Internal Revenue Bulletin 2019-16 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 2019–16
April 15, 2019
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. 2019-10, page 1010.
Fringe benefits aircraft valuation formula. For purposes of
section 1.61-21(g) of the Income Tax Regulations, relating to
the rule for valuing non-commercial flights on employer-pro-
vided aircraft, the Standard Industry Fare Level (SIFL) cents-
per-mile rates and terminal charge in effect for the first half
of 2019 are set forth.
T.D. 9852, page 1010.
Sections 1471 through 1474 of the Internal Revenue Code of
1986 (Code), commonly known as FATCA, generally require
U.S. withholding agents to withhold tax on certain payments
to a foreign financial institution (FFI) that has not agreed to
provide the IRS with certain information regarding its United
States accounts. These sections also require U.S. withhold-
ing agents to withhold tax on certain payments to a nonfinan-
cial foreign entity (NFFE) that does not provide information
about its substantial U.S. owners to withholding agents. This
Treasury Decision finalizes (with limited revisions) certain pro-
posed regulations under chapter 4 of Subtitle A (sections
1471 through 1474) of the Code. The final regulations pro-
vide compliance requirements and verification procedures
for sponsoring entities of FFIs and certain NFFEs, trustees of
certain trustee-documented trusts, registered deemed-com-
pliant FFIs, and participating FFIs that implement consolidat-
ed compliance programs.
T.D. 9853, page 1026.
These revisions to Treas. Reg. § 301.6707A-1 provide guid-
ance on the calculation of the penalty under section 6707A,
as amended by the Small Business Jobs Act of 2010. Section
6707A provides penalties for failure to include on any return
or statement any information required to be disclosed under
section 6011 with respect to a reportable transaction. The fi-
nal regulation addresses the meaning of the phrase “decrease
in tax” for purposes of determining the amount of the penalty,
the calculation of the penalty when a taxpayer fails to disclose
participation in a transaction that becomes a reportable trans-
action after the taxpayer engaged in the transaction, the cal-
culation of the penalty based on a failure to disclose liability
for certain penalties in reports to the Securities and Exchange
Commission pursuant to section 6707A(e), minimum and max-
imum penalty limits, and the calculation of the penalty where
no tax is required to be shown on the return.
REG-121694-16, page 1032.
This document contains proposed regulations under section
301 of the Internal Revenue Code of 1986 (Code). The pro-
posed regulations would update existing regulations under
section 301 to reflect statutory changes made by the Techni-
cal and Miscellaneous Revenue Act of 1988, which changes
provide that the amount of a distribution of property made by
a corporation to its shareholder is the fair market value of the
distributed property. The proposed regulations would affect
any shareholder who receives a distribution of property from
a corporation.
REG-135671-17, page 1035.
This notice of proposed rulemaking contains amendments
to the Income Tax Regulations (26 CFR part 1) under sec-
tion 337(d) of the Internal Revenue Code (Code) set forth in
§1.337(d)-3 (final regulations) that prevent a corporate part-
ner from using a partnership to avoid recognition of corpo-
rate-level gain. The rules set forth in this notice of proposed
rulemaking contain substantive modifications to the final reg-
ulations relating to the definition of Stock of the Corporate
Partner.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management 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 rul-
ings 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.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation 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
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
April 15, 2019 Bulletin No. 2019–16

Part I.
Section 61. Gross Income
Defined
26 CFR 1.61-21: Taxation of fringe benefits.
Rev. Rul. 2019-10
For purposes of the taxation of fringe
benefits under section 61 of the Internal
Revenue Code, section 1.61-21(g) of the
Income Tax Regulations provides a rule
for valuing noncommercial flights on
employer-provided aircraft. Section 1.61-
21(g)(5) provides an aircraft valuation
formula to determine the value of such
flights. The value of a flight is determined
under the base aircraft valuation formula
(also known as the Standard Industry Fare
Level formula or SIFL) by multiplying
the SIFL cents-per-mile rates applicable
for the period during which the flight was
taken by the appropriate aircraft multiple
provided in section 1.61-21(g)(7) and then
adding the applicable terminal charge. The
SIFL cents-per-mile rates in the formula
and the terminal charge are calculated by
the Department of Transportation and are
reviewed semi-annually.
The following chart sets forth the ter-
minal charge and SIFL mileage rates:
Period During Which
the Flight Is Taken
1/1/19 - 6/30/19

Terminal
Charge
$43.53

SIFL Mileage
Rates
Up to 500 miles
= $.2381 per mile
501-1500 miles
= $.1816 per mile
Over 1500 miles
= $.1745 per mile
Drafting Information
The principal author of this revenue rul-
ing is Kathleen Edmondson of the Office of
Associate Chief Counsel (Employee Bene-
fits, Exempt Organizations and Employment
Taxes). For further information regarding
this revenue ruling, contact Ms. Edmondson
at (202) 317-6798 (not a toll-free number).

26 CFR 1.1471-0; 26 CFR 1.1471-1; 26 CFR
1.1471-4; 26 CFR 1.1471-5; 26 CFR 1.1472-1
T.D. 9852
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Chapter 4 Regulations Relat-
ing to Verification and Certifi-
cation Requirements for Cer-
tain Entities and Reporting by
Foreign Financial Institutions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document finalizes
(with limited revisions) certain proposed
regulations. The final regulations provide
compliance requirements and verification
procedures for sponsoring entities of for-
eign financial institutions (FFIs) and cer-
tain non-financial foreign entities (NFFEs),
trustees of certain trustee-documented
trusts, registered deemed-compliant FFIs,
and financial institutions that implement
consolidated compliance programs (com-
pliance FIs). These final regulations affect
certain financial institutions and NFFEs.
DATES: Effective date. These regulations
are effective on March 25, 2019.
Applicability dates. For dates of appli-
cability, see §§1.1471-1(c), 1.1471-4(j),
1.1471-5(m), and 1.1472-1(h).
FOR FURTHER INFORMATION CON-
TACT: Charles Rioux, at (202) 317-6942
(not a toll free number).
SUPPLEMENTARY INFORMATION:
Background
This Treasury decision contains
amendments to 26 CFR part 1. On January
6, 2017, a notice of proposed rulemaking
(REG-103477-14) proposing regulations
under chapter 4 of Subtitle A (sections
1471 through 1474) of the Internal Reve-
nue Code of 1986 (Code) relating to ver-
ification requirements for certain entities
was published in the Federal Register
(82 FR 1629). The notice of proposed
rulemaking also included proposed reg-
ulations, unrelated to these verification
requirements, by cross-reference to tem-
porary regulations that were published
in the same issue of the Federal Regis-
ter (82 FR 2124; TD 9809). On Septem-
ber 15, 2017, a correction to the notice
of proposed rulemaking was published
in the Federal Register (82 FR 43314).
No public hearing was requested or held.
Written comments were received, and are
available at www.regulations.gov or upon
request. After consideration of the com-
ments received, the proposed regulations
relating to verification requirements for
certain entities under chapter 4 are ad-
opted (with limited modifications) by this
Treasury decision. This Treasury decision
does not finalize the proposed regulations
in the notice of proposed rulemaking that
cross-reference the temporary regula-
tions. Those proposed regulations (REG-
132857-17) will be adopted as final regu-
lations at a later date. Hereinafter, the term
“proposed regulations” when used in this
preamble means the proposed regulations
April 15, 2019 1010 Bulletin No. 2019–16

(REG-103477-14) relating to verification
requirements for certain entities under
chapter 4.
The existing chapter 4 regulations
permit certain FFIs and NFFEs to be
sponsored by other entities (sponsoring
entities) for purposes of satisfying their
chapter 4 requirements. Generally, a
sponsoring entity is an entity that agrees
to perform chapter 4 due diligence, with-
holding, and reporting requirements on
behalf of certain FFIs (sponsored FFIs) or
chapter 4 due diligence and reporting ob-
ligations on behalf of certain direct report-
ing NFFEs (sponsored direct reporting
NFFEs). An FFI that is a sponsored FFI is
a deemed-compliant FFI, and a NFFE that
is a sponsored direct reporting NFFE is an
excepted NFFE. The proposed regulations
provide verification requirements (in-
cluding certifications of compliance) and
events of default for sponsoring entities.
The proposed regulations also provide
certification requirements and procedures
for the IRS’s review of trustees of certain
trustee-documented trusts and procedures
for the IRS’s review of periodic certifica-
tions provided by registered deemed-com-
pliant FFIs. In addition, the proposed
regulations describe the procedures for fu-
ture modifications to the requirements for
certifications of compliance for participat-
ing FFIs. The proposed regulations also
clarify the requirements in the chapter 4
regulations for periodic certifications of
compliance for consolidated compliance
programs of participating FFIs and pro-
vide requirements for preexisting account
certifications for these programs.
Summary of Comments and
Explanation of Revisions
After consideration of all the com-
ments, the proposed regulations are adopt-
ed as amended by this Treasury decision.
The comments and revisions are discussed
below.
Definition of Responsible Officer
The proposed regulations require a
sponsoring entity of a sponsored FFI to
appoint a responsible officer to oversee
the compliance of the sponsoring enti-
ty with respect to each sponsored FFI.
Proposed §1.1471-1(b)(116) defines the
term responsible officer with respect to
a sponsoring entity as an officer of the
sponsoring entity with sufficient authority
to fulfill the duties of a responsible officer
described in §1.1471-5(j) or §1.1472-1(f)
(as applicable). A comment requested that
the definition of responsible officer be ex-
panded to include an officer of an FFI in
the sponsoring entity’s expanded affiliated
group that has responsibility for ensuring
the compliance of the sponsoring entity.
The comment noted that in some cases an
investment manager that is a sponsoring
entity is a member of an affiliated group
in which one member of the group is des-
ignated to oversee the compliance of all
members with their chapter 4 require-
ments.
The proposed regulations require the
responsible officer of a sponsoring entity
to be an individual who is an officer of
the sponsoring entity because the certifi-
cations required under these regulations
should be made by the individual in the
best position to know and represent wheth-
er the sponsoring entity is complying with
its obligations. The Department of the
Treasury (Treasury Department) and the
IRS understand that in practice, the person
in the best position to know and represent
if the sponsoring entity is complying with
its obligations under these regulations
may be an individual other than an offi-
cer of the sponsoring entity given indus-
try practices established by managers and
administrators of investment funds and
similar vehicles for both chapter 4 and op-
erational purposes. Therefore, these final
regulations define responsible officer with
respect to a sponsoring entity to include
an officer of an entity that establishes and
maintains policies and procedures for, and
has general oversight over, the sponsoring
entity, provided such individual has suf-
ficient authority to fulfill the duties of a
responsible officer described in §1.1471-
5(j) or §1.1472-1(f) (as applicable).
A comment noted that many invest-
ment entities do not appoint officers but
may appoint directors for corporate gov-
ernance purposes who would be able to
fulfill the requirements of responsible of-
ficers. The comment further noted that in
many cases in which investment entities
are partnerships, the general partner or
managing member has authority to act on
behalf of the partnership, and the general
partner or managing member may be an
entity rather than an individual. The com-
ment requested that the definition of a re-
sponsible officer of an investment entity
be expanded to include these persons. In
response to these comments, these final
regulations revise the definition of a re-
sponsible officer of a financial institution
or sponsoring entity that is an investment
entity to include, in addition to an officer
of such entity, an individual who is a di-
rector, managing member, or general part-
ner of such entity, or, if the general partner
or managing member of the investment
entity is itself an entity, an individual who
is an officer, director, managing member,
or general partner of such other entity.
The comment also requested that the
term responsible officer be expanded to
include, with respect to a participating
FFI, an officer of a U.S. financial institu-
tion (USFI) in the participating FFI’s ex-
panded affiliated group (in addition to an
officer of a participating FFI or reporting
Model 1 FFI in the participating FFI’s ex-
panded affiliated group). This comment is
not adopted because §1.1471-4(f) already
permits a USFI to act as a compliance FI
for purposes of establishing a consoli-
dated compliance program and making a
consolidated certification on behalf of one
or more participating FFIs in an expanded
affiliated group.
Coordination of Certification Require-
ments for Compliance FIs and Sponsoring
Entities of Sponsored FFIs or Sponsored
Direct Reporting NFFEs
A comment requested clarification
that a certification of a compliance FI or
sponsoring entity on behalf of an elect-
ing FFI, sponsored FFI, or sponsored
direct reporting NFFE would satisfy the
certification requirements of the electing
FFI, sponsored FFI, or sponsored direct
reporting NFFE. These final regulations
clarify that to the extent a compliance FI
or sponsoring entity satisfies the certifica-
tion requirements in §1.1471-4(f)(2)(ii),
§1.1471-5(j)(2) and (3), or §1.1472-1(f)
(2) on behalf of an electing FFI, sponsored
FFI, or sponsored direct reporting NFFE,
then the electing FFI, sponsored FFI, or
sponsored direct reporting NFFE will not
have a separate certification requirement
under §1.1471-4(f)(3), §1.1471-5(f)(1)
Bulletin No. 2019–16 1011 April 15, 2019

(ii)(B), or §1.1472-1(c)(3)(vi). For exam-
ple, if a participating FFI agrees to be a
sponsored FFI, the FFI is not required to
submit any certification with respect to
its participating FFI status after it is reg-
istered as a sponsored FFI by its sponsor-
ing entity provided its sponsoring entity
certifies on behalf of the FFI to the extent
required under §1.1471-5(j)(3).
The comment also requested that the
certification period of a participating FFI
that is a member of the expanded affiliated
group that includes a compliance FI but is
not an electing FFI under such compliance
FI be aligned with the certification period
of the compliance FI. The comment stat-
ed that coordinating the certification due
dates of all FFIs in the expanded affili-
ated group would provide administrative
benefits to the group. However, the com-
ment did not explain why all FFIs could
not join the consolidated compliance pro-
gram. The Treasury Department and the
IRS have decided not to revise the regu-
lations in response to this request because
a participating FFI already has the option
of joining the consolidated compliance
program under the compliance FI in order
to align its certification period with that of
the compliance FI.
Requirement for a Written Sponsorship
Agreement
The proposed regulations require a re-
sponsible officer of a sponsoring entity to
certify that the sponsoring entity is com-
pliant with the requirements of a sponsor-
ing entity and maintains effective internal
controls with respect to all sponsored FFIs
for which it acts (or provide a qualified
certification). One of the statements to
which the responsible officer must certify
is that the sponsoring entity has a written
sponsorship agreement in effect with each
sponsored FFI authorizing the sponsor-
ing entity to fulfill the requirements of
§1.1471-5(f)(1)(i)(F) or (f)(2)(iii) or an
applicable Model 2 IGA.
A comment requested the elimination
of the requirement that the sponsoring
entity have a written sponsorship agree-
ment in effect with each sponsored FFI.
The comment stated that this requirement
would increase administrative burden
for sponsored FFIs. Another comment
requested clarification of whether the
sponsorship agreement must be a separate
agreement between a sponsoring entity
and a sponsored FFI that specifically re-
fers to the requirements of a sponsoring
entity with respect to a sponsored FFI
under §1.1471-5(f)(1)(i)(F) or (f)(2)(iii)
or an applicable Model 2 IGA. The com-
ment stated that many sponsoring entities
already have managerial agreements in
place with sponsored FFIs that would al-
low the sponsoring entity to fulfill these
requirements even without explicitly re-
ferring to them.
These final regulations retain the re-
quirement that a sponsoring entity have
a written sponsorship agreement in place
with each sponsored FFI. A written spon-
sorship agreement memorializes the
agreement between the parties, which
helps to ensure compliance. However, in
response to the comments and to reduce
burden, the Treasury Department and the
IRS have decided that it is not necessary
for the sponsorship agreement to be a
standalone agreement, and that a spon-
sorship agreement between a sponsor-
ing entity and a sponsored FFI can refer
generally to the obligations of the parties
under FATCA. Accordingly, these final
regulations provide that the written spon-
sorship agreement may be part of another
agreement between the sponsoring entity
and the sponsored FFI provided it refers
to the requirements of a sponsored FFI
under FATCA. For example, a provision
in a fund manager agreement that states
that the sponsoring entity agrees to satisfy
the sponsored FFI’s FATCA obligations
would be sufficient. Additionally, the pro-
posed regulations do not specify when a
sponsorship agreement must be in place
for purposes of a sponsoring entity’s certi-
fication requirements. To allow sufficient
time for a sponsoring entity to enter into
sponsorship agreements (or revise exist-
ing agreements), these final regulations
provide that a sponsoring entity of a spon-
sored FFI must have the written sponsor-
ship agreement in place with such spon-
sored FFI by the later of March 31, 2019,
or the date when the sponsoring entity be
-
gins acting as a sponsoring entity for such
sponsored FFI. See §1.1471-5(j)(6). These
final regulations include similar rules for a
sponsoring entity of a sponsored direct re-
porting NFFE regarding the date by which
the written sponsorship agreement must
be in place and that it need not be a stand-
alone agreement. See §1.1472-1(f)(4).
Extension of Time for Certifications for
the Certification Period Ending on De-
cember 31, 2017, for Sponsoring Entities
of Sponsored FFIs or Sponsored Direct
Reporting NFFEs and Trustees of Trust-
ee-Documented Trusts
The proposed regulations provide
that a sponsoring entity of a sponsored
FFI or sponsored direct reporting NFFE
and a trustee of a trustee-document-
ed trust must make the certifications of
compliance described in §1.1471-5(j)
(3), §1.1471-5(l)(2), or §1.1472-1(f)(2),
as applicable, on or before July 1 of the
calendar year following the end of the
certification period. The proposed reg-
ulations also provide that a sponsoring
entity of a sponsored FFI must submit
the preexisting account certification de-
scribed in §1.1471-4(c)(7) by the due
date of the sponsoring entity’s certifica-
tion of compliance for the certification
period. The earliest certification period
for a sponsoring entity or trustee of a
trustee-documented trust ends on De-
cember 31, 2017, under the proposed
regulations, making the earliest certifi-
cation due date July 1, 2018. One com-
ment requested that the certifications re-
quired of sponsoring entities be deferred
to apply only for certification periods
ending after 2018 in order to have suf-
ficient time to prepare the certifications.
The Treasury Department and the IRS
understand that sponsoring entities need
time to prepare for the certifications in
light of the timing of the publication of
these regulations. However, the Treasury
Department and the IRS do not agree
that sponsoring entities should not make
certifications for the certification peri-
od ending December 31, 2017, because
sponsoring entities have already had
sufficient notice of their substantive re-
quirements and because of the compli-
ance value of certifications covering this
period. These final regulations address
the comment by providing additional
time for sponsoring entities to make cer-
tifications that would otherwise be due
on July 1, 2018. Under these final regu-
lations, certifications by sponsoring en-
tities and trustees of trustee-documented
April 15, 2019 1012 Bulletin No. 2019–16

Bulletin No. 2019–16 1013 April 15, 2019
trusts for the certification period ending
on December 31, 2017, must be submit-
ted on or before March 31, 2019.
Registration by a Sponsored FFI or Spon-
sored Direct Reporting NFFE after Termi-
nation of the Sponsoring Entity by the IRS
The proposed regulations provide that
if a sponsoring entity of a sponsored FFI
is terminated by the IRS, the sponsored
FFI of the terminated sponsoring entity
may not register as a sponsored FFI of
a sponsoring entity that has a relation-
ship described in section 267(b) with the
terminated sponsoring entity unless the
sponsored FFI obtains written approval
from the IRS. The proposed regulations
provide a similar rule regarding a termi-
nated sponsoring entity of a sponsored di-
rect reporting NFFE, but do not permit the
sponsored direct reporting NFFE to obtain
written approval from the IRS to register
as a sponsored direct reporting NFFE of
a section 267(b)-related sponsoring entity.
Section 267(b) describes certain re-
lationships among individuals, corpora-
tions, trusts, tax-exempt organizations,
and S corporations. The rules described
in this paragraph are intended to prevent a
sponsored FFI or sponsored direct report-
ing NFFE from registering under an entity
that is related to the terminated sponsoring
entity, such as an entity under common
control with the terminated sponsoring
entity. However, the proposed regulations
inadvertently omitted certain relationships
between sponsoring entities that are part-
nerships. These final regulations correct
this omission by providing that the rules
described in this paragraph generally pro-
hibit registration by a sponsored FFI or
sponsored direct reporting NFFE under a
sponsoring entity that has a relationship
described in section 267(b) or 707(b) to
the terminated sponsoring entity. Thus, for
example, a sponsored FFI of a terminat-
ed sponsoring entity that is a partnership
may not register under another sponsoring
entity that is a partnership if the same per-
son owns, directly or indirectly, more than
50 percent of capital interests or profits
interests of both sponsoring entities. Ad-
ditionally, these final regulations conform
the rule for sponsored direct reporting
NFFEs with the rule for sponsored FFIs
by allowing a sponsored direct reporting
NFFE to register under a sponsoring en-
tity, notwithstanding that there is the im-
permissible relationship described in this
paragraph, if the sponsored direct report-
ing NFFE obtains written approval from
the IRS.
Sponsored Entities Located in a Model 1
IGA Jurisdiction
The preamble to the proposed regula-
tions provides that a financial institution
covered by a Model 1 IGA that chooses to
qualify as a sponsored FFI under §1.1471-
5(f) instead of Annex II of the Model 1 IGA
must satisfy all of the requirements of the
regulations applicable to such an entity. 82
FR 1629 at 1631. Comments requested
that a financial institution located in a ju-
risdiction with a Model 1 IGA that does not
include a sponsored entity as a type of non-
reporting financial institution in Annex II
be allowed to comply with local guidance
on sponsored entities or the Model 1 IGA
Annex II rather than the regulations. The
Treasury Department and the IRS are open
to discussing the issue with the competent
authorities of affected jurisdictions.
Nonsubstantive Changes
These final regulations include sever-
al minor nonsubstantive changes to the
proposed regulations. Section 1.1471-
4(f)(2)(ii)(B)(1) was reorganized for
clarity. Minor clarifying edits were
made in §§1.1471-4(f)(3)(i), 1.1471-5(f)
(1)(i)(F)(4), (f)(1)(iv) introductory text,
(f)(1)(iv)(A) and (B), (f)(2)(iii)(E), (j)(3)
(ii) and (iii), (j)(4)(ii), (j)(5) and (6), (k)
(4)(i), (ii), (iii), and (v), and (l)(2)(ii) and
(iii), and 1.1472-1(f)(2)(ii) and (iii), (f)
(3)(ii), (f)(4)(vii), and (g)(4)(i), (ii), and
(iii).
Special Analyses
The Administrator of the Office of In-
formation and Regulatory Affairs (OIRA),
Office of Management and Budget, has
waived review of this rule in accordance
with section 6(a)(3)(A) of Executive Or-
der 12866. This rule is an EO 13771 reg-
ulatory action.
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545-2246. The collection of in-
formation in these final regulations is in
§§1.1471-4, 1.1471-5 and 1.1472-1. The
collection of information is on a certifi-
cation filed with the IRS regarding the
filer’s compliance with its chapter 4 re-
quirements. This information is required
to enable the IRS to verify that a taxpayer
is complying with its requirements under
chapter 4. Certifications are required
from compliance FIs, sponsoring enti-
ties, and trustees of trustee-documented
trusts. Information on the estimated num-
ber of compliance FIs, sponsoring enti-
ties, and trustees of trustee-documented
trusts required to submit a certification
under these final regulations is shown in
table 1.
TABLE 1
Number of respondents (estimated)
Compliance FIs 5,000 – 10,000
Sponsoring entities and trustees of trustee-documented trusts 10,000 – 15,000
Information on the number of compli-
ance FIs, sponsoring entities, and trustees
of trustee-documented trusts shown in ta-
ble 1 is from the IRS’s FATCA registration
data. Comments are requested on the esti-
mated number of respondents.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the

April 15, 2019 1014 Bulletin No. 2019–16
collection of information displays a valid
control number.
Books and records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as re-
quired by 26 U.S.C. 6103.
It is hereby certified that the collection
of information requirement in these final
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities within the meaning of section
601(6) of the Regulatory Flexibility Act (5
U.S.C. chapter 6). Although the Treasury
Department and IRS acknowledge that a
small entity could be a compliance FI that is
affected by these regulations, the Treasury
Department and IRS have concluded this
possibility is too small and the potential ef-
fect is too minimal to have a significant im-
pact. Additionally, acting as a compliance
FI is not required under the chapter 4 reg-
ulations. Furthermore, these regulations do
not increase the regulatory burden on small
entities because they clarify existing chap-
ter 4 regulations regarding a compliance
FI’s certification obligations. Therefore, a
Regulatory Flexibility Analysis is not re-
quired. Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding these regulations was submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Drafting Information
The principal author of these regula-
tions is Charles Rioux, Office of Associ-
ate Chief Counsel (International). Howev-
er, other personnel from the IRS and the
Treasury Department participated in the
development of these regulations.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1–INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1471-0 is amended by:
1. Adding entries for §1.1471-4(f)(2)
(ii)(B)(1), (f)(2)(ii)(B)(1)(i) and (ii), (f)(2)
(ii)(B)(2), and (j)(1) and (2).
2. Adding entries for §1.1471-5(f)(1)
(iv), (f)(1)(iv)(A) and (B), (j)(1), (2), and
(3), (j)(3)(i), (j)(3)(i)(A) and (B), (j)(3)(ii)
through (vi), (j)(3)(vi)(A) and (B), (j)(3)
(vii), (j)(4), (j)(4)(i) through (iii), (j)(5) and
(6), (k)(1) through (4), (k)(4)(i) through (v).
4. Revising the entry for §1.1471-5(l).
5. Adding entries for §1.1471-5(l)(1)
and (2), (l)(2)(i), (l)(2)(i)(A) and (B), (l)
(2)(ii) through (iv), (l)(3), (l)(3)(i) and (ii),
and (m).
6. Adding entries for §1.1472-1(f)(1)
and (2), (f)(2)(i), (f)(2)(i)(A) and (B), (f)
(2)(ii) through (iv), (f)(3), (f)(3)(i) and
(ii), (f)(4), (g)(1) through (g)(4), and (g)
(4)(i) through (iv).
The additions and revisions read as fol-
lows:
§1.1471-0 Outline of regulation provi-
sions for sections 1471 through 1474.
* * * * *
§1.1471-4 FFI agreement.
* * * * *
(f) * * *
(2) * * *
(ii) * * *
(B) * * *
(1) Periodic certification.
(i) In general.
(ii) Late-joining electing FFIs.
(2) Preexisting account certification.
* * * * *
(j) * * *
(1) In general.
(2) Special applicability date.
§1.1471-5 Definitions applicable to sec-
tion 1471.
* * * * *
(f) * * *
(1) * * *
(iv) IRS review of compliance by reg-
istered deemed-compliant FFIs.
(A) General inquiries.
(B) Inquiries regarding substantial
non-compliance.
* * * * *
(j) * * *
(1) In general.
(2) Compliance program.
(3) Certification of compliance.
(i) Certification requirement.
(A) In general.
(B) Extension of time for the certifica-
tion period ending on December 31, 2017.
(ii) Late-joining sponsored FFIs.
(iii) Certification period.
(iv) Additional certifications or infor-
mation.
(v) Certifications regarding sponsoring
entity and sponsored FFI requirements.
(vi) Certifications regarding internal
controls.
(A) Certification of effective internal
controls.
(B) Qualified certification.
(vii) Material failures defined.
(4) IRS review of compliance.
(i) General inquiries.
(ii) Inquiries regarding substantial
non-compliance.
(iii) Compliance procedures for a spon-
sored FFI subject to a Model 2 IGA.
(5) Preexisting account certification.
(6) Sponsorship agreement.
(k) * * *
(1) Defined.
(2) Notice of event of default.
(3) Remediation of event of default.
(4) Termination.
(i) In general.
(ii) Termination of sponsoring entity.
(iii) Termination of sponsored FFI.
(iv) Reconsideration of notice of de-
fault or notice of termination.
(v) Sponsoring entity of sponsored
FFIs subject to a Model 2 IGA.
(l) Trustee-documented trust verifica-
tion.
(1) Compliance program.
(2) Certification of compliance.
(i) Certification requirement.
(A) In general.
(B) Extension of time for the certifica-
tion period ending on December 31, 2017.
(ii) Late-joining trustee-documented
trusts.
(iii) Certification period.
(iv) Certifications.
(3) IRS review of compliance by trust-
ees of trustee-documented trusts.
(i) General inquiries.
(ii) Inquiries regarding substantial
non-compliance.

Bulletin No. 2019–16 1015 April 15, 2019
(m) Applicability date.
* * * * *
§1.1472-1 Withholding on NFFEs.
* * * * *
(f) * * *
(1) In general.
(2) Certification of compliance.
(i) Certification requirement.
(A) In general.
(B) Extension of time for the certifica-
tion period ending on December 31, 2017.
(ii) Late-joining sponsored direct re-
porting NFFEs.
(iii) Certification period.
(iv) Certifications.
(3) IRS review of compliance.
(i) General inquiries.
(ii) Inquiries regarding substantial
non-compliance.
(4) Sponsorship agreement.
(g) * * *
(1) Defined.
(2) Notice of event of default.
(3) Remediation of event of default.
(4) Termination.
(i) In general.
(ii) Termination of sponsoring entity.
(iii) Termination of sponsored direct
reporting NFFE.
(iv) Reconsideration of notice of de-
fault or notice of termination.
* * * * *
Par. 3. Section 1.1471-1 is amended
by revising paragraphs (b)(116) and (121)
and (c) to read as follows:
§1.1471-1 Scope of chapter 4 and defini-
tions.
* * * * *
(b) * * *
(116) Responsible officer. The term
responsible officer means, with respect
to a participating FFI, an officer of any
participating FFI or reporting Model 1
FFI in the participating FFI’s expanded
affiliated group with sufficient authority
to fulfill the duties of a responsible officer
described in §1.1471-4, which include the
requirement to periodically certify to the
IRS regarding the FFI’s compliance with
its FFI agreement. The term responsible
officer means, in the case of a registered
deemed-compliant FFI, an officer of any
deemed-compliant FFI or participating
FFI in the deemed-compliant FFI’s ex-
panded affiliated group with sufficient
authority to ensure that the FFI meets the
applicable requirements of §1.1471-5(f).
The term responsible officer means, with
respect to a sponsoring entity, an officer
of the sponsoring entity or an officer of an
entity that establishes and maintains pol-
icies and procedures for, and has general
oversight over, the sponsoring entity, pro-
vided such officer has sufficient authority
to fulfill the duties of a responsible offi-
cer described in §1.1471-5(j) or §1.1472-
1(f) (as applicable). If a participating FFI
elects to be part of a consolidated compli-
ance program, the term responsible officer
means an officer of the compliance FI (as
described in §1.1471-4(f)) with sufficient
authority to fulfill the duties of a respon-
sible officer described in §1.1471-4(f)
(2) and (3) on behalf of each FFI in the
compliance group. In the case of an FI or
sponsoring entity that is an investment
entity, for purposes of this paragraph (b)
(116), the responsible officer may be, in
lieu of an officer of the investment entity,
an individual who is a director, managing
member, or general partner of the invest-
ment entity or, if the general partner or
managing member of the investment en-
tity is itself an entity, an individual who is
an officer, director, managing member, or
general partner of such other entity.
* * * * *
(121) Sponsored FFI. The term spon-
sored FFI means any entity described
in §1.1471-5(f)(1)(i)(F) (describing
sponsored investment entities and spon-
sored controlled foreign corporations)
or §1.1471-5(f)(2)(iii) (describing spon-
sored, closely held investment vehicles).
The term sponsored FFI also means a
sponsored investment entity, a sponsored
controlled foreign corporation, or a spon-
sored, closely held investment vehicle
treated as deemed-compliant under an ap-
plicable Model 2 IGA.
* * * * *
(c) Applicability date. This section
generally applies beginning on January 6,
2017, except for paragraphs (b)(116) and
(121) of this section, which apply begin-
ning on March 25, 2019. However, tax-
payers may apply these provisions as of
January 28, 2013. (For the rules that other-
wise apply beginning on January 6, 2017,
and before March 25, 2019, see this sec-
tion as in effect and contained in 26 CFR
part 1 revised April 1, 2018. For rules that
otherwise apply beginning on January 28,
2013, and before January 6, 2017, see this
section as in effect and contained in 26
CFR part 1 revised April 1, 2016.)
Par. 4. Section 1.1471-4 is amended by:
1. Revising paragraphs (f)(2)(ii)(A).
2. Adding paragraphs (f)(2)(ii)(B)(1)
and (2).
3. Revising paragraphs (f)(3)(i), (g)(2),
and (j)(1).
The revisions and additions read as fol-
lows:
§1.1471-4 FFI agreement.
* * * * *
(f) * * *
(2) * * *
(ii) * * * (A) In general. A participating
FFI that is a member of an expanded affil-
iated group that includes one or more FFIs
may elect to be part of a consolidated com-
pliance program (and perform a consoli-
dated periodic review) under the authority
of a participating FFI, reporting Model 1
FFI, or U.S. financial institution (compli-
ance FI) that is a member of the electing
FFI’s expanded affiliated group, regard-
less of whether all such members so elect.
In addition, when an FFI elects to be part
of a consolidated compliance program,
each branch that it maintains (including
a limited branch or a branch described in
§1.1471-5(f)(1)), other than a branch lo-
cated in a Model 1 IGA jurisdiction, must
be subject to periodic review as part of
such program and included on the period-
ic certification (described in paragraph (f)
(2)(ii)(B)(1) of this section). To the extent
that a compliance FI satisfies the certifi-
cation requirements of paragraph (f)(2)(ii)
(B) of this section on behalf of an elect-
ing FFI, such electing FFI does not have a
certification requirement under paragraph
(f)(3) of this section. See §1.1471-5(j) for
the requirement of a sponsoring entity to
establish and implement a compliance
program for its sponsored FFIs.
(B) * * *
(1) Periodic certification—(i) In gen-
eral. On or before July 1 of the calendar
year following the end of the certification
period, the responsible officer of the com-
pliance FI must make the certification de-
scribed in either paragraph (f)(3)(ii) or (iii)

April 15, 2019 1016 Bulletin No. 2019–16
of this section with respect to all electing
FFIs for which it acts during the certifica-
tion period on the form and in the manner
prescribed by the IRS. The certification
must be made on behalf of all electing
FFIs in the compliance group during the
certification period, except as otherwise
provided in paragraph (f)(2)(ii)(B)(1)
(ii) of this section. The first certification
period for a compliance group begins on
the later of the date the compliance FI is
issued a GIIN or June 30, 2014, and ends
at the close of the third full calendar year
following such date. Each subsequent cer-
tification period is the three-calendar-year
period following the previous certification
period.
(ii) Late-joining electing FFIs. In gen-
eral, with respect to a certification period,
a compliance FI is not required to make
a certification for an electing FFI that
first elects to be part of the consolidated
compliance program of the compliance
FI during the six-month period before the
end of the certification period, provided
that the compliance FI makes certifica-
tions for such electing FFI for subsequent
certification periods, and the first such
certification covers both the subsequent
certification period and the portion of the
prior certification period of the compli-
ance group during which such FFI was
an electing FFI in the consolidated com-
pliance program of the compliance FI.
However, the preceding sentence does
not apply to an electing FFI that, imme-
diately before the electing FFI elects to
be part of the consolidated compliance
program, was a participating FFI or reg-
istered deemed-compliant FFI. The com-
pliance FI may certify for an electing FFI
described in the preceding sentence for
the portion of the certification period of
the compliance group before the date that
the electing FFI elects to be part of the
consolidated compliance program if the
compliance FI obtains from the FFI (or
the FFI’s former compliance FI, if appli-
cable) a written certification that the FFI
has complied with its applicable chapter
4 requirements during such portion of the
certification period, provided that: the
compliance FI does not know that such
certification is unreliable or incorrect;
and the certification for the electing FFI
for the subsequent certification period
covers both the subsequent certification
period and the portion of the prior certifi-
cation period during which such FFI was
an electing FFI in the consolidated com-
pliance program of the compliance FI.
(2) Preexisting account certification.
The responsible officer of a compliance FI
must make the certification described in
paragraph (c)(7) of this section (preexist-
ing account certification of a participating
FFI) with respect to each electing FFI that
elects to be part of the consolidated com-
pliance program under the compliance FI
during the certification period. However,
a preexisting account certification is not
required for an electing FFI if immediate-
ly before electing to be part of the con-
solidated compliance program under the
compliance FI the FFI was a participating
FFI or a registered deemed-compliant FFI
that is a local FFI or restricted fund, and
the FFI (or the FFI’s former compliance
FI, if applicable) provides a written certi-
fication to the compliance FI that the FFI
has made the preexisting account certifi-
cation required under paragraph (c)(7) of
this section or §1.1471-5(f)(1)(i)(A)(7) or
(f)(1)(i)(D)(6) (as applicable), unless the
compliance FI knows that such written
certification is unreliable or incorrect. In
addition, a preexisting account certifica-
tion is not required for an electing FFI that
elects to be part of the consolidated com-
pliance program under the compliance FI
during the two year period before the end
of the certification period, provided that
the compliance FI makes the preexisting
account certification for such FFI for the
subsequent certification period. The cer-
tification required under this paragraph (f)
(2)(ii)(B)(2) for the certification period
must be submitted by the due date of the
FFI’s certification of compliance required
under paragraph (f)(2)(ii)(B)(1)(i) of this
section for the certification period, on the
form and in the manner prescribed by the
IRS.
(3) * * *
(i) In general. In addition to the certi-
fications required under paragraph (c)(7)
of this section, on or before July 1 of the
calendar year following the end of each
certification period, the responsible offi-
cer must make the certification described
in either paragraph (f)(3)(ii) or (iii) of this
section on the form and in the manner
prescribed by the IRS. The first certifica-
tion period begins on the effective date of
the FFI agreement and ends at the close
of the third full calendar year following
the effective date of the FFI agreement.
Each subsequent certification period is
the three-calendar-year period following
the previous certification period, unless
the FFI agreement provides for a different
period. The responsible officer must either
certify that the participating FFI maintains
effective internal controls or, if the par-
ticipating FFI has identified an event of
default (defined in paragraph (g) of this
section) or a material failure (defined in
paragraph (f)(3)(iv) of this section) that
it has not corrected as of the date of the
certification, must make the qualified cer-
tification described in paragraph (f)(3)
(iii) of this section. The certification of
compliance described in paragraph (f)(3)
(ii) or (iii) of this section may be modified
through an amendment to the FFI agree-
ment to include any additional certifica-
tions or information (such as quantitative
or factual information related to the FFI’s
compliance with the FFI agreement),
provided that any additional information
or certifications are published at least 90
days before being incorporated into the
FFI agreement to allow for public com-
ment.
* * * * *
(g) * * *
(2) Notice of event of default. Follow-
ing an event of default known by or dis-
closed to the IRS, the IRS will deliver to
the participating FFI a notice of default
specifying the event of default. The IRS
will request that the participating FFI
remediate the event of default within 45
days (unless additional time is requested
and agreed to by the IRS). The partici-
pating FFI must respond to the notice of
default and provide information respon-
sive to an IRS request for information or
state the reasons why the participating
FFI does not agree that an event of de-
fault has occurred. Taking into account
the terms of any applicable Model 2 IGA,
if the participating FFI does not provide
a response within the specified time pe-
riod, the IRS may, at its sole discretion,
deliver a notice of termination that ter-
minates the FFI’s participating FFI sta-
tus. If the FFI’s participating FFI status
is terminated, in addition to the require-
ments in §1.1471-3(c)(6)(ii)(E)(2), the
FFI must, within 30 days of the termi-

Bulletin No. 2019–16 1017 April 15, 2019
nation, send notice of the termination to
each withholding agent from which it re-
ceives payments and each financial insti-
tution with which it holds an account for
which a withholding certificate or other
documentation was provided. An FFI that
has had its participating FFI status termi-
nated may not reregister on the FATCA
registration website as a participating FFI
or registered deemed-compliant FFI un-
less it receives written approval from the
IRS to register. A participating FFI may
request, within 90 days of a notice of de-
fault or notice of termination, reconsid-
eration of a notice of default or notice of
termination by written request to the IRS.
* * * * *
(j) * * * (1) In general. This section
generally applies beginning on January
6, 2017, except for paragraphs (f)(2)(ii)
(A), (f)(2)(ii)(B)(1) and (2), (f)(3)(i), and
(g)(2) of this section, which apply March
25, 2019. However, taxpayers may apply
these provisions as of January 28, 2013.
(For the rules that otherwise apply begin-
ning on January 6, 2017, and before March
25, 2019, see this section as in effect and
contained in 26 CFR part 1 revised April
1, 2018. For rules that apply beginning
on January 23, 2013 and before January
6, 2017, see this section as in effect and
contained in 26 CFR part 1 revised April
1, 2016.)
* * * * *
Par. 5. Section 1.1471-5 is amended by:
1. Revising paragraph (f)(1)(i)(F)(3)
(vi).
2. Removing paragraph (f)(1)(i)(F)(3)
(vii).
3. Redesignating paragraph (f)(1)(i)(F)
(3)(viii) as paragraph (f)(1)(i)(F)(3)(vii).
4. Revising paragraph (f)(1)(i)(F)(4).
5. Adding paragraph (f)(1)(iv).
6. Revising paragraph (f)(2)(iii)(D)(4).
7. Removing paragraph (f)(2)(iii)(D)
(5).
8. Redesignating paragraph (f)(2)(iii)
(D)(6) as paragraph (f)(2)(iii)(D)(5).
9. Revising paragraph (f)(2)(iii)(E).
10. Revising paragraphs (j) and (k).
11. Redesignating paragraph (l) as
paragraph (m).
12. Adding new paragraph (l).
13. Revising newly redesignated para-
graph (m).
The revisions and additions read as fol-
lows:
§1.1471-5 Definitions applicable to sec-
tion 1471.
* * * * *
(f) * * *
(1) * * *
(i) * * *
(F) * * *
(3) * * *
(vi) Complies with the verification pro-
cedures described in paragraph (j) of this
section; and
* * * * *
(4) The IRS may revoke a sponsoring
entity’s status with respect to one or more
sponsored FFIs based on the provisions of
paragraphs (k)(2), (3), and (4) of this sec-
tion (describing notice of event of default,
remediation, and termination procedures)
if there is an event of default as defined in
paragraph (k)(1) of this section.
* * * * *
(iv) IRS review of compliance by reg-
istered deemed-compliant FFIs--(A) Gen-
eral inquiries. With respect to a registered
deemed-compliant FFI described in para-
graph (f)(1)(i)(A), (C), or (D) of this sec-
tion, the IRS, based upon the information
reporting forms described in §1.1471-4(d)
(3)(v), (d)(5)(vii), or (d)(6)(iv) filed with
the IRS for each calendar year (if applica-
ble), may request additional information
with respect to the information reported (or
required to be reported) on the forms, the
account statements described in §1.1471-
4(d)(4)(v), or confirmation that the FFI
has no reporting requirements for the cal-
endar year. The IRS may request addition-
al information from the FFI to determine
the FFI’s compliance with §1.1471-4 (if
applicable) and to assist the IRS with its
review of account holder compliance with
tax reporting requirements. For IRS re-
view of compliance with respect to a reg-
istered deemed-compliant FFI described
in paragraph (f)(1)(i)(F) of this section
(describing sponsored investment entities
and controlled foreign corporations), see
paragraph (j)(4) of this section.
(B) Inquiries regarding substantial
non-compliance. With respect to a regis-
tered deemed-compliant FFI described in
paragraph (f)(1)(i)(A) through (E) of this
section, the IRS may determine in its dis-
cretion that the FFI may not have substan-
tially complied with the requirements of
the deemed-compliant status claimed by
the FFI. This determination is based on
the information reporting forms described
in §1.1471-4(d)(3)(v), (d)(5)(vii), or (d)
(6)(iv) filed with the IRS for each calen-
dar year (if applicable), the certifications
made by the responsible officer described
in paragraph (f)(1)(ii)(B) of this section
(or the absence of such certifications), or
any other information related to the FFI’s
compliance with the requirements of the
deemed-compliant status claimed by the
FFI. In such a case, the IRS may request
from the responsible officer (or designee)
information necessary to verify the FFI’s
compliance with the requirements for the
deemed-compliant status claimed by the
FFI. For example, in the case of a local
FFI under paragraph (f)(1)(i)(A) of this
section, the IRS may request a descrip-
tion or copy of the FFI’s policies and
procedures for identifying accounts held
by specified U.S. persons not resident in
the jurisdiction in which the FFI is incor-
porated or organized, identifying entities
controlled or beneficially owned by such
persons, and identifying nonparticipating
FFIs. The IRS may also request the per-
formance of specified review procedures
by a person (including an external audi-
tor or third-party consultant) that the IRS
identifies as competent to perform such
procedures given the facts and circum-
stances surrounding the FFI’s potential
failure to comply with the requirements of
the deemed-compliant category claimed
by the FFI. If the IRS determines that the
FFI has not complied with the require-
ments of the deemed-compliant status
claimed by the FFI, the IRS may termi-
nate the FFI’s deemed-compliant status.
If the FFI’s deemed-compliant status is
terminated, the FFI must send notice of
the termination to each withholding agent
from which it receives payments and each
financial institution with which it holds an
account for which a withholding certifi-
cate or other documentation was provided
within 30 days after the termination. An
FFI that has had its deemed-compliant
status terminated may not reregister on
the FATCA registration website as a reg-
istered deemed-compliant FFI or register
on the FATCA registration website as a
participating FFI unless it receives writ-
ten approval from the IRS. A registered
deemed-compliant FFI may request, with-
in 90 days of a notice of termination, re-

April 15, 2019 1018 Bulletin No. 2019–16
consideration of the notice of termination
by written request to the IRS.
(2) * * *
(iii) * * *
(D) * * *
(4) Complies with the verification pro-
cedures described in paragraph (j) of this
section; and
* * * * *
(E) The IRS may revoke a sponsoring
entity’s status as a sponsoring entity with
respect to one or more sponsored FFIs
based on the provisions of paragraphs (k)
(2), (3), and (4) of this section (describing
notice of event of default, remediation,
and termination procedures) if there is an
event of default as defined in paragraph
(k)(1) of this section. A sponsoring entity
is not liable for any failure to comply with
the obligations contained in paragraph (f)
(2)(iii)(D) of this section unless the spon-
soring entity is a withholding agent that
is separately liable for the failure to with-
hold on or report with respect to a pay-
ment made by the sponsoring entity on
behalf of the sponsored FFI. A sponsored
FFI will remain liable for any failure of
its sponsoring entity to comply with the
obligations contained in paragraph (f)(2)
(iii)(D) of this section that the sponsoring
entity has agreed to undertake on behalf
of the FFI, even if the sponsoring entity is
also a withholding agent and is itself sep-
arately liable for the failure to withhold on
or report with respect to a payment made
by the sponsoring entity on behalf of the
sponsored FFI. The same tax, interest, or
penalties, however, shall not be collected
more than once.
* * * * *
(j) Sponsoring entity verification--(1)
In general. This paragraph (j) describes
the requirements for a sponsoring entity
of a sponsored FFI to establish and imple-
ment a compliance program for satisfying
its requirements as a sponsoring entity and
to provide a certification of compliance
with its requirements. This paragraph (j)
also describes the procedures for the IRS
to review the sponsoring entity’s compli-
ance with respect to each sponsored FFI
for purposes of satisfying the require-
ments of paragraph (f)(1)(i)(F) or (f)(2)
(iii) of this section or an applicable Model
2 IGA. For purposes of a sponsoring en-
tity’s certification of compliance under
this paragraph (j), a sponsoring entity
must have in place a written sponsorship
agreement described in paragraph (j)(6) of
this section with each sponsored FFI. See
paragraph (j)(3)(v)(B) of this section for
the certification regarding a sponsoring
entity’s sponsorship agreement with each
sponsored FFI.
(2) Compliance program. The spon-
soring entity must appoint a responsible
officer to oversee the compliance of the
sponsoring entity with respect to each
sponsored FFI for purposes of satisfying
the requirements of paragraph (f)(1)(i)(F)
or (f)(2)(iii) of this section or an applica-
ble Model 2 IGA. The responsible officer
must (either personally or through desig-
nated persons) establish a compliance pro-
gram that includes policies, procedures,
and processes sufficient for the sponsor-
ing entity to satisfy the requirements de-
scribed in the preceding sentence. The
responsible officer (or designee) must
periodically review the sufficiency of the
sponsoring entity’s compliance program,
the sponsoring entity’s compliance with
respect to each sponsored FFI for pur-
poses of satisfying the requirements of
paragraph (f)(1)(i)(F) or (f)(2)(iii) of this
section or an applicable Model 2 IGA,
and the compliance of each sponsored FFI
with the due diligence, withholding, and
reporting requirements of §1.1471-4 or an
applicable Model 2 IGA during the certi-
fication period described in paragraph (j)
(3)(iii) of this section. The results of the
periodic review must be considered by the
responsible officer in making the periodic
certifications described in paragraph (j)(3)
of this section.
(3) Certification of compliance--(i)
Certification requirement--(A) In gener-
al. In addition to the certification required
under paragraph (j)(5) of this section (pre-
existing account certification), and except
as otherwise provided in paragraph (j)(3)
(i)(B) or (j)(3)(ii) of this section, on or be-
fore July 1 of the calendar year following
the certification period, the responsible
officer of the sponsoring entity must make
the certification described in paragraph (j)
(3)(v) of this section and either the certi-
fication described in paragraph (j)(3)(vi)
(A) of this section or the certification de-
scribed in paragraph (j)(3)(vi)(B) of this
section with respect to all sponsored FFIs
for which the sponsoring entity acts during
the certification period on the form and in
the manner prescribed by the IRS. To the
extent that a sponsoring entity satisfies the
certification requirements of paragraph (j)
(3) of this section on behalf of a sponsored
FFI, the sponsored FFI does not have a
certification requirement under paragraph
(f)(1)(ii)(B) of this section.
(B) Extension of time for the certifica-
tion period ending on December 31, 2017.
The certifications required for a certifica-
tion period ending on December 31, 2017,
must be submitted on or before March 31,
2019.
(ii) Late-joining sponsored FFIs. In
general, with respect to a certification pe-
riod, a sponsoring entity is not required to
make a certification for a sponsored FFI
that first agrees to be sponsored by the
sponsoring entity during the six-month
period before the end of the sponsoring
entity’s certification period, provided that
the sponsoring entity makes certifications
for such sponsored FFI for subsequent
certification periods and the first such cer-
tification covers both the subsequent certi-
fication period and the portion of the prior
certification period of the sponsoring enti-
ty during which such FFI was sponsored
by the sponsoring entity. However, the pre-
ceding sentence does not apply to a spon-
sored FFI that, immediately before the FFI
agrees to be sponsored by the sponsoring
entity, was a participating FFI, registered
deemed-compliant FFI, or sponsored,
closely held investment vehicle of another
sponsoring entity. The sponsoring entity
may certify for a sponsored FFI described
in the preceding sentence for the portion
of the certification period of the sponsor-
ing entity before the date that the FFI first
agrees to be sponsored by the sponsoring
entity if the sponsoring entity obtains from
the FFI (or the FFI’s sponsoring entity, if
applicable) a written certification that the
FFI has complied with its applicable chap-
ter 4 requirements during such portion of
the certification period, provided that: the
sponsoring entity does not know that such
certification is unreliable or incorrect; and
the certification for the sponsored FFI for
the subsequent certification period covers
both the subsequent certification period
and the portion of the prior certification
period during which such FFI was spon-
sored by the sponsoring entity.
(iii) Certification period. The first cer-
tification period of a sponsoring entity be-

Bulletin No. 2019–16 1019 April 15, 2019
gins on the later of the date the sponsoring
entity is issued a GIIN to act as a spon-
soring entity or June 30, 2014, and ends
at the close of the third full calendar year
following such date. Each subsequent cer-
tification period is the three-calendar-year
period following the previous certification
period.
(iv) Additional certifications or in-
formation. The certification of compli-
ance described in paragraph (j)(3) of
this section may be modified to include
additional certifications or information
(such as quantitative or factual infor-
mation related to the sponsoring entity’s
compliance with respect to each spon-
sored FFI for purposes of satisfying the
requirements of paragraph (f)(1)(i)(F) or
(f)(2)(iii) of this section or an applicable
Model 2 IGA), provided that such addi-
tional information or certifications are
published at least 90 days before being
made effective in order to allow for pub-
lic comment.
(v) Certifications regarding sponsoring
entity and sponsored FFI requirements.
The responsible officer of the sponsoring
entity must certify to the following state-
ments--
(A) The sponsoring entity meets all of
the requirements of a sponsoring entity as
described in paragraph (f)(1)(i)(F)(3) or
(f)(2)(iii)(D) of this section or an applica-
ble Model 2 IGA, including the chapter 4
status required of such entity;
(B) The sponsoring entity has a writ-
ten sponsorship agreement in effect with
each sponsored FFI authorizing the spon-
soring entity to fulfill the requirements of
paragraph (f)(1)(i)(F) or (f)(2)(iii) of this
section or an applicable Model 2 IGA with
respect to each sponsored FFI; and
(C) Each sponsored FFI treated as a
sponsored investment entity, a sponsored
controlled foreign corporation, or a spon-
sored, closely held investment vehicle by
the sponsoring entity meets the require-
ments of its respective status.
(vi) Certifications regarding internal
controls--(A) Certification of effective in-
ternal controls. The responsible officer of
the sponsoring entity must certify to the
following statements--
(1) The responsible officer of the spon-
soring entity has established a compliance
program that is in effect as of the date of
the certification and that has been subject
to the review as described in paragraph (j)
(2) of this section;
(2) With respect to material failures
(defined in paragraph (j)(3)(vii) of this
section)--
(i) There are no material failures for the
certification period; or
(ii) If there were any material failures,
appropriate actions were taken to remedi-
ate such failures and to prevent such fail-
ures from reoccurring; and
(3) With respect to any failure to with-
hold, deposit, or report to the extent re-
quired under §1.1471-4 or an applicable
Model 2 IGA with respect to any spon-
sored FFI for any year during the certifi-
cation period, the sponsored FFI has cor-
rected such failure by paying (or directing
the sponsoring entity to pay) any taxes due
(including interest and penalties) and fil-
ing (or directing the sponsoring entity to
file) the appropriate return (or amended
return).
(B) Qualified certification. If the re-
sponsible officer of the sponsoring entity
has identified an event of default (de-
fined in paragraph (k)(1) of this section)
or a material failure (defined in para-
graph (j)(3)(vii) of this section) that the
sponsoring entity has not corrected as of
the date of the certification, the responsi-
ble officer must certify to the following
statements--
(1) The responsible officer of the spon-
soring entity has established a compliance
program that is in effect as of the date of
the certification and that has been subject-
ed to the review as described in paragraph
(j)(2) of this section;
(2) With respect to the event of default
or material failure--
(i) The responsible officer (or desig-
nee) has identified an event of default; or
(ii) The responsible officer has deter-
mined that there are one or more material
failures as defined in paragraph (j)(3)(vii)
of this section and that appropriate actions
will be taken to prevent such failures from
reoccurring;
(3) With respect to any failure to with-
hold, deposit, or report to the extent re-
quired under §1.1471-4 or an applicable
Model 2 IGA with respect to any spon-
sored FFI for any year during the certifi-
cation period, the sponsored FFI will cor-
rect such failure by paying (or directing
the sponsoring entity to pay) any taxes
due (including interest and penalties) and
filing (or directing the sponsoring entity
to file) the appropriate return (or amended
return); and
(4) The responsible officer (or desig-
nee) will respond to any notice of default
under paragraph (k)(2) of this section or
will provide to the IRS a description of
each material failure and a written plan to
correct each such failure when requested
under paragraph (j)(4) of this section.
(vii) Material failures defined. A mate-
rial failure is a failure of the sponsoring
entity with respect to each sponsored FFI
to satisfy the requirements of paragraph
(f)(1)(i)(F) or (f)(2)(iii) of this section or
an applicable Model 2 IGA if the failure
was the result of a deliberate action on
the part of one or more employees of the
sponsoring entity or was an error attribut-
able to a failure of the sponsoring entity to
implement internal controls sufficient for
the sponsoring entity to meet its require-
ments. A material failure will not consti-
tute an event of default unless such ma-
terial failure occurs in more than limited
circumstances when a sponsoring entity
has not substantially complied with the
requirements described in the preceding
sentence. Material failures include the
following--
(A) With respect to any sponsored FFI,
the deliberate or systematic failure of the
sponsoring entity to report accounts that
such sponsored FFI was required to treat
as U.S. accounts, withhold on passthru
payments to the extent required, deposit
taxes withheld to the extent required, accu-
rately report recalcitrant account holders
(or non-consenting U.S. accounts under
an applicable Model 2 IGA), or accurate-
ly report with respect to nonparticipating
FFIs as required under §1.1471-4(d)(2)(ii)
(F) or an applicable Model 2 IGA;
(B) A criminal or civil penalty or sanc-
tion imposed on the sponsoring entity or
any sponsored FFI (or any branch or office
of the sponsoring entity or any sponsored
FFI) by a regulator or other governmental
authority or agency with oversight over
the sponsoring entity’s or sponsored FFI’s
compliance with the AML due diligence
procedures to which it (or any branch or
office thereof) is subject and that is im-
posed based on a failure to properly iden-
tify account holders under the require-
ments of those procedures;

April 15, 2019 1020 Bulletin No. 2019–16
(C) A potential future tax liability of
any sponsored FFI related to its compli-
ance (or lack thereof) with the due dil-
igence, withholding, and reporting re-
quirements of §1.1471-4 or an applicable
Model 2 IGA for which such sponsored
FFI has established, for financial state-
ment purposes, a tax reserve or provision;
(D) A potential contractual liability un-
der the agreement described in paragraph
(j)(3)(v)(B) of this section of the sponsor-
ing entity to any sponsored FFI related to
such sponsoring entity’s compliance (or
lack thereof) with paragraph (f)(1)(i)(F)
or (f)(2)(iii) of this section or an applica-
ble Model 2 IGA for which the sponsoring
entity has established, for financial state-
ment purposes, a reserve or provision; and
(E) Failure to register with the IRS as a
sponsoring entity or to register each spon-
sored FFI required to be registered under
paragraph (f)(1)(i)(F)(3)(iii) of this sec-
tion or an applicable Model 2 IGA.
(4) IRS review of compliance--(i) Gen-
eral inquiries. The IRS, based upon the
information reporting forms described in
§1.1471-4(d)(3)(v), (d)(5)(vii), or (d)(6)
(iv) filed with the IRS (or the absence of
such reporting) by the sponsoring entity
for each calendar year with respect to any
sponsoring FFI, may request additional
information with respect to the informa-
tion reported (or required to be reported)
on the forms, the account statements de-
scribed in §1.1471-4(d)(4)(v) with respect
to one or more sponsored FFIs, or confir-
mation that the FFI has no reporting re-
quirements. The IRS may also request any
additional information from the sponsor-
ing entity (including a copy of each spon-
sorship agreement the sponsoring entity
has entered into with each sponsored FFI)
necessary to determine the compliance
with the due diligence, withholding, and
reporting requirements of §1.1471-4 or an
applicable Model 2 IGA with respect to
each sponsored FFI and to assist the IRS
with its review of account holder compli-
ance with tax reporting requirements.
(ii) Inquiries regarding substantial
non-compliance. The IRS may determine
in its discretion that a sponsoring entity
may not have substantially complied with
the requirements of paragraph (f)(1)(i)(F)
or (f)(2)(iii) of this section or an applica-
ble Model 2 IGA with respect to any spon-
sored FFI. This determination is based on
the information reporting forms described
in §1.1471-4(d)(3)(v), (d)(5)(vii), or (d)
(6)(iv) filed with the IRS by the sponsor-
ing entity for each calendar year with re-
spect to any sponsored FFI (or the absence
of reporting), the certifications made by
the responsible officer described in para-
graphs (j)(3) and (5) of this section (or the
absence of such certifications), or any oth-
er information related to the sponsoring
entity’s compliance with respect to any
sponsored FFI for purposes of satisfying
the requirements of paragraph (f)(1)(i)(F)
or (f)(2)(iii) of this section or an applica-
ble Model 2 IGA. In such a case, the IRS
may request from the responsible officer
(or designee) information necessary to
verify the sponsoring entity’s compliance
with such requirements. The IRS may re-
quest, for example, a description or copy
of the sponsoring entity’s policies and pro-
cedures for fulfilling the requirements of
paragraph (f)(1)(i)(F) or (f)(2)(iii) of this
section or an applicable Model 2 IGA, a
description or copy of the sponsoring enti-
ty’s procedures for conducting its periodic
review, or a copy of any written reports
documenting the findings of such review.
The IRS may also request the perfor-
mance of specified review procedures by
a person (including an external auditor or
third-party consultant) that the IRS iden-
tifies as competent to perform such pro-
cedures given the facts and circumstances
surrounding the sponsoring entity’s poten-
tial failure to comply with respect to each
sponsored FFI with the requirements of
paragraph (f)(1)(i)(F) or (f)(2)(iii) of this
section or an applicable Model 2 IGA.
(iii) Compliance procedures for a
sponsored FFI subject to a Model 2 IGA.
In the case of a sponsored FFI subject to
the requirements of an applicable Model
2 IGA, the procedures described in para-
graph (j)(4) of this section apply, except
as otherwise provided in the applicable
Model 2 IGA.
(5) Preexisting account certification.
The responsible officer of a sponsoring en-
tity must make the certification described
in §1.1471-4(c)(7) (preexisting account
certification of a participating FFI) with
respect to each sponsored FFI that enters
into the sponsorship agreement with the
sponsoring entity during the certification
period (as defined in paragraph (j)(3)(iii)
of this section). However, the preexisting
account certification is not required for a
sponsored FFI that, immediately before
the FFI first agrees to be sponsored by the
sponsoring entity, was a participating FFI,
a sponsored FFI of another sponsoring
entity, or a registered deemed-compliant
FFI that is a local FFI or a restricted fund,
if the FFI (or the FFI’s former sponsoring
entity, if applicable) provides a written
certification to the sponsoring entity that
the FFI has made the preexisting account
certification required under §1.1471-4(c)
(7) or paragraph (f)(1)(i)(A)(7) or (f)(1)
(i)(D)(6) of this section (as applicable),
unless the sponsoring entity knows that
such written certification is unreliable
or incorrect. In addition, the preexisting
account certification is not required for a
sponsored FFI that enters into the spon-
sorship agreement with the sponsoring
entity during the two year period before
the end of the sponsoring entity’s certifi-
cation period, provided that the sponsor-
ing entity makes the preexisting account
certification for such FFI for the subse-
quent certification period. The certifica-
tion described in this paragraph (j)(5) for
the certification period must be submitted
by the due date of the sponsoring entity’s
certification of compliance required un-
der paragraph (j)(3)(i) of this section for
the certification period (or the extended
due date described in paragraph (j)(3)(i)
(B) of this section for the certification pe-
riod ending on December 31, 2017), on
the form and in the manner prescribed by
the IRS. With respect to a sponsored FFI
for which the sponsoring entity makes a
preexisting account certification, a preex-
isting obligation means any account, in-
strument, or contract (including any debt
or equity interest) maintained, executed,
or issued by the sponsored FFI that is out-
standing on the earlier of the date the FFI
is issued a GIIN as a sponsored FFI or the
date the FFI first agrees to be sponsored
by the sponsoring entity.
(6) Sponsorship agreement. A sponsor-
ing entity must have a written sponsorship
agreement (which may be part of another
agreement between the sponsoring entity
and the sponsored FFI) that refers to the
requirements of a sponsored FFI under
FATCA and that must be in place with
each sponsored FFI for which the spon-
soring entity acts by the later of March 31,
2019, or the date that the sponsoring entity

Bulletin No. 2019–16 1021 April 15, 2019
begins acting as a sponsoring entity for the
applicable sponsored FFI.
(k) Sponsoring entity event of de-
fault--(1) Defined. An event of default
with regard to a sponsoring entity occurs
if the sponsoring entity fails to perform
material obligations required with respect
to the due diligence, withholding, and re-
porting requirements of §1.1471-4 or an
applicable Model 2 IGA with respect to
any sponsored FFI, to establish or main-
tain a compliance program as described
in paragraph (j)(2) of this section, or to
perform a periodic review described in
paragraph (j)(2) of this section. An event
of default also includes the occurrence of
any of the following--
(i) With respect to any sponsored FFI,
failure to obtain, in any case in which for-
eign law would (but for a waiver) prevent
the reporting of U.S. accounts required un-
der §1.1471-4(d), valid and effective waiv-
ers from holders of U.S. accounts or failure
to otherwise close or transfer such U.S. ac-
counts as required under §1.1471-4(i);
(ii) With respect to any sponsored FFI,
failure to significantly reduce, over a pe-
riod of time, the number of account hold-
ers or payees that such sponsored FFI is
required to treat as recalcitrant account
holders or nonparticipating FFIs, as a
result of the sponsoring entity failing to
comply with the due diligence procedures
set forth in §1.1471-4(c);
(iii) With respect to any sponsored
FFI, failure to fulfill the requirements of
§1.1471-4(i) in any case in which foreign
law prevents or otherwise limits withhold-
ing under §1.1471-4(b);
(iv) Failure to take timely corrective
actions to remedy a material failure de-
scribed in paragraph (j)(3)(vii) of this sec-
tion after making a qualified certification
described in paragraph (j)(3)(vi)(B) of this
section;
(v) Failure to make the preexisting
account certification required under para-
graph (j)(5) of this section or the period-
ic certification required under paragraph
(j)(3) of this section with respect to any
sponsored FFI within the specified time
period;
(vi) Making incorrect claims for refund
on behalf of any sponsored FFI;
(vii) Failure to cooperate with an IRS
request for additional information under
paragraph (j)(4) of this section;
(viii) Making any fraudulent statement
or misrepresentation of material fact to the
IRS or representing to a withholding agent
or the IRS its status as a sponsoring entity
for an entity other than an entity for which
it acts as a sponsoring entity;
(ix) The sponsoring entity is no longer
authorized to perform the requirements of
a sponsoring entity with respect to one or
more sponsored FFIs; or
(x) Failure to have the written spon-
sorship agreement described in paragraph
(j)(3)(v)(B) of this section in effect with
each sponsored FFI.
(2) Notice of event of default. Fol-
lowing an event of default known by or
disclosed by the sponsoring entity to the
IRS, the IRS will deliver to the sponsoring
entity a notice of default specifying the
event of default and, if applicable, iden-
tifying each sponsored FFI to which the
notice relates. The IRS will request that
the sponsoring entity remediate the event
of default within 45 days (unless addition-
al time is requested and agreed to by the
IRS). The sponsoring entity must respond
to the notice of default and provide infor-
mation responsive to an IRS request for
information or state the reasons why the
sponsoring entity does not agree that an
event of default has occurred.
(3) Remediation of event of default. A
sponsoring entity will be permitted to re-
mediate an event of default to the extent
that it agrees with the IRS on a remedia-
tion plan. Such a plan may, for example,
allow a sponsoring entity to remediate an
event of default described in paragraph (k)
(1) of this section with respect to a spon-
sored FFI by providing specific informa-
tion regarding the U.S. accounts main-
tained by such sponsored FFI when the
sponsoring entity has been unable to re-
port all of the information with respect to
such accounts as required under §1.1471-
4(d) and has been unable to close or trans-
fer such accounts. The IRS may, as part
of a remediation plan, require additional
information from the sponsoring entity or
the performance of the specified review
procedures described in paragraph (j)(4)
(ii) of this section.
(4) Termination--(i) In general. If the
sponsoring entity does not provide a re-
sponse to a notice of default within the
period specified in paragraph (k)(2) of this
section or does not remediate the event of
default as described in paragraph (k)(3) of
this section, the IRS may deliver a notice
of termination that terminates the spon-
soring entity’s status, the status of one or
more sponsored FFIs as deemed-compli-
ant FFIs, or the status of both the spon-
soring entity and one or more sponsored
FFIs.
(ii) Termination of sponsoring entity. If
the IRS terminates the status of the spon-
soring entity, the sponsoring entity must
send notice of the termination within 30
days after the date of termination to each
sponsored FFI for which it acts, as well
as to each withholding agent from which
each sponsored FFI receives payments
and each financial institution with which
each sponsored FFI holds an account for
which a withholding certificate or other
documentation was provided. A sponsor-
ing entity that has had its status terminated
cannot register on the FATCA registration
website to act as a sponsoring entity for
any sponsored FFI or for any entity that is
a sponsored entity under a Model 1 IGA
unless it receives written approval from
the IRS to register. Unless the status of a
sponsored FFI has been terminated, the
sponsored FFI may register on the FAT-
CA registration website as a participating
FFI or registered deemed-compliant FFI
(as applicable). However, a sponsored
FFI whose sponsoring entity has been ter-
minated may not register or represent its
status as a sponsored FFI of a sponsoring
entity that has a relationship described in
section 267(b) or 707(b) with the spon-
soring entity that was terminated without
receiving written approval from the IRS.
(iii) Termination of sponsored FFI. If
the IRS notifies the sponsoring entity that
the status of a sponsored FFI is terminat-
ed (but not the sponsoring entity’s status),
the sponsoring entity must remove the
sponsored FFI from the sponsoring en-
tity’s registration account on the FATCA
registration website and send notice of the
termination within 30 days after the date
of termination to each withholding agent
from which the sponsored FFI receives
payments and each financial institution
with which it holds an account for which
a withholding certificate or other docu-
mentation was provided with respect to
such sponsored FFI. A sponsored FFI that
has had its status as a sponsored FFI ter-
minated (independent from a termination

April 15, 2019 1022 Bulletin No. 2019–16
of status of its sponsoring entity) may not
register on the FATCA registration web-
site as a participating FFI or registered
deemed-compliant FFI unless it receives
written approval from the IRS.
(iv) Reconsideration of notice of de-
fault or notice of termination. A sponsor-
ing entity or sponsored FFI may request,
within 90 days of a notice of default or no-
tice of termination, reconsideration of the
notice of default or notice of termination
by written request to the IRS.
(v) Sponsoring entity of sponsored
FFIs subject to a Model 2 IGA. Subject
to the provisions of an applicable Model
2 IGA, the IRS may revoke the status of
a sponsoring entity with respect to one or
more sponsored FFIs subject to a Model 2
IGA based on the provisions of paragraphs
(k)(2), (3), and (4) of this section (describ-
ing notice of event of default and termi-
nation procedures) if there is an event of
default as defined in paragraph (k)(1) of
this section.
(l) Trustee-documented trust verifica-
tion--(1) Compliance program. A trustee
of a trust treated as a trustee-documented
trust under an applicable Model 2 IGA
must establish and implement a compli-
ance program for purposes of satisfying
the requirements of an applicable Model
2 IGA with respect to each such trust. The
trustee must appoint a responsible officer
who must (either personally or through
designated persons) establish policies,
procedures, and processes sufficient for
the trustee to implement the compliance
program. The responsible officer (or des-
ignee) must periodically review the suf-
ficiency of the trustee’s compliance pro-
gram and the trustee’s compliance with
respect to each trust for purposes of sat-
isfying the requirements of an applicable
Model 2 IGA for each certification period
described in paragraph (l)(2) of this sec-
tion. The results of the periodic review
must be considered by the responsible of-
ficer in making the certification described
in paragraph (l)(2) of this section.
(2) Certification of compliance--(i)
Certification requirement--(A) In general.
Except as otherwise provided in paragraph
(I)(2)(i)(B) or (I)(2)(ii) of this section, on
or before July 1 of the calendar year fol-
lowing the end of the certification period,
the responsible officer of the trustee must
make a certification for the certification
period with respect to all trustee-docu-
mented trusts described in paragraph (l)
(1) of this section on the form and in the
manner prescribed by the IRS.
(B) Extension of time for the certifica-
tion period ending on December 31, 2017.
The certifications required for a certifica-
tion period ending on December 31, 2017,
must be submitted on or before March 31,
2019.
(ii) Late-joining trustee-documented
trusts. In general, with respect to a certi-
fication period, the responsible officer of
a trustee is not required to make a certifi-
cation for a trustee-documented trust for
which the trustee first agreed to act as the
trustee under Annex II of an applicable
IGA during the six-month period before
the end of the trustee’s certification peri-
od, provided that the responsible officer
of the trustee makes certifications for such
trustee-documented trust for subsequent
certification periods and the first such
certification covers both the subsequent
certification period and the portion of
the prior certification period of the trust-
ee during which the trustee acted as the
trustee of the trustee-documented trust.
However, the preceding sentence does not
apply to a trustee-documented trust that,
immediately before the trustee first agrees
to act as the trustee under Annex II of an
applicable IGA, was a trustee-document-
ed trust of another trustee. The trustee of
a trustee-documented trust may certify for
a trustee-documented trust described in
the preceding sentence for the portion of
the certification period of the trustee be-
fore the date that the trustee first agrees
to act as the trustee under Annex II of an
applicable IGA if the trustee obtains from
the trustee-documented trust (or the trust’s
former trustee, if applicable) a written
certification that the trust has complied
with its applicable chapter 4 requirements
during such portion of the certification
period, provided that: the trustee does not
know that such certification is unreliable
or incorrect; and the certification for the
trustee-documented trust for the subse-
quent certification period covers both the
subsequent certification period and the
portion of the prior certification period
during which the trustee acts as the trustee
under Annex II of an applicable IGA.
(iii) Certification period. The first cer-
tification period of the trustee begins on
the later of the date the trustee is issued a
GIIN to act as a trustee of a trustee-docu-
mented trust or June 30, 2014, and ends
at the close of the third full calendar year
following such date. Each subsequent cer-
tification period is the three-calendar-year
period following the previous certification
period.
(iv) Certifications. The responsible
officer of the trustee must certify to the
following statements--
(A) The responsible officer of the trust-
ee has established a compliance program
that is in effect as of the date of the certi-
fication and has performed a periodic re-
view described in paragraph (l)(1) of this
section for the certification period; and
(B) The trustee has reported to the IRS
on Form 8966, “FATCA Report” (or such
other form as the IRS may prescribe), all
of the information required to be reported
pursuant to the applicable Model 2 IGA
with respect to all U.S. accounts of each
trustee-documented trust for which the
trustee acts during the certification period
by the due date of Form 8966 (including
extensions) for each year.
(3) IRS review of compliance by trust-
ees of trustee-documented trusts--(i) Gen-
eral inquiries. Based upon the informa-
tion reporting forms filed with the IRS
(or the absence of such reporting) by a
trustee with respect to any trustee-doc-
umented trust subject to a Model 2 IGA
for each calendar year, and subject to the
requirements of an applicable Model 2
IGA, the IRS may request from the trustee
additional information with respect to the
information reported on the forms with
respect to any trustee-documented trust
or a confirmation that the trustee has no
reporting requirements with respect to any
trustee-documented trust. The IRS may
also request any additional information
to determine the trustee’s compliance for
purposes of satisfying the trust’s require-
ments as a trustee-documented trust under
an applicable Model 2 IGA or to assist
the IRS with its review of account hold-
er compliance with tax reporting require-
ments.
(ii) Inquiries regarding substantial
non-compliance. The IRS may determine
in its discretion that the trustee may not
have substantially complied with the re-
quirements applicable to a trustee of a
trustee-documented trust. This determina-

Bulletin No. 2019–16 1023 April 15, 2019
tion is based on the information reporting
forms filed with the IRS by a trustee with
respect to any trustee-documented trust
subject to a Model 2 IGA for each calen-
dar year (or the absence of such reporting),
the certification described in paragraph (l)
(2) of this section (or the absence of such
certification), or any other information
related to the trustee’s compliance with
respect to any trustee-documented trust
for purposes of satisfying the trust’s appli-
cable Model 2 IGA requirements. In such
a case, the IRS may request from the re-
sponsible officer information necessary to
verify the trustee’s compliance with such
requirements. The IRS may also request
the performance of specified review pro-
cedures by a person (including an external
auditor or third-party consultant) that the
IRS identifies as competent to perform
such procedures given the circumstances
surrounding the trustee’s potential fail-
ure to comply with the requirements of
an applicable Model 2 IGA with respect
to one or more trustee-documented trusts.
The IRS may notify the applicable Model
2 IGA jurisdiction that the trustee has not
complied with its requirements as a trustee
of one or more trustee-documented trusts.
(m) Applicability date. This section
generally applies beginning on January
6, 2017, except for paragraphs (f)(1)(i)
(F)(3)(vi), (f)(1)(i)(F)(4), (f)(1)(iv), (f)(2)
(iii)(D)(4), (f)(2)(iii)(E), (j), (k), and (l) of
this section, which apply March 25, 2019.
However, taxpayers may apply these pro-
visions as of January 28, 2013. (For the
rules that otherwise apply beginning on
January 6, 2017, and before March 25,
2019, see this section as in effect and con-
tained in 26 CFR part 1 revised April 1,
2018. For the rules that otherwise apply
beginning on January 28, 2013, and be-
fore January 6, 2017, see this section as
in effect and contained in 26 CFR part 1
revised April 1, 2016.)
Par. 6. Section 1.1472-1 is amended by
revising paragraphs (c)(5)(iii), (f), (g), and
(h) to read as follows:
§1.1472-1 Withholding on NFFEs.
* * * * *
(c) * * *
(5) * * *
(iii) Revocation of status as sponsoring
entity. The IRS may revoke a sponsoring
entity’s status as a sponsoring entity with
respect to all sponsored direct reporting
NFFEs if there is an event of default as de-
fined in paragraph (g) of this section with
respect to any sponsored direct reporting
NFFE.
* * * * *
(f) Sponsoring entity verification--(1)
In general. This paragraph (f) describes
the requirements for a sponsoring entity to
provide a certification of compliance with
respect to each sponsored direct report-
ing NFFE for purposes of satisfying the
requirements of paragraph (c)(5) of this
section and defines the certification period
for such certifications. This paragraph (f)
also describes the procedures for the IRS
to review the sponsoring entity’s compli-
ance with such requirements during the
certification period. Finally, this para-
graph (f) describes the requirement that a
sponsoring entity have in place a written
sponsorship agreement with each spon-
sored direct reporting NFFE for which
it acts and specifies the terms of such
agreement. See paragraph (g)(1)(i) of this
section, describing an event of default for
a sponsoring entity that does not have a
sponsorship agreement with each spon-
sored direct reporting NFFE for which
it acts as a sponsoring entity. References
in this paragraph (f) or paragraph (g) of
this section to a sponsored direct reporting
NFFE mean a sponsored direct reporting
NFFE for which the sponsoring entity acts
as a sponsoring entity under paragraph (c)
(5)(ii) of this section.
(2) Certification of compliance--(i)
Certification requirement--(A) In gener-
al. The sponsoring entity must appoint a
responsible officer to oversee the spon-
soring entity’s compliance with respect to
each sponsored direct reporting NFFE for
purposes of satisfying the requirements of
paragraph (c)(5) of this section. Except as
otherwise provided in paragraph (f)(2)(i)
(B) or (f)(2)(ii) of this section, on or be-
fore July 1 of the calendar year following
the certification period, the responsible
officer of the sponsoring entity must make
a certification for the certification period
with respect to all sponsored direct re-
porting NFFEs for which the sponsoring
entity acts during the certification period
on the form and in the manner prescribed
by the IRS. To the extent that a sponsoring
entity satisfies the certification require-
ments of paragraph (f)(2) of this section
on behalf of a sponsored direct reporting
NFFE, the NFFE does not have a certifi-
cation requirement under paragraph (c)(3)
(vi) of this section.
(B) Extension of time for the certifica-
tion period ending on December 31, 2017.
The certifications required for a certifica-
tion period ending on December 31, 2017,
must be submitted on or before March 31,
2019.
(ii) Late-joining sponsored direct re-
porting NFFEs. In general, with respect to
a certification period, a sponsoring entity
is not required to make a certification for
a sponsored direct reporting NFFE that
first agrees to be sponsored by the spon-
soring entity during the six-month period
before the end of the sponsoring entity’s
certification period, provided that the
sponsoring entity makes certifications for
such sponsored direct reporting NFFE for
subsequent certification periods, and the
first such certification covers both the sub-
sequent certification period and the por-
tion of the prior certification period of the
sponsoring entity during which the spon-
sored direct reporting NFFE was spon-
sored by the sponsoring entity. However,
the preceding sentence does not apply to
a sponsored direct reporting NFFE that,
immediately before the NFFE agrees to be
sponsored by the sponsoring entity, was a
direct reporting NFFE or sponsored direct
reporting NFFE of another sponsoring
entity. The sponsoring entity may certify
for a sponsored direct reporting NFFE de-
scribed in the preceding sentence for the
portion of the certification period of the
sponsoring entity before the date that the
NFFE first agrees to be sponsored by the
sponsoring entity if the sponsoring entity
obtains from the NFFE (or the NFFE’s
sponsoring entity, if applicable) a written
certification that the NFFE has complied
with its applicable chapter 4 requirements
during such portion of the certification
period, provided that: the sponsoring en-
tity does not know that such certification
is unreliable or incorrect; and the certifi-
cation for the sponsored direct reporting
NFFE for the subsequent certification
period covers both the subsequent certifi-
cation period and the portion of the pri-
or certification period during which such
NFFE was sponsored by the sponsoring
entity.

April 15, 2019 1024 Bulletin No. 2019–16
(iii) Certification period. The first cer-
tification period of a sponsoring entity
begins on the later of the date the spon-
soring entity is issued a GIIN to act as a
sponsoring entity or June 30, 2014, and
ends at the close of the third full calendar
year after such date. Each subsequent cer-
tification period is the three-calendar-year
period following the close of the previous
certification period.
(iv) Certifications. The certification
will require the responsible officer of the
sponsoring entity to certify to the follow-
ing statements--
(A) The sponsoring entity meets all of
the requirements of a sponsoring entity
described in paragraph (c)(5)(ii) of this
section;
(B) The sponsoring entity has the
written sponsorship agreement described
in paragraph (f)(4) of this section in ef-
fect with each sponsored direct reporting
NFFE;
(C) There were no events of default
(as defined in paragraph (g) of this sec-
tion) with respect to the sponsoring en-
tity, or, to the extent there were any such
events of default, appropriate measures
were taken by the sponsoring entity to
remediate and prevent such events from
reoccurring; and
(D) With respect to any failure to report
to the extent required under paragraph (c)
(3)(ii) of this section with respect to one or
more sponsored direct reporting NFFEs,
the sponsoring entity has corrected such
failure by filing the appropriate informa-
tion returns.
(3) IRS review of compliance--(i) Gen-
eral inquiries. The IRS, based upon the
information reporting forms described in
paragraph (c)(3)(ii) of this section filed
with the IRS (or the absence of such re-
porting) by the sponsoring entity for each
calendar year with respect to any spon-
sored direct reporting NFFE, may request
additional information with respect to the
information reported (or required to be re-
ported) on the forms about any substantial
U.S. owner reported on the form or the
records for each direct reporting NFFE
described in paragraph (c)(3)(iv) of this
section. The IRS may also request any ad-
ditional information from the sponsoring
entity (including a copy of each sponsor-
ship agreement the sponsoring entity has
entered into with each sponsored FFI) to
determine its compliance with paragraph
(f) of this section with respect to each
sponsored direct reporting NFFE and to
assist the IRS with its review of any sub-
stantial U.S. owners’ compliance with tax
reporting requirements.
(ii) Inquiries regarding substantial
non-compliance. The IRS may determine
in its discretion that a sponsoring entity
may not have substantially complied with
the requirements of a sponsoring entity
with respect to each sponsored direct re-
porting NFFE for purposes of satisfying
the requirements of paragraph (c)(5) of
this section. This determination is based
on the information reporting forms refer-
enced in paragraph (c)(3)(ii) of this sec-
tion filed with the IRS by the sponsoring
entity for each calendar year with respect
to any sponsored direct reporting NFFE
(or the absence of such reporting), the
certification made by the responsible of-
ficer described in paragraph (f)(2) of this
section (or the absence of such certifica-
tion), or any other information related to
the sponsoring entity’s compliance with
the requirements of a sponsoring entity
with respect to each sponsored direct re-
porting NFFE for purposes of satisfying
the requirements of paragraph (c)(5) of
this section. In such a case, the IRS may
request from the responsible officer infor-
mation necessary to verify the sponsoring
entity’s compliance with such require-
ments. The IRS may also request the per-
formance of specified review procedures
by a person (including an external audi-
tor or third-party consultant) that the IRS
identifies as competent to perform such
procedures given the circumstances sur-
rounding the sponsoring entity’s potential
failure to comply with the requirements of
a sponsoring entity.
(4) Sponsorship agreement. The spon-
soring entity must have a written sponsor-
ship agreement (which may be part of an-
other agreement between the sponsoring
entity and the sponsored direct reporting
NFFE) in place with each sponsored di-
rect reporting NFFE for which it acts by
the later of March 31, 2019, or the date
that the sponsoring entity begins acting
as a sponsoring entity for the applicable
sponsored direct reporting NFFE, under
which--
(i) The sponsored direct reporting
NFFE agrees to provide the sponsoring
entity access to the sponsored direct re-
porting NFFE’s books and records re-
garding each of its owners (including
AML/KYC documentation regarding
the sponsored direct reporting NFFE’s
owners provided by the sponsored direct
reporting NFFE with respect to each fi-
nancial account it holds) and such other
information sufficient for the sponsoring
entity to determine the direct and indirect
substantial U.S. owners of the sponsored
direct reporting NFFE, including the in-
formation about such owners required
under paragraph (c)(3)(ii) of this section
to be reported on Form 8966, “FATCA Re-
port” (or such other form as the IRS may
prescribe);
(ii) The sponsored direct reporting
NFFE obtains a valid and effective waiv-
er of any legal prohibitions on reporting
the information about its direct and indi-
rect substantial U.S. owners required un-
der paragraph (c)(3)(ii) of this section to
be reported on Form 8966 (or such other
form as the IRS may prescribe);
(iii) The sponsored direct reporting
NFFE authorizes the sponsoring entity
to act on the sponsored direct reporting
NFFE’s behalf with respect to the spon-
sored direct reporting NFFE’s obligations
as a sponsored direct reporting NFFE (for
example, authorizing the sponsoring en-
tity to file Form 8966 on the sponsored
direct reporting NFFE’s behalf, respond-
ing to the IRS inquiries described in para-
graph (f)(3) of this section, and providing
the certification described in paragraph (f)
(2) of this section);
(iv) The sponsored direct reporting
NFFE agrees to identify to the sponsor-
ing entity on request each withholding
agent and financial institution to which
the sponsored direct reporting NFFE
reports its status as a sponsored direct
reporting NFFE and agrees to provide
to the sponsoring entity a copy of the
withholding certificate or written state-
ment prescribed in §1.1471-3(d)(11)(x)
(B) (as applicable) that the sponsored
direct reporting NFFE provides to each
such withholding agent or financial in-
stitution;
(v) The sponsored direct reporting
NFFE represents that it does not have any

Bulletin No. 2019–16 1025 April 15, 2019
formal or informal practices or proce-
dures to assist its substantial U.S. owners
with the avoidance of the requirements of
chapter 4;
(vi) The sponsored direct reporting
NFFE agrees to cooperate with the spon-
soring entity in responding to any IRS in-
quiries under paragraph (f)(3) of this sec-
tion with respect to the sponsored direct
reporting NFFE; and
(vii) The sponsoring entity retains the
records described in paragraphs (c)(3)(iii)
and (iv) of this section for the longer of
six years or the retention period under the
sponsoring entity’s normal business pro-
cedures. A sponsoring entity may be re-
quired to extend the retention period if the
IRS requests such an extension before the
expiration of the period.
(g) Sponsoring entity event of de-
fault--(1) Defined. An event of default by
the sponsoring entity means the occur-
rence of any of the following--
(i) Failure to have the written sponsor-
ship agreement described in paragraph (f)
(4) of this section in effect with each spon-
sored direct reporting NFFE;
(ii) Failure to satisfy the requirements
of paragraph (c)(3)(iii) of this section with
respect to each sponsored direct reporting
NFFE that the NFFE would have been
required to satisfy as a direct reporting
NFFE;
(iii) Failure to report to the IRS on
Form 8966, “FATCA Report,” (or such
other form as the IRS may prescribe) all
of the information required under para-
graph (c)(3)(ii) of this section with re-
spect to each sponsored direct reporting
NFFE and each of its substantial U.S.
owners (or report to the IRS on Form
8966 that the sponsored direct reporting
NFFE had no substantial U.S. owners) by
the due date of the form (including any
extensions);
(iv) Failure to make the certification
required under paragraph (f)(2) of this
section;
(v) Failure to cooperate with an IRS re-
quest for additional information described
in paragraph (f)(3) of this section, includ-
ing requests for the records described in
paragraph (c)(3)(iv) of this section and
requests to extend the retention period for
these records as described in (f)(4)(vii) of
this section;
(vi) Making any fraudulent statement
or misrepresentation of material fact to the
IRS or representing to a withholding agent
or the IRS its status as a sponsoring entity
under paragraph (c)(5) of this section for
an entity other than an entity for which it
acts as a sponsoring entity; or
(vii) Failure to obtain from each spon-
sored direct reporting NFFE the informa-
tion required to report on Form 8966.
(2) Notice of event of default. Fol-
lowing an event of default known by or
disclosed to the IRS, the IRS will deliver
to the sponsoring entity a notice of de-
fault specifying the event of default and,
if applicable, identifying each sponsored
direct reporting NFFE to which the no-
tice relates. The IRS will request that the
sponsoring entity remediate the event of
default within 45 days (unless addition-
al time is requested and agreed to by the
IRS). The sponsoring entity must respond
to the notice of default and provide infor-
mation responsive to an IRS request for
information or state the reasons why the
sponsoring entity does not agree that an
event of default has occurred.
(3) Remediation of event of default.
A sponsoring entity will be permitted to
remediate an event of default to the ex-
tent that it agrees with the IRS on a re-
mediation plan. The IRS may, as part of
a remediation plan, require additional in-
formation from the sponsoring entity, re-
medial actions, or the performance of the
specified review procedures described in
paragraph (f)(3)(ii) of this section.
(4) Termination--(i) In general. If the
sponsoring entity does not provide a re-
sponse to a notice of default within the
period specified in paragraph (g)(2) of this
section, or if the sponsoring entity does
not satisfy the conditions of the remedia-
tion plan within the time period specified
by the IRS, the IRS may deliver a notice
of termination that terminates the spon-
soring entity’s status, the status of one or
more sponsored direct reporting NFFEs
as a direct reporting NFFE, or the status
of both the sponsoring entity and one or
more sponsored direct reporting NFFEs.
(ii) Termination of sponsoring entity.
If the IRS notifies the sponsoring entity
that its status is terminated, the sponsor-
ing entity must send notice of the termi-
nation within 30 days after the date of ter-
mination to each withholding agent from
which each sponsored direct reporting
NFFE receives payments and each finan-
cial institution with which each sponsored
direct reporting NFFE holds an account
for which a withholding certificate or
written statement prescribed in §1.1471-
3(d)(11)(x)(B) (as applicable) was pro-
vided. A sponsoring entity that has had
its status terminated cannot reregister on
the FATCA registration website to act as a
sponsoring entity for any sponsored direct
reporting NFFE unless it receives written
approval from the IRS. Unless the status
of the sponsored direct reporting NFFEs
has been terminated, the sponsored direct
reporting NFFEs may register on the FAT-
CA registration website as direct reporting
NFFEs or as sponsored direct reporting
NFFEs of another sponsoring entity, oth-
er than a sponsoring entity that is related
to the sponsoring entity that was termi-
nated (absent written approval from the
IRS allowing the registration). An entity
is related to the terminated sponsoring en-
tity if they have a relationship with each
other that is described in section 267(b) or
707(b).
(iii) Termination of sponsored direct
reporting NFFE. If the IRS notifies the
sponsoring entity that the status of a spon-
sored direct reporting NFFE is terminated
(but not the sponsoring entity’s status),
the sponsoring entity must remove the
sponsored direct reporting NFFE from the
sponsoring entity’s registration account on
the FATCA registration website and send
notice of the termination within 30 days
after the date of termination to each with-
holding agent from which the sponsored
direct reporting NFFE receives payments
and each financial institution with which it
holds an account for which a withholding
certificate or written statement prescribed
in §1.1471-3(d)(11)(x)(B) (as applicable)
was provided with respect to such spon-
sored direct reporting NFFE. A sponsored
direct reporting NFFE that has had its sta-
tus as a sponsored direct reporting NFFE
terminated (independent from a termina-
tion of status of its sponsoring entity) may
not register on the FATCA registration
website as a direct reporting NFFE or as
a sponsored direct reporting NFFE of an-
other sponsoring entity unless it receives
written approval from the IRS.

April 15, 2019 1026 Bulletin No. 2019–16
(iv) Reconsideration of notice of de-
fault or notice of termination. A sponsor-
ing entity or sponsored direct reporting
NFFE may request, within 90 days of a
notice of default or notice of termination,
reconsideration of the notice of default or
notice of termination by written request to
the IRS.
(h) Applicability date. This section
generally applies beginning on January 6,
2017, except for paragraphs (c)(5)(iii), (f),
and (g) of this section, which apply March
25, 2019. However, taxpayers may apply
these provisions as of January 28, 2013.
(For the rules that otherwise apply begin-
ning on January 6, 2017, and before March
25, 2019, see this section as in effect and
contained in 26 CFR part 1 revised April
1, 2018. For rules that otherwise apply
beginning on January 28, 2013, and be-
fore January 6, 2017, see this section as
in effect and contained in 26 CFR part 1
revised April 1, 2016.)
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
Approved: February 27, 2019.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on March
21, 2019, 4:15 p.m., and published in the issue of the
Federal Register for March 25, 2019, 84 F.R. 10976)

26 CFR 301.6707A-1: Failure to include on any
return or statement any information required to be
disclosed under section 6011 with respect to a re-
portable transaction
T.D. 9853
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Reportable Transactions Pen-
alties under Section 6707A
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations that provide guidance re-
garding the amount of the penalty under
section 6707A of the Internal Revenue
Code (Code) for failure to include on any
return or statement any information re-
quired to be disclosed under section 6011
with respect to a reportable transaction.
The final regulations are necessary to
clarify the amount of the penalty under
section 6707A, as amended by the Small
Business Jobs Act of 2010. The final reg-
ulations will affect any taxpayer who fails
to properly disclose participation in a re-
portable transaction.
DATES: Effective Date: These regulations
are effective on March 26, 2019.
FOR FURTHER INFORMATION CON-
TACT: Concerning the final regulations,
Michael Franklin, (202) 317-6844 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regula-
tions amending 26 CFR part 301 under
section 6707A of the Internal Revenue
Code. Section 6707A was added to the
Code by section 811(a) of the American
Jobs Creation Act of 2004 (Pub. L. No.
108-357, 118 Stat. 1418) and was amend-
ed by section 11(a)(41) of the Tax Techni-
cal Corrections Act of 2007 (Pub. L. No.
110-172, 121 Stat. 2473). Section 6707A
imposes a penalty for failure to disclose
a reportable transaction. It also imposes
a penalty on certain taxpayers for failure
to disclose in filings with the Securities
and Exchange Commission (SEC) any re-
quirement to pay a penalty under (1) sec-
tion 6707A with respect to a listed trans-
action, (2) section 6662A with respect to
an undisclosed reportable transaction, or
(3) section 6662(h) with respect to an un-
disclosed reportable transaction. On Sep-
tember 11, 2008, temporary regulations
(TD 9425) under section 6707A were
published in the Federal Register (73 FR
52784). A notice of proposed rulemaking
(REG-160868-04) cross-referencing the
temporary regulations was published in
the Federal Register on the same day (73
FR 52805).
Section 6707A was amended in 2010
by section 2041(a) of the Small Business
Jobs Act of 2010 (Public Law No. 111-
240, 124 Stat. 2504) (the Jobs Act), which
changed the amount of the penalty from
a stated dollar amount to a percentage of
the decrease in tax shown on the return
as a result of a reportable transaction and
provided maximum and minimum penalty
amounts. Before the Jobs Act was enact-
ed, the penalty was $10,000 in the case
of a natural person ($50,000 in any other
case) and, in the case of a listed transac-
tion, $100,000 in the case of a natural per-
son ($200,000 in any other case). In some
cases, this structure resulted in penalties
that were potentially disproportionate to
the tax benefit derived from the transac-
tion. See ‘‘Legislative Recommendations
with Legislative Action: Modify Internal
Revenue Code Section 6707A to Amelio-
rate Unconscionable Impact,’’ National
Taxpayer Advocate 2008 Annual Report
to Congress vol. 1, at 419. In response,
Congress amended section 6707A(b)
through the Jobs Act. See Joint Committee
on Taxation, General Explanation of Tax
Legislation Enacted in the 111th Congress
(JCS-2-11), March 2011 (explaining the
reasons for the change to section 6707A).
The Jobs Act amended section
6707A(b) to make the penalty 75 per-
cent of the decrease in tax shown on the
return as a result of a reportable transac-
tion, with a minimum penalty amount of
$10,000 ($5,000 in the case of a natural
person). The maximum penalty amount
is $200,000 ($100,000 in the case of a
natural person) for failure to disclose a
listed transaction, or $50,000 ($10,000 in
the case of a natural person) for failure to
disclose any other reportable transaction.
The Jobs Act amendment applies to pen-
alties assessed after December 31, 2006.
See Jobs Act § 2041(b), 124 Stat. at 2560.
On September 7, 2011, final regula-
tions (TD 9550) were published in the
Federal Register (76 FR 55256) adopting
and amending the proposed regulations
published on September 11, 2008. The fi-
nal regulations in TD 9550 did not provide
guidance on the amount of the penalty as
amended by the Jobs Act beyond reciting
the language of section 6707A because the
notice of proposed rulemaking on which
those final regulations were based predat-
ed the Jobs Act.

Bulletin No. 2019–16 1027 April 15, 2019
On August 28, 2015, the Treasury De-
partment and the IRS published in the
Federal Register (80 FR 52231-01) a
notice of proposed rulemaking propos-
ing amendments to regulations under 26
CFR part 301 to provide guidance on
the amount of the penalty under section
6707A, as amended by the Jobs Act.
Summary of Comments and
Explanation of Revisions
One electronic comment was submit-
ted under the regulation number for the
proposed regulations. The comment is
available for public inspection at http://
www.regulations.gov or upon request.
The IRS received no requests for a public
hearing, and none was held.
The comment addressed two dif-
ferent issues, the first being the defini-
tion of “decrease in tax” provided in
§301.6707A-1(d)(1)(i) of the proposed
regulations. Section 6707A(b)(1) provides
that, subject to certain minimum and max-
imum amounts, the amount of the penal-
ty under subsection (a) of section 6707A
with respect to any reportable transaction
shall be 75 percent of the decrease in tax
shown on the return as a result of such
transaction (or which would have resulted
from such transaction if such transaction
were respected for federal tax purposes).
Section 301.6707A-1(d)(1)(i) of the pro-
posed regulations defines a “decrease in
tax” generally as the difference between
the amount of tax reported on the return
as filed and the amount of tax that would
be reported on a hypothetical return where
the taxpayer did not participate in the re-
portable transaction. The definition in
§301.6707A-1(d)(1)(i) also encompasses
situations where a taxpayer’s participa-
tion in a reportable transaction creates a
liability for a tax that would not exist ab-
sent participation in the transaction. For
example, a taxpayer engaging in a listed
transaction involving a Roth IRA may be
subject to an excise tax on excess IRA
contributions. If the taxpayer fails to re-
port the excise tax on the taxpayer’s ex-
cess IRA contributions, this amount of tax
would not appear on the return filed by
the taxpayer that reflected the taxpayer’s
participation in the reportable transaction.
The excise tax would also not appear on
a return filed by the taxpayer if the tax-
payer had not engaged in the transaction,
because there would be no excess contri-
bution on which the excise tax would be
imposed. Therefore, the difference be-
tween these two returns would result in no
decrease in tax attributable to the abusive
Roth IRA transaction. To account for this
type of situation, §301.6707A-1(d)(1)(i)
(B) of the proposed regulations includes
in the definition of decrease in tax “any
other tax that results from participation in
the reportable transaction but was not re-
ported on the taxpayer’s return.” Example
1 in §301.6707A-1(d)(3)(i) illustrates this
rule.
The commenter noted that the pro-
posed regulation includes tax that should
have been shown on the return, but was
not, in the definition of “decrease in tax”
described in §301.6707A-1(d)(1)(i)(B) of
the proposed regulations. The decrease in
tax described in §301.6707A-1(d)(1)(i)
(B) of the proposed regulations will only
exist if the taxpayer’s reporting position is
invalid. If the taxpayer’s reporting posi-
tion were determined to be correct, there
would be no additional tax resulting from
the participation in the reportable transac-
tion that the taxpayer was required to, but
did not, report on the taxpayer’s return.
The commenter contended that including
this unreported tax as part of the decrease
in tax used to calculate the penalty con-
flicts with the common understanding that
the section 6707A penalty is intended to
apply even if the taxpayer’s reporting po-
sition is determined to be correct. In this
situation, the Service will not be able to
impose the penalty without first determin-
ing the merits of the reporting position.
The commenter expressed concerns about
whether Congress intended for the penal-
ty to apply in such circumstances, absent
adjudication on the merits of the under-
lying reporting position. The commenter
noted that, in contrast, §301.6707A-1(d)
(1)(i)(A) of the proposed regulations de-
fines “decrease in tax” by comparing the
amount reported on the taxpayer’s return
(reflecting participation in the reportable
transaction) with the tax liability that
would be reported on a hypothetical re-
turn that did not reflect participation in the
reportable transaction. This portion of the
definition is not affected by the assump-
tion that the taxpayer’s reporting position
is invalid.
The definition of “decrease in tax” in
§301.6707A-1(d)(1)(i) of the proposed
regulations remains the same in the final
regulations. The plain language of section
6707A supports the definition of decrease
in tax provided in these final regulations.
As noted above, section 6707A(b)(1)
provides that the amount of the section
6707A penalty “shall be 75 percent of the
decrease in tax shown on the return as a
result of such transaction.” It is entirely
consistent with this statutory language to
include, when determining the “decrease
in tax” upon which the amount of the
penalty is calculated, other tax that would
result from participation in the reportable
transaction and that was not reported on
the taxpayer’s return. If the taxpayer’s
participation in the reportable transaction
resulted in a decrease in the amount of tax
reported on the return, the plain language
of section 6707A allows that amount to
be taken into account in determining the
amount of the section 6707A penalty.
The same commenter also suggested
adding an additional factor to the list of
factors that the IRS considers when de-
termining whether to rescind a section
6707A penalty in §301.6707A-1(e)(3) of
the final regulations (§301.6707A-1(d)(3)
in the previous version of these regula-
tions). The commenter suggested adding
the filing of a timely amended return that
removes the tax benefits claimed with re-
spect to the reportable transaction to that
list of factors. The commenter expressed
concern that taxpayers might mistakenly
believe that they can remedy the failure
to disclose the reportable transaction by
filing an amended return that does not re-
port the benefits of the transaction and that
the filing of such amended return renders
moot any obligation to disclose participa-
tion in the reportable transaction.
The final regulations do not adopt this
suggestion. The section 6707A penalty
applies when a taxpayer fails to report
participation in a reportable transaction
as required under section 6011. The filing
of an amended return that does not report
the benefits of the reportable transaction
does not remedy the failure to which the
section 6707A penalty applies, namely
the failure to report participation in the
reportable transaction. Furthermore, the
list of factors in §301.6707A-1(e)(3) that
the IRS considers in deciding whether to

April 15, 2019 1028 Bulletin No. 2019–16
rescind a section 6707A penalty is not
exclusive. The IRS is not precluded from
considering factors other than those listed
in the regulation, including the filing of an
amended return.
Although no changes were made spe-
cifically in response to public comments,
some revisions were made to the proposed
regulations. Section 301.6707A-1(d)(1)
(ii) was revised to clarify how the penalty
is calculated in situations where a transac-
tion becomes reportable after the filing of
the return or returns reflecting participa-
tion in the transaction.
Section 1.6011-4(a) provides that ev-
ery taxpayer that has participated in a re-
portable transaction and who is required
to file a tax return must file within the
time prescribed in §1.6011-4(e) a disclo-
sure statement in the form prescribed by
§1.6011-4(d). If a transaction becomes a
listed transaction or a transaction of in-
terest after the filing of the return or re-
turns reflecting a taxpayer’s participation
in such transaction but while the period of
limitations on assessment remains open
for any year in which the taxpayer par-
ticipated in the transaction, §1.6011-4(e)
(2)(i) requires the taxpayer to file a single
disclosure statement with respect to the
taxpayer’s participation in the transaction
with the Office of Tax Shelter Analysis
(OTSA) within 90 calendar days after the
date on which the transaction became a
listed transaction or a transaction of inter-
est. In order for a disclosure statement to
be considered complete, §1.6011-4(d) re-
quires the disclosure statement to describe
the expected tax treatment and all poten-
tial tax benefits expected to result from
the transaction, describe any tax result
protection with respect to the transaction,
and identify and describe the transaction
in sufficient detail for the IRS to be able to
understand the tax structure of the transac-
tion and the identity of all parties involved
in the transaction.
Section 1.6011-4(e)(2)(i) requires tax-
payers to file a single disclosure statement
with respect to a subsequently listed trans-
action or transaction of interest if the pe-
riod of limitations on assessment remains
open with respect to any year in which
the taxpayer participated in the reportable
transaction. Therefore, a taxpayer that
first participated in a listed transaction or
transaction of interest during a year for the
which the period of limitations on assess-
ment is closed at the time the transaction
becomes reportable, but that also partici-
pated in the same reportable transaction
during a year for which the period of lim-
itations on assessment remains open at the
time the transaction becomes reportable,
is required to describe participation in that
reportable transaction during years for
which the period of limitations is closed at
the time the transaction becomes report-
able.
In the final regulations, §301.6707A-
1(d)(1)(ii) is revised to clarify that,
when a taxpayer whose participation in
a subsequently identified listed transac-
tion or transaction of interest is reflect-
ed on more than one return and when
that taxpayer fails to file, as required by
§1.6011-4(a), a complete and proper dis-
closure statement in the time prescribed
under §1.6011-4(e)(2)(i), the amount of
the penalty will be calculated by aggre-
gating the decrease in tax shown on each
return for which the period of limitations
on assessment remains open at the time
the transaction becomes reportable, sub-
ject to the statutory minimum and maxi-
mum penalty amounts. Decreases in tax
shown on returns for years for which the
period of limitations is not open at the
time the transaction becomes reportable
will not be taken into account in calculat-
ing the amount of the penalty. Example
5 in §301.6707A-1(d)(3)(v) is revised to
more clearly illustrate how the penalty is
calculated in situations where a taxpayer
fails to disclose participation in a subse-
quently identified transaction.
Section 6501, which prescribes the pe-
riod of limitation for assessment of tax,
does not preclude the IRS from taking
into account decreases in tax shown on
returns for which the period of limitations
has closed when calculating the amount
of the penalty. However, in the interest
of providing to taxpayers the repose gen-
erally provided for by the expiration of
the period of limitations on assessment,
these final regulations adopt an approach
wherein those amounts are not taken into
account in calculating the penalty. When
a transaction becomes reportable after the
filing of the return or returns reflecting
participation in that transaction, the obli-
gation to file a disclosure statement does
not arise until the transaction becomes a
listed transaction or transaction of inter-
est. When the transaction becomes a list-
ed transaction or transaction of interest,
the taxpayer then has 90 calendar days
to file a complete and accurate disclosure
statement with the OTSA. It is the failure
to file this disclosure statement that gives
rise to liability for a single section 6707A
penalty.
The approach to calculating the penalty
adopted in these final regulations is also
more administrable. By including in the
calculation of the penalty only decreases
in tax shown on returns for which the pe-
riod of limitations on assessment remains
open, there is certainty about which re-
turns need to be reviewed and which de-
creases in tax are taken into account in
calculating the amount of the penalty. If
decreases in tax reported on returns for
tax years for which the period of limita-
tions on assessment is closed were taken
into account in calculating the amount of
the penalty, an indefinite number of prior
year returns would have to be reviewed to
determine whether the return reflects par-
ticipation in the reportable transaction and
to correctly calculate the penalty. The ap-
proach adopted in these regulations avoids
this uncertainty, providing uniformity and
repose to both taxpayers and the IRS.
In addition to the changes to §301.
6707A-1(d)(1)(ii), one additional example
was added to §301.6707A-1(d)(3)(vii) of
the final regulations. Example 7 illustrates
the application of the penalty in situations
where a taxpayer that fails to disclose a
subsequently listed transaction files an
amended return again reporting the tax
benefits associated with that transaction
but does not disclose participation in the
transaction on the amended return as re-
quired by §1.6011-4. Further, all examples
were updated and revised for clarity with
non-substantive changes.
Special Analyses
This regulation is not subject to review
under section 6(b) of Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) between the
Department of the Treasury and the Office
of Management and Budget regarding re-
view of tax regulations. Because the final
regulations would not impose a collection
of information on small entities, the Regu-

Bulletin No. 2019–16 1029 April 15, 2019
latory Flexibility Act (5 U.S.C. chapter 6)
does not apply.
Pursuant to section 7805(f) of the In-
ternal Revenue Code, the notice of pro-
posed 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 businesses. No com-
ments were received on the proposed reg-
ulations.
Drafting Information
The principal author of these regula-
tions is Michael Franklin of the Office of
the Associate Chief Counsel (Procedure
and Administration).
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301--PROCEDURE AND AD-
MINISTRATION
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 301.6707A-1 is amend-
ed by:
1. Adding paragraph (b)(3).
2. In paragraph (c)(1), removing the
language “(including an amended return
or application for tentative refund)” in the
fifth sentence.
3. Redesignating paragraphs (d), (e)
and (f) as paragraphs (e), (f), and (g).
4. Adding new paragraph (d).
5. In newly designated paragraph (e),
removing “(d)(3)(i)” and “(d)(3)” wherev-
er they appear and adding “(e)(3)(i)” and
“(e)(3)” in their place, respectively.
6. In newly designated paragraph (e)(3)
(i), removing the language “(including an
amended return or application for tenta-
tive refund)” wherever it appears.
7. In newly designated paragraph (f),
removing “(e)(1)”, “(e)(2)”, “(e)(3)”, and
“(e)(1)(i) through (e)(1)(iii)” wherever
they appear and adding “(f)(1)”, “(f)(2)”,
“(f)(3)”, and “(f)(1)(i) through (iii)” in
their place, respectively.
8. Revising newly designated para-
graph (g).
The additions and revisions read as fol-
lows:
§ 301.6707A-1. Failure to include on any
return or statement any information re-
quired to be disclosed under section 6011
with respect to a reportable transaction.
* * * * *
(b) * * *
(3) Return. For purposes of this sec-
tion, the term return means an original
return, amended return, or application for
tentative refund, except where otherwise
indicated. As used in examples, the term
return means an original return, except
where otherwise indicated.
* * * * *
(d) Calculation of the penalty--(1)
Decrease in tax--(i) In general. (A) As
used in this section, the phrase decrease
in tax shown on the return as a result of
the transaction or the decrease that would
have resulted from the transaction if it
were respected for Federal tax purposes
means the sum of:
(1) The excess of the amount of the tax
that would have been shown on the return
if the return did not reflect the taxpayer’s
participation in the reportable transaction
over the tax actually reported on the return
reflecting participation in the reportable
transaction; and
(2) Any other tax that results from par-
ticipation in the reportable transaction but
was not reported on the taxpayer’s return.
(B) The amount of tax that would have
been shown on the return if it did not re-
flect the taxpayer’s participation in the re-
portable transaction includes adjustments
that result mechanically from backing
out the reportable transaction, such as tax
items affected by an increase in adjusted
gross income resulting from not partici-
pating in the transaction. The calculation
of the penalty is unaffected by whether a
taxpayer’s tax liability is ultimately set-
tled with the IRS for a different amount or
whether the taxpayer subsequently reports
a different amount of tax on an amended
return, because these amounts do not enter
into the calculation of the decrease in tax
shown on the return (or returns) to which
the penalty relates.
(ii) Subsequently identified transac-
tions. If the taxpayer fails to file, as re-
quired by §1.6011-4(a) of this chapter, a
complete and proper disclosure statement
disclosing participation in a listed transac-
tion or transaction of interest with respect
to more than one return in the time pre-
scribed under §1.6011-4(e)(2)(i) of this
chapter, the amount of the penalty will be
computed by aggregating the decrease in
tax shown on each return for which the pe-
riod of limitations on assessment remains
open.
(iii) Penalty for failure to report to the
SEC. In the case of a penalty imposed un-
der section 6707A(e) for failure to disclose
liability for certain penalties in reports to
the Securities and Exchange Commission
(SEC), the amount of the penalty will be
determined under section 6707A(b) and
this paragraph (d), regardless of wheth-
er the penalty that the taxpayer failed to
disclose is imposed under section 6707A,
6662A, or 6662(h).
(iv) Minimum and maximum amount of
the penalty. The limitations on the mini-
mum and maximum penalty amounts
described in paragraph (a) of this section
apply separately to each failure to disclose
that is subject to a penalty.
(2) No tax required to be shown on
return. For returns with respect to which
disclosure is required but on which no
tax is required to be shown (for example,
returns of passthrough entities), the mini-
mum penalty amount will be imposed for
the failure to disclose.
(3) Examples. The rules in paragraphs
(d)(1) and (2) of this section are illustrated
by the following examples:
(i) Example 1. Taxpayer X, a natural person,
participated in a listed transaction involving a Roth
IRA and filed a return reflecting participation in the
transaction. X failed to disclose participation in the
listed transaction as required by the regulations un-
der section 6011. As a result of the transaction, X
was liable under section 4973 for a $10,000 excise
tax for excess contributions to X’s Roth IRA. On
X’s return reflecting participation in the listed trans-
action, X correctly reported $25,000 of income tax,
none of which was attributable to the listed trans-
action, but failed to report the excise tax. If X had
not participated in the listed transaction, the excise
tax under section 4973 would not have applied and
X’s income tax would have remained $25,000. There
would, therefore, be no difference between the tax
on the return as filed and the tax on the return if it
did not reflect participation in the transaction. The
excise tax, however, is another tax that resulted from
participation in the transaction but was not reported
on X’s return, as described in paragraph (d)(1)(i)(B)
of this section. Therefore, under paragraph (d)(1) of
this section, the decrease in tax resulting from the
listed transaction is $10,000. This amount is deter-

April 15, 2019 1030 Bulletin No. 2019–16
mined by adding zero (the excess of the amount of
tax that would have been shown on X’s return if the
return did not reflect X’s participation in the trans-
action over the tax X actually reported on the return
reflecting X’s participation in the transaction) and
$10,000 (the amount of excise tax that resulted from
participation in the transaction but was not reported
on the return). The amount of the penalty under sec-
tion 6707A is $7,500, which amount is 75 percent of
the $10,000 decrease in tax.
(ii) Example 2. Taxpayer X participated in a list-
ed transaction that resulted in a $40,000 decrease in
the tax shown on the return reflecting participation
in the transaction. X failed to disclose its participa-
tion in the transaction as required by the regulations
under section 6011 and is, therefore, subject to a
penalty under section 6707A. After weighing liti-
gating hazards and other costs of litigation, the IRS
Office of Appeals agreed to settle X’s deficiency for
$20,000. For purposes of calculating the amount of
the penalty under paragraph (d)(1) of this section, the
settlement does not affect the decrease in tax shown
on X’s return as a result of the listed transaction
which remains $40,000. The amount of X’s penalty
under section 6707A is $30,000, which amount is 75
percent of the $40,000 decrease in tax.
(iii) Example 3. For the 2018 tax year, Taxpayer
X, a natural person, failed to disclose participation in
a reportable transaction that is not a listed transaction
and, therefore, is subject to a penalty under section
6707A. After offsetting gross income with the loss-
es generated in the reportable transaction, X’s return
reported adjusted gross income of $100,000. The
return also reported $12,000 of medical expenses,
$4,500 of which were deductible after applying the
7.5 percent floor in section 213(a) and (f). If X’s re-
turn had not reflected participation in the reportable
transaction, X’s adjusted gross income would have
been $140,000 and the deductible medical expens-
es would be limited to $1,500 ($3,000 less than the
deductible amount claimed). Under paragraph (d)
(1) of this section, the decrease in tax shown on X’s
return as a result of X’s participation in the report-
able transaction takes into account both the tax on
the additional $40,000 in adjusted gross income had
X not participated in the reportable transaction and
the tax on the $3,000 adjustment to X’s deductible
medical expenses caused by the increase in adjusted
gross income.
(iv) Example 4. Taxpayer X, a natural person,
timely filed X’s 2019 return and reported income
tax of $40,000. X did not participate in a report-
able transaction in 2019. X participated in a listed
transaction in 2020, but failed to file a complete and
proper disclosure statement with X’s 2020 return as
required by the regulations under section 6011. As
filed, the 2020 return reports that X owes no tax and
has a loss of $10,000. If the tax consequences of the
listed transaction were not reflected on the 2020 re-
turn, the return would show income tax of $15,000
and no loss. X files an amended return for the 2019
tax year on which the only amendment is to carry
back the $10,000 loss reported on the 2020 tax return
to the 2019 tax year. The loss carryback reduces X’s
tax liability for 2019 by $3,000 to $37,000. X fails to
file a complete and proper disclosure statement with
the 2019 amended return as required by the regula-
tions under section 6011. Two penalties under sec-
tion 6707A apply: one for X’s failure to disclose par-
ticipation in a listed transaction reflected on the 2020
return and another for the failure to disclose partici-
pation in the same listed transaction reflected on the
2019 amended return. Under paragraph (d)(1) of this
section, the decrease in tax on the 2020 return result-
ing from the listed transaction is $15,000, which is
the excess of the amount of tax that would have been
shown on X’s 2020 return if that return did not reflect
X’s participation in the listed transaction over the tax
X actually reported on the 2020 return. The amount
of the section 6707A penalty with respect to the 2020
return is $11,250, which amount is 75 percent of the
decrease in tax. Under paragraph (d)(1) of this sec-
tion, the decrease in tax on the 2019 amended return
that results from the listed transaction is $3,000. This
amount is computed by determining the excess of
the amount of tax that would have been shown on
X’s 2019 amended return if that return did not reflect
X’s participation in the listed transaction over the
tax X actually reported on the 2019 amended return
reflecting the loss carryback resulting from X’s par-
ticipation in the listed transaction in 2020. See para-
graph (c) of this section. However, because X is a
natural person, and because 75 percent of the $3,000
decrease in tax is less than $5,000, which is the min-
imum penalty under paragraph (a) of this section and
section 6707A(b)(3), the section 6707A penalty with
respect to the failure to disclose the listed transaction
with respect to the 2019 amended return is $5,000.
Accordingly, X is subject to a $11,250 section 6707A
penalty for failure to disclose participation in a listed
transaction reflected on the 2020 return and a $5,000
section 6707A penalty for failure to disclose partic-
ipation in a listed transaction reflected on the 2019
amended return.
(v) Example 5. Taxpayer X, a corporation, timely
files its 2019, 2020, and 2021 returns, each of which
reflects participation in the same transaction. In
2023, the transaction becomes a listed transaction.
When the transaction at issue became listed, the pe-
riods of limitations on assessment on X’s 2020 and
2021 tax year were open, but the period of limita-
tions on assessment on X’s 2019 tax year was closed.
Pursuant to §1.6011-4(a) and (e)(2)(i) of this chapter,
X is required to file a single disclosure statement re-
flecting its participation in the listed transaction 90
calendar days after the date on which the transaction
becomes a listed transaction. X failed to file a disclo-
sure statement as required. Pursuant to paragraph (d)
(1)(ii) of this section, the section 6707A penalty is
computed by aggregating the decrease in tax shown
on the 2020 return and the decrease in tax shown on
the 2021 return. Because the period of limitations on
assessment for X’s 2019 tax year was closed at the
time the transaction became listed, the decrease in
tax shown on the 2019 return as a result of X’s par-
ticipation in the listed transaction is not taken into
account in computing the amount of the penalty. The
decreases in tax shown on the returns as a result of
X’s participation in the transaction are $265,000 in
tax year 2020 and $7,000 in tax year 2021. Under
paragraph (d)(1) of this section, the total decrease
in tax shown is computed by adding the decrease in
tax for 2020 and the decrease in tax for 2021, which
is $272,000. Seventy-five percent of that amount
is $204,000. Because X is a corporation, the maxi-
mum penalty amount is $200,000 under paragraph
(a) of this section and section 6707A(b)(2)(A). Ac-
cordingly, X is subject to a section 6707A penalty of
$200,000, rather than $204,000.
(vi) Example 6. Taxpayer X, a natural person,
files X’s 2019 return reflecting participation in a re-
portable transaction that is not a listed transaction,
but fails to disclose the transaction as required by the
regulations under section 6011. The decrease in tax
with respect to X’s 2019 return as a result of par-
ticipation in the reportable transaction is $20,000. X
files an amended 2019 return to include a net operat-
ing loss carried forward from a prior year, which X
inadvertently failed to include when filing the origi-
nal 2019 return. The amended return reflects partici-
pation in the same reportable transaction, but X again
fails to disclose the transaction as required by the
regulations under section 6011. The decrease in tax
with respect to the amended 2019 return as a result
of participation in the transaction is also $20,000. X
is subject to two separate 6707A penalties: one for
the failure to disclose the reportable transaction with
respect to the tax benefits from the reportable trans-
action reflected on the original 2019 return and one
for the failure to disclose the reportable transaction
with respect to the tax benefits from the reportable
transaction reflected on the amended 2019 return.
Seventy-five percent of the $20,000 decrease in tax
shown on the original 2019 return is $15,000 and on
the amended 2019 return is another $15,000. How-
ever, because X is a natural person, the amount of the
penalty for failure to disclose is limited to the maxi-
mum amount of $10,000 under §301.6707A-1(a) and
section 6707A(b)(2)(B). Accordingly, the amount of
the section 6707A penalty for the 2019 original re-
turn is $10,000 and the amount of the section 6707A
penalty for the 2019 amended return is also $10,000,
for a total penalty of $20,000.
(vii) Example 7. Taxpayer X, a natural person,
timely files X’s 2019 return on April 15, 2020, re-
flecting participation in a transaction that was not
identified as a reportable transaction when X filed
the return, the only year X participated in the trans-
action. In early 2021, the IRS identifies the trans-
action as a listed transaction. X fails to disclose the
listed transaction as required by the regulations un-
der section 6011. In late 2021, X files an amended
2019 income tax return to claim deductions that had
been omitted from the originally filed 2019 return.
The amended 2019 return reflects X’s participation
in the listed transaction. X does not disclose the
listed transaction when filing the amended 2019 re-
turn. The decrease in tax resulting from X’s partic-
ipation in the transaction is $100,000 with respect
to the original 2019 return and $80,000 with respect
to the 2019 amended return. Pursuant to §1.6011-
4(e)(2)(i) of this chapter, X was required to file a
disclosure statement reflecting X’s participation in
the listed transaction if the period of limitations on
assessment of tax remained open for any taxable
year in which the taxpayer participated in the listed
transaction. When the transaction at issue became
listed, the period of limitations on assessment on
X’s 2019 tax year was open. Pursuant to §1.6011-
4(e)(1) of this chapter, X was also required to dis-
close participation in the transaction when the 2019
amended return was filed because the transaction
was a listed transaction at that time. X is subject
to two penalties under section 6707A: one for the

Bulletin No. 2019–16 1031 April 15, 2019
failure to disclose participation in a listed transac-
tion reflected on X’s original 2019 return within 90
calendar days of the date the transaction became a
listed transaction as required by §1.6011-4(e)(2)(i)
of this chapter and another for the failure to disclose
participation in the same listed transaction reflected
on the 2019 amended return. Seventy-five percent
of this decrease in tax with respect to the original
2019 return is $75,000 (75 percent of $100,000) and
with respect to the 2019 amended return is $60,000
(75 percent of $80,000). Pursuant to paragraph (d)
(1)(iv) of this section, because X is subject to two
separate penalties, the maximum penalty amount
of $100,000 under §301.6707A-1(a) and section
6707A(b)(2)(A) applies separately to each penalty
and does not operate to reduce the amount of the
X’s 6707A penalties.
(viii) Example 8. Under §1.6011-4 of this chap-
ter, Partnership M is required to attach a disclosure
statement to its Form 1065, U.S. Return of Partner-
ship Income, for the 2020 taxable year. M fails to do
so and is, therefore, subject to a penalty under section
6707A. No tax is required to be shown on M’s Form
1065. Pursuant to §301.6707A-1(d)(2), M is subject
to the minimum section 6707A penalty of $10,000.
The partners of Partnership M may have separate
disclosure obligations as required by the regulations
under section 6011 and would be subject to separate
section 6707A penalties if they fail to comply with
the disclosure requirements.
(ix) Example 9. In tax year 2019, Taxpayer X
participated in a listed transaction that resulted in a
$150,000 deduction. X’s gross income for 2019 be-
fore the listed transaction deduction is $100,000. X
uses $100,000 of the deduction resulting in zero tax
liability for 2019. X carried over to tax year 2020 the
remaining $50,000 net operating loss that was not
used in 2019. X’s gross income for tax year 2020
is $200,000 but as a result of the $50,000 net op-
erating loss carryover, X reports $150,000 adjusted
gross income. Pursuant to §1.6011-4 of this chapter,
X is required to disclose participation in the listed
transaction for both 2019 and 2020, but X fails to
make the required disclosures and is therefore sub-
ject to the section 6707A penalty for each failure.
The decrease in tax on the 2019 return is the amount
of tax on $100,000 because that is the difference be-
tween the amount of tax that would have been shown
on the return if it did not reflect participation in the
listed transaction and the tax actually reported. No
other tax resulted from X’s participation in the listed
transaction. The amount of the penalty with respect
to X’s failure to disclose with respect to 2019 will be
75 percent of the decrease in tax. The decrease in tax
on the 2020 return is the difference between the tax
shown on the return as filed and the tax that would be
shown if the $50,000 net operating loss was not used,
including any changes to the amount of tax that are
only indirectly connected with the listed transaction.
The amount of the penalty with respect to X’s failure
to disclose with respect to 2020 will be 75 percent
of the decrease in tax, subject to the minimum and
maximum penalty amount limitations.
(x) Example 10. In tax year 2020, Taxpayer X,
a natural person, participated in a listed transaction
that resulted in a $50,000 deduction. X also has a net
operating loss carryover of $150,000 from 2019. X
uses the deduction of $50,000 and a portion of the
net operating loss carryover resulting in zero tax
liability for 2020. X carries over the remaining net
operating loss to tax year 2021. X’s gross income for
2021 is $250,000, but as a result of the net operat-
ing loss carryover, X reports reduced adjusted gross
income of $150,000. Pursuant to §1.6011-4 of this
chapter, X is required to disclose participation in the
listed transaction for both 2020 and 2021, but X fails
to make the required disclosures and is subject to the
section 6707A penalty for each failure. The decrease
in tax on the 2020 return that results from the report-
able transaction is zero. Because X has $150,000 of
a net operating loss carryover not attributable to the
reportable transaction, X’s tax without the benefits
of the reportable transaction is the same as the tax
shown on the 2020 return as filed. Because X is a
natural person, the minimum penalty of $5,000 un-
der §301.6707A-1(a) and section 6707A(b)(3) will
apply for the failure to disclose the listed transaction
with the 2020 return. The decrease in tax on the 2021
return is the difference between the tax shown on the
return as filed and the tax that would be shown if X
had only $50,000 of net operating loss to carry over
to 2021 (i.e., if X had not offset $50,000 of its 2020
gross income with the deduction resulting from the
reportable transaction and thus had used $100,000
of its net operating loss carryover in 2020), includ-
ing any changes to the amount of tax that are only
indirectly connected with the listed transaction. The
amount of the penalty with respect to the disclosure
relating to 2021 will be 75 percent of this decrease in
tax, subject to the minimum and maximum penalty
amount limitations.
(xi) Example 11. Taxpayer X, a public corpora-
tion required to file periodic reports under section
13 or 15(d) of the Securities Exchange Act of 1934,
timely filed its 2019 return reflecting tax benefits
from a reportable transaction that is not a listed
transaction and properly disclosed the transaction
in accordance with the regulations under section
6011. In 2023, as a result of an examination of X’s
2019 return, the IRS imposes a penalty under section
6662A with respect to the reportable transaction. The
decrease in tax for purposes of paragraph (d)(1) of
this section is $190,000. As a person who is required
to file periodic reports under section 13 or 15(d) of
the Securities Exchange Act of 1934, X is required,
pursuant to section 6707A(e), to disclose the penalty
imposed under section 6662A to the Securities and
Exchange Commission in 2023, which X failed to
do. X’s failure to disclose the section 6662A penal-
ty is treated as a failure to disclose to which section
6707A(b) applies. Thus, X is subject to a penalty un-
der section 6707A(e), which equals 75 percent of the
decrease in tax resulting from the transaction. The
decrease in tax resulting from the reportable transac-
tion was $190,000, 75 percent of which is $142,500.
Because X is a corporation and the transaction is not
a listed transaction, the amount of the penalty is lim-
ited to $50,000 under paragraph (a) of this section
and section 6707A(b)(2)(B). Therefore, rather than
$142,500, X is subject to a $50,000 section 6707A
penalty for failure to disclose the section 6662A pen-
alty to the SEC.
* * * * *
(g) Applicability date. (1) This section
applies to penalties assessed after March
26, 2019.
(2) For penalties assessed before March
26 2019, §301.6707A-1 (as contained in
26 CFR part 1, revised April 2018) shall
apply.
Kirsten Wielobob
Deputy Commissioner for Services
and Enforcement.
Approved: November 16, 2018.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on March
25, 2019, 8:45 a.m., and published in the issue of the
Federal Register for March 26, 2019, 84 F.R. 11217)

April 15, 2019 1032 Bulletin No. 2019–16
Part IV.
Notice of Proposed
Rulemaking
Updating Section 301
Regulations To Reflect
Statutory Changes
REG-121694-16
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations under section 301
of the Internal Revenue Code of 1986
(Code). The proposed regulations would
update existing regulations under section
301 to reflect statutory changes made by
the Technical and Miscellaneous Revenue
Act of 1988, which changes provide that
the amount of a distribution of property
made by a corporation to its shareholder
is the fair market value of the distributed
property. The proposed regulations would
affect any shareholder who receives a dis-
tribution of property from a corporation.
DATES: Written or electronic comments
and requests for a public hearing must be
received by June 24, 2019.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG-121694-16),
Room 5203, Internal Revenue Service,
PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (REG-121694-16), Cou-
rier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC 20224, or sent electronically, via
the Federal eRulemaking Portal at www.
regulations.gov (indicate IRS and REG-
121694-16).
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Grid R. Glyer, (202) 317-6847; con-
cerning submission of comments, Regina
Johnson, (202) 317-6901 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
Section 301 of the Code originally
was enacted as part of the Internal Rev-
enue Code of 1954. Section 301 provides
rules for the treatment of a distribution of
property, including money, made by a cor-
poration to its shareholder with respect to
that shareholder’s stock ownership in that
corporation (distribution).
Section 301(b)(1) provides general
rules for determining the amount of a
distribution. As enacted in 1954, section
301(b)(1) provided rules for determining
the amount of a distribution that differed
depending on whether the shareholder
receiving the distribution (distributee)
was a corporation. Pre-1986 amendments
to section 301(b)(1) added special rules
to determine the amount of distributions
received from foreign distributing corpo-
rations and by foreign corporate distribu-
tees. Similarly, section 301(d), as enacted
in 1954, provided rules for determining
the basis of property received in a distri-
bution that differed depending on wheth-
er the distributee was a corporation. As
with section 301(b)(1), pre-1986 amend-
ments to section 301(d) added special
rules to determine the basis of property
received from foreign distributing corpo-
rations and by foreign corporate distrib-
utees.
Section 1006(e)(10) of the Technical
and Miscellaneous Revenue Act of 1988,
Pub. L. No. 100-647, 102 Stat. 3342
(1988) (the Act), amended section 301(b)
(1) to eliminate the distinction between
corporate and noncorporate distributees as
well as the special rules relating to foreign
corporations. Similarly, section 1006(e)
(11) of the Act amended section 301(d) to
eliminate the distinction between corpo-
rate and noncorporate distributees. (These
amendments to section 301(b)(1) and (d)
are referred to as the 1988 Amendments.)
Section 1019(a) of the Act provided that,
in general, the 1988 Amendments were ef-
fective as if included in the Tax Reform
Act of 1986, Pub. L. No. 99-514, 100 Stat.
2085 (1986).
As a result of the 1988 Amendments,
effective for taxable years beginning af-
ter December 31, 1986, section 301(b)
(1) provides that, for purposes of section
301, the amount of any distribution shall
be the amount of money received plus the
fair market value of the other property re-
ceived. Section 301(d), as amended by the
1988 Amendments and effective for tax-
able years beginning after December 31,
1986, provides that the basis of property
received in a distribution to which section
301(a) applies shall be the fair market val-
ue of such property.
The current regulations issued under
section 301 reflect the rules of sections
301(b)(1) and 301(d) as they existed prior
to the 1988 Amendments. Accordingly, to
the extent preempted by statute, the cur-
rent regulations have no application.
Explanation of Provisions.
The proposed regulations update
§1.301-1 to reflect the statutory chang-
es made to section 301(b)(1) and (d) by
the 1988 Amendments. The scope of the
changes to the current regulations issued
under section 301 made by these pro-
posed regulations is limited to (1) delet-
ing regulatory provisions made obsolete
by statutory changes, (2) making minor
additions and revisions to regulatory pro-
visions to reflect current statutory text,
and (3) making certain non-substantive
changes for purposes of clarity and read-
ability, including reordering and redes-
ignating paragraphs of the current reg-
ulations. The proposed regulations also
update cross-references in §§1.356-1(f),
1.368-2(m)(3)(iii), 1.902-1(a)(12), and
1.902-3(a)(7) to reflect the proposed re-
ordering and redesignating of paragraphs
in §1.301-1.
Specifically, some of the provisions
of current §1.301-1(b) are now found in
proposed §1.301-1(c). Thus, the definition
of the amount of a distribution subject to
section 301 and the determination of the
fair market value of a distribution remain
in §1.301-1(b), while the determination
of when to include a distribution in gross
income, and its fair market value, is now
found in proposed §1.301-1(c).
In addition, current §1.301-1(g) is
redesignated as proposed §1.301-1(f)
and is revised to clarify the application

Bulletin No. 2019–16 1033 April 15, 2019
of the principles of section 357(d) to the
limitation on the amount of a distribution
provided by section 301(b)(2). Section
357(d) was added to the Code by section
3001(b)(1) of the Miscellaneous Trade
and Technical Corrections Act of 1999,
Pub.L. No. 106-36, 113 Stat. 127. On
January 4, 2001, the Treasury Depart-
ment and the IRS published a temporary
regulation (T.D. 8924) in the Federal
Register (66 FR 723) to address this in-
teraction. Current §1.301-1(g), published
in the Federal Register (66 FR 49278)
on September 27, 2001 as T.D. 8964,
provides that no reduction shall be made
for the amount of any liability, unless the
liability is assumed by the shareholder
within the meaning of section 357(d).
Proposed §1.301-1(f) would clarify the
language of current §1.301-1(g) by pro-
viding that no reduction in the amount
of a distribution is made for the amount
of any liability except to the extent the
liability is assumed by the shareholder
within the meaning of section 357(d).
The specific changes to §1.301-1 are
shown in the following table:
Paragraph Designation in §1.301-1Change
(a)Updated to reflect current law
(b)Updated to reflect current law, with the definition of the amount of a distri-
bution subject to section 301 and the determination of the fair market value
of a distribution remaining in paragraph (b) and the determination of when to
include a distribution in gross income, and its fair market value, redesignated as
paragraph (c)
(c)Redesignated as paragraph (d)
(d)Deleted as obsolete
(e)Deleted as obsolete
(f)Updated to reflect current law and redesignated as paragraph (e)
(g)Redesignated as paragraph (f) and revised to clarify that no reduction in the
amount of a distribution is made for the amount of any liability except to the
extent the liability is assumed by the shareholder within the meaning of section
357(d).
(h)Updated to reflect current law and redesignated as paragraph (g)
(i)No change
(j)Updated to reflect current law and redesignated as paragraph (h)
(k)Deleted as obsolete
(l)Redesignated as paragraph (j)
(m)Redesignated as paragraph (k)
(n)Deleted as obsolete
(o)Deleted as obsolete
(p)Redesignated as paragraph (l)
(q)Redesignated as paragraph (m)
(n)New effective date paragraph
Proposed Effective/Applicability
Date
The proposed regulations would apply
to distributions made after the date of pub-
lication of the Treasury decision adopting
these rules as final regulations in the Fed-
eral Register. However, these proposed
regulations would update current regula-
tions under section 301 to reflect statutory
changes made by the 1988 Amendments,
which statutory changes apply to distri-
butions made in taxable years beginning
after December 31, 1986.
Special Analyses
This regulation is not subject to review
under section 6(b) of Executive Order 12866
pursuant to the Memorandum of Agreement
(April 11, 2018) between the Department of
the Treasury and the Office of Management
and Budget regarding review of tax regu-
lations. Because these regulations do not
impose a collection of information on small
entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f), this notice
of proposed rulemaking has been submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any comments
that are submitted timely to the IRS as
prescribed in this preamble under the
“Addresses” heading. The Treasury De-
partment and the IRS request comments
on all aspects of the proposed rules. All
comments will be available at www.reg-
ulations.gov
or upon request. A public
hearing will be scheduled if requested in
writing by any person that timely submits
written comments. If a public hearing is
scheduled, notice of the date, time, and
place for the public hearing will be pub-
lished in the Federal Register.
Drafting Information
The principal author of these regula-
tions is Grid R. Glyer of the Office of As-

April 15, 2019 1034 Bulletin No. 2019–16
sociate Chief Counsel (Corporate). Other
personnel from the Treasury Department
and the IRS participated in developing
these regulations.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1--INCOME TAX REGULA-
TIONS
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *.
Par. 2. Section 1.301-1 is revised to
read as follows:
§1.301-1 Rules applicable with respect to
distributions of money and other property.
(a) General. Section 301 provides
the general rule for treatment of distri-
butions made in taxable years beginning
after December 31, 1986, of property by
a corporation to a shareholder with re-
spect to its stock. The term property is
defined in section 317(a). Such distribu-
tions, except as otherwise provided in
this chapter, shall be treated as provided
in section 301(c). Under section 301(c),
distributions may be included in gross
income to the extent the amount dis-
tributed is considered a dividend under
section 316, applied against and reduce
the adjusted basis of the stock, treated as
gain from the sale or exchange of proper-
ty, or (in the case of certain distributions
out of increase in value accrued before
March 1, 1913) may be exempt from tax.
The amount of the distributions to which
section 301 applies is determined in ac-
cordance with the provisions of section
301(b). The basis of property received in
a distribution to which section 301 ap-
plies is determined in accordance with
the provisions of section 301(d).
(b) Amount of distribution and determi-
nation of fair market value. The amount of
a distribution to which section 301 applies
shall be the amount of money received in
the distribution, plus the fair market value
of other property received in the distribu-
tion. The fair market value of any property
distributed shall be determined as of the
date of the distribution.
(c) Time of inclusion in gross income
and time of determination of fair market
value. A distribution made by a corpora-
tion to its shareholders shall be included in
the gross income of the distributees when
the cash or other property is unqualified-
ly made subject to their demands without
regard to whether such date is the same as
that on which the corporation made the
distribution. For example, if a corporation
distributes a taxable dividend in property
on December 30, 2018, which is received
by, or unqualifiedly made subject to the
demand of, its shareholders on January
3, 2019, the amount to be included in
the gross income of the shareholders will
be the fair market value of such proper-
ty on December 30, 2018, although such
amount will not be includible in the gross
income of the shareholders until January
3, 2019.
(d) Application of section to sharehold-
ers. Section 301 is not applicable to an
amount paid by a corporation to a share-
holder unless the amount is paid to the
shareholder in the shareholder’s capacity
as such.
(e) Example. Corporation M, formed
in 1998, has never been an acquiring cor-
poration in a transaction to which section
381(a) applies. On January 1, 2019, A, an
individual owned all of the stock of Cor-
poration M, consisting of a single share,
with an adjusted basis of $2,000. During
2019, A received distributions from Cor-
poration M totaling $30,000, consisting of
$10,000 in cash and listed securities hav-
ing a basis in the hands of Corporation M
and a fair market value on the date distrib-
uted of $20,000. Corporation M’s taxable
year is the calendar year. As of December
31, 2018, Corporation M had accumulat-
ed earnings and profits in the amount of
$26,000, and it had no earnings and profits
and no deficit for 2019. Of the $30,000 re-
ceived by A, $26,000 will be treated as an
ordinary dividend; the remaining $4,000
will be applied against the adjusted basis
of his stock; the $2,000 in excess of the
adjusted basis of his stock will be treated
as gain from the sale or exchange of prop-
erty under section 301(c)(3)(A). If A sub-
sequently sells his stock in Corporation
M, the basis for determining gain or loss
on the sale will be zero.
(f) Reduction for liabilities--(1) Gener-
al rule. For purposes of section 301(b)(2),
no reduction in the amount of a distribu-
tion shall be made for the amount of any
liability, except to the extent the liability
is assumed by the shareholder within the
meaning of section 357(d).
(2) No reduction below zero. Any re-
duction pursuant to paragraph (f)(1) of
this section shall not cause the amount of
the distribution to be reduced below zero.
(3) Effective dates--(i) In general. This
paragraph (f) applies to distributions oc-
curring after January 4, 2001.
(ii) Retroactive application. This para-
graph (f) also applies to distributions made
on or before January 4, 2001, if the dis-
tribution is made as part of a transaction
described in, or substantially similar to the
transaction in, Notice 99-59 (1999-2 C.B.
761), including transactions designed to
reduce gain (see §601.601(d)(2) of this
chapter). For rules for distributions on or
before January 4, 2001 (other than distri-
butions on or before that date to which this
paragraph (f) applies), see rules in effect
on January 4, 2001 (see §1.301-1(g) as
contained in 26 CFR part 1 revised April
1, 2001).
(g) Basis. The basis of property re-
ceived in a distribution to which section
301 applies shall be the fair market value
of such property. See paragraph (b) of this
section.
(h) Transfers for less than fair market
value. If property is transferred by a cor-
poration to a shareholder for an amount
less than its fair market value in a sale or
exchange, such shareholder shall be treat-
ed as having received a distribution to
which section 301 applies. In such case,
the amount of the distribution shall be
the excess of the fair market value of the
property over the amount paid for such
property at the time of the transfer. For
example, on January 3, 2019, A, a share-
holder of Corporation X, purchased prop-
erty from X for $20. The fair market value
of such property on January 3, 2019 was
$100. The amount of the distribution to A
determined under section 301(b) is $80.
(i) [Reserved]
(j) Transactions treated as distribu-
tions. A distribution to shareholders with
respect to their stock is within the terms
of section 301 although it takes place at
the same time as another transaction if
the distribution is in substance a separate
transaction whether or not connected in a

Bulletin No. 2019–16 1035 April 15, 2019
formal sense. This is most likely to occur
in the case of a recapitalization, a rein-
corporation, or a merger of a corporation
with a newly organized corporation hav-
ing substantially no property. For exam-
ple, if a corporation having only common
stock outstanding, exchanges one share
of newly issued common stock and one
bond in the principal amount of $10 for
each share of outstanding common stock,
the distribution of the bonds will be a
distribution of property (to the extent of
their fair market value) to which section
301 applies, even though the exchange
of common stock for common stock may
be pursuant to a plan of reorganization
under the terms of section 368(a)(1)(E)
(recapitalization) and even though the
exchange of common stock for common
stock may be tax free by virtue of section
354.
(k) Cancellation of indebtedness. The
cancellation of indebtedness of a share-
holder by a corporation shall be treated as
a distribution of property.
(l) Cross references. For certain rules re-
lating to adjustments to earnings and profits
and for determining the extent to which a
distribution is a dividend, see sections 312
and 316 and regulations thereunder.
(m) Split-dollar and other life insur-
ance arrangements--(1) Split-dollar life
insurance arrangements--(i) Distribution
of economic benefits. The provision by a
corporation to its shareholder pursuant to
a split-dollar life insurance arrangement,
as defined in §1.61-22(b)(1) or (2), of eco-
nomic benefits described in §1.61-22(d)
or of amounts described in §1.61-22(e)
is treated as a distribution of property,
the amount of which is determined under
§1.61-22(d) and (e), respectively.
(ii) Distribution of entire contract
or undivided interest therein. A transfer
(within the meaning of §1.61-22(c)(3))
of the ownership of a life insurance con-
tract (or an undivided interest therein) that
is part of a split-dollar life insurance ar-
rangement is a distribution of property, the
amount of which is determined pursuant
to §1.61-22(g)(1) and (2).
(2) Other life insurance arrangements.
A payment by a corporation on behalf of
a shareholder of premiums on a life in-
surance contract or an undivided interest
therein that is owned by the shareholder
constitutes a distribution of property, even
if such payment is not part of a split-dollar
life insurance arrangement under §1.61-
22(b).
(3) When distribution is made--(i) In
general. Except as provided in paragraph
(m)(3)(ii) of this section, paragraph (c) of
this section shall apply to determine when
a distribution described in paragraph (m)
(1) or (2) of this section is taken into ac-
count by a shareholder.
(ii) Exception. Notwithstanding para-
graph (c) of this section, a distribution
described in paragraph (m)(1)(ii) of this
section shall be treated as made by a cor-
poration to its shareholder at the time that
the life insurance contract, or an undivid-
ed interest therein, is transferred (with-
in the meaning of §1.61-22(c)(3)) to the
shareholder.
(4) Effective date--(i) General rule.
This paragraph (m) applies to split-dol-
lar and other life insurance arrangements
entered into after September 17, 2003.
For purposes of this paragraph (m)(4), a
split-dollar life insurance arrangement is
entered into as determined under §1.61-
22(j)(1)(ii).
(ii) Modified arrangements treated as
new arrangements. If a split-dollar life
insurance arrangement entered into on or
before September 17, 2003 is materially
modified (within the meaning of §1.61-
22(j)(2)) after September 17, 2003, the
arrangement is treated as a new arrange-
ment entered into on the date of the mod-
ification.
(n) Applicability date. Paragraphs (a)
through (c), (e), (g), and (h) of this section
apply to distributions under section 301
made after the date of publication of the
Treasury decision adopting these rules as
final regulations in the Federal Register.
Par. 3. Section 1.356-1 is amended by
revising paragraph (f) to read as follows:
§1.356-1 Receipt of additional
consideration in connection with
an exchange.
* * * * *
(f) See §1.301–1(j) for certain trans-
actions which are not within the scope of
section 356.
* * * * *
Par. 4. Section 1.368-2 is amended by
revising the last sentence of paragraph (m)
(3)(iii) to read as follows:
§1.368-2 Definition of terms.
* * * * *
(m) * * *
(3) * * *
(iii) * * * See §1.301-1(j).
* * * * *
§ 1.902-1(a)(12) [Amended]
Par.5. In § 1.902-1(a)(12), remove the
reference “§1.301-1(b)” and add in its
place “§1.301-1(c)”.
§ 1.902-3(a)(7) [Amended]
Par.6. In § 1.902-3(a)(7), remove the
reference “§1.301-1(b)” and add in its
place “§1.301-1(c)”.
Kirsten Wielobob
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on March
25, 2019, 8:45 a.m., and published in the issue of the
Federal Register for March 26, 2019, 84 F.R. 11263)

Notice of Proposed
Rulemaking
Partnership Transactions
Involving Equity Interests of
a Partner
REG-135671-17
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations to amend final regula-
tions that prevent a corporate partner from
avoiding corporate-level gain through
transactions with a partnership involving
equity interests of the partner or certain
related entities. These regulations affect
partnerships and their partners.
DATES: Comments and requests for a
public hearing must be received by June
24, 2019.

April 15, 2019 1036 Bulletin No. 2019–16
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG-135671-17),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (REG-135671-17), Cou-
rier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC 20224, or sent electronically, via
the Federal eRulemaking Portal at http://
www.regulations.gov (IRS REG-135671-
17).
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Kevin I. Babitz, (202) 317-6852, or
Mary Brewer, (202) 317-6975; concern-
ing submission of comments or to request
a public hearing, Regina L. Johnson at
(202) 317-6901.
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This notice of proposed rulemaking
contains amendments to the Income Tax
Regulations (26 CFR part 1) under sec-
tion 337(d) of the Internal Revenue Code
(Code) set forth in §1.337(d)-3 (final reg-
ulations) that prevent a corporate partner
from using a partnership to avoid recog-
nition of corporate-level gain. The final
regulations largely adopted proposed
regulations (REG-149518-03) published
in the Federal Register (80 FR 33451)
on June 12, 2015 (2015 regulations) with
minor, nonsubstantive clarifying changes
in response to requests for further cer-
tainty in the single comment letter re-
ceived on the proposed regulations. See
the Explanation of Provisions section of
the preamble to TD 9833 (83 FR 26580
(June 8, 2018)) for a detailed discussion
of each of the specific points raised in the
comment letter received on the 2015 reg-
ulations.
The rules set forth in this notice of
proposed rulemaking contain substantive
modifications to the final regulations relat-
ing to the definition of Stock of the Cor-
porate Partner. Accordingly, the Treasury
Department and the IRS determined it ap-
propriate to publish these modifications in
the form of new proposed regulations to
afford the public the opportunity to submit
additional comments.
1. Stock of the Corporate Partner: Attri-
bution
The final regulations apply to certain
partnerships that hold stock of a Corpo-
rate Partner. For this purpose, a Corporate
Partner is defined as a person that holds
or acquires an interest in a partnership
and that is classified as a corporation for
federal income tax purposes. The final
regulations define Stock of the Corporate
Partner expansively to include stock and
other equity interests, including warrants,
other options, and similar interests, either
in the Corporate Partner or in a corpora-
tion (referred to in this Background and
Explanation of Provisions section as a
Controlling Corporation) that controls the
Corporate Partner within the meaning of
section 304(c), except that section 318(a)
(1) and (3) would not apply. Stock of the
Corporate Partner also includes an interest
in any entity to the extent that the value of
the interest is attributable to Stock of the
Corporate Partner.
The final regulations adopted a defini-
tion of Stock of the Corporate Partner that
was modified as compared to the definition
in the regulations that the Treasury De-
partment and the IRS proposed on Decem-
ber 15, 1992 (PS-91-90, REG-208989-90,
1993-1 CB 919) (1992 proposed regula-
tions). The final regulations broadened the
definition of Stock of the Corporate Part-
ner with respect to the relationship needed
for a Controlling Corporation to be treated
as controlling the Corporate Partner (using
a modified section 304(c) standard instead
of section 1504(a)) but also narrowed the
definition, generally excluding sister cor-
porations and subsidiary corporations of
the Corporate Partner from being treated
as Controlling Corporations.
More specifically, the final regulations
define Stock of a Corporate Partner by in-
cluding stock and other equity interests of
any corporation that controls the Corpo-
rate Partner within the meaning of section
304(c), except that section 318(a)(1) and
(3) shall not apply (section 304(c) con-
trol). In contrast, the 1992 proposed reg-
ulation’s definition was limited to stock or
other equity interests issued by the Cor-
porate Partner and its “section 337(d) af-
filiates” – that is any corporation that is a
member of an affiliated group as defined
in section 1504(a) of the Code without re-
gard to section 1504(b).
Section 304(c) control generally ex-
ists when there is ownership of stock of a
corporation possessing at least 50 percent
of the total combined voting power of all
classes of the corporation’s stock entitled
to vote or at least 50 percent of the value
of the shares of all classes of stock of the
corporation, while control of a corporation
under section 1504(a)(2) requires owner-
ship of stock of the corporation possessing
at least 80 percent of the total voting power
of the stock of the corporation and at least
80 percent of the total value of the stock
of the corporation. The Treasury Depart-
ment and the IRS adopted this lower own-
ership threshold for determining control in
the final regulations as a more appropriate
standard for this purpose because General
Utilities repeal could more easily be avoid-
ed by acquiring stock of a corporation that
owns less than 80 percent of the vote and
value of the Corporate Partner’s stock. See
General Utilities & Operating Co. v. Hel-
vering, 296 U.S. 200 (1935).
While section 304(c) incorporates the
constructive ownership rules of section
318(a) with some modifications, the 2015
regulations excluded the application of
section 318(a)(1) and (3) from their defi-
nition of control.
The commenter that submitted the only
comment on the 2015 regulations demon-
strated that families could use the exclu-
sion of section 318(a)(1) attribution from
the determination of section 304(c) con-
trol to structure transactions using part-
nerships to eliminate gain on appreciated
assets or contravene the purposes of sec-
tion 337(d) in other ways. For example—
Husband owns 90 percent of corpora-
tion A, which owns 49 percent of Corpo-
rate Partner (CP). Wife owns 90 percent of
corporation B, which also owns 49 percent
of CP. CP owns an interest in partnership
PRS. Under these facts, because the 2015
regulations determined section 304(c) con-
trol without applying the section 318(a)(1)
family attribution rule, neither A nor B con-
trol CP. Accordingly, other partners in PRS
could contribute stock of A and B to PRS
in exchange for an interest in PRS without
triggering gain to A or B.

Bulletin No. 2019–16 1037 April 15, 2019
The Treasury Department and the IRS
agree with the commenter that exclud-
ing section 318(a)(1) attribution from the
determination of section 304(c) control
could produce unintended results. In ad-
dition, the Treasury Department and the
IRS have determined that taxpayers can
structure transactions to take advantage
of the exclusion of section 318(a)(3) attri-
bution from the determination of section
304(c) control. For example, in the pre-
ceding fact pattern, if the interests held by
Husband and Wife were instead held by
a single corporation, X, neither A nor B
would control CP without the application
of section 318(a)(3) attribution.
As a result, the Treasury Department
and the IRS propose to modify the defini-
tion of Stock of the Corporate Partner to
eliminate the exclusion of section 318(a)
(1) and (3) attribution from the determina-
tion of section 304(c) control. However, as
explained below, the Treasury Department
and the IRS propose to limit this expanded
definition of Stock of the Corporate Part-
ner to entities that own a direct or indirect
interest in the Corporate Partner.
The exclusion of attribution under sec-
tions 318(a)(1) and 318(a)(3) in the 2015
regulations and the final regulations was
intended to limit section 304(c) control
to entities that own a direct or indirect in-
terest in the Corporate Partner, while ex-
cluding entities that do not own a direct or
indirect interest in the Corporate Partner.
To implement this intent more precisely,
the Treasury Department and the IRS pro-
pose to limit the proposed scope of sec-
tion 304(c) control to ownership, direct
or indirect, of an interest in the Corporate
Partner. For the purpose of testing direct
or indirect ownership of an interest in the
Corporate Partner, ownership of Stock of
the Corporate Partner would be attributed
to an entity under section 318(a)(2) (except
that the 50-percent ownership limitation
in section 318(a)(2)(C) would not apply)
and under section 318(a)(4), but otherwise
without regard to section 318. Thus, sec-
tions 318(a)(1), 318(a)(3), and 318(a)(5)
would not apply for determining whether
an entity directly or indirectly owns an
interest in Stock of the Corporate Partner,
but once an entity is found to directly or
indirectly own an interest in such stock,
then the section 304(c) control definition
would apply in its entirety to determine
whether the tested entity is a Controlling
Corporation. The Treasury Department
and the IRS continue to study the appro-
priate scope of the definition of Stock of
the Corporate Partner, and request com-
ments regarding these provisions.
2. Definition of Stock of the Corporate
Partner: Affiliated Groups
These proposed regulations, if finalized,
would make a second change to the defini-
tion of Stock of the Corporate Partner. The
final regulations provide that the term Stock
of the Corporate Partner does not include
any stock or other equity interests held or
acquired by a partnership if all interests
in the partnership’s capital and profits are
held by members of an affiliated group as
defined in section 1504(a) that includes the
Corporate Partner (Affiliated Group Ex-
ception). The 1992 proposed regulations
included affiliate stock within its definition
of the Stock of a Corporate Partner, but the
2015 proposed regulations instead set forth
this Affiliated Group Exception, which the
final regulations adopted. Thus, the final
regulations do not apply if a domestic cor-
poration and its wholly owned domestic
subsidiaries (each of which is an includi-
ble corporation under section 1504(b)) are
the only partners in a partnership and any
of these corporations contributes stock of
another affiliate to a partnership. The pre-
amble to T.D. 9722 (80 FR 33402 (June
12, 2015)), which contained temporary
regulations that accompanied the 2015 reg-
ulations, stated that the Treasury Depart-
ment and the IRS had determined that the
Affiliated Group Exception is appropriate
because “the purpose of these regulations
is not implicated if a partnership is owned
entirely by affiliated corporations.”
After further study, the Treasury De-
partment and the IRS have determined that
the Affiliated Group Exception may result
in abuse and therefore is not appropriate.
Specifically, the Treasury Department and
the IRS believe that a partnership held en-
tirely by members of an affiliated group
could enter into transactions that perma-
nently eliminate the built-in gain on an
appreciated asset that one partner contrib-
utes to the partnership. For example—
Assume that P, a corporation, owns all
of the stock of S1, and S1 owns all of the
stock of CP. P, S1, and CP are members of
an affiliated group. P and CP form a 50-50
partnership; CP contributes an appreciated
asset to the partnership; and P contributes
S1 stock with basis equal to fair market
value. After seven years, the partnership
liquidates and distributes the S1 stock to
CP and the appreciated asset to P. At that
time, the asset may be sold outside of the
group with an artificially increased basis.
The built-in gain that was in the asset is
now preserved in the S1 stock held by CP.
The group may permanently eliminate the
gain without tax by liquidating CP under
section 332. CP would receive nonrec-
ognition treatment on distribution of the
S1 stock to S1 under section 332, and S1
would receive nonrecognition treatment
on the receipt of its own stock under sec-
tion 1032. Thus, the liquidation of CP per-
manently eliminates the built-in gain on
the appreciated asset that attached to the
hook stock CP held in S1 after the liquida-
tion of the partnership.
This ability to increase the basis of an
appreciated asset artificially and to elim-
inate the built-in gain permanently con-
travenes the purposes of section 337(d)
and these regulations. The Treasury De-
partment and the IRS are also aware that
practitioners have observed that the Affil-
iated Group Exception runs counter to the
general rule that related-party transactions
are subject to greater scrutiny. In light of
these concerns, these proposed regulations
would remove the Affiliated Group Ex-
ception contained in the final regulations.
However, because there may be spe-
cific circumstances under which the elim-
ination of the Affiliated Group Exception
could adversely impact ordinary business
transactions between affiliated group mem-
bers and group-owned partnerships, the
Treasury Department and the IRS request
comments describing situations in which
a more tailored version of the Affiliated
Group Exception would be warranted.
3. Definition of Stock of the Corporate
Partner: Value of an interest attributable
to Stock of the Corporate Partner
These proposed regulations would
modify the scope of the rule in the final
regulations that Stock of the Corporate
Partner includes interests in any entity
to the extent that the value of the interest
is attributable to Stock of the Corporate

April 15, 2019 1038 Bulletin No. 2019–16
Partner (Value Rule). Under the final reg-
ulations, the Value Rule applies to all in-
terests in an entity regardless of whether
the entity is controlled by the Corporate
Partner. The sole commenter responding
to the 2015 regulations agreed that the
scope of the Value Rule was appropriate
if the entity was controlled by the Corpo-
rate Partner. However, for entities that are
not controlled by the Corporate Partner,
the commenter asked that the scope of the
Value Rule be narrowed to apply only if
20 percent or more of the assets of an en-
tity were Stock of the Corporate Partner.
The Treasury Department and the IRS
agree that the Value Rule in the 2015 reg-
ulations and the final regulations could be
overbroad in certain circumstances. For
example—
Assume X, a publicly traded corpo-
ration, owns a portfolio investment in P,
a publicly traded corporation. P controls
CP, a Corporate Partner under the final
regulations, within the meaning of section
304(c); thus, P’s stock is Stock of the Cor-
porate Partner under the final regulations.
Under the Value Rule, X’s stock would be
Stock of the Corporate Partner to the extent
that the value of X is attributable to Stock
of the Corporate Partner. If CP contributed
appreciated property to a partnership, and
another party contributed X stock to the
partnership, CP would be unable to deter-
mine whether it had engaged in a Section
337(d) Transaction (within the meaning of
§1.337(d)-3(c)(3)) or otherwise apply the
rules of the final regulations because CP
(through P) might have no way to deter-
mine that the X stock used in the trans-
action could be Stock of the Corporate
Partner. Alternatively, if CP were aware
that X owned a portfolio investment in P,
it would have no ability to determine the
amount of X stock that is Stock of the Cor-
porate Partner under the Value Rule. This
is because, absent actual or constructive
knowledge (for example through required
disclosures such as filings with the Securi-
ties and Exchange Commission), a widely
held corporation might not know or have
the ability to know who owns its stock.
For this reason, the Treasury Depart-
ment and the IRS have determined that
narrowing the scope of the Value Rule is
appropriate. However, the Treasury De-
partment and the IRS decline to adopt
the commenter’s specific suggestion that
interests in an entity not be subject to the
Value Rule unless 20 percent or more of
the assets of the entity consisted of Stock
of the Corporate Partner. Such a rule would
cause the Value Rule to be overly narrow
and could permit taxpayers to structure
transactions that would contravene the
purpose of section 337(d) and these regu-
lations. Instead, the Treasury Department
and the IRS propose to narrow the scope
of the Value Rule through an alternate
measure. Under the proposed regulations,
if an entity is not controlled by the Cor-
porate Partner and is not a Controlling
Corporation, the Value Rule would apply
to treat interests in the entity as Stock of
the Corporate Partner only if the entity
owns, directly or indirectly, 5 percent or
more of the stock, by vote or value, of the
Corporate Partner. For this purpose, direct
or indirect ownership would mean owner-
ship of stock that would be attributed to
a person under section 318(a)(2) (except
that the 50-percent ownership limitation
in section 318(a)(2)(C) would not apply)
and under section 318(a)(4), but otherwise
without regard to section 318. The Trea-
sury Department and the IRS believe that
using a 5-percent ownership threshold is
appropriate because entities have the abil-
ity to determine whether they have 5-per-
cent or greater owners, and corporations
may track their 5-percent shareholders for
other reasons (such as for section 382 pur-
poses). Further, the Treasury Department
and the IRS propose to apply this 5-per-
cent threshold to direct or indirect stock
ownership, rather than all equity interests,
in the Corporate Partner in order to make
the Value Rule more readily administra-
ble.
The proposed regulations also would
clarify how taxpayers should apply the
Value Rule to determine the extent to
which the value of an equity interest is
attributable to Stock of the Corporate
Partner. The proposed regulations would
provide that taxpayers would multiply the
value of the equity interest in an entity by
a ratio, the numerator of which is the fair
market value of the Stock of the Corporate
Partner owned directly or indirectly by the
entity and the denominator of which is the
fair market value of all of the equity inter-
ests in the entity. For this purpose, direct
or indirect ownership would mean owner-
ship of stock that would be attributed to
a person under section 318(a)(2) (except
that the 50-percent ownership limitation
in section 318(a)(2)(C) would not apply)
and under section 318(a)(4), but otherwise
without regard to section 318. The pro-
posed regulations would also provide that
the ratio may not exceed one. The Trea-
sury Department and the IRS determined
that the fair market value of all of the eq-
uity interests in the entity is the most ap-
propriate measure to determine the value
of the entity because the Value Rule seeks
to determine what portion of the value of
an equity interest in an entity reflects the
value of Stock of the Corporate Partner
owned by that entity.
Additionally, the proposed regulations
would clarify that, if an equity interest is
Stock of the Corporate Partner because it
is an interest in the Corporate Partner or
in an entity with a direct or indirect own-
ership interest that controls the Corporate
Partner within the meaning of section
304(c), then the Value Rule will not apply.
The Treasury Department and the IRS re-
quest comments on all aspects of the pro-
posed changes to the scope of the Value
Rule, including the appropriate measure
of the value of the entity.
4. Exception for Certain Dispositions of
Stock
Finally, these proposed regulations
would make a modification to the excep-
tion for certain dispositions of stock in
§1.337(d)-3(f)(2) to make its language
consistent with the modified definition
of Stock of the Corporate Partner. Un-
der this exception, the final regulations
do not apply to Stock of the Corporate
Partner that (i) is disposed of (by sale or
distribution) by the partnership before
the due date (including extensions) of its
federal income tax return for the taxable
year of the relevant transaction; and (ii)
is not distributed to the Corporate Partner
or a corporation that controls the Corpo-
rate Partner. With respect to the second
requirement, the final regulations refer to
a corporation that controls the Corporate
Partner within the meaning of section
304(c), except that section 318(a)(1) and
(3) shall not apply. For the same reasons

Bulletin No. 2019–16 1039 April 15, 2019
that these proposed regulations modify
the definition of Stock of the Corporate
Partner, these proposed regulations also
modify the second requirement of this
exception to refer to a corporation that
controls the Corporate Partner within the
meaning of section 304(c), but only if the
controlling corporation owns directly or
indirectly stock or another equity inter-
est in the Corporate Partner, in order to
conform the second requirement with the
modified definition of Stock of the Cor-
porate Partner.
Proposed Effective Date
These regulations are proposed to be
effective as of the date of their publication
as final regulations in the Federal Regis-
ter. Taxpayers may rely on these proposed
regulations for transactions occurring on
or after June 12, 2015 and prior to the date
that these regulations are published as fi-
nal regulations in the Federal Register,
provided that the taxpayer consistently
applies all of the proposed regulations to
such transactions.
Special Analyses
These proposed regulations are not
subject to review under section 6(b) of
Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) between the Treasury Department
and the Office of Management and Budget
regarding review of tax regulations.
These proposed regulations do not im-
pose a collection of information on small
entities. Further, pursuant to the Regula-
tory Flexibility Act (5 U.S.C. chapter 6),
it is hereby certified that these proposed
regulations would not have a significant
economic impact on a substantial num-
ber of small entities. This certification is
based on the fact that these proposed regu-
lations would primarily affect sophisticat-
ed ownership structures with interlocking
ownership of corporations, partnerships
and corporate stock. Accordingly, a regu-
latory flexibility analysis is not required.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, these regulations have
been submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Comments and Requests for a Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to comments that
are submitted timely to the IRS as pre-
scribed in this preamble under the AD-
DRESSES heading. The Treasury De-
partment and the IRS request comments
on all aspects of the proposed rules. All
comments will be available at http://
www.regulations.gov or upon request.
A public hearing will be scheduled if
requested in writing by any person that
timely submits written or electronic
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.
Drafting Information
The principal authors of these regula-
tions are Kevin I. Babitz, Office of the As-
sociate Chief Counsel (Passthroughs and
Special Industries) and Mary Brewer, Of-
fice of the Associate Chief Counsel (Cor-
porate). However, other personnel from
the Treasury Department and the IRS par-
ticipated in their development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART I—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 1.337(d)-3 is amended
by revising paragraphs (c)(2), (f)(2)(ii)
and (i) to read as follows:
§1.337(d)-3 Gain recognition upon
certain partnership transactions involving
a partner’s stock.
* * * * *
(c) * * *
(2) Stock of the Corporate Partner--(i)
In general. With respect to a Corporate
Partner, Stock of the Corporate Partner
includes stock, warrants and other op-
tions to acquire stock, and similar inter-
ests (each an equity interest) in the Cor-
porate Partner. Stock of the Corporate
Partner also includes equity interests in
a corporation that controls the Corporate
Partner within the meaning of section
304(c), and which also has a direct or
indirect equity interest in the Corporate
Partner. Solely for purposes of determin-
ing whether a corporation that controls
the Corporate Partner also has a direct
or indirect equity interest in the Corpo-
rate Partner under this paragraph (c)(2), a
direct or indirect ownership of an equity
interest in the Corporate Partner includes
ownership of Stock of the Corporate
Partner that would be attributed to a per-
son under section 318(a)(2) (except that
the 50-percent ownership limitation in
section 318(a)(2)(C) does not apply) and
under section 318(a)(4) (but otherwise
without regard to section 318).
(ii) Equity Interests with value attribut-
able to Stock of the Corporate Partner. If
an equity interest in an entity is not Stock
of the Corporate Partner within the mean-
ing of paragraph (c)(2)(i) of this section,
then the equity interest will be treated as
Stock of the Corporate Partner to the ex-
tent that the value of that equity interest
is attributable to Stock of the Corporate
Partner. The preceding sentence will apply
only if either—
(A) The Corporate Partner is in control
(within the meaning of section 304(c)) of
that entity; or
(B) That entity owns directly or indi-
rectly 5 percent or more, by vote or value,
of the stock in the Corporate Partner.
(iii) Determination of value attribut-
able to Stock of the Corporate Partner.
The value of an equity interest in an entity
that is attributable to Stock of the Corpo-
rate Partner under paragraph (c)(2)(ii) of
this section is equal to the product of—
(A) The fair market value of the equity
interest; and
(B) The lesser of—
(1) The ratio of the fair market value of
the Stock of the Corporate Partner owned
(directly or indirectly (as defined in para-
graph (c)(2)(i) of this section), by the enti-
ty to the fair market value of all the equity
interests in the entity; or
(2) One.
* * * * *
(f) * * *
(2) * * *

April 15, 2019 1040 Bulletin No. 2019–16
(ii) Is not distributed to the Corporate
Partner or a corporation that controls the
Corporate Partner within the meaning of
section 304(c) and owns directly or in-
directly stock or other equity interests in
the Corporate Partner. For purposes of
this paragraph (f)(2), a direct or indirect
ownership of an equity interest in the Cor-
porate Partner means ownership of Stock
of the Corporate Partner that would be at-
tributed to a person under section 318(a)
(2) (except that the 50-percent ownership
limitation in section 318(a)(2)(C) does not
apply) and under section 318(a)(4) (but
otherwise without regard to section 318).
* * * * *
(i) Effective/applicability date. The
regulations in this section are effective as
of the date of their publication as final reg-
ulations in the Federal Register.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on March
22, 2019, 8:45 a.m., and published in the issue of the
Federal Register for March 25, 2019, 84 F.R.11005)

Bulletin No. 2019–16 i April 15, 2019
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
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—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

April 15, 2019 ii Bulletin No. 2019–16
Numerical Finding List
1
Bulletin 2019–16
Action on Decision:
2019-1, 2019-08 I.R.B. 569
Announcements:
2019-1, 2019-06 I.R.B. 566
2019-2, 2019-12 I.R.B. 910
2019-3, 2019-15 I.R.B. 965
Notices:
2019-01, 2019-02 I.R.B. 275
2019-02, 2019-02 I.R.B. 281
2019-03, 2019-03 I.R.B. 350
2019-04, 2019-02 I.R.B. 282
2019-05, 2019-02 I.R.B. 283
2019-06, 2019-03 I.R.B. 353
2019-07, 2019-09 I.R.B. 740
2019-08, 2019-03 I.R.B. 354
2019-09, 2019-04 I.R.B. 403
2019-10, 2019-13 I.R.B. 913
2019-11, 2019-05 I.R.B. 430
2019-13, 2019-08 I.R.B. 580
2019-16, 2019-10 I.R.B. 763
2019-17, 2019-12 I.R.B. 907
2019-18, 2019-13 I.R.B. 915
2019-19, 2019-12 I.R.B. 907
2019-20, 2019-14 I.R.B. 927
2019-21, 2019-14 I.R.B. 927
2019-22, 2019-14 I.R.B. 931
2019-23, 2019-15 I.R.B. 941
2019-24, 2019-14 I.R.B. 932
2019-25, 2019-15 I.R.B. 942
2019-26, 2019-15 I.R.B. 943
Proposed Regulations:
REG-104259-18, 2019-02 I.R.B. 300
REG-104352-18, 2019-03 I.R.B. 357
REG-106089-18, 2019-05 I.R.B. 431
REG-134652-18, 2019-09 I.R.B. 747
REG-141739-08, 2019-09 I.R.B. 757
REG-121694-16, 2019-16 I.R.B. 1032
REG-135671-17, 2019-16 I.R.B. 1035
Revenue Procedures:
2019-1, 2019-01 I.R.B. 1
2019-2, 2019-01 I.R.B. 106
2019-3, 2019-01 I.R.B. 130
2019-4, 2019-01 I.R.B. 146
2019-5, 2019-01 I.R.B. 230
2019-6, 2019-02 I.R.B. 284
2019-7, 2019-01 I.R.B. 268
2019-8, 2019-03 I.R.B. 347
2019-9, 2019-02 I.R.B. 293
Revenue Procedures:—Continued
2019-10, 2019-02 I.R.B. 296
2019-11, 2019-09 I.R.B. 742
2019-12, 2019-04 I.R.B. 401
2019-13, 2019-09 I.R.B. 744
2019-14, 2019-15 I.R.B. 948
2019-15, 2019-14 I.R.B. 939
Revenue Rulings:
2019-03, 2019-02 I.R.B. 272
2019-04, 2019-07 I.R.B. 567
2019-05, 2019-11 I.R.B. 766
2019-06, 2019-14 I.R.B. 919
2019-07, 2019-10 I.R.B. 761
2019-08, 2019-14 I.R.B. 923
2019-09, 2019-14 I.R.B. 925
2019-10, 2019-16 I.R.B. 1010
Treasury Decisions:
9844, 2019-11 I.R.B. 781
9845, 2019-08 I.R.B. 570
9846, 2019-09 I.R.B. 583
9847, 2019-09 I.R.B. 670
9848, 2019-11 I.R.B. 897
9850, 2019-12 I.R.B. 904
9852, 2019-16 I.R.B. 1010
9853, 2019-16 I.R.B. 1026
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Bulletin No. 2019–16 iii April 15, 2019
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2019–16
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

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