Internal Revenue Bulletin 2019-22 (PDF rendition): IRS Announcements

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Bulletin No. 2019–22
May 28, 2019
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
ANN. 2019-05, page 1262.
The Office of Professional Responsibility (OPR) announces re-
cent disciplinary sanctions involving attorneys, certified pub-
lic accountants, enrolled agents, enrolled actuaries, enrolled
retirement plan agents, and appraisers. These individuals are
subject to the regulations governing practice before the Inter-
nal Revenue Service (IRS), which are set out in Title 31, Code
of Federal Regulations, Part 10, and which are published in
pamphlet form as Treasury Department Circular No. 230.
The regulations prescribe the duties and restrictions relating
to such practice and prescribe the disciplinary sanctions for
violating the regulations.
T.D. 9858, page 1251.
These regulations remove the initial enrollment user fee for
enrolled retirement plan agents because the IRS no longer
offers initial enrollment as an enrolled retirement plan agent.
These regulations also increase the amount of the renew-
al user fee for enrolled retirement plan agents from $30 to
$67. In addition, these regulations increase the amount of
both the initial enrollment and renewal user fees for enrolled
agents from $30 to $67.
EMPLOYMENT TAX & INCOME TAX
NOT. 2019-34, page 1257.
This Notice provides the maximum fair market value of a ve-
hicle eligible to use the fleet-average and cents-per-mile spe-
cial valuation rules of Treas. Reg. section 1.61-21(d) and (e),
respectively, for 2019. These special valuation rules may be
used to value an employee’s personal use of an employer-pro-
vided vehicle for income and employment tax purposes.
EXEMPT ORGANIZATIONS
REV. PROC. 2019-22, page 1260.
This revenue procedure modifies Revenue Procedure 75-50,
1975-2 C.B. 587, to reflect technological advances since its
publication and provides a third method for a private school
to satisfy the requirement contained in section 4.03 of the
revenue procedure by using its Internet website to publicize
the school’s racially nondiscriminatory policy as to students.
INCOME TAX
REG-113604-18, page 1265.
Nonresident aliens and foreign corporations are taxable in
the United States on taxable income that is effectively con-
nected with the conduct of a trade or business in the United
States. These proposed regulations under section 864(c)(8)
would provide rules for determining the amount of gain or
loss recognized by a nonresident alien individual or foreign
corporation from the sale or exchange of a partnership inter-
est that is treated as effectively connected with the conduct
of a trade or business within the United States.
T.D. 9857, page 1239.
The final regulations contain rules relating to combinations
and separations of qualified business units (QBUs) subject
to section 987 and the recognition and deferral of foreign
currency gain or loss with respect to a QBU subject to sec-
tion 987 in connection with certain QBU terminations and
certain other transactions involving partnerships. In addition,
this document withdraws temporary regulations regarding
the allocation of assets and liabilities of certain partnerships
for purposes of section 987.
Finding Lists begin on page ii.

NOT. 2019-33, page 1255.
This notice requests comments about normalization issues
that have arisen or are anticipated in ratemaking proceed-
ings due to the decrease in the corporate tax rate under
§ 11 of the Internal Revenue Code (Code) that was included
in the Tax Cuts and Jobs Act, Pub. L. 115-97, enacted on
December 22, 2017. Based on comments received from
stakeholders, we expect to issue future guidance under §
168(f)(2) and (i)(9) of the Code addressing excess deferred
income taxes and public utility companies.
REV. PROC. 2019-25, page 1261.
This revenue procedure provides the 2020 inflation adjusted
amounts for health savings accounts as determined under
section 223 of the Internal Revenue Code.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
May 28, 2019 Bulletin No. 2019–22

Part I.
26 CFR 1.987-2, 26 CFR 1.987-2T, 26
CFR 1.987-4, 26 CFR 1.987-4T, 26 CFR
1.987-7, 26 CFR 1.987-7T, 26 CFR
1.987-12, 26 CFR 1.987-12T
T.D. 9857
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Recognition and Deferral of
Section 987 Gain or Loss
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations relating to combinations
and separations of qualified business units
(QBUs) subject to section 987 and the rec-
ognition and deferral of foreign currency
gain or loss with respect to a QBU subject
to section 987 in connection with certain
QBU terminations and certain other trans-
actions involving partnerships. In addi-
tion, this document withdraws temporary
regulations regarding the allocation of as-
sets and liabilities of certain partnerships
for purposes of section 987. The final reg-
ulations affect taxpayers that own certain
QBUs.
DATES: Effective date: These regulations
are effective on May 13, 2019.
Applicability dates: For dates of applica-
bility, see §§1.987-2(e), 1.987-4(h), and
1.987-12(j).
FOR FURTHER INFORMATION CON-
TACT: Steven D. Jensen at (202) 317-
6938 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regula-
tions under §§1.987-2 and 1.987-4 relating
to combinations and separations of QBUs
subject to section 987. This document also
contains final regulations under §1.987-12
relating to the recognition and deferral of
foreign currency gain or loss under section
987 with respect to a QBU subject to sec-
tion 987 in connection with certain QBU
terminations and certain other transactions
involving partnerships (together with the
final regulations under §§1.987-2 and
1.987-4, the final regulations). In addition,
this document withdraws temporary regu-
lations under §1.987-7T regarding the al-
location of assets and liabilities of certain
partnerships for purposes of section 987.
I. Background on Section 987
Regulations
On December 8, 2016, the Department
of the Treasury (Treasury Department)
and the Internal Revenue Service (IRS)
published Treasury Decision 9794 (the
2016 final regulations) in the Federal
Register (81 FR 88806), which contains
rules relating to the determination of the
taxable income or loss of a taxpayer with
respect to a section 987 QBU; the timing,
amount, character, and source of any sec-
tion 987 gain or loss; and other provisions.
On the same date, the Treasury Depart-
ment and the IRS also published Treasury
Decision 9795 (the temporary regulations)
in the Federal Register (81 FR 88854)
and a notice of proposed rulemaking
(REG-128276-12) in the Federal Regis-
ter (81 FR 88882) by cross-reference to
the temporary regulations. The temporary
regulations include the following rules
that are not specifically affected by this
Treasury decision: an annual deemed ter-
mination election for a section 987 QBU;
an elective method, available to taxpayers
that make the annual deemed termination
election, for translating all items of in-
come or loss with respect to a section 987
QBU at the yearly average exchange rate;
rules regarding the treatment of section
988 transactions of a section 987 QBU;
rules regarding QBUs with the U.S. dollar
as their functional currency; rules regard-
ing the translation of income used to pay
creditable foreign income taxes; and rules
under section 988 requiring the deferral of
certain section 988 loss that arises with re-
spect to related-party loans.
In addition, the temporary regulations
contain the following provisions that are
specifically affected by this Treasury de-
cision: §§1.987-2T and 1.987-4T, relating
to combinations and separations of QBUs;
§1.987-7T, which provides a liquidation
value percentage methodology for allocat-
ing assets and liabilities of certain partner-
ships (section 987 aggregate partnerships,
as defined in §1.987-1(b)(5) of the 2016
final regulations); and §1.987-12T, which
requires deferral of foreign currency gain
or loss under section 987 with respect to
certain transactions defined as deferral
events or outbound loss events--transac-
tions that generally include QBU termina-
tions and certain partnerships transactions.
On January 17, 2017, the Treasury De-
partment and the IRS published Notice
2017-07, 2017-3 I.R.B. 423, announcing
that certain rules under §1.987-12T would
be modified to prevent potential abuse by
taxpayers making retroactive check-the-
box elections. Section 1.987-12T(j)(1)
states that §1.987-12T generally applies to
any deferral event or outbound loss event
that occurs on or after January 6, 2017 (that
is, thirty days after the date that §1.987-
12T was filed with the Federal Register).
Under §1.987-12T(j)(2), however, §1.987-
12T also applies to any deferral event or
outbound loss event that occurs on or after
December 7, 2016, if such deferral event
or outbound loss event is undertaken with
a principal purpose of recognizing sec-
tion 987 loss. Notice 2017-07 indicated
1
Notice 2017-07 inadvertently referred to a principal purpose of recognizing section 987 gain or loss. These final regulations, by contrast, finalize the rule in the temporary regulations by
applying § 1.987-12(j)(2) solely to deferral events and outbound loss events undertaken with a principal purpose of recognizing section 987 loss.
Bulletin No. 2019–22 1239 May 28, 2019

that §1.987-12T(j)(2) would be modified
so that §1.987-12T also will apply to any
deferral event or outbound loss event that
is undertaken with a principal purpose of
recognizing section 987 loss
1
and that oc-
curs as a result of an entity classification
election made under §301.7701-3 that is
filed on or after December 22, 2016, and
that is effective before December 7, 2016.
Additionally, Notice 2017-07 provided
that §1.987-12T(j)(1) would be modified
so that §1.987-12T also will apply to any
deferral event or outbound loss event that
occurs as a result of an entity classification
election made under §301.7701-3 that is
filed on or after January 6, 2017, and that
is effective before January 6, 2017.
On October 16, 2017, the Treasury De-
partment and the IRS issued Notice 2017-
57, 2017-42 I.R.B. 325, announcing that
future guidance would defer the applica-
bility dates of §§1.987-2T, 1.987-4T, and
1.987-7T (along with certain other pro-
visions of the 2016 final regulations and
temporary regulations) by one year. The
temporary regulations provide that these
sections apply to taxable years beginning
on or after the day that is one year after the
first day of the first taxable year following
December 7, 2016. See §§1.987-2T(e);
1.987-4T(h); 1.987-7T(d).
On June 25, 2018, the Treasury De-
partment and the IRS published Notice
2018-57, 2018-26 IRB 774, announcing
that future guidance would defer the ap-
plicability dates of §§1.987-2T, 1.987-4T,
and 1.987-7T (along with certain other
provisions of the 2016 final regulations
and temporary regulations) by one addi-
tional year.
II. Executive Order 13789
Executive Order 13789, issued on
April 21, 2017, instructs the Secretary of
the Treasury (the Secretary) to review all
significant tax regulations issued on or af-
ter January 1, 2016, and to take concrete
action to alleviate the burdens of regula-
tions that (i) impose an undue financial
burden on U.S. taxpayers; (ii) add undue
complexity to the Federal tax laws; or (iii)
exceed the statutory authority of the IRS.
Executive Order 13789 further instructs
the Secretary to submit to the President
within 60 days an interim report that iden-
tifies regulations that meet these criteria.
Notice 2017-38, 2017-30 I.R.B. 147,
which was published on July 24, 2017, in-
cluded the 2016 final regulations in a list
of eight regulations identified by the Sec-
retary in the interim report as meeting at
least one of the first two criteria specified
in Executive Order 13789.
Executive Order 13789 further in-
structs the Secretary to submit to the Pres-
ident by September 18, 2017, a final report
that recommends specific actions to mit-
igate the burden imposed by regulations
identified in the interim report. On Octo-
ber 16, 2017, the Secretary published in
the Federal Register this final report (82
FR 48013), which indicated, among other
things, that the Treasury Department and
the IRS intend to propose certain modi-
fications to the 2016 final regulations to
reduce burden and compliance challenges
associated with those regulations and are
actively considering other rules in connec-
tion with that proposal.
III. Deferral of Section 987 Gain or Loss
on Certain Terminations and Other
Transactions Involving Partnerships
Under the 2016 final regulations, the
owner of a section 987 QBU that termi-
nates includes in income all of the net un-
recognized section 987 gain or loss with
respect to the section 987 QBU in the year
it terminates. Under these rules, a termi-
nation can result, for example, solely from
a transfer of a section 987 QBU from a
taxpayer to a related party, notwithstand-
ing that the QBU’s assets continue to be
used in the same trade or business by the
related party.
Because a termination can result in
the deemed remittance of all the assets
of a section 987 QBU in circumstances
in which the assets continue to be used
by a related person in the conduct of the
same trade or business that formerly was
conducted by the section 987 QBU, termi-
nations can facilitate the selective recog-
nition of section 987 losses. In issuing the
temporary regulations, the Treasury De-
partment and the IRS determined that ter-
minations of section 987 QBUs generally
should not be permitted to facilitate the se-
lective recognition of losses when the as-
sets and liabilities of the section 987 QBU
are transferred to a related person and re-
main subject to section 987 in the hands
of the transferee. Similar policy consider-
ations arise when the transfer of a partner-
ship interest to a related person results in
deemed transfers that cause the recogni-
tion of section 987 loss with respect to a
section 987 QBU owned through the part-
nership, notwithstanding that the trade or
business of the section 987 QBU contin-
ues without interruption and remains sub-
ject to section 987, and in the context of
certain outbound transfers even when the
assets do not remain subject to section 987
in the hands of the transferee (because, for
example, the transferee has the same func-
tional currency as the QBU). In order to
address these policy concerns, the tempo-
rary regulations defer section 987 losses
resulting from certain termination events,
partnership transactions, and certain other
transactions involving outbound transfers.
In addition, the temporary regulations
generally apply to defer the recognition of
section 987 gains as well as losses when
the transferee is subject to section 987
with respect to the assets of the section
987 QBU. The temporary regulations do
not, however, defer gain to the extent the
assets of a section 987 QBU are trans-
ferred by a U.S. person to a related foreign
person, consistent with the policies under-
lying section 367.
IV. Combinations and Separations of
QBUs
The temporary regulations also include
rules to prevent similarly inappropriate re-
sults when certain section 987 QBUs are
combined or separated. Absent a special
rule, the combination of multiple section
987 QBUs that have the same owner, or
the separation of a section 987 QBU into
two or more section 987 QBUs that have
the same owner, would give rise to a trans-
fer between an owner and one or more
section 987 QBUs under the 2016 final
regulations.
Consistent with the policy of deferring
section 987 gain or loss under §1.987-
12T when assets of a section 987 QBU
are reflected on the books and records of
another section 987 QBU in the same con-
trolled group as a result of certain trans-
actions that result in deemed transfers,
the temporary regulations provide that
section 987 gain or loss generally is not
recognized when two or more section 987
May 28, 2019 1240 Bulletin No. 2019–22

Bulletin No. 2019–22 1241 May 28, 2019
QBUs (combining QBUs) with the same
owner combine into a single section 987
QBU (combined QBU) or when a section
987 QBU (separating QBU) separates into
multiple section 987 QBUs (each, a sepa-
rated QBU).
The temporary regulations also include
certain mechanical rules applicable in this
context, including (i) rules related to de-
termining the net unrecognized section
987 gain or loss of combined QBUs and
separated QBUs, and (ii) provisions re-
garding combining section 987 QBUs that
have different functional currencies than
their respective combined QBUs.
V. Determination of a Partner’s Share of
Assets and Liabilities of a Section 987
Aggregate Partnership
The 2016 final regulations set forth
rules applicable to section 987 aggregate
partnerships, which are defined as part-
nerships for which all of the capital and
profits interests are owned, directly or in-
directly, by persons that are related within
the meaning of section 267(b) or section
707(b). Under the aggregate approach set
forth in the 2016 final regulations, assets
and liabilities reflected on the books and
records of an eligible QBU of a section
987 aggregate partnership are allocated
to each partner, which is considered an
indirect owner of the eligible QBU. If the
eligible QBU has a different functional
currency than its indirect owner, then the
assets and liabilities of the eligible QBU
that are allocated to the partner are treat-
ed as a section 987 QBU of the indirect
owner.
The temporary regulations provide spe-
cific rules for determining a partner’s share
of the assets and liabilities reflected on
the books and records of an eligible QBU
owned indirectly through a section 987 ag-
gregate partnership. Specifically, §1.987-
7T(b) provides that, in any taxable year, a
partner’s share of each asset and liability of
a section 987 aggregate partnership is pro-
portional to the partner’s liquidation value
percentage with respect to the aggregate
partnership. A partner’s liquidation value
percentage is defined as the ratio of the
liquidation value of the partner’s interest
in the partnership to the aggregate liquida-
tion value of all the partners’ interests in the
partnership. The liquidation value of the
partner’s interest in the partnership is the
amount of cash the partner would receive
with respect to its interest if, immediate-
ly following the applicable determination
date, the partnership sold all of its assets
for cash equal to the fair market value of
such assets (taking into account section
7701(g)), satisfied all of its liabilities (oth-
er than those described in §1.752-7), paid
an unrelated third party to assume all of its
§1.752-7 liabilities in a fully taxable trans-
action, and then liquidated.
Summary of Comments and
Explanation of Revisions
The Treasury Department and the IRS
received one comment regarding the tem-
porary regulations. In addition, the Trea-
sury Department and the IRS received
several comments in response to Notice
2017-38 pertaining to the temporary reg-
ulations. After consideration of all the
comments, the regulations under §§1.987-
2T, 1.987-4T, and 1.987-12T, as revised
by this Treasury decision, are adopted as
final regulations. In addition, the regula-
tions under §1.987-7T are withdrawn. The
Treasury Department and the IRS are con-
tinuing to study the other provisions of the
temporary regulations that are not specifi-
cally addressed by this Treasury decision.
In addition, several comments were re-
ceived that relate to rules in the 2016 final
regulations. Comments on the 2016 final
regulations, and provisions of the tempo-
rary regulations that are not specifically
addressed by this Treasury decision, are
beyond the scope of this rulemaking and
are not addressed in this preamble. The
Treasury Department and the IRS will
consider these comments in connection
with any future guidance projects address-
ing the issues discussed in the comments.
I. Comments Recommending Withdrawal
of the Temporary Regulations
A number of comments recommended
that all of the temporary regulations, in-
cluding §§1.987-2T, 1.987-4T, and 1.987-
12T, be withdrawn. Comments generally
indicated that the 2016 final regulations
and the temporary regulations are unduly
complex and present significant financial
and compliance burdens for taxpayers
subject to the 2016 final regulations.
As described in the Background sec-
tion of this Preamble, in its final report to
the President in response to Executive Or-
der 13789, the Treasury Department indi-
cated that the 2016 final regulations have
proved difficult to apply for many tax-
payers. The final report indicated that the
Treasury Department and the IRS intend
to propose modifications to the 2016 final
regulations that will reduce the compli-
ance burdens associated with the regula-
tions. While the Treasury Department and
the IRS intend to reduce those burdens as
described in the final report, the Treasury
Department and the IRS continue to con-
sider it inappropriate to permit the selec-
tive recognition of section 987 losses and
the deferral of section 987 gains. This is
particularly true when such selective loss
recognition may be accomplished through
related-party transactions that do not sig-
nificantly impact the conduct of the trade
or business of a section 987 QBU or its
owner but nonetheless generate significant
tax benefits, as is true of deferral events
and outbound loss events.
Accordingly, the Treasury Department
and the IRS have determined that finaliz-
ing §§1.987-2T, 1.987-4T, and 1.987-12T,
while simultaneously deferring the appli-
cability date of the 2016 final regulations
and developing guidance to mitigate the
complexity and administrative challeng-
es associated with, the 2016 final regula-
tions, appropriately balances taxpayers’
burdens with the need to prevent abuse
under the 2016 final regulations or under
another method of complying with section
987 utilized by a taxpayer during a period
for which the 2016 final regulations are
not applicable. Accordingly, this Treasury
decision finalizes the rules in §§1.987-
2T, 1.987-4T, and 1.987-12T with certain
clarifications.
II. Comments Recommending a Delay
of the Applicability Date of the
Temporary Regulations
Comments recommended that the
applicability date for the 2016 final reg-
ulations and the temporary regulations,
including §§1.987-2T, 1.987-4T, and
1.987-12T, be delayed for a specified pe-
riod, such as one or two years. Similarly,
comments recommended that the final and
temporary regulations, including §§1.987-

May 28, 2019 1242 Bulletin No. 2019–22
2T, 1.987-4T, and 1.987-12T, be with-
drawn in their entirety and reproposed (in
one case, with an effective date at least
two years after such regulations are final-
ized) to allow taxpayers time to effective-
ly plan to implement the final and tempo-
rary regulations. Generally, the comments
indicated that taxpayers required addition-
al time to update and implement existing
systems to comply with the 2016 final
regulations and the temporary regulations.
One comment specifically recommended
that the applicability date for §1.987-12T
be delayed until the applicability date of
the 2016 final regulations. The comment
indicated that, in certain instances, the
applicability date of §1.987-12T prevent-
ed the recognition of losses in connection
with certain transactions that were in the
planning and implementation stages when
the temporary regulations were issued. No
comments identified specific compliance
challenges associated with §1.987-12T.
The Treasury Department and the IRS
decline to delay the applicability date of
§1.987-12T. As discussed in Part I of this
Summary of Comments and Explanation
of Revisions, §1.987-12T prevents tax-
payers from selectively recognizing sec-
tion 987 losses through certain technical
terminations of a section 987 QBU and
similar transactions that would be rela-
tively easy to effect through related-party
transactions without meaningfully impact-
ing a taxpayer’s business operations. If the
applicability date were delayed, taxpayers
would be incentivized to engage in such
selective recognition of section 987 losses,
which would be contrary to the purposes
of section 987 and §1.987-12T. Delaying
the application of related provisions un-
der §§1.987-2T and 1.987-4T concerning
combinations and separations of a section
987 QBU could similarly incentivize trans-
actions designed to accelerate section 987
losses for taxpayers that have elected to ap-
ply the 2016 final regulations early. In this
regard, the Treasury Department and the
IRS observe that the transactions to which
§§1.987-2T, 1.987-4T, and 1.987-12T are
applicable occur exclusively among related
persons, such that taxpayers may avoid the
application of those sections by avoiding
undertaking such transactions.
Accordingly, the final regulations re-
tain the applicability dates of the tempo-
rary regulations, as modified by Notice
2017-07, Notice 2017-57, and Notice
2018-57. Specifically, the final regulations
provide that §§1.987-2(c)(9), 1.987-4(c)
(2), and 1.987-4(f) apply to taxable years
beginning on or after the day that is three
years after the first day of the first tax-
able year following December 7, 2016.
If, however, a taxpayer makes an election
under §1.987-11(b), then §§1.987-2(c)
(9), 1.987-4(c)(2), and 1.987-4(f) apply to
taxable years to which §§1.987-1 through
1.987-10 apply as a result of such election.
Similarly, §1.987-12 incorporates the
applicability date provisions of §1.987-
12T, as modified by Notice 2017-07.
Thus, the final regulations under §1.987-
12 generally apply to any deferral event
or outbound loss event that occurs on or
after January 6, 2017. Section 1.987-12
also applies to any deferral event or out-
bound loss event that occurs as a result
of an entity classification election made
under §301.7701-3 that is filed on or after
January 6, 2017, and that is effective be-
fore January 6, 2017. However, §1.987-12
applies to any deferral event or outbound
loss event occurring on or after December
7, 2016, if such deferral event or outbound
loss event was undertaken with a princi-
pal purpose of recognizing section 987
loss. Similarly, §1.987-12 applies to any
deferral event or outbound loss event that
occurs as a result of an entity classification
election made under §301.7701-3 that was
filed on or after December 22, 2016, that
was effective before December 7, 2016,
and that was undertaken with a principal
purpose of recognizing section 987 loss.
III. Comments Regarding the
Determination of a Partner’s Share of
Assets and Liabilities of a Section 987
Aggregate Partnership
Comments recommended alterna-
tive approaches for determining a part-
ner’s share of the assets and liabilities
of a section 987 aggregate partnership.
Comments recommended that §1.987-7
be withdrawn and replaced with the ap-
proach of the 2006 proposed regulations
under section 987, which provided that
a partner’s share of assets and liabilities
reflected on the books and records of an
eligible QBU held indirectly through the
partnership must be determined in a man-
ner consistent with how the partners have
agreed to share the economic benefits and
burdens corresponding to those partner-
ship assets and liabilities, taking into ac-
count the rules and principles of subchap-
ter K. The comment indicated that that
the liquidation value percentage approach
was inconsistent with certain principles of
subchapter K, resulting in distortions in
the calculation of section 987 gain or loss
in certain cases.
The Treasury Department and the IRS
have determined that, in the absence of a
more comprehensive set of rules for de-
termining a partner’s share of assets and
liabilities reflected on the books and re-
cords of an eligible QBU held indirectly
through the partnership that also artic-
ulates the interaction of those rules with
applicable rules in subchapter K, a more
flexible approach is warranted. Moreover,
the Treasury Department and the IRS have
determined that, in certain instances, the
liquidation value percentage methodology
set forth in §1.987-7T may be interpreted
as applying in a way that inappropriately
distorts the computation of section 987
gain or loss. Specifically, under such an
interpretation, certain changes in a part-
ner’s liquidation value percentage may
introduce distortions in the calculation of
net unrecognized section 987 gain or loss
under §1.987-4, giving rise to net unrec-
ognized section 987 gain or loss that is not
attributable to fluctuations in exchange
rates. For example, an appreciation or de-
preciation in property value can result in
a change in liquidation value percentage
that causes a change in owner functional
currency net value for purposes of Step 1
of the §1.987-4(d) calculation of unrecog-
nized section 987 gain or loss for a taxable
year without an offsetting adjustment un-
der Step 6 or otherwise that would prevent
the change in liquidation value percentage
from distorting the calculation of unrecog-
nized section 987 gain or loss. As a result,
such unrecognized appreciation or depre-
ciation generally can result in unrecog-
nized section 987 gain or loss for a taxable
year being allocated to each partner that
indirectly owns a section 987 QBU even
when there is no change in exchange rates.
Accordingly, the Treasury Department
and the IRS are withdrawing §1.987-7T
(and making a conforming change to an
example in §1.987-12). Until new regula-
tions are proposed and finalized, taxpayers

Bulletin No. 2019–22 1243 May 28, 2019
may use any reasonable method for deter-
mining a partner’s share of assets and lia-
bilities reflected on the books and records
of an eligible QBU held indirectly through
the partnership. For this purpose, taxpay-
ers may rely on subchapter K principles
(consistent with the 2006 proposed regu-
lations under section 987) or an approach
similar to the liquidation value percentage
method set forth in §1.987-7T. However,
the Treasury Department and the IRS do
not believe that it would be reasonable
to apply the liquidation value percentage
method without corresponding adjust-
ments to the determination of net unrec-
ognized section 987 gain or loss. Thus, for
example, a taxpayer using the liquidation
value percentage method may be required
to adjust its determination of net unrecog-
nized section 987 gain or loss of a section
987 QBU that is owned indirectly through
a partnership to prevent the determination
of unrecognized section 987 gain or loss
that is not attributable to fluctuations in
exchange rates. These adjustments may
include, for example, treating any change
in a partner’s owner functional currency
net value that is attributable to a change in
the partner’s liquidation value percentage
as resulting in a transfer to or from an in-
directly owned section 987 QBU.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Executive Orders 13563 and 12866
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits, including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity.
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, of reducing costs, of harmoniz-
ing rules, and of promoting flexibility.
This regulation is not subject to review
under section 6(b) of Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) between the
Department of the Treasury and the Office
of Management and Budget regarding re-
view of tax regulations. Therefore, a reg-
ulatory impact assessment is not required.
II. Paperwork Reduction Act
This regulation does not establish a
new collection of information nor modi-
fy an existing collection that requires the
approval of the Office of Management and
Budget under the Paperwork Reduction
Act (44 U.S.C. chapter 35).
III. Regulatory Flexibility Act
It is hereby certified that these regula-
tions will not have a significant economic
impact on a substantial number of small en-
tities within the meaning of section 601(6)
of the Regulatory Flexibility Act (5 U.S.C.
chapter 6). Accordingly, a regulatory flexi-
bility analysis is not required. This certifi-
cation is based on the fact that these regula-
tions will primarily affect U.S. corporations
that have foreign operations, which tend to
be larger businesses. Accordingly, a regula-
tory flexibility analysis under the Regulato-
ry Flexibility Act is not required.
Pursuant to section 7805(f), the notice
of proposed rulemaking preceding this
regulation was submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small businesses. No comments
were received.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a state, local, or tribal govern-
ment, in the aggregate, or by the private
sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2018,
that threshold is approximately $150 mil-
lion. This rule does not include any Fed-
eral mandate that may result in expendi-
tures by state, local, or tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state law,
unless the agency meets the consultation
and funding requirements of section 6 of
the Executive Order. This proposed rule
does not have federalism implications,
does not impose substantial direct compli-
ance costs on state and local governments,
and does not preempt state law within the
meaning of the Executive Order.
Drafting Information
The principal author of these final reg-
ulations is Steven D. Jensen of the Office
of Associate Chief Counsel (Internation-
al). However, other personnel from the
IRS and the Treasury Department partic-
ipated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry for
§1.987-12 in numerical order to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.987-12 is issued under 26
U.S.C. 987 and 989.
* * * * *
Par. 2. Section 1.987-0 is amended by:
1. Revising the entries for §1.987-2(c)
(9), §1.987-4(c)(2), (f), §1.987-12(a), (a)
(1), (a)(2), (a)(3), (b), (b)(1), (b)(2), (b)(3),
(b)(4), (c), (c)(1), (c)(2), (c)(3), (c)(4), (d),
(d)(1), (d)(2), (d)(3), (d)(4), (d)(5), (e), (e)
(1), (e)(2), (f), (f)(1), (f)(2), (g), and (h).
2. Adding entries for §1.987-2(e), (e)
(1), (e)(2), §1.987-4(f)(1), (f)(2), (f)(3),
(h), (h)(1), (h)(2), §1.987-12(i), (i)(1), (i)
(2), (i)(3), (j), (j)(1), and (j)(2).
The revisions and additions read as fol-
lows:
§1.987-0 Table of contents.
* * * * *
§1.987-2 Attribution of items to eligi-
ble QBUs; definition of a transfer and re-
lated rules.

May 28, 2019 1244 Bulletin No. 2019–22
* * * * *
(c)(9) Certain disregarded transactions
not treated as transfers.
* * * * *
(e) Effective/applicability date.
(1) In general.
(2) Certain disregarded transactions
not treated as transfers.
* * * * *
§1.987-4 Determination of net unrec-
ognized section 987 gain or loss of a sec-
tion 987 QBU.
* * * * *
(c)(2) Coordination with §1.987-12.
* * * * *
(f) Combinations and separations.
(1) Combinations.
(2) Separations.
(3) Examples.
* * * * *
(h) Effective/applicability date.
(1) In general.
(2) Combinations and separations.
* * * * *
§1.987-12 Deferral of section 987 gain
or loss.
(a) In general.
(1) Overview.
(2) Scope.
(3) Exceptions.
(b) Gain or loss recognition in connec-
tion with a deferral event.
(1) In general.
(2) Deferral event.
(3) Gain or loss recognized under
§1.987-5 in the taxable year of a deferral
event.
(4) Successor QBU.
(c) Recognition of deferred section 987
gain or loss in the taxable year of a defer-
ral event and in subsequent taxable years.
(1) In general.
(2) Recognition upon a subsequent re-
mittance
(3) Recognition of deferred section 987
loss in certain outbound successor QBU-
terminations.
(4) Special rules regarding successor
QBUs.
(d) Loss recognition upon an outbound
loss event.
(1) In general.
(2) Outbound loss event.
(3) Loss recognized upon an outbound
loss event.
(4) Adjustment of basis of stock received
in certain nonrecognition transactions.
(5) Recognition of outbound section
987 loss that is not converted into stock
basis.
(e) Source and character.
(1) Deferred section 987 gain or loss
and certain outbound section 987 loss.
(2) Outbound section 987 loss reflected
in stock basis.
(f) Definitions.
(1) Controlled group.
(2) Qualified successor.
(g) Anti-abuse.
(h) Examples.
(i) Coordination with fresh start transi-
tion method.
(1) In general.
(2) Adjustment to deferred section 987
gain or loss.
(3) Adjustments in the case of an out-
bound loss event.
(j) Effective/applicability date.
(1) In general.
(2) Exceptions.
Par. 3. Section 1.987-2 is amended by
1. Revising paragraphs (c)(9).
2. Adding paragraph (e).
The revision and addition read as fol-
lows:
§1.987-2 Attribution of items to eligi-
ble QBUs; definition of a transfer and re-
lated rules.
* * * * *
(c) * * *
(9) Certain disregarded transactions
not treated as transfers--(i) Combina-
tions of section 987 QBUs. The combina-
tion of two or more separate section 987
QBUs (combining QBUs) that are directly
owned by the same owner, or that are indi-
rectly owned by the same partner through
a single section 987 aggregate partnership,
into one section 987 QBU (combined
QBU) does not give rise to a transfer of
any combining QBU’s assets or liabilities
to the owner under §1.987-2(c). In addi-
tion, transactions between the combining
QBUs occurring in the taxable year of the
combination do not result in a transfer of
the combining QBUs’ assets or liabilities
to the owner under §1.987-2(c). For this
purpose, a combination occurs when the
assets and liabilities that are properly re-
flected on the books and records of two or
more combining QBUs begin to be prop-
erly reflected on the books and records of a
combined QBU and the separate existence
of the combining QBUs ceases. A combi-
nation may result from any transaction or
series of transactions in which the com-
bining QBUs become a combined QBU.
For rules regarding the determination of
net unrecognized section 987 gain or loss
of a combined QBU, see §1.987-4(f)(1).
(ii) Change in functional currency
from a combination. If, following a com-
bination of section 987 QBUs described
in paragraph (c)(9)(i) of this section, the
combined section 987 QBU has a differ-
ent functional currency than one or more
of the combining section 987 QBUs, any
such combining section 987 QBU is treat-
ed as changing its functional currency and
the owner of the combined section 987
QBU must comply with the regulations
under section 985 regarding the change in
functional currency. See §§1.985-1(c)(6)
and 1.985-5.
(iii) Separation of section 987 QBUs.
The separation of a section 987 QBU
(separating QBU) into two or more sec-
tion 987 QBUs (separated QBUs) that,
after the separation, are directly owned
by the same owner, or that are indirect-
ly owned by the same partner through a
single section 987 aggregate partnership,
does not result in a transfer of the sepa-
rating QBU’s assets or liabilities to the
owner under §1.987-2(c). Additionally,
transactions that occurred between the
separating QBUs in the taxable year of
the separation prior to the completion of
the separation do not result in transfers
for purposes of section 987. For this pur-
pose, a separation occurs when the assets
and liabilities that are properly reflected
on the books and records of a separat-
ing QBU begin to be properly reflected
on the books and records of two or more
separated QBUs. A separation may result
from any transaction or series of trans-
actions in which a separating QBU be-
comes two or more separated QBUs. A
separation may also result when a sec-
tion 987 QBU that is subject to a group-
ing election under §1.987-1(b)(2)(ii)(A)
changes its functional currency. For rules
regarding the determination of net unrec-
ognized section 987 gain or loss of a sep-
arated QBU, see §1.987-4(f)(2).
* * * * *
(e) Effective/applicability date--(1) In
general. Except as set forth in paragraph
(h)(2) of this section, this section is appli-
cable as specified in §1.987-11.

Bulletin No. 2019–22 1245 May 28, 2019
(2) Certain disregarded transactions
not treated as transfers. Paragraph (c)(9)
of this section applies to taxable years
beginning on or after the day that is three
years after the first day of the first taxable
year following December 7, 2016. Not-
withstanding the preceding sentence, if a
taxpayer makes an election under §1.987-
11(b), then paragraph (c)(9) of this section
applies to taxable years to which §§1.987-
1 through 1.987-10 apply as a result of
such election.
§ 1.987-2T [Removed]
Par. 4. Section 1.987-2T is removed.
Par. 5. Section 1.987-4 is amended by
1. Revising paragraphs (c)(2) and (f).
2. Adding paragraph (h).
The revisions and addition read as fol-
lows:
§1.987-4 Determination of net unrec-
ognized section 987 gain or loss of a sec-
tion 987 QBU.
* * * * *
(c) * * *
(2) Coordination with §1.987-12. For
purposes of paragraph (c)(1) of this sec-
tion, amounts taken into account under
§1.987-5 are determined without regard to
§1.987-12.
* * * * *
(f) Combinations and separations--(1)
Combinations. The net unrecognized sec-
tion 987 gain or loss of a combined QBU
(as defined in §1.987-2(c)(9)(i)) for a tax-
able year is determined under paragraph
(b) of this section by taking into account
the net accumulated unrecognized sec-
tion 987 gain or loss of each combining
QBU (as defined in §1.987-2(c)(9)(i)) for
all prior taxable years to which the regu-
lations under section 987 apply, as deter-
mined under paragraph (c) of this section,
and by treating the combining QBUs as
having combined immediately prior to the
beginning of the taxable year of combina-
tion. See paragraph (f)(3) of this section,
Example 1, for an illustration of this rule.
(2) Separations. The net unrecognized
section 987 gain or loss of a separated
QBU (as defined in §1.987-2(c)(9)(iii))
for a taxable year is determined under
paragraph (b) of this section by taking
into account the separated QBU’s share of
the net accumulated unrecognized section
987 gain or loss of the separating QBU (as
defined in §1.987-2(c)(9)(iii)) for all pri-
or taxable years to which the regulations
under section 987 apply, as determined
under paragraph (c) of this section, and
by treating the separating QBU as having
separated immediately prior to the begin-
ning of the taxable year of separation. A
separated QBU’s share of the separating
QBU’s net accumulated unrecognized
section 987 gain or loss for all such prior
taxable years is determined by apportion-
ing the separating QBU’s net accumulated
unrecognized section 987 gain or loss for
all such prior taxable years to each sepa-
rated QBU in proportion to the aggregate
adjusted basis of the gross assets properly
reflected on the books and records of each
separated QBU immediately after the sep-
aration. For purposes of determining the
owner functional currency net value of
the separated QBUs on the last day of the
taxable year preceding the taxable year of
separation under §1.987-5(d)(1)(B) and
(e), the balance sheets of the separated
QBUs on that day will be deemed to re-
flect the assets and liabilities reflected on
the balance sheet of the separating QBU
on that day, apportioned between the sep-
arated QBUs in a reasonable manner that
takes into account the assets and liabilities
reflected on the balance sheets of the sepa-
rated QBUs immediately after the separa-
tion. See paragraph (f)(3) of this section,
Example 2, for an illustration of this rule.
(3) Examples. The following examples
illustrate the rules of paragraphs (f)(1) and
(2) of this section.
(i) Example 1. Combination of two section 987
QBUs that have the same owner. (A) Facts. DC1, a
domestic corporation, owns Entity A, a DE. Entity
A conducts a business in France that constitutes a
section 987 QBU (French QBU) that has the euro as
its functional currency. French QBU has a net accu-
mulated unrecognized section 987 loss from all prior
taxable years to which the regulations under section
987 apply of $100. DC1 also owns Entity B, a DE.
Entity B conducts a business in Germany that consti-
tutes a section 987 QBU (German QBU) that has the
euro as its functional currency. German QBU has a
net accumulated unrecognized section 987 gain from
all prior taxable years to which the regulations under
section 987 apply of $110. During the taxable year,
Entity A and Entity B merge under local law. As a
result, the books and records of French QBU and
German QBU are combined into a new single set of
books and records. The combined entity has the euro
as its functional currency.
(B) Analysis. Pursuant to §1.987-2(c)(9)(i),
French QBU and German QBU are combining
QBUs, and their combination does not give rise to a
transfer that is taken into account in determining the
amount of a remittance (as defined in §1.987-5(c)).
For purposes of computing net unrecognized section
987 gain or loss under this section for the year of
the combination, the combination is deemed to have
occurred on the last day of the owner’s prior taxable
year, such that the owner functional currency net
value of the combined section 987 QBU at the end
of that taxable year described under paragraph (d)(1)
(B) of this section takes into account items reflected
on the balance sheets of both French QBU and Ger-
man QBU at that time. Additionally, any transactions
between French QBU and German QBU occurring
during the year of the merger will not result in trans-
fers to or from a section 987 QBU. Pursuant to para-
graph (f)(1) of this section, the combined QBU will
have a net accumulated unrecognized section 987
gain from all prior taxable years of $10 (the $100
loss from French QBU plus the $110 gain from Ger-
man QBU).
(ii) Example 2. Separation of two section 987
QBUs that have the same owner
. (A) Facts. DC1,
a domestic corporation, owns Entity A, a DE. Entity
A conducts a business in the Netherlands that consti-
tutes a section 987 QBU (Dutch QBU) that has the
euro as its functional currency. The business of Dutch
QBU consists of manufacturing and selling bicycles
and scooters and is recorded on a single set of books
and records. On the last day of Year 1, the adjusted
basis of the gross assets of Dutch QBU is €1,000.
In Year 2, the net accumulated unrecognized section
987 loss of Dutch QBU from all prior taxable years
is $200. During Year 2, Entity A separates the bicycle
and scooter business such that each business begins
to have its own books and records and to meet the
definition of a section 987 QBU under §1.987-1(b)
(2) (hereafter, “bicycle QBU” and “scooter QBU”).
There are no transfers between DC1 and Dutch QBU
before the separation. After the separation, the aggre-
gate adjusted basis of bicycle QBU’s assets is €600
and the aggregate adjusted basis of scooter QBU’s
assets is €400. Each section 987 QBU continues to
have the euro as its functional currency.
(B) Analysis. Pursuant to §1.987-2(c)(9)(iii), bi-
cycle QBU and scooter QBU are separated QBUs,
and the separation of Dutch QBU, a separating QBU,
does not give rise to a transfer taken into account in
determining the amount of a remittance (as defined
in §1.987-5(c)). For purposes of computing net un-
recognized section 987 gain or loss under this section
for Year 2, the separation will be deemed to have oc-
curred on the last day of the owner’s prior taxable
year, Year 1. Pursuant to paragraph (f)(2) of this sec-
tion, bicycle QBU will have a net accumulated un-
recognized section 987 loss of $120 (€600/€1,000 x
$200), and scooter QBU will have a net accumulated
unrecognized section 987 loss of $80 (€400/€1,000
x $200).
* * * * *
(h) Effective/applicability date--(1) In
general. Except as set forth in paragraph
(h)(2) of this section, this section is appli-
cable as specified in §1.987-11.
(2) Combinations and separations.
Paragraphs (c)(2) and (f) of this section
apply to taxable years beginning on or
after the day that is three years after the
first day of the first taxable year following
December 7, 2016. Notwithstanding the

May 28, 2019 1246 Bulletin No. 2019–22
preceding sentence, if a taxpayer makes
an election under §1.987-11(b), then para-
graphs (c)(2) and (f) of this section ap-
plies to taxable years to which §§1.987-1
through 1.987-10 apply as a result of such
election.
§ 1.987-4T [Removed]
Par. 6. Section 1.987-4T is removed.
§ 1.987-7 [Amended]
Par. 7. Section 1.987-7 is amended by
removing and reserving paragraph (b).
§ 1.987-7T [Removed]
Par. 8. Section 1.987-7T is removed.
Par. 9. Section 1.987-12 is revised to
read as follows:
§1.987-12 Deferral of section 987 gain
or loss.
(a) In general--(1) Overview. This
section provides rules that defer the rec-
ognition of section 987 gain or loss that,
but for this section, would be recognized
in connection with certain QBU termi-
nations and certain other transactions in-
volving partnerships. This paragraph (a)
provides an overview of this section and
describes the section’s scope of applica-
tion, including with respect to QBUs sub-
ject to section 987 but to which §§1.987-1
through 1.987-11 generally do not apply.
Paragraph (b) of this section describes the
extent to which section 987 gain or loss
is recognized under §1.987-5 or similar
principles in the taxable year of a defer-
ral event (as defined in paragraph (b)(2)
of this section) with respect to a QBU.
Paragraph (c) of this section describes
the extent to which section 987 gain or
loss that, as a result of paragraph (b), is
not recognized under §1.987-5 or similar
principles is recognized upon the occur-
rence of subsequent events. Paragraph
(d) of this section describes the extent to
which section 987 loss is recognized un-
der §1.987-5 or similar principles in the
taxable year of an outbound loss event (as
defined in paragraph (d)(2) of this section)
with respect to a QBU. Paragraph (e) of
this section provides rules for determin-
ing the source and character of gains and
losses that, as a result of this section, are
not recognized under §1.987-5 or similar
principles in the taxable year of a deferral
event or outbound loss event. Paragraph
(f) of this section defines controlled group
and qualified successor for purposes of
this section. Paragraph (g) of this section
provides an anti-abuse rule. Paragraph (h)
of this section provides examples illus-
trating the rules described in this section.
Paragraph (i) of this section provides rules
coordinating the application of this sec-
tion with the fresh start transition meth-
od. Paragraph (j) of this section provides
dates of applicability.
(2) Scope. This section applies to any
foreign currency gain or loss realized un-
der section 987(3), including foreign cur-
rency gain or loss of an entity described
in §1.987-1(b)(1)(ii) (certain entities not
otherwise subject to the regulations under
section 987). References in this section to
section 987 gain or loss refer to any for-
eign currency gain or loss realized under
section 987(3), references to a section 987
QBU refer to any eligible QBU (as defined
in §1.987-1(b)(3)(i), but without regard to
§1.987-1(b)(3)(ii)) that is subject to section
987, and references to a section 987 aggre-
gate partnership refer to any partnership
for which the acquisition or disposition
of a partnership interest could give rise to
foreign currency gain or loss realized un-
der section 987(3). Additionally, references
to recognition of section 987 gain or loss
under §1.987-5 encompass any determina-
tion and recognition of gain or loss under
section 987(3) that would occur but for this
section. Accordingly, the principles of this
section apply to a QBU subject to section
987 regardless of whether the QBU other-
wise is subject to §§1.987-1 through 1.987-
11. An owner of a QBU that is not subject
to §1.987-5 must adapt the rules set forth in
this section as necessary to recognize sec-
tion 987 gains or losses that are subject to
this section consistent with the principles
of this section.
(3) Exceptions--(i) Annual deemed ter-
mination elections. This section does not
apply to section 987 gain or loss of a sec-
tion 987 QBU with respect to which the
annual deemed termination election de-
scribed in §1.987-8(d) is in effect.
(ii) De minimis exception. This section
does not apply to a section 987 QBU for
a taxable year if the net unrecognized sec-
tion 987 gain or loss of the section 987
QBU that, as a result of this section, would
not be recognized under §1.987-5 in the
taxable year does not exceed $5 million.
(b) Gain and loss recognition in con-
nection with a deferral event--(1) In gen-
eral
. Notwithstanding §1.987-5, the own-
er of a section 987 QBU with respect to
which a deferral event occurs (a deferral
QBU) includes in taxable income section
987 gain or loss in connection with the de-
ferral event only to the extent provided in
paragraphs (b)(3) and (c) of this section.
However, if the deferral event also consti-
tutes an outbound loss event described in
paragraph (d) of this section, the amount
of loss recognized by the owner may be
further limited under that paragraph.
(2) Deferral event--(i) In general. A de-
ferral event with respect to a section 987
QBU means any transaction or series of
transactions that satisfy the conditions de-
scribed in paragraphs (b)(2)(ii) and (iii) of
this section.
(ii) Transactions. The transaction or se-
ries of transactions include either:
(A) A termination of the section 987
QBU other than any of the following
terminations: a termination described in
§1.987-8(b)(3), a termination described
in §1.987-8(c), or a termination described
solely in §1.987-8(b)(1); or
(B) A disposition of part of an interest
in a section 987 aggregate partnership or
DE through which the section 987 QBU is
owned, a disposition of part of a directly
held section 987 QBU, or any contribution
by another person to a section 987 aggre-
gate partnership, DE, or section 987 QBU
of assets that, immediately after the con-
tribution, are not considered to be includ-
ed on the books and records of an eligible
QBU, provided that the contribution gives
rise to a deemed transfer from the section
987 QBU to the owner. See paragraph (h)
of this section, Examples 1, 2, and 4, for
illustrations of this rule.
(iii) Assets on books of successor QBU.
Immediately after the transaction or series
of transactions, assets of the section 987
QBU are reflected on the books and re-
cords of a successor QBU (as defined in
paragraph (b)(4) of this section).
(3) Gain or loss recognized under
§1.987-5 in the taxable year of a defer-
ral event. In the taxable year of a deferral
event with respect to a deferral QBU, the
owner of the deferral QBU recognizes sec-
tion 987 gain or loss as determined under
§1.987-5, except that, solely for purposes
of applying §1.987-5, all assets and liabil-
ities of the deferral QBU that, immediate-

Bulletin No. 2019–22 1247 May 28, 2019
ly after the deferral event, are reflected on
the books and records of a successor QBU
are treated as not having been transferred
and therefore as remaining on the books
and records of the deferral QBU notwith-
standing the deferral event.
(4) Successor QBU. For purposes of
this section, a section 987 QBU (potential
successor QBU) is a successor QBU with
respect to a section 987 QBU referred to in
paragraph (b)(2)(ii) of this section if, im-
mediately after the transaction or series of
transactions described in that paragraph,
the potential successor QBU satisfies all
of the conditions described in paragraphs
(b)(4)(i) through (iii) of this section.
(i) The books and records of the poten-
tial successor QBU reflect assets that, im-
mediately before the transaction or series
of transactions described in paragraph (b)
(2)(ii) of this section, were reflected on the
books and records of the section 987 QBU
referred to in that paragraph.
(ii) The owner of the potential succes-
sor QBU and the owner of the section 987
QBU referred to in paragraph (b)(2)(ii) of
this section immediately before the trans-
action or series of transactions described
in that paragraph are members of the same
controlled group.
(iii) In the case of a section 987 QBU
referred to in paragraph (b)(2)(ii)(A) of
this section, if the owner of the section
987 QBU immediately before the trans-
action or series of transactions described
in that paragraph was a U.S. person, the
potential successor QBU is owned by a
U.S. person.
(c) Recognition of deferred section
987 gain or loss in the taxable year of a
deferral event and in subsequent taxable
years--(1) In general--(i) Deferred section
987 gain or loss. A deferral QBU owner
(as defined in paragraph (c)(1)(ii) of this
section) recognizes section 987 gain or
loss attributable to the deferral QBU that,
as a result of paragraph (b) of this section,
is not recognized in the taxable year of the
deferral event under §1.987-5 (deferred
section 987 gain or loss) in the taxable
year of the deferral event and in subse-
quent taxable years as provided in para-
graphs (c)(2) through (4) of this section.
(ii) Deferral QBU owner. For purposes
of this paragraph (c), a deferral QBU own-
er means, with respect to a deferral QBU,
the owner of the deferral QBU immediate-
ly before the deferral event, or the owner’s
qualified successor.
(2) Recognition upon a subsequent
remittance--(i) In general. Except as pro-
vided in paragraph (c)(3) of this section, a
deferral QBU owner recognizes deferred
section 987 gain or loss in the taxable year
of the deferral event and in subsequent
taxable years upon a remittance from a
successor QBU to the owner of the suc-
cessor QBU (successor QBU owner) in
the amount described in paragraph (c)(2)
(ii) of this section.
(ii) Amount. The amount of deferred
section 987 gain or loss that is recognized
pursuant to this paragraph (c)(2) in a tax-
able year of the deferral QBU owner is
the outstanding deferred section 987 gain
or loss (that is, the amount of deferred
section 987 gain or loss not previously
recognized) multiplied by the remittance
proportion of the successor QBU owner
with respect to the successor QBU for
the taxable year ending with or within the
taxable year of the deferral QBU owner,
as determined under §1.987-5(b) (and, to
the extent relevant, paragraphs (b) and (c)
(2)(iii) of this section) without regard to
any election under §1.987-8(d). For pur-
poses of computing this remittance pro-
portion, multiple successor QBUs of the
same deferral QBU are treated as a single
successor QBU. See paragraph (h) of this
section, Example 5, for an illustration of
this rule.
(iii) Deemed remittance when a succes-
sor QBU ceases to be owned by a member
of the deferral QBU owner’s controlled
group. For purposes of this paragraph (c)
(2), in a taxable year of the deferral QBU
owner in which a successor QBU ceases
to be owned by a member of a controlled
group that includes the deferral QBU
owner, the successor QBU owner is treat-
ed as having a remittance proportion of 1.
Accordingly, if there is only one successor
QBU with respect to a deferral QBU and
that successor QBU ceases to be owned
by a member of the controlled group that
includes the deferral QBU owner, all out-
standing deferred section 987 gain or loss
with respect to that deferral QBU will
be recognized. This paragraph (c)(2)(iii)
does not affect the application of §§1.987-
1 through 1.987-11 to the successor QBU
owner with respect to its ownership of the
successor QBU.
(3) Recognition of deferred section
987 loss in certain outbound successor
QBU terminations. Notwithstanding
paragraph (c)(2) of this section, if assets
of the successor QBU (transferred assets)
are transferred (or deemed transferred)
in a transaction that would constitute
an outbound loss event if the succes-
sor QBU had a net accumulated section
987 loss at the time of the exchange,
then the deferral QBU owner recogniz-
es outstanding deferred section 987 loss,
if any, to the extent it would recognize
loss under paragraph (d)(1) of this sec-
tion if (i) the deferral QBU owner owned
the successor QBU, (ii) the deferral QBU
owner had net unrecognized section 987
loss with respect to the successor QBU
equal to its outstanding deferred sec-
tion 987 loss with respect to the deferral
QBU, and (iii) the transferred assets were
transferred (or deemed transferred) in an
outbound loss event. Any outstanding
deferred section 987 loss with respect to
the deferral QBU that is not recognized
as a result of the preceding sentence is
recognized by the deferral QBU owner in
the first taxable year in which the deferral
QBU owner (including any qualified suc-
cessor) ceases to be a member of a con-
trolled group that includes the acquirer
of the transferred assets or any qualified
successor of such acquirer.
(4) Special rules regarding successor
QBUs--(i) Successor QBU with respect to
a deferral QBU that is a successor QBU.
If a section 987 QBU is a successor QBU
with respect to a deferral QBU that is a
successor QBU with respect to another
deferral QBU, the first-mentioned section
987 QBU is considered a successor QBU
with respect to the second-mentioned de-
ferral QBU. For example, if QBU A is a
successor QBU with respect to QBU B,
and QBU B is a successor QBU with re-
spect to QBU C, then QBU A is a succes-
sor QBU with respect to QBU C.
(ii) Separation of a successor QBU. If
a successor QBU with respect to a deferral
QBU separates into two or more separated
QBUs (as defined in §1.987-2(c)(9)(iii)),
each separated QBU is considered a suc-
cessor QBU with respect to the deferral
QBU.

May 28, 2019 1248 Bulletin No. 2019–22
(iii) Combination of a successor QBU.
If a successor QBU with respect to a de-
ferral QBU combines with another section
987 QBU of the same owner, resulting in a
combined QBU (as defined in §1.987-2(c)
(9)(i)), the combined QBU is considered
a successor QBU with respect to the de-
ferral QBU.
(d) Loss recognition upon an outbound
loss event--(1) In general. Notwithstand-
ing §1.987-5, the owner of a section 987
QBU with respect to which an outbound
loss event occurs (an outbound loss QBU)
includes in taxable income in the taxable
year of an outbound loss event section 987
loss with respect to that section 987 QBU
only to the extent provided in paragraph
(d)(3) of this section.
(2) Outbound loss event. An outbound
loss event means, with respect to a section
987 QBU:
(i) Any termination of the section 987
QBU in connection with a transfer by a
U.S. person of assets of the section 987
QBU to a foreign person that is a member
of the same controlled group as the U.S.
transferor immediately before the transac-
tion or, if the transferee did not exist im-
mediately before the transaction, immedi-
ately after the transaction (related foreign
person), provided that the termination
would result in the recognition of section
987 loss with respect to the section 987
QBU under §1.987-5 and paragraph (b) of
this section but for this paragraph (d); or
(ii) Any transfer by a U.S. person of
part of an interest in a section 987 aggre-
gate partnership or DE through which the
U.S. person owns the section 987 QBU to
a related foreign person that has the same
functional currency as the section 987
QBU, or any contribution by such a re-
lated foreign person to such a partnership
or DE of assets that, immediately after
the contribution, are not considered to be
included on the books and records of an
eligible QBU, provided that the transfer
would result in the recognition of section
987 loss with respect to the section 987
QBU under §1.987-5 and paragraph (b) of
this section but for this paragraph (d). See
paragraph (h) of this section, Example 3,
for an illustration of this rule.
(3) Loss recognized upon an outbound
loss event. In the taxable year of an out-
bound loss event with respect to an out-
bound loss QBU, the owner of the out-
bound loss QBU recognizes section 987
loss as determined under §1.987-5 and
paragraphs (b) and (c) of this section, ex-
cept that, solely for purposes of applying
§1.987-5, the following assets and liabili-
ties of the outbound loss QBU are treated
as not having been transferred and there-
fore as remaining on the books and re-
cords of the outbound loss QBU notwith-
standing the outbound loss event:
(i) In the case of an outbound loss event
described in paragraph (d)(2)(i) of this
section, assets and liabilities that, imme-
diately after the outbound loss event, are
reflected on the books and records of the
related foreign person described in that
paragraph or of an eligible QBU owned
by such related foreign person; and
(ii) In the case of an outbound loss
event described in paragraph (d)(2)(ii) of
this section, assets and liabilities that, im-
mediately after the outbound loss event,
are reflected on the books and records of
the eligible QBU from which the assets
and liabilities of the outbound loss QBU
are allocated and not on the books and re-
cords of a section 987 QBU.
(4) Adjustment of basis of stock re-
ceived in certain nonrecognition trans-
actions. If an outbound loss event results
from the transfer of assets of the outbound
loss QBU in a transaction described in
section 351 or section 361, the basis of the
stock that is received in the transaction is
increased by an amount equal to the sec-
tion 987 loss that, as a result of this para-
graph (d), is not recognized with respect
to the outbound loss QBU in the taxable
year of the outbound loss event (outbound
section 987 loss).
(5) Recognition of outbound section
987 loss that is not converted into stock
basis. Outbound section 987 loss attribut-
able to an outbound loss event that is not
described in paragraph (d)(4) of this sec-
tion is recognized by the owner of the out-
bound loss QBU in the first taxable year in
which the owner or any qualified succes-
sor of the owner ceases to be a member of
a controlled group that includes the relat-
ed foreign person referred to in paragraph
(d)(2)(i) or (ii) of this section, or any qual-
ified successor of such person.
(e) Source and character--(1) Deferred
section 987 gain or loss and certain out-
bound section 987 loss. The source and
character of deferred section 987 gain or
loss recognized pursuant to paragraph (c)
of this section, and of outbound section
987 loss recognized pursuant to paragraph
(d)(5) of this section, is determined under
§1.987-6 as if such deferred section 987
gain or loss were recognized pursuant to
§1.987-5 without regard to this section on
the date of the related deferral event or
outbound loss event.
(2) Outbound section 987 loss reflect-
ed in stock basis. If loss is recognized on
the sale or exchange of stock described in
paragraph (d)(4) of this section within two
years of the outbound loss event described
in that paragraph, then, to the extent of
the outbound section 987 loss, the source
and character of the loss recognized on
the sale or exchange is determined un-
der §1.987-6 as if such loss were section
987 loss recognized pursuant to §1.987-5
without regard to this section on the date
of the outbound loss event.
(f) Definitions--(1) Controlled group.
For purposes of this section, a controlled
group means all persons with the relation-
ships to each other specified in sections
267(b) or 707(b).
(2) Qualified successor. For purpos-
es of this section, a qualified successor
with respect to a corporation (transferor
corporation) means another corporation
(acquiring corporation) that acquires the
assets of the transferor corporation in a
transaction described in section 381(a),
but only if (A) the acquiring corpora-
tion is a domestic corporation and the
transferor corporation was a domestic
corporation, or (B) the acquiring corpo-
ration is a controlled foreign corporation
(as defined in section 957(a)) (CFC) and
the transferor corporation was a CFC. A
qualified successor of a corporation in-
cludes the qualified successor of a quali-
fied successor of the corporation.
(g) Anti-abuse. No section 987 loss is
recognized under §1.987-5 or this section
in connection with a transaction or series
of transactions that are undertaken with a
principal purpose of avoiding the purpos-
es of this section.
(h) Examples. The following exam-
ples illustrate the application of this sec-
tion. For purposes of the examples, DC1
is a domestic corporation that owns all of

Bulletin No. 2019–22 1249 May 28, 2019
the stock of DC2, which is also a domes-
tic corporation, and CFC1 and CFC2 are
CFCs. In addition, DC1, DC2, CFC1, and
CFC2 are members of a controlled group
as defined in paragraph (f)(1) of this sec-
tion, and the de minimis rule of paragraph
(a)(3)(ii) of this section is not applicable.
Finally, except as otherwise provided,
Business A is a section 987 QBU with the
euro as its functional currency, there are
no transfers between Business A and its
owner, and Business A’s assets are not de-
preciable or amortizable.
(1) Example 1. Contribution of a section 987
QBU to a member of the controlled group. (i) Facts.
DC1 owns all of the interests in Business A. The
balance sheet of Business A reflects assets with an
aggregate adjusted basis of €1,000x and no liabili-
ties. DC1 contributes €900x of Business A’s assets
to DC2 in an exchange to which section 351 applies.
Immediately after the contribution, the remaining
€100x of Business A’s assets are no longer reflect-
ed on the books and records of a section 987 QBU.
DC2, which has the U.S. dollar as its functional cur-
rency, uses the former Business A assets in a business
(Business B) that constitutes a section 987 QBU. At
the time of the contribution, Business A has net ac-
cumulated unrecognized section 987 gain of $100x.
(ii) Analysis. (A) Under §1.987-2(c)(2)(ii),
DC1’s contribution of €900x of Business A’s assets
to DC2 is treated as a transfer of all of the assets of
Business A to DC1, immediately followed by DC1’s
contribution of €900x of Business A’s assets to DC2.
The contribution of Business A’s assets is a deferral
event within the meaning of paragraph (b)(2) of this
section because:
(1) The transfer from Business A to DC1 is a
transfer of substantially all of Business A’s assets to
DC1, resulting in a termination of Business A under
§1.987-8(b)(2); and
(2) Immediately after the transaction, assets of
Business A are reflected on the books and records
of Business B, a section 987 QBU owned by a
member of DC1’s controlled group and a successor
QBU within the meaning of paragraph (b)(4) of this
section. Accordingly, Business A is a deferral QBU
within the meaning of paragraph (b)(1) of this sec-
tion, and DC1 is a deferral QBU owner of Business
A within the meaning of paragraph (c)(1)(ii) of this
section.
(B) Under paragraph (b)(3) of this section, DC1’s
taxable income in the taxable year of the deferral
event includes DC1’s section 987 gain or loss deter-
mined with respect to Business A under §1.987-5,
except that, for purposes of applying §1.987-5, all
assets and liabilities of Business A that are reflected
on the books and records of Business B immediately
after Business A’s termination are treated as not hav-
ing been transferred and therefore as though they re-
mained on Business A’s books and records (notwith-
standing the deemed transfer of those assets under
§1.987-8(e)). Accordingly, in the taxable year of the
deferral event, DC1 is treated as making a remittance
of €100x, corresponding to the assets of Business
A that are no longer reflected on the books and re-
cords of a section 987 QBU, and is treated as having
a remittance proportion with respect to Business A
of 0.1, determined by dividing the €100x remittance
by the sum of the remittance and the €900x aggre-
gate adjusted basis of the gross assets deemed to re-
main on Business A’s books at the end of the year.
Thus, DC1 recognizes $10x of section 987 gain in
the taxable year of the deferral event. DC1’s deferred
section 987 gain equals $90x, which is the amount
of section 987 gain that, but for the application of
paragraph (b) of this section, DC1 would have rec-
ognized under §1.987-5 ($100x), less the amount of
section 987 gain recognized by DC1 under §1.987-5
and this section ($10x).
(2) Example 2. Election to be classified as a cor-
poration. (i) Facts. DC1 owns all of the interests in
Entity A, a DE. Entity A conducts Business A, which
has net accumulated unrecognized section 987 gain
of $500x. Entity A elects to be classified as a corpo-
ration under §301.7701-3(a). As a result of the elec-
tion and pursuant to §301.7701-3(g)(1)(iv), DC1 is
treated as contributing all of the assets and liabilities
of Business A to newly-formed CFC1, which has the
euro as its functional currency. Immediately after the
contribution, the assets and liabilities of Business A
are reflected on CFC1’s balance sheet.
(ii) Analysis. Under §1.987-2(c)(2)(ii), DC1’s
contribution of all of the assets and liabilities of
Business A to CFC1 is treated as a transfer of all of
the assets and liabilities of Business A to DC1, fol-
lowed immediately by DC1’s contribution of those
assets and liabilities to CFC1. Because the deemed
transfer from Business A to DC1 is a transfer of
substantially all of Business A’s assets to DC1, the
Business A QBU terminates under §1.987-8(b)(2).
The contribution of Business A’s assets is not a de-
ferral event within the meaning of paragraph (b)
(2) of this section because, immediately after the
transaction, no assets of Business A are reflected on
the books and records of a successor QBU within
the meaning of paragraph (b)(4) of this section due
to the fact that the assets of Business A are not re-
flected on the books and records of a section 987
QBU immediately after the termination as well as
the fact that the requirement of paragraph (b)(4)(iii)
of this section is not met. Accordingly, DC1 rec-
ognizes section 987 gain with respect to Business
A under §1.987-5 without regard to this section.
Because the requirement of paragraph (b)(4)(iii) of
this section is not met, the result would be the same
even if the assets of Business A were transferred
in a section 351 exchange to an existing foreign
corporation that had a different functional currency
than Business A.
(3) Example 3. Outbound loss event. (i) Facts.
The facts are the same as in Example 2 in paragraph
(h)(2) of this section, except that Business A has net
accumulated unrecognized section 987 loss of $500x
rather than net accumulated unrecognized section
987 gain of $500x.
(ii) Analysis. (A) The analysis of the transactions
under §§1.987-2(c)(2)(ii), 1.987-8(b)(2), and para-
graph (b) of this section is the same as in Example
2 in paragraph (h)(2) of this section. However, the
termination of Business A as a result of the transfer
of the assets of Business A by a U.S. person (DC1) to
a foreign person (CFC1) that is a member of DC1’s
controlled group is an outbound loss event described
in paragraph (d)(2) of this section.
(B) Under paragraphs (d)(1) and (3) of this sec-
tion, in the taxable year of the outbound loss event,
DC1 includes in taxable income section 987 loss
recognized with respect to Business A as determined
under §1.987-5, except that, for purposes of applying
§1.987-5, all assets and liabilities of Business A that
are reflected on the books and records of CFC1, a
related foreign person described in paragraph (d)(2)
of this section, are treated as not having been trans-
ferred. Accordingly, DC1’s remittance proportion
with respect to Business A is 0, and DC1 recogniz-
es no section 987 loss with respect to Business A.
DC1’s outbound section 987 loss is $500x, which is
the amount of section 987 loss that DC1 would have
recognized under §1.987-5 ($500x) without regard
to paragraph (d) of this section, less the amount of
section 987 loss recognized by DC1 under paragraph
(d)(3) of this section ($0). Under paragraph (d)(4) of
this section, DC1 must increase its basis in its CFC1
shares by the amount of the outbound section 987
loss ($500x).
(4) Example 4. Conversion of a DE to a partner-
ship. (i) Facts. (A) DC1 owns all of the interests in
Entity A, a DE that conducts Business A. On the last
day of Year 1, DC1 sells 50 percent of its interest in
Entity A to DC2 (the Entity A sale).
(B) For Federal income tax purposes, Entity A
is converted to a partnership when DC2 purchases
the 50 percent interest in Entity A. DC2’s purchase
is treated as the purchase of 50 percent of the assets
of Entity A (that is, the assets of Business A), which,
prior to the purchase, were treated as held directly
by DC1 for Federal income tax purposes. Immedi-
ately after DC2’s deemed purchase of 50 percent
of Business A assets, DC1 and DC2 are treated as
contributing their respective interests in Business A
assets to a partnership. See Rev. Rul. 99-5, 1999-1
CB 434 (situation 1). In connection with the deemed
contribution, DC1 and DC2 agree to share equally
in all items of the partnership’s profits and loss, and,
for purposes of §1.987-7, to determine their share of
assets and liabilities of the resulting partnership in
accordance with their respective shares of partner-
ship profits.
(ii) Analysis. (A) The transactions deemed to oc-
cur under Rev. Rul. 99-5 are not taken into account
for purposes of this section. The Entity A sale and
resulting existence of a partnership, however, have
consequences under section 987 and this section, as
described in this Example 4 in paragraphs (h)(4)(ii)
(B) through (D) of this section.
(B) Immediately after the Entity A sale, Enti-
ty A is a section 987 aggregate partnership within
the meaning of §1.987-1(b)(5) because DC1 and
DC2 own all the interests in partnership capital and
profits, DC1 and DC2 are related within the mean-
ing of section 267(b), and the partnership has an
eligible QBU (Business A) that would be a section
987 QBU with respect to a partner if owned by the
partner directly. As a result of the Entity A sale, 50
percent of the assets and liabilities of Business A
ceased to be reflected on the books and records of
DC1’s Business A section 987 QBU. As a result,
such assets and liabilities are treated as if they were
transferred from DC1’s Business A section 987

May 28, 2019 1250 Bulletin No. 2019–22
QBU to DC1. Additionally, following DC2’s acqui-
sition of 50 percent of the interest in Entity A, DC2
is allocated 50 percent of the assets and liabilities of
Business A under §§1.987-2(b). Because DC2 and
Business A have different functional currencies,
DC2’s portion of the Business A assets and liabil-
ities constitutes a section 987 QBU. Accordingly,
50 percent of the assets and liabilities of Business A
are treated as transferred by DC2 to DC2’s Business
A section 987 QBU.
(C) The Entity A sale is a deferral event described
in paragraph (b)(2) of this section because:
(1) The sale constitutes the disposition of part of
an interest in a DE; and
(2) Immediately after the transaction, assets
of DC1’s Business A section 987 QBU are reflect-
ed on the books and records of DC1’s Business A
section 987 QBU and DC2’s Business A section 987
QBU, each of which is a successor QBU with re-
spect to DC1’s Business A section 987 QBU within
the meaning of paragraph (b)(4) of this section. Ac-
cordingly, DC1’s Business A section 987 QBU is a
deferral QBU within the meaning of paragraph (b)
(1) of this section, and DC1 is a deferral QBU own-
er within the meaning of paragraph (c)(1)(ii) of this
section. Under paragraph (b)(1) of this section, DC1
includes in taxable income section 987 gain or loss
with respect to Business A in connection with the de-
ferral event to the extent provided in paragraphs (b)
(3) and (c) of this section.
(D) Under paragraph (b) of this section, in the
taxable year of the Entity A sale, DC1 includes in
taxable income section 987 gain or loss with respect
to Business A as determined under §1.987-5, except
that, for purposes of applying §1.987-5, all assets
and liabilities of Business A that, immediately after
the Entity A sale, are reflected on the books and re-
cords of successor QBUs are treated as though they
were not transferred and therefore as remaining on
the books and records of DC1’s Business A section
987 QBU notwithstanding the Entity A sale. Accord-
ingly, DC1’s remittance amount under §1.987-5 is
$0, and DC1 recognizes no section 987 gain or loss
with respect to Business A.
(5) Example 5. Partial recognition of deferred
gain or loss. (i) Facts. DC1 owns all of the inter-
ests in Entity A, a DE that conducts Business A in
Country X. During Year 1, DC1 contributes all of its
interests in Entity A to DC2 in an exchange to which
section 351 applies. At the time of the contribution,
Business A has net accumulated unrecognized sec-
tion 987 gain of $100x. After the contribution, En-
tity A continues to conduct business in Country X
(Business B). In Year 3, as a result of a net transfer of
property from Business B to DC2, DC2’s remittance
proportion with respect to Business B, as determined
under §1.987-5, is 0.25.
(ii) Analysis. (A) For the reasons described in
Example 1 in paragraph (h)(1) of this section, the
contribution of Entity A by DC1 to DC2 results in a
termination of Business A and a deferral event with
respect to Business A, a deferral QBU; DC1 is a de-
ferral QBU owner within the meaning of paragraph
(c)(1)(ii) of this section; Business B is a successor
QBU with respect to Business A; DC2 is a successor
QBU owner; and the $100x of net accumulated un-
recognized section 987 gain with respect to Business
A becomes deferred section 987 gain as a result of
the deferral event.
(B) Under paragraph (c)(1) of this section, DC1
recognizes deferred section 987 gain with respect
to Business A in accordance with paragraphs (c)(2)
through (4) of this section. Under paragraph (c)(2)(i)
of this section, DC1 recognizes deferred section 987
gain in Year 3 as a result of the remittance from Busi-
ness B to DC2. Under paragraph (c)(2)(ii) of this
section, the amount of deferred section 987 gain that
DC1 recognizes is $25x, which is DC1’s outstanding
deferred section 987 gain or loss ($100x) with re-
spect to Business A multiplied by the remittance pro-
portion (0.25) of DC2 with respect to Business B for
the taxable year as determined under §1.987-5(b).
(i) Coordination with fresh start transi-
tion method--(1) In general. If a taxpayer
is a deferral QBU owner, or is or was the
owner of an outbound loss QBU, and the
taxpayer is required under §1.987-10(a)
to apply the fresh start transition method
described in §1.987-10(b) to the deferral
QBU or outbound loss QBU, or would
have been so required if the taxpayer had
owned the deferral QBU or outbound loss
QBU on the transition date (as defined in
§1.987-11(c)), the adjustments described
in paragraphs (i)(2) and (3) of this section,
as applicable, must be made on the transi-
tion date.
(2) Adjustment to deferred section 987
gain or loss. The amount of any outstand-
ing deferred section 987 gain or loss of
a deferral QBU owner with respect to a
deferral QBU described in paragraph (i)
(1) of this section must be adjusted to
equal the amount of outstanding deferred
section 987 gain or loss that the deferral
QBU owner would have had with respect
to the deferral QBU on the transition date
if, immediately before the deferral event,
the deferral QBU had transitioned to the
method prescribed by §§1.987-1 through
1.987-10 pursuant to the fresh start tran-
sition method.
(3) Adjustments in the case of an out-
bound loss event. The basis of any stock
described in paragraph (d)(4) of this sec-
tion that was received in connection with
the transfer (or deemed transfer) of assets
of an outbound loss QBU described in
paragraph (i)(1) of this section and that is
held on the transition date must be adjust-
ed to equal the basis that such stock would
have had on the transition date if, imme-
diately prior to the outbound loss event,
the outbound loss QBU had transitioned
to the method prescribed by §§1.987-1
through 1.987-10 pursuant to the fresh
start transition method. If no such stock
was received, the amount of any outbound
section 987 loss with respect to the out-
bound loss QBU that may be recognized
on or after the transition date pursuant
to paragraph (d)(5) of this section must
be adjusted to equal the amount of such
loss that would be outstanding and that
may be recognized pursuant to that para-
graph if, immediately before the outbound
loss event, the outbound loss QBU had
transitioned to the method prescribed by
§§1.987-1 through 1.987-10 pursuant to
the fresh start transition method.
(j) Applicability date--(1) In general.
Except as described in paragraph (j)(2)
of this section, this section applies to any
deferral event or outbound loss event that
occurs on or after January 6, 2017. This
section also applies to any deferral event
or outbound loss event that occurs as a
result of an entity classification election
made under §301.7701-3 that is filed on or
after January 6, 2017, and that is effective
before January 6, 2017.
(2) Exceptions--(i) Principal purpose.
This section applies to any deferral event
or outbound loss event occurring on or
after December 7, 2016, if such deferral
event or outbound loss event was under-
taken with a principal purpose of recog-
nizing section 987 loss.
(ii) Entity classification. This section
also applies to any deferral event or out-
bound loss event that occurs as a result of
an entity classification election made un-
der §301.7701-3 that was filed on or af-
ter December 22, 2016, that was effective
before December 7, 2016, and that was
undertaken with a principal purpose of
recognizing section 987 loss.
§ 1.987-12T [Removed]
Par. 10. Section 1.987-12T is removed.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
Approved: April 8, 2019.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).

Bulletin No. 2019–22 1251 May 28, 2019
T.D. 9858
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 300
User Fees Relating to
Enrolled Agents and Enrolled
Retirement Plan Agents
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulation.
SUMMARY: This document contains final
regulations that amend regulations relating
to imposing user fees for enrolled agents
and enrolled retirement plan agents. The
final regulations remove the initial enroll-
ment user fee for enrolled retirement plan
agents because the IRS no longer offers
initial enrollment as an enrolled retirement
plan agent. The final regulations also in-
crease the amount of the renewal user fee
for enrolled retirement plan agents from
$30 to $67. In addition, the final regula-
tions increase the amount of both the en-
rollment and renewal user fee for enrolled
agents from $30 to $67. The final regula-
tions affect individuals who are, or apply
to become, enrolled agents and individuals
who are enrolled retirement plan agents.
The Independent Offices Appropriations
Act of 1952 authorizes charging user fees.
DATES: Effective date: This regulation is
effective June 12, 2019.
Applicability Date: For the dates of ap-
plicability, see §§300.5(d), 300.6(d), and
300.10(d).
FOR FURTHER INFORMATION CON-
TACT: Mark Shurtliff at (202) 317-6845
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains amendments
to 26 CFR part 300 regarding user fees.
A. User Fee Authority and Enrolled
Agent and Enrolled Retirement Plan
Agent User Fees
The Independent Offices Appropri-
ations Act of 1952 (IOAA) (31 U.S.C.
9701) authorizes each agency to promul-
gate regulations establishing a charge for
services the agency provides (user fees).
The charges must be fair and must be
based on the costs to the government, the
value of the service to the recipient, the
public policy or interest served, and other
relevant facts. Under the IOAA, user fee
regulations are subject to policies pre-
scribed by the President. Those policies
are currently set forth in the Office of
Management and Budget (OMB) Circular
A-25, 58 FR 38142 (July 15, 1993).
Under OMB Circular A-25, Federal
agencies that provide services that confer
special benefits on identifiable recipients
beyond those accruing to the general pub-
lic are to establish user fees that recover
the full cost of providing the special bene-
fit. An agency that seeks to impose a user
fee for government-provided services
must calculate the full cost of providing
those services, review user fees biennial-
ly, and update them as necessary. Section
330(a)(1) of title 31 of the United States
Code authorizes the Secretary of the Trea-
sury to regulate the practice of representa-
tives before the Department of the Trea-
sury (Treasury Department). Pursuant to
section 330 of title 31, the Secretary has
published regulations governing practice
before the IRS in 31 CFR part 10 and
reprinted the regulations as Treasury De-
partment Circular No. 230 (Circular 230).
Section 10.3 of Circular 230 defines who
may practice before the IRS and includes
individuals who have been granted enroll-
ment to practice as enrolled agents and
enrolled retirement plan agents. Section
10.4 of Circular 230 authorizes the IRS
to grant enrollment as an enrolled agent
or enrolled retirement plan agent to indi-
viduals who demonstrate special compe-
tence in tax matters by passing a written
examination administered by, or under
the oversight of, the IRS and who have
not engaged in any conduct that would
justify suspension or disbarment under
Circular 230. Section 10.4 also authorizes
the IRS to grant enrollment as an enrolled
agent or an enrolled retirement plan agent
to a qualifying former IRS employee by
virtue of past IRS service and technical
experience if the former employee has not
engaged in any conduct that would justify
suspension or disbarment under the pro-
visions of Circular 230 and meets certain
other requirements. The ability to practice
before the IRS is a special benefit that is
conferred on enrolled agents and enrolled
retirement plan agents that does not ac-
crue to the general public.
Once eligible for enrollment as an en-
rolled agent, whether by examination or
former employment with the IRS, an in-
dividual must file an application for en-
rollment with the IRS and pay a $30 non-
refundable user fee. To maintain active
enrollment and eligibility to practice be-
fore the IRS, an individual who has been
enrolled as an enrolled agent or enrolled
retirement plan agent must file an applica-
tion to renew enrollment every three years
and pay a $30 nonrefundable user fee. 31
CFR 10.6(d).
As required by the IOAA and OMB
Circular A-25, the IRS Return Preparer
Office (RPO) completed its 2017 bienni-
al review of the enrollment and renewal
user fees associated with enrolled agents
and enrolled retirement plan agents. As
discussed in section B of this preamble,
during its review the RPO took into ac-
count the increase in labor, benefits, and
overhead costs incurred in connection
with providing services to individuals
who enroll or renew enrollment as en-
rolled agents and enrolled retirement plan
agents since the user fee was last changed
in 2011. In addition, RPO determined that
costs associated with Federal tax-compli-
ance checks and suitability checks on en-
rolled individuals should be recovered as
part of the user fee for administering the
enrollment and renewal programs. The
2017 biennial review also took into ac-
count new costs associated with adminis-
tering the program for enrolled agents and
enrolled retirement plan agents, including
the costs of operating a dedicated toll-free
helpline in the RPO for enrollment and re-
newal matters.
B. Calculation of the User Fee
The IRS follows generally accepted ac-
counting principles (GAAP) in calculating
the full cost of administering the program
for enrollment or renewal. GAAP is estab-
lished by the Financial Accounting Stan-

May 28, 2019 1252 Bulletin No. 2019–22
dards Board (FASB). Recognition of costs
is based on Statement of Federal Finan-
cial Accounting Standards (SFFAS) No.
4: Managerial Cost Accounting Concepts
and Standards for the Federal Govern-
ment, issued by the Federal Accounting
Standard Advisory Board (FASAB). The
FASAB Handbook of Federal Accounting
Standards and Other Pronouncements,
as Amended, is available at https://files.
fasab.gov/pdffiles/2018_fasab_handbook.
pdf.
1. Cost Center Allocation
The IRS determines the cost of its ser-
vices and activities using a cost-account-
ing system that tracks costs to organiza-
tional units. The lowest organizational
unit in the IRS’s cost-accounting system
is a cost center. Cost centers are usually
separate offices that are distinguished by
subject-matter area of responsibility or
geographic region. Costs of operating
a cost center are recorded in the IRS’s
cost-accounting system. Costs of user fees
include direct costs, such as labor, and in-
direct costs. Indirect costs are not easily
traceable and are allocated using a method
or by applying an overhead rate.
2. Determining the Per Unit Cost
To establish the per-unit cost, the total
cost of providing the service is divided by
the volume of services provided.
3. Cost Estimation of Direct Labor
Not all cost centers are fully devoted
to one service for which the IRS charges
user fees. Some cost centers work on a
number of different services across the
IRS. In these cases, the IRS uses various
cost-measurement techniques to estimate
the cost incurred in those cost centers
attributable to the program. These tech-
niques include using various timekeeping
systems to measure the time required to
accomplish activities, or using informa-
tion provided by subject-matter experts
on the time devoted to a program. Once
the IRS has estimated the average time
required to accomplish an activity, it mul-
tiplies that time estimate by the relevant
organizational unit’s average labor and
benefits cost per unit of time to determine
the labor and benefits cost incurred to
provide the service. To determine the full
cost, IRS then adds overhead as discussed
below.
4. Overhead
Overhead is an indirect cost of operat-
ing an organization that cannot be imme-
diately associated with an activity that the
organization performs. Overhead includes
costs of resources that are jointly or com-
monly consumed by one or more organi-
zational unit’s activities but are not specif-
ically identifiable to a single activity.
These costs can include:
• General management and administra-
tive services of sustaining and support-
ing organizations.
• Facilities management and ground
maintenance services (security, rent,
utilities, and building maintenance).
• Procurement and contracting services.
• Financial management and accounting
services.
• Information technology services.
• Services to acquire and operate proper-
ty, plants and equipment.
• Publication, reproduction, and graphics
and video services.
• Research, analytical, and statistical ser-
vices.
• Human resources/personnel services.
• Library and legal services.
To calculate the overhead allocable
to a service, the IRS multiplies a Cor-
porate Overhead rate by the labor and
benefits costs determined as discussed
previously. The IRS calculates the Cor-
porate Overhead rate annually based on
cost elements underlying the Statement
of Net Cost included in the IRS Annual
Financial Statements, which are audit-
ed by the Government Accountability
Office. The Corporate Overhead rate
is the ratio of the sum of the IRS’s in-
direct labor and benefits costs from the
supporting and sustaining organizational
units—those that do not interact directly
with taxpayers—and all non-labor costs
to the IRS’s labor and benefits costs of its
organizational units that interact directly
with taxpayers.
The Corporate Overhead rate of 68.00
percent for costs reviewed during FY 2017
was calculated based on FY 2016 costs
(which are assumed to be fixed and reoc-
curring) as follows:
Indirect Labor and
Benefits Costs $1,681,373,747
Non-Labor Costs + $2,879,907,032
Total Indirect Costs $4,561,280,779
Direct Labor and
Benefits Costs ÷ $6,708,063,559
Corporate Overhead
Rate 68.00%
5. Calculation of the Per Unit Cost of the
User Fee
The IRS used projections for fiscal
years 2018 through 2020 to determine the
direct costs associated with enrolled agent
enrollment and renewal and enrolled re-
tirement plan agent renewal. Direct costs
are incurred by the RPO and include la-
bor costs for enrollment and renewal sub-
mission processing; tax compliance and
background checks; continuing education
and testing-related activities; and commu-
nications, which include the new toll-free
helpline.
The labor and benefits for the work
performed related to administering the
program for enrolled agent enrollment
and renewal and enrolled retirement
plan agent renewal is projected to be
$2,708,603 in total over fiscal years 2018
through 2020. The labor and benefits costs
include the cost to perform background
checks and tax compliance checks, which
are services that were not included in the
previous $30 user fee. The number of en-
rollment and renewal applications is based
on the FY2016 numbers adjusted by the
anticipated increase in enrollment. Adding
Corporate Overhead expenses to the total
labor and benefits results in total costs of
$4,550,453 as shown below:
Labor and Benefits $2,708,603
Corporate Overhead (68%) $1,841,850
Labor, Benefits, and
Overhead $4,550,453
Dividing this total cost by the project-
ed population of initial enrollment and
renewal applications for fiscal years 2018

Bulletin No. 2019–22 1253 May 28, 2019
through 2020 results in a cost per applica-
tion of $67 as shown below:
Labor, Benefits and
Overhead $4,550,453
Number of Applications ÷ 68,343
Cost Per Application $ 67
Taking into account the full amount of
these costs, the RPO determined that the
full cost of administering the program for
enrolled agents and enrolled retirement
plan agents has increased from $30 to $67
per application for enrollment or renewal.
The user fee complies with the directive
in OMB Circular A-25 to recover the full
cost of providing a service that confers
special benefits on identifiable recipients
beyond those accruing to the general pub-
lic.
C. Notice of Proposed Rulemaking and
Final Regulations
On November 19, 2018, a notice of
proposed rulemaking (REG-122898-17)
proposing to amend the regulations re-
lating to imposing user fees for enrolled
agents and retirement plan agents was
published in the Federal Register (83 FR
58202). The notice proposed removing the
initial enrollment user fee for enrolled re-
tirement plan agents because the IRS no
longer offers initial enrollment as an en-
rolled retirement plan agent.
The notice also proposed increasing
the amount of the renewal user fee for
enrolled retirement plan agents from $30
to $67. In addition, the notice proposed
increasing the amount of both the enroll-
ment and renewal user fees for enrolled
agents from $30 to $67. The notice con-
tains a detailed explanation regarding the
amendments to these regulations.
Two comments responding to the no-
tice were received. A public hearing on
the notice was scheduled for January 24,
2019. As stated in the notice, requests
to speak and outlines of topics to be dis-
cussed at the hearing were required to be
submitted by January 18, 2019. On Janu-
ary 22, 2019, the public hearing was can-
celled due to a lapse in appropriations (IR-
2019-05). Because no requests to speak at
the hearing had been received, the hearing
was not rescheduled. After consideration
of the comments, this Treasury Decision
adopts the regulations proposed by the no-
tice without change.
Summary of Comments
Two comments were submitted on the
notice of proposed rulemaking. The com-
ments are available at www.regulations.
gov or upon request.
One of the comments agreed with the
proposed user fee regulations because the
commenter’s status as an enrolled agent
allows him to earn income by representing
taxpayers before the IRS. The comment
stated that the commenter supported the
increase, so long as the user fees comply
with the relevant authorities. As discussed
in the background section of this pream-
ble, the IOAA authorizes each agency to
promulgate regulations that impose user
fees for services the agency provides to
identifiable recipients. User fee regula-
tions under the IOAA are subject to poli-
cies prescribed by the President, which are
set forth in OMB Circular A-25. As de-
scribed in the background section of this
preamble, the Treasury Department and
IRS complied with the requirements of
the IOAA and OMB Circular A-25 in pro-
mulgating these regulations. The notice of
proposed rulemaking and the background
section of this preamble provide a detailed
analysis of how the RPO determined the
full cost of providing services to enrolled
agents and enrolled retirement plan agents
(83 FR 58202). Accordingly, the user fee
complies with the relevant authorities.
The other comment generally dis-
agreed with enrollment and renewal user
fees associated with enrolled agents and
enrolled retirement plan agents. The com-
ment stated that the Federal government
should bear the full cost of administering
programs related to tax professionals. This
comment was not accepted because it is
contrary to the policies prescribed by the
President as set forth in OMB Circular
A-25. Accordingly, the proposed regula-
tions are adopted without change.
Special Analyses
Executive Orders 13563 and 12866
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, of reducing costs, of harmoniz-
ing rules, and of promoting flexibility.
OIRA has determined that this regu-
lation is significant and subject to review
under section 6(b) of Executive Order
12866.
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby certi-
fied that this regulation will not have a sig-
nificant economic impact on a substantial
number of small entities. The user fee pri-
marily affects individuals who are enrolled
agents, apply to become enrolled agents,
or are enrolled retirement plan agents.
Only individuals, not businesses, can be
enrolled agents or enrolled retirement
plan agents. Thus, any economic impact
of the user fee on small entities general-
ly will occur only when an enrolled agent
or enrolled retirement plan agent owns a
small business or when a small business
employs enrolled agents or enrolled retire-
ment plan agents and reimburses them for
their renewal fees. The Treasury Depart-
ment and IRS estimate that approximately
22,781 individuals will apply annually for
enrollment as an enrolled agent, renew-
al as an enrolled agent, or renewal as an
enrolled retirement plan agent. Due to the
relatively small number of small business-
es that employ enrolled agents or enrolled
retirement plan agents, a substantial num-
ber of small entities are not likely to be
affected. Further, the economic impact on
any small entities affected would be lim-
ited to paying the $37 difference in cost
between the $67 user fee and the previous
$30 user fee for each enrolled agent or en-
rolled retirement plan agent that a small
entity employs and reimburses, or other-
wise pays for, the cost of the user fee. The
total economic impact of this regulation
is thus approximately $842,897 annually,
which is the product of the approximately
22,781 individuals and the $37 increase in
the fee which is not a significant economic
impact. Accordingly, it is certified that the
rule will not have a significant economic
impact on a substantial number of small
entities.
It is not anticipated that the increase in
user fee that is paid every three years and

May 28, 2019 1254 Bulletin No. 2019–22
averages to $12.33 per year will negative-
ly affect enrollment, which has historically
remained steady as user fee amounts have
changed. Pursuant to section 7805(f), the
notice of proposed rulemaking was sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business
(83 FR 58202). No comments on the no-
tice were received from the Chief Counsel
for Advocacy of the Small Business Ad-
ministration.
Drafting Information
The principal author of these regula-
tions is Mark Shurtliff of the Office of the
Associate Chief Counsel (Procedure and
Administration). Other personnel from the
Treasury Department and the IRS partici-
pated in their development.
List of Subjects in 26 CFR Part 300
Reporting and recordkeeping require-
ments, User fees.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 300 is
amended as follows:
PART 300—USER FEES
Paragraph. 1. The authority citation for
part 300 continues to read as follows:
Authority: 31 U.S.C. 9701.
§300.0 [Amended]
Par. 2. Section 300.0 is amended by
removing paragraph (b)(10) and redesig-
nating paragraphs (b)(11) through (13) as
paragraphs (b)(10) through (12).
Par. 3. Section 300.5 is amended by
revising paragraphs (b) and (d) to read as
follows:
§300.5 Enrollment of enrolled agent
fee.
* * * * *
(b) Fee. The fee for initially enrolling
as an enrolled agent with the IRS is $67.
* * * * *
(d) Applicability date. This section ap-
plies beginning June 12, 2019.
Par. 4. Section 300.6 is amended by
revising paragraphs (b) and (d) to read as
follows:
§300.6 Renewal of enrollment of en-
rolled agent fee.
* * * * *
(b) Fee. The fee for renewal of enrollment
as an enrolled agent with the IRS is $67.
* * * * *
(d) Applicability date. This section ap-
plies beginning June 12, 2019.
§300.10 [Removed]
Par. 5. Section 300.10 is removed.
§300.11 [Redesignated as §300.10 and
Amended]
Par. 6. Redesignate §300.11 as §300.10
and amend newly redesignated §300.10
by revising paragraphs (b) and (d) to read
as follows:
§300.10 Renewal of enrollment of en-
rolled retirement plan agent fee.
* * * * *
(b) Fee. The fee for renewal of enroll-
ment as an enrolled retirement plan agent
with the IRS is $67.
* * * * *
(d) Applicability date. This section ap-
plies beginning June 12, 2019.
§§ 300.12 and 300.13 [Redesignated
as §§ 300.11 and 300.12]
Par. 7. Redesignate §§300.12 and
300.13 as §§300.11 and 300.12.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
Approved: April 19, 2019.
David J. Kautter
Assistant Secretary of the Treasury
(Tax Policy).

Bulletin No. 2019–22 1255 May 28, 2019
Part III.
Request for Comments on
Necessary Clarifications
to Normalization
Requirements for Excess
Tax Reserves Resulting
from the Corporate Tax
Rate Decrease
Notice 2019-33
SECTION 1. PURPOSE
This notice announces that the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) intend to issue guidance under § 168
of the Internal Revenue Code to clarify the
normalization requirements for excess tax
reserves resulting from the corporate tax
rate decrease in the Tax Cuts and Jobs Act
(TCJA), Pub. L. 115-97 (131 Stat. 2054).
This notice requests comments about
ratemaking issues that have arisen or are
anticipated due to the corporate tax rate
decrease and the requirements of section
13001(d) of the TCJA.
SECTION 2. BACKGROUND
In general, normalization is a system
of accounting used by regulated public
utilities to reconcile the tax treatment of
accelerated depreciation of public utili-
ty assets with their regulatory treatment.
Under normalization, a utility receives
the tax benefit of accelerated depreciation
in the early years of an asset’s regulatory
useful life and passes that benefit through
to ratepayers ratably over the regulatory
useful life of the asset in the form of re-
duced rates.
Section 168 of the Code generally al-
lows taxpayers to compute their deprecia-
tion deduction for federal income tax pur-
poses under the accelerated cost recovery
system. Section 168(f)(2) provides that
§ 168 does not apply to any public utili-
ty property, as defined in § 168(i)(10), if
the taxpayer does not use a normalization
method of accounting. Section 168(i)(9)
describes what constitutes a “normaliza-
tion method of accounting.”
In order to use a normalization method
of accounting, § 168(i)(9)(A)(i) requires
a taxpayer, in computing its tax expense
for establishing its cost of service for rate-
making purposes and reflecting operating
results in its regulated books of account
(regulated tax expense), to use a method
of depreciation for property that is the
same as, and a depreciation period for
such property that is no shorter than, the
method and period used to compute its de-
preciation expense for establishing its cost
of service for ratemaking purposes. Under
§ 168(i)(9)(A)(ii), if the amount allowable
as a deduction under § 168 differs from
the amount that would be allowable as a
deduction under § 167 using the method,
period, first and last year convention, and
salvage value used to compute regulated
tax expense under § 168(i)(9)(A)(i), then
the taxpayer must make adjustments to a
reserve to reflect the deferral of taxes re-
sulting from such difference.
Former § 167(l) generally contained
the requirements discussed above regard-
ing permitting public utilities to use ac-
celerated methods for calculating depre-
ciation only if they used a “normalization
method of accounting.” The requirements
for establishing and adjusting the reserve
required by § 168(i)(9)(A)(ii) are con-
tained in § 1.167(l)-1 of the Income Tax
Regulations.
Section 1.168(i)–3, finalized in 2008
(2008 regulations), provides rules on the
treatment of excess deferred income tax
reserve upon disposition of deregulated
public utility property.
Section 1.168(i)-3(a)(1) generally pro-
vides rules for the application of section
203(e) of the Tax Reform Act of 1986
(1986 Act), Public Law 99–514 (100 Stat.
2146), to a taxpayer with respect to pub-
lic utility property (within the meaning
of § 168(i)(10)) that ceases, whether by
disposition, deregulation, or otherwise, to
be public utility property with respect to
the taxpayer and that is not described in
§ 1.168(i)-3(a)(2) (deregulated public util-
ity property).
Section 1.168(i)-3(b) provides that if
a public utility property of a taxpayer be-
comes deregulated public utility property
to which this section applies, the reduction
in the taxpayer’s excess tax reserve per-
mitted under section 203(e) of the 1986
Act is equal to the amount by which the
reserve could be reduced under that pro-
vision if all such property had remained
public utility property of the taxpayer and
the taxpayer had continued use of its nor-
malization method of accounting with re-
spect to such property.
SECTION 3: TAX CUTS AND JOBS
ACT
The TCJA, enacted on December 22,
2017, generally reduced the corporate
tax rate under § 11 of the Code from 35
percent to 21 percent for taxable years be-
ginning after December 31, 2017. Section
13001(a).
Section 13001(d) of the TCJA includes
accompanying but uncodified normal-
ization requirements. Section 13001(d)
(1) provides that a normalization method
of accounting shall not be treated as be-
ing used with respect to any public utility
property for purposes of §§ 167 or 168
if the taxpayer, in computing its cost of
service for ratemaking purposes and re-
flecting operating results in its regulated
books of account, reduces the excess tax
reserve more rapidly or to a greater ex-
tent than such reserve would be reduced
under the average rate assumption method
(ARAM).
Section 13001(d)(2) provides an alter-
native method for certain taxpayers. If, as
of the first day of the taxable year that in-
cludes the date of enactment of the TCJA,
the taxpayer was required by a regulatory
agency to compute depreciation for public
utility property on the basis of an average
life or composite rate method, and the tax-
payer’s books and underlying records did
not contain the vintage account data nec-
essary to apply ARAM, the taxpayer will
be treated as using a normalization meth-
od of accounting if, with respect to such
jurisdiction, the taxpayer uses the alter-
native method for public utility property
that is subject to the regulatory authority
of that jurisdiction.
Section 13001(d)(3) provides defini-
tions for purposes of section 13001(d).
Section 13001(d)(3)(A) defines an “ex-

May 28, 2019 1256 Bulletin No. 2019–22
cess tax reserve” to mean the excess of the
reserve for deferred taxes (as described in
§ 168(i)(9)(A)(ii)) as of the day before the
corporate rate reductions provided in the
amendments made by section 13001(a)
take effect, over the amount which would
be the balance in such reserve if the
amount of such reserve were determined
by assuming that the corporate tax rate
reductions provided in the TCJA were in
effect for all prior periods.
Section 13001(d)(3)(B) defines ARAM
as the method under which the excess in
the reserve for deferred taxes is reduced
over the remaining lives of the property
as used in the taxpayer’s regulated books
of account which gave rise to the reserve
for deferred taxes. Under such method,
during the time period in which the timing
differences for the property reverse, the
amount of the adjustment to the reserve
for the deferred taxes is calculated by mul-
tiplying the ratio of the aggregate deferred
taxes for the property to the aggregate tim-
ing differences for the property as of the
beginning of the period in question, by the
amount of the timing differences which
reverse during such period.
Section 13001(d)(3)(C) defines the “al-
ternative method” as the method in which
the taxpayer computes the excess tax re-
serve on all public utility property includ-
ed in the plant account on the basis of the
weighted average life or composite rate
used to compute depreciation for regula-
tory purposes, and reduces the excess tax
reserve ratably over the remaining regula-
tory life of the property.
Section 13001(d)(4) provides that, for
any taxable year ending after the date of
the enactment of the TCJA, if the taxpay-
er does not use a normalization method of
accounting for the corporate rate reduc-
tions provided in the amendments made
by section 13001, then the taxpayer’s tax
for the taxable year shall be increased by
the amount by which it reduces its excess
tax reserve more rapidly than permitted
under a normalization method of account-
ing, and such taxpayer shall not be treated
as using a normalization method of ac-
counting for purposes of § 168(f)(2) and
(i)(9)(C).
The Joint Explanatory Text of the
Committee of Conference, H. Rept. 115-
466 (Conference Report), adds more clar-
ification about the normalization rules in
section 13001(d) of the TCJA. The Con-
ference Report states that the excess tax
reserve is the reserve for deferred taxes
as of the day before the corporate rate re-
duction takes effect over what the reserve
for deferred taxes would be if the corpo-
rate rate reduction had been in effect for
all prior periods. Conference Report, at
343. If an excess tax reserve is reduced
more rapidly or to a greater extent than
such reserve would be reduced under
ARAM
1
, the taxpayer will not be treat-
ed as using a normalization method with
respect to the corporate rate reduction. If
the taxpayer does not use a normalization
method of accounting for the corporate
rate reduction, the taxpayer’s tax for the
taxable year shall be increased by the
amount by which it reduces its excess tax
reserve more rapidly than permitted un-
der a normalization method of account-
ing and the taxpayer will not be treated
as using a normalization method of ac-
counting for purposes of § 168(f)(2) and
(i)(9)(C).
The Conference Report also explains
in greater detail the application of ARAM.
According to the Conference Report,
ARAM reduces the excess tax reserve
over the remaining regulatory lives of the
property that gave rise to the reserve for
deferred taxes during the years in which
the deferred tax reserve related to such
property is reversing. Id. Under this meth-
od, the excess tax reserve is reduced as
the timing differences reverse over the re-
maining life of the asset. The reversal of
timing differences generally occurs when
the amount of the tax depreciation taken
with respect to an asset is less than the
amount of the regulatory depreciation tak-
en with respect to the asset. To ensure that
the deferred tax reserve, including the ex-
cess tax reserve, is reduced to zero at the
end of the regulatory life of the asset that
generated the reserve, the amount of the
timing difference which reverses during a
taxable year is multiplied by the ratio of
(1) the aggregate deferred taxes as of the
beginning of the period in question to (2)
the aggregate timing differences for the
property as of the beginning of the period
in question.
SECTION 4: THE TAX REFORM
ACT OF 1986 AND REV. PROC. 88-12
For taxable years beginning on or after
July 1, 1987, section 601 of the 1986 Act
reduced the maximum federal income tax
applicable for corporations from 46 per-
cent to 34 percent.
Similar to section 13001(d) of the
TCJA, section 203(e) of the 1986 Act
provided rules for reducing the excess tax
reserve resulting both from that reduction
and from the smaller reduction in rates for
tax years starting before and ending after
July 1, 1987. Section 203(e)(2)(B) of the
1986 Act defined ARAM as the meth-
od under which the excess tax reserve is
reduced over the remaining lives of the
property (as used in a public utility’s reg-
ulated books of account) that gave rise to
the reserve for deferred taxes. Some tax-
payers, however, did not necessarily have
adequate data to apply ARAM because
they were required by regulatory agen-
cies to depreciate property for regulatory
purposes using a weighted average life or
composite rate, and such a method focuses
on the entire plan and does not account for
property by vintage accounts. The 1986
Act, however, did not provide taxpayers
an alternative method to ARAM.
Rev. Proc. 88-12, 1988-1 C.B. 637,
provides an alternative method sometimes
referred to as the Reverse South Georgia
Method (RSGM). Under section 4.01
of Rev. Proc. 88-12, a taxpayer uses the
RSGM if it computed the excess tax re-
serve on all public utility property includ-
ed in the plant account on the basis of the
weighted average life or composite rate
used to compute depreciation for regula-
tory purposes, and reduced the excess tax
reserve ratably over the remaining regu-
latory life of the property. Section 5.01 of
Rev. Proc. 88-12 provides generally that
for eligible taxpayers the RSGM satisfied
the requirements of section 203(e) of the
1986 Act.
1
Section 13001(d)(2) provides that certain taxpayers may use the alternative method to calculate the reduction of their excess tax reserve and such taxpayers will be treated as using a nor-
malization method of accounting.

Bulletin No. 2019–22 1257 May 28, 2019
In summary, section 13001(d)(1) of
the TCJA provides ARAM as the regular
method in the same manner as that pro-
vided in section 203(e)(2)(B) of the 1986
Act. Section 13001(d)(2) of the TCJA
provides an alternative method that, while
not specifically referred to as the RSGM,
is nevertheless the same as the RSGM as
originally provided in Rev. Proc. 88-12.
SECTION 5. REQUEST FOR
COMMENTS
The Treasury Department and the IRS
request comments on issues that should be
addressed in proposed guidance to clarify
the normalization requirements for ex-
cess tax reserves resulting from the cor-
porate tax rate decrease in the TCJA and
the requirements of section 13001(d) of
the TCJA as well as comments regarding
what form of guidance would be most
useful. Specifically, the Treasury Depart-
ment and the IRS request comments that
address the following:
(1) Situations where taxpayers may have
vintage account data in their underly-
ing books and records in some form
but such data is not necessarily useful
for ARAM without significant ad-
ditional analysis and expense. More
specifically, comments on whether
some sort of “reasonable” test should
be provided, under which the use of
the alternative method by a taxpayer
is permissible if the cost to the tax-
payer of assembling the data con-
tained in the underlying books and
records in a way necessary to apply
ARAM exceeds a reasonable amount,
based on a percentage of rate base or
some other factor.
(2) Other fact patterns where taxpayers
may use the alternative method in-
stead of ARAM including but not lim-
ited to comments on when the RSGM
is a taxpayer’s current normalization
method of accounting for excess de-
ferred taxes, regardless of the avail-
ability of vintage or class information
for the accumulated deferred income
taxes (ADIT) that had been accrued
after the 1986 Act.
(3) Net operating loss (NOL) issues in-
cluding but not limited to comments
on the significance of a deprecia-
tion-related NOL carryforward in
the context of excess deferred taxes,
and comments on whether a depre-
ciation-related NOL as of Decem-
ber 31, 2017, must be analyzed for
normalization purposes based on the
underlying loss year.
(4) By their terms, the 2008 regulations
apply only to section 203(e) of the
1986 Act, but the Treasury Depart-
ment and the IRS believe it may be
appropriate to extend their applica-
tion to section 13001(d) of the TCJA.
Comments on the ongoing relevance
of the 2008 regulations including
but not limited to comments on the
treatment of book-only retirements
and tax dispositions in regard to sig-
nificant transactions (such as sales of
power plants) versus day-to-day (or-
dinary or not significant) transactions
as well as comments on transactions
not addressed in the 2008 regulations
such as like-kind exchanges or other
dispositions of public utility property.
(5) The implementation of interim rates
to reflect the TCJA’s decrease in the
corporate tax rate including but not
limited to comments about the mean-
ing of the phrase “reduces the excess
tax reserve more rapidly or to a great-
er extent than such reserve would be
reduced under ARAM.”
(6) Whether the proration formula re-
quired by § 1.167(l)-1(h)(6)(ii) must
be applied to excess deferred tax ac-
tivity related to reversals (refunds) of
excess deferred taxes if the company
uses a future test period or a part-his-
torical, part-future test period.
(7) Methodology of reversing protected
(by the normalization rules) versus
unprotected ADIT after the 2017 rate
changes.
SECTION 6. ADDRESS TO SEND
COMMENTS
Any comments must be received by
July 29. 2019. Taxpayers may submit
comments electronically via the Federal
eRulemaking Portal at www.regulations.
gov (indicate IRS and Notice 2019-33).
Alternatively, taxpayers may submit hard
copy submissions to:
CC:PA:LPD:PR (Notice 2019-33),
Room 5203, Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C., 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 (Notice 2019-33),
Courier’s Desk, Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Attn: CC:PA:LPD:PR
All comments received will be avail-
able for public inspection on www.regula-
tions.gov.
SECTION 7. DRAFTING
INFORMATION
The principal author of this notice
is Martha M. Garcia of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries). For further infor-
mation regarding this notice contact Ms.
Garcia at (202) 317-6853 (not a toll-free
number).

Maximum Values For 2019
For Use With Vehicle Cents-
Per-Mile and Fleet-Average
Valuation Rules
Notice 2019-34
This Notice 2019-34 provides the
maximum fair market value of a vehicle
for use with the fleet-average and vehi-
cle cents-per-mile special valuation rules
under Treas. Reg. § 1.61-21(d) and (e),
respectively, for 2019. These special val-
uation rules may be used to value an em-
ployee’s personal use of an employer-pro-
vided vehicle for income and employment
tax purposes.
I. PURPOSE
This Notice 2019-34 provides the max-
imum vehicle value for 2019 for purposes
of the special valuation rules provided in
Treas. Reg. § 1.61-21(d) and (e) that may
be used to determine the value of personal
use of an employer-provided vehicle. This
Notice 2019-34 also provides informa-
tion about the way the Internal Revenue

May 28, 2019 1258 Bulletin No. 2019–22
Service (IRS) and the Department of the
Treasury (Treasury Department) intend
to publish this maximum vehicle value in
the future. Additionally, this Notice 2019-
34 provides temporary relief from the
consistency requirements in Treas. Reg.
§ 1.61-21(e)(5) for use with the vehicle
cents-per-mile valuation rule. Finally, this
Notice 2019-34 allows flexibility with re-
spect to the Treas. Reg. § 1.61-21(d)(5)(v)
(B) rules relating to the period of use for
the fleet-average valuation rule, which is
an optional component of the automobile
lease valuation rule under Treas. Reg. §
1.61-21(d).
II. BACKGROUND
If an employer provides an employee
with a vehicle that is available to the em-
ployee for personal use, the value of the
personal use generally must be included in
the employee’s income. Internal Revenue
Code § 61(a)(1); Treas. Reg. § 1.61-21.
A. The Vehicle Cents-Per-Mile Rule
For employer-provided vehicles made
available to employees for personal use
that meet the requirements of Treas. Reg.
§ 1.61-21(e)(1), generally the value of the
personal use may be determined under
the vehicle cents-per-mile valuation rule
of Treas. Reg. § 1.61-21(e). However,
Treas. Reg. § 1.61-21(e)(1)(iii) currently
provides that the value of the personal use
may not be determined under the vehicle
cents-per-mile valuation rule for a calen-
dar year if the fair market value of the ve-
hicle (determined pursuant to Treas. Reg.
§ 1.61-21(d)(5)(i) through (iv)) on the first
date the vehicle is made available to the
employee exceeds a base value of $12,800
that is adjusted annually under section
280F(d)(7).
Treas. Reg. § 1.61-21(e)(5)(i) states
that an employer must adopt the vehicle
cents-per-mile valuation rule by the first
day on which the vehicle is used by an
employee of the employer for personal
use (or, if the commuting valuation rule
of Treas. Reg. § 1.61-21(f) is used when
the vehicle is first used by an employee of
the employer for personal use and the em-
ployer switches to the vehicle cents-per-
mile valuation rule, the first day on which
the commuting valuation rule is not used).
Treas. Reg. § 1.61-21(e)(5)(ii) provides,
in part, that once the vehicle cents-per-
mile valuation rule has been adopted for
a vehicle by an employer, the rule must be
used by the employer for all subsequent
years in which the vehicle qualifies for use
of the rule, except that the employer may,
for any year during which use of the vehi-
cle qualifies for the commuting valuation
rule of Treas. Reg. § 1.61-21(f), use the
commuting valuation rule with respect to
the vehicle.
B. The Fleet-Average Valuation Rule
For employer-provided automobiles
available to employees for personal use
for an entire year, generally the value of
the personal use may be determined un-
der the automobile lease valuation rule
of Treas. Reg. § 1.61-21(d). Under this
valuation rule, the value of the personal
use is the Annual Lease Value. Provided
the requirements of Treas. Reg. § 1.61-
21(d)(5)(v) are met, an employer with
a fleet of 20 or more automobiles may
use a fleet-average value for purposes of
calculating the Annual Lease Values of
the automobiles in the employer’s fleet.
The fleet-average value is the average of
the fair market values of all the automo-
biles in the fleet. However, Treas. Reg.
§ 1.61-21(d)(5)(v)(D) provides that the
value of an employee’s personal use of
an automobile may not be determined
under the fleet-average valuation rule for
a calendar year if the fair market value
of the automobile (determined pursuant
to Treas. Reg. § 1.61-21(d)(5)(i) through
(iv)) on the first date the automobile is
made available to an employee exceeds
the base value of $16,500, as adjusted
annually for inflation pursuant to section
280F(d)(7).
Treas. Reg. § 1.61-21(d)(5)(v)(B) gen-
erally provides that the fleet-average val-
uation rule may be used by an employer
as of January 1 of any calendar year fol-
lowing the calendar year in which the
employer acquires a sufficient number of
automobiles to total a fleet of 20 or more,
each one satisfying the maximum value
limitation of Treas. Reg. § 1.61-21(d)(5)
(v)(D). The Annual Lease Value calculat-
ed for automobiles in the fleet, based on
the fleet-average value, shall remain in ef-
fect for the period that begins with the first
January 1 the fleet-average valuation rule
is applied by the employer to the automo-
biles in the fleet and ends on December 31
of the subsequent calendar year. The An-
nual Lease Value for each subsequent two-
year period is calculated by determining
the fleet-average value of the automobiles
in the fleet as of the first January 1 of that
period. An employer may cease using the
fleet-average valuation rule as of any Jan-
uary 1.
C. Notice 2019-08
Notice 2019-08 provides interim
guidance on new procedures using sec-
tion 280F(d)(7), as modified by sections
11002 and 13202 of the Tax Cuts and Jobs
Act, Pub. L. No. 115-97 (the “Act”), for
calculating the inflation adjustments to
the maximum vehicle values for use with
the special valuation rules under Treas.
Reg. § 1.61-21(d) and (e). Additionally,
Notice 2019-08 states that the IRS and
the Treasury Department anticipate that
further guidance on these issues will be
issued in the form of proposed regula-
tions and expect that the regulations will
be consistent with the rules set forth in
Notice 2019-08.
Notice 2019-08 states that, consistent
with the substantial increase in the dollar
limitations on depreciation deductions
under section 280F(a), as modified by
section 13202(a)(1) of the Act, the IRS
and the Treasury Department intend to
amend Treas. Reg. § 1.61-21(d) and (e)
to incorporate a higher base value of
$50,000 as the maximum value for use of
the vehicle cents-per-mile and fleet-aver-
age valuation rules effective for the 2018
calendar year. Notice 2019-08 further
states that the IRS and the Treasury De-
partment intend that the regulations will
be modified to provide that this $50,000
base value will be adjusted annually us-
ing section 280F(d)(7) for 2019 and sub-
sequent years. Notice 2019-08 also pro-
vides that, for 2018, the maximum value
for use of the vehicle cents-per-mile and
fleet-average valuation rules is $50,000.
Finally, Notice 2019-08 provides that, for
2018 and 2019, the IRS and the Treasury
Department will not publish separate
maximum values for trucks and vans for
use with the vehicle cents-per-mile and
fleet-average valuation rules.

Bulletin No. 2019–22 1259 May 28, 2019
D. The Maximum Standard
Automobile Cost for an Allowance
Under a FAVR Plan
Rev. Proc. 2010-51, 2010-51 I.R.B.
883, provides rules for using optional
standard mileage rates in computing the
deductible costs of operating an automo-
bile for business, charitable, medical, or
moving expense purposes. Section 2.12(1)
of Rev. Proc. 2010-51 provides that the
IRS publishes both the standard mileage
rates for the use of an automobile for
business, charitable, medical, and moving
expense purposes, and the maximum stan-
dard automobile cost for purposes of an
allowance under a fixed and variable rate
(FAVR) plan, in a separate annual notice.
When Treas. Reg. § 1.61-21(d) and (e)
are amended to incorporate a higher base
value of $50,000 as the maximum value
for use of the vehicle cents-per-mile and
fleet-average valuation rules, the IRS and
the Treasury Department expect that the
maximum value for use of the vehicle
cents-per-mile and fleet-average valua-
tion rules for 2019 and subsequent years
will be the same as the maximum standard
automobile cost for purposes of an allow-
ance under a FAVR plan. The maximum
standard automobile cost for purposes
of an allowance under a FAVR plan and
the maximum value for use of the vehicle
cents-per-mile and fleet-average valuation
rules will each be calculated using the
base value of $50,000, adjusted annually
in accordance with section 280F(d)(7).
Accordingly, the IRS and the Treasury
Department anticipate that once Treas.
Reg. § 1.61-21(d) and (e) are amended,
the maximum value for use of the vehicle
cents-per-mile and fleet-average valuation
rules will be published in the annual no-
tice providing the standard mileage rates
for the use of an automobile for business,
charitable, medical, and moving expense
purposes and the maximum standard auto-
mobile cost for purposes of an allowance
under a FAVR plan.
E. Notice 2019-02
Notice 2019-02, 2019-02 I.R.B. 281,
provides the optional 2019 standard mile-
age rates for taxpayers to use in comput-
ing the deductible costs of operating an
automobile for business, charitable, medi-
cal, or moving expense purposes. Section
5 of Notice 2019-02 states that, for pur-
poses of computing the allowance under a
FAVR plan, the standard automobile cost
for 2019 may not exceed $50,400.
III. GUIDANCE
Based on the foregoing:
(1) The maximum value of an employ-
er-provided vehicle (including cars,
vans and trucks) first made available
to employees for personal use in cal-
endar year 2019 for which the vehicle
cents-per-mile valuation rule provid-
ed under Treas. Reg. § 1.61-21(e)
may be applicable is $50,400.
(2) The maximum value of an employ-
er-provided automobile (including
vans and trucks) first made avail-
able to employees for personal use
in calendar year 2019 for which the
fleet-average valuation rule provided
under Treas. Reg. § 1.61-21(d)(5)(v)
may be applicable is $50,400.
Furthermore, the Treasury Depart-
ment and the IRS intend to revise Treas.
Reg. § 1.61-21(e) to provide that if an em-
ployer did not qualify under Treas. Reg.
§ 1.61-21(e)(5) to adopt the vehicle cents-
per-mile valuation rule on the first day on
which a vehicle was used by an employee
of the employer for personal use because,
under the rules in effect before 2018, the
vehicle had a fair market value in excess
of the maximum permitted in accordance
with Treas. Reg. § 1.61-21(e)(1)(iii), the
employer may first adopt the vehicle cents-
per-mile valuation rule for the 2018 or
2019 taxable year based on the maximum
fair market value of a vehicle for purpos-
es of the vehicle cents-per-mile valuation
rule set forth in Notice 2019-08 or this
Notice 2019-34, as applicable. Similarly,
the IRS and Treasury Department intend
that the proposed regulations will further
provide that if the commuting valuation
rule of Treas. Reg. § 1.61-21(f) was used
when the vehicle was first used by an em-
ployee of the employer for personal use,
and the employer did not qualify to switch
to the vehicle cents-per-mile rule on the
first day on which the commuting valua-
tion rule was not used because, under the
rules in effect before 2018, the vehicle had
a fair market value in excess of the maxi-
mum permitted in accordance with Treas.
Reg. § 1.61-21(e)(1)(iii), the employer
may adopt the vehicle cents-per-mile val-
uation rule for the 2018 or 2019 taxable
year based on the maximum fair market
value of a vehicle for purposes of the vehi-
cle cents-per-mile valuation rule set forth
in Notice 2019-08 or this Notice 2019-34,
as applicable. However, consistent with
Treas. Reg. § 1.61-21(e)(5), an employer
that adopts the vehicle cents-per-mile val-
uation rule must continue to use the rule
for all subsequent years in which the ve-
hicle qualifies for use of the rule, except
that the employer may, for any year during
which use of the vehicle qualifies for the
commuting valuation rule of Treas. Reg.
§ 1.61-21(f), use the commuting valuation
rule with respect to the vehicle.
In addition, with respect to an employer
that did not qualify to use the fleet-average
valuation rule prior to January 1, 2019,
because the maximum value limitation
of Treas. Reg. § 1.61-21(d)(5)(v)(D) pri-
or to 2018 could not be met, the Treasury
Department and the IRS intend to revise
Treas. Reg. §1.61-21(d) to provide that
an employer may adopt the fleet-average
valuation rule for 2018 or 2019, provided
the requirements of § 1.61-21(d)(5)(v) are
met for that year using the maximum ve-
hicle values set forth in Notice 2019-08 or
this Notice 2019-34, respectively.
Employer-provided vehicles are non-
cash fringe benefits under section 3501(b).
Announcement 85-113, 1985-31 I.R.B.
31, provides guidelines for withholding,
paying, and reporting employment tax
on taxable noncash fringe benefits. An-
nouncement 85-113 provides generally
that taxpayers may rely on the guidelines
in the announcement until the issuance of
regulations that supersede the temporary
and proposed regulations under section
3501(b). No regulations have been issued
under section 3501(b) that supersede the
announcement. Thus, Announcement 85-
113 generally is applicable to current pay-
ments of noncash fringe benefits, includ-
ing vehicles.
Section 1 of Announcement 85-113
allows payors of certain noncash fringe
benefits to treat the benefits as paid on any
day(s) during the year so long as they treat
benefits provided in a calendar year as
paid not later than December 31 of the cal-

May 28, 2019 1260 Bulletin No. 2019–22
endar year. Section 5 of the announcement
allows employers to treat certain benefits
paid during the last two months of the year
(or any shorter period) as paid during the
subsequent calendar year.
Employers that wish to use the vehicle
cents-per-mile rule or the fleet-average
valuation rule for 2019 based on the max-
imum values set forth in this notice may
use the rules in Announcement 85-113 or
the adjustment process under section 6413
or the refund claim process under section
6402 to correct any overpayment of fed-
eral employment taxes on these amounts
(see the regulations under these sections,
Rev. Rul. 2009-39, 2009-52 I.R.B. 951,
section 13 of Publication 15 (Circular E),
Employer’s Tax Guide, and the Instruc-
tions for Form 941-X, Adjusted Employ-
er’s QUARTERLY Federal Tax Return or
Claim for Refund for information on these
adjustment and refund claim processes).
Until revised final regulations are pub-
lished under Treas. Reg. § 1.61-21(d) and
(e), taxpayers may rely on the interim
guidance provided in this Notice 2019-34.
REQUEST FOR COMMENTS
Interested parties are invited to sub-
mit comments on this notice by July 29,
2019. Comments should include a refer-
ence to Notice 2019-34. Comments may
be submitted electronically via the Federal
eRulemaking Portal at www.regulations.
gov (type IRS-2019-34 in the search field
on the regulations.gov homepage to find
this notice and submit comments). Al-
ternatively, submissions may be sent to
CC:PA:LPD:PR (Notice 2019-34), Room
5203, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions also may be hand
delivered Monday through Friday be-
tween the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (Notice 2019-34), Couri-
er’s Desk, Internal Revenue Service, 1111
Constitution Avenue, NW, Washington,
DC 20044. All comments submitted by
the public in response to this notice will be
available for public inspection and copy-
ing in their entirety.
IV. DRAFTING INFORMATION
The principal author of this notice
is Gabriel Minc of the Office of Associ-
ate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). For further information regarding
this notice contact Mr. Minc at (202) 317-
4774 (not a toll-free number).

26 CFR 601.201:

Rulings and determination letters.
(Also: Part I, § 501; 1.501(c)(3)-1.)
Rev. Proc. 2019-22
SECTION 1. PURPOSE
This revenue procedure modifies
Revenue Procedure 75-50, 1975-2 C.B.
587, to reflect technological advances
since its publication and provides a third
method for a private school to satisfy the
requirement contained in section 4.03 of
the revenue procedure by using its In-
ternet website to publicize the school’s
racially nondiscriminatory policy as to
students.
SECTION 2. BACKGROUND
.01 Revenue Procedure 75-50 sets
forth guidelines and recordkeeping re-
quirements for determining whether a
private school, which is applying to be
or currently recognized as exempt from
federal income tax under section 501(a)
and described in section 501(c)(3) of the
Internal Revenue Code, has adopted a
racially nondiscriminatory policy regard-
ing students and operates in a bona fide
manner in accordance with that policy.
Section 4.03 of Revenue Procedure 75-
50 requires a private school to make its
racially nondiscriminatory policy known
to all segments of the general community
served by the school in one of two ways.
Subsection 1(a) of section 4.03 permits
a school to satisfy this publicity require-
ment by publishing, at least once annu-
ally, a notice of its racially nondiscrim-
inatory policy in a newspaper of general
circulation that serves all racial segments
of the community. Subsection 1(b) of
section 4.03 permits a school to use the
broadcast media to publicize its racially
nondiscriminatory policy, provided that
the means by which the policy is com-
municated is reasonably expected to be
effective.
.02 The purpose of the publicity re-
quirement in section 4.03 of Revenue
Procedure 75-50 is for a private school to
make its racially nondiscriminatory policy
as to students known to all segments of the
general community served by the school.
Because of technological advances since
the publication of Revenue Procedure 75-
50, including the advent and widespread
use of the Internet, in many cases a school
can accomplish the purpose of the public-
ity requirement by using its Internet web-
site.
SECTION 3. MODIFICATIONS TO
REVENUE PROCEDURE 75-50
.01 Subsection 1 of section 4.03 is
modified to read as follows:
1 The school must use one of the fol-
lowing three methods to satisfy this re-
quirement:
.02 Section 4.03 is modified by adding
new subsection 1(c) to read as follows:
(c) The school may display a notice of
its racially nondiscriminatory policy on
its primary publicly accessible Internet
homepage at all times during its taxable
year (excluding temporary outages due to
website maintenance or technical prob-
lems) in a manner reasonably expected to
be noticed by visitors to the homepage.
The following notice, which is identical
to the notice that may be used to satisfy
the publicity requirement using a news-
paper of general circulation that serves
all racial segments of the community, is
acceptable:
NOTICE OF NONDISCRIMINATORY
POLICY AS TO STUDENTS
The M school admits students of any
race, color, national and ethnic origin to
all the rights, privileges, programs, and
activities generally accorded or made
available to students at the school. It does
not discriminate on the basis of race, color,
national and ethnic origin in administra-
tion of its educational policies, admissions
policies, scholarship and loan programs,
and athletic and other school-administered
programs.
A publicly accessible homepage is one
that does not require a visitor to input in-
formation, such as an email address or

Bulletin No. 2019–22 1261 May 28, 2019
a username and password, to access the
homepage. Factors to be considered in
determining whether a notice is reason-
ably expected to be noticed by visitors to
the homepage include the size, color, and
graphic treatment of the notice in relation
to other parts of the homepage, whether the
notice is unavoidable, whether other parts
of the homepage distract attention from the
notice, and whether the notice is visible
without a visitor having to do anything oth-
er than simple scrolling on the homepage.
A link on the homepage to another page
where the notice appears, or a notice that
appears in a carousel or only by selecting
a dropdown or by hover (mouseover) is
not acceptable. If a school does not have
its own website, but it has webpages con-
tained in a website, the school must display
a notice of its racially nondiscriminatory
policy on its primary landing page within
the website in a manner that satisfies all
other requirements of this subsection 1(c)
to use this publication method.
SECTION 4. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 75-50 is modified.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective
May 28, 2019.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Matthew Giuliano of the Of-
fice of Associate Chief Counsel (Employ-
ee Benefits, Exempt Organizations, and
Employment Taxes). For further informa-
tion regarding this revenue procedure con-
tact Mr. Giuliano at (202) 317-4086 (not a
toll-free number).

26 CFR 601.602: Tax forms and instructions.
(Also Part 1, §§ 1, 223.)
Rev. Proc. 2019-25
SECTION 1. PURPOSE
This revenue procedure provides the
2020 inflation adjusted amounts for Health
Savings Accounts (HSAs) as determined
under § 223 of the Internal Revenue Code.
SECTION 2. 2020 INFLATION
ADJUSTED ITEMS
Annual contribution limitation. For
calendar year 2020, the annual limitation
on deductions under § 223(b)(2)(A) for an
individual with self-only coverage under a
high deductible health plan is $3,550. For
calendar year 2020, the annual limitation
on deductions under § 223(b)(2)(B) for an
individual with family coverage under a
high deductible health plan is $7,100.
High deductible health plan. For calen-
dar year 2020, a “high deductible health
plan” is defined under § 223(c)(2)(A) as a
health plan with an annual deductible that
is not less than $1,400 for self-only cover-
age or $2,800 for family coverage, and the
annual out-of-pocket expenses (deduct-
ibles, co-payments, and other amounts,
but not premiums) do not exceed $6,900
for self-only coverage or $13,800 for fam-
ily coverage.
SECTION 3. EFFECTIVE DATE
This revenue procedure is effective for
calendar year 2020.
SECTION 4. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Bill Ruane of the Office of
Associate Chief Counsel (Income Tax &
Accounting). For further information re-
garding § 223 and HSAs, contact William
Fisher at 202.317.5500 (not a toll-free num-
ber). For further information regarding the
calculation of the inflation adjustments in
this revenue procedure, contact Mr. Ruane
at 202.317.4718 (not a toll-free number).

May 28, 2019 1262 Bulletin No. 2019–22
Part IV.
Announcement of
Disciplinary Sanctions
From the Office of
Professional Responsibility
Announcement 2019-05
The Office of Professional Respon-
sibility (OPR) announces recent disci-
plinary sanctions involving attorneys, cer-
tified public accountants, enrolled agents,
enrolled actuaries, enrolled retirement
plan agents, appraisers, and unenrolled/
unlicensed return preparers (individuals
who are not enrolled to practice and are
not licensed as attorneys or certified pub-
lic accountants). Licensed or enrolled
practitioners are subject to the regulations
governing practice before the Internal
Revenue Service (IRS), which are set out
in Title 31, Code of Federal Regulations,
Subtitle A, Part 10, and which are released
as Treasury Department Circular No.
230. The regulations prescribe the duties
and restrictions relating to such practice
and prescribe the disciplinary sanctions
for violating the regulations. Unenrolled/
unlicensed return preparers are subject to
Revenue Procedure 81-38 and supersed-
ing guidance in Revenue Procedure 2014-
42, which govern a preparer’s eligibility
to represent taxpayers before the IRS in
examinations of tax returns the preparer
both prepared for the taxpayer and signed
as the preparer. Additionally, unenrolled/
unlicensed return preparers who volun-
tarily participate in the Annual Filing Sea-
son Program under Revenue Procedure
2014-42 agree to be subject to the duties
and restrictions in Circular 230, including
the restrictions on incompetent or disrep-
utable conduct.
The disciplinary sanctions to be im-
posed for violation of the applicable stan-
dards are:
Disbarred from practice before the
IRS—An individual who is disbarred
is not eligible to practice before the IRS
as defined at 31 C.F.R. § 10.2(a)(4) for a
minimum period of five (5) years.
Suspended from practice before the
IRS—An individual who is suspended is
not eligible to practice before the IRS as
defined at 31 C.F.R. § 10.2(a)(4) during
the term of the suspension.
Censured in practice before the
IRS—Censure is a public reprimand. Un-
like disbarment or suspension, censure
does not affect an individual’s eligibility
to practice before the IRS, but OPR may
subject the individual’s future practice
rights to conditions designed to promote
high standards of conduct.
Monetary penalty—A monetary pen-
alty may be imposed on an individual who
engages in conduct subject to sanction,
or on an employer, firm, or entity if the
individual was acting on its behalf and it
knew, or reasonably should have known,
of the individual’s conduct.
Disqualification of appraiser—An
appraiser who is disqualified is barred
from presenting evidence or testimony in
any administrative proceeding before the
Department of the Treasury or the IRS.
Ineligible for limited practice—An
unenrolled/unlicensed return preparer
who fails to comply with the requirements
in Revenue Procedure 81-38 or to comply
with Circular 230 as required by Revenue
Procedure
2014-42 may be determined ineligible
to engage in limited practice as a repre-
sentative of any taxpayer. Under the reg-
ulations, individuals subject to Circular
230 may not assist, or accept assistance
from, individuals who are suspended or
disbarred with respect to matters consti-
tuting practice (i.e., representation) before
the IRS, and they may not aid or abet sus-
pended or disbarred individuals to prac-
tice before the IRS.
Disciplinary sanctions are described in
these terms:
Disbarred by decision, Suspended by
decision, Censured by decision, Mone-
tary penalty imposed by decision, and
Disqualified after hearing—An adminis-
trative law judge (ALJ) issued a decision
imposing one of these sanctions after the
ALJ either (1) granted the government’s
summary judgment motion or (2) con-
ducted an evidentiary hearing upon OPR’s
complaint alleging violation of the regu
-
lations. After 30 days from the issuance
of the decision, in the absence of an ap-
peal, the ALJ’s decision becomes the final
agency decision.
Disbarred by default decision, Sus-
pended by default decision, Censured
by default decision, Monetary penalty
imposed by default decision, and Dis-
qualified by default decision—An ALJ,
after finding that no answer to OPR’s
complaint was filed, granted OPR’s mo-
tion for a default judgment and issued a
decision imposing one of these sanctions.
Disbarment by decision on appeal,
Suspended by decision on appeal, Cen-
sured by decision on appeal, Monetary
penalty imposed by decision on ap-
peal, and Disqualified by decision on
appeal—The decision of the ALJ was
appealed to the agency appeal authority,
acting as the delegate of the Secretary
of the Treasury, and the appeal authority
issued a decision imposing one of these
sanctions.
Disbarred by consent, Suspend-
ed by consent, Censured by consent,
Monetary penalty imposed by consent,
and Disqualified by consent—In lieu of
a disciplinary proceeding being instituted
or continued, an individual offered a con-
sent to one of these sanctions and OPR
accepted the offer. Typically, an offer of
consent will provide for: suspension for
an indefinite term; conditions that the in-
dividual must observe during the suspen-
sion; and the individual’s opportunity,
after a stated number of months, to file
with OPR a petition for reinstatement
affirming compliance with the terms of
the consent and affirming current fitness
and eligibility to practice (i.e., an active
professional license or active enrollment
status, with no intervening violations of
the regulations).
Suspended indefinitely by decision in
expedited proceeding, Suspended indef-
initely by default decision in expedited
proceeding, Suspended by consent in
expedited proceeding—OPR instituted
an expedited proceeding for suspension
(based on certain limited grounds, in-
cluding loss of a professional license for
cause, and criminal convictions).
Determined ineligible for limited
practice—-There has been a final deter-
mination that an unenrolled/unlicensed

Bulletin No. 2019–22 1263 May 28, 2019
return preparer is not eligible for limited
representation of any taxpayer because the
preparer violated standards of conduct or
failed to comply with any of the require-
ments to act as a representative.
A practitioner who has been disbarred
or suspended under 31 C.F.R. § 10.60, or
suspended under § 10.82, or a disquali-
fied appraiser may petition for reinstate-
ment before the IRS after the expiration
of 5 years following such disbarment,
suspension, or disqualification (or im-
mediately following the expiration of the
suspension or disqualification period if
shorter than 5 years). Reinstatement will
not be granted unless the IRS is satisfied
that the petitioner is not likely to engage
thereafter in conduct contrary to Circular
230, and that granting such reinstatement
would not be contrary to the public in-
terest.
Reinstatement decisions are published
at the individual’s request, and described
in these terms:
Reinstated to practice before the
IRS—The individual’s petition for re-
instatement has been granted. The indi-
vidual is an attorney, certified public ac-
countant, enrolled agent, enrolled actuary,
or an enrolled retirement plan agent, and
eligible to practice before the IRS, or in
the case of an appraiser, the individual is
no longer disqualified.
Reinstated to engage in limited
practice before the IRS—The individ-
ual’s petition for reinstatement has been
granted. The individual is an unenrolled/
unlicensed return preparer and eligible to
engage in limited practice before the IRS.
OPR has authority to disclose the
grounds for disciplinary sanctions in these
situations: (1) an ALJ or the Secretary’s
delegate on appeal has issued a final deci-
sion; (2) the individual has settled a disci-
plinary case by signing OPR’s “consent to
sanction” agreement admitting to one or
more violations of the regulations and con-
senting to the disclosure of the admitted vi-
olations (for example, failure to file Federal
income tax returns, lack of due diligence,
conflict of interest, etc.); (3) OPR has is-
sued a decision in an expedited proceeding
for indefinite suspension; or (4) OPR has
made a final determination (including any
decision on appeal) that an unenrolled/un-
licensed return preparer is ineligible to rep-
resent any taxpayer before the IRS.
Announcements of disciplinary sanc-
tions appear in the Internal Revenue Bul-
letin at the earliest practicable date. The
sanctions announced below are alphabet-
ized first by state and second by the last
names of the sanctioned individuals.
City & State
NameProfessional
Designation
Disciplinary SanctionEffective Date(s)
Arizona
CottonwoodHeath, Nannette L.C PASuspended by decision in expedited proceed-
ing under 31 C.F.R. § 10.82(b)
Indefinite from
February 6, 2019
California
Cherry ValleyAylward, William K.C PASuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 22, 2019
Los AngelesKim, Jae YoungC PASuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 8, 2019
Aka, Wilfred I.Attorney/
C PA
Suspended by decision on appeal by
Treasury Appellate Authority
31 C.F.R. §10.82(b)
Indefinite from
November 15,
2017 (and may
petition for rein-
statement after at
least 36 months)
OrangeDial, Thomas leeC PASuspended by default decision in expedited
proceeding under31 C.F.R. § 10.82(b)
Indefinite from
February 6, 2019
Rowland HeightsZhong, John Z.CPA/Enrolled
Agent
Disbarred by ALJ DecisionJanuary 27, 2017
SeasideMcEwan, John G.Enrolled
Agent
Suspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 8, 2019
Jonavic, Theodore P.,
see Nevada

May 28, 2019 1264 Bulletin No. 2019–22
City & StateNameProfessional
Designation
Disciplinary SanctionEffective Date(s)
Florida
MiamiTakesian, Greg C.C PASuspended by decision in expedited proceed-
ing under 31 C.F.R. § 10.82(b)
Indefinite from
February 8, 2019
RockledgeWarrington,
Tara M.
AttorneySuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 5, 2019
Indiana
LowellSchaefer, James M.C PASuspended by consent under 31 C.F.R.
§§ 10.51(a)(2) and 10.51(a)(3)
Indefinite from
October 1, 2018
Kansas
WestwoodArnold, III,
Robert E.
AttorneySuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
November 1, 2018
Overland ParkMuir, Timothy J.AttorneySuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
October 29, 2018
Kentucky
SouthgateVater, Gayle G.C PASuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 6, 2019
Massachusetts
Takesian, Greg C.,
see Florida
City & StateNameProfessional
Designation
Disciplinary SanctionEffective Date(s)
Minnesota
Zhong, John Z.
See California
New York
OleanStevens, Joseph F.C PASuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 21, 2019
Nevada

Las V
egasJonavic,
Theodore P.
C PASuspended by decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
March 7, 2019
Pennsylvania
KoppelPrence, Neal P.C PASuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 21, 2019
Texas
PlanoThakkar,
Mahesh K.
C PASuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 8, 2019
Washington
KennewickNeal,
Christopher L.
AttorneySuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
March 28, 2019
Wisconsin
MilwaukeeWiensch, Adam J.AttorneySuspended by default decision in expedited
proceeding under 31 C.F.R. § 10.82(b)
Indefinite from
February 8, 2019

Bulletin No. 2019–22 1265 May 28, 2019
Notice of Proposed
Rulemaking
Gain or Loss of Foreign
Persons from Sale or
Exchange of Certain
Partnership Interests
REG-113604-18
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations implementing section
864(c)(8) of the Internal Revenue Code.
The proposed regulations affect certain
foreign persons that recognize gain or loss
from the sale or exchange of an interest
in a partnership that is engaged in a trade
or business within the United States. The
proposed regulations also affect partner-
ships that, directly or indirectly, have for-
eign persons as partners.
DATES: Written or electronic comments
and requests for a public hearing must be
received by February 25, 2019.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG-113604-18), In-
ternal Revenue Service, Room 5203, P.O.
Box 7604, Ben Franklin Station, Wash-
ington, 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-113604-18), Cou-
rier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW., Washing-
ton, DC 20224, or sent electronically via
the Federal eRulemaking Portal at http://
www.regulations.gov (IRS REG-113604-
18).
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Ronald M. Gootzeit or Chadwick
Rowland, (202) 317-6937; concerning
submissions of comments or requests for
a public hearing, Regina L. Johnson, (202)
317-6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
A foreign partner in a partnership that is
engaged in the conduct of a trade or busi-
ness within the United States is itself con-
sidered to be so engaged. See section 875.
Under a 1991 revenue ruling, in determin-
ing the tax consequences of the sale or
exchange of a foreign partner’s interest in
a partnership engaged in the conduct of a
trade or business within the United States,
the IRS held that the partnership’s proper-
ty located in the United States that is used
or held for use in the partnership’s trade or
business within the United States is used
to determine the extent to which income
derived from the sale or exchange of the
partnership interest is effectively connect-
ed with the conduct of the partner’s trade
or business within the United States. Rev.
Rul. 91-32, 1991-1 C.B. 107. Under the
ruling, if there is unrealized gain or loss in
partnership assets that would be treated as
effectively connected with the conduct of
the partnership’s trade or business within
the United States if those assets were sold
by the partnership, some or all of the for-
eign person’s gain or loss from the sale or
exchange of a partnership interest may be
treated as effectively connected with the
partner’s conduct of a trade or business
within the United States. However, a 2017
Tax Court case held instead that, general-
ly, gain or loss on the sale or exchange by
a foreign person of an interest in such a
partnership is foreign source gain or loss
based on the residence of the selling part-
ner because gain on the sale of the partner-
ship interest is not attributable to the part-
nership’s assets and activities. As a result,
such gain or loss generally would not be
treated as effectively connected with the
conduct of a trade or business. Grecian
Magnesite Mining v. Commissioner, 149
T.C. No. 3 (2017), appeal argued, No. 17-
1268 (D.C. Cir. Oct. 9, 2018).
Section 864(c)(8), which was added to
the Internal Revenue Code (the “Code”)
by section 13501 of the Tax Cuts and
Jobs Act, Public Law 115-97 (2017) (the
“Act”), generally overturns the result of
Grecian Magnesite Mining v. Commis-
sioner by providing that gain or loss of
a nonresident alien individual or foreign
corporation (a “foreign transferor”) from
the sale, exchange, or other disposition
(“transfer”) of a partnership interest is
treated as effectively connected with the
conduct of a trade or business within the
United States (“effectively connected
gain” or “effectively connected loss”) to
the extent that the transferor would have
had effectively connected gain or loss if
the partnership had sold all of its assets at
fair market value as of the date of the sale
or exchange (“deemed sale”).
Section 864(c)(8)(E) generally pro-
vides that the Secretary shall prescribe
such regulations or other guidance as the
Secretary determines appropriate for the
application of section 864(c)(8). Section
864(c)(8) is effective for sales, exchanges,
and dispositions on or after November 27,
2017.
New section 1446(f) was also added
to the Code by section 13501 of the Act.
Section 1446(f)(1) requires that the trans-
feree of a partnership interest withhold
10 percent of the amount realized on the
transferor’s disposition of the partnership
interest (if any portion of the gain would
be treated as effectively connected gain)
unless the transferor certifies that the
transferor is not a foreign person. Section
1446(f) is effective for sales, exchang-
es, and dispositions after December 31,
2017.
On December 29, 2017, the Depart-
ment of the Treasury (the “Treasury De-
partment”) and the IRS released Notice
2018-08, 2018-7 I.R.B. 352 (the “PTP
Notice”). The PTP Notice temporarily
suspends the requirement to withhold on
amounts realized in connection with the
sale, exchange, or disposition of certain
interests in publicly traded partnerships
(“PTPs”) in response to stakeholder con-
cerns that applying section 1446(f) to
dispositions of interests in PTPs without
guidance presented significant practical
problems. On April 2, 2018, the Treasury
Department and the IRS released Notice
2018-29, 2018-16 I.R.B. 495, which an-
nounced an intent to issue proposed regu-
lations under section 1446(f) that apply in
the case of a disposition of a partnership
interest that is not publicly traded and pro-
vided temporary guidance.

May 28, 2019 1266 Bulletin No. 2019–22
Explanation of Provisions
I. Gain or Loss on the Transfer of a
Partnership Interest
Section 864(c)(8)(A) provides that gain
or loss of a foreign transferor from the
transfer of an interest, owned directly or
indirectly, in a partnership that is engaged
in any trade or business within the United
States is treated as effectively connected
gain or loss to the extent such gain or loss
does not exceed the amount determined
under section 864(c)(8)(B). In general,
section 864(c)(8)(B) limits the amount of
effectively connected gain or loss to the
portion of the foreign transferor’s dis-
tributive share of gain or loss that would
have been effectively connected gain or
loss if the partnership had sold all of its
assets at fair market value. The proposed
regulations set forth rules for determining
gain or loss described in section 864(c)(8)
(A) and the limitation described in section
864(c)(8)(B), each of which is discussed
in this section I of this Explanation of Pro-
visions.
A. Determination of Gain or Loss
Described in Section 864(c)(8)(A)
To determine the amount of gain or loss
described in section 864(c)(8)(A), gener-
ally, the proposed regulations require that
a foreign transferor first determine its gain
or loss on the transfer of a partnership in-
terest (“outside gain” and “outside loss”).
For this purpose, the proposed regulations
provide that outside gain or loss is deter-
mined under all relevant provisions of
the Code and the regulations thereunder.
As described in section I.A.1 of this Ex-
planation of Provisions, a foreign trans-
feror may recognize capital gain or loss
(“outside capital gain” or “outside capital
loss”) and ordinary gain or loss (“outside
ordinary gain” or “outside ordinary loss”)
on the transfer of its partnership interest
and must separately apply section 864(c)
(8) with respect to its capital gain or loss
and its ordinary gain or loss.
1. Interaction with Sections 741 and 751
Section 864(c)(8) provides rules re-
garding the treatment of gain or loss on
the transfer of a partnership interest as
effectively connected gain or loss, but it
does not address the computation of the
amount of gain or loss to a partner upon
the transfer. Rather, applicable tax law,
including subchapter K, determines the
amount and character of outside gain or
loss on the transfer of a partnership inter-
est. For example, the reduction in a trans-
feror’s share of partnership liabilities is
treated as an amount realized on the trans-
fer of the partnership interest under sec-
tion 1001 and the regulations thereunder.
See section 752(d) and §1.752-1(h).
Section 741 provides that on a sale or
exchange of an interest in a partnership,
gain or loss is recognized by the transfer-
or, and shall be considered capital gain
or loss except as otherwise provided in
section 751. Section 751 provides that an
amount received by a transferor of a part-
nership interest that is attributable to un-
realized receivables or inventory items of
the partnership (“section 751 property”)
is considered ordinary income or loss. As
a result of sections 741 and 751 and the
regulations thereunder, gain or loss on a
sale or exchange of a partnership interest
can comprise capital gain, capital loss, or-
dinary income, or ordinary loss (or a com-
bination thereof). See §§1.741-1(a) and
1.751-1(a).
In general, the proposed regulations
provide that a foreign transferor must de-
termine the portion of its capital gain or
loss, and the portion of its ordinary in-
come or loss from section 751 property,
that must each be characterized as effec-
tively connected gain or loss under section
864(c)(8). See proposed §1.864(c)(8)-
1(b). As provided in section 864(c)(8)(A)
and further described in section I.B of this
Explanation of Provisions, the proposed
regulations provide that a foreign part-
ner’s effectively connected gain or loss
will not exceed its outside gain or loss on
the sale of the interest as determined under
sections 741 and 751 and the regulations
thereunder. Thus, the amount of gain or
loss determined under section 741 (before
application of section 751) is not a limita-
tion on the amount of gain or loss charac-
terized as effectively connected with the
conduct of a trade or business within the
United States under the proposed regula-
tions.
2. Nonrecognition Transactions
The proposed regulations provide that
the gain or loss on the transfer of a part-
nership interest that is subject to tax as ef-
fectively connected gain or loss is limited
to gain or loss otherwise recognized under
the Code. See proposed §1.864(c)(8)-1(b)
(2)(ii). When a nonrecognition provision
results in a foreign transferor recognizing
only a portion of its gain or loss on the
transfer of an interest in a partnership, sec-
tion 864(c)(8) may apply with respect to
the portion of the gain or loss recognized.
Although section 864(c)(8)(E) au-
thorizes regulations or other guidance
with respect to the application of section
864(c)(8) to nonrecognition transactions,
the proposed regulations do not contain
special rules applicable to nonrecognition
transactions. The Treasury Department
and the IRS recognize, however, that
certain nonrecognition transactions may
have the effect of reducing gain or loss
that would be taken into account for U.S.
federal income tax purposes. For exam-
ple, if a partnership that conducts a trade
or business within the United States owns
property not subject to tax under section
871(b) or 882(a) in the hands of a foreign
partner, the partnership may distribute
that property to the foreign partner rather
than a U.S. partner. The Treasury Depart-
ment and the IRS continue to consider,
and comments are requested regarding,
whether other Code provisions adequately
address transactions that rely on section
731 distributions to reduce the scope of
assets subject to U.S. federal income tax-
ation, and may propose rules addressing
these types of transactions.
B. Determination of Deemed Sale Gain
or Loss
1. In General
After outside gain and loss are deter-
mined under proposed §1.864(c)(8)-1(b),
the proposed regulations set forth three
amounts that a foreign transferor must de-
termine to derive the limitation in section
864(c)(8)(B) against which the outside
gain or loss is compared: (1) With respect
to each asset held by the partnership, the
amount of gain or loss that the partner-

Bulletin No. 2019–22 1267 May 28, 2019
ship would recognize in connection with
a deemed sale to an unrelated party in a
fully taxable transaction for cash equal to
the asset’s fair market value immediately
before the partner’s transfer of its partner-
ship interest; (2) the amount of that gain
or loss that would be treated as effectively
connected gain or loss (“deemed sale EC
gain” and “deemed sale EC loss”); and (3)
the foreign transferor’s distributive share
of the ordinary and capital components of
any deemed sale EC gain and deemed sale
EC loss. The proposed regulations refer to
the separate sums of the foreign transfer-
or’s distributive shares of the ordinary and
capital components of deemed sale EC
gain and deemed sale EC loss items for
all assets, determined at the level of the
foreign transferor, as “aggregate deemed
sale EC capital gain,” “aggregate deemed
sale EC capital loss,” “aggregate deemed
sale EC ordinary gain,” and “aggregate
deemed sale EC ordinary loss.”
After each of these aggregate amounts
is determined, the proposed regulations
implement the limitation described in sec-
tion 864(c)(8)(B), generally, by compar-
ing the foreign transferor’s outside gain or
loss amounts with the relevant aggregate
deemed sale EC gain or loss. This deter-
mination is made separately with respect
to capital gain or capital loss and gain
or loss treated as ordinary income or or-
dinary loss. Thus, for example, a foreign
transferor would compare its outside cap-
ital gain to its aggregate deemed sale EC
capital gain, treating the former as effec-
tively connected gain only to the extent it
does not exceed the latter. See proposed
§1.864(c)(8)-1(b)(3).
2. Treatment of Deemed Sale Gain or
Loss as Effectively Connected Gain or
Loss
As described in Part I.B.1 of this Ex-
planation of Provisions, the proposed
regulations require a foreign transferor to
determine the amount of gain or loss that
would arise in a deemed asset sale that
would be treated as effectively connect-
ed gain or loss. In general, gain or loss on
the sale of personal property is effectively
connected with the conduct of a trade or
business within the United States if the
gain is from sources within the United
States and it satisfies the requirements of
section 864(c) and the regulations there-
under. Accordingly, the proposed regu-
lations provide that section 864 and the
regulations thereunder apply for purposes
of determining whether gain or loss that
would arise in a deemed asset sale would
be treated as effectively connected gain or
loss. See proposed §1.864(c)(8)-1(c)(2)
(i).
The determination as to whether gain
or loss from a deemed asset sale by the
partnership would be from sources within
or without the United States, and wheth-
er that income would be treated as effec-
tively connected gain or loss, is based on
certain factual determinations, including
whether the gain or loss results from a
sale that is attributable to an office or oth-
er fixed place of business in the United
States. The proposed regulations provide
that, for purposes of determining whether
gain or loss recognized in connection with
a deemed asset sale by the partnership
would be from sources within or without
the United States, and thus whether that
income would be treated as effectively
connected gain or loss, the deemed asset
sale is treated as attributable to an office or
fixed place of business in the United States
maintained by the partnership. As a result,
deemed sale gain or loss generally would
be treated as from sources within the Unit-
ed States. To prevent this rule from poten-
tially converting gain or loss from assets
with no connection to the partnership’s
trade or business within the United States
into effectively connected gain or loss, the
proposed regulations provide that gain or
loss from the deemed sale of a partnership
asset is not treated as effectively connect-
ed gain or loss if (1) no income or gain pre-
viously produced by the asset was taxable
as effectively connected with the conduct
of a trade or business within the United
States by the partnership (or a predeces-
sor of the partnership) during the ten-year
period ending on the date of the transfer,
and (2) the asset was not used, or held for
use, in the conduct of a trade or business
within the United States by the partner-
ship (or a predecessor of the partnership)
during the ten-year period ending on the
date of transfer. See proposed §1.864(c)
(8)-1(c)(2)(ii). Comments are requested as
to whether additional guidance is needed
regarding the source of gain or loss result-
ing from a deemed sale by the partnership,
including rules coordinating this rule with
section 865(e)(2)(B).
3. Determining Distributive Share of
Deemed Sale EC Gain and Deemed
Sale EC Loss
The flush language of section 864(c)
(8)(B) provides that a transferor part-
ner’s distributive share of gain or loss
on the deemed sale is determined in the
same manner as the transferor partner’s
distributive share of the non-separately
stated taxable income or loss of the part-
nership. The term “non-separately stated
taxable income or loss of the partnership”
is not defined in the Code or regulations.
The proposed regulations provide that a
partner’s distributive share of gain or loss
from the deemed sale is determined under
all applicable Code sections (including
section 704), taking into account alloca-
tions of tax items applying the principles
of section 704(c), including any remedi-
al allocations under §1.704-3(d), and any
section 743 basis adjustment pursuant to
§1.743-1(j)(3). The Treasury Department
and IRS propose this approach because
applying section 704 more closely ties the
results of the deemed sale with regard to
the selling foreign partner to the econom-
ic results of an actual sale, as compared
(for example) to an approach that did not
consider special allocations or considered
only a partner’s share of ordinary business
income, which would distort the econom-
ic agreement among the partners. See pro-
posed §1.864(c)(8)-1(c)(3)(i).
The Treasury Department and the IRS
are considering whether section 704 and
the regulations thereunder adequately
prevent the avoidance of the purposes of
section 864(c)(8) through allocations of ef-
fectively connected gain or loss to specific
partners. For example, immediately before
a foreign transferor sells its interest in a
partnership, adjustments could be made to
partnership allocations that would result in
the foreign transferor recognizing less ef-
fectively connected gain from the deemed
sale by the partnership. While statutory and
regulatory provisions, as well as judicial
doctrines, may limit the extent to which
inappropriate results may be obtained in
that transaction or similar transactions,
the Treasury Department and the IRS are
considering whether additional guidance is

May 28, 2019 1268 Bulletin No. 2019–22
necessary to prevent abuse. Comments are
requested as to whether there are specific
situations in which the purposes of section
864(c)(8) may be avoided and specific sug-
gestions for additional guidance to address
those situations.
C. Source
Neither section 864(c)(8) nor the pro-
posed regulations address the source of
gain or loss from the transfer of a partner-
ship interest. Section 864(c)(4) provides
that, except as enumerated in section
864(c)(4)(B) and (C), no income, gain,
or loss from sources without the United
States is treated as effectively connected
gain or loss. Section 864(c)(8)(A) and
the proposed regulations, however, apply
“[n]otwithstanding any other provision of
[subtitle A of the Code],” such that gain or
loss recognized on the transfer of an in-
terest in a partnership that is engaged in a
trade or business within the United States
may be treated as effectively connect-
ed gain or loss even if it is from sources
without the United States. Comments are
requested as to whether, and what, addi-
tional guidance is necessary regarding the
source of gain or loss subject to section
864(c)(8).
D. Provision is Non-Exclusive
The proposed regulations clarify that
they do not apply to prevent any portion
of gain or loss recognized on the transfer
of a partnership interest from being treat-
ed as effectively connected gain or loss
under other provisions of the Code (sub-
ject to a special rule coordinating the ap-
plication of section 864(c)(8) and section
897). Thus, if a foreign transferor main-
tains an office or fixed place of business
in the United States, and sells a partner-
ship interest in a transaction that generates
gain or loss attributable to that office, gain
or loss recognized in connection with that
transfer may be United States source in-
come under section 865(e)(2), and may be
treated as effectively connected income
under section 864(c)(2). If the amount
of gain or loss recognized that would be
treated as effectively connected gain or
loss under section 864(c)(2) exceeds the
amount of gain that would be treated as
effectively connected gain under section
864(c)(8), then the larger amount would
be treated as effectively connected gain.
See proposed §1.864(c)(8)-1(b)(1).
II. Coordination with Section 897
Section 897(g) generally provides
that, under regulations prescribed by the
Secretary, the amount realized by a non-
resident alien individual or foreign cor-
poration in exchange for all or part of its
interest in a partnership is, to the extent
attributable to United States real proper-
ty interests (as defined in section 897(c)),
considered as an amount received from
the sale or exchange in the United States
of such property. Accordingly, section
897(g) generally provides the same result
for United States real property interests
as Revenue Ruling 91-32 provides for
property used, or held for use, in a trade
or business in the United States. In gen-
eral, section 864(c)(8)(C) provides that if
a partnership described in section 864(c)
(8)(A) holds any United States real prop-
erty interest at the time of the transfer of
the partnership interest, then the gain or
loss treated as effectively connected gain
or loss under section 864(c)(8)(A) is re-
duced by the amount treated as effectively
connected gain or loss with respect to that
United States real property interest under
section 897. The effect of section 864(c)
(8)(C) is to prevent gain or loss from a
United States real property interest that is
taxed under section 897 from being taken
into account a second time under section
864(c)(8).
In the proposed regulations, the lim-
itation on effectively connected gain or
loss in section 864(c)(8)(B) is based on a
deemed sale by the partnership of all of
its assets, including all United States real
property interests held by the partnership,
which are treated as effectively connect-
ed assets under section 897. See proposed
§1.864(c)(8)-1(c)(2)(i). To coordinate the
taxation of United States real property in-
terests under sections 897(g) and 864(c)
(8), the proposed regulations provide that
when a partnership holds United States
real property interests and is also subject
to section 864(c)(8) because it is engaged
in the conduct of a trade or business with-
in the United States without regard to sec-
tion 897, the amount of the foreign trans-
feror’s effectively connected gain or loss
will be determined under section 864(c)
(8) and not under section 897(g). There-
fore, the reduction called for by section
864(c)(8)(C) is not necessary. See pro-
posed §1.864(c)(8)-1(d).
The regulations include a proposed
rule in regulations under section 897,
which serves as a cross-reference to this
coordination rule. See section V of this
Explanation of Provisions for a discus-
sion of a proposed anti-stuffing rule that
also applies in the context of section 897.
Further, comments are requested as to the
interaction of this rule with other rules in
the regulations under section 897, includ-
ing the special rule for publicly traded
partnerships in §1.897-1(c)(2)(iv).
III. Tiered Partnerships
Section 864(c)(8) applies to a foreign
nonresident alien individual or foreign
corporation that owns an interest in a
partnership directly or indirectly. Consis-
tent with section 12 of Notice 2018-29,
the proposed regulations provide that if a
foreign transferor transfers an interest in
an upper-tier partnership that owns, di-
rectly or indirectly, an interest in one or
more lower-tier partnerships that are en-
gaged in the conduct of a trade or business
within the United States, then the deemed
sale gain or loss must be computed with
respect to each lower-tier partnership,
the amount of effectively connected gain
or loss that would be allocated to the up-
per-tier partnership must be determined,
and the amount of gain or loss recognized
by a foreign transferor that is treated as
effectively connected gain or loss under
proposed §1.864(c)(8)-1(c) must be de-
termined by reference to the transferor’s
distributive share of effectively connected
gain or loss arising from each lower-tier
partnership. See proposed §1.864(c)(8)-
1(e)(1).
The proposed regulations also clarify
that when a foreign transferor is a partner
in an upper-tier partnership and the up-
per-tier partnership transfers an interest in
a lower-tier partnership that is engaged in
the conduct of a trade or business within
the United States, the upper-tier partner-
ship must determine its effectively con-

Bulletin No. 2019–22 1269 May 28, 2019
nected gain or loss by applying the princi-
ples of the proposed regulations, including
the tiered partnership rules described in
proposed §1.864(c)(8)-1(e)(1).
IV. Treaties
The business profits articles of many
U.S. income tax treaties limit the taxation
of income that is otherwise treated as ef-
fectively connected with the conduct of a
trade or business within the United States
under the Code to income and gain attrib-
utable to a permanent establishment in
the United States. The applicable gains
articles of many U.S. income tax treaties
allow the country in which a permanent
establishment is located to tax gains from
the alienation of movable property form-
ing part of the business property of a per-
manent establishment, including gains
from the alienation of a permanent estab-
lishment, alone or with the whole enter-
prise of which it is a part. In general, the
permanent establishment of a partnership
in the United States is considered a perma-
nent establishment of the partners of the
partnership. See Donroy, Ltd. v. United
States, 196 F.Supp. 54 (N.D. Cal. 1961),
aff ’d 301 F.2d 200 (9th Cir. 1962), and
Unger v. Comm’r, T.C. Memo. 1990-15,
58 TCM 1157, aff ’d 936 F.2d 1316 (D.C.
Cir. 1991).
The proposed regulations provide that
the disposition of a foreign partner’s in-
terest in a partnership, in whole or in part,
is a disposition of all or part of a partner’s
permanent establishment. Thus, to the ex-
tent the partnership’s assets form part of
a foreign partner’s permanent establish-
ment in the United States, the permanent
establishment paragraph of the gains ar-
ticle would generally preserve the United
States’ taxing jurisdiction over the gain on
the transfer of a partnership interest that
is subject to tax under section 864(c)(8).
In addition, if an income tax treaty has a
gains article that permits the United States
to apply its domestic laws to tax gains or
does not have a gains article, the treaty
does not prevent the application of section
864(c)(8).
Gains articles of treaties also fre-
quently have special provisions covering
certain assets, regardless of whether the
assets form part of a permanent establish-
ment, such as gains from dispositions of
United States real property interests and
ships and aircraft used in international
traffic. If a gains article of an income tax
treaty prohibits taxation of the gain from
the disposition of any asset, such as ships
or aircraft used in international traffic,
the gains and losses from those assets
will not be considered assets that form
part of the permanent establishment, nor
will they be taken into account in deter-
mining deemed sale EC gain or deemed
sale EC loss, for purposes of computing
the section 864(c)(8)(B) limitation. If the
gains article of an applicable income tax
treaty allows the taxation of gain from the
disposition of a United States real prop-
erty interest, the transfer of an interest in
a partnership that holds a United States
real property interest remains subject to
section 897(g) even if the transfer is not
subject to section 864(c)(8) (because the
partnership’s assets are not treated as
forming part of a permanent establish-
ment in the United States). See proposed
§1.864(c)(8)-1(d).
V. Anti-Stuffing Rule
The proposed regulations include an
anti-stuffing rule applicable to both these
regulations and section 897. This rule is
included to prevent inappropriate reduc-
tions in amounts characterized as effec-
tively connected with the conduct of a
trade or business within the United States
under section 864(c)(8) or section 897. A
cross-reference to this rule is also includ-
ed in the proposed regulation under sec-
tion 897.
VI. Section 1446(f) Guidance
The proposed regulations do not pro-
vide guidance under section 1446(f). The
Treasury Department and the IRS intend
to issue guidance under section 1446(f)
expeditiously.
Applicability Dates
The proposed regulations apply to
transfers occurring on or after Novem-
ber 27, 2017, the effective date of section
864(c)(8). See section 7805(b)(2). If any
provision is finalized after June 22, 2019,
the Treasury Department and the IRS ex-
pect that such provision will apply only to
transfers occurring on or after December
21, 2018. See section 7805(b)(1)(B).
Special Analyses
Executive Orders 13771, 13563, and
12866 direct agencies to assess costs and
benefits of available regulatory alterna-
tives and, if regulation is necessary, to se-
lect regulatory approaches that maximize
net benefits, including potential economic,
environmental, public health and safety
effects, distributive impacts, and equi-
ty. Executive Order 13563 emphasizes
the importance of quantifying both costs
and benefits, reducing costs, harmonizing
rules, and promoting flexibility.
These proposed regulations have been
designated by the Office of Management
and Budget’s Office of Information and
Regulatory Affairs (OIRA) as subject to
review under Executive Order 12866 pur-
suant to the Memorandum of Agreement
(April 11, 2018) between the Treasury De-
partment and the Office of Management
and Budget regarding review of tax regu-
lations. OIRA has determined that the pro-
posed rulemaking is significant and sub-
ject to review under EO 12866 and section
1(b) of the Memorandum of Agreement.
Accordingly, the proposed regulations
have been reviewed by the Office of Man-
agement and Budget.
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-action
baseline reflecting anticipated tax-related
behavior and other economic behavior in
the absence of these proposed regulations.
Because the proposed regulations general-
ly provide taxpayers with additional cer-
tainty on the amount and character of gain
or loss treated as effectively connected in-
come as a result of section 864(c)(8) and
concurrently coordinate section 864(c)
(8) with other provisions in the Code, the
Treasury Department and the IRS antici-
pate only minimal economic or revenue
effects from the proposed regulations. The
Treasury Department and the IRS estimate
that between 5,000 and 10,000 taxpayers
are potentially affected by section 864(c)
(8), with only a fraction of these taxpayers
having gain or loss from disposition of a
partnership in any one year. The Treasury
Department and the IRS estimate that the
affected taxpayers would see a minimal

May 28, 2019 1270 Bulletin No. 2019–22
difference in treatment between these pro-
posed regulations and Revenue Ruling
91-32. Comments are requested regarding
these assessments. The Treasury Depart-
ment and the IRS have assessed that the
proposed regulations do not establish a
new collection of information nor modi-
fy an existing collection that requires the
approval of the Office of Management and
Budget under the Paperwork Reduction
Act (44 U.S.C. chapter 35). The Treasury
Department and the IRS seek comments
on this assessment.
Section 864(c)(8) and the proposed
regulations generally apply to nonresi-
dent alien individuals and foreign corpo-
rations on the transfer of an interest in a
partnership that is engaged in a trade or
business within the United States, and
not directly to the trade or business the
partnership conducts in the United States.
Under section 605 of the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6), the Trea-
sury Department and the IRS certify that
the proposed regulations will not have a
significant economic impact on a substan-
tial number of small entities. The reason
is that the proposed regulations generally
apply to nonresident alien individuals and
foreign corporations on the transfer of an
interest in a partnership and not directly
to a domestic small business. Pursuant to
section 7805(f), this notice of proposed
rulemaking has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.
Comments and Requests for Public
Hearing
Before the proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the “ADDRESS-
ES” heading. The Treasury Department
and the IRS request comments on all as-
pects of the proposed regulations, and
specifically on the issues identified in sec-
tions I.A.2, I.B, and I.C of the Explana-
tions of Provisions. All comments will be
available at www.regulations.gov or upon
request. A public hearing will be sched-
uled if requested in writing by any person
that timely submits written comments. If
a public hearing is scheduled, then notice
of the date, time, and place for the public
hearing will be published in the Federal
Register.
Drafting Information
The principal authors of the proposed
regulations are Ronald M. Gootzeit and
Chadwick Rowland, Office of Associate
Chief Counsel (International). However,
other personnel from the Treasury Depart-
ment and the IRS participated in their de-
velopment.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, notices, and other guidance cit-
ed in this document are published in the
Internal Revenue Bulletin (or Cumula-
tive Bulletin) and are available from the
Superintendent of Documents, U.S. Gov-
ernment Printing Office, Washington, DC
20402, or by visiting the IRS website at
http://www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1— INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.864(c)(8)-1 also issued under
26 U.S.C. 864(c)(8) and 897(g).
*****
Section 1.897-7 also issued under 26
U.S.C. 897(g).
*****
Par. 2. Section 1.864(c)(8)-1 is added
to read as follows:
§1.864(c)(8)-1 Gain or loss by foreign
persons on the disposition of certain part-
nership interests.
(a) Overview. This section provides
rules and definitions under section 864(c)
(8). Paragraph (b) of this section provides
the general rule treating gain or loss rec-
ognized by a nonresident alien individ-
ual or foreign corporation from the sale
or exchange of a partnership interest as
effectively connected gain or effectively
connected loss. Paragraph (c) of this sec-
tion provides rules for determining the
limitation on the amount of effectively
connected gain or effectively connected
loss under section 864(c)(8) and para-
graph (b) of this section. Paragraph (d)
of this section provides rules regarding
coordination with section 897. Paragraph
(e) of this section provides rules regard-
ing certain tiered partnerships. Paragraph
(f) of this section provides rules regard-
ing U.S. income tax treaties. Paragraph
(g) of this section provides definitions.
Paragraph (h) of this section provides a
rule regarding certain contributions of
property to a partnership. Paragraph (i)
of this section contains examples illus-
trating the rules set forth in this section.
Paragraph (j) of this section provides the
applicability date.
(b) Gain or loss treated as effectively
connected gain or loss—(1) In general.
Notwithstanding any other provision of
subtitle A of the Internal Revenue Code,
if a foreign transferor owns, directly or in-
directly, an interest in a partnership that is
engaged in the conduct of a trade or busi-
ness within the United States, outside cap-
ital gain, outside capital loss, outside ordi-
nary gain, or outside ordinary loss (each
as defined in paragraph (b)(2) of this sec-
tion) recognized by the foreign transferor
on the transfer of all (or any portion) of
the interest is treated as effectively con-
nected gain or effectively connected loss,
subject to the limit described in paragraph
(b)(3) of this section. Except as provided
in paragraph (d) of this section, this sec-
tion does not apply to prevent any portion
of the gain or loss that is otherwise treated
as effectively connected gain or effective-
ly connected loss under provisions of the
Internal Revenue Code other than section
864(c)(8) from being so treated.
(2) Determination of outside gain and
loss—(i) In general. The amount of gain
or loss recognized by the foreign trans-
feror in connection with the transfer of its
partnership interest is determined under
all relevant provisions of the Internal Rev-
enue Code and the regulations thereunder.

Bulletin No. 2019–22 1271 May 28, 2019
See, e.g., §§1.741-1(a) and 1.751-1(a)(2).
For purposes of this section, the amount of
gain or loss that is treated as capital gain or
capital loss under sections 741 and 751 is
referred to as outside capital gain or out-
side capital loss, respectively. The amount
of gain or loss that is treated as ordinary
gain or ordinary loss under sections 741
and 751 is referred to as outside ordinary
gain or outside ordinary loss, respectively.
(ii) Nonrecognition provisions. A for-
eign transferor’s gain or loss recognized
in connection with the transfer of its part-
nership interest does not include gain or
loss to the extent that the gain or loss is
not recognized by reason of one or more
nonrecognition provisions of the Internal
Revenue Code.
(3) Limitations. This paragraph (b)(3)
limits the amount of gain or loss recog-
nized by a foreign transferor that may be
treated as effectively connected gain or
effectively connected loss.
(i) Capital gain limitation. Outside
capital gain recognized by a foreign trans-
feror is treated as effectively connected
gain to the extent it does not exceed ag-
gregate deemed sale EC capital gain de-
termined under paragraph (c)(3)(ii)(B) of
this section.
(ii) Capital loss limitation. Outside
capital loss recognized by a foreign trans-
feror is treated as effectively connected
loss to the extent it does not exceed ag-
gregate deemed sale EC capital loss de-
termined under paragraph (c)(3)(ii)(B) of
this section.
(iii) Ordinary gain limitation. Outside
ordinary gain recognized by a foreign
transferor is treated as effectively con-
nected gain to the extent it does not ex-
ceed aggregate deemed sale EC ordinary
gain determined under paragraph (c)(3)(ii)
(A) of this section.
(iv) Ordinary loss limitation. Outside
ordinary loss recognized by a foreign
transferor is treated as effectively con-
nected loss to the extent it does not exceed
aggregate deemed sale EC ordinary loss
determined under paragraph (c)(3)(ii)(A)
of this section.
(c) Amount treated as effectively con-
nected with the conduct of a trade or
business within the United States. This
paragraph (c) describes the steps to be
followed in computing the limitations de-
scribed in paragraph (b)(3) of this section.
(1) Step 1: Determine deemed sale
gain and loss. Determine the amount of
gain or loss that the partnership would
recognize with respect to each of its as-
sets (other than interests in partnerships
described in paragraph (e) of this section)
upon a deemed sale of all of the partner-
ship’s assets on the date of the transfer
of the partnership interest described in
paragraph (b)(1) of this section (deemed
sale). For this purpose, a deemed sale is
a hypothetical sale by the partnership to
an unrelated person of each of its assets
(tangible and intangible) in a fully tax-
able transaction for cash in an amount
equal to the fair market value of each as-
set (taking into account section 7701(g))
immediately before the partner’s trans-
fer of the interest in the partnership. For
rules concerning the deemed sale of cer-
tain partnership interests, see paragraph
(e) of this section.
(2) Step 2: Determine deemed sale
EC gain and loss—(i) In general. With
respect to each asset deemed sold in para-
graph (c)(1) of this section, determine the
amount of gain or loss from the deemed
sale that would be treated as effectively
connected gain or effectively connect-
ed loss (including by reason of section
897, taking into account any exceptions
thereto, such as section 897(k) or section
897(l)). Gain described in this paragraph
(c)(2) is referred to as deemed sale EC
gain, and loss described in this paragraph
(c)(2) is referred to as deemed sale EC
loss. Section 864 and the regulations
thereunder apply for purposes of deter-
mining whether gain or loss that would
arise in a deemed asset sale would be
treated as effectively connected gain or
loss. For purposes of this paragraph (c)
(2)(i), gain or loss from the deemed sale
of an asset is treated as attributable to
an office or other fixed place of busi-
ness maintained by the partnership in the
United States, and is not treated as sold
for use, disposition, or consumption out-
side the United States in a sale in which
an office or other fixed place of business
maintained by the partnership in a for-
eign country materially participated in
the sale.
(ii) Exception. Gain or loss from the
deemed sale of an asset described in para-
graph (c)(2)(i) of this section (other than a
United States real property interest) is not
treated as deemed sale EC gain or deemed
sale EC loss if—
(A) No income or gain produced by the
asset was taxable as income that was ef-
fectively connected with the conduct of a
trade or business within the United States
by the partnership (or a predecessor of the
partnership) during the ten-year period
ending on the date of the transfer; and
(B) The asset has not been used, or
held for use, in the conduct of a trade or
business within the United States by the
partnership (or a predecessor of the part-
nership) during the ten-year period ending
on the date of the transfer.
(3) Step 3: Determine the foreign trans-
feror’s distributive share of deemed sale
EC gain or deemed sale EC loss—(i) In
general. Determine the foreign transfer-
or’s distributive share of deemed sale EC
gain and deemed sale EC loss. A foreign
transferor’s distributive share of deemed
sale EC gain or deemed sale EC loss with
respect to each asset is the amount of the
deemed sale EC gain and deemed sale
EC loss determined under paragraph (c)
(2) of this section that would have been
allocated to the foreign transferor by the
partnership under all applicable Code
sections (including section 704) upon the
deemed sale described in paragraph (c)(1)
of this section, taking into account alloca-
tions of tax items applying the principles
of section 704(c), including any remedi-
al allocations under §1.704-3(d), and any
section 743 basis adjustment pursuant to
§1.743-1(j)(3)).
(ii) Aggregate deemed sale EC items—
(A) Ordinary gain or loss. A foreign
transferor’s aggregate deemed sale EC
ordinary gain (if the aggregate results in
a gain) or aggregate deemed sale EC ordi-
nary loss (if the aggregate results in a loss)
is the sum of—
(1) The portion of the foreign trans-
feror’s distributive share of deemed sale
EC gain and deemed sale EC loss that is
attributable to the deemed sale of the part-
nership’s assets that are section 751(a)
property; and
(2) Deemed sale EC gain and deemed
sale EC loss from the sale of assets that
are section 751(a) property that would be
allocated to the foreign transferor with re-
spect to interests in partnerships that are
engaged in the conduct of a trade or busi-
ness within the United States under para-

May 28, 2019 1272 Bulletin No. 2019–22
graph (e)(1)(ii) of this section upon the
deemed asset sales described in paragraph
(e)(1)(i) of this section.
(B) Capital gain or loss. A foreign
transferor’s aggregate deemed sale EC
capital gain (if the aggregate of the for-
eign transferor’s distributive share of the
deemed sale EC capital gain and loss re-
sults in a gain) or aggregate deemed sale
EC capital loss (if the aggregate of the
foreign transferor’s distributive share of
the deemed sale EC capital gain and loss
results in a loss) is the sum of—
(1) The portion of the foreign transfer-
or’s distributive share of deemed sale EC
gain and deemed sale EC loss that is at-
tributable to the deemed sale of assets that
are not section 751(a) property; and
(2) Deemed sale EC gain and deemed
sale EC loss from the sale of assets that are
not section 751(a) property and that would
be allocated to the foreign transferor with
respect to all interests in partnerships that
are engaged in the conduct of a trade or
business within the United States under
paragraph (e)(1)(ii) of this section upon
the deemed asset sales described in para-
graph (e)(1)(i) of this section.
(iii) Partial transfers. If a foreign
transferor transfers less than all of its in-
terest in a partnership, then for purposes
of paragraph (c)(3)(i) of this section, the
foreign transferor’s distributive share of
deemed sale EC gain and deemed sale
EC loss is determined by reference to
the amount of deemed sale EC gain or
deemed sale EC loss determined under
paragraph (c)(3)(i) of this section that is
attributable to the portion of the foreign
transferor’s partnership interest that was
transferred.
(d) Coordination with section 897. If a
foreign transferor transfers an interest in
a partnership in a transfer that is subject
to section 864(c)(8), and the partnership
owns one or more United States real prop-
erty interests (as defined in section 897(c)),
then the foreign transferor determines its
effectively connected gain and effectively
connected loss under this section, and not
pursuant to section 897(g). Accordingly,
with respect to a transfer described in the
preceding sentence, section 864(c)(8)(C)
does not reduce the amount of gain or loss
treated as effectively connected gain or
loss under this section. For rules regarding
a transfer not subject to section 864(c)(8)
of an interest in a partnership that owns
one or more United States real property
interests, see section 897(g) and the regu-
lations thereunder.
(e) Tiered partnerships—(1) Transfers
of upper-tier partnerships. Assets sold in
a deemed sale described in paragraph (c)
(1) of this section do not include inter-
ests in partnerships that are engaged in
the conduct of a trade or business with-
in the United States or interests in part-
nerships that hold, directly or indirect-
ly, partnerships that are engaged in the
conduct of a trade or business within the
United States. Rather, if a foreign trans-
feror transfers an interest in a partnership
(upper-tier partnership) that owns, di-
rectly or indirectly, an interest in one or
more partnerships that are engaged in the
conduct of a trade or business within the
United States, then—
(i) Beginning with the lowest-tier part-
nership that is engaged in the conduct of a
trade or business within the United States
in a chain of partnerships and going up the
chain, each partnership that is engaged in
the conduct of a trade or business within
the United States is treated as selling its
assets in a deemed sale in accordance with
the principles of paragraph (c)(1) of this
section; and
(ii) Each partnership must determine
its deemed sale EC gain and deemed sale
EC loss in accordance with the principles
of paragraph (c)(2) of this section, and de-
termine the distributive share of deemed
sale EC gain and deemed sale EC loss for
each partner that is either a partnership (in
which the foreign transferor is a direct or
indirect partner) or a foreign transferor,
in accordance with the principles of para-
graph (c)(3)(i) of this section.
(2) Transfers by upper-tier partner-
ships. If a foreign transferor is a direct or
indirect partner in an upper-tier partner-
ship and the upper-tier partnership trans-
fers an interest in a partnership that is
engaged in the conduct of a trade or busi-
ness within the United States (including
a partnership held indirectly through one
or more partnerships), then the principles
of this section (including paragraph (e)(1)
of this section) apply with respect to the
gain or loss on the transfer that is allocated
to the foreign transferor by the upper-tier
partnership.
(3) Coordination with section 897. For
purposes of this paragraph (e), a lower-tier
partnership that holds one or more United
States real property interests is treated as
engaged in the conduct of a trade or busi-
ness within the United States.
(f) Income tax treaties—(1) In general.
This paragraph (f) describes how the pro-
visions of a U.S. income tax treaty apply
to the transfer by a foreign transferor that
is eligible for benefits under the treaty of
an interest in a partnership that is engaged
in the conduct of a trade or business with-
in the United States.
(2) Application of gains article. Trea-
ty provisions applicable to gains from
the alienation of property forming part
of a permanent establishment, including
gains from the alienation of a permanent
establishment in the United States, apply
to the transfer by a foreign transferor of an
interest in a partnership with a permanent
establishment in the United States.
(3) Coordination rule. For purposes of
applying paragraph (c) of this section to
gains described in paragraph (f)(2) of this
section, a foreign transferor’s distributive
share of deemed sale EC gain and deemed
sale EC loss are determined with respect
to the assets of the partnership that form
part of the partnership’s permanent estab-
lishment in the United States and that are
not otherwise exempt from U.S. taxation
under the treaty.
(g) Definitions. The following defini-
tions apply for purposes of this section.
(1) Effectively connected gain. The
term effectively connected gain means
gain that is treated as effectively connect-
ed with the conduct of a trade or business
within the United States.
(2) Effectively connected loss. The
term effectively connected loss means loss
treated as effectively connected with the
conduct of a trade or business within the
United States.
(3) Foreign transferor. The term for-
eign transferor means a nonresident alien
individual or foreign corporation.
(4) Section 751(a) property. The term
section 751(a) property means unrealized
receivables described in section 751(c)
and inventory items described in section
751(d).
(5) Transfer. The term transfer means
a sale, exchange, or other disposition, and
includes a distribution from a partnership

Bulletin No. 2019–22 1273 May 28, 2019
to a partner to the extent that gain or loss
is recognized on the distribution, as well
as a transfer treated as a sale or exchange
under section 707(a)(2)(B).
(h) Anti-stuffing rule. If a foreign trans-
feror (or a person that is related to a for-
eign transferor within the meaning of sec-
tion 267(b) or 707(b)) transfers property
(including another partnership interest) to
a partnership in a transaction with a prin-
cipal purpose of reducing the amount of
gain treated as effectively connected gain,
or increasing the amount of loss treated as
effectively connected loss, under section
864(c)(8) or section 897, the transfer is
disregarded for purposes of section 864(c)
(8) or section 897, as appropriate, or oth-
erwise recharacterized in accordance with
its substance.
(i) Examples. This paragraph provides
examples that illustrate the rules of this
section. For purposes of this paragraph,
unless otherwise provided, the following
facts are presumed. FP is a foreign cor-
poration. USP is a domestic corporation.
PRS is a partnership that was formed on
January 1, 2018, when FP and USP each
contributed $100x in cash. PRS has made
no distributions and received no contri-
butions other than those described in
paragraph (i)(1)(iii) of this section. FP’s
adjusted basis in its interest in PRS is
$100x. X is a foreign corporation that is
unrelated to FP, USP, or PRS. Upon the
formation of PRS, FP and USP entered
into an agreement providing that all in-
come, gain, loss, and deduction of PRS
will be allocated equally between FP
and USP. PRS is engaged in the conduct
of a trade or business within the United
States (the U.S. Business) and an unrelat-
ed business in Country A (the Country A
Business). In a deemed sale described in
paragraph (c)(1) of this section, gain or
loss on assets of the U.S. Business would
be treated as effectively connected gain
or effectively connected loss, and gain
or loss on assets of the Country A Busi-
ness would not be so treated (including
by reason of paragraph (c)(2)(ii) of this
section). PRS has no liabilities. FP does
not qualify for the benefits of an income
tax treaty between the United States and
another country.
(1) Example 1. Deemed sale limitation—(i)
Facts. On January 1, 2019, FP sells its entire interest
in PRS to X for $105x. Immediately before the sale,
PRS’s balance sheet appears as follows:

Adjusted
Basis
Fair
Market
Value
U.S. Business capital asset$100x$104x
Country A Business capital
asset
100x 106x
Total$200x $210x
(ii) Analysis—(A) Outside gain or loss. FP is a
foreign transferor (within the meaning of paragraph
(g)(3) of this section) and transfers (within the mean-
ing of paragraph (g)(5) of this section) its interest in
PRS to X. FP recognizes a $5x capital gain under
section 741, which is an outside capital gain within
the meaning of paragraph (b)(2)(i) of this section.
Under paragraph (b)(1) of this section, FP’s $5x cap-
ital gain is treated as effectively connected gain to
the extent that it does not exceed the limitation de-
scribed in paragraph (b)(3)(i) of this section, which
is FP’s aggregate deemed sale EC capital gain.
(B) Deemed sale. FP’s aggregate deemed sale
EC capital gain is determined according to the
three-step process set forth in paragraph (c) of this
section. First, the amount of gain or loss that PRS
would recognize with respect to each of its assets
upon a deemed sale described in paragraph (c)(1)
of this section is a $4x gain with respect to the U.S.
Business capital asset and a $6x gain with respect to
the Country A Business capital asset. Second, under
paragraph (c)(2) of this section, PRS’s deemed sale
EC gain is $4x. PRS recognizes no deemed sale EC
gain or loss with respect to the Country A Business
capital asset under section 864 and paragraph (c)(2)
(ii) of this section. Third, under paragraph (c)(3)(ii)
(B) of this section, FP’s aggregate deemed sale EC
capital gain is $2x (that is, the aggregate of its dis-
tributive share of deemed sale EC gain attributable to
the deemed sale of assets that are not section 751(a)
property, which is 50% of $4x).
(C) Limitation. Under paragraph (b)(3)(i) of this
section, the $5x outside capital gain recognized by
FP is treated as effectively connected gain to the
extent that it does not exceed FP’s $2x aggregate
deemed sale EC capital gain. Accordingly, FP recog-
nizes $2x of capital gain that is treated as effectively
connected gain.
(2) Example 2. Outside gain limitation—(i)
Facts. On January 1, 2019, FP sells its entire interest
in PRS to X for $110x. Immediately before the sale,
PRS’s balance sheet appears as follows:

Adjusted
Basis
Fair
Market
Value
U.S. Business capital asset$100x$150x
Country A Business capital
asset
100x 70x
Total$200x $220x
(ii) Analysis—(A) Outside gain or loss. FP is a
foreign transferor (within the meaning of paragraph
(g)(3) of this section) and transfers (within the mean-
ing of paragraph (g)(5) of this section) its interest in
PRS to X. FP recognizes a $10x capital gain under
section 741, which is an outside capital gain within
the meaning of paragraph (b)(2)(i) of this section.
Under paragraph (b)(1) of this section, FP’s $10x
capital gain is treated as effectively connected gain
to the extent that it does not exceed the limitation de-
scribed in paragraph (b)(3)(i) of this section, which
is FP’s aggregate deemed sale EC capital gain.
(B) Deemed sale. FP’s aggregate deemed sale
EC capital gain is determined according to the
three-step process set forth in paragraph (c) of this
section. First, the amount of gain or loss that PRS
would recognize with respect to each of its assets
upon a deemed sale described in paragraph (c)(1)
of this section is a $50x gain with respect to the
U.S. Business capital asset and a $30x loss with re-
spect to the Country A Business capital asset. Sec-
ond, under paragraph (c)(2) of this section, PRS’s
deemed sale EC gain is $50x. PRS recognizes no
deemed sale EC gain or loss with respect to the
Country A Business capital asset under section 864
and paragraph (c)(2)(ii) of this section. Third, un-
der paragraph (c)(3) of this section, FP’s aggregate
deemed sale EC capital gain is $25x (that is, the
aggregate of its distributive share of deemed sale
EC gain attributable to the deemed sale of assets
that are not section 751(a) property, which is 50%
of $50x).
(C) Limitation. Under paragraph (b)(3)(i) of this
section, the $10x outside capital gain recognized
by FP is treated as effectively connected gain to the
extent that it does not exceed FP’s $25x aggregate
deemed sale EC capital gain. Accordingly, FP recog-
nizes $10x of capital gain that is treated as effective-
ly connected gain.
(3) Example 3. Interaction with section 751(a)—
(i) Facts. On January 1, 2019, FP sells its entire in-
terest in PRS to X for $95x. Through both its U.S.
Business and its Country A Business, PRS holds
inventory items that are section 751 property (as de-
fined in §1.751-1(a)). Immediately before the sale,
PRS’s balance sheet appears as follows:

Adjusted
Basis
Fair
Market
Value
U.S. Business capital asset$20x$50x
U.S. Business inventory30x50x
Country A Business capital
asset
100x80x
Country A Business inven-
tory
50x10x
Total$200x $190x
(ii) Analysis—(A) Outside gain or loss. FP is a
foreign transferor (within the meaning of paragraph
(g)(3) of this section) and transfers (within the mean-
ing of paragraph (g)(5) of this section) its interest in
PRS to X. Under sections 741 and 751, FP recog-
nizes a $10x ordinary loss and a $5x capital gain.
See §1.751-1(a). Under paragraph (b)(2)(i) of this
section, FP has outside ordinary loss equal to $10x
and outside capital gain equal to $5x. Under para-
graph (b)(1) of this section, FP’s outside ordinary

May 28, 2019 1274 Bulletin No. 2019–22
loss and outside capital gain are treated as effectively
connected loss and effectively connected gain to the
extent that each does not exceed the applicable lim-
itation described in paragraph (b)(3) of this section.
In the case of FP’s outside ordinary loss, the appli-
cable limitation is FP’s aggregate deemed sale EC
ordinary loss. In the case of FP’s outside capital gain,
the applicable limitation is FP’s aggregate deemed
sale EC capital gain.
(B) Deemed sale. FP’s aggregate deemed sale EC
ordinary loss and aggregate deemed sale EC capital
gain are determined according to the three-step pro-
cess set forth in paragraph (c) of this section.
(1) Step 1. The amount of gain or loss that PRS
would recognize with respect to each of its assets
upon a deemed sale described in paragraph (c)(1) of
this section is as follows:
AssetGain/(Loss)
U.S. Business capital asset$30x
U.S. Business inventory20x
Country A Business capital asset(20x)
Country A Business inventory(40x)
(2) Step 2. Under paragraph (c)(2) of this section,
PRS’s deemed sale EC gain and deemed sale EC loss
must be determined with respect to each asset. The
amounts determined under paragraph (c)(2) of this
section are as follows:
AssetDeemed
Sale EC
Gain/(Loss)
U.S. Business capital asset$30x
U.S. Business inventory20x
Country A Business capital asset0
Country A Business inventory0
(3) Step 3. Under paragraph (c)(3) of this sec-
tion, FP’s aggregate deemed sale EC capital gain is
$15x (that is, the aggregate of its distributive share
of deemed sale EC gain that is attributable to the
deemed sale of assets that are not section 751(a)
property, which is 50% of $30x) and FP’s aggregate
deemed sale EC ordinary loss is $0 (that is, the ag-
gregate of its distributive share of deemed sale EC
loss that is attributable to the deemed sale of assets
that are section 751(a) property).
(C) Limitation—(i) Capital gain. Under para-
graph (b)(3)(i) of this section, the $5x outside cap-
ital gain recognized by FP is treated as effectively
connected gain to the extent that it does not exceed
FP’s $15x aggregate deemed sale EC capital gain.
Accordingly, the amount of FP’s capital gain that is
treated as effectively connected gain is $5x.
(ii) Ordinary loss. Under paragraph (b)(3)(iv) of
this section, the $10x outside ordinary loss recog-
nized by FP is treated as effectively connected loss
to the extent that it does not exceed FP’s $0 aggre-
gate deemed sale EC ordinary loss. Accordingly, the
amount of FP’s ordinary loss that is treated as effec-
tively connected loss is $0.
(j) Applicability date. This section applies to
transfers occurring on or after November 27, 2017.
Par. 3. Section 1.897-7 is added to read
as follows:
§1.897-7 Treatment of certain part-
nership interests, trusts and estates under
section 897(g).
(a) through (b) [Reserved]. For further
guidance, see § 1.897-7T(a) through (b).
(c) Coordination with section 864(c)
(8). Except as provided in §1.864(c)(8)-
1, the amount of any money, and the fair
market value of any property, received by
a nonresident alien individual or foreign
corporation in exchange for all or part of
its interest in a partnership, trust, or estate
shall, to the extent attributable to United
States real property interests, be consid-
ered as an amount received from the sale
or exchange in the United States of such
property. See also §1.864(c)(8)-1(h) for an
anti-stuffing rule that may apply to trans-
actions subject to section 897. This para-
graph applies to transfers occurring on or
after November 27, 2017.
Par. 4. Section 1.897-7T is amended by
adding paragraph (c) to read as follows:
§1.897-7T Treatment of certain part-
nership interests as entirely U.S. real
property interests under sections 897(g)
and 1445(e) (temporary).
* * * * *
(c) Coordination with section 864(c)
(8). [Reserved]. For further guidance, see
§1.897-7(c).
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on De-
cember 21, 2018, 4:15 p.m., and published in the is-
sue of the Federal Register for December 27, 2018,
83 F.R. 66647)

Bulletin No. 2019–22 i May 28, 2019
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

May 28, 2019 ii Bulletin No. 2019–22
Numerical Finding List
1
Bulletin 2019–22
Action on Decision:
2019-1, 2019-08 I.R.B. 569
Announcements:
2019-1, 2019-06 I.R.B. 566
2019-2, 2019-12 I.R.B. 910
2019-3, 2019-15 I.R.B. 965
2019-4, 2019-21 I.R.B. 1192
2019-5, 2019-22 I.R.B. 1262
Notices:
2019-01, 2019-02 I.R.B. 275
2019-02, 2019-02 I.R.B. 281
2019-03, 2019-03 I.R.B. 350
2019-04, 2019-02 I.R.B. 282
2019-05, 2019-02 I.R.B. 283
2019-06, 2019-03 I.R.B. 353
2019-07, 2019-09 I.R.B. 740
2019-08, 2019-03 I.R.B. 354
2019-09, 2019-04 I.R.B. 403
2019-10, 2019-13 I.R.B. 913
2019-11, 2019-05 I.R.B. 430
2019-13, 2019-08 I.R.B. 580
2019-16, 2019-10 I.R.B. 763
2019-17, 2019-12 I.R.B. 907
2019-18, 2019-13 I.R.B. 915
2019-19, 2019-12 I.R.B. 907
2019-20, 2019-14 I.R.B. 927
2019-21, 2019-14 I.R.B. 927
2019-22, 2019-14 I.R.B. 931
2019-23, 2019-15 I.R.B. 941
2019-24, 2019-14 I.R.B. 932
2019-25, 2019-15 I.R.B. 942
2019-26, 2019-15 I.R.B. 943
2019-28, 2019-18 I.R.B. 1077
2019-30, 2019-20 I.R.B. 1180
2019-31, 2019-20 I.R.B. 1181
2019-32, 2019-21 I.R.B. 1187
2019-33, 2019-22 I.R.B. 1255
2019-34, 2019-22 I.R.B. 1257
Proposed Regulations:
REG-104259-18, 2019-02 I.R.B. 300
REG-104352-18, 2019-03 I.R.B. 357
REG-106089-18, 2019-05 I.R.B. 431
REG-134652-18, 2019-09 I.R.B. 747
REG-141739-08, 2019-09 I.R.B. 757
REG-121694-16, 2019-16 I.R.B. 1032
REG-135671-17, 2019-16 I.R.B. 1035
REG-103083-18, 2019-17 I.R.B. 1046
REG-113943-17, 2019-17 I.R.B. 1067
Proposed Regulations:—Continued
REG-143686-07, 2019-17 I.R.B. 1072
REG-124627-11, 2019-17 I.R.B. 1073
REG-120186-18, 2019-21 I.R.B. 1193
REG-113604-18, 2019-22 I.R.B. 1265
Revenue Procedures:
2019-1, 2019-01 I.R.B. 1
2019-2, 2019-01 I.R.B. 106
2019-3, 2019-01 I.R.B. 130
2019-4, 2019-01 I.R.B. 146
2019-5, 2019-01 I.R.B. 230
2019-6, 2019-02 I.R.B. 284
2019-7, 2019-01 I.R.B. 268
2019-8, 2019-03 I.R.B. 347
2019-9, 2019-02 I.R.B. 293
2019-10, 2019-02 I.R.B. 296
2019-11, 2019-09 I.R.B. 742
2019-12, 2019-04 I.R.B. 401
2019-13, 2019-09 I.R.B. 744
2019-14, 2019-15 I.R.B. 948
2019-15, 2019-14 I.R.B. 939
2019-17, 2019-17 I.R.B. 1045
2019-18, 2019-18 I.R.B. 1077
2019-20, 2019-20 I.R.B. 1182
2019-21, 2019-21 I.R.B. 1190
2019-22, 2019-22 I.R.B. 1260
2019-25, 2019-22 I.R.B. 1261
Revenue Rulings:
2019-03, 2019-02 I.R.B. 272
2019-04, 2019-07 I.R.B. 567
2019-05, 2019-11 I.R.B. 766
2019-06, 2019-14 I.R.B. 919
2019-07, 2019-10 I.R.B. 761
2019-08, 2019-14 I.R.B. 923
2019-09, 2019-14 I.R.B. 925
2019-10, 2019-16 I.R.B. 1010
2019-11, 2019-17 I.R.B. 1041
2019-13, 2019-20 I.R.B. 1179
Treasury Decisions:
9844, 2019-11 I.R.B. 781
9845, 2019-08 I.R.B. 570
9846, 2019-09 I.R.B. 583
9847, 2019-09 I.R.B. 670
9848, 2019-11 I.R.B. 897
9850, 2019-12 I.R.B. 904
9852, 2019-16 I.R.B. 1010
9853, 2019-16 I.R.B. 1026
9855, 2019-17 I.R.B. 1042
9854, 2019-18 I.R.B. 1075
9857, 2019-22 I.R.B. 1239
9858, 2019-22 I.R.B. 1251
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Bulletin No. 2019–22 iii May 28, 2019
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2019–22
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

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