
be hand delivered between the hours
of 8:00 a.m. and 4:00 p.m. Monday
to Friday to CC:PA:LPD:PR (Notice
2009–17), Courier’s Desk, Internal
Revenue Service, 1111 Constitution
Avenue NW, Washington, D.C. Comments
may also be transmitted electronically
via the following e-mail address:
Notice.Comments@irscounsel.treas.gov.
Please include “Notice 2009–17” in
the subject line of any electronic
communications. All comments will
be available for public inspection and
copying.
The principal author of this notice
is Stephen Schaeffer of the Office of
Associate Chief Counsel (Procedure &
Administration). For further informa-
tion regarding this notice, please contact
Stephen Schaeffer at (202) 622–4910 (not
a toll-free call).
2009–8 I.R.B.578February 23, 2009

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking
The Allocatio
nof
Consideratio
nandAllocation
and Recovery
of Basis
in Transacti
ons Involving
Corporate S
tock or Securities
REG–143686–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: No
tice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations under sections 301, 302,
304, 351, 354, 356, 358, 368, 861, 1001,
and 1016 of the Internal Revenue Code
(Code). The proposed regulations provide
guidance regarding the recovery of stock
basis in distributions under section 301 and
transactions that are treated as dividends to
which section 301 applies, as well as guid-
ance regarding the determination of gain
and the basis of stock or securities received
in exchange for, or with respect to, stock or
securities in certain transactions. The pro-
posed regulations affect shareholders and
security holders of corporations. These
proposed regulations are necessary to pro-
vide such shareholders and security hold-
ers with guidance regarding the allocation
and recovery of basis on distributions of
property.
DATES: Written or electronic comments,
and a request for a public hearing, must be
received by April 21, 2009.
ADDRE
SSES: Send submissions to:
CC:PA
:LPD:PR(REG–143686–07),
room 5
203, Internal Revenue Service,
P.O.
Box 7604, Ben Franklin Station,
Wash
ington, DC 20044. Submissions may
be ha
nd-delivered Monday through Friday
betw
een the hours of 8 a.m. and 4 p.m.
to CC
:PA:LPD:PR (REG–143686–07),
Cou
rier’s Desk, Internal Revenue
Ser
vice, 1111 Constitution Avenue, NW,
Was
hington, DC, or sent electronically,
via
theFederaleRulemaking
Por
talatwww.regulations.gov
(IR
S#REG–143686–07).
FOR FURTHER IN
FORMATION
CONTACT: Conc
erning the proposed
regulations u
nder sections 301, 302, and
304, Theresa M
. Kolish, (202) 622–7530;
concerning th
e proposed regulations un-
der sections
351, 354, 356, 358, 368,
1001, and 101
6, Rebecca O. Burch, (202)
622–7550; co
ncerning the proposed reg-
ulations und
er section 861, Jeffrey L.
Parry, (202
) 622–4476; concerning sub-
mission of c
omments or to request a
hearing, Ri
chard Hurst (202) 622–7180
(not toll-f
ree numbers).
SUPPLEMENT
ARY INFORMATION:
Background
The primary
objective of these pro-
posed regu
lations is to provide a single
model for s
tock basis recovery by a share-
holder tha
t receives a constructive or
actual dis
tributiontowhichsection301
applies an
d a single model for sale and
exchange
transactions to which section
302(a) ap
plies, including certain elements
of a reorg
anization exchange. Further to
this obje
ctive, these proposed regulations
define t
he scope of the exchange that must
be analy
zed under particular Code pro-
visions
, and provide a methodology for
determi
ning gain realized under section
356 and s
tock basis under section 358.
In addit
ion, these proposed regulations
respond
to comments received by the IRS
and Tre
asury Department regarding the
curren
t section 358 regulations, such as
sugges
tions to expand the tracing rules to
stock t
ransfers that are subject to section
351 but
do not qualify as reorganizations,
quest
ions regarding whether (and, if so, to
what e
xtent) shareholder elections consti-
tute t
erms of an exchange, and whether the
terms
of an exchange control for purposes
of qua
lifying a transaction as a reorgani-
zatio
n under section 368. Finally, these
prop
osed regulations include amendments
to th
e section 304 regulations that import
the s
tatutory amendments to that section.
See s
ection 226 of the Tax Equity and
Fisc
al Responsibility Act of 1982, Public
Law
97 248 (96 Stat. 325, 490) (Septem-
ber
3, 1982), section 712(l) of the Deficit
Red
uction Act of 1984, Public Law 98
369
(98 Stat. 494, 953 55) (July 18, 1984),
sec
tion 1875(b) of the Tax Reform Act of
1986, Public L
aw 99 514 (100 Stat. 2085,
2894) (Octobe
r 22, 1986), and section
1013 of the Tax
payer Relief Act of 1997,
Public Law 105
34 (111 Stat. 788, 918)
(August 5, 199
7).
Explanation o
fProvisions
I.Introduct
ion — Exchanges and
Distributio
ns to Which Sections 301 and
302 Apply
Section 301 p
rovides rules for the treat-
ment of a dist
ribution with respect to
stock but do
es not specify how to iden-
tify the sha
res upon which a distribution
is made. Fur
thermore, the tax law does
not provide
rules concerning whether a
shareholde
r recovers its stock basis in
the aggreg
ate, or alternatively, whether a
sharehold
er is required to recover stock
basis shar
e-by-share. Finally, the tax law
does not pr
ovide specifically that transac-
tions trea
ted as section 301 distributions
(i.e.,re
demptions under section 302(d),
certain s
ection 304 transactions, and cer-
tain reor
ganizations) should be subject to
thesamer
ules as actual section 301 distri-
butions
.
In the reo
rganization context, the Code
provide
s consequences resulting from dif-
ferent t
ypes of exchanges, but does not
specify
whether the exchange is based on a
shareho
lder’s aggregate stock holdings, or
alterna
tively, based on particular elements
of the o
verall exchange.
Rules re
lated to stock basis recov-
ery and
stock basis determinations have
evolve
d independently over many years on
atrans
actional basis. Ad hoc development
of thes
e authorities has lead to the possi-
bility
of variant treatment of economically
simil
ar transactions to which section 301
or 302
(a) applies either directly or through
the op
eration of other Code provisions.
Moreo
ver, because there has not been a
compr
ehensive review of these issues,
many
questions lack definitive answers.
Prio
r guidance attempted to address partic-
ular
areas of uncertainty within the subject
matt
er of basis recovery and basis identi-
fica
tion. Without the benefit of addressing
all r
elated issues, however, certain of this
pri
or guidance was needed reconsidered.
See
REG–150313–01. Other guidance
bui
lt the framework for basis identifica-
February 23, 20095792009–8 I.R.B.

tion that has encouraged the development
of these proposed regulations.
Building on themes developed in
§1.358–2 and comments received from
the tax community, this proposal is in-
tended to be a comprehensive approach
to stock basis recovery and stock basis
identification to produce consistent results
among economically similar transactions,
regardless of the transaction type or the
specific Code provision that results in the
application of section 301 or 302(a).
The cornerstone of this proposal is that
a share of stock is the basic unit of property
that can be disposed of and, accordingly,
the results of a transaction should gener-
ally derive from the consideration received
in respect of that share. This guiding prin-
ciple has section 1012 as its underpinning
and has become fundamental to the tax
treatment of shareholders, regardless of
the specific nature of a shareholder’s ex-
change. See §1.358–2 and §1.367(b)–13.
A corollary to this basic premise is that
a reorganization exchange is not an event
that justifies alteration of a shareholder’s
tax position beyond what is necessary to
reflect the results of the reorganization.
To harmonize the tax treatment of eco-
nomically similar transactions, these pro-
posed regulations adopt a single model for
section 301 distributions (dividend equiv-
alent transactions) and a single model for
sale or exchange transactions to which sec-
tion 302(a) applies (non-dividend equiv-
alent transactions), regardless of whether
section 301 or section 302(a) applies di-
rectly or by reason of section 302(d), 304
or 356.
II.Distributions with Respect to Stock and
Dividend Equivalent Transactions
A.Section 301 distributions
Consistent with the fundamental notion
that a share of stock is the basic unit of
property, the results of a section 301 dis-
tribution should derive from the consider-
ation received in respect of each share of
stock, notwithstanding designations oth-
erwise.Johnson v. United States,435
F.2d 1257 (4th Cir. 1971). Accordingly,
these proposed regulations treat a section
301 distribution as received on apro rata,
share-by-share basis with respect to the
class of stock upon which the distribution
is made. Thus, a distribution that is not
a dividend within the meaning of section
301(c)(1) can result in gain with respect to
some shares of a class while other shares
have unrecovered basis.
B.Dividend equivalent redemptions
To promote consistency among trans-
actions treated as section 301 distributions
under the Code, these proposed regulations
apply the same basis recovery rules de-
scribed above to both dividend equivalent
redemptions and certain section 304 trans-
actions. Accordingly, under these pro-
posed regulations, a dividend equivalent
redemption results in apro rata,share-by-
share distribution to all shares of the “re-
deemed class” held by the redeemed share-
holder immediately before the redemption.
The proposed regulations define the term
“redeemed class” to mean all of the shares
of that class held by the redeemed share-
holder. Similar to an actual section 301
distribution, the proportional approach to
basis recovery in dividend equivalent re-
demptions can produce gain with respect
to some shares while other shares have un-
recovered basis.
The constructive section 301 distri-
bution is limited to the shares of the
redeemed class (instead of constructing
apro ratadistribution among all shares
of various classes held by the redeemed
shareholder) because different classes
of stock have distinct legal entitlements
that are respected for federal income tax
purposes.H.K. Porter Co.,87T.C.689
(1986);Comm’r v. Spaulding Bakeries,
252F.2d693(2dCir.1958).Accordingly,
a constructive section 301 distribution
is conformed to an actual section 301
distribution by identifying those shares
with respect to which an actual section 301
distribution would have been received,
and by reducing the basis of only those
shares.
i.Basis adjustments in dividend
equivalent redemptions if less than all of
the shares of a single class held by the
taxpayer are redeemed
If less than all of the shares of a class of
stock held by the taxpayer are redeemed,
the proposed regulations provide that in a
hypothetical recapitalization described in
section 368(a)(1)(E), the redeemed share-
holder is deemed to exchange all its shares
in the class, including the redeemed shares,
for the actual number of shares held af-
ter the redemption transaction. The trac-
ing rules of the section 358 regulations ap-
ply to preserve the basis of the shares ex-
changed in the recapitalization in the re-
maining shares of the redeemed class held
by the shareholder. Thus, under these pro-
posed regulations, a dividend equivalent
redemption is generally treated in the same
manner, and its results are the same as, a
section 301 distribution in which no shares
were cancelled.
iiBasis recovery in dividend equivalent
redemptions in which the taxpayer
surrenders all of its shares in a single
class
Under current law, if all of the shares
of a single class held by a shareholder
are redeemed in a dividend equivalent re-
demption, any unrecovered basis in the
redeemed shares is permitted to shift to
other shares in certain circumstances. See
§1.302–2(c). The IRS and Treasury De-
partment believe that the shifting of stock
basis is inconsistent with the fundamen-
tal principle that each share is a separate
unit of property, and can lead to inap-
propriate results. Accordingly, these pro-
posed regulations do not permit the shift-
ing of basis to other shares held (directly
or by attribution) by the redeemed share-
holder. Instead, the proposed regulations
preserve the tax consequences of the un-
recovered basis for the redeemed share-
holder by treating the amount of the unre-
covered basis as a deferred loss of the re-
deemed shareholder that can be accessed
when the conditions of sections 302(b)(1),
(2), or (3) are satisfied, or alternatively,
when all the shares of the issuing corpo-
ration (or its successor) become worthless
within the meaning of section 165(g).
C.Dividend equivalent reorganization
exchanges
If, pursuant to a reorganization, a share-
holder receives qualifying property and
boot in exchange for its target corpora-
tion stock, the tax consequences of the
receipt of the boot under these proposed
regulations will depend upon whether
the reorganization exchange is dividend
equivalent or not. See section III. of this
Preamble for a description of the proposed
2009–8 I.R.B.580February 23, 2009

rules that would apply if the reorganiza-
tion is not dividend equivalent.
In general, the determination of
whether an exchange has the effect of the
distribution of a dividend for purposes
of section 356(a)(2) is determined by ex-
amining the effect of the shareholder’s
“overall exchange.”Commissioner v.
Clark, 489 U.S. 726, 738 (1989). Thus,
the key to this determination is the scope
of the exchange. For example, if the
shareholder exchangesshares of preferred
stock solely for boot and shares of com-
mon stock solely for qualifying property
pursuant to a plan of reorganization, is the
determination of whether the exchange of
the preferred stock for boot is dividend
equivalent based solely on that particular
exchange or on the overall exchange of the
preferred and common stock for the qual-
ifying property and the boot? The same
question would arise with respect to each
particular exchange ifthe shareholder ex-
changed the preferred and common stock
for a combination of qualifying property
and boot. TheClarkdecision examined a
reorganization exchange involving a sin-
gle class of stock, and does not provide
guidance in the context of multiple classes
of stock.
In the case of a section 302 redemption,
the exchanging shareholder determines
dividend equivalency based on all the facts
and circumstances. SeeZenz v. Quinlivan,
213F.2d914(C.A.61954). Topromote
consistency between sale or exchange
transactions, these proposed regulations
provide that the overall reorganization
exchange shall be taken into account in de-
termining whether a particular exchange is
dividend equivalent. Thus, a shareholder
that exchanges a class of stock solely for
boot and another class of stock solely for
nonqualifying property shall consider the
overall exchange (the exchange of the two
classes of stock for boot and qualifying
property) in determining whether each
particular exchange is dividend equiva-
lent.
If it is determined that a reorganization
exchange is dividend equivalent, because
different classes of stock have distinct le-
gal entitlements that are respected for fed-
eral income tax purposes, the proposed
regulations provide that an exchange of a
class of stock solely of boot is an exchange
to which section 302(d) (and not section
356(a)(2)) applies.
To ensure similar tax treatment of divi-
dend equivalent reorganization exchanges
and dividend equivalent redemptions, if
the reorganization exchange is dividend
equivalent the proposed regulations limit
the ability of the exchanging shareholder
to specify the terms of the exchange.
Specifically, if the shareholder receives
more than one class of stock or surren-
ders one class of stock and securities, the
shareholder may specify the terms of the
exchange between the classes of stock sur-
rendered (or between one or more classes
of stock and securities surrendered), pro-
vided the designation is economically
reasonable, but not between particular
shares of the same class of stock.
As with the redemption of shares of a
redeemed class in a dividend equivalent re-
demption, a shareholder’s receipt solely of
boot with respect to a class of stock in a
reorganization exchange is treated as re-
ceivedpro rata, on a share-by-share basis,
with respect to each share in the class-un-
der the principles ofJohnson, the share-
holder cannot specify that the boot is re-
ceived with respect to particular shares
within the class. Consequently, such an
exchange could result in gain recognition
with respect to some shares while other
shares in the class could have recovered
basis.
In formulating the proposed regula-
tions, the IRS and Treasury Department
considered different alternatives. For
example, in a dividend equivalent reor-
ganization exchange pursuant to section
356(a)(2), the IRS and Treasury Depart-
ment considered whether gain realized
with respect to a class should be deter-
mined in the aggregate (for example, with
respect to all shares within a class). Under
this approach, no gain would be realized
with respect to a class that has a block of
built-in gain stock and block of built-in
loss stock where the built-in loss is at
least equal to the built-in gain. The IRS
and Treasury Department rejected such
an approach because it would contradict
the fundamental principle that a share
is a discrete unit of property, and also
would compromise the principle that a
reorganization exchange is not an event
that justifies stock basis averaging. The
IRS and Treasury Department also con-
sidered eliminating a shareholder’s ability
to specify the terms of a dividend equiv-
alent reorganization exchange based on
the premise that underJohnson, all con-
sideration received in such an exchange
should be considered receivedpro rata
among all shares, regardless of whether
more than one class is surrendered. The
IRS and Treasury Department rejected
this approach in favor of the approach of
the proposed regulations that is analogous
to the proposed treatment of dividend
equivalent redemptions, under which each
share of the redeemed class is treated as
receiving apro ratashare of the proceeds,
and shares outside of the redeemed class
are not treated as receiving any part of the
distribution.
D.Special rules related to apportionment
of interest and other expenses
Under section 864(e), taxpayers appor-
tion interest expense between statutory and
residual groupings on the basis of the rela-
tive values of their assets in each grouping.
For this purpose, taxpayers may choose to
value their assets using either fair market
value or tax book value (adjusted basis).
The proposed regulations provide that for
purposes of apportioning expenses on the
basis of the tax book value of assets, the
adjusted basis in any remaining shares of
the redeemed class owned by the redeemed
shareholder, any shares that are not in the
redeemed class, or any shares owned by
certain affiliated corporations shall be in-
creased by the amount of the unrecovered
basis of redeemed shares. Thus, under
the proposed regulations, the interest ex-
pense allocation and apportionment conse-
quences of a dividend equivalent redemp-
tion are the same as an actual section 301
distribution.
E.Section 1059
Section 1059(a) provides that if a cor-
poration receives an extraordinary divi-
dend with respect to any share of stock
and such corporation has not held such
stock for more than two years before the
dividend announcement date, then the
corporation’s basis in such stock shall
be reduced (but not below zero) by the
non-taxed portion of such dividends.
Except as provided in regulations, in
the case of any redemption of stock which
would not have been treated (in whole or
in part) as a dividend if any options had
not been taken into account under section
February 23, 20095812009–8 I.R.B.

318(a)(4), or section 304(a) had not ap-
plied, any amount treated as a dividend is
treated as an extraordinary dividend, with-
out regard to the taxpayer’s holding period
in the stock. Section1059(e)(1)(A)(iii).
In the case of these types of redemptions,
section 1059(e)(1)(A) (flush language)
provides that only the basis of the stock
redeemed shall be taken into account
under section 1059(a). These proposed
regulations do not affect the basis reduc-
tion provided for in section 1059(e)(1)(A)
if section 1059(e)(1)(A)(iii) otherwise
applies. Accordingly, to the extent of
an extraordinary dividend described in
section 1059(e)(1)(A)(iii), a redeem-
ing shareholder would first reduce basis
as prescribed by section 1059(e)(1)(A).
These proposed regulations would then
apply to the extent the distribution is not
a dividend within the meaning of section
301(c)(1).
F.Redemptions of stock held by
partnerships, trusts, and S corporations
The treatment of unrecovered basis as
a deferred loss raises special issues where
the redeemed shareholder is an S corpo-
ration, a partnership, or a trust (each a
flow-through entity). These proposed reg-
ulations reserve with respect to the issues
relating to redeemed shareholders that
are flow-through entities pending further
study and comment. The primary issue
under study is whether an “outside” basis
adjustment that reflects the deferred loss
should occur at the time of the dividend
equivalent redemption, or alternatively,
when there is an inclusion date with re-
spect to the deduction.
In general, a deferred loss is reflected
in the outside basis of an interest in a flow-
through entity when the deduction can be
accessed by the entity. Accordingly, as
a general matter, disconformity can exist
between inside attributes and outside basis
where an inside attribute is a deferred loss.
Conversely, a net operating loss of a flow-
through entity reduces the outside basis of
an interest in the entity in the year that the
net operating loss arises.
Although disconformity generally can
exist where a flow-through entity has a de-
ferred loss, the IRS and Treasury Depart-
ment are concerned that deferred losses
arising from unrecovered basis presents an
opportunity to separate the deferred loss
from the dividend income resulting from
the redemption. The IRS and Treasury
Department question whether such a sep-
aration would be appropriate, and believe
that treating the deferred loss as a net op-
erating loss in the year of the redemption
for basis adjustment purposes may be the
better approach. However, the IRS and
Treasury Department acknowledge that it
may be inappropriate to require the owners
of a flow-through entity to reduce outside
basis before the deferred loss can be ac-
cessed, simply because the owners of the
flow-through entity cannot access the de-
ferred loss. The IRS and Treasury Depart-
ment request comments on this issue.
Flow-through entities also present the
question of when it is appropriate to treat
an owner of the flow-through entity as the
redeemed shareholder, and when it is ap-
propriate to treat the flow-through entity
itself as the redeemed shareholder. For
example, where the owner completely di-
vests of its interest in the flow-through
entity, it may be appropriate to treat the
owner as the redeemed shareholder for de-
termining whether the sale of the flow-
through entity interest is an inclusion date
with respect to that owner. This treatment
may be more appropriate if the deferred
loss is treated as a net operating loss that
already has reduced the outside basis of
the entity’s owner. Conversely, if the de-
ferred loss is not treated as a net operating
loss, it may be more appropriate to treat the
flow-through entityas the redeemed share-
holder in all cases. The IRS and Treasury
Department request comments on this is-
sue.
G.Consolidated groups and basis
recovery in dividend equivalent
redemptions
The IRS and Treasury Department con-
tinue to study the issues raised when a re-
deemed shareholder with a deferred loss
files a consolidated return. The IRS and
Treasury Department believe that certain
of the concerns raised by REG–150313–01
are addressed in these proposed regula-
tions by the deemed recapitalization me-
chanic described in section II.B.i. of this
Preamble.
III.Redemptions Treated as a Sale or
Exchange Pursuant to Section 302(a)
A.In general
Under current law for redemptions
characterized under section 302(a), a
shareholder that owns shares of stock with
different bases can decide whether to sur-
render for redemption high basis shares,
low basis shares or any combination
thereof. See §1.1012–1(c). Consistent
with treating a share as a discrete unit of
property, the proposed regulations do not
limit this electivity. Additionally, as fur-
ther discussed below, these proposed reg-
ulations affirm the ability of a shareholder
to specify the terms of a reorganization
exchange where the receipt of boot results
in sale or exchange treatment.
B.Reorganization exchanges that result
in sale or exchange treatment
If it is determined that the reorganiza-
tion exchange is not dividend equivalent
(as described in section II.C. of this Pream-
ble), section 302(a) will apply to the extent
shares are exchanged solely for boot. Just
as a shareholder can elect to surrender high
basis shares, low basis shares or any com-
bination thereof in a non-dividend equiv-
alent redemption, a shareholder engaging
in a reorganization exchange that is not
dividend equivalent can specify the receipt
solely of boot for a share, provided that the
terms of the exchange are economically
reasonable. In such case, the shareholder
will recognize gain or loss with respect to
that share pursuant to section 302(a), and
section 356(a)(1) will not apply.
IV.Extension of Tracing Principles
to Determine Basis in Certain stock
Transfers that are Not Reorganizations,
and Other Proposals in Response to
Specific Comments
A.Application of tracing principles to
certain section 351 exchanges and capital
The current section 358 regulations ap-
ply tracing principles to determine the ba-
sis of stock received in a section 351 ex-
change only where the section 351 ex-
change also qualifies as a reorganization
and no liabilities was assumed in the ex-
change. The principal reason for this limi-
tation is the interaction of the basis tracing
2009–8 I.R.B.582February 23, 2009

rules with the aggregate approach to gain
determination under section 357(c). The
IRS and Treasury Department continue to
study this issue, but have concluded that
the resolution of this issue is not neces-
sary to broaden the application of the trac-
ing rules to transfers of stock in section
351 exchanges in which no liabilities are
assumed. Thus, for example, in an ex-
change to which section 351 applies where
the transferor transfers two blocks of stock
with disparate basis and other property, the
separate bases will be preserved under sec-
tion 358, provided that liabilities are not
assumed in the exchange.
In addition, these proposed regula-
tions incorporate the deemed issuance and
recapitalization approach of the current
section 358 regulations to section 351 ex-
changes to preserve basis if insufficient
shares, or no shares at all, are actually
issued in the exchange. These proposed
regulations also extend the deemed is-
suance and recapitalization approach to
shareholder capital contributions to which
section 118 applies.
B.Miscellaneous
The IRS and Treasury Department have
received a number of comments on the
current section 358 regulations. These
proposed regulations make a number of
clarifying, but nonsubstantive, modifica-
tions to the current section 358 regula-
tions. Specifically, the proposed regula-
tions add headings throughout the existing
final §§1.358–1 and 1.358–2 regulations
without substantive change. In addition,
the proposed regulations address the fol-
lowing comments received with respect to
the current section 358 regulations.
Commentators questioned how share-
holder elections factor into the terms of the
exchange. These proposed regulations in-
clude two new examples illustrating the ef-
fect of such elections.
Commentators questioned the effect of
the terms of an exchange on the determina-
tion of whether a transaction qualifies as a
reorganization, and therefore is not subject
to the general rule of section 1001. These
proposed regulations include cross-refer-
ences in the regulations under sections 368
and 1001 to clarify that, to the extent the
terms of the exchange specify that a partic-
ular property is received in exchange for a
particular property, such terms shall con-
trol for purposes of determining whether
a transaction qualifies as a reorganization
provided such terms are economically rea-
sonable.
Finally, in addition to provisions relat-
ingtothedeterminationofbasis,these
proposed regulations add a rule that ad-
dresses certain issues considered in Rev.
Rul. 68–55, 1968–1 C.B. 140. Specifi-
cally, consistent with Rev. Rul. 68–55,
these regulations provide that, for purposes
of determining gain under section 351(b),
the fair market value of each category of
consideration received in a section 351 ex-
change is allocated between the transferred
assets in based on relative fair market val-
ues.
V.Specifically Requested Comments
In addition to the comments requested
throughout this Preamble, the IRS and
Treasury request comments on the follow-
ing areas.
The proposed regulations under section
302 do not apply to a redemption of stock
described in section 306(c). Pursuant to
section 306(a)(2), a redemption of stock
described in section 306(c) is treated as
a distribution of property to which sec-
tion 301 applies.Example 2of §1.306–1
suggests that the unrecovered basis of re-
deemed section 306 stock is added to the
basis of the stock with respect to which
the section 306 stock was distributed. The
IRS and Treasury Department request
comments on whether such treatment
is appropriate or whether an alternative
regime should apply when such a section
306(c) redemption is treated as a section
301 distribution.
Comments are also requested regard-
ing whether, after a section 355pro rata
split-up, the controlled corporations are the
same as or different from the distributing
corporation for purposes of determining
whether the date of distribution would be
an inclusion date for a deferred loss attrib-
utable to unrecovered basis.
Finally, the IRS and Treasury Depart-
ment recognize that the proposed regu-
lations may not address all related issues
arising in all cash “D” reorganizations.
Specifically, these proposed regulations
may heighten the importance of whether
the nominal share deemed issued in such
a reorganization is received in respect
of particular shares surrendered by the
exchanging shareholder. The IRS and
Treasury Department request comments
with respect to this issue.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. Further,
it is hereby certified that these proposed
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that these regulations provide
clarifying guidance of existing law and do
not create additional obligations for, or im-
pose an economic impact on small enti-
ties. Accordingly, a Regulatory Flexibility
Analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Code,
this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
All comments will be available for public
inspection and copying. If a public hearing
is scheduled, notice of the date, time, and
place for the public hearing will be pub-
lished in theFederal Register.
Drafting Information
The principal authors of these reg-
ulations are Theresa M. Kolish and
Rebecca O. Burch of the Office of
Associate Chief Counsel (Corporate).
Other personnel from offices of the IRS
and Treasury Department participated in
their development.
Availability of IRS Documents
IRS revenue rulings, procedures, and
notices cited in this preamble are made
available by the Superintendent of Docu-
ments, U.S. Government Printing Office,
Washington, DC 20402.
February 23, 20095832009–8 I.R.B.

*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.301–2 is added to read
as follows:
§1.301–2 Application to basis.
(a)Application to basis. That portion
of a distribution which is not a dividend
shall be appliedpro rata, on a share-by-
share basis, to reduce the adjusted basis of
each share of stock held by the shareholder
within the class of stock upon which the
distribution is made. The following exam-
ple illustrates this paragraph (a):
Example.(i)Facts. Corporation X, a calendar
year taxpayer, has only common stock outstanding.
A, an individual, owns all 100 shares; 25 were ac-
quiredonDate1for$25(Block1)and75wereac-
quired on Date 2 for $175 (Block 2). On December
31, when Corporation X had earnings and profits of
$100, it made a $3 distribution on each share of com-
mon stock.
(ii)Analysis. A is treated as receiving $75 of
the distribution on block 1 and $225 on block 2.
On Block 1, A will have a $25 dividend under sec-
tion 301(c)(1), a $25 return of capital under section
301(c)(2) and a $25 gain under section 301(c)(3). On
Block 2, A will have a $75 dividend under section
301(c)(1), a $150 a return of capital under section
301(c)(2) and will have a remaining basis of $25 in
the shares of block 2.
(b)Effective/applicability date.This
section applies to transactions that occur
after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Par. 3. In §1.302–2, paragraph (c) is
removed and reserved.
§1.302–2 [Amended]
Par. 4. Section 1.302–5 is added to read
as follows:
§1.302–5 Redemptions under section
302(d).
(a)In general—(1)Share-by-share ba-
sis reduction. In any case in which an
amount received in redemption of stock (as
defined in section 317(b)) is treated as a
distribution to which section 301 applies,
that portion of a distribution that is not a
dividend shall be applied to reduce the ad-
justed basis of each share held by the re-
deemed shareholder (as defined in para-
graph (b) of this section) in the redeemed
class (as defined in paragraph (b) of this
section). Such reduction shall be applied
pro rata, on a share-by-share basis, to all
shares of the redeemed class held by the
redeemed shareholder. Gain, if any, on
a share shall be determined under section
301(c)(3).
(2)Deemed recapitalization. Except as
provided in paragraph (a)(3) of this sec-
tion, immediately following the reduction
of basis as provided in section 301(c)(2)
and paragraph (a)(1) of this section, all
shares of the redeemed class, including the
redeemed shares, held by the redeemed
shareholder will be treated as surrendered
in a reorganization described in section
368(a)(1)(E) in exchange for the number
of shares of the redeemed class directly
held by the redeemed shareholder after
the redemption. The basis of the shares
deemed received in the reorganization de-
scribed in section 368(a)(1)(E) will be de-
termined under the rules of section 358 and
§1.358–2.
(3)Redemption of all shares of re-
deemed class—(i)Remaining basis treated
as loss. If all the shares of the redeemed
class held by the redeemed shareholder are
redeemed, an amount equal to the basis of
the redeemed stock, after adjusting such
basis to reflect the application of section
301(c)(2) as provided in paragraph (a)(1)
of this section, will be treated as a loss
on a disposition of the redeemed stock on
the date of the redemption. Such loss is
taken into account on the inclusion date as
defined in paragraph (b) of this section.
(ii)Attributes of loss. Notwithstanding
that a loss described in paragraph (a)(3)(i)
of this section may be deferred and taken
into account on a date later than the date
of the redemption, the attributes (for exam-
ple, character and source) of such loss are
determined on the date of the redemption
that gave rise to such loss.
(b)Definitions—(1)Redeemed share-
holder. Except as provided in paragraph
(c) of this section, the termredeemed
shareholdermeans the person whose stock
is redeemed in a transaction. If the re-
deemed shareholder is a corporation, and
the assets of the redeemed shareholder
are acquired in a transaction described
in section 381(a) (other than transactions
described in paragraph (b)(4)(ii) of this
section), the acquiringcorporation (within
the meaning of section 381) thereafter is
treated as the redeemed shareholder.
(2)Redeemed class. With respect to
a shareholder whose stock has been re-
deemed, the termredeemed classmeans
all of the shares of that class held by the
redeemed shareholder. For this purpose, a
class is defined with respect to economic
rights to distributionsrather than the labels
attached to shares or rights with respect to
corporate governance.
(3)Redeeming corporation.Theterm
redeeming corporationmeans the corpora-
tion that issued the stock that is redeemed.
(4)Inclusion date—(i)Definition.The
terminclusion datemeans the earlier of—
(A) The first date on which the redeemed
shareholder would satisfy the criteria of
section 302(b)(1), (2), or (3), if the facts
and circumstances that exist at the end of
such day had existed immediately after the
redemption; or
(B) The first date on which all classes
of stock of the redeeming corporation
become worthless within the meaning of
section 165(g). Solely for purposes of this
paragraph, if the assets of the redeeming
corporation (or its successor) are acquired
by another corporation in a transaction
described in section 381(a), the inclu-
sion date for the redeemed shareholder
is determined by treating all of the facts
and circumstances that exist at the end
of the day that includes the section 381
transaction (including the acquisition of
the assets of the redeeming corporation
or its successor) as existing immediately
after the redemption.A successor for this
purpose means a corporation that acquires
the assets of the redeeming corporation
in a transaction to which section 381(a)
applies.
(ii)Special rules for corporate share-
holders. If the redeemed shareholder is a
corporation, the inclusion date includes the
date such corporation has disposed of all of
its assets in a transaction in which all gain
and loss with respect its assets is recog-
nized in whole, and the corporation ceases
to exist for tax purposes. If the redeemed
shareholder is a foreign corporation, the in-
clusion date includes the date such corpo-
ration transfers its assets to a domestic cor-
poration in either a liquidation described in
2009–8 I.R.B.584February 23, 2009

section 332 or a reorganization described
in section 368(a)(1) to which section 381
applies. If the redeemed shareholder is a
foreign corporation that is not a controlled
foreign corporation within the meaning of
section 957(a) on the date of the redemp-
tion, the inclusion date includes the date
such corporation transfers its assets to a
controlled foreign corporation in a liquida-
tion described in section 332 or a reorga-
nization described in section 368(a)(1) to
which section 381 applies.
(c)Rules for special shareholders—(1)
Redeemed shareholder is a partnership.
[Reserved]
(2)Redeemed shareholder is an S cor-
poration.[Reserved]
(3)Redeemed shareholder is an estate
or trust.[Reserved]
(d)Operating rules for treatment of loss
attributable to basis of redeemed stock—
(1)Treatment as a deferred loss.Any
loss attributable to the basis of redeemed
stock under paragraph (a) of this section
that has not been permitted to be taken
into account under such section shall be
treated as a deferred loss. The character of
the deferred loss as ordinary or capital is
determined at the time of the redemption.
(2)Effect of loss attributable to basis of
redeemed stock on earnings and profits.If
the redeemed shareholder is a corporation,
any deferred loss attributable to the basis
of redeemed stock is not reflected in such
corporation’s earnings and profits before it
is taken into account pursuant to the rules
of paragraph (a)(3) of this section. See, for
example, §§1.312–6(a) and 1.312–7.
(e)Examples. For the purposes of the
examples in this section, Corporations X,
Y and Z are domestic corporations that file
U.S. tax returns on a calendar-year basis.
The examples are as follows:
Example 1.(i)Facts. AandB,husbandand
wife, each own 100 shares (50 percent) of the com-
mon stock of Corporation X which they hold as a cap-
ital asset. On Date 1, A acquired 50 shares for $100
(block1)and50sharesonDate2for$200(block2).
On December 31, Corporation X, which has no cur-
rent or accumulated earnings and profits, redeems all
of A’s block 2 shares for $300. Under section 302(d),
the redemption proceeds are treated under section 301
as a recovery of basis.
(ii)Analysis. Under this section, immediately be-
fore the redemption, the distribution of property is ap-
plied on apro rata, share-by-share basis with respect
to each of the shares in the redeemed class held di-
rectly by A, the redeemed shareholder. Accordingly,
A will have a $50 capital gain on block 1 ($150–100)
under section 301(c)(3) and $50 of basis remaining
on block 2 ($150–200). To reflect the actual number
of shares held by A after the redemption, A’s shares
in the redeemed class, including the shares actually
surrendered, will be treated as exchanged in a re-
capitalization under section 368(a)(1)(E). The basis
in A’s recapitalized shares will be determined under
§1.358–2. Accordingly, A will have 25 shares with a
zero basis (attributable to block 1) and 25 shares with
a basis of $50 (attributable to block 2).
Example 2.(i)Facts. The facts are the same as in
Example 1, except that, Corporation X, on the follow-
ing December 31, when it has no current or accumu-
lated earnings and profits, redeems all of A’s remain-
ing 50 shares for $40. A does not file an agreement
described in section 302(c)(2)(A)(iii) waiving family
attribution under section 318.
(ii)Analysis. Since A is treated under section
318(a)(1) as owning B’s shares, the redemption is de-
scribed in section 302(d) and is treated as a distribu-
tion to which section 301 applies. As inExample 1,
immediately before the redemption, the distribution
is applied on apro rata, share-by-share basis with re-
spect to each of the shares in the redeemed class held
by A. Accordingly, A recognizes a $20 gain and a $30
loss. The $30 deferred loss under §1.302–5(a)(3) may
be taken into account by A on the inclusion date (see
§1.302–5(a)(3)(ii)).
Example 3.(i)Facts. Corporation X has both
common and preferred stock outstanding. A, an in-
dividual, has 100 shares of common stock with a ba-
sis of $100 and 100 shares of preferred stock with
a basis of $200. The 100 shares of common stock
represent voting control of Corporation X. Corpora-
tion X, when it has no current or accumulated earn-
ings and profits, redeems all of A’s preferred stock for
$150. Section 302(d) applies to the redemption, and
therefore the distribution is treated as a distribution of
property to which section 301 applies.
(ii)Analysis. If Corporation X had declared a
distribution under section 301 with respect to the re-
deemed preferred stock, the distribution would have
been limited to the shares of common stock. There-
fore, the only basis recovered under section 301(c)(2)
is the basis of A’s preferred stock. A has $50 in excess
basis after the redemption of all its preferred stock
which will not shift to the common stock held by A.
Under §1.302–5(a)(3), the excess basis will be treated
as a deferred loss until the inclusion date.
Example 4.(i)Facts. Corporation Z has 100
shares of stock outstanding, 50 shares of which are
owned by each of A and his son, B. A’s basis in each
of his shares of Corporation Z stock is $1. In Year 1,
Corporation Z redeems all of A’s shares of Corpora-
tion Z stock for $200. A does not file an agreement
described in section 302(c)(2)(A)(iii) waiving family
attribution under section 318. At the end of Year 1,
Corporation Z has currentand accumulated earnings
and profits in excess of $200. Section 302(d) applies
to the redemption, and therefore the distribution is
treated as a distribution to which section 301 applies.
A recognizes dividend income of $200. In Year 6,
Corporation Y, a publicly traded corporation acquires
all of Corporation Z’s assets in exchange solely for
voting stock in a reorganization described in section
368(a)(1)(C). In the reorganization, B surrenders his
shares of Corporation Z stock which, at the time of the
reorganization have an aggregate fair market value of
$200, and receives in exchange 5,000 shares of com-
mon stock of Corporation Y representing less than
one percent of the fair market value of all the stock
of Y.
(ii)Analysis
. Under this section, an amount equal
to A’s basis in the redeemed stock after the Year 1
redemption, $50, is treated as a deferred loss on a
disposition of the redeemed stock on the date of the
redemption. Under paragraph (b)(3) of this section,
solely for purposes of determining whether a partic-
ular date on or after the date of the reorganization is
the inclusion date, Corporation Y, the acquiring cor-
poration, is treated as the redeeming corporation. If
the facts and circumstancesthat exist at the end of
the day of the reorganization had existed on the date
of the redemption, the redemption would have been
treated as a distribution in part or full payment in ex-
change for the redeemed stock pursuant to section
302(a). Therefore, the date of the reorganization is
the inclusion date and A is permitted to take into ac-
count the deferred loss of $50 attributable to his basis
in the redeemed stock in Year 6.
(f)Effective/applicability date.This
section applies to transactions that occur
after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Par. 5. Section 1.304–1 is revised to
read as follows:
§1.304–1 In general.
(a)In general. Section 304 is applica-
ble where a shareholder sells stock of one
corporationtoarelatedcorporationasde-
fined in section 304. Sales to which sec-
tion 304 is applicable shall be treated as re-
demptions subject to sections 302 and 303.
(b)Effective/applicability date.This
section applies to transactions that occur
after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Par. 6. Section 1.304–2 is amended by
revising paragraphs (a) and (c), and adding
paragraph (d) to read as follows:
§1.304–2 Acquisition by related
corporation (other than a subsidiary).
(a)In general(1) If a corporation (the
acquiring corporation), in return for prop-
erty, acquires the stock of another corpora-
tion (the issuing corporation) from one or
morepersons,andsuchpersonorpersons
from whom the stock was acquired were
in control of both such corporations, then
such property shall be treated as received
in redemption of the common stock of the
acquiring corporation. As to each person
transferring stock, the amount received
shall be treated as a distribution to which
section 301 applies, if section 302(a) or
February 23, 20095852009–8 I.R.B.

303 does not apply. For the amount con-
stituting a dividend in such cases, see
§1.304–6.
(2)Section 302(b). In applying sec-
tion 302(b), reference shall be made to
the ownership of stock in the issuing cor-
poration and not to the ownership of the
acquiring corporation (except for the pur-
poses of applying section 318(a)). Section
318(a) shall be applied without regard to
the 50 percent limitation contained in sec-
tion 318(a)(2)(C) and (3)(C).
(3)Section 302(d). If, pursuant to sec-
tion 302(d), section 301 applies to the
property received in redemption of the
common stock of the acquiring corpora-
tion pursuant to paragraph (a)(1) of this
section, the transferor and the acquiring
corporation shall be treated, for all Federal
income tax purposes, in the same manner
as if the transferor had transferred the stock
of the issuing corporation to the acquiring
corporation in exchange for the common
stock of the acquiring corporation in a
transaction to which section 351 applies,
and then the acquiring corporation had
redeemed the common stock it was treated
as issuing in an exchange for property.
Accordingly, the acquiring corporation’s
basis in the stock of the issuing corpora-
tion is determined under section 362, and,
under section 358, the transferor’s basis
in the common stock of the acquiring cor-
poration deemed issued to the transferor
in the deemed section 351 transaction is
equal to the transferors basis in the stock
of the issuing corporation it surrendered.
(4)Basis of redeemed shares.Tothe
extent that section 301(c)(2) applies to
the redemption of the common stock of
the acquiring corporation issued in the
deemed section 351 exchange, the amount
distributedinsuchredemptionshallbe
applied to reduce the adjusted basis of
each share of common stock directly
held or deemed held by the transferor
on apro rata, share-by-share basis. See
§1.302–5(a).
(5)Sale or exchange treatment. If sec-
tion 301 does not apply to the property
treated as received in redemption of the
common stock of the acquiring corpora-
tion pursuant to paragraph (a)(1) of this
section, the property received by the trans-
feror shall be treated as received in a dis-
tribution in full payment in exchange for
such common stock of the acquiring cor-
poration under section 302(a). The ba-
sis and the holding period of the common
stock of the acquiring corporation that is
treated as redeemed will be the same as the
basis and holding period of the stock of the
issuing corporation actually surrendered.
The acquiring corporation shall take a cost
basis in the stock of the issuing corporation
that it acquires under section 1012.
*****
(c)Examples. For purposes of the ex-
amples in this section, each of corporation
is a domestic corporation that files a U.S.
tax return on a calendar-year basis and in
each instance the fair market value of the
issuing corporation stock is in excess of its
adjusted basis. The principles of this sec-
tion are illustrated by the following exam-
ples:
Example 1.(i)Facts. Corporation X and Corpo-
ration Y each has 100 shares of common stock out-
standing. A, an individual, owns one-half of the stock
of each corporation, B owns one-half of the stock of
Corporation X, and C owns one-half of the stock of
Corporation Y. A, B, and C are unrelated. A sells 30
shares of the stock of Corporation X, which have an
adjusted basis of $10, to Corporation Y for $50.
(ii)Analysis. Section 304(a)(1) applies to A’s sale
of 30 shares of Corporation X stock to Corporation Y
because A controls both Corporation X and Corpora-
tion Y within the meaning of section 304(c), and Cor-
poration Y acquires the 30 shares of Corporation X
stock from A in exchange for property ($50 of cash).
Pursuant to section 304(a)(1), the cash received by A
is treated as a redemption of the stock of Corpora-
tion Y. Because before thesale A owns 50 percent of
the stock of Corporation X and after the sale A owns
only 35 percent of such stock (20 shares directly and
15 constructively because one-half of the 30 shares
owned by Corporation Y are attributed to A), the
redemption is substantially disproportionate as to A
pursuant to the provisions of section 302(b)(2). A,
therefore, recognizes a gain of $40 ($50 minus $10).
If the stock surrendered is a capital asset, such gain
is long-term or short-term capital gain depending on
the period of time that A held such stock. A’s basis in
the stock of Corporation Y is not changed as a result
of the sale. Under section 1012, the basis that Corpo-
ration Y takes in the acquired stock of Corporation X
is its cost of $50.
Example 2.(i)Facts. Corporation X and Corpo-
ration Y each has 200 shares of common stock out-
standing, all of which are owned by H, an individual.
H has a basis $100 in his Corporation X stock and
$30 in his Corporation Y stock. Corporation X has
$40 and Corporation Y has $20 of current and accu-
mulated earnings and profits. H sells his 200 shares
of Corporation X stock to Corporation Y for $150 at a
time when Corporation Y stock also has a fair market
value of $150.
(ii)Analysis. Section 304(a)(1) applies to H’s sale
of his 200 shares of Corporation X stock to Corpora-
tion Y because H controls both Corporation X and
Corporation Y within the meaning of section 304(c),
and Corporation Y acquires the 200 shares of Corpo-
ration X stock from H in exchange for property. Pur-
suant to section 304(a)(1),the cash received by H is
treated as a redemption of the stock of Corporation
Y. Because before the sale H directly owns 100 per-
cent of Corporation X and after the sale H is treated as
owning 100 percent of Corporation X, section 302(a)
does not apply to the deemed redemption distribution.
Under section 302(d), the proceeds of the deemed re-
demption are treated as a distribution to which section
301 applies. Therefore, H is treated as transferring the
Corporation X stock to Corporation Y in exchange
for Corporation Y common stock in a transaction to
which section 351(a) applies. Corporation Y’s basis
in the Corporation X stock acquired is $100 under
section 362(a), the same basis that H had in the Cor-
poration X stock surrendered. H takes a basis of $100
in the Corporation Y common stock H is treated as re-
ceiving in the deemed section 351 exchange. Corpo-
ration Y is then treated as redeeming such Corpora-
tion Y common stock from H for $150 in a transaction
to which section 301 applies. H is treated as receiving
a dividend of $60 ($20 from the current and accumu-
lated earnings and profits of Corporation Y and then
$40 from the current and accumulated earnings and
profits of Corporation X) (see section 304(b)). Un-
der §1.302–5, the remaining $90 of the distribution
will be applied to and reduce the basis of each share
ofCorporationYstockheldbyH.Accordingly,H
will have no gain on the shares deemed received in
the section 351 exchange which have a $100 basis,
but will have a $15 gain on the Corporation Y shares
with a $30 basis. After the redemption transaction, all
of H’s shares in Corporation Y, including the deemed
shares that are redeemed, are treated as exchanged in
a recapitalization described in section 368(a)(1)(E).
The basis of the redeemed shares and the shares actu-
ally outstanding in Corporation Y are allocated pur-
suant to §1.358–2(a). Accordingly, of H’s 200 shares
in Corporation Y common stock, 100 will have a ba-
sis of $55, and 100 will have a zero basis.
Example 3.(i)Facts. Corporation W acquired all
of the outstanding stock of Corporation X stock for
$75 (100 shares of common) and then acquired all
of the outstanding stock of Corporation Y (50 shares
ofcommonstockfor$75and50sharesofcommon
stock for $100). Only corporation Y has current or ac-
cumulated earnings and profits ($100). Corporation
W sells all the shares in Corporation X to Corporation
Y for $300. At the time of the transaction, the Corpo-
ration X and Corporation Y stock have the same fair
market value.
(ii)Analysis. Section 304(a)(1) applies to Corpo-
ration W’s sale of Corporation X to Corporation Y
because Corporation W isin control of both Corpo-
ration X and Corporation Y within the meaning of
section 304(c), and Corporation Y acquires the Cor-
poration X stock in exchange for property. Because
before the sale Corporation W owns 100 percent of
Corporation X, and after the sale is treated as owning
100 percent of Corporation X, section 302(a) does not
apply to the deemed redemption distribution. Under
section 302(d), the proceeds of the deemed redemp-
tion are treated as a distribution to which section 301
applies. Section 1059(e)(1)(A)(iii) also applies. Cor-
poration W is treated as transferring the Corporation
X stock to Corporation Y in exchange for Corpora-
tion Y common stock in a transaction to which section
351(a) applies. Corporation Y’s basis in the Corpo-
ration X stock is $75 under section 362(a), the same
basis that Corporation W had in the stock it surren-
2009–8 I.R.B.586February 23, 2009

dered. Corporation W takes a $75 basis in the Cor-
poration Y common stock it is deemed to receive in
the deemed section 351 transaction. Corporation Y is
then treated as redeeming such Corporation Y com-
mon stock from Corporation W for $300. In a re-
demption to which section 301 applies, Corporation
W is treated as receiving a dividend of $100 (from
the current and accumulated earnings and profits of
Corporation Y) (see section 304(b)). Under section
1059, the $100 dividend is treated as an extraordinary
dividend which, under the flush language of section
1059(e)(1)(A)(iii), reduces only the basis of the stock
deemed redeemed, which has a basis of $75. Accord-
ingly, Corporation W recognizes a $25 gain. Under
§1.302–5, the remaining $200 of the distribution is
applied to reduce the basis of the Corporation Y stock
held by Corporation W on apro rata, share-by-share
basis, including the basis in the shares deemed re-
deemed. Accordingly, $100 is allocated to the Corpo-
ration Y stock that Corporation W deemed received
in the section 351 transaction that now has a zero ba-
sis after the application of section 1059 and the re-
maining $100 is allocated to Corporation W’s other
two blocks of Corporation Y stock. Corporation W
has a total gain of $125 on the Corporation Y stock
deemed received and redeemed; and $25 and $50, re-
spectively, of remaining basis in the other 2 blocks of
corporation Y shares. After the redemption transac-
tion, all of Corporation W’s shares in corporation Y,
including the deemed shares that are redeemed, are
treated as exchanged in a recapitalization described
in section 368(a)(1)(E). As a result, corporation W
will have 100 shares in corporation Y, 50 shares will
have a zero basis, 25 shares will have a $25 basis, and
25 shares will have a $50 basis.
(d)Effective/applicability date.This
section applies to transactions that occur
after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Par. 7. Section 1.304–3 is amended
by revising paragraph (a) and adding para-
graph (c) to read as follows:
§1.304–3 Acquisition by a subsidiary.
(a)In general.Ifasubsidiary,inre-
turn for property, acquires stock of its par-
ent corporation from a shareholder of the
parent corporation, the acquisition of such
stock will be treated as if the parent corpo-
ration had redeemed its own stock in ex-
change for the property. For the purposes
of this section, a corporation is a parent
corporation if it meets the 50 percent own-
ership requirements of section 304(c). The
determination of whether the amount re-
ceived shall be treated as received in pay-
ment in exchange for the stock will be
made by applying section 302(b) with ref-
erence to the stock of the issuing parent
corporation, or by applying section 303.
*****
(c)Effective/applicability date.This
section applies to transactions that occur
after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Par. 8. Section 1.304–5 is amended by
adding a sentence at the end of paragraph
(a) and revising paragraph (c) to read as
follows:
§1.304–5 Control.
(a)***Specifically,section318(a)
will be applied by substituting “5 percent”
for “50 percent” in section 318(a)(2)(C)
and by substituting “5 percent” for “50
percent” in section 318(a)(3)(C), except
that if section 318(a)(3)(C) would not
have applied but for this substitution, by
considering a corporation as owning the
stock (other than stock in such corpora-
tion) owned by or for any shareholder of
such corporation in that proportion which
the value of the stock which such share-
holder owned in such corporation bears to
the value of all stock in such corporation.
*****
(c)Effective/applicability date.This
section applies to transactions that occur
after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Par. 9. Section 1.351–2 is amended by:
1. Redesignating paragraphs (b), (c),
(d) and (e) as paragraphs (c), (d), (e) and
(f), respectively and adding new para-
graphs (b) and (g) to read as follows:
§1.351–2 Receipt of property.
*****
(b) To determine the amount of gain
recognized under section 351(b), the fair
market value of each category of consid-
eration received by eachtransferor is allo-
cated to the properties transferred in pro-
portion to each property’s relative fair mar-
ket value. The application of this para-
graph (b) is illustrated by the following ex-
ample:
Example. C transfers $2,000 in exchange for 200
shares of stock. D transfers Asset I, Asset II, and As-
set III in exchange for $100 cash and 100 shares of
stock. The exchange is subject to section 351. At the
time of the exchange, Asset I has a fair market value
of $220 and a basis of $400, Asset II has a fair mar-
ket value of $330 and a basis of $200, and Asset III
has a fair market value of $550 and a basis of $250.
No gain or loss is recognized to C. Gain, but not loss,
is recognized by D. To determine the gain recognized
by D under section 351(b), the fair market value of
each category of consideration received is allocated
to the properties transferred in proportion to the rel-
ative fair market values of the properties transferred.
Asset I represents 20 percent of the total fair market
value of assets transferred (220/1100), Asset II repre-
sents 30 percent (330/1100), and Asset III represents
50 percent (550/1100). Under paragraph (b) of this
section, the amount of gain recognized by D is deter-
mined by allocating apro rataportion of each class of
consideration received to each property transferred as
follows: (A) $20 cash and 20 shares of stock to Asset
I (20 percent of 100 shares of stock and 20 percent
of $100(B) $30 cash and 30 shares of stock to Asset
II (30 percent of 100 shares of stock and 30 percent
of $100); and (C) $50 cash and 50 shares of stock to
Asset III (50 percent of 100 shares of stock and 50
percent of $100). D realizes a loss of $180 on Asset
I, none of which is recognized, a gain of $130 on As-
set II, $30 of which is recognized, and a gain of $300
on Asset III, $50 of which is recognized.
*****
(g) This section applies to exchanges
that occur after the date these regulations
are published as final regulations in the
Federal Register, except for exchanges
which occur pursuant to a written agree-
ment that is binding on or before the date
these regulations are published as final in
theFederal Register. For exchanges that
occur on or before the date that these reg-
ulations are published as final regulations
in theFederal Register, see this section as
contained in 26 CFR part 1 revised April
1, for the year before these regulations are
published as final regulations in theFed-
eral Register.
Par. 10. Section 1.354–1 is amended
by:
1. Revising the section heading.
2. Redesignating paragraphs (d), (e)
and (f) as paragraphs (e), (f) and (g), re-
spectively.
3. Adding new paragraphs (d) and (h).
4. AddingExample 5to the end of
newly designated paragraph (e).
The additions and revisions read as fol-
lows:
§1.354–1 Exchanges of stock,
securities and other property in
certain reorganizations.
*****
(d)Exchangessolelyorpartlyfor
money or other property—(1)Determina-
tion of consideration for a share of stock
or a security. In determining the con-
sideration received for a share of stock
or a security, except as otherwise pro-
vided in this paragraph (d)(1), apro rata
February 23, 20095872009–8 I.R.B.

portion of any other property and money
received shall be treated as received in
exchange for each share of stock and secu-
rity surrendered, based on the fair market
value of such surrendered share of stock
or security. However, to the extent the
terms of the exchange specify the other
property or money that is received in ex-
change for a particular share of stock or
security surrendered or a particular class
of stock or securities surrendered, such
terms shall control provided that the terms
are economically reasonable, unless the
shareholder’s exchange has the effect of
a distribution of a dividend. If the ex-
change has the effect of a distribution of
a dividend and the terms of an exchange
specify the other property or money that is
received with respect to a particular share
of stock and such specification would
otherwise be economically reasonable,
such other property or money shall be
treated as receivedpro ratain exchange
for each share of stock within that class
(as defined in section 1.302–5(b)(2)) held
by the exchanging shareholder. Notwith-
standing the preceding sentence, econom-
ically reasonable designations between
classes of stock or securities (as opposed
to within a class) shall generally control.
All exchanges made by an exchanging
shareholder, whether governed by section
354, 356, or 302, are taken into account
to determine whether the shareholder’s
exchange has the effect of a distribution of
a dividend.
(2)Treatment of exchanges of stock
solely for money or other property.Nei-
ther section 354 nor so much of section
356 as relates to section 354 applies to
a shareholder’s surrender of a share of
stock in exchange solely for money or
other property that is not permitted to be
received without the recognition of gain,
even though such exchange is pursuant
to a plan of reorganization described in
section 368(a), and even though section
354, section 356 or both sections 354 and
356 apply to the exchange of other shares
by that shareholder or other shareholders.
See section 302 and the regulations under
that section for the treatment of such an
exchange.
(e) The rules of section 354 may be il-
lustrated by the following examples:
*****
Example 5. D owns shares of Class A common
stock, Series 1 preferred stock, and Series 2 preferred
stock in Corporation T. The Series 1 preferred stock
and the Series 2 preferred stock are different classes
of stock. Pursuant to a reorganization described in
section 368(a) to which corporations T and V are par-
ties, D surrenders all of D’s Class A common stock
in Corporation T in exchange for common stock in
Corporation V, all of D’s Series 1 preferred stock in
Corporation T in exchange for both cash and com-
mon stock in Corporation V, and all of D’s Series 2
preferred stock in Corporation T in exchange solely
for cash. Section 354 applies to the exchange of the
Class A common stock in Corporation T for Corpo-
ration V common stock. Section 356 applies to the
exchange of Series 1 preferred stock for Corporation
V common stock and cash. Neither section 354 (nor
so much of section 356 as relates to section 354) ap-
plies to the exchange of Series 2 preferred stock in
Corporation T solely forcash (see section 302 and
regulations thereunder).
*****
(h) This section applies to exchanges
that occur after the date these regulations
are published as final regulations in the
Federal Register,except for exchanges
which occur pursuant to a written agree-
ment that is binding on or before the date
these regulations are published as final in
theFederal Register. For exchanges that
occur on or before the date these regula-
tions are published as final regulations in
theFederal Register, see this section as
contained in 26 CFR part 1 revised April
1, for the year before these regulations are
published as final regulations in theFed-
eral Register.
Par. 11. Section 1.355–1 is amended
by adding new paragraph (e) to read as
follows:
§1.355–1 Distribution of stock and
securities of a controlled corporation.
*****
(e)Exchanges solely or partly for
money and other property—(1)Deter-
mination of consideration for a share of
stock or a security. In determining the
consideration received for a share of stock
or a security, except as otherwise pro-
vided in this paragraph (e)(1), apro rata
portion of any other property and money
received shall be treated as received in
exchange for each share of stock and secu-
rity surrendered, based on the fair market
value of such surrendered share of stock
or security. However, to the extent the
terms of the exchange specify the other
property or money that is received in ex-
change for a particular share of stock or
security surrendered or a particular class
of stock or securities surrendered, such
terms shall control provided that the terms
are economically reasonable, unless the
shareholder’s exchange has the effect of
a distribution of a dividend. If the ex-
change has the effect of a distribution of
a dividend and the terms of an exchange
specify the other property or money that is
received with respect to a particular share
of stock and such specification would
otherwise be economically reasonable,
such other property or money shall be
treated as receivedpro ratain exchange
for each share of stock within that class
(as defined in §1.302–5(b)(2)) held by the
exchanging shareholder. Notwithstand-
ing the preceding sentence, economically
reasonable designations among classes of
stock (as opposed to within a class) shall
generally control. All exchanges made
by an exchanging shareholder, whether
governed by section 355, 356, or 302, are
taken into account to determine whether
the shareholder’s exchange has the effect
of a distribution of a dividend.
(2)Treatment of exchanges of stock
solely for money or other property.Nei-
ther section 355 nor so much of section
356 as relates to section 355 applies to
a shareholder’s surrender of a share of
stock in exchange solely for money or
other property that is not permitted to be
received without the recognition of gain,
even though such exchange is pursuant
to a plan of reorganization described in
section 368(a), or even though section
355, section 356 or both sections 355 and
356 apply to the exchange of other shares
by that shareholder or other shareholders.
See section 302 and the regulations under
that section for the treatment of such an
exchange. Any such exchange is treated as
occurring immediately before any distri-
bution of or exchange for the stock of the
controlled corporation to which section
355 (or so much of section 356 as relates
to section 355) applies.
(3)Effective/applicability date.This
paragraph (e) applies to transactions that
occur after the date these regulations are
published as final regulations in theFed-
eral Register,except for exchanges which
occur pursuant to a written agreement that
is binding on or before the date these regu-
lations are published as final in theFederal
Register.
Par. 12. Section 1.356–1 is amended by
revising paragraph (b),Examples 3and4
to paragraph (d), and (g) to read as follows:
2009–8 I.R.B.588February 23, 2009

§1.356–1 Receipt of additional
consideration in connection with an
exchange.
*****
(b) The rules of §1.354–1(d)(1) or
§1.355–1(e)(1), as the case may be, apply
for purposes of computing the gain, if any,
recognized pursuant to section 356(a) and
paragraph (a)(1) of this section.
*****
(d) * * *
*****
Example 3.(i)Facts. J, an individual, acquired
10 shares of stock of Corporation X on Date 1 for $3
each (Block 1) and 10 shares of stock of Corporation
XonDate2for$9each(Block2).OnDate3,Cor-
poration Y acquires the assets of Corporation X in a
reorganization under section 368(a)(1)(A). Pursuant
to the terms of the plan of reorganization, J surren-
ders all of J’s shares of Corporation X stock for 10
shares of Corporation Y stock and $100 of cash. On
the date of the exchange, the fair market value of each
share of stock of Corporation X is $10 and the fair
market value of each share of Corporation Y stock is
$10. The terms of the exchange do not specify that
shares of Corporation Y stock or cash are received
in exchange for particularshares of stock of Corpo-
ration X. In addition, the distribution of the $100 of
cash does not have the effect of a distribution of a div-
idend.
(ii)Analysis. Under paragraph (b) of this section,
because the terms of the exchange do not specify that
the cash is received in exchange for particular shares
of stock of Corporation X, apro rataportion of the
cash received is treated asreceived in exchange for
each share of stock of Corporation X based on the fair
market value of the surrendered shares. Therefore, J
is treated as receiving shares of Corporation Y stock
with a fair market value of $100 and $100 of cash
in exchange for each blockof J’s stock of Corpora-
tion X. J realizes a gain of $70 on the exchange of the
Block 1 shares of Corporation X stock, $50 of which
is recognized under section 356 and paragraph (a) of
this section, and J realizes a gain of $10 on the ex-
change of the Block 2 shares of Corporation X stock,
all of which is recognized under section 356 and para-
graph (a) of this section. Because J’s gain recognized
is not treated as a dividend under section 356(a)(2),
such gain shall be treated as gain from the exchange
of property.
Example 4.(i)Facts. The facts are the same as in
Example 3, except that the terms of the plan of reorga-
nization specify that J receives 10 shares of stock of
Corporation Y in exchange for J’s Block 1 shares of
stock of Corporation X and $100 of cash in exchange
for J’s Block 2 shares of stock of corporation X.
(ii)Analysis. Under paragraph (b) of this sec-
tion, because the terms of the exchange specify that
J receives 10 shares of stock of Corporation Y in ex-
change for J’s Block 1 shares of stock of Corporation
X and $100 of cash in exchange for J’s Block 2 shares
of stock of Corporation X and such terms are econom-
ically reasonable, such terms control. J realizes a gain
of $70 on the exchange of the Block 1 shares of stock,
none of which is recognized under section 354. J re-
alizes a gain of $10 on the exchange of the Block 2
shares of stock of Corporation X, all of which is rec-
ognized under section 302(a).
*****
(g) This section applies to exchanges
and distributions that occur after the date
these regulations are published as final
regulations in theFederal Register,ex-
cept for exchanges which occur pursuant
to a written agreement that is binding on
or before the date these regulations are
published as final in theFederal Regis-
ter. For exchanges and distributions that
occur on or before the date these regula-
tions are published as final regulations in
theFederal Register, see this section as
contained in 26 CFR part 1 revised April
1, for the year before these regulations
are published as final regulations in the
Federal Register.
Par. 13. Section 1.358–1 is revised to
read as follows:
§1.358–1 Basis to distributees.
(a)Certain exchanges or distributions
in which only nonrecognition property is
received—(1)Exchanges to which section
354 or 355 applies. Inthecaseofanex-
change to which section 354 or 355 applies
inwhichonlynonrecognitionpropertyis
received, the sum of the basis of all of the
stock and securities received in the trans-
action shall be the same as the basis of all
of the stock and securities in such corpo-
ration surrendered in the transaction, allo-
cated in the manner described in §1.358–2.
(2)Distributions to which section 355
applies. In the case of a distribution to
which section 355 applies in which only
nonrecognition property is received, the
sum of the basis of all of the stock and
securities with respect to which the distri-
bution is made plus the basis of all of the
stock and securities received in the distri-
bution with respect to such stock and secu-
rities shall be the same as the basis of the
stock and securities with respect to which
the distribution is made immediately be-
fore the transaction, allocated in the man-
ner described in §1.358–2.
(3)Exchanges to which section 351 or
361 applies. In the case of an exchange to
which section 351 or 361 applies in which
only nonrecognition property is received,
the basis of all of the stock and securi-
ties received in the exchange shall be the
same as the basis of all of the property ex-
changed for such stock and securities.
(b)Certain exchanges or distributions
in which both nonrecognition property
and “other property” or money are re-
ceived—(1)Exchanges or distributions
to which section 351, 356, or 361 ap-
plies. If in an exchange or distribution
to which section 351, 356, or 361 applies
both nonrecognition property and “other
property” or money are received, the basis
of the nonrecognition property held after
the transaction shall be determined as de-
scribed in paragraph (a) of this section,
decreased by the sum of the money and
the fair market value of the “other prop-
erty” (as of the date of the transaction)
received and increased by the sum of the
amount treated as a dividend (if any) and
the amount of the gain recognized on the
exchange (other than gain treated as a div-
idend).
(2)Cases in which loss is recognized.
In any case in which a taxpayer transfers
property with respect to which loss is rec-
ognized, such loss shall be reflected in
determining the basis of the property re-
ceived in the exchange.
(3)Basis of “other property” received.
The basis of the “other property” is its fair
market value as of the date of the transac-
tion.
(c)Other rules.See
§1.460–4(k)(3)(iv)(A) for rules relating
to stock basis adjustments required
where a contract accounted for using a
long-term contract method of accounting
is transferred in a transaction described in
section 351 or a reorganization described
in section 368(a)(1)(D) with respect to
which the requirements of section 355
(or so much of section 356 as relates to
section 355) are met.
(d) The application of this section may
be illustrated by the following example:
Example. A purchased a share of stock in Cor-
poration X on Date 1 for $150. Since that date, A
has received distributions under section 301(c)(2) to-
taling $60, so that A’s adjusted basis for the stock is
$90. In a transaction qualifying under section 356, A
exchanged this share for one share in Corporation Y,
with a value of $100, cash of $10, and other property
with a fair market value of $30. The exchange had
the effect of the distribution of a dividend. A’s ratable
share of the earnings and profits of Corporation X was
$5. A realized a gain of $50 on the exchange ($140 -
$90), but the amount of gain recognized is limited to
$40, the sum of the cash received and the fair market
value of the other property. Of the gain recognized,
$5 is taxable as a dividend, and $35 is taxable as a
February 23, 20095892009–8 I.R.B.

gain from the exchange of property. The basis to A
of the one share of stock of Corporation Y is $90, that
is the adjusted basis of the one share of stock of Cor-
poration X ($90), decreased by the sum of the cash
received ($10) and the fair market value of the other
property received ($30) and increased by the sum of
the amount treated as a dividend ($5) and the amount
treated as a gain from the exchange of property ($35).
The basis of the other property received is $30.
(e)Effective/applicability date.This
section applies to exchanges and distribu-
tions of stock and securities that occur af-
ter the date these regulations are published
as final regulations in theFederal Regis-
ter, except for exchanges which occur pur-
suant to a written agreement that is binding
on or before the date these regulations are
published as final in theFederal Register.
For exchanges and distributions that occur
on or before the date these regulations are
published as final regulations in theFed-
eral Register, see this section as contained
in 26 CFR part 1 revised April 1, for the
year before these regulations are published
as final regulations in theFederal Regis-
ter.
Par. 14. Section 1.358–2 is revised to
read as follows:
§1.358–2 Allocation of basis among
nonrecognition property in certain
exchangesordistributions.
(a)Introduction—(1)Scope. This sec-
tion prescribes rules for allocating basis
in the case of an exchange or distribu-
tion to which section 354, 355 or 356 ap-
plies. For rules thatapply to transfers of
stock and other property where the trans-
fer of stock is described in section 351 but
does not qualify as a reorganization, see
§1.358–2(g). For transfers of stock de-
scribed in section 361, see §1.358–2(h).
(2)Definitions.Asusedinthissection
the termstockmeans stock which is not
“other property” under sections 351, 356,
or 361, as applicable. The termsecurities
means securities (including, where appro-
priate, fractional parts of securities) which
are not “other property” under sections 356
or 361, as applicable. Stock, or securities,
as the case may be, which differ either be-
cause they are in different corporations or
because the rights attributable to them dif-
fer (although they are in the same corpo-
ration) are considered different classes of
stock or securities, as the case may be, for
purposes of this section.
(b)Exchanges to which section 354,
355, or 356 applies. If a shareholder or
security holder surrenders one or more
shares of stock or one or more securities
in an exchange under the terms of section
354, 355 or 356, the following rules apply:
(1)In general. Except as otherwise
provided in this section, the basis of each
share of stock or security received in the
exchange shall be the same as the basis of
the share or shares of stock or security or
securities (or allocable portions thereof)
exchanged therefor (as adjusted under
§1.358–1).
(2)More shares of stock or securities
received than surrendered.Ifmorethan
one share of stock or security is received
in exchange for one share of stock or one
security, the basis of the share of stock or
security surrendered shall be allocated to
the shares of stock or securities received in
proportion to the fair market value of the
shares of stock or securities received.
(3)Fewersharesofstockorsecurities
received than surrendered—(i)In general.
If one share of stock or security is received
in exchange for more than one share of
stock or security or if a fraction of a share
of stock or security is received, then the
basis of the shares of stock or securities
surrendered must be allocated to the shares
of stock or securities (or allocable portions
thereof) received in a manner that reflects,
to the greatest extent possible, that a share
of stock or security received is received in
respect of shares of stock or securities that
were acquired on the same date and at the
same price. To the extent it is not possi-
ble to allocate basis in this manner, the ba-
sis of the shares of stock or securities sur-
rendered must be allocated to the shares
of stock or securities (or allocable portions
thereof) received in a manner that mini-
mizes the disparity in the holding periods
of the surrendered shares of stock or secu-
rities whose basis is allocated to any par-
ticular share of stock or security received.
(ii)Surrendered shares of stock or se-
curities acquired on different dates or at
different prices. Ifashareofstockora
security is received in exchange for more
than one share of stock or security and such
shares of stock or securities were acquired
on different dates or at different prices, the
share of stock or security received shall be
divided into segments based on the relative
fair market values of the shares of stock
or securities surrendered in exchange for
such share or security. Each segment shall
have a basis determined under the rules of
this section and a corresponding holding
period.
(4)“Other property,” money, or more
than one class of stock or securities
received. If a shareholder or security
holder receives shares of stock or secu-
rities of more than one class, or receives
“other property” or money in addition to
shares of stock or securities, the rules of
§§1.354–1(d)(1) and 1.355–1(e)(1) apply
for purposes of applying the rules of this
section.
(5)Prorataexchangestowhichsection
355 or section 356(b) applies. If a share-
holder or security holder surrenders stock
in distributing (as defined in §1.355–1(b))
for only stock in controlled and the receipt
of the controlled stock would be treated,
within the meaning of section 302(d), as
a distribution of property to which sec-
tion 301 applies if the controlled stock re-
ceived were money or other property, then
the basis of the shares received shall be
determined under the rules of paragraph
(c)ofthissectionandnottherulesofthis
paragraph (b). The rules of paragraph (c)
and not the rules of this paragraph (b) also
apply to distributions subject to section
356(b).
(c)Distributions to which section 355
applies. If a shareholder or security holder
receives one or more shares of stock or one
or more securities in a distribution under
section 355 (or so much of section 356 as
relates to section 355), the following rules
apply:
(1)In general. Except as otherwise pro-
vided in this section, the basis of each share
of stock or security of the distributing cor-
poration (as defined in §1.355–1(b)), as
adjusted under §1.358–1, shall be allo-
cated between the share of stock or se-
curity of the distributing corporation with
respect to which the distribution is made
and the share or shares of stock or security
or securities (or allocable portions thereof)
received in proportionto their fair market
values.
(2)Fewer shares of stock or securities
received than with respect to which dis-
tributed—(i)In general.Ifoneshareof
stock or security is received with respect
to more than one share of stock or secu-
rity or if a fraction of a share of stock or
security is received, then the basis of each
share of stock or security of the distribut-
2009–8 I.R.B.590February 23, 2009

ing corporation must be allocated to the
shares of stock or securities (or allocable
portions thereof) received in a manner that
reflects that, to the greatest extent possi-
ble, a share of stock or security received is
received with respect to shares of stock or
securities acquired on the same date and at
the same price. To the extent it is not pos-
sible to allocate basis in this manner, the
basis of each share of stock or security of
the distributing corporation must be allo-
cated to the shares of stock or securities
(or allocable portions thereof) received in a
manner that minimizes the disparity in the
holding periods of the shares of stock or se-
curities with respect to which such shares
of stock or securities are received.
(ii)Distribution upon shares of stock or
securities acquired on different dates or at
different prices. If a share of stock or a
security is received with respect to more
than one share of stock or security and such
shares or securities were acquired on dif-
ferent dates or at different prices, the share
of stock or security received shall be di-
vided into segments based on the relative
fair market values of the shares of stock or
securities with respect to which the share
of stock or security is received. Each seg-
ment shall have a basis determined under
the rules of this section and a correspond-
ing holding period.
(3)“Other property,” money, or more
than one class of stock or securities re-
ceived. If a shareholder or security holder
receives shares of stock or securities of
more than one class, or receives “other
property” or money in addition to stock or
securities, the rules of §1.355–1(e)(1) ap-
ply for purposes of applying the rules of
this section as though the distribution were
an exchange.
(d)Reorganizations in which stock is
deemed received. For purposes of this sec-
tion, if a shareholder or security holder sur-
renders a share of stock or a security in
a transaction under the terms of section
354 (or so much of section 356 as relates
to section 354) in which such shareholder
or security holder receives no property or
receives property (including property per-
mitted by section 354 to be received with-
out the recognition of gain or “other prop-
erty” or money) with a fair market value
less than that of the stock or securities
surrendered in the transaction, such share-
holder or security holder shall be treated as
provided in paragraphs (1) and (2) of this
paragraph (d).
(1)Step one: deemed issuance.First,
the shareholder or security holder shall
be treated as receivingthe stock, securi-
ties, other property, and money actually
received by the shareholder or security
holder in the transaction and an amount
of stock of the issuing corporation (as
defined in §1.368–1(b)) that has a value
equal to the excess of the value of the
stock or securities the shareholder or secu-
rity holder surrendered in the transaction
over the value of the stock, securities,
other property, and money the shareholder
or security holder actually received in
the transaction. If the shareholder owns
only one class of stock of the issuing cor-
poration the receipt of which would be
consistent with the economic rights associ-
ated with each class of stock of the issuing
corporation, the stock deemed received by
the shareholder pursuant to the previous
sentence shall be stock of such class. If
the shareholder owns multiple classes of
stock of the issuing corporation the receipt
of which would be consistent with the
economic rights associated with each class
of stock of the issuing corporation, the
stock deemed received by the shareholder
shall be stock of each such class owned
by the shareholder immediately prior to
the transaction, in proportion to the value
of the stock of each such class owned by
the shareholder immediately prior to the
transaction. The basis of each share of
stock or security deemed received and ac-
tually received shall be determined under
the rules of this section.
(2)Step two: deemed section
368(a)(1)(E) exchange. Second, the share-
holder or security holder shall then be
treated as surrendering all of its shares of
stock and securities in the issuing corpo-
ration, including those shares of stock or
securities held immediately prior to the
transaction, those shares of stock or secu-
rities actually received in the transaction,
and those shares of stock deemed received
pursuant to paragraph (d)(1) of this sec-
tion, in a reorganization under section
368(a)(1)(E) in exchange for the shares
of stock and securities of the issuing cor-
poration that the shareholder or security
holder actually holds immediately after
the transaction. The basis of each share of
stock and security deemed received in the
reorganization under section 368(a)(1)(E)
shall be determined under the rules of this
section.
(e)Designating which stock or securi-
ties were received for, or with respect to,
the stock or securities surrendered or dis-
tributed upon—(1)In general. If a share-
holder or security holder that purchased or
acquired shares of stock or securities in a
corporation on different dates or at differ-
ent prices exchanges such shares of stock
or securities under the terms of section
354, 355, or 356, or receives a distribution
of shares of stock or securities under the
terms of section 355 (or so much of sec-
tion 356 as relates to section 355), and the
shareholder or security holder is not able
to identify which particular share of stock
or security (or allocable portion of a share
of stock or security) is received (or deemed
received) in exchange for, or with respect
to, a particular share of stock or security,
the shareholder or security holder may des-
ignate subject to the limitations of this sec-
tion, which share of stock or security is
received in exchange for, or with respect
to, a particular share of stock or security,
provided that such designation is consis-
tent with the terms of the exchange or dis-
tribution (or an exchange deemed to have
occurred pursuant to paragraph (d) of this
section), and the other rules of this section.
The designation will be binding for pur-
poses of determining the Federal tax con-
sequences of any sale or transfer of, or dis-
tribution with respect to, the shares or se-
curities received.
(2)Timing for designation—(i)In ex-
changes under section 354 or 356.Inthe
case of an exchange under the terms of
section 354 or 356 (including a deemed
exchange as a result of the application
of paragraph (d) of this section), the des-
ignation must be made on or before the
first date on which the basis of a share of
stock or a security received (or deemed re-
ceived in the reorganization under section
368(a)(1)(E) in thecase of a transaction
to which paragraph (d) of this section ap-
plies) is relevant. The basis of the shares
or securities received in an exchange un-
der the terms of section 354 or section
356, for example, is relevant when such
shares or securities are sold or otherwise
transferred.
(ii)In exchanges or distributions under
section 355. In the case of an exchange
or distribution under the terms of section
355 (or so much of section 356 as relates to
February 23, 20095912009–8 I.R.B.

section 355), the designation must be made
on or before the first date on which the
basis of a share of stock or a security of the
distributing corporation or the controlled
corporation (as defined in §1.355–1(b)) is
relevant.
(3)Failure to designate. If the share-
holder fails to make a designation in a
case in which the shareholder is not able
to identify which share of stock is re-
ceived in exchange for, or with respect
to, a particular share of stock, then the
shareholder will not be able to identify
which shares are sold or transferred for
purposes of determining the basis of prop-
erty sold or transferred under section 1012
and §1.1012–1(c) and, instead, will be
treated as selling or transferring the share
received in respect of the earliest share
purchased or acquired.
(f)Applicability of section to certain
overlap situations—(1)Exchanges de-
scribedinbothsection1036andsection
354 or 356. The rules of paragraphs (a)
through (e) of this section shall apply to
determine the basis of a share of stock or
security received by a shareholder or se-
curity holder in an exchange described in
both section 1036 and section 354 or 356.
(2)Exchanges described in both section
351 and section 354 or 356.Therulesof
paragraphs (a) through (e) of this section
shall apply to determine the basis of a share
of stock or security received by a share-
holder or security holder in an exchange
describedinbothsection351andsection
354 or 356, unless liabilities of the share-
holder or security holder are assumed in
connection with the exchange.
(g)Section 351 exchanges—(1)In gen-
eral. Except as provided in paragraph
(g)(2) of this section, if in an exchange
to which section 351 applies property
is transferred to a corporation and the
transferor receives more than one share
of stock, then the aggregate basis of the
property transferred (as adjusted under
§1.358–1) shall be allocated among all of
the shares of stock received in proportion
to the fair market values of each share of
stock.
(2)Stock and property transferred in
an exchange without a liability assump-
tion. If in an exchange to which section
351 applies stock or stock and property is
transferred to a corporation and no liabil-
ity is assumed by the transferee in the ex-
change, then the basis of the stock trans-
ferred (as adjusted under §1.358–1) shall
be allocated pursuant to paragraphs (b)(1)
through (b)(3) of this section. Such rules
also apply to other property, money or
more than one class of stock or securities
received.
(3)Transactions in which stock is
deemed received. For purposes of this
paragraph (g), if a shareholder transfers
property to a corporation in a transaction to
which section 351 applies, and such share-
holder receives no property or property
(including property permitted by section
351 to be received without the recognition
of gain or “other property” or money) in
such corporation with a fair market value
less than that of the property transferred
in the transaction, such shareholder shall
be treated as provided in paragraphs (3)(i)
and (ii) of this paragraph (g).
(i)Step one: deemed issuance.First,
the shareholder shall be treated as receiv-
ing the stock, other property, and money
actually received by the shareholder in
the transaction and an amount of stock
of the transferee corporation that has a
value equal to the excess of the value of
the property the shareholder transferred in
the transaction over the value of the stock,
other property, and money the shareholder
actually received in the transaction. If
the shareholder owns only one class of
stock of the transferee corporation the re-
ceipt of which would be consistent with
the economic rights associated with each
class of stock of the transferee corpora-
tion, the stock deemed received by the
shareholder pursuant to the previous sen-
tence shall be stock of such class. If the
shareholder owns multiple classes of stock
of the transferee corporation the receipt
of which would be consistent with the
economic rights associated with each class
of stock of the transferee corporation, the
stock deemed received by the shareholder
shall be stock of each such class owned
by the shareholder immediately prior to
the transaction, in proportion to the value
of the stock of each such class owned by
the shareholder immediately prior to the
transaction.
(ii)Step two: deemed section
368(a)(1)(E) exchange. Second, the share-
holder shall then be treated as surrendering
all of its shares of stock in the transferee
corporation, including those shares of
stockheldimmediatelypriortothetrans-
action, those shares of stock actually re-
ceived in the transaction, and those shares
of stock deemed received pursuant to
paragraph (3)(i) of this paragraph (g), in a
reorganization under section 368(a)(1)(E)
in exchange for the shares of stock of the
transferee corporation that the shareholder
actually holds immediately after the trans-
action. The basis of each share of stock
deemed received in the reorganization
under section 368(a)(1)(E) shall be deter-
mined under the rules of this section.
(h)Section 361 exchanges.Ifinan
exchange to which section 361 applies
property is transferredtoacorporation
and the transferor receives stock or secu-
rities of more than one class or receives
both stock and securities, then the basis
of the property transferred (as adjusted
under §1.358–1) shall be allocated among
all of the stock and securities received in
proportion to the fair market values of the
stock of each class and the securities of
each class.
(i)Examples. The application of this
section is illustrated by the following ex-
amples:
Example 1.More shares of stock received than
surrendered.(i)Facts. J, an individual, acquired 20
shares of Corporation X stock on Date 1 for $3 each
and10sharesofCorporationXstockonDate2for
$6 each. On Date 3, Corporation Y acquires the as-
sets of Corporation X in a reorganization under sec-
tion 368(a)(1)(A). Pursuant to the terms of the plan
of reorganization, J receives 2 shares of Corporation
Y stock in exchange for each share of Corporation
X stock. Therefore, J receives 60 shares of Corpora-
tion Y stock. Pursuant to section 354, J recognizes no
gain or loss on the exchange. J is not able to identify
which shares of Corporation Y stock are received in
exchange for each share of Corporation X stock.
(ii)Analysis. Under paragraph (b)(2) of this sec-
tion, J has 40 shares of Corporation Y stock each of
which has a basis of $1.50 and is treated as having
been acquired on Date 1 and 20 shares of Corpora-
tion Y stock each of which has a basis of $3 and is
treated as having been acquired on Date 2. Under
paragraph (e) of this section, on or before the date
on which the basis of a share of Corporation Y stock
received becomes relevant, J may designate which of
the shares of corporation Y stock have a basis of $1.50
and which have a basis of $3.
Example 2.More shares of stock received than
surrendered.(i)Facts. The facts are the same as in
Example 1, except that instead of receiving 2 shares
of Corporation Y stock in exchange for each share of
Corporation X stock, J receives 1
1
/2shares of Cor-
poration Y stock in exchange for each share of Cor-
poration X stock. Therefore, J receives 45 shares of
corporation Y stock. Again, J is not able to identify
which shares (or portions of shares) of Corporation Y
stock are received in exchange for each share of Cor-
poration X stock.
(ii)Analysis. Under paragraph (b)(2) of this sec-
tion, J has 30 shares of Corporation Y stock each of
2009–8 I.R.B.592February 23, 2009

which has a basis of $2 and is treated as having been
acquired on Date 1 and 15 shares of Corporation Y
stock each of which has a basis of $4 and is treated
as having been acquired on Date 2. Under paragraph
(e) of this section, on or before the date on which the
basis of a share of Corporation Y stock received be-
comes relevant, J may designate which of the shares
of Corporation Y stock received have a basis of $2
and which have a basis of $4.
Example 3.More than one class of stock received.
(i)Facts. J, an individual, acquired 10 shares of Class
A stock of Corporation X on Date 1 for $3 each, 10
shares of Class A stock of Corporation X on Date 2
for$9each,and10sharesofClassBstockofCor-
poration X on Date 3 for $3 each. On Date 4, J sur-
renders all of J’s shares of Class A stock in exchange
for 20 shares of new Class C stock and 20 shares of
new Class D stock in a reorganization under section
368(a)(1)(E). Pursuant to section 354, J recognizes no
gain or loss on the exchange. On the date of the ex-
change, the fair market value of each share of Class
A stock is $6, the fair market value of each share of
Class C stock is $2, and the fair market value of each
share of Class D stock is $4. The terms of the ex-
change do not specify that shares of Class C stock or
shares of Class D stock of Corporation X are received
in exchange for particular shares of Class A stock of
Corporation X.
(ii)Analysis. Under paragraph (b)(4) of this sec-
tion, because the terms of the exchange do not specify
that shares of Class C stock or shares of Class D stock
of Corporation X are received in exchange for partic-
ular shares of Class A stock of Corporation X, apro
rataportion of the shares of Class C stock and shares
of Class D stock received will be treated as received
in exchange for each share of Class A stock based
on the fair market value of the surrendered shares of
Class A stock. Therefore, J is treated as receiving one
share of Class C stock and one share of Class D stock
in exchange for each share of Class A stock. Under
paragraph (b)(2) of this section, J has 10 shares of
Class C stock, each of which has a basis of $1 and
is treated as having been acquired on Date 1 and 10
shares of Class C stock, each of which has a basis of
$3 and is treated as having been acquired on Date 2.
In addition, J has 10 shares of Class D stock, each of
which has a basis of $2 and is treated as having been
acquired on Date 1 and 10 shares of Class D stock,
each of which has a basis of $6 and is treated as hav-
ing been acquired on Date 2. J’s basis in each share of
Class B stock remains $3. Under paragraph (e) of this
section, on or before the date on which the basis of a
share of Class C stock or Class D stock received be-
comes relevant, J may designate which of the shares
of Class C stock have a basis of $1 and which have a
basis of $3, and which of the shares of Class D stock
have a basis of $2 and which have a basis of $6.
Example 4.Money received in addition to stock.
(i)Facts. J, an individual, acquired 10 shares of stock
of Corporation X on Date 1 for $2 each (Block 1), 10
shares of stock of Corporation X on Date 2 for $4
each (Block 2), and 20 shares of stock of Corporation
XonDate3for$6each(Block3).OnDate4,Cor-
poration Y acquires the assets of Corporation X in a
reorganization under section 368(a)(1)(A). Pursuant
to the terms of the plan of reorganization, J surren-
ders all of J’s shares of Corporation X stock for 40
shares of Corporation Y stock and $200 of cash. The
distribution of $200 of cash does not have the effect
of a distribution of a dividend. On the date of the ex-
change, the fair market value of each share of stock
of Corporation X is $10, and the fair market value of
each share of Corporation Y stock is $5. The terms
of the exchange do not specify that shares of Corpo-
ration Y stock or cash are received in exchange for
particular shares of stock of Corporation X.
(ii)Analysis. Under paragraph (b)(4) of this sec-
tion and under §1.356–1(b), because the terms of the
exchange do not specify that shares of Corporation Y
stock or cash are received in exchange for particular
shares of stock of Corporation X, apro rataportion of
the shares of Corporation Y stock and cash received
will be treated as received in exchange for each share
of stock of Corporation X surrendered based on the
fair market value of such stock. Therefore, J is treated
as receiving one share ofCorporation Y stock and
$5 of cash in exchange for each share of stock of
Corporation X. J realizes a gain of $80 on the ex-
change of Block 1, $50 of which is recognized un-
der §1.356–1(a). J realizes a gain of $60 of the ex-
change of Block 2, $50 of which is recognized under
§1.356–1(a). J realizes a gain of $80 on the exchange
of the Block 3 shares of stock of Corporation X, all of
which is recognized under §1.356–1(a). Under para-
graph (b)(1) of this section, J has 10 shares of Corpo-
ration Y stock, each of which has a basis of $2 and is
treated as having been acquired on Date 1, 10 shares
of Corporation Y stock, each of which has a basis of
$4 and is treated as having been acquired on Date 2,
and 20 shares of Corporation Y stock, each of which
has a basis of $5 and is treated as having been ac-
quired on Date 3. Under paragraph (e) of this section,
on or before the date on which the basis of a share
of Corporation Y stock received becomes relevant, J
may designate which of the shares of Corporation Y
stock received have a basis of $2, which have a basis
of $4, and which have a basis of $5.
Example 5
.Money received in addition to stock.
(i)Facts. The facts are the same as inExample 4,ex-
cept that the terms of the plan of reorganization spec-
ify that J receives 40 shares of stock of Corporation
Y in exchange for J’s Block 1 and Block 2 shares of
stockofCorporationXand$200ofcashinexchange
for J’s Block 3 shares of stock of Corporation X.
(ii)Analysis. Under paragraph (b)(4) of this sec-
tion and under §1.356–1(b), because the terms of the
exchange specify that J receives 40 shares of stock of
Corporation Y in exchange for J’s Block 1 and Block
2 shares of stock of Corporation X and $200 of cash
in exchange for J’s Block 3 shares of stock of Cor-
poration X and such terms are economically reason-
able and the distribution is not dividend equivalent,
such terms control. J realizes a gain of $80 on the ex-
change of Block 1, none of which is recognized under
section 354. J realizes a gain of $60 on the exchange
of Block 2, none of which is recognized under section
354. J realizes a gain of $80 on the exchange of the
Block 3 shares of stock of Corporation X, all of which
is recognized under section 302(a). Under paragraph
(b)(2) of this section, J has 20 shares of Corporation
Y stock, each of which has a basis of $1 and is treated
as having been acquired on Date 1, and 20 shares of
Corporation Y stock, each of which has a basis of $2
and is treated as having been acquired on Date 2. Un-
der paragraph (e) of this section, on or before the date
on which the basis of a share of Corporation Y stock
received becomes relevant, J may designate which of
the shares of Corporation Y stock received have a ba-
sisof$1andwhichhaveabasisof$2.
Example 6.Stock and securities received as non-
recognition property.(i)Facts. J, an individual, ac-
quired 10 shares of stock of Corporation X on Date 1
for $2 each, and a securityissued by Corporation X
to J on Date 2 with a principal amount of $100 and
a basis of $100. On Date 3, Corporation Y acquires
the assets of Corporation X in a reorganization un-
der section 368(a)(1)(A). Pursuant to the terms of the
plan of reorganization, J surrenders all of J’s shares
of Corporation X stock in exchange for 10 shares of
Corporation Y stock and surrenders J’s Corporation
X security in exchange for aCorporation Y security.
The distribution of neither the Y stock nor the Y se-
curity has the effect of a distribution of a dividend.
On the date of the exchange, the fair market value of
each share of stock of Corporation X is $10, the fair
market value of J’s Corporation X security is $100,
the fair market value of each share of Corporation Y
stock is $10, and the fair market value and principal
amount of the Corporation Y security received by J is
$100.
(ii)Analysis. Under paragraph (b)(4) of this sec-
tion and under §1.354–1(d), because the terms of the
exchange specify that J receives 10 shares of stock of
Corporation Y in exchangefor J’s shares of Class A
stock of Corporation X and a Corporation Y security
in exchange for its Corporation X security and such
terms are economically reasonable, such terms con-
trol. Pursuant to section 354, J recognizes no gain on
either exchange. Under paragraph (b)(1) of this sec-
tion, J has 10 shares of Corporation Y stock, each of
which has a basis of $2 and is treated as having been
acquired on Date 1, and a security that has a basis of
$100 and is treated as having been acquired on Date
2.
Example 7.Fewer shares of stock received than
surrendered.(i)Facts. J, an individual, acquired 10
shares of Corporation X stock on Date 1 for $2 each
and10sharesofCorporationXstockonDate2for
$5 each. On Date 3, Corporation Y acquires the stock
of Corporation X in a reorganization under section
368(a)(1)(B). Pursuant to the terms of the plan of re-
organization, J receives one share of Corporation Y
stock in exchange for every 2 shares of Corporation
X stock. Pursuant to section 354, J recognizes no gain
or loss on the exchange. J is not able to identify which
portion of each share of Corporation Y stock is re-
ceived in exchange for each share of Corporation X
stock.
(ii)Analysis. Under paragraph (b)(3) of this sec-
tion, J has 5 shares of Corporation Y stock each of
which has a basis of $4 and is treated as having been
acquired on Date 1 and 5 shares of Corporation Y
stock each of which has a basis of $10 and is treated
as having been acquired on Date 2. Under paragraph
(e) of this section, on or before the date on which the
basis of a share of Corporation Y stock received be-
comes relevant, J may designate which of the shares
of Corporation Y stock received have a basis of $4
and which have a basis of $10.
Example 8.
Exchange described in sections 351
and 354.(i)Facts. J, an individual, acquired 10
shares of Corporation X stock on Date 1 for $3 each
and10sharesofCorporationXstockonDate2for
$6 each. On Date 3, Corporation Z, a newly formed,
wholly owned subsidiary of Corporation Y, merges
with and into Corporation X with Corporation X sur-
February 23, 20095932009–8 I.R.B.

viving. As part of the plan of merger, J receives one
share of Corporation Y stock in exchange for each
share of Corporation X stock. In connection with the
transaction, Corporation Y assumes a liability of J. In
addition, after the transaction, J owns stock of Corpo-
ration Y satisfying the requirements of section 368(c).
J’s transfer of the Corporation X stock to Corporation
Y is an exchange described in sections 351 and 354.
(ii)Analysis. Under paragraph (f)(2) of this sec-
tion, because, in connection with the transfer of the
Corporation X stock to Corporation Y, Corporation
Y assumed a liability of J, the rules of paragraph (g)
this section apply to determine J’s basis in the Corpo-
ration Y stock received in the transaction.
Example 9.Reorganization in which stock is
deemed received.(i)Facts. Each of Corporation X
and Corporation Y has a single class of stock out-
standing, all of which is owned by J, an individual. J
acquired 100 shares of Corporation X stock on Date
1 for $1 each and 100 shares of Corporation Y stock
on Date 2 for $2 each. On Date 3, Corporation Y ac-
quires the assets of Corporation X in a reorganization
under section 368(a)(1)(D). Pursuant to the terms
of the plan of reorganization, J surrenders J’s 100
shares of Corporation Xstock but does not receive
any additional Corporation Y stock. Immediately
before the effective time of the reorganization, the
fair market value of eachshare of Corporation X
stock and each share of Corporation Y stock is $1.
Pursuant to section 354, J recognizes no gain or loss.
(ii)Analysis. Under paragraph (d) of this section,
J is deemed to have received shares of Corporation
Y stock with an aggregate fair market value of $100
in exchange for J’s Corporation X shares. Given the
number of outstanding shares of stock of Corporation
Y and their value immediately before the effective
time of the reorganization, J is deemed to have re-
ceived 100 shares of stock of Corporation Y in the re-
organization. Under paragraph (b)(1) of this section,
each of those shares has a basis of $1 and is treated as
having been acquired on Date 1. Then, the stock of
Corporation Y is deemed to be recapitalized in a reor-
ganization under section 368(a)(1)(E) in which J re-
ceives 100 shares of Corporation Y stock in exchange
for those shares of Corporation Y stock that J held im-
mediately prior to the reorganization and those shares
J is deemed to have received in the reorganization.
Under paragraph (b)(3) of this section, immediately
after the reorganization, J holds 50 shares of Corpo-
ration Y stock each of which has a basis of $2 and
is treated as having been acquired on Date 1 and 50
shares of Corporation Ystock each of which has a
basis of $4 and is treated as having been acquired on
Date 2. Under paragraph (e) of this section, on or be-
fore the date on which the basis of any share of J’s
Corporation Y stock becomes relevant, J may desig-
nate which of the shares of Corporation Y have a basis
of $2 and which have a basis of $4.
Example 10.Reorganization in which stock is
deemed received.(i)Facts. Corporation X has a sin-
gle class of stock outstanding, all of which is owned
by J, an individual. J acquired 100 shares of Corpora-
tion X stock on Date 1 for $1 each. Corporation Y has
two classes of stock outstanding, common stock and
nonvoting preferred stock. On Date 2, J acquired 100
shares of Corporation Y common stock for $2 each
and 100 shares of Corporation Y preferred stock for
$4 each. On Date 3, Corporation Y acquires the as-
sets of Corporation X in a reorganization under sec-
tion 368(a)(1)(D). Pursuant to the terms of the plan
of reorganization, J surrenders J’s 100 shares of Cor-
poration X stock but does not receive any additional
Corporation Y stock. Immediately before the effec-
tive time of the reorganization, the fair market value
of each share of Corporation X stock is $10, the fair
market value of each share of Corporation Y common
stock is $10, and the fair market value of each share
of Corporation Y preferred stock is $20. Pursuant to
section 354, J recognizes no gain or loss.
(ii)Analysis. Under paragraph (d) of this section,
J is deemed to have received shares of Corporation Y
stock with an aggregate fair market value of $1,000
in exchange for J’s Corporation Xshares. Consis-
tent with the economics of the transaction and the
rights associated with each class of stock of Corpora-
tion Y owned by J, J is deemed to receive additional
shares of Corporation Y common stock. Because the
value of the common stock indicates that the liqui-
dation preference associated with the Corporation Y
preferred stock could be satisfied even if the reorgani-
zation did not occur, it is not appropriate to deem the
issuance of additional Corporation Y preferred stock.
Given the number of outstanding shares of common
stock of Corporation Y and their value immediately
before the effective time of the reorganization, J is
deemed to have received 100 shares of common stock
of Corporation Y in the reorganization. Under para-
graph (b)(1) of this section, each of those shares has a
basis of $1 and is treated as having been acquired on
Date 1. Then, the common stock of Corporation Y is
deemed to be recapitalized in a reorganization under
section 368(a)(1)(E) in which J receives 100 shares of
Corporation Y common stock in exchange for those
shares of Corporation Y common stock that J held im-
mediately prior to the reorganization and those shares
of Corporation Y common stock that J is deemed to
have received in the reorganization. Under paragraph
(b)(3) of this section, immediately after the reorgani-
zation, J holds 50 shares of Corporation Y common
stock, each of which has a basis of $2 and is treated as
having been acquired on Date 1, and 50 shares of Cor-
poration Y common stock, each of which has a basis
of $4 and is treated as having been acquired on Date
2. Under paragraph (e) of this section, on or before
the date on which the basis of any share of J’s Cor-
poration Y common stock becomes relevant, J may
designate which of those shares have a basis of $2
and which have a basis of $4.
Example 11.Distribution to which section 355
applies.(i)Facts. J, an individual, acquired 5 shares
ofCorporationXstockonDate1for$4eachand5
shares of Corporation X stock on Date 2 for $8 each.
Corporation X owns all of the outstanding stock of
Corporation Y. The fair market value of the stock of
Corporation X is $1800. The fair market value of the
stock of Corporation Y is $900. In a distribution to
which section 355 applies, Corporation X distributes
all of the stock of Corporation Ypro ratato its share-
holders. In the distribution, J receives 2 shares of Cor-
poration Y stock with respect to each share of Corpo-
ration X stock. Pursuant to section 355, J recognizes
no gain or loss on the receipt of the shares of Corpo-
ration Y stock. J is not able to identify which share
of Corporation Y stock is received in respect of each
share of Corporation X stock.
(ii)Analysis. Under paragraph (c)(1) of this
section, because J receives 2 shares of Corporation
Y stock with respect to eachshare of Corporation
X stock, the basis of each share of Corporation X
stock is allocated between such share of Corporation
X stock and two shares ofCorporation Y stock in
proportion to the fair market value of those shares.
Therefore, each of the 5shares of Corporation X
stock acquired on Date 1 will have a basis of $2 and
each of the 10 shares of Corporation Y stock received
with respect to those shares will have a basis of $1.
In addition, each of the 5 shares of Corporation X
stock acquired on Date 2 will have a basis of $4 and
each of the 10 shares of Corporation Y stock received
with respect to those shares will have a basis of $2.
Under paragraph (e) of this section, on or before the
date on which the basis of a share of Corporation Y
stock received becomes relevant, J may designate
which of the shares of Corporation Y stock have a
basis of $1 and which have a basis of $2.
Example 12.Designation of stock surrendered
and received.(i)Facts. J, an individual, acquired 20
shares of Corporation X stock on Date 1 for $2 each
and20sharesofCorporationXstockonDate2for
$4 each. Corporation X has 80 shares of stock out-
standing. Corporation X owns 40 shares of stock of
Corporation Y, which represents all of the outstand-
ing stock of Corporation Y. The fair market value of
the stock of Corporation X is $80. The fair market
value of the stock of Corporation Y is $40. Corpora-
tion X distributes all of the stock of Corporation Y in a
transaction to which section 355 applies. In the trans-
action, J surrenders 20 shares of stock of Corporation
X in exchange for 20 shares of stock of Corporation Y.
J retains 20 shares of Corporation X stock. Pursuant
to section 355, J recognizes no gain or loss on the re-
ceipt of the shares of Corporation Y stock. J is not
able to identify which shares of Corporation X stock
are surrendered. In addition, J is not able to identify
which shares of Corporation Y stock are received in
exchange for each surrendered share of Corporation
X. In addition, the receipt of Y stock is not dividend
equivalent.
(ii)Analysis. Under paragraph (b)(1) of this sec-
tion, J has 20 shares of Corporation Y stock each of
which is treated as received in exchange for one share
of Corporation X stock. The basis of the 20 shares
of Corporation X stock that are retained by J will re-
main unchanged. Under paragraph (e) of this section,
on or before the date on which the basis of a share
of Corporation X or Corporation Y stock becomes
relevant, J may designate which shares of Corpora-
tion X stock J surrendered in the exchange and which
share of the Corporation Ystock received is received
for each share of Corporation X stock surrendered.
Therefore, it is possible that a share of Corporation Y
stock would have a basis of $2 and be treated as hav-
ing been acquired on Date 1, or would have a basis of
$4 and be treated as having been acquired on Date 2.
Example 13
.Surrendered shares of stock or secu-
rities acquired on different dates or at different prices.
(i)Facts. J, an individual, acquired 10 shares of Cor-
poration X stock on Date 1 for $3 each, 10 shares of
CorporationXstockonDate 2 for $18 each, 10 shares
of Corporation X stock on Date 3 for $6 each, and
10 shares of Corporation X stock on Date 4 for $9
each. On Date 5, Corporation Y acquires the assets
of Corporation X in a reorganization under section
368(a)(1)(A). Pursuant to the terms of the plan of re-
organization, J receives a
3
/4share of Corporation Y
stock in exchange for each share of Corporation X
stock. Therefore, J receives 30 shares of Corpora-
2009–8 I.R.B.594February 23, 2009

tion Y stock. Pursuant to section 354, J recognizes
no gain or loss on the exchange. J is not able to iden-
tify which shares of Corporation Y stock are received
in exchange for each share (or portions of shares) of
Corporation X stock.
(ii)Analysis. Under paragraph (b)(3) of this sec-
tion, J has 7 shares of Corporation Y stock each of
which has a basis of $4 and is treated as having been
acquired on Date 1, 7 shares of Corporation Y stock
each of which has a basis of $24 and is treated as hav-
ing been acquired on Date 2, 7 shares of Corporation
Y stock each of which has a basis of $8 and is treated
as having been acquired on Date 3, and 7 shares of
Corporation Y stock each of which has a basis of $12
and is treated as having been acquired on Date 4. In
addition, J has two shares of Corporation Y stock,
each of which is divided into two equal segments un-
der paragraph (b)(3) of this section. The first of those
two shares has one segment with a basis of $2 that
is treated as having been acquired on Date 1 and a
second segment with a basis of $12 that is treated as
having been acquired on Date 2. The second of those
two shares has one segment with a basis of $4 that
is treated as having been acquired on Date 3 and a
second segment with a basis of $6 that is treated as
having been acquired on Date 4. Under paragraph (e)
of this section, on or before the date on which a share
of Corporation Y stock received becomes relevant, J
may designate which of the shares of Corporation Y
stock have a basis of $4, which have a basis of $24,
which have a basis of $8, which have a basis of $12,
and which share has a split basis of $2 and $12, and
which share has a split basis of $4 and $6.
Example 14.Shareholder election and terms of
the exchange.(i)Facts. J, an individual, acquired
10 shares of stock of widely-held Corporation X on
Date 1 for $2 each, 10 shares of stock of Corporation
X on Date 2 for $4 each, and 10 shares of stock of
Corporation X on Date 3 for $6. On Date 5, Cor-
poration X and Corporation Y sign a binding con-
tract pursuant to which, in a reorganization under sec-
tion 368(a)(1)(A), Corporation X will be merged with
and into Corporation Y on Date 6. The fair market
value of each share of Corporation X stock is $10
and the fair market value of each share of Corpora-
tion Y stock is $5. In exchange for each share of stock
of Corporation X, the shareholders of Corporation X
may elect to receive 2 shares of stock of Corporation
Y or $10 cash. If, however, the elected considera-
tion is oversubscribed, by default apro-ratamix of
consideration will be received for the corresponding
shares of stock of Corporation X (the defaultpro-rata
term). J elects to receive 2 shares of stock of Corpora-
tion Y in exchange for each of the 10 shares of stock
of Corporation X acquired on Date 1, and $10 cash
for each of the remaining 20 shares of stock of Cor-
poration X. Neither of the elections is oversubscribed
by the shareholders of Corporation X. The distribu-
tion of cash does not have the effect of a distribution
of a dividend.
(ii)Analysis. Under paragraph (b)(4) of this sec-
tion and under §1.356–1(b), because the receipt does
not have the effect of dividend, and the terms of the
exchange specify that J receives 2 shares of stock of
Corporation Y in exchangefor each of the 10 shares
ofstockofCorporationXacquiredonDate1,and
$10 cash for each of the remaining 20 shares of stock
of Corporation X, and such terms are economically
reasonable, such terms control. J realizes a gain of
$80 on the exchange of the 10 shares of stock of Cor-
poration X acquired on Date 1, none of which is rec-
ognized under §1.356–1(a). J realizes a gain of $60
on the exchange of the 10 shares of stock of Corpo-
ration X acquired on Date 2 and realizes $40 on the
exchange of the 10 shares of stock of Corporation X
acquired on Date 3, all of which is recognized un-
der §1.356–1(a). Under paragraph (b)(2) of this sec-
tion, J has 20 shares of stock of Corporation Y, each
of which has a basis of $1 and is treated as having
been acquired on Date 1.
Example 15.Shareholder election and terms of
the exchange.(i)Facts. The facts are the same as in
Example 14, except that the cash election is oversub-
scribed and, pursuant to the defaultpro-rataterm, for
each of the shares of stock of Corporation X that J
acquired on Date 2 and Date 3, J receives 1 share of
stockofCorporationYand$5cash.
(ii)Analysis. Under paragraph (b)(4) of this sec-
tion and under §1.356–1(b), because the terms of the
exchange specify that J receives 2 shares of stock of
Corporation Y in exchangefor each of the 10 shares
of stock of Corporation X acquired on Date 1, and
1shareofstockofCorporationYand$5cashfor
each of the remaining 20 shares of stock of Corpora-
tion X, and such terms are economically reasonable,
such terms control. J realizes a gain of $80 on the
exchange of the 10 shares of stock of Corporation
X acquired on Date 1, none of which is recognized
under §1.356–1(a). J realizes a gain of $60 on the
exchange of the 10 shares of stock of Corporation X
acquired on Date 2, $50 of which is recognized un-
der §1.356–1(a), and $40 on the exchange of the 10
shares of stock of Corporation X acquired on Date 3,
all of which is recognized under §1.356–1(a). Of the
40 shares of stock of Corporation Y received by J,
20 of the shares each has a basis of $1 and is treated
as having been acquired on Date 1 under paragraph
(b)(2) of this section, and 10 of the shares each has
a basis of $4 and is treated as having been acquired
on Date 2 and 10 of the shares each has a basis of $6
and is treated as having been acquired on Date 3 un-
der paragraph (b)(1) of this section.
Example 16.Exchange described in section 351
in which only stock is received.(i)Facts. J transfers
Asset I, Asset II, and 50 shares of Corporation X stock
in exchange for 110 shares of Corporation Y in an
exchange to which section 351 applies. At the time
of the exchange, Asset I has a fair market value of
$220 and a basis of $400, Asset II has a fair market
value of $330 and a basis of $200, and the 50 shares
of Corporation X stock each have a fair market value
of $22 ($550 total) and a basis of $10 ($250 total).
The fair market value of each share of Corporation Y
stock is $10.
(ii)Analysis. Pursuant to section 351(a), J recog-
nizes no gain or loss on the exchange. Under para-
graph (g)(2) of this section, J has 55 shares of Cor-
poration Y stock each of which has a basis of $10.91
($600 total, the aggregate basis of Asset I and Asset
II). Under paragraph (g)(2) of this section, J has 55
shares of Corporation Y stock each of which has a
basis of $4.55 ($250 total).
Example 17.Exchange described in section 351
in which “other property” is received.(i)Facts.The
factsarethesameasExample 1, except J receives
100 shares of Corporation Y stock and $100 in the
exchange.
(ii)Analysis. Pursuant to section 351(b), J rec-
ognizes gain, but no loss, on the exchange, but not
in excess of the amount of money received. Under
§1.351–2, J realizes a loss of $180 on Asset I, none of
which is recognized, a gain of $130 on Asset II, $30
of which is recognized, and a gain of $300 on shares
of Corporation X stock, $50 of which is recognized.
Under paragraph (g)(2) of this section, J has 50 shares
of Corporation Y stockeach of which has a basis of
$11.60 ($580 total), and 50 shares of Corporation Y
stock each of which has a basis of $5.00 ($250 total).
(j)Effective/applicability date.This
section applies to exchanges and distri-
butions of stock and securities that occur
after the date these regulations are pub-
lished as final regulations in theFederal
Register, except for exchanges which oc-
cur pursuant to a written agreement that is
binding on or before the date these regula-
tions are published as final in theFederal
Register. For exchanges and distributions
of stock and securities that occur on or
before the date these regulations are pub-
lished as final regulations in theFederal
Register,see this section as contained in
26 CFR part 1 revised April 1, for the year
before these regulations were published as
final regulations in theFederal Register.
Par. 15. Section 1.358–6 is amended by
revising paragraphs (c)(1)(i)(B), (c)(3)(ii),
and (f)(3) to read as follows:
§1.358–6 Stock basis in certain triangular
reorganizations.
*****
(c) * * *
(1) * * *
(i) * * *
(B) P transferred the T assets (and li-
abilities which S assumed or to which
the T assets acquired by S were subject)
to S in a transaction in which P received
no property and P ’s basis in S stock
was determined under section 358. See
§1.358–2(g)(3) (allocation of basis in a
section 351 transaction in which stock is
deemed received).
*****
(3) * * *
(ii) P transferred the T stock to S in
a transaction in which P received no
property and P’s basis in its S stock
was determined under section 358. See
§1.358–2(g)(3) (allocation of basis in a
section 351 transaction in which stock is
deemed received).
*****
(f) * * *
February 23, 20095952009–8 I.R.B.

(3) This section applies to exchanges
that occur after the date these regulations
are published as final regulations in the
Federal Register, except for exchanges
which occur pursuant to a written agree-
ment that is binding on or before the date
these regulations are published as final in
theFederal Register. For exchanges that
occur on or before the date these regula-
tions are published as final regulations in
theFederal Register, see this section as
contained in 26 CFR part 1 revised April
1, 2008, for the year before the date these
regulations are published as final regula-
tions in theFederal Register.
Par. 16. Section 1.368–1 is amended by
adding a sentence to the end of paragraph
(a) and by revising paragraph (e)(9) to read
as follows:
§1.368–1 Purpose and scope of exception
of reorganization exchanges.
(a) * * * For purposes of determining
whether a transaction qualifies as a reorga-
nization under section 368(a), to the extent
the terms of the exchange specify that a
particular property is received in exchange
for a particular property, such terms shall
control provided such terms are economi-
cally reasonable.
*****
(e) * * *
(9) This section applies to exchanges
that occur after the date these regulations
are published as final regulations in the
Federal Register, except for exchanges
which occur pursuant to a written agree-
ment that is binding on or before the date
these regulations are published as final in
theFederal Register. For effective dates
for transactions that occur on or before the
date these regulations are published as fi-
nal regulations in theFederal Register,
see paragraph (e) of this section, as con-
tained in 26 CFR part 1 revised April 1, for
the year before these regulations are pub-
lished as final regulations in theFederal
Register.
*****
Par. 17. Section 1.861–12 is added to
read as follows:
§1.861–12 Characterization rules and
adjustments for certain assets.
(a) through (c)(2)(v) [Reserved]. For
further guidance, see §1.861–12T(a)
through (c)(2)(v).
(c)(2)(vi) Adjustments in respect of
redeemed stock for taxpayers using the tax
book value method. Solely for purposes of
apportioning expenses on the basis of the
tax book value of assets, the adjusted basis
of any other class of stock in a 10 percent
owned corporation owned directly by a
taxpayer that is a redeemed shareholder (as
defined in §1.302–5(b)(1)) with respect to
such corporation shall be increased by the
amount of any loss that has not been taken
into account under §1.302–5(a)(3) as of
the close of the redeemed shareholder’s
taxable year (unrecovered loss). If the re-
deemed shareholder does not own directly
any shares in the 10 percent owned corpo-
ration as of the end of the taxable year, but
is treated for purposesofsection302(b)as
owning shares actually owned by another
member of the redeemed shareholder’s
affiliated group, as defined in section
§1.861–11(d)(1) and §1.861–11T(d)(6)
with respect to the redeemed shareholder,
then, solely for purposes of this paragraph
(c)(2)(vi), the adjusted basis of the shares
in the 10 percent owned corporation, if
any, that are owned by such other corpora-
tion or corporations shall be increased by
the amount of the redeemed shareholder’s
unrecovered loss (and allocated among
such corporations, if applicable, in pro-
portion to their relative adjusted bases (as
adjusted pursuant to this paragraph and
§1.861–12T(c)(2)) in the stock of the re-
deeming corporation). These adjustments
are to be made annually and are noncumu-
lative.
(vii)Examples. Certain of the rules of
this paragraph (c)(2) may be illustrated by
the following examples:
Examples 1and2. [Reserved]. For fur-
ther guidance, see §1.861–12T(c)(2)(vii),
Examples 1and2.
Example 3. X, an unaffiliated domestic corpora-
tion that was organized on January 1, 2000, owns all
of the stock of Y, a foreign corporation with a func-
tional currency other than the U.S. dollar since Jan-
uary 1, 2000. The Y stock held by X includes Class
A and Class B common stock. X’s adjusted basis in
the Class A and Class B common stock is $25,000
and $50,000, respectively. Y has earnings and prof-
its for the 2008 taxable year of $40,000. During the
2008 taxable year, Y redeems all of the Class A com-
mon stock held by X for $40,000. Because X still
owns all of the outstanding stock of Y, the redemp-
tion is treated as a distribution with respect to the
stock of Y under section 301. Under §1.302–5(a)(3),
X’s $25,000 adjusted basis in the redeemed shares of
Class A common stock is treated as a loss recognized
on the date of the redemption, none of which is taken
into account in 2008. Under paragraph (c)(2)(vi) of
this section, solely for purposes of apportioning ex-
penses on the basis of the tax book value of assets, X’s
adjusted basis in its remaining Class B common stock
of Y is considered to be $75,000 ($50,000 adjusted
basis in the Class B common stock plus $25,000 un-
recovered basis in the redeemed Class A common
stock).
(c)(2)(viii)Effective/applicability date.
Paragraph (c)(2)(vi) andExample 3apply
to transactions that occur after the date
these regulations are published as final
regulations in theFederal Register.
(c)(3) through (j) [Reserved]. For
further guidance, see §1.861–12T(c)(3)
through (j).
Par. 18. Section 1.1002–1 is redesig-
nated as 1.1001–6 and amended by:
1. Revising paragraph (c) and adding a
new paragraph (e) to reads as follows:
§1.1001–6 Sales or exchanges.
*****
(c)Certain exceptions to general rule.
Exceptions to the general rule are made,
for example, by sections 351(a), 354,
361(a), 721, 1031, 1035 and 1036. These
sections describe certain specific ex-
changes of property in which at the time of
the exchange particular differences exist
between the property parted with and the
property acquired, but such differences
are more formal than substantial. As to
these, the Internal Revenue Code pro-
vides that such differences shall not be
deemed controlling, and that gain or loss
shall not be recognized at the time of the
exchange. The underlying assumption of
these exceptions is that the new property
is substantially a continuation of the old
investment still unliquidated; and, in the
case of reorganizations, that the new en-
terprise, the new corporate structure and
the new property are substantially contin-
uations of the old still unliquidated. Solely
for purposes of determining whether the
exceptions to the general rule under sec-
tions 354 and 361 apply to an exchange, to
the extent the terms of the exchange spec-
ify that a particular property is received in
exchange for a particular property, such
terms shall control provided such terms
are economically reasonable.
2009–8 I.R.B.596February 23, 2009

*****
(e)Effective/applicability date.This
section applies to exchanges that occur af-
ter the date these regulations are published
as final regulations in theFederal Regis-
ter. For exchanges that occur on or before
the date these regulations are published as
final regulations in theFederal Register,
see this section as contained in 26 CFR part
1 revised April 1, for the year before these
regulations are published as final regula-
tions in theFederal Register.
Par. 19. Section 1.1016–2 is amended
by adding paragraphs (e) and (f) to read as
follows:
§1.1016–2 Items properly chargeable to
capital account.
*****
(e) Solely for purposes of determining
basis in stock, in the case of a shareholder
capital contribution to which section 118
applies, the principles of §1.358–2(g)(3)
(allocation of basis in a section 351 trans-
action in which stock is deemed received)
shall apply.
(f) This section applies to transactions
that occur after the date these regulations
are published as final regulations in the
Federal Register. For exchanges that oc-
cur on or before the date these regulations
are published as final regulations in the
Federal Register,see this section as con-
tained in 26 CFR part 1 revised April 1, for
the year before these regulations are pub-
lished as final regulations in theFederal
Register.
Par. 20. Section 1.1374–10, the first
sentence of paragraph (a) is revised to read
as follows:
§1.1374–10 Effective date and additional
rules.
(a)In general. For transactions to
which §1.302–5 applies [Reserved]. Sec-
tions 1.1374–1 through 1.1374–9, other
than §1.1374–3(b) and (c)Examples 2
through4, apply for taxable years ending
on or after December 27, 1994, but only
in cases where the S corporation’s return
for the taxable year is filed pursuant to an
S election or a section 1374(d)(8) transac-
tion occurring on or after December 27,
1994. * * *
*****
Linda M. Kroening,
(Acting) Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on January 16,
2009, 8:45 a.m., and published in the issue of the Federal
Register for January 21, 2009, 74 F.R. 3509)
Withdrawal of Notice of
Proposed Rulemaking
Regarding Section 707
Regarding Disguised Sales,
Generally
Announcement 2009–4
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of pro-
posed rulemaking.
SUMMARY: This document withdraws
proposed regulations relating to the treat-
ment of transactions between a partnership
and its partners as disguised sales of part-
nership interests between the partners
under section 707(a)(2)(B) of the Internal
Revenue Code. The withdrawal affects
partnerships and their partners.
FOR FURTHER INFORMATION
CONTACT: Deane M. Burke or
Allison R. Carmody, (202) 622–3070 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 707(a)(2)(B) provides that,
under regulations prescribed by the Sec-
retary, if transfers of property between a
partner or partners and a partnership, when
viewed together, are properly character-
ized as a sale or exchange of property, such
transfers shall be treated as either transac-
tions between the partnership and one who
is not a partner or between two or more
partners acting other than in their capacity
as partners. The legislative history of sec-
tion 707(a)(2)(B) indicates the provision
was adopted as a result of Congressional
concern that taxpayers were deferring
or avoiding tax on sales of partnership
property, including sales of partnership
interests, by characterizing sales as con-
tributions of property, including money,
followed or preceded by related partner-
ship distributions. See H.R. Rep. No. 861,
98
th
Cong. 2
nd
Sess. 861 (1984), 1984–3
(Vol. 2) CB 115. Specifically, Congress
was concerned about court decisions that
allowed tax-free treatment in cases that
were economically indistinguishable from
sales of property to a partnership or an-
other partner, and believed that these
transactions should be treated for tax pur-
poses in a manner consistent with their
underlying economic substance. See H.R.
Rep. No. 432, 98
th
Cong. 2
nd
Sess. 1218
(1984) (H.R. Rep.), and S. Prt. No. 169
(Vol. I), 98
th
Cong. 2
nd
Sess. 225 (1984)
(S. Prt.) (discussingCommunications
Satellite Corp. v. United States, 625 F.2d
997 (Ct. Cl. 1980), andJupiter Corp. v.
United States, 2 Cl. Ct. 58 (1983), both
of which involved disguised sales of a
partnership interest).
On October 9, 2001, the IRS and
the Treasury Department issued No-
tice 2001–64, 2001–2 C.B. 316, (see
§ 601.601(d)(2)(ii)(b)), announcing that
the IRS and the Treasury Department were
considering issuing proposed regulations
under section 707(a)(2)(B), relating to
disguised sales of partnership interests.
The IRS and the Treasury Department
requested comments on the scope and sub-
stance of guidance concerning disguised
sales of partnership interests, including
any applicable safe harbors or exceptions.
Written comments in response to Notice
2001–64 were received and considered in
drafting proposed regulations.
In response to requests, on Novem-
ber 26, 2004, the Treasury Department
and the IRS published in theFederal
Register(REG–149513–03, 2004–2 C.B.
1009 [69 FR 68838]) a notice of proposed
rulemaking under section 707(a)(2)(B),
(REG–149519–03) relating to disguised
sales of partnership interests. The pro-
posed regulations sought to amend the
existing regulations for disguised sales of
property (existing property regulations)
by adding rules for disguised sales of part-
nership interests and by revising the rules
relating to disguised sales of property.
The proposed regulations for disguised
sales of partnership interests include a
framework similar to that in the existing
property regulations, with a general rule
that would apply based on all of the facts
and circumstances.
February 23, 20095972009–8 I.R.B.

The Treasury Department and the IRS
received written comments on the pro-
posed regulations from interested parties.
The Treasury Department and the IRS,
having now thoroughly considered those
comments, have decided to withdraw
the proposed regulations. The Treasury
Department and the IRS will continue
to study this area and may issue guid-
ance in the future. Until new guidance
is issued, any determination of whether
transfers between a partner or partners and
a partnership is a transfer of a partnership
interest will be based on the statutory lan-
guage, guidance provided in legislative
history, and case law.
*****
Withdrawal of Notice of Proposed
Rulemaking
Accordingly, under the authority of
26 U.S.C. 7805, the notice of proposed
rulemaking (REG–149519–03) that was
published in theFederal Registeron
November 26, 2004 (69 FR 68838) is
withdrawn.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on January 15,
2009, 8:45 a.m., and published in the issue of the Federal
Register for January 16, 2009, 74 F.R. 3508)
Announcement of Disciplinary Sanctions From the Office
of Professional Responsibility
Announcement 2009-8
TheOfficeofProfessionalResponsi-
bility (OPR) announcesrecent disciplinary
sanctions involving attorneys, certified
public accountants, enrolled agents, en-
rolled actuaries, enrolled retirement plan
agents, and appraisers. These individuals
are subject to the regulations governing
practice before the Internal Revenue Ser-
vice (IRS), which are set out in Title 31,
Code of Federal Regulations, Part 10, and
which are published in pamphlet form as
Treasury Department Circular No. 230.
The regulations prescribe the duties and
restrictions relating to such practice and
prescribe the disciplinary sanctions for
violating the regulations.
The disciplinary sanctions to be im-
posed for violation of the regulations are:
Disbarred from practice before the
IRS—An individual who is disbarred is
not eligible to represent taxpayers before
the IRS.
Suspended from practice before the
IRS—An individual who is suspended is
not eligible to represent taxpayers before
the IRS during the term of the suspension.
Censured in practice before the
IRS—Censure is a public reprimand. Un-
like disbarment or suspension, censure
does not affect an individual’s eligibility
to represent taxpayers before the IRS, but
OPR may subject the individual’s future
representations to conditions designed to
promote high standards of conduct.
Monetary penalty—A monetary
penalty may be imposed on an individual
who engages in conduct subject to sanc-
tion or on an employer, firm, or entity
if the individual was acting on its behalf
and if it knew, or reasonably should have
known, of the individual’s conduct.
Disqualification of appraiser—An
appraiser who is disqualified is barred
from presenting evidence or testimony in
any administrative proceeding before the
Department of the Treasury or the IRS.
Under the regulations, attorneys, cer-
tified public accountants, enrolled agents,
enrolled actuaries, and enrolled retirement
plan agents may not assist, or accept assis-
tance from, individuals who are suspended
or disbarred with respect to matters consti-
tuting practice (i.e., representation) before
the IRS, and they may not aid or abet sus-
pended or disbarred individuals to practice
before the IRS.
Disciplinary sanctions are described in
these terms:
Disbarred by decision after hearing,
Suspended by decision after hearing,
Censured by decision after hearing,
Monetary penalty imposed after hear-
ing, and Disqualified after hearing—An
administrative law judge (ALJ) conducted
an evidentiary hearing upon OPR’s com-
plaint alleging violation of the regulations
and issued a decision imposing one of
these sanctions. After 30 days from the
issuance of the decision, in the absence of
an appeal, the ALJ’s decision became the
final agency decision.
Disbarred by default decision, Sus-
pended by default decision, Censured by
default decision, Monetary penalty im-
posed by default decision, and Disqual-
ified by default decision—An ALJ, after
finding that no answer to OPR’s complaint
had been filed, granted OPR’s motion for a
default judgment and issued a decision im-
posing one of these sanctions.
Disbarment by decision on appeal,
Suspended by decision on appeal, Cen-
sured by decision on appeal, Monetary
penalty imposed by decision on ap-
peal, and Disqualified by decision on
appeal—The decision of the ALJ was
appealed to the agency appeal authority,
acting as the delegate of the Secretary
of the Treasury, and the appeal authority
issued a decision imposing one of these
sanctions.
Disbarred by consent, Suspended by
consent, Censured by consent, Mone-
tary penalty imposed by consent, and
Disqualified by consent—Inlieuofa
disciplinary proceeding being instituted
or continued, an individual offered a con-
sent to one of these sanctions and OPR
accepted the offer. Typically, an offer
of consent will provide for: suspension
for an indefinite term; conditions that the
individual must observe during the sus-
pension; and the individual’s opportunity,
after a stated number of months, to file
with OPR a petition for reinstatement af-
firming compliance with the terms of the
consent and affirming current eligibility
to practice (i.e., an active professional
license or active enrollment status). An
enrolled agent or an enrolled retirement
plan agent may also offer to resign in order
to avoid a disciplinary proceeding.
Suspended by decision in expedited
proceeding, Suspended by default de-
2009–8 I.R.B.598February 23, 2009

cision in expedited proceeding, Sus-
pended by consent in expedited pro-
ceeding—OPR instituted an expedited
proceeding for suspension (based on cer-
tain limited grounds, including loss of a
professional license and criminal convic-
tions).
OPR has authority to disclose the
grounds for disciplinary sanctions in these
situations: (1) an ALJ or the Secretary’s
delegate on appeal has issued a decision
on or after September 26, 2007, which was
theeffectivedateofamendmentstothe
regulations that permit making such deci-
sions publicly available; (2) the individual
has settled a disciplinary case by signing
OPR’s “consent to sanction” form, which
requires consenting individuals to admit to
one or more violations of the regulations
and to consent to the disclosure of the in-
dividual’s own return information related
to the admitted violations (for example,
failure to file Federal income tax returns);
or (3) OPR has issued a decision in an
expedited proceeding for suspension.
Announcements of disciplinary sanc-
tions appear in the Internal Revenue Bul-
letin at the earliest practicable date. The
sanctions announced below are alphabet-
ized first by the names of states and sec-
ond by the last names of individuals. Un-
less otherwise indicated, section numbers
(e.g., § 10.51) refer to the regulations.
City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Arizona
GlendaleCasper, Eric M.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(suspension of attorney
license)
Indefinite from
January 8, 2009
ScottsdaleMorrison, John G.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
January 5, 2009
California
Hacienda HeightsPhillips, Richard A.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (attorney
disbarment)
Indefinite from
January 5, 2009
Los AngelesRezak, DonaldAttorneySuspended by decision
in expedited proceeding
under § 10.82 (attorney
disbarment)
Indefinite from
January 8, 2009
Palm SpringsSelzer, Paul T.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(conviction under 26
U.S.C. § 7212, corrupt
endeavor to obstruct due
administration of the
Internal Revenue Code)
Indefinite from
January 8, 2009
San DiegoStockton, Rick A.CPASuspended by default
decision in expedited
proceeding under § 10.82
(revocation of CPA
license)
Indefinite from
January 5, 2009
Mill ValleyWiener, Lewis R.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(suspension of attorney
license)
Indefinite from
January 8, 2009
February 23, 20095992009–8 I.R.B.

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Florida
JupiterCullen, John F.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(suspension of attorney
license in Massachusetts)
Indefinite from
January 12, 2009
Ft. LauderdaleLegel, LawrenceCPASuspended by decision
in expedited proceeding
under § 10.82 (conviction
under 26 U.S.C. § 7203,
aiding and abetting in
failure to pay income tax)
Indefinite from
January 13, 2009
PensacolaRoche, Ernest L.CPASuspended by consent
for violation of § 10.51
(failure to file several tax
returns)
Indefinite from
December 18,
2008
Georgia
RoswellBishop, Winford K.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (attorney
disbarment in New York)
Indefinite from
December 15,
2008
AtlantaRoberts, John A.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (suspension
of attorney license)
Indefinite from
January 13, 2009
Illinois
UrbanaUcherek, David M.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
January 5, 2009
Maine
FalmouthDuncan, John D.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
January 12, 2009
Maryland
St. MichaelsFarris, Peter D.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(suspension of attorney
license)
Indefinite from
January 12, 2009
2009–8 I.R.B.600February 23, 2009

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Massachusetts
Cullen, John F.,
See Florida
RandolphUdo, JohnAttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
January 12, 2009
Minnesota
Varriano, Richard D.,
See North Dakota
New Jersey
ManalapanMeiterman, BernardAttorneySuspended by default
decision in expedited
proceeding under § 10.82
(conviction under 18
U.S.C. § 1952, use of US
mail in aid of racketeering
enterprises)
Indefinite from
January 12, 2009
New York
Bishop, Winford A.,
See Georgia
YonkersSpiegler, Barry I.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
January 12, 2009
Saratoga SpringsTessitore, William F.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
January 12, 2009
North Carolina
GreensboroBeavers, Harold W.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
January 12, 2009
AshevilleErickson, Paul L.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (suspension
of attorney license)
Indefinite from
January 23, 2009
BooneMarsh, Randall S.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(suspension of attorney
license)
Indefinite from
January 12, 2009
February 23, 20096012009–8 I.R.B.

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
North Dakota
FargoVarriano, Richard D.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (attorney
suspension in Minnesota)
Indefinite from
January 12, 2009
Tennessee
HixsonMiller, HerbertCPASuspended by consent for
violation of § 10.51 (late
filed three of his Forms
1040 and seven of his
Forms 941)
Indefinite from
January 1, 2009
Texas
TylerSims, Steven R.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
January 23, 2009
2009–8 I.R.B.602February 23, 2009

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 rulings
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.
February 23, 2009i2009–8 I.R.B.

Numerical Finding List
1
Bulletins 2009–1 through 2009–8
Announcements:
2009-1, 2009-1 I.R.B.242
2009-2, 2009-5 I.R.B.424
2009-3, 2009-6 I.R.B.459
2009-4, 2009-8 I.R.B.597
2009-5, 2009-8 I.R.B.569
2009-8, 2009-8 I.R.B.598
Notices:
2009-1, 2009-2 I.R.B.250
2009-2, 2009-4 I.R.B.344
2009-3, 2009-2 I.R.B.250
2009-4, 2009-2 I.R.B.251
2009-5, 2009-3 I.R.B.309
2009-6, 2009-3 I.R.B.311
2009-7, 2009-3 I.R.B.312
2009-8, 2009-4 I.R.B.347
2009-9, 2009-5 I.R.B.419
2009-10, 2009-5 I.R.B.419
2009-11, 2009-5 I.R.B.420
2009-12, 2009-6 I.R.B.446
2009-13, 2009-6 I.R.B.447
2009-14, 2009-7 I.R.B.516
2009-15, 2009-6 I.R.B.449
2009-16, 2009-8 I.R.B.572
2009-17, 2009-8 I.R.B.575
Proposed Regulations:
REG-144615-02, 2009-7 I.R.B.561
REG-148568-04, 2009-5 I.R.B.421
REG-160872-04, 2009-4 I.R.B.358
REG-158747-06, 2009-4 I.R.B.362
REG-143686-07, 2009-8 I.R.B.579
REG-150670-07, 2009-4 I.R.B.378
REG-113462-08, 2009-4 I.R.B.379
REG-150066-08, 2009-5 I.R.B.423
Revenue Procedures:
2009-1, 2009-1 I.R.B.1
2009-2, 2009-1 I.R.B.87
2009-3, 2009-1 I.R.B.107
2009-4, 2009-1 I.R.B.118
2009-5, 2009-1 I.R.B.161
2009-6, 2009-1 I.R.B.189
2009-7, 2009-1 I.R.B.226
2009-8, 2009-1 I.R.B.229
2009-9, 2009-2 I.R.B.256
2009-10, 2009-2 I.R.B.267
2009-11, 2009-3 I.R.B.313
2009-12, 2009-3 I.R.B.321
2009-13, 2009-3 I.R.B.323
2009-14, 2009-3 I.R.B.324
Revenue Procedures— Continued:
2009-15, 2009-4 I.R.B.356
2009-16, 2009-6 I.R.B.449
2009-17, 2009-7 I.R.B.517
Revenue Rulings:
2009-1, 2009-2 I.R.B.248
2009-2, 2009-2 I.R.B.245
2009-3, 2009-5 I.R.B.382
2009-4, 2009-5 I.R.B.408
2009-5, 2009-6 I.R.B.432
Tax Conventions:
2009-5, 2009-8 I.R.B.569
Treasury Decisions:
9434, 2009-4 I.R.B.339
9435, 2009-4 I.R.B.333
9436, 2009-3 I.R.B.268
9437, 2009-4 I.R.B.341
9438, 2009-5 I.R.B.387
9439, 2009-5 I.R.B.416
9440, 2009-5 I.R.B.409
9441, 2009-7 I.R.B.460
9442, 2009-6 I.R.B.434
9443, 2009-8 I.R.B.564
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2008–27 through 2008–52 is in Internal Revenue Bulletin
2008–52, dated December 29, 2008.
2009–8 I.R.B.iiFebruary 23, 2009

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2009–1 through 2009–8
Notices:
99-35
Obsoleted by
Notice 2009-15, 2009-6 I.R.B.449
2001-55
Modified by
Notice 2009-1, 2009-2 I.R.B.250
2002-27
Modified by
Notice 2009-9, 2009-5 I.R.B.419
2007-26
Modified by
Notice 2009-15, 2009-6 I.R.B.449
2007-54
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
2008-11
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
2008-12
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
Rev. Proc. 2009-11, 2009-3 I.R.B.313
2008-13
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
List of forms modified and superseded by
Rev. Proc. 2009-11, 2009-3 I.R.B.313
Modified and clarified by
Notice 2009-5, 2009-3 I.R.B.309
2008-46
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
Rev. Proc. 2009-11, 2009-3 I.R.B.313
2008-100
Amplified and superseded by
Notice 2009-14, 2009-7 I.R.B.516
Proposed Regulations:
REG-149519-03
Withdrawn by
Ann. 2009-4, 2009-8 I.R.B.597
Revenue Procedures:
2007-17
Superseded by
Rev. Proc. 2009-14, 2009-3 I.R.B.324
Revenue Procedures— Continued:
2007-68
Superseded by
Rev. Proc. 2009-17, 2009-7 I.R.B.517
2007-71
Modified by
Notice 2009-3, 2009-2 I.R.B.250
2008-1
Superseded by
Rev. Proc. 2009-1, 2009-1 I.R.B.1
2008-2
Superseded by
Rev. Proc. 2009-2, 2009-1 I.R.B.87
2008-3
Superseded by
Rev. Proc. 2009-3, 2009-1 I.R.B.107
2008-4
Superseded by
Rev. Proc. 2009-4, 2009-1 I.R.B.118
2008-5
Superseded by
Rev. Proc. 2009-5, 2009-1 I.R.B.161
2008-6
Superseded by
Rev. Proc. 2009-6, 2009-1 I.R.B.189
2008-7
Superseded by
Rev. Proc. 2009-7, 2009-1 I.R.B.226
2008-8
Superseded by
Rev. Proc. 2009-8, 2009-1 I.R.B.229
2008-9
Superseded by
Rev. Proc. 2009-9, 2009-2 I.R.B.256
2008-61
Superseded by
Rev. Proc. 2009-3, 2009-1 I.R.B.107
2008-65
Amplified and supplemented by
Rev. Proc. 2009-16, 2009-6 I.R.B.449
2008-68
Amplified and superseded by
Rev. Proc. 2009-15, 2009-4 I.R.B.356
Revenue Rulings:
65-286
Obsoleted by
T.D. 9435, 2009-4 I.R.B.333
76-54
Obsoleted by
T.D. 9435, 2009-4 I.R.B.333
Revenue Rulings— Continued:
92-19
Supplemented by
Rev. Rul. 2009-3, 2009-5 I.R.B.382
2008-19
Modified by
Rev. Rul. 2009-3, 2009-5 I.R.B.382
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–27 through 2008–52 is in Internal Revenue Bulletin 2008–52, dated December 29,
2008.
February 23, 2009iii2009–8 I.R.B.

INDEX
Internal Revenue Bulletins 2009–1 through
2009–8
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parenthesis refers to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Determination letters, issuing procedures (RP 6) 1,189
Full funding limitations, weighted average interest rates, seg-
ments rates for:
January 2009 (Notice 2) 4,344
February 2009 (Notice 16) 8,572
Interim guidance under section 457A relating to deferred com-
pensation of nonqualified entities (Notice 8) 4,347
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,107
Associate Chief Counsel (International) (RP 7) 1,226
And general information letters, procedures (RP 4) 1,118
User fees, request for letter rulings (RP 8) 1,229
Penalties:
Categories of tax returns and claims for refund, tax return
preparer penalty under section 6694 (RP 11) 3,313
Tax return preparer (TD 9436) 3,268
Qualified retirement plans:
Covered compensation tables, permitted disparity (RR 2) 2,
245
Required minimum distributions (RMDs) (Notice 9) 5,419
Section 403(b) plans, written plan requirement (Notice 3) 2,
250
Regulations:
26 CFR 1.6060–1, amended; 1.6107–1, revised; 1.6109–2,
amended; 1.6694–0 thru –4, revised; 1.6695–1, –2, revised;
1.6696–1, revised; 54.6060–1, added; 54.6107–1, added;
54.6109–1, added; 54.6694–1 thru –4, added; 54.6695–1,
added; 54.6696–1, added; 54.7701–1, added; tax return pre-
EMPLOYEE PLANS—Cont.
parer penalties under sections 6694 and 6695 (TD 9436) 3,
268
Technical advice to IRS employees (RP 5) 1,161
EMPLOYMENT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Penalties:
Categories of tax returns and claims for refund, tax return
preparer penalty under section 6694 (RP 11) 3,313
Tax return preparer (TD 9436) 3,268
Postponement of certain tax-related deadlines by reason of a fed-
erally declared disaster or terroristic or military action (TD
9443) 8,564
Proposed Regulations:
26 CFR 31.3402(t)–0 thru –6, added and reserved;
31.3402(t)–7, added;31.3406(g)–2, amended;
31.6011(a)–4, amended; 31.6051–5, added; 31.6071(a)–1,
amended; 31.6302–1, –4, amended; withholding under
section 3402(t) (REG–158747–06) 4,362
26 CFR 31.6011(a)–1, –4, amended; 31.6302–0, –1,
amended; employer’s annual federal tax return and modi-
fications to the deposit rules (REG–148568–04) 5,421
Qualification to file Form 944, Employer’s ANNUAL Federal
Tax Return, or request to file Form 941, Employer’s QUAR-
TERLY Federal Tax Return (RP 13) 3,323
Regulations:
26 CFR 31.6011(a)–1, –4, amended; 31.6011(a)–1T, –4T,
revised; 31.6302–0, –1, amended; 31.6302–0T, added;
31.6302–1T, revised; employer’s annual federal tax return
and modifications to the deposit rules (TD 9440) 5,409
26 CFR 31.6060–1, added; 31.6107–1, added; 31.6109–2,
added; 31.6694–1 thru –4, added; 31.6695–1, added;
31.6696–1, added; 31.7701–1, added; tax return preparer
penalties under sections 6694 and 6695 (TD 9436) 3,268
26 CFR 301.7508A–1, amended; postponement of certain
tax-related deadlines by reason of a federally declared dis-
aster or terroristic or military action (TD 9443) 8,564
Technical Advice Memoranda (TAMs) (RP 2) 1,87
Time for filing employment tax returns and modifications to de-
posit rules (TD 9440) 5,409; (REG–148568–04) 5,421
Withholding on payments by government entities for property
and services (REG–158747–06) 4,362
ESTATE TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Penalties:
Categories of tax returns and claims for refund, tax return
preparer penalty under section 6694 (RP 11) 3,313
Tax return preparer (TD 9436) 3,268
2009–8 I.R.B.ivFebruary 23, 2009

ESTATE TAX—Cont.
Postponement of certain tax-related deadlines by reason of a fed-
erally declared disaster or terroristic or military action (TD
9443) 8,564
Regulations:
26 CFR 20.6060–1, added; 20.6107–1, added; 20.6109–1,
added; 20.6694–1 thru –4, added; 20.6695–1, added;
20.6696–1, added; 20.7701–1, added; 26.6060–1, added;
26.6107–1, added; 26.6109–1, added; 26.6694–1 thru –4,
added; 26.6695–1, added; 26.6696–1, added; 26.7701–1,
added; tax return preparer penalties under sections 6694
and 6695 (TD 9436) 3,268
26 CFR 301.7508A–1, amended; postponement of certain
tax-related deadlines by reason of a federally declared dis-
aster or terroristic or military action (TD 9443) 8,564
Technical Advice Memoranda (TAMs) (RP 2) 1,87
EXCISE TAX
Credits, calculation of volume of denaturants in alcohol for fuel
credits (Notice 6) 3,311
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Penalties:
Categories of tax returns and claims for refund, tax return
preparer penalty under section 6694 (RP 11) 3,313
Tax return preparer (TD 9436) 3,268
Postponement of certain tax-related deadlines by reason of a fed-
erally declared disaster or terroristic or military action (TD
9443) 8,564
Regulations:
26 CFR 40.6060–1, added; 40.6107–1, added; 40.6109–1,
added; 40.6694–1 thru –4, added; 40.6695–1, added;
40.6696–1, added; 40.7701–1, added; 41.6060–1,
added; 41.6107–1, added; 41.6109–2, added; 41.6694–1
thru –4, added; 41.6695–1, added; 41.6696–1, added;
41.7701–1, added; 44.6060–1, added; 44.6107–1,
added; 44.6109–1, added; 44.6694–1 thru –4, added;
44.6695–1, added; 44.6696–1, added; 44.7701–1,
added; 55.6060–1, added; 55.6107–1, added; 55.6109–1,
added; 55.6694–1 thru –4, added; 55.6695–1, added;
55.6696–1, added; 55.7701–1, added; 156.6060–1, added;
156.6107–1, added; 156.6109–1, added; 156.6694–1
thru –4, added; 156.6695–1, added; 156.6696–1, added;
156.7701–1, added; 157.6060–1, added; 157.6107–1,
added; 157.6109–1, added; 157.6694–1 thru –4, added;
157.6695–1, added; 157.6696–1, added; 157.7701–1,
added; 301.7701–15, amended; tax return preparer penal-
ties under sections 6694 and 6695 (TD 9436) 3,268
26 CFR 301.7508A–1, amended; postponement of certain
tax-related deadlines by reason of a federally declared dis-
aster or terroristic or military action (TD 9443) 8,564
Technical Advice Memoranda (TAMs) (RP 2) 1,87
EXEMPT ORGANIZATIONS
Annual notice to donors regarding pending and settled declara-
tory judgment suits (Ann 1) 1,242
Letter rulings:
And determination letters:
Areas which will not be issued from Associates Chief
Counsel and Division Counsel (TE/GE) (RP 3) 1,107
Exemption application determination letter rulings under
sections 501 and 521 (RP 9) 2,256
And general information letters, procedures (RP 4) 1,118
User fees, request for letter rulings (RP 8) 1,229
Penalties:
Categories of tax returns and claims for refund, tax return
preparer penalty under section 6694 (RP 11) 3,313
Tax return preparer (TD 9436) 3,268
Regulations:
26 CFR 1.6060–1, amended; 1.6107–1, revised; 1.6109–2,
amended; 1.6694–0 thru –4, revised; 1.6695–1, –2, revised;
1.6696–1, revised; 53.6060–1, added; 53.6107–1, added;
53.6109–1, added; 53.6694–1 thru –4, added; 53.6695–1,
added; 53.6696–1, added; 53.7701–1, added; 56.6060–1,
added; 56.6107–1, added; 56.6109–1, added; 56.6694–1
thru –4, added; 56.6695–1, added; 56.6696–1, added;
56.7701–1, added; tax return preparer penalties under
sections 6694 and 6695 (TD 9436) 3,268
Revocations (Ann 3) 6,459
Technical advice to IRS employees (RP 5) 1,161
Tuition programs, modification to Notice 2001-55 (Notice 1) 2,
250
GIFT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Penalties:
Categories of tax returns and claims for refund, tax return
preparer penalty under section 6694 (RP 11) 3,313
Tax return preparer (TD 9436) 3,268
Postponement of certain tax-related deadlines by reason of a fed-
erally declared disaster or terroristic or military action (TD
9443) 8,564
Regulations:
26 CFR 25.6060–1, added; 25.6107–1, added; 25.6109–1,
added; 25.6694–1 thru –4, added; 25.6695–1, added;
25.6696–1, added; 25.7701–1, added; tax return preparer
penalties under sections 6694 and 6695 (TD 9436) 3,268
26 CFR 301.7508A–1, amended; postponement of certain
tax-related deadlines by reason of a federally declared dis-
aster or terroristic or military action (TD 9443) 8,564
Technical Advice Memoranda (TAMs) (RP 2) 1,87
February 23, 2009v2009–8 I.R.B.

INCOME TAX
Allocation of consideration and allocation and recovery of
basis in transactions involving corporate stock or securities
(REG–143686–07) 8,579
Anonymous tax return information, disclosure by tax return pre-
parer (Notice 13) 6,447
Annual notice to donors regarding pending and settled declara-
tory judgment suits (Ann 1) 1,242
Conduit financing arrangements (REG–113462–08) 4,379
Consolidated returns, intercompany transactions (TD 9442) 6,
434
Corporations:
Creditor continuity of interest (TD 9434) 4,339
Foreign base company sales income (TD 9438) 5,387;
(REG–150066–08) 5,423
Transaction of interest, controlled foreign corporation (CFC),
subpart F income partnership blocker (Notice 7) 3,312
Treatment of stock of a controlled corporation under section
355(a)(3)(B) (TD 9435) 4,333; (REG–150670–07) 4,378
Credits:
First-time homebuyer credit, allocation between unmarried
co-purchasers (Notice 12) 6,446
Rates for tax credit bonds (Notice 15) 6,449
Depreciation, election to forgo additional first year depreciation
deduction (RP 16) 6,449
Disciplinary actions involving attorneys, certified public accoun-
tants, enrolled agents, and enrolled actuaries (Ann 2) 5,424;
(Ann 8) 8,598
Disclosure:
Of return information to the Bureau of Economic Analysis
(TD 9439) 5,416
Or use of information by preparers of returns (TD 9437) 4,
341
Disguised sales, section 707, REG–149519–03 withdrawn (Ann
4) 8,597
Employer-provided vehicles, cents-per-mile valuation rule, max-
imum vehicle values, 2009 (RP 12) 3,321
Guidance regarding treatmentof certain obligations under sec-
tion 956(c) (Notice 10) 5,419
Information reporting:
Deadline for brokers to furnish payee statements (Notice 11)
5,420
Requirements for brokers for sales and transfers of securities
and issuers of securities for corporation actions affecting
basis, request for comments (Notice 17) 8,575
Insurance companies, prevailing state assumed interest rate ta-
bles, 2009 (RR 3) 5,382
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
January 2009 (RR 1) 2,248
February 2009 (RR 5) 6,432
Interim guidance under section 457A relating to deferred com-
pensation of nonqualified entities (Notice 8) 4,347
Interim standards under section 6694(a) (Notice 5) 3,309
INCOME TAX—Cont.
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,107
Associate Chief Counsel (International) (RP 7) 1,226
And information letters issued byAssociate Offices, determi-
nation letters issued by Operating Divisions (RP 1) 1,1
Money market fund, certain payments received from its invest-
ment advisor to maintain per share net asset value of $1.00 (RP
10) 2,267
Penalties:
Categories of tax returns and claims for refund, tax return
preparer penalty under section 6694 (RP 11) 3,313
Tax return preparer (TD 9436) 3,268
Postponement of certain tax-related deadlines by reason of a fed-
erally declared disaster or terroristic or military action (TD
9443) 8,564
Pre-Filing Agreement (PFA) program, extended (RP 14) 3,324
Proposed Regulations:
26 CFR 1.301–2, added; 1.302–2(c), removed; 1.302–5,
added; 1.304–1, revised; 1.304–2, –3, –5, amended;
1.351–2, amended; 1.354–1, amended; 1.355–1, amended;
1.356–1, amended; 1.358–1, –2, revised; 1.358–6,
amended; 1.368–1, amended; 1.861–12, added; 1.1002–1,
redesignated as 1.1001–6, and amended; 1.1016–2,
amended; 1.1374–10, revised; allocation of consideration
and allocation and recovery of basis in transactions involv-
ing corporate stock or securities (REG–143686–07) 8,579
26 CFR 1.355–2, amended; guidance regarding the treat-
ment of stock of a controlledcorporation under section
355(a)(3)(B) (REG–150670–07) 4,378
26 CFR 1.367(a), revised; 1.482–0, –1, –2, –4, –8, amended;
1.482–7, revised; 1.482–9, added; section 482, methods to
determine taxable income in connection with a cost sharing
arrangement (CSA) (REG–144615–02) 7,561
26 CFR 1.707–0, –3, –5 thru –9, amended; 1.752–3,
amended; section 707 regarding disguised sales, generally,
REG–149519–03 withdrawn (Ann 4) 8,597
26 CFR 1.881–3, amended; conduit financing arrangements
(REG–113462–08) 4,379
26 CFR 1.954–3, amended; guidance regarding foreign base
company sales income (REG–150066–08) 5,423
26 CFR 301.6707–1, added; section 6707 and the failure
to furnish information regarding reportable transactions
(REG–160872–04) 4,358
Publication 1167, General Rules and Specifications for Substi-
tute Forms and Schedules (RP 17) 7,517
Qualified board or exchange under section 1256(g)(7)(C), Dubai
Mercantile Exchange (RR 4) 5,408
Regulations:
26 CFR 1.355–0 thru –2, amended; 1.355–0T, –2T, added;
guidance regarding the treatment of stock of a controlled
corporation under section 355(a)(3)(B) (TD 9435) 4,333
26 CFR 1.367(a)–1, added; 1.367(a)–1T, amended; 1.482–0,
–0T, –1, –1T, –2T. –4T, –5, amended; 1.482–7, redes-
2009–8 I.R.B.viFebruary 23, 2009

INCOME TAX—Cont.
ignated as 1.482–7A; 1.482–7T, added, 1.482–8, –8T,
–9T, amended; 1.861–17, amended; 1.6662–6, amended;
301.7701–1, amended; 602.101, amended; section 482,
methods to determine taxable income in connection with a
cost sharing arrangement (CSA) (TD 9441) 7,460
26 CFR 1.368–1, amended; creditor continuity of interest (TD
9434) 4,339
26 CFR 1.954–3, amended; 1.954–3T, added; guidance re-
garding foreign base company sales income (TD 9438) 5,
387
26 CFR 1.1502–13, –28, amended; consolidated returns, in-
tercompany obligations (TD 9442) 6,434
26 CFR 1.6060–1, amended; 1.6107–1, revised; 1.6109–2,
amended; 1.6694–0 thru –4, revised; 1.6695–1, –2, re-
vised; 1.6696–1, revised; 301.7701–15, amended; 602.101,
amended; tax return preparer penalties under sections 6694
and 6695 (TD 9436) 3,268
26 CFR 301.6103(j)(1)–1, amended; 301.6103(j)(1)–1T, re-
moved; disclosure of return information to the Bureau of
Economic Analysis (TD 9439) 5,416
26 CFR 301.7216–3, amended; 301.7216–3T, removed;
amendments to the section 7216 regulations - disclosure or
use of information by preparers of returns (TD 9437) 4,341
26 CFR 301.7508A–1, amended; postponement of certain
tax-related deadlines by reason of a federally declared dis-
aster or terroristic or military action (TD 9443) 8,564
Revocations, exempt organizations (Ann 3) 6,459
Section 382 limitation, ownership changes, pre-change losses
(Notice 14) 7,516
Section 482, methods to determine taxable income in connec-
tion with a cost sharing arrangement (CSA) (TD 9441) 7,460;
(REG–144615–02) 7,561
Section 6707 and the failure to furnish information regarding re-
portable transactions (REG–160872–04) 4,358
Stocks:
Section 305 REIT distributions of stock (RP 15) 4,356
Treatment of stock of a controlled corporation under section
355(a)(3)(B) (TD 9435) 4,333; (REG–150670–07) 4,378
Substitute forms and schedules, general rules and specifications
(RP 17) 7,517
Tax conventions:
Publication 515, Withholding of Tax on Nonresident Aliens
and Foreign Entities (For Withholding in 2008), and Pub-
lication 901, U.S. Tax Treaties (Rev. April 2008); changes
in tables 1 and 2 for Bulgaria, Canada, and Iceland (Ann 5)
8,569
Technical Advice Memoranda (TAMs) (RP 2) 1,87
Transferred basis, reorganization acquisition (Notice 4) 2,251
SELF-EMPLOYMENT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Technical Advice Memoranda (TAMs) (RP 2) 1,87
February 23, 2009vii2009–8 I.R.B.

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