Internal Revenue Bulletin 2009-9 (PDF rendition): IRS Announcements

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Bulletin No. 200
9-9
March 2, 2009
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9444, page 603.
REG–147636–08, page 641.
Final, temporary, and proposed regulations under section 367
of the Code provide rules for the treatment of certain sharehold-
ers who transfer stock or securities of controlled corporations
to foreign corporations. The regulations also address certain
distributions shareholders receive with respect to the stock of
controlled foreign corporations.
T.D. 9445, page 635.
Final regulations under section 6103 of the Code relate to ad-
ministrative review procedures for certain government agen-
cies and other authorized recipients of returns or return infor-
mation whose receipt of returns and return information may be
suspended or terminated because they do not maintain proper
safeguards.
T.D. 9446, page 607.
Final regulations under section 367 of the Code provide rules
for entering into gain recognition agreements under section
367(a). The regulations clarify the effect that various trans-
actions have on existing gain recognition agreements. Notice
2005–74 obsoleted.
EXEMPT ORGANIZATIONS
Announcement 2009–9, page 643.
A list is provided of organizations now classified as private foun-
dations.
Announcement 2009–10, page 644.
The IRS has revoked its determination that Leszinski Family
Support Organization of Atlanta, GA; Kuumba Trust of Pitts-
burgh, PA; Consumer Debt Management Services of Deerfield
Beach, FL; RealtyAmerica.Org, Inc., of Indian Harbour Beach,
FL; Consumer Budget Counseling, Inc., of Port Charlotte, FL; In-
novative Womens Network, Inc., of Houston, TX; Ellen Stephen
Hospice & Home Care of Kyle, SD; Starfish Foundation, Inc., of
Richardson, TX; Ronsard Foundation of Statesville, NC; Alter-
nativeCare,Inc.,ofGainesville,FL;CreditCounseling,Inc.,of
Sunrise, FL; A New Goal Credit Counseling Agency of San Fran-
cisco, CA; Trans-Atlantic Health Organization, Inc., of Gaithers-
burg, MD; and Ammend Credit Counseling and Debt Consoli-
dation of Cincinnati, OH, qualify as organizations described in
sections 501(c)(3) and 170(c)(2) of the Code.
ADMINISTRATIVE
T.D. 9445, page 635.
Final regulations under section 6103 of the Code relate to ad-
ministrative review procedures for certain government agen-
cies and other authorized recipients of returns or return infor-
mation whose receipt of returns and return information may be
suspended or terminated because they do not maintain proper
safeguards.
REG–138326–07, page 638.
Proposed regulations under section 6231 of the Code allow the
IRS to convert partnership items to nonpartnership items when
the application of the unified partnership audit and litigation
procedures of sections 6221 through 6234 with respect to
certain tax avoidance transactions interferes with the effective
and efficient enforcement of the Internal Revenue laws. A public
hearing is scheduled for June 4, 2009.
(Continued on the next page)
Finding Lists begin on page ii.

Announcement 2009–6, page 643.
New section 6050W of the Code requires information report-
ing for payment card and third party payment network trans-
actions, effective for returns for calendar years beginning af-
ter December 31, 2010. Entities required to report must per-
form backup withholding if the payee fails to furnish a correct
Taxpayer Identification Number (“TIN”). This announcement will
alert 6050W filers that they may now participate in the TIN
matching program.
March 2, 20092009–9 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2009–9 I.R.B.March 2, 2009

March 2, 20092009–9 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 367.—
Foreign
Corporations
26 CFR 1.367(a)–3: Treatment of transfers of stock
or securities to foreign corporations.
T.D. 9444
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Application of Section 367
to a Section 351 Exchange
Resulting from a Transaction
Described in Section
304(a)(1); Treatment of Gain
Recognized Under Section
301(c)(3) for Purposes of
Section 1248
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY
: This document contains fi-
nal and t
emporary regulations under sec-
tions 36
7(a), 367(b) and 1248(a) of the In-
ternal
Revenue Code (Code). The final
regula
tions under section 367 revise ex-
isting
final regulations and add cross-ref-
erence
s. The final regulations under sec-
tion 12
48 update an effective/applicabil-
ity da
te. The temporary regulations un-
der se
ction 367(a) and (b) revise existing
final
regulations concerning transfers of
stock
to a foreign corporation that are de-
scrib
ed in section 351 by reason of section
304(a
)(1). The temporary regulations un-
der s
ection 1248(a) provide that, for pur-
pose
s of section 1248(a), gain recognized
by a s
hareholder under section 301(c)(3) in
conn
ection with the receipt of a distribu-
tion
of property from a foreign corporation
with
respect to its stock shall be treated as
gai
n from the sale or exchange of the stock
of s
uch foreign corporation. The tempo-
rar
y regulations affect certain persons that
tra
nsfer stock to a foreign corporation in a
transaction d
escribed in section 304(a)(1),
or certain per
sons that recognize gain un-
der section 30
1(c)(3) in connection with
the receipt o
f a distribution of property
from a foreig
n corporation with respect to
its stock. Th
e text of the temporary regu-
lations serv
es as the text of the proposed
regulation
s (REG–147636–08) set forth in
the notice o
f proposed rulemaking on this
subject pub
lished in this issue of the Bul-
letin.
DATES:Eff
ective Date:These regulations
are effect
ive on February 10, 2009.
Applicabi
lity Date:These regulations
applytoac
quisitions of stock occurring on
or after Fe
bruary 10, 2009.
FOR FURTHE
R INFORMATION
CONTACT:
Sean W. Mullaney, (202)
622–3860
(not a toll-free number).
SUPPLEME
NTARY INFORMATION:
Backgrou
nd
Section 3
67(a)(1) generally provides
that if a
United States person transfers
propert
ytoaforeigncorporationinanex-
change d
escribed in section 332, 351, 354,
356, or 3
61, the foreign corporation shall
not be co
nsidered a corporation for pur-
poses o
f determining the extent to which
the Uni
ted States person recognizes gain
on such
transfer. Exceptions to the general
rule ar
e provided by section 367(a)(2) and
(3), an
d the Secretary has broad author-
ity un
der section 367(a)(6) to promulgate
regul
ations providing exceptions for other
trans
actions.
Secti
on 367(b)(1) provides that in the
case o
f an exchange described in section
332, 3
51, 354, 355, 356, or 361 in con-
necti
on with which there is no transfer of
prop
erty described in section 367(a)(1), a
fore
ign corporation shall be considered to
beac
orporation except to the extent pro-
vide
d in regulations prescribed by the Sec-
reta
ry which are necessary or appropriate
to pr
event the avoidance of Federal income
tax
es. Section 367(b)(2) provides that the
reg
ulations prescribed pursuant to section
367
(b)(1) shall include (but shall not be
lim
ited to) regulations dealing with the
sal
e or exchange of stock or securities in a
foreign corpo
ration by a United States per-
son, includin
g regulations providing the
circumstance
s under which gain is recog-
nized, amoun
ts are included in gross in-
come as a divi
dend, adjustments are made
to earnings a
nd profits, or adjustments are
made to the ba
sis of stock or securities.
Regulations
under section 367(b) gen-
erally provi
de that if the potential applica-
tion of sect
ion 1248 cannot be preserved
immediatel
y following the acquisition of
the stock or
assets of a foreign corporation
(foreign ac
quired corporation) by another
foreign co
rporation in an exchange subject
to section
367(b), then certain exchanging
sharehold
ers of the foreign acquired cor-
poration m
ust include in income as a divi-
dend the se
ction 1248 amount (as defined
in §1.367
(b)–2(c)) attributable to the stock
of the for
eign acquired corporation. See
§1.367(b
)–4(b).
Section 3
04(a)(1) generally provides
that, for
purposes of sections 302 and 303,
if one or m
ore persons are in control of
each of tw
o corporations and in return for
propert
y one of the corporations (the ac-
quiring
corporation) acquires stock in the
other co
rporation (the issuing corporation)
from the
person (or persons) so in control,
then su
ch property shall be treated as a
distri
bution in redemption of the stock of
the acq
uiring corporation. To the extent
sectio
n 301 applies to the distribution, the
transf
eror and the acquiring corporation
are tr
eated as if (1) the transferor trans-
ferre
d the stock of the issuing corporation
to the
acquiring corporation in exchange
for st
ock of the acquiring corporation in
atran
saction to which section 351(a) ap-
plie
s, and (2) the acquiring corporation
then
redeemed the stock it is deemed to
have
issued. Under section 304(b)(2), the
dete
rmination of the amount of the prop-
erty
distribution that is a dividend (and the
sour
ce thereof) is made as if the property
is d
istributed by the acquiring corporation
to t
he extent of its earnings and profits,
and
then by the issuing corporation to the
ext
ent of its earnings and profits.
On F
ebruary 21, 2006, the IRS and
Tre
asury Department issued final reg-
ula
tions (T.D. 9250, 2006–1 C.B. 588)
pr
oviding that section 367(a) and (b) shall
no
t apply to certain transfers of stock of
2009–9 I.R.B.603March 2, 2009

a foreign or domestic corporation to a
foreign acquiring corporation to which
section 351 applies (deemed section 351
exchange) by reason of section 304(a)(1)
(final 2006 regulations). Specifically,
§1.367(a)–3(a) provides that if, pursuant
to section 304(a)(1), a United States per-
son is treated as transferring stock of a
domestic or foreign corporation to a for-
eign corporation in exchange for stock
of such foreign corporation in a deemed
section 351 exchange, the deemed section
351 exchange is not a transfer to a for-
eign corporation subject to section 367(a).
Similarly, §1.367(b)–4(a) provides that if,
pursuant to section 304(a)(1), a foreign
corporation is treated as acquiring the
stock of another foreign corporation in a
deemed section 351 exchange, the deemed
section 351 exchange is not an acquisition
subject to section 367(b).
The preamble to the final 2006 regu-
lations explained that the IRS and Trea-
sury Department determined that the poli-
cies underlying section 367(a) and (b) are
preserved even if a deemed section 351 ex-
change is not subject to section 367(a) and
(b) because generally the income recog-
nized by the transferor in the transaction
(dividend income, capital gain, or both)
should equal or exceed the built-in gain
in the transferred stock. Comments were
received, however, stating that the trans-
feror may not recognize income equal to or
greater than the built-in gain in the trans-
ferred stock if, under section 301(c)(2),
the transferor were permitted to recover
the basis of shares of the foreign acquir-
ing corporation held before (and after) the
transaction. For example, assume a do-
mestic corporation, P, wholly owns F1 and
F2, both foreign corporations. The F1
stock has a $0x basis and $100x fair mar-
ket value. The F2 stock has a $100x basis
and $100x fair market value. Neither F1
nor F2 has current or accumulated earnings
and profits. In a transaction subject to sec-
tion 304(a)(1), P sells the F1 stock to F2
for $100x cash. Under section 304(a)(1),
P and F2 are treated as if P transferred the
F1 stock to F2 in exchange for F2 stock in
a transaction to which section 351 applies,
and then F2 redeemed its stock deemed is-
sued to P. Because the redemption of the F2
stock would be described in section 302(d)
and therefore subject to section 301, the
commentators posited that P may not rec-
ognize gain under section 301(c)(3) on the
receipt of the $100x cash in redemption of
the F2 stock if the basis of both the F2
stock that is received by P in the deemed
section 351 exchange ($0x), and of the F2
stockheldbyPpriorto(andafter)the
transaction ($100x), is available for reduc-
tion under section 301(c)(2). If that were
the case, P would recognize no gain in the
transaction.
The preamble to the final 2006 regu-
lations stated, however, that the IRS and
Treasury Department believe current law
does not provide for the recovery of ba-
sis of any shares of the acquiring corpora-
tion other than the shares deemed issued to
the transferor and redeemed by the acquir-
ing corporation as provided under section
304(a)(1). Thus, in the example above,
P would recognize $100x gain under sec-
tion 301(c)(3) (the built-in gain on the F1
stock), and the basis of the F2 stock held by
P after the transaction would continue to be
$100x. The IRS and Treasury Department
continue to study the basis recovery issue
as part of a larger project and have deter-
mined that it is necessary to revise the final
2006 regulations prior to the completion of
that project.
Explanation of Provisions
A.Modified Application of Section 367(a)
to Deemed Section 351 Exchanges
Consistent with the final 2006 regu-
lations, the temporary regulations under
section 367(a) generally provide that if,
pursuant to section 304(a)(1), a United
States person is treated as transferring
stock of a domestic or foreign corpora-
tion to a foreign corporation in exchange
for stock of such foreign corporation in a
deemed section 351 exchange, the deemed
section 351 exchange is not a transfer
to a foreign corporation subject to sec-
tion 367(a). However, if the distribution
received by the United States person in
redemption of the foreign acquiring corpo-
ration stock received in the deemed section
351 exchange is subject to section 301 (by
reason of section 302(d)), the temporary
regulations provide an exception to the
general rule if the distribution is applied
against and reduces (in whole or in part),
pursuant to section 301(c)(2), the basis of
stock of the foreign acquiring corporation
held by the United States person other
than the stock deemed issued to the United
States person in the deemed section 351
exchange. In such a case, the United States
person shall recognize gain under section
367(a)(1) equal to the amount by which
the gain realized by the United States per-
son with respect to the transferred stock in
the deemed section 351 exchange exceeds
the amount of the distribution received by
the United States person in redemption
of the foreign acquiring corporation stock
that is treated as a dividend under section
301(c)(1) and included in gross income
by the United States person. Thus, in the
hypothetical transaction described above,
if any amount of the distribution received
by P in redemption of the F2 stock was ap-
plied against the basis of the F2 stock held
by P before (and after) the transaction,
then under the temporary regulations P
would recognize $100x gain under section
367(a)(1) in connection with its transfer of
the F1 stock to F2 in the deemed section
351 exchange.
The exceptions to the application of
section 367(a)(1) for transfers of stock
provided in §1.367(a)–3 are not available
to transfers covered by the temporary reg-
ulations. For example, a United States
person cannot avoid gain recognition un-
der the temporary regulations by entering
into a gain recognition agreement under
§§1.367(a)–3(b)(1)(ii) and 1.367(a)–8
with respect to the deemed section 351
exchange.
The temporary regulations provide
rules to coordinate the recognition of gain
under the temporary regulations and the
corresponding increase to the basis of the
stock of the foreign acquiring corporation
received by the United States person in the
transaction. Under such rules the increase
to the basis of the stock of the foreign
acquiring corporationbyreasonofgain
recognized by the United States person
under the temporary regulations would
be taken into account before determining
the consequences of the redemption of
the shares of the foreign acquiring corpo-
ration. For example, in the hypothetical
transaction described above, the basis of
the F2 stock deemed received by P in
exchange for the F1 stock would be in-
creased to $100x under section 358 before
determining the consequences of the re-
demption of such stock under section 301.
The gain recognized by P will be treated
as recognized with respect to the F1 stock
transferred in the deemed section 351 ex-
March 2, 20096042009–9 I.R.B.

change in proportion to the gain realized
with respect to the F1 stock.
B.Modified Application of Section 367(b)
to Deemed Section 351 Exchanges
The temporary regulations make sim-
ilar revisions to the final 2006 regula-
tions under section 367(b). Specifically,
the temporary regulations provide that
§1.367(b)–4(b) shall apply to a deemed
section 351 exchange to the extent the
distribution received by the exchanging
shareholder in redemption of the stock
deemed issued by the foreign acquiring
corporation is applied against and reduces,
pursuant to section 301(c)(2), the adjusted
basis of stock of the foreign acquiring
corporation held by the exchanging share-
holder before the transaction.
The temporary regulations provide
rules to determine the amount of an in-
come inclusion that is attributable to the
shares of stock of the foreign acquired
corporation transferred in the deemed
section 351 exchange when the income
inclusion required under the regulations
is less than the aggregate section 1248
amount attributable to all of the shares of
stock transferred in the deemed section
351 exchange.
C.Treatment of Gain Recognized under
Section 301(c)(3) for Purposes of Section
1248(a)
The temporary regulations under sec-
tion 1248(a) provide that gain recognized
under section 301(c)(3) on the receipt of
a distribution of property from a foreign
corporation shall be treated, for purposes
of section 1248(a), as gain from the sale
or exchange of the stock of such corpora-
tion. The temporary regulations preserve
the policies underlying section 367(b), are
consistent with the premise of the final
2006 regulations, and ensure that the earn-
ings and profits of lower-tier foreign sub-
sidiaries described insection 1248(c)(2)
are taken into account.
D.Effective Dates
The temporary regulations apply to
transfers or distributions occurring on or
after February 10, 2009.
Availability of IRS Documents
IRS notices cited in this preamble are
made available by the Superintendent of
Documents, U.S. Government Printing Of-
fice, Washington, DC 20402.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Or-
der 12866. Therefore, a regulatory as-
sessment is not required. These tempo-
rary and final regulations are necessary to
ensure that the appropriate amount of in-
come (dividend income, capital gain or
both) is recognized currently in the trans-
actions described in the explanation of pro-
visions section in this preamble. Accord-
ingly, good cause is found for dispensing
with notice and public comment pursuant
to 5 U.S.C. 553(b) and (c) and with a de-
layed effective date pursuant to 5 U.S.C.
553(d). For applicability of the Regula-
tory Flexibility Act, see the cross-refer-
enced notice of proposed rulemaking pub-
lished elsewhere in thisFederal Register.
Pursuant to section 7805(f) of the Code,
these regulations have been 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 Sean W. Mullaney of the Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and the Treasury Department participated
in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph. 1. The authority citation for
part 1 is amended by adding new entries in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.367(a)–9T also issued under
26 U.S.C. 367(a) and (b). * * *
Section 1.367(b)–4T also issued under
26 U.S.C. 367(b). * * *
Par. 2. Section 1.367(a)–3 is amended
by revising the third sentence in paragraph
(a) to read as follows:
§1.367(a)–3 Treatment of transfers of
stock or securities to foreign corporations.
(a) * * * For rules applicable when, pur-
suant to section 304(a)(1), a United States
person is treated as transferring stock of
a domestic or foreign corporation to a
foreign corporation in exchange for stock
of such foreign corporation in a transac-
tion to which section 351(a) applies, see
§1.367(a)–9T. * * *
*****
Par. 3. Section 1.367(a)–9T is added to
read as follows:
§1.367(a)–9T Treatment of deemed
section 351 exchanges pursuant to section
304(a)(1) (temporary).
(a)Scope and general rule. This sec-
tion applies to the extent that, pursuant to
section 304(a)(1), a United States person
is treated as transferring stock of a domes-
tic or foreign corporation to a foreign cor-
poration (foreign acquiring corporation) in
exchange for stock ofthe foreign acquiring
corporation in a transaction to which sec-
tion 351(a) applies (deemed section 351
exchange). Except to the extent provided
in paragraph (b) of this section, a trans-
fer of stock by a United States person to a
foreign acquiring corporation in a deemed
section 351 exchange is not subject to sec-
tion 367(a)(1).
(b)Special rule. Notwithstanding para-
graph (a) of this section, if the distribution
received by the United States person in re-
demption of the stock of the foreign ac-
quiring corporation deemed issued in the
deemed section 351 exchange is applied
against and reduces (in whole or in part),
pursuant to section 301(c)(2), the basis of
stock of the foreign acquiring corporation
held by the United States person other than
the stock deemed issued in the deemed sec-
tion 351 exchange, the United States per-
son shall recognize gain pursuant to this
paragraph (b). The exceptions described in
§1.367(a)–3(b)(1) and (c)(1) shall not ap-
ply to a transfer of stock described in para-
graph (a) of this section. The amount of
gain recognized by a United States person
pursuant to this paragraph (b) shall equal
the amount, if any, by which—
2009–9 I.R.B.605March 2, 2009

(1) The gain realized by the United
States person with respect to the trans-
ferred stock in connection with the deemed
section 351 exchange exceeds;
(2) The amount of the distribution re-
ceived by the United States person in
redemption of the stock of the foreign
acquiring corporation deemed issued in
the deemed section 351 exchange that
is treated as a dividend under section
301(c)(1) and included in gross income by
the United States person.
(c)Ordering rule. For purposes of para-
graph (b)(1) of this section, the amount of
gain realized by the United States person
in connection with the deemed section 351
exchange shall be determined without re-
gard to the amount of gain recognized by
the United States person under paragraph
(b) of this section.
(d)Allocation of recognized gain.Gain
recognized by a United States person pur-
suant to paragraph (b) of this section shall
be treated as recognized with respect to
the stock transferred in the deemed section
351 exchange in proportion to the amount
of gain realized by the United States
person with respect to such stock. See
§1.367(a)–1T(b)(4) for additional rules
on the character, source, and adjustments
relating to gain recognized under section
367(a).
(e)Example. The following example
illustratestherulesofthissection:
Example.(i)Facts. (A) USP, a domestic corpora-
tion, wholly owns FC1 and FC2, each a foreign cor-
poration. USP, FC1 and FC2 use a calendar taxable
year. The FC1 stock has a $40x basis and $100x fair
market value. The FC2 stock has a $100x basis and
$100x fair market value. As of December 31, year 1,
FC1 has zero earnings and profits, and FC2 has $20x
earnings and profits. On December 31, year 1, in a
transaction described in section 304(a)(1), USP sells
the FC1 stock to FC2 for $100x cash.
(B) Because USP wholly owns FC1 before the
transactions and is treated, under section 318, as indi-
rectly owning 100% of the FC1 stock after the trans-
fer, under section 304(a)(1), USP and FC2 are treated
in the same manner as if USP contributed the FC1
stock to FC2 in a deemed section 351 exchange in ex-
change solely for $100x of FC2 stock, and then FC2
redeemed for $100x cash its stock deemed issued to
USP. Because USP wholly owns FC1 before the sale
and is treated as owning 100% of FC1 after the sale,
section 302(a) does not apply to the redemption. In-
stead, under section 302(d), the redemption is treated
as a distribution to which section 301 applies. Pur-
suant to section 304(b)(2), $20x of the distribution is
treated as a dividend from FC2. With respect to the
remaining $80x, USP takes the position that $40x is
applied against and reduces the basis of the FC2 stock
issued in the deemed section 351 exchange, and $40x
is applied against and reduces the basis of the FC2
stockheldbyUSPpriorto(andafter)thetransaction.
(ii)Analysis. Under paragraph (b) of this section,
USP must recognize gain of $40x on its transfer of
the FC1 stock to FC2 in the deemed section 351 ex-
change (the amount by which the $60x gain realized
by USP on the deemed section 351 exchange with re-
spect to the F1 stock exceeds the $20x dividend in-
clusion). Pursuant to paragraph (b) of this section,
the exception under §1.367(a)–3(b) is not available
to the transfer of the FC1 stock by USP to FC2 in
the deemed section 351 exchange. Thus, USP can-
not avoid gain recognition under paragraph (b) of this
section by entering into a gain recognition agreement
with respect to its transfer of the FC1 stock to FC2 in
the deemed section 351 exchange. Under paragraph
(d) of this section, the $40x gain recognized is allo-
cated among the shares of FC1 stock transferred to
FC2 in the deemed section 351 exchange in propor-
tion to the gain realized by USP on the transfer of such
shares. Under paragraph (c) of this section, the appli-
cation of paragraph (b) of this section is determined
prior to taking into account the $40x increase to the
basisoftheFC1stocktransferredbyUSP.Undersec-
tion 362, the basis of the FC1 stock in the hands of
FC2 is increased by $40x, the amount of gain recog-
nized by the USP on the transfer of the FC1 stock un-
der paragraph (b) of this section. Under section 358,
the basis of the FC2 stock received by USP in the
deemed section 351 exchange is similarly increased
by $40x. See §1.367(a)–1T(b)(4). The $40x increase
to the basis of the FC2 stock is taken into account be-
fore determining the consequences of the redemption
of such stock under section 304(a)(1).
(f)Effective/applicability date.This
section applies to transfers occurring
on or after February 10, 2009. See
§1.367(a)–3(a), as contained in 26 CFR
part 1 revised as of April 1, 2008, for
transfers occurring on or after February
21, 2006, and before February 10, 2009.
(g)Expiration date. This section ex-
pires on or before February 10, 2012.
Par. 4. Section 1.367(b)–4 is amended
by revising the second sentence in para-
graph (a) and adding paragraphs (e), (f)
and (g) to read as follows:
§1.367(b)–4 Acquisition of foreign
corporate stock or assets by a foreign
corporation in certain nonrecognition
transactions.
(a) * * * For rules applicable when, pur-
suant to section 304(a)(1), a foreign ac-
quiring corporation is treated as acquiring
the stock of a foreign acquired corporation
in a transaction to which section 351(a) ap-
plies, see §1.367(b)–4T(e). * * *
*****
(e) [Reserved]. For further guidance,
see §1.367(b)–4T(e).
(f) [Reserved]. For further guidance,
see §1.367(b)–4T(f).
(g) [Reserved]. For further guidance,
see §1.367(b)–4T(g).
Par. 5. Section 1.367(b)–4T is added to
read as follows:
§1.367(b)–4T Acquisition of foreign
corporate stock or assets by a foreign
corporation in certain nonrecognition
transactions (temporary).
(a) through (d) [Reserved]. For further
guidance, see §1.367(b)–4(a) through (d).
(e)Application of section 367(b)
to transactions described in section
304(a)(1)—(1)Scope and general rule.
This section applies to the extent that, pur-
suant to section 304(a)(1), an exchanging
shareholder is treated as transferring the
stock of a foreign acquired corporation
to a foreign acquiring corporation in a
transaction to which section 351(a) applies
(deemed section 351 exchange). Except to
the extent provided in paragraph (e)(2) of
this section, a transfer of stock of a foreign
acquiredcorporationbyanexchanging
shareholder in a deemed section 351 ex-
change shall not be subject to paragraph
(b)ofthissection.
(2)Special rule. Notwithstanding para-
graph (e)(1) of this section, a transfer of
stockofaforeignacquiredcorporationby
an exchanging shareholder to a foreign ac-
quiring corporation in a deemed section
351 exchange shall be subject to paragraph
(b) of this section to the extent the distri-
bution received by the exchanging share-
holder in redemption of the stock of the
foreign acquiring corporation is applied
against and reduces, pursuant to section
301(c)(2), the basis of stock of the for-
eign acquiring corporation held by the ex-
changing shareholder other than the stock
deemed issued by the foreign acquiring
corporation in the deemed section 351 ex-
change.
(3)Allocation of income inclusion.If
the income inclusion resulting from the ap-
plication of paragraph (e)(2) of this section
is less than the section 1248 amount attrib-
utable to the shares of stock of the foreign
acquired corporation transferred by the ex-
changing shareholder in the deemed sec-
tion 351 exchange, the amount of the in-
come inclusion attributable to each share
of stock transferred in the deemed section
351 exchange shall be determined by mul-
March 2, 20096062009–9 I.R.B.

tiplying the income inclusion by the per-
centage that the section 1248 amount at-
tributable to such share of stock bears to
the aggregate section 1248 amount attrib-
utable to all of the shares of stock trans-
ferred in the deemed section 351 exchange.
(4)Example. The rules of this para-
graph (e) are illustrated by the following
example:
Example.(i)Facts. (A) FP, a foreign corpo-
ration, wholly owns USP, a domestic corporation.
USP wholly owns CFC1, and CFC1 wholly owns
CFC2. CFC2 wholly owns CFC3. CFC1, CFC2 and
CFC3 are controlled foreign corporations within the
meaningofsection957(a). USP,CFC1,CFC2and
CFC3 use a calendar taxable year. CFC1 owns 30%
of the outstanding stock of FS, a foreign corporation.
FP owns the remaining 70% of the outstanding stock
of FS. The CFC2 stock has a $40x basis and $100x
fair market value. The FS stock held by CFC1 has
a $60x basis and $100x fair market value. As of
December 31, year 1, CFC2 has $20x of section 1248
earnings and profits, CFC3 has $40x of section 1248
earnings and profits, and FS has zero earnings and
profits. On December 31, year 1, in a transaction
described in section 304(a)(1), CFC1 sells the CFC2
stock to FS for $100x cash. FS is not a controlled
foreign corporation (within the meaning section
957(a)) either before or after the sale of the CFC2
stock.
(B) Because CFC1 wholly owns CFC2 before the
transaction and is treated, under section 318, as in-
directly owning 100% of the CFC2 stock after the
transaction, under section 304(a)(1), CFC2 and FS
are treated as if CFC1 contributed the CFC2 stock to
FS in a deemed section 351exchange in exchange
solely for $100x of FS stock, and then FS redeemed
for $100x cash its stock deemed issued to CFC1. Be-
cause CFC1 wholly owned CFC2 before the transac-
tion and is treated, under section 318, as indirectly
owning 100% of CFC2 after the transaction, section
302(a) does not apply to the redemption. Instead, un-
der section 302(d), the redemption is treated as a dis-
tribution to which section 301 applies. Pursuant to
section 304(b)(2), $20x of the distribution is treated
as a dividend from the earnings and profits of CFC2.
With respect to the remaining $80x, CFC1 takes the
position that $40x is applied against and reduces the
basis of the FS stock deemed issued in the transac-
tion, and $40x is applied against and reduces the ba-
sisoftheFSstockheldbyCFC1priorto(andafter)
the transaction.
(ii)Analysis.Under paragraph (e)(2) of this sec-
tion, the transfer by CFC1 of the CFC2 stock to FS in
the deemed section 351 exchange is subject to para-
graph (b) of this section to the extent the distribution
received by CFC1 in redemption of the FS stock is-
sued in the deemed section 351 exchange is applied
against and reduces, under section 301(c)(2), the ba-
sisoftheFSstockheldbyCFC1before(andafter)the
transaction. Thus, because $40x of the distribution
received by CFC1 from FS in redemption of the FS
stock issued in the deemed section 351 exchange is
applied against and reduces, under section 301(c)(2),
the basis of the FS stock held by CFC1 before (and
after) the transaction, under paragraph (b) of this sec-
tion, CFC1 must include $40x in income as a deemed
dividend. See §1.367(b)–2(e) for the treatment of the
$40x income inclusion. In total, CFC1 recognizes
dividend income of $60x, $20x from the application
of section 304(a)(1) to the sale of the CFC2 stock to
FS and $40x under paragraph (b) of this section by
reason of the application of paragraph (e)(2) of this
section.
(f)Effective/applicability date. Para-
graph (e) of this section applies to transfers
occurring on or after February 10, 2009.
See §1.367(b)–4, as contained in 26 CFR
part 1 revised as of April 1, 2008, for
transfers occurring on or after February 21,
2006, and before February 10, 2009.
(g)Expiration date. This section ex-
pires on or before February 10, 2012.
Par. 6. Section 1.1248–1 is amended by
revising paragraphs (b) and (g) and adding
paragraph (h) to read as follows:
§1.1248–1 Treatment of gain from certain
sales or exchanges of stock in certain
foreign corporations.
*****
(b) [Reserved]. For further guidance,
see §1.1248–1T(b).
*****
(g)Effective/applicability date.(1)The
third sentence in paragraph (a)(1), para-
graph (a)(4), and paragraph (a)(5),Exam-
ple 4, of this section apply to income inclu-
sions that occur on or after July 30, 2007.
A taxpayer may elect to apply paragraph
(a)(4) of this section to income inclusions
in open taxable years provided that it con-
sistently applies paragraph (a)(4) of this
section for income inclusions in the first
year for which the election is applicable
and in all subsequent years.
(2) [Reserved]. For further guidance,
see §1.1248–1T(g)(2).
(h) [Reserved]. For further guidance,
see §1.1248–1T(h).
Par. 7. Section 1.1248–1T is added to
read as follows:
§1.1248–1T Treatment of gain from
certain sales or exchanges of stock in
certain foreign corporations (temporary).
(a) [Reserved]. For further guidance,
see §1.1248–1(a).
(b)Sale or exchange. For purposes
of section 1248(a), the termsale or ex-
changeincludes the receipt of a distribu-
tion which is treated as in exchange for
stock under section 302(a) (relating to
distributions in redemption of stock), sec-
tion 331(a)(1) (relating to distributions in
complete liquidationof a corporation), or
section 331(a)(2) (relating to distributions
in partial liquidation of a corporation).
For purposes of section 1248(a), gain rec-
ognized by a shareholder under section
301(c)(3) in connection with a distribution
of property by a corporation with respect
to its stock shall be treated as gain from
the sale or exchange of stock of such cor-
poration.
(c) through (f) [Reserved]. For further
guidance, see §1.1248–1(c) through (f).
(g)Effective/applicability dates.(1)
[Reserved]. For further guidance, see
§1.1248–1(g)(1).
(2) Paragraph (b) of this section applies
to distributions that occur on or after Feb-
ruary 10, 2009.
(h)Expiration date. This section ex-
pires on or before February 10, 2012.
Linda M. Kroening,
Acting Deputy Commissioner
for Services and Enforcement.
Approved January 13, 2009.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 10,
2009, 8:45 a.m., and published in the issue of the Federal
Register for February 11, 2009, 74 F.R. 6824)
26 CFR 1.367(a)–3: Treatment of transfers of stock
or securities to foreign corporations.
T.D. 9446
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Gain Recognition Agreements
With Respect to Certain
Transfers of Stock or
Securities by United
States Persons to Foreign
Corporations
AGENCY: Internal Revenue Service
(IRS), Treasury.
2009–9 I.R.B.607March 2, 2009

ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations under section 367(a) of the
Internal Revenue Code (Code) concern-
ing gain recognition agreements filed by
United States persons with respect to trans-
fers of stock or securities to foreign cor-
porations. The regulations finalize tempo-
rary regulations published on February 5,
2007 (T.D. 9311, 2007–1 C.B. 635). The
regulations primarily affect United States
persons that transfer (or have transferred)
stock or securities to foreign corporations
and that will enter (or have entered) into a
gain recognition agreement with respect to
such a transfer.
DATES:Effective Date:These regulations
are effective February 11, 2009.
Applicability Dates:For dates of
applicability, see §§1.367(a)–3(g) and
1.367(a)–8(r).
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–147144–06),
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–147144–06),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, DC, or sent electronically
viatheFederaleRulemaking
Portal atwww.regulations.gov(IRS
REG–147144–06).
FOR FURTHER INFORMATION
CONTACT: S. James Hawes, (202)
622–3860 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information in
these regulations have been reviewed
and approved by the office of Manage-
ment and Budget in accordance with
the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)) under control number
1545–2056.
The collections of information in these
final regulations are in §1.367(a)–8(d), (g),
(k), and (o). Responses to the collections
of information are required to avoid recog-
nizing gain under an existing gain recogni-
tion agreement and to facilitate electronic
filing. The regulations also require the
amount of any gain recognized under a
gain recognition agreement and applicable
interest due with respect to any additional
tax due with respect to such gain to be
reflected on a schedule included with the
electronically-filed return of the taxpayer.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information, unless the
collection of information displays a valid
control number.
Books and records relating to these col-
lections 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.
Background
On February 5, 2007, the IRS and
Treasury Department issued temporary
and proposed regulations under section
367(a) concerning the terms and condi-
tions for a gain recognition agreement
(GRA) filed by a United States person
(the U.S. transferor)inconnectionwitha
transfer of stock or securities to a foreign
corporation (transferee foreign corpo-
ration) and the impact of certain trans-
actions on an existing GRA (the 2007
regulations). 72 F.R. 5184 (T.D. 9311,
2007–1 C.B. 635). No public hearing
on the 2007 regulations was requested
or held; however, numerous comments
were received. After considering the
comments received, the IRS and Treasury
Department adopt the 2007 regulations,
with modifications, as final regulations
under section 367(a). This Treasury
decision also removes the temporary
regulations and revises cross-references
where appropriate to reflect the removal
and replacement of the temporary
regulations with final regulations.
Summary of Comments and
Explanation of Revisions
A.Subsequent Nonrecognition
Transfers—In General
The 2007 regulations provide specific
exceptions for certain dispositions or other
events that would otherwise require gain
to be recognized under an existing GRA
(triggering event). The exceptions gener-
ally apply to dispositions that qualify for
nonrecognition treatment under the Code
and require the U.S. transferor to enter into
a new GRA with respect to the initial trans-
fer for the remaining term of the existing
GRA.
Several commentators asserted that the
exceptions provided by the 2007 regu-
lations did not literally apply to various
dispositions qualifying for nonrecognition
treatment because the entity making the
transfer is not described in the relevant
exception, thus inappropriately resulting
in gain recognition under a GRA. For ex-
ample, assume that in year 1 a domestic
corporation, USP, transfers stock of a for-
eign corporation, FS1, to another foreign
corporation, FS2, pursuant to an exchange
to which section 351 applies (the initial
transfer). USP files a GRA with respect to
the initial transfer. In year 2, FS2 transfers
the FS1 stock received from USP in year 1
to another foreign corporation, FS3, solely
in exchange for stock of FS3 under section
351. The year 2 transfer of the FS1 stock
by FS2 would constitute a triggering event
for purposes of the GRA filed by USP
with respect to the initial transfer, but the
transfer qualifies for an exception under
the 2007 regulations. USP complies with
the requirements of the 2007 regulations
with respect to the GRA filed for the initial
transfer. In year 3, FS3 contributes the
FS1 stock received from FS2 in year 2 to
another foreign corporation, FS4, solely in
exchange for stock of FS4 under section
351. The year 3 transfer of the FS1 stock
by FS3 is a triggering event with respect
to the GRA entered into by USP in con-
nection with the initial transfer.
The 2007 regulations provide an ex-
ception for certain subsequent transfers
of the transferred stock in a transaction
to which section 351 applies (section 351
exchange), but the exception does not
clearly apply when the transferor in the
section 351 exchange is not the transferee
foreign corporation. Commentators ex-
pressed similar concerns with respect to
other nonrecognition transactions, includ-
ing liquidations described in section 332
(section 332 liquidation), transactions to
which section 355 applies (section 355
transactions), and transactions involving
partnerships. The commentators sug-
gested various alternatives for avoiding
March 2, 20096082009–9 I.R.B.

the inappropriate triggering of a GRA in
such cases.
The IRS and Treasury Department
agree that certain nonrecognition transac-
tions that may not qualify for an exception
under the 2007 regulations should not
trigger an existing GRA. Because spe-
cific exceptions provide certainty to the
relevant transactions, the final regula-
tions retain the exceptions of the 2007
regulations with modifications so that the
exceptions apply to transactions involving
one or more entities not clearly described
in the 2007 regulations. For example,
under the final regulations the exception
for a section 351 exchange of the trans-
ferred stock applies to any transfer of the
transferred stock regardless of the identity
of the transferor. The final regulations in-
clude additional specific exceptions and a
general exception for certain transactions
that cannot be adequately covered by a
specific exception because of the myriad
factual permutations.
The general exceptionprovidedbythe
final regulations applies generally to any
disposition or other event that would oth-
erwise constitute a triggering event if the
disposition is a nonrecognition transaction
(as defined in section 7701(a)(45), but in-
cluding an exchange described in section
351(b) or 356 even if all gain realized is
recognized); a U.S. transferor retains a di-
rect or indirect interest in the transferred
stock or securities (or the assets of the
transferred corporation, such as where the
transferred corporation has liquidated in
the interim); and the U.S. transferor that re-
tains such direct or indirect interest enters
into a new GRA with respect to the initial
transfer. However, if, as a result of the dis-
position or other event, a foreign corpora-
tion acquires all or part of the transferred
stock or securities (or substantially all the
assets of the transferred corporation) the
general exception shall apply only if the
U.S. transferor owns at least five percent
(applying the attribution rules of section
318, as modified by section 958(b)) of the
total voting power and the total value of
the outstanding stock of such foreign cor-
poration immediately after the disposition
or other event. This five percent owner-
ship condition is intended to limit the ap-
plication of the general exception in trans-
actions where the U.S. transferor retains a
minimal interest in thetransferred stock or
securities (or substantially all the assets of
the transferred corporation). The final reg-
ulations include examples to illustrate the
application of the general exception.
A disposition or other event to which
the general exception applies shall be
subject to the provisions of the final regu-
lations to the same extent and in the same
manner as a disposition or event to which
a specific exception applies. For example,
even though a specific exception is gener-
ally available for a section 351 exchange
of the transferred stock by the transferee
foreign corporation, the U.S. transferor
must still recognize gain under the existing
GRA to the extent the transferee foreign
corporation would otherwise recognize
gain in the exchange under section 351(b).
The U.S. transferor must therefore sim-
ilarly recognize gain in connection with
a disposition or other event to which the
general exception applies to the extent that
the transferee foreign corporation would
otherwise recognize gain in the exchange
under section 351(b).
A new GRA filed under the general ex-
ception is generally subject to the same
terms and conditions as the existing GRA,
but must also describe the subsequent dis-
positions that would constitute triggering
events (based on the principles of the final
regulations, but not including any trigger-
ing event otherwise described in the final
regulations) and include a statement that
the U.S. transferor agrees to treat such dis-
positions as triggering events. In addition,
the final regulations provide that, with re-
spect to a new GRA filed under the general
exception, a triggering event shall also in-
clude any other disposition or event that is
inconsistent with the principles of the trig-
gering event exceptions including, for ex-
ample, an indirect disposition of the trans-
ferred stock or securities or of substantially
all of the assets of the transferred corpora-
tion. This additional condition is similar to
the condition applicable to a GRA filed in
connection with an indirect stock transfer
described in §1.367(a)–3(d).
One commentator requested that an ex-
ceptionbeprovidedfora securities lending
transaction to which section 1058 applies.
The final regulations do not provide such
an exception.
B.Dispositions Pursuant to an
Intercompany Transaction
Under the 2007 regulations, a complete
or partial disposition by the U.S. transferor
of the stock of the transferee foreign corpo-
ration received in the initial transfer gen-
erally requires the U.S. transferor to rec-
ognize gain under the GRA. Exceptions
to this general rule are provided for cer-
tain nonrecognition transfers to which sec-
tions 351, 354, or 721 applies. As de-
scribed further in part D. of this Preamble,
the 2007 regulations provide further that a
GRA shall instead terminate (in whole or
in part) if the U.S. transferor disposes of all
or part of the stock of the transferee foreign
corporation received in the initial trans-
fer pursuant to a transaction in which all
gain realized is recognized currently and
included in taxable income as a result of
the disposition, but only if the basis of the
stock disposed of (excluding certain ad-
justments to such basis) is not greater than
the basis in the transferred stock or securi-
ties at the time of the initial transfer.
IftheU.S.transferordisposesofstock
of the transferee foreign corporation pur-
suant to an intercompany transaction
(within the meaning of §1.1502–13) that
is not described in section 351 or 354,
the conditions for terminating the exist-
ingGRA(inwholeorinpart)arenot
satisfied because, under the provisions of
§1.1502–13, the U.S. transferor generally
defers taking into account any gain real-
ized and recognized on the disposition.
Thus, such a disposition would be a trig-
gering event.
Several commentators asserted that it
is inappropriate to require the U.S. trans-
feror to recognize gain under the GRA in
such cases because the stock of the trans-
feree foreign corporation remains within
the consolidated group of which the U.S.
transferor is a member. It is also inap-
propriate to terminate the GRA because
the intercompany item has not been taken
into account. Instead, the commentators
recommended that the GRA remain in
effect for its remaining term. The IRS
and Treasury Department agree with this
recommendation, and the final regulations
provide a specific exception for dispo-
sitions of stock of the transferee foreign
corporation pursuant to an intercompany
transaction (intercompany transaction ex-
ception) to which a specific triggering
2009–9 I.R.B.609March 2, 2009

event exception does not apply. If the in-
tercompany transaction exception applies,
the U.S. transferor remains subject to the
existing GRA. But see the discussion be-
low when the intercompany transaction is
a nonrecognition transaction in which an
amount of gain is recognized.
The intercompany transaction excep-
tion is available if two conditions are sat-
isfied. The first condition is that the basis
of the stock of the transferee foreign cor-
poration disposed of in the intercompany
transaction is not greater than the sum
of the aggregate basis in the transferred
stock or securities at the time of the initial
transfer, any increase to the basis of the
transferred stock or securities by reason
of gain recognized by the U.S. transferor
in connection with the initial transfer, and
any increase to the basis of the stock of the
transferee foreign corporation by reason of
income inclusions by the U.S. transferor
(for example, pursuant to section 961).
To satisfy this basis condition, the U.S.
transferor can elect to reduce the basis of
the stock of the transferee foreign corpo-
ration, effective immediately before the
intercompany transaction.
The second condition is that the an-
nual certification filed with respect to the
existing GRA for the taxable year during
which the intercompany transaction occurs
includes a complete description of the in-
tercompany transaction and a schedule il-
lustrating how the basis condition is satis-
fied.
Because the final regulations provide
specific exceptions for certain nonrecog-
nition transfers of stock of the transferee
foreign corporation (for example, pursuant
to a section 351 exchange), the new in-
tercompany transaction exception applies
only to the extent the intercompany trans-
action gives rise to an intercompany item
(as defined in §1.1502–13(b)(2)). If the
intercompany item is a gain, the existing
GRA must be divided into two separate
agreements — one that remains with the
U.S. transferor (of an amount equal to
the intercompany item) and another that
moves to the acquiring member (of an
amount equal to the remaining amount of
the existing GRA amount). For example,
assume the amount of the existing GRA
is $100x, the intercompany transaction
isdescribedinsection351(b),andthe
U.S. transferor recognizes $20x gain (the
intercompany item) in the intercompany
transaction. The intercompany transaction
exception applies to the extent of the $20x
intercompany item, and the exception for
section 351 exchanges applies to the re-
mainder of the transfer. Thus, the U.S.
transferor remains subject to a $20x GRA
(to the extent of the $20x intercompany
item), and the acquiring member becomes
subject to an $80x GRA. This result is
similar to that of a transfer of the stock of
the transferee foreign corporation to a do-
mestic acquiring corporation in a section
351 exchange that is not an intercompany
transaction but in which the U.S. transferor
recognizes gain under section 351(b). In
such a case, the amount of the new GRA
entered into by the domestic acquiring
corporation is reduced by the amount of
gain recognized by the U.S. transferor on
the transfer under section 351(b). The
U.S. transferor does not remain subject to
a GRA because the gain recognized under
section 351(b) is taken into account. By
contrast, if the section 351 exchange were
an intercompany transaction, the U.S.
transferor must remain subject to a GRA
in an amount equal to the gain recognized
under section 351(b) because the gain has
not been taken into account.
If the intercompany item is a loss, how-
ever, the U.S. transferor shall remain sub-
ject to the entire GRA. In addition, in such
a case, the termination rule that applies to
dispositions of the stock of the transferee
foreign corporation in which all realized
gain is recognized and included in taxable
income during the taxable year of the dis-
position shall not apply.
The final regulations provide rules to
coordinate the subsequent inclusion in
taxable income of an intercompany item
and an amount of gain recognized under
the GRA. Generally, under the coordina-
tion rule, if subsequent to an intercompany
transaction to which the intercompany
transaction exception applies, a disposi-
tion or other event occurs that requires
the U.S. transferor to take into account
the intercompany item related to the inter-
company transaction (under the provisions
of §1.1502–13), the disposition shall not
constitute a triggering event. Instead the
GRA shall terminate without further effect
or the amount of gain subject to the GRA
shall be reduced based on the principles of
the termination rule that applies to certain
dispositions of the stock of the transferee
foreign corporation received in the initial
transfer. The final regulations include an
example illustrating this rule.
C.Divisive Reorganizations
The preamble to the 2007 regulations
requested comments concerning whether
specific exceptions should be provided for
divisive reorganizations involving the U.S.
transferor, the transferee foreign corpora-
tion, or the transferred corporation. No
comments were received. However, the
final regulations provide a specific excep-
tion for divisive reorganizations involving
a transfer of the stock of the transferee
foreign corporation received in the initial
transfer to a domestic corporation (domes-
tic controlled corporation) before the dis-
tribution of the stock of the domestic con-
trolled corporation. The specific exception
applies if the domesticcontrolled corpora-
tion enters into a new GRA with respect to
the initial transfer. The IRS and Treasury
Department expect the general exception
to apply to other divisive reorganizations,
as appropriate. The final regulations in-
clude examples illustrating the application
of the general exception to divisive reorga-
nizations.
D.GRA Termination Events
If certain conditions are met, under the
2007 regulations an existing GRA termi-
nates without further effect (termination
rule) if the U.S. transferor (or other spec-
ified United States persons) re-acquires
the transferred stock or securities, or the
U.S. transferor disposes of the stock of the
transferee foreign corporation received in
the initial transfer. One condition for the
application of the termination rule is that,
with certain adjustments, the basis of the
transferred stock or securities in the hands
of the U.S. transferor (or other specified
United States person) immediately follow-
ing the acquisition or the basis of stock
of the transferee foreign corporation dis-
posed of by the U.S. transferor, as relevant,
must not be greater than the basis of the
transferred stock or securities at the time
of the initial transfer. To satisfy this basis
condition, the 2007 regulations generally
permit the U.S. transferor (or other United
States person) to reduce the basis of the
transferred stock or securities (or the stock
of the transferee foreign corporation, as
applicable). The 2007 regulations further
permit an increase to basis of other stock
March 2, 20096102009–9 I.R.B.

or securities in the transferred corporation
(or stock of the transferee foreign corpo-
ration, as applicable) by a corresponding
amount, but not in excess of fair market
value.
The final regulations retain the termina-
tion rule and the conditions for its appli-
cation, including the option to reduce ba-
sis. However, the IRS and Treasury De-
partment have determined that it is inap-
propriate to permit the shifting of basis to
other stock or securities in the case of an
election to reduce the basis of stock or se-
curities. The final regulations, therefore,
do not permit the U.S. transferor (or other
United States person) to increase the ba-
sis of other stock or securities of the trans-
ferred corporation (or stock of the trans-
feree foreign corporation, as applicable).
The general exception, however, may ap-
ply allowing the U.S. transferor (or other
United States person) to enter into a new
GRA in connection with a transaction in
which the transferred stock or securities
are re-acquired in lieu of reducing the ba-
sis of the transferred stock or securities.
One commentator questioned whether
the termination rule applies in the case
of a downstream asset reorganization of
the transferee foreign corporation into the
transferred corporation because the U.S.
transferor receives newly-issued stock of
the transferred corporation in the trans-
action and not the stock transferred in
the initial transfer. The IRS and Treasury
Department believe it is appropriate for
the termination rule to apply in the case
of such downstream asset reorganizations.
Accordingly, by revising the location of
arulecontainedinthe2007regulations,
the final regulations clarify that the term
transferred stock or securitiesincludes any
stock or securities of the transferred cor-
poration with a basis determined, in whole
or in part, by reference to the basis of the
stock or securities transferred in the initial
transfer. Thus, in the case of a downstream
asset reorganization, for purposes of the
termination rule, the newly-issued stock
of the transferred corporation deemed
distributedbythetransferee foreign corpo-
ration to the U.S. transferor under section
361(c) is the stock transferred in the initial
transfer.
The 2007 regulations provide an ex-
ception for certain expropriation losses
that would otherwise constitute triggering
events. The final regulations modify the
rule to provide instead that the amount of
gain subject to a GRA is reduced to the
extent a loss is sustained with respect to
stock of the transferee foreign corporation,
the transferred stock or securities, or sub-
stantially all the assets of the transferred
corporation by reason of an expropriation
of such property by the government of a
foreign country, any political subdivision
thereof, or any agency or instrumentality
of the foregoing.
E.Transfers by U.S. Transferor Pursuant
to an Outbound Asset Reorganization
The 2007 regulations provide an excep-
tion for a transfer of stock of the trans-
feree foreign corporation by the U.S. trans-
feror to a domestic corporation pursuant to
an asset reorganization described in sec-
tion 368(a)(1). See §1.367(a)–8T(e)(3)(i).
The preamble to the 2007 regulations re-
quested comments concerning whether an
exception should also be provided for an
outbound transfer of the stock of the trans-
feree foreign corporation by the U.S. trans-
feror to a foreign corporation pursuant to
an asset reorganization described in sec-
tion 368(a)(1). No comments were re-
ceived. However, after studying the is-
sue further and considering the principles
of the proposed regulations recently is-
sued under sections 367(a)(5), 367(b), and
1248(f) (73 FR 49278), the IRS and Trea-
sury Department have determined that it
is appropriate for an exception to apply to
such an outbound transfer. The final regu-
lations do not include a specific exception
for such outbound transfers, but the IRS
and Treasury Department expect the gen-
eral exception provided by the final reg-
ulations to apply to such transfers, as ap-
propriate. The final regulations include an
example illustrating the application of the
general exception to such a transfer.
F.Ordering Rule if Triggering Event
Affects Multiple GRAs
The final regulations provide an order-
ing rule to determine the amount of gain
recognized under a GRA when a disposi-
tion or other event requires gain to be rec-
ognized under more than one GRA. The
ordering rule adopts a “first-in-time” ap-
proach, providing that gain must first be
recognized under the GRA that relates to
the earliest initial transfer, then under the
GRA that relates to the transfer imme-
diately following the initial transfer, and
so forth until the appropriate amount of
gain under each GRA has been recognized.
This ordering rule clarifies that the gain
recognized under a GRA is determined af-
ter taking into account any increase to the
basis of the transferred stock or securities
resulting from gain recognized under an-
other GRA that relates to an earlier initial
transfer. The final regulations include an
example to illustrate the ordering rule.
G.Section 301 Distributions
The 2007 regulations define a disposi-
tion as any transfer that would constitute
a disposition for any purpose of the Code
and the regulations under the Code, but
exclude a stock redemption described
under section 302(d) (dividend equiv-
alent redemption) to the extent section
301(c)(1) applies. One commentator re-
quested that the final regulations clarify
whether the rule for dividend equivalent
redemptions applies to redemptions of
stock of the transferee foreign corporation,
the transferred corporation, or both. The
commentator also requested that the final
regulations confirm that a distribution of
property to which section 301(c)(2) ap-
plies (including in the case of a dividend
equivalent redemption) does not constitute
a disposition of the relevant stock.
The final regulations provide that a dis-
position generally does not include the re-
ceipt of a distribution of property with re-
spect to stock to which section 301 applies,
including by reason of section 302(d). The
final regulations provide further that a div-
idend equivalent redemption shall consti-
tute a disposition if the U.S. transferor does
not enter into a new GRA that includes ap-
propriate provisions to account for the re-
demption. The final regulations include an
example illustrating this rule and describ-
ing the types of appropriate provisions that
should be included in the new GRA. The
provisions to be included in the GRA are
necessary, for example, to account for a
dividend equivalent redemption that oc-
curs pursuant to a transaction to which sec-
tion 304(a)(1) applies and in which the
transferor does not retain a direct or indi-
rect interest in the acquiring corporation.
In such a case, the GRA would need to
provide appropriate provisions to account
for indirect dispositions of the transferred
2009–9 I.R.B.611March 2, 2009

stock that should require gain to be recog-
nized under the new GRA.
The final regulations provide that the
U.S. transferor mustrecognize gain under
a GRA to the extent gain is recognized
under section 301(c)(3) with respect to the
transferred stock and that the amount of
gain subject to the GRA is reduced to the
extent the U.S. transferor recognizes gain
under section 301(c)(3) with respect to the
stock of the transferee foreign corporation
received in the initial transfer.
H.Elections under Section 338
One commentator requested that the
final regulations provide an exception for
a deemed sale of the assets of the trans-
ferred corporation or the transferee foreign
corporation by reason of an election un-
der section 338(g). The commentator
posited a fact pattern where the U.S. trans-
feror entered into a GRA in connection
with a transfer of less than 20 percent of
the outstanding stock of the transferred
corporation to the transferee foreign cor-
poration, and, within the GRA term, the
transferee foreign corporation acquires
additional stock of the transferred cor-
poration constituting a qualified stock
purchase (within the meaning of section
338(d)(3)) and makes an election under
section 338(g) with respect to such ac-
quisition. The deemed asset sale that
results from the section 338(g) election
is a sale for all purposes of the Code (see
§1.338–2(c)(6)) and thus, under the 2007
regulations, would require the U.S. trans-
feror to recognize the full amount of gain
subject to the GRA. The commentator as-
serted that providing an exception for such
a deemed asset sale was consistent with
the policies of the GRA regime because
the deemed asset sale is not a monetization
of the assets or stock of the transferred
corporation.
The IRS and Treasury Department
agree with the commentator, and the final
regulations provide that a deemed sale of
assets of the transferred corporation or the
transferee foreign corporation by reason
of an election under section 338(g) shall
not constitute a triggering event for pur-
poses of the GRA. However, the sale of
stock of the target corporation pursuant
to the qualified stock purchase shall be
taken into account for purposes of a GRA.
The sale of stock of the transferred or
transferee foreign corporation by the seller
should either require gain to be recognized
under a GRA or terminate the GRA with-
out further effect if the conditions for the
termination rule are satisfied, even if an
election under section 338(g) is made.
By contrast, a deemed sale of assets
of a domestic corporation by reason of
an election under section 338(h)(10) shall
continue to be taken into account for pur-
poses of §1.367(a)–8. Thus, for exam-
ple, if an election under section 338(h)(10)
were made with respect to the U.S. trans-
feror, the deemed sale of the stock of the
transferee foreign corporation held by the
U.S. transferor would constitute a disposi-
tion of such stock that either requires gain
to be recognized under the GRA or termi-
nates the GRA if the conditions for the ter-
mination rule are satisfied.
On August 22, 2008, the IRS
and Treasury Department issued pro-
posed regulations under section 336(e)
(REG–143544–04, 2008–42 I.R.B. 947)
that provide rules generally consistent with
the rules that apply to elections under sec-
tion 338(h)(10). The proposed regulations
under section 336(e) shall be applicable
to dispositions occurring on or after the
proposed regulations are published as fi-
nal regulations in theFederal Register.
The proposed regulations do not apply if
the selling corporation or the target corpo-
ration is foreign. When final regulations
under section 336(e) are promulgated,
the IRS and Treasury Department antic-
ipate that a deemed asset sale pursuant
to a section 336(e) election with respect
to a domestic corporation shall be taken
into account for purposes of §1.367(a)–8,
similar to a deemed asset sale pursuant
to an election under section 338(h)(10).
Comments are requested in this regard,
including what special rules would be re-
quired with respect to an existing GRA
if an election under section 336(e) were
permitted if the selling corporation or the
target corporation were foreign.
I.Expatriation under Section 877A
The 2007 regulations provide that a
GRA shall be triggered immediately be-
fore the date on which an individual U.S.
transferor loses United States citizenship
or ceases to be taxed as a lawful permanent
resident (as defined in section 877(e)(2)).
This rule applies even if the individual
U.S. transferor would have recognized
gain with respect to the stock of the trans-
feree foreign corporation under section
877. The final regulations generally retain
this rule, modified for the enactment of
section 877A. Further, the final regula-
tions make clear that the termination rule
that applies in certain cases where the
U.S. transferor disposes of the stock of
the transferee foreign corporation is not
applicable to an individual U.S. transferor
that is subject to section 877A.
J.GRA Content
Comments were received regarding
whether the information required with a
GRA could instead be made available by
the U.S. transferor “upon request.” The
final regulations confirm that the informa-
tion required with a GRA must be included
with the GRA as filed with the tax return
of the U.S. transferor.
K.Other Changes
Under the 2007 regulations, certain
dispositions that qualify for an exception
nonetheless require the U.S. transferor to
recognize gain under the existing GRA.
For example, to the extent the transferee
foreign corporation would be required to
recognize gain under section 351(b) or
356(a)(1) in connection with an exchange
of the transferred stock, the U.S. trans-
feror must recognize gain under the GRA
notwithstanding that an exception applies
to the exchange of the transferred stock.
The final regulations retain this rule; how-
ever, the final regulations refer to any
disposition or event that requires gain to
be recognized under a GRA as a “gain
recognition event.” A gain recognition
event includes a triggering event, a dis-
position that would constitute a triggering
event but for the application of an excep-
tion (such as the section 351(b) or 356
exchange described above), and a section
301 distribution that would require gain
to be recognized under section 301(c)(3)
with respect to the transferred stock.
The final regulations clarify the amount
of gain subject to a GRA that is filed by
a domestic corporate shareholder of a do-
mestic corporation (the U.S. transferor)
that transfers stock or securities to the
transferee foreign corporation pursuant to
an outbound asset reorganization that is
March 2, 20096122009–9 I.R.B.

subject to section 367(a)(5) and the regu-
lations under that section.
The final regulations clarify that, if a
GRA is entered into in connection with a
transfer of a partnership interest, a com-
plete or partial disposition of such partner-
ship interest shall constitute a triggering
event for purposes of the GRA.
The 2007 regulations provide excep-
tions for certain dispositions of stock of
the transferee foreign corporation or of
substantially all the assets of the trans-
ferred corporation that are described in
section 351, 354 (but only in the case
of a reorganization described in section
368(a)(1)(B)), or 721, if, in addition to
other requirements, the U.S. transferor
complies with requirements similar to
those for the exception that applies to sim-
ilar dispositions of the transferred stock or
securities. See §1.367(a)–8T(e)(1)(ii). In
response to comments requesting certainty
concerning the requirements that must be
satisfied, the final regulations identify the
specific requirements that must be satis-
fied with respect to such dispositions.
The 2007 regulations provide that, if
the transferred corporation is domestic and
at the time of the initial transfer the U.S.
transferor owned stock in the transferred
corporation satisfying the requirements of
section 1504(a)(2), the GRA shall termi-
nate without further effect if the transferred
corporation disposes of substantially all of
its assets in a transaction in which all gain
realized is recognizedcurrently. The final
regulations retain this termination rule but
add, as an additional condition for its ap-
plication, that the U.S. transferor and the
transferred corporation were members of
the same consolidated group on the date of
the initial transfer. This change was made
because the IRS and Treasury Department
expect a lesser degree of inside and out-
side basis disparity within a consolidated
group.
The final regulations provide that, if the
initial transfer and one or more disposi-
tions or other events (even if an excep-
tion applies) that affect the GRA filed by
the U.S. transferor with respect to the ini-
tial transfer occur within the same taxable
year of such U.S. transferor,orifmultiple
dispositions or events that affect an exist-
ingGRA(evenifanexceptionapplies)oc-
cur in a taxable year of the U.S. transferor
that does not include the initial transfer,
the U.S. transferor is only required to en-
ter into a single GRA for such taxable year.
The GRA must describe the initial trans-
fer and/or each subsequent disposition or
other event that affects the GRA. This rule
does not apply, however, if a disposition or
other event requires a new GRA to be filed
by a United States person that was not the
U.S. transferor with respect to the existing
GRA.
The final regulations provide that the
determination of whether a disposition of
substantially all of the assets of the trans-
ferred corporation has occurred shall be
made on the basis of one or more related
transactions. The final regulations pro-
vide further that the determination shall be
madewithoutregardtoadispositionofas-
sets described in section 1221(a)(1) in the
ordinary course of business.
Effective/Applicability Dates
The final regulations generally apply to
transfers of stock or securities occurring on
or after March 13, 2009. The final regula-
tions shall not apply to transfers of stock
or securities occurring on or after March
13, 2009 that are entered into pursuant to
a contract that was binding before Febru-
ary 11, 2009 (subject to customary condi-
tions) and all times thereafter. However,
taxpayers may apply the final regulations
to such transfers provided the final regu-
lations are applied consistently to all such
transfers. Taxpayers may also apply the
rules of the final regulations that were not
already effective under §1.367(a)–8 (see
26 CFR part 1, revised April 1, 2006)
and §1.367(a)–8T to any gain recognition
agreement filed with respect to a transfer
of stock or securities occurring on a date
that is before March 13, 2009 and during a
taxable year for which the period of limita-
tions on assessments under section 6501(a)
of the Code has not closed.
Availability of IRS Documents
IRS documents cited in this preamble
are made available by the Superintendent
of Documents, U.S. Government Printing
Office, Washington, DC 20402.
Effect on Other Documents
The following publication is obsolete
as of February 11, 2009: Notice 2005–74,
2005–2 C.B. 726.
Special Analyses
It has been determined that this Trea-
sury Decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that 5 U.S.C. 553(b) and (d) do not apply
to these regulations.
It is hereby certified that the collec-
tions of information contained in these
regulations will not have a significant
economic impact on a substantial number
of small entities. Accordingly, a regula-
tory flexibility analysis is not required.
These regulations primarily will affect
United States persons that are large corpo-
rations engaged in cross-border corporate
transactions. Thus, the number of af-
fected small entities—in whichever of the
three categories defined in the Regulatory
Flexibility Act (small businesses, small
organizations, and small governmental ju-
risdictions)—will not be substantial. The
IRS and Treasury Department estimate
that small organizations and small gov-
ernmental jurisdictions are likely to be
affected only insofar as they might hold
a portfolio interest in stock or securities
and in the unlikely event that they transfer
such stock or securities to a foreign cor-
poration. While a certain number of small
entities may transfer stock or securities to
a foreign corporation in connection with
an acquisition or reorganization, the IRS
and Treasury Department do not anticipate
the number to be substantial. Furthermore,
the IRS and Treasury Department estimate
that those small entities that are affected by
the regulations will likely face a burden of
approximately two hours at an hourly rate
of $200. Considering that the collections
of information enable taxpayers to defer
the current recognition of gain that is sub-
ject to a gain recognition agreement, the
IRS and Treasury believe that $400 is not
a significant economic impact. Pursuant
to section 7805(f) of the Internal Revenue
Code, this regulation was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal authors of these regula-
tions are Daniel McCall, formerly of the
Office of the Associate Chief Counsel (In-
2009–9 I.R.B.613March 2, 2009

ternational), and S. James Hawes, of the
Office of the Associate Chief Counsel (In-
ternational). However, other personnel
from the IRS and the Treasury Department
participated in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entries
for §§1.367(a)–3T(e)and 1.367(a)–8T to
read in part as follows:
Authority: 26 U.S.C. 7805* * *
Par. 2. Section 1.338–1 is amended
by adding a new sentence at the end of
paragraph (a)(2), to read as follows:
§1.338–1. General principles; status of
old target and new target.
(a) * * *
(2) * * * See also §1.367(a)–8(k)(13)
for a rule applicable to gain recogni-
tion agreements (filed under section
§§1.367(a)–3(b)(1)(ii) and 1.367(a)–8)
and deemed asset sales as a result of an
election under section 338(g).
*****
§1.367(a)–3 [A
mended]
Par. 3. For each entry in the table in the
“Section” column, remove the language in
the “Remove” column and add the lan-
guage in the “Add” column in its place.
SectionRemoveAdd
1.367(a)–3(c)(3)(iii)(B)(1)(i)(A)1296(b)1297(b)
1.367(a)–3(d)(2)(iii)§1.367(a)–8T(b)(3)(i) and (d)§1.367(a)–8(c)(1)(i)
1.367(a)–3(d)(2)(v)§1.367(a)–8T(d)(2)§1.367(a)–8(j)(2)(i)
1.367(a)–3(d)(3),Example 1(ii), fourth
sentence
§1.367(a)–8T(d)(1)§1.367(a)–8(j)(1)
1.367(a)–3(d)(3),Example 1(ii), fourth
sentence
§1.367(a)–8T(b)(1)(vii)§1.367(a)–8(c)(2)(vi)
1.367(a)–3(d)(3),Example 1(ii), fifth
sentence
§1.367(a)–8T(b)(1)(vii)§1.367(a)–8(c)(2)(vi)
1.367(a)–3(d)(3),Example 1A(ii), first
sentence
§1.367(a)–8T(a)(3)§1.367(a)–8(d)(3) and (e)(1)(i)
1.367(a)–3(d)(3),Example 1A(ii), second
sentence
§1.367(a)–8T(d)(4)
§1.367(a)–8(j)(5)
1.367(a)–3(d)(3),Example 1A(ii), second
sentence
§1.367(a)–8T(e)(8)§1.367(a)–8(k)(10)
1.367(a)–3(d)(3),Example 4(i), first
sentence
§1.367(a)–8T(d)(2)§1.367(a)–8(j)(2)(i)
1.367(a)–3(d)(3),Example 4(ii), first
sentence
§1.367(a)–8T(d)(2)§1.367(a)–8(j)(2)
1.367(a)–3(d)(3),Example 4(ii), second
sentence
§1.367(a)–8T(g)(2)§1.367(a)–8(o)(4)
1.367(a)–3(d)(3),Example 5A(ii), second
to last sentence
§1.367(a)–8T(g)(2)§1.367(a)–8(o)(4)
1.367(a)–3(d)(3),Example 6(ii), last
sentence
§1.367(a)–8T(d)(2)§1.367(a)–8(j)(2)(i)
1.367(a)–3(d)(3),Example 7(ii), second
sentence
§1.367(a)–8T(g)(2)§1.367(a)–8(o)(4)
1.367(a)–3(d)(3),Example 7(ii), third
sentence
§1.367(a)–8T(e)(1)(iii)§1.367(a)–8(k)(4)
1.367(a)–3(d)(3),Example 7A(ii), fourth
sentence
§1.367(a)–8T(g)(2)§1.367(a)–8(o)(4)
1.367(a)–3(d)(3),Example 7A(ii), last
sentence
§1.367(a)–8T(b)(5)
§1.367(a)–8(g)
March 2, 20096142009–9 I.R.B.

SectionRemoveAdd
1.367(a)–3(d)(3),Example 7A(ii), last
sentence
§1.367(a)–8T(e)(1)(iii)§1.367(a)–8(k)(4)
1.367(a)–3(d)(3),Example 8(ii), second
to last sentence
§1.367(a)–8T(d)(2)§1.367(a)–8(j)(2)(i)
1.367(a)–3(d)(3),Example 9(ii), last
sentence
§1.367(a)–8T(d)(2)§1.367(a)–8(j)(2)(i)
1.367(a)–3(d)(3),Example 11(ii), sixth
sentence
§1.367(a)–8T(d)(1)§1.367(a)–8(j)(1)
1.367(a)–3(d)(3),Example 11(ii), sixth
sentence
§1.367(a)–8T(b)(1)(vii)§1.367(a)–8(c)(2)(vi)
1.367(a)–3(d)(3),Example 12(ii), third
sentence
§1.367(a)–3T(e)§1.367(a)–3(e)
1.367(b)–4(b)(1)(iii),Example 4(i), last
sentence
§1.367(a)–3T(e)§1.367(a)–3(e)
1.367(b)–13(a)(2)(iii)or (iii) or in sections 368(a)(1)(G) and
(a)(2)(D)
(iii), or (v)
Par. 4. For each entry in the table, re-
designate the paragraph designated in the
“Old Paragraph” column as the new para-
graph designation in the “New Paragraph”
column to read as follows:
§1.367(a)–3(g) [Redesignated]
Section 1.367(a)–3(g) is redesignated
as follows:
Old ParagraphNew Paragraph
1.367(a)–3(g)(1)(A)1.367(a)–3(g)(1)(i)
1.367(a)–3(g)(1)(B)1.367(a)–3(g)(1)(ii)
1.367(a)–3(g)(1)(B)(1)1.367(a)–3(g)(1)(ii)(A)
1.367(a)–3(g)(1)(B)(2)1.367(a)–3(g)(1)(ii)(B)
1.367(a)–3(g)(1)(B)(3)1.367(a)–3(g)(1)(ii)(C)
1.367(a)–3(g)(1)(B)(4)1.367(a)–3(g)(1)(ii)(D)
1.367(a)–3(g)(1)(B)(5)1.367(a)–3(g)(1)(ii)(E)
1.367(a)–3(g)(1)(B)(6)
1.367(a)–3(g)(1)(ii)(F)
1.367(a)–3(g)(1)(C)1.367(a)–3(g)(1)(iii)
1.367(a)–3(g)(1)(D)1.367(a)–3(g)(1)(iv)
1.367(a)–3(g)(1)(D)(1)1.367(a)–3(g)(1)(iv)(A)
1.367(a)–3(g)(1)(D)(2)1.367(a)–3(g)(1)(iv)(B)
1.367(a)–3(g)(1)(D)(3)1.367(a)–3(g)(1)(iv)(C)
1.367(a)–3(g)(1)(E)1.367(a)–3(g)(1)(v)
1.367(a)–3(g)(1)(F)1.367(a)–3(g)(1)(vi)
1.367(a)–3(g)(2)(G)1.367(a)–3(g)(1)(vii)
Par. 5. Section 1.367(a)–3 is amended
by:
1. In the first sentence of paragraph
(b)(1), remove the words “Except as pro-
vided in section 367(a)(5)” and add “Ex-
cept as provided in section 367(a)(5) and
paragraph (e) of this section” in their place.
2. In the first sentence of paragraph
(c)(1), remove the words “Except as pro-
vided in section 367(a)(5)” and add “Ex-
cept as provided in section 367(a)(5) and
paragraph (e) of this section” in their place.
3. Revising paragraphs (d)(2)(iv).
4. Revising the last sentence of para-
graph (d)(3),Example 5(ii).
2009–9 I.R.B.615March 2, 2009

5. Removing the last sentence of para-
graph (d)(3),Example 5A(ii).
6. Revising paragraph (e).
7. Revising and reserving paragraph
(f).
8. Revising the heading for paragraph
(g) and adding new paragraph (g)(1)(viii).
The revisions and addition read as fol-
lows:
§1.367(a)–3 Treatment of transfers of
stock or securities to foreign corporations.
*****
(d) * * *
(2) * * *
(iv)Gain recognition agreements in-
volving multiple parties.The U.S. per-
son’s agreement to recognize gain, as pro-
vided in §1.367(a)–8, shall include appro-
priate provisions consistent with the prin-
ciples of §1.367(a)–8. SeeExamples 5and
5Aof this section and §1.367(a)–8(j)(9).
*****
(3) * * *
Example 5.***
(ii) * * * Under §1.367(a)–8(j)(9), the
gain recognition agreement would be trig-
geredifFsoldalloraportionofthestock
of S.
*****
(e)Transfers by a domestic corporation
to a foreign corporation in a section 361
exchange—(1)General rule. If a domes-
tic corporation (U.S. transferor) transfers
stock or securities to a foreign corporation
(transferee foreign corporation) in an ex-
change described in section 361(a) or (b),
or in an exchange described in section 351
that is also described in section 361(a) or
(b) (collectively, a section 361 exchange),
such transfer shall be subject to section
367(a)(1), unless the conditions of para-
graphs (e)(1)(i) through (iv) of this section
are satisfied.
(i) The conditions set forth in section
367(a)(5) and any regulations under that
section have been satisfied including that:
(A) The U.S. transferor is controlled
(within the meaning of section 368(c)) by
five or fewer (but at least one) domestic
corporations (control group members) at
the time of the section 361 exchange;
(B) The U.S. transferor recognizes the
amount of the gain realized in the sec-
tion 361 exchange that is allocable to any
shareholder that is not a control group
member (based on the value of the owner-
ship interest in the U.S. transferor held by
the shareholder at the time of the section
361 exchange);
(C) The U.S. transferor recognizes the
amount of the gain realized in the section
361 exchange allocable to a control group
member that cannot be preserved in the
stock received by the control group mem-
ber in the transaction; and
(D) Appropriate adjustments are made
to the basis of the stock received by each
control group member in the transaction.
(ii) If the stock or securities transferred
in the section 361 exchange are of a do-
mestic corporation, the conditions in para-
graphs (c)(1)(i), (ii), and (iv) of this section
are satisfied.
(iii) Each control group member that
owns five percent or more (applying the
attribution rules of section 318, as mod-
ified by section 958(b)) of the total vot-
ing power or the total fair market value of
the stock of the transferee foreign corpora-
tion immediately after the transaction en-
ters into a gain recognition agreement as
provided in §1.367(a)–8. The amount of
gain subject to the gain recognition agree-
ment shall equal the amount of the gain re-
alized by the U.S. transferor on the transfer
of the stock or securities in the section 361
exchange that is allocable to such control
group member (based on the ownership in-
terest (by value) in the U.S. transferor held
by the control group member at the time of
the section 361 exchange) reduced by the
amount of such allocable gain that is rec-
ognized by the U.S. transferor with respect
to the control group member. The gain
recognition agreement shall designate the
control group member as the U.S. trans-
feror for purposes of paragraphs (b) and (c)
of this section and §1.367(a)–8.
(iv) Each control group member that
enters into a gain recognition agreement
pursuant to paragraph (e)(1)(iii) of this
section makes the election described in
§1.367(a)–8(c)(2)(vi).
(2)Certain triangular asset reorganiza-
tions. If a transfer of stock or securities
described in paragraph (e)(1) of this sec-
tion is pursuant to a triangular asset reor-
ganization described in §1.358–6(b)(2)(i)
through (iii), the gain recognition agree-
ment filed by a control group member pur-
suant to paragraph (e)(1)(iii) of this section
shall include provisions consistent with the
principles of §1.367(a)–8 to account for
all the parties to the reorganization. See
§1.367(a)–8(j)(9).
(3)Examples. The following examples
illustrate the provisions of paragraph (e)(1)
of this section. Except as otherwise indi-
cated, assume US1, US2, USP, and UST
are domestic corporations; US1 and US2
are not related; CFC1, CFC2, FA, and FC
are foreign corporations; the section 1248
amount attributable to the stock of a for-
eign corporation iszero; and section 7874
does not apply to the transaction.
Example 1.Outbound asset reorganization.(i)
Facts. US1 and US2 own 60% and 40%, respectively,
of the outstanding stock of UST. UST wholly owns
FC. The FC stock held by UST has a $20x basis and
a $100x fair market value. UST merges with and
into FC in an asset reorganization described in section
368(a)(1)(A). In the section 361 exchange that is part
of the reorganization, UST transfers all of its FC stock
to FA. UST distributes the FA stock it received in the
section 361 exchange to US1 and US2 pursuant to
the plan of reorganization. The conditions set forth
in the second sentence of section 367(a)(5) and the
regulations under that section are satisfied, including
adjusting the basis of the FA stock received by US1
and US2 in the reorganization, as appropriate. After
the reorganization, US1 and US2 own 6% and 4%,
respectively, of the outstanding stock of FA.
(ii)Result. If the conditions of paragraph (e)(1)(i)
through (iv) of this section are satisfied, the transfer
of the FC stock by UST to FA in the section 361 ex-
change is not subject to section 367(a)(1). Because
US1 and US2 complied with the requirements of sec-
tion 367(a)(5), the requirement of paragraph (e)(1)(i)
of this section is satisfied. Paragraph (e)(1)(ii) of this
section is not applicable because FC is a foreign cor-
poration. Pursuant to paragraph (e)(1)(iii) of this sec-
tion, US1 enters into a gain recognition agreement
with respect to its share of the gain realized by UST
on the transfer of the FC stock to FA in the section
361 exchange ($48x, or 60% of $80x). The amount
of gain subject to the gain recognition agreement is
$48x because UST did not recognize any amount of
such gain under section 367(a)(5) or the regulations
under that section with respect to US1. US1 is des-
ignated as the U.S. transferor on the gain recognition
agreement for purposes of paragraph (b) of this sec-
tion and §1.367(a)–8. US1 makes the election de-
scribed in §1.367(a)–8(c)(2)(vi) with respect to the
gain recognition agreement. Because US2 owns less
than 5% of the stock of FA after the reorganization,
US2 is not required to enter into a gain recognition
agreement with respect to its share of the gain real-
ized by UST on the transfer of the FC stock to FA in
the section 361 exchange.
(iii)Alternate facts. The facts are the same as
in paragraph (i) of thisExample, except that, in year
4, FA disposes of 25% of the FC stock in a taxable
exchange. Under §1.367(a)–8(c)(1)(i) and (j)(1), the
partial disposition of the FC stock requires US1 to
include in income 25% of the gain subject to the gain
recognition agreement filed in year 1 ($12x, or 25%
of $48x) and pay applicable interest on any additional
tax due on such inclusion.
(iv)Alternate facts. The facts are the same as
in paragraph (iii) of thisExample,exceptthatUS1
March 2, 20096162009–9 I.R.B.

and US2 are members of a consolidated group of
which USP is the common parent. Because US2 is
considered to own at least 5% of the stock of FA
following the reorganization by reason of the attri-
bution rules of section 318, as modified by section
958(b), a gain recognition agreement must also be
enteredintoonbehalfofUS2withrespecttothe
amount of the gain realized but not recognized by
UST on the transfer of the FC stock to FA that is
allocable to US2 ($32x, or 40% of $80x). Under
§1.367(a)–8(d)(3) and §1.1502–77(a)(1), USP enters
into the gain recognition agreements on behalf of US1
andUS2. Inyear4,US1andUS2mustincludein
income 25% of the amount of gain subject to their re-
spective gain recognition agreement ($12x for US1
and $8x for US2) and pay applicable interest on any
additional tax due on such inclusion.
Example 2.Divisive reorganization.(i)Facts.
US1 wholly owns UST. The UST stock has a $120x
basis and $150x fair market value. UST wholly owns
CFC2. The CFC2 stock has a $20x basis and a $50x
fair market value. UST also owns Business A that
has a fair market value of $100x. In a divisive re-
organization that satisfies the requirements of section
368(a)(1)(D), UST transfers the CFC2 stock to CFC1,
a newly-formed corporation, in exchange solely for
CFC1 stock. The transfer of the CFC2 stock to CFC1
is a section 361 exchange. UST then distributes the
CFC1 stock to US1 in a transaction that qualifies un-
der section 355. Under section 358, the pre-exchange
basis in the UST stock ($120x) is allocated between
theUSTstockandtheCFC1stockbasedontherela-
tive fair market values of such stock. Therefore, im-
mediately after the transaction, the basis of the UST
stock is $80x ($120x multiplied by $100x/$150x),
and the basis of the CFC1 stock is $40x ($120x mul-
tiplied by $50x/$150x). The conditions set forth in
section 367(a)(5) and the regulations under that sec-
tion are satisfied, including reducing the basis of the
CFC1stockreceivedbyUS1inthetransactionby
$20x so that the $30x built-in gain in the CFC2 stock
transferred in the section 361 exchange is preserved
in the CFC1 stock received by US1 in the transaction.
(ii)Result. Because US1 complied with the re-
quirements of section 367(a)(5) and regulations under
that section, the requirement of paragraph (e)(1)(i) of
this section is satisfied. Paragraph (e)(1)(ii) of this
section is not applicable because CFC2 is a foreign
corporation. Pursuant to paragraph (e)(1)(iii) of this
section, US1 enters into a gain recognition agree-
ment with respect to its share of the gain realized
by UST on the transfer of the CFC2 stock to CFC1
in the section 361 exchange ($30x). The amount of
gain subject to the gain recognition agreement is $30x
because UST did not recognize any amount of such
gain under section 367(a)(5)or the regulations under
that section with respect to US1. US1 is designated
as the U.S. transferor on the gain recognition agree-
ment for purposes of paragraph (b) of this section and
§1.367(a)–8. US1 makes the election described in
§1.367(a)–8(c)(2)(vi) with respect to the gain recog-
nition agreement.
(4)Cross-references. For other ex-
amples that illustrate the application of
this paragraph (e), see §1.367(a)–8(q)(2),
Examples 6and24. For rules relating to
an acquisition of the stock of a foreign
corporation by another foreign corpo-
ration in a section 361 exchange, see
§1.367(b)–4(b)(1)(iii),Example 4.For
rules relating to certain distributions of
stockofaforeigncorporationbyadomes-
tic corporation, see section 1248(f) and
the regulations under that section.
(f) [Reserved].
(g)Effective/applicability date(1) * * *
(viii)(A) Except as provided in this
paragraph (g)(1)(viii), the rules of para-
graph (e) of this section apply to transfers
of stock or securities occurring on or af-
ter March 13, 2009. For matters covered
in this section for periods before March
13, 2009 but on or after March 7, 2007,
the rules of §1.367(a)–3T(e) (see 26 CFR
part 1, revised April 1, 2007) apply. For
matters covered in this section for periods
before March 7, 2007, but on or after July
20, 1998, the rule of §1.367(a)–8(f)(2)(i)
(see 26 CFR part 1, revised April 1, 2006)
applies.
(B) Taxpayers may apply the rules of
§1.367(a)–3(e) to transfers occurring be-
fore March 13, 2009 and during a tax-
able year for which the period of limita-
tions on assessments under section 6501(a)
has not closed, if done consistently to all
such transfers occurring during each tax-
able year. A taxpayer applies the rules of
§1.367(a)–3(e) to transfers occurring be-
fore March 13, 2009 and during a taxable
year for which the period of limitations on
assessments under section 6501(a) has not
closed, by including the gain recognition
agreement, annual certification, or other
information filing, that is required as a re-
sult of the rules of §1.367(a)–3(e) applying
to such a transfer, with an amended tax re-
turn for the taxable year in which the trans-
fer occurs that is filed on or before August
10, 2009. A taxpayer that wishes to ap-
ply the rules of §1.367(a)–3(e) to transfers
occurring before March 13, 2009 and dur-
ing a taxable year for which the period of
limitations on assessments under section
6501(a) has not closed but that fails to meet
the filing requirement described in the pre-
ceding sentence must request relief for rea-
sonable cause for such failure as provided
in §1.367(a)–8.
*****
§1.367(a)–3T [Removed]
Par. 6. Section 1.367(a)–3T is re-
moved.
Par. 7. Section 1.367(a)–8 is revised to
read as follows:
§1.367(a)–8 Gain recognition agreement
requirements.
(a)Scope. This section provides the
terms and conditions for a gain recognition
agreement entered into by a United States
person pursuant to §1.367(a)–3(b) through
(e) in connection with a transfer of stock
or securities to a foreign corporation pur-
suant to an exchange that would otherwise
be subject to section 367(a)(1). Paragraph
(b) of this section provides definitions and
special rules. Paragraphs (c) through (h)
of this section identify the form, content,
and other conditionsof a gain recognition
agreement. Paragraph (i) of this section
is reserved. Paragraph (j) of this section
identifies certain events that may require
gain to be recognized under a gain recogni-
tion agreement. Paragraph (k) of this sec-
tion provides exceptions for certain events
that would otherwise require gain to be
recognized under a gain recognition agree-
ment. Paragraph (l) of this section is re-
served. Paragraph (m) of this section pro-
vides rules that require gain to be recog-
nized under a gain recognition agreement
in connection with certain events to which
an exception under paragraph (k) of this
section otherwise applies. Paragraph (n)
of this section provides special rules in the
case of a distribution of property with re-
spect to stock to which section 301 applies.
Paragraph (o) of this section provides rules
for certain transactions that terminate or
reduce the amount of gain subject to a gain
recognition agreement. Paragraph (p) of
this section provides relief for reasonable
cause for certain failures to comply with
the requirements of this section. Paragraph
(q)ofthissectionprovidesexamplesthat
illustrate the rules of the section. Para-
graph (r) of this section provides effective
dates for the provisions of this section.
(b)Definitions and special rules.The
following definitions and special rules ap-
ply for purposes of this section.
(1)Definitions—(i)Asset reorgani-
zation—(A)General rule. Except as
provided in paragraph (b)(1)(i)(B) of this
section, anasset reorganizationis a reor-
ganization describedin section 368(a)(1)
that involves an exchange of property de-
scribed in section 361(a) or (b) (a section
361 exchange).
2009–9 I.R.B.617March 2, 2009

(B)Exceptions. An asset reorganiza-
tion does not include the following:
(1) A reorganization described in sec-
tion 368(a)(1)(D) or (G) if the require-
ments of section 354(b)(1)(A) and (B) are
not met.
(2) For purposes of paragraphs
(j)(2)(ii)(B), (k)(6)(ii), and (k)(6)(iii) of
this section, a triangular asset reorganiza-
tion. For rules applicable to a triangular
asset reorganization, see paragraph (k)(7)
of this section.
(ii) Aconsolidated grouphas the mean-
ing set forth in §1.1502–1(h).
(iii)Disposition. Except as provided in
this paragraph (b)(1)(iii), adispositionin-
cludes any transfer that would constitute
a disposition for any purpose of the In-
ternal Revenue Code. A disposition in-
cludes an indirect disposition of the stock
of the transferred corporation as described
in §1.367(a)–3(d). Except as provided in
paragraph (n)(1) of this section, a disposi-
tion does not include the receipt of a dis-
tribution of property with respect to stock
to which section 301 applies (including by
reason of section 302(d)). See paragraphs
(n)(2) and (o)(3) of this section for rules
that apply if gain is recognized under sec-
tion 301(c)(3). A complete or partial dis-
position by installment sale (under section
453) shall be treated as a disposition in the
year of the installment sale.
(iv) Again recognition eventis an event
described in paragraphs (j) through (o) of
this section that requires gain to be recog-
nized under a gain recognition agreement.
(v) Theinitial transfermeans a trans-
fer of stock or securities (transferred stock
or securities) to a foreign corporation pur-
suant to an exchange that would otherwise
be subject to section 367(a)(1) but with re-
spect to which a gain recognition agree-
ment is entered into by a United States
person pursuant to §1.367(a)–3(b) through
(e).
(vi) Anintercompany itemhas the
meaning set forth in §1.1502–13(b)(2).
(vii) Anintercompany transactionhas
the meaning set forth in §1.1502–13(b)(1).
(viii) Anonrecognition transaction
has the meaning set forth in section
7701(a)(45). In addition, a nonrecog-
nition transaction includes an exchange
described in section 351(b) or 356 even if
all gain realized in the exchange is recog-
nized.
(ix) The termsP,S,andThave the
meanings set forth in §1.358–6(b)(1)(i),
(ii), and (iii), respectively.
(x) The determination of whethersub-
stantially allof the assets of the transferred
corporation have been disposed of is based
on all the facts and circumstances.
(xi) Atimely-filed returnis a Federal
income tax return filed by the due date
set forth in section 6072(a) or (b), plus
any extension of time to file such return
granted under section 6081.
(xii)Transferee foreign corporation.
Except as provided in this paragraph
(b)(1)(xii), thetransferee foreign corpora-
tionis the foreign corporation to which the
transferred stock or securities are trans-
ferred in the initial transfer. In the case of
an indirect stock transfer, the transferee
foreign corporation has the meaning set
forth in §1.367(a)–3(d)(2)(i). The trans-
feree foreign corporation also includes a
corporation designated as the transferee
foreign corporation in the case of a new
gain recognition agreement entered into
under this section.
(xiii)Transferred corporation. Except
as provided in this paragraph (b)(1)(xiii),
thetransferred corporationis the cor-
poration the stock or securities of which
are transferred in the initial transfer. In
the case of an indirect stock transfer, the
transferred corporation has the meaning
set forth in §1.367(a)–3(d)(2)(ii). The
transferred corporation also includes a
corporation designated as the transferred
corporation in the case of a new gain
recognition agreement entered into under
this section.
(xiv) Atriangular asset reorgani-
zationis a reorganization described in
§1.358–6(b)(2)(i), (ii), (iii), or (v).
(xv) TheU.S. transferoris the
United States person (as defined in
§1.367(a)–1T(d)(1)) that transfers the
transferred stock or securities to the trans-
feree foreign corporation in the initial
transfer. For purposes of determining the
U.S. transferor in the case of a transfer by
a partnership, see §1.367(a)–1T(c)(3)(i).
TheU.S. transferoralso includes the
United States person designated as the
U.S. transferor in the case of a new gain
recognition agreement entered into under
this section including, for example, under
paragraph (k)(14) of this section.
(2)Special rules—(i)Stock deemed
received or transferred. References to
stock received include stock deemed re-
ceived (for example, pursuant to section
367(c)(2)). References to a transfer of
stock or securities include a deemed trans-
fer of stock or securities.
(ii)Stock of the transferee foreign
corporation. References to stock of the
transferee foreign corporation includes
any stock of the transferee foreign corpo-
ration the basis of which is determined, in
whole or in part, by reference to the basis
of the stock of the transferee foreign cor-
poration received by the U.S. transferor in
the initial transfer.
(iii)Transferred stock or securities.
References to transferred stock or secu-
rities includes any stock or securities of
the transferred corporation the basis of
which is determined, in whole or in part,
by reference to the basis of the stock or
securities transferred in the initial transfer.
(c)Gain recognition agreement—(1)
Terms of agreement—(i)General rule.
Except as provided in this paragraph
(c)(1)(i), if a gain recognition event occurs
during the period beginning on the date
of the initial transfer and ending as of the
close of the fifth full taxable year (not less
than 60 months) following the close of the
taxable year in which the initial transfer
occurs (GRA term), the U.S. transferor
must include in income the gain realized
but not recognized on the initial transfer
by reason of entering into the gain recog-
nition agreement. In the case of a gain
recognition event that occurs as a result of
a partial disposition of stock, securities,
or a partnership interest, as applicable, the
U.S. transferor is required to recognize a
proportionate amount of the gain subject
to the gain recognition agreement, deter-
mined based on the fair market value of
the stock, securities, or partnership inter-
est, as applicable, disposed of (measured
at the time of the partial disposition) as
compared to the fair market value of all the
stock, securities, or partnership interest,
as applicable (measured at the time of the
partial disposition). If the U.S. transferor
must recognize gain under this paragraph
as a result of an event described in para-
graph (m) or (n) of this section, see those
paragraphs to determine the amount of the
gain that must be recognized. The amount
of gain subject to the gain recognition
agreement shall be reduced by the amount
of gain recognized under this paragraph.
If the amount of gain subject to the gain
March 2, 20096182009–9 I.R.B.

recognition agreement is reduced to zero,
the gain recognition agreement shall ter-
minate without further effect.
(ii)Ordering rule for gain recognized
under multiple gain recognition agree-
ments. If a gain recognition event occurs
that requires gain to be recognized un-
der multiple gain recognition agreements,
gain shall first be recognized under the
gain recognition agreement that relates to
the earliest initial transfer, then under the
gain recognition agreement that relates to
the immediately following initial transfer
and so forth until the appropriate amount
of gain has been recognized under each
gain recognition agreement. The amount
of gain recognized under a gain recogni-
tion agreement shall be determined after
taking into account, as appropriate, any
increase to basis (including the basis of
the transferred stock or securities) under
paragraph (c)(4) of this section resulting
from gain recognized under another gain
recognition agreement. For an illustration
of this ordering rule, see paragraph (q)(2)
of this section,Example 6.
(iii)Taxable year in which gain is re-
ported—(A)Year of initial transfer.Ex-
cept as provided in paragraph (c)(1)(iii)(B)
of this section, the U.S. transferor must re-
port any gain recognized under paragraph
(c)(1)(i) of this section on an amended
Federal income tax return for the taxable
year of the initial transfer. The amended
return must be filed on or before the 90
th
day following the date on which the gain
recognition event occurs.
(B)Year of gain recognition event.If
an election under paragraph (c)(2)(vi) of
this section is made with the gain recogni-
tion agreement or if paragraph (c)(5)(ii) of
this section applies to the gain recognition
agreement, the U.S. transferor must re-
port any gain recognized under paragraph
(c)(1)(i) of this section on its Federal in-
come tax return for the taxable year during
which the gain recognition event occurs.
If an election under paragraph (c)(2)(vi) of
this section is made with the gain recogni-
tion agreement or if paragraph (c)(5)(ii) of
this section applies to the gain recognition
agreement but the U.S. transferor does not
report the gain recognized on its Federal
income tax return for the taxable year dur-
ing which the gain recognition event oc-
curs, the Commissioner may require the
U.S. transferor to report the gain on an
amended Federal income tax return for the
taxable year during which the initial trans-
fer occurred.
(iv)Offsets. No special limitations
apply with respect to offsetting gain rec-
ognized under paragraph (c)(1)(i) of this
section with net operating losses, capital
losses, credits against tax, or similar items.
(v)Payment and reporting of interest.
Interest must be paid on any additional tax
due with respect to gain recognized by the
U.S. transferor under paragraph (c)(1)(i) of
this section. Any interest due shall be de-
termined based on the rates under section
6621 for the period between the date that
was prescribed for filing the Federal in-
come tax return of the U.S. transferor for
the year of the initial transfer and the date
on which the additional tax due is paid. If
paragraph (c)(1)(iii)(B) of this section ap-
plies, any interest due must be included
with the payment of tax due with the Fed-
eral income tax return of the U.S. trans-
feror for the taxable year during which the
gain recognition event occurs (or should
reduce the amount of any refund due to the
U.S. transferor for such taxable year). A
schedule entitled “Calculation of Section
367 Tax and Interest” that separately iden-
tifies and calculates any additional tax and
interest due must be included with the Fed-
eral income tax return on which any inter-
est due is reported.
(2)Content of gain recognition agree-
ment. The gain recognition agreement
must be entitled “GAIN RECOGNITION
AGREEMENT UNDER §1.367(a)–8”
and include the information described in
paragraphs (c)(2)(i) through (viii) of this
paragraph with the corresponding para-
graph numbers. The information required
under this paragraph (c)(2) and paragraph
(c)(3) of this section must be included in
the gain recognition agreement as filed.
(i) A statement that the document con-
stitutes an agreement by the U.S. transferor
to recognize gain in accordance with the
requirements of this section.
(ii) A description of the transferred
stock or securities and other information
as required in paragraph (c)(3) of this sec-
tion.
(iii) A statement that the U.S. transferor
agrees to comply with all the conditions
and requirements of this section, includ-
ing to recognize gain under the gain recog-
nition agreement inaccordance with para-
graph (c)(1)(i) of thissection, extend the
statute of limitations on assessments of tax
as provided in paragraph (f) of this section,
and file the certification described in para-
graph (g) of this section.
(iv) A statement that arrangements have
been made to ensure that the U.S. trans-
feror is informed of any events that affect
the gain recognition agreement, including
triggering events orother gain recognition
events.
(v) In the case of a new gain recognition
agreement filed under this section—
(A) A description of the event (such as
a triggering event) and the applicable ex-
ception, if any, that gave rise to the new
gain recognition agreement (such as a trig-
gering event exception), including the date
of the event and the name, address, and
taxpayer identification number (if any) of
each person that is a party to the event;
(B) As applicable, a description of the
class, amount, and characteristics of the
stock, securities or partnership interest re-
ceived in the transaction; and
(C) As applicable, a calculation of the
amount of gain that remains subject to the
new gain recognition agreement as a result
of the application of paragraph (m), (n), or
(o)ofthissection.
(vi) A statement whether the U.S. trans-
feror elects to include in income any gain
recognized under paragraph (c)(1)(i) of
this section in the taxable year during
which a gain recognition event occurs.
See paragraph (c)(5)(ii) of this section for
a rule that requires, in certain cases, for
the gain recognized pursuant to a new gain
recognition agreement to be included in
income during the taxable year in which
the gain recognition event occurs.
(vii) A statement whether a gain recog-
nition event has occurred during the tax-
able year of the initial transfer.
(viii) A statement describing any dispo-
sition of assets of the transferred corpora-
tion during such taxable year other than in
theordinarycourseofbusiness.
(3)Description of transferred stock or
securities and other information. The gain
recognition agreement shall include the
following:
(i) A description of the transferred stock
or securities including—
(A) The type or class, amount, and char-
acteristics of the transferred stock or secu-
rities;
(B) A calculation of the amount of the
built-in gain in the transferred stock or se-
curities that are subject to the gain recog-
2009–9 I.R.B.619March 2, 2009

nition agreement, reflecting the basis and
fair market value on the date of the initial
transfer;
(C) The amount of any gain recognized
by the U.S. transferor on the initial trans-
fer; and
(D) The percentage (by voting power
and value) that the transferred stock (if
any) represents of the total stock outstand-
ing of the transferred corporation on the
date of the initial transfer.
(ii) The name, address, place of incor-
poration, and taxpayer identification num-
ber (if any) of the transferred corporation.
(iii) The date on which the U.S. trans-
feror acquired the transferred stock or se-
curities.
(iv) The name, address and place of in-
corporation of the transferee foreign cor-
poration, and a description of the stock or
securities received by the U.S. transferor in
the initial transfer, including the percent-
age of stock (by vote and value) of the
transferee foreign corporation received in
such exchange.
(v) If the initial transfer is described in
§1.367(a)–3(e), a statement that the con-
ditions of section 367(a)(5) and any regu-
lations under that section have been satis-
fied, and a description of any adjustments
to the basis of the stock received in the
transaction or other adjustments made pur-
suant to section 367(a)(5) and any regula-
tions under that section.
(vi) If the transferred corporation is
domestic, a statement describing the appli-
cation of section 7874 to the transaction,
and indicating that the requirements of
§1.367(a)–3(c)(1) are satisfied.
(vii) If the transferred corporation is
foreign, a statement indicating whether
the U.S. transferor was a section 1248
shareholder (as defined in §1.367(b)–2(b))
of the transferred corporation immediately
before the initial transfer, and whether the
U.S. transferor is a section 1248 share-
holder with respect to the transferee for-
eign corporation immediately after the
initial transfer, and whether any reporting
requirements or other rules contained in
regulations under section 367(b) are appli-
cable, and, if so, whether they have been
satisfied.
(viii) If the initial transfer in-
volves a transfer by a partnership (see
§1.367(a)–1T(c)(3)(i)) or a transfer of a
partnership interest (see section 367(a)(4)
and §1.367(a)–1T(c)(3)(ii)) a complete
description of the transfer, including a de-
scription of the partners in the partnership.
(ix) If the transaction involved the
transfer of property other than the trans-
ferred stock or securities and the trans-
action was subject to the indirect stock
transfer rules of §1.367(a)–3(d), a state-
ment indicating whether—
(A) The reporting requirements under
section 6038B have been satisfied with re-
spect to the transfer of such other property;
(B) Whether gain was recognized under
section 367(a)(1);
(C) Whether section 367(d) applied to
the transfer of such property; and
(D) Whether the other property trans-
ferred qualified for the active foreign
trade or business exception under section
367(a)(3).
(4)Basis adjustments for gain recog-
nized. The following basis adjustments
shall be made if gain is recognized under
paragraph (c)(1)(i) of this section.
(i)Stock or securities of transferee for-
eign corporation. The basis of the stock or
securities, as applicable, of the transferee
foreign corporation received by the U.S.
transferor in the initial transfer shall be in-
creased as of the date of the initial transfer
by the amount of gain recognized.
(ii)Transferred stock or securities.The
basis of the transferred stock or securities
shall be increased as of the date of the ini-
tial transfer by the amount of the gain rec-
ognized.
(iii)Other appropriate adjustments.
The basis of other stock, securities, or a
partnership interest shall be increased, as
appropriate, in accordance with the prin-
ciples of this paragraph (c)(4). Under no
circumstances shall the basis of stock, se-
curities, or of a partnership interest held by
a U.S. person that does not recognize gain
under paragraph (c)(1)(i) of this section
be increased under this paragraph (c)(4).
In addition, under no circumstances shall
the basis of any property be increased by
the amount of any additional tax due or
interest paid with respect to such tax, nor
shall the basis of the assets of the trans-
ferred corporation be increased as a result
of gain recognized by the U.S. transferor
under paragraph (c)(1)(i) of this section.
(iv)Cross-reference. See paragraph
(q)(2) of this section,Examples 1,2,3,and
5for illustrations of the rules of this para-
graph (c)(4). See also §1.367(a)–1T(b)(4)
for rules that determine the increase to
basis of property resulting from the appli-
cation of section 367(a).
(5)Terms and conditions of a new gain
recognition agreement—(i)General rule.
A new gain recognition agreement entered
into pursuant to this section shall replace
the existing gain recognition agreement,
which shall terminate without further ef-
fect. The term of the new gain recognition
agreement shall be the remaining term of
the existing gain recognition agreement.
The amount of gain subject to the new
gain recognition agreement shall equal the
amount of gain subjectto the existing gain
recognition agreement, reduced by any
gain recognized under paragraph (c)(1)(i)
of this section with respect to the existing
gain recognition agreement by reason of
the gain recognition event that gives rise
to the new gain recognition agreement.
The new gain recognition agreement shall,
as applicable, be subject to the conditions
and requirements of this section to the
same extent as the existing gain recogni-
tion agreement. For example, a triggering
event with respect to the new gain recog-
nition agreement will generally include
a disposition of the transferred stock or
securities or of substantially all the as-
sets of the transferred corporation. If,
however, the transferred stock is canceled
or redeemed pursuant to the disposition
or other event that gives rise to the new
gain recognition agreement (for example,
pursuant to a liquidation where the trans-
feree foreign corporation is the corporate
distributee (within the meaning of sec-
tion 334(b)(2)), or an asset reorganization
where the transferee foreign corporation is
the acquiring corporation) the transferred
stock is not subject to the new gain recog-
nition agreement.
(ii)Special rule for inclusion of gain.
If the U.S. transferor with respect to the
new gain recognition agreement is not the
U.S. transferor with respect to the exist-
inggainrecognitionagreement, or a mem-
ber of the consolidated group of which the
U.S. transferor with respect to the existing
gain recognition agreement was a member
on the date of the initial transfer, then any
gain recognized under paragraph (c)(1)(i)
of this section with respect to the new gain
recognition agreement must be included in
income in the taxable year during which
the gain recognition event occurs.
(d)Filing requirements—(1)General
rule. A gain recognition agreement en-
March 2, 20096202009–9 I.R.B.

tered into with respect to an initial transfer
must be included with the timely-filed re-
turn of the U.S. transferor for the taxable
year during which the initial transfer oc-
curs.
(2)Special requirements—(i)New gain
recognition agreement. A new gain recog-
nition agreement entered into under this
section must be included with the timely-
filed return of the U.S. transferor (as iden-
tified in the new gainrecognition agree-
ment) for the taxable year during which the
disposition or event that requires the new
gain recognition agreement occurs. If the
new gain recognition agreement is entered
into by the U.S. transferor that entered into
the existing gain recognition agreement,
the new gain recognition agreement is in
lieu of the annual certification otherwise
required for such taxable year under para-
graph (g) of this section with respect to the
existing gain recognition agreement.
(ii)Multiple events within a taxable
year. Except as otherwise provided in this
paragraph (d)(2)(ii), if the initial trans-
fer and one or more dispositions or other
events (even if a triggering event exception
applies) that affectthe gain recognition
agreement entered into by the U.S. trans-
feror with respect to the initial transfer
occur within the same taxable year of such
U.S. transferor, or if multiple dispositions
or other events occur in a taxable year of
the U.S. transferor that does not include
the initial transfer, only one gain recogni-
tion agreement is required to be entered
into and included with the timely-filed
return of the U.S. transferor for such tax-
able year. The gain recognition agreement
must describe the initial transfer and/or
each disposition or other event that affects
the gain recognition agreement (even if a
triggering event exception applies). This
paragraph does not apply, however, if any
such disposition or other event requires
a new gain recognition agreement to be
entered into by a United States person
other than the U.S. transferor with respect
to the initial transfer or that entered into
the existing gain recognition agreement,
as applicable.
(3)Common parent as agent for U.S.
transferor. If the U.S. transferor is a
member but not the common parent of a
consolidated group, the common parent of
the consolidated group is the agent for the
U.S. transferor under §1.1502–77(a)(1).
Thus, the common parent must file the
gain recognition agreement on behalf of
the U.S. transferor. References in this sec-
tion to the timely-filed return of the U.S.
transferor include the timely-filed return
of the consolidated group of which the
U.S. transferor is a member, as applicable.
(e)Signatory—(1)General rule.The
gain recognition agreement must be signed
under penalties of perjury by an agent of
the U.S. transferor that is authorized to
sign under a general or specific power of
attorney, or by the appropriate party based
on the category of the U.S. transferor de-
scribed in this paragraph (e)(1).
(i) If the U.S. transferor is a corporation
but not a member of a consolidated group,
a responsible officer of the U.S. transferor.
If the U.S. transferor is a member of a
consolidated group, a responsible officer
of the common parent of the consolidated
group.
(ii) If the U.S. transferor is an individ-
ual, the individual.
(iii) If the U.S. transferor is a trust or
estate, a trustee, executor, or equivalent
fiduciary of the U.S. transferor.
(iv) In a bankruptcy case under Title 11,
United States Code, a debtor in possession
or trustee.
(2)Signature requirement.Theinclu-
sion of an unsigned copy of the gain recog-
nition agreement with the timely-filed
return of the U.S. transferor shall satisfy
the signature requirement of paragraph
(e)(1) of this section if the U.S. transferor
retains the original signed gain recogni-
tion agreement in the manner specified by
§1.6001–1(e).
(f)Extension of period of limitations on
assessments of tax—(1)General rule.In
connection with the filing of a gain recog-
nition agreement, the U.S. transferor must
extend the period of limitations on assess-
ments of tax with respect to the gain real-
ized but not recognized on the initial trans-
fer through the close of the eighth full tax-
able year following the taxable year dur-
ing which the initial transfer occurs. The
U.S. transferor extends the period of lim-
itations by filing Form 8838“Consent to
Extend the Time to Assess Tax Under Sec-
tion 367—Gain Recognition Agreement.”
The Form 8838 must be signed by a per-
son authorized to sign the gain recognition
agreement under paragraph (e)(1) of this
section.
(2)New gain recognition agreement.If
a new gain recognition agreement is en-
tered into under this section, the U.S. trans-
feror must extend the period of limitations
on assessments of tax on the initial trans-
fer through the close of the eighth full tax-
able year following the taxable year dur-
ing which the initial transfer occurs, con-
sistent with paragraph (f)(1) of this section,
unless the U.S. transferor with respect to
the new gain recognition agreement is the
U.S. transferor with respect to the exist-
inggainrecognitionagreement, or a mem-
ber of the consolidated group of which the
U.S. transferor with respect to the existing
gain recognition agreement was a member
on the date of the initial transfer.
(g)Annual certification. Except as pro-
vided in paragraph (d)(2)(i) of this section,
the U.S. transferor must include with its
timely-filed return for each of the five full
taxable years following the taxable year of
the initial transfer acertification (annual
certification) that includes the information
described in paragraphs (g)(1) through (3)
of this section, as appropriate. The annual
certification must be signed by a person
authorized under paragraph (e)(1) of this
section to sign the gain recognition agree-
ment for the initial transfer. The inclusion
of an unsigned copy of the annual certifi-
cation with the relevant timely-filed return
of the U.S. transferor shall satisfy the sig-
nature requirement of paragraph (e)(1) of
this section provided the U.S. transferor re-
tains the original signed certification in the
manner specified by §1.6001–1(e).
(1) A statement of whether a gain recog-
nition event has or has not occurred dur-
ing such taxable year. If a gain recognition
event has occurred during such taxable
year, the annual certification must state:
(i) The amount of gain subject to the
gain recognition agreement at the time of
the gain recognition event;
(ii) The amount of gain recognized un-
der the gain recognition agreement by rea-
son of the gain recognition event; and
(iii) A calculation of the reduction to the
amount of gain subject to the gain recogni-
tion agreement by reason of the gain recog-
nition event (for example, in the case of a
gain recognition event described in para-
graph (n)(2) of this section).
(2) A complete description of any event
occurring during such taxable year that has
terminated or reduced the amount of gain
subject to the gain recognition agreement
(for example, an event described in para-
graph (o) of this section), including a cal-
2009–9 I.R.B.621March 2, 2009

culation of any reduction to the amount of
gain subject to the gain recognition agree-
ment.
(3) A statement describing any disposi-
tion of assets of the transferred corporation
during the taxable year not in the ordinary
course of business.
(h)Use of security. The U.S. transferor
mayberequiredtofurnishabondorother
security that satisfies the requirements of
§301.7101–1 if the Area Director, Field
Examination, Small Business/Self Em-
ployed or the Director of Field Operations,
Large and Mid-Size Business (Director)
determines that such security is necessary
to ensure the payment of any tax on the
gain realized, but not recognized, upon
the initial transfer. Such bond or secu-
rity generally will be required only if the
transferred stock or securities are a prin-
cipal asset of the U.S. transferor and the
Director has reason to believe that a dis-
position of the stock or securities may be
contemplated.
(i) [Reserved.]
(j)Triggering events. Except as pro-
vided in this section, if an event described
in paragraphs (j)(1) through (10) of this
section (triggeringevent) occurs during
the GRA term, the U.S. transferor must
recognize gain underthe gain recognition
agreement in accordance with paragraph
(c)(1)(i) of this section. This paragraph
(j) generally requires the U.S. transferor
to recognize gain (and pay applicable in-
terest with respect to any additional tax
due as provided in paragraph (c)(1)(v) of
this section) under the gain recognition
agreement to the extent the transferred
stock or securities are disposed of, di-
rectly or indirectly. This paragraph (j) also
requires the U.S. transferor to recognize
gain under the gain recognition agreement
in certain cases where it is not appropri-
ate for the gain recognition agreement to
continue. See paragraph (k) of this section
for exceptions available for certain events
that would otherwise constitute triggering
events under this paragraph (j). See para-
graph (o) of this section for certain events
that terminate or reduce the amount of gain
subject to a gain recognition agreement.
(1)Disposition of transferred stock or
securities. A complete or partial disposi-
tion of the transferred stock or securities.
See paragraph (q)(2) of this section,Exam-
ple 2for an illustration of the rule of this
paragraph (j)(1).
(2)Disposition of substantially all of
the assets of the transferred corpora-
tion—(i)General rule. Except as provided
in paragraph (j)(2)(ii) of this section, a
disposition in one or more related transac-
tions of substantially all of the assets of the
transferred corporation (including stock
or securities in a subsidiary corporation or
a partnership interest). If the transferred
corporation is domestic, see paragraph
(o)(4) of this section.
(ii)Exceptions. For purposes of para-
graph (j)(2)(i) of this section, the follow-
ing dispositions shall be disregarded—
(A) Dispositions of property described
in section 1221(a)(1) occurring in the ordi-
nary course of business;
(B) An exchange of stock or securities
described in section 354 that is pursuant to
an asset reorganization; and
(C) An exchange of stock by a cor-
porate distributee (as defined in section
334(b)(2)) pursuant to a complete liquida-
tion to which section 332 applies.
(3)Disposition of certain partnership
interests. If the initial transfer occurs by
reason of the transfer of a partnership in-
terest, a complete or partial disposition
of such partnership interest. See section
367(a)(4) and §1.367(a)–1T(c)(3)(ii).
(4)Disposition of stock of the transferee
foreign corporation. A complete or par-
tial disposition of the stock of the trans-
feree foreign corporation received by the
U.S. transferor in the initial transfer. For
purposes of this section, an individual U.S.
transferor that loses U.S. citizenship or
ceases to be a lawful permanent resident
of the United States (within the meaning
of section 7701(b)(6)) shall be treated as
disposing of all the stock of the transferee
foreign corporation received in the initial
transfer as of the date before the loss of
such status.
(5)Deconsolidation.A U.S. transferor
that is a member of a consolidated group
ceases to be a member of the consolidated
group, other than by reason of an acquisi-
tion of the assets of the U.S. transferor in
a transaction to which section 381(a) ap-
plies, or by reason of the U.S. transferor
joining another consolidated group as part
of the same transaction.
(6)Consolidation. A U.S. transferor
becomes a member of a consolidated
group, including a U.S. transferor that is a
member of a consolidated group and that
becomes a member of another consoli-
dated group.
(7)Death of an individual; trust or es-
tate ceases to exist. A U.S. transferor that
is an individual dies, or a U.S. transferor
that is a trust or estate ceases to exist.
(8)Failure to comply.TheU.S.trans-
feror fails to comply in any material re-
spect with any requirement of this section
or with the terms of the gain recognition
agreement, including failure to file an an-
nual certification under paragraph (g) of
this section. If a failure to include infor-
mation in a gain recognition agreement as
filed constitutes a failure to comply in a
material respect, the U.S. transferor can-
not avoid the application of this paragraph
(j)(8) by subsequently making such infor-
mation available. A material failure under
this paragraph (j)(8) shall extend the pe-
riod of limitations on assessments of tax
until the close of the third full taxable year
ending after the date on which the Direc-
tor of Field Operations or Area Director re-
ceives actual notice of the failure to com-
ply from the U.S. transferor.
(9)Gain recognition agreement filed
in connection with indirect stock transfers
and certain triangular asset reorganiza-
tions. With respect to a gain recognition
agreement entered into in connection with
an indirect stock transfer (as defined in
§1.367(a)–3(d)), or a triangular asset re-
organization under §1.367(a)–3(e)(2), an
indirect disposition of the transferred stock
or securities. For example, in the case
of an indirect stock transfer described in
§1.367(a)–3(d)(1)(iii)(A),acompleteor
partial disposition of the stock of the ac-
quiring corporation.
(10)Gain recognition agreement filed
pursuant to paragraph (k)(14) of this sec-
tion. In the case of a gain recognition
agreement entered into pursuant to para-
graph (k)(14) of this section, in addition to
any disposition or other event described in
paragraphs (j)(1) through (9) of this sec-
tion,—
(i) Any disposition or other event iden-
tified as a triggering event in a new gain
recognition agreement as required under
paragraph (k)(14)(iii) of this section; and
(ii) Any disposition or other event that
is inconsistent with the principles of para-
graph (k) of this section including, for ex-
ample, an indirect disposition of the trans-
ferred stock or securities.
March 2, 20096222009–9 I.R.B.

(k)Triggering event exceptions.
Notwithstanding paragraph (j) of this sec-
tion, a disposition or other event described
in paragraphs (k)(1) through (14) of this
section shall not constitute a triggering
event. This paragraph (k) generally pro-
vides exceptions for certain dispositions
that constitute nonrecognition transac-
tions but only if, immediately after the
disposition, a U.S. transferor retains, as
applicable, a direct orindirect interest in
the transferred stock or securities, or in
the assets of the transferred corporation,
and a new gain recognition agreement
is entered into with respect to the initial
transfer in accordancewith this paragraph
(k). Notwithstanding the application of
this paragraph (k), if a gain recognition
event described under paragraphs (m)
and (n) of this section occurs during the
GRA term the U.S. transferor may be re-
quired to recognize gain under the gain
recognition agreement in accordance with
paragraph (c)(1)(i) of this section. See
paragraph (o) of this section which pro-
vides that, notwithstanding paragraph (j)
of this section, certain dispositions or other
events shall instead terminate or reduce
the amount of gain subject to a gain recog-
nition agreement.
(1)Transfers of stock of the transferee
foreign corporation to a corporation or
partnership. A disposition of stock of
the transferee foreign corporation received
in the initial transfer pursuant to an ex-
change to which section 351, 354 (but only
in a reorganization described in section
368(a)(1)(B) that is not a triangular reor-
ganization), 361 (but only in a divisive
reorganization to which section 355 ap-
plies), or 721 applies, shall not constitute a
triggering event if a new gain recognition
agreement is entered into in accordance
with paragraphs (k)(1)(i) through (iv) of
this section, as applicable. In the case of
an exchange to which section 354 applies
that is pursuant to a triangular reorganiza-
tion described in section 368(a)(1)(B), see
paragraph (k)(14) of this section and para-
graph (q)(2) of this section,Example 4.
(i) In the case of an exchange to which
section 351 or 354 applies in which stock
of a foreign acquiring corporation is re-
ceived, the U.S. transferor includes with
the new gain recognition agreement a
statement that a complete or partial dispo-
sition of the stock of the foreign acquiring
corporation received in the exchange shall
constitute a triggering event. The prin-
ciples of paragraph (o)(1)(i) or (ii), as
appropriate, shall be applied to determine
whether a subsequent complete or partial
disposition of the stock of the foreign
acquiring corporation received in the ex-
change shall instead terminate or reduce
the amount of the new gain recognition
agreement.
(ii) In the case of an exchange to which
section 351 or 354 applies in which stock
of a domestic acquiring corporation is re-
ceived, the domestic acquiring corporation
enters into the new gain recognition agree-
ment, which must designate the domes-
tic acquiring corporation as the U.S. trans-
feror for purposes of this section. For an il-
lustration of the rule provided by this para-
graph (k)(1)(ii), see paragraph (q)(2) of
this section,Example 3.
(iii) In the case of a section 361 ex-
change that is pursuant to a divisive re-
organization to which section 355 applies
and in which stock of a domestic corpo-
ration (domestic controlled corporation) is
received, the domestic controlled corpora-
tion enters into the new gain recognition
agreement, which must designate the do-
mestic controlled corporation as the U.S.
transferor for purposes of this section. For
an illustration of the rule provided by this
paragraph (k)(1)(iii), see paragraph (q)(2)
of this section,Example 11.
(iv) In the case of an exchange to which
section 721 applies, the U.S. transferor
includes with the new gain recognition
agreement a statement that a complete
or partial disposition of the partnership
interest received in the exchange shall
constitute a triggering event for purposes
of the new gain recognition agreement.
(2)Complete liquidation of U.S. trans-
feror under sections 332 and 337.Adis-
tribution by the U.S. transferor of the stock
of the transferee foreign corporation re-
ceived in the initial transfer to which sec-
tion 337 applies, that is pursuant to a com-
plete liquidation under section 332, shall
not constitute a triggering event if the cor-
porate distributee (as defined in section
334(b)(2)) is a domestic corporation (do-
mestic corporate distributee) and the do-
mestic corporate distributee enters into a
new gain recognition agreement. The new
gain recognition agreement must designate
the domestic corporate distributee as the
U.S. transferor for purposes of this section.
(3)Transfers of transferred stock or se-
curities to a corporation or partnership.A
disposition of the transferred stock or se-
curities pursuant to an exchange to which
section 351, 354 (but only in a reorgani-
zation described in section 368(a)(1)(B)),
or 721 applies, shall not constitute a trig-
gering event if the U.S. transferor enters
into a new gain recognition agreement that
provides that the dispositions described in
paragraphs (k)(3)(i) and (ii) of this section
shall constitute triggering events for pur-
poses of the new gain recognition.
(i) A complete or partial disposition of
the stock, securities, orpartnership interest
(as applicable) received in exchange for
the transferred stock or securities.
(ii) Any other event that is inconsis-
tent with the principles of this paragraph
(k), including the indirect disposition of
the transferred stock or securities.
(4)Transfers of substantially all of the
assets of the transferred corporation.A
disposition of substantially all of the as-
sets of the transferred corporation pursuant
to an exchange to which section 351, 354
(but only in a reorganization described in
section 368(a)(1)(B)), or 721 applies, shall
not constitute a triggering event if the U.S.
transferor enters into a new gain recogni-
tion agreement that provides that a com-
plete or partial disposition of the stock, se-
curities, or partnership interest (as appli-
cable) received in exchange for the assets
shall constitute a triggering event for pur-
poses of the new gain recognition agree-
ment.
(5)Recapitalizations and section 1036
exchanges. A complete or partial disposi-
tion of the transferred stock or securities,
or of the stock of the transferee foreign
corporation received in the initial transfer,
pursuant to a reorganization described un-
der section 368(a)(1)(E), or pursuant to a
transaction to which section 1036 applies,
shall not constitute a triggering event if
the U.S. transferor enters into a new gain
recognition agreement.
(6)Certain asset reorganizations—(i)
Stock of transferee foreign corporation.If
stock of the transferee foreign corporation
received in the initial transfer is transferred
to a domestic acquiring corporation in a
section 361 exchange that is pursuant to an
asset reorganization, the exchanges made
pursuant to the asset reorganization shall
not constitute triggering events if the do-
mestic acquiring corporation enters into a
2009–9 I.R.B.623March 2, 2009

new gain recognition agreement that des-
ignates the domestic acquiring corporation
as the U.S. transferor for purposes of this
section. For an illustration of the rule pro-
vided by this paragraph (k)(6), see para-
graph (q)(2) of this section,Example 5.If
the acquiring corporation is foreign, see
paragraph (k)(14) of this section and para-
graph (q)(2) of this section,Example 6.
(ii)Transferred stock or securities.If
the transferred stock or securities are trans-
ferred to a foreign acquiring corporation
in a section 361 exchange that is pursuant
to an asset reorganization, the exchanges
made pursuant to the asset reorganization
shall not constitute triggering events if
the U.S. transferor enters into a new gain
recognition agreement that designates the
foreign acquiring corporation as the trans-
feree foreign corporation for purposes of
this section. For an illustration of the rule
provided by this paragraph, see paragraph
(q)(2) of this section,Example 7.Ifthe
transfer is to a domestic acquiring corpo-
ration, or is pursuant to a triangular asset
reorganization, see paragraph (k)(14) or
(o)(5) of this section.
(iii)Assets of transferred corporation.
If substantially all of the assets of the
transferred corporation are transferred to a
foreign or domestic acquiring corporation
in a section 361 exchange that is pursuant
to an asset reorganization, the exchanges
made pursuant to the asset reorganization
shall not constitute triggering events if
the U.S. transferor enters into a new gain
recognition agreement that, unless the
acquiring corporation is the transferee for-
eign corporation, designates the acquiring
corporation as the transferred corporation
for purposes of this section. Only the
assets of the transferred corporation re-
ceived by the acquiring corporation shall
be treated as assets of the transferred cor-
poration for purposes of this section (for
example, only such assets will be taken
into account for purposes of paragraph
(j)(2) of this section). For an illustration
of the rule provided by this paragraph, see
paragraph (q)(2) of this section,Example
8. If the transferred corporation is domes-
tic, see section 367(a)(1) and (a)(5), and
paragraph (o)(4) of this section. If the
transfer is pursuant to a triangular asset
reorganization, see paragraph (k)(14) of
this section.
(7)Certain triangular reorganiza-
tions—(i)Transferee foreign corporation.
If substantially all of the assets of the trans-
feree foreign corporation are transferred to
a foreign acquiring corporation in a section
361 exchange that is pursuant to a trian-
gular asset reorganization, the exchanges
made pursuant to the reorganization shall
not constitute triggering events if a new
gain recognition agreement is entered into
in accordance with paragraphs (k)(7)(i)(A)
through (C) of this section. If the acquir-
ing corporation is domestic, see paragraph
(k)(14) of this section. For rules that apply
to gain recognition agreements entered
into as a result of an indirect stock transfer,
see §1.367(a)–3(d)(2)(iv) and paragraph
(j)(9) of this section.
(A) If P is foreign, the new gain recog-
nition agreement designates P as the trans-
feree foreign corporation and includes a
statement that the U.S. transferor agrees to
treat a complete or partial disposition of
theSstockheldbyPasatriggeringevent.
(B) Except as provided in paragraph
(k)(7)(i)(C) of this section, if P is domes-
tic, P enters into the new gain recognition
agreement that designates P as the U.S.
transferor and S as the transferee foreign
corporation.
(C) If the triangular asset reorganization
is described in section 368(a)(1)(A) by rea-
son of section 368(a)(2)(E) and the trans-
feree foreign corporation is the merged
corporation, the U.S. transferor enters into
the new gain recognition agreement and
designates the surviving corporation as the
transferee foreign corporation.
(ii)Transferred corporation.Ifsub-
stantially all of the assets of the transferred
corporation are transferred in a section
361 exchange pursuant to a triangular as-
set reorganization, the exchanges made
pursuant to the reorganization shall not
constitute triggering events if the U.S.
transferor enters into a new gain recogni-
tion agreement in accordance with para-
graph (k)(7)(ii)(A) of this section and, as
applicable, paragraph(k)(7)(ii)(B) or (C)
of this section.
(A) The new gain recognition agree-
ment includes a statement that the U.S.
transferor agrees to treat a complete or par-
tial disposition of the P stock received in
the reorganization as a triggering event.
(B) If the triangular asset reorganiza-
tion is described in section 368(a)(1)(C),
or section 368(a)(1)(A) or (G) by reason of
section 368(a)(2)(D), the new gain recog-
nition agreement includes a statement that
the U.S. transferor agrees to treat a com-
plete or partial disposition of the S stock
held by P as a triggering event.
(C)Ifthetriangularassetreorganization
is described in section 368(a)(1)(A) by rea-
son of section 368(a)(2)(E) and the trans-
ferred corporation is the merged corpora-
tion, the new gain recognition agreement
includes a statement that the U.S. trans-
feror agrees to treat a complete or partial
disposition of the stock of the surviving
corporation as a triggering event.
(8)Complete liquidation of transferred
corporation. A distribution of substan-
tially all of the assets of the transferred
corporation to which section 337 applies,
and the related exchange of the transferred
stock to which section 332 applies, shall
not constitute triggering events, if the U.S.
transferor enters into a new gain recogni-
tion agreement. If the transferred corpora-
tion is domestic, see §1.367(e)–2 and para-
graph (o)(4) of this section. See paragraph
(q)(2) of this section,Example 9for an il-
lustration of the rules provided in this para-
graph (k)(8).
(9)Death of U.S. transferor. The death
of a U.S. transferor shall not constitute a
triggering event if the person winding up
the affairs of the U.S. transferor—
(i) Retains sufficient assets of the U.S.
transferor to satisfy any possible Federal
tax liability of the U.S. transferor under the
gain recognition agreement for the dura-
tion of the extended period of limitations
on assessments of tax on the gain realized
but not recognized in the initial transfer;
(ii) Provides security as required un-
der paragraph (h) of this section for any
possible Federal tax liability of the U.S.
transferor under the gain recognition
agreement; or
(iii) Obtains a ruling from the Inter-
nal Revenue Service providing for one or
more successors to the U.S. transferor un-
der the gain recognition agreement.
(10)Deconsolidation. A deconsolida-
tion of the U.S. transferor shall not consti-
tute a triggering event if the U.S. transferor
enters into a new gain recognition agree-
ment.
(11)Consolidation. A consolidation of
the U.S. transferor shall not constitute a
triggering event if the U.S. transferor en-
ters into a new gain recognition agreement.
See paragraph (d)(3) of this section.
(12)Intercompany transactions—(i)
General rule. If,pursuanttoaninter-
March 2, 20096242009–9 I.R.B.

company transaction, the U.S. transferor
disposes of stock of the transferee foreign
corporation received in the initial trans-
fer, this paragraph (k)(12) applies to such
disposition to the extent the intercom-
pany transaction creates an intercompany
item that is not taken into account in the
taxable year during which the intercom-
pany transaction occurs. To the extent this
paragraph (k)(12) applies, the disposition
shall not constitute a triggering event, and
the U.S. transferor shall remain subject
to the gain recognition agreement if the
conditions of paragraphs (k)(12)(i)(A) and
(B) of this section are satisfied. To the
extent the intercompany transaction does
not create an intercompany item see, for
example, paragraph (k)(1) and paragraph
(q)(2) of this section,Example 20.See
paragraph (o)(6) of this section for the ef-
fect on a gain recognition agreement when
an intercompany item from an intercom-
pany transaction to which this paragraph
(k)(12)(i) applies is taken into account.
(A) At the time of the disposition, the
basis of the stock of the transferee foreign
corporation received in the initial trans-
fer that is disposed of in the intercom-
pany transaction is not greater than the sum
of the amounts described in paragraphs
(k)(12)(i)(A)(1) through (3) of this section.
If only a portion of the stock of the trans-
feree foreign corporation received in the
initial transfer is disposed of, then the ba-
sis of such stock shall be compared with a
proportionate amount (measured by value
as determined at the time of the dispo-
sition) of the amounts described in para-
graph (k)(12)(i)(A)(1) through (3)ofthis
section. To satisfy the basis condition
of this paragraph (k)(12)(i)(A), the U.S.
transferor may reduce the basis of the stock
of the transferee foreign corporation re-
ceived in the initial transfer that is disposed
of in the intercompany transaction in ac-
cordance with the principles of paragraph
(o)(1)(iii) of this section.
(1) The aggregate basis of the trans-
ferred stock or securities at the time of the
initial transfer;
(2) The amount of any increase to the
basis of the transferred stock or securities
by reason of gain recognized by the U.S.
transferor on the initial transfer; and
(3) The amount of any increase to the
basis of the stock disposed of by reason of
an income inclusion by the U.S. transferor
with respect to such stock (for example,
pursuant to section 961(a)).
(B) The annual certification filed with
respect to the existing gain recognition
agreement for the taxable year during
which the intercompany transaction oc-
curs includes a complete description of
the intercompany transaction and a sched-
ule illustrating how the basis condition of
paragraph (k)(12)(i)(A) of this section is
satisfied.
(ii)Certain dispositions following in-
tercompany transaction. A subsequent
disposition of stock of the transferee for-
eign corporation that is transferred in an
intercompany transaction to which the ex-
ception provided by paragraph (k)(12)(i)
of this section applies shall not constitute
a triggering event if—
(A) The stock is transferred to a mem-
ber of the consolidated group that includes
the U.S. transferor immediately after the
disposition, and
(B) The annual certification filed with
respect to the existing gain recognition
agreement for the taxable year during
which the subsequent disposition occurs
includes a complete description of the dis-
position.
(13)Deemed asset sales pursuant to
section 338(g) elections. A deemed sale
of the assets of the transferred corporation
or the transferee foreign corporation as a
result of an electionunder section 338(g)
shall not constitute a triggering event. This
paragraph does not apply to the sale of the
stock of the target corporation (within the
meaning of section 338(d)(2)) with respect
to which such election is made.
(14)Other dispositions or events.A
disposition or other event that would con-
stitute a triggering event, without regard to
this paragraph (k)(14), shall not constitute
a triggering event if the conditions of para-
graph (k)(14)(i) through (iii) of this sec-
tion, as applicable, are satisfied. See para-
graph (q)(2),Examples 4,6,10,12, 17,21,
and23of this section for illustrations of the
rules provided by this paragraph (k)(14).
(i) The disposition qualifies as a non-
recognition transaction.
(ii) Immediately after the disposition or
other event, a U.S. transferor retains a di-
rect or indirect interest in the transferred
stock or securities or, as applicable, in sub-
stantially all of the assets of the transferred
corporation (for example, in a case where
the transferred corporation has been liq-
uidated pursuant to section 332). If, as
a result of the disposition or other event,
a foreign corporation acquires the trans-
ferred stock or securities or, as applica-
ble, substantially all the assets of the trans-
ferred corporation, the condition of this
paragraph (k)(14)(ii) shall be satisfied only
if the U.S. transferor owns at least five per-
cent (applying the attribution rules of sec-
tion 318, as modified by section 958(b)) of
the total voting power and the total value of
the outstanding stock of such foreign cor-
poration.
(iii) A new gain recognition agreement
isenteredintobytheU.S.transferorde-
scribed in paragraph (k)(14)(ii) of this sec-
tion that includes—
(A) An explanation of why this para-
graph (k)(14) applies to the disposition or
other event; and
(B) A description of each subsequent
disposition or other event that would con-
stitute a triggering event, other than those
described in paragraph (j) of this section,
with respect to the new gain recognition
agreement based on the principles of para-
graphs (j) and (k) of this section including,
for example, an indirect disposition of the
transferred stock or securities.
(l) [Reserved.]
(m)Receipt of boot in nonrecogni-
tion transactions—(1)Dispositions of
transferred stock or securities.Notwith-
standing paragraph (k) of this section,
if gain is required to be recognized (not
including any gain that would be treated
as a dividend under section 356(a)(2))
in connection with a disposition of the
transferred stock or securities to which
an exception under paragraph (k) of this
section otherwise applies (triggering event
exception), the U.S. transferor shall rec-
ognize gain under paragraph (c)(1)(i) of
this section equal to the amount of gain
required to be recognized in connection
with the disposition, but not in excess of
the amount of gain subject to the gain
recognition agreement. For purposes of
this paragraph (m)(1), the amount of gain
required to be recognized in connection
with the disposition shall be determined
before taking into account any increase
to the basis of the transferred stock or se-
curities under paragraph (c)(4)(ii) of this
section. See paragraph (q)(2) of this sec-
tion,Example 13, for an illustration of the
rule provided by this paragraph (m)(1).
2009–9 I.R.B.625March 2, 2009

(2)Dispositions of assets of transferred
corporation. If gain is required to be rec-
ognized (not including any gain that would
be treated as a dividend under section
356(a)(2)) in connection with a disposi-
tion of substantially all of the assets of the
transferred corporation to which a trigger-
ing event exception otherwise applies, the
U.S. transferor shall recognize gain under
paragraph (c)(1)(i) of this section equal to
the amount of gain required to be recog-
nized in connection with the disposition,
but not in excess of the amount of gain
subject to the gain recognition agreement.
(n)Special rules for distributions with
respect to stock—(1)Certain dividend
equivalent redemptions treated as dispo-
sitions. A redemption of the transferred
stock or of stock of the transferee foreign
corporation received in the initial trans-
fer that is treated by reason of section
302(d) as a distribution of property to
which section 301 applies shall constitute
a disposition for purposes of this section
unless the U.S. transferor enters into a new
gain recognition agreement that includes
appropriate provisions to account for the
redemption. For an illustration of the rule
of this paragraph (n)(1), see paragraph
(q)(2) of this section,Example 14.
(2)Gain recognized under section
301(c)(3). If gain is required to be recog-
nized under section 301(c)(3) with respect
to the transferred stock, the U.S. trans-
feror shall recognize gain under the gain
recognition agreement in accordance with
paragraph (c)(1)(i) of this section in an
amount equal to the gain required to be
recognized under section 301(c)(3), but
not in excess of the amount of gain subject
to the gain recognition agreement. For this
purpose, the amount of gain required to be
recognized under section 301(c)(3) shall
be determined before taking into account
any increase in the basis of the transferred
stock under paragraph (c)(4)(ii) of this
section.
(o)Dispositions or other events that
terminate or reduce the amount of gain
subject to the gain recognition agree-
ment. Notwithstanding paragraph (j) of
this section, the following dispositions or
other events shall not constitute trigger-
ing events but instead shall terminate or
reduce the amount of gain subject to the
gain recognition agreement.
(1)Taxable disposition of stock of the
transferee foreign corporation—(i)Com-
plete disposition. Except as otherwise
provided in this paragraph (o)(1)(i), if the
U.S. transferor disposes of all the stock
of the transferee foreign corporation re-
ceived in the initial transfer in a transaction
in which all gain realized is recognized
and included in taxable income during
the taxable year of the disposition, the
gain recognition agreement shall termi-
nate without further effect if, at the time
of the disposition, the aggregate basis of
such stock is not greater than the sum
of the amounts described in paragraphs
(o)(1)(i)(A) through (C) of this section.
This paragraph shall not apply to a dis-
position of stock of the transferee foreign
corporation pursuant to an intercompany
transaction to which paragraph (k)(12)
of this section applies. This paragraph
shall also not apply to an individual U.S.
transferor that loses U.S. citizenship or
ceases to be a lawful permanent resident
of the United States (within the meaning
of section 7701(b)(6)).
(A) The aggregate basis of the trans-
ferred stock or securities at the time of the
initial transfer;
(B) The amount of any increase to the
basis of the transferred stock or securities
by reason of gain recognized by the U.S.
transferor on the initial transfer; and
(C) The amount of any increase to the
basis of the stock disposed of by reason of
an income inclusion by the U.S. transferor
with respect to such stock (for example,
pursuant to section 961(a)).
(ii)Partial dispositions.Apartialdis-
position by the U.S. transferor of the stock
of the transferee foreign corporation re-
ceived in the initial transfer in a transaction
otherwise described in paragraph (o)(1)(i)
of this section shall reduce the amount of
gain subject to the gain recognition agree-
ment based on the relative fair market
value of the stock disposed of (measured
at the time of the disposition) compared to
the fair market value of all of the stock of
the transferee foreign corporation received
in the initial transfer (measured at the
time of the disposition). For determining
whether the basis condition of paragraph
(o)(1)(i) of this section is satisfied in the
case of a partial disposition, the aggregate
basis of the stock disposed of is compared
to a proportionate amount (based on fair
market value, as measured at the time of
the partial disposition) of the amounts de-
scribed in paragraphs (o)(1)(i)(A) through
(C) of this section. For an illustration of
the rules of this paragraph (o)(1)(ii), see
paragraph (q)(2),Example 15, of this sec-
tion.
(iii)Reduction of stock basis.Forpur-
poses of satisfying the basis condition of
paragraph (o)(1)(i) or (ii) of this section,
the U.S. transferor may reduce the aggre-
gate basis of the stock of the transferee
foreign corporation received in the initial
transfer, effective immediately before the
disposition. For an illustration of the rules
of this paragraph (o)(1)(iii), see paragraph
(q)(2),Example 16, of this section. The
U.S. transferor reduces the basis of the
stock of the transferee foreign corpora-
tion by including a statement with the
timely-filed return of the U.S. transferor
for the taxable year in which the disposi-
tion occurs, entitled“ElectiontoReduce
Stock Basis Under §1.367(a)–8(o)(1)(iii)”
and that includes—
(A) A description, including the date, of
the disposition;
(B)Adescriptionofthestockofthe
transferee foreign corporation disposed of
and the basis adjustments made under this
paragraph (o)(1)(iii); and
(C) The fair market value of all the
stock of the transferee foreign corporation
held by the U.S. transferor at the time of
the disposition.
(2)Gain recognized in connection with
certain nonrecognition transactions.Ifthe
U.S. transferor recognizes gain in connec-
tion with a complete or partial disposition
of stock of the transferee foreign corpo-
ration received in the initial transfer that
is described in paragraph (k) of this sec-
tion, and the basis condition of paragraph
(o)(1)(i) or (ii) of this section, as applica-
ble, is satisfied with the respect to such dis-
position, the amount of gain subject to the
new gain recognition agreement filed un-
der paragraph (k) of this section as a result
of such disposition shall equal the amount
of gain subject to the existing gain recog-
nition agreement reduced by the amount of
gain recognized by the U.S. transferor on
the disposition. If the U.S. transferor rec-
ognizes gain in connection with a complete
or partial disposition of the stock of the
transferee foreign corporation received in
the initial transfer that is described in para-
graph (k) of this section, and the condition
of paragraph (o)(1)(i) or (ii) of this section,
as applicable, is satisfied with the respect
to the disposition, but a new gain recogni-
March 2, 20096262009–9 I.R.B.

tion agreement is not filed with respect to
such disposition so that a triggering event
exception does not apply to the disposition,
the amount of gain required to be recog-
nized by the U.S. transferor under the ex-
isting gain recognition agreement shall be
reduced by the amount of the gain recog-
nized on the disposition.
(3)Gain recognized under section
301(c)(3). If the U.S. transferor recognizes
gain under section 301(c)(3) with respect
to the stock of the transferee foreign cor-
poration received in the initial transfer, the
amount of gain subject to the gain recog-
nition agreement shall be reduced by the
amount of such recognized gain.
(4)Dispositions of substantially all of
the assets of a domestic transferred cor-
poration. Except as otherwise provided
in this paragraph (o)(4), the gain recogni-
tion agreement shall terminate without fur-
ther effect if substantially all of the assets
of the transferred corporation are disposed
of in a transaction in which all gain re-
alized is recognized and included in tax-
able income during the taxable year of the
disposition, but only if, at the time of the
initial transfer, the U.S. transferor owned
stock in the transferred corporation satisfy-
ing the requirements of section 1504(a)(2)
and the U.S. transferorand the transferred
corporation were members of the same
consolidated group. If the initial transfer
was part of an indirect stock transfer, the
gain recognition agreement shall terminate
without further effect if substantially all
of the assets of the transferred corporation
(taking into account §1.367(a)–3(d)(2)(v))
are disposed of in a transaction in which all
gain realized is recognized and included in
taxable income during the taxable year of
the disposition, but only if at the time of the
initial transfer the U.S. transferor owned
stock in the transferred corporation satisfy-
ing the requirements of section 1504(a)(2)
(for example, in the case of a reorgani-
zation described in section 368(a)(1)(A)
by reason of section 368(a)(2)(E)) and the
U.S. transferor and thetransferred corpo-
ration were members of the same consoli-
dated group.
(5)Certain distributions or transfers of
transferred stock or securities to U.S. per-
sons. To the extent a distribution or trans-
fer of the transferred stock or securities sat-
isfies the conditions of paragraphs (o)(5)(i)
through (iii) of this section, the gain recog-
nition agreement shall terminate without
further effect, or the amount of gain sub-
ject to the gain recognition agreement shall
be reduced, as appropriate.
(i)Distributions or transfers described
in section 337, 355, or 361.Thetrans-
ferred stock or securities are distributed or
transferred pursuant to a transaction de-
scribed in paragraph (o)(5)(i)(A) through
(D) of this section, as appropriate.
(A) A distribution described in section
337 that is pursuant to a complete liquida-
tion described in section 332. See para-
graph (q)(2) of this section,Example 18,
for an illustration of the rule provided by
this paragraph (o)(5)(i)(A).
(B) A distribution to which section
355 applies. See paragraph (q)(2) of this
section,Example 19, for an illustration
of the rule provided by this paragraph
(o)(5)(i)(B).
(C) A section 361 exchange that is pur-
suant to an asset reorganization. See para-
graph (q)(2) of this section,Example 22,
for an illustration of the rule provided by
this paragraph (o)(5)(i)(C).
(D) A distribution to which section
361(c) applies that is pursuant to an asset
reorganization. See paragraph (q)(2) of
this section,Example 22, for an illustra-
tion of the rule provided by this paragraph
(o)(5)(i)(D).
(ii)Qualified recipient. The recipient of
the transferred stock or securities in the rel-
evant transaction described in paragraph
(o)(5)(i) of this section (qualified recipi-
ent) is—
(A) The U.S. transferor;
(B) A member of the consolidated
group that includes the U.S. transferor
immediately after the transaction; or
(C) An individual that is a United States
person.
(iii)Basis requirement—(A)General
rule. Immediately after the relevant trans-
action described in paragraph (o)(5)(i) of
this section, the aggregate basis of the
transferred stock or securities received by
the qualified recipient is not greater than
the aggregate basis of such stock or secu-
rities at the time of the initial transfer (as
adjusted for gain recognized by the U.S.
transferor on the initial transfer attribut-
able to such stock or securities). For this
purpose, the basis of the transferred stock
in the hands of the qualified recipient shall
be determined without regard to any ba-
sis attributable to income inclusions with
respect to the stock (for example, under
section 961(a)). In the case of a distri-
bution to which section 355 applies, any
adjustments to basis under §1.367(b)–5(c)
shall be made before determining whether
the basis condition of this paragraph is
satisfied.
(B)Election to reduce basis in trans-
ferred stock or securities.Ifthebasis
condition of paragraph (o)(5)(iii)(A) of
this section is not satisfied, each quali-
fied recipient may reduce the basis of the
transferred stock or securities received
in the transaction to the extent neces-
sary to satisfy the basis condition. A
qualified recipient reduces the basis of
the transferred stock or securities by in-
cluding a statement with its timely-filed
return for the taxable year during which
the distribution or transfer occurs entitled
“Election to Reduce Stock Basis Under
§1.367(a)–8(o)(5)(iii)(B)” and that in-
cludes—
(1) A complete description and the date
of the distribution or transfer;
(2)Thefairmarketvalueofthetrans-
ferred stock or securities received by the
qualified recipient in the transaction; and
(3) The basis of the transferred stock or
securities received by the qualified recipi-
ent immediately before and after the basis
reduction.
(6)Dispositions or other event follow-
ing certain intercompany transactions.If,
subsequent to an intercompany transaction
to which paragraph (k)(12) of this section
applies, a disposition or other event occurs
that requires the U.S. transferor to take
into account the intercompany item related
to the intercompany transaction (under the
provisions of §1.1502–13), the gain recog-
nition agreement shall terminate without
further effect or the amount of gain sub-
ject to the gain recognition agreement shall
be reduced based on the principles of para-
graph (o)(1)(i) or (ii) of this section, as ap-
propriate. For an illustration of the rules of
this paragraph (o)(6), see paragraph (q)(2)
of this section,Example 20.
(7)Expropriations under foreign law.
The amount of gain subject to the gain
recognition agreement shall be reduced to
the extent the stock or securities of the
transferee foreign corporation received in
the initial transfer, the transferred stock or
securities, or substantially all the assets of
the transferred corporation, are expropri-
ated, seized, or subjected to a similar tak-
ingofsuchpropertybythegovernment
2009–9 I.R.B.627March 2, 2009

of a foreign country, any political subdivi-
sion thereof, or any agency or instrumen-
tality of the foregoing. Principles similar
to those of paragraph (o)(1)(i) or (o)(1)(ii)
of this paragraph, as relevant, shall be ap-
plied to determine the amount of the reduc-
tion.
(p)Relief for reasonable cause for
failure to comply—(1)Request for relief.
A U.S. transferor that fails to file timely
a gain recognition agreement, waiver of
period of limitations on assessments of
tax, annual certification, or other informa-
tion required under this section shall be
considered to have satisfied the timeliness
requirement with respect to such filing,
and a failure to comply in any material re-
spect with any requirement of this section
or with the terms of the gain recognition
agreement that would otherwise constitute
a triggering event shall not constitute a
triggering event, if a request for relief is
filed as provided under paragraph (p)(2) of
this section and the U.S. transferor is able
to demonstrate to the Area Director, Field
Examination, Small Business/Self Em-
ployed or the Director of Field Operations,
Large and Mid-Size Business (Director)
having jurisdiction of the tax return of
the U.S. transferor for the taxable year to
which the failure relates, that such fail-
ure was due to reasonable cause and not
willful neglect. Whether the failure was
due to reasonable cause and not willful
neglect will be determined by the Director
after considering all the facts and circum-
stances. The Director shall notify the U.S.
transferor in writing within 120 days if it
is determined that the failure was not due
to reasonable cause, or if additional time
will be needed to make a determination.
For this purpose, the 120-day period shall
begin on the date the Internal Revenue
Service notifies the U.S. transferor in writ-
ing that the request for reasonable cause
relief has been received and assigned for
review. If the U.S. transferor is not again
notified before the close of the 120-day
period, the U.S. transferor shall be deemed
to have established that the failure to file
timely or comply was due to reasonable
cause and not willful neglect.
(2)Procedures for filing requests for re-
lief—(i)Time of submission. Requests for
relief under paragraph (p)(1) of this sec-
tion shall be considered only if, as soon
as the U.S. transferor becomes aware of
the failure to file timely or comply in any
material respect with any requirement of
this section, an amended return is filed for
the taxable year to which the failure relates
that includes the information that should
have been included with the original re-
turn for such taxable year or otherwise
complies with the rules of this section and
that includes a written statement explain-
ing the reasons for the failure to file timely
or comply. The amended return must be
filed with the applicable Internal Revenue
Service Center with which the U.S. trans-
feror filed its original return for such tax-
able year.
(ii)Notice requirement. In addition to
the requirement of paragraph (p)(2)(i) of
this section, the U.S. transferor must com-
ply with the requirements of paragraph
(p)(2)(ii)(A) or (B) of this section, as ap-
plicable.
(A) If any taxable year of the U.S.
transferor is under examination when the
amended return is filed, a copy of the
amended return and any information re-
quired to be included with such return
must be delivered to the Internal Revenue
Service personnel conducting the exami-
nation.
(B) If no taxable year of the U.S.
transferor is under examination when the
amended return is filed, a copy of the
amended return and any information re-
quired to be included with such return
must be delivered to the Director having
jurisdiction over the return.
(q)Examples—(1)Presumed facts and
references. For purposes of the examples
in paragraph (q)(2) of this section, and ex-
cept where otherwise indicated, the fol-
lowing is presumed.
(i) UST, USP, and DC are domestic cor-
porations that each use a calendar taxable
year.
(ii) USP wholly owns UST and is the
common parent of the consolidated group
of which UST is a member.
(iii) TFC, TFD, F1, and FA are foreign
corporations.
(iv) UST wholly owns TFD.
(v) In a section 351 exchange, UST
transfers all of the stock of TFD (TFD
stock) to TFC in exchange solely for stock
of TFC (the initial transfer).
(vi) Pursuant to §1.367(a)–3(b)(1)(ii)
and this section, UST enters into a gain
recognition agreement in connection with
the initial transfer and makes the election
described under paragraph (c)(2)(vi) of
this section with respect to the gain recog-
nition agreement.
(vii) As applicable, the section
1248 amount (within the meaning of
§1.367(b)–2(c)) or all earnings and
profits amount (within the meaning of
§1.367(b)–2(d)) attributable to the stock
of a foreign corporation is zero.
(viii) All transactions are respected un-
der general principlesof tax law, including
the step transaction doctrine.
(ix) References to a U.S. transferor en-
tering into a gain recognition agreement
mean, where applicable, that the common
parent of the consolidated group of which
the U.S. transferor is a member has filed
the gain recognition agreement on behalf
of the U.S. transferor in accordance with
paragraph (d)(3) of this section.
(x) Taxable years during the GRA term
are referred to, for example, as year 1 and
year 2.
(2)Examples. The following examples
illustrate the application of the rules of this
section.
Example 1.Basis adjustments from gain recog-
nized under the gain recognition agreement.(i)Facts.
TFC wholly owns F1. In year 3, pursuant to a section
351 exchange, TFC transfers all of the TFD stock to
F1 in exchange solely for voting stock of F1. UST
enters into a new gain recognition agreement with
respect to the initial transfer under paragraph (k)(3)
of this section, and therefore the transfer by TFC of
the TFD stock to F1 is not a triggering event. Under
paragraph (c)(5)(i) of this section, the existing gain
recognition agreement terminates without further ef-
fect. In year 4, in an exchange to which section 721
applies, UST contributes the TFC stock received in
the initial transfer to PRS, a domestic partnership,
in exchange for a partnership interest. UST enters
into a new gain recognition agreement with respect
to the initial transfer under paragraph (k)(1) of this
section, and therefore the transfer by UST of the TFC
stock to PRS is not a triggering event. Under para-
graph (c)(5)(i) of this section, the new gain recog-
nition agreement filed by UST in year 3 terminates
without further effect. In year 5, TFD disposes of
substantially all of its assets in a transaction that con-
stitutes a triggering event under paragraph (j)(2)(i) of
this section. Under paragraph (c)(1)(i) of this section,
UST recognizes the gain realized but not recognized
on the initial transfer by reason of entering into the
gain recognition agreement.
(ii)Result. Under paragraph (c)(4) of this section,
the basis of the PRS interest held by UST, the TFC
stock held by PRS that was received from UST in
year 4, the F1 stock held by TFC that was received
in exchange for the TFD stock in year 3, and the TFD
stock held by F1 that was received from TFC in year 3
is increased by the amount of gain recognized by UST
(but not by the additional tax or interest paid as result
of such gain) with respect to the initial transfer under
the gain recognition agreement. However, the basis
of the assets of TFD (including the assets disposed
March 2, 20096282009–9 I.R.B.

of in year 5) is not increased as a result of the gain
recognized by UST.
Example 2.Impact of gain recognition event on
computation of income.(i)Facts. At the time of
the initial transfer, the TFD stock has a $50x ba-
sis, a $100x fair market value, and a $30x section
1248 amount. The amount of gain subject to the gain
recognition agreement is $50x. UST did not make
an election under paragraph (c)(2)(vi) of this section
with respect to the gain recognition agreement. In
year 3, TFC disposes of the TFD stock received in
the initial transfer in exchange for $120x cash.
(ii)Result—(A)Gain recognition without an
election. The disposition by TFC of the TFD stock
in year 3 is a triggering event under paragraph (j)(1)
of this section. As a result, under paragraph (c)(1)(i)
of this section, UST must recognize and include in
income $50x gain under the gain recognition agree-
ment. Under paragraph (c)(1)(iii)(A) of this section,
UST must report the $50x gain on an amended return
filed for the taxable year of the initial transfer. Under
paragraph (c)(1)(v) of this section, UST must pay
applicable interest on any additional tax due with
respect to the $50x gain recognized. Under section
1248(a), $30x of the gain recognized by UST under
the gain recognition agreement is recharacterized as
a dividend. Under paragraph (c)(4) of this section,
as of the date of the initial transfer, the basis of the
TFC stock received by UST in the initial transfer and
the TFD stock received by TFC in the initial transfer,
respectively, is increased by $50x. After taking into
account the increase to the basis of the TFD stock,
TFC recognizes $20x gain on the disposition of the
TFD stock in year 3.
(B)Gain recognition with an election.IfUST
made an election under paragraph (c)(2)(vi) of this
section with the gain recognition agreement filed for
the initial transfer, the result would be the same as in
paragraph (ii)(A) of thisExample 2, except that UST
must include in income the $50x gain recognized un-
der the gain recognition agreement on its tax return
filed for year 3. Any additional tax due with respect
to the $50x gain and applicable interest on the addi-
tional tax due must be included with such return. The
amount, if any, of the $50x gain recognized by UST
under the gain recognition agreement that is charac-
terized as a dividend under section 1248(a) is deter-
minedinyear3.
Example 3.Transfer of stock of the transferee
foreign corporation to a domestic corporation in a
section 351 exchange.(i)Facts. UST wholly owns
DC. In year 3, pursuant to a section 351 exchange,
UST transfers all of the TFC stock received in the
initial transfer to DC in an exchange solely for voting
stock of DC.
(ii)Result. The year 3 transfer of the TFC stock
by UST to DC constitutes a triggering event under
paragraph (j)(4) of this section. However, the trans-
fer shall not constitute a triggering event pursuant to
paragraph (k)(1)(ii) of this section if DC enters into
a new gain recognition agreement with respect to the
initial transfer that designates DC as the U.S. trans-
feror for purposes of this section. Pursuant to para-
graphs (c)(4)(i) and (ii) of this section, if DC is re-
quired to recognize gain under the new gain recog-
nition agreement, the basis of the stock of TFC and
TFD would be increased by the amount of gain rec-
ognized. However, pursuant to paragraph (c)(4)(iii)
of this section, no adjustment would be made to the
basis of the DC voting stock received by UST in year
3 as a result of such gain recognition. Alternatively, if
the conditions for the application of paragraph (k)(14)
of this section are satisfied UST could instead enter
into the new gain recognition agreement with respect
to the initial transfer.
Example 4.Transfer of stock of the transferee for-
eign corporation in a triangular section 368(a)(1)(B)
reorganization.(i)Facts. DC wholly owns FA. In
year 3, pursuant to a triangular reorganization de-
scribed in section 368(a)(1)(B), UST transfers all of
the TFC stock received in the initial transfer to FA
in exchange solely for 20% of the outstanding voting
stock of DC. At the time of the reorganization, the
TFC stock has a basis in excess of fair market value.
(ii)Result. (A) The transfer by UST of the
TFC stock to FA is an indirect stock transfer under
§1.367(a)–3(d)(1)(iii)(B). Accordingly, to preserve
nonrecognition treatment, UST must enter into a sep-
arate gain recognition agreement under this section
with respect to such transfer.
(B) With respect to the gain recognition agree-
ment filed for the initial transfer of the TFD stock,
the transfer by UST of the TFC stock to FA is a trig-
gering event under paragraph (j)(4) of this section.
However, the transfer shall not constitute a trigger-
ing event if the conditions of the exception provided
by paragraph (k)(14) of this section are satisfied.
(1
) The condition of paragraph (k)(14)(i) of this
section is satisfied because the transfer qualifies as
a nonrecognition transaction (assuming UST enters
into a gain recognition agreement as described in
paragraph (ii)(A) of thisExample 4).
(2) The condition of paragraph (k)(14)(ii) of this
section is satisfied because immediately after the
transfer DC, a domestic corporation that is eligible
to be a U.S. transferor, owns at least 5% (applying
the attribution rules of section 318, as modified by
section 958(b)) of the total voting power and total
fair market value of the outstanding stock of FA. As
a result, DC is treated as retaining an indirect interest
in the TFD stock immediately following the transfer.
(3) The condition of paragraph (k)(14)(iii) of this
section is satisfied if DC enters into a new gain recog-
nition agreement with respect to the initial transfer of
the TFD stock that, based on the principles of para-
graph (j) of this section, describes the subsequent dis-
positions or other events that would constitute trig-
gering events for purposes of the new gain recogni-
tion agreement (other than the dispositions and other
events described in paragraph (j) of this section). For
example, a complete or partial disposition of the stock
of FA would constitute a triggering event for purposes
of the new gain recognition agreement.
Example 5.Transfer of stock of the transferee for-
eign corporation to a domestic corporation pursuant
to an asset reorganization.(i)Facts. At the time of
the initial transfer the TFD stock has a $50x basis and
a $100x fair market value. Therefore, the amount
of gain subject to the gain recognition agreement is
$50x. In year 3, pursuant to an asset reorganization
described in section 368(a)(1)(A), UST transfers its
assets to DC in exchange solely for 20% of the out-
standing stock of DC. UST distributes the stock of
DC to USP pursuant to the plan of reorganization.
(ii)Result. The transfer by UST of the TFC stock
to DC constitutes a triggering event under paragraph
(j)(4) of this section. However, pursuant to para-
graph (k)(6)(i) of this section, if DC enters into a new
gain recognition agreement with respect to the initial
transfer that designates DC as the U.S. transferor, the
transfer shall not constitute a triggering event.
Example 6.Transfer of stock of the transferee for-
eign corporation to a foreign corporation pursuant to
an asset reorganization.(i)Facts. The facts are the
same as inExample 5, except the acquiring corpo-
rationintheassetreorganizationisFA,and,atthe
time of the asset reorganization, the TFC stock trans-
ferred by UST to FA has a $50x basis and a $150x
fair market value. All of the conditions under section
367(a)(5) and the regulations under that section are
satisfied, and no adjustment is required to the basis
of the FA stock received by USP in the transaction.
(ii)Result. (A) The transfer by UST of the TFC
stock to FA is described in section 361(a) and is there-
fore subject to section 367(a)(5). In general, UST
cannot file a gain recognition agreement with respect
to such transfer, and the transfer therefore is subject
to the general rule of section 367(a)(1). However, if
the conditions of §1.367(a)–3(e)(1)(i) through (iv) are
satisfied, USP can enter into a gain recognition agree-
ment with respect to the transfer to avoid the recog-
nition of gain by UST on the transfer under section
367(a)(1). If the exception provided by paragraph
(k)(14) of this section applies so that the transfer by
UST of the TFC stock to FA is not a triggering event
with respect to the gain recognition agreement filed
for the initial transfer (discussed in paragraph (ii)(B)
of thisExample 6), the amount of gain subject to the
gain recognition agreement (if entered into) with re-
spect to the transfer by UST of the TFC stock to FA
in the asset reorganization is $100x.
(B) Under paragraph (j)(4) of this section, the
transfer of the TFC stock by UST to FA is a trigger-
ing event with respect to the gain recognition agree-
ment for the initial transfer. The exception provided
by paragraph (k)(6)(i) of this section does not apply
to such transfer because FA, the acquiring corpora-
tion in the asset reorganization, is foreign. However,
the transfer shall not constitute a triggering event if
the conditions of the exception provided by paragraph
(k)(14) of this section are satisfied.
(1) The condition of paragraph (k)(14)(i) of this
section is satisfied because the transfer of the TFC
stock to FA qualifies as a nonrecognition transaction
(assuming USP enters into a gain recognition agree-
ment with respect to such transfer).
(2) The condition of paragraph (k)(14)(ii) of this
section is satisfied because immediately after the
transfer USP, a domestic corporation that is eligible
to be a U.S. transferor, owns at least 5% (applying
the attribution rules of section 318, as modified by
section 958(b)) of the total voting power and total
fair market value of the outstanding stock of FA. As a
result, USP is treated as retaining an indirect interest
in the TFD stock immediately following the transfer.
(3) The condition of paragraph (k)(14)(iii) of
this section is satisfied if USP enters into a new
gain recognition agreement with respect to the initial
transfer of the TFD stock that, based on the princi-
ples of paragraph (j) of this section, describes the
subsequent dispositions or other events that would
constitute triggering events for purposes of the new
gain recognition agreement, other than those already
provided in paragraph (j) of this section. For exam-
ple, a disposition of the stock of FA would constitute
such a triggering event for purposes of the new gain
recognition agreement.
2009–9 I.R.B.629March 2, 2009

(iii)Alternate facts. Assume the same facts as in
paragraph (i) of thisExample 6, including that para-
graph (k)(14) of this section applies to the year 3 reor-
ganization so that USP enters into a new gain recog-
nition agreement with respect to the initial transfer of
the TFD stock that occurred in year 1 (GRA 1), and
that under §1.367(a)–3(e) USP enters into a separate
gain recognition agreement with respect to the initial
transfer of the TFC stock by UST to FA pursuant to
the year 3 asset reorganization (GRA 2). Assume fur-
ther that in year 4 TFC disposes of 10% of the TFD
stock pursuant to a transaction that constitutes a trig-
gering event with respect to GRA 1. The disposition
of the TFD stock is not a triggering event with respect
to GRA 2 because the TFD stock disposed of does
not constitute substantially all the assets of TFC. Un-
der paragraphs (j)(1) and (c)(1)(i) of this section, USP
must recognize $5x gain (10% of $50x) under GRA
1. Under paragraph (c)(4)(i) and (ii) of this section,
as of the date of the initial transfer (with respect to
which GRA 1 was filed), the basis of the TFC stock
and TFD stock, respectively, is increased by $5x. Un-
der paragraph (c)(1)(i) of this section, the amount of
gain subject to GRA 1 is reduced from $50x to $45x.
Similarly, because the transferred stock for purposes
of GRA 2 is the TFC stock, the amount of gain subject
to GRA 2 is reduced from $100x to $95x to reflect the
increase to the basis of the TFC stock.
Example 7.Transfer of transferred stock to a for-
eign corporation pursuant to an asset reorganization.
(i)Facts. UST wholly owns FA. In year 4, pursuant
to a reorganization described in section 368(a)(1)(D),
TFC transfers all of the TFD stock to FA in exchange
solely for stock of FA. TFC distributes the FA stock
to UST pursuant to the plan of reorganization.
(ii)Analysis. In general, the year 4 transfer by
TFC of the TFD stock to FA and the exchange by UST
of the TFC stock for FA stock constitute triggering
events under paragraphs (j)(1) and (4) of this section,
respectively. However, under paragraph (k)(6)(ii) of
this section, the transfers shall not constitute trigger-
ing events if UST enters into a new gain recognition
agreement with respect to the initial transfer that des-
ignates FA as the transferee foreign corporation.
Example 8.Transfer of substantially all the assets
of the transferred corporation pursuant to an asset re-
organization.(i)Facts. In year 4, pursuant to an as-
set reorganization described in section 368(a)(1)(C),
TFD transfers all of its assets to FA in exchange solely
for voting stock of FA. TFD distributes the FA voting
stock to TFC pursuant to the plan of reorganization.
(ii)Analysis. The year 4 transfer by TFD of all
its assets to FA and the exchange by TFC of its TFD
stock for FA voting stock pursuant to the reorgani-
zation constitute triggering events under paragraphs
(j)(2) and (j)(1) of this section, respectively. How-
ever, under paragraph (k)(6)(iii) of this section, the
transfers shall not constitute triggering events if UST
enters into a new gain recognition agreement with
respect to the initial transfer that designates FA as
the transferred corporation. In addition, under para-
graph (k)(6)(iii) of this section only the assets of TFD
acquired by FA in the asset reorganization shall be
treated as assets of the transferred corporation for pur-
poses of the new gain recognition agreement.
Example 9.Complete liquidation of transferred
corporation into transferee foreign corporation.(i)
Facts. UST does not make an election under para-
graph (c)(2)(vi) of this section in connection with the
gain recognition agreement entered into with respect
to the initial transfer. In year 3, TFD distributes all of
its assets to TFC pursuant to a complete liquidation
to which sections 332 and 337 apply. Under para-
graph (k)(8) of this section, UST enters into a new
gain recognition agreement with respect to the initial
transfer such that the liquidation is not a triggering
event. Under paragraph (c)(5)(i) of this section, the
new gain recognition agreement is subject to the con-
ditions and requirements of this section to the same
extent as the existing gain recognition agreement, ex-
cept that the transferred stock is no longer subject
to the gain recognition agreement because the trans-
ferred stock is cancelled by reason of the liquidation.
In year 5 TFC disposes of substantially all of the as-
sets received from TFD in the year 3 liquidation.
(ii)Result. The year 5 disposition by TFC of
substantially all of the assets received from TFD
in the year 3 liquidation is a triggering event under
paragraph (j)(2) of this section, and therefore UST
must recognize the gain subject to the gain recogni-
tion agreement. UST must report the gain recognized
on an amended return for the taxable year during
which the initial transfer occurred. UST must also
pay applicable interest on any additional tax due
with respect to the gain recognized. Under paragraph
(c)(4)(i) of this section, the basis of the TFC stock
received by UST in the initial transfer is increased
as of the date of the initial transfer by the amount
of gain recognized under the gain recognition agree-
ment. The basis of the assets of TFD, however, is
not increased.
Example 10.Transfer of transferred stock to for-
eign corporation in section 351 exchange, followed
by a section 332 liquidation of the foreign corpo-
ration.(i)Facts. In year 3, pursuant to a section
351 exchange, TFC transfers the TFD stock to F1, a
newly formed corporation, in exchange solely for vot-
ing stock of F1. The transfer by TFC of the TFD stock
to F1 is not a triggering event because UST complies
with the conditions of paragraph (k)(3) of this section.
In year 5, F1 distributes all of its assets to TFC in a
complete liquidation to which sections 332 and 337
apply.
(ii)Result. The distribution of the TFD stock by
F1, and the exchange of F1 stock by TFC pursuant
to the year 5 liquidation of F1 constitute triggering
eventsunderparagraphs(j)(1)and(k)(3)(i)ofthis
section, respectively. However, if paragraph (k)(14)
of this section applies, neither the distribution of the
TFD stock by F1, nor the exchange by TFC of the F1
stock, shall constitute a triggering event.
(A) The condition of paragraph (k)(14)(i) of
this section is satisfied because the distribution of
the TFD stock, and the exchange of F1 stock, both
qualify as nonrecognition transactions.
(B) The condition of paragraph (k)(14)(ii) of this
section is satisfied because immediately after the dis-
tribution UST, a domestic corporation that is eligible
to be a U.S. transferor, owns at least 5% (applying the
attribution rules of section 318, as modified by sec-
tion 958(b)) of the stock of TFC. As a result, UST
is treated as retaining an indirect interest in the TFD
stock following the complete liquidation of F1.
(C) The condition of paragraph (k)(14)(iii) of
this section is satisfied if UST enters into a new gain
recognition agreement. Because after the complete
liquidation of F1, UST wholly owns TFC, which
wholly owns TFD, as was the case immediately after
the initial transfer, UST is not required to describe,
with the new gain recognition agreement, other dis-
positions or events that would constitute triggering
events based on the principles of paragraph (j) of
this section, other than the dispositions or events
described in paragraph (j) of this section.
Example 11.Disposition of stock of transferee
foreign corporation pursuant to a divisive reorgani-
zation.(i)Facts. In year 3, pursuant to a divisive re-
organization described insection 368(a)(1)(D), UST
transfers all of the TFC stock to DC, a newly-formed
corporation, in exchange solely for stock of DC. UST
then distributes all of the DC stock to USP in a trans-
action to which section 355 applies.
(ii)Result. The transfer of the TFC stock by
UST to DC constitutes a triggering event under para-
graph (j)(4) of this section. However, under para-
graph (k)(1)(iii) of this section, the transfer of the
TFC stock shall not constitute a triggering event if
DC enters into a new gain recognition agreement that
designates DC as the U.S. transferor for purposes of
this section.
(iii)Alternate facts.Thefactsarethesameasin
paragraph (i) of thisExample 11,exceptthatUST
transfers only 90% of the TFC stock to DC. Paragraph
(k)(1)(iii) of this section applies only with respect to
the TFC stock transferred to DC. Thus, the conditions
of paragraph (k)(1)(iii) of this section are satisfied
if DC enters into a new gain recognition agreement
with respect to the TFC stock received from UST.
The amount of gain subject to the new gain recog-
nition agreement entered into by DC equals 90% of
the amount of gain subject to the gain recognition
agreement entered into by UST with respect to the
initial transfer. The amount of gain subject to the gain
recognition agreement entered into by UST with re-
spect to the initial transfer is reduced by the amount
of gain subject to the new gain recognition agreement
entered into by DC. The gain recognition agreement
entered into by UST with respect to the initial transfer
continues to apply to the remaining TFC stock held by
UST.
Example 12.Disposition of transferred stock pur-
suant to a divisive reorganization.(i)Facts. In year 3,
pursuant to a divisive reorganization described in sec-
tion 368(a)(1)(D), TFC transfers all of the TFD stock
to F1, a newly formed corporation, in exchange solely
for all of the outstanding stock of F1. TFC then dis-
tributes all of the F1 stock to UST in a transaction to
which section 355 applies.
(ii)Result. The transfer by TFC of the TFD stock
to F1 constitutes a triggering event under paragraph
(j)(1) of this section. However, if paragraph (k)(14)
of this section applies, neither the transfer of the
TFD stock by TFC to F1, nor the distribution of the
F1 stock by TFC to UST, shall constitute triggering
events.
(A) The condition of paragraph (k)(14)(i) of this
section is satisfied because the dispositions of the
TFD stock and F1 stock qualify as nonrecognition
transactions.
(B) The condition of paragraph (k)(14)(ii) of
this section is satisfied because immediately after
the transfer UST, an eligible U.S. transferor, owns
at least 5% (applying the attribution rules of section
318, as modified by section 958(b)) of the total
voting power and the total fair market value of the
outstanding stock of F1. As a result, UST is treated
March 2, 20096302009–9 I.R.B.

as retaining an indirect interest in the TFD stock
following the dispositions.
(C) The condition of paragraph (k)(14)(iii) of
this section is satisfied if UST enters into a new
gain recognition agreement with respect to the initial
transfer that describes the subsequent dispositions or
other events that would constitute triggering events
based on the principles of paragraph (j) of this sec-
tion, other than those described in paragraph (j) of
this section. For example, a complete or partial
disposition of the F1 stock would constitute a trigger-
ing event for purposes of the new gain recognition
agreement (subject to the exceptions provided by
paragraph (k) of this section).
Example 13.Receipt of boot by the transferee
foreigncorporationinasubsequentsection351ex-
change.(i)Facts. At the time of the initial transfer,
the TFD stock has a $50x basis and $100x fair market
value. The amount of gain subject to the gain recogni-
tion agreement is $50x. In year 3, TFC and X, an un-
related foreign corporation, form F1. TFC transfers
the TFD stock to F1 in exchange for $35x cash and
$65x stock of F1. At the time of the transfer, the TFD
stock has a $50x basis and $100x fair market value.
The F1 stock received by TFC represents 25% of the
outstanding stock of F1. Without regard to the gain
recognized under the gain recognition agreement and
any adjustments to basis under paragraph (c)(4)(ii) of
this section, under section 351(b) TFC would recog-
nize $35x gain in connection with the transfer of the
TFD stock to F1. UST complies with the conditions
of paragraph (k)(3) of this section, and therefore the
disposition by TFC of the TFD stock does not consti-
tute a triggering event.
(ii)Result. Under paragraph (m)(1) of this sec-
tion, UST must recognize $35x gain under the gain
recognition agreement as a result of the year 3 dispo-
sition by TFC of the TFD stock. Thus, the amount of
gain subject to the new gain recognition agreement
entered into by UST pursuant to paragraph (k)(3) of
this section is $15x. Under paragraph (c)(4)(ii) of
this section, as of the date of the initial transfer, the
basis of the TFD stock held by TFC is increased by
$35x, the amount of the gain recognized by UST un-
der the gain recognition agreement. Under paragraph
(c)(4)(i) of this section, the basis of the TFC stock re-
ceived by UST in the initial transfer is also increased
by $35x. After taking into account the increase to the
basis of the TFD stock under paragraph (c)(4)(ii) of
this section, TFC recognizes $15x gain under section
351(b) in connection with the year 3 transfer of the
TFD stock to F1. Under section 362(a), the basis of
the TFD stock in the hands of F1 is $100x.
Example 14.Complete disposition of transferred
stock pursuant to a section 304(a)(1) transaction.(i)
Facts. UST wholly owns FA. In year 3, in a trans-
action to which section 304(a)(1) applies, TFC trans-
fers all of the TFD stock to FA in exchange for cash.
Under section 304(a)(1), TFC and FA are treated as
if TFC transferred the TFD stock to FA in a section
351 exchange in exchangesolely for FA stock, and
then FA redeemed the FA stock deemed issued in ex-
change for the cash. Under section 302(d), the re-
demption of the FA stock deemed issued by FA to
TFC under section 304(a)(1) is treated as a distribu-
tion to which section 301 applies.
(ii)Result. (A) In general, the deemed contribu-
tion by TFC of the TFD stock to FA in the section 351
exchange is a triggering event under paragraph (j)(1)
of this section. However, under paragraph (k)(3) of
this section the deemed contribution shall not be a
triggering event if UST enters into a new gain recog-
nition agreement with respect to the initial transfer in
which it agrees to treat as a triggering event a com-
plete or partial disposition of the FA stock deemed
received by TFC.
(B) Under paragraph (n)(1) of this section, the re-
demption of the FA stock deemed received by TFC
in exchange for the TFD stock shall not constitute
a disposition if UST enters into a new gain recog-
nition agreement with respect to the initial transfer
that includes appropriate provisions to take into ac-
count such redemption. Therefore, under the new
gain recognition agreement UST must agree to treat
as a triggering event a complete or partial disposition
of the stock of FA. Pursuant to paragraph (d)(2)(ii)
of this section, UST is permitted to enter into a single
new gain recognition agreement in year 3, but the gain
recognition agreement must provide a complete de-
scription of the section 304(a)(1) transaction includ-
ing the deemed section 351exchange and redemption
of the FA stock.
Example 15.Reduction in amount of gain sub-
ject to gain recognition agreement, followed by trig-
gering event.(i)Facts. In year 3, UST disposes of
60% of the TFC stock received in the initial trans-
fer in a transaction in which the conditions of para-
graph (o)(1)(ii) of this section are satisfied. Thus, the
amount of gain subject to the gain recognition agree-
ment is reduced by 60%. In year 5, TFC disposes of
50% of the TFD stock in a transaction that constitutes
a triggering event.
(ii)Result. As a result of the year 5 disposition
by TFC of 50% of the TFD stock, under paragraphs
(j)(1) and (c)(1)(i) of this section, UST must recog-
nize and include in income 50% of the gain subject to
the gain recognition agreement (because of the year
3 disposition of TFC stock, the amount of gain sub-
ject to the gain recognition agreement equals 40% of
the gain realized, but not recognized, on the initial
transfer). UST must pay applicable interest on any
additional tax due with respect to the gain recognized.
The amount of gain subject to the gain recognition
agreement is reduced by the amount of gain recog-
nized by UST (the remaining gain equals 20% of the
gain realized, but not recognized, by UST on the ini-
tial transfer).
Example 16.Taxable sale of stock of transferee
foreign corporation and election to reduce stock ba-
sis.(i)Facts. UST wholly owns F1 and TFD. The F1
stock has a $100x basis and $90x fair market value,
andtheTFDstockhasa$0xbasisand$100xfair
market value. UST also owns real property with a
$10x basis and $10x fair market value. In year 1,
pursuant to a section 351 exchange, UST transfers
the real property, the TFD stock, and the F1 stock to
TFC in exchange solely for 20 shares of TFC stock.
UST enters into a gain recognition agreement with re-
spect to the transfer of the TFD stock. The amount
of the gain recognition agreement is $100x. UST
takes the position that the basis of each share of TFC
stock received in the exchange is $5.5x (a proportion-
ate amount of the $110x aggregate basis of the trans-
ferred property). In year 3, UST disposes of all its
TFC stock in a transaction in which all gain realized
is recognized and included in taxable income.
(ii)Result. The year 3 disposition of the TFC
stock is a triggering event under paragraph (j)(4) of
this section. The disposition does not terminate the
gain recognition agreement pursuant to paragraph
(o)(1)(i) of this section because the basis of each
share of TFC stock received in exchange for the TFD
stock in the initial transfer is $5.5x, which exceeds
the $0x basis of the TFD stock at time of the initial
transfer. However, under paragraph (o)(1)(iii) of this
section, to satisfy the basis condition of paragraph
(o)(1)(i) of this section, UST can reduce the basis of
the 10 shares of the TFC stock received in exchange
for the TFD stock to $0x. If UST reduces the basis of
the 10 shares of TFC stock to $0x, under paragraph
(o)(1)(i) of this section the disposition of the TFC
stock shall not constitute a triggering event but in-
stead shall terminate the gain recognition agreement
without further effect.
Example 17.Successive section 351 exchanges,
section 301 distributions, and transactions involving
partnerships.(i)Facts. UST owns a 40 percent capi-
tal and profits interest in a foreign partnership (PRS).
PRS wholly owns TFD and other assets with basis
equal to fair market value. The TFD stock has a $50x
basis and $200x fair market value. TFC wholly owns
F1. On day 1 of year 1, in a section 351 exchange,
UST transfers its PRS interest to TFC in exchange
solely for stock of TFC (initial transfer). On that same
day, in a section 351 exchange, TFC transfers the PRS
interest received from UST to F1 in exchange solely
for stock of F1. In year 3, PRS receives a $150x
distribution from TFD to which section 301 applies.
Under section 301(c), $25x of the distribution consti-
tutes a dividend, $50x is applied against and reduces
the basis of the TFD stock held by PRS, and the re-
maining $75x is treated as gain from the sale or ex-
change of property. With respect to the TFD stock
deemed transferred by UST in the initial transfer, un-
der section 301(c), $10x (40% of $25x) of the distri-
bution constitutes a dividend, $20x (40% of $50x) is
applied against and reduces the basis of TFD stock,
and $30x (40% of $75x) is treated as gain from the
sale or exchange of property. In year 5, pursuant to
a distribution to which section 731 applies, PRS dis-
tributes all of the TFD stock to F1.
(ii)Result.(A)Successive section 351 transfers.
Under section 367(a)(4) and §1.367(a)–1T(c)(3)(ii),
the transfer of the PRS interest by UST to TFC is
treated, for purposes of section 367(a), as a transfer
by UST to TFC of its proportionate share of the TFD
stock held by PRS (the initial transfer). The initial
transfer by UST of the TFD stock to TFC is subject
to the general rule of section 367(a)(1), unless UST
enters into a gain recognition agreement with respect
to such transfer pursuant to §1.367(a)–3(b)(1)(ii) and
this section. Under paragraph (c)(3)(viii) of this sec-
tion, the gain recognition agreement must include a
complete description of the transfer, including a de-
scription of the partners of PRS. Even if UST enters
into a gain recognition agreement with respect to the
initial transfer, under paragraph (j)(3) of this section,
the subsequent transfer by TFC of the PRS interest
to F1 is a triggering event unless UST enters into a
new gain recognition agreement with respect to the
initial transfer under paragraph (k)(14) that provides
that, in addition to the triggering events provided in
paragraph (j) of this section, a complete or partial dis-
position of the F1 stock received by TFC in exchange
for the PRS interest shall constitute a triggering event
for purposes of the gain recognition agreement. The
new gain recognition agreement must also provide
2009–9 I.R.B.631March 2, 2009

that any other disposition that is inconsistent with the
principles of paragraph (k), including an indirect dis-
position of the TFD stock or of substantially all of the
assets of TFD, shall constitute a triggering event for
purposes of the new gain recognition agreement. Un-
der paragraph (d)(2)(ii) of this section, UST is per-
mitted to enter into a single gain recognition agree-
ment with respect to the initial transfer and the sub-
sequent transfer by TFC of the PRS interest, but the
agreement must include a complete description of the
initial transfer and the subsequent transfer of the PRS
interest.
(B)Section 301 distribution from TFD to PRS.
Under paragraph (b)(1)(iii) of this section, the section
301 distribution received by PRS from TFD is not
a disposition (and therefore does not affect the gain
recognition agreement) to the extent it is described in
section301(c)(1)or(2). However, under paragraph
(n)(2) of this section, to the extent the distribution is
described in section 301(c)(3), UST must recognize
gain ($30x) under the gain recognition agreement.
For this purpose, the amount of the distribution that
is described in section 301(c)(3) is determined before
taking into account the increase to the basis of the
TFD stock under paragraph (c)(4)(ii) of this section.
(C)Distribution of TFD stock by PRS to F1.The
year 5 distribution of the TFD stock by PRS to F1 is a
triggering event under paragraph (j)(1) of this section,
unless paragraph (k)(14) of this section applies.
(1) The condition of paragraph (k)(14)(i) of this
section is satisfied becausethe distribution qualifies
as a nonrecognition transaction.
(2) The condition of paragraph (k)(14)(ii) of this
section is satisfied because immediately after the dis-
tribution UST, a domestic corporation that is eligible
to be a U.S. transferor, owns at least 5% (applying the
attribution rules of section 318, as modified by sec-
tion 958(b)) of the total voting power and total value
of the outstanding stock of F1. As a result, UST is
treated as retaining an indirect interest in the TFD
stock following the distribution.
(3) The condition of paragraph (k)(14)(iii) of
this section is satisfied if UST enters into a new
gain recognition agreement with respect to the initial
transfer. The new gain recognition agreement need
not describe additional dispositions or other events
that would constitute triggering events because,
pursuant to paragraph (c)(5) of this section, the dis-
positions or other events described in paragraph (j) of
this section or in the existing gain recognition agree-
ment apply to the new gain recognition agreement.
Example 18.Complete liquidation of transferee
foreign corporation.(i)Facts. TFD has 10 shares
of stock outstanding immediately before the initial
transfer. On the date of the initial transfer, the TFD
stock has a $0x basis and $90x fair market value. In
year 2, in exchange for 1 share of TFD stock TFC
transfers real estate to TFD with a $10x basis and
$10x fair market value. In year 4, TFC distributes
the 11 shares of TFD stock to UST in a complete
liquidation to which sections 332 and 337 apply.
(ii)Result. In determining whether the gain
recognition agreement entered into by UST with
respect to the initial transfer is terminated under
paragraph (o)(5) of this section, or triggered under
paragraphs (j)(1) and (j)(4) of this section, only the
10 shares of TFD stock transferred by UST in the
initial transfer are considered. Thus, the 1 share of
TFD stock received by TFC in exchange for the real
estate in year 2 is not taken into account.
Example 19.Spin-off of transferred corporation.
(i)Facts. Before the initial transfer, the TFD stock has
an $80x basis and a $100x fair market value, and the
TFC stock has a $100x basis and a $100x fair market
value. In year 4, TFC distributes all of the TFD stock
to UST in a transaction to which section 355 applies.
At the time of the distribution, the TFD stock has a
$200x fair market value, and the TFC stock (without
regard to the value of the TFD stock held by TFC)
has a $100x fair market value. At such time, the TFC
stock has a $180x basis. As determined under section
358, immediately after the distribution, the TFC stock
has a $60x basis, and the TFD stock has a $120x basis.
(ii)Result. The distribution of the TFD stock by
TFC in year 4 is a triggering event under paragraph
(j)(1) of this section. The distribution does not ter-
minate the gain recognition agreement under para-
graph (o)(5) of this section because after the distribu-
tion, the basis of the TFD stock in the hands of UST
($120x) is greater than the basis of the TFD stock at
the time of the initial transfer ($80x). However, if
UST reduces the basis of the TFD stock to $80x (as
provided under paragraph (o)(5)(iii) of this section)
the gain recognition agreement will terminate with-
out further effect. If UST does not elect to reduce the
basis of the TFD stock, see paragraph (k)(14) of this
section.
Example 20
.Intercompany transaction followed
by disposition to nonmember.(i)Facts. At the time
of the initial transfer, the TFD stock has a $50x ba-
sis and $100x fair market value. The amount of the
gain recognition agreement is $50x. In year 3, UST
distributes all of the TFC stock to USP in a trans-
action to which section 301 applies. At the time of
the distribution, the TFC stock has a $50x basis and
$90x fair market value. Under section 311(b), UST
must recognize $40x gain (the intercompany item)
on the distribution, but because the distribution is
an intercompany transaction, under the provisions of
§1.1502–13, the $40x gain is not taken into account
in year 3. In year 4, USP sells all of the TFC stock
to X, an unrelated corporation. Under the provisions
of §1.1502–13, in year 4 UST takes into account the
$40x intercompany item as a result of the sale of the
TFC stock to X.
(ii)Result. (A) The year 3 distribution of the
TFC stock by UST to USP does not terminate the
gain recognition agreement under paragraph (o)(1) of
this section because UST does not include the $40x
gain in taxable income during year 3. Under para-
graph (j)(4) of this section, the year 3 distribution of
the TFC stock by UST to USP is generally a trigger-
ing event; however, because the distribution is an in-
tercompany transaction that creates an intercompany
item, the distribution shall not constitute a triggering
event if the conditions of paragraph (k)(12)(i) of this
section are satisfied.
(1) The condition of paragraph (k)(12)(i)(A) of
this section is satisfied because the aggregate basis of
the TFC stock distributed ($50x) is not greater than
the sum of the aggregate basis of the TFD stock at
the time of the initial transfer ($50x).
(2) The condition of paragraph (k)(12)(i)(B) of
this section is satisfied if the next annual certification
for the existing gain recognition agreement includes
a complete description of the intercompany transac-
tion and an explanation of how the basis condition of
paragraph (k)(12)(i)(A) of this section is satisfied.
(B) Under paragraph (o)(6) of this section and the
principles of paragraph (o)(1)(i) of this section, be-
cause the year 4 sale of the TFC stock to X requires
UST to take into account the $40x gain (the intercom-
pany item) from the year 3 distribution, the year 4
sale terminates the gain recognition agreement. If,
alternatively, in year 4 USP had sold only 30% of the
TFC stock, then under paragraph (o)(6) of this sec-
tion and the principles of paragraph (o)(1)(ii) of this
section the amount of gain subject to the gain recog-
nition agreement would be reduced by 30%.
(iii)Alternate facts.Intercompany transaction
followed by sale of transferee foreign corporation to
member. Assume the same facts as in paragraph (i) of
thisExample 20, except that, instead of USP selling
the TFC stock to X, in year 4 USP sells the TFC stock
to USS in exchange for $90x cash. UST and USS are
members of the USP consolidated group immediately
after the sale. The results of the year 3 distribution
of the TFC stock by UST to USP are the same as in
paragraph (ii) of thisExample 20. In addition, under
paragraph (k)(12)(ii) of this section, the year 4 sale
by USP of the TFC stock to USS is not a triggering
event, provided UST includes a complete description
of the sale with the annual certification filed for the
gain recognition agreement in year 4.
(iv)Alternate facts.Intercompany transaction
followed by complete liquidation of transferee foreign
corporation. Assume the same facts as in paragraph
(i)ofthisExample 20,exceptthat,insteadofUSP
selling the TFC stock to X, in year 4 TFC distributes
all of its assets to USP in a complete liquidation to
which sections 332 and 337 apply. The result is the
same as in paragraph (ii) of thisExample 20because,
under the provisions of §1.1502–13, in year 4 UST
takes into account the $40x gain (the intercompany
item) from the year 3 distribution.
(v)Alternate facts.Intercompany transaction fol-
lowed by triggering event. Assume the same facts
as in paragraph (i) of thisExample 20, except that
instead of USP selling the TFC stock to X, in year
4 TFC disposes of all of the TFD stock in a trans-
action that constitutes a triggering event under para-
graph (j)(1) of this section. Under paragraph (c)(1)(i)
of this section UST must recognize $50x gain under
the gain recognition agreement. Under paragraphs
(c)(4)(i) and (ii) of this section, as of the date of the
initial transfer the basis of the TFC stock and TFD
stock, respectively, is increased by $50x.
(vi)
Alternate facts.Intercompany transaction
followed by section 351 transfer to member. The facts
are the same as in paragraph (i) of thisExample 20,
except that, in year 3, in a section 351 exchange UST
transfers all of the TFC stock to USS in exchange for
$10x cash and $80x of stock of USS. USS is a mem-
ber of the USP consolidated group immediately after
the exchange. The transfer of the TFC stock by UST
to USS is an intercompany transaction. Under sec-
tion 351(b), UST must generally recognize $10x gain
(intercompany item) in connection with the transfer;
however, under the provisions of §1.1502–13, UST
does not take the $10x gain into account in year 3.
Under paragraph (k)(12) of this section, as result of
the intercompany transaction creating an intercom-
pany item ($10x gain), the existing gain recognition
agreement ($50x gain) must be divided between UST
and USS. UST shall remain subject to a gain recog-
March 2, 20096322009–9 I.R.B.

nition agreement of $10x (equal to the amount of the
intercompany item). The amount of the gain recogni-
tion agreement entered into by USS under paragraph
(k)(1) of this section is $40x (equal to the amount of
the existing gain recognition agreement, reduced by
the amount of the of the gain recognition agreement
to which UST remains subject).
Example 21.Transfer of transferred stock to
United States person other than U.S. transferor.(i)
Facts. An individual (A) that is a United States
citizen wholly owns TFD, TFC, and DC. A transfers
the TFD stock to TFC in a section 351 exchange and
enters into a gain recognition agreement with respect
to such transfer. In year 5, pursuant to an asset
reorganization, TFC transfers all of its assets to DC
in exchange solely for DC stock. TFC distributes the
DC stock to A pursuant to the plan of reorganization.
(ii)Result. The transfer by TFC of the TFD stock
to DC and the exchange byA of the TFC stock for DC
stock pursuant to the asset reorganization are trigger-
ing events under paragraphs (j)(1) and (j)(4) of this
section, respectively. The gain recognition agreement
does not terminate under paragraph (o)(5) of this sec-
tion because DC is neither the U.S. transferor, nor
an individual that is a United States person, nor a
member of the same consolidated group of which the
U.S. transferor is a member. However, if paragraph
(k)(14) of this section applies the exchanges shall not
constitute triggering events.
(A) The condition of paragraph (k)(14)(i) of this
section is satisfied because the transfer of the TFD
stock to DC qualifies as a nonrecognition transaction.
(B) The condition of paragraph (k)(14)(ii) of this
section is satisfied because immediately after the
transfer DC, a domestic corporation that is eligible
to be a U.S. transferor, retains a direct interest in the
TFD stock following the transfer.
(C) The condition of paragraph (k)(14)(iii) of this
section is satisfied if DC enters into a new gain recog-
nition agreement with respect to the initial transfer.
Under paragraph (k)(14)(iii)(B) of this section, DC
is not required to describe any subsequent disposi-
tions or other events that (based on the principles of
paragraph (j) of this section) would constitute trigger-
ing events for purposes of the new gain recognition
agreement, other than the dispositions or other events
described in paragraph (j) of this section, because DC
holds a direct interest in TFD after the asset reorgani-
zation.
Example 22.Transfer of transferred stock to con-
solidated group member.(i)Facts. UST wholly owns
DC, a member of the USP consolidated group that in-
cludes UST. In year 5, pursuant to an asset reorgani-
zation described in section 368(a)(1)(A) TFC merges
with and into DC. Immediately after the asset reorga-
nization, DC wholly owns TFD, and the basis of the
TFD stock is not greater than the aggregate basis of
such stock at the time of the initial transfer.
(ii)Result. The gain recognition agreement filed
by UST with respect to the initial transfer terminates
without further effect if the conditions of paragraph
(o)(5) of this section are satisfied.
(A) The condition of paragraph (o)(5)(i) of this
section is satisfied because the transfer of the TFD
stock is a section 361 exchange.
(B) The condition of paragraph (o)(5)(ii) of this
section is satisfied because DC is a member of the
consolidated group that includes UST immediately
after the section 361 exchange.
(C) The condition of paragraph (o)(5)(iii) of this
section is satisfied because the aggregate basis of
the TFD stock immediately after the section 361
exchange is not greater than the aggregate basis
of the TFD stock at the time of the initial trans-
fer (as adjusted for any gain recognized by UST
on such transfer). If the basis condition of para-
graph (o)(5)(iii) were not satisfied, under paragraph
(o)(5)(iii) of this section, DC could reduce the basis
of the TFD stock received in the reorganization. Al-
ternatively, a new gain recognition agreement could
be entered into if paragraph (k)(14) of this section
applied to the disposition of the TFD stock pursuant
to the section 361 exchange.
(iii)Alternate facts. The facts are the same as in
paragraph (i) of thisExample 22, except that instead
of TFC merging into DC, TFC merges into TFD in a
reorganization described insection 368(a)(1)(A). The
gain recognition agreement terminates without fur-
ther effect if the conditions of paragraph (o)(5) of this
section are satisfied.
(A) The condition of paragraph (o)(5)(i) of this
section is satisfied because the TFD stock issued by
TFD to TFC in the reorganization, which is treated
as transferred stock under paragraph (b)(2)(iii) of this
section, is distributed by TFC to UST pursuant to sec-
tion 361(c).
(B) The condition of paragraph (o)(5)(ii) of this
section is satisfied because UST is the U.S. transferor.
(C) The condition of paragraph (o)(5)(iii) of this
section is satisfied if the aggregate basis of the TFD
stock received by UST from TFC is not greater than
the aggregate basis of the TFD stock at the time of the
initial transfer (as adjusted for any gain recognized by
UST on such transfer). If the basis condition of para-
graph (o)(5)(iii) were not satisfied, under paragraph
(o)(5)(iii) of this section, UST could reduce the basis
of the TFD stock received in the reorganization.
Example 23.Split-off of transferred stock.(i)
Facts. X, a domestic corporation that is unrelated to
USP and UST, wholly owns TFC. Pursuant to a re-
organization described insection 368(a)(1)(B), UST
transfers all of the TFD stock to TFC in exchange for
50% of the outstanding voting stock of TFC. UST en-
ters into a gain recognition agreement with respect to
such transfer. In year 4, in asplit-off transaction to
which section 355 applies, TFC distributes all of the
TFD stock to X in exchange for all the TFC stock held
by X.
(ii)Result. Under paragraph (j)(1) of this section,
the year 4 distribution of the TFD stock to X con-
stitutes a triggering event. However, the distribution
shall not constitute a triggering event if paragraph
(k)(14) of this section applies. The gain recognition
agreement does not terminate under paragraph (o)(5)
of this section because X is not a recipient described
in paragraph (o)(5)(ii) of this section.
(A) The condition of paragraph (k)(14)(i) of this
section is satisfied because the distribution of the
TFD stock qualifies as a nonrecognition transaction.
(B) The condition of paragraph (k)(14)(ii) of this
section is satisfied because immediately after the dis-
tribution X, a domestic corporation that is eligible to
be a U.S. transferor, retains a direct interest in the
TFD stock.
(C) The condition of paragraph (k)(14)(iii) of this
section is satisfied if X enters into a new gain recog-
nition agreement with respect to the initial transfer.
Under paragraph (k)(14)(iii)(B) of this section, X is
not required to describe, with the new gain recogni-
tion agreement, any subsequent dispositions or other
events that (based on the principles of paragraph (j) of
this section) would constitute triggering events, other
than the dispositions described in paragraph (j) of this
section, because X directly owns TFD after the distri-
bution.
(D) If X were a United States citizen, the gain
recognition agreement would terminate if the condi-
tion of paragraph (o)(5)(iii) of this section were sat-
isfied. Alternatively, the gain recognition agreement
would continue for its remaining term if the condi-
tions for the application of paragraph (k)(14) of this
section were satisfied.
(iii)Alternate facts.Distribution to unrelated for-
eign corporation. The facts are the same as in para-
graph (i) of thisExample 23, except that X is a foreign
corporation wholly owned by DC. DC is unrelated to
UST. The results are the same as in paragraph (ii) of
thisExample 23, except as follows.
(A) The condition of paragraph (k)(14)(ii) of this
section is satisfied because immediately after the dis-
tribution DC, a domestic corporation that is eligible to
be a U.S. transferor, owns at least 5% (applying the at-
tribution rules of section 318, as modified by section
958(b)) of the total voting power and total value of
the outstanding stock of X. As a result, DC is treated
as retaining an indirect interest in the TFD stock im-
mediately following the distribution.
(B) The condition of paragraph (k)(14)(iii) of this
section is satisfied if DC enters into a new gain recog-
nition agreement with respect to the initial transfer.
Under paragraph (k)(14)(iii)(B) of this section, DC
must, in addition to the dispositions described in para-
graph (j) of this section, include as a triggering event
a complete or partial disposition of the stock of X.
(iv)Alternate facts.Distribution to nonresident
alien individual. The facts are the same as in para-
graph (i) of thisExample 23, except that X is a non-
resident alien individual. Paragraph (k)(14) of this
section does not apply to the distribution because the
conditions of paragraph (k)(14)(ii) and (iii) of this
section cannot be satisfied. Therefore, the distribu-
tion is a triggering event, and UST will recognize gain
under the gain recognition agreement as required un-
der paragraphs (c)(1)(i) and (v) of this section. The
result would be the same if X were a foreign corpora-
tion and, immediately after the distribution, no United
States person owned at least 5% (applying the attri-
bution rules of section 318, as modified by section
958(b)) of the total voting power and value of the out-
standing stock of X.
Example 24.Applicability of this section to gain
recognition agreements filed beforeMarch 13, 2009.
(i)Facts. The facts are the same as in paragraph (i) of
Example 6, except that the initial transfer occurred on
March 7, 2007, and the asset reorganization occurred
on July 1, 2008.
(ii)Result. Under paragraph (r)(1)(ii) of this sec-
tion, the rules of §1.367(a)–8T (see 26 CFR part 1,
revised April 1, 2007) apply to the transfers pursuant
to the asset reorganization because the initial transfer
occurred on March 7, 2007. As a result of the disposi-
tion of the TFC stock pursuant to the asset reorganiza-
tion, under §1.367(a)–8T(d), USP is required to rec-
ognize the gain subject to the gain recognition agree-
ment and pay applicable interest on any additional tax
due with respect to such gain. Because the acquiring
corporation in the asset reorganization is foreign, an
2009–9 I.R.B.633March 2, 2009

exception under §1.367(a)–8T(e) is not available for
the exchange of TFC stock by USP. However, pur-
suant to paragraph (r)(2)(i) of this section, because
the exception provided by paragraph (k)(14) of this
section is not included in §1.367(a)–8T, USP may
apply paragraph (k)(14) of this section to such ex-
change (provided the conditions of paragraph (k)(14)
of this section are satisfied), if the statute of limita-
tions on assessments of tax for the 2007 tax year has
not closed. If USP applies paragraph (k)(14) of this
section to its exchange ofthe TFC stock pursuant to
the asset reorganization, under paragraph (r)(2)(ii) of
this section USP must include the new gain recogni-
tion agreement required under paragraph (k)(14)(iii)
of this section with an amended Federal income tax
return for its 2008 tax year that is filed before August
10, 2009.
Example 25.Applicability of this section to gain
recognition agreements filed beforeMarch 13, 2009.
(i)Facts. The initial transfer occurs in 2004. In 2005,
pursuant to a section 351 exchange, TFC transfers
the TFD stock to F1 in exchange solely for F1 vot-
ing stock. UST does not file a new gain recogni-
tion agreement under §1.367(a)–8(g)(2) with respect
to the exchange.
(ii)Result. Under paragraph (r)(1)(ii) of this
section, the rules of §1.367(a)–8 (see 26 CFR part
1, revised April 1, 2006) apply to the year 2005
disposition of the TFD stock because UST filed the
gain recognition agreement after July 20, 1998, but
before March 7, 2007. Under §1.367(a)–8(e) (see
26CFRpart1,revisedApril1,2006),asaresult
of the disposition of the TFD stock by TFC, UST
must recognize the amount of gain subject to the
gain recognition agreement. Paragraph (r)(2)(i) of
this section does not apply because the rule provided
by paragraph (k)(3) of this section was included in
§1.367(a)–8(g)(2) (see 26 CFR part 1, revised April
1, 2006). However, UST may request relief for
reasonable cause under §1.367(a)–8(c)(2) (see 26
CFR part 1, revised April 1, 2006) to file a new gain
recognition agreement with respect to the disposition
of the TFD stock by TFC in 2005.
(r)Effective/applicability date—(1)
General rule—(i)Transfers occurring on
or afterMarch 13, 2009. The rules of this
section apply to gain recognition agree-
ments filed with respect to transfers of
stock or securities occurring on or after
March 13, 2009. However, the rules of
thissectiondonotapplytogainrecogni-
tion agreements filed with respect to any
such transfer occurring on or after March
13, 2009, if such transfer was entered into
pursuant to a written agreement that was
(subject to customary conditions) bind-
ing before February 11, 2009, and at all
times thereafter. Solely for purposes of
this paragraph (r), a transfer described in
the preceding sentence shall be deemed to
be a transfer occurring before March 13,
2009 to which the rules of §1.367(a)–8
(see 26 CFR part 1, revised April 1,
2006) apply. See paragraph (r)(2)(iii) of
this section for the ability to apply the
rules of this section with respect to gain
recognition agreements filed for taxable
years ending before March 13, 2009.
(ii)Transfers occurring before March
13, 2009. Formatterscoveredinthis
section for periods before March 13,
2009 but on or after March 7, 2007,
the corresponding rules of §1.367(a)–8T
(see 26 CFR part 1, revised April 1,
2007) apply. For matters covered in
this section for periods before March 7,
2007 but on or after July 20, 1998, the
corresponding rules of §1.367(a)–8 (see
26 CFR part 1, revised April 1, 2006)
apply. For matters covered in this section
for periods before July 20, 1998, the
corresponding rules of §1.367(a)–3T(g)
(see 26 CFR part 1, revised April 1, 1998)
and Notice 87–85, 1987–2 C.B. 395 apply.
In addition, if a U.S. transferor entered
into a gain recognition agreement for
transfers before July 20, 1998, then the
rules of §1.367(a)–3T(g) (see 26 CFR
part 1, revised April 1, 1998) continue to
applyinlieuofthissectionintheevent
of any direct or indirect nonrecognition
transfer of the same property. See also,
§1.367(a)–3(h).
(2)Applicability to gain recogni-
tion agreements filed before March 13,
2009—(i)General rule.Taxpayers
may apply the rules of this regulation
§1.367(a)–8 that were not included in
§1.367(a)–8T (see 26 CFR part 1, revised
April 1, 2007), to gain recognition agree-
ments filed with respect to transfers of
stock or securities for all open taxable
years, if done consistentlytoalltransfers.
A U.S. transferor subject to section 877
and §1.367(a)–8T(d)(6) shall not apply the
rules of this regulation to reach a contrary
result. A taxpayer that failed to file a gain
recognition agreement for a transfer, or to
comply materially with any requirement
of this section with respect to an existing
gain recognition agreement, must obtain
relief for reasonable cause for such failure
under §1.367(a)–8T(e)(10) before apply-
ing the rules of this regulation §1.367(a)–8
that were not included in §1.367(a)–8T
as permitted by this paragraph (r)(2). See
paragraph (q)(2) of this section,Examples
24and25for illustrations of the rule pro-
vided by this paragraph (r)(2)(i).
(ii)Taxable years ending before March
13, 2009. Notwithstanding the require-
ments of §1.367(a)–8(d), any gain recog-
nition agreement or other filing required
by reason of electing to apply the rules
of this regulation §1.367(a)–8 that were
not included in §1.367(a)–8T, as permit-
ted by this paragraph (r)(2), for a taxable
year ending before March 13, 2009 shall
be considered filed in accordance with
the requirements of §1.367(a)–8(d), pro-
vided the gain recognition agreement or
other filing is attached to an original or
amended return for such taxable year. An
amended return required to be filed by
reason of electing to apply the rules of
this regulation §1.367(a)–8 that were not
included in §1.367(a)–8T, as permitted by
this paragraph (r)(2), must be filed on or
before August 10, 2009. A taxpayer that
wishes to apply the rules of this regula-
tion §1.367(a)–8 that were not included in
§1.367(a)–8T, as permitted by this para-
graph (r)(2), but that fails to meet the filing
requirement described in the preceding
sentence must request relief for reasonable
cause under paragraph (p) of this section.
(iii)Taxable years ending after effec-
tive date. A taxpayer that entered into
a gain recognition agreement to which
§1.367(a)–8T (see 26 CFR part 1, revised
April 1, 2007) applies may apply the rules
of this section in a tax year ending on
or after March 13, 2009 by attaching the
agreement, certification, or other infor-
mation related to such gain recognition
agreement that the rules of this section
require in accordance with the rules of this
section and with the time and manner rules
provided in §1.367(a)–8(d).
§1.367(a)–8T [Removed]
Par. 8. Section 1.367(a)–8T is re-
moved.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 9. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 10. In §602.101, paragraph (b)
is amended by removing an entry for
§1.367(a)–8T from the table and adding
an entry for §1.367(a)–8 to the table in
numerical order to read as follows:
§602.101 OMB Control numbers.
*****
(b) * * *
March 2, 20096342009–9 I.R.B.

CFR part or section where
identified and described
Current OMB
Control No.
*****
1.367(a)–8...........................................................
1545–2056
*****
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved January 16, 2009.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 9,
2009, 11:15 a.m., and published in the issue of the Federal
Register for February 11, 2009, 74 F.R. 6951)
Section 3406.—Backup
Withholding
Entities required to report under section 6050W
must perform backup withholding if the payee fails
to furnish a correct Taxpayer Identification Number
(“TIN”). This announcement alerts 6050W filers that
they may now partificipate in the TIN matching pro-
gram. See Announcement 2009-6, page 643.
Section 6050W.—Returns
Relating to Payments Made
in Settlement of Payment
Card and Thi
rd Party
Network Transactions
Entities required to report under section 6050W
must perform backup withholding if the payee fails
to furnish a correct Taxpayer Identification Number
(“TIN”). This announcement alerts 6050W filers that
they may now partificipate in the TIN matching pro-
gram. See Announcement 2009-6, page 643.
Section 6103.—Confi-
dentiality and Disclosure
of Returns and R
eturn
Information
26 CFR 301.6103(p)(7)–1: Procedures for adminis-
trative review of a determination that an authorized
recipient has failed to safeguard returns or return in-
formation.
T.D. 9445
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Procedures for Administrative
Review of a Determination
That an Authorized Recipient
Has Failed to Safeguard Tax
Returns or Return Information
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations regarding administrative
review procedures for certain government
agencies and other authorized recipients
of returns or return information whose
receipt of returns andreturn information
may be suspended or terminated because
they do not maintain proper safeguards.
The regulations provide guidance to re-
sponsible IRS personnel and authorized
recipients as to these administrative pro-
cedures.
DATES:Effective Date:These regulations
are effective on February 11, 2009.
Applicability Date:These regulations
apply to all authorized recipients of returns
and return information that are subject to
the safeguard requirements set forth in sec-
tion 6103(p)(4) on or after February 11,
2009.
FOR FURTHER INFORMATION
CONTACT: Wendy L. Kribell, (202)
622–4570 (not a toll-free number).
Background
This document contains final regulations
amending the Procedure and Administra-
tion Regulations (26 CFR Part 301) un-
der section 6103(p)(4), (p)(7), and (q) of
the Internal Revenue Code (Code). Sec-
tion 6103 protects returns and return in-
formation from disclosure except to cer-
tain government agencies and other autho-
rized recipients, including State tax agen-
cies as provided in section 6103(d). Sec-
tion 6103(p)(4) provides that certain au-
thorized recipients must establish proce-
dures satisfactory to the IRS for safeguard-
ing the returns and return information. The
IRS reviews, on a regular basis, safeguards
established by these authorized recipients.
If the IRS determines that an authorized
recipient has failed to maintain adequate
safeguards or has made any unauthorized
inspections or disclosures of returns or re-
turn information, section 6103(p)(4) au-
thorizes the IRS to terminate or suspend
disclosure of returns and return informa-
tion to the authorized recipient until the
IRS is satisfied that adequate steps have
been taken to ensure adequate safeguards
or prevent additional unauthorized inspec-
tions or disclosures.
Section 6103(p)(7) requires the Secre-
tary to prescribe regulations providing for
administrative review of an IRS determi-
nation that a State tax agency has failed to
meet the safeguarding requirements. For-
mer §301.6103(p)(7)–1 contained proce-
dures to allow State tax agencies, prior to a
suspension or termination of disclosure, to
appeal a preliminary finding by the IRS of
inadequate safeguards or unauthorized dis-
closure, or to establish that the agency had
taken steps to prevent a recurrence of the
violation. Section 6103(q) further autho-
rizes the Secretary to prescribe such other
regulations as are necessary to carry out
the provisions of section 6103 generally.
2009–9 I.R.B.635March 2, 2009

On February 24, 2006, the Treasury
Department and IRS published in the
Federal Registerproposed regulations
(REG–157271–05, 2006–1 C.B. 652
[71 FR 9487]) and temporary regulations
(T.D. 9252, 2006–1 C.B. 633 [71 FR
9449]) to extend the administrative
review procedure for State tax agencies
to “any” authorized recipient specified
in section 6103(p)(4), and to include
unauthorized inspection within the IRS’s
scope of review (in addition to inadequate
safeguards and unauthorized disclosure).
Two written comments were received,
and no public hearing was requested or
held. After consideration of the comments
received, the proposed regulations are
adopted as final regulations, and the
corresponding temporary regulations are
removed. See §601.601(d)(2)(ii)(b).
Explanation and Summary of
Comments
The first commentator suggested that the
final regulations expressly provide that the
IRS may give written notice of its intention
to terminate or suspend disclosure via fac-
simile or electronic mail. This suggestion
was not adopted because nothing in the
regulations precludes a written notice from
being delivered electronically. Not speci-
fying the means by which written notice is
conveyed would also afford greater flexi-
bility in providing notice as other means
might evolve.
The second commentator suggested
that the proposed regulations would le-
galize the misuse of returns and return
information and thereby discourage tax-
payers from seeking tax advice. This
suggestion is unwarranted. Section 6103
protects returns and return information
from disclosure except to authorized recip-
ients. Section 6103(p)(4) requires certain
authorized recipients to establish proce-
dures for safeguarding returns and return
information. If the authorized recipient
fails to maintain adequate safeguards or
has made any unauthorized inspections or
disclosures, additional disclosures to that
recipient may be suspended or terminated
until the IRS is satisfied that adequate
steps have been taken to ensure adequate
safeguards or prevent additional unautho-
rized inspections or disclosures. Prior to
these final regulations, procedures were
available pursuant to section 6103(p)(7)
to allow State tax agencies, prior to a sus-
pension or termination of disclosure, to
appeal a preliminary finding of inadequate
safeguards or unauthorized disclosure, or
to establish that the agency had taken steps
to prevent a recurrence of the violation.
The purpose of these final regulations
is to extend these administrative review
procedures from State tax agencies to all
authorized recipients described in section
6103(p)(4) and to include a preliminary
finding of unauthorized inspection within
the scope of review. The extension of
these provisions to all authorized recipi-
ents enhances the protections afforded to
returns and return information.
Special Analyses
It has been determined that this Treasury
decision is not a significant regulatory ac-
tion as defined in Executive Order 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section553(b)oftheAdministrativePro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. Because the
regulations do not impose a collection of
information on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f)
of the Internal Revenue Code, the notice of
proposed rulemaking preceding these reg-
ulations was submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on its impact
on small businesses.
Drafting Information
The principal author of these regula-
tions is Wendy L. Kribell, Office of the As-
sociate Chief Counsel (Procedure & Ad-
ministration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR Part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6103(p)(4)–1 is
added to read as follows:
§301.6103(p)(4)–1 Procedures relating
to safeguards for returns or return
information.
For security guidelines and other safe-
guards for protecting returns and return in-
formation, see guidance published by the
Internal Revenue Service. For procedures
for administrative review of a determina-
tion that an authorized recipient has failed
to safeguard returns or return information,
see §301.6103(p)(7)–1.
§301.6103(p)(4)–1T [Removed]
Par. 3. Section 301.6103(p)(4)–1T is
removed.
Par. 4. Section 301.6103(p)(7)–1 is
added to read as follows:
§301.6103(p)(7)–1 Procedures for
administrative review of a determination
that an authorized recipient has failed to
safeguard returns or return information.
(a)In general. Notwithstanding any
section of the Internal Revenue Code
(Code), the Internal Revenue Service
(IRS) may terminate or suspend disclosure
of returns and return information to any
authorized recipient specified in section
(p)(4) of section 6103, if the IRS deter-
mines that:
(1) The authorized recipient has al-
lowed an unauthorized inspection or dis-
closure of returns or return information
and that the authorized recipient has not
taken adequate corrective action to pre-
vent the recurrence of an unauthorized
inspection or disclosure; or
(2) The authorizedrecipient does not
satisfactorily maintain the safeguards pre-
scribed by section 6103(p)(4), and has
made no adequate plan to improve its
system to maintain the safeguards satis-
factorily.
(b)Notice of IRS’s intention to termi-
nate or suspend disclosure. Prior to ter-
minating or suspending authorized disclo-
sures, the IRS will notify the authorized
recipient in writing of the IRS’s prelim-
inary determination and of the IRS’s in-
tention to discontinue disclosure of returns
and return information to the authorized
recipient. Upon so notifying the autho-
rized recipient, the IRS, if it determines
March 2, 20096362009–9 I.R.B.

that tax administration otherwise would be
seriously impaired, may suspend further
disclosures of returns and return informa-
tion to the authorizedrecipient pending a
final determination by the Commissioner
or a Deputy Commissioner described in
paragraph (d)(2) of this section.
(c)Authorized recipient’s right to ap-
peal. An authorized recipient shall have
30 days from the date of receipt of a no-
tice described in paragraph (b) of this sec-
tion to appeal the preliminary determina-
tion described in paragraph (b) of this sec-
tion. The appeal shall be made directly to
the Commissioner.
(d)Procedures for administrative re-
view. (1) To appeal a preliminary deter-
mination described in paragraph (b) of this
section, the authorized recipient shall send
a written request for aconference to: Com-
missioner of Internal Revenue (Attention:
SE:S:CLD:GLD), 1111 Constitution Av-
enue, NW, Washington, DC 20224. The
request must include a complete descrip-
tion of the authorized recipient’s present
system of safeguarding returns or return
information received by the authorized re-
cipient (and its authorized contractors or
agents, if any). The request must state the
reason or reasons the authorized recipient
believes that such system or practice (in-
cluding improvements, if any, to such sys-
tem or practice expected to be made in the
near future) is or will be adequate to safe-
guard returns or return information.
(2) Within 45 days of the receipt of
the request made in accordance with the
provisions of paragraph (d)(1) of this sec-
tion, the Commissioner or Deputy Com-
missioner personally shall hold a confer-
ence with representatives of the authorized
recipient, after which the Commissioner or
Deputy Commissioner shall make a final
determination with respect to the appeal.
(e)Effective/applicability date.This
section applies to all authorized recipients
of returns and return information that are
subject to the safeguard requirements set
forth in section 6103(p)(4) on or after Feb-
ruary 11, 2009.
§301.6103(p)(7)–1T [Removed]
Par. 5. Section 301.6103(p)(7)–1T is
removed.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved January 13, 2009.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 10,
2009, 8:45 a.m., and published in the issue of the Federal
Register for February 11, 2009, 74 F.R. 6829)
Section 6109.—Identifying
Numbers
Entities req
uired to report under section 6050W
must perform
backup withholding if the payee fails
to furnish a c
orrect Taxpayer Identification Number
(“TIN”). Thi
s announcement alerts 6050W filers that
they may now
partificipate in the TIN matching pro-
gram. See An
nouncement 2009-6, page 643.
2009–9 I.R.B.637March 2, 2009

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Tax Avoidance
Transactions
REG–138326–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Noti
ce of proposed rulemaking
and notice o
f public hearing.
SUMMARY: This document contains pro-
posed regulations under section 6231 of
the Internal Revenue Code that allow the
IRS to convert partnership items to non-
partnership items when the application of
the unified partnership audit and litigation
procedures of sections 6221 through 6234
(TEFRA partnership procedures) with re-
spect to certain tax avoidance transactions
interferes with the effective and efficient
enforcement of the internal revenue laws.
The regulations affect taxpayers who have
engaged in a listed transaction through an
entity subject to the TEFRA partnership
procedures. This document also provides
notice of a public hearing on these pro-
posed regulations.
DATES: Written or electronic comments
must be received by May 14, 2009. Out-
lines of topics to be discussed at the pub-
lic hearing scheduled for June 4, 2009, at
10 a.m. must be received by May 15, 2009.
ADDRES
SES: Send submissions to:
CC:PA
:LPD:PR (REG–138326–07), room
5205,
Internal Revenue Service, PO Box
7604,
Ben Franklin Station, Washington,
DC 200
44. Submissions may be hand
deliv
ered Monday through Friday be-
twee
n the hours of 8 a. m. and 4 p.m.
to: C
C:PA:LPD:PR (REG–138326–07),
Cour
ier’s Desk, Internal Revenue Ser-
vice
, 1111 Constitution Avenue, N.W.,
Wash
ington, DC 20224, or sent elec-
tron
ically via the Federal eRulemaking
Por
tal athttp://www.regulations.gov(IRS
REG
–138326–07). The public hearing
wil
l be held in the Auditorium, Internal
Rev
enue Service Building, 1111 Constitu-
tio
n Avenue, N.W., Washington, DC.
FOR FURTHER IN
FORMATION
CONTACT: Conc
erning the pro-
posed regulat
ions, Robert T. Wearing
at (202) 622–4
570;concerning
submissions o
f comments, the hearing,
or to be place
d on the building
access list t
o attend the hearing,
Richard.A.H
urst@irscounsel.treas.govof
the Publicat
ions and Regulations Branch
at (202) 622
–7180 (not toll-free numbers).
SUPPLEMENT
ARY INFORMATION:
Background
This docume
nt contains proposed
amendments
to the Procedure and Admin-
istration R
egulations (26 CFR Part 301)
under secti
on 6231(c) of the Internal Rev-
enue Code.
Section 402 of the Tax Equity
and Fiscal
Responsibility Act of 1982,
Public Law
97–248 (96 Stat. 324) added
sections 6
221 through 6231 to the Internal
Revenue Co
de to provide unified audit and
litigati
on procedures for determining the
tax treat
ment of partnership items at the
partners
hip level rather than at the partner
level. Se
ctions 6233 and 6234 were sub-
sequent
ly added by section 714(p)(1) of
the Tax R
eform Act of 1984, Public Law
98–369 (
98 Stat. 494) and section 1231(a)
of the Ta
xpayer Relief Act of 1997, Public
Law 105–
34 (11 Stat. 788), respectively.
Ordinar
ily, under the TEFRA partner-
ship pro
cedures, the IRS must adjust a
partne
r’s treatment of partnership items
only th
rough partnership-level proceed-
ings. T
here are several exceptions that
allow a
djustments to be made through
partne
r-level proceedings. The small
partn
ership exception setforth in section
6231(
a)(1)(B) provides that partnerships
havin
g ten or fewer partners, each of
whom i
s an individual, a C corporation,
or an e
state, are not subject to the TEFRA
partn
ership procedures. Section 6231(b)
prov
ides that items cease to be partnership
item
s subject to the TEFRA partnership
proc
edures in several different situations.
Sect
ion 6231(c) allows the Treasury De-
part
ment and the IRS to determine and
pro
vide by regulations that treating items
as p
artnership items in areas that present
spe
cial enforcement considerations will
int
erfere with the effective and efficient
enf
orcement of the internal revenue laws
and that, cons
equently, the items shall
be treated as n
onpartnership items. Sec-
tion 6231(c) a
lso allows the Treasury
Department an
d the IRS to prescribe by
regulations r
ules necessary to achieve
the purposes
of the TEFRA partnership
procedures w
ith respect to special en-
forcement ar
eas. Section 6231(c) lists
several spec
ific special enforcement ar-
eas, includ
ing criminal investigations and
indirect me
thods of proof of income, and
provides th
at the Treasury Department and
the IRS may d
etermine others. The Trea-
sury Depar
tment and the IRS previously
have deter
mined and provided by regu-
lations th
at bankruptcy, receivership, and
prompt ass
essment requests interfere with
the effect
ive and efficient enforcement of
the inter
nal revenue laws and designated
them as sp
ecial enforcement areas. See
§§301.62
31(c)–7 and –8 of the Procedure
and Admin
istration Regulations.
Explanat
ion of Provisions
One of the
principal purposes behind
the enact
ment of the TEFRA partnership
procedu
res was to provide for the more
efficie
nt use of the IRS’s resources by
reducin
g multiple proceedings with re-
spect to
partnership items. The abusive
tax she
lters of the 1970s often used a sin-
gle par
tnership to generate tax benefits
for doz
ens, if not hundreds, of investors.
Before
the enactment of the TEFRA part-
nershi
p procedures, the partnership items
of eac
h investor were subject to separate
partn
er-level proceedings. The TEFRA
partn
ership procedures effectively brought
the pa
rtnership item components of these
proce
edings together in a single pro-
ceed
ing. Unlike the tax shelters of the
1970
s, however, the recent generation
of ta
x avoidance transactions often uses
comb
inations of trusts, S corporations,
limi
ted liability companies, partnerships,
and o
ther entities, many times arranged in
tie
rs, for the tax benefit of a single investor
or a
small group of investors. The applica-
tio
n of the TEFRA partnership procedures
to t
hese tax avoidance transactions often
res
ults in multiple proceedings that com-
pl
icate the ultimate determination of the
in
vestors’ tax liabilities and consume sig-
ni
ficant administrative resources.
March 2, 20096382009–9 I.R.B.

For example, in a typical transaction
described in Notice 2000–44, 2000–2
C.B. 255, (September 5, 2000), see
§601.601(d)(2)(ii)(b), in which the ulti-
mate noneconomic loss or deduction is
taken at the partner level by a single indi-
vidual, the IRS first needs to initiate timely
partnership-level proceedings to deter-
mine, among other things, whether the
partnership is a sham and the amount and
character of contributions and partnership
liabilities. Following the partnership-level
proceedings, the IRS often still must issue
an affected items notice of deficiency to
disallow the noneconomic loss or deduc-
tion at the partner level. Conducting both
entity-level and partner-level proceedings
in these cases to determine the tax liabil-
ities of only a single individual or small
group of related persons places an unnec-
essary burden on taxpayers, the IRS, and
the federal courts.
Other tax avoidance transactions use
multiple tiers of partnerships making coor-
dinated partnership elections for the bene-
fit of a single individual. Two or more sep-
arate partnership proceedings, as well as a
partner-level proceeding, may need to take
place before an assessment can be made
against the individual. Again, conducting
entity-level proceedings in these and sim-
ilar cases in which a single individual or
small group of related persons control mul-
tiple entities and receive all the tax benefits
is inefficient and imposes a significant ad-
ministrative burden.
The need to conduct partnership-level
proceedings to determine the tax liabilities
of a single individual or small group of re-
lated persons also generates complex and
burdensome procedural issues that do not
contribute to the determination of the in-
dividuals’ tax liabilities. For example, the
application of the TEFRA partnership pro-
cedures may raise complicated issues con-
cerning the segregation and aggregation
of partnership items, affected items, and
nonpartnership items. Often, the TEFRA
partnership procedures make the identifi-
cation and examination of the transactions
more complicated and difficult. As a re-
sult, the Treasury Department and the IRS
have determined that special enforcement
considerations, within the meaning of sec-
tion 6231(c)(1)(E), are present in the case
of transactions that the Treasury Depart-
ment and the IRS have publicly identi-
fied as tax avoidance transactions. Specifi-
cally, the Treasury Department and the IRS
have determined that treating items related
to listed transactions within the meaning of
§1.6011–4(b)(2) of the Income Tax Regu-
lations as partnership items interferes with
the effective and efficient enforcement of
the internal revenue laws.
The proposed regulations are limited to
tax avoidance transactions that are pub-
liclyidentifiedbythe Treasury Depart-
ment and the IRS as listed transactions
under §1.6011–4(b)(2) of the Income Tax
Regulations. Under the proposed regula-
tions, the transaction must be a listed trans-
action on the date the IRS sends written no-
tification to the partner that the partner’s
partnership items will be treated as non-
partnership items. Accordingly, the fact
that a transaction becomes a listed trans-
action after the date on which the tax-
payer engages in the transaction does not
preclude the conversion of items under
the proposed regulations. This limitation
promotes taxpayer awareness of the trans-
actions that can subject their partnership
items to removal from the TEFRA part-
nership procedures. The Treasury Depart-
ment and the IRS also have determined
that the limitation will provide for the more
efficient use of the IRS’s resources.
Under the proposed regulations, the
IRS will make determinations regard-
ing whether to convert partnership items
to nonpartnership items on a partner-
ship-by-partnership and partner-by-part-
ner basis. Thus, if a taxpayer is a partner
in two partnerships with partnership items
related to listed transactions and a third
partnership that has no partnership items
related to listed transactions, the IRS could
convert the taxpayer’s partnership items
in either or both of the first two partner-
ships but could not convert the taxpayer’s
partnership items in the third partnership.
Similarly, if a taxpayer engages in a listed
transaction through a tier of TEFRA enti-
ties, the IRS could convert the taxpayer’s
partnership items in any or all of the tier
entities with partnership items related to
the listed transaction.
Although, consistent with section
6231(c)(2), the Secretary has determined
that treating items related to listed trans-
actions as partnership items will interfere
with the effective and efficient enforce-
ment of the internal revenue laws and has
so provided in the proposed regulations,
the proposed regulations further provide
that the partnership items related to listed
transactions remain subject to the TEFRA
partnership procedures unless and un-
til the IRS sends written notification to
the partner that the items will be treated
as nonpartnership items. In this regard,
the proposed regulations are consistent
with the rules that are already in place
with respect to sending notices under sec-
tion 301.6231(c)–5 of the Procedure and
Administration Regulations relating to
partners under criminal investigation. See
Phillips v. Commissioner, 272 F.3d 1172,
1176 (9th Cir. 2001). Specifically, the IRS
will send written notification under the
circumstances described in the proposed
regulations using procedures similar to the
procedures used under §301.6231(c)–5 of
the Procedure and Administration Regula-
tions, and will make conforming changes
to the Internal Revenue Manual and Dele-
gation Order 4–19, as necessary.
If the IRS concludes that a particu-
lar partner’s partnership items should be
treated as nonpartnership items under the
circumstances described in the proposed
regulations, the IRS will send written no-
tification to the partner identifying each
partnership for which the partner’s part-
nership items will be treated as nonpart-
nershipitems. Inthecaseofanindirect
partner (as defined in section 6231(a)(10))
having an interest in a partnership through
one or more pass-thru partners (as defined
in section 6231(a)(9)), the IRS may send a
written notification to the indirect partner
identifying only the lower-tier partnership
and not the pass-thru partners. In those
circumstances, the partnership items at-
tributable to the lower-tier partnership that
flow through to the indirect partners will
convert to nonpartnership items of the
notified partner, even though the pass-thru
partners were not identified in the written
notification. Any partnership items orig-
inating with the pass-thru partners, that
is, partnership items that are not attrib-
utable to the lower-tier partnership, will
not convert to nonpartnership items unless
the IRS identifies the pass-thru partner in
the written notification (in which case all
the partnership items directly attributable
to the pass-thru partner also will convert
to nonpartnership items of the notified
partner).
As of the date that the IRS sends written
notification of the conversion to the part-
ner, all of the partner’s partnership items
2009–9 I.R.B.639March 2, 2009

attributable to the identified partnership
will be treated as nonpartnership items for
all of the identified partnership’s taxable
years that (1) ended on or before the date
writtennotificationissentbytheIRStothe
partner and (2) for which the partner has
items attributable to that partnership that
are related to the listed transaction. The
deficiency procedures in subchapter B of
chapter 63 will apply, pursuant to section
6230(a)(2)(A)(ii), as of the date of the no-
tice.
The proposed regulations incorporate
existing rules under §301.6231(c)–3 of
the Procedure and Administration Regu-
lations, which provide that the partnership
items of a partnership may not be con-
verted if a notice of final partnership
administrative adjustment (FPAA) with
respect to those partnership items has
been mailed to the tax matters partner of
the partnership and either (1) the period
for bringing an action with respect to the
FPAA has expired and no judicial action
has been brought or (2) the decision of
the court in an action brought with re-
spect to the FPAA has become final. This
rule allows the IRS to send notification
converting partnership items to nonpart-
nership items after the commencement
of a judicial proceeding related to the
converted partnership items. The Trea-
sury Department and the IRS recognize,
however, that it is not in the best interest
of taxpayers, the Treasury Department,
the IRS, or the courts to unnecessarily
delay conversion of partnership items to
nonpartnership items. Consistent with its
existing practices under section 6231(c),
the IRS intends to make a decision regard-
ing whether to convert partnership items
to nonpartnership items before the com-
mencement of any judicial proceeding,
although on isolated and unusual occa-
sions changed circumstances may require
the IRS to revisit that decision after the
commencement of a judicial proceeding.
In addition, judicial doctrines such as
collateral estoppel and res judicata may
preclude litigating issues in a partner-level
proceeding that were previously litigated
in a partnership-level proceeding prior to
conversion of partnership items to non-
partnership items. Finally, the partnership
items of any partners to whom the IRS
does not send written notification will not
convert to nonpartnership items.
Proposed Effective Date
The regulations, when finalized, are
proposed to apply to any taxable period
ending on or after the date of publication
of these rules as proposed regulations in
theFederal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. It has also
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regu-
lations, and, 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) of the Internal
Revenue Code, this notice of proposed
rulemaking has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies) or electronic com-
ments that are submitted timely to the IRS.
The Treasury Department and the IRS re-
quest comments on the clarity of the pro-
posed rules and how they can be made eas-
ier to understand. The Treasury Depart-
ment and the IRS also request comments
that identify additional transactions or ac-
tivities that present appropriate grounds
for converting partnership items to non-
partnership items. All comments will be
made available for public inspection and
copying.
A public hearing has been scheduled for
June 4, 2009, beginning at 10 a.m. in the
Auditorium of the Internal Revenue Ser-
vice Building, 1111 Constitution Avenue,
N.W., Washington, DC. Due to building
security procedures, visitors must enter at
the Constitution Avenue entrance. In addi-
tion, all visitors must present photo iden-
tification to enter the building. Because
of access restrictions, visitors will not be
admitted beyond the immediate entrance
area more than 30 minutes before the hear-
ing starts. For information about having
your name placed on the building access
list to attend the hearing, see the “FOR
FURTHER INFORMATION CONTACT”
section of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments and
an outline of the topics to be discussed
and the time to be devoted to each topic
(signed original and eight (8) copies) by
May 15, 2009. A period of 10 minutes will
be allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receivingoutlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Robert T. Wearing of the Office
of the Associate Chief Counsel (Procedure
and Administration).
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR Part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 is amended by adding the entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6231(c)–9 is also issued
under 26 U.S.C. 6230(k) and 6231(c)(1)
and (c)(3). * * *
Par. 2. Section 301.6231(c)–3 is
amended by revising paragraphs (a) intro-
ductory text, and (b) to read as follows:
§301.6231(c)–3 Limitation on
applicability of §§301.6231(c)–4
through 301.6231(c)–9.
(a)In general. A provision of
§§301.6231(c)–4 through 301.6231(c)–9
shall not apply with respect to partnership
items arising in a partnership taxable year
if, as of the date on which those items
March 2, 20096402009–9 I.R.B.

would otherwise begin to be treated as
nonpartnership items under that provi-
sion—
*****
(b)Effective/applicability date.The
rules of this section, when adopted as final
regulations in theFederal Register,will
apply to partner taxable years ending on or
after the date of publication of these pro-
posed regulations in theFederal Register.
Par. 3. Section 301.6231(c)–9 is added
to read as follows:§301.6231(c)–9 Tax
avoidance transactions.
(a)In general. The treatment of items
that relate to a listed transaction, as de-
fined in §1.6011–4, as partnership items
will interfere with the effective and effi-
cient enforcement of the internal revenue
laws. Accordingly, if a partner has part-
nership items that relate to a listed trans-
action and are attributable to a partnership
that is identified in a written notification
described in this paragraph, the partner’s
partnership items that are attributable to
the identified partnership shall be treated
as nonpartnership items as of the date on
which the written notification is sent by
the Internal Revenue Service to the part-
ner. The determination whether to treat
the partnership items of a partner as non-
partnership items shall be made by the In-
ternal Revenue Service on a partnership-
by-partnership and partner-by-partner ba-
sis. The partnership items of a partner shall
not be treated as nonpartnership items un-
der this section unless and until the In-
ternal Revenue Service sends the partner
written notification that the partner’s part-
nership items attributable to the identified
partnership will be treated as nonpartner-
ship items. The written notification shall
identify each partnership in which the part-
ner holds an interest, directly or indirectly,
with respect to which all the partner’s part-
nership items will be treated as nonpart-
nership items. All partnership items of a
partner that are attributable to a partner-
ship that is identified in a written notifi-
cation shall be treatedas nonpartnership
items for all taxable years of the identi-
fied partnership ending on or before the
date the Internal Revenue Service sends
writtennotificationtothepartnerinwhich
the partner has partnership items attribut-
able to the identified partnership that re-
late to the listed transaction. Partnership
items of a partner that are attributable to a
partnership that is not identified in a writ-
ten notification sent by the Internal Rev-
enue Service to that partner shall not be
treated as nonpartnership items of the no-
tified partner, except that if the notified
partner holds an interest in the identified
partnership through one or more pass-thru
partners (as defined in section 6231(a)(9)),
the partnership items attributable to the
identified partnership that flow through the
pass-thru partners to the indirect partners
(as defined in section 6231(a)(10)), will be
treated as nonpartnership items of the noti-
fied partner even if the written notification
does not identify the pass-thru partners.
(b)Examples. The provisions of this
section may be illustrated by the following
examples:
Example 1. PS1 and PS2 are unrelated partner-
ships subject to the provisions of subchapter C, chap-
ter 63 of the Internal Revenue Code. A is one of
the partners of PS1 and oneof the partners of PS2.
PS1 and PS2 have partnership items that relate to a
listed transaction, as defined in §1.6011–4(b)(2). The
IRS sends written notification to A that his partner-
ship items in PS1 will be treated as nonpartnership
items, but the IRS does not send written notification
to A that his partnership items in PS2 will be treated
as nonpartnership items. As a result, A’s partnership
items in PS1 are treated as nonpartnership items as of
the date that the IRS sent written notification of the
conversion to A, and A’s partnership items in PS2 re-
main as partnership items.
Example 2. PS3 and PS4 are partnerships sub-
ject to the provisions of subchapter C, chapter 63 of
the Internal Revenue Code. B is one of the partners
of PS3 and PS3 is one of the partners of PS4. B is
an indirect partner in PS4 within the meaning of sec-
tion 6231(a)(10). Both PS3 and PS4 have partner-
ship items related to a listed transaction, as defined in
§1.6011–4(b)(2). The IRS sends written notification
to B that his partnership items in PS4 will be treated
as nonpartnership items. As a result, all of B’s part-
nership items flowing from PS4 are treated as non-
partnership items of B as of the date that the IRS sent
written notification of the conversion to B. However,
since the IRS did not send written notification to B
that his partnership items in PS3 will be treated as
nonpartnership items, B’s partnership items in PS3
that are not attributable to PS4 will remain partner-
ship items.
(c)Effective/applicability date.The
rules of this section, when adopted as final
regulations in theFederal Register,will
apply to partner taxable years ending on or
after the date of publication of these pro-
posed regulations in theFederal Register.
Linda M. Kroening,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on February 12,
2009, 8:45 a.m., and published in the issue of the Federal
Register for February 13, 2009, 74 F.R. 7205)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Application of Section 367
to a Section 351 Exchange
Resulting from a Transaction
Described in Section
304(a)(1); Treatment of Gain
Recognized Under Section
301(c)(3) for Purposes of
Section 1248
REG–147636–08
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS and Treasury Department are is-
suing temporary regulations (T.D. 9444)
under sections 304 and 1248 of the Inter-
nal Revenue Code (Code). The tempo-
rary regulations provide rules under sec-
tion 367(a) and (b) that apply to certain
transfers of stock by a United States person
to a foreign corporation described in sec-
tion 304(a)(1). The temporary regulations
under section 1248(a) provide that, for pur-
poses of section 1248(a), gain recognized
by a shareholder under section 301(c)(3) in
connection with the receipt of a distribu-
tion of property from a foreign corporation
with respect to its stock shall be treated as
gain from the sale or exchange of the stock
of such foreign corporation. The tempo-
rary regulations affectcertain shareholders
that transfer stock in acorporation to a for-
eign corporation in a transaction to which
section 304(a)(1) applies, or that receive
a distribution from a foreign corporation
described in section 301(c)(3). The text
of the temporary regulations also serves as
the text of these proposed regulations. The
preamble to the temporary regulations ex-
plains the temporary regulations and these
proposed regulations.
2009–9 I.R.B.641March 2, 2009

DATES: Written or electronic comments
and requests for a public hearing must be
received by May 11, 2009.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–147636–08),
room 5205, 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–147636–08),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, DC, or sent electronically
viatheFederaleRulemaking
Portal atwww.regulations.gov(IRS
REG–147636–08).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Sean W. Mullaney, (202)
622–3860; concerning submissions of
comments or requests for a public hearing,
Richard.A.Hurst@irscounsel.treas.gov;at
(202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin amend the Income Tax Reg-
ulations (26 CFR part 1) relating to sec-
tions 304 and 1248 of the Code. The text of
those regulations also serves as the text of
these proposed regulations. The preamble
to the temporary regulations explains the
temporary regulations and these proposed
regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. These reg-
ulations are necessary to ensure that the
appropriate amount of income (dividend
income, capital gain or both) is recognized
currently in the transactions described in
the explanation of provisions section in
this preamble. Accordingly, good cause is
found for dispensing with notice and pub-
lic comment pursuant to 5 U.S.C. 553(b)
and (c) and with a delayed effective date
pursuant to 5 U.S.C. 553(d). For appli-
cability of the Regulatory Flexibility Act,
see the cross-referenced notice of pro-
posed rulemaking published elsewhere in
thisFederal Register. Pursuant to sec-
tion 7805(f) of the Code, these regulations
have been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Comments and Requests for a Public
Hearing
Comments are also requested regard-
ing whether IRS and Treasury Department
should exercise the regulatory authority
under section 304(b)(6) to permit an in-
crease to the basis of the transferred stock
in a section 304(a)(1) transaction to the ex-
tent the distribution in redemption of the
shares deemed issued by the acquiring cor-
poration is treated as a dividend from the
earnings and profits of the issuing corpo-
ration.
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submitted
timely to the IRS. The IRS and Treasury
Department specifically request comments
on the clarity of the proposed rules and
how they can be made easier to understand.
All comments will be available for public
inspection and copying. A public hearing
will be scheduled if requested in writing
by any person that timely submits written
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 author of these proposed
regulations is Sean W. Mullaney of the Of-
fice of Associate Chief Counsel (Interna-
tional). However, other personnel from the
IRS and the Treasury Department partici-
pated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry to
read as follows:
Authority: 26 U.S.C. 7805* * *
Section 1.367(a)–9 also issued under
26 U.S.C. 367(a) and (b).* * *
Par. 2. Section 1.367(a)–9 is added to
read as follows:
§1.367(a)–9 Treatment of deemed section
351 exchanges pursuant to section
304(a)(1).
[The text of proposed §1.367(a)–9 is the
same as the text of §1.367(a)–9T published
elsewhere in this issue of the Bulletin].
Par. 3. Section 1.367(b)–4 is amended
by revising paragraphs (e), (f) and (g) to
read as follows:
§1.367(b)–4 Acquisition of foreign
corporate stock or assets by a foreign
corporation in certain nonrecognition
transactions.
*****
(e) [The text of proposed
§1.367(b)–4(e) is the same as the text of
§1.367(b)–4T(e) published elsewhere in
this issue of the Bulletin].
(f) [The text of proposed §1.367(b)–4(f)
is the same as the text of §1.367(b)–4T(f)
published elsewhere in this issue of the
Bulletin].
(g) [The text of proposed
§1.367(b)–4(g) is the same as the text of
§1.367(b)–4T(g) published elsewhere in
this issue of the Bulletin].
Par. 4. Section 1.1248–1 is amended by
revising paragraphs (b) and (g) to read as
follows:
§1.1248–1 Treatment of gain from certain
sales or exchanges of stock in certain
foreign corporations.
*****
(b) [The text of proposed §1.1248–1(b)
is the same as the text of §1.1248–1T(b)
published elsewhere in this issue of the
Bulletin].
*****
(g) [The text of proposed §1.1248–1(g)
is the same as the text of §1.1248–1T(g)
published elsewhere in this issue of the
Bulletin].
March 2, 20096422009–9 I.R.B.

Linda M. Kroening,
Acting Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on February 10,
2009, 8:45 a.m., and published in the issue of the Federal
Register for February 11, 2009, 74 F.R. 6840)
Taxpayer Identification
Number (“TIN”) Matching
Program Is Available to
Persons Required to Make
Returns Under New Section
6050W of the Internal
Revenue Code
Announcement 2009–6
The Housing Assistance Tax Act of
2008, Div. C of Pub. L. No. 110–289,
122 Stat. 2653 (the “Act”), enacted on
July 30, 2008, added section 6050W to the
Internal Revenue Code. This new section
requires information returns to be made
for each calendar year by merchant ac-
quiring entities and third party settlement
organizations with respect to payment
card transactions and third party payment
network transactions occurring in that
calendar year. This requirement to make
information returns applies to returns for
calendar years beginning after December
31, 2010.
Section 3406(a)(1) requires certain
payors to perform backup withholding
by deducting and withholding income tax
from a reportable payment if the payee
fails to furnish the payee’s taxpayer identi-
fication number (“TIN”) to the payor on a
required return, or if the Secretary notifies
the payor that the TIN furnished by the
payee is incorrect. The Act amended sec-
tion 3406(b)(3) by expanding the meaning
of “other reportable payments” that are
subject to backup withholding to include
payments that are required to be shown
on an information return under section
6050W. Backup withholding for amounts
reportable under section 6050W applies
to amounts paid after December 31, 2011.
The Act also amended section 6724(d) by
adding returns required by section 6050W
to the definition of information returns for
purposes of penalties for failure to comply
with certain information reporting require-
ments.
The Act further provides that, solely
for purposes of carrying out TIN match-
ing under section 3406, section 6050W is
effective on the date of enactment, July
30, 2008. The TIN matching program
described in Rev. Proc. 2003–9, 2003–1
C.B. 516, permits program participants
to verify the payee TINs required to be
reported on information returns and payee
statements. Prior to making an infor-
mation return, a participant may check
the TIN furnished by the payee against
the name/TIN combination contained in
the IRS’s database maintained for the
program, and the IRS will inform the par-
ticipant whether or not the name/TIN com-
bination furnished by the payee matches
a name/TIN combination in the database.
The matching information provided to
participants will help avoid TIN errors
and reduce the number of backup with-
holding notices required under section
3406(a)(1)(B) of the Code. A verified
TIN/name match will also provide partic-
ipants with reasonable cause relief from
penalties under section 6724(a).
Accordingly, persons who will be re-
quired to make returns under section
6050W may now match TINs under the
procedures established by Rev. Proc.
2003–9.
The principal author of this announce-
ment is Barbara M. Pettoni of the Office
of Associate Chief Counsel (Procedure
& Administration). For further infor-
mation regarding this announcement,
please contact Barbara M. Pettoni at (202)
622–4910 (not a toll-free call). For tech-
nical information about, or problems with,
the TIN matching program, please call
1–866–255–0654.
Foundations Status of Certain
Organizations
Announcement 2009–9
The following organizations have failed
to establish or have been unable to main-
tain their status as public charities or as op-
erating foundations. Accordingly, grantors
and contributors may not, after this date,
rely on previous rulings or designations
in the Cumulative List of Organizations
(Publication 78), or on the presumption
arising from the filing of notices under sec-
tion 508(b) of the Code. This listing does
notindicate that the organizations have lost
their status as organizations described in
section 501(c)(3), eligible to receive de-
ductible contributions.
Former Public Charities. The follow-
ing organizations (which have been treated
as organizations that are not private foun-
dations described in section 509(a) of the
Code) are now classified as private foun-
dations:
Alta Housing Corporation, Granbury, TX
American Healthcare Foundation,
Newport Beach, CA
Arrowhead Center for the Arts,
Eveleth, MN
Bethel Baptist Economic Development,
Inc., Montgomery, AL
Bexar County Youth in Action,
San Antonio, TX
California State Youth Empowerment,
Inc., Vacaville, CA
Caring Community, Inc., Burlington, IA
Ceeatta’s Housing, Inc., Richmond, VA
Charros La Esperanza, Inc.,
San Marcos, CA
City of Marion Recreation Association,
Marion, SC
Computer Homework Center,
Ferndale, MI
Cortez Hill Interfaith Housing
Corporation, Lemon Grove, CA
Educate for Life, Spring Valley, CA
Evolve Project a Nonprofit Public Benefit
Corporation, Los Angeles, CA
First Family, Inc., Baltimore, MD
Freedom in Christ Ministries,
Brooksville, FL
Future Executives, Inc., Brooklyn, NY
Glory Ministries, Inc., Romulus, MI
God’s Unique Angels Righteously
Designed, Inc., Arlington, TX
Good Neighbor Food Service,
Paulden, AZ
Heal America, Richmond Heights, OH
In His Name, Justice, Education, and
Social Services, Washington, DC
Jehovah Adult Daycare, Spartanburg, SC
J E W Ministries, Lake City, SC
Mawus Mothers and Childrens Home
Carson, CA
MenIn&OutofSchools,Inc.,
Riverdale, GA
Multiple District 19 Lions Service &
Leadership Development Foundation,
Bellington, WA
National Land & Wildlife Preservation,
Inc., Gilmanton, NH
2009–9 I.R.B.643March 2, 2009

Nora’s Vision NFP, Chicago, IL
Philanthropy International, Clarement, CA
R & N Adult Daycare & Youth Center,
Hollandale, MS
River City Small Business Connection,
Sacramento, CA
Schoolbox Foundation Corp., Atlanta, GA
Serena Bailey Foundation, Inc.,
Lakeland, FL
Shannon’s Place, Inc., Non for Profit,
Chicago, IL
Sturgeon Bay Breakfast Rotary Charitable
Tr, Irving, TX
Successful Living Services, Westland, MI
Transition Network, Stafford, TX
Vida Support Services Parent & Youth
Counseling Organization, Whittier, CA
Viet Vets Foundation, Inc., Houston, TX
Zhinga-Wee-Thay, Inc., Irving, TX
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as
a private operating foundation, the Inter-
nal Revenue Service will issue a ruling or
determination letter with the revised clas-
sification as to foundation status. Grantors
and contributors maythereafter rely upon
such ruling or determination letter as pro-
vided in section 1.509(a)–7 of the Income
Tax Regulations. It is not the practice of
the Service to announce such revised clas-
sification of foundation status in the Inter-
nal Revenue Bulletin.
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2009–10
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on March 2, 2009,
andwouldendonthedatethecourtfirst
determines that the organization is not de-
scribed in section 170(c)(2) as more partic-
ularly set forth in section 7428(c)(1). For
individual contributors, the maximum de-
duction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.
Leszinski Family Support Organization
Atlanta, GA
Kuumba Trust
Pittsburgh, PA
Consumer Debt Management Services
Deerfield Beach, FL
RealtyAmerica.Org, Inc.
Indian Harbour Beach, FL
Consumer Budget Counseling, Inc.
Port Charlotte, FL
Innovative Womens Network, Inc.
Houston, TX
Ellen Stephen Hospice & Home Care
Kyle, SD
Starfish Foundation, Inc.
Richardson, TX
Ronsard Foundation
Statesville, NC
Alternative Care, Inc.
Gainesville, FL
Credit Counseling, Inc.
Sunrise, FL
A New Goal Credit Counseling Agency
San Francisco, CA
Trans-Atlantic Health Organization, Inc.
Gaithersburg, MD
Ammend Credit Counseling and Debt
Consolidation
Cincinnati, OH
March 2, 20096442009–9 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2009–9 I.R.B.iMarch 2, 2009

Numerical Finding List
1
Bulletins 2009–1 through 2009–9
Announcements:
2009-1, 2009-1 I.R.B.242
2009-2, 2009-5 I.R.B.424
2009-3, 2009-6 I.R.B.459
2009-4, 2009-8 I.R.B.597
2009-5, 2009-8 I.R.B.569
2009-6, 2009-9 I.R.B.643
2009-8, 2009-8 I.R.B.598
2009-9, 2009-9 I.R.B.643
2009-10, 2009-9 I.R.B.644
Notices:
2009-1, 2009-2 I.R.B.250
2009-2, 2009-4 I.R.B.344
2009-3, 2009-2 I.R.B.250
2009-4, 2009-2 I.R.B.251
2009-5, 2009-3 I.R.B.309
2009-6, 2009-3 I.R.B.311
2009-7, 2009-3 I.R.B.312
2009-8, 2009-4 I.R.B.347
2009-9, 2009-5 I.R.B.419
2009-10, 2009-5 I.R.B.419
2009-11, 2009-5 I.R.B.420
2009-12, 2009-6 I.R.B.446
2009-13, 2009-6 I.R.B.447
2009-14, 2009-7 I.R.B.516
2009-15, 2009-6 I.R.B.449
2009-16, 2009-8 I.R.B.572
2009-17, 2009-8 I.R.B.575
Proposed Regulations:
REG-144615-02, 2009-7 I.R.B.561
REG-148568-04, 2009-5 I.R.B.421
REG-160872-04, 2009-4 I.R.B.358
REG-158747-06, 2009-4 I.R.B.362
REG-138326-07, 2009-9 I.R.B.638
REG-143686-07, 2009-8 I.R.B.579
REG-150670-07, 2009-4 I.R.B.378
REG-113462-08, 2009-4 I.R.B.379
REG-147636-08, 2009-9 I.R.B.641
REG-150066-08, 2009-5 I.R.B.423
Revenue Procedures:
2009-1, 2009-1 I.R.B.1
2009-2, 2009-1 I.R.B.87
2009-3, 2009-1 I.R.B.107
2009-4, 2009-1 I.R.B.118
2009-5, 2009-1 I.R.B.161
2009-6, 2009-1 I.R.B.189
2009-7, 2009-1 I.R.B.226
2009-8, 2009-1 I.R.B.229
2009-9, 2009-2 I.R.B.256
Revenue Procedures— Continued:
2009-10, 2009-2 I.R.B.267
2009-11, 2009-3 I.R.B.313
2009-12, 2009-3 I.R.B.321
2009-13, 2009-3 I.R.B.323
2009-14, 2009-3 I.R.B.324
2009-15, 2009-4 I.R.B.356
2009-16, 2009-6 I.R.B.449
2009-17, 2009-7 I.R.B.517
Revenue Rulings:
2009-1, 2009-2 I.R.B.248
2009-2, 2009-2 I.R.B.245
2009-3, 2009-5 I.R.B.382
2009-4, 2009-5 I.R.B.408
2009-5, 2009-6 I.R.B.432
Tax Conventions:
2009-5, 2009-8 I.R.B.569
Treasury Decisions:
9434, 2009-4 I.R.B.339
9435, 2009-4 I.R.B.333
9436, 2009-3 I.R.B.268
9437, 2009-4 I.R.B.341
9438, 2009-5 I.R.B.387
9439, 2009-5 I.R.B.416
9440, 2009-5 I.R.B.409
9441, 2009-7 I.R.B.460
9442, 2009-6 I.R.B.434
9443, 2009-8 I.R.B.564
9444, 2009-9 I.R.B.603
9445, 2009-9 I.R.B.635
9446, 2009-9 I.R.B.607
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2008–27 through 2008–52 is in Internal Revenue Bulletin
2008–52, dated December 29, 2008.
March 2, 2009ii2009–9 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2009–1 through 2009–9
Notices:
99-35
Obsoleted by
Notice 2009-15, 2009-6 I.R.B.449
2001-55
Modified by
Notice 2009-1, 2009-2 I.R.B.250
2002-27
Modified by
Notice 2009-9, 2009-5 I.R.B.419
2005-74
Obsoleted by
T.D. 9446, 2009-9 I.R.B.607
2007-26
Modified by
Notice 2009-15, 2009-6 I.R.B.449
2007-54
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
2008-11
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
2008-12
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
Rev. Proc. 2009-11, 2009-3 I.R.B.313
2008-13
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
List of forms modified and superseded by
Rev. Proc. 2009-11, 2009-3 I.R.B.313
Modified and clarified by
Notice 2009-5, 2009-3 I.R.B.309
2008-46
Obsoleted by
T.D. 9436, 2009-3 I.R.B.268
Rev. Proc. 2009-11, 2009-3 I.R.B.313
2008-100
Amplified and superseded by
Notice 2009-14, 2009-7 I.R.B.516
Proposed Regulations:
REG-149519-03
Withdrawn by
Ann. 2009-4, 2009-8 I.R.B.597
Revenue Procedures:
2007-17
Superseded by
Rev. Proc. 2009-14, 2009-3 I.R.B.324
2007-68
Superseded by
Rev. Proc. 2009-17, 2009-7 I.R.B.517
2007-71
Modified by
Notice 2009-3, 2009-2 I.R.B.250
2008-1
Superseded by
Rev. Proc. 2009-1, 2009-1 I.R.B.1
2008-2
Superseded by
Rev. Proc. 2009-2, 2009-1 I.R.B.87
2008-3
Superseded by
Rev. Proc. 2009-3, 2009-1 I.R.B.107
2008-4
Superseded by
Rev. Proc. 2009-4, 2009-1 I.R.B.118
2008-5
Superseded by
Rev. Proc. 2009-5, 2009-1 I.R.B.161
2008-6
Superseded by
Rev. Proc. 2009-6, 2009-1 I.R.B.189
2008-7
Superseded by
Rev. Proc. 2009-7, 2009-1 I.R.B.226
2008-8
Superseded by
Rev. Proc. 2009-8, 2009-1 I.R.B.229
2008-9
Superseded by
Rev. Proc. 2009-9, 2009-2 I.R.B.256
2008-61
Superseded by
Rev. Proc. 2009-3, 2009-1 I.R.B.107
2008-65
Amplified and supplemented by
Rev. Proc. 2009-16, 2009-6 I.R.B.449
2008-68
Amplified and superseded by
Rev. Proc. 2009-15, 2009-4 I.R.B.356
Revenue Rulings:
65-286
Obsoleted by
T.D. 9435, 2009-4 I.R.B.333
Revenue Rulings— Continued:
76-54
Obsoleted by
T.D. 9435, 2009-4 I.R.B.333
92-19
Supplemented by
Rev. Rul. 2009-3, 2009-5 I.R.B.382
2008-19
Modified by
Rev. Rul. 2009-3, 2009-5 I.R.B.382
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–27 through 2008–52 is in Internal Revenue Bulletin 2008–52, dated December 29,
2008.
2009–9 I.R.B.iiiMarch 2, 2009

March 2, 20092009–9 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
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The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
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