Internal Revenue Bulletin 2010-4 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 201
0-4
January 25, 2010
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2010–4, page 309.
Section 7216—Disclosure or use of information by pre-
parers of returns.This ruling provides guidance on whether
a tax return preparer is liable for criminal and civil penalties
under sections 7216 and 6713 of the Code when the tax re-
turn preparer discloses or uses tax return information in certain
circumstances in communicating with taxpayers and in certain
other circumstances.
Rev. Rul. 2010–5, page 312.
Section 7216—Disclosure or use of information by pre-
parers of returns.This ruling provides guidance on whether
a tax return preparer is liable for criminal and civil penalties
under sections 7216 and 6713 of the Code when the tax re-
turn preparer discloses or uses tax return information under
certain circumstances in connection with professional liability
insurance.
T.D. 9474, page 322.
Final regulations under 26 CFR Part 1 provide rules relating to
the reduction in taxable income for housing displaced individ-
uals under the Katrina Emergency Tax Relief Act of 2005 and
the Heartland Disaster Tax Relief Act of 2008.
T.D. 9475, page 304.
Final regulations under section 368 of the Code provide guid-
ance regarding the qualification of certain transactions as re-
organizations described in section 368(a)(1)(D) where no stock
and/or securities of the acquiring corporation is issued and dis-
tributed in the transaction.
T.D. 9478, page 315.
REG–131028–09, page 332.
Final, temporary, and proposed regulations under section 7216
of the Code provide rules relating to the disclosure and use of
tax return information by tax return preparers. Notice 2009–13
obsoleted.
Notice 2010–11, page 326.
This notice extends the suspension of the applicability of sec-
tion 163(e)(5) of the Code for certain applicable high yield dis-
count obligations to December 31, 2010.
Notice 2010–12, page 326.
This notice extends the application of Notice 2008–91, which
describes an elective exclusion from the definition of “obliga-
tion” for purposes of section 956(c) of the Code, to the last
taxable year of the CFC that immediately follows the last tax-
able year of the CFC to which the regulations described in
Notice 2008–91 could apply. This notice also extends the
application of Rev. Proc. 2008–26, which applies to deter-
mine whether securities are “readily marketable” for purposes
of section 956(c)(2)(J), for an additional year (2010).
(Continued on the next page)
Fi
nding Lists begin on page ii.
Index for January begins on page iv.

Notice 2010–13, page 327.
This notice provides procedures for corporations, electing
small business corporations, and organizations required to
file returns under section 6033 to request a waiver of the
requirement to electronically file Form 1120,U.S. Corporation
Income Tax Return; Form 1120–F,U.S. Income Tax Return of a
Foreign Corporation; Form 1120S,U.S. Income Tax Return for
an S Corporation; Form 990, Return ofOrganization Exempt
From Income Tax; Form 990–PF,Return of Private Foundation
or Section 4947(a)(1) Nonexempt Charitable Trust Treated
as a Private Foundation; and returns, amended returns, and
superseding returns in the Form 1120 and 990 series of
returns when required by regulations and IRS publications.
Notice 2005–88 superseded.
Rev. Proc. 2010–13, page 329.
This procedure requires taxpayers to report to the Service their
groupings and regroupings of activities and the addition of spe-
cific activities within their existing groupings of activities for
purposes of section 469 of the Code and section 1.469–4 of
theIncomeTaxRegulations.
EMPLOYEE PLANS
Announcement 2010–3, page 333.
Automatic approval of changes in funding method for
takeoverplansandchangesin pension valuation soft-
ware.This announcement provides, for plan years beginning
on or after January 1, 2009, automatic approval for certain
changes in funding method with respect to single-employer de-
fined benefit plans that result either from a change in the valua-
tion software used to determine the liabilities for such plans or
from a change in the enrolled actuary and the business organi-
zation providing actuarial services to the plan. This guidance is
being provided in response to numerous requests from actuar-
ies and plan sponsors, many of whom are continuing to modify
their valuation software in order to implement the changes to
the funding rules made by the Pension Protection Act of 2006,
the Worker, Retiree, and Employer Recovery Act of 2008, and
guidance regarding these legislative changes.
EXEMPT ORGANIZATIONS
Announcement 2010–1, page 333.
The IRS has revoked its determination that Call of the Wild
Sportsmen, Inc., of Mt Airy, MD, qualifies as an organization
described in sections 501(c)(3) and 170(c)(2) of the Code.
ADMINISTRATIVE
Rev. Rul. 2010–4, page 309.
Section 7216—Disclosure or use of information by pre-
parers of returns.This ruling provides guidance on whether
a tax return preparer is liable for criminal and civil penalties
under sections 7216 and 6713 of the Code when the tax re-
turn preparer discloses or uses tax return information in certain
circumstances in communicating with taxpayers and in certain
other circumstances.
Rev. Rul. 2010–5, page 312.
Section 7216—Disclosure or use of information by pre-
parers of returns.This ruling provides guidance on whether
a tax return preparer is liable for criminal and civil penalties
under sections 7216 and 6713 of the Code when the tax re-
turn preparer discloses or uses tax return information under
certain circumstances in connection with professional liability
insurance.
T.D. 9478, page 315.
REG–131028–09, page 332.
Final, temporary, and proposed regulations under section 7216
of the Code provide rules relating to the disclosure and use of
tax return information by tax return preparers. Notice 2009–13
obsoleted.
January 25, 20102010–4 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
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d meet their tax responsibilities and by applying
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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.
2010–4 I.R.B.January 25, 2010

January 25, 20102010–4 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 368.—Definitions
Relating to Corporate
Reorganizations
26 CFR 1.368–2: Definition of terms.
T.D. 9475
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Corporate Reorganizations;
Distributions Under Sections
368(a)(1)(D) and 354(b)(1)(B)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations under section 368 of the In-
ternal Revenue Code (Code). The regula-
tions provide guidance regarding the quali-
fication of certain transactions as reorgani-
zations described in section 368(a)(1)(D)
where no stock and/or securities of the
acquiring corporation is issued and dis-
tributed in the transaction. This docu-
ment also contains final regulations un-
der section 358 that provide guidance re-
garding the determination of the basis of
stock or securities in a reorganization de-
scribed in section 368(a)(1)(D) where no
stock and/or securities of the acquiring cor-
poration is issued and distributed in the
transaction. This document also contains
final regulations under section 1502 that
govern reorganizations described in sec-
tion 368(a)(1)(D) involving members of a
consolidated group. These regulations af-
fect corporations engaging in such transac-
tions and their shareholders.
DATES:Effective Date:These regulations
are effective on December 18, 2009.
Applicability Date:For dates of appli-
cability, see §1.368–2(l)(4)(i).
FOR FURTHER INFORMATION
CONTACT: Bruce A. Decker, (202)
622–7790 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The Code provides general nonrecogni-
tion treatment for reorganizations specif-
ically described in section 368(a). Sec-
tion 368(a)(1)(D) describes as a reorgani-
zation a transfer by a corporation (trans-
ferorcorporation)ofallorapartofitsas-
sets to another corporation (transferee cor-
poration) if, immediately after the transfer,
the transferor corporation or one or more
of its shareholders (including persons who
were shareholders immediately before the
transfer), or any combination thereof, is in
control of the transferee corporation; but
only if stock or securities of the controlled
corporation are distributed in pursuance of
a plan of reorganization in a transaction
that qualifies under section 354, 355, or
356.
Section 354(a)(1) provides that no gain
or loss shall be recognized if stock or se-
curities in a corporation that is a party to
a reorganization are, in pursuance of the
plan of reorganization, exchanged solely
for stock or securities in such corporation
or in another corporation that is a party to
the reorganization.Section 354(b)(1)(B)
provides that section 354(a)(1) shall not
apply to an exchange in pursuance of a
plan of reorganization described in section
368(a)(1)(D) unless the transferee corpo-
ration acquires substantially all of the as-
sets of the transferor corporation, and the
stock, securities, and other properties re-
ceived by such transferor corporation, as
well as the other properties of such trans-
feror corporation, are distributed in pur-
suance of the plan of reorganization.
Further, section 356 provides that if sec-
tion 354 or 355 would apply to an ex-
change but for the fact that the property re-
ceived in the exchange consists not only of
property permitted by section 354 or 355
without the recognition of gain or loss but
also of other property or money, then the
gain, if any, to the recipient shall be recog-
nized, but not in excess of the amount of
money and fair market value of such other
property. Accordingly, in the case of an
acquisitive transaction, there can only be
a distribution to which section 354 or 356
applies where the target shareholder(s) re-
ceive at least some property permitted to
be received by section 354.
On December 19, 2006, the IRS and
Treasury Department published a notice of
proposed rulemaking (REG–125632–06,
2007–1 C.B. 415) in theFederal Register
(71 FR 75898) that included regulations
under section 368 (the Temporary Reg-
ulations) providing guidance regarding
whether the distribution requirement under
sections 368(a)(1)(D) and 354(b)(1)(B) is
satisfied if there is no actual distribution
of stock and/or securities. The Temporary
Regulations provide that the distribution
requirement will be satisfied even though
no stock and/or securities is actually is-
sued in the transaction if the same person
or persons own, directly or indirectly, all
of the stock of the transferor and transferee
corporations in identical proportions. In
such cases, the transferee will be deemed
to issue a nominal share of stock to the
transferor in addition to the actual con-
sideration exchanged for the transferor’s
assets. The nominal share is then deemed
distributed by the transferor to its share-
holders and, when appropriate, further
transferred through chains of ownership
to the extent necessary to reflect the actual
ownership of the transferor and trans-
feree corporations. The IRS and Treasury
Department issued the Temporary Regu-
lations in response to taxpayer requests
regarding whether certain acquisitive
transactions can qualify as reorganizations
described in section 368(a)(1)(D) where
no stock of the transferee corporation is
issued and distributed in the transaction
pending a broader study of issues related
to acquisitive section 368(a)(1)(D) reor-
ganizations in general. In the notice of
proposed rulemaking, the IRS and Trea-
sury Department requested comments on
the Temporary Regulations as well as on
several broader issues discussed below re-
lating to acquisitive section 368(a)(1)(D)
reorganizations.
On February 27, 2007, the IRS and
Treasury Department published a clarify-
ing amendment to the Temporary Regu-
lations (REG–157834–06, 2007–1 C.B.
840) in theFederal Register(72 FR
9284–9285) providing that the deemed is-
2010–4 I.R.B.304January 25, 2010

suance of the nominal share of stock of the
transferee corporation in a transaction oth-
erwise described in section 368(a)(1)(D)
does not apply if the transaction other-
wise qualifies as a triangular reorgani-
zation described in §1.358–6(b)(2) or
section 368(a)(1)(G) by reason of section
368(a)(2)(D).
No public hearing regarding the Tem-
porary Regulations was requested or held.
However, comments were received. After
consideration of all of the comments, the
Temporary Regulations are adopted as re-
vised by this Treasury decision. The prin-
cipal comments and changes are discussed
in this preamble.
Explanation of Provisions
These final regulations retain the rules
of the Temporary Regulations, but make
certain modifications to the Temporary
Regulations in response to comments re-
ceived. The following paragraphs describe
the most significant comments received
and the extent to which they have been
incorporated into these final regulations.
Meaningless Gesture Doctrine
Notwithstanding the requirement in
section 368(a)(1)(D) that “stock or securi-
ties of the corporation to which the assets
are transferred are distributed in a trans-
action which qualifies under section 354,
355, or 356”, the IRS and the courts have
not required the actual issuance and dis-
tribution of stock and/or securities of the
transferee corporation in circumstances
where the same person or persons own
all the stock of the transferor corporation
and the transferee corporation. In such
circumstances, the IRS and the courts
have viewed an issuance of stock by the
transferee corporation to be a “meaning-
less gesture” not mandated by sections
368(a)(1)(D) and 354(b). SeeJames
Armour, Inc. v. Commissioner,43T.C.
295, 307 (1964);Wilson v. Commissioner,
46 T.C. 334 (1966); Rev. Rul. 70–240,
1970–1 C.B. 81. In the notice of proposed
rulemaking, the IRS and Treasury
Department requested comments on
whether the meaningless gesture doctrine
is inconsistent with the distribution
requirement in sections 368(a)(1)(D) and
354(b)(1)(B), especially in situations in
which the cash consideration received
equals the full fair market value of the
property transferred such that there is
no missing consideration for which the
nominal share of stock deemed received
and distributed could substitute. See
§601.601(d)(2)(ii).
Commentators noted that the doctrine is
appropriate in the case where there is some
excess in value of the assets transferred
over the amount of cash received. In cases
where the cash received is equal to the
fair market value of the assets transferred,
commentators agree that it is the proper
approach because as a policy or adminis-
trative matter it is inappropriate to require
a different outcome when the only factual
difference is whether there is a nominal
difference between the value of the assets
and the cash consideration received. Com-
mentators noted that deeming the distribu-
tion requirement to be satisfied in order to
prevent an asset sale from being treated
as a taxable exchange is not problematic
enough to warrant a change from Rev. Rul.
70–240. Commentators have also sug-
gested that the final regulations clarify that
the rules apply to transactions regardless of
whether the sum paid for the transferor’s
assets is exactly equal to their value.
The IRS and Treasury Department
agree with the comments received re-
garding the meaningless gesture doctrine.
Accordingly, these final regulations retain
the rules of the Temporary Regulations
which are based in part on the meaningless
gesture doctrine. In addition, consistent
with the IRS and Treasury Department’s
view of such transactions and in response
to comments, the final regulations provide
that if no consideration is received, or the
value of the consideration received in the
transaction is less than the fair market
value of the transferor corporation’s assets,
the transferee corporation will be treated
as issuing stock with a value equal to the
excess of the fair market value of the trans-
feror corporation’s assets over the value of
the consideration actually received in the
transaction. The final regulations further
provide that if the value of the consider-
ation received in the transaction is equal
to the fair market value of the transferor
corporation’s assets, the transferee corpo-
ration will be deemed to issue a nominal
share (discussed in this preamble) of stock
to the transferor corporation in addition to
the actual consideration exchanged for the
transferor corporation’s assets.
Issuance of Nominal Share
As described in this preamble, if the
same person or persons own, directly or
indirectly, all of the stock of the transferor
and transferee corporations in identical
proportions in a transaction otherwise de-
scribed in section 368(a)(1)(D), the trans-
feree will be deemed to issue a nominal
share of stock to the transferor in addi-
tion to the actual consideration exchanged
for the transferor’s assets. The nominal
share is then deemed distributed by the
transferor to its shareholders and, when
appropriate, further transferred through
the chains of ownership to the extent nec-
essary to reflect the actual ownership of
the transferor and transferee corporations.
Commentators have asked for clarifica-
tion as to whether the deemed issuance of
a nominal share has any tax significance
beyond satisfying the distribution require-
ment of section 354(b)(1)(B). Commenta-
tors have suggested that instead of deem-
ing a stock issuance in a purported section
368(a)(1)(D) reorganization, the final reg-
ulations should simply state that such
transactions are deemed to be transactions
described in section 356. Furthermore,
commentators believe that if the transferor
corporation owns stock of the transferee
corporation before the reorganization and
the transferor corporation distributes such
transferee corporation stock (and no other
stock) to its shareholders, the transaction
would qualify under section 354(b)(1)(B)
and therefore would qualify under sec-
tion 368(a)(1)(D). Commentators believe
the IRS and Treasury Department have
the authority to reachthat result without
deeming a nominal share to be issued as
this approach has been adopted elsewhere.
See §1.368–2(d)(4) (a subsidiary liquida-
tion not subject to section 332 can qualify
as a section 368(a)(1)(C) reorganization by
effectively treating old and cold subsidiary
stock that the parent holds as exchanged
for hypothetical parent voting stock issued
in exchange for the subsidiary’s assets).
Commentators have suggested that if the
final regulations retain the nominal share
concept, then the final regulations should
clarify that the nominal share has no signif-
icance other than to meet the distribution
requirement of section 354(b)(1)(B).
The IRS and Treasury Department
have carefully considered the comments
regarding the nominal share concept and
January 25, 20103052010–4 I.R.B.

believe that it is preferable to an approach
that simply deems thestatutory require-
ments satisfied because the nominal share
also provides a useful mechanism with
respect to stock basis consequences to the
exchanging shareholder. As noted above,
following the deemed issuance of the nom-
inal share, it is deemed distributed by the
transferor to its shareholders and, when
appropriate, further transferred through
the chains of ownership to the extent nec-
essary to reflect the actual ownership of
the transferor and transferee corporation
(the final regulations provide similar treat-
ment where, in a transaction involving
no consideration or partial consideration,
the transferee corporation is deemed to
issue stock). Beyond satisfying section
354(b)(1)(B), the IRS and Treasury De-
partment believe that the nominal share
should be treated as nonrecognition prop-
erty under section 358(a), and thus sub-
stituted basis property. Following basis
adjustments (for example, under section
358 or §1.1502–32), the nominal share
preserves remaining basis, if any, and
facilitates future stock gain or loss recog-
nition by the appropriate shareholder.
With respect to the comment regarding
previously owned stock of the transferee
by the transferor qualifying under section
354(b)(1)(B), this raises issues that are be-
yond the scope of this regulation project
and therefore are not addressed in this doc-
ument. Accordingly, the final regulations
retain the rule that if the same person or
persons own, directly or indirectly, all of
the stock of the transferor and transferee
corporations in identical proportions, the
transferee will be deemed to issue a nomi-
nal share of stock to the transferor in addi-
tion to the actual consideration exchanged
for the transferor’s assets.
Basis Allocation
While the IRS and Treasury Depart-
ment believe that all of the normal tax con-
sequences occur from the issuance of a
nominal share in a transaction described in
these final regulations, commentators have
noted that such consequences are unclear
with respect to the allocation of basis in
the shares of the stock or securities sur-
rendered when the consideration received
in the transaction consists solely of cash.
While commentators believe that the basis
in the shares of the stock or securities sur-
rendered should be preserved in the basis
of the stock of the transferee, the mechan-
ics of achieving this result are unclear.
Theregulationsunder
§1.358–2(a)(2)(iii) address how basis is
determined in the case of a reorganization
in which no property is received or
property (including property permitted
by section 354 to be received without the
recognition of gain or “other property” or
money) with a fair market value less than
that of the stock or securities surrendered
is received in the transaction. The regu-
lations treat the acquiring corporation as
issuing an amount of stock equal to the
fair market value of the stock surrendered,
less any amount of consideration actually
received by the exchanging shareholder in
the form of stock, securities, other prop-
erty, or money. The basis of that deemed
issued stock is determined by reference to
the basis of the shares surrendered in the
reorganization, and adjusted as provided
in the regulations. The shareholder’s
stock in the acquiringcorporation is then
treated as being recapitalized. In the
recapitalization, the shareholder is treated
as surrendering all of its shares of the
acquiring corporation, including those
shares owned immediately prior to the
reorganization and those shares the share-
holder is deemed to receive, in exchange
for the shares that the shareholder actually
holds immediately after the reorganiza-
tion. The basis of the shares that the
shareholder actually owns is determined
under the rules that would have applied
had the recapitalization actually occurred
with respect to the shareholder’s actual
shares and the shares the shareholder is
deemed to have received. However, these
rules do not literally apply to a transaction
involving solely other property or money
because the rules address situations in
which a shareholder of the target corpo-
ration receives no property or property
with a fair market value less than that
of the stock or securities the shareholder
surrendered in the transaction.
The IRS and Treasury Department
agree with the commentators that the ba-
sis in the shares of the stock surrendered
should be preserved in the basis of the
stock of the transferee in a transaction de-
scribed in these final regulations. The IRS
and Treasury Department also agree that
current law does not adequately address
the manner in which the basis in the shares
of the stock or securities surrendered is
preserved in the basis of the stock of the
transferee. Accordingly, the regulations
under §1.358–2(a)(2)(iii) are amended to
provide that in the case of a reorganization
in which the property received consists
solely of non-qualifying property equal to
the value of the assets transferred (as well
as a nominal share described in these final
regulations), the shareholder or security
holder may designate the share of stock of
thetransfereetowhichthebasis,ifany,
of the stock or securities surrendered will
attach. The IRS and Treasury Department
believe this approach is the most con-
sistent with current law regarding basis
determination as a similar result would
occur under §1.358–2 if stock was actually
issued in the transaction. Nonetheless, as
part of its broader study of basis issues, the
IRS and Treasury Department will re-ex-
amine these regulations and the rules may
change upon completion of this broader
study.
Application of Final Regulations to
Consolidated Groups
In the notice to proposed rulemak-
ing, the IRS and Treasury Department
requested comments on whether the Tem-
porary Regulations should apply when the
parties to the reorganization are members
of a consolidated group. Commentators
have stated that the Temporary Regu-
lations should apply because there is
no reason to distinguish a consolidated
group member’s reorganization treatment
from that of a member of a nonconsol-
idated affiliated group. Commentators
have suggested that the consolidated re-
turn regulations should be coordinated
with the Temporary Regulations. Specif-
ically, §1.1502–13(f)(3) provides that, in
the case of an acquisitive intercompany
reorganization involving the receipt of
money or other property (boot), boot is
taken into account immediately after the
reorganization in a separate transaction.
See§1.1502–13(f)(7),Example 3(an in-
tercompany reorganization with boot is
treated as if the acquirer had issued only
its stock in the reorganization, and the
deemed shares were then redeemed by
the acquirer in exchange for the boot).
The effect of this rule is to remove the
boot from section 356 (dividend within
gain treatment) and treat it as received in
2010–4 I.R.B.306January 25, 2010

a redemption which is in turn taxed as a
section 301 distribution.
Commentators have suggested that the
nominal share concept under the Tem-
porary Regulations is consistent with
the deemed shares inExample 3under
§1.1502–13(f)(7) as the nominal share
fiction deems a transaction to qualify as a
section 368 reorganization, and the shares
deemed issued under the §1.1502–13(f)(3)
fiction determine the consequences of
the reorganization. Commentators have
requested that an example be added
to §1.1502–13 to illustrate the interac-
tion of the Temporary Regulations and
§1.1502–13(f)(3). Specifically, commen-
tators have requested that the example
clarify that the nominal share does not
exist for any purpose other than to satisfy
the distribution requirement of section
354(b)(1)(B). Therefore, §1.1502–13(f)(3)
shouldapplyinthesamewaytothe
post-reorganization deemed redemption
of stock in exchange for the boot actually
received (that is, as if the distributee did
not own the nominal share). Commenta-
tors believe that any remaining stock basis
or ELA in the deemed shares under the
§1.1502–13(f)(3) fiction should shift to
the member(s) that actually own stock in
the transferee corporation under the prin-
ciples of §1.302–2(c).
As discussed in this preamble, the IRS
and Treasury Department believe that the
nominal share has significance beyond sat-
isfaction of the distribution requirement of
section 354(b)(1)(B), most notably for pur-
poses of determining stock basis conse-
quences to the appropriate shareholder. In
an all cash sale of assets between mem-
bers of a consolidated group, the IRS and
Treasury Department believe that giving
significance to the nominal share for pur-
poses beyond the distribution requirement
is consistent with the fundamental premise
underlying the intercompany transaction
deferral system which is to preserve the
location of gain or loss within a consol-
idated group. Therefore, if an all cash
transaction describedin these final regula-
tions occurs between members of a consol-
idated group, the selling member (S) will
be treated as receiving the nominal share
and additional stock of the buying member
(B) under §1.1502–13(f)(3), which it will
distribute to its shareholder member (M) in
liquidation. Immediately after the sale, the
B stock (with the exception of the nominal
share which is still held by M) received by
M is treated as redeemed, and the redemp-
tion is treated under section 302(d) as a dis-
tribution to which section 301 applies. M’s
basis in the B stock will be reduced un-
der §1.1502–32(b)(3)(v). Under the rules
of §1.302–2(c), any remaining basis will
attach to the nominal share. If applica-
ble, the nominal share will be further trans-
ferred through chains of ownership to the
extent necessary to reflect the actual own-
ership of B. An example has been added
to §1.1502–13 to illustrate the interaction
of these final regulations and the consoli-
dated return regulations.
Additional Comments Received
The IRS and Treasury Department
also requested comments on the extent,
if any, to which the continuity of interest
requirement should apply to a reorganiza-
tion described in section 368(a)(1)(D) as
well as the continued vitality of various
liquidation-reincorporation authorities af-
ter the enactment of the Tax Reform Act
of 1986, Public Law 99–514 (100 Stat.
2085 (1986)). Comments were received
on these issues. The IRS and Treasury
Department continue to study these issues
as part of a broad study of reorganizations
under section 368(a)(1)(D).
Additional Comments Requested
The IRS and Treasury Department re-
quest comments on the application of the
final regulations to reorganizations in-
volving foreign corporations or sharehold-
ers, including comments regarding: (1)
whether any section 1248 amount attribut-
able to the stock of the transferor corpora-
tion can be preserved in the nominal share
deemed issued by the transferee corpora-
tion; (2) the manner in which earnings and
profits (E&P) are (or should be) taken into
account for purposes of section 902 when
an exchanging shareholder recognizes
gain under section 356(a) that is treated as
a dividend under section 356(a)(2) from
the E&P of the transferor and transferee
corporations (including whether the E&P
of the corporation is combined for this
purpose or whether an ordering rule ap-
plies); (3) whether and how section 902
should apply when an exchanging share-
holder does not actually own stock in the
transferee corporation but the exchanging
shareholder recognizes gain under section
356(a) that is treated as a dividend from
the E&P of the transferee corporation (in-
cluding whether a limitation similar to that
of section 304(b)(5) is appropriate in such
cases); (4) whether and how, under section
959, an exchanging shareholder should
be able to access previously taxed E&P
of a foreign transferor and/or transferee
corporation before any non-previously
taxed E&P of either corporation; and (5)
whether and how section 897 applies if the
transferor corporation is a United States
real property holding corporation with at
least one foreign shareholder.
Special Ana
lyses
It has been determined that this Trea-
sury decision is not asignificant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It is hereby certified that
these regulations do not have a significant
economic impact on a substantial number
of small entities. This certification is based
on the fact that these regulations primarily
affect affiliated groups of corporations that
have elected to file consolidated returns,
whichtendtobelargerbusinesses,and,
moreover, that any burden on taxpayers is
minimal. Therefore,a Regulatory Flexi-
bility Analysis under the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6) is not re-
quired. Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of pro-
posed rulemaking preceding these regula-
tions was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Bruce A. Decker, Office of As-
sociate Chief Counsel (Corporate). How-
ever, other personnel from the IRS and the
Treasury Department participated in their
development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
January 25, 20103072010–4 I.R.B.

PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 2. Section 1.358–2 is amended by
adding a sentence at the end of paragraph
(a)(2)(iii) to read as follows:
§1.358–2 Allocation of basis among
nonrecognition property.
(a) * * *
(2) * * *
(iii) * * * If a shareholder or security
holder surrenders a share of stock or a se-
curity in a transaction under the terms of
section 354 (or so much of section 356
as relates to section 354) in which such
shareholder or security holder is deemed
to receive a nominal share described in
§1.368–2(l), such shareholder may, after
adjusting the basis of the nominal share in
accordance with the rules of this section
and §1.358–1, designate the share of stock
of the issuing corporation to which the ba-
sis, if any, of the nominal share will attach.
*****
Par. 3. Section 1.368–2 is amended by
revising paragraph (l) to read as follows:
§1.368–2 Definition of terms.
*****
(l)Certain transactions treated as
reorganizations described in section
368(a)(1)(D)—(1)General rule.Inorder
to qualify as a reorganization under section
368(a)(1)(D), a corporation (transferor
corporation) must transfer all or part of its
assets to another corporation (transferee
corporation) and immediately after the
transfer the transferor corporation, or one
or more of its shareholders (including per-
sons who were shareholders immediately
before the transfer), or any combination
thereof, must be in control of the trans-
feree corporation; but only if, in pursuance
of the plan, stock or securities of the trans-
feree are distributed in a transaction which
qualifies under section 354, 355, or 356.
(2)Distribution requirement—(i)In
general. For purposes of paragraph (l)(1)
of this section, a transaction otherwise
describedinsection368(a)(1)(D)willbe
treated as satisfying the requirements of
sections 368(a)(1)(D) and 354(b)(1)(B)
notwithstanding that there is no actual
issuance of stock and/or securities of the
transferee corporation if the same person
or persons own, directly or indirectly, all
of the stock of the transferor and transferee
corporations in identical proportions. In
cases where no consideration is received
or the value of the consideration received
in the transaction is less than the fair mar-
ket value of the transferor corporation’s
assets, the transferee corporation will be
treated as issuing stock with a value equal
to the excess of the fair market value of
the transferor corporation’s assets over
the value of the consideration actually re-
ceived in the transaction. In cases where
the value of the consideration received in
the transaction is equal to the fair mar-
ket value of the transferor corporation’s
assets, the transferee corporation will be
deemed to issue a nominal share of stock
to the transferor corporation in addition
to the actual consideration exchanged
for the transferor corporation’s assets.
The nominal share of stock in the trans-
feree corporation will then be deemed
distributed by the transferor corporation
to the shareholders of the transferor cor-
poration, as part of the exchange for the
stock of such shareholders. Where appro-
priate, the nominal share will be further
transferred through chains of ownership
to the extent necessary to reflect the actual
ownership of the transferor and transferee
corporations. Similar treatment to that of
the preceding two sentences shall apply
where the transferee corporation is treated
as issuing stock with a value equal to the
excess of the fair market value of the trans-
feror corporation’s assets over the value of
the consideration actually received in the
transaction.
(ii)Attribution. For purposes of para-
graph (l)(2)(i) of this section, ownership
of stock will be determined by applying
the principles of section 318(a)(2) with-
out regard to the 50 percent limitation in
section 318(a)(2)(C). In addition, an indi-
vidual and all members of his family de-
scribed in section 318(a)(1) shall be treated
as one individual.
(iii)De minimis variations in owner-
ship and certain stock not taken into ac-
count.For purposes of paragraph (l)(2)(i)
of this section, the same person or persons
will be treated as owning, directly or indi-
rectly, all of the stock of the transferor and
transferee corporations in identical propor-
tions notwithstanding the fact that there is
ade minimisvariation in shareholder iden-
tity or proportionality of ownership. Addi-
tionally, for purposes of paragraph (l)(2)(i)
of this section, stock described in section
1504(a)(4) is not taken into account.
(iv)Exception. Paragraph (l)(2) of this
section does not apply to a transaction oth-
erwise described in §1.358–6(b)(2).
(3)Examples. The following examples
illustrate the principles of paragraph (l) of
this section. For purposes of these exam-
ples, each of A, B, C, and D is an indi-
vidual, T is the acquired corporation, S
is the acquiring corporation, P is the par-
ent corporation, and each of S1, S2, S3,
and S4 is a direct or indirect subsidiary of
P. Further, all of the requirements of sec-
tion 368(a)(1)(D) other than the require-
ment that stock or securities be distributed
in a transaction to which section 354 or 356
applies are satisfied. The examples are as
follows:
Example 1. A owns all the stock of T and S. The
T stock has a fair market value of $100x. T sells
all of its assets to S in exchange for $100x of cash
and immediately liquidates. Because there is com-
plete shareholder identity and proportionality of own-
ership in T and S, under paragraph (l)(2)(i) of this sec-
tion, the requirements of sections 368(a)(1)(D) and
354(b)(1)(B) are treated as satisfied notwithstanding
the fact that no S stock is issued. Pursuant to para-
graph (l)(2)(i) of this section, S will be deemed to is-
sue a nominal share of S stock to T in addition to the
$100x of cash actually exchanged for the T assets, and
T will be deemed to distribute all such consideration
to A. The transaction qualifies as a reorganization de-
scribed in section 368(a)(1)(D).
Example 2. ThefactsarethesameasinExam-
ple 1except that C, A’s son, owns all of the stock of
S. Under paragraph (l)(2)(ii) of this section, A and
C are treated as one individual. Accordingly, there
is complete shareholder identity and proportionality
of ownership in T and S. Therefore, under paragraph
(l)(2)(i) of this section, the requirements of sections
368(a)(1)(D) and 354(b)(1)(B) are treated as satisfied
notwithstanding the fact that no S stock is issued. Pur-
suant to paragraph (l)(2)(i) of this section, S will be
deemed to issue a nominal share of S stock to T in
addition to the $100x of cash actually exchanged for
the T assets, and T will be deemed to distribute all
such consideration to A. Awill be deemed to trans-
fer the nominal share of S stock to C. The transac-
tion qualifies as a reorganization described in section
368(a)(1)(D).
Example 3. P owns all of the stock of S1 and S2.
S1 owns all of the stock of S3, which owns all of the
stock of T. S2 owns all of the stock of S4, which owns
all of the stock of S. The T stock has a fair market
value of $70x. T sells all of its assets to S in exchange
for $70x of cash and immediately liquidates. Under
paragraph (l)(2)(ii) of this section, there is indirect,
complete shareholder identity and proportionality of
ownership in T and S. Accordingly, the requirements
of sections 368(a)(1)(D) and 354(b)(1)(B)are treated
as satisfied notwithstanding the fact that no S stock is
2010–4 I.R.B.308January 25, 2010

issued. Pursuant to paragraph (l)(2)(i) of this section,
S will be deemed to issue a nominal share of S stock to
T in addition to the $70x of cash actually exchanged
for the T assets, and T will be deemed to distribute all
such consideration to S3. S3 will be deemed to dis-
tribute the nominal share of S stock to S1, which, in
turn, will be deemed to distribute the nominal share of
S stock to P. P will be deemed to transfer the nominal
share of S stock to S2, which, in turn, will be deemed
to transfer such share of S stock to S4. The transac-
tion qualifies as a reorganization described in section
368(a)(1)(D).
Example 4. A, B, and C own 34%, 33%, and 33%,
respectively, of the stock of T. The T stock has a fair
market value of $100x. A, B, and C each own 33% of
the stock of S. D owns the remaining 1% of the stock
of S. T sells all of its assets to S in exchange for $100x
of cash and immediately liquidates. For purposes of
determining whether the distribution requirement of
sections 368(a)(1)(D) and 354(b)(1)(B) is met, under
paragraph (l)(2)(iii) of this section, D’s ownership of
ade minimisamount of stock of S is disregarded and
the transaction is treated as if there is complete share-
holder identity and proportionality of ownership in T
and S. Because there is complete shareholder identity
and proportionality of ownership in T and S, under
paragraph (l)(2)(i) of this section, the requirements
of sections 368(a)(1)(D) and 354(b)(1)(B) are treated
as satisfied notwithstanding the fact that no S stock
is issued. Pursuant to paragraph (l)(2)(i) of this sec-
tion, S will be deemed to issue a nominal share of S
stock to T in addition to the $100x of cash actually
exchanged for the T assets, T will be deemed to dis-
tribute all such consideration to A, B, and C, and the
nominal S stock will be deemed transferred among
the S shareholders to the extent necessary to reflect
their actual ownership of S. The transaction qualifies
as a reorganization described in section 368(a)(1)(D).
Example 5. The facts are the same as inEx-
ample 4except that A, B, and C own 34%, 33%,
and 33%, respectively, of the common stock of T
and S. D owns preferred stock in S described in sec-
tion 1504(a)(4). For purposes of determining whether
the distribution requirement of sections 368(a)(1)(D)
and 354(b)(1)(B) is met, under paragraph (l)(2)(iii)
of this section, D’s ownership of S stock described
in section 1504(a)(4) is ignored and the transaction
is treated as if there is complete shareholder iden-
tity and proportionality of ownership in T and S. Be-
cause there is complete shareholder identity and pro-
portionality of ownership in T and S, under paragraph
(l)(2)(i) of this section, the requirements of sections
368(a)(1)(D) and 354(b)(1)(B) are treated as satis-
fied notwithstanding the fact that no S stock is issued.
Pursuant to paragraph (l)(2)(i) of this section, S will
be deemed to issue a nominal share of S stock to T
in addition to the $100x of cash actually exchanged
for the T assets, and T will be deemed to distribute
all such consideration to A, B, and C. The transac-
tion qualifies as a reorganization described in section
368(a)(1)(D).
Example 6. AandBeachown50%ofthestock
of T. The T stock has a fair market value of $100x. B
and C own 90% and 10%, respectively, of the stock of
S. T sells all of its assetsto S in exchange for $100x of
cash and immediately liquidates. Because complete
shareholder identity and proportionality of ownership
in T and S does not exist, paragraph (l)(2)(i) of this
section does not apply. The requirements of sections
368(a)(1)(D) and 354(b)(1)(B) are not satisfied, and
the transaction does not qualify as a reorganization
described in section 368(a)(1)(D).
(4)Effective/applicability date.(i)In
general. This section applies to trans-
actions occurring on or after December
18, 2009. For rules regarding transac-
tions occurring before December 18, 2009,
see section 1.368–2T(l) as contained in
26 CFR part 1.
(ii)Transitional rule. A taxpayer
may apply the provisions of these reg-
ulations to transactions occurring be-
fore December 18, 2009. However,
the transferor corporation, the transferee
corporation, any direct or indirect
transferee of transferred basis property
from either of the foregoing, and any
shareholder of the transferor or transferee
corporation may not apply the provisions
of these regulations unless all such
taxpayers apply the provisions of the
regulations.
§1.368–2T [Removed]
Par. 4. Section 1.368–2T is removed.
Par. 5. Section 1.1502–13 is amended
by:
1. Revising the heading and entries for
§1.1502–13(f)(7) in paragraph (a)(6)(ii).
2. RedesignatingExamples 4, 5, 6, 7,
and8asExamples 5, 6, 7, 8,and9respec-
tively and adding a newExample 4to para-
graph (f)(7)(i).
The revision and addition reads as fol-
lows:
§1.1502–13 Intercompany transactions.
(a) * * *
(6) * * *
(ii) * * *
Stock of members. (§1.1502–13(f)(7))
Example 1. Dividend exclusion and
property distribution.
Example 2. Excess loss accounts.
Example 3. Intercompany reorganiza-
tions.
Example 4. All cash intercompany re-
organization under section 368(a)(1)(D).
Example 5. Stock redemptions and dis-
tributions.
Example 6. Intercompany stock sale
followed by section 332 liquidation.
Example 7. Intercompany stock sale
followed by section 355 distribution.
*****
(f) * * *
(7) * * *
(i) * * *
Example 4.All cash intercompany reorganization
under section 368(a)(1)(D). (a) Facts. P owns all of
the stock of M and B. M owns all of the stock of S with
a basis of $25. On January 1 of Year 2, the fair market
value of S’s assets and its stock is $100, and S sells
all of its assets to B for $100 cash and liquidates. The
transaction qualifies as a reorganization described in
section 368(a)(1)(D). Pursuant to §1.368–2(l), B will
be deemed to issue a nominal share of B stock to S in
addition to the $100 of cash actually exchanged for
the S assets, and S will be deemed to distribute all of
the consideration to M. M will be deemed to distribute
the nominal share of B stock to P.
(b)Treatment as a section 301 distribution.The
sale of S’s assets to B is a transaction to which para-
graph (f)(3) of this section applies. In addition to the
nominal share issued by B to S under §1.368–2(l), S
is treated as receiving additional B stock with a fair
market value of $100 (in lieu of the $100) and, un-
der section 358, a basis of $25 which S distributes to
M in liquidation. Immediately after the sale, the B
stock (with the exception of the nominal share which
is still held by M) received by M is treated as re-
deemed for $100, and the redemption is treated un-
der section 302(d) as a distribution to which section
301 applies. M’s basis of $25 in the B stock is re-
duced under §1.1502–32(b)(3)(v), resulting in an ex-
cess loss account of $75 in the nominal share. (See
§1.302–2(c)). M’s deemed distribution of the nomi-
nal share of B stock to P under §1.368–2(l) will result
in M generating an intercompany gain under section
311(b) of $75, to be subsequently taken into account
under the matching and acceleration rules.
*****
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved December 14, 2009.
Michael Mundaca,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on December 17,
2009, 8:45 a.m., and published in the issue of the Federal
Register for December 18, 2009, 74 F.R. 67053)
Section 7216.—Disclosure
or Use of Information by
Preparers of Returns
26 CFR: 301.7216–1: Penalty for disclosure or use
of tax return information.
(Also § 6713; 301.7216–2.)
Section 7216—Disclosure or use of
information by preparers of returns.
This ruling provides guidance on whether
a tax return preparer is liable for criminal
January 25, 20103092010–4 I.R.B.

and civil penalties under sections 7216
and 6713 of the Code when the tax re-
turn preparer discloses or uses tax return
information in certain circumstances in
communicating with taxpayers and in cer-
tain other circumstances.
Rev. Rul. 2010–4
PURPOSE
This revenue ruling provides guidance
on whether a tax return preparer is liable
for criminal and civil penalties under Inter-
nal Revenue Code sections 7216 and 6713
when the tax return preparer discloses or
uses tax return information under the cir-
cumstances described below.
ISSUES
(1) Is a tax return preparer liable for
penalties under sections 7216 and 6713
when the tax return preparer uses tax return
information to contact taxpayers to inform
them of changes in tax law that could af-
fect the taxpayers’ income tax liability re-
ported in tax returns previously prepared
orprocessedbythetaxreturnpreparer?
(2) Is a tax return preparer, who is law-
fully engaged in the practice of law or ac-
countancy, liable for penalties under sec-
tions 7216 and 6713 when the tax return
preparer uses tax return information of tax-
payers whose tax returns the tax return pre-
parer has prepared or processed to deter-
mine which taxpayers’ future income tax
return filing obligations may be affected by
a prospective change in tax rule or regula-
tion and to contact the potentially affected
taxpayers for whom the tax return preparer
reasonably expects to provide accounting
services in the next year to notify them
of the changed rule or regulation, explain
how the change may affect them, and ad-
vise them with regard to actions they may
take in response to the change?
(3) Is a tax return preparer liable for
penalties under sections 7216 and 6713
when the tax return preparer discloses tax
return information contained in the list per-
mitted to be maintained by the tax return
preparer under section 301.7216–2(n) to
a third-party service provider that creates,
publishes, or distributes, by mail or e-mail,
newsletters, bulletins, or similar commu-
nications to taxpayers whose tax returns
the tax return preparers have prepared or
processed containing tax information and
general business and economic informa-
tion or analysis for educational purposes or
for purposes of soliciting additional tax re-
turn preparation services for the tax return
preparer?
FACTS
TaxReturnPreparersA,B,C,D,andE
prepared individual and corporate income
tax returns for 2008 and several other past
years and expect to prepare 2009 income
tax returns in the upcoming 2010 filing
season.
Prompted by legislation passed by the
Congress in 2009 authorizing net operat-
ing losses for 2008 to be carried back up to
five years, Tax Return Preparer A reviews
income tax returns and other tax return in-
formation of taxpayers whose income tax
returns A has prepared or processed, even
if A has not been engaged to prepare the
taxpayers’ most recent returns, in order to
determine which taxpayer clients may be
able to benefit from the expanded carry-
back rules. Following this review, A con-
tacts the affected taxpayers to inform them
of the change, advise them with regard to
whether an amended return or returns can
be filed for years affected by the change,
and offer A’s tax return preparation ser-
vices with regard to preparing and filing
the amended returns. A then prepares and
files amended returns for some of the tax-
payers.
Also in 2009, the Internal Revenue Ser-
vice issues a temporary regulation inter-
preting the manner that a tax credit is to
be calculated in future tax years. Tax Re-
turn Preparer B, who is lawfully engaged
in the practice of accountancy, is prompted
by this temporary regulation to review the
income tax returns of the taxpayers whose
tax returns B has prepared or processed,
even if B has not been engaged to pre-
pare the taxpayers’ most recent returns,
to determine who among B’s clients may
be affected by the revised credit calcula-
tion for tax year 2009. Following this re-
view, B contacts these taxpayers to no-
tify them of the change, explain how it
may affect them, and suggest actions that
the taxpayers may take to properly report
the credit on their 2009 returns. B only
contacts those taxpayers for whom B rea-
sonably expects to provide accounting ser-
vices with respect to the 2009 tax year, in-
cluding taxpayers for whom B prepared an
income tax return in previous years and
who have not specifically informed B that
they do not wish to be contacted by B or
will not be using B’s income tax return
preparation services inthe upcoming filing
season.
Tax Return Preparer C engages
Third-party Service Provider X to pub-
lish both paper and electronic monthly
newsletters containing educational tax in-
formation, tax tips, tax law updates, and
direct solicitation for C’s tax return prepa-
ration business. C discloses to X the names
and mailing addresses of taxpayers whose
tax returns C has prepared or processed
who have not provided C with an email
address, and X prints those addresses onto
the paper newsletters it publishes for C. X
provides C with the completed newslet-
ters in paper and electronic format, and
C then distributes them to C’s tax return
preparation clients, using a list that con-
tains the tax return information authorized
by § 301.7216–2(n), including taxpayer
names, addresses and e-mail addresses.
TaxReturnPreparerDhasinthepast
periodically published and delivered to D’s
tax return preparation clients newsletters
containing general educational tax infor-
mation, tax tips, tax law updates, and di-
rect solicitations for D’s tax return prepa-
ration business. Due to growth experi-
enced by D’s tax return preparation busi-
ness, D begins to outsource all aspects
of this client communication activity to
Third-party Service Provider X so that D
may focus primarily on the business of tax
return preparation. D discloses to X tax
return information consisting solely of the
names, addresses, and e-mail addresses of
taxpayers whose income tax returns D has
prepared or processed, and X then creates
and distributes the newsletters to these tax-
payers as directed by D.
Twice a month Tax Return Preparer E
publishes her own newsletter containing
general educational tax information, tax
tips, tax law updates, and direct solicita-
tions of E’s tax return preparation business.
After publication, E sends the newsletters
to Third-Party Service Provider X, and X
then distributes the newsletters to taxpay-
ers whose income tax returns E has pre-
pared or processed, as instructed by E. To
allow X to distribute the newsletters, E
provides X with the names, addresses, and
e-mail addresses of E’s tax return prepara-
tion clients.
2010–4 I.R.B.310January 25, 2010

Tax Return Preparers C, D, and E each
have procedures in place that are consis-
tent with good business practices and de-
signed to maintain theconfidentiality of
the disclosed tax return information, and
by following these procedures each con-
cludes that X has sufficient data confiden-
tiality procedures in place to protect the
disclosed tax return information.
Third-party ServiceProvider X, located
in the United States, is in the business
of creating, publishing, and distributing
newsletters, bulletins, advertisements,
and similar communications. X does not
provide substantive determinations or ad-
vice affecting the tax liability reported
by taxpayers. X provides its services to
tax professionals, including income tax
return preparers. X creates, customizes,
prints, and publishes newsletters contain-
ing general educational tax law updates it
has aggregated from various sources, in-
formation on general filing requirements,
general educational business or economic
information and analysis, and tax com-
pliance tips. X may also include in these
communications any specific updates or
solicitations submitted by its tax profes-
sional clients. X will also distribute these
communications to taxpayers by mail or
e-mail as directed by its clients.
LAW
Section 7216(a) establishes a criminal
penalty that is applicable to tax return pre-
parers who knowingly or recklessly dis-
close or use any information furnished to
them for, or in connection with, the prepa-
ration of income tax returns for any pur-
pose other than to prepare, or assist in
preparing, any such returns.
Section 7216(b)(3) establishes an ex-
ception to the penalty for disclosures or
uses of information which are permitted by
regulations prescribed by the Secretary.
Section 6713(a) establishes a civil
penalty that is applicable to tax return pre-
parers who disclose or use any information
furnished to them for, or in connection
with, the preparation of tax returns for any
purpose other than to prepare, or assist in
preparing, any such returns.
Section 6713(b) provides that the rules
of section 7216(b) shall apply for purposes
of section 6713.
Section 301.7216–1(a) states that sec-
tion 7216 imposes a criminal penalty for
taxreturnpreparerswho“knowinglyor
recklessly disclose or use tax return infor-
mation for a purpose other than preparing
a tax return.”
Section 301.7216–1(b)(1) defines “tax
return” as any return, or amended return,
of income tax imposed by chapter 1 of the
Internal Revenue Code.
Section 301.7216–1(b)(2)(i)(B) defines
“tax return preparer” for purposes of sec-
tion 7216 and the regulations thereunder
as including “[a]ny person who is engaged
in the business of providing auxiliary ser-
vices in connection with the preparation of
tax returns....”
Section 301.7216–1(b)(2)(iii) provides
that a person is engaged in the business of
providing auxiliary services in connection
with the preparation of tax returns if, in the
course of the person’s business, the person
holds himself out to tax return preparers
or to taxpayers as a person who performs
auxiliary services, whether or not provid-
ing the auxiliary services is the person’s
sole business activity and whether or not
the person charges a fee for the auxiliary
services.
Section 301.7216–1(b)(3)(i) generally
defines tax return information to mean
“any information, including, but not lim-
ited to, a taxpayer’s name, address, or
identifying number, which is furnished in
anyformormannerfor,orinconnection
with, the preparation of a tax return of the
taxpayer.”
Section 301.7216–2(d)(1) provides that
a tax return preparer may disclose, with-
out taxpayer consent, tax return informa-
tion of a taxpayer to another tax return pre-
parer located in the United States for the
purpose of obtainingauxiliary services in
connection with the preparation of any tax
return, so long as the services provided are
not substantive determinations or advice
affecting the tax liability reported by tax-
payers.
Section 301.7216–2(h)(1)(i) allows a
tax return preparer who is lawfully en-
gaged in the practice of law or accountancy
to use tax return information for purposes
of providing other legal or accounting
services to the taxpayer consistent with
applicable legal and ethical responsibili-
ties.
Section 301.7216–2(n) allows a tax re-
turn preparer to compile and maintain a
separate list containing certain information
regarding taxpayers whose tax returns the
tax return preparer has prepared or pro-
cessed. This list may be used by the com-
piler solely to contact the taxpayers on
the list for the purpose of providing tax
information and general business or eco-
nomic information or analysis for educa-
tional purposes, or soliciting additional tax
return preparation services to such tax-
payers. The list may not be used to so-
licit non-tax return preparation services to
these taxpayers.
ANALYSIS
Issue 1. A change in the tax law that
affects previously filed tax returns may re-
quire a tax return preparer to review tax-
payer clients’ income tax return informa-
tion to determine which of those clients
may be affected by the change. Taxpay-
ers who engage a tax return preparer can
reasonably expect that their tax return pre-
parer will advise them regarding a change
in tax law that affects them and whether
the change supports the filing of amended
returns or other actions by the taxpayer re-
lated to any affected returns. A tax re-
turn preparer who performs this type of re-
view in response to a change in tax law will
contact the affected taxpayers to advise the
taxpayers about the change in tax law and
on a course of action to be taken, and can
use a variety of mechanisms to do so (in-
cluding direct contact, newsletters, e-mail,
and other forms of communication).
Section 7216 does not prohibit the use
of tax return information when the use is
for the purpose of preparing a “tax re-
turn,” which is defined as “any return (or
amended return) of income tax imposed by
chapter 1 of the Internal Revenue Code.”
Section 301.7216–1(b)(1) specifically in-
cludes amended returns in the definition
of tax return. Accordingly, A’s use of
client tax return information to identify
affected taxpayers, inform them regard-
ing the change in tax law, advise whether
it would be appropriate for them to file
amended income tax returns, and assist in
the preparation and filing of any amended
returns is permitted under section 7216,
because those uses are for the purpose of
preparing a tax return as defined in the reg-
ulations.
Issue 2. Section 301.7216–2(h)(1)(i) al-
lows a tax return preparer who is lawfully
engaged in the practice of law or accoun-
tancy to use tax return information “for
January 25, 20103112010–4 I.R.B.

the purpose of providing other legal or ac-
counting services to the taxpayer,” consis-
tent with applicable legal and ethical re-
sponsibilities. “Other legal or accounting
services” that are consistent with applica-
ble legal or ethical responsibilities can in-
clude advice related to current and future
income tax compliance. Taxpayers who
engage a tax return preparer lawfully en-
gaged in the practice of law or accoun-
tancy can reasonably expect that the tax
return preparer will advise them regarding
changes in tax rules and regulations that
might affect a tax return being prepared or
future income tax return filing obligations.
Accordingly, B, who is lawfully en-
gaged in the practice of accountancy, may
use tax return information of taxpayers
whose tax returns B has prepared or pro-
cessed, regardless of whether B prepared
or processed the most recent tax returns
for a taxpayer, to determine whether the
taxpayers may be affected by the tempo-
rary regulations issued by the Internal Rev-
enue Service, and to contact the potentially
affected taxpayers in order to explain the
regulations and to advise them regarding
their response to the regulations. B’s use
of tax return information is permitted by
§ 301.7216–2(h)(1)(i) because it is for the
purpose of providing other accounting ser-
vices to taxpayers. B does not, however,
use the tax return information of those tax-
payers who have specifically informed B
that they do not wish to be contacted by B
or will not be using B’s income tax prepa-
ration services in the upcoming filing sea-
son.
Issue 3. Third-party service providers
that create, publish, or distribute tax-fo-
cused newsletters, bulletins, or similar
publication or communication services
typically hold themselves out to tax re-
turn preparers and other tax professionals
as persons who perform services that are
auxiliary to tax returnpreparation. These
service providers also may monitor cur-
rent tax events and have access to a broad
range of knowledgeable tax and business
professionals; theyareabletoprovide
current and relevant information to a tax
return preparer’s clients while allowing
the tax return preparer to focus on the
business of tax return preparation.
X holds itself out as providing services
that are auxiliary to tax return prepara-
tion. X’s services are provided in connec-
tion with the preparation of tax returns by
C, D, and E because the services are in-
tended to offer additional tax information
and tax preparation services to the prepar-
ers’ clients. Section 301.7216–2(n) specif-
ically allows a tax return preparer to of-
fer such information and additional ser-
vices to clients. Because it provides ser-
vices in connection with the preparation of
tax returns by C, D, and E, and because
C, D, and E have procedures in place that
are consistent with good business prac-
tices and designed to maintain the confi-
dentiality of the disclosed tax return in-
formation and, by following these proce-
dures, they concluded that X has sufficient
data confidentiality procedures in place,
X qualifies as both an auxiliary service
provider and a tax return preparer under
§ 301.7216–1(b)(2)(i)(B).
C,D,andEmaydisclosetoanaux-
iliary service provider, without taxpayer
consent, tax return information to the ex-
tent necessary to obtain auxiliary services
in connection with the preparation of any
tax return under § 301.7216–2(d)(1), pro-
vided the service provider is located in
the United States and the services pro-
vided are not substantive determinations or
advice affecting the tax liability reported
by taxpayers. X is located in the United
States and does not provide substantive
determinations or advice affecting the tax
liability reported by taxpayers. As di-
rected by C, D, and E, X may use the
names and mailing or e-mail addresses dis-
closed to it to contact the taxpayers for
the purpose of creating, publishing, or dis-
tributing newsletters, or similar bulletins
or communications, containing tax infor-
mation and general business or economic
information and analysis for educational
purposes. The newsletters may include tax
law developments, information on filing
requirements, and tax compliance tips, to-
gether with solicitations for additional tax
return preparation services by C, D, or E,
under § 301.7216–2(n). The disclosure
to X does not constitute a transfer under
§ 301.7216–2(n) but rather a disclosure to
an auxiliary service provider pursuant to
§ 301.7216–2(d)(1). X, however, is pro-
hibited from the further use or disclosure
of the tax return information provided to
it by C, D, and E for purposes other than
those related to the provision of the auxil-
iary services provided to C, D and E or as
otherwise expressly permitted under sec-
tions 7216 and 6713.
HOLDINGS
(1) Tax Return Preparer A is not liable
for penalties under sections 7216 and 6713
when A uses tax return information to con-
tact taxpayer to inform them of a change in
tax law that could affect the income tax li-
ability on the taxpayers’ returns that were
previously prepared or processed by A.
(2) Tax Return Preparer B, who is law-
fully engaged in the practice of accoun-
tancy, is not liable for penalties under sec-
tions 7216 and 6713 when B uses tax return
information of taxpayers whose tax returns
B has prepared or processed to determine
who might be affected by the temporary
regulation and to contact the potentially af-
fected taxpayers for whom B reasonably
expects to provide accounting services in
the next year to notify them of the changed
regulation, explain how the change may af-
fect them, and advise them with regard to
actions they may take in response to the
change.
(3) Tax Return Preparers C, D, and E
are not liable for penalties under sections
7216 and 6713 when they disclose tax re-
turn information limited to the informa-
tion listed in § 301.7216–2(n) to Third-
party Service Provider X, which holds it-
self out as providing services that include
creation, publication, and distribution of
newsletters, bulletins, or similar commu-
nications to taxpayers whose tax returns
the tax return preparers have prepared or
processed containing tax information and
general business and economic informa-
tion or analysis for educational purposes or
for purposes of soliciting additional tax re-
turn preparation services for the tax return
preparer.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Molly K. Donnelly of the Office
of Associate Chief Counsel (Procedure
& Administration). For further informa-
tion regarding this revenue ruling, contact
Ms. Donnelly at (202) 622–4940 (not a
toll-free call).
Section 7216—Disclosure or use of
information by preparers of returns.
This ruling provides guidance on whether
a tax return preparer is liable for criminal
and civil penalties under sections 7216
2010–4 I.R.B.312January 25, 2010

and 6713 of the Code when the tax re-
turn preparer discloses or uses tax return
information under certain circumstances
in connection with professional liability
insurance.
Rev. Rul. 2010–5
PURPOSE
This revenue ruling provides guidance
on whether a tax return preparer is liable
for criminal and civil penalties under In-
ternal Revenue Code sections 7216 and
6713 when the preparer discloses tax re-
turn information under the circumstances
described below.
ISSUES
(1) Is a tax return preparer liable for
penalties under sections 7216 and 6713
when the preparer discloses to a profes-
sional liability insurance carrier tax return
information required by the insurance car-
rier to obtain or maintain professional lia-
bility insurance coverage?
(2) Is a tax return preparer liable for
penalties under sections 7216 and 6713
when the preparer discloses to the pre-
parer’s professional liability insurance car-
rier tax return information required by the
insurance carrier to promptly and accu-
rately report a claim or a potential claim
against the tax return preparer, or to aid
in the investigation of a claim or potential
claim against the tax return preparer?
(3) Is a tax return preparer liable for
penalties under sections 7216 and 6713
when the preparer discloses tax return in-
formation to the preparer’s professional li-
ability insurance carrier in order to secure
legal representation under the terms of the
insurance policy or to an unrelated attor-
ney for the purpose of evaluating a claim or
potential claim against the tax return pre-
parer?
FACTS
Tax Return Preparer A prepared in-
come tax returns during the 2009 filing
season and expects to prepare income tax
returns in the 2010 filing season. During
2010, A expects to disclose to insurance
agents or other insurance company repre-
sentatives tax return information required
to obtain or maintain professional liability
insurance coverage, including information
necessary to obtain price quotes from the
insurance companies. The disclosed in-
formation would include a list of client
names and descriptions of the services A
provided to those clients. A also expects
to disclose to its professional liability
insurance carrier tax return information
required by the terms of the insurance
policy to promptly and accurately report,
and to aid in the investigation of, a claim
or potential claim against A, including
client names, descriptions of services A
provided to the named clients, a descrip-
tion of the claim or potential claim of
professional negligence, misconduct, or
fraud, and, when necessary, copies of tax
returns relevant to the claim or potential
claim. Finally, A expects to disclose to its
professional liability insurance carrier tax
return information required by the terms
of the insurance policy to obtain legal
representation provided by the insurance
carrier under the terms of the insurance
policy related to a claim or potential claim
of professional negligence, misconduct, or
fraud, or to an unrelated attorney for the
purpose of evaluating a claim or potential
claim of professional negligence, miscon-
duct, or fraud.
All of the professional liability insur-
ance carriers contacted by A, including
their agents and representatives, are lo-
cated within the United States or its territo-
ries or possessions, and all hold themselves
out as providing professional liability in-
surance with respect to potential claims
arising in connection with the preparation
of tax returns. None of the insurance carri-
ers provide substantive determinations or
advice affecting the tax liability reported
by taxpayers or the preparation of tax re-
turns. The professional liability insurance
carrier that issued the policy purchased by
A is one these insurance carriers.
LAW
Section 7216(a) establishes a criminal
penalty that is applicable to tax return pre-
parers who knowingly or recklessly dis-
close or use any information furnished to
them for, or in connection with, the prepa-
ration of tax returns for any purpose other
than to prepare, or assist in preparing, any
such returns.
Section 7216(b)(3) establishes an ex-
ceptiontothepenaltyfordisclosuresor
uses of information which are permitted by
regulations prescribed by the Secretary.
Section 6713(a) establishes a civil
penalty that is applicable to tax return pre-
parers who disclose or use any information
furnished to them for, or in connection
with, the preparation of tax returns for any
purpose other than toprepare, or assist in
preparing, any such returns.
Section 6713(b) provides that the rules
of section 7216(b) shall apply for purposes
of section 6713.
Section 301.7216–1(a) states that sec-
tion 7216 imposes a criminal penalty for
taxreturnpreparerswho“knowinglyor
recklessly disclose or use tax return infor-
mation for a purpose other than preparing
a tax return.”
Section 301.7216–1(b)(2)(i)(B) defines
“tax return preparer” for purposes of sec-
tion 7216 and the regulations thereunder
as including “[a]ny person who is engaged
in the business of providing auxiliary ser-
vices in connection with the preparation of
tax returns....”
Section 301.7216–1(b)(2)(iii) provides
that a person is engaged in the business of
providing auxiliary services in connection
with the preparation of tax returns if, in the
course of the person’s business, the person
holds himself out to tax return preparers
or to taxpayers as a person who performs
auxiliary services, whether or not provid-
ing the auxiliary services is the person’s
sole business activity and whether or not
the person charges a fee for the auxiliary
services.
Section 301.7216–2(d)(1) provides that
a tax return preparer may disclose, with-
out taxpayer consent, tax return informa-
tion of a taxpayer to another tax return pre-
parer located in the United States for the
purpose of obtaining auxiliary services in
connection with the preparation of any tax
return, so long as the services provided are
not substantive determinations or advice
affecting the tax liability reported by tax-
payers.
Section 301.7216–2(g) provides that a
tax return preparer may disclose, without
taxpayer consent, tax return information
to an attorney for the purpose of securing
legal advice.
ANALYSIS
Issue 1.Obtaining and Maintaining
Professional Liability Insurance.
January 25, 20103132010–4 I.R.B.

Insurance companies offer professional
liability coverage to tax return preparers
to insure against potential claims arising
from the tax return preparers’ negligence,
misconduct, or fraud in connection with
the preparation or processing of tax re-
turns. A tax return preparer may obtain
professional liability insurance coverage
in order to protect itself from such claims
of negligence, misconduct, or fraud. A
professional liability insurance carrier
provides auxiliary services in connection
with the preparation of tax returns because
it provides liability coverage for claims
or potential claims that relate directly to
the tax returns prepared or processed by
the tax return preparers it insures. In the
course of obtaining professional liability
insurance, various insurance companies
mayroutinelyoffer,andtaxreturnpre-
parers may routinely receive, price quotes
for such coverage in the ordinary course
of their tax return preparation businesses.
The tax return information required to be
disclosed to an insurance provider in order
to obtain and maintain insurance coverage
(including obtaining a price quote) might
include a list of client names and descrip-
tions of the services provided to those
clientsbythetaxreturnpreparer.
The professional liability insurance pol-
icy purchased by A is an auxiliary service
provided in connection with the prepara-
tion of tax returns, and the insurance car-
riers are tax return preparers within the
meaning of § 301.7216–1(b)(2)(i)(B) and
(iii). Under § 301.7216–2(d)(1), A may
disclose to these insurance carriers, with-
out taxpayer consent, the tax return in-
formation required to obtain and maintain
the auxiliary services provided by the in-
surance carriers, including the information
necessary to obtain price quotes from var-
ious professional liability insurance carri-
ers. Disclosure by a tax return preparer of
tax return information beyond that neces-
sary to obtain or maintain insurance cover-
age would constitute a violation of sections
7216 and 6713 and would result in the tax
return preparer’s liability for penalties un-
der those sections. The insurance carriers
who receive a list of client names or any
other tax return information from A are
prohibited from the further use or disclo-
sure of the tax return information for pur-
poses other than those related to the pro-
vision of the auxiliary services to A or as
otherwise expressly permitted under sec-
tions 7216 and 6713.
Issue 2. Reporting and Investigating
Claims.
Services provided by a professional li-
ability insurance carrier include investiga-
tion and management of claims or poten-
tial claims arising in connection with the
preparation of tax returns by the covered
tax return preparer. In order to request
coverage for a claim or potential claim, a
taxreturnpreparerisrequiredtopromptly
and accurately reportclaims or potential
claims to its professional liability insur-
ance carrier. In orderto properly evalu-
ate all claims or potential claims, aid in
claim investigation and management, and
process the payment of valid claims, a pro-
fessional liability insurance carrier may re-
quire the tax return preparer to disclose ad-
ditional information, such as client names,
descriptions of the services provided to the
named clients containing tax return infor-
mation, tax return information describing
the circumstances of the claim or poten-
tial claim, and copies of tax returns rele-
vant to a claim or potential claim. Disclo-
sureoftaxreturninformationinconnec-
tion with these communications is required
to allow A to obtain the auxiliary services
provided by its professional liability insur-
ance carrier, and is permitted without tax-
payer consent under § 301.7216–2(d)(1),
provided the information is necessary in
order to obtain those services. Disclosure
by a tax return preparer of tax return infor-
mation beyond that necessary to obtain the
auxiliary services would constitute a viola-
tion of sections 7216 and 6713 and would
result in the tax return preparer’s liability
for penalties under those sections.
Issue 3.Obtaining Legal Advice or
Representation.
A typical benefit provided to a tax re-
turn preparer by the terms of a professional
liability insurance policy issued in connec-
tion with the preparation of tax returns in-
cludes the selection and engagement, by
the insurance carrier, of an attorney to rep-
resent the preparer during the pendency of
a claim investigation or litigation related
to a claim, with the cost of the attorney
paid for by the insurance carrier. When A
seeks to have the professional liability in-
surance carrier provide this legal represen-
tation under the terms of the professional
liability insurance policy, A does so for the
purpose of obtainingauxiliary services in
connection with the preparation of a tax re-
turn and may disclose relevant tax return
information, without taxpayer consent, to
the insurance carrier as an auxiliary ser-
vices provider under § 301.7216–2(d)(1).
Disclosure by a tax return preparer of tax
return information beyond the scope of the
legal representation constitutes a violation
of sections 7216 and 6713 and would re-
sult in the tax return preparer’s liability
for penalties under those sections. After
the professional liability insurance carrier
selects an attorney to represent A in re-
lation to the claim or potential claim, A
may disclose to that attorney tax return in-
formation related to the claim or poten-
tial claim without taxpayer consent under
§ 301.7216–2(g)(1).
When a tax return preparer seeks le-
gal advice or representation in relation to
any claim or potential claim of negligence,
misconduct, or fraud from an attorney who
is not a representative of the professional
liability insurance carrier, the tax return
preparer may disclose tax return informa-
tion to that attorney without taxpayer con-
sent under § 301.7216–2(g)(1).
HOLDINGS
(1) Tax Return Preparer A is not liable
for penalties under sections 7216 and 6713
when A discloses to a professional liabil-
ity insurance carrier tax return information
required by the insurance carrier to obtain
or maintain professional liability insurance
coverage, including obtaining price quotes
for such insurance coverage.
(2) Tax Return Preparer A is not liable
for penalties under sections 7216 and 6713
when A discloses to A’s professional lia-
bility insurance carrier tax return informa-
tion relevant to a claim or potential claim
of professional negligence, misconduct, or
fraud that is required by the insurance car-
rier to promptly and accurately report the
claim or potential claim against A or to aid
in the investigation of that claim or poten-
tial claim.
(3) Tax Return Preparer A is not liable
for penalties under sections 7216 and 6713
when A discloses to its professional liabil-
ity insurance carrier tax return information
required by the insurance carrier in order
to secure legal representation relating to a
professional liabilityclaim, or tax return
information relevant to a claim or poten-
tial claim of professional negligence, mis-
2010–4 I.R.B.314January 25, 2010

conduct, or fraud to the attorney selected
by the insurance carrier or to an unrelated
attorney for the purpose of evaluating a
claim or potential claim against A.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Molly K. Donnelly of the Office
of Associate Chief Counsel (Procedure
& Administration). For further informa-
tion regarding this revenue ruling, contact
Ms. Donnelly at (202) 622–4940 (not a
toll-free call).
26 CFR 301.7216–2: Permissible disclosures or uses
without consent of the taxpayer.
T.D. 9478
DEPARTMENT OF TREASURY
Internal Revenue Service
26 CFR Part 301
Amendments to the Section
7216 Regulations—Disclosure
or Use of Information by
Preparers of Returns
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains fi-
nal and temporary regulations that provide
rules relating to the disclosure and use of
tax return information by tax return pre-
parers. These regulations provide updated
guidance affecting tax return preparers
regarding the use of information related
to lists for solicitation of tax return busi-
ness; the disclosure or use of statistical
compilations of data under section 7216
of the Internal Revenue Code (Code) by
a tax return preparer in connection with,
or in support of, a tax return preparer’s
tax return preparation business, including
identification of additional limited cir-
cumstances when a tax return preparer
who compiles statistical information may
disclose the compilation without taxpayer
consent, and the placement of additional
restrictions on the content of the compi-
lation that may be disclosed under those
circumstances without taxpayer consent;
and the disclosure or use of information
for the purpose of performing conflict
reviews. The text of these temporary
regulations also serves as the text of the
proposed regulations (REG–131028–09)
set forth in the notice of proposed rule-
making on this subject in this issue of the
Bulletin.
DATES:Effective Date:These regulations
are effective on January 4, 2010.
Applicability Date:For date of applica-
bility, see §301.7216–2T(s).
FOR FURTHER INFORMATION
CONTACT: Molly K. Donnelly, (202)
622–4940 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document amends 26 CFR part
301 to provide modified rules relating
to the ability of a tax return preparer to
use tax return information for the pur-
poses of compiling, maintaining and using
lists for solicitation of tax return busi-
ness under §301.7216–2(n), disclose and
use statistical compilations of data de-
scribed in §301.7216–1(b)(3)(i)(B) under
§301.7216–2(o), and disclose and use
tax return information for the purpose
of performing conflict reviews under
§301.7216–2(p), without taxpayer con-
sent. These three paragraphs are being
modified to expand the ability of tax return
preparers to disclose or use certain limited
tax return information under specific and
limited circumstances in a manner that
is expected to benefit taxpayers, tax re-
turn preparers, and the general public, as
more fully described in the Explanation
of Provisions section of this preamble.
One set of these modifications, those to
§301.7216–2(o), is being made following
the issuance of Notice 2009–13 and the
receipt of comments submitted in response
to that notice, while the modifications
to the other two paragraphs are being
made as a result of the Treasury Depart-
ment’s and the IRS’s efforts to regularly
review the effect of the recently issued
final regulations on taxpayers and tax re-
turn preparers. In the accompanying and
cross-referenced notice of proposed rule-
making, the Treasury Department and the
IRS request comments on the proposed
rules from all interested parties.
On January 7, 2008, the Treasury
Department and the IRS issued fi-
nal regulations under section 7216
(T.D. 9375, 2008–1 C.B. 344) (73
FR 1058) applicable to disclosures or
uses of tax return information occur-
ring on or after January 1, 2009. The
final regulations replaced previously
issued final regulations that remained
applicable to disclosures or uses of tax
return information occurring prior to
January 1, 2009. The final regulations
included§301.7216–1(b)(3)(i)(B)
which, for disclosures and uses of
tax return information occurring on
or after January 1, 2009, provides
that tax return information includes
statistical compilations of tax return
information.The final regulations
included §301.7216–2(n), which provides
thattaxreturnpreparersmayuse,
without taxpayer consent, certain
limited taxpayer contact information
constituting tax return information for
the purposes of compiling, maintaining,
and using lists for the solicitation
of tax return business, incorporating
its predecessor, §301.7216–2(m), but
providing a minor expansion of the contact
information allowed to be used. The
final regulations included the addition of
new §301.7216–2(o), which describes the
limited circumstances when a tax return
preparer may use tax return information
to produce statistical compilations, and
when the preparer may use or disclose the
produced statisticalcompilation without
written consent. The final regulations
included §301.7216–2(p), which provides
thattaxreturnpreparersmaydisclose
and use tax return information without
taxpayer consent in the performance of
quality or peer reviews, incorporating its
predecessor, §301.7216–2(o), with only
minor, non-technical adjustments.
The Treasury Department and the IRS
subsequently issued Notice 2009–13,
2009–6 I.R.B. 447 (February 9, 2009),
(see §601(d)(2)(ii)(b)), to provide interim
guidance relating to the ability of a tax
return preparer to disclose and use sta-
tistical compilations of anonymous tax
return information in support of a tax
return preparer’s tax return preparation
business. The notice provides guidance
on the tax return information a tax return
January 25, 20103152010–4 I.R.B.

preparer may use to compile anonymous
statistical information, and on the circum-
stances when the tax return preparer may
disclose the anonymous statistical infor-
mation without taxpayer consent. Notice
2009–13 sets forth rules to be applied
by the Treasury Department and the IRS
during 2009 while they consider whether
the interim guidance should be adopted
by regulations or further modified, taking
into account public comments submitted
in response to the notice.
Written comments were received in re-
sponse to the notice. All comments were
considered and areavailable for public
inspection upon request. This preamble
summarizes the responsive comments re-
ceived by the Treasury Department and
the IRS.
These temporary regulations mod-
ify the rules under §§301.7216–2(n),
301.7216–2(o), and 301.7216–2(p), and
supersede the interim guidance provided
by Notice 2009–13.
Summary of Comments in Response to
Notice 2009–13
1.Purpose and use.
One commentator recommended that
the regulations specifically provide that
all tax preparation firms may use tax re-
turn information to connect taxpayers to
free government programs and services,
provided they have obtained the consent
of their clients. This comment was not
adopted. Under the regulations in force,
this use would be permitted because the
tax return preparer obtained the consent
of its clients. Consents must conform to
the requirements of §301.7216–3 of the
regulations and any other guidance issued
pursuant to §301.7216–3.
2.Disclosure requirements.
Several commentators recommended
that the prohibition on disclosing cells
containing data from fewer than 25 tax
returns be eliminated as long as the data is
anonymous and free of all taxpayer-iden-
tifying information. Some commentators
recommended that return preparers be able
to disclose, without consent, all aggregate
data that is stripped of personal identi-
fying information, noting that volunteer
tax preparation programs utilize aggre-
gate data to demonstrate and track the tax
preparation and financial service needs
of their clients. Additional commentators
recommended that the 25 tax return thresh-
old be modified to allow for the disclosure
of cells containing data from ten or more
tax returns. These commentators indicated
that removal of all taxpayer-identifying
information provides sufficient taxpayer
protection and implied that it may not be
feasible for tax return preparers who oper-
ate small tax return preparation businesses
to always produce a statistical compilation
that meets the 25 tax return threshold.
These recommendations were adopted in
part, and the temporary regulations now
permit the disclosure of cells containing
data from ten or more tax returns.
3.Research and public policy discussions.
One commentator recommended that,
for purposes of the guidance, the term “tax
return preparation business” should in-
clude “bona fide research or public policy
discussions (i) concerning state or federal
taxation or (ii) utilizing data acquired dur-
ing the tax return preparation process.”
The commentator was concerned that
the interim guidance would inhibit tax
return preparers from cooperating with
scholars or sharing anonymous data with
bona fide academic researchers studying
consumer financial behavior because this
topic arguably might not be viewed as
supporting a tax return preparation busi-
ness. This comment was considered and
the temporary regulations now clarify that
a tax return preparer is allowed to disclose
an anonymous statistical compilation for
bona fide research or public policy discus-
sions concerning state or federal taxation
or requiring data acquired during the tax
return preparation process.
One commentator stated that govern-
ment agencies’ presentation of aggre-
gated refund data and other statistical
compilations in press releases, public pre-
sentations, reports, Web sites, or other
electronic communications should au-
tomatically fall within the meaning of
bona fide research and public policy dis-
cussions. This recommendation was not
adopted because it would not be appropri-
ate in this context to create particularized
rules for government agencies, and inclu-
sion of this specific circumstance in the
exception might require the creation of an
exhaustive list of the circumstances that
would be considered bona fide research
or public policy discussions. Instead,
tax return preparers must determine on a
case-by-case basis whether a disclosure is
in support of bona fide research or public
policy discussions.
4.Sale of a statistical compilation.
One commentator recommended that
the regulations should allow for the dis-
closure of a statistical compilation in
conjunction with the sale or disposition
of a tax return preparation business only
when the entire tax return preparation
business is being sold or disposed. This
recommendation was not adopted because
circumstances can exist when a tax return
preparer may in good faith sell or dispose
of less than the preparer’s entire tax return
preparation business.
Explanation of Provisions
1.§301.7216–2(n).
The Treasury Department and the IRS
are amending the regulations under sec-
tion 7216 to provide a limited expansion of
the information tax return preparers may,
without taxpayer consent, use and include
in lists for solicitation of tax return busi-
ness pursuant to §301.7216–2(n). The reg-
ulations also clarify that lists for solici-
tation of tax return business may not be
used to solicit non-tax return preparation
services. Finally, the regulations clarify
the meanings of the phrases “tax informa-
tion” and “in conjunction with the sale or
other disposition of the compiler’s tax re-
turn business” for purposes of the excep-
tion provided by §301.7216–2(n).
The current regulations allow a tax re-
turn preparer to compile and maintain a
list for solicitation of tax return business
consisting solely of the names, addresses,
e-mail addresses, and phone numbers of
taxpayers whose tax returns the preparer
has prepared or processed. The current
regulations allow a tax return preparer to
use this list to contact the taxpayers on
the list to offer “tax information or ad-
ditional tax return preparation services to
such taxpayers,” and limit the transfer of
the list to transfers occurring “in conjunc-
tion with the sale or other disposition of
the compiler’s tax return preparation busi-
ness.” Section 301.7216–2(n) in its current
2010–4 I.R.B.316January 25, 2010

form is identical to its form in prior ver-
sions of the regulations, with the excep-
tion that an additional type of information,
e-mail addresses, was added to the short
list of information allowed to be included
in §301.7216–2(n) lists.
Upon further consideration, the Trea-
sury Department and the IRS conclude that
§301.7216–2(n) should be amended, in the
form of temporary regulations, to provide
additional flexibility to tax return prepar-
ers and benefits to taxpayers without com-
promising the rights of taxpayers to con-
trol the use or disclosure of their tax re-
turn information. These regulations ex-
pand the information that may be com-
piled and maintained in a list for solicita-
tion of tax return business to include the
taxpayer entity classification or type, in-
cluding individual status, and taxpayer in-
come tax return form number (for exam-
ple, Form 1040,“U.S. Individual Income
Tax Return”,or Form 1120,“U.S. Corpo-
ration Income Tax Return”). Determin-
ing the information that may be used to
provide targeted newsletters and market-
ing under §301.7216–2(n) requires balanc-
ing the benefits from taxpayers receiving
the tax information most relevant to them
against the ability oftaxpayers to con-
trol the use of their tax return information.
The Treasury Department and the IRS con-
clude that the current amendments made
to §301.7216–2(n) strike the proper cur-
rent balance between these competing in-
terests, but also recognize that future infor-
mation and needs may require permitting
additional information to be included in
the list maintained under §301.7216–2(n).
Accordingly, the regulations are amended
to allow the IRS to identify additional in-
formation that may be included in the list
by issuing guidance to be published in the
Internal Revenue Bulletin.
These regulations clarify the phrase
“tax information” by replacing that phrase
with the phrase “tax information and gen-
eral business or economic information or
analysis for educational purposes.” It is
contemplated that tax information includes
explanations of current developments in
tax law. The regulations also clarify that a
list for solicitation of tax return business
may not be used to solicit non-tax return
preparation services.
The additions to the tax return infor-
mation allowed to be compiled and main-
tained in §301.7216–2(n) lists, along with
the clarification of the phrase “tax infor-
mation,” will provide additional flexibility
to tax return preparers permitting them to
more efficiently andeffectively furnish
relevant tax information and lawful solic-
itations to their taxpayer clients, and will
benefit taxpayers by helping ensure that
the taxpayers receive only information that
may be useful to them and that specifically
addresses tax issues relevant to them, thus
improving taxpayer education and aware-
ness and reducing the amount of needless
information being received by taxpayers.
By expressly prohibiting the use of these
lists to solicit non-tax return preparation
services, the regulation makes clear that
the exception provided by §301.7216–2(n)
is limited to solicitations of tax return
preparation services only. The phrase “in
conjunction with the sale or other dispo-
sition of the compiler’s tax return prepa-
ration business” is clarified to include due
diligence performedin contemplation of
a sale or other disposition of a tax return
preparation business.The regulations also
clarify that tax return information made
available to a potential purchaser for due
diligence purposes constitutes a disclosure
of that information and not a transfer of
that information.
The Treasury Department and the IRS
have also amended the regulations to clar-
ifythatapersonwhoisataxreturnpre-
parer solely because he provides auxiliary
services to another tax return preparer may
not use the tax return information he re-
ceives from such other tax return preparer
to compile and maintain for his own use
a list of taxpayers under §301.7216–2(n).
For example, a software company could in
some cases market tax return preparation
software to taxpayers directly and to tax
return preparers. In connection with aux-
iliary services provided to tax return pre-
parers, the software provider may receive
information regarding the taxpayer clients
of the tax return preparers. In such cir-
cumstances, the software provider could
not use the tax return information it re-
ceived from tax return preparers in the per-
formance of auxiliary services to compile
a list under §301.7216–2(n) to market its
software directly to the clients of the tax
return preparers.
In light of these considerations,
the Treasury Department and the IRS,
pursuant to these regulations, amend
§301.7216–2(n) of the final regulations
published on January 7, 2008, as described
in this preamble.
2.§301.7216–2(o).
The Treasury Department and the IRS
are amending the regulations under section
7216 to provide additional exceptions to
the general rule that a tax return preparer
may not disclose or use statistical compi-
lations of tax return information without
taxpayer consent. Section 301.7216–2(o)
currently prohibits the disclosure of statis-
tical compilations unless the disclosure is
made in order to comply with financial ac-
counting or regulatory reporting require-
ments or occurs in conjunction with the
sale or other disposition of the compiler’s
tax return preparation business; therefore,
under the current regulations, tax return
preparers may not disclose statistical com-
pilations for other purposes that may pro-
vide benefits to taxpayers generally or to
the public as a whole.
Responding to public comments re-
ceived in response to Notice 2009–13,
the Treasury Department and the IRS
conclude that §301.7216–2(o) should be
amended, in the form of temporary reg-
ulations, to allow a tax return preparer
to disclose statistical compilations of tax
return information without taxpayer con-
sent for additional limited purposes, with
certain additional requirements.
While taxpayer consent regarding dis-
closure or use is a primary focus of the
section 7216 regulations, the flexibility re-
sulting from these temporary regulations
will enable tax return preparers to disclose
anonymous data for limited purposes that
may provide benefit to both taxpayers in
general and the public at large. Anony-
mous statistical data disclosed within the
constraints provided by these temporary
regulations can be used by tax return pre-
parers for marketing purposes and to as-
sist taxpayers in making informed choices
about tax return preparers. The availability
of anonymous statistical data can be useful
from a public policy perspective, as the use
and availability of such data can assist law-
makers, academics, non-profits, and other
agencies in the facilitation of sound tax
policy analysis and decisions. In addition,
volunteer tax return preparers who provide
free tax return preparation services to low-
and moderate-income taxpayers and fami-
lieswouldbeabletodemonstratetheim-
January 25, 20103172010–4 I.R.B.

pact of their efforts in order to obtain and
administer funding necessary for their con-
tinued operation.
One concern that has been expressed re-
garding the disclosure of statistical compi-
lations of tax return information by tax re-
turn preparers is that incentives will be cre-
ated that encourage maximization of cred-
its or refunds at the expense of tax re-
turn accuracy. To address this concern,
while the amendment provides additional
limited exceptions to the requirement that
taxpayer consent be obtained in order to
disclose or use tax return information, the
temporary regulations prohibit, in the con-
text of marketing or advertising, the use or
disclosure of statistical compilations, or a
part thereof, that identify dollar amounts of
refunds, credits, or deductions associated
with tax returns, whether or not the data are
statistical, averaged,aggregated, or anony-
mous. The IRS will continue to rely on
all existing enforcement powers to address
concerns regarding advertising and mar-
keting claims by tax return preparers.
In light of these considerations,
the Treasury Department and the IRS,
pursuant to these regulations, amend
§301.7216–2(o) of the final regulations
published on January 7, 2008. The tempo-
rary regulations require that any disclosure
of a statistical compilation, other than
to satisfy reporting requirements or in
conjunction with the disposition of a tax
return business, be anonymous as to tax-
payer identity, meaning that it must be in a
form which cannot be associated with, or
otherwise identify, directly or indirectly, a
particular taxpayer. Under these circum-
stances, the temporary regulations prohibit
the disclosure of statistical compilations
with cells containing data from fewer
than ten tax returns. In addition to the
disclosure exceptions set forth currently
in §301.7216–2(o), the temporary regu-
lations authorize the disclosure by a tax
return preparer in conjunction with bona
fide research or public policy discussions
concerning state or federal taxation or re-
quiringdataacquiredduringthetaxreturn
preparation process, and to provide tax
information to the public regarding tax re-
turn preparation services. The temporary
regulations allow section 501(c) organiza-
tions whose program services include the
free preparation of tax returns to disclose
statistical compilations in order to comply
with reporting requirements in connection
with the receipt of grants or to facilitate
the solicitation of grants. The temporary
regulations also allow lawful recipients
of statistical compilations to disclose or
use such tax return information, subject to
the provisions of §301.7216–2T(o). The
temporary regulations continue to allow
the disclosure of statistical compilations
in order to comply with financial account-
ing or regulatory reporting requirements
or in conjunction with the sale or other
disposition of the compiler’s tax return
preparation business. Finally, the tempo-
rary regulations prohibit, in the context of
marketing or advertising, use or disclo-
sure of statistical compilations, or a part
thereof, that identify dollar amounts of
refunds, credits, or deductions associated
with tax returns, or percentages relating
thereto, whether or not the data are statisti-
cal, averaged, aggregated, or anonymous.
3.§301.7216–2(p).
The Treasury Department and the IRS
are amending the regulations under section
7216 to clarify that tax return preparers
may use and disclose tax return informa-
tion to the extent necessary to accomplish
a conflict of interest review undertaken to
comply with the requirements established
by any federal, state, or local law, agency,
board, or commission, or by a professional
association ethics committee or board, to
identify, evaluate, and monitor actual or
potential legal and ethical conflicts of in-
terest that may arise when a tax return pre-
parer or tax return preparation business is
employed or acquired by another tax return
preparer or tax return preparation business,
or when a tax return preparer is consider-
ing engaging a new client.
Upon further consideration, the Trea-
sury Department and the IRS conclude
that §301.7216–2(p) should be amended,
in the form of temporary regulations, to
clarify that tax return preparers may use
and disclose tax return information to the
extent necessary to accomplish conflict re-
views without compromising the rights of
taxpayers to control the use or disclosure
of their tax return information. Conflict
reviews allow tax return preparers to fulfill
legal and ethical requirements to iden-
tify and avoid client conflicts of interest.
Conflict reviews also benefit taxpayers
because these reviews provide taxpayers
with the knowledge and comfort that their
taxreturnpreparersareactinginthetax-
payers’ best interests when providing tax
return preparation services to them.
Theseregulationsamend
§301.7216–2(p) by adding an exception
to the written consent rules to allow
disclosures of tax return information by
a tax return preparer without taxpayer
consent for the purpose of conducting
conflict reviews, but only to the extent
necessary to accomplish the reviews. For
example, if the tax return preparer only
needs to disclose the names of taxpayers,
and nothing more, to allow the conflict
review to be completed, then the tax return
preparer shall not disclose any tax return
information other than the taxpayers’
names.
The regulations describe conflict re-
views to include reviews that are un-
dertaken to comply with requirements
established by any federal, state, or local
law, agency, board or commission, or by
a professional association ethics commit-
tee or board, to either identify, evaluate,
and monitor actual or potential legal and
ethical conflicts of interest that may arise
when a tax return preparer is employed or
acquiredbyanothertaxreturnpreparer,or
to identify, evaluate, and monitor actual
or potential legal and ethical conflicts of
interest that may arise when a tax return
preparer is considering engaging a new
client. The regulations contemplate that
the information necessary to accomplish
a conflict review shall be disclosed to
andusedbyonlythosepersonspermitted
to be involved in the conflict review as
described in the applicable law or regu-
lations or as authorized by the relevant
agency, board, commission, or profes-
sional association.The regulations also
contemplate that, in order for tax return
preparers to fulfill the required conflict
reviews, circumstances may require the
preparer to disclose the information nec-
essary to perform a conflict review outside
of the United States or a territory or pos-
session of the United States. If disclosure
outside of the United States is required to
conduct a conflict review, the disclosure is
authorized by these regulations provided
the disclosing and receiving tax return
preparers have procedures in place that are
consistent with good business practices
and designed to maintain the confiden-
tiality of the disclosed information. The
regulations also include specific restric-
2010–4 I.R.B.318January 25, 2010

tions on the further use and disclosure of
information disclosed under this excep-
tion.
In light of these considerations,
the Treasury Department and the IRS,
pursuant to these regulations, amend
§301.7216–2(p) of the final regulations
published on January 7, 2008, as described
in this preamble.
4.Conclusion.
The Treasury Department and the IRS
anticipate that allowing tax return pre-
parers to disclose and use the limited
tax return information and anonymous
statistical compilations for the limited
purposes previously cited should provide
the taxpayer and the public the policy
benefits discussed above. The Treasury
Department and the IRS also conclude
that the amendments to §§301.7216–2(n),
301.7216–2(o), and 301.7216–2(p) ap-
propriately balance concerns regarding
safeguarding of sensitive tax return in-
formation against the tax industry’s need
to evaluate and use or disclose tax return
information. In a separate notice of pro-
posed rulemaking published with these
regulations, the Treasury Department and
IRS invite comments on the proposed
rules.
Effect on Other Documents
The following publication is obso-
lete on or after January 4, 2010: Notice
2009–13, 2009–6 I.R.B. 447.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations because they
are excepted from the notice and comment
requirements of section 553(b) and (c)
of the Administrative Procedure Act by
section 7805(e) of the Internal Revenue
Code and under the interpretative rule
and good cause exceptions provided by
sections 553(b)(3)(A) and (B) of that Act.
These regulations are necessary to provide
taxreturnpreparersandtaxpayerswith
immediate guidance on the application
of the section 7216 rules regarding per-
missible disclosures and uses without the
consent of the taxpayer, disclosures and
uses that are currently required and neces-
sary to allow the ongoing and beneficial
educational, informational, operational,
and funding efforts of tax return preparers
and taxpayers to prepare for the imminent
tax filing season, and to allow tax return
preparers to comply with all legal and
ethical requirements placed upon them by
relevant government or professional agen-
cies, boards, commissions or committees.
These regulations are intended to provide
additional limited exceptions to, and relief
from, the rules prohibiting disclosure of
tax return information,including statisti-
cal compilations of tax return information
and information necessary to accomplish
conflict reviews, because these regula-
tions provide tangible benefits to both
taxpayers and tax return preparers and
appropriately balance concerns regard-
ing safeguarding of sensitive tax return
information with appropriate disclosures
and uses of that information. In addition,
the regulations regarding §301.7216–2(o)
have been publicly noticed and subject
to comment through the publication of
Notice 2009–13. For these reasons, good
cause exists for dispensing with notice
and public comment pursuant to section
553(b) and (c) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5). For
applicability of the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6), refer to the
Special Analyses section of the preamble
to the cross-referenced notice of proposed
rulemaking published in this issue of the
Bulletin. Pursuant to section 7805(f) of
the Internal Revenue Code, this regulation
has been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Molly K. Donnelly, Office of the
Associate Chief Counsel (Procedure and
Administration).
*****
Amendments to the Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7216–0 is amended
by revising the entries for §301.7216–2,
paragraphs (n), (o), and (p) to read as fol-
lows:
§301.7216–0 Table of contents.
*****
§301.7216–2 Permissible disclosures or
uses without consent of the taxpayer.
*****
(n) [Reserved]. For further guidance,
see entry for §301.7216–2T(n).
(o) [Reserved]. For further guidance,
see entry for §301.7216–2T(o).
(p) [Reserved]. For further guidance,
see entry for §301.7216–2T(p).
*****
Par. 3. Section 301.7216–0T is added
to read as follows:
§301.7216–0T Table of contents.
This section lists captions contained in
§301.7216–2T.
§301.7216–2T Permissible disclosures
or uses without consent of the taxpayer
(temporary).
(a) through (m) [Reserved]. For further
guidance, see entries for §301.7216–2(a)
through (m).
(n) Lists for solicitation of tax return
business.
(o) Producing statistical information
in connection with taxreturn preparation
business.
(p) Disclosure or use of information for
quality, peer, or conflict reviews.
(q) through (r) [Reserved]. For further
guidance, see entries for §301.7216–2(q)
through (r).
(s) Effective/applicability date.
(t) Expiration date.
Par. 4. Section 301.7216–2 is amended
by revising paragraphs (n), (o), and (p) to
read as follows:
January 25, 20103192010–4 I.R.B.

§301.7216–2 Permissible disclosures or
uses without consent of the taxpayer.
*****
(n) [Reserved]. For further guidance,
see §301.7216–2T(n).
(o) [Reserved]. For further guidance,
see §301.7216–2T(o).
(p) [Reserved]. For further guidance,
see §301.7216–2T(p).
*****
Par. 5. Section 301.7216–2T is added
to read as follows:
§301.7216–2T Permissible disclosures
or uses without consent of the taxpayer
(temporary).
(a) through (m) [Reserved]. For fur-
ther guidance, see §301.7216–2(a) through
(m).
(n)Lists for solicitation of tax re-
turn business. (1) A tax return preparer,
other than a person who is a tax return
preparer solely because the person pro-
vides auxiliary services as defined in
§301.7216–1(b)(2)(i)(B), may compile
and maintain a separate list containing
solely the names, addresses, e-mail ad-
dresses, phone numbers, taxpayer entity
classification (including “individual” or
the specific type of business entity), and in-
come tax return form number of taxpayers
whose tax returns the tax return preparer
has prepared or processed. The Internal
Revenue Service may issue guidance, by
publication in the Internal Revenue Bul-
letin (see §601.601(d)(2)(ii)(b)), describ-
ing other types of information that may be
included in a list compiled and maintained
pursuant to this paragraph. This list may
be used by the compiler solely to contact
the taxpayers on the list for the purpose
of providing tax information and general
business or economic information or anal-
ysis for educational purposes, or soliciting
additional tax return preparation services.
The list may not be used to solicit any
service or product other than tax return
preparation services. The compiler of the
list may not transfer the taxpayer list, or
any part thereof, to any other person un-
less the transfer takes place in conjunction
with the sale or other disposition of the
compiler’s tax return preparation busi-
ness. Due diligence conducted prior to a
proposed sale of a compiler’s tax return
preparation business is in conjunction with
the sale or other disposition of a com-
piler’s tax return preparation business and
will not constitute a transfer of the list if
conducted pursuant toa written agreement
that requires confidentiality of the tax re-
turn information disclosed and expressly
prohibits the further use or disclosure of
the tax return information for any purpose
other than that related to the purchase of
the tax return preparation business. The
tax return information submitted for the
purpose of due diligence as authorized in
this paragraph is a disclosure of tax return
information subject to the provisions of
this section. A person who acquires a
taxpayer list, or a part thereof, in conjunc-
tion with a sale or other disposition of a
tax return preparation business is subject
to the provisions of this paragraph with
respect to the list. The termlist,asusedin
this paragraph (n), includes any record or
system whereby the names and addresses
of taxpayers are retained. The provisions
of this paragraph (n) also apply to the
transfer of any records and related papers
to which this paragraph (n) applies.
(2)Examples. The following examples
illustrate this paragraph (n):
Example 1. Preparer A is a tax return preparer
as defined by §301.7216–1(b)(2)(i)(A). Preparer A’s
office is located in southeast Pennsylvania, and Pre-
parer A prepares federal and state income tax returns
for taxpayers who live in Pennsylvania, New Jersey,
Maryland, and Delaware. Preparer A maintains a
list of taxpayer clients containing the information al-
lowed by this paragraph (n). Preparer A provides
quarterly state income tax information updates to his
individual taxpayer clients by e-mail or U.S. Mail. To
ensure that his clients only receive the information
updates that are relevant to them, Preparer A uses his
list to direct his outreach efforts towards clients by
zip code and income tax return form number (Form
1040 and corresponding state income tax return form
number). Preparer A may use the list information in
this manner without taxpayer consent because he is
providing tax information for educational or informa-
tional purposes and is targeting clients based solely
upon tax return information that is authorized by this
paragraph (n), by zip code, which is part of a tax-
payer’s address, and by income tax return form num-
ber. Preparer A also may deliver this information to
his clients by e-mail or by U.S. Mail without taxpayer
consent because those delivery methods use informa-
tion authorized by this paragraph (n).
Example 2. Preparer B is a tax return preparer
as defined by §301.7216–1(b)(2)(i)(A). Preparer B
maintains a list of taxpayer clients containing the in-
formation allowed by this paragraph (n). Preparer
B provides monthly federal income tax information
updates in the form of a newsletter to all of her tax-
payer clients by e-mail or U.S. Mail. When Preparer
B hires a new employee, she announces each hire in
the newsletter for the month that follows the hiring.
Each announcement includes a photograph of the new
employee, the employee’s name, the employee’s tele-
phone number, a brief listing of the employee’s qual-
ifications, and a brief listing of the employee’s em-
ployment responsibilities. Preparer B may use the
tax return information described in this paragraph (n)
in this manner without taxpayer consent because she
is providing tax information for educational or infor-
mational purposes, to provide general federal income
tax information updates. Preparer B may include the
new employee announcements in the form described
because this is considered tax information for edu-
cational or informational purposes, provided the an-
nouncements do not contain solicitations for non-tax
return preparation services. Preparer B also may de-
liver this information to her clients by e-mail or by
U.S. Mail without taxpayer consent because those
delivery methods use information authorized by this
paragraph (n).
(o)Producing statistical information
in connection with tax return preparation
business. (1) A tax return preparer may
use tax return information, subject to the
limitations specified in this paragraph (o),
to produce a statistical compilation of data
described in §301.7216–1(b)(3)(i)(B). The
purpose and use or disclosure of the sta-
tistical compilation must relate directly to
the internal management or support of the
tax return preparer’s tax return preparation
business, or to bona fide research or pub-
lic policy discussions concerning state or
federal taxation or requiring data acquired
during the tax returnpreparation process.
A tax return preparer may not disclose
the compilation, or any part thereof, to
any other person unless disclosure of the
statistical compilation is anonymous as to
taxpayer identity, does not disclose cells
containing data from fewer than ten tax
returns, and is in direct support of the tax
return preparer’s tax return preparation
business or of bona fide research or pub-
lic policy discussions concerning state or
federal taxation or requiring data acquired
during the tax returnpreparation process.
A statistical compilation is anonymous
as to taxpayer identity if it is in a form
which cannot be associated with, or oth-
erwise identify, directly or indirectly, a
particular taxpayer. For purposes of this
paragraph, marketing and advertising is in
direct support of the tax return preparer’s
tax return preparation business provided
the marketing and advertising is not false,
misleading, or unduly influential. This
paragraph, however, does not authorize
the use or disclosure in marketing or ad-
vertising of any statistical compilations, or
part thereof, that identify dollar amounts
of refunds, credits, or deductions asso-
2010–4 I.R.B.320January 25, 2010

ciated with tax returns, or percentages
relating thereto, whether or not the data
are statistical, averaged, aggregated, or
anonymous. Disclosures made in sup-
port of fundraising activities conducted
by Volunteer Return Preparation programs
and other organizations described in sec-
tion 501(c) of the Internal Revenue Code
(Code) in direct support of their tax return
preparation businesses are not marketing
and advertising under this paragraph. A
tax return preparer who produces a sta-
tistical compilation of data described in
§301.7216–1(b)(3)(i)(B) may disclose the
compilation in order to comply with fi-
nancial accounting or regulatory reporting
requirements whether or not the statistical
compilation is anonymous as to taxpayer
identity or discloses cells containing data
from fewer than ten tax returns.
A tax return preparer may not
sell or exchange for value a statisti-
cal compilation of data described in
§301.7216–1(b)(3)(i)(B), in whole or in
part, except in conjunction with the trans-
fer of assets made pursuant to the sale
or other disposition of the tax return pre-
parer’s tax return preparation business.
The provisions of paragraph (n) of this
section regarding the transfer of a taxpayer
list also apply to the transfer of any sta-
tistical compilations of data to which this
paragraph applies. A person who acquires
a statistical compilation, or a part thereof,
pursuant to the operation of this paragraph
(o) or in conjunction with a sale or other
disposition of a tax return preparation
business, is subject to the provisions of
this paragraph with respect to the compi-
lation.
(2)Examples. The following examples
illustrate this paragraph (o):
Example 1. Preparer A is a tax return preparer as
defined by §301.7216–1(b)(2)(i)(A). In 2009, A used
taxreturninformationtoproduceastatisticalcompi-
lation of data for both internal management purposes
and to support A’s tax return preparation business.
The statistical compilation included a cell contain-
ing the information that A prepared 32 S corporation
tax returns in 2009. In 2010, A decides to embark
upon a new marketing campaign emphasizing its ex-
perience preparing small business tax returns. In the
campaign, A discloses the cell containing the num-
ber of S corporation tax returns prepared in 2009. A’s
disclosure does not include any information that can
be associated with or that can identify any specific
taxpayers. A may disclose the anonymous statistical
compilation without taxpayer consent.
Example 2. Preparer B is a tax return preparer as
defined by §301.7216–1(b)(2)(i)(A). In 2010, in sup-
port of B’s tax return preparation business, B wants to
advertise that the average tax refund obtained for its
clients in 2009 was $2,800. B may not disclose this
information because it contains a statistical compila-
tion reflecting average refund amounts.
Example 3. Preparer C is a tax return preparer
as defined by §301.7216–1(b)(2)(i)(A) and is a Vol-
unteer Income Tax Assistance program. In 2010,
in support of C’s tax return preparation business, C
submits a grant application to a charitable founda-
tion to fund C’s operations providing free tax return
preparation services to low- and moderate-income
families. In support of C’s request, C includes
anonymous statistical data from cells containing data
from ten or more tax returns showing that, in 2009,
C provided services to 500 taxpayers, that 95 percent
of the taxpayer population served by C received
the Earned Income Tax Credit (EITC), and that the
average amount of the EITC received was $3,300.
Despite the fact that this information constitutes an
average credit amount, C may disclose the informa-
tion to the charitable foundation because disclosures
made in support of fundraising activities conducted
by Volunteer Income Tax Assistance programs and
other organizations described in section 501(c) of the
Code in direct support of their tax return preparation
business are not considered marketing and advertis-
ing for purposes of §301.7216–2(o)(1).
Example 4. Preparer D is a tax return preparer
as defined by §301.7216–1(b)(2)(i)(A). In December
2009, D produced an anonymous statistical compi-
lation of tax return information obtained during the
2009 filing season. In 2010, D wants to disclose por-
tions of the anonymous statistical compilation from
cells containing data from ten or more tax returns in
connection with the marketing of its financial advi-
sory and asset planning services. D is required to
receive taxpayer consent under §301.7216–3 before
disclosing the tax return information contained in the
anonymous statistical compilation because the dis-
closure is not being made in support of D’s tax return
preparation business.
(p)Disclosure or use of information
for quality, peer, or conflict reviews.(1)
The provisions of section 7216(a) and
§301.7216–1 shall not apply to any dis-
closure for the purpose of a quality or
peer review to the extent necessary to ac-
complish the review. A quality or peer
review is a review that is undertaken to
evaluate, monitor, and improve the quality
and accuracy of a tax return preparer’s
tax preparation, accounting, or auditing
services. A quality or peer review may
be conducted only by attorneys, certified
public accountants, enrolled agents, and
enrolled actuaries who are eligible to prac-
tice before the Internal Revenue Service.
See Department of the Treasury Circular
230, 31 CFR part 10. Tax return informa-
tion may also be disclosed to persons who
provide administrative or support services
to an individual who is conducting a qual-
ity or peer review under this paragraph
(p), but only to the extent necessary for
the reviewer to conduct the review. Tax
return information gathered in conducting
a review may be used only for purposes of
a review. No tax return information iden-
tifying a taxpayer may be disclosed in any
evaluative reports or recommendations
that may be accessible to any person other
than the reviewer or the tax return preparer
being reviewed. The tax return preparer
being reviewed will maintain a record
of the review including the information
reviewed and the identity of the persons
conducting the review. After completion
of the review, no documents containing in-
formation that may identify any taxpayer
by name or identification number may be
retained by a reviewer or by the reviewer’s
administrative or support personnel.
(2) The provisions of section 7216(a)
and §301.7216–1 shall not apply to any
disclosure necessary to accomplish a con-
flict review. A conflict review is a review
undertaken to comply with requirements
established by any federal, state, or local
law, agency, board or commission, or by
a professional association ethics commit-
tee or board, to either identify, evaluate,
and monitor actual or potential legal and
ethical conflicts of interest that may arise
when a tax return preparer is employed or
acquiredbyanothertaxreturnpreparer,or
to identify, evaluate, and monitor actual or
potential legal and ethical conflicts of in-
terest that may arise when a tax return pre-
parer is considering engaging a new client.
Tax return information gathered in con-
ducting a conflict review may be used only
for purposes of a conflict review. No tax
return information identifying a taxpayer
may be disclosed in any evaluative reports
or recommendations that may be accessi-
ble to any person other than those respon-
sible for identifying, evaluating, and mon-
itoring legal and ethical conflicts of inter-
est. No tax return information identifying
a taxpayer may be disclosed outside of the
United States or a territory or possession of
the United States unless the disclosing and
receiving tax return preparers have proce-
dures in place that are consistent with good
business practices and designed to main-
tain the confidentiality of the disclosed re-
turn information.
(3) Any person (including administra-
tive and support personnel) receiving tax
return information in connection with a
quality, peer, or conflict review is a tax
return preparer for purposes of sections
January 25, 20103212010–4 I.R.B.

7216(a) and 6713(a). Tax return informa-
tion disclosed and used for purposes of a
quality, peer, or conflict review shall not
be used or disclosed for any other purpose.
(q) through (r) [Reserved]. For further
guidance, see §301.7216–2(q) through (r).
(s)Effective/applicability date.This
section applies to disclosures or uses of
tax return information occurring on or af-
ter January 4, 2010.
(t)Expiration date. The applicability of
this section expires on or before December
28, 2012.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved December 24, 2009.
Michael Mundaca,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on December 29,
2009, 4:15 p.m., and published in the issue of the Federal
Register for January 4, 2010, 75 F.R. 48)
Section 9300.—Reduction
inTaxableIncomefor
Housing Displaced
Individuals
26 CFR 1.9300–1: Reduction in taxable income for
housing displaced individuals.
T.D. 9474
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
ReductioninTaxableIncome
for Housing Hurricane Katrina
Displaced Individuals
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains
final regulations relating to the reduc-
tion in taxable income under section 302
of the Katrina Emergency Tax Relief
Act of 2005. The final regulations also
reflect legislation under section 702 of the
Heartland Disaster Tax Relief Act of 2008.
The final regulations affect taxpayers
who provide housing in their principal
residences to individuals displaced by
certain major disasters.
DATES:Effective Date:These regulations
are effective on December 14, 2009.
Applicability Date:For date of applica-
bility, see §1.9300–1(h).
FOR FURTHER INFORMATION
CONTACT: Shareen S. Pflanz,
202–622–4920 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains final regula-
tions that replace the temporary regula-
tionsin26CFRPart1relatingtothere-
duction in taxable income for housing pro-
vided to displaced individuals under sec-
tion 302 of the Katrina Emergency Tax Re-
lief Act of 2005 (Public Law 109–73, 119
Stat. 2016) (KETRA). This document also
applies these rules to individuals displaced
in a Midwestern disaster area, as defined in
section 702 of the Heartland Disaster Tax
Relief Act of 2008 (Title VII of Division
C of Public Law 110–343, 122 Stat. 3912)
(HDTRA).
On December 12, 2006, temporary
regulations (T.D. 9301, 2007–1 C.B. 244)
were published in theFederal Register
(71 FR 74467). A notice of proposed
rulemaking (REG–152043–05, 2007–1
C.B. 263) cross-referencing the temporary
regulations was also published in theFed-
eral Register(71 FR 74482). No public
hearing was requested or held. No writ-
ten comments responding to the notice
of proposed rulemaking were received.
The proposed regulations are adopted as
amended by this Treasury decision to im-
plement section 702 of HDTRA.
Section 702 of HDTRA, enacted on
October 3, 2008, applies section 302 of
KETRA to the Midwestern disaster area.
The Midwestern disaster area is the area
for which the President declared (after
May 19, 2008, and before August 1,
2008) a major disaster under the Robert T.
Stafford Disaster Relief and Emergency
Assistance Act (42 U.S.C. 5170) (Stafford
Act). The disaster occurred by reason of
severe storms, tornados, or flooding in the
states of Arkansas, Illinois, Indiana, Iowa,
Kansas, Michigan, Minnesota, Missouri,
Nebraska, and Wisconsin. The applicable
disaster date for each state in the Midwest-
ern disaster area is the date of the severe
storm, tornado, or flooding giving rise to
the Presidential declaration for that state.
SeeFederal Registernotices for each
state atwww.FEMA.gov. The reduction
in taxable income for providing housing
to a displaced individual in a Midwestern
disaster area applies to taxable years be-
ginning in 2008 or 2009.
Accordingly, the final regulations ex-
pand the scope of the temporary regula-
tions to include taxpayers who provide
housing in their principal residences to
Midwestern disaster displaced individ-
uals. The final regulations expand the
definitions under §1.9300–1T(e) of the
temporary regulations relating to Hurri-
cane Katrina to include the Midwestern
disaster area.
The final regulations also clarify that
the limitations on the reduction in tax-
able income apply separately to the Hur-
ricane Katrina disaster area and the Mid-
western disaster area. Thus, for exam-
ple, a taxpayer may reduce taxable income
by up to $2,000 for providing housing to
Midwestern disaster displaced individuals
even though the taxpayer reduced taxable
income for providing housing to one or
more Hurricane Katrina displaced individ-
uals.
The temporary regulations provided
that the maximum dollar limitation for a
married individual who files a separate
income tax return is $1,000. The final reg-
ulations provide that the maximum dollar
limitation is $2,000 for married taxpayers
filing jointly or separately. Married tax-
payers filing separate income tax returns
may allocate the $2,000 between the re-
turns.
The final regulations authorize the
Commissioner to apply these rules in ad-
ditional guidance of general applicability,
see §601.601(d)(2) of the Internal Revenue
Practice Regulations, if Congress extends
relief under section 302 of KETRA to
other disaster areas in the future.
Effective/Applicability Date
These regulations apply to taxable years
ending after December 11, 2006. Taxpay-
ers who, after filing their tax returns for
2010–4 I.R.B.322January 25, 2010

2006 or 2008 as married filing separately,
want to apply the rule allowing them to al-
locate the $2,000 maximum limitation be-
tween them, may do so by filing amended
returns if the period of limitations on credit
or refund under section 6511 has not ex-
pired.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations and, because
the regulations do not impose a collection
of information on small entities, the Regu-
latory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f)
of the Internal Revenue Code, the notice of
proposed rulemaking that preceded these
final regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal author of these regula-
tions is Shareen S. Pflanz of the Office of
the Associate Chief Counsel (Income Tax
and Accounting). However, other person-
nel from the IRS and the Treasury Depart-
ment participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entry
for §1.9300–1T to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.9300–1 is added to
read as follows:
§1.9300–1 Reduction in taxable income
for housing displaced individuals.
(a)In general. For a taxable year be-
ginning in the applicable taxable year (as
defined in paragraph (f)(1) of this section),
a taxpayer who is a natural person may re-
duce taxable income by $500 for each dis-
placed individual (as defined in paragraph
(f)(2) of this section) to whom the taxpayer
provides housing free of charge in, or on
the site of, the taxpayer’s principal resi-
dence for a period of at least 60 consecu-
tive days. A taxpayer may claim the reduc-
tion in taxable income for any applicable
taxable year in which a consecutive 60-day
period ends. A taxpayer may not claim the
reduction in taxable income unless the tax-
payer includes the taxpayer identification
number of the displaced individual on the
taxpayer’s income tax return.
(b)Provision of housing—(1)Principal
residence. For purposes of this section,
the term principal residence has the same
meaning as in section 121 and the associ-
ated regulations. See §1.121–1(b)(1) and
(b)(2).
(2)Legal interest required. A taxpayer
is treated as providing housing for pur-
poses of this section only if the taxpayer is
an owner or lessee (including a co-owner
or co-lessee) of the principal residence.
(3)Compensation for providing hous-
ing. No reduction in taxable income is
allowedunderthissectiontoataxpayer
who receives rent or any reimbursement or
compensation (whether in cash, services,
or property) from any source for providing
housing to the displaced individual. For
this purpose, lodging, utilities, and other
similar items are treated as housing, but
telephone calls, food, clothing, transporta-
tion, and other similar items are not treated
as housing.
(c)Limitations—(1)Dollar limita-
tion—(i)In general. The reduction in
taxable income under paragraph (a) of this
section may not exceed the maximum dol-
lar limitation, and must be reduced by the
total amount of all reductions under this
section for all prior taxable years (except
as provided in paragraph (c)(5) of this
section). The maximum dollar limitation
is—
(A) $2,000 in the case of an unmarried
individual; or
(B) $2,000 in the case of a husband and
wife, whether the husband and wife file
a joint income tax return or separate in-
come tax returns; married taxpayers filing
separate income tax returns may allocate
this amount in $500 increments between
their respective returns, provided that each
spouse is otherwise eligible to claim that
reduction in taxable income.
(ii)Married individuals with separate
principal residences. The limitation in
paragraph (c)(1)(i)(B) of this section ap-
plies whether or not the married individ-
uals occupy the same principal residence.
A person is treated as married for purposes
of this section if the individual is treated as
married under section 7703.
(2)Spouse or dependent of the tax-
payer. No reduction of taxable income is
allowed for a displaced individual who is
the spouse or a dependent of the taxpayer.
(3)One reduction per displaced indi-
vidual. Except as provided in paragraph
(c)(5) of this section, a taxpayer may not
reduce taxable income under paragraph (a)
of this section for a displaced individual
for whom the taxpayer or any taxpayer re-
siding in the same principal residence has
reduced taxable income under this section
for any prior taxable year.
(4)Taxpayers occupying the same prin-
cipal residence. Except as provided in
paragraph (c)(5) of this section, for all tax-
able years, only one taxpayer occupying
the same principal residence may reduce
taxable income for a particular displaced
individual.
(5)Limitations applied separately to
each disaster. The limitations of this para-
graph (c) apply separately to each disaster
area. Thus, a taxpayer may reduce taxable
income by $2,000 for providing housing
to Midwestern disaster displaced individu-
als even though the taxpayer reduced tax-
able income for providing housing to one
or more Hurricane Katrina displaced indi-
viduals. For this purpose, all areas within
the Midwestern disaster area are treated as
one disaster area.
(d)Substantiation.A taxpayer claiming
a reduction of taxable income under this
section must maintain records sufficient to
show entitlement to the reduction as pro-
vided in forms, instructions, publications
or other guidance published by the IRS.
(e) The Commissioner may apply this
section in additional guidance of general
applicability, see §601.601(d)(2) of this
chapter, to other disaster areas to which
Congress extends relief under section 302
of the Katrina Emergency Tax Relief Act
of 2005.
(f)In general.The following defini-
tions apply for all purposes of this section.
January 25, 20103232010–4 I.R.B.

(1)Applicable taxable year.Theterm
applicable taxable yearmeans—
(i) A taxable year beginning in 2005 or
2006, in the case of housing provided to
a Hurricane Katrina displaced individual
(as defined in paragraph (f)(2)(ii) of this
section); and
(ii) A taxable year beginning in 2008 or
2009, in the case of housing provided to
a Midwestern disaster displaced individual
(as defined in paragraph (f)(2)(iii) of this
section).
(2)Displaced individual—(i)Scope.
The termdisplaced individualmeans a
Hurricane Katrina displaced individual
as defined in paragraph (f)(2)(ii) of this
section and a Midwestern disaster dis-
placed individual as defined in paragraph
(f)(2)(iii) of this section.
(ii)Hurricane Katrina displaced indi-
vidual.ThetermHurricane Katrina dis-
placed individualmeans any natural per-
son (other than the spouse or a dependent
of the taxpayer) if the following require-
ments are met—
(A) The person’s principal place of
abode on August 28, 2005, was in the Hur-
ricane Katrina disaster area (as defined in
paragraph (f)(4)(ii) of this section);
(B) The person was displaced from that
abode; and
(C) If the abode was located outside
the Hurricane Katrinacore disaster area
(as defined in paragraph (f)(5)(ii) of this
section)—
(1) The abode was damaged by Hurri-
cane Katrina; or
(2) The person was evacuated from that
abode by reason of Hurricane Katrina.
(iii)Midwestern disaster displaced in-
dividual.ThetermMidwestern disaster
displaced individualmeans any natural
person (other than the spouse or a de-
pendent of the taxpayer) if the following
requirements are met—
(A) The person’s principal place of
abode on the Midwestern disaster date (as
defined in paragraph (f)(3) of this section),
was in any Midwestern disaster area (as
defined in paragraph (f)(4)(iii) of this sec-
tion);
(B) The person was displaced from that
abode; and
(C) If the abode was located outside the
Midwestern core disaster area (as defined
in paragraph (f)(5)(iii) of this section)—
(1) The abode was damaged by any
Midwestern disaster; or
(2) The person was evacuated from that
abode by reason of any Midwestern disas-
ter.
(3)Midwestern disaster date.Theterm
Midwestern disaster datemeans—
(i) In Arkansas, May 2 through May 12,
2008;
(ii) In Illinois, June 1 through July 22,
2008;
(iii) In Indiana, May 30 through
June 27, 2008;
(iv) In Iowa, May 25 through
August 13, 2008;
(v) In Kansas, May 22 through June 16,
2008;
(vi) In Michigan, June 6 through
June 13, 2008;
(vii) In Minnesota, June 6 through
June 12, 2008;
(viii) In Missouri, May 10 through
May 11, 2008, and June 1 through
August 13, 2008;
(ix) In Nebraska, April 23 through
April 26, 2008, May 22 through June 24,
2008, and June 27, 2008; or
(x) In Wisconsin, June 5 through
July 25, 2008.
(4)Disaster area—(i)Scope.The
termdisaster areameans the Hurri-
cane Katrina disaster area as defined in
paragraph (f)(4)(ii) of this section and the
Midwestern disaster area as defined in
paragraph (f)(4)(iii) of this section.
(ii)Hurricane Katrina disaster area.
The termHurricane Katrina disaster area
means the states of Alabama, Florida,
Louisiana, and Mississippi.
(iii)Midwestern disaster area.The
termMidwestern disaster areameans an
area for which the President declared a
major disaster on or after May 20, 2008,
and before August 1, 2008, under section
401 of the Robert T. Stafford Disaster
Relief and Emergency Assistance Act
(42 U.S.C. 5170) (Stafford Act) by reason
of severe storms, tornados, or flooding
occurring in any of the states of Arkansas,
Illinois, Indiana, Iowa, Kansas, Michigan,
Minnesota, Missouri, Nebraska, and
Wisconsin.
(5)Core disaster area—(i)Scope.The
termcore disaster areameans the Hurri-
cane Katrina core disaster area as defined
in paragraph (f)(5)(ii) of this section and
theMidwesterncoredisasterareaasde-
fined in paragraph (f)(5)(iii) of this section.
(ii)Hurricane Katrina core disaster
area.ThetermHurricane Katrina core
disaster areameans the portion of the
Hurricane Katrina disaster area designated
by the President to warrant individual or
individual and public assistance from the
federal government under the Stafford
Act.
(iii)Midwestern core disaster area.
The termMidwestern core disaster area
means the portion of the Midwestern dis-
aster area designated by the President to
warrant individual or individual and pub-
lic assistance from the federal government
under the Stafford Act for damages attrib-
utable to the severe storms, tornados, or
flooding in the Midwestern disaster area.
(g)Examples. The provisions of this
section are illustrated by the following ex-
amples. In each example, a taxpayer pro-
vides housing within the meaning of para-
graph (b) of this section in, or on the site
of, the taxpayer’s principal residence for a
period of at least 60 consecutive days (the
60th day being in the applicable taxable
year) for each displaced individual, none
of whom is a spouse or dependent of the
taxpayer. The examples are as follows:
Example 1. Taxpayer A provides housing to
N, a Hurricane Katrina displaced individual, from
September 1, 2005, until March 10, 2006. Under
paragraphs (a) and (c)(3) of this section, A may
reduce A’s taxable income by $500 on A’s income
tax return for calendar year 2005 or 2006 (but not
both) for providing housing to N.
Example 2.ThefactsarethesameasinExample
1, except that A and A’s unmarried roommate B are
co-lessees of their principal residence. Both A and B
provide housing to N. Under paragraphs (a) and (c)(4)
of this section, either A or B, but not both, may reduce
taxable income by $500 for 2005 or 2006 for provid-
ing housing to N. If A or B reduces taxable income
for2005forprovidinghousingtoN,neitherAnor
B may reduce taxable income for 2006 for providing
housing to N.
Example 3.ThefactsarethesameasinExample
2, except that in 2009 A and B provide housing to
N, who in 2009 is a Midwestern disaster displaced
individual. Under paragraph (c)(5) of this section, the
limitation of paragraph (c)(4) of this section applies
separately to each disaster. Therefore, either A or
B may reduce taxable income by $500 for 2009 for
providing housing to N.
Example 4. During 2008, unmarried roommates
and co-lessees C and D provide housing to eight Mid-
western disaster displaced individuals. Under para-
graphs (a) and (c)(1)(i)(A) of this section, C may re-
duce taxable income by $2,000 on C’s 2008 income
tax return for providing housing to any four of these
displaced individuals and D may reduce taxable in-
come by $2,000 on D’s 2008 income tax return for
providing housing to the other four displaced individ-
uals.
Example 5.(i) In 2008, a married couple, H
and W, provide housing to a Midwestern disaster dis-
placed individual, O. H and W file their 2008 income
2010–4 I.R.B.324January 25, 2010

tax return as married filing jointly. Under paragraphs
(a) and (c)(4) of this section, H and W may reduce
taxable income by $500 on their 2008 income tax re-
turn for providing housing to O.
(ii) In 2009, H and W provide housing to O and
to another Midwestern disaster displaced individual,
P. H and W file their 2009 income tax returns as mar-
ried filing separately. Because H and W reduced their
2008 taxable income for providing housing to O, un-
der paragraph (c)(3) of this section, neither H nor W
may reduce taxable incomeon their 2009 income tax
returns for providing housing to O. Under paragraphs
(a) and (c)(4) of this section, either H or W but not
both, may reduce taxable income by $500 on his or
her 2009 income tax return for providing housing to
P.
Example 6.ThefactsarethesameasinExam-
ple 5, except that in 2009 H and W provide housing
to five Midwestern disaster displaced individuals in
addition to O. H and W together may reduce taxable
income on their 2009 income tax returns by a total of
$2,000 for the Midwestern disaster displaced individ-
uals (other than O). Under paragraph (c)(1)(i)(B) of
this section, H and W may allocate the $2,000 in in-
crements of $500 between their separate returns. For
example, either one may reduce taxable income by
$500 and the other may reduce taxable income by
$1,500, or H and W each may reduce taxable income
by $1,000.
(h)Effective/applicability date.This
section applies for taxable years ending af-
ter December 11, 2006.
§1.9300–1T [Removed]
Par. 3. Section 1.9300–1T is removed.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved December 8, 2009.
Michael F. Mundaca,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on December 11,
2009, 8:45 a.m., and published in the issue of the Federal
Register for December 14, 2009, 74 F.R. 66048)
January 25, 20103252010–4 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Extension of Temporary
Suspension of AHYDO Rules
Notice 2010–11
This notice extends the temporary
suspension of the rules for certain ap-
plicable high yield discount obligations
(“AHYDOs”) pursuant to § 163(e)(5)(F)
of the Internal Revenue Code.
Under § 163(e)(5), in the case of an
AHYDO as defined in § 163(i), a corpora-
tion is not allowed a deduction for the dis-
qualified portion of the original issue dis-
count (“OID”) on the obligation, and the
corporation’s deduction for the remaining
portion of the OID is deferred until the
OIDispaidincashorinproperty(other
than debt of the issuer or a related per-
sonwithinthemeaningof§453(f)(1)).
Section 163(e)(5)(F)(i), which was added
to the Internal Revenue Code by section
1232(a) of the American Recovery and
Reinvestment Tax Act of 2009, Pub. L.
No. 111–5, 123 Stat. 115 (2009), generally
provides that § 163(e)(5) does not apply to
any AHYDO issued during the period be-
ginning on September 1, 2008, and end-
ing on December 31, 2009, in exchange
(including an exchange resulting from a
modification of the debt instrument) for an
obligation which is not an AHYDO and the
issuer (or obligor) of which is the same as
the issuer (or obligor) of such AHYDO.
Section 163(e)(5)(F)(iii) permits the
Secretary to suspendthe applicability of
§ 163(e)(5) for AHYDOs issued after
December 31, 2009, if the Secretary deter-
mines that such application is appropriate
in light of distressed conditions in the debt
capital markets.
Pursuant to the authority granted in
§ 163(e)(5)(F)(iii), the suspension of the
applicability of § 163(e)(5) provided for
in § 163(e)(5)(F)(i) is extended to Decem-
ber 31, 2010 for any AHYDO that is a
qualified obligation. For purposes of the
preceding sentence, an AHYDO is a qual-
ified obligation only if: (1) the AHYDO
is issued after December 31, 2009, and on
or before December 31, 2010, in exchange
(including an exchange resulting from a
modification of the debt instrument) for
an obligation that is not an AHYDO; (2)
the issuer (or obligor) of the AHYDO is
the same as the issuer (or obligor) of the
obligation exchanged for the AHYDO;
(3) the AHYDO does not pay interest that
would be treated as contingent interest
for purposes of § 871(h)(4) (without re-
gard to § 871(h)(4)(D)); (4) the AHYDO
isnotissuedtoarelatedperson(within
the meaning of § 108(e)(4)); (5) the issue
price of the AHYDO is determined un-
der § 1273(b)(1), 1273(b)(2), 1273(b)(3),
or 1274(b)(3), whichever is applicable,
and the regulations thereunder; and (6)
the AHYDO would not otherwise be an
AHYDO if its issue price were increased
by the amount of any discharge of indebt-
edness income realized by the issuer (or
obligor) upon the exchange.
For example, assume that prior to 2010
Corporation X issueda debt instrument
that was not an AHYDO. In 2010, Cor-
poration X exchanges the debt instrument
issued prior to 2010, which has an ad-
justed issue price of $100x as of the ex-
change date, for a new debt instrument
that is an AHYDO with an issue price of
$80x (determined under § 1273(b)(3)) and
a stated redemption price at maturity of
$100x. Corporation X realizes $20x of dis-
charge of indebtedness income on the ex-
change. To determine whether the new
debt instrument is a qualified obligation,
theissuepriceofthenewdebtinstrument
is increased from $80x to $100x ($80x
plus $20x) and this deemed issue price is
used to determine whether the new debt
instrument is an AHYDO for purposes of
this notice. If the new debt instrument
wouldbeanAHYDOiftheissueprice
were $100x, then the new debt instrument
is not a qualified obligation and the new
debt instrument does not qualify for the
relief provided by § 163(e)(5)(F) and this
notice. If the new debt instrument would
notbeanAHYDOiftheissuepricewere
$100x, then the new debt instrument is a
qualified obligation and the new debt in-
strument does qualify for the relief pro-
vided by § 163(e)(5)(F) and this notice,
provided that the other requirements to be
a qualified obligation are satisfied.
The principal author of this notice
is William E. Blanchard of the Office
of Associate Chief Counsel (Financial
Institutions & Products). For further in-
formation regarding this notice, contact
William E. Blanchard at (202) 622–3950
(not a toll-free call).
Treatment of Certain
Obligations Under Section
956(c)
Notice 2010–12
1. On October 27, 2008, the Treasury
Department and the Internal Revenue Ser-
vice (Service) published Notice 2008–91,
2008–43 I.R.B. 1001, which describes reg-
ulations that the Treasury Department and
the Service intend to issue that will pro-
vide an elective exclusion from the defi-
nition of “obligation” for purposes of sec-
tion 956 of the Internal Revenue Code for
the first two taxable years of a controlled
foreign corporation ending after October 3,
2008. Notice 2008–91, however, does not
apply to taxable years of a controlled for-
eign corporation beginning after Decem-
ber 31, 2009. The Treasury Department
and the Service subsequently issued No-
tice 2009–10, 2009–1 C.B. 419, to pro-
vide that the regulations described in No-
tice 2008–91 will also apply to the third
consecutive taxable year of a controlled
foreign corporation, if any, that ends after
October 3, 2008, and that ends on or before
December 31, 2009.
This notice provides that the regulations
described in Notice 2008–91 will also ap-
ply to the taxable year of a controlled for-
eign corporation that immediately follows
the last taxable year ofsuch controlled for-
eign corporation to which the regulations
described in Notice 2008–91 could apply
without regard to this notice. In no case
shall the regulations described in Notice
2008–91 apply to a taxable year of a con-
trolled foreign corporation beginning on
or after January 1, 2011. The Treasury
Department and the Service do not antici-
pate extending the application of the regu-
lations described in Notice 2008–91 to any
additional periods.
2. On May 27, 2008, the Treasury De-
partment and the Service published Rev.
Proc. 2008–26, 2008–1 C.B. 1014, which
applies to determine whether securities are
“readily marketable” for purposes of sec-
tion 956(c)(2)(J) for any day during calen-
2010–4 I.R.B.326January 25, 2010

dar years 2007 or 2008, for which it is rel-
evant whether securities are readily mar-
ketable for purposes of that section. In
Notice 2009–10, the Treasury Department
and the Service subsequently extended that
period to include any such day during cal-
endar year 2009. This notice extends the
application of Rev. Proc. 2008–26 to
any day during calendar year 2010, for
which it is relevant whether securities are
readily marketable for purposes of section
956(c)(2)(J) (in addition to any day during
calendar years 2007, 2008 or 2009).
DRAFTING INFORMATION
The principal author of this notice is
Phyllis E. Marcus of the Office of Asso-
ciate Chief Counsel (International). For
further information regarding this no-
tice, contact Phyllis E. Marcus at (202)
622–3840 (not a toll-free call).
Form 1120, Form 1120–F,
Form 1120S, Form 990, and
Form 990–PF Electronic Filing
Waiver Request Procedures
Notice 2010–13
Background
This notice provides procedures for cor-
porations, electing small business corpo-
rations, and organizations required to file
returns under section 6033 (filers) to re-
quest a waiver of the requirement to elec-
tronically file Form 1120,U.S. Corpora-
tion Income Tax Return;Form 1120–F,
U.S. Income Tax Return of a Foreign Cor-
poration; Form 1120S,U.S. Income Tax
Return for an S Corporation; Form 990,
Return of Organization Exempt From In-
come Tax; Form 990–PF,Return of Private
Foundation or Section 4947(a)(1) Nonex-
empt Charitable Trust Treated as a Private
Foundation; and returns, amended returns,
and superseding returns in the Form 1120
and 990 series of returns when required by
regulations and IRS publications. This no-
tice also includes guidance on the timely
filing of a return required to be electroni-
cally filed that is rejected.
Section 6011(e) authorizes the Internal
Revenue Service (Service) to issue regula-
tions that require an entity to file returns
on electronic media when the entity is re-
quired to file at least 250 returns during the
calendar year. On November 13, 2007, the
Treasury Department and the Service is-
sued final regulations that require certain
large corporations, electing small business
corporations, and organizations required to
file returns under section 6033 to electron-
ically file their income tax or annual infor-
mation returns. T.D. 9363, 2007–2 C.B.
1084, 72 F.R. 63807.
Under the final regulations, corpora-
tions that meet this 250 return thresh-
old and that have assets of $10 million
or more generally must file their Form
1120 or Form 1120S returns electroni-
cally for taxable years ending on or after
December 31, 2006. Foreign corporations
that meet this 250 return threshold and
that have assets of $10 million or more
generally must file their Form 1120–F
electronically for taxable years ending on
or after December 31, 2008.
The final regulations also generally
require that tax exempt organizations
with assets of $10 million or more that
are required to file returns under sec-
tion 6033 and that meet the 250 return
threshold file their Form 990 electroni-
cally for taxable years ending on or after
December 31, 2006. The final regulations
further generally require certain tax
exempt organizations, private foundations,
or section 4947(a)(1) trusts (regardless of
asset size) that are required to file returns
under section 6033 and that meet the 250
return threshold to file their Form 990–PF
electronically for taxable years ending on
or after December 31, 2006.
Exclusions from the e-file Requirement
Final regulations sections 301.6011–5,
301.6033–4, and 301.6037–2 and IRS
publications provide for exceptions and
hardship waivers from the electronic filing
requirement for corporations, organiza-
tions required to file returns under section
6033, and electing small business corpora-
tions. IRS Publication 4163,Modernized
e-File (MeF) Information for Authorized
IRS e-file Providers for Business Returns,
and IRS Publication 4164,Modernized
e-File (MeF) Guide for Software Develop-
ers And Transmitters, contain instructions
for filing corporate and tax-exempt organ-
ization returns electronically, and exclude
certain types of returns from the electronic
filing requirement. For a complete and up
to date list of the exclusions or for further
information on electronic filing, refer to
Publication 4163, Publication 4164, and
the IRS.gov Internet site. The Service will
post answers to Frequently Asked Ques-
tions on this site.
Timely Filing of Rejected e-filed Returns
and Perfection Procedures
If the return required to be filed elec-
tronically is transmitted on or before the
duedate(includingextensions) and is re-
jected, but the electronic return originator
or the filer comply with the following re-
quirements for timely submission of the re-
turn, the return will be considered timely
filed and any elections attached to the re-
turn will be considered valid. For returns
filed on or after January 1, 2010, the Ser-
vice will allow the filer 10 calendar days
from the date of first transmission to per-
fect the return for electronic resubmission.
If the electronic return cannot be ac-
cepted for processingelectronically, the
filer must file a paper return with the
Service Center where it would normally
be filed. In order for the paper return
to be considered timely, it must be post-
marked by the U.S. Postal Service (or a
foreign postal service, or in the case of
private delivery services designated by
Notice 2004–83, 2004–2 C.B. 1030, have
a postmark date as determined by Notice
97–26, 1997–1 C.B. 413), or delivered to
the Service by the later of the due date of
the return (including extensions), or 10
calendar days after the date the Service
last gives notification to the filer that the
return has been rejected, as long as:
(1) The first transmission was made on
or before the due date of the return (includ-
ing extensions) and
(2) The last transmission was made
within 10 calendar days of the first trans-
mission.
The paper return must be completed
consistent with the instructions to file the
return, including providing required in-
formation from the taxpayer and include
the signature of the tax return preparer,
if any. The PIN that was used on the
electronically filed return that was re-
jected may not be used as the signature
on the paper return. Corporations, part-
nerships, and tax-exempt organizations
that are required toe-filemust contact
January 25, 20103272010–4 I.R.B.

the e-Help Desk ((866) 255–0654) for
assistance in correcting rejected returns
before filing a paper return.If the
taxpayer cannot correct the rejected return
errors, they must receive authorization
from the e-Help Desk prior to filing a
paper return. However, the taxpayer is not
otherwise required to complete a waiver
request as discussed below.
If the paper return is postmarked after
its due date (including extensions), then
the paper return should include an expla-
nation of why the return is being filed af-
ter the due date and include a copy of the
Service’s final rejection notification. Sim-
ilarly, if the paper return is being submitted
by a corporation, partnership, or tax-ex-
empt entity that is required toe-filethe re-
turn, then the return should include an ex-
planation of why the return is being filed in
paper form and include a copy of the Ser-
vice’s final rejection notification. A paper
return filed in accordance with the above
procedures will be considered timely filed,
any elections attached to the return will be
considered valid, and no penalty will be
imposed for failing toe-filethe return.
The procedures set forth in the preced-
ing paragraphs apply to submissions of pa-
per returns only when the filer has unsuc-
cessfully attempted toe-file.Filerswho
are required toe-filebut desire to seek a
waiver of that requirement under a claim
of undue hardship must use the procedures
discussed below in order to receive IRS ap-
proval of a waiver request.
Requests for Waiver of Electronic Filing
Requirement Due to Undue Hardship
When certain filers required to file over
250 returns fail to file electronically as re-
quired, those filers may be liable for fail-
ure to file penalties under I.R.C. §§ 6651
or 6652, unless the filer can establish that
the failure to file the return electronically
was due to reasonable cause and not due
to willful neglect. The final regulations
permit the Service to waive the electronic
filing requirement if the filer demonstrates
that undue hardship would result if it were
required to file its return electronically.
The regulations requirethat filers seeking
a waiver should request that waiver in the
manner prescribed in applicable revenue
procedures or publications.
The Service will approve or deny re-
quests for a waiver of the electronic fil-
ing requirement based on each filer’s par-
ticular facts and circumstances. In de-
termining whether to approve or deny a
waiver request, the Service will consider
the filer’s ability to timely file its return
electronically without incurring an undue
economic hardship. The Service will gen-
erally grant a waiver where the filer can
demonstrate the undue hardship that would
result by complying with the electronic
filing requirement, including any incre-
mental costs to the filer. Mindful of the
software and technological issues in fil-
ing electronically, the Service also gener-
ally will grant a waiver where technology
issues prevent the filer from filing its re-
turn electronically. Guidance on situations
in which deviations or exclusions from the
electronic filing requirement can be made
without a waiver is available in IRS Publi-
cation 4163, IRS Publication 4164, and on
the IRS.gov Internet site.
Elements of a Waiver Request Claiming
Undue Hardship
Torequestawaiver,thefilermustfile
a written request containing the following
information:
(1) A notation at the top of the request
stating, in large letters, the type of form
followed by the words “e-fileWaiver Re-
quest” (e.g., “Form 1120e-fileWaiver Re-
quest” or “Form 990e-fileWaiver Re-
quest”).
(2) The filer’s name, federal tax identi-
fication number, mailing address, contact
name, phone number and e-mail address.
(3) The type of form for which the
waiver is requested.
(4) The taxable year for which the
waiver is requested.
(5) The value of the filer’s total assets at
the end of the taxable year as reported (or
to be reported) on the entity’s return.
(6) A detailed statement which lists:
a) the steps the filer has taken in an
attempt to meet its requirement to timely
file its return electronically,
b) why the steps were unsuccessful,
c) the undue hardship that would re-
sult by complying with the electronic fil-
ing requirement, including any incremen-
tal costs to the filer of complying with the
electronic filing requirement. Incremental
costs are those costs that are above and be-
yond the costs to file on paper. The incre-
mental costs must be supported by a de-
tailed computation. The detailed computa-
tion must include a schedule detailing the
costs to file on paper and the costs to file
electronically.
(7) A statement as to what steps the filer
will take to assure its ability to file future
returns electronically.
(8) A statement (signed by an officer
authorized to sign the return, as defined in
section 6062 of the Code) with the follow-
ing language:
Under penalties of perjury, I declare
that the information contained in this
waiver request is true, correct and com-
plete to the best of my knowledge and
belief.
Requests made by an authorized repre-
sentative of the filer must include a valid
powerofattorney.
The waiver request should not be at-
tached to the filer’s paper tax return. Ex-
tension requests or payments should not be
submitted with the waiver request.
TimeforFilingaWaiverRequest
Filers are encouraged to file electronic
filing waiver requests for failure to file a
return electronicallyas soon as possible
after it is determined that the filer is unable
to electronically filethe return or amended
return. This will give the Service time to
process the waiver request.
Place for Filing a Waiver Request
Until the Service issues further guid-
ance, filers should file a waiver request
with the Ogden Submission Processing
Center.
Use the following address if using the
U.S. Postal Service:
Internal Revenue Service
Ogden Submission Processing Center
Attn: Forms 1120 and 990e-file
Waiver Request, Stop 1057
Ogden, UT 84201
Use the following address if using an
overnight delivery service:
Internal Revenue Service
Ogden Submission Processing Center
Attn: Forms 1120 and 990e-fileWaiver
Request, Stop 1057
1973 N. Rulon White Blvd.
Ogden, UT 84404
2010–4 I.R.B.328January 25, 2010

Filers may also fax the waiver request
to the following number: (877) 477–0575.
Approval of the Waiver Request
The Service will review and process
waiver requests in a timely manner and
will send the filer written notice of any
approval or rejection of the filer’s waiver
request. The Service will not be consid-
ered to have waived the e-filing require-
ment unless the filer receives written ap-
proval from the Service that the waiver re-
quest has been approved. In the absence of
written approval, a failure toe-filemay be
subject to penalty unless such failure was
due to reasonable cause and not willful ne-
glect.
Effect on Other Documents
This notice supersedes Notice 2005–88,
2005–2 C.B. 1060.
Effective Date
This notice is effective for all returns,
including amended and superseding re-
turns, filed after December 31, 2009.
Contact Information
Software developers and vendors may
contact the e-Help Desk at (866) 255–0654
with questions about corporatee-file.Fur-
ther information is available on thee-file
for Charities and Nonprofits webpage at
the IRS.gov Internet site.
The principal author of this announce-
ment is Michael Hara of the Office of As-
sociate Chief Counsel (Procedure & Ad-
ministration). For questions concerning a
request for waiver, you may contact the
e-Help Desk at (866) 255–0654. To have
your call directed to the appropriate area,
select the options fore-filequestions, busi-
ness returns, and the form type for which
you are calling.
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also Part I, §§ 469, 1.469–4.)
Rev. Proc. 2010–13
SECTION 1. PURPOSE
This revenue procedure requires tax-
payers to report to the Internal Revenue
Service their groupings and regroupings of
activities and the addition of specific activ-
ities within their existing groupings of ac-
tivities for purposes of section 469 of the
Internal Revenue Code and § 1.469–4 of
the Income Tax Regulations.
On August 4, 2008, Notice 2008–64,
2008–31 I.R.B. 268, (the notice) was pub-
lished in the Internal Revenue Bulletin.
The notice proposed a disclosure regime
for taxpayer groupings under section 469
and solicited comments both on whether
the proposal sufficiently balanced the need
for disclosure with taxpayer burden, and
on alternative approaches. In response, the
Service received several comments sug-
gesting ways in which the proposal could
be improved. This revenue procedure re-
flects some of the changes suggested by
the comments received. Specifically, the
regime proposed in the notice required
taxpayers to make a disclosure whenever
there is a disposition of an activity within
a chosen grouping; this requirement has
been removed. In addition, the notice did
not contain a relief provision for taxpay-
ers that, in a given year, fail to make the
required disclosure. Section 4.07 of this
revenue procedure contains a relief pro-
vision for taxpayers that can meet certain
additional criteria to demonstrate their
groupings of activities.
SECTION 2. BACKGROUND
.01 Section 469 generally provides that
losses from and credits attributable to
passive trade or business activities, to the
extent they exceed, respectively, income
from or the regular tax liability associated
with all such passive activities, are dis-
allowed for the taxable year and carried
forward to the subsequent taxable year,
subject to certain exceptions.
.02 Section 469(g)(1)(A) generally pro-
vides that if during the taxable year a tax-
payer disposes of his entire interest in any
passive activity (or former passive activ-
ity), and all gain or loss realized on such
disposition is recognized, the excess of (i)
any loss from such activity for such tax-
able year (determined after the application
of section 469(b)), over (ii) any net in-
come or gain for such taxable year from
all other passive activities (determined af-
ter the application of section 469(b)), shall
be treated as a loss which is not from a pas-
sive activity.
.03 Section 1.469–4 sets forth the rules
for grouping a taxpayer’s trade or business
activities and rental activities for purposes
of applying the passive activity loss and
credit limitation rules of section 469.
.04 Section 1.469–4(c)(1) provides that
one or more trade or business activities or
rental activities may be treated as a single
activity if the activities constitute an ap-
propriate economic unit for the measure-
ment of gain or loss for purposes of section
469.
.05 Section 1.469–4(c)(2) provides
guidelines for determining whether activ-
ities constitute an appropriate economic
unit and, therefore, may be treated as a sin-
gle activity. Section 1.469–4(d) describes
limitations on grouping certain activi-
ties. Section 1.469–4(d)(5) provides that
a C corporation subject to section 469, an
S corporation, or a partnership (a section
469 entity) must group its activities under
the rules of § 1.469–4. Once a section 469
entity groups its activities, a shareholder
or partner may group those activities with
each other, with the activities conducted
directly by the shareholder or partner, and
with activities conducted through other
section 469 entities, in accordance with
the rules of this section. The shareholder
or partner may not treat activities grouped
together by a section 469 entity as separate
activities.
.06 Section 1.469–4(e)(1) provides that
except as provided in § 1.469–4(e)(2)
and § 1.469–11 (providing three periods
of time, all of which are now closed, in
which a taxpayer could have regrouped
its activities without having to establish
that the original grouping was clearly in-
appropriate under § 1.469–4(e)(2)), once
a taxpayer has grouped activities under
§ 1.469–4, the taxpayer generally may not
regroup those activities in subsequent tax-
able years. Taxpayers must comply with
disclosure requirements that the Commis-
sioner may prescribe with respect to both
January 25, 20103292010–4 I.R.B.

their original groupings and the addition
and disposition of specific activities within
those existing groupings in subsequent
taxable years.
.07 Section 1.469–4(e)(2) provides that
if it is determined that a taxpayer’s origi-
nal grouping was clearly inappropriate or
a material change in the facts and circum-
stances has occurred that makes the origi-
nal grouping clearly inappropriate, the tax-
payer must regroup the activities and must
comply with the disclosure requirements
that the Commissioner may prescribe.
.08 Section 1.469–4(f) provides that the
Commissioner may regroup a taxpayer’s
activities if any of the activities result-
ing from the taxpayer’s grouping is not
an appropriate economic unit and a princi-
pal purpose of the taxpayer’s grouping (or
failure to regroup under paragraph (e) of
§ 1.469–4) is to circumvent the underlying
purposes of section 469.
SECTION 3. SCOPE
This revenue procedure applies to all
taxpayers to which the rules in § 1.469–4
apply. Special rules apply for groupings by
partnerships and S corporations and are de-
scribed in section 4.05 of this revenue pro-
cedure. This revenue procedure does not
apply to the rental realestate activities (as
defined in § 1.469–9(b)(3)) of a taxpayer in
a year in which the taxpayer is a qualifying
taxpayer (as defined in § 1.469–9(b)(6))
if it has made the election provided for in
§ 1.469–9(g).
SECTION 4. APPLICATION
.01Disclosure Requirements for Tax-
payer Groupings.
Sections 4.02 through 4.04 of this rev-
enue procedure require taxpayers to re-
port to the Service, as part of their an-
nual income tax return, certain changes to
the taxpayer’s groupings that occur dur-
ing the taxable year. Section 4.05 of this
revenue procedure provides special rules
for groupings by partnerships and S cor-
porations. Section 4.06 of this revenue
procedure governs the treatment of group-
ings existing prior to the effective date of
this revenue procedure. Section 4.07 of
this revenue procedure stipulates the con-
sequences for failing to make the disclo-
sures required by sections 4.02 through
4.04.
.02Statement Required for New Group-
ings.
A taxpayer shall file a written state-
ment with its original income tax return
for the first taxable year in which two or
more trade or business activities or rental
activities are originally grouped as a sin-
gle activity. This statement must identify
the names, addresses, and employer iden-
tification numbers, if applicable, for the
trade or business activities or rental activ-
ities that are being grouped as a single ac-
tivity. In addition, any statement report-
ing a new grouping of two or more trade
or business activities or rental activities as
a single activity must contain a declaration
that the grouped activities constitute an ap-
propriate economic unit for the measure-
ment of gain or loss for purposes of section
469.
.03Statement Required for Addition of
New Activities to Existing Groupings.
If a taxpayer adds a new trade or busi-
ness activity or a rental activity to an ex-
isting grouping for a taxable year, the tax-
payer shall file a written statement with
the taxpayer’s original income tax return
for that taxable year. This statement must
identify the names, addresses, and em-
ployer identification numbers, if applica-
ble, for the new trade or business activ-
ity or rental activity that is being added
to the existing grouping, as well as the
names, addresses, and employer identifi-
cation numbers, if applicable, for the activ-
ity or activities within the existing group-
ing. In addition, the statement reporting an
addition to an existing grouping must con-
tain a declaration that the activities consti-
tute an appropriate economic unit for the
measurement of gain or loss for purposes
of section 469.
.04Statement Required for Regroup-
ings.
Under § 1.469–4(e)(2), if it is deter-
mined that the taxpayer’s original group-
ing was clearly inappropriate or a material
change in the facts and circumstances has
occurred that makes the original grouping
clearly inappropriate, the taxpayer must re-
group the activities. If such a determina-
tion and regrouping is made, the taxpayer
shall file a written statement with the tax-
payer’s original income tax return for the
taxable year in which the trade or busi-
ness activities or rental activities are re-
grouped. This statement must identify the
names, addresses, and employer identifi-
cation numbers, if applicable, for the trade
or business or rental activities that are be-
ing regrouped. If two or more activities are
regrouped into a single activity, the state-
ment reporting a regrouping must also con-
tain a declaration that the regrouped ac-
tivities constitute an appropriate economic
unit for the measurement of gain or loss
for purposes of section 469. Furthermore,
the statement reporting a regrouping must
contain an explanation of why the tax-
payer’s original grouping was determined
to be clearly inappropriate or the nature of
the material change in the facts and cir-
cumstances that makes the original group-
ing clearly inappropriate.
.05Special Rules for Groupings by
Partnerships and S Corporations.
Under § 1.469–4(d)(5), a section 469
entity must group its activities under the
rules of that section. However, partner-
ships and S corporations are not subject
to the requirements of §§ 4.02, 4.03, and
4.04 of this revenue procedure. Instead,
partnerships and S corporations must com-
ply with the disclosure instructions for
grouping activities provided for on Form
1065,U.S. Return of Partnership Income
and Form 1120S,U.S. Income Tax Return
for an S Corporation, respectively. Gener-
ally, compliance with the applicable form
requires disclosing the entity’s groupings
to the partner or shareholder by separately
stating the amounts of income and loss
for each grouping conducted by the en-
tity on attachments to the entity’s annual
Schedule K–1. The partner or shareholder
is not required to make a separate dis-
closure of the groupings disclosed by the
entity under §§ 4.02, 4.03, and 4.04 of
this revenue procedure unless the partner
or shareholder (1) groups together any of
the activities that the entity does not group
together, (2) groups the entity’s activities
with activities conducted directly by the
partner or shareholder, or (3) groups the
entity’s activities with activities conducted
through other section 469 entities. Pur-
suant to § 1.469–4(d)(5)(i), a shareholder
or partner may not treat activities grouped
together by a section 469 entity as separate
activities.
.06Reporting of Pre-Existing Group-
ings Required only upon Change.
A taxpayer is not required to file a writ-
ten statement reporting the grouping of the
trade or business activities and rental activ-
ities that have been made prior to the effec-
2010–4 I.R.B.330January 25, 2010

tive date of this revenue procedure (pre-ex-
isting groupings) until the taxpayer makes
a change to the grouping as described in
sections 4.03 and 4.04 of this revenue pro-
cedure.
.07Effect of Failure to Report.
Except as provided in § 4.05, if a tax-
payer is engaged in two or more trade or
business activities or rental activities and
fails to report whether the activities have
been grouped as a single activity in accor-
dance with this revenue procedure, then
each trade or business activity or rental
activity will be treated as a separate ac-
tivity for purposes of applying the pas-
sive activity loss and credit limitation rules
of section 469. Notwithstanding the pre-
vious sentence, a timely disclosure shall
be deemed made by a taxpayer who has
filed all affected income tax returns con-
sistent with the claimed grouping of activ-
ities and makes the required disclosure on
the income tax return for the year in which
the failure to disclose is first discovered
by the taxpayer. If the failure to disclose
is first discovered by the Service, how-
ever, the taxpayer must also have reason-
able cause for not making the disclosures
required by this revenue procedure. Al-
though the default rule established by this
section 4.07 will generally result in unre-
ported activities being treated as separate
activities, the Commissioner may still re-
group a taxpayer’s activities to prevent tax
avoidance pursuant to § 1.469–4(f). This
revenue procedure provides alternative re-
lief for untimely filing of the disclosures
required by this revenue procedure; there-
fore, relief for untimely disclosures under
§ 301.9100 of the Procedure and Admin-
istration Regulations is not available pur-
suant to § 301.9100–1(d)(2).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective
for taxable years beginning on or after
January 25, 2010.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–2156.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in this
revenue procedure are in section 4. This
information is required to be submitted in
order to disclose a taxpayer’s grouping of
activities. This information will be used to
measure gain or loss for purposes of sec-
tion 469. The collection of information is
required to assist in compliance with tax
obligations. The likely respondents are in-
dividuals and section 469 entities, includ-
ing certain C corporations, S corporations,
and partnerships.
The estimated total annual reporting
burden for the taxable years in which this
revenue procedure applies is 36,000 hours.
The estimated annual burden per re-
spondent for the taxable years in which this
revenue procedure applies varies from 10
minutes to 20 minutes, depending on in-
dividual circumstances, with an estimated
average burden of 15 minutes. The esti-
mated annual number of respondents for
the taxable years in which this revenue
procedure applies is 144,000.
The estimated annual frequency of re-
sponses is regular.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal authors of this revenue
procedure are Bryan A. Rimmke and
Jonathan E. Cornwell of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries). For further in-
formation regarding this notice, contact
Mr. Rimmke or Mr. Cornwell at (202)
622–3050 (not a toll-free call).
January 25, 20103312010–4 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking by
Cross-Refere
nce to
Temporary Re
gulations
Amendments t
otheSection
7216 Regulat
ions—Disclosure
or Use of Inf
ormation by
Preparers o
fReturns
REG–131028–09
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Not
ice of proposed rulemaking
by cross-r
eference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9478) that provide updated guidance
affecting tax return preparers regarding the
use of information related to lists for solici-
tation of tax return business; the disclosure
or use of statistical compilations of data
under section 7216 of the Internal Revenue
Code (Code) by a tax return preparer in
connection with, or in support of, a tax re-
turn preparer’s tax return preparation busi-
ness, including identification of additional
limited circumstances when a tax return
preparer who compiles statistical informa-
tion may disclose the compilation without
taxpayer consent, and the placement of ad-
ditional restrictions on the content of the
compilation that may be disclosed under
those circumstances without taxpayer con-
sent; and the disclosure or use of informa-
tion for the purpose of performing conflict
reviews. The text of those temporary regu-
lations also serves as the text of these pro-
posed regulations. This document invites
comments from the public on these regu-
lations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by March 5, 2010.
ADDR
ESSES: Send submissions to:
CC:P
A:LPD:PR(REG–131028–09),
room
5203, Internal Revenue Service, PO
Box
7604, Ben Franklin Station, Wash-
ing
ton, D.C. 20044. Submissions may be
hand delivere
d Monday through Friday
between the ho
urs of 8 a.m. and 4 p.m.
to CC:PA:LPD:
PR (REG–131028–09),
Courier’s Des
k, Internal Revenue
Service, 1111
Constitution Avenue, N.W.,
Washington,
D.C., or sent electronically,
viatheFeder
aleRulemaking
Portal atwww
.regulations.gov(IRS
REG–131028–
09).
FOR FURTHER I
NFORMATION
CONTACT: Co
ncerning the proposed
regulation
s, Molly K. Donnelly, (202)
622–4940; c
oncerning the submissions
of comments
and requests for hearing,
Richard Hu
rst, (202) 622–7180 (not
toll-free
numbers).
SUPPLEMEN
TARY INFORMATION:
Backgroun
d and Explanation of
Provision
s
This docum
ent contains proposed
amendment
s to 26 CFR part 301 under
section 72
16 to provide modified rules
relating
to the ability of a tax return
preparer
to use tax return information,
without t
axpayer consent, for the pur-
poses of c
ompiling, maintaining, and
using li
sts for solicitation of tax return
busines
s under §301.7216–2(n); disclose
and use s
tatistical compilations of data
describ
ed in §301.7216–1(b)(3)(i)(B) un-
der §301
.7216–2(o), and disclose and
use tax
return information for the pur-
pose of
performing conflict reviews under
§301.7
216–2(p). Temporary regulations in
the Pro
cedure and Administration section
of this
issue of the Bulletin amend 26 CFR
part 3
01. The text of those regulations
also s
erves as the text of these regulations.
The pr
eamble to the temporary regulations
expla
ins the temporary regulations and
these
proposed regulations.
Speci
al Analyses
It has
been determined that this notice
of pro
posed rulemaking is not a signifi-
cant
regulatory action as defined in Exec-
utiv
e Order 12866. Therefore, a regula-
tory
assessment is not required. It has also
been
determined that section 553(b) of the
Admi
nistrative Procedure Act (5 U.S.C.
cha
pter 5) does not apply to these regu-
lat
ions, and because the regulation does
not impose a co
llection of information on
small entitie
s, the Regulatory Flexibility
Act (5 U.S.C. c
hapter 6) does not apply.
Pursuant to se
ction 7805(f) of the Code,
this regulati
on has been submitted to the
Chief Counse
l for Advocacy of the Small
Business Adm
inistration for comment on
its impact on
small business.
Comments and Requests 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, how they can be made easier
to understand, and the administrability of
the rules in the proposed regulations. All
comments will be made available for pub-
lic inspection and copying. A public hear-
ing will be scheduled if requested in writ-
ing by any person that timely submits writ-
ten comments. If a public hearing is sched-
uled, notice of the date, time and place for
the public hearing will be published in the
Federal Register.
Drafti
ng Information
The principal author of these regula-
tions is Molly K. Donnelly, Office of the
Associate Chief Counsel (Procedure and
Administration).
*****
Propo
sed Amendments to the
Regu
lations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Par
agraph 1. The authority citation for
par
t 301 continues to read in part as fol-
low
s:
Aut
hority:26U.S.C.7805***
Par
. 2. Section 301.7216–2 is amended
by r
evising paragraphs (n), (o), and (p) to
rea
dasfollows:
2010–4 I.R.B.332January 25, 2010

§301.7216–2 Permissible disclosures or
uses without consent of the taxpayer.
*****
(n) [The text of proposed amendments
to §301.7216–2(n) is the same as the text
for §301.7216–2T(n) published elsewhere
in this issue of the Bulletin].
(o) [The text of proposed amendments
to §301.7216–2(o) is the same as the text
for §301.7216–2T(o) published elsewhere
in this issue of the Bulletin].
(p) [The text of proposed amendments
to §301.7216–2(p) is the same as the text
for §301.7216–2T(p) published elsewhere
in this issue of the Bulletin].
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on December 29,
2009, 4:15 p.m., and published in the issue of the Federal
Register for January 4, 2010, 75 F.R. 94)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2010–1
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on January 25, 2010,
andwouldendonthedatethecourtfirst
determines that the organization is not de-
scribed in section 170(c)(2) as more partic-
ularly set forth in section 7428(c)(1). For
individual contributors, the maximum de-
duction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.
Call of the Wild Sportsmen, Inc
Mt Airy, MD
Automatic Approval of
Changes in Funding Method
forTakeoverPlansand
Changes in Pension Valuation
Software
Announcement 2010–3
This announcement provides, for plan
years beginning on or after January 1,
2009, automatic approval for certain
changes in funding method with respect
to single-employer defined benefit plans
that result either from a change in the
valuation software used to determine the
liabilities for such plans or from a change
in the enrolled actuary and the business
organization providing actuarial services
to the plan. This guidance is being pro-
vided in response to numerous requests
from actuaries and plan sponsors, many
of whom are continuing to modify their
valuation software in order to implement
the changes to the funding rules made by
the Pension Protection Act of 2006 (PPA
’06), the Worker, Retiree, and Employer
Recovery Act of 2008 (WRERA ’08),
and guidance regarding these legislative
changes.
Background
A change in funding method can oc-
cur when the business organization pro-
viding actuarial services to a plan modi-
fies its valuation software. A change in
funding method can also occur when the
enrolled actuary and business organization
providing actuarial services for a plan is
changed and the new enrolled actuary uses
different valuation software than the prior
enrolled actuary, or otherwise applies the
overall funding method in a different man-
ner (plans for which both the enrolled actu-
ary and the business organization provid-
ing actuarial services are changed are re-
ferred to as “takeover plans”).
Under § 412(c)(5) of the Code (and
its counterpart in section 302(c)(5) of
ERISA) as in effect prior to PPA ‘06, any
change of funding method required the
approval of the Secretary. Revenue Proce-
dure 2000–40, 2000–2 C.B. 357, provided
automatic approval for certain changes in
funding method resulting from changes
in valuation software (section 4.04) and
for changes in funding method that oc-
curred with respect to takeover plans
(section 4.03). With respect to changes
in funding method resulting from changes
in valuation software, Revenue Proce-
dure 2000–40 provided approval for the
changes if: (1) net charges to the funding
standard account determined using the
new valuation software did not differ by
more than 2% from the net charges de-
termined using the old valuation software
(the “pre-PPA 2% test”); (2) the modifica-
tion to the computations in the valuation
software or the use of a different valuation
software system were designed to produce
results that were no less accurate than the
results produced prior to the modifica-
tion or change; and (3) the approval for
takeover plans described in the next para-
graph was not applicable.
With respect to takeover plans, Rev-
enue Procedure 2000–40 provided ap-
proval for changes in funding method if:
(1) there was both a change in the enrolled
actuary for the plan and a change in the
business organization providing actuarial
services to the plan; and (2) the method
used by the new actuary was applied to the
prior plan year and that the absolute value
of each resulting difference in normal cost,
accrued liability (if directly computed un-
der the method), and actuarial value of
January 25, 20103332010–4 I.R.B.

assets, that was attributable to the change
in method did not exceed 5% of the re-
spective amounts calculated by the prior
actuary for that prior year (the “pre-PPA
5% test”).
PPA ‘06 Funding Rules
Section 412 of the Code and section
302 of ERISA, as amended by PPA ‘06,
retain the requirement that a change in
funding method be approved by the Sec-
retary. Under PPA ‘06, a single fund-
ing method must be used for any single-
employer defined benefit plan, but there
may be some variation in the manner the
method is applied. Final regulations were
issued under § 430 on October 15, 2009,
T.D. 9467, 2009–50 I.R.B. 760, 74 FR
53004, (the “October 2009 regulations”)
and are generally effective for plan years
beginning on or after January 1, 2010.
Under § 1.430(d)–1(f)(1)(iv) of the Oc-
tober 2009 regulations, a plan’s funding
method includes not only the overall fund-
ing method used by the plan, but also each
specific method of computation used in ap-
plying the overall method. Accordingly, a
change in valuation software can result in
a change in funding method that requires
the approval of the Secretary.
The October 2009 regulations provide
approval for a number of changes in fund-
ing method and for changes in the inter-
est rate. For the first plan year beginning
on or after January 1, 2008, any changes
in funding method that are not inconsis-
tent with the requirements of § 430 are
treated as having been approved by the
Commissioner and do not require specific
prior approval. For plan years beginning in
2009 and 2010, certain changes in funding
method (concerning the methodology of
allocating liabilitiesto years, the selection
of the valuation date, and the selection of
the asset valuation method) and in the se-
lection of interest rates are also approved.
Section 1.430(d)–1(g)(3) provides general
approval for a change in funding method
(which would include a change in funding
method resulting from a change in valua-
tion software) for the first plan year begin-
ning on or after January 1, 2010. However,
if certain sections of the regulations were
applied to a plan for a plan year beginning
on or after January 1, 2009, but before Jan-
uary 1, 2010, approval is provided with re-
spect to such a plan for a change in fund-
ing method (including a change in funding
method resulting from a change in valu-
ation software) for that plan year, in lieu
of the general approval for changes for the
first plan year beginning on or after Jan-
uary 1, 2010.
Even though approval was provided for
certain changes for the 2009 and 2010 plan
years, actuaries and plan sponsors have ex-
pressed concern that changes in valuation
software may encompass changes in fund-
ingmethodforwhichtheOctober2009
regulations do not provide automatic ap-
proval. Furthermore, forthcoming regula-
tions under § 430 may result in additional
changes in valuation software.
Revenue Procedure 2000–40 has not
been updated to reflect the changes made
by PPA ‘06. Moreover, the calculations
that were used for the pre-PPA 2% test
and the pre-PPA 5% test are not used un-
der § 430 of the Code and section 303 of
ERISA.
Automatic Approval for Takeover Plans
and Valuation Software Changes
For plan years beginning on or af-
ter January 1, 2009, automatic approval
is provided for any change in funding
method under § 430 if the following con-
ditions are satisfied:
(1) There has been a change both in the
enrolled actuary for the plan and in the
business organization providing actuarial
services to the plan;
(2) The new method is substantially
thesameasthemethodusedbytheprior
enrolled actuary and is consistent with the
description of the method contained in the
prior actuarial valuation report or prior
Schedule SB of Form 5500;
(3) The funding target and target normal
cost (without regard to any adjustments for
employee contributions and plan-related
expenses), as determined for the prior plan
year by the new enrolled actuary (using the
actuarial assumptionsof the prior enrolled
actuary), are both within 5% of those val-
ues as determined by the prior enrolled ac-
tuary; and
(4) For plan years beginning on or af-
ter January 1, 2011, the actuarial value of
plan assets, as determined for the prior plan
year by the new enrolled actuary (using the
actuarial assumptionsof the prior enrolled
actuary), is within 5% of the value as de-
termined by the prior enrolled actuary.
Conditions (2), (3), and (4) are each ap-
plied by disregarding any change in fund-
ing method for which approval has been
automatically provided (without regard to
this announcement) for the current plan
year. For example, automatic approval is
provided under § 1.430(d)–1(g)(3)(ii)(C)
for changes in the allocation of liabilities
that are necessary to apply the rules of
§ 1.430(d)–1(c)(1)(iii) for a plan year be-
ginning before January 1, 2010. Thus, if
suchachangeinfundingmethodismade
for a takeover plan for the 2009 plan year,
the 5% test of condition (3) with respect to
the prior plan year (2008) is determined us-
ing the allocation of liabilities used by the
prior enrolled actuary.
For plan years beginning on or af-
ter January 1, 2009, automatic approval
is provided for any change in funding
method under § 430 resulting from a
change in valuation software if the follow-
ing conditions are satisfied:
(1) There has not been both a change
in the enrolled actuary for the plan and a
change in the business organization pro-
viding actuarial services to the plan;
(2) Except to the extent automatic ap-
proval has been provided for a change in
funding method without regard to this an-
nouncement, the underlying method is un-
changed and is consistent with the infor-
mation contained in the prior actuarial val-
uation report and prior Schedule SB of
Form 5500;
(3) The new valuation software is gen-
erally used by the enrolled actuary for the
single-employer plans to which the en-
rolled actuary provides actuarial services;
(4) The funding target and target normal
cost (without regard to any adjustments for
employee contributions and plan-related
expenses) under the new valuation soft-
ware (for either the current plan year or the
prior plan year) are each within 2% of the
respective values under the prior valuation
software (all other factors being held con-
stant);
(5) For plan years beginning on or af-
ter January 1, 2011, the actuarial value of
assets for the plan under the new valuation
software (for either the current plan year
or the prior plan year) is within 2% of the
value under the prior valuation software
(all other factors being held constant); and
(6) The modifications to the computa-
tions in the valuation software or the use
of a different valuation software system are
2010–4 I.R.B.334January 25, 2010

designed to produce results that are no less
accurate than the results produced prior to
the modifications or change.
The automatic approval provided by
this announcement will apply until it is
superseded by future guidance.
The principal authors of this announce-
ment are James E. Holland, Jr. and
Carolyn E. Zimmerman of the Employee
Plans, Tax Exempt and Government
Entities Division. For further information
regarding this announcement, please email
RetirementPlanQuestions@irs.gov.
January 25, 20103352010–4 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.
2010–4 I.R.B.iJanuary 25, 2010

Numerical Finding List
1
Bulletins 2010–1 through 2010–4
Announcements:
2010-1, 2010-4 I.R.B.333
2010-2, 2010-2 I.R.B.271
2010-3, 2010-4 I.R.B.333
Notices:
2010-1, 2010-2 I.R.B.251
2010-2, 2010-2 I.R.B.251
2010-3, 2010-2 I.R.B.253
2010-4, 2010-2 I.R.B.253
2010-5, 2010-2 I.R.B.256
2010-6, 2010-3 I.R.B.275
2010-7, 2010-3 I.R.B.296
2010-8, 2010-3 I.R.B.297
2010-9, 2010-3 I.R.B.298
2010-10, 2010-3 I.R.B.299
2010-11, 2010-4 I.R.B.326
2010-12, 2010-4 I.R.B.326
2010-13, 2010-4 I.R.B.327
Proposed Regulations:
REG-131028-09, 2010-4 I.R.B.332
Revenue Procedures:
2010-1, 2010-1 I.R.B.1
2010-2, 2010-1 I.R.B.90
2010-3, 2010-1 I.R.B.110
2010-4, 2010-1 I.R.B.122
2010-5, 2010-1 I.R.B.165
2010-6, 2010-1 I.R.B.193
2010-7, 2010-1 I.R.B.231
2010-8, 2010-1 I.R.B.234
2010-9, 2010-2 I.R.B.258
2010-10, 2010-3 I.R.B.300
2010-11, 2010-2 I.R.B.269
2010-12, 2010-3 I.R.B.302
2010-13, 2010-4 I.R.B.329
Revenue Rulings:
2010-1, 2010-2 I.R.B.248
2010-2, 2010-3 I.R.B.272
2010-3, 2010-3 I.R.B.272
2010-4, 2010-4 I.R.B.309
2010-5, 2010-4 I.R.B.312
Treasury Decisions:
9474, 2010-4 I.R.B.322
9475, 2010-4 I.R.B.304
9478, 2010-4 I.R.B.315
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin
2009–52, dated December 28, 2009.
January 25, 2010ii2010–4 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2010–1 through 2010–4
Notices:
2005-88
Superseded by
Notice 2010-13, 2010-4 I.R.B.327
2008-41
Modified by
Notice 2010-7, 2010-3 I.R.B.296
2008-55
Modified by
Notice 2010-3, 2010-2 I.R.B.253
2008-88
Modified by
Notice 2010-7, 2010-3 I.R.B.296
2008-113
Modified by
Notice 2010-6, 2010-3 I.R.B.275
2008-115
Modified by
Notice 2010-6, 2010-3 I.R.B.275
2009-11
Amplified by
Notice 2010-9, 2010-3 I.R.B.298
2009-13
Obsoleted by
T.D. 9478, 2010-4 I.R.B.315
REG-131028-09, 2010-4 I.R.B.332
2009-38
Amplified and superseded by
Notice 2010-2, 2010-2 I.R.B.251
Revenue Procedures:
80-59
Modified and superseded by
Rev. Proc. 2010-11, 2010-2 I.R.B.269
87-35
Obsoleted by
Rev. Proc. 2010-3, 2010-1 I.R.B.110
2009-1
Superseded by
Rev. Proc. 2010-1, 2010-1 I.R.B.1
2009-2
Superseded by
Rev. Proc. 2010-2, 2010-1 I.R.B.90
2009-3
Superseded by
Rev. Proc. 2010-3, 2010-1 I.R.B.110
Revenue Procedures— Continued:
2009-4
Superseded by
Rev. Proc. 2010-4, 2010-1 I.R.B.122
2009-5
Superseded by
Rev. Proc. 2010-5, 2010-1 I.R.B.165
2009-6
Superseded by
Rev. Proc. 2010-6, 2010-1 I.R.B.193
2009-7
Superseded by
Rev. Proc. 2010-7, 2010-1 I.R.B.231
2009-8
Superseded by
Rev. Proc. 2010-8, 2010-1 I.R.B.234
2009-9
Superseded by
Rev. Proc. 2010-9, 2010-2 I.R.B.258
2009-15
Amplified and superseded by
Rev. Proc. 2010-12, 2010-3 I.R.B.302
2009-25
Superseded by
Rev. Proc. 2010-3, 2010-1 I.R.B.110
Revenue Rulings:
2008-52
Supplemented and superseded by
Rev. Rul. 2010-2, 2010-3 I.R.B.272
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin 2009–52, dated December 28,
2009.
2010–4 I.R.B.iiiJanuary 25, 2010

INDEX
Internal Revenue Bulletins 2010–1 through
2010–4
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parenthesis refers to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Correction of certain failures of nonqualified deferred compen-
sation plans to comply with the plan document requirements
of section 409A (Notice 6) 3,275
Determination letters, issuing procedures (RP 6) 1,193
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,110
Associate Chief Counsel (International) (RP 7) 1,231
And general information letters, procedures (RP 4) 1,122
User fees, request for letter rulings (RP 8) 1,234
Technical advice to IRS employees (RP 5) 1,165
Qualified plans, changes in funding method (Ann 3) 4,333
EMPLOYMENT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Technical Advice Memoranda (TAMs) (RP 2) 1,90
ESTATE TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Technical Advice Memoranda (TAMs) (RP 2) 1,90
EXCISE TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Technical Advice Memoranda (TAMs) (RP 2) 1,90
EXEMPT ORGANIZATIONS
Letters rulings:
And determination letters:
Areas which will not be issued from Associates Chief
Counsel and Division Counsel (TE/GE) (RP 3) 1,110
Exemption application determination letter rulings under sec-
tions 501 and 521 (RP 9) 2,258
And general information letters, procedures (RP 4) 1,122
User fees, request for letter rulings (RP 8) 1,234
Revocations (Ann 1) 4,333
Technical advice to IRS employees (RP 5) 1,165
GIFT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Technical Advice Memoranda (TAMs) (RP 2) 1,90
INCOME TAX
Arbitrage treatment of certain perpetual funds (Notice 5) 2,256
Bonds:
Reissuance of tax-exempt bonds (Notice 7) 3,296
Midwestern Disaster Area Bonds, Hurricane Ike Bonds, Gulf
Opportunity Zone Bonds (Notice 10) 3,299
Consumer Price Index (CPI) adjustments, certain loans under
section 1274A for 2010 (RR 2) 3,272
Corporate reorganizations, distribution under sections
368(a)(1)(D) and 354(b)(1)(B) (TD 9475) 4,304
Disclosure of activity grouping under Code section 469 (RP 13)
4,329
Disclosure or use of information by return preparers:
Amendments to section 7216 regulations (TD 9478) 4,315;
(REG–131028–09) 4,332
In communicating with taxpayers (RR 4) 4,309
In connection with professional liability insurance (RR 5) 4,
312
Electronic filing, waiver request procedures (Notice 13) 4,327
Employer-provided vehicles, cents-per-mile rule, maximum ve-
hicle values for 2010 (RP 10) 3,301
Extension of timeframe for disclosures to persons designated in a
written request or consent pursuant to section 6103(c) (Notice
8) 3,297
Information reporting, deadline to furnish payee statements
(Notice 9) 3,298
January 25, 2010iv2010–4 I.R.B.

INCOME TAX—Cont.
Interest:
Certain applicable high yield discount obligations issued in
2010 (Notice 11) 4,326
Investment:
Federal short-term, mid-term, and long-term rates for:
January 2010 (RR 1) 2,248
Investment in U.S. property, extension of regulations (Notice 12)
4,326
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,110
Associates Chief Counsel(International) (RP 7) 1,231
And information letters issued by Associate Offices, determi-
nation letters issued by Operating Divisions (RP 1) 1,1
Personal exemption, additional for Hurricane Katrina displaced
individual (TD 9474) 4,322
Proposed Regulations:
26 CFR 301.7216–2, amended; amendments to section 7216
regulations-disclosure or use of information by preparers of
returns (REG–131028–09) 4,332
Regulations:
26 CFR 1.358–2, amended; 1.368–2, amended; 1.368–2T,
removed; 1.1502–13, amended; corporate reorganizations,
distribution under sections 368(a)(1)(D) and 354(b)(1)(B)
(TD 9475) 4,304
26 CFR 1.9300–1, added; 1.9300–1T, removed; reduction in
taxable income for housing Hurricane Katrina displaced in-
dividuals (TD 9474) 4,322
26 CFR 301.7216–0, –2, amended; 301.7216–0T, –2T, added;
amendments to section 7216 regulations-disclosure or use
of information by preparers of returns (TD 9478) 4,315
Requirements, trustee of a blind trust (RP 11) 2,269
Revocations, exempt organizations (Ann 1) 4,333
Section 305 distributions of stock (RP 12) 3,302
Section 338 election, qualified foreign contract (Notice 1) 2,251
Section 382 limitation, ownership changes, pre-change losses
(Notice 2) 2,251
Section 385, auction rate preferred stock (Notice 3) 2,253
Section 1256(g)(7)(C) qualified board or exchange (RR 3) 3,272
Technical Advice Memoranda (TAMs) (RP 2) 1,90
Tax conventions:
U.S.-Germany agreement with respect to consular employees
(Ann 2) 2,271
Widely held fixed investment trusts (WHIFT) transition guid-
ance (Notice 4) 2,253
SELF-EMPLOYMENT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Technical Advice Memoranda (TAMs) (RP 2) 1,90
2010–4 I.R.B.vJanuary 25, 2010

January 25, 20102010–4 I.R.B.

INTERNAL REVENUE BULLETIN
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