Internal Revenue Bulletin 2009-28 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 200
9-28
July 13, 2009
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
SPECIAL ANNOUNCEMENT
Announcement 2009–56, page 145.
The IRS has developed six (6) new security, privacy, and
business standards to better protect taxpayer information col-
lected, processed and stored by Authorized IRS e-file Providers
participating in Online Filing of Individual income tax returns.
The security and privacy objectives of these standards are:
setting minimum encryption standards for transmission of
taxpayer information over the internet and authentication of
Web site owners/operators beyond that offered by standard
version SSL certificates; periodic external vulnerability scan of
the taxpayer data environment; protection against bulk-filing
of fraudulent tax returns; and the ability to timely isolate and
investigate potentially compromised taxpayer information.
These standards also address certain customer service ob-
jectives such as instant access to Web site owner/operator’s
contact information, and e-file Providers commitment to main-
taining physical, electronic, and procedural safeguards that
comply with applicable law and federal standards.
INCOME TAX
Rev. Rul. 2009–19, page 111.
Home Affordable Modification Program (HAMP).This
ruling holds that Pay-for-Performance Success Payments that
benefit a homeowner under the United States Government’s
Home Affordable Modification Program (HAMP) are excludable
from the homeowner’s income under the general welfare
exclusion.
Rev. Rul. 2009–20, page 112.
Federal rates; adjusted federal rates; adjusted federal
long-termrateandthelong-termexemptrate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for July 2009.
T.D. 9453, page 114.
REG–112994–06, page 144.
Final, temporary, and proposed regulations under section 7874
oftheCoderelatetothedeterminationofwhetheraforeigncor-
poration is treated as a surrogate foreign corporation pursuant
to section 7874(a)(2)(B). Notice 2006–70 obsoleted.
Notice 2009–51, page 128.
This notice solicits applications for allocations of the national
bond volume limitation authority (“volume cap”) of $2 billion to
issue tribal economic development bonds (TEDBs) under sec-
tion 7871(f) of the Code. This notice also provides related
guidance on the (1) eligibility requirements that a project must
meet to be considered for a volume cap allocation; (2) appli-
cation requirements and the application form for requests for
volume cap allocations; and (3) the method that the IRS will use
to allocate the volume cap.
EXEMPT ORGANIZATIONS
Rev. Proc. 2009–32, page 142.
This procedure provides reliance criteria to private foundations
and sponsoring organizations that maintain donor advised
funds in determining whether a potential grantee is a sup-
porting organization described in section 509(a) of the Code.
Notice 2006–109 superseded in part.
Finding Lists begin on page ii.

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.
July 13, 20092009–28 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—L
ow-Income
Housing Credi
t
The adjusted a
pplicable federal short-term, mid-
term, and long
-term rates are set forth for the month
of July 2009. S
ee Rev. Rul. 2009-20, page 112.
Section 61.—Gross Income
Defined
26 CFR 1.61–1(a): Gross income.
Home Affordable Modification Pro-
gram (HAMP).This ruling holds that
Pay-for-Performance Success Payments
that benefit a homeowner under the United
States Government’s Home Affordable
Modification Program (HAMP) are ex-
cludable from the homeowner’s income
under the general welfare exclusion.
Rev. Rul. 2009–19
ISSUE
If a homeowner benefits from
Pay-for-Performance Success Payments
under the United States Government’s
Home Affordable Modification Program
(HAMP), are those payments excludable
from income under the general welfare
exclusion?
FACTS
The deep contraction in the economy
and in the housing market has created
stress for homeowners throughout the
country. Large numbers of homeown-
ers are struggling to afford their current
monthly mortgage payments and are at
risk of losing their homes. In response, the
United States Government announced the
Homeowner Affordability and Stability
Plan (the Plan), which helps at-risk home-
owners modify their mortgages to avoid
foreclosure.
HAMP, a key component of the Plan,
helps homeowners who have defaulted, or
are at risk of default, on their mortgages
because, for example, they are suffering
serious hardships, decreases in income, in-
creases in expenses, and high mortgage
debt compared to monthly income.
Under HAMP, ho
meowners that make
timely paymen
ts on their modified loans
areeligiblet
o have incentive payments
made on their
behalf to lenders/investors.
Each month th
at a homeowner makes a
mortgage pay
ment on time, the home-
owner accrue
sanamounttowarda
Pay-for-Pe
rformance Success Payment.
A payment of
the accrued amounts is
made annual
ly, to reduce the principal
balance on t
he homeowner’s mortgage
loan. Homeo
wners can receive principal
reduction
s of up to $1,000 per year for
up to five y
ears, subject to ade minimis
threshold
.
The Federa
l National Mortgage Asso-
ciation an
d the Federal Home Loan Mort-
gage Corpo
ration have a substantial role in
administ
ering HAMP.
LAW AND ANALYSIS
Section 61(a) of the Internal Revenue
Code provides that, except as otherwise
provided by law, gross income means all
income from whatever source derived.
Payments under governmental social ben-
efit programs for the promotion of the
general welfare and not for services ren-
dered, however, are not includible in a
recipient’s gross income (general welfare
exclusion).SeeRev. Rul. 74–205, 1974–1
C.B. 20; Rev. Rul. 98–19, 1998–1 C.B.
840.
Pay-for-Performance Success Pay-
ments made under the United States Gov-
ernment’s Home Affordable Modification
Program promote the general welfare by
helping homeowners who are at risk of
losing their homes pay the mortgage loans
on their primary residences and do not in-
volve the performance of services. These
payments meet the requirements of the
general welfare exclusion.
HOLDING
If a homeowner benefits from
Pay-for-Performance Success Payments
under the United States Government’s
Home Affordable Modification Program,
the payments are excludable from income
under the general welfare exclusion.
DRAFTING INFO
RMATION
The principal author of this revenue rul-
ing is Sheldon Iskow of the Office of Asso-
ciate Chief Counsel (Income Tax and Ac-
counting). For further information regard-
ing this revenue ruling, contact Mr. Iskow
at (202) 622–4920 (not a toll-free number).
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of July 2009. See Rev.
Rul. 2009-20, page 112.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rates is
set forth for the month of July 2009. See Rev. Rul.
2009-20, page 112.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
2009–28 I.R.B.111July 13, 2009

Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of July 2009. See Rev.
Rul. 2009-20, page 112.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
Section 642.—
Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of July 2009. See Rev.
Rul. 2009-20, page 112.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for July 2009.
Rev. Rul. 2009–20
This revenue ru
ling provides vari-
ous prescribe
d rates for federal income
tax purposes f
or July 2009 (the current
month). Table
1 contains the short-term,
mid-term, and
long-term applicable fed-
eral rates (A
FR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. How-
ever, under section 42(b)(2), the applicable
percentage for non-federally subsidized
new buildings placed in service after July
30, 2008, and before December 31, 2013,
shall not be less than 9%. Table 5 con-
tains the federal rate for determining the
present value of an annuity, an interest for
life or for a term of years, or a remainder
or a reversionary interest for purposes of
section 7520. Finally, Table 6 contains the
blended annual rate for 2009 for purposes
of section 7872.
July 13, 20091122009–28 I.R.B.

REV. RUL. 2009–20 TABLE 1
Applicable Federal Rates (AFR) for July 2009
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR.82%.82%.82%.82%
110% AFR.90%.90%.90%.90%
120% AFR.98%.98%.98%.98%
130% AFR1.07%1.07%1.07%1.07%
Mid-term
AFR2.76%2.74%2.73%2.72%
110% AFR3.03%3.01%3.00%2.99%
120% AFR3.32%3.29%3.28%3.27%
130% AFR
3.59%3.56%3.54%3.53%
150% AFR4.15%
4.11%4.09%4.08%
175% AFR
4.86%4.80%4.77%
4.75%
Long-term
AFR4.36%4.31%4.29%4.27%
110% AFR4.80%4.74%4.71%4.69%
120% AFR
5.24%5.17%5.14%5.12%
130% AFR
5.68%5.60%5.56%5.54%
REV. RUL. 2009–20 TABLE 2
Adjusted AFR for July 2009
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted
AFR
.84%.84%.84%.84%
Mid-term adjusted AFR2.22%2.21%2.20%2.20%
Long-term adjusted
AFR
4.33%4.28%4.26%4.24%
REV. RUL. 2009–20 TABLE 3
Rates Under Section 382 for July 2009
Adjusted federal long-term rate for the current month4.33%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)4.58%
REV. RUL. 2009–20 TABLE 4
Appropriate Percentages UnderSection 42(b)(1) for July 2009
Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July
30, 2008, and before December 31, 2013, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.82%
Appropriate percentage for the 30% present value low-income housing credit3.35%
2009–28 I.R.B.113July 13, 2009

REV. RUL. 2009–20 TABLE 5
Rate Under Section 7520 for July 2009
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest3.4%
REV. RUL. 2009–20 TABLE 6
Blended Annual Rate for 2009
Section 7872(e)(2) blended annual rate for 20090.82%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2009. See Rev. Rul. 2009-20, page 112.
Section 7874.—Rules
Relating to Expatriated
Entities and their Foreign
Parents
26 CFR 1.7874–2T: Surrogate foreign corporation
(temporary).
T.D. 9453
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Guidance Under Section 7874
Regarding Surrogate Foreign
Corporations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
final and temporary regulations under sec-
tion 7874 of the Internal Revenue Code
(Code) concerning the determination of
whether a foreign corporation shall be
treated as a surrogate foreign corporation.
The temporary regulations primarily af-
fect domestic corporations or partnerships
(and certain parties related thereto), and
certain foreign corporations that acquire
substantially all of the properties of such
domestic corporations or partnerships.
The text of these temporary regulations
serves as the text of the proposed reg-
ulations (REG–112994–06) set forth in
the notice of proposed rulemaking on this
subject also published in this issue of the
Bulletin.
DATES:Effective Dates:The regulations
are effective on June 12, 2009.
Applicability Date:For dates of
applicability, see §§1.7874–1T(g) and
1.7874–2T(o).
FOR FURTHER INFORMATION
CONTACT: S. James Hawes, (202)
622–3860 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
A foreign corporation is generally
treated as a surrogate foreign corporation
under section 7874(a)(2)(B) if pursuant to
a plan (or a series of related transactions)
three conditions are satisfied. First, the
foreign corporation completes after March
4, 2003, the direct or indirect acquisition
of substantially all of the properties held
directly or indirectly by a domestic cor-
poration. Second, after the acquisition at
least 60 percent of the stock (by vote or
value) of the foreign corporation is held
by former shareholders of the domestic
corporation by reason of holding stock
in the domestic corporation. Third, after
the acquisition the expanded affiliated
group(definedinsection7874(c)(1))that
includes the foreign corporation does not
have substantial business activities in the
foreigncountryinwhich,orunderthelaw
of which, the foreign corporation is cre-
ated or organized, when compared to the
total business activities of the expanded
affiliated group. Similar provisions apply
to transactions involving the acquisition
by a foreign corporation of substantially
all of the properties constituting a trade or
business of a domestic partnership. The
level of ownership in the surrogate foreign
corporation by former shareholders of the
July 13, 20091142009–28 I.R.B.

domestic corporation (or former partners
in the domestic partnership) determines
the treatment of the transaction. Compare
sections 7874(a)(1) and 7874(b).
Temporary regulations (T.D. 9265,
2006–2 C.B. 1) were published in the
Federal Register(71 FR 32437) on June
6, 2006, concerning the treatment of a
foreign corporation as a surrogate for-
eign corporation (2006 temporary regu-
lations). A notice of proposed rulemak-
ing (REG–112994–06, 2006–2 C.B. 47)
cross-referencing the temporary regula-
tions was published in the same issue of
theFederal Register(71 FR 32495). On
July 28, 2006, Notice 2006–70, 2006–2
C.B. 252, (see §601.601(d)(2)(ii)(b)) was
published, announcing that the effective
date in §1.7874–2T(j) would be amended
for certain acquisitions initiated prior to
December 28, 2005. No public hearing
was requested or held; however, com-
ments were received. After consideration
of the comments, the 2006 temporary reg-
ulations and the related notice of proposed
rulemaking are withdrawn and replaced
with new temporary regulations and a new
notice of proposed rulemaking. These
new temporary regulations are discussed
in this preamble.
Summary of Temporary Regulations
A.StockHeldbyaPartnership
Section 1.7874–1T(b), as contained in
26 CFR part 1 revised as of April 1, 2008,
provided that, for purposes of section
7874(c)(2)(A), stock held by a partnership
shall be considered as held proportion-
ately by the partners of the partnership.
Final regulations published in theFederal
Register(T.D. 9399, 2008–25 I.R.B. 1157
[73 FR 29054–29058]) on May 20, 2008
(2008 final regulations) modified this pro-
vision to apply for all purposes of section
7874. See §1.7874–1(e). By its terms,
§1.7874–1(e) applies only to stock held by
a partnership, not to all properties held by
the partnership.
Commentators have questioned the
scope of §1.7874–1(e). In response to
these comments, the temporary regulations
modify the rule to apply only for purposes
of determining whether the ownership
condition of section 7874(a)(2)(B)(ii) is
satisfied. The temporary regulations pro-
vide other partnership look-through rules,
as appropriate. See, for example, the dis-
cussion in section F.4. of this preamble
concerning the partnership items that are
taken into account for purposes of section
7874(a)(2)(B)(iii).
B.Indirect Acquisition of Properties
1.Clarification of Temporary Regulations
The 2006 temporary regulations iden-
tify certain acquisitions that constitute
indirect acquisitionsof properties held by a
domestic corporation. See §1.7874–2T(b).
The temporary regulations retain these
rules and clarify that the identified trans-
actions do not represent an exclusive list
of transactions that constitute indirect ac-
quisitions. The temporary regulations also
clarify that the acquisitionofaninterestin
a partnership is an indirect acquisition of
a proportionate amount of the properties
of the partnership for purposes of section
7874(a)(2)(B)(i).
2.Certain Acquisitions by Members of the
Expanded Affiliated Group
The 2006 temporary regulations pro-
vide that if a corporation (acquiring cor-
poration) acquires stock or assets of a
domestic corporation in exchange for
stock of a foreign corporation (foreign
issuing corporation) that directly or indi-
rectly owns more than 50 percent of the
stock (by vote or value) of the acquiring
corporation after the acquisition, the for-
eign issuing corporation shall be treated
as acquiring a proportionate amount of the
stock or assets of the domestic corpora-
tion. §1.7874–2T(b)(4).
The temporary regulations retain this
rule, with modifications. First, the rule is
modified to apply if the acquiring corpo-
ration and the foreign issuing corporation
are members of the same expanded affili-
ated group after theacquisition. Second,
the rule is modified to apply to an acquisi-
tion of properties of a partnership. Finally,
the rule is modified to apply if a partner-
ship acquires properties of a domestic cor-
poration (or partnership) in exchange for
stock of a foreign issuing corporation, but
only if the foreign issuing corporation and
the partnership would be members of the
same expanded affiliated group after the
acquisition if the partnership were a cor-
poration.
C.Acquisitions by Multiple Foreign
Corporations
The IRS and the Treasury Department
have become aware of transactions in-
tended to avoid section 7874 that involve
two or more foreign corporations com-
pleting, in the aggregate, an acquisition
described in section 7874(a)(2)(B)(i). For
example, pursuant to a plan (or a se-
ries of related transactions), two foreign
corporations would collectively acquire
substantially all of the properties held by
a domestic corporation. Taxpayers may
take the position that neither foreign cor-
poration is a surrogate foreign corporation
because no foreign corporation separately
acquires substantiallyall of the properties
held by the domestic corporation. Taxpay-
ers may also take the position that section
7874(c)(4) does not apply to these trans-
actions.
Even if substantially all of the prop-
erties held by a domestic corporation (or
constituting a trade or business of a do-
mestic partnership) are not acquired by
a single foreign corporation, this type of
transaction presents the policy concerns
that prompted the enactment of section
7874. Accordingly, the temporary regu-
lations provide that, if pursuant to a plan
(or a series of related transactions) two
or more foreign corporations complete, in
the aggregate, an acquisition described in
section 7874(a)(2)(B)(i), then each foreign
corporation shall be treated as completing
the acquisition for purposes of determining
whether such foreign corporation shall be
treated as a surrogate foreign corporation.
See also section 7874(c)(4).
D.Acquisition of Multiple Domestic
Corporations (or Partnerships)
The preamble to the 2008 final regu-
lations identifies another transaction in-
tended to avoid section 7874 that involves
a single foreign corporation completing
more than one acquisition described in
section 7874(a)(2)(B)(i) as part of the
same plan (or a series of related transac-
tions). The preamble to the 2008 final
regulations explains that the IRS and the
Treasury Department disagree with the
characterization of this type of transaction
for purposes of section 7874 under current
law and are considering issuing regula-
tions clarifying the application of section
2009–28 I.R.B.115July 13, 2009

7874 to such transactions. In particular,
the IRS and the Treasury Department dis-
agree with the position that in determining
whether the foreign corporation is a sur-
rogate foreign corporation the ownership
percentage under section 7874(a)(2)(B)(ii)
is determined separately with respect to
each domestic corporation (or partner-
ship).
The preamble to the 2008 final regula-
tions explains that any regulations issued
would clarify that references in section
7874(a)(2)(B) to “a domestic corporation”
shall, as appropriate, mean “one or more
domestic corporations” where the proper-
ties of more than one domestic corpora-
tion are, directly or indirectly, acquired by
a foreign corporation pursuant to the same
plan. See §1.368–2(h). The preamble in-
dicates that similar clarifications would be
made for transactions involving domestic
partnerships.
The temporary regulations clarify that
if a foreign corporation completes more
than one acquisition described in section
7874(a)(2)(B)(i) pursuant to a plan (or a
series of related transactions), then, for
purposes of section 7874(a)(2)(B)(ii), the
acquisitions shall be treated as a single
acquisition and the domestic corpora-
tions (and/or domestic partnerships) shall
be treated as a single entity. This rule
shall apply equally to transactions in-
volving multiple corporations, multiple
partnerships, or multiple corporations and
partnerships.
The IRS and the Treasury Department
determined that providing a specific oper-
ative rule was preferable to simply stating
that, for purposes of section 7874(a)(2)(B),
any reference to a single domestic cor-
poration (or partnership) includes one or
more domestic corporations (or partner-
ships). However, the operative rule of the
temporary regulations is not a change from
current law.
E.“By Reason of” Standard of Section
7874(a)(2)(B)(ii)
1.Distributions and Other Transactions
The 2006 temporary regulations pro-
vide that stock of a foreign corporation re-
ceived by a former shareholder of a do-
mestic corporation in exchange for stock
of the domestic corporation is held by rea-
son of holding stock in the domestic cor-
poration. §1.7874–2T(c)(1). Commenta-
tors have questioned whether an exchange
is the exclusive means by which stock of
a foreign corporation can be held by rea-
son of holding stock in the domestic cor-
poration. For example, one commentator
questioned whether stock of a foreign cor-
poration received by a former shareholder
as a distribution with respect to the stock of
the domestic corporation is held by reason
of holding stock in the domestic corpora-
tion.
Section 7874(a)(2)(B)(ii) does not re-
quire stock of the foreign corporation to be
received in exchange for stock of the do-
mestic corporation (or an interest in the do-
mestic partnership). Therefore, the tempo-
rary regulations clarify that the “by reason
of” condition of section 7874(a)(2)(B)(ii)
is satisfied if stock of a foreign corporation
is received in exchange for, or with respect
to, stock in a domestic corporation (or an
interest in a domestic partnership). This
includes a taxable or nontaxable distribu-
tion. The temporary regulations also clar-
ify that the “by reason of” condition may
be satisfied other than through exchanges
or distributions.
2.Acquisitions Involving Other Property
One commentator questioned whether
all the stock of a foreign corporation
received by a former shareholder in ex-
change for stock of a domestic corporation
and other property could be treated as held
by reason of holding stock of the domestic
corporation, if the other property bears
some relationship to the stock of the do-
mestic corporation.
In response to this comment, the tempo-
rary regulations clarify that, subject to sec-
tion 7874(c)(4) and general tax principles,
the “by reason of” standard applies based
on the amount of stock of the foreign cor-
poration received in exchange for, or with
respect to, the stock of the domestic cor-
poration (or interest in the domestic part-
nership). This determination is based on
the relative values of the stock of the do-
mestic corporation (or interest in a domes-
tic partnership) and any other property ex-
changed for the stock of the foreign corpo-
ration. Thus, subject to section 7874(c)(4)
and general tax principles, the “by reason
of” standard is not affected by a relation-
ship between stock of the domestic corpo-
ration (or interest in the domestic partner-
ship) and such other property.
F.Substantial Business Activities
Condition of Section 7874(a)(2)(B)(iii)
1.Removal of Safe Harbor and Examples
The third condition for the treatment
of a foreign corporation as a surrogate
foreign corporation is that, after the ac-
quisition, the expanded affiliated group
(defined in section 7874(c)(1)) that in-
cludes the foreign corporation does not
have substantial business activities in the
foreign country in which, or under the
law of which, the foreign corporation
is created or organized, when compared
to the total business activities of the ex-
panded affiliated group (the substantial
business activities condition). Section
7874(a)(2)(B)(iii). For purposes of deter-
mining whether the substantial business
activities condition is satisfied, the 2006
temporary regulations provide a general
rule that, with certain exceptions, is based
on all the facts and circumstances, and a
safe harbor. §1.7874–2T(d)(1) through
(3). The 2006 temporary regulations also
provide examples illustrating the applica-
tion of the general rule. §1.7874–2T(d)(4).
The IRS and the Treasury Department
have concluded that the safe harbor pro-
vided by the 2006 temporary regulations
may apply to certain transactions that are
inconsistent with the purposes of section
7874, which is meant to prevent certain
transactions that seek to avoid U.S. tax by
merely shifting the place of organization
of a domestic corporation (or partnership).
The temporary regulations, therefore, do
not retain the safe harbor provided by the
2006 temporary regulations. The tem-
porary regulations also do not retain the
examples illustrating the general rule con-
tained in the 2006 temporary regulations.
Thus, taxpayers can no longer rely on the
safe harbor or the examples illustrating
the general rule provided by the 2006
temporary regulations. Instead, taxpayers
must apply the general rule to determine
whether the substantial business activities
condition is satisfied. In addition, the
question of whether the substantial busi-
ness activities condition is satisfied will
continue to be on the list of provisions with
respect to which the IRS will not ordinar-
ily issue rulings or determination letters.
July 13, 20091162009–28 I.R.B.

See Rev. Proc. 2009–7, 2009–1 I.R.B.
226, Section 4.01(30). Comments are re-
quested with respect to these changes.
2.Sales and Services Between Expanded
Affiliated Group Members
The 2006 temporary regulations iden-
tify sales made by the expanded affili-
ated group to customers located in the
foreign country as an item to consider
in determining whether the substantial
business activities condition is satisfied.
§1.7874–2T(d)(1)(ii)(3). Commentators
have asked whether sales (or the perfor-
mance of services) between expanded
affiliated group members may be taken
into account for this purpose.
The IRS and the Treasury Department
are concerned that sales (and the perfor-
mance of services) between expanded af-
filiated group members can be structured
in a manner that does not represent actual
business activities. However, subject to
section 7874(c)(4) and general tax princi-
ples, the IRS and the Treasury Department
believe that in appropriate circumstances
sales (or the performance of services) be-
tween members of the expanded affiliated
group may be taken into account under the
general rule.
3.Items Not to Be Considered
The 2006 temporary regulations iden-
tify certain assets, activities, or income
not to be taken into account in deter-
mining whether the substantial business
activities condition is satisfied. See
§1.7874–2T(d)(1)(iii). See also section
7874(c)(4). The temporary regulations
add to these items any assets, business
activities, or employees located in the
foreign country in which, or under the
law of which, the foreign acquiring cor-
poration is created or organized if such
assets, business activities or employees
are transferred to another country pursuant
to a plan in existence at the time of the
acquisition.
4.Partnership Items
The 2006 temporary regulations pro-
vide that if one or more members of the
expanded affiliated group own capital or
profits interests in a partnership, the pro-
portionate amount of certain items of the
partnership are considered to be items of
the member (or members) of the expanded
affiliated group. §1.7874–2T(d)(3)(iv).
The temporary regulations retain and
modify this provision to provide that, for
purposes of the substantial business activ-
ities condition, a member of the expanded
affiliated group that holds at least a 10 per-
cent capital and profits interest in a partner-
ship shall take into account its proportion-
ate share of the items of the partnership, in-
cluding business activities, employees, as-
sets, income, and sales.
G.Publicly Traded Foreign Partnerships
1.Scope
For purposes of section 7874, the 2006
temporary regulations treat as a foreign
corporation any foreign partnership that
would, but for section 7704(c), be treated
as a corporation under section 7704 at any
time during the two-year period follow-
ing the completion by the foreign partner-
ship of an acquisition described in sec-
tion 7874(a)(2)(B)(i). The IRS and the
Treasury Department are concerned that
taxpayers may be taking the position that
the rule does not apply to a foreign part-
nership whose interests become publicly
traded outside this two-year period, even
if the public trading occurs pursuant to a
plan that existed at the time of the acquisi-
tion.
To address these transactions, the tem-
porary regulations modify the rule to ap-
ply to any foreign partnership that would,
but for section 7704(c), be treated as a
corporation under section 7704(a) at the
time of the acquisition described in sec-
tion 7874(a)(2)(B)(i), or at any time after
the acquisition pursuant to a plan that ex-
isted at the time of the acquisition. For this
purpose, a plan shall be deemed to exist
at the time of the acquisition if the foreign
partnership would, but for section 7704(c),
be treated as a corporation under section
7704(a) at any time during the two-year
period following the acquisition.
The temporary regulations also clarify
that a publicly traded foreign partnership
treated as foreign corporation under the
rule is treated as a foreign corporation for
all purposes of section 7874.
2.Implication Regarding Scope of Public
Offering Rule
Section 1.7874–2T(e)(5),Example 3,
involves a publicly traded foreign partner-
ship that is treated as a surrogate foreign
corporation under section 7874(a)(2)(B),
but not as a domestic corporation under
section 7874(b). In the example, the pub-
licly traded foreign partnership acquires
the stock of a domestic corporation in ex-
change for 75 percent of its outstanding in-
terests. At the same time as the acquisition,
an unrelated person acquires the remaining
25 percent interest in exchange for stock of
a foreign corporation. The example con-
cludes that the former shareholders of the
domestic corporation hold 75 percent of
the interests in the publicly traded foreign
partnership by reason of holding stock of
the domestic corporation. Implicit in this
conclusion is that the 25 percent interest
received by the unrelated person in ex-
change for the stock of the foreign corpo-
ration is not subject to the public offering
rule of section 7874(c)(2)(B).
The IRS and the Treasury Department
did not intend for this example to address
the scope or application of the public of-
fering rule of section 7874(c)(2)(B). The
temporary regulations modify the example
to eliminate the implication. The IRS and
the Treasury Department are considering
issuing guidance concerning the public of-
fering rule of section 7874(c)(2)(B). Com-
ments are requested in this regard.
H.Options and Similar Interests
The 2006 temporary regulations
provide that, for purposes of section
7874(a)(2)(B)(ii), options and interests
that are similar to options held by reason of
holding stock in a domestic corporation (or
an interest in a domestic partnership) shall
be treated as exercised. Not addressed by
the 2006 temporary regulations, however,
is the treatment of options (or similar in-
terests) or stock in a foreign corporation
held by reason of holding options (or simi-
lar interests) in a domestic corporation (or
a partnership, domestic or foreign). This
issue may arise, for example, if the holder
of a warrant to acquire stock of the domes-
tic corporation exchanges the warrant for
a warrant to acquire stock of the foreign
acquiring corporation. The 2006 regula-
tions also do not address the treatment of
2009–28 I.R.B.117July 13, 2009

options (or similar interests) in a foreign
corporation not held by reason of holding
stock in a domestic corporation (or an
interest in a domestic partnership). Fur-
ther, the IRS and the Treasury Department
believe that treating options (or similar in-
terests) as exercised may, in certain cases,
lead to inappropriate results. For example,
treating options (or similar interests) as
exercised may distort the ownership of the
foreign corporation for purposes of section
7874(a)(2)(B)(ii). For these reasons, the
temporary regulations make the following
changes to the rule provided by the 2006
temporary regulations.
1.Domestic Corporations (or
Partnerships)
An option (or similar interest) repre-
sents a claim on equity to the extent the
value of the stock (or partnership interest)
that may be acquired pursuant to the op-
tion (or similar interest) exceeds the ex-
ercise price under the terms of the option
(or similar interest). As a result, the tem-
porary regulations provide that, for pur-
poses of section 7874, an option (or simi-
lar interest) in a domestic corporation (or a
partnership, domestic or foreign) shall be
treated as stock of the domestic corpora-
tion (or an interest in the partnership) with
a value equal to the holder’s claim on the
equity of the domestic corporation (or part-
nership) immediately before the acquisi-
tion described in section 7874(a)(2)(B)(i).
For this purpose, the equity of the domestic
corporation (or partnership) shall not in-
clude the value of any property the holder
of the option (or similar interest) would be
required to provide to the domestic cor-
poration (or partnership) pursuant to the
terms of the option (or similar interest) if
such option (or similar interest) were ex-
ercised. Pursuant to these rules, for exam-
ple, if the holder of an option in a domestic
corporation receives stock of a foreign cor-
poration by reason of holding the option,
the holder shall be treated as holding the
stock of the foreign corporation by reason
of holding stock in the domestic corpora-
tion.
2.Foreign Corporations
The temporary regulations further pro-
vide that an option (or similar interest) in
a foreign corporation shall generally be
treated as stock of the foreign corporation
with a value equal to the holder’s claim on
the equity of the foreign corporation im-
mediately after the acquisition described in
section 7874(a)(2)(B)(i). As is the case for
options (and similar interests) with respect
to domestic corporations (or partnerships),
for this purpose the equity of the foreign
corporation shall not include the value of
any property the holder of the option (or
similar interest) would be required to pro-
vide to the foreign corporation pursuant to
the terms of the option (or similar interest)
if such option (or similar interest) were ex-
ercised. This rule shall not apply, however,
if a principal purpose of the issuance or ac-
quisition of an option (or similar interest)
is to avoid the foreign corporation being
treated as a surrogate foreign corporation.
3.Multiple Claims on Equity
The rules of the temporary regulations
concerning options (or similar interests)
shall not apply to the extent treating an op-
tion (or similar interest) as stock of a cor-
poration (or an interest in a partnership)
would duplicate, in whole or in part, a
shareholder’s (or partner’s) claim on the
equity of the corporation (or partnership).
However, except to the extent otherwise
provided in section 7874, stock of a corpo-
ration held by a shareholder, or an interest
in a partnership held by a partner, shall in
all cases be taken into account for purposes
of section 7874.
4.Comments
The IRS and the Treasury Department
request comments on the rules provided
by the temporary regulations concerning
options (or similar interests). For exam-
ple, comments are requested as to whether
the rules should not apply to certain op-
tions, such as publicly traded options or
compensatory options. Comments are also
requested on the general approach of the
rules, which treats the option (or similar in-
terest) as stock or a partnership interest to
the extent of the holder’s claim on equity,
as compared to an approach that would
deem the options (or similar interests) as
exercised. Any comments should consider
the potential impact oftreating options (or
similar interests) as exercised on the deter-
mination of ownership in the foreign cor-
poration under section 7874(a)(2)(B)(ii).
I.Economically Equivalent Interests
The IRS and the Treasury Department
have become aware of transactions in-
tended to avoid section 7874 by using
interests (such as stock or partnership
interests) that, although not in form ex-
changeable or convertible into stock of a
foreign corporation, are structured to be
substantially equivalent to an equity inter-
est in the foreign corporation. In one such
transaction, for example, a privately held
domestic corporation (UST) intends to
make an initial public offering of its stock
for cash. The UST shareholders, however,
would prefer a foreign corporation to be
the publicly-traded corporation.
To accomplish these objectives the
following transactions are completed. A
newly formed foreign corporation (FC)
issues shares to the public in exchange
for cash and then contributes all or part
of the cash to a newly-formed domestic
corporation (S) in exchange for all the
stock of S. S then merges with and into
UST. Pursuant to the merger agreement,
the UST shareholders exchange their UST
stock for a new class of UST stock (class B
stock) and cash. FC exchanges its S stock
for all of the remaining class of stock of
UST (class A stock). FC holds few assets
other than the class A stock.
The class B stock entitles the UST
shareholders to dividend distributions
approximately equal to any dividend dis-
tributions made by FC with respect to its
publicly traded stock. The class B stock
also permits the UST shareholders, in cer-
tain cases, to require UST to redeem the
class B stock at fair market value. The
class B stock does not provide the holder
voting rights with respect to FC.
Because FC holds few assets other than
the class A stock of UST, the value of
the class B stock held by the former UST
shareholders is approximately equal to the
value of a corresponding amount of FC
stock. Further, the distribution and liquid-
ityrightsprovidedbytheclassBstockare
intended to place the former UST share-
holders in the same approximate economic
position as if they had received publicly
traded FC stock instead of the class B
stock in the merger. Nonetheless, the for-
mer UST shareholders may take the posi-
tion that they hold UST stock (and not FC
stock) by reason of holding, in form, stock
in UST and that the 2006 temporary reg-
July 13, 20091182009–28 I.R.B.

ulations do not treat the class B stock as
FC stock. For example, the former UST
shareholders may take the position that the
class B stock is not, in substance, an in-
strument other than debt that is convertible
into stock of FC. See §1.7874–2T(f)(2).
The former UST shareholders may further
take the position that section 7874(c)(4)
does not apply to the transaction. If these
positions are correct, FC would not be
treated as a surrogate foreign corporation.
The IRS and the Treasury Department un-
derstand that similar transactions may be
structured using a partnership.
The IRS and the Treasury Department
believe these transactions are contrary
to the policies underlying section 7874.
Therefore, the temporary regulations pro-
vide that, for purposes of section 7874,
any interest (including stock or a partner-
ship interest) that is not otherwise treated
as stock of a foreign corporation (includ-
ing under the rules concerning options (or
similar interests)) shall be treated as stock
of the foreign corporation if the following
two conditions are satisfied: (1) the inter-
est entitles the holder to distribution rights
that are substantially similar in all material
respects to the distribution rights entitled
to a shareholder of the foreign corporation
by reason of holding stock in the foreign
corporation; and (2) treating the interest
as stock of the foreign corporation has
the effect of treating the foreign corpo-
ration as a surrogate foreign corporation.
For purposes of the first condition, dis-
tribution rights include rights to dividend
distributions (or partnership distributions),
distributions in redemption of the interest
(in whole or in part), distributions in liq-
uidation, or other similar distributions that
represent a return on, or of, the holder’s
investment in the interest.
J.Insolvent Entities
The preamble to the 2008 final regula-
tions describes a transaction involving an
insolvent domestic corporation in which
the creditors of the corporation claim
not to be shareholders of the corpora-
tion for purposes of determining whether
a foreign corporation that acquires sub-
stantially all of the properties held by
the domestic corporation is treated as a
surrogate foreign corporation. As further
stated in the preamble, the IRS and the
Treasury Department disagree with this
interpretation under current law. See, for
example,Helvering v.Alabama Asphaltic
Limestone Co., 315 U.S. 179 (1942), and
§1.368–1(e)(6).
The temporary regulations clarify that,
for purposes of section 7874, if imme-
diately prior to the first date properties
are acquired as part of an acquisition de-
scribed in section 7874(a)(2)(B)(i), a do-
mestic corporation is in a title 11 or sim-
ilar case (as defined in section 368(a)(3)),
or the liabilities of the domestic corpora-
tion exceed the value of its assets, then
any claim by a creditor against the domes-
tic corporation shall be treated as stock
of the domestic corporation. Therefore,
any stock of a foreign corporation held by
a creditor of the domestic corporation by
reason of its claim against the domestic
corporation would be considered held by
a former shareholder of the domestic cor-
poration by reason of holding stock in the
domestic corporation.
A similar rule applies with respect to
a domestic or foreign partnership. For-
eign partnerships are included in this
rule because, for purposes of section
7874(a)(2)(B)(ii), the acquisition of an
interest in a foreign partnership that owns
stock of a domestic corporation is con-
sidered an acquisition of a proportionate
amount of the stock of domestic corpora-
tion. Therefore, if a foreign corporation
acquired a sufficient interest in that for-
eign partnership, the foreign corporation
could be treated as a surrogate foreign
corporation.
One commentator requested the regula-
tions clarifying thetreatment of creditors
for purposes of section 7874 make clear
that a creditor that is treated as a share-
holder of a domestic corporation is treated
as a shareholder for all purposes of sec-
tion 7874. In particular, the commentator
requested the regulations make clear that
the provisions of the 2008 final regulations
concerning the determination of the stock
of a foreign corporation held by reason of
holding stock of the domestic corporation
apply equally to such a creditor. The IRS
and the Treasury Department agree with
this comment. Accordingly, the tempo-
rary regulations clarify that a creditor that
is treated as a shareholder of a domestic
corporation (or as a partner in a partner-
ship) is treated as a shareholder (or part-
ner) for all purposes of section 7874. Thus,
for example, subject to section 7874(c)(4)
and general tax principles, stock of the for-
eign corporation received by a creditor in
exchange for other property would not be
taken into account in determining former
shareholder (or former partner) ownership
under section 7874(a)(2)(B)(ii).
K.Modification to Internal Restructuring
Exception of 2008 Final Regulations
The IRS and the Treasury Depart-
ment have become aware of divisive
transactions involving an acquisition de-
scribed in section 7874(a)(2)(B)(i) in
which the ownership condition of section
7874(a)(2)(B)(ii) may not be satisfied by
reason of the internal group restructuring
exception provided by §1.7874–1(c)(2).
For example, assume that a publicly-traded
domestic corporation (USP) wholly owns
a domestic subsidiary (S1) that in turn
wholly owns another domestic subsidiary
(S2). The S2 stock does not represent
substantially all of the properties of S1.
Pursuant to a plan, S2 transfers substan-
tially all of its properties to a newly formed
foreign corporation (F1) in exchange for
F1 stock and then distributes the F1 stock
to S1. Pursuant to the same plan, S1 dis-
tributes the F1 stock to USP, and USP then
distributes the F1 stockto its shareholders.
The acquisition by F1 of substantially
all of the properties held by S2 is de-
scribed in section 7874(a)(2)(B)(i). In
addition, S1, the former shareholder of
S2, holds all the F1 stock by reason of
holding S2 stock. However, taxpayer may
take the position that the condition of sec-
tion 7874(a)(2)(B)(ii) is not satisfied by
reason of the internal group restructur-
ing exception under §1.7874–1(c)(2). In
relevant part, the internal group restructur-
ing exception provides that, for purposes
of section 7874(a)(2)(B)(ii), stock of the
foreign corporation held by a member
of the expanded affiliated group shall be
included in the denominator, but not in
the numerator, of the ownership fraction,
if: (i) before the acquisition, at least 80
percent of the stock (by vote and value) of
the domestic corporation was held directly
or indirectly by the corporation that is the
common parent of the expanded affiliated
group after the acquisition; and (ii) after
the acquisition, at least 80 percent of the
stock (by vote and value) of the acquir-
ing foreign corporation is held directly
or indirectly by such common parent.
2009–28 I.R.B.119July 13, 2009

Taxpayer may take the position that the
internal restructuring exception applies
because before the acquisition USP indi-
rectly owned 100 percent of the stock of
S2 and after the acquisition USP indirectly
owned 100 percent of the stock of F1.
Therefore, the F1 stock held by S1 would
be included in the denominator but not
the numerator of the ownership fraction,
yielding zero percent former shareholder
ownershipandresultinginF1notbeing
treated as a surrogate foreign corporation.
The IRS and the Treasury Department
believe it is inappropriate for the internal
restructuring exception to apply to divi-
sive transactions such as the one described
above. Accordingly, the IRS and the Trea-
sury Department will issue regulations that
determine former shareholder ownership
under section 7874(a)(2)(B)(ii) when pur-
suant to the same plan (or a series of related
transactions) that includes the acquisition
described in section 7874(a)(2)(B)(i), all
or part of the stock of the foreign corpora-
tion is transferred outside the expanded af-
filiated group that includes the foreign cor-
poration after the acquisition. The regula-
tions will provide that the internal group
restructuring exception of §1.7874–1(c)(2)
does not apply to such transactions and
will also modify the application of the gen-
eral rule of §1.7874–1(b) to such transac-
tions. The regulations may apply to acqui-
sitions completed on or after June 9, 2009.
L.Effective/Applicability Dates
The temporary regulations included in
this document generally apply to acquisi-
tions completed on or after June 9, 2009.
However, taxpayers may apply the tempo-
rary regulations to acquisitions completed
prior to June 9, 2009, if the temporary reg-
ulations are applied consistently to all ac-
quisitions completed prior to such date.
The temporary regulations include
the modifications announced by Notice
2006–70, 2006–2 C.B. 252, to the effec-
tive date paragraph of §1.7874–2T, as
contained in 26 CFR part 1 revised as
of April 1, 2009, for certain acquisitions
initiated prior to December 28, 2005.
No inference is intended as to the appli-
cability of other Code or regulatory provi-
sions, or judicial doctrines, to any transac-
tions described in this preamble.
These regulations will expire on or be-
fore June 8, 2012.
Effect on Other Documents
Notice 2006–70, 2006–2 C.B. 252, is
obsolete as of June 9, 2009.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. Chapter 5) does
not apply to the temporary regulations.
The temporary regulations do not im-
pose a collection of information. Pursuant
to the Regulatory Flexibility Act (5 U.S.C.
chapter 6), it is also hereby certified that
the temporary regulations will not have a
significant economic impact on a substan-
tial number of small entities. Accordingly,
a regulatory flexibility analysis is not re-
quired. The complexity and cost of a trans-
action to which section 7874 may apply
makes it unlikely that a substantial num-
ber of small entities will engage in such
a transaction. In addition, the economic
impact to any entities affected by section
7874 is derived from the application of the
statute, and not from the temporary regu-
lations. Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding these regulations has been sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comments on its impact on small business.
Drafting Information
The principal author of the temporary
regulations is S. James Hawes, Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and the Treasury Department participated
in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority:26USC7805***
Section 1.7874–1T also issued under
26 U.S.C. 7874(g). * * *
Section 1.7874–2T also issued under
26 U.S.C. 7874(c)(6) and (g). * * *
Par. 2. Section 1.7874–1(e) is revised
to read as follows:
§1.7874–1 Disregard of affiliate-owned
stock.
*****
(e) [Reserved]. For further guidance,
see §1.7874–1T(e).
*****
Par. 3. Section 1.7874–1T is added to
read as follows:
§1.7874–1T Disregard of affiliate-owned
stock (temporary).
(a) through (d) [Reserved]. For further
guidance, see §1.7874–1(a) through (d).
(e)Stock held by a partnership.For
purposes of this section, each partner in a
partnership shall be treated as holding its
proportionate share of stock held by the
partnership, as determined under the rules
and principles of sections 701 through 777.
(f) [Reserved]. For further guidance,
see §1.7874–1(f).
(g)Effective/applicability date. Para-
graph (e) of this section shall apply to ac-
quisitions completed on or after June 9,
2009. See §1.7874–1(e), as contained in
26 CFR part 1 revised as of April 1, 2009,
for transactions completed before June 9,
2009.
(h)Expiration date. The applicability
of this section expires on or before June 8,
2012.
Par. 4. Section 1.7874–2T is revised to
read as follows:
§1.7874–2T Surrogate foreign corporation
(temporary).
(a)Scope. This section provides rules
for determining whether a foreign corpora-
tion shall be treated as a surrogate foreign
corporation under section 7874(a)(2)(B).
Paragraph (b) of this section provides
definitions and special rules. Paragraph
(c) of this section provides rules to de-
termine whether a foreign corporation
has indirectly acquired properties held
by a domestic corporation (or of a part-
nership). Paragraph (d) of this section
provides rules that apply when two or
more foreign corporations complete, in
July 13, 20091202009–28 I.R.B.

the aggregate, an acquisition described in
section 7874(a)(2)(B)(i). Paragraph (e) of
this section provides rules that apply when
a single foreign corporation completes
more than one acquisition described in
section 7874(a)(2)(B)(i). Paragraph (f) of
this section provides rules to identify the
stock of a foreign corporation that is held
by reason of holding stock in a domestic
corporation (or an interest in a domestic
partnership). Paragraph (g) of this section
provides rules concerning the substantial
business activities condition of section
7874(a)(2)(B)(iii). Paragraph (h) of this
section provides rules that treat certain
publicly traded foreign partnerships as
foreign corporations for purposes of sec-
tion 7874. Paragraph (i) of this section
is reserved. Paragraph (j) of this section
provides rules concerning the treatment
of certain options (or similar interests)
for purposes of section 7874. Paragraph
(k) of this section provides rules that treat
certain interests (including debt, stock, or
a partnership interest) as stock of a foreign
corporation for purposes of section 7874.
Paragraph (l) of this section is reserved.
Paragraph (m) of this section provides
rules concerning the conversion of a for-
eign corporation to a domestic corporation
by reason of section 7874(b). Paragraph
(n)ofthissectionprovidesexamplesthat
illustrate the rules of this section. Para-
graph (o) of this section provides the
effective/applicability dates of this sec-
tion. Paragraph (p) of this section provides
the expiration date of this section.
(b)Definitions and special rules.Ex-
cept as otherwise indicated, the following
definitions and special rules apply for pur-
poses of this section.
(1) The rules of this section are subject
to section 7874(c)(4).
(2) Aninterestin a partnership includes
a capital or profits interest.
(3) Aformer shareholderof a domes-
tic corporation is any person that held
stock in the domestic corporation be-
fore the acquisition described in section
7874(a)(2)(B)(i), including any person
that holds stock in the domestic corpora-
tion both before and after the acquisition.
(4) Aformer partnerof a domestic
partnership is any person that held an
interest in the domestic partnership be-
fore the acquisition described in section
7874(a)(2)(B)(i), including any person
that holds an interest in the domestic
partnership both before and after the ac-
quisition.
(5) References toproperties heldby
a domestic corporation include properties
held directly or indirectly by the domestic
corporation.
(6) The rules and principles of sec-
tions 701 through 777 shall be applied for
purposes of determining a proportionate
amount (or share) of items of a partnership
(such as stock, properties, activities and
employees).
(7) Any reference to the acquisition of
properties held by a domestic corporation
(or of a partnership) includes a direct or
indirect acquisition of such properties.
(8) In the case of an acquisition of stock
of a domestic corporation or an interest in
a partnership, the proportionate amount of
properties held by the domestic corpora-
tion (or of the partnership) that is treated
as indirectly acquired shall, as applicable,
be determined on the date of the acquisi-
tion based on the relative value of—
(i) The stock acquired compared to all
outstanding stock of the domestic corpora-
tion; or
(ii) The interest acquired compared to
all interests in the partnership.
(9) The determination of whether a
foreign corporation is a surrogate foreign
corporation is made after the acquisition
described in section 7874(a)(2)(B)(i). A
foreign corporation that is treated as a
surrogate foreign corporation (including a
surrogate foreign corporation treated as a
domestic corporation described in section
7874(b)) shall continue to be treated as a
surrogate foreign corporation (or a domes-
tic corporation), even if the conditions of
section 7874(a)(2)(B)(ii) and (iii) are not
satisfied at a later date.
(c)Acquisition of properties—(1)Indi-
rect acquisition of properties. For pur-
poses of section 7874(a)(2)(B)(i), an indi-
rect acquisition of properties held by a do-
mestic corporation (or of a partnership) in-
cludes the acquisitions described in para-
graphs (c)(1)(i) through (iv) of this section.
An acquisition of less than all of the stock
of a domestic corporation (or interests in a
partnership) shall constitute an indirect ac-
quisition of a proportionate amount of the
properties held by the domestic corpora-
tion or of the partnership. See paragraph
(b)(8) of this section for rules determining
the proportionate amount of properties in-
directly acquired.
(i) An acquisition of stock of a domestic
corporation. SeeExample 1of paragraph
(n) of this section for an illustration of the
rules of this paragraph.
(ii) An acquisition of an interest in a
partnership. SeeExample 2of paragraph
(n) of this section for an illustration of the
rules of this paragraph.
(iii) An acquisition by a corporation
(acquiring corporation) of properties held
by a domestic corporation (or of a partner-
ship) in exchange for stock of a foreign
corporation (foreign issuing corporation)
that is part of the expanded affiliated group
that includes the acquiring corporation af-
ter the acquisition shall be treated as an
acquisition by the foreign issuing corpora-
tion. SeeExample 3of paragraph (n) of
this section for an illustration of the rules
of this paragraph.
(iv) An acquisition by a partnership (ac-
quiring partnership) of properties held by a
domestic corporation (or of a partnership)
in exchange for stock of a foreign corpo-
ration that is part of the expanded affili-
ated group that would include the acquir-
ing partnership after the acquisition (if the
partnership were a corporation) shall be
treated as an acquisition by the foreign is-
suing corporation.
(2)Acquisition of stock of foreign cor-
poration. An acquisition of stock of a for-
eign corporation that owns directly or indi-
rectly stock of a domestic corporation (or
an interest in a partnership) shall not con-
stitute an indirect acquisition of any prop-
erties held by the domestic corporation (or
the partnership). SeeExample 4of para-
graph (n) of this section for an illustration
of the rules of this paragraph.
(d)Acquisitions by multiple foreign cor-
porations. If, pursuant to a plan (or a se-
ries of related transactions), two or more
foreign corporations complete, in the ag-
gregate, an acquisition described in sec-
tion 7874(a)(2)(B)(i), then each foreign
corporation shall be treated as completing
the acquisition for purposes of determining
whether such foreign corporation is treated
as a surrogate foreign corporation. SeeEx-
amples 5and6of paragraph (n) of this
section for illustrations of the rules of this
paragraph.
(e)Acquisitions of multiple domestic
entities. If, pursuant to a plan (or a series of
related transactions), a foreign corporation
completes two or more acquisitions de-
scribed in section 7874(a)(2)(B)(i) involv-
2009–28 I.R.B.121July 13, 2009

ing domestic corporations and/or domestic
partnerships (domestic entities), then, for
purposes of section 7874(a)(2)(B)(ii), the
acquisitions shall be treated as a single ac-
quisition and the domestic entities shall be
treated as a single domestic entity. If the
transaction involves one or more domes-
tic corporations and one or more domestic
partnerships, the stock of the foreign cor-
poration held by former shareholders and
former partners by reason of holding stock
or a partnership interest in the domestic en-
tities shall be aggregated for purposes of
determining whether the ownership condi-
tion of section 7874(a)(2)(B)(ii) is satis-
fied. SeeExample 7of paragraph (n) of
this section for an illustration of the rules
of this paragraph.
(f)Stock held by reason of holding
stock in a domestic corporation or an
interest in a domestic partnership—(1)
Specified transactions. For purposes of
section 7874(a)(2)(B)(ii), stock of a for-
eign corporation that is held by reason of
holding stock in a domestic corporation
(or an interest in a domestic partnership)
includes the stock described in paragraphs
(f)(1)(i) through (iii) of this section.
(i) Stock of a foreign corporation re-
ceived in exchange for, or with respect to,
stock of a domestic corporation.
(ii) Stock of a foreign corporation re-
ceived in exchange for, or with respect to,
an interest in a domestic partnership.
(iii) To the extent that paragraph
(f)(1)(ii) of this section does not apply,
stock of a foreign corporation received by
a domestic partnership in exchange for all
or part of its properties. In such a case,
each partner in the domestic partnership
shall be treated as holding its proportionate
share of the stock of the foreign corpora-
tion by reason of holding an interest in the
domestic partnership.
(2)Transactions involving other prop-
erty—(i)Stock of a domestic corporation.
If, pursuant to the same transaction, stock
of a foreign corporation is received in ex-
change for, or with respect to, stock of a
domestic corporation and other property,
the stock of the foreign corporation that
was received in exchange for, or with re-
spect to, the stock of the domestic corpora-
tion shall be determined based on the rela-
tive value of the stock of the domestic cor-
poration compared to the aggregate value
of such stock and the other property.
(ii)Interest in a domestic partnership.
If, pursuant to the same transaction, stock
of a foreign corporation is received in ex-
change for, or with respect to, an interest
in a domestic partnership and other prop-
erty, the stock of the foreign corporation
that was received in exchange for, or with
respect to, the interest in the domestic part-
nership shall be determined based on the
relative value of the interest in the domes-
tic partnership compared to the aggregate
value of such interest and the other prop-
erty.
(3) SeeExamples 8through10of para-
graph (n) of this section for illustrations of
the rules of this paragraph (f).
(g)Substantial business activities—(1)
General rule. The determination of
whether, after the acquisition, the ex-
panded affiliated group that includes the
foreign corporation has substantial busi-
ness activities in the foreign country in
which, or under the law of which, the for-
eign corporation is created or organized
when compared to the total business ac-
tivities of the expanded affiliated group, is
(subject to paragraph (g)(5) of this section)
based on all facts and circumstances.
(2)Threshold of business activities.
The determination of whether the ex-
panded affiliated group has sufficient
business activities in a foreign country is
not solely based on the absolute amount
of business activities in the foreign coun-
try. Rather the determination is based on
a comparison of the amount of business
activities in the foreign country to the
total business activities of the expanded
affiliated group. The determination must
take into account the total business ac-
tivities of the expanded affiliated group,
including the relevant items identified in
paragraph (g)(3) of this section. Thus, it is
possible for the business activities of one
expanded affiliated group in a particular
country to be substantial when compared
to the total business activities of such ex-
panded affiliated group, but for identical
business activities of another expanded
affiliated group in the same country not to
be substantial when compared to the total
business activities of that other expanded
affiliated group. This may result, for ex-
ample, because the total business activities
of the second expanded affiliated group
are more extensive than that of the first
expanded affiliated group.
(3)Items to be considered. Except as
provided in paragraph (g)(5) of this sec-
tion, relevant items to be considered for
determining whether, after the acquisition,
the expanded affiliated group has substan-
tial business activities in a foreign coun-
try when compared to the total business
activities of the expanded affiliated group
include the items identified in paragraphs
(g)(3)(i) through (v) of this section. The
presence or absence of any item, or set of
items, is not determinative and the weight
given to any item, or set of items, depends
on the facts and circumstances.
(i) The historical conduct of continuous
business activities in the foreign country
by the expanded affiliated group.
(ii) The conduct of continuous busi-
ness activities in the foreign country by the
expanded affiliated group in the ordinary
course of one or more active trades or busi-
nesses, involving—
(A) Property located in the foreign
country that is owned by members of the
expanded affiliated group;
(B) The performance of services in the
foreign country by employees of the ex-
panded affiliated group; and
(C) Sales of goods to customers.
(iii) The performance in the foreign
country of substantial managerial activ-
ities by officers and employees of the
expanded affiliated group who are based
in the foreign country.
(iv) A substantial degree of ownership
of the expanded affiliated group by in-
vestors resident in the foreign country.
(v) Business activities in the foreign
country that are material to the achieve-
ment of the overall business objectives of
the expanded affiliated group.
(4)Attribution from a partnership.For
purposes of this paragraph (g), a mem-
ber of the expanded affiliated group that
holds at least a 10 percent capital and prof-
its interest in a partnership shall take into
account its proportionate share of all the
items of the partnership, including busi-
ness activities, employees, assets, income
and sales. See paragraph (b)(6) of this
section for determining a partner’s propor-
tionate share of the items of a partnership.
(5)Items not to be considered.Thefol-
lowing items shall not be taken into ac-
count in determining whether, after the
acquisition, the expanded affiliated group
has substantial business activities in a for-
eign country when compared to the total
July 13, 20091222009–28 I.R.B.

business activities of the expanded affili-
ated group.
(i) Any business activities or income
attributable to properties or liabilities the
transfer of which is disregarded under sec-
tion 7874(c)(4).
(ii) Any assets, business activities, or
employees located in a foreign country at
any time as part of a plan with a principal
purpose of avoiding the purposes of sec-
tion 7874.
(iii) Any assets, business activities, or
employees located in the foreign country
in which, or under the law of which, the
foreign corporation is created or organized
if such assets, business activities or em-
ployees are transferred to another coun-
try pursuant to a plan that existed at the
time of the acquisition described in section
7874(a)(2)(B)(i).
(h)Publicly traded foreign partner-
ships—(1)Treatment as a foreign cor-
poration. For purposes of section 7874,
a publicly traded foreign partnership de-
scribed in paragraph (h)(2) of this section
shall be treated as a foreign corporation
that is organized in the foreign country
in which, or under the law of which, the
publicly traded foreign partnership was
created or organized, and interests in the
publicly traded foreign partnership shall
be treated as stock of the foreign corpora-
tion. For purposes of determining whether
the foreign corporation shall be treated as
a surrogate foreign corporation, a deemed
acquisition of assets and liabilities by
reason of §1.708–1(b)(4) shall not con-
stitute an acquisition described in section
7874(a)(2)(B)(i).
(2)Publicly traded foreign partnership.
A publicly traded foreign partnership de-
scribed in this paragraph (h)(2) is any for-
eign partnership that would, but for section
7704(c), be treated as a corporation under
section 7704(a):
(i) At the time of the acquisition de-
scribed in section 7874(a)(2)(B)(i); or
(ii) At any time after the acquisition
pursuant to a plan that existed at the time
of the acquisition. For this purpose, a plan
shall be deemed to exist at the time of
the acquisition if theforeign partnership
would, but for section 7704(c), be treated
as a corporation under section 7704(a) at
any time during the two-year period fol-
lowing the completion of the acquisition.
(3)Surrogate foreign corporation to
which section 7874(b) applies. If para-
graph (h)(1) of this section applies to a
publicly traded foreign partnership and
the foreign corporation is a surrogate for-
eign corporation to which section 7874(b)
applies, the publicly traded foreign part-
nership shall be treated as a domestic
corporation for purposes of the Internal
Revenue Code (Code). See paragraph
(h)(6) of this section for the timing and
treatment of the conversion of the publicly
traded foreign partnership to a domestic
corporation. SeeExample 11of paragraph
(n) of this section for an illustration of the
rules of this paragraph.
(4)Surrogate foreign corporation to
which section 7874(b) does not apply.If
paragraph (h)(1) of this section applies to
a publicly traded foreign partnership and
the foreign corporation is a surrogate for-
eign corporation to which section 7874(b)
does not apply, the publicly traded foreign
partnership shall continue to be treated as
a foreign partnership for purposes of the
Code, but section 7874(a)(1) shall apply
to any expatriated entity (as defined in
section 7874(a)(2)(A)). SeeExample 13
of paragraph (n) of this section for an il-
lustration of the rules of this paragraph.
(5)Foreign corporation not treated as
a surrogate foreign corporation. If para-
graph (h)(1) of this section applies to a
publicly traded foreign partnership and the
foreign corporation is not treated as a sur-
rogate foreign corporation, the status of
the publicly traded foreign partnership as
a foreign partnership shall not be affected
by section 7874. SeeExample 12of para-
graph (n) of this section for an illustration
of the rules of this paragraph.
(6)Conversion to a domestic corpora-
tion. Except for purposes of determin-
ing whether the publicly traded foreign
partnership is a surrogate foreign corpora-
tion, if paragraph (h)(1) of this section ap-
plies to a publicly traded foreign partner-
ship and the foreign corporation is a sur-
rogate foreign corporation to which sec-
tion 7874(b) applies, then immediately be-
fore the first date properties are acquired as
part of the acquisition described in section
7874(a)(2)(B)(i) the publicly traded for-
eign partnership shall be treated as trans-
ferring all of its assets and liabilities to
a newly formed domestic corporation in
exchange solely for stock of the domes-
tic corporation, and then distributing such
stock to its partners in proportion to their
partnership interestsin liquidation of the
partnership. The treatment of the transfer
of assets and liabilities to the domestic cor-
poration and the distribution of the stock of
the domestic corporation to the partners in
liquidation of the partnership shall be de-
termined under all relevant provisions of
the Code and general tax principles.
(i) [Reserved].
(j)Options and similar interests—(1)
Domestic corporation (or partnership).
Except to the extent provided in this para-
graph (j), for purposes of section 7874, an
option (or similar interest) with respect to
a domestic corporation (or a partnership,
domestic or foreign) shall be treated as
stock of the domestic corporation (or an
interest in the partnership) with a value
equal to the holder’s claim on the equity
of the domestic corporation (or partner-
ship) immediately before the acquisition
described in section 7874(a)(2)(B)(i). For
this purpose, the equity of the domes-
tic corporation (or partnership) shall not
include the amount of any property the
holder of the option (or similar interest)
would be required to provide to the do-
mestic corporation (or partnership) under
the terms of the option (or similar interest)
if such option (or similar interest) were
exercised. SeeExample 16of paragraph
(n) of this section for an illustration of the
rules of this paragraph.
(2)Foreign corporation—(i)General
rule. Except to the extent provided in
this paragraph (j), for purposes of section
7874 an option (or similar interest) with
respect to a foreign corporation shall be
treated as stock of the foreign corporation
with a value equal to the holder’s claim
on the equity of the foreign corporation
after the acquisition described in section
7874(a)(2)(B)(i). For this purpose, the eq-
uity of the foreign corporation shall not
include the amount of any property the
holder of the option (or similar interest)
would be required to provide to the for-
eign corporation under the terms of the op-
tion (or similar interest) if such option (or
similar interest) were exercised. SeeEx-
amples 14through16of paragraph (n) of
this section for illustrations of the rules of
this paragraph (j)(2)(i).
(ii)Certain options (or similar inter-
ests) disregarded. Paragraph (j)(2)(i) of
this section shall not apply to an option (or
similar interest) if a principal purpose of
the issuance or acquisition of the option (or
similar interest) is to avoid the foreign cor-
2009–28 I.R.B.123July 13, 2009

poration being treated as a surrogate for-
eign corporation.
(3)Similar interest. For purposes of
this paragraph (j), an interest similar to an
option (a similar interest) includes, but is
not limited to, a warrant, a convertible debt
instrument, an instrument other than debt
that is convertible into stock or a partner-
ship interest, a put, stock or a partnership
interest subject to risk of forfeiture, a con-
tract to acquire or sell stock or a partner-
ship interest, and an exchangeable share or
exchangeable partnership interest.
(4)Multiple claims on equity. Para-
graphs (j)(1) and (j)(2)(i) of this section
shallnotapplytoanoption(orsimilarin-
terest) to the extent treating the option (or
similar interest) as stock of a corporation
(or interest in a partnership) would dupli-
cate a shareholder’s (or partner’s) claim on
the equity of the corporation (or partner-
ship) by reason of holding stock in the cor-
poration (or an interest in the partnership).
However, except to the extent otherwise
provided in section 7874, in all cases stock
of a corporation held by a shareholder or an
interest in a partnership held by a partner
(without regard to this paragraph (j)) shall
be taken into account for purposes of sec-
tion 7874. SeeExample 15of paragraph
(n) of this section for an illustration of the
rules of this paragraph (j)(4).
(k)Interests treated as stock of a for-
eign corporation—(1)Stock or other in-
terests. If the conditions of paragraphs
(k)(1)(i) and (ii) of this section are satis-
fied, then, for purposes of section 7874,
any interest (including stock or a partner-
ship interest) that is not otherwise treated
as stock of a foreign corporation (includ-
ing under paragraph (j)(2)(i) of this sec-
tion) shall be treated as stock of the for-
eign corporation. SeeExamples 17and18
of paragraph (n) of this section for illustra-
tions of the rules of this paragraph (k)(1).
(i) The interest provides the holder dis-
tribution rights that are substantially simi-
lar in all material respects to the distribu-
tion rights provided by stock in the foreign
corporation. For this purpose, distribution
rights include rights to dividends (or part-
nership distributions), distributions in re-
demption of the interest (in whole or in
part), distributions in liquidation, or other
similar distributions that represent a return
on, or of, the holder’s investment in the in-
terest.
(ii) Treating the interest as stock of the
foreign corporation has the effect of treat-
ing the foreign corporation as a surrogate
foreign corporation.
(2)Creditor claims—(i)Domestic cor-
poration. For purposes of section 7874, if,
immediately prior to the first date proper-
ties are acquired as part of an acquisition
described in section 7874(a)(2)(B)(i), a do-
mestic corporation is in a title 11 or similar
case (as defined in section 368(a)(3)), or
the liabilities of the domestic corporation
exceed the value of its assets, then each
creditor of the domestic corporation shall
be treated as a shareholder of the domestic
corporation and any claim of the creditor
against the domestic corporation shall be
treated as stock of the domestic corpora-
tion. SeeExample 19of paragraph (n) of
this section for an illustration of the rules
of this paragraph (k)(2)(i).
(ii)Domestic or foreign partnership.
For purposes of section 7874, if, immedi-
ately prior to the first date properties are
acquired as part of an acquisition described
in section 7874(a)(2)(B)(i), a partnership
(foreign or domestic) is in a title 11 or sim-
ilar case (as defined in section 368(a)(3)),
or the liabilities of the partnership exceed
the value of its assets, then each creditor of
the partnership shall be treated as a part-
ner in the partnership and any claim of
the creditor against the partnership shall be
treated as an interest in the partnership.
(iii)Treatment of creditor as share-
holder or partner. A creditor that is treated
as a shareholder or partner under para-
graph (k)(2)(i) or (ii) of this section shall
be treated as a shareholder or partner for
all purposes of section 7874. See, for ex-
ample, §1.7874–1(c) and paragraph (f) of
this section. SeeExample 19of paragraph
(n) of this section for an illustration of the
rules of this paragraph (k)(2)(iii).
(l) [Reserved].
(m)Applicationofsection
7874(b)—(1)Conversion to a domestic
corporation. Except for purposes of
determining whether a foreign corpo-
ration is treated as a surrogate foreign
corporation, the conversion of a foreign
corporation to a domestic corporation by
reason of section 7874(b) shall constitute
a reorganization described in section
368(a)(1)(F) that occurs immediately
before the first date properties are ac-
quired as part of the acquisition described
in section 7874(a)(2)(B)(i). See, for
example, §§1.367(b)–2 and 1.367(b)–3
for certain consequences of the reorgani-
zation. The treatment of all other aspects
of the conversion shall be determined
under the relevant provisions of the Code
and general tax principles. SeeExample
20of paragraph (n) of this section for an
illustration of the rules of this paragraph
(m)(1).
(2)Entity classification. A foreign cor-
poration that is treated as a domestic cor-
poration under section 7874(b) is not an el-
igible entity as defined in §301.7701–3(a)
of this chapter and therefore may not elect
to be treated as other than an association
for Federal tax purposes.
(3)Application of section 367.Ifa
foreign corporation is treated as a domes-
tic corporation under section 7874(b), sec-
tion 367 shall not apply to any transfer of
property by a United States person to such
foreign corporation as part of the acquisi-
tiondescribedinsection7874(a)(2)(B)(i).
However, section 367 shall apply to the
conversion of the foreign corporation to
a domestic corporation. See paragraph
(m)(1) of this section. SeeExample 20of
paragraph (n) of this section for an illustra-
tion of the rules of this paragraph (m)(3).
(n)Examples—(1)Assumed facts.Ex-
cept as otherwise stated, assume the fol-
lowing for purposes of the examples in-
cluded in paragraph (n)(2) of this section.
(i) DC1 and DC2 are domestic corpora-
tions.
(ii) FA, FP, F1, F2, F3, and F4 are for-
eign corporations organized in Country A.
(iii) DPS is a domestic partnership that
conducts a trade or business.
(iv) FPS is a foreign partnership that is
not publicly traded.
(v) A, B, and C are unrelated individu-
als.
(vi) Each entity has a single class of
equity outstanding and is unrelated to all
other entities.
(vii) All transactions are completed pur-
suant to a plan.
(viii) All acquisitions of properties are
completed after March 4, 2003.
(ix) Neither section 7874(c)(4) nor
paragraph (j)(2)(ii) of this section applies.
(2)Examples. The following examples
illustrate the rules of this section.
Example 1.Acquisition of stock of a domestic
corporation.(i)Facts. FA acquires 25 percent of the
outstanding stock of DC1.
July 13, 20091242009–28 I.R.B.

(ii)Analysis. Under paragraph (c)(1)(i) of this
section, for purposes of section 7874(a)(2)(B)(i) FA is
treated as acquiring 25 percent of the properties held
by DC1 on the date of the stock acquisition.
Example 2.Acquisition of a partnership interest.
(i)Facts. DPS wholly owns DC1. FA acquires a 40
percent interest in DPS.
(ii)Analysis. Under paragraph (c)(1)(ii) of this
section, for purposes of section 7874(a)(2)(B)(i) FA
is treated as acquiring 40 percent of the DC1 stock
held by DPS on the date of the acquisition of the part-
nership interest. Further, under paragraph (c)(1)(i) of
this section, for purposes of section 7874(a)(2)(B)(i)
FA is treated as acquiring 40 percent of the proper-
ties held by DC1 on the date of the acquisition of the
partnership interest.
Example 3.Acquisition of stock by a subsidiary.
(i)Facts. FP wholly owns FA. FA acquires all the
outstanding stock of DC1 in exchange solely for FP
stock. FP and FA are members of the same expanded
affiliated group after the acquisition.
(ii)Analysis. Under paragraph (c)(1)(i) of this
section, for purposes of section 7874(a)(2)(B)(i) FA is
treated as acquiring 100 percent of the properties held
by DC1 on the date of the stock acquisition. Further,
under paragraph (c)(1)(iii) of this section, for pur-
poses of section 7874(a)(2)(B)(i) FP is also treated as
acquiring 100 percent of the properties held by DC1
on the date of the stock acquisition. The result would
be the same if instead FA had directly acquired all the
properties held by DC1 in exchange for FP stock.
Example 4.Acquisition of stock of a foreign cor-
poration.(i)Facts. FP wholly owns DC1. FA ac-
quires all of the outstanding stock of FP.
(ii)Analysis. Under paragraph (c)(2) of this sec-
tion, for purposes of section 7874(a)(2)(B)(i) FA is
not treated as acquiring any properties held by DC1
on the date of the acquisition of the FP stock.
Example 5.Acquisition of stock by multiple for-
eign corporations.(i)Facts. Pursuant to the same
plan, the shareholders of DC1 transfer all of their DC1
stock equally to F1, F2, F3, and F4 in exchange solely
for stock of each foreign corporation.
(ii)Analysis. Under paragraph (c)(1)(i) of this
section, in the aggregate F1, F2, F3 and F4 are treated
as acquiring substantially all of the properties held
by DC1. Because the acquisition was pursuant to the
same plan, under paragraph (d) of this section, F1, F2,
F3, and F4 are each treated as acquiring substantially
all of the properties held by DC1 for purposes of de-
termining whether each foreign corporation shall be
treated as a surrogate foreign corporation.
Example 6.Acquisition of assets by multiple for-
eign corporations.(i)Facts. Individual A wholly
owns DC1. DC1 forms F1, F2, F3, and F4, and trans-
fers an equal portion of its properties to each corpora-
tion in exchange solely for stock of the corporation.
Pursuant to the same plan DC1 then distributes the
stock of each foreign corporation to individual A.
(ii)Analysis. Because pursuant to the same plan
F1, F2, F3 and F4 acquired, in the aggregate, substan-
tially all of the properties held by DC1, under para-
graph (d) of this section,F1, F2, F3, and F4 are each
treated as acquiring substantially all of the proper-
ties held by DC1 for purposes of determining whether
each foreign corporation shall be treated as a surro-
gate foreign corporation.
Example 7.Acquisition of multiple domestic cor-
porations.(i)
Facts. Individual A wholly owns DC1,
and individual B wholly owns DC2. Pursuant to the
same plan, A and B transfer all of their DC1 stock
and DC2 stock to FA, a newly formed corporation, in
exchange solely for all 100 shares of FA stock out-
standing.
(ii)Analysis. Under paragraph (c)(1)(i) of this
section, for purposes of section 7874(a)(2)(B)(i) FA is
treated as acquiring all of the properties held by DC1
and DC2 on the date of the stock acquisition. Under
paragraph (e) of this section, because pursuant to the
same plan FA acquired substantially all of the proper-
tiesheldbyDC1andDC2,forpurposesofdetermin-
ing whether FA shall be treated as a surrogate foreign
corporation, DC1 and DC2 shall be treated as a single
domestic corporation, of which A and B are former
shareholders. Thus, individuals A and B are treated
as holding all 100 shares of the FA stock by reason of
holding stock of such domestic corporation, and the
ownership fraction under section 7874(a)(2)(B)(ii) is
100/100, or 100 percent.
Example 8.Exchange of stock and other prop-
erty.(i)Facts. Individual A wholly owns DC1 and
F1. DC1 has a $40x value and F1 has a $60x value.
Individual A transfers all of the DC1 stock and F1
stock to FA, a newly-formed corporation, in exchange
solely for FA stock.
(ii)Analysis. Under paragraphs (f)(1)(i) and
(f)(2)(i) of this section, for purposes of section
7874(a)(2)(B)(ii) individual A is considered to hold
40 percent of the FA stock by reason of holding stock
in DC1 ($100x FA stock multiplied by $40x/$100x,
the relative value of the DC1 stock to all the property
transferred by A to FA).
Example 9.Stock received as a distribution.(i)
Facts. Pursuant to a divisive reorganization described
in section 368(a)(1)(D), DC1 contributes substan-
tially all of its properties to FA, a newly-formed
corporation, in exchange solely for FA stock and then
distributes the FA stock to its shareholders under
section 355.
(ii)Analysis. Under paragraph (f)(1)(i) of this
section, for purposes of section 7874(a)(2)(B)(ii) the
FA stock received by the DC1 shareholders as a dis-
tribution with respect to the DC1 stock is considered
held by reason of holding stock in DC1. The result
would be the same if the transaction did not qualify
as a reorganization (for example, if the distribution
were subject to sections 301 and 311(b)).
Example 10.Incorporation of a partnership trade
or business.(i)Facts. Individuals A and B equally
own DPS. DPS transfers substantially all of its prop-
erties constituting a trade or business to FA, a newly-
formed corporation, solelyin exchange for FA stock.
DPS retains the FA stock after the transaction.
(ii)Analysis. Under paragraph (f)(1)(iii) of this
section, for purposes of section 7874(a)(2)(B)(ii) in-
dividuals A and B are treated as holding a proportion-
ate amount (that is, an equal amount) of the FA stock
held by DPS by reason of holding an interest in DPS.
Example 11.Publicly traded foreign partnership
treated as domestic corporation.(i)Facts. Pursuant
to a plan, DC1 and individual B organize a limited
liability company (HPS) under the law of Country
A. DC1 owns 99.9 percent of the membership inter-
ests in HPS, and B owns 0.1 percent of the member-
ship interests in HPS. HPS is a foreign eligible entity
under §301.7701–2 of this chapter, and DC1 and B
make an election under §301.7701–3 of this chapter
to treat HPS as a partnership for Federal tax purposes
as of the date of the formation of HPS. HPS forms
DC2. DC2 merges with and into DC1. Pursuant to the
merger agreement, the DC1 shareholders exchange
their DC1 stock solely for membership interests in
HPS. After the merger HPS wholly owns DC1, and
the former shareholders of DC1 own a greater than
80 percent interest in HPS by reason of holding stock
of DC1. Public trading of the HPS ownership inter-
ests begins the day after the date on which merger
is completed. HPS is not treated as a corporation
under section 7704(a) by reason of section 7704(c).
If HPS were a corporation, the condition of section
7874(a)(2)(B)(iii) would be satisfied.
(ii)Analysis. HPS is a publicly traded foreign
partnership that is described in paragraph (h)(2) of
this section. Therefore, under paragraph (h)(1) of this
section, for purposes of section 7874 HPS is treated
as a foreign corporation organized under the law of
Country A and the membership interests in HPS are
treated as stock of the foreign corporation. The for-
eign corporation is treated as a surrogate foreign cor-
poration under section 7874(a)(2)(B) because, pur-
suant to the merger, HPS acquired substantially all
of the properties held by DC1, the former sharehold-
ers of DC1 hold at least 60 percent of the stock of
the foreign corporation by reason of holding stock
of DC1, and the expanded affiliated group that in-
cludes the foreign corporation does not have substan-
tial business activities in Country A when compared
to the total business activities of the expanded affili-
ated group. Further, because the former shareholders
of DC1 hold at least 80 percent of the stock of the for-
eign corporation by reason of holding stock of DC1,
section 7874(b) applies to the surrogate foreign cor-
poration, and therefore HPS is treated as a domestic
corporation for purposes of the Code. Under para-
graph (h)(6) of this section, except for purposes of
determining whether HPS is a surrogate foreign cor-
poration, immediately before the merger of DC2 with
and into DC1 HPS is treated as transferring all of its
assets and liabilities to a new domestic corporation
in exchange solely for stock of the domestic corpora-
tion. HPS is then treated as proportionately distribut-
ing such stock to its membership holders in liquida-
tion of the partnership. In addition, as a result of the
mergerofDC2withandintoDC1,theformershare-
holders of DC1 shall be treated as receiving stock
of a domestic corporation in exchange for their DC1
stock.
Example 12.Publicly traded foreign partnership
not treated as a surrogate foreign corporation.(i)
Facts. The facts are the same as inExample 11of
this section, except that, after the acquisition, the ex-
panded affiliated group that includes HPS (treated as
a foreign corporation for this purpose) has substan-
tial business activities in Country A when compared
to the total business activities of the expanded affili-
ated group.
(ii)Analysis. Under paragraph (h)(1) of this
section, for purposes of section 7874 HPS is treated
as a foreign corporation and the membership in-
terests in HPS are treated as stock of the foreign
corporation. However, the foreign corporation is
not treated as a surrogate foreign corporation under
section 7874(a)(2)(B) because, after the acquisition,
the expanded affiliated group that includes HPS has
substantial business activities in Country A when
compared to the total business activities of the ex-
panded affiliated group. Therefore, under paragraph
2009–28 I.R.B.125July 13, 2009

(h)(5) of this section, section 7874 does not apply
and the status of HPS as a foreign partnership is
not affected. In addition, DC1 is not treated as an
expatriated entity under section 7874(a) by reason of
the acquisition.
Example 13.Publicly traded foreign partnership
treated as a surrogate foreign corporation but not as
a domestic corporation.(i)Facts. FPS is a publicly
traded foreign partnershiporganizedinCountryA
that, by reason of section 7704(c), is not treated as a
corporation under section 7704(a). FPS acquires all
the stock of DC1 in exchange for partnership interests
in FPS. After the acquisition, the former shareholders
of DC1 hold a 75 percent interest in FPS by reason
of holding DC1 stock. After the acquisition, the
expanded affiliated group that includes FPS (treated
as a foreign corporation for this purpose) does not
have substantial business activities in Country A
when compared to the total business activities of the
expanded affiliated group.
(ii)Analysis. Under paragraph (h)(1) of this sec-
tion, for purposes of section 7874 FPS is treated as
a foreign corporation and the partnership interests in
FPS are treated as stock of the foreign corporation.
FPS is treated as a surrogate foreign corporation be-
cause the conditions of section 7874(a)(2)(B) are sat-
isfied. However, because the former shareholders of
DC1 hold less than an 80 percent interest in FPS by
reason of holding DC1 stock, section 7874(b) does
not apply to FPS. Therefore, under paragraph (h)(4)
of this section FPS continues to be treated as a for-
eign partnership for purposes of the Code, but section
7874(a)(1) applies to DC1 and any other expatriated
entity.
Example 14.Warrant to acquire stock from the
foreign corporation.(i)Facts. Individual A wholly
owns DC1. DC1 has a $200x value. Individual B
wholly owns FA. Individual C holds a warrant to ac-
quire FA stock from FA at an exercise price of $20x.
Individual A transfers all of its DC1 stock to FA in ex-
change solely for FA stock. At the time of the transfer,
the FA stock that individual C can acquire pursuant to
the warrant has a $70x value.
(ii)Analysis. Under paragraph (j)(2) of this sec-
tion, for purposes of section 7874 individual C is
treated as owning FA stock with a $50x value. This
amount represents individual C’s claim on the equity
of FA after the acquisition ($70x value of FA stock
that may be acquired pursuant to the warrant, less
$20x exercise price), without taking into account the
$20x individual C would be required to provide to FA
upon the exercise of the warrant.
Example 15.Optiontoacquirestockfroman-
other shareholder.(i)Facts. The facts are the same as
inExample 14except that, instead of holding a war-
rant issued by FA, individual C holds an option to ac-
quire FA stock from individual B for an exercise price
of $20x. At the time of the acquisition, the FA stock
that individual C can acquire under the option has a
$70x value.
(ii)Analysis. Under paragraph (j)(4) of this sec-
tion, for purposes of section 7874, individual C is not
treated as owning FA stock by reason of holding the
option because treating theoption as FA stock would
have the effect of partially duplicating individual B’s
claim on the equity of FA at the time of the acquisi-
tion by reason of holding FA stock. However, all of
the FA stock owned by individual B shall be taken
into account for purposes of section 7874.
Example 16.Warrant to acquire stock from the
domestic corporation.(i)Facts. A DC1 employee
holds a warrant to acquire DC1 stock from DC1. In
connection with the acquisition by FA of substantially
allofthepropertiesheldbyDC1,theDC1employee
receives a warrant from FA to acquire 15 shares of
FA stock in exchange for the warrant to acquire DC1
stock.
(ii)Analysis. Under paragraph (j)(1) of this sec-
tion, for purposes of section 7874 the warrant held
by the DC1 employee is treated as DC1 stock with
a value equal to the employee’s claim on the equity
of DC1 immediately before the acquisition. Further,
under paragraph (j)(2) of this section, for purposes of
section 7874 the DC1 employee is treated as holding
FA stock with a value equal to the employee’s claim
on the equity of FA after the acquisition by reason of
holding the warrant to acquire DC1 stock (treated as
DC1 stock for this purpose).
Example 17.Stock in a subsidiary treated as stock
of a foreign parent corporation.(i)Facts.(A)In-
dividuals A and B equally own DC1. FA, a newly
formed corporation, issues stock in a public offering
for cash. FA contributes part of the cash from the
public offering to DC2, a newly-formed corporation,
in exchange for all the stock of DC2. DC2 merges
with and into DC1 with DC1 surviving. Pursuant to
the merger agreement, individuals A and B exchange
their DC1 stock for cash and shares of class B stock
of DC1. Following the merger FA owns all the class
A stock of DC1. FA holds few assets other than the
class A stock of DC1. Individuals A and B own all
the class B stock of DC1. DC1 has no other class of
stock outstanding.
(B) The class B stock entitles individuals A and
B to dividend distributions approximately equal to
any dividend distributions made by FA with respect
to its publicly traded stock. In certain circumstances,
the class B stock also permits individuals A and B to
require DC1 to redeem the stock at fair market value.
The class B stock does not provide individuals A and
B voting rights with respect to FA.
(ii)Analysis. The dividend rights provided by the
class B stock are substantially similar in all material
respects to the dividend rights provided by the FA
stock. In addition, because FA holds few assets other
than the class A stock, the value of the class B stock
held by individuals A and B is approximately equal
to the value of a corresponding amount of publicly
traded FA stock. The distribution rights on liquida-
tion (or redemption) provided by the class B stock,
therefore, are substantially similar in all material re-
spects to the distribution rights on liquidation (or re-
demption) provided by the FA stock. As a result, the
distribution rights provided by the class B stock are
substantially similar in all material respects to the dis-
tribution rights provided by the publicly traded FA
stock. Thus, if treating the class B stock as FA stock
would have the effect of treating FA as a surrogate
foreign corporation, under paragraph (k)(1) of this
section the class B stock shall be treated as FA stock
for purposes of section 7874.
Example 18.Partnership interest treated as stock
of foreign acquiring corporation.(i)Facts.(A)In-
dividuals A and B equally own DC1. FA, a newly-
formed corporation, issues stock in a public offering
for cash. Individuals A and B and FA organize FPS.
FA transfers part of the cash from the public offering
to FPS in exchange for a class A partnership interest.
FA holds few assets other than the class A partnership
interest. Individuals A and B transfer their DC1 stock
to FPS in exchange for class B partnership interests.
(B) The class B partnership interests entitle indi-
viduals A and B to cash distributions from FPS ap-
proximately equal to any dividend distributions made
by FA with respect to its publicly traded stock. In cer-
tain circumstances, the class B partnership interests
also permit individuals A and B to require FPS to re-
deem the interests in exchange for cash equal to the
value of an amount of FA stock as determined on the
redemption date. The class B partnership interests do
not provide individuals A or B voting rights with re-
spect to FA.
(ii)Analysis. The non-liquidating distribution
rights provided by the class B partnership interests
are substantially similar in all material respects to the
dividend rights provided by the FA stock. Because
FA holds few assets other than the class A partnership
interest, the value of the class B partnership inter-
ests held by individuals A and B is approximately
equal to a corresponding amount of FA stock. The
distribution rights on liquidation (or redemption)
provided by the class B partnership interests, there-
fore, are substantially similar in all material respects
to distribution rights on liquidation (or redemption)
provided by the FA stock. Thus, the distribution
rights provided by the class B partnership interests
are substantially similar in all material respects to the
distribution rights provided by the publicly traded FA
stock. As a result, if treating the class B partnership
interests as FA stock would have the effect of treating
FA as a surrogate foreign corporation, under para-
graph (k)(1) of this section the class B partnership
interests shall be treated as FA stock for purposes of
section 7874.
Example 19.Creditor treated as a shareholder.
(i)Facts. Individuals A and B equally own DC1. The
liabilities of DC1 exceed the value of its assets. Pur-
suant to a plan, FA, a newly-formed corporation, ac-
quires substantially all of the properties held by DC1
in exchange solely for FA stock. Pursuant to the plan,
the DC1 stock held by individuals A and B is can-
celled, and the creditors of DC1 receive all the FA
stock in exchange for their claims against DC1.
(ii)Analysis. Because immediately before the
first date on which properties are acquired as part of
the acquisition described in section 7874(a)(2)(B)(i)
the liabilities of DC1 exceed the value of its assets,
under paragraph (k)(2)(i) of this section, for purposes
of section 7874 the creditors of DC1 are treated
as shareholders of DC1 and the creditors’ claims
against DC1 are treated as DC1 stock. Therefore, for
purposes of section 7874(a)(2)(B)(ii) the FA stock
received by the creditors of DC1 by reason of their
claims against DC1 is considered held by former
shareholders of DC1 by reason of holding DC1 stock.
Example 20
.Conversion to a domestic corpora-
tion and application of section 367.(i)Facts. Indi-
viduals A and B are United States persons and equally
own DC1. Pursuant to a plan, individuals A and B
transfer their DC1 stock to FA in exchange solely for
80 percent of the outstanding FA stock. After the ac-
quisition, the expanded affiliated group that includes
FA does not have substantial business activities in
Country A when compared tothe total business ac-
tivities of the expanded affiliated group.
(ii)Analysis. Under paragraph (c)(1)(i) of this
section, for purposes of section 7874(a)(2)(B)(i) FA
July 13, 20091262009–28 I.R.B.

is treated as acquiring all of the properties held by
DC1 on the date of the stock acquisition. After the
acquisition, the former shareholders of DC1 own
80 percent of the stock of FA by reason of holding
DC1 stock. Therefore, FA is a surrogate foreign
corporation that is treatedas a domestic corporation
under section 7874(b). Under paragraph (m)(1)
of this section, except for purposes of determining
whether FA is treated as a surrogate foreign corpora-
tion, the conversion of FA to a domestic corporation
shall constitute a reorganization described in section
368(a)(1)(F) that occurs immediately before the stock
acquisition. Section 367 applies to the conversion
of FA to a domestic corporation. See, for example,
§§1.367(b)–2 and 1.367(b)–3 for the consequences
of the conversion. Under paragraph (m)(3) of this
section, section 367 does not apply to the transfers of
DC1 stock by individuals A and B to FA.
(o)Effective/applicability date—(1)
Temporary regulations filed onJune 9,
2009. This section shall apply to acquisi-
tions completed on or after June 9, 2009.
However, taxpayers may apply this section
to acquisitions completed before June 9,
2009, if this section is applied consistently
to all acquisitions completed before such
date.
(2)Application of prior temporary
regulations to certain acquisitions com-
pleted on or after June 6, 2006. Section
1.7874–2T, as contained in 26 CFR part 1
revised as of April 1, 2009, shall not apply
to acquisitions completed on or after June
6, 2006, pursuant to a written agreement
that was (subject to customary conditions)
binding on December 28, 2005, and at all
times thereafter (binding commitment).
A binding commitment shall include op-
tions and similar interests entered into
in connection with one or more written
agreements described in the preceding
sentence. Accordingly, §1.7874–2T, as
contained in 26 CFR part 1 revised as of
April 1, 2009, shall not apply to acquisi-
tions that occur, in whole or in part, as a
result of the exercise of such options or
similar interests.
(p)Expiration date. The applicability
of this section expires on or before June 8,
2012.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved June 8, 2009.
Michael Mundaca,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on June 9, 2009,
11:15 a.m., and published in the issue of the Federal Register
for June 12, 2009, 74 F.R. 27920)
2009–28 I.R.B.127July 13, 2009

Part III. Administrative, Procedural, and Miscellaneous
Tribal Economic Development
Bonds
Notice 2009–51
SECTION 1. PURPOSE
This notice solicits applications for al-
locations of the $2 billion national bond
volume limitation authority (“volume
cap”) to issue tribal economic develop-
ment bonds (“Tribal Economic Develop-
ment Bonds”) under new § 7871(f) of the
Internal Revenue Code (the “Code”). This
notice also provides related guidance on
the following: (1) eligibility requirements
that a project must meet to be considered
for a volume cap allocation, (2) applica-
tion requirements, deadlines, and forms
for requests for volume cap allocations,
(3) the method that the Internal Revenue
Service (“IRS”) and the Department of the
Treasury (“Treasury”) will use to allocate
the volume cap, and (4) certain interim
guidance in this area.
SECTION 2. INTRODUCTION
Section 1402 of Title I of Division B
of the American Recovery and Reinvest-
ment Act of 2009, Pub. L. No. 111–5,
123 Stat. 115 (2009) (the “Act”), added
new § 7871(f) to the Code. In general,
the purpose of new § 7871(f) is to give
Indian tribal governments greater flexi-
bility to use tax-exempt bonds to finance
economic development projects than is
allowable under the existing standard of
§ 7871(c). The more restrictive standard
under § 7871(c) generally limits the use by
Indian tribal governments of tax-exempt
bonds to the financing of certain activi-
ties that constitute essential governmental
functions customarily performed by State
and local governments with general taxing
powers and certain manufacturing facili-
ties. The more flexible standard under new
§ 7871(f) generally allows Indian tribal
governments to use tax-exempt bonds
under the new $2 billion volume cap to fi-
nance any economic development projects
(excluding certain gaming facilities and
projects located outside of Indian reser-
vations as provided in § 7871(f)(3)(B))
or other activities for which State or local
governments could use tax-exempt bonds
under § 103.
State and local governments generally
can use tax-exempt governmental bonds
to finance an unspecified broad range of
projects and activities so long as (1) not
more than 10 percent of the bond proceeds
are used for private business use and (2)
the debt service on no more than 10 per-
cent of bond proceeds is payable or se-
cured from payments or property used for
private business use. In addition, special
rules under § 141(b)(3) and § 141(c) fur-
ther limit the use of tax-exempt govern-
mental bonds in certain circumstances in-
volving disproportionate or unrelated pri-
vate business use and private loans.
In addition, State and local govern-
ments can use tax-exempt qualified private
activity bonds to finance certain specified
types of projects and activities without
regard to the level of private involve-
ment. State and local governments can
issue qualified tax-exempt private activity
bonds under § 141(e) and related provi-
sions for projects and activities, including
the following : (1) airports, (2) docks and
wharves, (3) mass commuting facilities,
(4) facilities for the furnishing of water,
(5) sewage facilities, (6) solid waste dis-
posal facilities, (7) qualified low-income
residential rental multifamily housing
projects, (8) facilities for the local fur-
nishing of electric energy or gas, (9) local
district heating or cooling facilities, (10)
qualified hazardous waste facilities, (11)
high-speed intercity rail facilities, (12)
environmental enhancements of hydro-
electric generating facilities, (13) qualified
public educational facilities, (14) qualified
green buildings and sustainable design
projects, (15) qualified highway or surface
freight transfer facilities, (16) qualified
mortgage bonds or qualified veterans
mortgage bonds for certain single-family
housing mortgage loans, (17) qualified
small issue bonds for certain manufac-
turing facilities, (18) qualified student
loan bonds, (19) qualified redevelopment
bonds, and (20) qualified 501(c)(3) bonds
for the exempt charitable and educational
activities of § 501(c)(3) nonprofit organi-
zations.
Finally, State and local governments
can use tax-exempt bonds in “refunding is-
sues,” as defined in § 1.150–1(d) of the In-
come Tax Regulations, to refinance prior
bonds, subject to certain restrictions, in-
cluding a restriction under § 149(d) against
not more than one “advance refunding is-
sue,” as defined in § 1.150–1(d)(4), for tax-
exempt governmental bonds, and a prohi-
bition against any advance refunding is-
sue for tax-exempt qualified private activ-
ity bonds.
Thus, subject to the restrictions of
§ 7871(f)(3)(B), Indian tribal governments
can use Tribal Economic Development
Bonds to finance a broad range of gov-
ernmental projects, including hotels, con-
vention centers, or golf courses, as well
as projects involvingcertain qualified
private activities, to the same extent and
subject to the same limitations imposed
on State and local governments. The
Tribes can also, subject to the limitations
of § 7871(f)(3)(B), use the Bonds for re-
funding issues, to the same extent as State
and local governments.
SECTION 3. BACKGROUND
Section 7871(a)(4) provides that, sub-
ject to § 7871(c), an Indian tribal govern-
ment is to be treated as a State for purposes
of § 103 (relating to State and local bonds).
Section 7871(c)(1) provides generally that,
except for obligations for certain manufac-
turing facilities described in § 7871(c)(3),
§103(a)shallapplytoanyobligationis-
sued by an Indian tribal government (or
subdivision thereof) only if such obliga-
tion is part of an issue substantially all of
the proceeds of which are to be used in
the exercise of any essential governmen-
tal function. Section 7871(e) provides that
for purposes of § 7871 the term “essen-
tial governmental function” shall not in-
clude any function which is not customar-
ily performed by State and local govern-
ments with general taxing power.
New §7871(f)(1) added by the Act pro-
vides that the Treasury Department shall
allocate the $2 billion national volume cap
for Tribal Economic Development Bonds
among the Indian tribal governments in
such manner as the Treasury Department,
in consultation with the Secretary of the
Interior, determines appropriate. Section
7871(f)(2)(A) provides that, notwithstand-
ing the provisions of § 7871(c), Tribal Eco-
July 13, 20091282009–28 I.R.B.

nomic Development Bonds are treated for
purposes of the Code as if they were is-
sued by a State. Section 7871(f)(2)(B) pro-
vides that with respect to Tribal Economic
Development Bonds, the Indian tribal gov-
ernment issuing such bonds and any instru-
mentality of such Indian tribal government
are to be treated as a State for purposes of
§ 141. Section 7871(f)(2)(C) provides that
the § 146 volume cap limitations on pri-
vate activity bonds do not apply to Tribal
Economic Development Bonds.
Section 7871(f)(3)(A) defines a Tribal
Economic Development Bond generally to
mean any bond issued by an Indian tribal
government the interest on which would be
exempt from tax under § 103 if issued by
a State or local government and which is
designated by the Indian tribal government
as a Tribal Economic Development Bond
for purposes of § 7871(f).
Section 7871(f)(3)(B) further provides
that the term Tribal Economic Develop-
ment Bond shall not include any bond is-
sued as part of an issue if any portion of
the proceeds of such issue are used to fi-
nance: (1) any portion of a building in
which class II or class III gaming (as de-
fined in section 4 of the Indian Gaming
Regulatory Act) is conducted or housed
or any other property actually used in the
conduct of such gaming or (2) any facility
located outside the Indian reservation (as
defined in § 168(j)(6)). Section 168(j)(6)
provides that the term “Indian reservation”
means a reservation as defined in § 3(d)
of the Indian Financing Act of 1974, 25
U.S.C.§1452(d)appliedbytreatingthe
term “Indian reservations in Oklahoma” as
including only lands which are within the
jurisdictional area of an Oklahoma Indian
tribe (as determined by the Secretary of
the Interior) and which are recognized by
the Secretary of the Interior as eligible for
trust land status under 25 CFR Part 151 (as
in effect on the date of the enactment of
this sentence) or a reservation defined in
§ 4(10) of the Indian Child Welfare Act of
1978, 25 U.S.C. 1903(10)
Section 7871(f)(3)(C) provides that the
maximum aggregate face amount of bonds
which may be designated by any Indian
tribal government under § 7871(f)(3)(A)
may not exceed the amount of national
Tribal Economic Development Bond vol-
ume cap allocated to such Indian tribal
government under § 7871(f)(1).
SECTION 4. APPLICATION
REQUIREMENTS IN GENERAL
Each application for an allocation of
the Tribal Economic Development Bond
volume cap under § 7871(f)(1) (“Appli-
cation”) must be prepared and submitted
in accordance with this section. In order
for an Application to comply with this
section, among other things, the Appli-
cation must be prepared in substantially
the form attached to this notice as Ap-
pendix A, subject to such minor changes
or variations as the IRS and the Treasury
Department may approve in their discre-
tion. This notice, including Appendix
A,maybefoundontheIRSwebsite
athttp://www.irs.gov/taxexemptbond/in-
dex.htmlorhttp://www.irs.gov/pub/irs-
drop/. By submitting an Application, the
applicant agrees to comply with the re-
quirements of this notice.
a.Qualified issuer. An Application
must be submitted by an Indian tribal gov-
ernment. Section §7701(a)(40)(A) de-
fines an Indian tribal government as the
governing body of any tribe, band, com-
munity, village, or group of Indians, or
Alaska Natives, which is determined by
the Secretary, after consultation with the
Secretary of the Interior, to exercise gov-
ernmental functions. Section 2.01 of Rev-
enue Procedure 2008–55, 2008–39 I.R.B.
768, provides that anIndian tribal entity
that appears on the most recent list pub-
lished by the Department of the Interior in
the Federal Register pursuant to the Fed-
erally Recognized Indian Tribe List Act of
1994, Pub. L. 103–454, 108 Stat. 4791
(“List Act”), is designated an Indian tribal
government for purposes of § 7701(a)(40).
Section 2.03 of Rev. Proc. 2008–55 fur-
ther provides that a tribe that does not ap-
pear on the most recent list published by
the Department of the Interior in the Fed-
eral Register pursuant to the requirements
of the List Act nonetheless will be treated
as an Indian tribal government for pur-
poses of § 7701(a)(40) if the tribe has been
acknowledged as a federally recognized
Indian tribe, as stated in a letter from the
Department of the Interior. An Applica-
tion must identify the Indian tribal govern-
ment, including the Indian tribal govern-
ment’s Federal tax identification number,
and either: (1) state that the entity is in-
cluded on the most recent list published
by the Department of the Interior in the
Federal Register pursuant to the List Act,
or (2) provide the letter from the Depart-
ment of the Interior stating that the tribe
has been acknowledged as a federally rec-
ognized Indian tribe.
b.Signatures. An Application must
be signed and dated by, and must include
the printed name and title of, an authorized
official of the Indian tribal government.
For purposes of this notice, the term “au-
thorized official of the Indian tribal gov-
ernment” means an officer, board mem-
ber, employee, or other official of the In-
dian tribal government who is duly autho-
rized to execute legal documents on be-
half of the Indian tribal government in con-
nection with incurring debt of the Indian
tribal government (e.g., a tribal chairper-
son, chief executive officer, or chief finan-
cial officer), similar to the kind of duly au-
thorized official of an Indian tribal gov-
ernment who would be authorized to ex-
ecute documents in connection with an
Indian tribal government’s declaration of
official intent to reimburse expenditures
from the proceeds of a borrowing under
§ 1.150–2(e).
c.Contact person. An Application
must designate one or more persons with
knowledge of the project that the qualified
issuer duly authorizes to discuss with the
IRS any information relating to the Appli-
cation. The designation must include the
designee’s name, title, telephone number,
fax number, and mailing address. If a de-
signee is not an official or officer of the is-
suer, the Application must include an ex-
ecuted Form 8821(Taxpayer Information
Authorization)or Form 2848(Power of At-
torney and Declaration of Representative)
authorizing the disclosure of taxpayer in-
formation specifically relating to the Ap-
plication.
d.Addresses. An Application must
besubmittedbyhardcopyinduplicate
accompanied by a copy of the Applica-
tion in electronic format on compact disc
(“CD”) sent by mail to the Internal Rev-
enue Service (IRS), SE:T:GE:TEB:CPM,
Attention: Mark Helfer, 1122 Town &
Country Commons, St. Louis, Missouri
63017.
e.Due date. To receive an allocation
from the first $1 billion of volume cap be-
ing allocated (“First Allocation”), an Ap-
plication must be filed with the IRS on or
before the Application deadline of August
15, 2009 (“First Allocation Deadline”). To
2009–28 I.R.B.129July 13, 2009

receive an allocation from the remaining
volume cap (“Second Allocation”), an Ap-
plication must be filed with the IRS after
August 15, 2009, and on or before January
1, 2010 (“Second Allocation Deadline”).
See section 7 for further discussion of the
two allocations.
f.Project description. Each Applica-
tion must contain the information required
by this subsection f.
(i)Qualified project. Each Applica-
tion must describe in reasonable detail the
project to be financed with the proceeds
of the Tribal Economic Development
Bonds. The Application must indicate
the expected date that the acquisition and
construction of the project will commence
and the expected date that the project will
be placed in service.
(ii)Location of project. The Applica-
tion must include a certification that the
project’s location is within the Indian tribal
government’s reservation.
(iii)Project not used for gaming pur-
poses. The Application must contain a cer-
tification that no portion of the proceeds of
any Tribal Economic Development Bonds
issued pursuant to the application will be
used to finance any portion of a building
in which class II or class III gaming, as
definedinsection4oftheIndianGaming
Regulatory Act, is conducted or housed,
or any other property actually used in the
conduct of such gaming. For a safe harbor
standard regarding certain determinations
with respect to separate buildings, see sec-
tion 10 of this notice.
(iv)Regulatory approvals. The Appli-
cation must state whether all necessary
Federal, State and local regulatory ap-
provals for the project have been obtained
and, if those approvals have not yet been
obtained, the Application must describe
the Indian tribal government’s plan for
obtaining them and the time frame during
which the Indian tribal government ex-
pects to receive them.
g.Plan of financing. The Application
must contain (1) a reasonably detailed
description of the plan of financing for the
project, including all reasonably expected
sources (e.g., a public offering through a
named underwriter or a private placement
to a named institution) and uses of financ-
ing, including financing from the Tribal
Economic Development Bonds and from
other sources, (2) the status of all financ-
ing, including the name and addresses of
all entities expectedto provide any financ-
ing, (3) the anticipated date of issuance of
the Tribal Economic Development Bonds
and any expected purchasers of the Tribal
Economic Development Bonds, (4) the
sources of security and repayment for the
Tribal Economic Development Bonds,
(5) the aggregate face amount of Tribal
Economic Development Bonds expected
to be issued for the project, and (6) the
issuer’s reasonably expected schedule for
spending proceeds of the Tribal Economic
Development Bonds. If the Indian tribal
government intends to use the proceeds
of Tribal Economic Development Bonds
to reimburse amounts paid with respect to
a qualified project, the Application must
demonstrate that the requirements under
§ 1.150–2 of the Income Tax Regulations
will be met.
h.Dollar amount of allocation re-
quested. The Application must specify the
dollar amount of the volume cap requested
for the project.
i.Statement of readiness to issue.An
Application for an allocation of volume
cap from the First Allocation must contain
the statement that the issuer reasonably ex-
pects to issue any Tribal Economic Devel-
opment Bonds, pursuant to the requested
allocation of volume cap, on or before De-
cember 31, 2010. An Application for an
allocation of volume cap from the Second
Allocation must contain a statement that
the issuer reasonably expects to issue any
Tribal Economic Development Bonds pur-
suant to the requested allocation of volume
cap on or before December 31, 2011.
SECTION 5. REQUIRED
DECLARATIONS IN APPLICATIONS
Each Application submitted under this
notice must include the following declara-
tion signed and dated by an authorized offi-
cial of the Indian tribal government: “Un-
der penalties of perjury, I declare that I
have examined this document and, to the
best of my knowledge and belief, all of the
facts contained herein are true, correct, and
complete.”
SECTION 6. CONSENT TO
DISCLOSURE OF ALLOCATION
In order to provide the public with in-
formation on how the volume cap has been
allocated and to facilitate oversight of the
Tribal Economic Development Bond pro-
gram, the IRS intends to publish the re-
sults of the allocation process. The in-
formation will be most useful to the pub-
lic if it identifies the specific allocations
awarded. Pursuant to § 6103, consent is
required in order for the IRS to disclose
identifying information with respect to ap-
plicants awarded an allocation. Therefore,
the IRS requests that each applicant submit
with the Application a declaration, con-
senting to the disclosure by the IRS of the
name of the issuer, the type and location of
the project that is the subject of the Appli-
cation, and the amount of the Tribal Eco-
nomic Development Bond volume cap al-
location awarded to that applicant if the
Applicant receives an allocation. To pro-
vide valid consent, the declaration must be
in the form set forth in Appendix B. An ap-
plicant is not requiredto provide a declara-
tion consenting to disclosure in order to re-
ceive an allocation. The IRS will not pub-
lish identifying information with respect to
applications that are not awarded an allo-
cation of volume cap or while applications
are pending.
SECTION 7. VOLUME
CAP ALLOCATIONS AND
METHODOLOGY
a.First Allocation.TribalEconomic
Development Bond volume cap under
§ 7871(f) will be allocated in at least two
tranches. The first $1 billion in volume
cap will be allocated in accordance with
this section for qualified projects for which
Applications meeting the requirements of
this notice have been filed with the IRS on
or before the First Allocation Deadline. If
the total amount of volume cap requested
in all applications received on or before
the First Allocation Deadline does not ex-
ceed $1 billion then each qualified project
will be allocated the amount of volume
cap requested, and any amount of the first
$1 billion in volume cap remaining will
be available for allocation as part of the
Second Allocation. If the total amount of
volume cap requested in all applications
received on or before the First Alloca-
tion Deadline exceeds $1 billion, than
each qualified project will be allocated
the amount of volume cap requested re-
duced pro rata such that the total amount
allocated as part of the First Allocation
does not exceed $1 billion. Applicants
July 13, 20091302009–28 I.R.B.

receiving a reduced allocation may submit
an application requesting the remainder of
the allocation before the Second Alloca-
tion Deadline.
b.Second Allocation.
(1)The Second Allocation will allocate
the second $1 billion plus any portion of
the first $1 billion not allocated as part
of the First Allocation (the “Second Al-
location Amount”).The Second Alloca-
tion will be allocated in accordance with
this section for qualified projects for which
applications meeting the requirements of
this notice have been filed with the IRS
on or before the Second Allocation Dead-
line set forth in this notice. If the total
amount of volume cap requested in all ap-
plications received on or before the Sec-
ond Allocation Deadline does not exceed
the Second Allocation Amount, then each
applicant will be allocated the amount of
volume cap requested and any volume cap
remaining may be available for allocation
by the IRS as part of an allocation process
to be announced by the IRS at some future
date. If the total amount of volume cap re-
quested in all applications received on or
before the Second Allocation Deadline ex-
ceed the Second Allocation Amount then
each applicant will be allocated the amount
of volume cap requested reducedpro rata
such that the total amount allocated as part
of the Second Allocation does not exceed
the Second Allocation Amount.
(2) Applicants for any subsequent allo-
cation other than the First Allocation must
include a description of the project, or any
related project, for which a prior alloca-
tion was made, as well as the name of the
applicant that received the allocation. For
this purpose, related projects include fa-
cilities that are owned by the same Indian
tribal government, a political subdivision
of the Indian tribal government, or an en-
tity controlled by the Indian tribal govern-
ment, which are (i) located at or near the
same site, and (ii) are integrated, intercon-
nected, or directly or indirectly dependent
on each other based on all the facts and cir-
cumstances
c.Limit on amounts awarded to any
one Indian tribal government.NoIndian
tribal government will be awarded alloca-
tions from the First Allocation for a total
amount exceeding $30 million. For pur-
poses of this limitation, an Indian tribal
government includes the Indian tribal gov-
ernment, as well as political subdivisions
of, and other entities controlled by, the In-
dian tribal government. Although the IRS
expects that a similar limitation will apply
to amounts allocated as part of the Second
Allocation, or any subsequent allocation,
the IRS reserves the right to raise or lower
the limitation or abolish it entirely.
d.Joint projects. An Indian tribal gov-
ernment may submit an application for an
allocation to financethe Indian tribal gov-
ernment’s share of a joint project all of
which will be owned by Indian tribal gov-
ernments or which will, in part, be owned
by an entity that is not an Indian tribal
government, provided that the joint project
will be located entirely on one or more
of the reservations of any of the Indian
tribal governments receiving an allocation
with respect to such project. For this pur-
pose, the type of joint ownership of fa-
cilities to be financed with Tribal Eco-
nomic Development Bonds include only
those recognized under the private activ-
ity bond restrictions on tax-exempt bonds
under § 141.
e.On behalf of issuers.
(1) An Indian tribal government that re-
ceives an allocation may designate an “on
behalf of issuer,” within the rules applica-
ble to bonds issued under § 103, to issue
the Tribal Economic Development Bonds
on its behalf.
(2) An Indian tribal government that re-
ceives an allocation may assign the alloca-
tion to a pool bond issuer who is otherwise
an Indian tribal government for the pur-
pose of issuing Tribal Economic Develop-
ment Bonds the proceeds of which will be
loaned to the Indian tribal government who
received the allocation. Pooled Tribal Eco-
nomic Development Bonds will be subject
to the provisions of § 149(f).
(3) The proceeds of any bonds issued
by an “on behalf of” issuer or a pool issuer
will be treated as if they were proceeds of
bonds issued by the Indian tribal govern-
ment that received the allocation.
f.Forfeiture of allocation. If bonds are
not issued by December 31, 2010, for any
or all of the allocation received by an issuer
pursuant to the First Allocation, then such
allocation is treated as forfeited. If bonds
are not issued by December 31, 2011, for
any or all of the allocation received by
an issuer pursuant to the Second Alloca-
tion, then such allocation is treated as for-
feited. Any allocation amounts treated as
forfeited may be available for allocation
by the IRS as part of an allocation process
to be announced by the IRS at some fu-
ture date. Issuers must notify the IRS at
least 30 days before the expiration of the
period during which bonds may be issued
pursuant to an allocation if they do not in-
tend to issue bonds pursuant to such allo-
cation.
SECTION 8. INSUBSTANTIAL
DEVIATIONS FROM APPLICATION
PROVISIONS
Generally, any allocation of Tribal Eco-
nomic Development Bond volume cap is
valid for purposes of § 7871, if bonds are
issued pursuant to an allocation and are
used to finance the project described in
the Application. An allocation of Tribal
Economic Development Bond volume
cap is also valid notwithstanding insub-
stantial deviations from the information
submitted in the Application. Whether a
deviation with respect to the information
submitted in the Application is insubstan-
tial is determined based on all the facts
and circumstances using criteria simi-
lar to those used under § 5f.103–2(f)(2)
and Prop. Reg. § 1.147(f)–1(b)(6), as
amended from time to time, relating to the
insubstantial deviation in the information
required for public approval of an issue
of tax-exempt bonds under § 147(f) of
the Code. Applications for approval of
specific insubstantial deviations must be
submittedbyhardcopyandinelectronic
format on CD sent by mail to Internal Rev-
enue Service (IRS), SE:T:GE:TEB:CPM,
Attention: Mark Helfer, 1122 Town &
Country Commons, St. Louis, Missouri
63017. An Application for approval of
a specific insubstantial deviation must
include: (a) a detailed description of the
proposed deviation, (b) facts establishing
the continued technical viability of the
project and that no other taxpayer, State
or local government or Indian tribal gov-
ernment will be prejudiced, (c) a copy of
the allocation letter issued by the IRS, and
(d) a declaration pursuant to section 5 of
this notice signed by an authorized person
in accordance with section 4.b. of this
Notice.
SECTION 9. INFORMATION
REPORTING
Subject to updated IRS information
reporting forms or procedures, an issuer
2009–28 I.R.B.131July 13, 2009

of Tribal Economic Development Bonds
should complete Part II of Form 8038–G
bycheckingtheboxonLine18(Other),
writing “Tribal Economic Development
Bonds” in the space provided for the bond
description, and entering the issue price of
the Tribal Economic Development Bonds
in the Issue Price column. For purposes of
this notice, the term “issue” has the mean-
ing used for tax-exempt bond purposes in
§ 1.150–1(c).
SECTION 10. RELIANCE ON
NOTICE AND INTERIM GUIDANCE
(a)Generally
Pending the promulgation and effec-
tive date of applicable future regulations or
other public administrative guidance, tax-
payers may rely on the interim guidance
provided in this notice.
(b) Safe Harbor Definition of Building
Section 7871(f)(3)(B) provides that the
term Tribal Economic Development Bond
does not include any bond issued as part
of an issue if any portion of the proceeds
of the issue are used to finance any por-
tion of a building in which class II or
class III gaming (as defined in section 4
of the Indian Gaming Regulatory Act) is
conducted or housed or any other prop-
erty actually used in the conduct of those
classes of gaming. As a safe harbor, a
structure will be treated as a separate build-
ing if it has an independent foundation,
independent outer walls and an indepen-
dent roof. Connections (e.g.,doorways,
covered walkways or other enclosed com-
mon area connections) between two adja-
cent independent walls of separate build-
ings may be disregarded as long as such
connections do not affect the structural in-
dependence of either wall.
SECTION 11. DRAFTING
INFORMATION
The principal authors of this notice are
Aviva M. Roth and Timothy L. Jones of the
Office of Associate Chief Counsel (Finan-
cial Institutions and Products). However,
other personnel from the IRS and Treasury
participated in its development. For fur-
ther information regarding this notice, con-
tact Aviva M. Roth or Timothy L. Jones at
(202) 622–3980 (not a toll-free call). For
further information about submitted Ap-
plications, contactMark Helfer at (636)
255–1201 (not a toll-free call).
July 13, 20091322009–28 I.R.B.

APPENDIX A
APPLICATION FOR ALLOCATION OF
TRIBAL ECONOMIC DEVELOPMENT BOND VOLUME CAP
Internal Revenue Service
SE:T:GE:TEB:CPM
Attention: Mark Helfer
1122 Town & Country Commons
St. Louis, Missouri 63017
Dear Sir or Madam:
The following constitutes the application (“Application”) of (Name) (the “Applicant”) for allocation of tribal economic
development bond (“Tribal Economic Development Bond”) volume cap under § 7871(f) of the Internal Revenue Code (the
“Code”) (unless otherwise noted, section references herein are to the Code) to finance the project described below. (If a single
Application is used to request Tribal Economic Development Bond volume cap for more than one project, then all of the required
information in the Application must be provided separately for each project.)
1.
Name of Applicant/Issuer
Street Address
CityStateZip
Telephone NumberFax Number
EIN
2.
Status of Issuer—(Select as appropriate)
The Applicant/Issuer is a “qualified issuer” under § 7871(f) because it is —
(i) an Indian tribal entity that appears on the most recent list published by the Department of Interior in the
Federal Register pursuant to the Federally Recognized Indian Tribe List Act of 1994, Pub. L. 103–454, 108
Stat. 4791 (“List”), as demonstrated by the attached documents included as Exhibit A.
(ii) an Indian tribal government which is acknowledged as a federally recognized Indian tribe, as stated in a
letter from the Department of the Interior, as demonstrated by the attached documents included as Exhibit A.
3.
Name of Project
4.
Detailed Description of the Project.A reasonably detailed description of thefacility to be financed (the “Project”)
is set forth below or in attached Exhibit B.
If the Project is a joint Project, please describe in detail the other owners of the project and the applicant’s ownership
interest in the project.
5.Construction Commencement Date and Placed in Service Date. The Applicant begun or expects to begin the
construction, installation and equipping of the Project on
. The Applicant expects that the
Project will be placed into service on or before
.
6.Pool Issuances. Does the Applicant expect to have the Tribal Economic Development Bonds issued by a pool issuer
or an “on behalf of issuer”?
If the answer above is yes, please describe the pool issuer or on behalf of issuer and provide a statement that the pool
issuer is an Indian tribal government or that the “on behalf ofissuer” meets the requirements to be such an issuer under the
rules applicable to bonds issued under § 103.
2009–28 I.R.B.133July 13, 2009

7.
Location of the Project:
Project address or physical location (do not include postal box numbers or mailing address)
CityStateZip
Reservation where Project will be located:
Include in the attached Exhibit C, a certification that the Project will be locatedon the Applicant’s reservation. If the Tribal
Economic Development Bonds will be issued for a joint project please include in attachedExhibit C a certification that the Project
will be located on a reservation of at least one of the Indian tribal governments receivingan allocation with respect to such Project.
8.
Information with respect to gaming.
Include in the attached Exhibit D a certification that no portion of the proceeds of any bonds issued pursuant to the requested
application will be used to finance any portion of a building in which class II or class III gaming (as defined in section 4 of the
Indian Gaming Regulatory Act) is conducted or housed, or any other property actually used in the conduct of such gaming.
9.
Individual to contactfor more information about the Project:
Individual Name
Company Name
Street Address
CityStateZip
Telephone Number
Fax Number
Email Address
(Include as appropriate)The contact person is not an authorized official or officer of the Applicant and a properly
executed Form 8821 (or Form 2848) is included with this Application that authorizes the disclosure by the IRS of
information that relates to this Application andthe Project(s) describedabove to the contact person.
10.
Regulatory Approvals. Identify each regulatory body, the action that must be taken, status of any pending action
and the remaining timeframe required to obtain each required approval. The plan of the Applicant for obtaining
such approvals is as follows:(or attach an Exhibit)
11.
Plan of Financing. Include a reasonably detailed description of the plan of financing for the Project, including all
reasonably expected sources and uses of financing and other funds, the status of such financing, the anticipated
date of bond issuance, the sources of security and repayment for the bonds, the aggregate face amount of bonds
expected to be issued for the Project, and the issuer’s reasonably expected schedule for spending proceeds of the
Tribal Economic Development Bonds. Attached asExhibit E is a plan of financing for the Project.
12.
Statement of Readiness.
a. Application for volume cap from the First Allocation. Include in Exhibit F a statement signed under
penalties of perjury that the Issuer reasonably expects to issue bonds pursuant to the requested allocation
by December 31, 2010.
b. Application for volume cap from the Second Allocation. Include in Exhibit F a statement signed under
penalties of perjury that the Issuer reasonably expects to issue bonds pursuant to the requested allocation
by December 31, 2011.
13.
Reimbursements.(For reimbursements, include the following statement.)The Applicant intends to use the proceeds
of Tribal Economic Development Bonds to reimburse costs of the Project in accordance with § 1.150–2.(In addition,
the Applicant must demonstrate that the requirements of § 1.150–2 will be met.
14.
Refundings.(For refundings or refinancings, include the following statement.)The Applicant intends to use the
proceeds of Tribal Economic Development Bonds to refund or refinance prior debt in circumstances that would
qualify for a refunding or refinancing with tax-exempt bonds by a State or local government under § 103.(In addition,
the Applicant must demonstrate that applicable requirements for such a refunding or refinancing issue will be met.)
15.Dollar Amount of Allocation Requested for the Project.To finance the Project, the Applicant hereby requests a
Tribal Economic Development Bond allocation in the amount of $
.
July 13, 20091342009–28 I.R.B.

16.
Prior Allocations for the Project.(If the Project or any Related Project (as defined in section 7.b.(2) of this Notice)
previously received an allocation of Tribal Economic Development Bond volume cap under § 7871(f) of the Code,
then this paragraph must include a statement to that effect.)[If applicable, include the following statement:On
(Insert date), the Project previously received a Tribal Economic Development Bond volume cap allocation in the
amount of $
. A copy of the IRS allocation letter for that allocation is attached.]
17.
Assignment of allocations to another issuer.(If the applicant expects to assign its allocation to another qualified
issuer of Tribal Economic Development Bonds as authority for the Tribal Economic Development Bond issuer to
issue bonds for the project on behalf of the applicant, the applicant should provide the following statement:))
The Applicant expects to assign the requested allocation for Tribal Economic Development Bonds volume
cap to a qualified issuer of Tribal Economic Development Bonds as authority for the Tribal Economic
Development Bond issuer to issue bonds for the project on behalf of the Applicant. Applicant agrees to obtain
a written commitment from the assignee Tribal Economic Development Bond issuer that it is a qualified issuer
of Tribal Economic Development Bonds and that it will issue Tribal Economic Development Bonds for the
project within the time frame specified in the Application for the Applicant’s bonds.
18.
Penalty of Perjury Statement and Signatures
I hereby certify that I am an authorizedofficer or official of the Applicant, that I am duly authorized to execute legal
documents on behalf of the Applicant in connection with incurring debt, and that I am duly authorized to execute
legal documents on behalf of the Applicant in making this Application. Under penalties of perjury, I declare that
(i) I have knowledge of the relevant facts and circumstancesrelating to this Application and the Project(s), (ii) I
have examined this Application, and (iii) to the best of myknowledge and belief, all of the facts contained in this
Application are true, correct and complete.
By:
Name:
Title:
Date:
2009–28 I.R.B.135July 13, 2009

EXHIBIT A
DOCUMENTS REGARDING ISSUER STATUS AS AN INDIAN TRIBAL GOVERNMENT
(RESPONSE TO QUESTION 2 OF THE APPLICATION)
(Attached hereto)
July 13, 20091362009–28 I.R.B.

EXHIBIT B
DESCRIPTION OF THE PROJECT
(RESPONSE TO QUESTION 4 OF THE APPLICATION)
(Attached hereto)
2009–28 I.R.B.137July 13, 2009

EXHIBIT C
PROJECT LOCATION ON INDIAN TRIBAL GOVERNMENT RESERVATION
(RESPONSE TO QUESTION 7 OF THE APPLICATION)
July 13, 20091382009–28 I.R.B.

EXHIBIT D
STATEMENT WITH RESPECT TO GAMING
(RESPONSE TO QUESTION 8 OF THE APPLICATION)
2009–28 I.R.B.139July 13, 2009

EXHIBIT E
PLAN OF FINANCING
(RESPONSE TO QUESTION 11 OF THE APPLICATION)
(Attached hereto)
July 13, 20091402009–28 I.R.B.

EXHIBIT F
STATEMENT OF READINESS TO ISSUE
(RESPONSE TO QUESTION 12 OF THE APPLICATION)
I hereby certify that I am an authorized officer or official of the Applicant, that I am duly authorized to execute legal documents
on behalf of the Applicant in connection with incurring debt, and that I am duly authorized to execute legal documents on behalf
of the Applicant in making this Application.Under penalties of perjury, I declare that the Applicant reasonably expects that bonds
issued pursuant to the Tribal Economic Development Bond allocation to be received will be issued by [enter either: December 31,
2010, or December 31, 2011, as applicable]
By:
Name:
Title:
Date:
2009–28 I.R.B.141July 13, 2009

EXHIBIT B
CONSENT TO PUBLIC DISCLOSURE
OF CERTAIN TRIBAL ECONOMIC DEVELOPMENT BOND
APPLICATION INFORMATION
In the event that the Application of [(Insert name of applicant here):
] (the “Applicant”) for an allocation
of authority to issue tribal economic development bonds (“Tribal Economic Development Bonds”) under section 7871(f) of the
Internal Revenue Code is approved, the undersigned authorized representative of the Applicant hereby consents to the disclosure
by the Internal Revenue Service through publication of a Noticein the Internal Revenue Bulletin or a press release of the name of
Applicant (issuer), the type and location of the facility that is the subject of the Application, and the amount of the allocation, if
any, of volume cap authority to issue Tribal Economic Development Bonds for such facility. Theundersigned understands that
this information might be published, broadcast, discussed or otherwise disseminated in the public record.
This authorization shall become effective upon the execution hereof. Except to the extent disclosure is authorized herein,
the returns and return information of the undersigned taxpayer are confidential and are protected by law under the Internal
Revenue Code.
I certify that I have the authority toexecute this consent to disclose on behalf of the taxpayer named below.
Date:
Signature:
Print name:
Title:
Name of Applicant-Taxpayer:
Taxpayer Identification Number:
Taxpayer’s Address:
Note: Treasury Regulations require that the Internal Revenue Service must receive this consent within 60 days after it is signed
and dated.
Reliance Criteria for Private
Foundations and Sponsoring
Organizations
Rev. Proc. 2009–32
SECTION 1. PURPOSE
This Revenue Procedure provides re-
liance criteria for private foundations
and sponsoring organizations that main-
tain donor advised funds in determining
whether a potential grantee is an organiza-
tion described in section 509(a)(1), (2) or
(3) of the Internal Revenue Code (Code).
SECTION 2. BACKGROUND
The Pension Protection Act of 2006,
Pub. L. No. 109–208, 120 Stat. 780
(2006) (PPA) enacted new rules regard-
ing grants by private foundations to certain
types of supporting organizations. Under
section 4942(g)(4) of the Code, as added
by the PPA, the term “qualifying distribu-
tion” does not include any amount paid by
a private nonoperating foundation to ei-
ther (1) a Type III supporting organiza-
tion (as defined in § 4943(f)(5)(A)) that is
not functionally integrated, or (2) a Type
I, Type II, or functionally integrated Type
III supporting organization if a disquali-
fied person of the private foundation di-
rectly or indirectly controls such support-
ing organization or a supported organiza-
tion of the supporting organization. In ad-
dition, under § 4945(d)(4)(A), as amended
by the PPA, a private foundation grant to
a supporting organization described in ei-
ther(1)or(2)isataxable expenditure un-
der § 4945, unless the private foundation
exercises expenditure responsibility with
respect to the grant in accordance with
§ 4945(h).
The PPA also added § 4966 to the
Code, which imposes an excise tax on
a sponsoring organization (as defined in
§ 4966(d)(1)) for taxable distributions (as
defined in § 4966(c)). Section 4966(c)(1)
defines the term “taxable distribution”
to include any distribution from a donor
advised fund (as defined in § 4966(d)(2))
to a disqualified supporting organization,
unless the sponsoring organization ex-
ercises expenditure responsibility with
respect to the distribution in accordance
with § 4945(h). Section 4966(d)(4) de-
fines the term “disqualified supporting
organization” as: (1) a Type III support-
ing organization that is not functionally
integrated, and (2) a Type I, Type II, or
functionally integrated Type III supporting
organization if the donor, donor advisor,
or related parties of the donor or donor
advisor directly or indirectly controls a
July 13, 20091422009–28 I.R.B.

supported organization of the supporting
organization.
On December 18, 2006 , the Treasury
Department and the Internal Revenue
Service (IRS) issued Notice 2006–109,
2006–2 C.B. 1121, to provide interim
guidance regarding certain of the new rules
enacted by the PPA that affect supporting
organizations, donor advised funds, and
private foundations that make grants to
supporting organizations. In particular,
section 3.01 of Notice 2006–109 provides
reliance criteria for private foundations
and sponsoring organizations that main-
tain donor advised funds in determining
whether a grantee is a public charity un-
der § 509(a)(1), (2) or (3) and whether a
grantee is a Type I, Type II, or functionally
integrated Type III supporting organiza-
tion. With respect tothe determination
of whether a grantee is a public charity
under § 509(a)(1), (2), or (3) for purposes
of §§ 4942, 4945 and 4966, as applicable,
section 3.01 of Notice 2006–109 provides
that a private foundation or a sponsoring
organization that maintains a donor ad-
vised fund, acting in good faith, may rely
on either (1) information from the IRS
Business Master File (“BMF”), or (2) the
grantee’s current IRS letter recognizing
the grantee as exempt from federal income
tax and indicating the grantee’s public
charity classification.
The BMF is updated monthly and, due
to its large size, is available as compressed
ASCII Text or Excel spreadsheet files.
The files must be downloaded and uncom-
pressed before viewing. The BMF and its
corresponding instructions are available
for download directly from the IRS web
site. Currently, the BMF does not provide
information as to whether an organization
described in § 509(a)(3) is a Type I, Type
II, or Type III supporting organization, nor
whether a Type III supporting organization
is functionally integrated.
Subsequent to the issuance of No-
tice 2006–109, the IRS posted a doc-
ument titled “Reliance on BMF Infor-
mation — Certain Determinations of
Public Charity Status” on its website
athttp://www.irs.gov/charities/charita-
ble/article/0,,id=168531,00.html, clarify-
ing how a grantor may access BMF data
for purposes of satisfying the requirements
of section 3.01 of Notice 2006–109 to
determine whether a grantee is a public
charity under section 509(a)(1), (2) or
(3). The document provides that in lieu
of downloading the BMF directly from
the IRS website, a private foundation or a
sponsoring organization that maintains a
donor advised fund may use a third party
to obtain the BMF information, so long
as the third party provides the BMF infor-
mation in a report that includes: (1) the
grantee’s name, Employer Identification
Number, and public charity classifica-
tion under § 509(a)(1), (2), or (3); (2) a
statement that the information is from the
most-currently available IRS monthly up-
date to the BMF, along with the IRS BMF
revision date; and (3) the date and time of
the grantor’s search. The report must also
be in a form that the grantor can store in
hard copy or electronically.
SECTION 3. SCOPE
This Revenue Procedure applies to
grantor determinations of public charity
status under of the Code 509(a)(1), (2)
or (3) for purposes of the excise taxes
imposed on grants to certain supporting
organizations under sections 4942, 4945,
and 4966.
SECTION 4. PROCEDURE
In determining whether a public charity
is classified under 509(a)(1), (2), or (3) of
the Code, a private foundation or a spon-
soring organization that maintains a donor
advised fund, acting in good faith, may
rely on either:
(1) the grantee’s current IRS letter
recognizing the grantee as exempt from
federal income tax and indicating the
grantee’s public charity classification un-
der § 509(a)(1), (2), or (3); or
(2) information from the BMF. A
grantor may download the BMF directly
from the IRS website and store the relevant
information in hard copy or electronically.
A grantor may also obtain the BMF infor-
mationfromathirdparty,solongasthe
following requirements are met:
(i) The third party provides a report to
the grantor that includes: (A) the grantee’s
name, Employer Identification Number,
and public charity classification under
§ 509(a)(1), (2), or (3); (B) a statement that
the information is from the most current
update of the BMF and the BMF revision
date; and (C) the date and time the infor-
mation was provided to the grantor; and
(ii) The report is in a form that the
grantor can store in hard copy or electron-
ically.
EFFECT ON OTHER DOCUMENTS
This Revenue Procedure supersedes
the portions of section 3.01 of Notice
2006–109 that relate to reliance for pur-
poses of determining whether a grantee is
a public charity under section 509(a)(1),
(2)or(3)oftheCode. Allotherpartsof
Notice 2006–109 remain unchanged and
in effect, including the separate require-
ments for grantors to determine whether a
grantee is a Type I, Type II, or functionally
integrated Type III supporting organiza-
tion.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Patricia Thomas of the Ex-
empt Organizations, Tax Exempt and
Government Entities Division. For further
information regarding this revenue proce-
dure, please contact Virginia Richardson
at (202) 283–8938 (not a toll-free call).
2009–28 I.R.B.143July 13, 2009

Part IV. Items o
fGeneralInterest
Withdrawal of Notice of
Proposed Rulemaking
andNoticeofProposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Guidance Under Section 7874
Regarding Surrogate Foreign
Corporations
REG–112994–06
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of pro-
posed rulemaking and notice of proposed
rulemaking by cross-reference to tempo-
rary regulations.
SUMMARY: In this issue of the Bulletin,
the IRS and the Treasury Department are
issuing temporary regulations (T.D. 9453)
concerning the treatment of a foreign cor-
poration as a surrogate foreign corporation
under section 7874(a)(2)(B) of the Inter-
nal Revenue Code (Code). The tempo-
rary regulations primarily affect domestic
corporations and partnerships (and certain
parties related thereto), and certain foreign
corporations that acquire substantially all
of the properties of such domestic corpo-
rations or partnerships. The text of the
temporary regulations serves as the text of
these proposed regulations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by September 10, 2009.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–112994–06), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–112994–06),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224, or sent elec-
tronically via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–112994–06).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, S. James Hawes at (202)
622–3860; concerning submissions of
comments and a request for a public
hearing, contact Funmi Taylor at (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
The temporary regulations in this issue
of the Bulletin amend the Income Tax Reg-
ulations (26 CFR part 1) relating to section
7874 of the Code. The temporary regula-
tions address certain issues relating to the
treatment of a foreign corporation as a sur-
rogate foreign corporation under section
7874(a)(2)(B). The text of the temporary
regulations serves as the text of these pro-
posed regulations, and the preamble to the
temporary regulations explains these pro-
posed regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It has also been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 USC Chap-
ter 5) does not apply to these regulations.
These regulations do not impose a collec-
tion of information. Pursuant to the Regu-
latory Flexibility Act (5 USC chapter 6),
it is hereby certified that this regulation
will not have a significant economic im-
pact on a substantial number of small enti-
ties. The complexity and cost of a trans-
action to which section 7874 may apply
make it unlikely that a substantial num-
ber of small entities will engage in such a
transaction. In addition, any economic im-
pact to entities affected by section 7874,
large or small, is derived from the opera-
tion of the statute or its intended applica-
tion, not the regulations in this notice of
proposed rulemaking. Pursuant to section
7805(f) of the Code, these regulations have
been submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Comments and Request for a 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.
The IRS and the Treasury Department re-
quest comments on the clarity of the pro-
posed rules and how they can be made eas-
ier to understand. All comments will be
available for public inspection and copy-
ing. A public hearing may be scheduled if
requested by any person who timely sub-
mits comments. 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 author of these proposed
regulations is S. James Hawes of the Of-
fice of Associate Chief Counsel (Interna-
tional). However, other personnel from the
IRS and the Treasury Department partici-
pated in their development.
*****
Withdrawal of Notice of Proposed
Rulemaking
Accordingly, under the authority of
26 USC 7805, the notice of proposed
rulemaking (E6–8698) that was published
in theFederal Registeron June 6, 2006
(71 FR 32495) is withdrawn.
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 * * *
Section 1.7874–2 is also issued under
26 U.S.C. 7874(c)(6) and (g). * * *
Par. 2. Section 1.7874–1 is amended
by revising paragraphs (e) and (g) to read
as follows:
July 13, 20091442009–28 I.R.B.

§1.7874–1 Disregard of affiliate-owned
stock.
*****
(e) [The text of the proposed amend-
ments to §1.7874–1(e) is the same as the
text of §1.7874–1T(e) published elsewhere
in this issue of the Bulletin].
*****
(g) [The text of the proposed amend-
ment to §1.7874–1(g) is the same as the
text of §1.7874–1T(g) published else-
where in this issue of the Bulletin].
Par. 3. Section 1.7874–2 is added to
read as follows:
§1.7874–2 Surrogate foreign corporation.
[The text of proposed §1.7874–2 is the
same as the text of §1.7874–2T(a) through
(o) published elsewhere in this issue of the
Bulletin].
Linda E. Stiff,
Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on June 9, 2009,
11:15 a.m., and published in the issue of the Federal Register
for June 12, 2009, 74 F.R. 27947)
Proposed Security, Privacy,
and Business Standards for
Authorized IRS e-file Providers
participating in Online Filing of
individual income tax returns
Announcement 2009–56
The IRS has developed six (6) new
security, privacy, and business standards
to better serve taxpayers and protect their
information collected, processed and
stored by Authorized IRSe-fileProviders
(Providers) participating in Online Filing
of individual income tax returns.
These new standards are intended to
supplement the Gramm-Leach-Bliley Act
and the implementing rules and regula-
tions promulgated by the Federal Trade
Commission. These standards have pre-
viously been reviewed by our outside
technical consultants, vetted internally,
presented at two consecutive IRS Soft-
ware Developers conferences, and posted
onirs.govfor comments.
The security and privacy objectives
of these standards are: setting minimum
encryption standards for transmission of
taxpayer information over the internet
and authentication of Web site owners/op-
erators beyond that offered by standard
version SSL certificates; periodic external
vulnerability scan of the taxpayer data en-
vironment; protection against bulk-filing
of fraudulent tax returns; and the ability
to timely isolate and investigate poten-
tially compromised taxpayer information.
These standards also address certain cus-
tomer service objectives such as instant ac-
cess to Web site owner/operator’s contact
information, and e-file Providers commit-
ment to maintaining physical, electronic,
and procedural safeguards that comply
with applicable law and federal standards.
1.Extended Validation SSL Certificate
This standard applies to Authorized IRS
e-fileProviders participating in Online Fil-
ing of individual income tax returns that
collect taxpayer information via the In-
ternet. These Providers shall possess a
valid and current Extended Validation Se-
cure Socket Layer (SSL) certificate using
SSL 3.0 / TLS 1.0 or later, and minimum
1024-bit RSA / 128-bit AES.
2.External Vulnerability Scan
This standard applies to Authorized
IRS e-file Providers participating in On-
line Filing of individual income tax returns
that collect, transmit, process, or store tax-
payer information. These Providers shall
contract with an independent third-party
vendor to run weekly external network
vulnerability scans of all their “system
components” in accordance with the ap-
plicable requirements of the Payment
Card Industry Data Security Standards
(PCIDSS). All scans shall be performed
by a scanning vendor certified by the Pay-
ment Card Industry Security Standards
Council and listed on their current list
of Approved Scanning Vendors (ASV).
In addition, Providers whose systems are
hosted shall ensure that their host com-
plies with all applicable requirements of
the PCIDSS.
For the purposes of this standard,
“system components” is defined as any
network component, server, or applica-
tion that is included in or connected to
the taxpayer data environment. The tax-
payer data environment is that part of the
network that possesses taxpayer data or
sensitive authentication data.
If scan reports reveal vulnerabilities,
action shall be taken to address the vul-
nerabilities in line with the scan report’s
recommendations. Retain weekly scan re-
ports for at least one year. The ASV and
the host (if present) shall be located in the
United States.
3.Information Privacy and Safeguard
Policies
This standard applies to Authorized
IRSe-fileProviders participating in On-
line Filing of individual income tax returns
that own or operate a Web site through
which taxpayer information is collected,
transmitted, processed or stored. These
Providers shall have written information
privacy and safeguard policy consistent
with the applicable government and in-
dustry guidelines. In addition, Providers’
shall acquire, maintain, and display a
license/accreditation seal from a con-
sumer protection and privacy seal vendor
acceptable to the IRS. The list of accept-
able vendors will be made available on
www.irs.gov.
4.Protection Against Bulk Filing of
Fraudulent Income Tax Returns
This standard applies to Authorized
IRSe-fileProviders participating in On-
line Filing of individual income tax re-
turns that own or operate a Web site
through which taxpayer information is
collected, transmitted, processed or stored.
These Providers shall implement effective
state-of-the-art technologies to protect
their Web site against bulk filing of fraud-
ulent income tax returns. Taxpayer infor-
mation shall not be collected, transmitted,
processed or stored otherwise.
5.Public Domain Name Registration
This standard applies to Authorized
IRSe-fileProviders participating in On-
line Filing of individual income tax returns
that own or operate a Web site through
which taxpayer information is collected,
transmitted, processed or stored. These
Providers shall have their Web site’s do-
main name registered with a domain name
registrar that is located in the United States
and accredited by the Internet Corpora-
tion for Assigned Names and Numbers
2009–28 I.R.B.145July 13, 2009

(ICANN). The domain name shall be
lockedandnot be private.
6.Reporting of Security Incidents
This standard applies to Authorized IRS
e-fileProviders participating in Online Fil-
ing of individual income tax returns that
collect, transmit, process, or store taxpayer
information. These Providers shall report
security incidents to the IRS as soon as
possible but not later than the next busi-
ness day after confirmation of the incident.
For the purposes of this standard, an event
that can result in an unauthorized disclo-
sure, misuse, modification, or destruction
of taxpayer information shall be consid-
ered a reportable security incident. Detail
instructions for submitting incident reports
will be made available onwww.irs.gov
In addition, if the Provider’s Web site
is the proximate cause of the incident, the
Provider shall cease collecting taxpayer in-
formation via their Web site immediately
upon detection of the incident and until the
underlying causes of the incident are suc-
cessfully resolved.
Comments may be submitted electroni-
cally tonew.efile.requirements@irs.govon
or before September 15, 2009. Please
include “Announcement 2009–56” in the
subject line of any electronic communica-
tions.
July 13, 20091462009–28 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published 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.
2009–28 I.R.B.iJuly 13, 2009

Numerical Finding List
1
Bulletins 2009–27 through 2009–28
Announcements:
2009-56, 2009-28 I.R.B.145
Notices:
2009-51, 2009-28 I.R.B.128
Proposed Regulations:
REG-112994-06, 2009-28 I.R.B.144
Revenue Procedures:
2009-30, 2009-27 I.R.B.27
2009-31, 2009-27 I.R.B.107
2009-32, 2009-28 I.R.B.142
Revenue Rulings:
2009-18, 2009-27 I.R.B.1
2009-19, 2009-28 I.R.B.111
2009-20, 2009-28 I.R.B.112
Treasury Decisions:
9452, 2009-27 I.R.B.1
9453, 2009-28 I.R.B.114
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin
2009–26, dated June 29, 2009.
July 13, 2009ii2009–28 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2009–27 through 2009–28
Notices:
2006-70
Obsoleted by
T.D. 9453, 2009-28 I.R.B.114
2006-109
Superseded in part by
Rev. Proc. 2009-32, 2009-28 I.R.B.142
Revenue Procedures:
97-49
Modified and superseded by
Rev. Proc. 2009-31, 2009-27 I.R.B.107
2008-38
Superseded by
Rev. Proc. 2009-30, 2009-27 I.R.B.27
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin 2009–26, dated June 29, 2009.
2009–28 I.R.B.iiiJuly 13, 2009

July 13, 20092009–28 I.R.B.

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