Internal Revenue Bulletin 2016-40 (PDF rendition): IRS Notices

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.

# INTERNAL REVENUE BULLETIN

IRS

Bulletin No. 2016-40
October 3, 2016

## 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

### Action On Decision 2016-03, page 424.

Nonacquiescence to the holding that all events fixing a liability
for federal income tax purposes occur when discount fuel
purchase coupons are issued to a customer for retail grocery
purchases.

### Notice 2016-52, page 425.

Notice 2016-52 provides guidance relating to certain trans-
actions, undertaken in anticipation of foreign-initiated adjust-
ments to foreign income tax liabilities of section 902 corpora-
tions, which will be treated as splitter arrangements under
section 909.

Notice 2016-55, page 432.

This notice provides that the IRS will not assert that cash
payments an employer makes to §170(c) organizations (in
exchange for vacation, sick, or personal leave that its employ-
ees elect to forgo) constitute gross income or wages of the
employees under certain circumstances.

## EMPLOYEE PLANS

### Announcement 2016-32, page 434.

This announcement requests comments on ways in which
Treasury and the IRS can facilitate compliance with the qualifi-
cation requirements for qualified plan documents in light of the
changes to the determination letter program described in Rev.
Proc. 2016-37, 2016-29 I.R.B. 136.

Notice 2016-54, page 429.

This notice sets forth updates on the corporate bond monthly
yield curve, the corresponding spot segment rates for Septem-
ber 2016 used under §417(e)(3)(D), the 24-month average
segment rates applicable for September 2016, and the 30-
year Treasury rates. These rates reflect the application of
§430(h)(2)(C)(iv), which was added by the Moving Ahead for
Progress in the 21st Century Act, Public Law 112-141 (MAP-
21) and amended by section 2003 of the Highway and Trans-
portation Funding Act of 2014 (HATFA).

### Notice 2016-57, page 432.

Notice 2016-57 extends the temporary nondiscrimination re-
lief for closed defined benefit plans that is provided in Notice
2014-5, 2014-2 I.R.B. 276, by making that relief available for
plan years beginning before 2018 if the conditions of Notice
2014-5 continue to be satisfied.

## The IRS Mission

Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the 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.

It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal 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, identify-
ing 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 .- 1986 Code.

This part includes rulings and decisions based on provisions of
the Internal 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, Legisla-
tion and Related Committee Reports.

Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury's Office of the Assistant Sec-
retary (Enforcement).

### Part IV .- Items of General Interest.

This part includes notices of proposed rulemakings, disbar-
ment and 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 contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

# Actions Relating to Decisions of the Tax Court

It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on un-
appealed issues decided adverse to the
government. Generally, an Action on De-
cision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirma-
tive statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.

Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar

cases where the facts are different. More-
over, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions. Prior to 1991, the
Service published acquiescence or nonac-
quiescence only in certain regular Tax
Court opinions. The Service has expanded
its acquiescence program to include other
civil tax cases where guidance is deter-
mined to be helpful. Accordingly, the Ser-
vice now may acquiesce or nonacquiesce
in the holdings of memorandum Tax
Court opinions, as well as those of the
United States District Courts, Claims
Court, and Circuit Courts of Appeal. Re-
gardless of the court deciding the case, the
recommendation of any Action on Deci-
sion will be published in the Federal Reg-
ister.

The recommendation in every Action
on Decision will be summarized as acqui-
escence, acquiescence in result only, or
nonacquiescence. Both "acquiescence"
and "acquiescence in result only" mean
that the Service accepts the holding of the
court in a case and that the Service will
follow it in disposing of cases with the

same controlling facts. However, "acqui-
escence" indicates neither approval nor
disapproval of the reasons assigned by the
court for its conclusions; whereas, "acqui-
escence in result only" indicates disagree-
ment or concern with some or all of those
reasons. "Nonacquiescence" signifies that,
although no further review was sought,
the Service does not agree with the hold-
ing of the court and, generally, will not
follow the decision in disposing of cases
involving other taxpayers. In reference to
an opinion of a circuit court of appeals, a
"nonacquiescence" indicates that the Ser-
vice will not follow the holding on a na-
tionwide basis. However, the Service will
recognize the precedential impact of the
opinion on cases arising within the venue
of the deciding circuit.

The Commissioner does NOT ACQUI-
ESCE in the following decision:

Giant Eagle, Inc. v. Commissioner,1
822 F.3d 666 (3rd Cir. 2016),
rev'g T.C. Memo 2014-146

# Part III. Administrative, Procedural, and Miscellaneous

## Foreign Tax Credit Guidance under Section 909 Related to Foreign- Initiated Adjustments

Notice 2016-52

### SECTION 1. OVERVIEW

The Department of the Treasury (Trea-
sury Department) and the Internal Reve-
nue Service (IRS) intend to issue regula-
tions under section 909 to address the
separation of related income from foreign
income taxes paid by a section 902 cor-
poration (as defined in section 909(d)(5))
pursuant to a foreign-initiated adjustment.
Under section 905(c), certain foreign in-
come taxes paid by a section 902 corpo-
ration after the taxable year to which the
taxes relate generally are taken into ac-
count by adjusting section 902 pools of
post-1986 foreign income taxes in the tax-
able year in which the taxes are paid,
rather than accounting for the taxes in the
prior taxable year to which the taxes re-
late. The Treasury Department and the
IRS are aware that, in anticipation of a
large foreign-initiated adjustment that re-
lates to a prior taxable year, a taxpayer
may take steps to separate the additional
payment of foreign income tax from the
income to which it relates. Such foreign-
initiated adjustments may arise under Eu-
ropean Union (EU) State aid law, to the
extent EU State aid payments result in
creditable foreign taxes. Specifically, be-
fore a payment is made pursuant to a
foreign-initiated adjustment, a taxpayer
may attempt to change its ownership
structure or cause the section 902 corpo-
ration to make an extraordinary distribu-
tion so that the subsequent tax payment
creates a high-tax pool of post-1986 un-
distributed earnings that can be used to
generate substantial amounts of foreign
taxes deemed paid, without repatriating
and including in U.S. taxable income the
earnings and profits to which the taxes
relate.

The Treasury Department and the IRS
have determined that guidance to address
these transactions is appropriate under
section 909, which is intended to prevent
the separation of creditable foreign taxes

from related income generally by defer-
ring the right to claim credits until the
related income is included in U.S. taxable
income. Accordingly, this notice an-
nounces that the Treasury Department and
the IRS intend to issue regulations under
section 909 that will identify two new
splitter arrangements relating to section
902 corporations that pay foreign income
taxes pursuant to foreign-initiated adjust-
ments. The regulations will apply similar
rules to taxpayers that take the position
that taxes paid by a U.S. person pursuant
to a foreign-initiated adjustment to the tax
liability of a section 902 corporation are
eligible for a direct foreign tax credit un-
der section 901.

No inference is intended from this no-
tice as to the treatment of transactions
described in this notice under current law,
and the IRS may challenge such transac-
tions under applicable Code provisions or
judicial doctrines. In addition, no infer-
ence is intended under this notice as to
whether (1) payments made pursuant to
any particular foreign-initiated adjust-
ment, including those arising under EU
State aid law, qualify as payments of cred-
itable foreign income taxes, or (2) taxes
paid by a U.S. person pursuant to a
foreign-initiated adjustment to the tax lia-
bility of a section 902 corporation are
eligible for a direct foreign tax credit un-
der section 901.

### SECTION 2. BACKGROUND

.01 Application of Section 905(c) to
Taxes Paid by Section 902 Corporations
Pursuant to Foreign-Initiated Adjust-
ments

If a foreign income tax liability for a
prior year changes, section 905(c)(1) gen-
erally requires the taxpayer to notify the
Secretary, who will redetermine the
amount of the U.S. tax for the year or
years affected. In the case of foreign in-
come taxes deemed paid under section
902 or 960, section 905(c)(1) also autho-
rizes the Secretary to prescribe adjust-
ments to section 902 pools of post-1986
foreign income taxes and post-1986 un-
distributed earnings in lieu of redetermin-
ing the U.S. shareholder's U.S. tax. If
accrued foreign taxes of a section 902

corporation are paid more than two years
after the close of the taxable year to which
such taxes relate, section 905(c)(2)(B)
(i)(I) provides that such taxes are taken
into account in the taxable year in which
the foreign taxes are paid. Temporary and
proposed regulations issued in 1988 and
2007 implemented these rules. See
§1.905-3T (2007). Portions of the tempo-
rary regulations expired on November 5,
2010, but remain outstanding in proposed
form. Neither section 905(c) nor the reg-
ulations under that section specifically ad-
dress how to account for additional pay-
ments of foreign income tax with respect
to earnings of a section 902 corporation if,
as the result of a liquidation, reorganiza-
tion, or other corporate transaction, the
person that makes an additional payment
of tax pursuant to a foreign-initiated ad-
justment is different from the section 902
corporation that would have paid the tax
had it been paid in the year to which the
additional tax relates.

.02 Foreign Tax Credit Splitter Ar-
rangements under Section 909

Section 909(a) provides that, if there is
a foreign tax credit splitting event with
respect to a foreign income tax paid or
accrued by a taxpayer, such tax will not be
taken into account before the taxable year
in which the related income is taken into
account by the taxpayer.

Section 909(b) provides that, if there is
a foreign tax credit splitting event with
respect to a foreign income tax paid or
accrued by a section 902 corporation, such
tax is not taken into account for purposes
of section 902 or 960, or for purposes of
determining earnings and profits under
section 964(a), before the taxable year in
which the related income is taken into
account by the section 902 corporation or
a domestic corporation that meets the
ownership requirements of section 902(a)
or (b) with respect to the section 902
corporation. Section 909(c)(1) provides
that sections 909(a) and (b) apply at the
partner level. See also §1.909-1(b).

Section 909(d)(3) provides that the
term "related income" means, with respect
to any portion of any foreign income tax,
the income (or, as appropriate, earnings
and profits) to which such portion of the
foreign income tax relates.

Section 909(d)(1) provides that there is
a foreign tax credit splitting event with
respect to a foreign income tax if the
related income is (or will be) taken into
account by a covered person.

Regulations under section 909 narrow
the statutory definition in section 909(d)
(1) to provide that there is a foreign tax
credit splitting event with respect to a
foreign income tax paid or accrued only if,
in connection with a "splitter arrange-
ment," the related income was, is, or will
be taken into account for U.S. federal in-
come tax purposes by a person that is a
covered person (as defined in §1.909-
1(a)(4)) with respect to the payor of the
tax. §1.909-2(a)(1). The term "payor"
means a person that pays or accrues a
foreign income tax within the meaning of
§1.901-2(f), as well as a person that takes
foreign income taxes paid or accrued by a
partnership into account pursuant to sec-
tion 702(a)(6). §1.909-1(a)(3).

Section 1.909-2(b) provides an exclu-
sive list of splitter arrangements and iden-
tifies the split taxes and related income for
each such arrangement. The preamble to
the final regulations under section 909
states that the Treasury Department and
the IRS will continue to consider other
arrangements that inappropriately sepa-
rate foreign income taxes from the related
income. TD 9710, 80 FR 7323.

Section 1.909-2(a)(2) provides that
split taxes are not taken into account for
U.S. federal income tax purposes before
the taxable year in which the related in-
come is taken into account by the payor
or, in the case of split taxes paid or ac-
crued by a section 902 corporation, by a
section 902 shareholder (as defined in
§1.909-1(a)(2)) of the section 902 corpo-
ration.

Section 909(e) authorizes the Secretary
to issue regulations or other guidance as is
necessary or appropriate to carry out the
purposes of section 909.

### SECTION 3. FOREIGN-INITIATED ADJUSTMENT SPLITTER ARRANGEMENTS

.01 Splitter Arrangements Arising from
the Application of Section 905(c) to Suc-
cessor Entities

This section 3.01 describes regulations
that the Treasury Department and the IRS
intend to issue in order to address changes

in ownership structures that, in connection
with a foreign-initiated adjustment, result
in a foreign tax credit splitting event.
These regulations will provide that a split-
ter arrangement arises when, as a result of
a "covered transaction," a section 902 cor-
poration pays "covered taxes" during a
taxable year (the "splitter year").

For purposes of this notice, "covered
taxes" are foreign income taxes that:

(1) are taken into account by adjusting
the payor's pools of post-1986 un-
distributed earnings and post-1986
foreign income taxes in the taxable
year paid pursuant to section 905
(c); and

(2) result from a "specified foreign-
initiated adjustment" to the amount
of foreign income tax accrued with
respect to one or more prior taxable
years ("relation-back years").

A "specified foreign-initiated adjust-
ment" is a foreign-initiated adjustment (or
series of related adjustments to more than
one taxable year) that results in additional
foreign income tax liability that is greater
than $10 million, regardless of whether
such liability is actually paid in one or
more taxable years (due, for example, to
an installment plan).

A "covered transaction" generally is
any transaction or series of related trans-
actions that meet the following condi-
tions:

(1) The transaction or series of related
transactions results in covered taxes
being paid by a payor that is a sec-
tion 902 corporation and that is not
the section 902 corporation that
would have been the payor of the
covered taxes (the predecessor en-
tity) if the covered taxes had been
paid or accrued in the relation-back
year; and

(2) The predecessor entity (or a succes-
sor of the predecessor entity) was a
covered person with respect to the
payor immediately before the trans-
action or series of related transac-
tions, or, if the payor did not exist
immediately before the transaction
or series of related transactions, the
predecessor entity (or a successor of
the predecessor entity) was a cov-
ered person with respect to the
payor immediately after the transac-
tion or series of related transactions.

However, a transaction or series of related
transactions will not be treated as a cov-
ered transaction if either of the following
exceptions applies:

(1) The transaction or series of related
transactions results in the transfer of
the earnings and profits of the pre-
decessor entity to the payor pursu-
ant to section 381(c)(2); or

(2) The taxpayer demonstrates by clear
and convincing evidence that the
transaction or series of related
transactions were not structured
with a principal purpose of separat-
ing covered taxes from the post-
1986 undistributed earnings of the
predecessor entity that include the
earnings to which the covered taxes
relate.

In the case of a splitter arrangement
described in this section 3.01, "related in-
come" equals the sum of the portions of
the predecessor entity's earnings and prof-
its for each of the relation-back years that
are:

(1) described in section 316(a)(2) ("sec-
tion 316(a)(2) earnings");

(2) in the separate category or catego-
ries to which covered tax is as-
signed; and

(3) attributable to all activities that gave
rise to income (computed under for-
eign law) included in the foreign tax
base that was adjusted pursuant to
the specified foreign-initiated ad-
justment ("adjusted foreign tax
base"), regardless of which particu-
lar activities gave rise to the adjust-
ment.

If foreign income tax is imposed on the
combined income (within the meaning of
§1.901-2(f)(3)(ii)) of two or more enti-
ties, including for this purpose disre-
garded entities, the principles of these
rules will apply on an entity-by-entity ba-
sis.

The principles of §1.909-6(d) will ap-
ply to determine the amount of related
income of the predecessor entity that is
transferred to other persons or taken into
account by a section 902 shareholder or
the payor section 902 corporation (for ex-
ample, due to a transaction that is de-
scribed in section 381(a)(1) or (a)(2)) in
any relation-back year or subsequent year
before the splitter year.

In the case of a splitter arrangement
described in this section 3.01, "split taxes"
are the amount of the covered taxes that
relate to the predecessor entity's related
income that was not transferred to the
payor in the covered transaction, reduced
by the ratable portion of the covered taxes
that would no longer be treated as split
taxes under the principles of §1.909-
6(e)(4) because a section 902 shareholder
or the payor section 902 corporation took
related income into account prior to the
splitter year.

The following example illustrates the
regulations described in this section 3.01.
All dollar amounts in this example are in
millions.

Example. (i) Facts. USP, a domestic corporation,
wholly owns CFC1. CFC1 wholly owns CFC2.
CFC1 and CFC2 are foreign corporations that were
formed at the beginning of Year 1, are residents of
Country X, and use the U.S. dollar as their functional
currency. CFC1 wholly owns DE, a disregarded en-
tity for U.S. federal income tax purposes that is
organized in Country X and treated as a corporation
for Country X tax purposes. CFC1 does not earn any
income or pay any foreign taxes, other than through
DE. For each of Years 1 through 5, DE earns $200 of
earnings and profits with respect to which it accrues
and pays no foreign tax. These earnings and profits
constitute CFC1's pool of post-1986 undistributed
earnings, which equals $1,000 as of the end of Year
5. The earnings and profits are all in the general
income category. In Year 6 (a year when DE earns
no income), CFC1 transfers all of its interest in DE
to CFC2 in exchange for CFC2 stock in a transaction
that qualifies under section 351. In Year 8, after
exhausting all effective and practical remedies to
minimize its liability for Country X tax, DE pays
$200 in foreign income taxes to Country X to settle
a series of related adjustments proposed by Country
X with respect to Years 1 through 5.

(ii) Splitter arrangement. CFC1's transfer of its
interest in DE to CFC2 in Year 6 and the payment of
foreign income taxes by CFC2 through DE in Year 8
will give rise to a splitter arrangement under the
rules described in section 3.01 of this notice, unless
USP satisfies the principal purpose exception. The
$200 of foreign income taxes paid by CFC2 are
covered taxes because (1) they are added to CFC2's
pool of post-1986 foreign income taxes in Year 8
pursuant to section 905(c), and (2) they result from a
specified foreign-initiated adjustment with respect to
one or more relation-back years. Unless USP estab-
lishes by clear and convincing evidence that the
transfer of CFC1's interest in DE to CFC2 was not
structured with a principal purpose of separating
covered taxes from the post-1986 undistributed earn-
ings of CFC1 that include the earnings to which the
covered taxes relate, that transfer is a covered trans-
action because (1) it resulted in CFC2 being the
payor of the covered taxes and CFC1 would have
been the payor of the covered taxes if they were paid
or accrued in the relation-back years; (2) immedi-
ately before the transfer, CFC1 was a covered person

with respect to CFC2; and (3) the transfer did not
result in a transfer of CFC1's earnings and profits to
CFC2 pursuant to section 381(c)(2).

(iii) Related income. The related income equals
$1,000, the sum of CFC1's section 316(a)(2) earn-
ings with respect to each of Years 1 through 5 that
are attributable to the activities of DE that gave rise
to income (computed under foreign law) included in
the adjusted foreign tax base of DE. Because CFC1
made no distributions before Year 8, the full amount
of the related income remains in CFC1's pool of
post-1986 undistributed earnings as of the beginning
of Year 8, the splitter year.

(iv) Split taxes. The split taxes equal $200, the
amount of the covered taxes paid by CFC2.

.02 Splitter Arrangements Arising
From Distributions Made Before the Pay-
ment of Additional Tax Pursuant to
Foreign-Initiated Adjustments

Taxpayers could achieve a result simi-
lar to the arrangement described in section
3.01 of this notice by using distributions
to, in effect, move post-1986 undistrib-
uted earnings from one section 902 corpo-
ration to another section 902 corporation
before the first section 902 corporation
makes a tax payment pursuant to a specified
foreign-initiated adjustment. In such a
case, the earnings to which the tax pay-
ment relates are first taken into account by
the payor but, as a result of the distribu-
tions, are then taken into account by a
covered person that is a section 902 cor-
poration ("section 902 covered person")
before the first section 902 corporation
pays the tax. Accordingly, the Treasury
Department and the IRS intend to issue
regulations that will provide that a splitter
arrangement results when a payor that is a
section 902 corporation pays covered
taxes (as defined in section 3.01 of this
notice) during a taxable year (the “splitter
year"), and the payor (or a predecessor of
the payor) has made a "covered distribu-
tion."

A "covered distribution" is any distri-
bution with respect to the payor's stock to
the extent such distribution:

(1) Occurred in a taxable year of the
payor to which the covered taxes
relate or any subsequent taxable
year up to and including the tax-
able year immediately before the
taxable year in which the covered
taxes are paid;

(2) Resulted in a distribution or alloca-
tion (for example, pursuant to
§1.312-10) of the payor's post-
1986 undistributed earnings (but for
this purpose not including earnings

and profits attributable to income
effectively connected with the con-
duct of a trade or business within
the United States or otherwise sub-
ject to tax under chapter 1 in the
hands of the payor) to a section 902
covered person; and

(3) Was made with a principal purpose
of reducing the payor's post-1986
undistributed earnings that included
the earnings to which the covered
taxes relate in advance of the pay-
ment of covered taxes.

A distribution will be presumed to
have been made with a principal pur-
pose described immediately above if the
sum of all distributions that would be
covered distributions without regard to
the principal purpose requirement is
greater than 50 percent of the sum of (i)
the payor's post-1986 undistributed
earnings as of the beginning of the pay-
or's taxable year in which the covered
tax is paid, and (ii) the sum of all dis-
tributions that would be covered distri-
butions without regard to the principal
purpose requirement. A taxpayer may
rebut this presumption with clear and
convincing evidence that the distribu-
tion was not made with a principal pur-
pose of reducing the payor's post-1986
undistributed earnings that included the
earnings to which the covered taxes re-
late in advance of the payment of cov-
ered taxes. For example, a taxpayer may
rebut this presumption by demonstrating
that the distributions were consistent
with the payor's pattern of distributions
before the taxpayer reasonably antici-
pated the specified foreign-initiated ad-
justment. In the case of a distribution
from a pool of post-1986 undistributed
earnings that included earnings to which
the covered taxes relate and earnings to
which the covered taxes did not relate, a
taxpayer may not rebut this presumption
by claiming that the distribution reduced
only the unrelated earnings.

In the case of a splitter arrangement
described in this section 3.02, "related in-
come" is determined by first determining
the "initial related income" in the hands of
the payor. The "initial related income"
is the sum of the portions of the payor's
earnings and profits for each of the
relation-back years that are:

(1) section 316(a)(2) earnings;

(2) in the separate category or catego-
ries to which covered tax is as-
signed; and

(3) attributable to all activities that gave
rise to income (computed under for-
eign law) included in the adjusted
foreign tax base (as defined in sec-
tion 3.01 of this notice), regardless
of which particular activities gave
rise to the adjustment.

If foreign income tax is imposed on the
combined income (within the meaning of
§1.901-2(f)(3)(ii)) of two or more enti-
ties, including for this purpose disregarded
entities, the principles of these rules will
apply on an entity-by-entity basis.

Each covered distribution will be
treated as resulting in a distribution of
initial related income to the recipient on a
pro rata basis under the principles of
§1.909-6(d)(3). The recipient of initial
related income in a covered distribution is
treated as having taken into account "re-
lated income" in the taxable year in which
the covered distribution was made. The
principles of §1.909-6(d) will apply to
determine the amount of related income of
the recipient of the covered distribution
that is transferred to other persons or
taken into account by a section 902 share-
holder or the payor section 902 corpora-
tion after the covered distribution was
made, in a taxable year before the splitter
year.

In the case of a splitter arrangement
described in this section 3.02, "split taxes"
are the covered taxes multiplied by a ratio,
the numerator of which is the total amount
of related income as of the beginning of
the splitter year (appropriately reduced for
any amounts taken into account prior to
the splitter year by a section 902 share-
holder or the payor section 902 corpora-
tion), and the denominator of which is the
payor's (or any predecessor corporation's)
initial related income.

The following examples illustrate the
regulations described in this section 3.02.
All dollar amounts in these examples are
in millions.

Example 1. (i) Facts. USP, a domestic corpora-
tion, wholly owns CFC1. CFC1 wholly owns CFC2.
CFC1 and CFC2 are foreign corporations that were
formed at the beginning of Year 1, are resident in
Country X, and use the U.S. dollar as their functional
currency. For each of Years 1 through 9, CFC2 earns
$100 of earnings and profits with respect to which it

does not accrue or pay any foreign income tax. In
Year 10, CFC2 earns $120 of earnings and profits
with respect to which it accrues and pays $20 of
foreign income tax. Its post-1986 undistributed earn-
ings as of the end of Year 10 are $1,000 (($100 × 9)
\+ $120- $20). On July 1, Year 11, CFC2 distributes
$750 of its post-1986 undistributed earnings to
CFC1. Pursuant to section 954(c)(6), CFC1's $750
of dividend income does not result in an income
inclusion to USP. In Year 12, after having exhausted
all available and practical remedies to minimize its
liability for Country X tax, CFC2 pays $20 of for-
eign income tax to Country X with respect to each of
Years 1 through 9 to settle related audit adjustments
proposed by Country X. Pursuant to section 905(c),
CFC2 adds $180 of additional tax relating to Years 1
through 9 to its pool of post-1986 foreign income
taxes in Year 12. CFC2 does not earn any other
income or pay any other foreign tax in Years 11 and
12\. CFC2's post-1986 undistributed earnings as of
the beginning of Year 12 are $250 ($1,000 - $750).

(ii) Splitter arrangement. The distribution of
$750 to CFC1 in Year 11 and the payment of $180
of foreign income taxes in Year 12 will give rise to
a splitter arrangement under section 3.02 of this
notice, unless USP rebuts the presumption that the
distribution was made with a principal purpose of
reducing CFC2's post-1986 undistributed earnings
in advance of the payment of the $180 of covered
taxes. The $180 of foreign income taxes paid are
covered taxes because (1) they are added to CFC2's
pool of post-1986 foreign income taxes in Year 12
pursuant to section 905(c), and (2) they result from a
specified foreign-initiated adjustment with respect to
one or more relation-back years. The $20 of foreign
income taxes previously accrued and paid with re-
spect to Year 10 are not covered taxes because they
did not result from a foreign-initiated adjustment.
Unless USP establishes by clear and convincing ev-
idence that the $750 distribution in Year 11 was not
made with a principal purpose to reduce CFC2's
post-1986 undistributed earnings in advance of the
payment of covered taxes, the distribution is a cov-
ered distribution because it (1) occurred in or after
Years 1 through 9, the relation-back years with re-
spect to the covered taxes, and in a taxable year
preceding Year 12, the year in which the covered
taxes were paid, (2) resulted in a distribution of $750
of CFC2's post-1986 undistributed earnings to
CFC1, a section 902 covered person with respect to
CFC2, and (3) is presumed to have a principal pur-
pose to reduce CFC2's post-1986 undistributed earn-
ings in advance of the payment of covered taxes
because it is greater than 50 percent of CFC2's
post-1986 undistributed earnings as of the beginning
of Year 12 plus the distribution ($750 > 0.50 X
($250 + $750)).

(iii) Related income. The initial related income in
the hands of CFC2 is $900, which is the sum of
CFC2's section 316(a)(2) earnings for Years 1
through 9, all of which were attributable to activities
that gave rise to income included in the adjusted
foreign tax base of CFC2. Under the principles of
§1.909-6(d), the covered distribution of $750 in
Year 11 results in a pro rata distribution of initial
related income of $675 ($750 × ($900/$1000)).
Therefore, CFC1 is treated as taking into account
related income equal to $675 in Year 11, the year of

the covered distribution. Because CFC1 made no
distributions in Year 11, the full amount of the
related income remains in CFC1's pool of post-1986
undistributed earnings as of the beginning of Year
12, the splitter year.

(iv) Split taxes. The split taxes equal the covered
taxes multiplied by a ratio, the numerator of which is
the total amount of related income as of the begin-
ning of the splitter year, and the denominator of
which is the initial related income, or $135 ($180 ×
($675/$900)).

Example 2. (i) Facts. The facts are the same as in
Example 1, except that USP wholly owns CFC3,
which wholly owns CFC1. CFC3 is a foreign cor-
poration resident in Country X. In Year 11, CFC1
distributes $300 to CFC3. Pursuant to section
954(c)(6), CFC3's $300 of dividend income does not
result in an income inclusion to USP.

(ii) Result. Because CFC1 made a distribution of
$300 to CFC3 in Year 11, and CFC1's $750 of
post-1986 undistributed earnings consisted of related
income and other income, CFC1 is treated as having
distributed $270 ($300 × ($675/$750) of related
income to CFC3 under the principles of §1.909-
6(d). Accordingly, as of the beginning of Year 12,
CFC3 has $270 of related income and CFC1 has
$405 of related income. The amount of split taxes
remains $135.

.03 Conforming Revisions

Section 1.909-6(g)(3) provides that if
a redetermination of foreign tax paid or
accrued by a section 902 corporation oc-
curs in a post-2010 taxable year and in-
creases the amount of foreign income
taxes paid or accrued by the section 902
corporation with respect to taxable years
beginning on or before December 31,
2010 (a pre-2011 taxable year), such taxes
will be treated for purposes of section 909
as being paid or accrued in a pre-2011
taxable year (pre-2011 taxes). Section
1.909-6(b) provides an exclusive list of
splitter arrangements (which differs from
the list provided in section 1.909-2(b))
that can give rise to foreign tax credit
splitting events with respect to pre-2011
taxes. Section 1.909-6(g)(3) will be re-
vised to provide that foreign tax redeter-
minations in a post-2010 taxable year with
respect to pre-2011 taxes of a section 902
corporation in connection with a splitter
arrangement described in section 3.01 or
section 3.02 of this notice will not be
treated as pre-2011 taxes for purposes of
those sections.

# SECTION 4. EFFECTIVE DATE

The regulations described in section 3
of this notice will apply to foreign income
taxes paid on or after September 15, 2016.

# SECTION 5. REQUEST FOR COMMENTS AND CONTACT INFORMATION

The Treasury Department and the IRS
solicit comments on the rules described in
this notice. In particular, the Treasury De-
partment and the IRS solicit comments on
whether the transactions addressed in sec-
tion 3 of this notice would be more appro-
priately addressed pursuant to rules under
section 905(c) providing that additional
payments of tax be accounted for through
adjustments to the pools of post-1986 for-
eign income taxes and post-1986 undis-
tributed earnings of section 902 corpora-
tions that are not the same entity as the
payor of the tax. The Treasury Department
and the IRS also are considering whether an
objective test, rather than a subjective test
based on taxpayer intent, should be used to
determine when the transactions described
in sections 3.01 and 3.02 of this notice are
treated as splitter arrangements. Accord-
ingly, the Treasury Department and the IRS
solicit comments on this issue, as well as on
the types of objective tests that could be
used for this purpose.

Written comments may be submitted to
the Office of Associate Chief Counsel (In-
ternational), Attention: Jeffrey Parry, In-
ternal Revenue Service, IR-4554, 1111
Constitution Avenue, NW, Washington,
DC 20224. Alternatively, taxpayers may
submit comments electronically to
Notice.comments@irscounsel.treas.gov.
Comments will be available for public
inspection and copying. For further in-
formation regarding this notice, contact
Mr. Parry of the Office of Associate
Chief Counsel (International) at (202)
317-6936 (not a toll-free number).

Written or electronic comments must
be received by December 14, 2016.

# Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates Notice 2016-54

This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used un-
der §417(e)(3), and the 24-month average
segment rates under §430(h)(2) of the In-
ternal Revenue Code. In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities under
§417(e)(3)(A)(ii)(II) as in effect for plan
years beginning before 2008 and the 30-
year Treasury weighted average rate un-
der §431(c)(6)(E)(ii)(I).

## YIELD CURVE AND SEGMENT RATES

Generally, except for certain plans un-
der sections 104 and 105 of the Pension
Protection Act of 2006 and CSEC plans
under §414(y), §430 of the Code specifies
the minimum funding requirements that
apply to single-employer plans pursuant
to §412. Section 430(h)(2) specifies the
interest rates that must be used to deter-
mine a plan's target normal cost and fund-
ing target. Under this provision, present
value is generally determined using three
24-month average interest rates ("segment
rates"), each of which applies to cash
flows during specified periods. To the ex-
tent provided under §430(h)(2)
(C)(iv), these segment rates are adjusted
by the applicable percentage of the 25-
year average segment rates for the period
ending September 30 of the year preced-
ing the calendar year in which the plan
year begins.1 However, an election may
be made under §430(h)(2)(D)(ii) to use

the monthly yield curve in place of the
segment rates.

Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond seg-
ment rates used to compute the target nor-
mal cost and the funding target. Consis-
tent with the methodology specified in
Notice 2007-81, the monthly corporate
bond yield curve derived from August
2016 data is in Table I at the end of this
notice. The spot first, second, and third
segment rates for the month of August
2016 are, respectively, 1.39, 3.27, and
4.18.

The 24-month average segment rates
determined under §430(h)(2)(C)(i) through
(iii) must be adjusted pursuant to §430(h)
(2)(C)(iv) to be within the applicable min-
imum and maximum percentages of the
corresponding 25-year average segment
rates. For plan years beginning before
2021, the applicable minimum percentage
is 90% and the applicable maximum per-
centage is 110%. The 25-year average
segment rates for plan years beginning in
2015 and 2016 were published in Notice
2014-50, 2014-40 I.R.B. 590 and Notice
2015-61, 2015-39 I.R.B. 408, respec-
tively. For plan years beginning in 2017,
based on the segment rates applicable for
October 1991 to September 2016, the 25-
year averages for the period ending Sep-
tember 30, 2016, of the first, second, and
third segment rates are 4.62, 6.35, and
7.20 percent, respectively.

## 24-MONTH AVERAGE CORPORATE BOND SEGMENT RATES

The three 24-month average corporate
bond segment rates applicable for Sep-
tember 2016 without adjustment for the
25-year average segment rate limits are as
follows:

Applicable Month

First Segment

Second Segment

Third Segment

September 2016

1.52

3.80

4.79

Based on §430(h)(2)(C)(iv), the 24-
month averages applicable for September

2016 adjusted to be within the applicable
minimum and maximum percentages of

the corresponding 25-year average seg-
ment rates, are as follows:

1Pursuant to §433(h)(3)(A), the 3rd segment rate determined under §430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under §433(c)(7)(C)).

For Plan Years Beginning In

Adjusted 24-Month Average Segment Rates

Applicable Month

First Segment

Second Segment

Third Segment

2015

September

2016

4.72

6.11

6.81

2016

September

2016

4.43

5.91

6.65

2017

September

2016

4.16

5.72

6.48

### 30-YEAR TREASURY SECURITIES INTEREST RATES

Generally for plan years beginning af-
ter 2007, §431 specifies the minimum
funding requirements that apply to mul-
tiemployer plans pursuant to §412. Sec-
tion 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation de-
scribed in §431(c)(6)(A), based on the
plan's current liability. Section 431(c)(6)
(E)(ii)(I) provides that the interest 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 inter-
est on 30-year Treasury securities during
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 rate of interest
on 30-year Treasury securities for August
2016 is 2.26 percent. The Service deter-

mined this rate as the average of the daily
determinations of yield on the 30-year
Treasury bond maturing in May 2046 de-
termined each day through August 10, 2016
and the yield on the 30-year Treasury bond
maturing in August 2046 determined each
day for the balance of the month. For plan
years beginning in the month shown below,
the weighted average of the rates of interest
on 30-year Treasury securities and the per-
missible range of rate used to calculate cur-
rent liability are as follows:

For Plan Years Beginning in

30-Year Treasury Weighted Average

Permissible Range

Month

Year

90%

105%

September

2016

2.97

2.67

3.11

#### MINIMUM PRESENT VALUE SEGMENT RATES

In general, the applicable interest rates
under §417(e)(3)(D) are segment rates

computed without regard to a 24-month
average. Notice 2007-81 provides guide-
lines for determining the minimum pres-
ent value segment rates. Pursuant to that
notice, the minimum present value seg-

ment rates determined for August 2016
are as follows:

First Segment

Second Segment

Third Segment

1.39

3.27

4.18

##### DRAFTING INFORMATION

The principal author of this notice is
Tom Morgan of the Office of the Asso-
ciate Chief Counsel (Tax Exempt and

Government Entities). However, other
personnel from the IRS participated in
the development of this guidance. For
further information regarding this no-

tice, contact Mr. Morgan at 202-317-
6700 or Tony Montanaro at 202-317-
8698 (not toll-free numbers).

Table I Monthly Yield Curve for August 2016 Derived from August 2016 Data

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

0.5

0.79

20.5

3.95

40.5

4.20

60.5

4.30

80.5

4.35

1.0

1.00

21.0

3.96

41.0

4.21

61.0

4.30

81.0

4.35

1.5

1.18

21.5

3.97

41.5

4.21

61.5

4.30

81.5

4.35

2.0

1.32

22.0

3.98

42.0

4.21

62.0

4.30

82.0

4.35

2.5

1.42

22.5

3.99

42.5

4.22

62.5

4.30

82.5

4.35

3.0

1.49

23.0

4.00

43.0

4.22

63.0

4.31

83.0

4.35

3.5

1.56

23.5

4.01

43.5

4.22

63.5

4.31

83.5

4.35

4.0

1.63

24.0

4.01

44.0

4.23

64.0

4.31

84.0

4.35

4.5

1.71

24.5

4.02

44.5

4.23

64.5

4.31

84.5

4.35

5.0

1.81

25.0

4.03

45.0

4.23

65.0

4.31

85.0

4.35

5.5

1.92

25.5

4.04

45.5

4.24

65.5

4.31

85.5

4.35

6.0

2.04

26.0

4.05

46.0

4.24

66.0

4.31

86.0

4.36

6.5

2.17

26.5

4.05

46.5

4.24

66.5

4.32

86.5

4.36

7.0

2.30

27.0

4.06

47.0

4.24

67.0

4.32

87.0

4.36

7.5

2.43

27.5

4.07

47.5

4.25

67.5

4.32

87.5

4.36

8.0

2.57

28.0

4.08

48.0

4.25

68.0

4.32

88.0

4.36

8.5

2.70

28.5

4.08

48.5

4.25

68.5

4.32

88.5

4.36

9.0

2.82

29.0

4.09

49.0

4.25

69.0

4.32

89.0

4.36

9.5

2.94

29.5

4.10

49.5

4.26

69.5

4.32

89.5

4.36

10.0

3.04

30.0

4.10

50.0

4.26

70.0

4.32

90.0

4.36

10.5

3.14

30.5

4.11

50.5

4.26

70.5

4.33

90.5

4.36

11.0

3.24

31.0

4.12

51.0

4.26

71.0

4.33

91.0

4.36

11.5

3.32

31.5

4.12

51.5

4.26

71.5

4.33

91.5

4.36

12.0

3.40

32.0

4.13

52.0

4.27

72.0

4.33

92.0

4.36

12.5

3.47

32.5

4.13

52.5

4.27

72.5

4.33

92.5

4.36

13.0

3.53

33.0

4.14

53.0

4.27

73.0

4.33

93.0

4.37

13.5

3.59

33.5

4.14

53.5

4.27

73.5

4.33

93.5

4.37

14.0

3.64

34.0

4.15

54.0

4.28

74.0

4.33

94.0

4.37

14.5

3.68

34.5

4.15

54.5

4.28

74.5

4.33

94.5

4.37

15.0

3.72

35.0

4.16

55.0

4.28

75.0

4.34

95.0

4.37

15.5

3.75

35.5

4.16

55.5

4.28

75.5

4.34

95.5

4.37

16.0

3.78

36.0

4.17

56.0

4.28

76.0

4.34

96.0

4.37

16.5

3.81

36.5

4.17

56.5

4.28

76.5

4.34

96.5

4.37

17.0

3.83

37.0

4.18

57.0

4.29

77.0

4.34

97.0

4.37

17.5

3.85

37.5

4.18

57.5

4.29

77.5

4.34

97.5

4.37

18.0

3.87

38.0

4.18

58.0

4.29

78.0

4.34

98.0

4.37

18.5

3.89

38.5

4.19

58.5

4.29

78.5

4.34

98.5

4.37

19.0

3.91

39.0

4.19

59.0

4.29

79.0

4.34

99.0

4.37

19.5

3.92

39.5

4.20

59.5

4.30

79.5

4.34

99.5

4.37

20.0

3.93

40.0

4.20

60.0

4.30

80.0

4.35

100.0

4.37

Treatment of Amounts
Paid to Section 170(c)
Organizations under
Employer Leave-Based
Donation Programs to Aid
Victims of Severe Storms
and Flooding in Louisiana
that Began on August 11,
2016

Notice 2016-55

This notice provides guidance on the
treatment of leave-based donation pro-
grams to aid victims of the severe storms
and flooding in Louisiana that began on
August 11, 2016 (Louisiana storms).

## TREATMENT OF LEAVE-BASED DONATION PAYMENTS

In response to the extreme need for
charitable relief for victims of the Louisi-
ana storms, employers may have adopted
or may be considering adopting leave-
based donation programs. Under leave-
based donation programs, employees can
elect to forgo vacation, sick, or personal
leave in exchange for cash payments that
the employer makes to charitable organi-
zations described in §170(c) of the Inter-
nal Revenue Code (§170(c) organiza-
tions). This notice provides guidance for
income and employment tax purposes on
the treatment of cash payments made by
employers under leave-based donation
programs for the relief of victims of the
Louisiana storms.

Notice 2014-68, 2014-47 I.R.B. 842,
Notice 2012-69, 2012-51 I.R.B. 712, and
Notice 2005-68, 2005-2 C.B. 622, pro-
vided similar guidance following the
Ebola Virus Disease outbreak in West Af-
rica, Hurricane Sandy, and Hurricane
Katrina, respectively. See also Notice
2001-69, 2001-2 C.B. 491, as modified
and superseded by Notice 2003-1, 2003-1
C.B. 257, regarding charitable relief fol-
lowing the September 11, 2001, terrorist
attacks.

The Service will not assert that cash
payments an employer makes to
§170(c) organizations in exchange for va-
cation, sick, or personal leave that its em-
ployees elect to forgo constitute gross in-
come or wages of the employees if the

payments are: (1) made to the §170(c) or-
ganizations for the relief of victims of the
Louisiana storms; and (2) paid to the
§170(c) organizations before January 1,
2018.

Similarly, the Service will not assert
that the opportunity to make such an elec-
tion results in constructive receipt of gross
income or wages for employees. Electing
employees may not claim a charitable
contribution deduction under §170 with
respect to the value of forgone leave ex-
cluded from compensation and wages.

The Service will not assert that an em-
ployer is permitted to deduct these cash
payments exclusively under the rules of
§170 rather than the rules of §162. Cash
payments to which this guidance applies
need not be included in Box 1, 3 (if ap-
plicable), or 5 of the Form W-2.

## DRAFTING INFORMATION

For further information, please contact
Sheldon Iskow of the Office of Associate
Chief Counsel (Income Tax and Account-
ing) at (202) 317-4718 (not a toll-free
number).

### Extension of Temporary Nondiscrimination Relief for Closed Defined Benefit Plans through 2017

#### Notice 2016-57

##### I. PURPOSE

This notice extends the temporary non-
discrimination relief for closed defined
benefit plans that is provided in Notice
2014-5, 2014-2 I.R.B. 276, by making
that relief available for plan years begin-
ning before 2018 if the conditions of No-
tice 2014-5 are satisfied.

##### II. BACKGROUND

Notice 2014-5 provides temporary
nondiscrimination relief for certain
"closed" defined benefit pension plans
(i.e., defined benefit plans that provide
ongoing accruals but that have been
amended to limit those accruals to some
or all of the employees who participated
in the plan on a specified date). Specifi-
cally, for plan years beginning before

2016, Section III.B of Notice 2014-5 per-
mits a DB/DC plan that includes a closed
defined benefit plan (that was closed be-
fore December 13, 2013) and that satisfies
certain conditions set forth in the notice to
demonstrate satisfaction of the nondis-
crimination in amount requirement of
§1.401(a)(4)-1(b)(2) on the basis of
equivalent benefits even if the DB/DC
plan does not meet any of the existing
eligibility conditions for testing on that
basis under §1.401(a)(4)-9(b)(2)(v).

Notice 2015-28, 2015-14 I.R.B. 848,
extends the temporary nondiscrimination
relief provided in Notice 2014-5 for an
additional year by applying that relief to
plan years beginning before 2017 if the
conditions of Notice 2014-5 are satisfied.
Notice 2015-28 further provides that, dur-
ing the period for which the extension
applies, the remaining provisions of the
nondiscrimination regulations under §401
(a)(4) continue to apply.

Proposed regulations relating to non-
discrimination requirements for closed
plans were published in the Federal Reg-
ister on January 29, 2016 (81 FR 4976).
The proposed regulations set forth relief
for closed plans under §§1.401(a)(4)-
4, 1.401(a)(4)-8, and 1.401(a)(4)-9 (sub-
ject to satisfaction of certain conditions
set forth in the regulations), and contain
other proposed nondiscrimination rules.
The regulations are proposed to apply
generally to plan years beginning on or
after the date of publication of the final
regulations. The proposed regulations
provide that taxpayers are permitted to
apply certain provisions of the proposed
regulations (including all of the provisions
that apply specifically to closed plans) for
certain plan years beginning before the
proposed applicability date.

Many detailed and thoughtful com-
ments have been submitted on the pro-
posed regulations, including oral com-
ments made at the public hearing held on
May 19, 2016. The Internal Revenue Ser-
vice (IRS) and the Treasury Department
are taking the recommendations received
from the public into account in finalizing
the regulations. It is anticipated that the
final regulations will not be published in
time for plan sponsors to make plan de-
sign decisions based on the final regula-
tions before expiration of the relief pro-
vided under Notice 2014-5 (as extended

by Notice 2015-28). Accordingly, the IRS
and the Treasury Department have deter-
mined that it is appropriate to extend the
relief provided under Notice 2014-5 for
an additional year.

##### III. EXTENSION OF RELIEF FOR CLOSED PLANS

The temporary nondiscrimination re-
lief for closed plans that is provided in
Notice 2014-5 is hereby extended to plan
years beginning before 2018 if the condi-
tions of Notice 2014-5 are satisfied. This
extension is provided in anticipation of

the issuance of final amendments to the
§401(a)(4) regulations. Those regulations
are expected to be effective for plan years
beginning on or after January 1, 2018, and
are expected to permit plan sponsors to
apply the provisions of the regulations
that apply specifically to closed plans for
certain earlier plan years.

## IV. EFFECT ON OTHER DOCUMENTS

Notice 2014-5 and Notice 2015-28
are modified.

## DRAFTING INFORMATION

The principal author of this notice is
Diane S. Bloom of the Office of the As-
sociate Chief Counsel (Tax Exempt and
Government Entities). However, other
personnel from the IRS participated in
development of this guidance. For further
information regarding this notice, please
contact Ms. Bloom or Linda Marshall at
(202) 317-6700 (not a toll-free number).

### Part IV. Items of General Interest

#### Facilitating Compliance with Qualified Plan Document Requirements Announcement 2016-32

This announcement requests comments
on ways in which the Department of the
Treasury (Treasury) and the Internal Reve-
nue Service (IRS) can improve compliance
with plan qualification requirements by
making it easier for plan sponsors to satisfy
requirements for qualified plan documents,
particularly in light of the changes to the
determination letter program described in
Rev. Proc. 2016-37, 2016-29 I.R.B. 136.
Rev. Proc. 2016-37 provides, in part, that
the five-year staggered remedial amendment
cycle system will be eliminated effective
January 1, 2017. Rev. Proc. 2016-37 fur-
ther provides that a sponsor of an individu-
ally designed plan will be permitted to sub-
mit a determination letter application only
for initial qualification, for qualification
upon plan termination, and in certain other
circumstances to be determined by Treasury
and the IRS.

## REQUEST FOR COMMENTS

Treasury and the IRS request com-
ments on the following:

1\. Incorporation by reference. Stake-
holders have suggested that expanding the
use of incorporation by reference could
help plan sponsors avoid inadvertent er-
rors in plan documents. A list of Internal
Revenue Code requirements that the IRS
currently permits to be incorporated by
reference for purposes of meeting the
qualification requirements is provided in
Internal Revenue Manual Exhibit 7.11.1-3,
Employee Plans Determination Letter
Program, which can be found at IRS.gov
at: https://www.irs.gov/irm/part7/irm_07-
011-001.html. Comments are requested on
any additional qualification requirements
plan sponsors believe should be permitted
to be incorporated by reference in their
retirement plans and the areas in which
guidance relating to incorporation by ref-
erence would provide the greatest assis-
tance. Commenters are requested to de-
scribe the reasons why incorporation by

reference of a particular qualification re-
quirement would be appropriate (for ex-
ample, in view of the characteristics of a
type of plan or the characteristics of a type
of plan sponsor). Comments are also re-
quested on suggested language that could
be used in plan documents to incorporate
qualification requirements by reference.
See, for example, §1.401(a)(9)-1, Q&A-3.

2\. Circumstances under which plan pro-
visions may not be required. Plan sponsors
have raised concerns about being required to
include certain plan provisions or amend-
ments in situations in which the provisions
or amendments are not applicable, or not yet
applicable, to their plans. For example, the
provisions of §401(a)(35), which impose di-
versification requirements on certain de-
fined contribution plans that hold or are
treated as holding publicly traded employer
securities under §401(a)(35)(F), are not re-
quired to be included in certain plans, in-
cluding plans maintained by tax-exempt or-
ganizations or sole proprietorships, but are
currently required to be included in certain
other plans, even if the plans do not provide
for the acquisition or holding of publicly
traded employer securities. Comments are
requested on whether certain plan provi-
sions or amendments should be required to
be included in a plan only if the underlying
qualification requirements are applicable to
that plan (for example, because of the type
of plan, employer, or benefits offered). In
considering which provisions should be re-
quired only if applicable, Treasury and the
IRS request that commenters also consider
the extent to which a provision may become
applicable in a future period, and the likeli-
hood that the plan sponsor would fail to
amend the plan when circumstances change.

3\. Conversion to pre-approved plans.
Treasury and the IRS understand that some
plan sponsors are considering a transition
from sponsoring an individually designed
plan to using a pre-approved plan document
(that is, a plan document pre-approved by
the IRS as a master or prototype plan or a
volume submitter plan) in light of the
changes to the determination letter program
for individually designed plans. Comments are
requested on any impediments to that process,
and how Treasury and the IRS could reduce or
eliminate those impediments. For example,

comments are welcome on difficulties en-
countered in the process of conversion, as
well as on aspects of the pre-approved plan
program that may cause the program to be
unattractive to a plan sponsor.

4\. Additional ways to facilitate compli-
ance. Comments are requested on any addi-
tional guidance or other actions by Treasury
and the IRS that would facilitate compliance
with qualified plan document requirements,
particularly in light of the changes to the
determination letter program.

Comments may be submitted in writ-
ing on or before December 15, 2016.
Comments should be mailed to Internal
Revenue Service, CC:PA:LPD:PR (An-
nouncement 2016-32), Room 5203, P.O.
Box 7604, Ben Franklin Station, Washing-
ton, D.C. 20044, or sent electronically
to notice.comments@irscounsel.treas.gov.
Please include "Announcement 2016-32"
in the subject line of any electronic commu-
nications. Alternatively, comments may be
hand delivered Monday through Friday be-
tween the hours of 8:00 a.m. and 4:00 p.m.
to CC:PA:LPD:PR (Announcement 2016-
32), Courier's Desk, Internal Revenue Ser-
vice, 1111 Constitution Ave., NW, Wash-
ington, D.C. All comments will be available
for public inspection and copying.

In addition, Treasury and the IRS antic-
ipate issuing a revenue procedure shortly
that will modify Rev. Proc. 2013-12,
2013-4 I.R.B. 313, the existing consoli-
dated statement of the correction programs
under the Employee Plans Compliance Res-
olution System (EPCRS). The new EPCRS
revenue procedure is expected to modify
EPCRS to accommodate changes to the de-
termination letter program made by Rev.
Proc. 2016-37 and is expected to invite
comments on the modifications.

## DRAFTING INFORMATION

The principal author of this announce-
ment is Angelique Carrington of the
Office of Associate Chief Counsel (Tax
Exempt and Government Entities). For
further information regarding this an-
nouncement, contact Ms. Carrington at
(202) 317-4148 (not a toll-free number).

# 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
effect:

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the 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 with
modified, below).

Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.

Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.

Modified is 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
with amplified and clarified, above).

Obsoleted describes 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.

Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.

Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-

stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes 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
published ruling is first modified and then,
as modified, is superseded.

Supplemented is 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
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is 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 following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

F.R .- Federal Register.

FUTA-Federal Unemployment Tax Act.

FX-Foreign corporation.

G.C.M .- Chief Counsel's Memorandum.

GE-Grantee.

TFE-Transferee.

TFR-Transferor.

CI-City.

GR-Grantor.

IC-Insurance Company.

TP-Taxpayer.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

TR-Trust.

CY-County.

LE-Lessee.

TT-Trustee.

D-Decedent.

LP-Limited Partner.

U.S.C .- United States Code.

DC-Dummy Corporation.

X-Corporation.

DE-Donee.

Del. Order-Delegation Order.

Nonacq .- Nonacquiescence.

O Organization.

DR-Donor.

P-Parent Corporation.

PHC-Personal Holding Company.

PO-Possession of the U.S.

PR-Partner.

PRS-Partnership.

PTE-Prohibited Transaction Exemption.
Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S-Subsidiary.

S.P.R .- Statement of Procedural Rules.

Stat .- Statutes at Large.

BK-Bank.

B.T.A .- Board of Tax Appeals.

T.C .- Tax Court.

C-Individual.

T.D .- Treasury Decision.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

GP-General Partner.

T.I.R .- Technical Information Release.

COOP-Cooperative.

LR-Lessor.

M-Minor.

Y-Corporation.

Z-Corporation.

DISC-Domestic International Sales Corporation.

E-Estate.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.
EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

FPH-Foreign Personal Holding Company.

T-Target Corporation.

## Numerical Finding List1

Bulletin 2016-27 through 2016-40

### Action on Decision:

2016-01, 2016-16 I.R.B. 580
2016-02, 2016-31 I.R.B. 193
2016-03, 2016-40 I.R.B. 424

### Announcements:

2016-21, 2016-27 I.R.B. 8
2016-23, 2016-27 I.R.B. 10
2016-24, 2016-30 I.R.B. 170
2016-25, 2016-31 I.R.B. 205
2016-26, 2016-38 I.R.B. 389
2016-27, 2016-33 I.R.B. 238
2016-28, 2016-34 I.R.B. 272
2016-29, 2016-34 I.R.B. 272
2016-30, 2016-37 I.R.B. 355
2016-31, 2016-38 I.R.B. 392
2016-32, 2016-40 I.R.B. 434
2016-33, 2016-39 I.R.B. 422
2016-34, 2016-39 I.R.B. 422
2016-35, 2016-39 I.R.B. 423
2016-36, 2016-39 I.R.B. 423
2016-37, 2016-39 I.R.B. 423

### Notices:

2016-40, 2016-27 I.R.B. 4
2016-41, 2016-27 I.R.B. 5

2016-42, 2016-29 I.R.B. 67

2016-43, 2016-29 I.R.B. 132
2016-44, 2016-29 I.R.B. 132
2016-45, 2016-29 I.R.B. 135
2016-47, 2016-35 I.R.B. 276
2016-46, 2016-31 I.R.B. 202
2016-48, 2016-33 I.R.B. 235
2016-49, 2016-34 I.R.B. 265
2016-50, 2016-38 I.R.B. 384
2016-51, 2016-37 I.R.B. 344
2016-52, 2016-40 I.R.B. 425
2016-53, 2016-39 I.R.B. 421
2016-54, 2016-40 I.R.B. 429
2016-55, 2016-40 I.R.B. 432
2016-57, 2016-40 I.R.B. 432

### Proposed Regulations:

REG-163113-02, 2016-36 I.R.B. 329
REG-147196-07, 2016-29 I.R.B. 32
REG-123854-12, 2016-28 I.R.B. 15
REG-131418-14, 2016-33 I.R.B. 248
REG-102516-15, 2016-32 I.R.B. 231
REG-109086-15, 2016-30 I.R.B. 171
REG-134016-15, 2016-31 I.R.B. 205
REG-101689-16, 2016-30 I.R.B. 170
REG-103058-16, 2016-33 I.R.B. 238

Proposed Regulations :- Continued

REG-105005-16, 2016-38 I.R.B. 380
REG-108792-16, 2016-36 I.R.B. 320

## Revenue Procedures:

2016-37, 2016-29 I.R.B. 136
2016-39, 2016-30 I.R.B. 164
2016-40, 2016-32 I.R.B. 228
2016-41, 2016-30 I.R.B. 165
2016-42, 2016-34 I.R.B. 269
2016-43, 2016-36 I.R.B. 316
2016-44, 2016-36 I.R.B. 316
2016-45, 2016-37 I.R.B. 344
2016-46, 2016-37 I.R.B. 345
2016-47, 2016-37 I.R.B. 346
2016-48, 2016-37 I.R.B. 348

## Revenue Rulings:

2016-17, 2016-27 I.R.B. 1
2016-18, 2016-31 I.R.B. 194
2016-19, 2016-35 I.R.B. 273
2016-20, 2016-36 I.R.B. 279
2016-23, 2016-39 I.R.B. 382
2016-24, 2016-39 I.R.B. 395

## Treasury Decisions:

9773, 2016-29 I.R.B. 56

9774, 2016-30 I.R.B. 151

9775, 2016-30 I.R.B. 159
9776, 2016-32 I.R.B. 222
9777, 2016-36 I.R.B. 282
9778, 2016-31 I.R.B. 196
9779, 2016-33 I.R.B. 233
9781, 2016-35 I.R.B. 274
9782, 2016-36 I.R.B. 301
9783, 2016-39 I.R.B. 396
9784, 2016-39 I.R.B. 402
9785, 2016-38 I.R.B. 375

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016-01 through 2016-26 is in Internal Revenue Bulletin
2016-26, dated June 27, 2016.

## Finding List of Current Actions on Previously Published Items1

Bulletin 2016-27 through 2016-40

Notices:

2009-89
Modified by
Notice 2016-51, 2016-37 I.R.B. 344

2012-54
Obsoleted by
Notice 2016-51, 2016-37 I.R.B. 344

2013-1
Modified by
Notice 2016-41, 2016-27 I.R.B. 5
2013-1
Superseded by
Notice 2016-41, 2016-27 I.R.B. 5

2013-67
Modified by
Notice 2016-51, 2016-37 I.R.B. 344

### Revenue Procedures:

2003-16
Modified by
Rev. Proc. 2016-47, 2016-37 I.R.B. 346

2007-44
Clarified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44
Modified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44
Superseded by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2009-33
Modified by
Rev. Proc. 2016-48, 2016-37 I.R.B. 348
2015-36
Modified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2016-3
Modified by
Rev. Proc. 2016-40, 2016-32 I.R.B. 228

2016-3
Modified by
Rev. Proc. 2016-45, 2016-37 I.R.B. 228

## Revenue Procedures :- Continued

2016-29
Modified by
Rev. Proc. 2016-39, 2016-30 I.R.B. 164

Treasury Decisions:

2013-17
Obsoleted by
T.D. 9785 2016-38 I.R.B. 375

2014-12
Modified by
T.D. 9776 2016-32 I.R.B. 222

# Internal Revenue Service Washington, DC 20224

Official Business
Penalty for Private Use, $300

# INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.

# We Welcome Comments About the Internal Revenue Bulletin

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page
(www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.
NW, IR-6230 Washington, DC 20224.

Internal Revenue Bulletin 2016-40 (PDF rendition): IRS Notices

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