Internal Revenue Bulletin 2006-24 (PDF rendition): IRS Revenue Procedures

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 200
6-24
June 12, 2006
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9262, page 1040.
REG–111578–06, page 1060.
Temporary and proposed regulations concern the application
of section 199 of the Code, which provides a deduction for in-
come attributable to domestic production activities, to certain
transactions involving computer software. A public hearing on
the proposed regulations is scheduled for August 29, 2006.
REG–13905
9–02, page 1052.
Proposed r
egulations under section 21 of the Code conform
the rules r
elating to the child and dependent care credit to
statutory
changes including amendments under the Working
Families
Tax Relief Act of 2004, and address significant issues
that have
arisen administratively. The regulations are renum-
bered to c
onform to the renumbering of the statute.
Notice 2006–30, page 1044.
This notice informs trustees and middlemen of non-mortgage
widely held fixed investment trusts (NMWHFITs) that the date
for satisfying the qualified NMWHFIT exception in regulations
section 1.671–5(c)(2)(iv)(E) is extended by 60 days.
Notice 2006–46, page 1044.
This notice announces that the IRS and Treasury intend to
issue final regulations under sections 897(d) and (e) of the
Code, which will revise the current rules under temporary reg-
ulations sections 1.897–5T and 1.897–6T and Notice 89–85,
1989–2 C.B. 403. When finalized, regulations will revise tem-
porary regulations section 1.897–5T(c)(4) to take into account
inbound statutory mergers and consolidations described in sec-
tion 368(a)(1)(A). The regulations will also revise the rules of
temporary regulations section 1.897–6T(b)(1) to take into ac-
count foreign-to-foreign statutory mergers and consolidations
described in section 368(a)(1)(A) and to create two new excep-
tions to gain recognition under section 1.897–6(b)(1) for cer-
tain foreign-to-foreign asset reorganizations. The regulations
will also revise the stock disposition rule of temporary regu-
lations section 1.897–6T(b)(1)(iii) and eliminate the conditions
specified for nonrecognition in temporary regulations section
1.897–6T(b)(2). Lastly, the regulations will modify the period
that must be considered for imposing taxes and accrued inter-
est on prior dispositions of the stock of foreign corporations.
Notice 89–85 amplified.
Rev. Proc. 2006–21, page 1050.
Section 1502.The Service eliminates impediments to
e-filing consolidated returns and reduces reporting require-
ments. Rev. Procs. 89–56, 90–39, and 2002–32 modified.
Announcement 2006–35, page 1061.
Insurance companies; interest rate tables.This announce-
ment corrects an error in Rev. Rul. 2006–25, 2006–20 I.R.B.
882 (May 15, 2006).
Announcement 2006–38, page 1062.
This document contains corrections to final regulations
(T.D. 9243, 2006–8 I.R.B. 475) that amend the income tax
regulations under various provisions of the Code to account
for statutory mergers and consolidations.
Actions Relating to Court Decisions is on the page following the Introduction.
Fi
nding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
June 12, 20062006–24 I.R.B.

Actions Relating to Decisions of the Tax Court
It is the policy of the Internal Rev-
enue Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on unap-
pealed issues decided adverse to the gov-
ernment. Generally, an Action on Decision
is issued where its guidance would be help-
ful to Service personnel working with the
same or similar issues. Unlike a Treasury
Regulation or a Revenue Ruling, an Action
on Decision is not an affirmative statement
of Service position. It is not intended to
serve as public guidance and may not be
cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar
cases where the facts are different. More-
over, the recommendation in the Action on
Decision may be superseded by new legis-
lation, regulations, rulings, cases, or Ac-
tions on Decisions.
Prior to 1991, the Service published
acquiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be help-
ful. Accordingly, the Service now may
acquiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court decid-
ing the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as ac-
quiescence, acquiescence in result only,
or nonacquiescence. Both “acquiescence”
and “acquiescence in result only” mean
that the Service accepts the holding of
the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “ac-
quiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. “Nonacquiescence” sig-
nifies that, although no further review was
sought, the Service does not agree with
the holding of the court and, generally,
will not follow the decision in disposing
of cases involving other taxpayers. In
reference to an opinion of a circuit court
of appeals, a “nonacquiescence” indicates
that the Service willnot follow the hold-
ing on a nationwide basis. However, the
Service will recognize the precedential
impact of the opinion on cases arising
within the venue of the deciding circuit.
The Actions on Decisions published in
the weekly Internal Revenue Bulletin are
consolidated semiannually and appear in
the first Bulletin for July and the Cumula-
tive Bulletin for the first half of the year. A
semiannual consolidation also appears in
the first Bulletin for the following January
and in the Cumulative Bulletin for the last
half of the year.
The Commissioner does NOT ACQUI-
ESCE in the following decision:
Erickson Post Acquisition, Inc. v.
Commissioner,
1
Docket Number: 8218–00
T.C. Memo. 2003–218
1
Nonacquiescence relating to whether the cash payment from the wholesaler to the retailer was a taxable advance payment or a nontaxable loan.
2006–24 I.R.B.June 12, 2006

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 21.—Expenses for
Household and Dependent
Care Services Necessary
for Gainful Employment
Taxpayers who pay for household and dependent
care services in order to be employed are entitled to
a credit if they have “qualifying individuals” (gen-
erally, children under 13 or disabled dependents).
These proposed regulations renumber, restructure,
and revise the current regulations to reflect statutory
amendments and address significant issues that have
arisen recently. See REG-139059-02, page 1052.
Section 199.—Income
Attributable to Domestic
Production Activities
26 CFR 1.199–3T: Domestic production gross re-
ceipts (temporary).
T.D. 9262
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Computer Software Under
Section 199(c)(5)(B)
AGENCY:InternalReve
nue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations concerning the ap-
plication of section 199 of the Internal
Revenue Code, which provides a deduc-
tion for income attributable to domestic
production activities, to certain transac-
tions involving computer software. The
regulations will affect taxpayers engaged
in certain domestic production activities
involving computer software. The text of
these temporary regulations also serves
as the text of the proposed regulations
(REG–111578–06) set forth in the notice
of proposed rulemaking on this subject in
this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective June 1, 2006.
Applicability Date:For date of applica-
bility, see §1.199–8T(i)(4).
FOR FURTHER INFORMATION
CONTACT: Paul Handleman or
Lauren Ross Taylor, (202) 622–3040 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document amends 26 CFR part 1
to provide rules relating to the deduction
for income attributable to domestic pro-
duction activities under section 199 of the
Internal Revenue Code (Code). Section
199wasaddedtotheCodebysection102
of the American Jobs Creation Act of 2004
(Public Law 108–357, 118 Stat. 1418),
and amended by section 403(a) of the Gulf
Opportunity Zone Act of 2005 (Public
Law 109–135, 119 Stat. 25) and section
514 of the Tax Increase Prevention and
Reconciliation Act of 2005 (Public Law
109–222, 120 Stat. 345). On January 19,
2005, the IRS and Treasury Department
issued Notice 2005–14, 2005–1 C.B. 498,
providing interim guidance on section 199.
On November 4, 2005, the IRS and Trea-
sury Department published in theFederal
Registerproposed regulations under sec-
tion 199 (REG–105847–05, 2005–47
I.R.B. 987 [70 FR 67220]). On January
11, 2006, the IRS and Treasury Depart-
ment held a public hearing on the pro-
posed regulations. Written and electronic
comments responding to the proposed reg-
ulations were received. Contemporaneous
with the publication of these temporary
regulations, final regulations have been
published under section 199.
General Overview
Section 199(a)(1) allows a deduction
equal to 9 percent (3 percent in the case of
taxable years beginning in 2005 or 2006,
and 6 percent in the case of taxable years
beginning in 2007, 2008, or 2009) of the
lesser of (A) the qualified production ac-
tivities income (QPAI) of the taxpayer for
the taxable year, or (B) taxable income (de-
termined without regard to section 199) for
the taxable year (or, in the case of an indi-
vidual, adjusted gross income (AGI)).
Qualified Production Activities Income
Section 199(c)(1) defines QPAI for any
taxable year as an amount equal to the ex-
cess (if any) of (A) the taxpayer’s domes-
tic production gross receipts (DPGR) for
such taxable year, over (B) the sum of (i)
the cost of goods sold (CGS) that are al-
locable to such receipts; and (ii) other ex-
penses, losses, or deductions (other than
the deduction under section 199) that are
properly allocableto such receipts.
Section 199(c)(4)(A)(i) defines DPGR,
in part, to mean the taxpayer’s gross re-
ceipts that are derived from any lease,
rental, license, sale, exchange, or other
disposition of qualifying production prop-
erty (QPP) that was manufactured, pro-
duced, grown, or extracted (MPGE) by
the taxpayer in whole or in significant
part within the United States. Section
199(c)(5) defines QPP to mean: (A) tan-
gible personal property; (B) any computer
software; and (C) any property described
in section 168(f)(4) (certain sound record-
ings).
Computer Software
Section 4.04(7)(d) of Notice 2005–14
provides that gross receipts derived from
computer software do not include gross
receipts derived from Internet access ser-
vices, online services, customer support,
telephone services, games played through
a website, provider-controlled software
online access services, and other services
that do not constitute the lease, rental, li-
cense, sale, exchange, or other disposition
of computer software that was developed
by the taxpayer. Consistent with No-
tice 2005–14, the proposed regulations in
§1.199–3(h)(6)(i) state that the provision
of online computer software does not rise
to the level of a lease, rental, license, sale,
exchange, or other disposition as required
under section 199, but is instead a service.
Congressional Letter
On July 21, 2005, the Chairman and
Ranking Member of the Senate Finance
2006–24 I.R.B.1040June 12, 2006

Committee and the Chairman of the House
Ways and Means Committee sent a letter
to the Treasury Department suggesting that
the Treasury Department consider further
the treatment of online access to computer
software and, in particular, whether such
treatment should be similar to the treat-
ment of computer software distributed by
other means, such as by physical delivery
or delivery via Internet download. The let-
ter notes that gross receipts from the provi-
sion of services are not treated as DPGR,
regardless of the fact that computer soft-
ware may be used to facilitate such service
transactions.
Summary of Comments
Numerous commentators have sug-
gested that the provision of computer
software for online use should qualify
under section 199. Some commentators
proposed that gross receipts derived from
providing online access to computer soft-
ware should qualify under section 199 if
the substance of the transaction that gives
rise to the gross receipts is the distribution
of the computer software’s functionality to
end users. These commentators suggested
that factors to be considered in determin-
ing the substance of the transaction should
include: (1) whether an agreement ex-
ists, regardless of its form, between the
computer software producer and the cus-
tomer that gives the customer permission
to use the computer software; (2) whether
the use of computer software is merely
incidental to the provision of a separate
service or transaction; (3) whether the end
user has made a payment to the computer
software producer directly for the right to
access and use the computer software’s
functionality, as opposed to a payment for
a separate service or good in which the
use of the underlying computer software
is only incidental to the separate service
or transaction; (4) whether the computer
software producer holds itself out to the
public as being in the computer software
business; (5) whether the computer soft-
ware producer uses alternate channels for
distributing its computer software product
or functionality other than through online
access; and (6) whether a competitive
marketplace exists for the same or simi-
lar computer software functionality that
provides customers with alternative distri-
bution choices in addition to online access.
The commentators explained that this pro-
posed list of factors is not exhaustive and
there may be other relevant factors. The
commentators suggested that no single
factor should control and that failure to
satisfy one or more factors should not
necessarily result in gross receipts derived
from online access to computer software
being non-DPGR.
Other commentators suggested that a
customer’s use of computer software is
tantamount to a license of the computer
software. In addition, several commen-
tators asserted that the phrase “other dis-
position” in section 199(c)(4)(A) is broad
enough to include the provision of com-
puter software for online use.
Explanation of Provisions
The temporary regulations do not adopt
these comments. However, as a matter of
administrative convenience, the temporary
regulations provide two exceptions under
which gross receipts derived by a taxpayer
from providing computer software to cus-
tomers for the customers’ direct use while
connected to the Internet will be treated
as being derived from the lease, rental, li-
cense, sale, exchange, or other disposition
of such computer software. Such gross re-
ceipts will be treated as DPGR if all the
other requirements of section 199 are met
(for example, the taxpayer MPGE com-
puter software in whole or in significant
part within the United States).
The first exception applies to a taxpayer
that derives gross receipts from provid-
ing computer software to customers for the
customers’ direct use while connected to
the Internet (online software) and also de-
rives gross receipts from the lease, rental,
license, sale, exchange, or other disposi-
tion to customers that are unrelated per-
sons of computer software that has been
provided to such customers affixed to a
tangible medium or by allowing them to
download the computer software from the
Internet. The second exception applies if a
taxpayer derives gross receipts from pro-
viding online software and an unrelated
person derives on a regular and ongoing
basis in the unrelated person’s business
gross receipts from the lease, rental, li-
cense, sale, exchange, or other disposi-
tion of substantially identical software to
its customers affixed to a tangible medium
or by allowing its customers to download
the substantially identical computer soft-
ware from the Internet.
The temporary regulations define sub-
stantially identical software as computer
software that, from a customer’s perspec-
tive, has the same functional result as the
online software and has a significant over-
lap of features or purpose with the online
software. To avoid controversy between
taxpayers and the IRS, the temporary reg-
ulations provide a safe harbor under which
all computer software games are deemed
to be substantially identical software.
If a taxpayer’s provision of computer
software for online use meets the require-
ments set forth in the temporary regula-
tions, then an allocation of gross receipts
between DPGR and non-DPGR will be
necessary if, as part of the same transac-
tion, the taxpayer derives gross receipts
other than from providing computer soft-
ware to a customer for the customer’s di-
rect use while connected to the Internet.
For example, if in connection with provid-
ing computer software to a customer for
the customer’s direct use while connected
to the Internet, a taxpayer also provides a
service such as storing its customers’ data
or providing telephone support, then the
taxpayer must allocate its gross receipts
between DPGR and non-DPGR using any
reasonable method.
These rules are specifically limited to
the deduction under section 199 and no
inference can be drawn with respect to any
other provision of the Code (such as the tax
treatment of these transactions under those
provisions regarding character, timing, or
source).
Effective Date
Section 199 applies to taxable years be-
ginning after December 31, 2004. These
temporary regulations are applicable for
taxable years beginning on or after June
1, 2006. A taxpayer may apply these tem-
porary regulations to taxable years begin-
ning after December 31, 2004, and before
June 1, 2006. The applicability of these
temporary regulations expires on or be-
fore May 22, 2009. Section 1.199–8(i)(1)
of the final regulations issued contempo-
raneous with these temporary regulations
provides that, in certain circumstances, a
taxpayer may rely on the guidance in No-
tice 2005–14, 2005–1 C.B. 498, the pro-
posed regulations under section 199 that
June 12, 200610412006–24 I.R.B.

were published in theFederal Register
on November 4, 2005 (70 FR 67220), or
the final regulations. Regardless of which
guidance a taxpayer applies, the taxpayer
may apply these temporary regulations.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. For
applicability of the Regulatory Flexibility
Act (5 U.S.C. 601et seq.), refer to the
cross-reference notice of proposed rule-
making published elsewhere in this issue
of the Bulletin. Pursuant to section 7805(f)
of the Code, these temporary regulations
will be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on their impact on
small business.
Drafting Information
The principal authors of these reg-
ulations are Paul Handleman and
Lauren Ross Taylor, Office of the As-
sociate Chief Counsel (Passthroughs and
Special Industries), IRS. However, other
personnel from the IRS and Treasury
Department participated in their develop-
ment.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.199–3T also issued under 26
U.S.C. 199(d). * * *
Section 1.199–8T also issued under 26
U.S.C. 199(d). * * *
Par. 2. Section 1.199–3T is added to
read as follows:
§1.199–3T Domestic production gross
receipts (temporary).
(a) through (h) [Reserved]. For further
guidance, see §1.199–3(a) through (h).
(i)Derived from the lease, rental, li-
cense, sale, exchange, or other disposition.
(1) through (5) [Reserved]. For further
guidance, see §1.199–3(i)(1) through (5).
(6)Computer software—(i) [Re-
served]. For further guidance, see
§1.199–3(i)(6)(i).
(ii)Gross receipts derived from ser-
vices. Gross receipts (as defined in
§1.199–3(c)) derived from customer and
technical support, telephone and other
telecommunication services, online ser-
vices (such as Internet access services,
online banking services, providing access
to online electronic books, newspapers,
and journals), and other similar services do
not constitute gross receipts derived from
a lease, rental, license, sale, exchange, or
other disposition of computer software (as
defined in §1.199–3(j)(3)).
(iii)Exceptions. Notwithstanding para-
graph (i)(6)(ii) of this section, if a taxpayer
derives gross receipts from providing to
customers computer software MPGE in
whole or in significant part by the taxpayer
within the United States for the customers’
direct use while connected to the Internet
(online software), then such gross receipts
will be treated as being derived from the
lease, rental, license, sale, exchange, or
other disposition of computer software
only if—
(A) The taxpayer also derives, on a reg-
ular and ongoing basis in the taxpayer’s
business, gross receipts from the lease,
rental, license, sale, exchange, or other
disposition to customers that are unrelated
persons (as defined in §1.199–3(b)(1)) of
computer software that—
(1) Has only minor or immaterial differ-
ences from the online software;
(2) Has been MPGE (as defined in
§1.199–3(e)) by the taxpayer (as defined
in §1.199–3(f)) in whole or in significant
part (as defined in §1.199–3(g)) within the
United States (as defined in §1.199–3(h));
and
(3) Has been provided to such cus-
tomers either affixed to a tangible medium
(for example, a disk or DVD) or by al-
lowing them to download the computer
software from the Internet; or
(B) An unrelated person derives, on
a regular and ongoing basis in the un-
related person’s business, gross receipts
from the lease, rental, license, sale, ex-
change, or other disposition of substan-
tially identical software (as described in
paragraph (i)(6)(iv)(A) of this section) (as
compared to the taxpayer’s online soft-
ware) to its customers pursuant to an activ-
ity described in paragraph (i)(6)(iii)(A)(3)
of this section.
(iv)Definitions and special rules—(A)
Substantially identical software.Forpur-
poses of paragraph (i)(6)(iii)(B) of this
section,substantially identical softwareis
computer software that—
(1) From a customer’s perspective, has
the same functional result as the online
software described in paragraph (i)(6)(iii)
of this section; and
(2) Has a significant overlap of features
or purpose with the online software de-
scribed in paragraph (i)(6)(iii) of this sec-
tion.
(B)Safe harbor for computer soft-
ware games
. For purposes of paragraph
(i)(6)(iv)(A) of this section, all com-
puter software games are deemed to be
substantially identical software. For ex-
ample, computer software sports games
are deemed to be substantially identical to
computer software card games.
(C)Regular and ongoing basis.For
purposes of paragraph (i)(6)(iii) of this
section, in the case of a newly-formed
trade or business or a taxpayer in its first
taxable year, the taxpayer is considered
to be engaged in an activity described in
paragraph (i)(6)(iii) of this section on a
regular and ongoing basis if the taxpayer
reasonably expects that it will engage in
the activity on a regular and ongoing basis.
(D)Attribution. For purposes of para-
graph (i)(6)(iii)(A) of this section—
(1) All members of an expanded affili-
ated group (as defined in §1.199–7(a)(1))
are treated as a single taxpayer; and
(2) In the case of an EAG partnership
(as defined in §1.199–9(j)), the EAG part-
nership and all members of the EAG to
which the EAG partnership’s partners be-
long are treated as a single taxpayer.
(E)Qualified computer software
maintenance agreements.Section
1.199–3(i)(4)(i)(B)(5) does not apply if
the computer software is online software
under paragraph (i)(6)(ii) of this section.
2006–24 I.R.B.1042June 12, 2006

(v)Examples. The following examples
illustrate the application of this paragraph
(i)(6):
Example 1. L is a bank and produces computer
software within the United States that enables its cus-
tomers to receive online banking services for a fee.
Under paragraph (i)(6)(ii) of this section, gross re-
ceipts derived from online banking services are attrib-
utable to a service and do not constitute a lease, rental,
license, sale, exchange, or other disposition of com-
puter software. Therefore, L’s gross receipts derived
from the online banking services are non-DPGR.
Example 2. M is an Internet auction company that
produces computer software within the United States
that enables its customers to participate in Internet
auctions for a fee. Under paragraph (i)(6)(ii) of this
section, gross receipts derived from online services
are attributable to a service and do not constitute a
lease, rental, license, sale, exchange, or other dispo-
sition of computer software. M’s activities constitute
the provision of online services. Therefore, M’s gross
receipts derived from the Internet auction services are
non-DPGR.
Example 3. N provides telephone services, voice-
mail services, and e-mail services. N produces com-
puter software within the United States that runs all
of these services. Under paragraph (i)(6)(ii) of this
section, gross receipts derived from telephone and re-
lated telecommunication services are attributable to a
service and do not constitute a lease, rental, license,
sale, exchange, or other disposition of computer soft-
ware. Therefore, N’s gross receipts derived from the
telephone and other telecommunication services are
non-DPGR.
Example 4. O produces tax preparation computer
software within the United States. O derives, on a
regular and ongoing basis in its business, gross re-
ceipts from both the sale to customers that are un-
related persons of O’s computer software that has
been affixed to a compact disc as well as from the
sale to customers of O’s computer software that cus-
tomers have downloaded from the Internet. O also
derives gross receipts from customers from provid-
ing the computer software to its customers for the
customers’ direct use while connected to the Inter-
net. Assume that the computer software sold on com-
pact disc or by download has only minor or immate-
rial differences from the computer software provided
over the Internet, and O does not provide any services
in connection with the computer software provided
over the Internet. Under paragraph (i)(6)(iii)(A) of
this section, O’s gross receipts derived from provid-
ing its computer software to customers over the Inter-
net will be treated as derived from the lease, rental,
license, sale, exchange, or other disposition of com-
puter software and are domestic production gross re-
ceipts (DPGR) (as defined in §1.199–3) (assuming all
the other requirements of §1.199–3 are met).
Example 5. The facts are the same as inExam-
ple 4, except that O does not sell the tax prepara-
tion computer software to customers affixed to a com-
pact disc or by download and O’s only method of
providing the tax preparation computer software to
customers is over the Internet. P, an unrelated per-
son, derives, on a regular and ongoing basis in its
business, gross receipts from the sale to customers of
P’s substantially identical tax preparation computer
software that has been affixed to a compact disc as
well as from the sale to customers of P’s substan-
tially identical tax preparation computer software that
customers have downloaded from the Internet. Un-
der paragraph (i)(6)(iii)(B) of this section, O’s gross
receipts derived from providing its tax preparation
computer software to customers over the Internet will
be treated as derived from the lease, rental, license,
sale, exchange, or other disposition of computer soft-
ware and are DPGR (assuming all the other require-
ments of §1.199–3 are met).
Example 6. P produces payroll management com-
puter software within the United States. For a fee,
P provides the payroll management computer soft-
ware to customers for the customers’ direct use while
connected to the Internet. This is P’s sole method
of providing its payroll management computer soft-
ware to customers. In conjunction with the payroll
management computer software, P provides storage
of customers’ data and telephone support. Q, an un-
related person, derives, on a regular and ongoing ba-
sis in its business, gross receipts from the sale to cus-
tomers of Q’s substantially identical payroll manage-
ment software that has been affixed to a compact disc
as well as from the sale to customers of Q’s substan-
tially identical payroll management software that cus-
tomers have downloaded from the Internet. Under
paragraph (i)(6)(iii)(B) of this section, P’s gross re-
ceipts derived from providing its payroll management
computer software to customers over the Internet will
be treated as derived from the lease, rental, license,
sale, exchange, or other disposition of computer soft-
ware and are DPGR (assuming all the other require-
ments of §1.199–3 are met). However, P’s gross re-
ceipts derived from the fees it receives that are prop-
erly allocable to the storage of customers’ data and
telephone support are non-DPGR.
Par. 3. Section 1.199–8T is added to
read as follows:
§1.199–8T Other rules (temporary).
(a) through (h) [Reserved]. For further
guidance, see §1.199–8(a) through (h).
(i)Effective dates. (1) through (3)
[Reserved]. For further guidance, see
§1.199–8(i)(1) through (3).
(4)Computer software.Section
1.199–3T(i)(6)(ii) through (v) are ap-
plicable for taxable years beginning on or
after June 1, 2006. A taxpayer may ap-
ply these temporary regulations to taxable
years beginning after December 31, 2004,
and before June 1, 2006. The applicability
of §1.199–3T(i)(6)(ii) through (v) expires
on or before May 22, 2009.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved May 2, 2006.
Eric Solomon,
Acting Deputy Assistant
Secretary of the Treasury.
(Filed by the Office of the Federal Register on May 24, 2006,
11:47 a.m., and published in the issue of the Federal Register
for June 1, 2006, 71 F.R. 31074)
Section 1502.—Regulations
26 CFR 1.1502–33: Earnings and profits.
26 CFR 1.1502–75: Filing of consolidated returns.
26 CFR 1.1502–76: Taxable year of members of
group.
Service eliminates impediments to e-filing con-
solidated returns and reduces reporting requirements.
Rev. Proc. 89–56, 1989–2 C.B. 643, Rev. Proc.
90–39, 1990–2 C.B. 365, and Rev. Proc. 2002–32,
2002–1 C.B. 959 are modified. See Rev. Proc. 2006-
21, page 1050.
Section 1504.—Definitions
26 CFR 1.1504–1: Definitions.
Service eliminates impediments to e-filing con-
solidated returns and reduces reporting requirements.
Rev. Proc. 89–56, 1989–2 C.B. 643, Rev. Proc.
90–39, 1990–2 C.B. 365, and Rev. Proc. 2002–32,
2002–1 C.B. 959, are modified. See Rev. Proc.
2006-21, page 1050.
June 12, 200610432006–24 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Qualified NMWHFIT Exception
Extension
Notice 2006–30
PURPOSE
This notice informs taxpayers that
§ 1.671–5, which provides reporting
rules for widely held fixed investment
trusts (WHFITs), will be amended to
provide that the availability of the Qual-
ified NMWHFIT (non-mortgage widely
held fixed investment trust) Exception in
§ 1.671–5(c)(2)(iv)(E) is extended by 60
days from the date indicated in Notice
2006–29, 2006–12 I.R.B. 644, issued by
the IRS and the Treasury Department on
February 23, 2006.
BACKGROUND
On January 24, 2006, the IRS and
Treasury Department published final reg-
ulations under § 1.671–5 (Reporting Re-
quirements for Widely Held Fixed Invest-
ment Trusts) in the Federal Register (T.D.
9241, 2006–7 I.R.B. 427 [71 FR 4002]).
Following the publication of those final
regulations, the IRS and Treasury De-
partment received a number of comments
regarding the applicability of those regula-
tions to NMWHFITs. The commentators
requested that the IRS and the Treasury
Department issue additional guidance to
clarify and simplify the application of the
final regulations to NMWHFITs. Com-
mentators also requested that the availabil-
ity of the qualified NMWHFIT exception
in § 1.671–5(c)(2)(iv)(E) be extended
while the additional guidance was being
developed. The qualified NMWHFIT
exception, if satisfied, excepts trustees
and middlemen from specific reporting
requirements in the final regulations re-
garding market discount, bond premium,
sales and dispositions, redemptions, and
sales of trust interests. In response, the
IRS and Treasury Department issued No-
tice 2006–29 which, among other things,
indicated that the IRS and Treasury De-
partment intended to amend §1.671–5
to extend the availability of the qualified
NMWHFIT exception to NMWHFITs cre-
ated on or after February 23, 2006 which
was the cut-off date for qualifying for the
exception in the final regulations. Under
Notice 2006–29, to satisfy the qualified
NMWHFIT exception, a NMWHFIT’s
registration statement must become effec-
tive under the Securities Act of 1933, as
amended (15 U.S.C. 77a,et. seq.) (Secu-
rities Act of 1933) and trust interests must
be offered for sale to the public by June
1, 2006 and the NMWHFIT must be fully
funded by August 1, 2006.
60 DAY EXTENSION
The IRS and the Treasury Department
expect to issue additional guidance un-
der § 1.671–5 in the near future that will
include minor modifications to the re-
porting rules for sales and dispositions
in § 1.671–5. Such guidance, however,
will not be issued prior to June 1, 2006.
Accordingly, the IRS and the Treasury
Department are extending the availabil-
ity of the qualified NMWHFIT excep-
tion beyond the date in Notice 2006–29.
Specifically, taking into account the ex-
tensions indicated in Notice 2006–29 and
the extension indicated in this notice,
§ 1.671–5(c)(2)(iv)(E) will be amended
to provide that the qualified NMWHFIT
exception is satisfied if the calendar year
for which the trustee is reporting be-
gins before January 1, 2011 and: (1) the
NMWHFIT has a start-up date (as defined
in § 1.671–5(b)(19)) before February 23,
2006; (2) the registration statement of the
NMWHFIT becomes effective under the
Securities Act of 1933 and trust interests
are offered for sale to the public before
February 23, 2006; or (3) the registration
statement of the NMWHFIT becomes ef-
fective under the Securities Act of 1933
and trust interests are offered for sale to the
public on or after February 23, 2006 and
before July 31, 2006, and the NMWHFIT
is fully funded before October 1, 2006.
EFFECTIVE DATE
The effective date for amended
§ 1.671–5(c)(2)(iv)(E) will be the date
of publication of those amendments in the
Federal Register. Taxpayers, however,
may apply those amendments as though
they were included in § 1.671–5 as pub-
lished in the Federal Register on January
24, 2006.
DRAFTING INFORMATION
The principal author of this notice is
Faith P. Colson of the Office of Associate
Chief Counsel (Passthroughs & Special In-
dustries). For furtherinformation regard-
ing this notice, contact Faith P. Colson at
(202) 622–3060 (not a toll-free call).
Announcement of Rules to be
Included in Final Regulations
Under Sections 897(d) and (e)
of the Code
Notice 2006–46
PURPOSE
This notice announces that the Internal
Revenue Service (IRS) and the Treasury
Department (Treasury) will issue final
regulations under sections 897(d) and
(e) of the Internal Revenue Code (Code)
that set forth and, to the extent described
in this notice, revise, the current rules
under sections 1.897–5T and 1.897–6T
of the temporary income tax regulations
and Notice 89–85, 1989–2 C.B. 403, re-
garding certain transactions involving the
transfer of U.S. real property interests
(USRPIs), as defined in section 897(c)(1)
of the Code. When issued, the regulations
will revise the rules of Notice 89–85 and
Temp. Treas. Reg. § 1.897–5T(c)(4)
relating to inbound asset reorganizations
described in section 368(a)(1)(C), (D), or
(F) to take into account statutory mergers
and consolidations described in section
368(a)(1)(A). The final regulations will
also revise the rules of Temp. Treas.
Reg. § 1.897–6T(b)(1) to take into ac-
count foreign-to-foreign statutory mergers
and consolidations described in section
368(a)(1)(A) and to create two additional
exceptions that provide a foreign cor-
poration with nonrecognition treatment
onitstransferofaUSRPIincertain
foreign-to-foreign asset reorganizations.
Moreover, the final regulations will incor-
porate a revised version of Temp. Treas.
Reg. § 1.897–6T(b)(1)(iii). The final reg-
ulations will eliminate all the conditions
required for nonrecognition treatment in
Temp. Treas. Reg. § 1.897–6T(b)(2).
2006–24 I.R.B.1044June 12, 2006

Finally, the final regulations will modify
the period that must be considered for
imposing taxes and accrued interest on
prior dispositions of the stock of foreign
corporations under Temp. Treas. Reg.
§ 1.897–5T(c)(2), (4), and Treas. Reg.
§1.897–3(c)(5), (d).
The portion of the final regulations that
will address distributions, transfers, or ex-
changes occurring in the context of a statu-
tory merger or consolidation described in
section 368(a)(1)(A) will generally apply
to distributions, transfers, or exchanges oc-
curring on or after January 23, 2006. Fi-
nal regulations regarding the revisions to
Temp. Treas. Reg. §1.897–5T(c)(2),
(4), Treas. Reg. §1.897–3(c)(5), (d), and
Temp.Treas.Reg.§1.897–6T(b), ex-
cept as such regulations are applicable to
exchanges in section 368(a)(1)(A) reorga-
nizations, will apply to distributions, trans-
fers, or exchanges occurring on or after
May 23, 2006. However, taxpayers may
choose to apply these regulatory changes
to all dispositions, transfers, or exchanges
occurring before May 23, 2006, during any
taxable year that is not closed by the period
of limitations, provided they do so consis-
tently with respect to all such dispositions,
transfers, and exchanges.
BACKGROUND
Under section 897(a), the disposition of
a USRPI by a nonresident alien individ-
ual or a foreign corporation is taxable as
effectively connected income under sec-
tion 871(b)(1) or section 882(a)(1), respec-
tively, as if the taxpayer were engaged in a
trade or business within the United States
during the taxable year and the gain or loss
were effectively connected with the trade
or business.
Section 897(c)(1) generally defines a
USRPI to include any interest (other than
an interest solely as a creditor) in any
domestic corporation, unless the taxpayer
establishes that such corporation was not
a U.S. real property holding corporation
(USRPHC) at any time during the shorter
of the period the taxpayer held such inter-
est or the 5-year period ending on the date
of the disposition of such interest. Under
section 897(c)(2), a USRPHC is defined as
any corporation if the fair market value of
its USRPIs equals or exceeds 50-percent
of the sum of the fair market value of (i)
its USRPIs, (ii) its real property interests
located outside of the United States, and
(iii) any of its other assets used or held for
useinatradeorbusiness.
Under section 897(d)(1), except to the
extent provided in regulations, gain is rec-
ognized by a foreign corporation on the
distribution (including a distribution in liq-
uidation or redemption) of a USRPI in
a transaction that otherwise qualifies for
nonrecognition under the Code. Section
897(d)(2) provides that gain is not recog-
nized under section 897(d)(1)ifeither:(i)
at the time of the receipt of the distributed
property, the distributee would be subject
to taxation on a subsequent disposition of
the distributed property, and the basis of
the distributed property in the hands of the
distributee is not greater than the adjusted
basis of such property before the distri-
bution, increased by the amount of gain
(if any) recognized by the distributing cor-
poration; or (ii) nonrecognition treatment
is provided for in regulations prescribed
by the Secretary under section 897(e)(2).
Temp. Treas. Reg. § 1.897–5T provides
rules, exceptions, and limitations regard-
ing section 897(d) distributions in the con-
text of sections 332, 355, and 361. See
Temp. Treas. Reg. § 1.897–5T(c)(2), (3),
and (4). Notice 89–85 announced rules
that would revise the application of certain
of the exceptions set forth in the temporary
regulations. As relevant to the changes
announced in this notice, the provisions
of those regulations and Notice 89–85 are
discussed below.
Subject to the rules of section 897(d)
and any regulations issued under section
897(e)(2), section 897(e)(1) provides that
any nonrecognition provision will apply
onlyinthecaseofanexchangeofaUSRPI
for an interest the sale of which would be
taxable under Chapter 1 of the Code. Un-
der section 897(e)(2), Treasury has author-
ity to prescribe regulations providing the
extent to which nonrecognition provisions
shall apply to transfers of USRPIs.
Pursuant to section 897(e)(2), Temp.
Treas. Reg. § 1.897–6T(a)(1) states the
general rule of section 897(e) and imposes
certain requirements for nonrecognition.
Among other things, that regulation pro-
vides that except as otherwise provided
in Temp. Treas. Reg. §§ 1.897–5T and
–6T, any nonrecognition provision ap-
plies to a transfer by a foreign person of
a USRPI on which gain is realized only
to the extent that the transferred USRPI
is exchanged for a USRPI which, imme-
diately following the exchange, would be
subject to U.S. taxation upon its dispo-
sition, and the transferor complies with
the filing requirements of Temp. Treas.
Reg. § 1.897–5T(d)(1)(iii). Temp. Treas.
Reg. § 1.897–6T(b) provides excep-
tions to this rule for certain exchanges in
foreign-to-foreign nonrecognition transac-
tions. The exceptions described in Temp.
Treas. Reg. § 1.897–6T(b) are discussed
below in the context of the changes an-
nounced by this notice to such provisions.
The IRS and Treasury issued final
regulations on January 23, 2006, concern-
ing statutory mergers and consolidations
described in section 368(a)(1)(A). See
T.D. 9242, 2006–7 I.R.B. 422 (Febru-
ary 13, 2006). Treasury Decision 9242
provides a revised definition of the term
“statutory merger or consolidation” that
permits transactions effected pursuant to
the statutes of a foreign jurisdiction or of
a United States possession to qualify as a
statutory merger or consolidation. Further,
that regulation generally applies to trans-
actions occurring on or after January 23,
2006. Prior to the issuance of T.D. 9242,
temporary regulations defined a statutory
merger or consolidation as including only
transactions effected pursuant to the laws
of the United States or a State or the Dis-
trict of Columbia.
DISCUSSION
The IRS and Treasury have deter-
mined that the rules of Notice 89–85 and
Temp.Treas.Reg.§§1.897–5T(c)and
1.897–6T(b) should be revised to reflect
the recently issued regulations under sec-
tion 368(a)(1)(A). This action is necessary
because Notice 89–85 and the temporary
regulations did not contemplate statutory
mergers or consolidations under foreign
or possessions law as qualifying under
section 368(a)(1)(A). In addition, the IRS
and Treasury believe that certain other
changes to the scope of the rules under
Treas. Reg. § 1.897–3 and Temp. Treas.
Reg. §§ 1.897–5T and –6T are appropri-
ate. Accordingly, this notice announces
that the IRS and Treasury will issue final
regulations under sections 897(d), (e), and
(i) that generally incorporate the rules of
Treas. Reg. § 1.897–3 and Temp. Treas.
Reg. §§ 1.897–5T and –6T, and Notice
89–85, except as described below.
June 12, 200610452006–24 I.R.B.

1.Revision to the rules of Temp. Treas.
Reg. § 1.897–5T(c)(4) relating to inbound
asset reorganizations
Temp. Treas. Reg. § 1.897–5T(c)(4)
applies the rules of section 897(d) to cer-
tain distributions of stock of a USRPHC
by a foreign corporation under section
361(c). Under the temporary regulations,
a foreign corporation that transfers prop-
erty to a domestic corporation (that is a
USRPHC immediately after the transfer)
in an exchange under section 361(a) or (b)
pursuant to a reorganization under section
368(a)(1)(C), (D), or (F) must recognize
gain under section 897(d)(1) and Temp.
Treas. Reg. § 1.897–5T(c)(4)(i) when it
distributes the stock of the USRPHC to its
shareholders under section 361(c). Temp.
Treas. Reg. § 1.897–5T(c)(4)(ii) and (iii)
provide an exception and a limitation to
this gain recognition.
In Notice 89–85, the IRS and Trea-
sury announced that the exception and the
limitation set forth in Temp. Treas. Reg.
§ 1.897–5T(c)(4)(ii) and (iii) would be
replaced by a new exception. The new
exception announced in Notice 89–85
provides that recognition of gain will
not be required on the distribution un-
der section 361(c)(1) of the stock of the
USRPHC under Temp. Treas. Reg.
§ 1.897–5T(c)(4)(i) if the foreign cor-
poration pays an amount equal to any
taxes that section 897 would have im-
posed upon all persons who had disposed
of interests in the transferor foreign cor-
poration (or a corporation from which
such assets were acquired in a transaction
described in section 381) after June 18,
1980, as if it were a domestic corporation
on the date of each such disposition, and
if the conditions of Temp. Treas. Reg.
§ 1.897–5T(c)(4)(ii)(A) and (C) (relating
to the distributee being subject to tax on a
subsequent disposition and certain filing
requirements) are met. Other requirements
relating to the time and manner of pay-
ment of tax and interest are also set forth
in the notice. The revisions announced in
Notice 89–85 generallyapplytoalldistri-
butions of stock under Temp. Treas. Reg.
§ 1.897–5T(c)(4) occurring after July 31,
1989.
The IRS and Treasury have determined
that when final regulations are issued,
inbound statutory mergers and consoli-
dations described in section 368(a)(1)(A)
(including such reorganizations by reason
of 368(a)(2)(D) or (E)) will be subject to
the same rules set forth in Temp. Treas.
Reg. § 1.897–5T(c)(4) and Notice 89–85
that apply to other inbound asset reorga-
nizations. Further, as described in part 2,
below, the period that a foreign corpora-
tion must consider with respect to prior
stock dispositions under Temp. Treas.
Reg. § 1.897–5T(c)(4) will be revised.
2.Revisions to the Notice 89–95
stock disposition look-back period
applicable to Temp. Treas. Reg.
§ 1.897–5T(c)(2)(ii) liquidations, Temp.
Treas. Reg. § 1.897–5T(c)(4) inbound
asset reorganizations, and section 897(i)
elections.
Section 1.897–5T(c)(2) of the tem-
porary regulations applies the rules of
section 897(d) to liquidating distributions
of USRPIs by a foreign corporation to
a domestic corporation pursuant to sec-
tion 332(a). Under Temp. Treas. Reg.
§ 1.897–5T(c)(1), a foreign corporation
that makes a liquidating distribution of
a USRPI to a foreign or domestic share-
holder must recognize gain on the dis-
tribution under section 897(d), unless
the distribution comes within an excep-
tion described in Temp. Treas. Reg.
§ 1.897–5T(c)(2), (3), or (4). Temp.
Treas. Reg. § 1.897–5T(c)(2)(i) and (ii)
provide exceptions to this recognition rule
that are applicable to liquidating distribu-
tions under section 332(a).
In Notice 89–85, the IRS and Treasury
announced that the exceptions set forth in
Temp. Treas. Reg. § 1.897–5T(c)(2)(i)
and (ii) would be replaced by a new ex-
ception. The new exception announced in
Notice 89–85 provides that recognition of
gain shall not be required on the liquidat-
ing distribution of a USRPI by a foreign
corporation to a domestic corporation
meeting the stock ownership require-
ments of section 332(b) in a section 332(a)
liquidation if the distributing foreign cor-
poration pays the tax and interest on any
prior disposition of its stock (or stock
of a corporation from which such assets
were acquired in a transaction described
in section 381) after June 18, 1980, as if
it were a domestic corporation on the date
of such dispositions, and if the conditions
of Temp. Treas. Reg. § 1.897–5T(c)(2)(i)
are met (relating to the distributee being
subject to tax on a subsequent disposition
and certain basis carryover and filing re-
quirements). The revisions announced in
Notice 89–85 generally apply to all distri-
butions of stock under Temp. Treas. Reg.
§ 1.897–5T(c)(2) occurring after July 31,
1989. Similarly, as described in part 1 of
this notice, above,Notice 89–85 revised
the look-back period applicable to inbound
reorganizations under Temp. Treas. Reg.
§ 1.897–5T(c)(4) to encompass certain
dispositions of the stock of the foreign
corporation that occur after June 18, 1980.
The rules of Notice 89–85 also require the
payment of interest, as determined under
section 6621, that would have accrued had
tax actually been due with respect to the
prior stock dispositions.
Further, section 897(i), which permits a
foreign corporation to elect to be treated as
a domestic corporation for purposes of sec-
tion 897, requires as a condition to making
the election that the electing foreign corpo-
ration verify that no interest in the corpo-
ration was disposed of during the shorter
of: (1) the period from June 19, 1980
through the date of the election, (2) the pe-
riod from the date on which the corpora-
tion first holds a USPRI through the date
of the election, or (3) the five year period
ending on the date of the election.See
Treas. Reg. § 1.897–3(c)(5). If the foreign
corporation cannot make such verification,
then it must comply with the conditions of
Treas. Reg. § 1.897–3(d) which, among
other things, requires the payment of an
amount equal to any taxes that section 897
would have imposed on all persons who
had disposed of interests in the corporation
during such period. The payment must
also include any interest, as determined un-
der section 6621, that would have accrued
had the tax actually been due with respect
to the dispositions. These rules were mod-
ified by Notice 89–85 to require the report-
ing and payment of tax and accrued inter-
est on all dispositions of stock occurring
after June 18, 1980 that would have been
subject to taxation under section 897(a).
The IRS and Treasury have determined
that when final regulations are issued, the
look-back, tax, and interest payment pe-
riods applicable under Notice 89–85 to
Temp. Treas. Reg. § 1.897–5T(c)(2) liq-
uidating distributions, Temp. Treas. Reg.
§ 1.897–5T(c)(4) inbound asset reorgani-
zations, and section 897(i) elections will be
modified as described below.
2006–24 I.R.B.1046June 12, 2006

Regarding distributions of USRPIs by a
foreign corporation to a domestic corpora-
tion in a section 332 liquidation, the final
regulations will amend the rules of Temp.
Treas. Reg. § 1.897–5T(c)(2)(ii) and No-
tice 89–85 to provide that recognition of
gain will not be required on the distribu-
tion of any USRPI by the distributing for-
eign corporation to the domestic corpora-
tion if the distributing foreign corporation
pays an amount equal to the tax and in-
terest that would have been imposed upon
all persons who disposed of an interest in
the foreign corporation (or a corporation
fromwhichsuchassetswereacquiredina
transaction described in section 381) dur-
ing the period beginning on the date that
is 10 years prior to the date on which the
domestic corporation or any related per-
son (within the meaning of section 267(b))
is in control (as determined under section
304(c)) of the liquidating foreign corpora-
tion, and ending on the date of the liqui-
dation, as if the foreign corporation were a
domestic corporation on the date of each
such disposition and if the conditions of
Temp. Treas. Reg. § 1.897–5T(c)(2)(i)
are met.
Regarding inbound asset acqui-
sitions described in Temp.Treas.
Reg. § 1.897–5T(c)(4) as modified by
this notice, the final regulations will
amend the rules of Temp. Treas. Reg.
§ 1.897–5T(c)(4)(ii) and Notice 89–85 to
provide that recognition of gain will not
be required on the distribution of stock
of a USRPHC if the foreign corporation
pays an amount equal to any taxes and
interest that would have been imposed
uponallpersonswhodisposedofanin-
terest in the foreign corporation (or a
corporation from which the assets were
acquired in a transaction described in sec-
tion 381) during the applicable period as
if the foreign corporation were a domes-
tic corporation on the date of each such
disposition, and the conditions of Temp.
Treas. § 1.897–5T(c)(4)(ii)(A) and (C)
are met. The applicable period means the
earliest of either:
•The period beginning on the date that
is 10 years prior to the date on which
the acquiring domestic corporation or
a related person (within the meaning
of section 267(b)) is in control (as de-
termined under section 304(c)) of the
foreign corporation and ending on the
date of the reorganization. For pur-
poses of the preceding sentence, the
acquiring domestic corporation means
the domestic corporation that is the
transferee in the 361(a) exchange; or
•The period beginning on the date that
is 10 years prior to the date of the re-
organization and ending on the date of
the reorganization.
Regarding the revisions to Treas. Reg.
§1.897–3(c)(5), and (d) pertaining to a for-
eign corporation’s election under section
897(i), the final regulations will provide
that the applicable period will be the ear-
liest of either:
•The period beginning on the date that
is 10 years prior to the date on which
one or more domestic shareholders or
related persons (within the meaning of
section 267(b)) are in control (as de-
termined under section 304(c)) of the
foreign corporation and ending on the
date of the election; or
•The period beginning on the date that is
10 years prior to the date of the section
897(i) election and ending on the date
of the election.
3.Revisions to the rules of Temp. Treas.
Reg. § 1.897–6T
(a)Revision to the rules of Temp. Treas.
Reg. § 1.897–6T(b)(1)(ii) to take into ac-
count statutory mergers and consolida-
tions described in section 368(a)(1)(A)
As noted above, Temp. Treas. Reg.
§ 1.897–6T(a)(1) generally provides that
any nonrecognition provision shall ap-
ply to a transfer by a foreign person of a
USRPI only to the extent that the foreign
person receives a USRPI in such ex-
change. Pursuant to the regulatory author-
ity under section 897(e)(2) of the Code,
Temp. Treas. Reg. § 1.897–6T(b)(1)
and (2) provide exceptions to the rule of
Temp.Treas.Reg.§1.897–6T(a)(1)
for certain foreign-to-foreign reorganiza-
tions and certain exchanges under section
351 where a foreign person transfers a
USRPIforstockinaforeigncorpora-
tion. These exceptions require that (1)
the transferee’s subsequent disposition of
the transferred USRPI be subject to U.S.
income taxation in accordance with Temp.
Treas. Reg. § 1.897–5T(d)(1); (2) the
filing requirements of Temp. Treas. Reg.
§ 1.897–5T(d)(1)(iii) be satisfied; (3) one
of the five conditions set forth in para-
graph (b)(2) exists; and (4) the exchange
takes one of the three forms of exchange
described in paragraph (b)(1).
Temp. Treas. Reg. § 1.897–6T(b)
(1)(ii) describes one of the three permissi-
ble forms of exchange referenced above.
That paragraph describes an exchange by
a foreign corporation pursuant to section
361(a) or (b) in a reorganization described
in section 368(a)(1)(C), where there is
an exchange of the transferor corporation
stock for the transferee corporation stock
(or stock of the transferee corporation’s
parent in the case of a parenthetical C reor-
ganization) under section 354(a), and the
transferor corporation’s shareholders own
more than fifty percent of the voting stock
of the transferee corporation (or stock of
the transferee corporation’s parent in the
case of a parenthetical C reorganization)
immediately after the reorganization. The
fifty percent limitation restricts this excep-
tion to reorganizations described in section
368(a)(1)(C) that are restructurings where
the transferor corporation shareholders
control the transferee corporation after the
transaction (e.g., internal restructurings).
The IRS and Treasury have deter-
mined that when final regulations are
issued, foreign-to-foreign statutory merg-
ers and consolidations described in section
368(a)(1)(A) (including such reorganiza-
tions by reason of section 368(a)(2)(D)
or (E)) will be subject to the same
rules set forth in Temp. Treas. Reg.
§ 1.897–6T(b)(1)(ii) that apply to for-
eign-to-foreign reorganizations described
in section 368(a)(1)(C) (including paren-
thetical C reorganizations). The exception
for statutory mergers and consolidations
described in section 368(a)(1)(A) will
be limited to restructurings where the
50 percent control requirement is satis-
fied after the transaction. Further, the
final regulations will provide that in de-
termining whether the fifty percent re-
quirement set forth in Temp. Treas. Reg.
§ 1.897–6T(b)(1)(ii) is met where the
transferee corporation owns more than
fifty percent of the transferor corpora-
tion before a reorganization under section
368(a)(1)(A) or 368(a)(1)(C) (i.e.,an
upstream reorganization), the sharehold-
ers of the transferee corporation before
the reorganization (that continue to be
June 12, 200610472006–24 I.R.B.

shareholders of the transferee corporation
after the reorganization) will be treated as
shareholders of the transferor corporation
before the reorganization to the extent
of their indirect interest in the stock of
the transferor corporation (owned by the
transferee corporation) before the reorga-
nization.
Accordingly, when issued, the final reg-
ulations will provide that gain shall not
be recognized where an exchange is made
by a foreign corporation pursuant to sec-
tion 361(a) or (b) in a reorganization de-
scribed in section 368(a)(1)(A) (including
such reorganization by reason of section
368(a)(2)(D) or (E)); there is an exchange
of the transferor corporation stock for the
transferee corporation stock (or the stock
of the transferee corporation’s parent in the
case of a reorganization by reason of sec-
tion 368(a)(2)(D)) under section 354(a);
immediately after the reorganization, the
transferor corporation’s shareholders own
more than fifty percent of the voting stock
of the transferee corporation (or the trans-
feree corporation’s parent in a reorganiza-
tion by reason of section 368(a)(2)(D)), or
in the case of a reorganization by reason of
section 368(a)(2)(E), the shareholders of
the corporation that controls the transferor
corporation before the reorganization own
more than fifty percent of the voting stock
of that controlling corporation after the re-
organization; and the other requirements
of Temp. Treas. Reg. § 1.897–6T(b)(1)
are satisfied.
(b)Additional exceptions to be added
to the rules of Temp. Treas. Reg.
§ 1.897–6T(b)(1)
The IRS and Treasury have deter-
mined that when final regulations are
issued, the rules of Temp. Treas. Reg.
§ 1.897–6T(b)(1) will be expanded to in-
clude two additional exceptions. Those
exceptions will apply only in certain
foreign-to-foreign statutory mergers
and consolidations described in section
368(a)(1)(A) (including such reorganiza-
tions by reason of section 368(a)(2)(D)
or (E)) and foreign-to-foreign reorgani-
zations described in section 368(a)(1)(C)
(including parenthetical C reorganiza-
tions). Accordingly, the new exceptions
to be incorporated in the final regula-
tions will revise the rules of Temp. Treas.
Reg. § 1.897–6T(b)(1) to provide that
such foreign-to-foreign reorganizations
will be excepted from the general gain
recognition rule of Temp. Treas. Reg.
§ 1.897–6T(a)(1) provided that the other
requirements set forth in Temp. Treas.
Reg. § 1.897–6T(b)(1) are met. The
two additional exceptions apply where
an exchange is made by a foreign corpo-
ration pursuant to section 361(a) or (b)
in a reorganization described in section
368(a)(1)(A) (including a reorganization
by reason of section 368(a)(2)(D) or (E))
or section 368(a)(1)(C) (including par-
enthetical C reorganizations); there is an
exchange of the transferor corporation
stock for the transferee corporation stock
(or the transferee corporation’s parent in
the case of a reorganization by reason of
section 368(a)(2)(D) or a parenthetical C
reorganization) under section 354(a); and
either:
•Stock in the transferor corporation
(including a predecessor corporation
in a transaction described in section
381(a)) would not be a USRPI at any
time within the five year period ending
on the date of the reorganization if the
transferor corporation were a domestic
corporation; or
•Regarding reorganizations under sec-
tion 368(a)(1)(A) (other than by rea-
sonofsection368(a)(2)(D)or(E))or
section 368(a)(1)(C) (other than par-
enthetical reorganizations described
in that section): prior to the exchange
the stock of the transferor corpora-
tion and the stock of the transferee
corporation, and after the exchange
thestockofthetransfereecorpora-
tion are regularly traded under Treas.
Reg. § 1.897–1(n) and Temp. Treas.
Reg. § 1.897–9T(d)(1) and (2) on an
established securities market under
§ 1.897–1(m), and in the case where
the transferor corporation would have
been a USRPHC at any time within
the five year period ending on the
date of the reorganization if the trans-
feror corporation had been a domestic
corporation, no foreign shareholder
of the transferor corporation owned
a more than five percent interest in
the transferor corporation at such
time under the rules of Treas. Reg.
§ 1.897–1(c)(2)(iii) and Temp. Treas.
Reg. § 1.897–9T.
Regarding parenthetical C reorgani-
zations and reorganizations under sec-
tion 368(a)(1)(A) by reason of section
368(a)(2)(D): prior to the exchange the
stock of the transferor corporation and
the stock of the corporation in control
of the transferee corporation, and after
the exchange the stock of the corporation
in control of the transferee corporation
are regularly traded under Treas. Reg.
§ 1.897–1(n) and Temp. Treas. Reg.
§ 1.897–9T(d)(1) and (2) on an established
securities market under § 1.897–1(m), and
in the case where the transferor corpora-
tion would have been a USRPHC at any
time within the five year period ending
on the date of the reorganization if the
transferor corporation had been a domes-
tic corporation, no foreign shareholder of
the transferor corporation owned a more
than five percent interest in the transferor
corporation at such time under the rules
of Treas. Reg. § 1.897–1(c)(2)(iii) and
Temp. Treas. Reg. § 1.897–9T.
Regarding reorganizations under sec-
tion 368(a)(1)(A) by reason of section
368(a)(2)(E): prior to the exchange the
stock of the transferee corporation and
the stock of the corporation in control
of the transferor corporation, and after
the exchange the stock of the corporation
that controls the transferee corporation
are regularly traded under Treas. Reg.
§ 1.897–1(n) and Temp. Treas. Reg.
§ 1.897–9T(d)(1) and (2) on an established
securities market under § 1.897–1(m), and
in the case where the transferor corpora-
tion or the corporation in control of the
transferor corporation would have been
a USRPHC at any time within the five
year period ending on the date of the
reorganization if either corporation had
been a domestic corporation, no foreign
shareholder of the corporation in control
of transferor corporation owned a more
than five percent interest in the transferor
corporation at such time under the rules
of Treas. Reg. § 1.897–1(c)(2)(iii) and
Temp. Treas. Reg. § 1.897–9T.
(c)Revision to the rules of Temp. Treas.
Reg. § 1.897–6T(b)(1)(iii) relating to for-
eign-to-foreign section 351 transactions
and section 368(a)(1)(B) reorganizations
As discussed above, Temp. Treas. Reg.
§ 1.897–6T(b)(1) contains exceptions to
the general rule provided in Temp. Treas.
Reg. § 1.897–6T(a)(1) if one of three
forms of exchange occurs and certain other
2006–24 I.R.B.1048June 12, 2006

requirements are met. Specifically, Temp.
Treas. Reg. § 1.897–6T(b)(1)(iii) pro-
vides a foreign person with nonrecognition
treatment if the foreign person exchanges
stock in a USRPHC under section 351(a)
or section 354(a) in a reorganization de-
scribed in section 368(a)(1)(B), and, im-
mediately after the exchange, all of the out-
standing stock of the transferee corpora-
tion (or the stock of the transferee corpo-
ration’s parent in the case of a parentheti-
cal B reorganization) is owned in the same
proportions by the same nonresident alien
individuals and foreign corporations that
immediately before the exchange owned
the stock of the USRPHC. However, if any
of the stock in the foreign corporation re-
ceived by the individual or corporate trans-
feror in the exchange is disposed of within
three years from the date of its receipt,
then the transferor must recognize that por-
tion of the realized gain with respect to the
stock of the USRPHC for which the for-
eign stock disposed of was received.
The IRS and Treasury have determined
that the final regulations will revise Temp.
Treas. Reg. § 1.897–6T(b)(1)(iii) in
two respects. First,the exception will
be revised so that “all of the stock of
the transferee corporation” is removed
and replaced with “substantially all of
the outstanding stock of the transferee
corporation” and the words “in the same
proportions” will be removed. Second,
the three year period will be revised to one
year.
(d)Removal of the conditions set forth
in Temp. Treas. Reg. § 1.897–6T(b)(2)
As discussed above, to come within
an exception to Temp. Treas. Reg.
§ 1.897–6T(a)(1), not only must an ex-
change be described in Temp. Treas. Reg.
§ 1.897–6T(b)(1), but it must also sat-
isfy one of the five conditions set forth
in Temp. Treas. Reg. § 1.897–6T(b)(2).
The IRS and Treasury have determined
that the conditions of Temp. Treas. Reg.
§ 1.897–6T(b)(2) are no longer necessary.
Accordingly, the final regulations will
eliminate the conditions of Temp. Treas.
Reg. § 1.897–6T(b)(2).
COMMENTS
Written comments on issues addressed
in this notice may be submitted to the
Office of Associate Chief Counsel Inter-
national, Attention: Margaret Hogan (No-
tice 2006–46), room 4567, CC:INTL:B04,
Internal Revenue Service, 1111 Consti-
tution Avenue, NW, Washington, DC
20224. Alternatively, taxpayers may
submit comments electronically toNo-
tice.Comments@m1.irscounsel.treas.gov
Comments will be available for public
inspection and copying.
EFFECTIVE DATE
Final regulations to be issued incorpo-
rating the guidance set forth in this notice
regarding exchanges occurring in the con-
text of a statutory merger or consolidation
described in section 368(a)(1)(A) will
generally apply to distributions, trans-
fers, or exchanges occurring on or after
January 23, 2006. Final regulations re-
garding the revisions to Temp. Treas.
Reg. §§ 1.897–5T(c)(2), (4), Treas. Reg.
§1.897–3(c)(5), (d), and Temp. Treas.
Reg. § 1.897–6T(b), except as applica-
ble to section 368(a)(1)(A) transactions,
will apply to distributions, transfers, or
exchanges occurring on or after May 23,
2006. However, taxpayers may choose
to apply these regulatory changes to all
dispositions, transfers, or exchanges oc-
curring before May 23, 2006 during any
taxable year that is not closed by the period
of limitations, provided they do so con-
sistently with respect to all dispositions,
transfers, and exchanges.
Prior to the issuance of the final reg-
ulations, taxpayers may rely on the guid-
ance contained in this notice. Taxpayers
applying this notice, however, must do so
consistently with respect to all transactions
within its scope.
PAPERWORK REDUCTION ACT
The collections of information con-
tained in this notice have been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
§ 3507) under control number 1545–2017.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The rules of this notice will apply to
a foreign corporation distributing stock
of a USRPHC to its shareholders pur-
suant to an inbound asset reorganization
or a foreign corporation transferring a
USRPI to another foreign corporation
pursuant to an asset reorganization and
will require such foreign corporations to
satisfy the filing requirements of Temp.
Treas. Reg. § 1.897–5T(d)(1)(iii), as
modified by Notice 89–57, 1989–1 C.B.
698. The specific collections of infor-
mation are contained in Temp. Treas.
Reg.§§ 1.897–5T(c)(4)(ii)(C) and
1.897–6T(b)(1). These filing require-
ments notify the IRS of the transfer and
enable it to verify that the transferor qual-
ifies for nonrecognition and the transferee
will be subject to U.S. tax on a subsequent
disposition of the USRPI. Generally, they
may be satisfied by: (1) filing the informa-
tion statement required by Temp. Treas.
Reg. § 1.897–5T(d)(1)(iii); (2) filing a
notice of nonrecognition to the IRS in
accordance with the provisions of Treas.
Reg. § 1.1445–2(d)(2); or (3) filing a with-
holding certificate in accordance with the
requirements of Treas. Reg. § 1.1445–3.
The collections of information are re-
quired in order to obtain the benefit of
the nonrecognition provisions. The likely
respondents are businesses.
The estimated total annual report-
ing and/or recordkeeping burden is 500
hours. The estimated annual burden hour
per respondent and/or recordkeeper is 1
hour. The estimated number of respon-
dents and/or recordkeepers is 500. The
estimated frequency of response is occa-
sional.
Books or records relating to a collection
of information must be retained as long as
their statements may become material in
the administration of any internal revenue
law. Generally, tax returns and tax infor-
mation are confidential, as required by 26
U.S.C. § 6103.
EFFECT ON OTHER DOCUMENTS
Notice 89–85, 1989–2 C.B. 403 is am-
plified.
DRAFTING INFORMATION
The principal author of this notice is
Margaret A. Hogan of the Office of As-
sociate Chief Counsel (International). For
further information regarding this notice,
contact Ms. Hogan at (202) 622–3860 (not
a toll-free call).
June 12, 200610492006–24 I.R.B.

26 CFR 601.201: Ruling and determination letters.
(Also Part I, §§ 1502, 1504; 1.1502–33, 1.1502–75,
1.1502–76, 1.1504–1.)
Rev. Proc. 2006–21
SECTION 1. PURPOSE
This revenue procedure modifies Rev.
Proc. 89–56, 1989–2 C.B. 643, Rev. Proc.
90–39, 1990–2 C.B. 365, and Rev. Proc.
2002–32, 2002–1 C.B. 959, to eliminate
impediments to the electronic filing of
Federal income tax returns (e-filing) and
to reduce the reporting requirements in
each of these revenue procedures.
SECTION 2. BACKGROUND
.01 Rev. Proc. 89–56, Rev. Proc.
90–39, and Rev. Proc. 2002–32 each pro-
vide a means for a consolidated group to
obtain a specified consent or waiver from
the Commissioner without requesting a
private letter ruling. The revenue proce-
dures each provide that, in order to obtain
the subject consent or waiver, a statement
containing specified information must be
included on or with the group’s return.
The Internal Revenue Service has con-
cluded that the amount of information
required to be included in these statements
is greater than is necessary to facilitate the
administration of the tax law. Moreover,
each of these statements presents an im-
pediment to e-filing.
.02 Rev. Proc. 89–56 provides a means
for a consolidated group to obtain the
Commissioner’s consent to file a consoli-
dated Federal income tax return in which
one or more members of the group use
a 52–53 week tax year. Section 3.01 of
the revenue procedure sets forth the in-
formation and representations that must
be provided in a statement included on or
with the group’s return in order to obtain
the consent. Section 3.02 requires the
statement to be signed under penalties of
perjury by a duly authorized officer of the
common parent.
.03 Rev. Proc. 90–39 provides a
means for a consolidated group to obtain
the Commissioner’s consent to elect or
change its method of allocating the con-
solidated Federal income tax liability to
its members for purposes of determining
the earnings and profits of each member.
Section 4.01 of the revenue procedure sets
forth the information and representations
that must be provided in a statement in-
cluded on or with the group’s return in
order to obtain the consent. Section 4.02
requires the statement to be signed under
penalties of perjury by a duly authorized
officer of the common parent.
.04 Rev. Proc 2002–32 provides a
means for a consolidated group to obtain
the Commissioner’s waiver of the prohi-
bition against including a previously dis-
affiliated corporation in the group’s return
during the sixty-month period following
the disaffiliation. See § 1504(a)(3)(A) of
the Internal Revenue Code. Paragraphs
5.01 through 5.14 of the revenue procedure
set forth the information and representa-
tions that must be provided in a statement
included on or with the group’s return in
order to obtain the consent. In the unnum-
bered paragraph following the heading,
Section 5 requires the statement to be filed
under penalties of perjury.
SECTION 3. SCOPE
This revenue procedure applies to any
taxpayer that applies for a consent or
waiver under the provisions of Rev. Proc.
89–56, Rev. Proc. 90–39, or Rev. Proc.
2002–32.
SECTION 4. APPLICATION
.01 To remove e-filing impediments,
this revenue procedure eliminates the sig-
nature requirement of each of Rev. Proc.
89–56, Rev. Proc. 90–39, and Rev. Proc.
2002–32. Thus, the following provisions
of these revenue procedures are deleted:
section 3.02 of Rev. Proc. 89–56, section
4.02 of Rev. Proc. 90–39, and the clause,
“filed under penalties of perjury,” in the
second sentence in the unnumbered para-
graph following the heading of Section 5
of Rev. Proc. 2002–32.
.02 To reduce the reporting require-
ments of Rev. Proc. 89–56, this revenue
procedure permits a consolidated group to
obtain consent under that revenue proce-
dure by including the following statement
on or with its return in lieu of the statement
describedinsection3.01ofRev. Proc.
89–56: “THIS IS A REQUEST UNDER
REV. PROC. 89–56 TO USE A 52–53
WEEK TAX YEAR. THE GROUP HAS
COMPLIED, AND WILL CONTINUE
TO COMPLY, WITH THE CONDITIONS
SET FORTH IN SECTION 3.01 OF REV.
PROC. 89–56.”
.03Toreducethereportingrequire-
ments of Rev. Proc. 90–39, this revenue
procedure permits a consolidated group to
obtain consent under that revenue proce-
dure by including the following statement
on or with its return in lieu of the state-
mentdescribedinsection4.01ofRev.
Proc. 90–39: “THIS IS A REQUEST
UNDER REV. PROC. 90–39 TO ELECT
OR CHANGE THE METHOD OF AL-
LOCATING CONSOLIDATED FED-
ERAL INCOME TAX LIABILITY FOR
PURPOSES OF DETERMINING MEM-
BERS’ EARNINGS AND PROFITS.
THE GROUP HAS COMPLIED, AND
WILL CONTINUE TO COMPLY, WITH
THE CONDITIONS SET FORTH IN
SECTION 4.01 OF REV. PROC. 90–39.”
.04Toreducethereportingrequire-
ments of Rev. Proc. 2002–32, this
revenue procedure permits a consoli-
dated group to obtain a waiver under
that revenue procedure by including the
following statement on or with its re-
turn in lieu of the statement described
in section 5 of Rev. Proc. 2002–32:
“THIS IS A REQUEST UNDER REV.
PROC. 2002–32 FOR A WAIVER OF
SECTION 1504(a)(3)(A) FOR [INSERT
NAME AND EMPLOYER IDENTIFI-
CATION NUMBER OF SUBSIDIARY].
THE GROUP HAS COMPLIED, AND
WILL CONTINUE TO COMPLY, WITH
THE CONDITIONS SET FORTH IN
SECTIONS 5.01 THROUGH 5.14 OF
REV. PROC. 2002–32.”
.05 Although paragraphs 4.02, 4.03,
and 4.04 of this revenue procedure reduce
the amount of information that a taxpayer
is required to include on or with its return,
the taxpayer’s recordkeeping requirement
remains unchanged. Taxpayers should
maintain records to establish the infor-
mation described in Rev. Proc. 89–56
(Sec. 3.01), Rev. Proc. 90–39 (Sec. 4.01),
and 2002–32 (Secs. 5.01 through 5.14) in
order to substantiate their reporting posi-
tions. See § 1.6001–1(e) of the Procedure
and Administration Regulations.
SECTION 5. EFFECT ON OTHER
REVENUE PROCEDURES
Rev. Proc. 89–56, Rev. Proc. 90–39,
and Rev. Proc 2002–32 are modified. The
IRS and Treasury Department intend to
2006–24 I.R.B.1050June 12, 2006

modify Rev. Proc. 89–56 and Rev. Proc.
90–39 to reflect revisions to §§ 1.1502–13
and 1.1502–33 of the Income Tax Regula-
tions. Until these revenue procedures are
so modified, taxpayers should continue to
apply the provisions of both revenue pro-
cedures in a manner that reflects the ap-
proach in the applicable regulations.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective on
May 26, 2006. However, taxpayers may
rely on this revenue procedure for prior
taxable years.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information in this
revenue procedure have been previously
reviewed and approved by the Office of
Management and Budget (OMB) in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1784.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
Books or records relating to a collection
of information must be retained as long
as their contents may be material in the
administration of any internal revenue tax
law. Generally tax returns and tax return
information are confidential, as required
by § 6103.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Grid R. Glyer of the Office of
Associate Chief Counsel (Corporate). For
further information regarding this revenue
procedure, contact Grid R. Glyer at (202)
622–7930 (not a toll-free call).
June 12, 200610512006–24 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking
Expenses for Household and
Dependent Care Services
Necessary for Gainful
Employment
REG–139059–02
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations regarding the credit
for expenses for household and depen-
dent care services necessary for gainful
employment. The proposed regulations
reflect statutory amendments under the
Deficit Reduction Act of 1984, the Om-
nibus Budget Reconciliation Act of 1987,
the Family Support Act of 1988, the Small
Business Job Protection Act of 1996, the
Economic Growth and Tax Relief Recon-
ciliation Act of 2001, the Job Creation and
Worker Assistance Act of 2002, and the
Working Families Tax Relief Act of 2004.
The proposed regulations affect taxpayers
who claim the credit for household and
dependent care services and dependent
care providers.
DATES: Written or electronic comments
must be received by August 22, 2006.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–139059–02), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–139059–02),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC. Alternatively, taxpayers may
submit electronic comments directly to
the IRS internet site atwww.irs.gov/regs
or via the Federal eRulemaking Por-
tal atwww.regulations.gov(IRS and
REG–139059–02).
FOR FURTHER INFORMATION
CONTACT: Concerning the pro-
posed regulations, Sara Shepherd,
(202) 622–4960; concerning sub-
missions of comments or a request
for a public hearing, Richard Hurst,
Richard.A.Hurst@irscounsel.treas.gov,
or (202) 622–7180 (not toll-free num-
bers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regu-
lations, 26 CFR part 1, relating to the
credit for household and dependent care
services necessary for gainful employment
(the credit) under section21oftheInternal
Revenue Code (Code).
The credit was originally enacted as
section 44A. Final regulations under sec-
tion 44A were published as §§1.44A–1
through 1.44A–4 on August 27, 1979 (sec-
tion 44A regulations). Section 44A was
amendedandrenumberedsection21by
sections 423 and 471, respectively, of the
Deficit Reduction Act of 1984 (Public Law
98–369, 98 Stat. 494). Section 21 was
amended by section 10101 of the Om-
nibus Budget Reconciliation Act of 1987
(Public Law 100–203, 101 Stat. 1330),
section 703 of the Family Support Act
of 1988 (Public Law 100–485, 102 Stat.
2343), section 1615 of the Small Business
Job Protection Act of 1996 (Public Law
104–188, 110 Stat. 1755), section 204
of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (Public Law
107–16, 115 Stat. 38), section 418 of the
Job Creation and Worker Assistance Act of
2002 (Public Law 107–147, 116 Stat. 21),
and sections 203 and 207 of the Working
Families Tax Relief Act of 2004 (Public
Law 108–311, 118 Stat. 1166), as well as
other legislation that enacted clerical and
conforming changes.
Section 21 allows a nonrefundable
credit for a percentage of expenses for
household and dependent care services
necessary for gainful employment. For
taxable years beginning after December
31, 2004, the credit is available to a tax-
payer if there are one or more qualifying
individuals with respect to that taxpayer.
For those years, aqualifying individual
is defined in section 21(b)(1) as the tax-
payer’s dependent (as defined in section
152(a)(1)) who has not attained age 13, the
taxpayer’s dependent who is physically or
mentally incapable of self-care and who
has the same principal place of abode as
the taxpayer for more than one-half of
the taxable year, or the taxpayer’s spouse
who is physically or mentally incapable of
self-care and who has the same principal
place of abode as the taxpayer for more
than one-half of the taxable year.
For taxable years beginning before Jan-
uary 1, 2005, the credit is available to tax-
payers who maintained households that in-
clude one or more qualifying individuals.
For those years, aqualifying individual
is defined in section 21(b)(1) as the tax-
payer’s dependent (as defined in section
151(c) as then in effect) under age 13, the
taxpayer’s dependent who is physically or
mentally incapable of self-care, or the tax-
payer’s spouse who is physically or men-
tally incapable of self-care.
Under section 21(a), the amount of the
credit is equal to the applicable percent-
age of employment-related expenses paid
by the taxpayer during the taxable year.
The applicable percentage ranges from 20
percent to 35 percent depending on the
taxpayer’s adjusted gross income. Sec-
tion 21(c) limits the amount of employ-
ment-related expenses that may be taken
into account in determining the credit in
any taxable year to $2,400 if there is one
qualifying individual and $4,800 if there
are two or more qualifying individuals.
These amounts are increased, respectively,
to $3,000 and $6,000 in taxable years be-
ginning after December 31, 2002, and be-
fore January 1, 2011.
Section 21(d) further limits the amount
of employment-related expenses that may
be taken into account in determining the
credit to the lesser of the earned income
of the taxpayer or the taxpayer’s spouse (if
any). The earned income for each month
in which a taxpayer’s spouse is a full-time
student or incapable of self-care is deemed
to be $200 (for one qualifying individual)
or $400 (for two or more qualifying indi-
viduals), increased to $250 and $500 for
taxable years beginning after December
31, 2002, and before January 1, 2011.
Section 21(b)(2) defines employ-
ment-related expenses as amounts paid
2006–24 I.R.B.1052June 12, 2006

for household services and expenses for
the care of a qualifying individual that en-
able the taxpayer to be gainfully employed
for any period for which there are one or
more qualifying individuals with respect
to the taxpayer.
Explanation of Provisions
1.Overview
The proposed regulations incorporate
many of the rules in the section 44A reg-
ulations, but are renumbered, restructured,
and revised to improve clarity. The pro-
posed regulations reflect statutory amend-
ments enacted since publication of the sec-
tion 44A regulations. Accordingly, the
proposed regulations include a change in
the definition of a qualifying individual, a
reduction in the maximum age of a qual-
ifying child from under 15 to under 13,
andanincreaseinthemaximumamount
of creditable expenses and the monthly
amount of deemed earned income of a
spouse who is a full-time student or inca-
pable of self-care for taxable years begin-
ning after December 31, 2002, and before
January 1, 2011. The proposed regulations
provide additional rules that address sig-
nificant issues that have arisen administra-
tively since publication of the section 44A
regulations and expand the number of ex-
amples. The substantive revisions, addi-
tions, and significant clarifications to the
section 44A regulations are described be-
low.
2.Taxable Year of Credit
Section 21 refers interchangeably to
expenses “paid” by the taxpayer and ex-
penses “incurred” by the taxpayer. Section
1.44A–1(a)(3) reconciles this use of var-
ious tax accounting terms by providing
that, regardless of the taxpayer’s method
of accounting, the credit is allowable
only for expenses both “paid” during the
taxable year and “incurred” during the
taxable year or an earlier taxable year. The
proposed regulations restate this rule in
plain language and provide that the credit
is allowable only in the taxable year in
which the services are provided or the
taxable year in which the expenses are
paid, whichever is later, regardless of the
taxpayer’s method of accounting.
3.Special Rule for Children of Separated
or Divorced Parents
Section 21(e)(5) provides that, in the
case of a child of divorced or separated
parents, only the custodial parent may
claim the credit, regardless of whether
the noncustodial parent may claim the
dependency exemption under section
152(e). The proposed regulations define
custodial parentconsistently with section
152(e)(3)(A) as the parent with whom the
child shares the same principal place of
abode for the greater portion of the calen-
dar year.
4.Employment-Related Expenses
Under section 21(b)(2)(A), expenses
are employment-related only if (1) the
expenses are primarily for household
services or for the care of a qualifying
individual, and (2) the taxpayer’s purpose
in obtaining the services is to enable the
taxpayer to be gainfully employed.
a.Nature of the services provided
(1) Expenses for nursery school and
kindergarten
The section 44A regulations provide
that expenses are primarily for the care of a
qualifying individual if the primary nature
of the services is to ensure the qualifying
individual’s well-being and protection.
Amounts paid for food, lodging, cloth-
ing, or education are not for the care of a
qualifying individual. However, if these
services are incidental to and inseparably a
part of the care of a qualifying individual,
the entire amount of the expense is deemed
to be for care. Section 1.44A–1(c)(3)(i).
Section 1.44A–1(c)(3)(i) provides
an example that concludes that the full
amount paid to a nursery school is for the
care of a qualifying child even though the
school furnishes lunch and educational
services. Although intended to illustrate
the incidental services rule, the example
assumes that expenses for nursery school
are for care. Section 1.44A–1(c)(3)(i) also
provides that expenses for education in the
first or higher grade are not for the care of
a qualifying individual. The section 44A
regulations do not address expenses for
kindergarten.
The proposed regulations provide the
rule that the expenses of pre-school or sim-
ilar programs below the kindergarten level
are for care and may be employment-re-
lated expenses, if otherwise qualified, al-
though education may bea significant part
of these programs. The proposed regula-
tions clarify the existing rule that expenses
for programs at the level of kindergarten
and above, however, are primarily for ed-
ucation and, therefore, are not employ-
ment-related expenses.
(2) Specialty day camps
Section 21(b)(2)(A) provides that ex-
penses for overnight camps are not em-
ployment-related expenses. Expenses for
day camps may be employment-related ex-
penses, if otherwise qualified. The IRS
has received many inquiries about whether
the cost of a day camp that specializes in a
particular activity, such as soccer or com-
puters, may be an employment-related ex-
pense. To provide certainty for taxpayers
and enhance administrability, the proposed
regulations provide that the full amount
paid for a day camp or similar program
may be for the care of a qualifying indi-
vidual although the camp specializes in a
particular activity.
(3) Transportation expenses
Section 1.44A–1(c)(3)(i) provides that
expenses for transportation of a qualifying
individual between the taxpayer’s house-
hold and a place outside the taxpayer’s
household where care is provided are not
for care. The proposed regulations pro-
vide that the cost of transportation (such as
transportationtoadaycamportoanafter-
school program not on school premises)
furnished by a dependent care provider
may be an employment-related expense if
all other applicable requirements are satis-
fied.
(4) Other expenses for care
Section 1.44A–1(c)(1)(i) provides that
employment taxes that a taxpayer pays
are employment-related expenses if the
related wages are employment-related
expenses. Rev. Rul. 76–288, 1976–2
C.B. 83, holds that additional costs for a
care provider’s room and board are em-
ployment-related expenses. The proposed
regulations incorporate these rules. Addi-
tionally, the proposed regulations clarify
that indirect expenses such as application
June 12, 200610532006–24 I.R.B.

and agency fees may be employment-re-
lated expenses if the taxpayer is required
to pay the expenses to obtain the care.
b.Expenses to enable the taxpayer to be
gainfully employed
Under section 21(b)(2)(A), an expense
may be an employment-related expense
only if its purpose is to enable the tax-
payer to be gainfully employed. Section
1.44A–1(c)(1)(i) provides that an expense
must be incurred while the taxpayer is
gainfully employed or is in active search
of gainful employment. An expense is
not employment-related, however, merely
because the services are provided while
the taxpayer is employed. Rather, the pur-
pose of the expense must be to enable the
taxpayer to be gainfully employed.
Rev. Rul. 76–278, 1976–2 C.B. 84,
holds that expenses for dependent care ser-
vices during a taxpayer’s 6-month absence
from work due to illness do not qualify
as employment-related expenses although
the taxpayer was gainfully employed dur-
ing that period. The expenses were not for
the purpose of enabling the taxpayer to be
gainfully employed because the expenses
did not contribute to the taxpayer’s abil-
ity to be gainfully employed during the ab-
sence.
Section 1.44A–1(c)(1)(ii) provides that
a taxpayer must allocate on a daily basis
expenses that relate to a period during
only part of which the taxpayer is gain-
fully employed or in search of gainful
employment. The proposed regulations
clarify how this rule applies to tempo-
rary absences from work and part-time
employment. The proposed regulations
provide that, in general, dependent care
expenses for a period in which the tax-
payer is absent from work (whether paid
or unpaid) are not employment-related
expenses. However, for administrative
convenience, short, temporary absences
from work, such as for minor illness or va-
cation, are disregarded for taxpayers who
must pay for dependent care expenses on
a weekly or longer basis. Whether an
absence is short and temporary depends
on the facts and circumstances. The IRS
and the Treasury Department request com-
ments on appropriate periods to constitute
temporary absence safe harbors.
The proposed regulations provide that,
in general, taxpayers who work part-time
must allocate expenses between days
worked and days not worked. However,
taxpayers who work part-time but are re-
quired to pay for dependent care expenses
on a weekly or longer basis are not re-
quired to allocate expenses between days
worked and days not worked.
5.Limitations on Amount Creditable
a.Application of dollar limitation to two
or more qualifying individuals
Under section 21(c), the amount of em-
ployment-related expenses that a taxpayer
may take into account in any taxable year
is $2,400 for one qualifying individual and
$4,800 for more than one qualifying in-
dividual (increased to $3,000 and $6,000
for taxable years beginning after Decem-
ber 31, 2002, and before January 1, 2011).
The proposed regulations clarify that a tax-
payer may apply the limitation for two
or more qualifying individuals in unequal
proportions. Thus, if in taxable year 2004
a taxpayer pays $4,000 of employment-re-
lated expenses for the care of one child and
$2,000 for another child, the taxpayer may
take into account the full $6,000.
b.Earned income limitation
Section 21(d) provides that the amount
of employment-related expenses that may
be taken into account during any taxable
year cannot exceed the taxpayer’s earned
income or, if married, the earned income
of the taxpayer’s spouse (whichever is
less). A spouse who is a full-time student
or is incapable of self-care is deemed to
have earned income for each month of
not less than $200 if there is one qualify-
ing individual or $400 if there are two or
more qualifying individuals with respect
to the taxpayer for the taxable year. These
amounts are increased, respectively, to
$250 and $500 for taxable years begin-
ning after December 31, 2002, and before
January 1, 2011.
Section 1.44A–2(b)(2) provides a def-
inition ofearned incomethat is similar
to the definition under section 32 (relat-
ing to the earned income credit) and the
regulations thereunder. Since this regu-
lation was issued, the section 32 defini-
tion has changed several times. For ease
of administration, the proposed regulations
simplify the definition of earned income
by cross-referencing the definition under
section 32.
Section 1.44A–2(b)(3)(ii) defines a
full-time studentas a student pursuing a
full-time course of study, which cannot be
exclusively at night. The proposed regu-
lations delete the night school restriction.
6.Cost of Maintaining a Household
For taxable years beginning before Jan-
uary 1, 2005, section 21(a)(1) provides that
the credit is available to a taxpayer who
maintains a household that includes one
or more qualifying individuals. For those
years, section 21(e)(1) provides that a tax-
payer is treated as maintaining a household
for any period only if over half the cost
of maintaining the household is furnished
by the taxpayer or by the taxpayer and
spouse (if any). Section 1.44A–1(d)(3) de-
finescost of maintaining a householdsub-
stantially identically to the definition in
§1.2–2(d) (relating to the head of house-
hold filing status). For simplicity, the pro-
posed regulations cross-reference to the
definition ofcost of maintaining a house-
holdin §1.2–2(d) without regard to the last
sentence of that paragraph. In lieu of that
sentence, the proposed regulations provide
that, for purposes of section 21, the cost
of maintaining a household does not in-
clude the value of services performed in
the household by the taxpayer or a quali-
fying individual, or expenses paid or reim-
bursed by another person.
7.Principal Place of Abode
For taxable years beginning after De-
cember 31, 2004, the principal place of
abode test statutorily replaces the main-
taining a household test. Under section
21(b)(1), a qualifying individual must have
the same principal place of abode as the
taxpayer for more than one-half of the tax-
able year. For simplicity, the proposed
regulations provide thatprincipal place of
abodehas the same meaning as in section
152 and the regulations thereunder.
8.Definition of Marital Status
Under section 21(e)(2), the credit is al-
lowed to married taxpayers only if they
file a joint return. Section 21(e)(3) pro-
vides that taxpayers who are legally sep-
arated under a decree of divorce or sep-
arate maintenance are not married. The
2006–24 I.R.B.1054June 12, 2006

proposed regulations, in general, adopt the
rules of section 7703 and the regulations
thereunder to determine whether taxpay-
ers are married for purposes of section 21.
However, to maintain continued consis-
tencywithsection21(e)(3),theproposed
regulations provide, in addition, that tax-
payers who are legally separated under a
decree of divorce or separate maintenance
are not married.
9.Payments to Related Individuals
Section 21(e)
(6) provides that pay-
ments to a taxp
ayer’s dependent or child
under age 19 do
not qualify for the credit.
Payments to a
relative may qualify for the
credit if the
relative is not a dependent.
The proposed
regulations clarify that pay-
ments to eith
er the taxpayer’s spouse or to
a parent of t
he taxpayer’s child who is not
the taxpaye
r’s spouse do not qualify for
the credit.
This rule is consistent with the
requiremen
t that a married couple must
fileajoin
treturntoqualifyforthecredit,
and with th
e principle that the tax treat-
ment of a pa
yment with respect to a child
may be affe
cted by an individual’s under-
lying lega
l obligation to the child. See
section 2
1(e)(2); compare section 677(b).
10.Proposed Effective Date
The regulations are proposed to apply
to taxable years ending after the date the
regulations are published as final regula-
tions in theFederal Register. However,
taxpayers may apply the proposed regula-
tions in taxable years for which the period
of limitation on credit or refund under sec-
tion 6511 has not expired as of May 24,
2006.
11.Effect on Other Documents
When finalized, the regulations would
obsolete Rev. Rul. 76–278, 1976–2 C.B.
84, and Rev. Rul. 76–288, 1976–2 C.B.
83.
Special Analyses
This notice of proposed rulemaking is
not a significant regulatory action as de-
fined in Executive Order 12866. There-
fore, a regulatory assessment is not re-
quired. Section 553(b) of the Adminis-
trative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations. Be-
cause the regulations do not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and 8 copies) or electronic com-
ments that are submitted timely to the IRS.
The IRS and Treasury Department request
comments on the clarity of the proposed
rules and how they can be made easier to
understand. All comments will be avail-
able for public inspection and copying.
A public hearing will be scheduled if re-
questedinwritingbyanypersonwho
timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the public hearing
will be published in theFederal Register.
Drafting Information
The principal author of these proposed
regulations is Warren Joseph of the Office
of Associate Chief Counsel (Income Tax
and Accounting). However, other person-
nel from the IRS and Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are proposed to be amended as follows:
PART I — INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.21–1 also issued under 26
U.S.C. 21(f).
Section 1.21–2 also issued under 26
U.S.C. 21(f).
Section 1.21–3 also issued under 26
U.S.C. 21(f).
Section 1.21–4 also issued under 26
U.S.C.21(f)***
§1.21–1 [Redesignated]
Par. 2. Section 1.21–1 is redesignated
§1.15–1.
Par. 3. Sections 1.21–1, 1.21–2,
1.21–3, and 1.21–4 are added to read
as follows:
§1.21–1 Expenses for household and
dependent care services necessary for
gainful employment.
(a)In general. (1)Section21allows
a credit to a taxpayer against the tax im-
posed by chapter 1 for employment-related
expenses for household services and care
(as defined in paragraph (d) of this section)
of a qualifying individual (as defined in
paragraph (b) of this section). The purpose
of the expenses must be to enable the tax-
payer to be gainfully employed (as defined
in paragraph (c) of this section). For tax-
able years beginning after December 31,
2004, a qualifying individual must have
the same principal place of abode (as de-
fined in paragraph (g) of this section) as
the taxpayer for more than one-half of the
taxable year. For taxable years beginning
before January 1, 2005, the taxpayer must
maintain a household (as defined in para-
graph (h) of this section) that includes one
or more qualifying individuals.
(2) The amount of the credit is equal to
the applicable percentage of the employ-
ment-related expenses that may be taken
into account by the taxpayer during the
taxable year (but subject to the limits pre-
scribed in §1.21–2).Applicable percent-
agemeans 35 percent reduced by 1 per-
centage point for each $2,000 (or fraction
thereof) by which thetaxpayer’s adjusted
gross income for the taxable year exceeds
$15,000, but not less than 20 percent. For
example, if a taxpayer’s adjusted gross in-
come is $31,850, the applicable percentage
is 26 percent.
(3) Expenses may be taken into ac-
count, regardless of the taxpayer’s method
of accounting, only in the taxable year the
services are provided or the taxable year
the expenses are paid, whichever is later.
(4) The requirements of section 21 and
§§1.21–1 through 1.21–4 are applied at the
time the services are provided, regardless
of when the expenses are paid.
(b)Qualifying individual—(1)In gen-
eral. For taxable years beginning after De-
cember 31, 2004, a qualifying individual
is—
June 12, 200610552006–24 I.R.B.

(i) The taxpayer’s dependent (who is
a qualifying child within the meaning of
section 152) who has not attained age 13;
(ii) The taxpayer’s dependent who is
physically or mentally incapable of self-
care and who has the same principal place
of abode as the taxpayer for more than one-
half of the taxable year; or
(iii) The taxpayer’s spouse who is phys-
ically or mentally incapable of self-care
and who has the same principal abode as
the taxpayer for more than one-half of the
taxable year.
(2)Taxable years beginning before Jan-
uary 1, 2005. For taxable years beginning
before January 1, 2005, a qualifying indi-
vidual is—
(i) The taxpayer’s dependent for whom
the taxpayer is entitled to a deduction for
a personal exemption under section 151(c)
and who is under age 13;
(ii) The taxpayer’s dependent who is
physically or mentally incapable of self-
care; or
(iii) The taxpayer’s spouse who is phys-
ically or mentally incapable of self-care.
(3)Qualification on a daily basis.The
status of an individual as a qualifying indi-
vidual is determined on a daily basis. An
individual is not a qualifying individual on
the day the status terminates.
(4)Physical or mental incapacity.An
individual is physically or mentally inca-
pable of self-care if, as a result of a physi-
cal or mental defect, the individual is inca-
pable of caring for the individual’s hygiene
or nutritional needs, or requires full-time
attention of another person for the individ-
ual’s own safety or the safety of others.
The inability of an individual to engage in
any substantial gainful activity or to per-
form the normal household functions of a
homemaker or care for minor children by
reason of a physical or mental condition
does not of itself establish that the individ-
ual is physically or mentally incapable of
self-care.
(5)Special test for divorced or sepa-
rated parents—(i)Scope. This paragraph
(b)(5) applies to a child (as defined in sec-
tion 152(f)(1) for taxable years beginning
after December 31, 2004, and in section
151(c)(3) for taxable years beginning be-
fore January 1, 2005) who—
(A) Is under age 13 or is physically or
mentally incapable of self-care;
(B) Receives over one-half of his or her
support during the calendar year from one
or both parents who are divorced or legally
separated under a decree of divorce or sep-
arate maintenance or who are separated
under a written separation agreement; and
(C) Is in the custody of one or both par-
ents for more than one-half of the calendar
year.
(ii)Custodial parent allowed the credit.
A child to whom this paragraph (b)(5)
applies is the qualifying individual of only
one parent in any taxable year and is the
qualifying child of the custodial parent
even if the noncustodial parent may claim
the dependency exemption for that child
for that taxable year. See section 152(e).
The custodial parent is the parent with
whom a child sharedthe same principal
place of abode for the greater portion of the
calendar year. See section 152(e)(3)(A).
(c)Gainful employment—(1)In gen-
eral. Expenses are employment-related
expenses only if they are for the purpose of
enabling the taxpayer to be gainfully em-
ployed. The expenses must be for the care
of a qualifying individual or household ser-
vices provided during periods in which the
taxpayer is gainfully employed or is in ac-
tive search of gainful employment. Em-
ployment may consist of service within or
outside the taxpayer’s home and includes
self-employment. An expense is not em-
ployment-related merely because it is paid
or incurred while the taxpayer is gainfully
employed. The purpose of the expense
must be to enable the taxpayer to be gain-
fully employed. Whether the purpose of
an expense is to enable the taxpayer to be
gainfully employed depends on the facts
and circumstances of the particular case.
Work as a volunteer or for a nominal con-
sideration is not gainful employment.
(2)Determination of period of employ-
ment on a daily basis—(i)In general.Ex-
penses paid for a period during only part of
which the taxpayer is gainfully employed
or in active search of gainful employment
must be allocated on a daily basis.
(ii)Exception for short temporary ab-
sences. A taxpayer who is gainfully em-
ployed and who pays for dependent care
expenses on a weekly, monthly, or an-
nual basis is not required to allocate ex-
penses during short, temporary absences
from work, such as for vacation or minor
illness. Whether an absence is a short, tem-
porary absence is determined based on all
the facts and circumstances.
(iii)Part-time employment. A taxpayer
who is employed part-time generally must
allocate expenses for dependent care be-
tween days worked and days not worked.
However, if a taxpayer employed part time
is required to pay for dependent care on a
periodic basis (such as weekly or monthly)
that includes both days worked and days
not worked, the taxpayer is not required to
allocate the expenses. A day on which the
taxpayer works at least 1 hour is a day of
work.
(3)Examples. The provisions of this
paragraph (c) are illustrated by the follow-
ing examples:
Example 1. B, the custodial parent of two qualify-
ing children, hires a housekeeper for a monthly salary
to care for the children while B is gainfully employed.
B becomes ill and as a result is absent from work for
4 months. B continues to paythe housekeeper to care
for the children while B is absent from work. Dur-
ing this 4-month period, B performs no employment
services, but receives payments under her employer’s
wage continuation plan. Although B may be con-
sidered to be gainfully employed during her absence
from work, the absence is not a short, temporary ab-
sence within the meaning of paragraph (c)(2)(ii) of
this section, and her payments for household and de-
pendent care services during the period of illness are
not for the purpose of enabling her to be gainfully
employed. B’s expenses are not employment-related
expenses, and she may not take the expenses into ac-
count under section 21.
Example 2. C works 5 days per week and his
child attends a dependent care center (that complies
with all state and local requirements) to enable C to
be gainfully employed. The dependent care center
requires payment for periods of no less than 1 week.
C takes 2 days off from work as vacation days. Under
paragraph (c)(2)(ii) of this section, C is absent from
work on a short, temporary basis, and is not required
to allocate expenses between days working and days
not working. The entire fee for that week may be an
employment-related expense under section 21.
Example 3. D works 3 days per week and her
child attends a dependent care center (that complies
with all state and local requirements) to enable her
to be gainfully employed. The dependent care cen-
ter allows payment for any 3 days per week for $150
or 5 days per week for $250. D enrolls her child
for 5 days per week. Under paragraph (c)(2)(iii) of
this section, D must allocate her expenses for depen-
dent care between days worked and days not worked.
Three-fifths of the $250, or $150 per week, may be
an employment-related expense under section 21.
Example 4.ThefactsarethesameasinExample
3, except that the dependent care center does not offer
a 3-day option. The entire $250 weekly fee may be
an employment-related expense under section 21.
(d)Care of qualifying individual and
household services—(1)In general.To
qualify for the dependent care credit, ex-
penses must be for the care of a qualifying
individual. Expenses are for the care of a
qualifying individual if the primary func-
2006–24 I.R.B.1056June 12, 2006

tion is to assure the individual’s well-being
and protection. Not allexpenses relating to
a qualifying individual are provided for the
individual’s care. Amounts paid for food,
lodging, clothing, or education are not for
the care of a qualifying individual. If, how-
ever, the care is provided in such a man-
ner that the expenses cover other goods or
services that are incidental to and insepa-
rably a part of the care, the full amount is
for care.
(2)Allocation of expenses.Ifanex-
pense is partly for household services or
for the care of a qualifying individual and
partly for other goodsor services, a rea-
sonable allocation must be made. Only so
much of the expense that is allocable to
the household services or care of a quali-
fying individual is an employment-related
expense. An allocation must be made if a
housekeeper or other domestic employee
performs household duties and cares for
the qualifying children of the taxpayer and
also performs other services for the tax-
payer. No allocation is required, however,
if the expense for the other purpose is min-
imal or insignificant or if an expense is
partly attributable to the care of a qualify-
ing individual and partly to household ser-
vices.
(3)Household services. Expenses for
household services may be employment-
related expenses if the services are pro-
vided in connection with the care of a qual-
ifying individual. The household services
must be the performance in and about the
taxpayer’s home of ordinary and usual ser-
vices necessary to the maintenance of the
household and attributable to the care of
the qualifying individual. Services of a
housekeeper are household services within
the meaning of this paragraph (d)(3) if part
of those services is provided to the quali-
fying individual. Such services as are pro-
vided by chauffeurs, bartenders, or garden-
ers are not household services.
(4)Manner of providing care.The
manner of providing the care need not be
the least expensive alternative available to
the taxpayer. The cost of a paid caregiver
may be an expense for the care of a quali-
fying individual even if another caregiver
is available at no cost.
(5)School or similar program.Ex-
penses for a child in nursery school, pre-
school, or similar programs for children
below the level of kindergarten are for the
care of a qualifying individual and may be
employment-related expenses. Expenses
for a child in kindergarten or a higher grade
are not for the care of a qualifying individ-
ual. However, expenses for before- or af-
ter-school care of a child in kindergarten
or a higher grade may be for the care of a
qualifying individual.
(6)Overnight camps. Expenses for
overnight camps are not employment-re-
lated expenses.
(7)Day camps. The cost of a day camp
or similar program may be for the care of a
qualifying individual and an employment-
related expense, without allocation under
paragraph (d)(2) of this section, even if
the day camp specializes in a particular
activity.
(8)Transportation. The cost of trans-
portation by a dependent care provider of
a qualifying individual to or from a place
where care of that qualifying individual is
provided may be for the care of the qualify-
ing individual. The cost of transportation
not provided by a dependent care provider
is not for the care of the qualifying individ-
ual.
(9)Employment taxes. Taxes under sec-
tion 3111 (relating to the Federal Insur-
ance Contributions Act) and 3301 (relat-
ingtotheFederalUnemploymentTaxAct)
and similar state payroll taxes are employ-
ment-related expenses if paid in respect
of wages that are employment-related ex-
penses.
(10)Room and board. The additional
cost of providing room and board for a
caregiver over usual household expendi-
tures may be an employment-related ex-
pense.
(11)Indirect expenses. Expenses that
relate to but are not directly for the care
of a qualifying individual, such as applica-
tion fees, agency fees, and deposits, may
be for the care of a qualifying individual
and may be employment-related expenses
if the taxpayer is required to pay the ex-
penses to obtain the related care. However,
forfeited deposits and other payments are
not for the care of a qualifying individual
if care is not provided.
(12)Examples. The provisions of this
paragraph (d) are illustrated by the follow-
ing examples:
Example 1. To be gainfully employed, E sends
his 3-year old child to a pre-school. The pre-school
provides lunch and snacks. Under paragraph (d)(1)
of this section, E is not required to allocate expenses
between care and the lunch and snacks because the
lunch and snacks are incidental to and inseparably
a part of the care. Therefore, E may treat the full
amount paid to the pre-school as for the care of his
child.
Example 2. F, a member of the armed forces, is
orderedtoacombatzone.Tobeabletocomplywith
the orders, F places her 10-year old child in boarding
school. The school provides education, meals, and
housing to F’s child in addition to care. Under para-
graph (d)(2) of this section, F must allocate the cost
of the boarding school between expenses for care and
expenses for education and other services not consti-
tuting care. Only the part of the cost of the boarding
school that is for the care of F’s child is an employ-
ment-related expense under section 21.
Example 3. To be gainfully employed, G em-
ploys a full-time housekeeper to care for G’s two chil-
dren, aged 9 and 13 years. The housekeeper regularly
performs household services of cleaning and cooking
and drives G to and from G’s place of employment, a
trip of 15 minutes each way. Under paragraph (d)(3)
of this section, the chauffeur services are not house-
hold services. G is not required to allocate a portion
of the expense of the housekeeper to the chauffeur
services, however, because the chauffeur services are
minimal and insignificant. Further, no allocation un-
der paragraph (d)(2) of this section is required to de-
termine the portion of the expenses attributable to the
care of the 13-year old child (not a qualifying individ-
ual) because the household expenses are in part attrib-
utable to the care of the 9-year old child. Accordingly,
the entire expense of employing the housekeeper is
an employment-related expense. The amount that G
may take into account as an employment-related ex-
pense under section 21, however, is limited to the
amount allowable for one qualifying individual.
Example 4. To be gainfully employed, H sends
her 9-year old child to a summer day camp that spe-
cializes in computer instruction and activities. Under
paragraph (d)(7) of this section, the full cost of the
summer day camp may be for care although it spe-
cializes in a particular activity, computers.
Example 5. In 2004, J pays a fee to an agency to
obtain the services of an au pair to care for J’s qualify-
ing children to enable J to be gainfully employed. The
au pair begins caring for J’s children in 2005. Under
paragraph (d)(11) of this section, the fee paid in 2004
may be an employment-related expense. However,
under paragraph (a)(3) of this section, J may not take
the expense into account under section 21 until 2005,
when the au pair firstprovides the care.
Example 6. K places a deposit with a pre-school
to reserve a place for her child. K sends the child
to another pre-school and forfeits the deposit. Under
paragraph (d)(11) of this section, the forfeited deposit
is not an employment-related expense.
(e)Services outside the taxpayer’s
household—(1)In general. The credit is
allowable for expenses for services per-
formed outside the taxpayer’s household
onlyifthecareisforoneormorequalify-
ing individuals who are described in this
section at—
(i) Paragraph (b)(1)(i) or (b)(2)(i); or
(ii Paragraph (b)(2)(ii) or (b)(2)(iii) and
regularly spend at least 8 hours each day in
the taxpayer’s household.
June 12, 200610572006–24 I.R.B.

(2)Dependent care centers—(i)In gen-
eral. The credit is allowable for services
provided by a dependent care center only
if—
(A) The center complies with all ap-
plicable laws and regulations, if any, of a
state or local government, such as state or
local licensing requirements and building
and fire code regulations; and
(B) The requirements provided in this
paragraph (e) are met.
(ii)Definition.Thetermdependent
care centermeans any facility that pro-
vides full-time or part-time care for more
than six individuals (other than individu-
als who reside at the facility) on a regular
basis during the taxpayer’s taxable year,
and receives a fee, payment, or grant for
providing services for the individuals (re-
gardless of whether the facility is operated
for profit). For purposes of the preceding
sentence, a facility is presumed to provide
full-time or part-time care for six or fewer
individuals on a regular basis during the
taxpayer’s taxable year if the facility has
six or fewer individuals (including the
taxpayer’s qualifying individual) enrolled
for full-time or part-time care on the day
the qualifying individual is enrolled in the
facility (or on the first day of the taxable
year the qualifying individual attends the
facility if the qualifying individual was
enrolled in the facility in the preceding
taxable year) unless the Internal Revenue
Service demonstrates that the facility pro-
vides full-time or part-time care for more
than six individuals on a regular basis dur-
ing the taxpayer’s taxable year.
(f)Reimbursed expenses. Employment-
related expenses for which the taxpayer
is reimbursed (for example, under a de-
pendent care assistance program) may not
be taken into account for purposes of the
credit.
(g)Principal place of abode. For pur-
poses of this section, the termprincipal
place of abodehasthesamemeaningasin
section 152 and the regulations thereunder.
(h)Maintenance of a household—(1)
In general. For taxable years begin-
ning before January 1, 2005, the credit is
available only to taxpayers who maintain
households that include one or more qual-
ifying individuals. A taxpayer maintains
a household for the taxable year (or lesser
period) only if the taxpayer (and spouse,
if applicable) occupies the household and
furnishesoverone-halfofthecostforthe
taxable year (or lesser period) of maintain-
ing the household. The household must
be the principal place of abode (within the
meaning of section 152 and the regula-
tions thereunder) for the taxable year of
the taxpayer and the qualifying individual
or individuals described in paragraph (b)
of this section.
(2)Cost of maintaining a household.(i)
Except as provided in paragraph (h)(2)(ii)
of this section, for purposes of this section,
the termcost of maintaining a household
has the same meaning as in §1.2–2(d) with-
out regard to the last sentence thereof.
(ii) The cost of maintaining a household
does not include the value of services per-
formed in the household by the taxpayer
or by a qualifying individual described in
paragraph (b) of this section or any ex-
pense paid or reimbursed by another per-
son.
(3)Monthly proration of annual costs.
In determining the cost of maintaining a
household for a period of less than a tax-
able year, the cost for the entire taxable
year must be prorated on the basis of the
number of calendar months within that pe-
riod. A period of less than a calendar
month is treated as a full calendar month.
(4)Two or more families.Iftwoor
more families occupy living quarters in
common, each of the families is treated
as maintaining a separate household. A
taxpayer is maintaining a household if the
taxpayer provides more than one-half of
the cost of maintaining the separate house-
hold. For example, if two unrelated tax-
payers with their respective children oc-
cupy living quarters in common and each
taxpayer pays more than one-half of the
household costs for each respective fam-
ily, each taxpayer is treated as maintaining
a household.
(i) Reserved.
(j)Expenses qualifying as medical ex-
penses—(1)In general. A taxpayer may
not take an amount into account as both
an employment-related expense under sec-
tion 21 and an expense for medical care un-
der section 213.
(2)Examples. The provisions of this
paragraph (j) are illustrated by the follow-
ing examples:
Example 1. During 2004, L has $6,500 of em-
ployment-related expenses for the care of his child
who is physically incapable of self-care. The ex-
penses are for services performed in L’s household
that also qualify as expenses for medical care under
section 213. Of the total expenses, L may take into
account $3,000 under section 21. L may deduct the
balance of the expenses, or $3,500, as expenses for
medical care under section 213 to the extent the ex-
penses exceed 7.5 percent of L’s adjusted gross in-
come.
Example 2. ThefactsarethesameasinExam-
ple 1, however, L first takes into account the $6,500
of expenses under section 213. L deducts $500 as
an expense for medical care, which is the amount by
which the expenses exceed 7.5 percent of his adjusted
gross income. L may not take into account the $6,000
balance as employment-related expenses under sec-
tion 21 because he has taken the full amount of the
expenses into account in computing the amount de-
ductible under section 213.
(k)Substantiation. A taxpayer claiming
a credit for employment-related expenses
must maintain adequate records or other
sufficient evidence to substantiate the ex-
penses in accordance with section 6001
and the regulations thereunder.
(l)Effective date. This section and
§§1.21–2 through 1.21–4 apply to taxable
years ending after the date these regula-
tions are published as final regulations in
theFederal Register. However, taxpay-
ers may apply this section and §§1.21–2
through 1.21–4 in taxable years for which
theperiodoflimitationoncreditorrefund
under section 6511 has not expired as of
May 24, 2006.
§1.21–2 Limitations on amount creditable.
(a)Annual dollar limitation.(1)The
amount of employment-related expenses
that may be taken into account under
§1.21–1(a) for any taxable year cannot
exceed—
(i) $2,400 ($3,000 for taxable years be-
ginning after December 31, 2002, and be-
fore January 1, 2011) if there is one qual-
ifying individual with respect to the tax-
payer at any time during the taxable year;
or
(ii) $4,800 ($6,000 for taxable years be-
ginning after December 31, 2002, and be-
fore January 1, 2011) if there are two or
more qualifying individuals with respect to
the taxpayer at any time during the taxable
year.
(2) The amount determined under para-
graph (a)(1) of this section is reduced by
the aggregate amount excludable from
gross income under section 129 for the
taxable year.
(3) A taxpayer may take into account
the total amount of employment-related
expenses that do not exceed the annual dol-
lar limitation although the amount of em-
ployment-related expenses attributable to
2006–24 I.R.B.1058June 12, 2006

one qualifying individual exceeds 50 per-
cent of the limitation. For example, a tax-
payer with expenses in 2004 of $4,000 for
one qualifying individual and $1,500 for a
second qualifying individual may take into
account the full $5,500.
(4) A taxpayer is not required to pro-
rate the annual dollar limitation if a quali-
fying individual ceasesto qualify (for ex-
ample, by turning age 13) during the tax-
able year. However, the taxpayer may take
into account only expenses that qualify un-
der §1.21–1(a)(3) before the disqualifying
event.
(b)Earned income limitation—(1)In
general. The amount of employment-re-
lated expenses that may be taken into ac-
count under section 21 for any taxable year
cannot exceed—
(i) For a taxpayer who is not married at
the close of the taxable year, the taxpayer’s
earned income for the taxable year; or
(ii) For a taxpayer who is married at
the close of the taxable year, the lesser of
the taxpayer’s earned income or the earned
income of the taxpayer’s spouse for the
taxable year.
(2)Determination of spouse. For pur-
poses of this paragraph (b), a taxpayer
must take into account only the earned in-
come of a spouse to whom the taxpayer
is married at the close of the taxable year.
The spouse’s earned income for the entire
taxable year is taken into account, how-
ever, even though the taxpayer and the
spouse were married for only part of the
taxable year. The taxpayer is not required
to take into account the earned income of a
spouse who died or was divorced or sepa-
rated from the taxpayer during the taxable
year. See §1.21–3(b) for rules providing
that certain married taxpayers legally sep-
arated or living apart are treated as not mar-
ried.
(3)Definition of earned income.For
purposes of this section, the termearned
incomehas the same meaning as in section
32(c)(2) and the regulations thereunder.
(4)Attribution of earned income to stu-
dent or incapacitated spouse. (i) For pur-
poses of this section, a spouse is deemed,
for each month during which the spouse
is a full-time student or is a qualifying
individual described in §1.21–1(b)(1)(iii)
or § 1.21–1(b)(2)(iii), to be gainfully em-
ployed and to have earned income of not
less than—
(A)$200($250fortaxable years begin-
ning after December 31, 2002, and before
January 1, 2011) if there is one qualifying
individual with respect to the taxpayer at
any time during the taxable year; or
(B) $400 ($500 for taxable years be-
ginning after December 31, 2002, and be-
fore January 1, 2011) if there are two or
more qualifying individuals with respect to
the taxpayer at any time during the taxable
year.
(ii) For purposes of this paragraph
(b)(4), a full-time student is an individual
who is enrolled at and attends an educa-
tional institution during each of 5 calendar
months of the taxpayer’s taxable year for
the number of course hours considered to
be a full-time course of study. The en-
rollment for 5 calendar months need not
be consecutive. See section 152(f)(2) (for
taxable years beginning after December
31, 2004), or section 151(c)(4) (for taxable
years beginning before January 1, 2005),
and the regulations thereunder.
(iii) Earned income may be attributed
under this paragraph (b)(4), in the case of
any husband and wife, to only one spouse
in any month.
(c)Examples. The provisions of this
section are illustrated by the following ex-
amples:
Example 1. In 2004, M, who is married, pays em-
ployment-related expenses of $5,000 for the care of
one qualifying individual. M’s earned income for the
taxable year is $40,000 and her husband’s earned in-
come is $2,000. M did not exclude any dependent
care assistance under section 129. Under paragraph
(b)(1) of this section, M may take into account un-
der section 21 only the amount of employment-re-
lated expenses that does not exceed the lesser of her
earned income or the earned income of her husband,
or $2,000.
Example 2. The facts are the same as inExample
1except that M’s husband is a full-time student for 9
months of the taxable year and has no earned income.
Under paragraph (b)(4) of this section, M’s husband
is deemed to have earned income of $2,250. M may
take into account $2,250 of employment-related ex-
penses under section 21.
Example 3. For all of 2004, N is a full-time stu-
dent and O, N’s husband, is an individual who is in-
capable of self-care (as defined in §1.21–1(b)(1)(iii)).
N and O have no earned income and pay expenses
of $5,000 for O’s care. Under paragraph (b)(4) of
this section, either N or O may be deemed to have
$3,000 of earned income. However, earned income
may be attributed to only one spouse under paragraph
(b)(4)(iii) of this section. Under the limitation in
paragraph (b)(1)(ii) of this section, the lesser of N’s
or O’s earned income is zero. N and O may not take
the expenses into account under section 21.
(d)Cross-reference. For an additional
limitation on the credit under section 21,
see section 26.
§1.21–3 Special rules applicable to
married taxpayers.
(a)Joint return requirement.Nocredit
is allowed under section 21 for taxpayers
who are married (within the meaning of
section 7703 and the regulations thereun-
der) at the close of the taxable year unless
the taxpayer and spouse file a joint return
for the taxable year. See section 6013 and
the regulations thereunder relating to joint
returns of income tax by husband and wife.
(b)Taxpayers treated as not married.
The requirements of paragraph (a) of this
section do not apply to a taxpayer who is
legally separated under a decree of divorce
or separate maintenance or who is treated
as not married under section 7703(b) and
the regulations thereunder (relating to cer-
tain married taxpayers living apart). A tax-
payer who is treated as not married un-
der this paragraph (b) is not required to
take into account the earned income of the
taxpayer’s spouse for purposes of apply-
ing the earned income limitation on the
amount of employment-related expenses
under §1.21–2(b).
(c)Death of married taxpayer.Ifamar-
ried taxpayer dies during the taxable year
and the survivor may make a joint return
with respect to the deceased spouse under
section 6013(a)(3), the credit is allowed for
the year only if a joint return is made. If,
however, the surviving spouse remarries
before the end of the taxable year in which
the deceased spouse dies, a credit may be
allowed on the decedent spouse’s separate
return.
§1.21–4 Payments to certain related
individuals.
(a)In general. A credit is not allowed
under section 21 for any amount paid by
the taxpayer to an individual—
(1) For whom a deduction under sec-
tion 151(c) (relating to deductions for per-
sonal exemptions for dependents) is allow-
able either to the taxpayer or the taxpayer’s
spouse for the taxable year;
(2) Who is a child of the taxpayer
(within the meaning of section 152(f)(1)
for taxable years beginning after Decem-
ber 31, 2004, and section 151(c)(3) for
taxable years beginning before January 1,
June 12, 200610592006–24 I.R.B.

2005) and is under age 19 at the close of
the taxable year;
(3) Who is the spouse of the taxpayer at
any time during the taxable year; or
(4) Who is the parent of the tax-
payer’s child who is a qualifying indi-
vidual described in §1.21–1(b)(1)(i) or
§1.21–1(b)(2)(i).
(b)Payments to partnerships or other
entities. In general, paragraph (a) of this
section does not apply to services per-
formed by partnerships or other entities.
If, however, the partnership or other en-
tity is established or maintained primarily
to avoid the application of paragraph (a)
of this section to permit the taxpayer to
claim the credit, for purposes of section
21, the payments of employment-related
expenses are treated as made directly to
each partner or owner in proportion to that
partner’s or owner’s ownership interest.
Whether a partnership or other entity is
established or maintained to avoid the ap-
plication of paragraph (a) of this section is
determined based on the facts and circum-
stances, including whether the partnership
or other entity is established for the pri-
mary purpose of caring for the taxpayer’s
qualifying individual or providing house-
hold services to the taxpayer.
(c)Examples. The provisions of this
section are illustrated by the following ex-
amples:
Example 1. P pays $5,000 to her mother for the
care of P’s 5-year old child during 2004. The ex-
penses otherwise qualify as employment-related ex-
penses. P’s mother is not her dependent. P may take
into account under section 21 the amounts paid to her
mother for the care of P’s child.
Example 2. Q, who is divorced and has custody
of his 5-year old child, pays $6,000 during 2004 to
R, who is his ex-wife and the child’s mother, for the
care of the child. The expenses otherwise qualify
as employment-related expenses. Under paragraph
(a)(4) of this section, Q may not take into account
under section 21 the amounts paid to R because R is
the child’s mother.
Example 3. The facts are the same as inExample
2, except that R is not the mother of Q’s child. Q may
take into account under section 21 the amounts paid
to R.
§§1.44A–1 through 1.44A–4 [Removed]
Par. 4. Sections 1.44A–1, 1.44A–2,
1.44A–3, and 1.44A–4 are removed.
§1.214–1 [Removed]
Par. 5. Section 1.214–1 is removed.
§§1.214A–1 through 1.214A–5
[Removed]
Par. 6. Sections 1.214A–1, 1.214A–2,
1.214A–3, 1.214A–4, and 1.214A–5 are
removed.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 7. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 8. In §602.101, paragraph (b) is
revised to remove entries as follows:
§ 602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
identified and described
Current OMB
control No.
*****
1.44A–1........................................................... 1545–0068
1.44A–3........................................................... 1545–0074
*****
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on May 23, 2006,
8:45 a.m., and published in the issue of the Federal Register
for May 24, 2006, 71 F.R. 29847)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
and Notice of Public Hearing
Computer Software Under
Section 199(c)(5)(B)
REG–111578–06
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions and notice of public hearing.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9262) concerning the application
of section 199 of the Internal Revenue
Code, which provides a deduction for in-
come attributable to domestic production
activities, to certain transactions involv-
ing computer software. The text of those
regulations also serves as the text of these
proposed regulations. This document also
provides notice of a public hearing on
these proposed regulations.
DATES: Written or electronic comments
must be received by August 30, 2006. Out-
lines of topics to be discussed at the public
hearing scheduled for Tuesday, August 29,
2006, must be received by August 8, 2006.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–111578–06), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–111578–06),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC, or sent electronically, via
the IRS Internet site atwww.irs.gov/regs
or via the Federal eRulemaking Por-
tal atwww.regulations.gov(IRS —
REG–111578–06). The public hearing
will be held in the IRS Auditorium, Inter-
nal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Paul Handleman or Lauren Ross Taylor,
2006–24 I.R.B.1060June 12, 2006

(202) 622–3040; concerning submission
of comments, the hearing, and/or to be
placed on the building access list to at-
tend the hearing, Richard A. Hurst, (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in this issue of
the Bulletin amend the Income Tax Regu-
lations (26 CFR Part 1) relating to section
199. The temporary regulations provide
guidance under section 199 for taxpayers
providing computer software to customers
for the customers’ direct use while con-
nected to the Internet. The text of those
regulations also serves as the text of these
proposed regulations. The preamble to the
temporary regulations explains the amend-
ments.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It also has
been determined thatsection 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations, and because the regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on their
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submit-
ted timely to the IRS. Comments are re-
quested on all aspects of the proposed reg-
ulations. In addition, the IRS and Trea-
sury Department specifically request com-
ments on the clarity of the proposed rules
and how they can be made easier to under-
stand. All comments will be available for
public inspection and copying.
A public hearing has been scheduled
for Tuesday, August 29, 2006, at 10 a.m.
in the IRS Auditorium, Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Due to building security
procedures, visitors must enter at the Con-
stitution Avenue entrance. In addition, all
visitors must presentphoto identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing.
Persons who wish to present oral com-
ments at the hearing must submit elec-
tronic or written comments and an out-
line of the topics to be discussed and the
time to be devoted to each topic (a signed
original and eight (8) copies) by August
8, 2006. A period of 10 minutes will be
allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal authors of these reg-
ulations are Paul Handleman and
Lauren Ross Taylor, Office of Associate
Chief Counsel (Passthroughs and Special
Industries), IRS. However, other person-
nel from the IRS and Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accor
dingly, 26 CFR part 1 is proposed
to be a
mended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.199–3 also issued under 26
U.S.C. 199(d). * * *
Section 1.199–8 also issued under 26
U.S.C. 199(d). * * *
Par. 2. Section 1.199–3 is amended to
read as follows:
§1.199–3 Domestic production gross
receipts.
[The text of the amendments to this pro-
posed section is the same as the text of
§1.199–3T published elsewhere in this is-
sue of the Bulletin.]
Par. 3. Section 1.199–8 is amended to
read as follows:
§1.199–8 Other rules.
[The text of the amendments to this pro-
posed section is the same as the text of
§1.199–8T published elsewhere in this is-
sue of the Bulletin.]
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on May 24, 2006,
11:47 a.m., and published in the issue of the Federal Register
for June 1, 2006, 71 F.R. 31128)
2006 Prevailing State
Assumed Interest Rates;
Correction
Announcement 2006–35
This announcement corrects an error in
Rev. Rul. 2006–25 published in 2006–20
I.R.B. On page 883 of 2006–20 I.R.B.,
the numbers listed for Schedule A are in-
correct. The numbers presently read 5.75
for guarantee durations of 10 or fewer
years, 5.25 for guarantee durations of
more than 10 years but not more than 20
years, and 5.00 for guarantee durations
of more than 20 years. These numbers
would be correct if the table referenced
nonforfeiture interest rates but are not
the valuation interest rates intended to be
listed in Schedule A. The correct numbers
for valuation interest rates are 4.50 for
guarantee durations of 10 or fewer years,
4.25 for guarantee durations of more than
10 years but not more than 20 years, and
4.00 for guarantee durations of more than
20 years. No other information in the
revenue ruling is changed.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Ann H. Logan of the Office of Asso-
June 12, 200610612006–24 I.R.B.

ciate Chief Counsel (Financial Institutions
and Products). For further information re-
garding this announcement, contact her at
(202) 622–3970 (not a toll-free call).
Revision of Income Tax
Regulations Under Sections
367, 884, and 6038B Dealing
With Statutory Mergers or
Consolidations Under Section
368(a)(1)(A) Involving One or
More Foreign Corporations,
and Guidance Necessary To
Facilitate Business Electronic
Filing Under Section 6038B;
Correction
Announcement 2006–38
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting amendment.
SUMMARY: This document contains a
correction to final regulations (T.D. 9243,
2006–8 I.R.B. 475), that was published
in theFederal Registeron Thursday,
January 26, 2006 (71 FR 4276). This
final regulation amends the income tax
regulations under various provisions of
the Internal Revenue Code to account for
statutory mergers and consolidations.
DATES: This correction is effective Jan-
uary 23, 2006.
FOR FURTHER INFORMATION
CONTACT: Christopher Trump (202)
622–3860 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulation (T.D. 9243) that is
the subject of this correction is under sec-
tion 367 of the Internal Revenue Code.
Need for Correction
As published, T.D. 9243 contains an er-
ror that may prove to be misleading and is
in need of clarification.
*****
Correction of Publication
Accordingly, 26 CFR Part 1 is cor-
rected by making the following correcting
amendments:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority:26USC7805***
§1.367(b)–6 [Corrected]
Par. 2. Section 1.367(b)–6 is amended
by removing the third sentence of para-
graph (a) (1) and adding the following sen-
tence in its place to read as follows:
§1.367(b)–6 Effective dates and
coordination rules.
(a) * * *
(1) * * * Section 1.367(b)–4(b)(1)(ii)
applies to all triangular reorganizations
and reorganizations described in section
368(a)(1)(G) and (a)(2)(D) occurring on
or after January 23, 2006, although tax-
payers may apply §1.367(b)–4(b)(1)(ii)
to triangular B reorganizations occurring
on or after February 23, 2000, that is not
closed by the period of limitations if done
consistently with respect to all such trian-
gular B reorganizations. * * *
*****
Guy R. Traynor,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on May 15, 2006,
8:45 a.m., and published in the issue of the Federal Register
for May 16, 2006, 71 F.R. 28266)
2006–24 I.R.B.1062June 12, 2006

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
June 12, 2006i2006–24 I.R.B.

Numerical Finding List
1
Bulletin 2006–1 through 2006–24
Announcements:
2006-1, 2006-1 I.R.B.260
2006-2, 2006-2 I.R.B.300
2006-3, 2006-3 I.R.B.327
2006-4, 2006-3 I.R.B.328
2006-5, 2006-4 I.R.B.378
2006-6, 2006-4 I.R.B.340
2006-7, 2006-4 I.R.B.342
2006-8, 2006-4 I.R.B.344
2006-9, 2006-5 I.R.B.392
2006-10, 2006-5 I.R.B.393
2006-11, 2006-6 I.R.B.420
2006-12, 2006-6 I.R.B.421
2006-13, 2006-7 I.R.B.462
2006-14, 2006-8 I.R.B.516
2006-15, 2006-11 I.R.B.632
2006-16, 2006-12 I.R.B.653
2006-17, 2006-12 I.R.B.653
2006-18, 2006-12 I.R.B.654
2006-19, 2006-13 I.R.B.674
2006-20, 2006-13 I.R.B.675
2006-21, 2006-14 I.R.B.703
2006-22, 2006-16 I.R.B.779
2006-23, 2006-14 I.R.B.729
2006-24, 2006-16 I.R.B.820
2006-25, 2006-18 I.R.B.871
2006-26, 2006-18 I.R.B.871
2006-27, 2006-18 I.R.B.871
2006-28, 2006-18 I.R.B.873
2006-29, 2006-19 I.R.B.879
2006-30, 2006-19 I.R.B.879
2006-31, 2006-20 I.R.B.912
2006-32, 2006-20 I.R.B.913
2006-33, 2006-20 I.R.B.914
2006-34, 2006-21 I.R.B.937
2006-35, 2006-24 I.R.B.1061
2006-36, 2006-23 I.R.B.1038
2006-37, 2006-23 I.R.B.1039
2006-38, 2006-24 I.R.B.1062
Court Decisions:
2081, 2006-13 I.R.B.656
2082, 2006-14 I.R.B.697
Notices:
2006-1, 2006-4 I.R.B.347
2006-2, 2006-2 I.R.B.278
2006-3, 2006-3 I.R.B.306
2006-4, 2006-3 I.R.B.307
2006-5, 2006-4 I.R.B.348
2006-6, 2006-5 I.R.B.385
2006-7, 2006-10 I.R.B.559
Notices— Continued:
2006-8, 2006-5 I.R.B.386
2006-9, 2006-6 I.R.B.413
2006-10, 2006-5 I.R.B.386
2006-11, 2006-7 I.R.B.457
2006-12, 2006-7 I.R.B.458
2006-13, 2006-8 I.R.B.496
2006-14, 2006-8 I.R.B.498
2006-15, 2006-8 I.R.B.501
2006-16, 2006-9 I.R.B.538
2006-17, 2006-10 I.R.B.559
2006-18, 2006-8 I.R.B.502
2006-19, 2006-9 I.R.B.539
2006-20, 2006-10 I.R.B.560
2006-21, 2006-12 I.R.B.643
2006-22, 2006-11 I.R.B.593
2006-23, 2006-11 I.R.B.594
2006-24, 2006-11 I.R.B.595
2006-25, 2006-11 I.R.B.609
2006-26, 2006-11 I.R.B.622
2006-27, 2006-11 I.R.B.626
2006-28, 2006-11 I.R.B.628
2006-29, 2006-12 I.R.B.644
2006-30, 2006-24 I.R.B.1044
2006-31, 2006-15 I.R.B.751
2006-32, 2006-13 I.R.B.677
2006-33, 2006-15 I.R.B.754
2006-34, 2006-14 I.R.B.705
2006-35, 2006-14 I.R.B.708
2006-36, 2006-15 I.R.B.756
2006-37, 2006-18 I.R.B.855
2006-38, 2006-16 I.R.B.777
2006-39, 2006-17 I.R.B.841
2006-40, 2006-18 I.R.B.855
2006-41, 2006-18 I.R.B.857
2006-42, 2006-19 I.R.B.878
2006-43, 2006-21 I.R.B.921
2006-44, 2006-20 I.R.B.889
2006-45, 2006-20 I.R.B.891
2006-46, 2006-24 I.R.B.1044
2006-47, 2006-20 I.R.B.892
2006-48, 2006-21 I.R.B.922
2006-49, 2006-22 I.R.B.943
Proposed Regulations:
REG-107722-00, 2006-4 I.R.B.354
REG-104385-01, 2006-5 I.R.B.389
REG-122380-02, 2006-10 I.R.B.563
REG-137243-02, 2006-3 I.R.B.317
REG-139059-02, 2006-24 I.R.B.1052
REG-144784-02, 2006-23 I.R.B.1036
REG-133446-03, 2006-2 I.R.B.299
REG-113365-04, 2006-10 I.R.B.580
REG-148568-04, 2006-6 I.R.B.417
REG-106418-05, 2006-7 I.R.B.461
REG-133036-05, 2006-20 I.R.B.911
Proposed Regulations— Continued:
REG-138879-05, 2006-8 I.R.B.503
REG-143244-05, 2006-6 I.R.B.419
REG-146384-05, 2006-17 I.R.B.843
REG-146459-05, 2006-8 I.R.B.504
REG-157271-05, 2006-12 I.R.B.652
REG-164247-05, 2006-15 I.R.B.758
REG-111578-06, 2006-24 I.R.B.1060
Revenue Procedures:
2006-1, 2006-1 I.R.B.1
2006-2, 2006-1 I.R.B.89
2006-3, 2006-1 I.R.B.122
2006-4, 2006-1 I.R.B.132
2006-5, 2006-1 I.R.B.174
2006-6, 2006-1 I.R.B.204
2006-7, 2006-1 I.R.B.242
2006-8, 2006-1 I.R.B.245
2006-9, 2006-2 I.R.B.278
2006-10, 2006-2 I.R.B.293
2006-11, 2006-3 I.R.B.309
2006-12, 2006-3 I.R.B.310
2006-13, 2006-3 I.R.B.315
2006-14, 2006-4 I.R.B.350
2006-15, 2006-5 I.R.B.387
2006-16, 2006-9 I.R.B.539
2006-17, 2006-14 I.R.B.709
2006-18, 2006-12 I.R.B.645
2006-19, 2006-13 I.R.B.677
2006-20, 2006-17 I.R.B.841
2006-21, 2006-24 I.R.B.1050
2006-22, 2006-23 I.R.B.1033
2006-23, 2006-20 I.R.B.900
2006-24, 2006-22 I.R.B.943
2006-25, 2006-21 I.R.B.926
2006-26, 2006-21 I.R.B.936
2006-27, 2006-22 I.R.B.945
Revenue Rulings:
2006-1, 2006-2 I.R.B.261
2006-2, 2006-2 I.R.B.261
2006-3, 2006-2 I.R.B.276
2006-4, 2006-2 I.R.B.264
2006-5, 2006-3 I.R.B.302
2006-6, 2006-5 I.R.B.381
2006-7, 2006-6 I.R.B.399
2006-8, 2006-9 I.R.B.520
2006-9, 2006-9 I.R.B.519
2006-10, 2006-10 I.R.B.557
2006-11, 2006-12 I.R.B.635
2006-12, 2006-12 I.R.B.637
2006-13, 2006-13 I.R.B.656
2006-14, 2006-15 I.R.B.740
2006-15, 2006-13 I.R.B.661
2006-16, 2006-14 I.R.B.694
2006-17, 2006-15 I.R.B.748
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin
2005–52, dated December 27, 2005.
2006–24 I.R.B.iiJune 12, 2006

Revenue Rulings— Continued:
2006-18, 2006-15 I.R.B.743
2006-19, 2006-15 I.R.B.749
2006-20, 2006-15 I.R.B.746
2006-21, 2006-15 I.R.B.745
2006-22, 2006-14 I.R.B.687
2006-23, 2006-17 I.R.B.839
2006-24, 2006-19 I.R.B.875
2006-25, 2006-20 I.R.B.882
2006-26, 2006-22 I.R.B.939
2006-27, 2006-21 I.R.B.915
2006-28, 2006-22 I.R.B.938
2006-29, 2006-23 I.R.B.1031
Tax Conventions:
2006-6, 2006-4 I.R.B.340
2006-7, 2006-4 I.R.B.342
2006-8, 2006-4 I.R.B.344
2006-19, 2006-13 I.R.B.674
2006-20, 2006-13 I.R.B.675
2006-21, 2006-14 I.R.B.703
Treasury Decisions:
9231, 2006-2 I.R.B.272
9232, 2006-2 I.R.B.266
9233, 2006-3 I.R.B.303
9234, 2006-4 I.R.B.329
9235, 2006-4 I.R.B.338
9236, 2006-5 I.R.B.382
9237, 2006-6 I.R.B.394
9238, 2006-6 I.R.B.408
9239, 2006-6 I.R.B.401
9240, 2006-7 I.R.B.454
9241, 2006-7 I.R.B.427
9242, 2006-7 I.R.B.422
9243, 2006-8 I.R.B.475
9244, 2006-8 I.R.B.463
9245, 2006-14 I.R.B.696
9246, 2006-9 I.R.B.534
9247, 2006-9 I.R.B.521
9248, 2006-9 I.R.B.524
9249, 2006-10 I.R.B.546
9250, 2006-11 I.R.B.588
9251, 2006-11 I.R.B.590
9252, 2006-12 I.R.B.633
9253, 2006-14 I.R.B.689
9254, 2006-13 I.R.B.662
9255, 2006-15 I.R.B.741
9256, 2006-16 I.R.B.770
9257, 2006-17 I.R.B.821
9258, 2006-20 I.R.B.886
9259, 2006-19 I.R.B.874
9260, 2006-23 I.R.B.1001
9261, 2006-21 I.R.B.919
9262, 2006-24 I.R.B.1040
June 12, 2006iii2006–24 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletin 2006–1 through 2006–24
Announcements:
2000-48
Modified by
Notice 2006-35, 2006-14 I.R.B.708
Notices:
89-85
Amplified by
Notice 2006-46, 2006-24 I.R.B.1044
2001-4
Sections (V)(C), (D), and (E) superseded by
T.D. 9253, 2006-14 I.R.B.689
2001-11
Superseded by
T.D. 9253, 2006-14 I.R.B.689
2001-43
Modified by
Notice 2006-35, 2006-14 I.R.B.708
Sections 2 and 3 superseded by
T.D. 9253, 2006-14 I.R.B.689
2002-35
Clarified and modified by
Notice 2006-16, 2006-9 I.R.B.538
2005-30
Modified and superseded by
Notice 2006-31, 2006-15 I.R.B.751
2005-44
Supplemented by
Notice 2006-1, 2006-4 I.R.B.347
2005-66
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-73
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-81
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-98
Supplemented by
Notice 2006-7, 2006-10 I.R.B.559
Proposed Regulations:
REG-103829-99
Withdrawn by
Ann. 2006-16, 2006-12 I.R.B.653
Proposed Regulations— Continued:
REG-150313-01
Withdrawn by
Ann. 2006-30, 2006-19 I.R.B.879
REG-131739-03
Corrected by
Ann. 2006-10, 2006-5 I.R.B.393
REG-131264-04
Withdrawn by
Ann. 2006-34, 2006-21 I.R.B.937
REG-138647-04
Corrected by
Ann. 2006-4, 2006-3 I.R.B.328
REG-158080-04
Corrected by
Ann. 2006-11, 2006-6 I.R.B.420
Revenue Procedures:
81-17
Obsoleted by
Rev. Proc. 2006-24, 2006-22 I.R.B.943
89-8
Superseded by
Rev. Proc. 2006-23, 2006-20 I.R.B.900
89-56
Modified by
Rev. Proc. 2006-21, 2006-24 I.R.B.1050
90-39
Modified by
Rev. Proc. 2006-21, 2006-24 I.R.B.1050
96-52
Superseded by
Rev. Proc. 2006-10, 2006-2 I.R.B.293
97-27
Modified by
Rev. Proc. 2006-11, 2006-3 I.R.B.309
Modified and amplified by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2002-9
Modified by
Rev. Proc. 2006-11, 2006-3 I.R.B.309
Modified and amplified by
Notice 2006-47, 2006-20 I.R.B.892
Rev. Proc. 2006-12, 2006-3 I.R.B.310
Rev. Proc. 2006-14, 2006-4 I.R.B.350
Rev. Proc. 2006-16, 2006-9 I.R.B.539
2002-17
Modified by
Rev. Proc. 2006-14, 2006-4 I.R.B.350
2002-32
Modified by
Rev. Proc. 2006-21, 2006-24 I.R.B.1050
Revenue Procedures— Continued:
2002-52
Modified by
Rev. Proc. 2006-26, 2006-21 I.R.B.936
2003-31
Superseded by
Rev. Proc. 2006-19, 2006-13 I.R.B.677
2003-38
Modified by
Rev. Proc. 2006-16, 2006-9 I.R.B.539
2003-44
Modified and superseded by
Rev. Proc. 2006-27, 2006-22 I.R.B.945
2004-23
Superseded for certain taxable years by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2004-40
Superseded by
Rev. Proc. 2006-9, 2006-2 I.R.B.278
2005-1
Superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
2005-2
Superseded by
Rev. Proc. 2006-2, 2006-1 I.R.B.89
2005-3
Superseded by
Rev. Proc. 2006-3, 2006-1 I.R.B.122
2005-4
Superseded by
Rev. Proc. 2006-4, 2006-1 I.R.B.132
2005-5
Superseded by
Rev. Proc. 2006-5, 2006-1 I.R.B.174
2005-6
Superseded by
Rev. Proc. 2006-6, 2006-1 I.R.B.204
2005-7
Superseded by
Rev. Proc. 2006-7, 2006-1 I.R.B.242
2005-8
Superseded by
Rev. Proc. 2006-8, 2006-1 I.R.B.245
2005-9
Superseded for certain taxable years by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2005-12
Section 10 modified and superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin 2005–52, dated December 27,
2005.
2006–24 I.R.B.ivJune 12, 2006

Revenue Procedures— Continued:
2005-15
Obsoleted in part by
Rev. Proc. 2006-17, 2006-14 I.R.B.709
2005-21
Superseded by
Rev. Proc. 2006-25, 2006-21 I.R.B.926
2005-22
Obsoleted by
Rev. Proc. 2006-20, 2006-17 I.R.B.841
2005-24
Modified by
Notice 2006-15, 2006-8 I.R.B.501
2005-61
Superseded by
Rev. Proc. 2006-3, 2006-1 I.R.B.122
2005-68
Superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
Rev. Proc. 2006-3, 2006-1 I.R.B.122
Revenue Rulings:
55-355
Obsoleted by
T.D. 9244, 2006-8 I.R.B.463
74-503
Revoked by
Rev. Rul. 2006-2, 2006-2 I.R.B.261
77-230
Obsoleted by
T.D. 9249, 2006-10 I.R.B.546
91-5
Modified by
T.D. 9250, 2006-11 I.R.B.588
92-19
Supplemented in part by
Rev. Rul. 2006-25, 2006-20 I.R.B.882
92-86
Modified by
T.D. 9250, 2006-11 I.R.B.588
2000-2
Modified and superseded by
Rev. Rul. 2006-26, 2006-22 I.R.B.939
2006-25
Corrected by
Ann. 2006-35, 2006-24 I.R.B.1061
Treasury Decisions:
9191
Corrected by
Ann. 2006-26, 2006-18 I.R.B.871
9192
Corrected by
Ann. 2006-15, 2006-11 I.R.B.632
Treasury Decisions— Continued:
9203
Corrected by
Ann. 2006-12, 2006-6 I.R.B.421
9243
Corrected by
Ann. 2006-38, 2006-24 I.R.B.1062
9244
Corrected by
Ann. 2006-31, 2006-20 I.R.B.912
9248
Corrected by
Ann. 2006-32, 2006-20 I.R.B.913
June 12, 2006v2006–24 I.R.B.
U.S. GPO: 2006—320–797/20061