Internal Revenue Bulletin 2025-4 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 2025–4
January 20, 2025
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
Notice 2025-3, page 488.
This notice provides transitional relief from backup withhold-
ing tax liability and associated penalties for any DeFi broker
that fails to withhold and pay the backup withholding tax:
(1) for any sale of a digital asset effected by a DeFi broker
during calendar year 2027; and (2) for any sale of a digital
asset effected by a DeFi broker during calendar year 2028
for a customer (payee), if the DeFi broker submits that pay-
ee’s name and tax identification number (TIN) combination
to the IRS’s TIN Matching Program and receives a response
that the name and TIN combination matches IRS records.
For sales effected before January 1, 2029, this notice also
provides that (1) a DeFi broker may treat a customer as an
exempt foreign person if the customer has not previously
been classified as a U.S. person by the DeFi broker, and
the information that the DeFi broker has for the customer
includes a residence address that is not a U.S. address
and (2) the IRS will not impose penalties with respect to any
decrease in the value of received digital assets between the
time of the transaction and the time the broker liquidates 24
percent of the received digital assets, provided the broker
immediately liquidates the digital assets.
Rev. Proc. 2025-12, page 512.
On December 30, 2024, Revenue Procedure 2025-1 was
published with an incorrect user fee for requests for tax
treaty limitation of benefits determinations. I.R.B. 2025-1.
This revenue procedure contains the correct user fee for
requests for tax treaty limitation of benefits determinations.
Rev. Proc. 2025-1 is modified.
ADMINISTRATIVE, INCOME TAX
T.D. 10019, page 482.
This document contains final regulations that amend
the definition of “coverage month” and amend certain
other rules in existing income tax regulations regarding
the computation of an individual taxpayer’s premium tax
credit. The coverage month amendment generally pro-
vides that, in computing a premium tax credit, a month
may be a coverage month for an individual if the amount
of the premium paid, including by advance payments of
the premium tax credit, for the month for the individual’s
coverage is sufficient to avoid termination of the individ-
ual’s coverage for that month. The final regulations also
amend the existing regulations relating to the amount of
enrollment premiums used in computing the taxpayer’s
monthly premium tax credit if a portion of the monthly
enrollment premium for a coverage month is unpaid.
Finally, the final regulations clarify when an individual is
considered to be not eligible for coverage under a State’s
Basic Health Program. The final regulations affect taxpay-
ers who enroll themselves, or enroll a family member,
in individual health insurance coverage through a Health
Insurance Exchange and may be allowed a premium tax
credit for the coverage.
EMPLOYMENT TAX
Rev. Proc. 2025-10, page 492.
The Revenue Procedure provides updated guidance, modify-
ing and superseding Rev. Proc. 85-18, to be consistent with
amendments made to section 530, as well as to clarify the
definition of “employee”, the timeliness requirement for filing
required returns, and the application of the reasonable basis
safe haven.
Rev. Rul. 2025-3, page 443.
This Revenue Ruling addresses the application of Section
530 of the Revenue Act of 1978 (section 530), section 3509
rates, and the requirements to issue a Notice of Employment
Tax Determination Under IRC § 7436 (§ 7436 Notice) in sev-
eral distinct factual situations.
Finding Lists begin on page ii.

EXCISE TAX
Rev. Proc. 2025-9, page 491.
Section 5000D of the Internal Revenue Code imposes an
excise tax on applicable sales of designated drugs by manu-
facturers, producers, and importers during statutorily defined
periods. This revenue procedure provides a safe harbor and
safe harbor percentage that manufacturers, producers, and
importers may use to identify applicable sales of designated
drugs made during such periods.
INCOME TAX
REG-134420-10, page 513.
These proposed regulations would amend 26 CFR 1.1502-
80(d) to clarify the non-applicability of section 357(c) to con-
solidated groups.
Rev. Proc. 2025-11, page 501.
This revenue procedure provides procedural and clarifying
guidance applicable to section 48E(h). This guidance is being
issued simultaneously with final regulations concerning the
technology neutral low-income communities bonus credit pro-
gram (Program) established pursuant to the Inflation Reduc-
tion Act of 2022 as section 48E(h) of the Internal Revenue
Code. Applicants investing in certain clean electricity gener-
ation facilities may apply for an allocation of environmental
justice capacity limitation (Capacity Limitation) to increase
the amount of the clean electricity investment credit for the
taxable year in which the facility is placed in service. The
final regulations describe definitions and requirements that
are applicable for the Program. The final regulations affect
applicants seeking allocations of Capacity Limitation to claim
the increased clean electricity investment credit under sec-
tion 48E for the taxable year in which the facility is placed in
service.
T.D. 10018, page 446.
These final regulations amend consolidated return regula-
tions and controlled group of corporations regulations to
reflect statutory changes, modernize language, and enhance
clarity.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
January 20, 2025 Bulletin No. 2025–4

Part I
I.R.C. Section 3509—Determination of Employ-
er’s Liability for Certain Employment Taxes (Also:
I.R.C. Section 7436 and Section 530 of the Revenue
Act of 1978)
Rev. Rul. 2025-3
ISSUES
1. Whether section 530 of the Reve-
nue Act of 1978, Pub. L. No. 95-600, as
amended (section 530), or the reduced
rates of § 3509 of the Internal Revenue
Code (the Code) apply in the five situa-
tions set out below.
2. Whether the Internal Revenue Ser-
vice (IRS) will issue a Notice of Employ-
ment Tax Determination Under IRC
§ 7436 (§ 7436 Notice) in the five situa-
tions, set out below.
FACT SITUATIONS
Situation 1. Taxpayer (TP) hires indi-
viduals who provide services to TP during
the year. For those services, TP pays
each individual a weekly fixed amount
and a weekly bonus amount. TP does
not withhold or pay federal employment
taxes with regard to any of the payments
and reports the total amount of the fixed
weekly amounts and the weekly bonus
amounts on Form 1099-NEC “Nonem-
ployee Compensation.” During an audit of
TP by the IRS for the year, the IRS deter-
mines (1) that TP does not meet the stat-
utory requirements for section 530 relief,
and (2) that the individuals are employees
of TP. The IRS proposes to assess federal
employment taxes on the weekly fixed
amounts and the weekly bonus amounts,
which should have been reported as wages
on Form 941 “Employer’s QUARTERLY
Federal Tax Return,” and Forms W-2
“Wage and Tax Statement.” TP claims
it satisfies the statutory requirements for
section 530 relief and does not agree that
the individuals are its employees.
Situation 2. TP employs individuals
who perform services during the year. TP
treats the individuals as employees for the
services that they perform. For those ser-
vices, TP pays each individual a weekly
salary and a weekly bonus amount. TP
treats the weekly salary as wages for fed-
eral employment tax purposes. TP with-
holds and pays federal employment taxes
with respect to the weekly salary and
reports the salary and federal employment
taxes on Form 941 and Forms W-2. TP
does not treat the weekly bonus amounts
as wages for federal employment tax pur-
poses. It does not withhold or pay any
federal employment taxes with regard to
the bonus amounts and reports the bonus
amounts on Forms 1099-NEC. During an
audit of TP by the IRS for the year, the
IRS concludes that the bonus amounts are
wages. The IRS proposes to assess federal
employment taxes on the bonus amounts,
which should have been reported as wages
on Form 941 and Forms W-2. TP claims
it satisfies the statutory requirements
for section 530 relief with respect to the
bonus amounts and does not agree that the
bonus amounts are wages.
Situation 3. Same facts as situation
2 except TP does not report the weekly
bonus amounts on Forms 1099-NEC or
any other information return.
Situation 4. Same facts as situation
2 except TP does not report the weekly
bonus amounts on Forms 1099-NEC or
any other information return and does
not claim it satisfies the statutory require-
ments for section 530 relief with respect to
the bonus amounts.
Situation 5. TP employs individuals
who perform services during the year. TP
enters into a contract with a third party
(3P) to pay each individual a weekly sal-
ary, withhold and pay federal employment
taxes, and file federal employment tax
returns.
1
3P pays the weekly salaries, with-
holds, pays federal employment taxes, and
reports the weekly salaries and taxes on
Form 941 and Forms W-2 using its own
employer identification number (EIN).
In December of that same year, TP pays
a year-end bonus amount directly to each
individual for the individual’s services
during the year but does not treat the year-
end bonus amounts as wages. TP does not
withhold or pay any federal employment
taxes or report the bonus amounts on any
information return. During an audit of TP
by the IRS for the year, the IRS concludes
that the bonus amounts are wages. The IRS
proposes to assess federal employment
taxes on the bonus amounts, which should
have been reported as wages on Form 941
and Forms W-2. TP claims it satisfies the
statutory requirements for section 530
relief with respect to the bonus amounts
and does not agree the bonus amounts are
wages.
LAW AND ANALYSIS
An employer is liable for federal
employment taxes on wages paid to
employees. Federal employment taxes
include Federal Insurance Contributions
Act (FICA) taxes, Railroad Retirement
Tax Act (RRTA) taxes,
2
Federal Unem-
ployment Tax Act (FUTA) taxes, and
the collection of income tax at source on
wages (income tax withholding).
In general, § 3102 of the Code requires
an employer to withhold and pay to the
IRS the employee share of FICA taxes
from wages when paid to the employee.
Furthermore, § 3111 generally also
requires the employer to pay to the IRS the
employer share of FICA taxes at the same
time. Section 3121(a) defines “wages” for
FICA tax purposes as all remuneration for
employment, including the cash value of
1
A taxpayer may choose to enter into an agreement with a third party in which the third party agrees to perform some or all of the employer’s federal employment payment, withholding, and
reporting responsibilities. For purposes of simplicity, this revenue ruling does not address the different variations of third-party payor arrangements, and assumes 3P correctly used its own
EIN. However, depending on the facts and circumstances and the type of arrangement, an employer who uses a third party to perform federal employment tax functions on its behalf may
remain solely liable for federal employment taxes, may become jointly and severally liable for such taxes, or may be relieved of liability for such taxes. This revenue ruling does not address
which party will be ultimately liable for any unpaid employment taxes, as these discussions are beyond the scope of this revenue ruling.
2
For purposes of simplicity, this revenue procedure does not discuss the application of these rules to RRTA. However, rules similar to those discussed with respect to Section 530 apply for
purposes of determining whether a taxpayer will not be liable for RRTA taxes, with respect to an individual or class of workers (though the reduced rates of § 3509 discussed in this revenue
procedure do not apply for purposes of RRTA).
Bulletin No. 2025–4 443 January 20, 2025

all remuneration (including benefits) paid
in any medium other than cash, unless
specifically excepted. Section 3121(b)
generally defines “employment” as any
service, of whatever nature, performed
by an employee for the person employing
him unless a specific exception applies.
Similarly, § 3301 imposes on every
employer an obligation to pay FUTA taxes
on wages as defined in § 3306(b). Section
3306(b) and (c) contain similar definitions
to FICA for “wages” and “employment,”
respectively, for FUTA tax purposes. Sec-
tion 3402(a) imposes the obligation on an
employer to withhold income taxes from
wages as defined in § 3401(a). Section
3401(a) provides that the term “wages”
means all remuneration for services per-
formed by an employee for his employer
including the cash value of all remuner-
ation (including benefits) paid in any
medium other than cash, unless a specific
exception applies.
The definitions of “wages” and
“employment” for FICA, FUTA, and
income tax withholding purposes are pre-
mised on an individual being an employee
and are not applied when an individual
is properly classified as an independent
contractor or has some other non-em-
ployee status. If an individual is properly
classified as an independent contractor,
the individual’s earnings are subject to
self-employment tax, which consists of
social security and Medicare taxes, if the
other requirements for reporting self-em-
ployment taxes are met. There is no FUTA
tax for self-employed individuals.
For employment tax purposes, an
employee generally is any individual
who, under the usual common law rules
applicable in determining the employ-
er-employee relationship, has the status
of an employee. See §§ 31.3121(d)-1(c),
31.3306(i)-1, and 31.3401(c)-1 of the
Employment Tax Regulations. Gener-
ally, an employer-employee relationship
exists when the person for whom services
are performed has the right to direct and
control the individual who performs the
services, not only as to the result to be
accomplished by the work but also as to
the details and means by which that result
is accomplished. That is, an employee is
subject to the direction and control of the
employer not only as to what shall be done
but how it shall be done. Individuals who
are not employees under the common law
rules may still be employees by statute
under certain FICA, FUTA, and income
tax withholding provisions. See, e.g., §
3121(d) and the accompanying regula-
tions.
Section 530 provides that a taxpayer
will not be liable for federal employ-
ment taxes, with respect to an individual
or class of workers, if certain statutory
requirements are met.
3
Under section 530,
the taxpayer, not the individual worker
4
,
is entitled to relief from the employment
tax liability that would otherwise apply
under subtitle C of the Code, and any
related interest or penalties attributable to
that employment tax liability. The taxes
imposed by subtitle C include FICA taxes,
RRTA taxes, FUTA taxes, and income tax
withholding.
Section 530 relief applies only if the
taxpayer did not treat the individual as
an employee for federal employment tax
purposes for the period at issue and meets
each of the following requirements for
such period: (1) the taxpayer filed
5
all
required federal tax returns, including
information returns, consistent with the
taxpayer’s treatment of the individual as
not being an employee (reporting consis-
tency requirement); (2) the taxpayer did
not treat the individual or any individual
holding a substantially similar position
as an employee (substantive consistency
requirement); and (3) the taxpayer had a
reasonable basis for not treating the indi-
vidual as an employee (reasonable basis
requirement). A taxpayer will be treated
as having a reasonable basis if the taxpay-
er’s treatment was in reasonable reliance
on any of the following:
(a) judicial precedent, published rul-
ings, technical advice with respect to the
taxpayer, or a letter ruling to the taxpayer
(judicial precedent);
(b) a past IRS audit of the taxpayer in
which there was no assessment attribut-
able to the treatment (for employment tax
purposes) of the individuals holding sub-
stantially similar positions (prior audit);
(c) long-standing recognized practice
of a significant segment of the industry in
which that individual was engaged (indus-
try practice); or
(d) some other reasonable basis for not
treating the individual as an employee.
Section 530 relief applies only to
controversies involving the proper clas-
sification of individuals as employees or
non-employees. Section 530 is not appli-
cable when a taxpayer treated an individ-
ual as an employee and then paid addi-
tional compensation to the employee for
the same services but failed to character-
ize the payment as wages. This includes
situations where the taxpayer contends
that the payment does not meet the defi-
nition of wages because the payment is
a lease payment, bonus, reimbursement,
severance payment, dividend, or other
comparable characterization, but the pay-
ment is, in fact, paid solely for the individ-
ual’s service as an employee.
Section 530(a)(1)(A) provides that a
taxpayer is entitled to relief if the taxpayer
“did not treat an individual as an employee
for any period” for purposes of employ-
ment taxes (emphasis added). Legislative
history demonstrates that section 530
applies exclusively to taxpayers involved
in employment status controversies with
the IRS. The legislative history explains
that the relief measure was for taxpayers
that were “involved in employment tax
status controversies with the [IRS], and
who potentially face large assessments, as
a result of the [IRS’s] proposed reclassifi-
cations of workers” and explains that the
bill prevents the IRS from reclassifying as
employees certain individuals whom the
3
Section 530 (entitled “Controversies Involving Whether Individuals are Employees for Purposes of Employment Taxes”) was originally enacted as a temporary measure to provide relief
for taxpayers who were involved in employment status (worker classification) disputes with the IRS, and who faced large employment tax assessments as a result of the IRS’s proposed
reclassifications of workers. Section 530 was extended indefinitely by the T
ax Equity and Fiscal Responsibility Act of 1982. Section 530 is not part of the Internal Revenue Code (Code).
4
Section 530 relief does not extend to individual workers, who remain liable for their personal income taxes and the employee share of FICA taxes.
5
In no event will a return filed after the date on which the IRS first contacts the taxpayer concerning an examination of the period to which the return relates be considered as filed on a basis
consistent with good faith treatment by the taxpayer of an individual as a non-employee. Additionally, section 530 relief is not available for any year and for any worker for whom the taxpayer
did not file the required returns.
January 20, 2025 444 Bulletin No. 2025–4

Bulletin No. 2025–4 445 January 20, 2025
taxpayer has previously treated as inde-
pendent contractors. S. Rep. No. 95-1263,
at 210 (1978).
In determining whether a taxpayer did
not “treat” an individual as an employee
within the meaning of section 530, Rev.
Proc. 2025-10, 2025-4 IRB 492, modi-
fying and superseding Rev. Proc. 85-18,
1985-1 CB 518, provides a list of guide-
lines used to determine whether there
was “treatment” of an individual as an
employee for a period within the mean-
ing of section 530(a)(1). Among other
actions, with respect to any individual,
the following indicate “treatment” of the
individual as an employee: the withhold-
ing of income tax or FICA taxes from any
payments made; the filing of an original
or amended employment tax return; the
filing or issuance of a Form W-2; and the
contracting with a third party to perform
acts required of employers.
In enacting section 530, Congress
looked to the taxpayer’s treatment of the
individual, not to the characterization of
particular payments made to the individ-
ual. If an employer treated the individual
as an employee, section 530 relief is not
applicable to a dispute involving charac-
terization of particular payments because
the worker is not being reclassified from
non-employee to employee status.
6
Thus,
section 530 does not apply to contro-
versies concerning whether a particular
type of payment made to an employee
constitutes “wages” as defined under the
FICA, FUTA, or income tax withhold-
ing provisions, or whether particular ser-
vices performed by an employee consti-
tute “employment,” as defined under the
FICA, FUTA, or income tax withholding
provisions.
If an employer failed to properly treat
an individual as an employee, and the
employer does not meet the statutory
requirements for section 530 relief, the
employer may be eligible for relief under
§ 3509 of the Code. Section 3509(a)
allows an employer to remit unpaid
taxes at reduced rates if an employer
fails to deduct and withhold income tax
or the employee share of FICA tax with
respect to any of its employees because
the employer treated that employee as a
non-employee. Pursuant to § 3509(c), the
reduced rates do not apply to the deter-
mination of the employer’s liability for
income tax withholding or the employee
portion of FICA tax if such liability is due
to the employer’s intentional disregard of
the requirement to deduct and withhold
such taxes.
The concept of “treatment” of an indi-
vidual as not being an employee in §
3509 is similar to “treatment” in section
530. The legislative history indicates that
§ 3509 of the Code was intended to pro-
vide relief for employers in cases in which
a worker treated as a non-employee by
the employer is reclassified by the IRS
as an employee, and to deter employers
from misclassifying employees to avoid
employment taxes.
7
Similar to section 530, if an employer
treated an individual as an employee,
§ 3509 of the Code will not apply since
the worker is not being reclassified from
non-employee to employee.
8
Thus, §
3509 is not applicable when determining
whether particular payments made to an
employee are “wages” or whether particu-
lar services performed by an employee are
“employment” as defined under the FICA,
FUTA, or income tax withholding provi-
sions.
Section 7436 of the Code provides that
the Tax Court may review two types of
employment tax determinations made by
the IRS and the proper amount of employ-
ment tax, penalties, and additions to tax
resulting from the determinations.
In order to obtain Tax Court review, the
following elements must be present:
(1) an examination in connection with
the audit of any person;
(2) a determination that –
(a) one or more individuals performing
services for such person are employees of
such person for purposes of subtitle C, or
(b) such person is not entitled to relief
under section 530(a) with respect to such
an individual;
(3) an “actual controversy” involving
the determination as part of an examina-
tion; and
(4) the filing of an appropriate pleading
in the Tax Court.
See American Airlines Inc. v. Commis-
sioner, 144 T.C. 24, at 32 (2015). When
the first three elements are met, the IRS
will issue a § 7436 Notice. A taxpayer
will satisfy the fourth element by filing a
timely petition for review of the § 7436
Notice with the Tax Court. Revenue Pro-
cedure 2022-13, 2022-6 IRB 477, super-
seding Notice 2002-5, 2002-1 CB 320,
provides guidance concerning when and
how the IRS will issue a § 7436 Notice
that will document the determination nec-
essary to give the taxpayers the option to
petition for Tax Court review. The IRS
will not issue a § 7436 Notice if the tax-
payer has agreed to the employment tax
liabilities. Agreement is generally accom-
plished using Form 2504-T “Agreement
to Assessment and Collection of Addi-
tional Employment Tax and Acceptance
of Overassessment (Employment Tax
Adjustments Subject to IRC 7436).”
HOLDINGS
Holding 1. Section 530 is applicable
to this situation because the TP did not
treat the individuals as employees, and
the IRS is reclassifying the individuals
as employees. Whether TP is entitled to
section 530 relief depends on whether
the TP satisfies the substantive consis-
tency, reporting consistency, and reason-
able basis requirements. If section 530
does not apply, § 3509 of the Code may
be applicable because the TP treated the
individuals as non-employees and did not
6
In unusual cases, an individual may perform services for a taxpayer that are completely separate and distinct from the services giving rise to the employment relationship, and is separately
compensated for those services. To be completely separate and distinct, there must be no interrelation either as to duties or remuneration in the two capacities. Compare Rev. Rul. 58-505,
1958-2 CB 728, with Rev. Rul. 2004-109, 2004-2 CB 958, and Rev. Rul. 2004-110, 2004-2 CB 960. In these circumstances, the status of the individual as an employee or non-employee, and
the application of section 530, will be considered separately with respect to the distinct relationships under which the separate services are provided.
7
See Staff of Joint Committee on Taxation, 97th Cong., General Explanation of the Revenue Provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (JCS-38-82), at 384-86
(Comm. Print 1982); H.R. Rep. No. 97-760, at 650-52 (1982) (Conf. Rep.); S. Rep. No. 97-494, Vol. 1, at 370-72 (1982).
8
As stated in footnote 5, an individual may perform services for a taxpayer that are completely separate and distinct from the services giving rise to the employment relationship, and is
separately compensated for those services. In these circumstances, the status of the individual as an employee or non-employee, and the application of § 3509, will be considered separately
with respect to each of the distinct relationships under which the separate services are provided.

January 20, 2025 446 Bulletin No. 2025–4
deduct and withhold federal employment
taxes from the weekly fixed amounts and
bonus amounts that it paid to the indi-
viduals, and the IRS is reclassifying the
individuals as employees. Whether TP is
entitled to § 3509 reduced rates depends
on whether it meets the statutory require-
ments in § 3509. The IRS will issue TP
a § 7436 Notice at the conclusion of the
audit or after Appeals consideration if no
agreement is reached. A § 7436 Notice
will be issued because (1) there was an
examination in connection with an audit,
(2) there were determinations that (a) the
individuals were employees of TP, and (b)
TP was not entitled to relief under sec-
tion 530 with respect to these individu-
als
9
, and (3) the IRS and TP disagree on
the employment status of the workers and
whether the statutory requirements for
section 530 relief have been met (there is
an actual controversy involving the deter-
mination as part of the audit).
Holding 2. Section 530 is not appli-
cable to this situation because the IRS
is not reclassifying the individuals as
employees. TP treated the individuals as
employees for the services they performed
and paid additional wages in the form of
bonuses for the same services; there is no
controversy over whether the individuals
are employees or independent contrac-
tors with respect to their services.
10
The
reduced rates under § 3509 of the Code
are not applicable for the same reason.
The IRS will issue TP a § 7436 Notice
at the conclusion of the audit or after
Appeals consideration if no agreement is
reached. A § 7436 Notice will be issued
because (1) there was an examination in
connection with an audit, (2) a determi-
nation was made that TP was not entitled
to relief under section 530 with respect to
the bonuses paid to the individuals, and
(3) the IRS and TP disagree on whether
the statutory requirements for section 530
relief have been met (there is an actual
controversy involving the determination
as part of the audit).
Holding 3. Section 530 and § 3509 of
the Code are not applicable to this situa-
tion for the same reasons stated in Holding
2. The IRS will issue TP a § 7436 Notice
at the conclusion of the audit or after
Appeals consideration if no agreement is
reached. A § 7436 Notice will be issued
because (1) there was an examination in
connection with an audit, (2) a determi-
nation was made that TP was not entitled
to relief under section 530 with respect to
the bonuses paid to the individuals, and
(3) the IRS and TP disagree on whether
the statutory requirements for section 530
relief have been met (there is an actual
controversy involving the determination
as part of the audit).
Holding 4. Section 530 and § 3509 of
the Code are not applicable to this situa-
tion for the same reasons stated in Hold-
ing 2. The IRS will not issue TP a § 7436
Notice at the conclusion of the audit or
after Appeals consideration if no agree-
ment is reached because TP did not claim
that TP was entitled to relief under section
530 concerning the bonuses paid to the
individuals, and there is no controversy
over whether the individuals are employ-
ees or independent contractors.
Holding 5. Section 530 is not appli-
cable to this situation because the IRS
is not reclassifying the individuals as
employees. The year-end bonus amounts
are additional wages for the same ser-
vices performed by the individuals who
were treated as employees by TP. The
reduced rates under § 3509 of the Code
are not applicable for the same reason.
The IRS will issue TP a § 7436 Notice
at the conclusion of the audit or after
Appeals consideration if no agreement is
reached. A § 7436 Notice will be issued
because (1) there was an examination in
connection with an audit, (2) a determina-
tion was made that TP was not entitled to
relief under section 530 with respect to the
year-end bonus amounts paid to the indi-
viduals, and (3) the IRS and TP disagree
on whether the statutory requirements for
section 530 relief have been met (there is
an actual controversy involving the deter-
mination as part of the audit).
DRAFTING INFORMATION
The principal author of this revenue
ruling is Kelli Cacciotti of the Office of
Associate Chief Counsel (Employee Ben-
efits, Exempt Organizations and Employ-
ment Taxes). For further information
regarding this revenue ruling, contact Ms.
Cacciotti at (202) 317-6798 (not a toll-
free number).
T.D. 10018
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1, 5, 301,
and 602
Revising Consolidated
Return Regulations and
Controlled Group of
Corporations Regulations
to Reflect Statutory
Changes, Modernize
Language, and Enhance
Clarity
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that affect affiliated
groups of corporations that file consoli-
dated Federal income tax returns. These
regulations modify the consolidated return
regulations and the controlled group of
corporations regulations to reflect statu-
tory changes, update language to remove
antiquated or regressive terminology, and
enhance clarity. Additionally, this docu-
ment withdraws certain temporary regu-
lations.
DATES: Effective date: These final reg-
ulations are effective on December 30,
2024.
Applicability date: For dates of appli-
cability, see §§1.52-1(i), 1.414(c)-6(g),
1.1502-0, 1.1502-5(e), 1.1502-45(f),
1.1552-1(g), 1.1562-1(e), 1.1563-2(d),
and 1.1563-3(e).
9
If the IRS were to make only one of these determinations, a § 7436 Notice would still be issued.
10
Compare SECC Corp. v. Commissioner, 142 T.C. 225, 235 (2014) (dispute over “whether petitioner’s workers can serve in a dual capacity”).

Bulletin No. 2025–4 447 January 20, 2025
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations
under section 52, Christopher Dellana
of the Office of Associate Chief Counsel
(Employee Benefits, Exempt Organiza-
tions, and Employment Taxes) at (202)
317-5500; concerning the regulations
under section 414, Jessica Weinberger
of the Office of Associate Chief Counsel
(Employee Benefits, Exempt Organiza-
tions, and Employment Taxes) at (202)
317-4148; concerning the regulations
under all other sections, William W.
Burhop or Kelton P. Frye of the Office
of Associate Chief Counsel (Corporate)
at (202) 317-5363 or (202) 317-6975,
respectively (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Authority
Section 1502 of the Internal Revenue
Code (Code) authorizes the Secretary of
the Treasury or her delegate (Secretary) to
prescribe consolidated return regulations
for an affiliated group of corporations that
join in filing (or that are required to join in
filing) a consolidated return (consolidated
group) to clearly reflect the Federal income
tax liability of the consolidated group and
to prevent avoidance of such tax liability.
See §1.1502-1(h) (defining the term “con-
solidated group”). For purposes of carry-
ing out those objectives, section 1502 also
permits the Secretary to prescribe rules
that may be different from the provisions
of chapter 1 of the Code (chapter 1) that
would apply if the corporations compos-
ing the consolidated group filed separate
returns. Additionally, section 7805(a) of
the Code authorizes the Secretary to “pre-
scribe all needful rules and regulations for
the enforcement of [the Code], including
all rules and regulations as may be neces-
sary by reason of any alteration of law in
relation to internal revenue.”
Background
I. Overview
This Treasury decision contains final
regulations under sections 52, 414, 1502,
1503, 1552, and 1563 of Code. These reg-
ulations primarily revise the Income Tax
Regulations (26 CFR part 1) issued under
section 1502 (consolidated return regu-
lations). Terms used in the consolidated
return regulations generally are defined in
§1.1502-1.
II. 2023 Proposed Regulations
On August 7, 2023, the Department of
the Treasury (Treasury Department) and
the IRS published a notice of proposed
rulemaking (REG-134420-10) in the Fed-
eral Register (88 FR 52057) under sec-
tions 1502, 1503, 1552, and 1563 (2023
proposed regulations). The 2023 proposed
regulations would revise the consolidated
return regulations (i) to eliminate obsolete
or otherwise outdated provisions, (ii) to
modernize the language and improve the
clarity of the regulations, and (iii) to facil-
itate taxpayer compliance.
The 2023 proposed regulations also
would revise the consolidated return reg-
ulations and the regulations under section
1563 to eliminate antiquated or regres-
sive terminology. For example, the 2023
proposed regulations (i) would replace
gender-specific pronouns and other iden-
tifiers with gender-neutral pronouns and
identifiers, and (ii) would identify (A)
American Samoa, (B) the Commonwealth
of the Northern Mariana Islands, (C)
the Commonwealth of Puerto Rico, (D)
Guam, and (E) the U.S. Virgin Islands as
“territories” of the United States rather
than “possessions” in §§1.1502-4(d)(1)
and 1.1503(d)-1(b)(7). These revisions
are consistent with, and in furtherance of,
the Treasury Department’s Equity Action
Plan, as well as Executive Order 13985
of January 20, 2021, Advancing Racial
Equity and Support for Underserved
Communities Through the Federal Gov-
ernment, 86 FR 7009 (January 25, 2021).
The 2023 proposed regulations also
would revise or remove other regulations
under the Code. These regulations are set
forth in (i) the Income Tax Regulations (26
CFR part 1), (ii) the Temporary Income
Tax Regulations under the Revenue Act
of 1978 (26 CFR part 5), (iii) the Regula-
tions on Procedure and Administration (26
CFR part 301), and (iv) the OMB Control
Numbers under the Paperwork Reduction
Act Regulations (26 CFR part 602).
The notice of proposed rulemaking
(NPRM) containing the 2023 proposed
regulations also withdrew or partially
withdrew numerous earlier NPRMs,
including: (i) NPRMs that previously had
been incorporated into final regulations in
revised form or that were incorporated into
the 2023 proposed regulations in revised
form; (ii) an NPRM that became obsolete
when proposed regulations provided in a
subsequent, discrete NPRM were adopted
as final regulations; and (iii) NPRMs that
cross-referenced temporary regulations
(the text of which served as the text for
those proposals) that were removed, have
expired, or otherwise have become obso-
lete. Additionally, the 2023 proposed reg-
ulations proposed to withdraw temporary
regulations that (i) no longer have practi-
cal applicability to taxpayers, or (ii) would
be replaced by final regulations provided
by this Treasury decision.
Finally, the 2023 proposed regulations
would remove numerous provisions that
cross-reference prior-law editions of the
Code of Federal Regulations (CFR).
III. Correction to 2023 Proposed
Regulations
The 2023 proposed regulations con-
tained amendments to the regulations
under section 1563. A correction to the
2023 proposed regulations was published
in the Federal Register (88 FR 84770-
02) on December 6, 2023, and provided
an additional opportunity for public com-
ment (2023 correction), to make parallel
amendments to similar regulations under
sections 52 and 414 to avoid creating
inconsistencies.
IV. Comments Received
The Treasury Department and the IRS
requested comments on the 2023 proposed
regulations. The comments received are
described in further detail in the Summary
of Comments and Explanation of Revi-
sions. No public hearing was requested or
held.
Summary of Comments and
Explanation of Revisions
I. Withdrawal of Proposed or Temporary
Regulations
A commenter expressed concern that
the withdrawal or partial withdrawal of

January 20, 2025 448 Bulletin No. 2025–4
old proposed or temporary regulations
in the 2023 proposed regulations could
lead to confusion or uncertainty for con-
solidated groups if the withdrawn regu-
lations contain substantive provisions
on which consolidated groups continue
to rely. The commenter recommended
either retaining or revising the withdrawn
proposed or temporary regulations or
providing guidance on how to apply the
existing final regulations in light of the
withdrawals.
The Treasury Department and the IRS
are of the view that, with the exception
of the proposed consolidated return reg-
ulations under §1.1502-80(d) relating to
the non-applicability of section 357(c)
discussed in part VII of this Summary of
Comments and Explanation of Revisions,
the withdrawn or partially withdrawn
regulations do not contain substantive
provisions on which taxpayers continue
to rely. Accordingly, these final regula-
tions do not adopt the commenter’s rec-
ommendation.
II. Section 1.1502-5 (Consolidated
Estimated Tax)
Section 10101 of Public Law 117-169,
136 Stat. 1818 (August 16, 2022), com-
monly referred to as the Inflation Reduc-
tion Act of 2022, amended section 55 of
the Code to impose a new corporate alter-
native minimum tax (commonly referred
to as the corporate alternative minimum
tax, or CAMT) based on adjusted financial
statement income. To reflect this change,
the 2023 proposed regulations would
modify the definition of the term “tax” in
§1.1502-5(b)(5) by adding a reference to
section 55(a). Because the amount of tax
imposed under section 55 is determined
in part by reference to the amount of tax
imposed under section 59A of the Code
(that is, the base erosion anti-abuse tax,
or BEAT), the 2023 proposed regulations
also would modify the definition of the
term “tax” in §1.1502-5(b)(5) by adding a
reference to section 59A.
A commenter recommended adding the
foregoing references not only in §1.1502-
5(b)(5), but also in other sections of the
consolidated return regulations that use
the word “tax”. However, these changes in
the 2023 proposed regulations were nec-
essary to implement the recently enacted
CAMT. The Treasury Department and the
IRS have determined that similar changes
to other provisions in the consolidated
return regulations are beyond the scope
of this guidance. Accordingly, these final
regulations do not adopt the commenter’s
recommendation.
III. Revisions to Remove Obsolete or
Outdated References or Terms
As noted in part II of the Back-
ground, the 2023 proposed regulations
would make nonsubstantive changes to
the consolidated return regulations and
the regulations under section 1563 to
replace gender-specific pronouns and
other identifiers with gender-neutral
pronouns and identifiers, and to replace
the term “possession” with the defined
term “U.S. territory” in §§1.1502-4(d)
(1) and 1.1503(d)-1(b)(7). A commenter
welcomed the removal of gender-spe-
cific pronouns and identifiers but sug-
gested that the gender-neutral pronouns
and identifiers are not entirely clear or
consistent throughout the consolidated
return regulations (for example, some
provisions use “its” as a singular posses-
sive pronoun, whereas others use “their”
as a singular possessive pronoun). The
commenter recommending either using a
consistent set of gender-neutral pronouns
and identifiers throughout the regulations
or providing a glossary or explanation of
these pronouns and identifiers.
The Treasury Department and the IRS
have determined that revising all gen-
der-neutral pronouns throughout the con-
solidated return regulations and the sec-
tion 1563 regulations is beyond the scope
of this guidance. However, the Treasury
Department and the IRS will continue to
consider the revision of particular pro-
nouns when modifying the consolidated
return regulations in future guidance.
The commenter also requested clari-
fication that the replacement of the term
“possessions” with the term “territories” is
purely terminological and is not intended
to affect the tax treatment of these juris-
dictions under the consolidated return
regulations. The Treasury Department and
the IRS agree with the commenter that this
change was intended to be purely termi-
nological. See https://www.doi.gov/oia/
islands/politicatypes.
IV. Revisions to §§1.1502-13, 1.1502-32,
and 1.1502-36
A commenter raised questions about
amendments to §§1.1502-13(c)(2)(ii) and
(c)(6)(ii)(A), 1.1502-32(b)(2)(iv) and (b)
(4)(i), and 1.1502-36(d)(3)(ii)(B) and (d)
(6)(ii)(B) in the 2023 proposed regula-
tions. However, neither the 2023 proposed
regulations nor these final regulations
would amend these provisions. Accord-
ingly, no revisions have been made in
response to this comment.
V. Definition of “Consolidated Return
Regulations”
The 2023 proposed regulations would
add “consolidated return regulations” as a
new defined term in §1.1502-1. As defined
in proposed §1.1502-1(g), this term would
mean the regulations issued under section
1502. A commenter noted that certain con-
solidated return regulations issued under
the authority of section 1502 were not
actually placed under section 1502 (for
example, see §1.163(j)-4 and §1.385-4).
Accordingly, these final regulations revise
the term “consolidated return regulations”
to mean the regulations issued under the
authority of section 1502. These final
regulations also amend §§1.1502-47(a)
(3), (k), and (l) and 1.1504-3(d)(1)(ii) to
replace the cited range of sections with the
defined term “consolidated return regula-
tions.”
VI. Sections 52 and 414
Sections 52(a) and 414(b) provide
rules for controlled groups of corporations
that incorporate the definitions and rules
in section 1563(a), with modifications.
Sections 52(b) and 414(c)(1) authorize
regulations applying principles similar
to the principles that apply in the case of
sections 52(a) and 414(b), respectively, to
trades or businesses under common con-
trol.
A controlled group of corporations
under section 52(a) or section 414(b),
which cross-reference section 1563(a), is
determined based on the constructive own-
ership rules of section 1563(e), including
section 1563(e)(2) and (3) (but not section
1563(e)(3)(C)). A group of trades or busi-
nesses under common control under sec-

Bulletin No. 2025–4 449 January 20, 2025
tions 52(b) and 414(c) is determined by
taking into account the constructive own-
ership rules in §§1.52-1(b) and (c) and
1.414(c)-2(b)(1), respectively, that mirror
the rules under section 1563.
As discussed in the preamble to the
2023 proposed regulations, the 2023 pro-
posed regulations would revise §1.1563-
1(a)(2)(i)(A) and (B) to reflect an amend-
ment to section 1563(d)(1)(B) by the
Technical and Miscellaneous Revenue Act
of 1988, Public Law 100-647, 102 Stat.
3342 (November 10, 1988). That amend-
ment expanded the constructive owner-
ship rules of section 1563(e) that apply for
purposes of section 1563(d)(1) to include
section 1563(e)(2) (relating to attribution
from partnerships) and section 1563(e)
(3) (relating to attribution from estates
or trusts). The 2023 proposed regulations
generally would apply to consolidated
return years for which the due date of the
return (without regard to extensions) is
after the date of publication of the Trea-
sury Decision adopting the regulations as
final regulations in the Federal Register.
The 2023 correction does not specify
an applicability date for the proposed revi-
sions to §§1.52-1(c)(1) and 1.414(c)-2(b)
(1). In addition, the Treasury Department
and the IRS are of the view that applying
the general applicability date in the 2023
proposed regulations to the proposed revi-
sions to §§1.52-1(c)(1) and 1.414(c)-2(b)
(1) may cause confusion, because the
rules in §§1.52-1(c)(1) and 1.414(c)-2(b)
(1) apply to taxpayers who may not file
consolidated returns.
Accordingly, these final regulations
clarify that the amendment to §1.52-1(c)
(1) applies to taxable years beginning
on or after January 1, 2025, and that the
amendment to §1.414(c)-2(b)(1) applies
to plan years beginning on or after Jan-
uary 1, 2025. The final regulations add
new paragraph (i) to §52-1 to provide
that §52-1, as amended by this Treasury
decision, applies to taxable years begin-
ning on or after January 1, 2025. Section
1.414(c)-6, which provides the effective
date and various applicability dates for
the regulations under sections 414(b) and
(c), is amended to reflect the applicability
date of the amendment to §1.414(c)-2(b)
(1); see also the Applicability Date sec-
tion of this preamble. The amendment to
section 1563(d)(1)(B) by the Technical
and Miscellaneous Revenue Act of 1988
was not incorporated into the regulations
under sections 52(b) and 414(c)(1) with
respect to taxable years and plan years,
respectively, that began prior to the appli-
cability date for the regulations specified
in this Treasury decision. Accordingly, the
IRS will not challenge the application of
§§1.52-1(c)(1) and 1.414(c)-2(b) as previ-
ously in effect or taking into account the
amendment to section 1563(d)(1)(B) with
respect to taxable years that began prior to
January 1, 2025, for the regulations under
section 52(b) or plan years that began
prior to January 1, 2025, for the regula-
tions under section 414(c)(1).
VII. Section 357(c) and §1.1502-80(d)
A commenter raised concerns about
the withdrawal of proposed consolidated
return regulations under §1.1502-80(d)
relating to the non-applicability of section
357(c). The comment has led the Treasury
Department and the IRS to reconsider that
withdrawal. For a discussion of the com-
ment, see the notice of proposed rulemak-
ing published in the Proposed Rules sec-
tion of this issue of the Federal Register.
VIII. Other Non-Substantive Revisions
To make the reading of these regulations
more user-friendly, these final regulations
generally restate the revised paragraphs
in the regulations under sections 52, 414,
1502, 1503, 1552, and 1563. Additionally,
the formatting changes to the examples in
§1.1502-13(j) in the 2023 proposed regu-
lations were adopted by T.D. 10016, pub-
lished in the Federal Register on Decem-
ber 11, 2024 (89 FR 100138).
Applicability Date
Pursuant to section 1503(a) of the
Code, the regulations issued under the
authority of section 1502 apply to consol-
idated return years for which the due date
of the return (without regard to exten
-
sions) is after December 30, 2024.
In addition, §1.52-1(c)(1) applies to
taxable years beginning on or after January
1, 2025, and §1.414(c)-2(b)(1) applies to
plan years beginning on or after January 1,
2025. The amendments to §§1.1552-1(g),
1.1562-1(e), 1.1563-2(d), and 1.1563-3(e)
apply to taxable years beginning after
December 30, 2024.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
These final regulations update the con-
solidated return regulations by revising
and removing outdated and obsolete pro-
visions, such as cross-references to tempo-
rary regulations, regulations, and statutes
that have been repealed, removed, expired,
renumbered, or otherwise have become
obsolete. Therefore, these final regulations
would not impose an additional reporting
burden beyond what is otherwise required
by existing statutes, regulations, and forms.
The total burden associated with these final
regulations is $0.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby certi-
fied that these final regulations would not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that these
final regulations would apply only to cor-
porations that file consolidated Federal
income tax returns, and that such corpo-
rations tend to be larger businesses. Spe-
cifically, based on data available to the
IRS, corporations that file consolidated
Federal income tax returns represent only
approximately two percent of all filers of
Forms 1120 (U.S. Corporation Income
Tax Return). However, these consolidated
Federal income tax returns account for
approximately 95 percent of the aggregate
amount of receipts reported on all Forms
1120. Therefore, these final regulations
would not create significant additional
obligations for, or impose an economic
impact on, a substantial number of small

January 20, 2025 450 Bulletin No. 2025–4
entities. Accordingly, the Secretary cer-
tifies that these final regulations will not
have significant economic impact on a
significant number of small entities.
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
that preceded these final regulations was
submitted to the Chief Counsel for the
Office of Advocacy of the Small Business
Administration for comment on its impact
on small business. No comments were
received from the Chief Counsel for the
Office of Advocacy of the Small Business
Administration.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in
any one year by a State, local, or Tribal
government, in the aggregate, or by the
private sector, of $100 million in 1995
dollars, updated annually for inflation.
[In 2024, that threshold is approximately
$190 million.] These final regulations do
not include any rule that would include
any Federal mandate that may result in
expenditures by State, local, or Tribal
governments, or by the private sector in
excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. These final regulations do not
propose rules that would have federalism
implications, impose substantial direct
compliance costs on State and local gov-
ernments, or preempt State law within the
meaning of the Executive order.
VI. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs des-
ignated this rule as not a major rule, as
defined by 5 U.S.C. 804(2).
Drafting Information
The principal authors of this document
are Kelton P. Frye and William W. Burhop
of the Office of Associate Chief Counsel
(Corporate). Other personnel from the
Treasury Department and the IRS partic-
ipated in its development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 5
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
26 CFR Part 602
Reporting and recordkeeping require-
ments.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 5, 301,
and 602 are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entries
for §§1.1503-2, 1.1502-9A, 1.1502-15A,
1.1502-21A, 1.1502-22A, 1.1502-23A,
1.1502-41A, 1.1502-79A, 1.1502-91A,
1.1502-92A, 1.1502-93A, 1.1502-94A,
1.1502-95A, 1.1502-96A, 1.1502-98A,
and 1.1502-99A to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.52-1 is amended by
revising paragraphs (c)(1)(i) and (ii) and
adding paragraph (i) to read as follows:
§1.52-1 Trades or businesses that are
under common control.
* * * * *
(c) * * *
(1) * * *
(i) A controlling interest in each of the
organizations, except the common parent
organization, is owned (directly and with
the application of §1.414(c)-4(b)(1), (2),
and (3)) by one or more of the other orga-
nizations; and
(ii) The common parent organization
owns (directly and with the application
of §1.414(c)-4(b)(1), (2), and (3)) a con-
trolling interest in at least one of the other
organizations, excluding, in computing
the controlling interest, any direct own-
ership interest by the other organizations.
* * * * *
(i) Applicability date. This section
applies to taxable years beginning on or
after January 1, 2025. See
26 CFR 1.52-1,
as revised April 1, 2024, for taxable years
beginning before January 1, 2025.
Par. 3. Section 1.57-1 is amended by
revising paragraph (b)(4)(ii) to read as
follows:
§1.57-1 Items of tax preference defined.
* * * * *
(b) * * *
(4) * * *
(ii) Where the taxpayer acquires prop-
erty in a transaction to which section 381(a)
applies or from another member of an affil-
iated group during a consolidated return
year and an “accelerated” method of depre-
ciation as described in section 167(b)(2),
(3), or (4) or section 167(j)(1)(B) or (C) is
permitted (see §1.381(c)(6)-1), the depre-
ciation which would have been allowable
under the straight line method is determined
as if the property had been depreciated
under the straight line method since depre-
ciation was first taken on the property by the
transferor of such property. In such cases,
references in this paragraph to the period
for which the property is held or useful life
of the property are treated as including the
period beginning with the commencement
of the original use of the property.
* * * * *
Par. 4. Section 1.167(c)-1 is amended
by revising paragraph (a)(5) to read as fol-
lows:

Bulletin No. 2025–4 451 January 20, 2025
§1.167(c)-1 Limitations on methods of
computing depreciation under section
167(b)(2), (3), and (4).
(a) * * *
(5) See §§1.1502-13 and 1.1502-68 for
provisions dealing with depreciation of
property received by a member of an affil-
iated group from another member of the
group during a consolidated return period.
* * * * *
Par. 5. Section 1.279-6 is amended by
revising and republishing paragraph (d) to
read as follows:
§1.279-6 Application of section 279 to
certain affiliated groups.
* * * * *
(d) Aggregate projected earnings. In the
case of an affiliated group of corporations
(whether or not such group files a con-
solidated return under section 1501), the
aggregate projected earnings of such group
is computed by separately determining the
projected earnings of each member of such
group under paragraph (d) of §1.279-5, and
then adding together such separately deter-
mined amounts, except that—
(1) A dividend (a distribution which is
described in section 301(c)(1) other than
a distribution described in section 243(c)
(1)) distributed by one member to another
member is eliminated;
(2) In determining the earnings and prof-
its of any member of an affiliated group,
there is eliminated any amount of interest
income received or accrued, and of interest
expense paid or incurred, which is attribut-
able to intercompany indebtedness; and
(3) No gain or loss is recognized in any
transaction between members of the affil-
iated group.
* * * * *
§1.382-8 [Amended]
Par. 6. Section 1.382-8 is amended by
removing and reserving paragraph (i).
Par. 7. Section 1.414(c)-2 is amended
by revising paragraphs (b)(1)(i) and (ii) to
read as follows:
§1.414(c)-2 Two or more trades or
businesses under common control.
* * * * *
(b) * * *
(1) * * *
(i) A controlling interest in each of the
organizations, except the common parent
organization, is owned (directly and with
the application of §1.414(c)-4(b)(1), (2),
and (3)) by one or more of the other orga-
nizations; and
(ii) The common parent organization
owns (directly and with the applica-
tion of §1.414(c)-4(b)(1), (2), and (3))
a controlling interest in at least one of
the other organizations, excluding, in
computing such controlling interest, any
direct ownership interest by such other
organizations.
* * * * *
Par. 8. Section 1.414(c)-6 is amended
by revising and republishing paragraph (a)
and adding paragraph (g) to read as fol-
lows:
§1.414(c)-6 Effective date.
(a) General rule. Except as provided in
paragraph (b), (c), (e), (f), or (g) of this
section, the provisions of §1.414(b)-1 and
§§1.414(c)-1 through 1.414(c)-4 apply for
plan years beginning after September 2,
1974.
* * * * *
(g) Special rule. Notwithstanding
paragraph (a), (b), or (c) of this section,
§1.414(c)-2(b)(1) applies to plan years
beginning on or after January 1, 2025.
Par. 9. Section 1.1502-0 is revised to
read as follows:
§1.1502-0 Effective/applicability dates.
(a) In general. Except as provided in
paragraph (b) of this section, the consol-
idated return regulations (as defined in
§1.1502-1(g)) are applicable to taxable
years beginning after December 31, 1965.
(b) Exceptions. The applicability date
described in paragraph (a) of this sec-
tion does not apply to any provision of
the consolidated return regulations with
an applicability or effective date different
than the date provided by paragraph (a) of
this section.
Par. 10. Section 1.1502-1 is amended
by:
a. Adding introductory text;
b. Revising and republishing para-
graphs (f)(2) and (3) and (g);
c. Redesignating paragraph (l) as para-
graph (m); and
d. Adding a new paragraph (l).
The additions and revisions read as fol-
lows:
§1.1502-1 Definitions.
For purposes of the consolidated return
regulations (and any provision of this
chapter that refers to the consolidated
return regulations):
* * * * *
(f) * * *
(2) Exceptions. The term separate
return limitation year (or SRLY) does not
include:
(i) A separate return year of the corpo-
ration which is the common parent for the
consolidated return year to which the tax
attribute is to be carried (except as pro-
vided in §1.1502-75(d)(2)(ii) and para-
graph (f)(3) of this section);
(ii) A separate return year of any corpo-
ration which was a member of the group
for each day of such year; or
(iii) A separate return year of a prede-
cessor of any member if such predecessor
was a member of the group for each day
of such year.
(3) Reverse acquisitions. In the event
of an acquisition to which §1.1502-75(d)
(3) applies, all taxable years of the first
corporation and of each of its subsidiaries
ending on or before the date of the acqui-
sition are treated as separate return limita-
tion years, and the separate return years (if
any) of the second corporation and each
of its subsidiaries are not treated as sep-
arate return limitation years (unless they
were so treated immediately before the
acquisition). For example, if corporation P
merges into corporation T, and the persons
who were stockholders of P immediately
before the merger, as a result of owning
the stock of P, own more than 50 percent
of the fair market value of the outstanding
stock of T, then a loss incurred before the
merger by T (even though it is the com-
mon parent), or by a subsidiary of T, is
treated as having been incurred in a sep-
arate return limitation year. Conversely, a
loss incurred before the merger by P, or by
a subsidiary of P in a separate return year
during all of which such subsidiary was a
member of the group of which P was the
common parent, is treated as having been

January 20, 2025 452 Bulletin No. 2025–4
incurred in a year which is not a separate
return limitation year.
* * * * *
(g) Consolidated return regulations.
The term consolidated return regulations
means the regulations issued under the
authority of section 1502.
* * * * *
(l) U.S. territory. The term U.S. terri-
tory means—
(1) American Samoa;
(2) The Commonwealth of the North-
ern Mariana Islands;
(3) The Commonwealth of Puerto
Rico;
(4) Guam; and
(5) The U.S. Virgin Islands.
* * * * *
§1.1502-3 [Amended]
Par. 11. Section 1.1502-3 is amended
by removing and reserving paragraph (e).
Par. 12. Section 1.1502-4 is amended
by revising paragraph (d)(1) to read as
follows:
§1.1502-4 Consolidated foreign tax
credit.
* * * * *
(d) * * *
(1) Allowance of unused foreign tax
as consolidated carryover or carryback.
The consolidated group’s carryovers
and carrybacks of unused foreign tax (as
defined in §1.904-2(c)(1)) to the taxable
year is determined on a consolidated basis
under the principles of section 904(c)
and §1.904-2 and is deemed to be paid or
accrued to a foreign country or U.S. terri-
tory (as defined in §1.1502-1(l)) for that
year. The consolidated group’s unused
foreign tax carryovers and carrybacks to
the taxable year consist of any unused
foreign tax of the consolidated group,
plus any unused foreign tax of members
for separate return years, which may be
carried over or back to the taxable year
under the principles of section 904(c)
and §1.904-2. The consolidated group’s
unused foreign tax carryovers and carry-
backs do not include any unused foreign
taxes apportioned to a corporation for a
separate return year pursuant to §1.1502-
79(d). A consolidated group’s unused for-
eign tax in each separate category is the
excess of the foreign taxes paid, accrued
or deemed paid under section 960 by the
consolidated group over the limitation in
the applicable separate category for the
consolidated return year. See paragraph
(c) of this section.
* * * * *
Par. 13. Section 1.1502-5 is revised to
read as follows:
§1.1502-5 Estimated tax.
(a) General rule—(1) Consolidated
estimated tax. If a group files a consoli-
dated return for two consecutive taxable
years, it must make payments of estimated
tax on a consolidated basis for each sub-
sequent taxable year until separate returns
are filed. When filing on a consolidated
basis, the group is generally treated as a
single corporation for purposes of section
6655 (relating to payment of estimated tax
by corporations). If separate returns are
filed by the members for a taxable year,
the amount of any estimated tax payments
made with respect to a consolidated esti-
mated tax for the year is credited against
the separate tax liabilities of the members
in any reasonable manner designated by
the common parent.
(2) First two consolidated return years.
For its first two consolidated return years,
a group may make payments of estimated
tax on either a consolidated or a separate
member basis. The amount of any separate
estimated tax payments is credited against
the consolidated tax liability of the group.
(b) Addition to tax for failure to pay
estimated tax under section 6655—
(1) Consolidated return filed. For its first
two consolidated return years, a group
may compute the amount of the penalty (if
any) under section 6655 on a consolidated
basis or a separate member basis, regard-
less of the method of payment. Thereafter,
the group must compute the penalty for
any consolidated return year on a consol-
idated basis.
(2) Computation of penalty on consol-
idated basis—(i) In general. This para-
graph (b)(2) provides rules for computing
the penalty under section 6655 on a con-
solidated basis.
(ii) Preceding taxable year. The tax
shown on the return for the preceding tax-
able year referred to in section 6655(d)(1)
(B)(ii) is, if a consolidated return was filed
for that preceding year, the tax shown on
the consolidated return for that preceding
year or, if a consolidated return was not
filed for that preceding year, the aggregate
of the taxes shown on the separate returns
of the common parent and any other cor-
poration that was a member of the same
affiliated group as the common parent for
that preceding year.
(iii) Aggregate of payments made by
all members. If estimated tax was not
paid on a consolidated basis, the amount
of the group’s payments of estimated tax
for the taxable year is the aggregate of
the payments made by all members for
the year.
(iv) Required annual payment rule. If
the common parent is otherwise eligible to
use the section 6655(d)(1)(B)(ii) required
annual payment rule, that rule applies only
if the group’s consolidated return, or each
member’s separate return if the group did
not file a consolidated return, for the pre-
ceding taxable year was a taxable year of
12 months.
(3) Computation of penalty on separate
member basis. To compute any penalty
under section 6655 on a separate member
basis, for purposes of section 6655(d)(1)
(B)(i), the “tax shown on the return” for
the taxable year is the portion of the tax
shown on the consolidated return alloca-
ble to the member under paragraph (b)
(6) of this section. If the member was
included in the consolidated return filed
by the group for the preceding taxable
year, for purposes of section 6655(d)(1)
(B)(ii), the “tax shown on the return” for
the preceding taxable year for any mem-
ber is the portion of the tax shown on the
consolidated return for the preceding year
allocable to the member under paragraph
(b)(6) of this section.
(4) Consolidated payments if separate
returns filed. If the group does not file a
consolidated return for the taxable year
but makes payments of estimated tax on a
consolidated basis, for purposes of section
6655(b)(1)(B), the “amount (if any) of the
installment paid” by any member is an
amount apportioned to the member in any
reasonable manner designated by the com-
mon parent. If a member was included in
the consolidated return filed by the group
for the preceding taxable year, the amount
of the member’s penalty under section
6655 is computed on the separate member

Bulletin No. 2025–4 453 January 20, 2025
basis described in paragraph (b)(3) of this
section.
(5) Tax defined. For purposes of this
section, the term tax means the excess
of—
(i) The sum of—
(A) The consolidated tax imposed by
section 11 or subchapter L of chapter 1,
whichever applies;
(B) The tax imposed by section 55(a);
plus
(C) The tax imposed by section 59A;
over
(ii) The credits against tax provided by
part IV of subchapter A of chapter 1 of the
Internal Revenue Code.
(6) Allocation of consolidated tax lia-
bility for determining earnings and profits.
For purposes of this section, the tax shown
on a consolidated return is allocated to the
members of the group by allocating any
tax described in paragraph (b)(5)(i) of this
section, net of allowable credits under
paragraph (b)(5)(ii) of this section, under
the method that the group has elected pur-
suant to section 1552 and §1.1502-33(d).
(c) Examples. The provisions of this
section are illustrated by the following
examples.
(1) Example 1. Corporations P and S1 file a con-
solidated return for the first time for calendar year
2021. P and S1 also file consolidated returns for cal-
endar year 2022 and calendar year 2023. Under para-
graph (a)(2) of this section, for the 2021 and 2022
taxable years, P and S1 may pay estimated tax on
either a separate or consolidated basis. Under para-
graph (a)(1) of this section, for the 2023 taxable year,
the group must pay its estimated tax on a consoli-
dated basis. In determining whether P and S1 come
within the exception provided in section 6655(d)(1)
(B)(ii) for 2023, the “tax shown on the return” is the
tax shown on the consolidated return for the 2022
taxable year.
(2) Example 2. Corporations P, S1, and S2 file
a consolidated return for the first time for calendar
year 2021 and file their second consolidated return
for calendar year 2022. S2 ceases to be a member of
the group on September 15, 2023. Under paragraph
(b)(2) of this section, in determining whether the
group (which no longer includes S2) comes within
the exception provided in section 6655(d)(1)(B)(ii)
for 2023, the “tax shown on the return” is the tax
shown on the consolidated return for calendar year
2022.
(3) Example 3. Corporations P and S1 file a
consolidated return for the first time for calendar
year 2021 and file their second consolidated return
for calendar year 2022. Corporation S2 becomes
a member of the group on July 1, 2023, and joins
in the filing of the consolidated return for calendar
year 2023. Under paragraph (b)(2) of this section, in
determining whether the group (which now includes
S2) comes within the exception provided in section
6655(d)(1)(B)(ii) for 2023, the “tax shown on the
return” is the tax shown on the consolidated return
for calendar year 2022. Any tax of S2 for any sepa-
rate return year is not included as a part of the “tax
shown on the return” for purposes of applying sec-
tion 6655(d)(1)(B)(ii).
(4) Example 4. Corporations X and Y file con-
solidated returns for the calendar years 2021 and
2022 and separate returns for calendar year 2023.
Under paragraph (b)(3) of this section, in determin-
ing whether X or Y comes within the exception pro-
vided in section 6655(d)(1)(B)(ii) for 2023, the “tax
shown on the return” is the amount of tax shown
on the consolidated return for 2022 allocable to X
and to Y in accordance with paragraph (b)(6) of this
section.
(d) Cross-references—(1) For provi-
sions relating to quick refunds of corporate
estimated tax payments, see §§1.1502-78
and 1.6425-1 through 1.6425-3.
(2) For provisions relating to deposit-
ing estimated taxes, see §1.6302-1(b).
(e) Applicability date. This section
applies to any taxable year for which the
due date of the income tax return (without
regard to extensions) is after December
30, 2024. For prior years, see §1.1502-5
(as contained in the 26 CFR edition
revised as of April 1, 2024).
Par. 14. Section 1.1502-6 is amended
by revising paragraph (b) to read as fol
-
lows:
§1.1502-6 Liability for tax.
* * * * *
(b) Liability of subsidiary after with-
drawal. If a subsidiary has ceased to be
a member of the group and in such ces-
sation resulted from a bona fide sale or
exchange of its stock for fair value and
occurred prior to the date upon which any
deficiency is assessed, the Commissioner
may, if the Commissioner believes that
the assessment or collection of the bal-
ance of the deficiency will not be jeopar-
dized, make assessment and collection of
such deficiency from such former subsid-
iary in an amount not exceeding the por-
tion of such deficiency which the Com-
missioner may determine to be allocable
to it. If the Commissioner makes assess-
ment and collection of any part of a defi-
ciency from such former subsidiary, then
for purposes of any credit or refund of the
amount collected from such former sub-
sidiary the agency of the common parent
under the provisions of §1.1502-77 does
not apply.
* * * * *
Par. 15. Section 1.1502-9 is amended
by revising and republishing paragraphs
(a), (b)(1), and (c)(2)(ii) and (iii) to read
as follows:
§1.1502-9 Consolidated overall foreign
losses, separate limitation losses, and
overall domestic losses.
(a) In general. This section provides
rules for applying section 904(f) and (g)
(including its definitions and nomencla-
ture) to a group and its members. Gener-
ally, section 904(f) concerns rules relating
to overall foreign losses (OFLs) and sepa-
rate limitation losses (SLLs) and the con-
sequences of such losses. Under section
904(f)(5), losses are computed separately
in each category of income described in
section 904(d)(1) or §1.904-5(a)(4)(v)
(separate category). Section 904(g) con-
cerns rules relating to overall domestic
losses (ODLs) and the consequences of
such losses. Paragraph (b) of this section
defines terms and provides computational
and accounting rules, including rules
regarding recapture. Paragraph (c) of this
section provides rules that apply to OFLs,
SLLs, and ODLs when a member becomes
or ceases to be a member of a group. Para-
graph (d) of this section provides a prede-
cessor and successor rule. Paragraph (e) of
this section provides effective dates.
(b) * * *
(1) Computation of CSLI or CSLL and
consolidated U.S.-source taxable income
or CDL. The group computes its consol-
idated separate limitation income (CSLI)
or consolidated separate limitation loss
(CSLL) for each separate category under
the principles of §1.1502-11 by aggre-
gating each member’s foreign-source
taxable income or loss in such separate
category computed under the principles
of §1.1502-12, and taking into account the
foreign portion of the consolidated items
described in §1.1502-11(a)(2) through (a)
(6) for such separate category. The group
computes its consolidated U.S.-source
taxable income or consolidated domestic
loss (CDL) under similar principles.
* * * * *
(c) * * *
(2) * * *
(ii) Departing member’s portion of
group’s account. A departing member’s
portion of a group’s COFL, CSLL or

January 20, 2025 454 Bulletin No. 2025–4
CODL account for a loss category is
computed based upon the member’s
share of the group’s assets that generate
income subject to recapture at the time
that the member ceases to be a mem-
ber. Under the characterization prin-
ciples of §§1.861-9T(g)(3), 1.861-12,
and 1.861-13, the group identifies the
assets of the departing member and the
remaining members that generate U.S.-
source income (domestic assets) and
foreign-source income (foreign assets)
in each separate category. The assets are
characterized based upon the income
that the assets are reasonably expected
to generate after the member ceases to
be a member. The member’s portion of
a group’s COFL or CSLL account for
a loss category is the group’s COFL or
CSLL account, respectively, multiplied
by a fraction, the numerator of which is
the value of the member’s foreign assets
for the loss category and the denominator
of which is the value of the foreign assets
of the group (including the departing
member) for the loss category. The mem-
ber’s portion of a group’s CODL account
for each income category is the group’s
CODL account multiplied by a fraction,
the numerator of which is the value of
the member’s domestic assets and the
denominator of which is the value of the
domestic assets of the group (including
the departing member). The value of
the domestic and foreign assets is deter-
mined under the asset valuation rules of
§1.861-9(g)(1) and (2) using either tax
book value or alternative tax book value
under the method chosen by the group
for purposes of interest apportionment
as provided in §1.861-9(g)(1)(ii). For
purposes of this paragraph (c)(2)(ii),
§1.861-9T(g)(2)(iv) (assets in intercom-
pany transactions) applies, but §1.861-
9T(g)(2)(iii) (adjustments for directly
allocated interest) does not apply. The
member’s portions of COFL, CSLL, and
CODL accounts are limited by paragraph
(c)(2)(iii) of this section. In addition, for
purposes of this paragraph (c)(2)(ii), the
tax book value of assets transferred in
intercompany transactions is determined
without regard to previously deferred
gain or loss that is taken into account by
the group as a result of the transaction in
which the member ceases to be a mem-
ber. The assets should be valued at the
time the member ceases to be a member,
but values on other dates may be used
unless this creates substantial distortions.
For example, if a member ceases to be a
member in the middle of the group’s con-
solidated return year, an average of the
values of assets at the beginning and end
of the year (as provided in §1.861-9(g)
(2)) may be used or, if a member ceases
to be a member in the early part of the
group’s consolidated return year, values
at the beginning of the year may be used,
unless this creates substantial distortions.
(iii) Limitation on member’s portion. If
the aggregate of a member’s portions of
COFL and CSLL accounts for a loss cat-
egory (with respect to one or more income
categories) determined under paragraph (c)
(2)(ii) of this section exceeds 150 percent
of the actual fair market value of the mem-
ber’s foreign assets in the loss category, the
member’s portion of the COFL or CSLL
accounts for the loss category is reduced
(proportionately, in the case of multiple
accounts) by such excess. In addition, if
the aggregate of a member’s portions of
CODL accounts (with respect to one or
more income categories) determined under
paragraph (c)(2)(ii) of this section exceeds
150 percent of the actual fair market value
of the member’s domestic assets, the
member’s portion of the CODL accounts
is reduced (proportionately, in the case of
multiple accounts) by such excess. This
rule does not apply in the case of COFL
or CSLL accounts if the departing mem-
ber and all other members that cease to be
members as part of the same transaction
own all (or substantially all) the foreign
assets in the loss category. In the case of
CODL accounts, this rule does not apply if
the departing member and all other mem-
bers that cease to be members as part of the
same transaction own all (or substantially
all) the domestic assets.
* * * * *
Par. 16. Section 1.1502-11 is amended
by:
1. Revising and republishing paragraph
(a).
2. In paragraph (b)(2)(iii), redesignat-
ing Examples 1 through 3 as paragraphs
(b)(2)(iii)(A) through (C), respectively.
3. In newly redesignated paragraphs
(b)(2)(iii)(A) through (C), further redesig-
nating the paragraphs in the first column
as the paragraphs in the second column:
Old ParagraphsNew Paragraphs
(b)(2)(iii)(A)(a), (b), and (c).............................
(b)(2)(iii)(A)(1), (2), and (3)
(b)(2)(iii)(B)(a), (b), (c), and (d)........................
(b)(2)(iii)(B)(1), (2), (3), and (4)
(b)(2)(iii)(C)(a), (b), (c), (d), and (e)...................
(b)(2)(iii)(C)(1), (2), (3), (4), and (5),
4. Revising newly redesignated para-
graphs (b)(2)(iii)(A)(3) and (b)(2)(iii)(B)(4).
5. Revising and republishing paragraph
(c)(7).
The revisions read as follows:
§1.1502-11 Consolidated taxable
income.
(a) In general. The consolidated tax-
able income (CTI) for a consolidated
return year is determined by taking into
account:
(1) The separate taxable income of
each member of the group (see §1.1502-
12 for the computation of separate taxable
income);
(2) Any consolidated net operating loss
(CNOL) deduction (see §1.1502-21 for
the computation of the CNOL deduction);
(3) Any consolidated capital gain net
income (see §1.1502-22 for the compu-
tation of consolidated capital gain net
income);
(4) Any consolidated section 1231 net
loss (see §1.1502-23 for the computation
of consolidated section 1231 net loss);
(5) Any consolidated charitable contri-
butions deduction (see §1.1502-24 for the
computation of the consolidated charita-
ble contributions deduction); and
(6) Any consolidated dividends
received deduction (see §1.1502-26 for

Bulletin No. 2025–4 455 January 20, 2025
the computation of the consolidated div-
idends received deduction).
(b) * * *
(2) * * *
(iii) * * *
(A) * * *
(3) Because $30 of S’s loss is absorbed
in the determination of consolidated tax-
able income under paragraph (b)(2)(ii)
of this section, P’s basis in S’s stock is
reduced under §1.1502-32(b) from $500
to $470 immediately before the disposi-
tion. Consequently, P recognizes a $50
gain from the sale of S’s stock and the
group has consolidated taxable income of
$50 for Year 1 (P’s $30 of ordinary income
and $50 gain from the sale of S’s stock,
less the $30 of S’s loss). In addition, S’s
limited loss of $50 is treated as a separate
net operating loss attributable to S and,
because S ceases to be a member, the loss
is apportioned to S under §1.1502-21 and
carried to its first separate return year.
(B) * * *
(4) Under paragraph (b)(2)(ii) of this
section, S’s $40 ordinary loss from Year
2 that is limited under this paragraph (b)
is treated as a separate net operating loss
arising in Year 2. Similarly, $40 of the
consolidated net capital loss from Year 1
attributable to S is treated as a separate
net capital loss carried over from Year 1.
Because S ceases to be a member, the $40
net operating loss from Year 2 and the $40
consolidated net capital loss from Year 1
are allocated to S under §§1.1502-21 and
1.1502-22, respectively and are carried to
S’s first separate return year.
* * * * *
(c) * * *
(7) Effective date. This paragraph (c)
applies to dispositions of subsidiary stock
that occur after March 22, 2005.
* * * * *
Par. 17. Section 1.1502-12 is amended
by:
a. Revising paragraph (b);
b. Removing and reserving paragraphs
(e), (g), and (m);
c. Revising paragraph (n); and
d. Removing and reserving paragraph
(q).
The revisions read as follows:
§1.1502-12 Separate taxable income.
* * * * *
(b) Any deduction that is disallowed
under §1.1502-15 must be taken into
account as provided in that section.
* * * * *
(n) No deduction under section 243(a)
(1) or section 245 (relating to deductions
with respect to dividends received) is
taken into account;
* * * * *
Par. 18. Section 1.1502-13 is amended
by:
a. Revising and republishing para-
graphs (a)(3)(i), (a)(6)(ii), (c)(4)(i)(B), (c)
(5), (d)(3), (e)(1)(v), (f)(5)(ii)(B)(2), (f)(5)
(ii)(F), (f)(6)(ii) and (v), (f)(7), and (g)(7)
(ii).b. Redesignating paragraphs (h)(2)(v)
(a) and (b) as paragraphs (h)(2)(v)(A) and
(B).
c. Revising paragraph (l)(6).
d. Adding paragraphs (l)(8) through
(10).
e. Removing paragraph (m).
The revisions and additions read as fol-
lows:
§1.1502-13 Intercompany transactions.
(a) * * *
(3) * * *
(i) In general. The timing rules of this
section are a method of accounting for
intercompany transactions, to be applied
by each member in addition to the mem-
ber’s other methods of accounting. See
§§1.1502-17 and 1.446-1(c)(2)(iii). To
the extent the timing rules of this section
are inconsistent with a member’s other-
wise applicable methods of accounting,
the timing rules of this section control.
For example, if S sells property to B in
exchange for B’s note, the timing rules of
this section apply instead of the install-
ment sale rules of section 453. S’s or B’s
application of the timing rules of this
section to an intercompany transaction
clearly reflects income only if the effect
of that transaction as a whole (including,
for example, related costs and expenses)
on consolidated taxable income is clearly
reflected.
* * * * *
(6) * * *
(ii) Table of examples. This section
contains the following examples:
RuleGeneral LocationParagraphExample
(A) Matching rule. §1.1502-13(c)(7)(ii)(A)Example 1. Intercompany sale of land followed by sale to a
nonmember.
(B)Example 2. Dealer activities.
(C)Example 3. Intercompany section 351 transfer.
(D)Example 4. Depreciable property.
(E)Example 5. Intercompany sale followed by installment sale.
(F)Example 6. Intercompany sale of installment obligation.
(G)Example 7. Performance of services.
(H)Example 8. Rental of property.
(I)Example 9. Intercompany sale of a partnership interest.
(J)Example 10. Net operating losses subject to section 382 or
the SRLY rules.
(K)Example 11. Section 475.

January 20, 2025 456 Bulletin No. 2025–4
RuleGeneral LocationParagraphExample
(L)Example 12. Section 1092.
(M)Example 13. [Reserved]
(N)Example 14. Source of income under section 863.
(O)Example 15. Section 1248.
(P)Example 16. Intercompany stock distribution followed by
section 332 liquidation.
(Q)Example 17. Intercompany stock sale followed by section
355 distribution.
(R)Example 18. Redetermination of attributes for section 250
purposes.
(B) Acceleration rule.§1.1502-13(d)(3)(i)Example 1. Becoming a nonmember—timing.
(ii)Example 2. Becoming a nonmember—attributes.
(iii)Example 3. Selling member’s disposition of installment
note.
(iv)Example 4. Cancellation of debt and attribute reduction
under section 108(b).
(v)Example 5. Section 481.
(C) Simplifying rules—
inventory.
§1.1502-13(e)(1)(v)(A)Example 1. Increment averaging method.
(B)Example 2. Increment valuation method.
(C)Example 3. Other reasonable inventory methods.
(D) Stock of members.§1.1502-13(f)(7)(i)Example 1. Dividend exclusion and property distribution.
(ii)Example 2. Excess loss accounts.
(iii)Example 3. Intercompany reorganization.
(iv)Example 4. All cash intercompany reorganization under
section 368(a)(1)(D).
(v)Example 5. Stock redemptions and distributions.
(vi)Example 6. Intercompany stock sale followed by section 332
liquidation.
(vii)Example 7. Intercompany stock sale followed by section 355
distribution.
(E) Obligations of
members.
§1.1502-13(g)(7)(ii)(A)Example 1. Interest on intercompany obligation.
(B)Example 2. Intercompany obligation becomes
nonintercompany obligation.
(C)Example 3. Loss or bad debt deduction with respect to
intercompany obligation.
(D)Example 4. Intercompany nonrecognition transactions.
(E)Example 5. Assumption of intercompany obligation.
(F)Example 6. Extinguishment of intercompany obligation.
(G)Example 7. Exchange of intercompany obligations.
(H)Example 8. Tax benefit rule.
(I)Example 9. Issuance at off-market rate of interest.
(J)Example 10. Nonintercompany obligation becomes
intercompany obligation.
(K)Example 11. Notional principal contracts.

Bulletin No. 2025–4 457 January 20, 2025
RuleGeneral LocationParagraphExample
(F) Anti-avoidance
rules.
§1.1502-13(h)(2)(i)Example 1. Sale of a partnership interest.
(ii)Example 2. Transitory status as an intercompany obligation.
(iii)Example 3. Corporate mixing bowl.
(iv)Example 4. Partnership mixing bowl.
(v)Example 5. Sale and leaseback.
(vi)Example 6. Section 163(j) interest limitation.
(G) Miscellaneous
operating rules.
§1.1502-13(j)(10)(i)Example 1. Intercompany sale followed by section 351
transfer to member.
(ii)Example 2. Intercompany sale of member stock followed by
recapitalization.
(iii)Example 3. Back-to-back intercompany transactions—
matching.
(iv)Example 4. Back-to-back intercompany transactions—
acceleration.
(v)Example 5. Successor group.
(vi)Example 6. Liquidation—80% distributee.
(vii)Example 7. Liquidation—no 80% distributee.
(viii)Example 8: Loan by section 987 QBU.
(ix)Example 9: Sale of property by section 987 QBU.
* * * * *
(c) * * *
(4) * * *
(i) * * *
(B) B controls unreasonable. To the
extent the results under paragraph (c)(4)
(i)(A) of this section are inconsistent with
treating S and B as divisions of a single
corporation, the attributes of the offsetting
items must be redetermined in a manner
consistent with treating S and B as divi-
sions of a single corporation. To the extent,
however, that B’s corresponding item on
a separate entity basis is excluded from
gross income, is a noncapital, nondeduct-
ible amount, or is otherwise permanently
disallowed or eliminated, the attributes of
B’s corresponding item always control the
attributes of S’s offsetting intercompany
item.
* * * * *
(5) Special status. Notwithstanding the
general rule of paragraph (c)(1)(i) of this
section, to the extent an item’s attributes
determined under this section are permit-
ted or not permitted to a member under
the Internal Revenue Code or regulations
by reason of the member’s special status,
the attributes required under the Internal
Revenue Code or regulations apply to that
member’s items (but not the other mem-
ber). For example, if S is a bank to which
section 582(c) applies, and sells debt secu-
rities at a gain to B, a nonbank, the char-
acter of S’s intercompany gain is ordinary
as required under section 582(c), but the
character of B’s corresponding item as
capital or ordinary is determined under
paragraph (c)(1)(i) of this section with-
out the application of section 582(c). For
other special status issues, see, for exam-
ple, sections 818(b) (life insurance com-
pany treatment of capital gains and losses)
and 1503(c) (limitation on absorption of
certain losses).
* * * * *
(d) * * *
(3) Examples. The acceleration rule of
this paragraph (d) is illustrated by the fol-
lowing examples.
(i) Example 1. Becoming a nonmember – tim-
ing—(A) Facts. S owns land with a basis of $70. On
January 1 of Year 1, S sells the land to B for $100. On
July 1 of Year 3, P sells 60% of S’s stock to X for $60
and, as a result, S becomes a nonmember.
(B) Matching rule. Under the matching rule,
none of S’s $30 gain is taken into account in Years
1 through 3 because there is no difference between
B’s $0 gain or loss taken into account and the recom-
puted gain or loss.
(C) Acceleration of S’s intercompany items.
Under the acceleration rule of paragraph (d) of this
section, S’s $30 gain is taken into account in comput-
ing consolidated taxable income (and consolidated
tax liability) immediately before the effect of treating
S and B as divisions of a single corporation cannot
be produced. Because the effect cannot be produced
once S becomes a nonmember, S takes its $30 gain
into account in Year 3 immediately before becoming
a nonmember. S’s gain is reflected under §1.1502-32
in P’s basis in the S stock immediately before P’s
sale of the stock. Under §1.1502-32, P’s basis in the
S stock is increased by $30, and therefore P’s gain
is reduced (or loss is increased) by $18 (60% of
$30). See also §§1.1502-33 and 1.1502-76(b). (The
results would be the same if S sold the land to B in
an installment sale to which section 453 would oth-
erwise apply, because S must take its intercompany
gain into account under this section.)
(D) B’s corresponding items. Notwithstanding
the acceleration of S’s gain, B continues to take its
corresponding items into account under its account-
ing method. Thus, B’s items from the land are taken
into account based on subsequent events (for exam-
ple, its sale of the land).
(E) Sale of B’s stock. The facts are the same as in
paragraph (d)(3)(i)(A) of this section (Example 1),
except that P sells 60% of B’s stock (rather than S
stock) to X for $60 and, as a result, B becomes a
nonmember. Because the effect of treating S and B as
divisions of a single corporation cannot be produced
once B becomes a nonmember, S takes its $30 gain
into account under the acceleration rule immediately
before B becomes a nonmember. (The results would
be the same if S sold the land to B in an installment
sale to which section 453 would otherwise apply,
because S must take its intercompany gain into
account under this section.)

January 20, 2025 458 Bulletin No. 2025–4
(F) Discontinue filing consolidated returns. The
facts are the same as in paragraph (d)(3)(i)(A) of this
section (Example 1), except that the P group receives
permission under §1.1502-75(c) to discontinue filing
consolidated returns beginning in Year 3. Under the
acceleration rule, S takes its $30 gain into account on
December 31 of Year 2.
(G) No subgroups. The facts are the same as in
paragraph (d)(3)(i)(A) of this section (Example 1),
except that P simultaneously sells all of the stock of
both S and B to X (rather than 60% of S’s stock),
and S and B become members of the X consolidated
group. Because the effect of treating S and B as divi-
sions of a single corporation in the P group cannot
be produced once S and B become nonmembers, S
takes its $30 gain into account under the acceleration
rule immediately before S and B become nonmem-
bers. (Paragraph (j)(5) of this section does not apply
to treat the X consolidated group as succeeding to the
P group because the X group acquired only the stock
of S and B.) However, so long as S and B continue
to join with each other in the filing of consolidated
returns, B continues to treat S and B as divisions of
a single corporation for purposes of determining the
attributes of B’s corresponding items from the land.
(ii) Example 2. Becoming a nonmember – attri-
butes—(A) Facts. S holds land for investment with a
basis of $70. On January 1 of Year 1, S sells the land
to B for $100. B holds the land for sale to customers
in the ordinary course of business, and expends sub-
stantial resources over a two-year period subdivid-
ing, developing, and marketing the land. On July 1 of
Year 3, before B has sold any of the land, P sells 60%
of S’s stock to X for $60 and, as a result, S becomes
a nonmember.
(B) Attributes. Under the acceleration rule, the
attributes of S’s gain are redetermined under the
principles of the matching rule as if B sold the land to
an affiliated corporation that is not a member of the
group for a cash payment equal to B’s adjusted basis
in the land (because the land continues to be held
within the group). Thus, whether S’s gain is capital
gain or ordinary income depends on the activities of
both S and B. Because S and B no longer join with
each other in the filing of consolidated returns, the
attributes of B’s corresponding items (for example,
from its subsequent sale of the land) are redetermined
under the principles of the matching rule as if the S
division (but not the B division) were transferred by
the single corporation to an unrelated person at the
time of P’s sale of the S stock. Thus, B continues to
take into account the activities of S with respect to
the land before the intercompany transaction.
(C) Depreciable property. The facts are the same
as in paragraph (d)(3)(ii)(A) of this section (Example
2), except that the property sold by S to B is depre-
ciable property. Section 1239 applies to treat all of
S’s gain as ordinary income because it is taken into
account as a result of B’s deemed sale of the prop-
erty to an affiliated corporation that is not a member
of the group (a related person within the meaning of
section 1239(b)).
(iii) Example 3. Selling member’s disposition
of installment note—(A) Facts. S owns land with a
basis of $70. On January 1 of Year 1, S sells the land
to B in exchange for B’s $110 note. The note bears
a market rate of interest in excess of the applicable
Federal rate, and provides for principal payments of
$55 in Year 4 and $55 in Year 5. On July 1 of Year 3,
S sells B’s note to X for $110.
(B) Timing. S’s intercompany gain is taken into
account under this section, and not under the rules of
section 453. Consequently, S’s sale of B’s note does
not result in its intercompany gain from the land
being taken into account (for example, under section
453B). The sale does not prevent S’s intercompany
items and B’s corresponding items from being taken
into account in determining the group’s consolidated
taxable income under the matching rule, and X does
not reflect any aspect of the intercompany transac-
tion (X has its own cost basis in the note). S will
take the intercompany gain into account under the
matching rule or acceleration rule based on subse-
quent events (for example, B’s sale of the land). See
also paragraph (g) of this section for additional rules
applicable to B’s note as an intercompany obligation.
(iv) Example 4. Cancellation of debt and attri-
bute reduction under section 108(b)—(A) Facts. S
holds land for investment with a basis of $0. On Jan-
uary 1 of Year 1, S sells the land to B for $100. B
also holds the land for investment. During Year 3, B
is insolvent and B’s nonmember creditors discharge
$60 of B’s indebtedness. Because of insolvency, B’s
$60 discharge is excluded from B’s gross income
under section 108(a), and B reduces the basis of the
land by $60 under sections 108(b) and 1017.
(B) Acceleration rule. As a result of B’s basis
reduction under section 1017, $60 of S’s intercom-
pany gain will not be taken into account under the
matching rule (because there is only a $40 difference
between B’s $40 basis in the land and the $0 basis the
land would have if S and B were divisions of a sin-
gle corporation). Accordingly, S takes $60 of its gain
into account under the acceleration rule in Year 3.
S’s gain is long-term capital gain, determined under
paragraph (d)(1)(ii) of this section as if B sold the
land to an affiliated corporation that is not a member
of the group for $100 immediately before the basis
reduction.
(C) Purchase price adjustment. Assume instead
that S sells the land to B in exchange for B’s $100
purchase money note, B remains solvent, and S sub-
sequently agrees to discharge $60 of the note as a
purchase price adjustment to which section 108(e)
(5) applies. Under applicable principles of tax law,
$60 of S’s gain and $60 of B’s basis in the land are
eliminated and never taken into account. Similarly,
the note is not treated as satisfied and reissued under
paragraph (g) of this section.
(v) Example 5. Section 481—(A) Facts. S oper-
ates several trades or businesses, including a manu-
facturing business. S receives permission to change
its method of accounting for valuing inventory for
its manufacturing business. S increases the basis of
its ending inventory by $100, and the related $100
positive section 481(a) adjustment is to be taken into
account ratably over six taxable years, beginning in
Year 1. During Year 3, S sells all of the assets used
in its manufacturing business to B at a gain. Imme-
diately after the transfer, B does not use the same
inventory valuation method as S. On a separate
entity basis, S’s sale results in an acceleration of the
balance of the section 481(a) adjustment to Year 3.
(B) Timing and attributes. Under paragraph (b)
(2) of this section, the balance of S’s section 481(a)
adjustment accelerated to Year 3 is intercompany
income. However, S’s $100 basis increase before
the intercompany transaction eliminates the related
difference for this amount between B’s correspond-
ing items taken into account and the recomputed
corresponding items in subsequent periods. Because
the accelerated section 481(a) adjustment will not
be taken into account in determining the group’s
consolidated taxable income (and consolidated tax
liability) under the matching rule, the balance of S’s
section 481 adjustment is taken into account under
the acceleration rule as ordinary income at the time
of the intercompany transaction. (If S’s sale had not
resulted in accelerating S’s section 481(a) adjust-
ment on a separate entity basis, S would have no
intercompany income to be taken into account under
this section.)
* * * * *
(e) * * *
(1) * * *
(v) Examples. The inventory rules of
this paragraph (e)(1) are illustrated by the
following examples.
(A) Example 1. Increment averaging method—
(1) Facts. Both S and B use a double-extension,
dollar-value LIFO inventory method, and both value
inventory increments using the earliest acquisi-
tions cost valuation method. During Year 2, S sells
25 units of product Q to B on January 15 at $10/
unit. S sells another 25 units on April 15, on July 15,
and on September 15, at $12/unit. S’s earliest cost
of product Q is $7.50/unit and S’s most recent cost
of product Q is $8.00/unit. Both S and B have an
inventory increment for the year. B’s total inventory
costs incurred during Year 2 are $6,000 and the LIFO
value of B’s Year 2 layer of increment is $600.
(2) Intercompany inventory income. Under para-
graph (e)(1)(iii) of this section, S must use a reason-
able method of allocating its LIFO inventory costs
to intercompany transactions. Because S has an
inventory increment for Year 2 and uses the earliest
acquisitions cost method, a reasonable method of
determining its intercompany cost of goods sold for
product Q is to use its most recent costs. Thus, its
intercompany cost of goods sold is $800 ($8.00 most
recent cost, multiplied by 100 units sold to B), and
its intercompany inventory income is $350 ($1,150
sales proceeds from B minus $800 cost).
(3) Timing. (i) Under the increment averaging
method of paragraph (e)(1)(ii)(B) of this section,
$35 of S’s $350 of intercompany inventory income
is not taken into account in Year 2, computed as fol-
lows: LIFO value of B’s Year 2 layer of increment /
B’s total inventory costs for year 2, or $600 / $6,000
= 10%. 10% x S’s $350 intercompany inventory
income = $35.
(ii) Thus, $315 of S’s intercompany inventory
income is taken into account in Year 2 ($350 of total
intercompany inventory income minus $35 not taken
into account).
(4) S incurs a decrement. The facts are the
same as in paragraph (e)(1)(v)(A)(1) of this section
(Example 1), except that in Year 2, S incurs a decre-
ment equal to 50% of its Year 1 layer. Under para-
graph (e)(1)(iii) of this section, S must reasonably
allocate the LIFO cost of the decrement to the cost
of goods sold to B to determine S’s intercompany
inventory income.

Bulletin No. 2025–4 459 January 20, 2025
(5) B incurs a decrement. The facts are the same
as in paragraph (e)(1)(v)(A)(1) of this section (Exam-
ple 1), except that B incurs a decrement in Year 2.
S must take into account the entire $350 of Year 2
intercompany inventory income because all 100
units of product Q are deemed sold by B in Year 2.
(B) Example 2. Increment valuation method—(1)
Facts. The facts are the same as in paragraph (e)(1)
(v)(A)(1) of this section (Example 1). In addition, B’s
use of the earliest acquisition’s cost method of valu-
ing its increments results in B valuing its year-end
inventory using costs incurred from January through
March. B’s costs incurred during the year are: $1,428
in the period January through March; $1,498 in the
period April through June; $1,524 in the period July
through September; and $1,550 in the period Octo-
ber through December. S’s intercompany inventory
income for these periods is: $50 in the period Jan-
uary through March ((25 × $10)−(25 × $8)); $100
in the period April through June ((25 × $12)−(25 ×
$8)); $100 in the period July through September ((25
× $12)−(25 × $8)); and $100 in the period October
through December ((25 × $12)−(25 × $8)).
(2) Timing. (i) Under the increment valuation
method of paragraph (e)(1)(ii)(C) of this section, $21
of S’s $350 of intercompany inventory income is not
taken into account in Year 2, computed as follows:
LIFO value of B’s Year 2 layer of increment / B’s
total inventory costs from January through March
of Year 2, or $600 / $1,428 = 42%. 42% x S’s $50
intercompany inventory income for the period from
January through March = $21.
(ii) Thus, $329 of S’s intercompany inventory
income is taken into account in Year 2 ($350 of total
intercompany inventory income minus $21 not taken
into account).
(3) B incurs a subsequent decrement. The facts
are the same as in paragraph (e)(1)(v)(B)(1) of this
section (Example 2). In addition, assume that in
Year 3, B experiences a decrement in its pool that
receives intercompany purchases from S. B’s decre-
ment equals 20% of the base-year costs for its Year
2 layer. The fact that B has incurred a decrement
means that all of its inventory costs incurred for Year
3 are included in cost of goods sold. As a result, S
takes into account its entire amount of intercompany
inventory income from its Year 3 sales. In addition, S
takes into account $4.20 of its Year 2 layer of inter-
company inventory income not already taken into
account (20% of $21).
(C) Example 3. Other reasonable inventory
methods—(1) Facts. Both S and B use a dollar-value
LIFO inventory method for their inventory trans-
actions. During Year 1, S sells inventory to B and
to X. Under paragraph (e)(1)(iv) of this section, to
compute its intercompany inventory income and the
amount of this income not taken into account, S com-
putes its intercompany inventory income using the
transfer price of the inventory items less a FIFO cost
for the goods, takes into account these items based
on a FIFO cost flow assumption for B’s correspond-
ing items, and the LIFO methods used by S and B are
ignored for these computations. These computations
are comparable to the methods used by S and B for
financial reporting purposes, and the book methods
and results are used for tax purposes. S adjusts the
amount of intercompany inventory items not taken
into account as required by section 263A.
(2) Reasonable method. The method used by S
is a reasonable method under paragraph (e)(1)(iv) of
this section if the cumulative amount of intercom-
pany inventory items not taken into account by S is
not significantly greater than the cumulative amount
that would not be taken into account under the meth-
ods specifically described in paragraph (e)(1) of
this section. If, for any year, the method results in a
cumulative amount of intercompany inventory items
not taken into account by S that significantly exceeds
the cumulative amount that would not be taken into
account under the methods specifically provided,
S must take into account for that year the amount
necessary to eliminate the excess. The method is
thereafter applied with appropriate adjustments to
reflect the amount taken into account (for example,
to prevent the amount from being taken into account
more than once).
* * * * *
(f) * * *
(5) * * *
(ii) * * *
(B) * * *
(2) Time limitation and adjustments.
The transfer of old T’s assets to new T
qualifies under paragraph (f)(5)(ii)(B)
(1) of this section only if B has entered
into a written plan, on or before the due
date of the group’s consolidated income
tax return (including extensions) for the
tax year that includes the date of old T’s
liquidation, to transfer the old T assets
to new T, and the statement described in
paragraph (f)(5)(ii)(E) of this section is
included on or with a timely filed con-
solidated income tax return (including
extensions) for the tax year that includes
the date of the liquidation. The transfer
of substantially all of T’s assets to new
T must be completed within 12 months
of the filing of the return. Appropriate
adjustments are made to reflect any events
occurring before the formation of new T
and to reflect any assets not transferred to
new T, or liabilities not assumed by new
T. For example, if B retains an asset of
old T, the asset is treated under paragraph
(f)(3) of this section as acquired by new
T but distributed to B immediately after
the reorganization.
* * * * *
(F) Applicability date. Paragraphs (f)
(5)(ii)(B)(1) and (2) of this section apply
to transactions in which old T’s liquida-
tion into B occurs on or after October 25,
2007.
(6) * * *
(ii) Gain stock. For dispositions of P
stock, see §1.1032-3.
* * * * *
(v) Applicability date. This paragraph
(f)(6) applies to gain or loss taken into
account on or after July 12, 1995, and to
transactions occurring on or after July 12,
1995.
(7) Examples – In general. The applica-
tion of this section to intercompany trans-
actions with respect to stock of members
is illustrated by the following examples.
(i) Example 1. Dividend exclusion and property
distribution—(A) Facts. S owns land with a $70
basis and $100 value. On January 1 of Year 1, P’s
basis in S’s stock is $100. During Year 1, S declares
and makes a dividend distribution of the land to P.
Under section 311(b), S has a $30 gain. Under sec-
tion 301(d), P’s basis in the land is $100. On July 1
of Year 3, P sells the land to X for $110.
(B) Dividend elimination and stock basis adjust-
ments. Under paragraph (b)(1) of this section, S’s
distribution to P is an intercompany distribution.
Under paragraph (f)(2)(ii) of this section, P’s $100
of dividend income is not included in gross income.
Under §1.1502-32, P’s basis in S’s stock is reduced
from $100 to $0 in Year 1.
(C) Matching rule and stock basis adjustments.
Under the matching rule (treating P as the buying
member and S as the selling member), S takes its $30
gain into account in Year 3 to reflect the $30 differ-
ence between P’s $10 gain taken into account and the
$40 recomputed gain. Under §1.1502-32, P’s basis in
S’s stock is increased from $0 to $30 in Year 3.
(D) Loss property. The facts are the same as in
paragraph (f)(7)(i)(A) of this section (Example 1),
except that S has a $130 (rather than $70) basis in
the land. Under paragraph (f)(2)(iii) of this section,
the principles of section 311(b) apply to S’s loss from
the intercompany distribution. Thus, S has a $30 loss
that is taken into account under the matching rule
in Year 3 to reflect the $30 difference between P’s
$10 gain taken into account and the $20 recomputed
loss. (The results are the same under section 267(f).)
Under §1.1502-32, P’s basis in S’s stock is reduced
from $100 to $0 in Year 1, and from $0 to a $30
excess loss account in Year 3. (If P had distributed
the land to its shareholders, rather than selling the
land to X, P would take its $10 gain under section
311(b) into account, and S would take its $30 loss
into account under the matching rule with $10 offset
by P’s gain and $20 recharacterized as a noncapital,
nondeductible amount.)
(E) Entitlement rule. The facts are the same as
in paragraph (f)(7)(i)(A) of this section (Example
1), except that, after P becomes entitled to the dis-
tribution but before the distribution is made, S issues
additional stock to the public and becomes a non-
member. Under paragraph (f)(2)(i) of this section,
the determination of whether a distribution is an
intercompany distribution is made under the enti-
tlement rule of paragraph (f)(2)(iv) of this section.
Treating S’s distribution as made when P becomes
entitled to it results in the distribution being an inter-
company distribution. Under paragraph (f)(2)(ii) of
this section, the distribution is not included in P’s
gross income. S’s $30 gain from the distribution is
intercompany gain that is taken into account under
the acceleration rule immediately before S becomes
a nonmember. Thus, there is a net $70 decrease in P’s

January 20, 2025 460 Bulletin No. 2025–4
basis in its S stock under §1.1502-32 ($100 decrease
for the distribution and a $30 increase for S’s $30
gain). Under paragraph (f)(2)(iv) of this section,
P does not take the distribution into account again
under separate return rules when received, and P is
not entitled to a dividends received deduction.
(ii) Example 2. Excess loss accounts—(A) Facts.
S owns all of T’s only class of stock with a $10 basis
and $100 value. S has substantial earnings and prof-
its, and T has $10 of earnings and profits. On January
1 of Year 1, S declares and distributes a dividend of
all of the T stock to P. Under section 311(b), S has
a $90 gain. Under section 301(d), P’s basis in the
T stock is $100. During Year 3, T borrows $90 and
declares and makes a $90 distribution to P to which
section 301 applies, and P’s basis in the T stock is
reduced under §1.1502-32 from $100 to $10. During
Year 6, T has $5 of earnings that increase P’s basis
in the T stock under §1.1502-32 from $10 to $15. On
December 1 of Year 9, T issues additional stock to X
and, as a result, T becomes a nonmember.
(B) Dividend exclusion. Under paragraph (f)
(2)(ii) of this section, P’s $100 of dividend income
from S’s distribution of the T stock, and its $10 of
dividend income from T’s $90 distribution, are not
included in gross income.
(C) Matching and acceleration rules. Under
§1.1502-19(b)(1), when T becomes a nonmember
P must include in income the amount of its excess
loss account (if any) in T stock. P has no excess loss
account in the T stock. Therefore P’s corresponding
item from the deconsolidation of T is $0. Treating S
and P as divisions of a single corporation, the T stock
would continue to have a $10 basis after the distri-
bution, and the adjustments under §1.1502-32 for
T’s $90 distribution and $5 of earnings would result
in a $75 excess loss account. Thus, the recomputed
corresponding item from the deconsolidation is $75.
Under the matching rule, S takes $75 of its $90 gain
into account in Year 9 as a result of T becoming a
nonmember, to reflect the difference between P’s
$0 gain taken into account and the $75 recomputed
gain. S’s remaining $15 of gain is taken into account
under the matching and acceleration rules based on
subsequent events (for example, under the matching
rule if P subsequently sells its T stock, or under the
acceleration rule if S becomes a nonmember).
(D) Reverse sequence. The facts are the same
as in paragraph (f)(7)(ii)(A) of this section (Exam-
ple 2), except that T borrows $90 and makes its $90
distribution to S before S distributes T’s stock to P.
Under paragraph (f)(2)(ii) of this section, T’s $90
distribution to S ($10 of which is a dividend) is not
included in S’s gross income. The corresponding
negative adjustment under §1.1502-32 reduces S’s
basis in the T stock from $10 to an $80 excess loss
account. Under section 311(b), S has a $90 gain from
the distribution of T stock to P. Under section 301(d)
P’s initial basis in the T stock is $10 (the stock’s fair
market value), and the basis increases to $15 under
§1.1502-32 as a result of T’s earnings in Year 6. The
timing and attributes of S’s gain are determined in
the manner provided in paragraph (f)(7)(ii)(C) of this
section (Example 2). Thus, $75 of S’s gain is taken
into account under the matching rule in Year 9 as a
result of T becoming a nonmember, and the remain-
ing $15 is taken into account under the matching and
acceleration rules based on subsequent events.
(E) Partial stock sale. The facts are the same as
in paragraph (f)(7)(ii)(A) of this section (Example 2),
except that P sells 10% of T’s stock to X on Decem-
ber 1 of Year 9 for $1.50 (rather than T’s issuing
additional stock and becoming a nonmember). Under
the matching rule, S takes $9 of its gain into account
to reflect the difference between P’s $0 gain taken
into account ($1.50 sale proceeds minus $1.50 basis)
and the $9 recomputed gain ($1.50 sale proceeds
plus $7.50 excess loss account).
(F) Loss, rather than cash distribution. The facts
are the same as in paragraph (f)(7)(ii)(A) of this sec-
tion (Example 2), except that T retains the loan pro-
ceeds and incurs a $90 loss in Year 3 that is absorbed
by the group. The timing and attributes of S’s gain
are determined in the same manner provided in para-
graph (f)(7)(ii)(C) of this section (Example 2). Under
§1.1502-32, the loss in Year 3 reduces P’s basis in
the T stock from $100 to $10, and T’s $5 of earnings
in Year 6 increase the basis to $15. Thus, $75 of S’s
gain is taken into account under the matching rule
in Year 9 as a result of T becoming a nonmember,
and the remaining $15 is taken into account under
the matching and acceleration rules based on subse-
quent events. (The timing and attributes of S’s gain
would be determined in the same manner provided
in paragraph (f)(7)(ii)(D) of this section (Example 2)
if T incurred the $90 loss before S’s distribution of
the T stock to P.)
(G) Stock sale, rather than stock distribution
. The
facts are the same as in paragraph (f)(7)(ii)(A) of this
section (Example 2), except that S sells the T stock
to P for $100 (rather than distributing the stock). The
timing and attributes of S’s gain are determined in
the same manner provided in paragraph (f)(7)(ii)
(C) of this section (Example 2). Thus, $75 of S’s
gain is taken into account under the matching rule
in Year 9 as a result of T becoming a nonmember,
and the remaining $15 is taken into account under
the matching and acceleration rules based on subse-
quent events.
(iii) Example 3. Intercompany reorganization—
(A) Facts. P forms S and B by contributing $200 to
the capital of each. During Years 1 through 4, S and
B each earn $50, and under §1.1502-32 P adjusts its
basis in the stock of each to $250. (See §1.1502-33
for adjustments to earnings and profits.) On January
1 of Year 5, the fair market value of S’s assets and its
stock is $500, and S merges into B in a tax-free reor-
ganization. Pursuant to the plan of reorganization, P
receives B stock with a fair market value of $350 and
$150 of cash.
(B) Treatment as a section 301 distribution. The
merger of S into B is a transaction to which para-
graph (f)(3) of this section applies. P is treated as
receiving additional B stock with a fair market value
of $500 and, under section 358, a basis of $250.
Immediately after the merger, $150 of the stock
received is treated as redeemed, and the redemption
is treated under section 302(d) as a distribution to
which section 301 applies. Because the $150 distri-
bution is treated as not received as part of the merger,
section 356 does not apply and no basis adjustments
are required under section 358(a)(1)(A) and (B).
Because B is treated under section 381(c)(2) as
receiving S’s earnings and profits and the redemption
is treated as occurring after the merger, $100 of the
distribution is treated as a dividend under section 301
and P’s basis in the B stock is reduced correspond-
ingly under §1.1502-32. The remaining $50 of the
distribution reduces P’s basis in the B stock. Section
301(c)(2) and §1.1502-32. Under paragraph (f)(2)(ii)
of this section, P’s $100 of dividend income is not
included in gross income. Under §1.302-2(c), proper
adjustments are made to P’s basis in its B stock to
reflect its basis in the B stock redeemed, with the
result that P’s basis in the B stock is reduced by the
entire $150 distribution.
(C) Depreciated property. The facts are the same
as in paragraph (f)(7)(iii)(A) of this section (Exam-
ple 3), except that property of S with a $200 basis
and $150 fair market value is distributed to P (rather
than cash of B). As in paragraph (f)(7)(iii)(B) of this
section (Example 3), P is treated as receiving addi-
tional B stock in the merger and a $150 distribution
to which section 301 applies immediately after the
merger. Under paragraph (f)(2)(iii) of this section,
the principles of section 311(b) apply to B’s $50 loss
and the loss is taken into account under the matching
and acceleration rules based on subsequent events
(for example, under the matching rule if P subse-
quently sells the property, or under the acceleration
rule if B becomes a nonmember). The results are the
same under section 267(f).
(D) Divisive transaction. Assume instead that,
pursuant to a plan, S distributes the stock of a low-
er-tier subsidiary in a spin-off transaction to which
section 355 applies together with $150 of cash. The
distribution of stock is a transaction to which para-
graph (f)(3) of this section applies. P is treated as
receiving the $150 of cash immediately before the
section 355 distribution, as a distribution to which
section 301 applies. Section 356(b) does not apply
and no basis adjustments are required under section
358(a)(1) (A) and (B). Because the $150 distribution
is treated as made before the section 355 distribution,
the distribution reduces P’s basis in the S stock under
§1.1502-32, and the basis allocated under section
358(c) between the S stock and the lower-tier sub-
sidiary stock received reflects this basis reduction.
(iv) Example 4. All cash intercompany reorga-
nization under section 368(a)(1)(D)—(A) Facts. P
owns all of the stock of M and B. M owns all of the
stock of S with a basis of $25. On January 1 of Year
2, the fair market value of S’s assets and its stock is
$100, and S sells all of its assets to B for $100 cash
and liquidates. The transaction qualifies as a reorga-
nization described in section 368(a)(1)(D). Pursuant
to §1.368-2(l), B will be deemed to issue a nominal
share of B stock to S in addition to the $100 of cash
actually exchanged for the S assets, and S will be
deemed to distribute all of the consideration to M.
M will be deemed to distribute the nominal share of
B stock to P.
(B) Treatment as a section 301 distribution
. The
sale of S’s assets to B is a transaction to which para-
graph (f)(3) of this section applies. In addition to the
nominal share issued by B to S under §1.368-2(l),
S is treated as receiving additional B stock with a
fair market value of $100 (in lieu of the $100) and,
under section 358, a basis of $25 which S distrib-
utes to M in liquidation. Immediately after the sale,
the B stock (with the exception of the nominal share
which is still held by M) received by M is treated
as redeemed for $100, and the redemption is treated
under section 302(d) as a distribution to which sec-

Bulletin No. 2025–4 461 January 20, 2025
tion 301 applies. M’s basis of $25 in the B stock is
reduced under §1.1502-32(b)(3)(v), resulting in an
excess loss account of $75 in the nominal share. (See
§1.302-2(c)). M’s deemed distribution of the nomi-
nal share of B stock to P under §1.368-2(l) will result
in M generating an intercompany gain under section
311(b) of $75, to be subsequently taken into account
under the matching and acceleration rules.
(v) Example 5. Stock redemptions and distribu-
tions—(A) Facts. Before becoming a member of the
P group, S owns P stock with a $30 basis. On January
1 of Year 1, P buys all of S’s stock. On July 1 of Year
3, P redeems the P stock held by S for $100 in a trans-
action to which section 302(a) applies.
(B) Gain under section 302. Under paragraph (f)
(4) of this section, P’s basis in the P stock acquired
from S is treated as eliminated. As a result of this
elimination, S’s intercompany item will never be
taken into account under the matching rule because
P’s basis in the stock does not reflect S’s intercom-
pany item. Therefore, S’s $70 gain is taken into
account under the acceleration rule in Year 3. The
attributes of S’s item are determined under paragraph
(d)(1)(ii) of this section by applying the matching
rule as if P had sold the stock to an affiliated corpo-
ration that is not a member of the group at no gain
or loss. Although P’s corresponding item from a sale
of its stock would have been excluded from gross
income under section 1032, paragraph (c)(6)(ii) of
this section prevents S’s gain from being treated as
excluded from gross income; instead S’s gain is cap-
ital gain.
(C) Gain under section 311. The facts are the
same as in paragraph (f)(7)(v)(A) of this section
(Example 5), except that S distributes the P stock to
P in a transaction to which section 301 applies (rather
than the stock being redeemed), and S has a $70 gain
under section 311(b). The timing and attributes of S’s
gain are determined in the manner provided in para-
graph (f)(7)(v)(B) of this section (Example 5).
(D) Loss stock. The facts are the same as in
paragraph (f)(7)(v)(A) of this section (Example 5),
except that S has a $130 (rather than $30) basis in the
P stock and has a $30 loss under section 302(a). The
limitation under paragraph (c)(6)(ii) of this section
does not apply to intercompany losses. Thus, S’s loss
is taken into account in Year 3 as a noncapital, non-
deductible amount.
(vi) Example 6. Intercompany stock sale fol-
lowed by section 332 liquidation—(A) Facts. S owns
all of the stock of T, with a $70 basis and $100 value,
and T’s assets have a $10 basis and $100 value. On
January 1 of Year 1, S sells all of T’s stock to B for
$100. On July 1 of Year 3, when T’s assets are still
worth $100, T distributes all of its assets to B in an
unrelated complete liquidation to which section 332
applies.
(B) Timing and attributes. Under paragraph (b)
(3)(ii) of this section, B’s unrecognized gain or loss
under section 332 is a corresponding item for pur-
poses of applying the matching rule. In Year 3 when
T liquidates, B has $0 of unrecognized gain or loss
under section 332 because B has a $100 basis in the
T stock and receives a $100 distribution with respect
to its T stock. Treating S and B as divisions of a sin-
gle corporation, the recomputed corresponding item
would have been $30 of unrecognized gain under
section 332 because B would have succeeded to S’s
$70 basis in the T stock. Thus, under the matching
rule, S’s $30 intercompany gain is taken into account
in Year 3 as a result of T’s liquidation. Under para-
graph (c)(1)(i) of this section, the attributes of S’s
gain and B’s corresponding item are redetermined
as if S and B were divisions of a single corporation.
Although S’s gain ordinarily would be redetermined
to be treated as excluded from gross income to reflect
the nonrecognition of B’s gain under section 332,
S’s gain remains capital gain because B’s unrecog-
nized gain under section 332 is not permanently and
explicitly disallowed under the Code. See paragraph
(c)(6)(ii) of this section. However, relief may be
elected under paragraph (f)(5)(ii) of this section.
(C) Intercompany sale at a loss. The facts are
the same as in paragraph (f)(7)(vi)(A) of this sec-
tion (Example 6), except that S has a $130 (rather
than $70) basis in the T stock. The limitation under
paragraph (c)(6)(ii) of this section does not apply to
intercompany losses. Thus, S’s intercompany loss is
taken into account in Year 3 as a noncapital, non-
deductible amount. However, relief may be elected
under paragraph (f)(5)(ii) of this section.
(vii) Example 7. Intercompany stock sale fol-
lowed by section 355 distribution—(A) Facts. S
owns all of the stock of T with a $70 basis and a $100
value. On January 1 of Year 1, S sells all of T’s stock
to M for $100. On June 1 of Year 6, M distributes
all of its T stock to its nonmember shareholders in a
transaction to which section 355 applies. At the time
of the distribution, M has a basis in T stock of $100
and T has a value of $150.
(B) Timing and attributes. Under paragraph (b)
(3)(ii) of this section, M’s $50 gain not recognized on
the distribution under section 355 is a corresponding
item. Treating S and M as divisions of a single corpo-
ration, the recomputed corresponding item would be
$80 of unrecognized gain under section 355 because
M would have succeeded to S’s $70 basis in the T
stock. Thus, under the matching rule, S’s $30 inter-
company gain is taken into account in Year 6 as a
result of the distribution. Under paragraph (c)(1)(i)
of this section, the attributes of S’s intercompany
item and M’s corresponding item are redetermined
to produce the same effect on consolidated taxable
income as if S and M were divisions of a single
corporation. Although S’s gain ordinarily would
be redetermined to be treated as excluded from
gross income to reflect the nonrecognition of M’s
gain under section 355(c), S’s gain remains capital
gain because M’s unrecognized gain under section
355(c) is not permanently and explicitly disallowed
under the Code. See paragraph (c)(6)(ii) of this sec-
tion. Because M’s distribution of the T stock is not
an intercompany transaction, relief is not available
under paragraph (f)(5)(ii) of this section.
(C) Section 355 distribution within the group.
The facts are the same as under paragraph (f)(7)
(vii)(A) of this section (Example 7), except that M
distributes the T stock to B (another member of the
group), and B takes a $75 basis in the T stock under
section 358. Under paragraph (j)(2) of this section, B
is a successor to M for purposes of taking S’s inter-
company gain into account, and therefore both M
and B might have corresponding items with respect
to S’s intercompany gain. To the extent it is possible,
matching with respect to B’s corresponding items
produces the result most consistent with treating S,
M, and B as divisions of a single corporation. See
paragraphs (j)(3) and (j)(4) of this section. However,
because there is only $5 difference between B’s $75
basis in the T stock and the $70 basis the stock would
have if S, M, and B were divisions of a single cor-
poration, only $5 can be taken into account under
the matching rule with respect to B’s corresponding
items. (This $5 is taken into account with respect
to B’s corresponding items based on subsequent
events.) The remaining $25 of S’s $30 intercompany
gain is taken into account in Year 6 under the match-
ing rule with respect to M’s corresponding item from
its distribution of the T stock. The attributes of S’s
remaining $25 of gain are determined in the same
manner as in paragraph (f)(7)(vii)(B) of this section
(Example 7).
(D) Relief elected. The facts are the same as in
paragraph (f)(7)(vii)(C) of this section (Example 7)
except that P elects relief pursuant to paragraph (f)
(5)(ii)(D) of this section. As a result of the election,
M’s distribution of the T stock is treated as subject to
sections 301 and 311 instead of section 355. Accord-
ingly, M recognizes $50 of intercompany gain from
the distribution, B takes a basis in the stock equal
to its fair market value of $150, and S and M take
their intercompany gains into account with respect to
B’s corresponding items based on subsequent events.
(None of S’s gain is taken into account in Year 6 as a
result of M’s distribution of the T stock.)
* * * * *
(g) * * *
(7) Examples—(i) In general. For pur-
poses of the examples in this paragraph
(g), unless otherwise stated, interest is
qualified stated interest under §1.1273-
1(c), and the intercompany obligations are
capital assets and are not subject to section
475.
(ii) The application of this section to
obligations of members is illustrated by
the following examples:
(A) Example 1. Interest on intercompany obli-
gation—(1) Facts. On January 1 of year 1, B bor-
rows $100 from S in return for B’s note providing
for $10 of interest annually at the end of each year,
and repayment of $100 at the end of year 5. B fully
performs its obligations. Under their separate entity
methods of accounting, B accrues a $10 interest
deduction annually under section 163, and S accrues
$10 of interest income annually under section 61(a)
(4) and §1.446-2.
(2) Matching rule. Under paragraph (b)(1) of this
section, the accrual of interest on B’s note is an inter-
company transaction. Under the matching rule, S
takes its $10 of income into account in each of years
1 through 5 to reflect the $10 difference between B’s
$10 of interest expense taken into account and the $0
recomputed expense. S’s income and B’s deduction
are ordinary items. (Because S’s intercompany item
and B’s corresponding item would both be ordinary
on a separate entity basis, the attributes are not rede-
termined under paragraph (c)(1)(i) of this section.)
(3) Original issue discount. The facts are the
same as in paragraph (g)(7)(ii)(A)(1) of this section
(Example 1), except that B borrows $90 (rather than
$100) from S in return for B’s note providing for

January 20, 2025 462 Bulletin No. 2025–4
$10 of interest annually and repayment of $100 at
the end of year 5. The principles described in para-
graph (g)(7)(ii)(A)(2) of this section (Example 1)
for stated interest also apply to the $10 of original
issue discount. Thus, as B takes into account its cor-
responding expense under section 163(e), S takes
into account its intercompany income under section
1272. S’s income and B’s deduction are ordinary
items.
(4) Tax-exempt income. The facts are the same as
in paragraph (g)(7)(ii)(A)(1) of this section (Exam-
ple 1), except that B’s borrowing from S is alloca-
ble under section 265 to B’s purchase of state and
local bonds to which section 103 applies. The timing
of S’s income is the same as in paragraph (g)(7)(ii)
(A)(2) of this section (Example 1). Under paragraph
(c)(4)(i) of this section, the attributes of B’s corre-
sponding item of disallowed interest expense control
the attributes of S’s offsetting intercompany interest
income. Paragraph (c)(6) of this section does not pre-
vent the redetermination of S’s intercompany item as
excluded from gross income because section 265(a)
(2) permanently and explicitly disallows B’s corre-
sponding deduction and because, under paragraph
(g)(4)(i)(B) of this section, paragraph (c)(6)(ii) of
this section does not apply to prevent any intercom-
pany income from the B note from being excluded
from gross income. Accordingly, S’s intercompany
income is treated as excluded from gross income.
(B) Example 2. Intercompany obligation
becomes nonintercompany obligation—(1) Facts.
On January 1 of year 1, B borrows $100 from S
in return for B’s note providing for $10 of interest
annually at the end of each year, and repayment of
$100 at the end of year 5. As of January 1 of year 3,
B has paid the interest accruing under the note and S
sells B’s note to X for $70, reflecting an increase in
prevailing market interest rates. B is never insolvent
within the meaning of section 108(d)(3).
(2) Deemed satisfaction and reissuance. Because
the B note becomes an obligation that is not an inter-
company obligation, the transaction is a triggering
transaction under paragraph (g)(3)(i)(A)(2) of this
section. Under paragraph (g)(3)(ii) of this section,
B’s note is treated as satisfied and reissued for its fair
market value of $70 immediately before S’s sale to
X. As a result of the deemed satisfaction of the note
for less than its adjusted issue price, B takes into
account $30 of discharge of indebtedness income
under §1.61-12. On a separate entity basis, S’s $30
loss would be a capital loss under section 1271(a)(1).
Under the matching rule, however, the attributes of
S’s intercompany item and B’s corresponding item
must be redetermined to produce the same effect as
if the transaction had occurred between divisions of
a single corporation. Under paragraph (c)(4)(i) of
this section, the attributes of B’s $30 of discharge
of indebtedness income control the attributes of S’s
loss. Thus, S’s loss is treated as ordinary loss. B is
also treated as reissuing, immediately after the sat-
isfaction, a new note to S with a $70 issue price, a
$100 stated redemption price at maturity, and a $70
basis in the hands of S. S is then treated as selling the
new note to X for the $70 received by S in the actual
transaction. Because S has a basis of $70 in the new
note, S recognizes no gain or loss from the sale to X.
After the sale, the new note held by X is not an inter-
company obligation, it has a $70 issue price, a $100
stated redemption price at maturity, and a $70 basis.
The $30 of original issue discount will be taken into
account by B and X under sections 163(e) and 1272.
(3) Creditor deconsolidation. The facts are the
same as in paragraph (g)(7)(ii)(B)(1) of this section
(Example 2), except that P sells S’s stock to X (rather
than S selling B’s note to X). Because the B note
becomes an obligation that is not an intercompany
obligation, the transaction is a triggering transac-
tion under paragraph (g)(3)(i)(A)(2) of this section.
Under paragraph (g)(3)(ii) of this section, B’s note is
treated as satisfied and reissued for its $70 fair mar-
ket value immediately before S becomes a nonmem-
ber. The treatment of S’s $30 of loss and B’s $30 of
discharge of indebtedness income is the same as in
paragraph (g)(7)(ii)(B)(2) of this section (Example
2). The new note held by S upon deconsolidation is
not an intercompany obligation, it has a $70 issue
price, a $100 stated redemption price at maturity,
and a $70 basis. The $30 of original issue discount
will be taken into account by B and S under sections
163(e) and 1272.
(4) Debtor deconsolidation. The facts are the
same as in paragraph (g)(7)(ii)(B)(1) of this section
(Example 2), except that P sells B’s stock to X (rather
than S selling B’s note to X). The results to S and B
are the same as in paragraph (g)(7)(ii)(B)(3) of this
section (Example 2).
(5) Subgroup exception. The facts are the same as
in paragraph (g)(7)(ii)(B)(1) of this section (Exam-
ple 2), except that P owns all of the stock of S, S
owns all of the stock of B, and P sells all of the S
stock to X, the parent of another consolidated group.
Because B and S, members of an intercompany obli-
gation subgroup, cease to be members of the P group
in a transaction that does not cause either member
to recognize an item with respect to the B note, and
such members constitute an intercompany obligation
subgroup in the X group, P’s sale of S stock is not
a triggering transaction under paragraph (g)(3)(i)
(B)(8) of this section, and the note is not treated as
satisfied and reissued under paragraph (g)(3)(ii) of
this section. After the sale, the note held by S has a
$100 issue price, a $100 stated redemption price at
maturity, and a $100 basis. The results are the same
if the S stock is sold to an individual and the S-B
affiliated group elects to file a consolidated return for
the period beginning on the day after S and B cease
to be members of the P group.
(6) Section 338 election. The facts are the same as
in paragraph (g)(7)(ii)(B)(1) of this section (Example
2), except that P sells S’s stock to X and a section 338
election is made with respect to the stock sale. Under
section 338, S is treated as selling all of its assets to
new S, including the B note, at the close of the acqui-
sition date. The aggregate deemed sales price (within
the meaning of §1.338-4) allocated to the B note is
$70. Because the B note becomes an obligation that
is not an intercompany obligation, the transaction
is a triggering transaction under paragraph (g)(3)(i)
(A)(2) of this section. Under paragraph (g)(3)(ii) of
this section, B’s note is treated as satisfied and reis-
sued immediately before S’s deemed sale to new S
for $70, the amount realized with respect to the note
(the aggregate deemed sales price allocated to the
note under §1.338-6). The results to S and B are the
same as in paragraph (g)(7)(ii)(B)(2) of this section
(Example 2).
(7) Appreciated note. The facts are the same as
in paragraph (g)(7)(ii)(B)(1) of this section (Example
2), except that S sells B’s note to X for $130 (rather
than $70), reflecting a decline in prevailing market
interest rates. Because the B note becomes an obliga-
tion that is not an intercompany obligation, the trans-
action is a triggering transaction under paragraph (g)
(3)(i)(A)(2) of this section. Under paragraph (g)(3)
(ii) of this section, B’s note is treated as satisfied and
reissued for its fair market value of $130 immedi-
ately before S’s sale to X. As a result of the deemed
satisfaction of the note for more than its adjusted
issue price, B takes into account $30 of repurchase
premium under §1.163-7(c). On a separate entity
basis, S’s $30 gain would be a capital gain under
section 1271(a)(1). Under the matching rule, how-
ever, the attributes of S’s intercompany item and B’s
corresponding item must be redetermined to produce
the same effect as if the transaction had occurred
between divisions of a single corporation. Under
paragraph (c)(4)(i) of this section, the attributes of
B’s premium deduction control the attributes of S’s
gain. Accordingly, S’s gain is treated as ordinary
income. B is also treated as reissuing, immediately
after the satisfaction, a new note to S with a $130
issue price, $100 stated redemption price at maturity,
and $130 basis in the hands of S. S is then treated as
selling the new note to X for the $130 received by
S in the actual transaction. Because S has a basis of
$130 in the new note, S recognizes no gain or loss
from the sale to X. After the sale, the new note held
by X is not an intercompany obligation, it has a $130
issue price, a $100 stated redemption price at matu-
rity, and a $130 basis. The treatment of B’s $30 of
bond issuance premium under the new note is deter-
mined under §1.163-13.
(8) Deferral of loss or deduction with respect to
nonmember indebtedness acquired in debt exchange.
The facts are the same as in paragraph (g)(7)(ii)(B)
(1) of this section (Example 2), except that S sells B’s
note to X for a non-publicly traded X note with an
issue price and face amount of $100 and a fair market
value of $70, and that, subsequently, S sells the X
note for $70. Because the B note becomes an obliga-
tion that is not an intercompany obligation, the trans-
action is a triggering transaction under paragraph (g)
(3)(i)(A)(2) of this section. Under paragraph (g)(3)
(ii) of this section, B’s note is treated as satisfied and
reissued immediately before S’s sale to X for $100,
the amount realized with respect to the note (deter-
mined under section 1274). As a result of the deemed
satisfaction, neither S nor B take into account any
items of income, gain, deduction, or loss. S is then
treated as selling the new B note to X for the X note
received by S in the actual transaction. Because S has
a basis of $100 in the new note, S recognizes no gain
or loss from the sale to X. After the sale, the new B
note held by X is not an intercompany obligation,
it has a $100 issue price, a $100 stated redemption
price at maturity, and a $100 basis. S also holds an X
note with a basis of $100 but a fair market value of
$70. When S disposes of the X note, S’s loss on the
disposition is deferred under paragraph (g)(4)(iv) of
this section, until B retires its note (the former inter-
company obligation in the hands of X).
(C) Example 3. Loss or bad debt deduction with
respect to intercompany obligation—(1) Facts. On
January 1 of year 1, B borrows $100 from S in return

Bulletin No. 2025–4 463 January 20, 2025
for B’s note providing for $10 of interest annually at
the end of each year, and repayment of $100 at the
end of year 5. On January 1 of year 3, the fair market
value of the B note has declined to $60 and S sells
the B note to P for property with a fair market value
of $60. B is never insolvent within the meaning of
section 108(d)(3). The B note is not a security within
the meaning of section 165(g)(2).
(2) Deemed satisfaction and reissuance. Because
S realizes an amount of loss from the assignment of
the B note, the transaction is a triggering transac-
tion under paragraph (g)(3)(i)(A)(1) of this section.
Under paragraph (g)(3)(ii) of this section, B’s note
is treated as satisfied and reissued for its fair mar-
ket value of $60 immediately before S’s sale to P.
As a result of the deemed satisfaction of the note for
less than its adjusted issue price ($100), B takes into
account $40 of discharge of indebtedness income
under §1.61-12. On a separate entity basis, S’s $40
loss would be a capital loss under section 1271(a)(1).
Under the matching rule, however, the attributes of
S’s intercompany item and B’s corresponding item
must be redetermined to produce the same effect as
if the transaction had occurred between divisions of
a single corporation. Under paragraph (c)(4)(i) of
this section, the attributes of B’s $40 of discharge
of indebtedness income control the attributes of S’s
loss. Thus, S’s loss is treated as ordinary loss. B is
also treated as reissuing, immediately after the satis-
faction, a new note to S with a $60 issue price, $100
stated redemption price at maturity, and $60 basis in
the hands of S. S is then treated as selling the new
note to P for the $60 of property received by S in the
actual transaction. Because S has a basis of $60 in
the new note, S recognizes no gain or loss from the
sale to P. After the sale, the note is an intercompany
obligation, it has a $60 issue price and a $100 stated
redemption price at maturity, and the $40 of original
issue discount will be taken into account by B and P
under sections 163(e) and 1272.
(3) Partial bad debt deduction. The facts are the
same as in paragraph (g)(7)(ii)(C)(1) of this section
(Example 3), except that S claims a $40 partial bad
debt deduction under section 166(a)(2) (rather than
selling the note to P). Because S realizes a deduction
from a transaction comparable to an assignment of
the B note, the transaction is a triggering transac-
tion under paragraph (g)(3)(i)(A)(1) of this section.
Under paragraph (g)(3)(ii) of this section, B’s note
is treated as satisfied and reissued for its fair market
value of $60 immediately before section 166(a)(2)
applies. The treatment of S’s $40 loss and B’s $40
of discharge of indebtedness income are the same as
in paragraph (g)(7)(ii)(C)(2) of this section (Exam-
ple 3). After the reissuance, S has a basis of $60 in
the new note. Accordingly, the application of section
166(a)(2) does not result in any additional deduction
for S. The $40 of original issue discount on the new
note will be taken into account by B and S under sec-
tions 163(e) and 1272.
(4) Insolvent debtor. The facts are the same as
in paragraph (g)(7)(ii)(C)(1) of this section (Example
3), except that B is insolvent within the meaning of
section 108(d)(3) at the time that S sells the note to
P. As explained in paragraph (g)(7)(ii)(C)(2) of this
section (Example 3), the transaction is a triggering
transaction and the B note is treated as satisfied and
reissued for its fair market value of $60 immediately
before S’s sale to P. On a separate entity basis, S’s
$40 loss would be capital, B’s $40 income would be
excluded from gross income under section 108(a),
and B would reduce attributes under section 108(b)
or section 1017 (see also §1.1502-28). However,
under paragraph (g)(4)(i)(C) of this section, section
108(a) does not apply to characterize B’s income as
excluded from gross income. Accordingly, the attri-
butes of S’s loss and B’s income are redetermined in
the same manner as in paragraph (g)(7)(ii)(C)(2) of
this section (Example 3).
(D) Example 4. Intercompany nonrecognition
transactions—(1) Facts. On January 1 of year 1, B
borrows $100 from S in return for B’s note providing
for $10 of interest annually at the end of each year,
and repayment of $100 at the end of year 5. As of
January 1 of year 3, B has fully performed its obliga-
tions, but the note’s fair market value is $130, reflect-
ing a decline in prevailing market interest rates. On
January 1 of year 3, S transfers the note and other
assets to a newly formed corporation, Newco, for all
of Newco’s common stock in an exchange to which
section 351 applies.
(2) No deemed satisfaction and reissuance.
Because the assignment of the B note is an exchange
to which section 351 applies and neither S nor B rec-
ognize gain or loss, the transaction is not a triggering
transaction under paragraph (g)(3)(i)(B)(1) of this
section, and the note is not treated as satisfied and
reissued under paragraph (g)(3)(ii) of this section.
(3) Receipt of other property. The facts are the
same as in paragraph (g)(7)(ii)(D)(1) of this section
(Example 4), except that the other assets trans-
ferred to Newco have a basis of $100 and a fair
market value of $260, and S receives, in addition
to Newco common stock, $15 of cash. Because S
would recognize $15 of gain under section 351(b),
the assignment of the B note is a triggering transac-
tion under paragraph (g)(3)(i)(A)(1) of this section.
Under paragraph (g)(3)(ii) of this section, B’s note
is treated as satisfied and reissued for its fair market
value of $130 immediately before the transfer to
Newco. As a result of the deemed satisfaction of the
note for more than its adjusted issue price, B takes
into account $30 of repurchase premium under
§1.163-7(c). On a separate entity basis, S’s $30 gain
would be a capital gain under section 1271(a)(1).
Under the matching rule, however, the attributes of
S’s intercompany item and B’s corresponding item
must be redetermined to produce the same effect as
if the transaction had occurred between divisions of
a single corporation. Under paragraph (c)(4)(i) of
this section, the attributes of B’s premium deduc-
tion control the attributes of S’s gain. Accordingly,
S’s gain is treated as ordinary income. B is also
treated as reissuing, immediately after the satis-
faction, a new note to S with a $130 issue price,
$100 stated redemption price at maturity, and $130
basis in the hands of S. S is then treated as trans-
ferring the new note to Newco for the Newco stock
and cash received by S in the actual transaction.
Because S has a basis of $130 in the new B note, S
recognizes no gain or loss with respect to the trans-
fer of the note in the section 351 exchange, and S
recognizes $10 of gain with respect to the transfer
of the other assets under section 351(b). After the
transfer, the note has a $130 issue price and a $100
stated redemption price at maturity. The treatment
of B’s $30 of bond issuance premium under the new
note is determined under §1.163-13.
(4) Transferee loss subject to limitation. The
facts are the same as in paragraph (g)(7)(ii)(D)(1) of
this section (Example 4), except that T is a member
with a loss from a separate return limitation year that
is subject to limitation under §1.1502-21(c) (a SRLY
loss), and on January 1 of year 3, S transfers the
assets and the B note to T in an exchange to which
section 351 applies. Because the transferee, T, has
a loss that is subject to a limitation, the assignment
of the B note is a triggering transaction under para-
graph (g)(3)(i)(A)(1) of this section (the exception
in paragraph (g)(3)(i)(B)(1) of this section does not
apply). Under paragraph (g)(3)(ii) of this section, B’s
note is treated as satisfied and reissued for its fair
market value, immediately before S’s transfer to T.
As a result of the deemed satisfaction of the note
for more than its adjusted issue price, B takes into
account $30 of repurchase premium under §1.163-
7(c). On a separate entity basis, S’s $30 gain would
be a capital gain under section 1271(a)(1). Under the
matching rule, however, the attributes of S’s inter-
company item and B’s corresponding item must be
redetermined to produce the same effect as if the
transaction had occurred between divisions of a
single corporation. Under paragraph (c)(4)(i) of this
section, the attributes of B’s premium deduction con-
trol the attributes of S’s gain. Accordingly, S’s gain is
treated as ordinary income. B is also treated as reis-
suing, immediately after the satisfaction, a new note
to S with a $130 issue price, $100 stated redemption
price at maturity, and $130 basis in the hands of S.
The treatment of B’s $30 of bond issuance premium
under the new note is determined under §1.163-13.
S is then treated as transferring the new note to T
as part of the section 351 exchange. Because T will
have a fair market value basis in the reissued B note
immediately after the exchange, T’s intercompany
item from the subsequent retirement of the B note
will not reflect any of S’s built-in gain (and the
amount of T’s SRLY loss that may be absorbed by
such item will be limited to any appreciation in the B
note accruing after the exchange).
(5) Intercompany obligation transferred in sec-
tion 332 transaction. The facts are the same as para-
graph (g)(7)(ii)(D)(1) of this section (Example 4),
except that S transfers the B note to P in complete
liquidation under section 332. Because the transac-
tion is an exchange to which section 332 and section
337(a) applies, and neither S nor B recognize gain
or loss, the transaction is not a triggering transaction
under paragraph (g)(3)(i)(B)(1) of this section, and
the note is not treated as satisfied and reissued under
paragraph (g)(3)(ii) of this section.
(E) Example 5. Assumption of intercompany
obligation—(1) Facts. On January 1 of year 1, B
borrows $100 from S in return for B’s note provid-
ing for $10 of interest annually at the end of each
year, and repayment of $100 at the end of year 5.
The note is fully recourse and is incurred for use in
Business Z. As of January 1 of year 3, B has fully
performed its obligations, but the note’s fair market
value is $110 reflecting a decline in prevailing mar-
ket interest rates. Business Z has a fair market value
of $95. On January 1 of year 3, B transfers all of the
assets of Business Z and $15 of cash (substantially
all of B’s assets) to member T in exchange for the

January 20, 2025 464 Bulletin No. 2025–4
assumption by T of all of B’s obligations under the
note in a transaction in which gain or loss is recog-
nized under section 1001. The terms and conditions
of the note are not modified in connection with the
sales transaction, the transaction does not result in a
change in payment expectations, and no amount of
income, gain, deduction, or loss is recognized by S,
B, or T with respect to the note.
(2) No deemed satisfaction and reissuance.
Because all of B’s obligations under the B note are
assumed by T in connection with the sale of the
Business Z assets, the assignment of B’s obligations
under the note is not a triggering transaction under
paragraph (g)(3)(i)(B)(2) of this section, and the note
is not treated as satisfied and reissued under para-
graph (g)(3)(ii) of this section.
(F) Example 6. Extinguishment of intercompany
obligation—(1) Facts. On January 1 of year 1, B bor-
rows $100 from S in return for B’s note providing for
$10 of interest annually at the end of each year, and
repayment of $100 at the end of year 20. The note is
a security within the meaning of section 351(d)(2).
As of January 1 of year 3, B has fully performed its
obligations, but the fair market value of the B note is
$130, reflecting a decline in prevailing market inter-
est rates, and S transfers the note to B in exchange
for $130 of B stock in a transaction to which both
section 351 and section 354 applies.
(2) No deemed satisfaction and reissuance. As a
result of the satisfaction of the note for more than
its adjusted issue price, B takes into account $30 of
repurchase premium under §1.163-7(c). Although
the transfer of the B note is a transaction to which
both section 351 and section 354 applies, under para-
graph (g)(4)(i)(C) of this section, any gain or loss
from the intercompany obligation is not subject to
either section 351(a) or section 354, and therefore,
S has a $30 gain under section 1001. Because the
note is extinguished in a transaction in which the
adjusted issue price of the note is equal to the cred-
itor’s basis in the note, and the debtor’s and cred-
itor’s items offset in amount, the transaction is not
a triggering transaction under paragraph (g)(3)(i)
(B)(5) of this section, and the note is not treated as
satisfied and reissued under paragraph (g)(3)(ii) of
this section. On a separate entity basis, S’s $30 gain
would be a capital gain under section 1271(a)(1).
Under the matching rule, however, the attributes of
S’s intercompany item and B’s corresponding item
must be redetermined to produce the same effect as
if the transaction had occurred between divisions of a
single corporation. Under paragraph (c)(4)(i) of this
section, the attributes of B’s premium deduction con-
trol the attributes of S’s gain. Accordingly, S’s gain
is treated as ordinary income. Under paragraph (g)
(4)(i)(D) of this section, section 108(e)(7) does not
apply upon the extinguishment of the B note, and
therefore, the B stock received by S in the exchange
will not be treated as section 1245 property.
(G) Example 7. Exchange of intercompany obliga-
tions—(1) Facts. On January 1 of year 1, B borrows
$100 from S in return for B’s note providing for $10
of interest annually at the end of each year, and repay-
ment of $100 at the end of year 20. As of January 1 of
year 3, B has fully performed its obligations and, pur-
suant to a recapitalization to which section 368(a)(1)
(E) applies, B issues a new note to S in exchange for
the original B note. The new B note has an issue price,
stated redemption price at maturity, and stated princi-
pal amount of $100, but contains terms that differ suf-
ficiently from the terms of the original B note to cause
a realization event under §1.1001-3. The original B
note and the new B note are both securities (within the
meaning of section 354(a)(1)).
(2) No deemed satisfaction and reissuance.
Because the original B note is extinguished in
exchange for a newly issued B note and the issue
price of the new B note is equal to both the adjusted
issue price of the original B note and S’s basis in the
original B note, the transaction is not a triggering
transaction under paragraph (g)(3)(i)(B)(6) of this
section, and the note is not treated as satisfied and
reissued under paragraph (g)(3)(ii) of this section. B
has neither income from discharge of indebtedness
under section 108(e)(10) nor a deduction for repur-
chase premium under §1.163-7(c). Although the
exchange of the original B note for the new B note
is a transaction to which section 354 applies, under
paragraph (g)(4)(i)(C) of this section, any gain or
loss from the intercompany obligation is not subject
to section 354. Under section 1001, S has no gain or
loss from the exchange of notes.
(H) Example 8. Tax benefit rule—(1) Facts. On
January 1 of year 1, B borrows $100 from S in return
for B’s note providing for $10 of interest annually at
the end of each year, and repayment of $100 at the end
of year 5. As of January 1 of year 3, B has fully per-
formed its obligations, but the note’s fair market value
has depreciated, reflecting an increase in prevailing
market interest rates. On that date, S transfers the B
note to member T as part of an exchange for T com-
mon stock which is intended to qualify for nonrecog-
nition treatment under section 351 but with a view to
sell the T stock at a reduced gain. On February 1 of
year 4, all of the stock of T is sold at a reduced gain.
(2) Deemed satisfaction and reissuance. Because
the assignment of the B note does not occur within
12 months of the sale of T stock, paragraph (g)(3)
(i)(B)(1)(vi) of this section does not apply to treat
the assignment as a triggering transaction. However,
because the assignment of the B note was engaged in
with a view to shift built-in loss from the obligation
in order to secure a tax benefit that the group or its
members would not otherwise enjoy, under paragraph
(g)(3)(i)(C) of this section, the assignment of the B
note is a triggering transaction to which paragraph
(g)(3)(ii) of this section applies. Under paragraph (g)
(3)(ii) of this section, B’s note is treated as satisfied
and reissued for its fair market value, immediately
before S’s transfer to T. As a result of the deemed
satisfaction of the note for less than its adjusted issue
price, B takes into account discharge of indebted-
ness income and S has a corresponding loss which
is treated as ordinary loss. B is also treated as reis-
suing, immediately after the deemed satisfaction, a
new note to S with an issue price and basis equal
to its fair market value. S is then treated as trans-
ferring the new note to T as part of the section 351
exchange. Because S’s basis in the T stock received
with respect to the transferred B note is equal to its
fair market value, S’s gain with respect to the T stock
will not reflect any of the built-in loss attributable to
the B note. (This example does not address common
law doctrines or other authorities that might apply to
recharacterize the transaction or to otherwise affect
the tax treatment of the transaction.)
(I) Example 9. Issuance at off-market rate of
interest—(1) Facts. T is a member with a SRLY
loss. T’s sole shareholder, P, borrows an amount of
cash from T in return for a P note that provides for a
materially above market rate of interest. The P note
is issued with a view to generate additional interest
income to T over the term of the note to facilitate the
absorption of T’s SRLY loss.
(2) With a view. Because the P note is issued with
a view to shift interest income from the off-market
obligation in order to secure a tax benefit that the
group or its members would not otherwise enjoy,
under paragraph (g)(4)(iii) of this section, the inter-
company obligation is treated, for all Federal income
tax purposes, as originally issued for its fair market
value so T is treated as purchasing the note at a pre-
mium. The difference between the amount loaned
and the fair market value of the obligation is treated
as transferred from P to T as a capital contribution
at the time the note is issued. Throughout the term
of the note, T takes into account interest income
and bond premium and P takes into account interest
deduction and bond issuance premium under gener-
ally applicable Internal Revenue Code sections. The
adjustment under paragraph (g)(4)(iii) of this section
is made without regard to the application of, and in
lieu of any adjustment under, section 482 or 1274.
(J) Example 10. Nonintercompany obligation
becomes intercompany obligation—(1) Facts. On Jan-
uary 1 of year 1, B borrows $100 from X in return for
B’s note providing for $10 of interest annually at the
end of each year, and repayment of $100 at the end of
year 5. As of January 1 of year 3, B has fully performed
its obligations, but the note’s fair market value is $70,
reflecting an increase in prevailing market interest rates.
On January 1 of year 3, P buys all of X’s stock. B is
solvent within the meaning of section 108(d)(3).
(2) Deemed satisfaction and reissuance. Under
paragraph (g)(5)(ii) of this section, B’s note is treated
as satisfied for $70 (determined under the principles
of §1.108-2(f)(2)) immediately after it becomes an
intercompany obligation. Both X’s $30 capital loss
(under section 1271(a)(1)) and B’s $30 of discharge of
indebtedness income (under §1.61-12) are taken into
account in determining consolidated taxable income
for year 3. Under paragraph (g)(6)(i)(B) of this sec-
tion, the attributes of items resulting from the satisfac-
tion are determined on a separate entity basis. But see
section 382 and §1.1502-15 (as appropriate). B is also
treated as reissuing a new note to X. The new note is
an intercompany obligation, it has a $70 issue price
and $100 stated redemption price at maturity, and
the $30 of original issue discount will be taken into
account by B and X in the same manner as provided in
paragraph (g)(7)(ii)(A)(3) of this section (Example 1).
(3) Amortization of repurchase premium. The
facts are the same as in paragraph (g)(7)(ii)(J)(1) of
this section (Example 10), except that on January 1
of year 3, the B note has a fair market value of $130
and rather than P purchasing the X stock, P purchases
the B note from X by issuing its own note. The P note
has an issue price, stated redemption price at matu-
rity, stated principal amount, and fair market value
of $130. Under paragraph (g)(5)(ii) of this section,
B’s note is treated as satisfied for $130 (determined
under the principles of §1.108-2(f)(1)) immediately
after it becomes an intercompany obligation. As a
result of the deemed satisfaction of the note, P has no

Bulletin No. 2025–4 465 January 20, 2025
gain or loss and B has $30 of repurchase premium.
Under paragraph (g)(6)(iii) of this section, B’s $30
of repurchase premium from the deemed satisfaction
is amortized by B over the term of the newly issued
P note in the same manner as if it were original
issue discount and the newly issued P note had been
issued directly by B. B is also treated as reissuing
a new note to P. The new note is an intercompany
obligation, it has a $130 issue price and $100 stated
redemption price at maturity, and the treatment of
B’s $30 of bond issuance premium under the new B
note is determined under §1.163-13.
(4) Election to file consolidated returns. Assume
instead that B borrows $100 from S during year 1,
but the P group does not file consolidated returns
until year 3. Under paragraph (g)(5)(ii) of this sec-
tion, B’s note is treated as satisfied and reissued as
a new note immediately after the note becomes an
intercompany obligation. The satisfaction and reissu-
ance are deemed to occur on January 1 of year 3, for
the fair market value of the obligation (determined
under the principles of §1.108-2(f)(2)) at that time.
(K) Example 11. Notional principal contracts—
(1) Facts. On April 1 of year 1, M1 enters into a
contract with counterparty M2 under which, for a
term of five years, M1 is obligated to make a pay-
ment to M2 each April 1, beginning in year 2, in an
amount equal to the London Interbank Offered Rate
(LIBOR), as determined by reference to LIBOR on
the day each payment is due, multiplied by a $1,000
notional principal amount. M2 is obligated to make a
payment to M1 each April 1, beginning in year 2, in
an amount equal to 8 percent multiplied by the same
notional principal amount. LIBOR is 7.80 percent on
April 1 of year 2, and therefore, M2 owes $2 to M1.
(2) Matching rule. Under §1.446-3(d), the net
income (or net deduction) from a notional principal
contract for a taxable year is included in (or deducted
from) gross income. Under §1.446-3(e), the ratable
daily portion of M2’s obligation to M1 as of Decem-
ber 31 of year 1 is $1.50 ($2 multiplied by 275/365).
Under the matching rule, M1’s net income for year
1 of $1.50 is taken into account to reflect the differ-
ence between M2’s net deduction of $1.50 taken
into account and the $0 recomputed net deduction.
Similarly, the $.50 balance of the $2 of net periodic
payments made on April 1 of year 2 is taken into
account for year 2 in M1’s and M2’s net income and
net deduction from the contract. In addition, the attri-
butes of M1’s intercompany income and M2’s cor-
responding deduction are redetermined to produce
the same effect as if the transaction had occurred
between divisions of a single corporation. Under
paragraph (c)(4)(i) of this section, the attributes of
M2’s corresponding deduction control the attributes
of M1’s intercompany income. (Although M1 is the
selling member with respect to the payment on April
1 of year 2, it might be the buying member in a sub-
sequent period if it owes the net payment.)
(3) Dealer. The facts are the same as in para-
graph (g)(7)(ii)(K)(1) of this section (Example 11),
except that M2 is a dealer in securities, and the
contract with M1 is not inventory in the hands of
M2. Under section 475, M2 must mark its securi-
ties to fair market value at year-end. Assume that
under section 475, M2’s loss from marking to fair
market value the contract with M1 is $10. Because
M2 realizes an amount of loss from the mark to fair
market value of the contract, the transaction is a
triggering transaction under paragraph (g)(3)(i)(A)
(1) of this section. Under paragraph (g)(3)(ii) of this
section, M2 is treated as making a $10 payment to
M1 to terminate the contract immediately before a
new contract is treated as reissued with an up-front
payment by M1 to M2 of $10. M1’s $10 of income
from the termination payment is taken into account
under the matching rule to reflect M2’s deduction
under §1.446-3(h). The attributes of M1’s intercom-
pany income and M2’s corresponding deduction
are redetermined to produce the same effect as if
the transaction had occurred between divisions of
a single corporation. Under paragraph (c)(4)(i) of
this section, the attributes of M2’s corresponding
deduction control the attributes of M1’s intercom-
pany income. Accordingly, M1’s income is treated
as ordinary income. Under §1.446-3(f), the deemed
$10 up-front payment by M1 to M2 in connection
with the issuance of a new contract is taken into
account over the term of the new contract in a man-
ner reflecting the economic substance of the contract
(for example, allocating the payment in accordance
with the forward rates of a series of cash-settled for-
ward contracts that reflect the specified index and
the $1,000 notional principal amount). (The timing
of taking items into account is the same if M1, rather
than M2, is the dealer subject to the mark-to-market
requirement of section 475 at year-end. However in
this case, because the attributes of the corresponding
deduction control the attributes of the intercompany
income, M1’s income from the deemed termination
payment from M2 might be ordinary or capital).
Under paragraph (g)(3)(ii)(A) of this section, sec-
tion 475 does not apply to mark the notional prin-
cipal contract to fair market value after its deemed
satisfaction and reissuance.
* * * * *
(l) * * *
(6) Applicability date regarding para-
graph (f)(7)(iv) of this section (Example
4). Paragraph (f)(7)(iv) of this section
(Example 4) applies to transactions occur-
ring on or after December 18, 2009.
* * * * *
(8) Election to apply paragraph (f)
(5)(ii) of this section to an intercompany
transaction. Paragraph (f)(5)(ii)(E) of
this section applies to any original con-
solidated Federal income tax return due
(without extensions) after June 14, 2007.
(9) Election to reduce basis of parent
stock under paragraph (f)(6) of this sec-
tion. Paragraph (f)(6)(i)(C)(2) of this sec-
tion applies to any original consolidated
Federal income tax return due (without
extensions) after June 14, 2007.
(10) Certain qualified stock disposi-
tions. Paragraph (f)(5)(ii)(C) of this section
applies to any qualified stock disposition
(as defined in §1.336-1(b)(6)) for which the
disposition date (as defined in §1.336-1(b)
(8)) is on or after May 15, 2013.
Par. 19. Section 1.1502-17 is amended
by revising and republishing paragraphs
(a) and (e) to read as follows:
§1.1502-17 Methods of accounting.
(a) General rule. The method of
accounting to be used by each member
of the group is determined in accordance
with the provisions of section 446 as if
such member filed a separate return.
* * * * *
(e) Effective dates. Paragraph (b) of
this section applies to changes in method
of accounting effective for years begin-
ning on or after July 12, 1995. Paragraphs
(c) and (d) of this section apply with
respect to acquisitions occurring or activ-
ities undertaken in years beginning on or
after July 12, 1995.
§1.1502-18 [Removed]
Par. 20. Section 1.1502-18 is removed.
Par. 21. Section 1.1502-21 is amended
by:
a. Revising paragraphs (b)(3)(i) and (b)
(4);
b. Removing and reserving paragraph
(d); and
c. Revising paragraphs (h)(6) and (8).
The revisions read as follows:
§1.1502-21 Net operating losses.
* * * * *
(b) * * *
(3) * * *
(i) In general. A group may make an
irrevocable election under section 172(b)
(3) to relinquish the entire carryback
period with respect to a CNOL for any
consolidated return year. Except as pro-
vided in paragraphs (b)(4) and (5) of this
section, the election may not be made sep-
arately for any member (whether or not it
remains a member), and must be made in
a separate statement titled “THIS IS AN
ELECTION UNDER §1.1502-21(b)(3)
(i) TO WAIVE THE ENTIRE CARRY-
BACK PERIOD PURSUANT TO SEC-
TION 172(b)(3) FOR THE [insert con-
solidated return year] CNOLs OF THE
CONSOLIDATED GROUP OF WHICH
[insert name and employer identifica-
tion number of common parent] IS THE
COMMON PARENT.” The statement

January 20, 2025 466 Bulletin No. 2025–4
must be filed with the group’s income tax
return for the consolidated return year in
which the loss arises. The election may be
made in an unsigned statement.
* * * * *
(4) General split-waiver election. If
one or more members of a consolidated
group becomes a member of another con-
solidated group, the acquiring group may
make an irrevocable election to relinquish,
with respect to all consolidated net operat-
ing losses attributable to the member, the
portion of the carryback period for which
the corporation was a member of another
group, provided that any other corpora-
tion joining the acquiring group that was
affiliated with the member immediately
before it joined the acquiring group is also
included in the waiver. This election is not
a yearly election and applies to all losses
that would otherwise be subject to a carry-
back to a former group under section 172.
The election must be made in a separate
statement titled “THIS IS AN ELECTION
UNDER §1.1502-21(b)(4) TO WAIVE
THE PRE–[insert first taxable year for
which the member (or members) was
not a member of another group] CAR-
RYBACK PERIOD FOR THE CNOLs
attributable to [insert names and employer
identification number of members].” The
statement must be filed with the acquiring
consolidated group’s original income tax
return for the year the corporation (or cor-
porations) became a member. The election
may be made in an unsigned statement.
* * * * *
(h) * * *
(6) Certain prior periods. Paragraphs
(b)(1), (b)(2)(iv)(A), (b)(2)(iv)(B)(1), and
(c)(2)(vii) of this section apply to taxable
years for which the due date of the origi-
nal return (without regard to extensions) is
after March 21, 2005.
* * * * *
(8) Losses treated as expired under
§1.1502-35(f)(1). For rules regarding
losses treated as expired under §1.1502-
35(f) on or after March 10, 2006, see
§1.1502-21(b)(3)(v) as contained in 26
CFR part 1 in effect on April 1, 2006.
* * * * *
§1.1502-22 [Amended]
Par. 22. Section 1.1502-22 is amended
by removing and reserving paragraph (d).
Par. 23. Section 1.1502-24 is amended
by revising paragraphs (a)(2) and (c) to
read as follows:
§1.1502-24 Consolidated charitable
contributions deduction.
(a) * * *
(2) The percentage limitation on the
total charitable contribution deduction
provided in section 170(b)(2)(A) applied
to adjusted consolidated income as deter-
mined under paragraph (c) of this section.
* * * * *
(c) Adjusted consolidated taxable
income. For purposes of this section, the
adjusted consolidated taxable income of
the group for any consolidated return year
is the consolidated taxable income com-
puted without regard to this section, sec-
tion 243(a)(2) and (3), and §1.1502-26,
and without regard to any consolidated net
operating or net capital loss carrybacks to
such year.
Par. 24. Section 1.1502-26 is amended
by revising paragraphs (a) and (c) to read
as follows:
§1.1502-26 Consolidated dividends
received deduction.
(a) In general. The consolidated divi-
dends received deduction for the taxable
year is the lesser of—
(1) The aggregate of the deduction of
the members of the group allowable under
sections 243(a)(1), 245(a) and (b), and
250 (computed without regard to the lim-
itations provided in section 246(b)), or
(2) The aggregate amount described in
section 246(b), determined by substitut-
ing, wherever it appears—
(i) The term consolidated taxable
income for taxable income,
(ii) The term consolidated net operat-
ing loss for net operating loss, and
(iii) The term consolidated net capital
loss
for capital loss.
* * * * *
(c) Examples. The provisions of this
section may be illustrated by the follow-
ing examples:
(1) Example 1. (i) Corporations P, S, and S-1
filed a consolidated return for the calendar year 2023
showing consolidated taxable income of $100,000
(determined without regard to the consolidated net
operating loss deduction, and the consolidated div-
idends received deduction). These corporations
received dividends during such year from less than
20-percent owned domestic corporations as follows:
Table 1 to Paragraph (c)(1)(i)
CorporationDividends
P$6,000
S$10,000
S-1$34,000
Total$50,000
(ii) The dividends received deduction allow-
able to each member under section 243(a)(1) (com-
puted without regard to the limitation in section
246(b)) is as follows: P has $3,000 (50 percent of
$6,000), S has $5,000 (50 percent of $10,000), and
S-1 has $17,000 (50 percent of $34,000), or a total
of $25,000. Since $25,000 is less than $50,000 (50
percent of $100,000), the consolidated dividends
received deduction is $25,000.
(2) Example 2. Assume the same facts as in para-
graph (c)(1)(i) of this section (Example 1), except
that consolidated taxable income (computed without
regard to the consolidated net operating loss deduc-
tion and the consolidated dividends received deduc-
tion) was $40,000. The aggregate of the dividends
received deductions, $42,500, computed without
regard to section 246(b), results in a consolidated
net operating loss of $2,500. See section 172(d)
(5). Therefore, paragraph (a)(2) of this section does
not apply and the consolidated dividends received
deduction is $42,500.
§1.1502-27 [Removed]
Par. 25. Section 1.1502-27 is removed.
Par. 26. Section 1.1502-32 is amended
by:
a. Revising paragraphs (b)(4)(v) and
(vii).
b. Revising and republishing para-
graphs (b)(5), (h)(2)(i), and (h)(5) through
(8).c. Redesignating paragraph (j) as para-
graph (h)(10) and revising newly desig-
nated paragraph (h)(10).
d. Removing paragraph (k).
The revisions read as follows:
§1.1502-32 Investment adjustments.
* * * * *
(b) * * *
(4) * * *
(v) Special rule for loss carryovers of
a subsidiary acquired in a transaction for
which an election under §1.1502-20(i)
(2) is made. See paragraph (b)(4)(v) of
this section as contained in 26 CFR part 1
revised as of April 1, 2005.
* * * * *

Bulletin No. 2025–4 467 January 20, 2025
(vii) Special rules for amending waiver
of loss carryovers from separate return
limitation year relating to the acquisition
of a subsidiary in a transaction subject to
§1.1502-20. See paragraph (b)(4)(vii) of
this section as contained in 26 CFR part 1
revised as of April 1, 2005.
(5) Examples—(i) In general. For
purposes of the examples in this section,
unless otherwise stated, M owns all of
the only class of S’s stock, the stock is
owned for the entire year, S owns no stock
of lower-tier members, the tax year of all
persons is the calendar year, all persons
use the accrual method of accounting, the
facts set forth the only corporate activity,
preferred stock is described in section
1504(a)(4), all transactions are between
unrelated persons, and tax liabilities are
disregarded.
(ii) Stock basis adjustments. The prin-
ciples of this paragraph (b) are illustrated
by the following examples.
(A) Example 1. Taxable income—(1) Current
taxable income. For Year 1, the M group has $100 of
taxable income when determined by including only
S’s items of income, gain, deduction, and loss taken
into account. Under paragraph (b)(1) of this section,
M’s basis in S’s stock is adjusted under this section
as of the close of Year 1. Under paragraph (b)(2) of
this section, M’s basis in S’s stock is increased by the
amount of the M group’s taxable income determined
by including only S’s items taken into account. Thus,
M’s basis in S’s stock is increased by $100 as of the
close of Year 1.
(2) Intercompany gain that is not taken into
account. The facts are the same as in paragraph (b)
(5)(ii)(A)(1) of this section (Example 1), except that
S also sells property to another member at a $25 gain
in Year 1, the gain is deferred under §1.1502-13 and
taken into account in Year 3, and M sells 10% of S’s
stock to nonmembers in Year 2. Under paragraph (b)
(3)(i) of this section, S’s deferred gain is not addi-
tional taxable income for Year 1 or 2 because it is not
taken into account in determining the M group’s con-
solidated taxable income for either of those years.
The deferred gain is not tax-exempt income under
paragraph (b)(3)(ii) of this section because it is not
permanently excluded from S’s gross income. The
deferred gain does not result in a basis adjustment
until Year 3, when it is taken into account in deter-
mining the M group’s consolidated taxable income.
Consequently, M’s basis in the S shares sold is not
increased to reflect S’s gain from the intercompany
sale of the property. In Year 3, the deferred gain
is taken into account, but the amount allocable to
the shares sold by M does not increase their basis
because these shares are held by nonmembers.
(3) Intercompany gain taken into account. The
facts are the same as in paragraph (b)(5)(ii)(A)(2) of
this section (Example 1), except that M sells all of
S’s stock in Year 2 (rather than only 10%). Under
§1.1502-13, S takes the $25 gain into account imme-
diately before S becomes a nonmember. Thus, M’s
basis in S’s stock is increased to reflect S’s gain from
the intercompany sale of the property.
(B) Example 2. Tax loss—(1) Current absorp-
tion. For Year 2, the M group has a $50 consoli-
dated net operating loss when determined by taking
into account only S’s items of income, gain, deduc-
tion, and loss. S’s loss is absorbed by the M group
in Year 2, offsetting M’s income for that year. Under
paragraph (b)(3)(i)(A) of this section, because S’s
loss is absorbed in the year it arises, M has a $50
negative adjustment with respect to S’s stock.
Under paragraph (b)(2) of this section, M reduces
its basis in S’s stock by $50. Under paragraph (a)(3)
(ii) of this section, if the decrease exceeds M’s basis
in S’s stock, the excess is M’s excess loss account
in S’s stock.
(2) Interim determination from stock sale. The
facts are the same as in paragraph (b)(5)(ii)(B)(1)
of this section (Example 2), except that S’s Year 2
loss arises in the first half of the calendar year, M
sells 50% of S’s stock on July 1 of Year 2, and M’s
income for Year 2 does not arise until after the sale
of S’s stock. M’s income for Year 2 (exclusive of the
sale of S’s stock) is offset by S’s loss, even though
the income arises after the stock sale, and no loss
remains to be apportioned to S. See §§1.1502-11
and 1.1502-21(b). Under paragraph (b)(3)(i)(A) of
this section, because S’s $50 loss is absorbed in the
year it arises, it reduces M’s basis in the S shares sold
by $25 immediately before the stock sale. Because
S becomes a nonmember, the loss also reduces M’s
basis in the retained S shares by $25 immediately
before S becomes a nonmember.
(3) Loss carryback. The facts are the same as in
paragraph (b)(5)(ii)(B)(1) of this section (Example
2), except that M has no income or loss for Year 2,
S’s $50 loss is carried back and absorbed by the M
group in Year 1 (offsetting the income of M or S),
and the M group receives a $17 tax refund in Year
2 that is paid to S. Under paragraph (b)(3)(i)(B) of
this section, because the $50 loss is carried back
and absorbed in Year 1, it is treated as a tax loss
for Year 2 (the year in which it arises). Under para-
graph (b)(3)(ii) of this section, the refund is treated
as tax-exempt income of S. Under paragraph (b)(3)
(iv)(C) of this section, the tax- exempt income is
taken into account in Year 2 because that is the year
it would be taken into account under S’s method
of accounting if it were subject to Federal income
taxation. Thus, under paragraph (b)(2) of this sec-
tion, M reduces its basis in S’s stock by $33 as of
the close of Year 2 (the $50 tax loss, less the $17
tax refund).
(4) Loss carryforward. The facts are the same as
in paragraph (b)(5)(ii)(B)(1) of this section (Example
2), except that M has no income or loss for Year 2,
and S’s loss is carried forward and absorbed by the
M group in Year 3 (offsetting the income of M or S).
Under paragraph (b)(3)(i)(A) of this section, the loss
is not treated as a tax loss under paragraph (b)(2) of
this section until Year 3.
(C) Example 3. Tax-exempt income and noncap-
ital, nondeductible expenses—(1) Facts. For Year
1, the M group has $500 of consolidated taxable
income. However, the M group has a $100 consoli-
dated net operating loss when determined by includ-
ing only S’s items of income, gain, deduction, and
loss taken into account. Also for Year 1, S has $80
of interest income that is permanently excluded from
gross income under section 103, and S incurs $60
of related expense for which a deduction is perma-
nently disallowed under section 265.
(2) Analysis. Under paragraph (b)(3)(i)(A) of
this section, S has a $100 tax loss for Year 1. Under
paragraph (b)(3)(ii)(A) of this section, S has $80
of tax-exempt income. Under paragraph (b)(3)(iii)
(A) of this section, S has $60 of noncapital, nonde-
ductible expense. Under paragraph (b)(3)(iv)(C) of
this section, the tax-exempt income and noncapital,
nondeductible expense are taken into account in
Year 1 because that is the year they would be taken
into account under S’s method of accounting if they
were subject to Federal income taxation. Thus,
under paragraph (b) of this section, M reduces its
basis in S’s stock as of the close of Year 1 by an $80
net amount (the $100 tax loss, less $80 of tax-ex-
empt income, plus $60 of noncapital, nondeductible
expenses).
(D) Example 4. Discharge of indebtedness—
(1) Facts. M forms S on January 1 of Year 1 and
S borrows $200. During Year 1, S’s assets decline
in value and the M group has a $100 consolidated
net operating loss. Of that amount, $10 is attrib-
utable to M and $90 is attributable to S under the
principles of §1.1502-21(b)(2)(iv). None of the loss
is absorbed by the group in Year 1, and S is dis-
charged from $100 of indebtedness at the close of
Year 1. M has a $0 basis in the S stock. M and S
have no attributes other than the consolidated net
operating loss. Under section 108(a), S’s $100 of
discharge of indebtedness income is excluded from
gross income because of insolvency. Under section
108(b) and §1.1502-28, the consolidated net oper-
ating loss is reduced to $0.
(2
) Analysis. Under paragraph (b)(3)(iii)(A) of
this section, the reduction of $90 of the consolidated
net operating loss attributable to S is treated as a
noncapital, nondeductible expense in Year 1 because
that loss is permanently disallowed by section 108(b)
and §1.1502-28. Under paragraph (b)(3)(ii)(C)(1) of
this section, all $100 of S’s discharge of indebted-
ness income is treated as tax-exempt income in Year
1 because the discharge results in a $100 reduction
to the consolidated net operating loss. Consequently,
the loss and the cancellation of the indebtedness
result in a net positive $10 adjustment to M’s basis
in its S stock.
(3) Insufficient attributes. The facts are the
same as in paragraph (b)(5)(ii)(D)(1) of this section
(Example 4), except that S is discharged from $120
of indebtedness at the close of Year 1. Under sec-
tion 108(a), S’s $120 of discharge of indebtedness
income is excluded from gross income because of
insolvency. Under section 108(b) and §1.1502-28,
the consolidated net operating loss is reduced by
$100 to $0 after the determination of tax for Year 1.
Under paragraph (b)(3)(iii)(A) of this section, the
reduction of $90 of the consolidated net operating
loss attributable to S is treated as a noncapital, non-
deductible expense. Under paragraph (b)(3)(ii)(C)(1)
of this section, only $100 of the discharge is treated
as tax-exempt income because only that amount is
applied to reduce tax attributes. The remaining $20
of discharge of indebtedness income excluded from
gross income under section 108(a) has no effect on
M’s basis in S’s stock.

January 20, 2025 468 Bulletin No. 2025–4
(4) Purchase price adjustment. Assume instead
that S buys land in Year 1 in exchange for S’s $100
purchase money note (bearing interest at a market
rate of interest in excess of the applicable Fed-
eral rate, and providing for a principal payment
at the end of Year 10), and the seller agrees with
S in Year 4 to discharge $60 of the note as a pur-
chase price adjustment to which section 108(e)
(5) applies. S has no discharge of indebtedness
income that is treated as tax-exempt income under
paragraph (b)(3)(ii) of this section. In addition, the
$60 purchase price adjustment is not a noncapital,
nondeductible expense under paragraph (b)(3)(iii)
of this section. A purchase price adjustment is not
equivalent to a discharge of indebtedness that is
offset by a deduction or loss. Consequently, the
purchase price adjustment results in no net adjust-
ment to M’s basis in S’s stock under paragraph (b)
of this section.
(E) Example 5. Distributions—(1) Amounts
declared and distributed. For Year 1, the M group
has $120 of consolidated taxable income when deter-
mined by including only S’s items of income, gain,
deduction, and loss taken into account. S declares
and makes a $10 dividend distribution to M at the
close of Year 1. Under paragraph (b) of this section,
M increases its basis in S’s stock as of the close
of Year 1 by a $110 net amount ($120 of taxable
income, less a $10 distribution).
(2) Distributions in later years. The facts are
the same as in paragraph (b)(5)(ii)(E)(1) of this
section (Example 5), except that S does not declare
and distribute the $10 until Year 2. Under paragraph
(b) of this section, M increases its basis in S’s stock
by $120 as of the close of Year 1, and decreases its
basis by $10 as of the close of Year 2. (If M were
also a subsidiary, the basis of its stock would also be
increased in Year 1 to reflect M’s $120 adjustment
to basis of S’s stock; the basis of M’s stock would
not be changed as a result of S’s distribution in Year
2, because M’s $10 of tax-exempt dividend income
under paragraph (b)(3)(ii) of this section would be
offset by the $10 negative adjustment to M’s basis in
S’s stock for the distribution.)
(3) Amounts declared but not distributed. The
facts are the same as in paragraph (b)(5)(ii)(E)(1) of
this section (Example 5), except that, during Decem-
ber of Year 1, S declares (and M becomes entitled to)
another $70 dividend distribution with respect to its
stock, but M does not receive the distribution until
after it sells all of S’s stock at the close of Year 1.
Under §1.1502-13(f)(2)(iv), S is treated as making a
$70 distribution to M at the time M becomes entitled
to the distribution. (If S is distributing an appreci-
ated asset, its gain under section 311 is also taken
into account under paragraph (b)(3)(i) of this section
at the time M becomes entitled to the distribution.)
Consequently, under paragraph (b) of this section,
M increases its basis in S’s stock as of the close of
Year 1 by only a $40 net amount ($120 of taxable
income, less two distributions totaling $80). Any fur-
ther adjustments after S ceases to be a member and
the $70 distribution is made would be duplicative,
because the stock basis has already been adjusted for
the distribution. Accordingly, the distribution will
not result in further adjustments or gain, even if the
distribution is a payment to which section 301(c)(2)
or (3) applies.
(F) Example 6. Reorganization with boot—(1)
Facts. M owns all the stock of S and T. M owns ten
shares of the same class of common stock of S and
ten shares of the same class of common stock of T.
The fair market value of each share of S stock is $10
and the fair market value of each share of T stock is
$10. On January 1 of Year 1, M has a $5 basis in each
of its ten shares of S stock and a $10 basis in each
of its ten shares of T stock. S and T have no items
of income, gain, deduction, or loss for Year 1. S and
T each have substantial earnings and profits. At the
close of Year 1, T merges into S in a reorganization
described in section 368(a)(1)(A) (and in section
368(a)(1)(D)). M receives no additional S stock, but
does receive $10 which is treated as received by M
in a separate transaction occurring immediately after
the merger of T into S.
(2) Analysis. The merger of T into S is a trans-
action to which §1.1502-13(f)(3) applies. Under
§§1.1502-13(f)(3) and 1.358-2(a)(2)(iii), M is
deemed to receive ten additional shares of S stock
with a total fair market value of $100 (the fair mar-
ket value of the T stock surrendered by M). Under
§1.358-2(a)(2)(i), M will have a basis of $10 in each
share of S stock deemed received in the reorganiza-
tion. Under §1.358-2(a)(2)(iii), M is deemed to sur-
render all twenty shares of its S stock in a recapital-
ization under section 368(a)(1)(E) in exchange for
the ten shares of S stock, the number of shares of S
stock held by M immediately after the transaction.
Thus, under §1.358-2(a)(2)(i), M has five shares of
S stock each with a basis of $10 and five shares of S
stock each with a basis of $20. The $10 M received
is treated as a dividend distribution under section 301
and, under paragraph (b)(3)(v) of this section, the
$10 is a distribution to which paragraph (b)(2)(iv)
of this section applies. Accordingly, M’s total basis
in the S stock is decreased by the $10 distribution.
(G) Example 7. Tiering up of basis adjustments.
M owns all of S’s stock, and S owns all of T’s stock.
For Year 1, the M group has $100 of consolidated
taxable income when determined by including only
T’s items of income, gain, deduction, and loss taken
into account, and $50 of consolidated taxable income
when determined by including only S’s items taken
into account. S increases its basis in T’s stock by $100
under paragraph (b) of this section. Under paragraph
(a)(3) of this section, this $100 basis adjustment is
taken into account in determining M’s adjustments
to its basis in S’s stock. Thus, M increases its basis in
S’s stock by $150 under paragraph (b) of this section.
(H) Example 8. Allocation of items—(1) Acquisi-
tion in mid-year. M is the common parent of a con-
solidated group, and S is an unaffiliated corporation
filing separate returns on a calendar-year basis. M
acquires all of S’s stock and S becomes a member
of the M group on July 1 of Year 1. For the entire
calendar Year 1, S has $100 of ordinary income and
under §1.1502-76(b) $60 is allocated to the period
from January 1 to June 30 and $40 to the period from
July 1 to December 31. Under paragraph (b) of this
section, M increases its basis in S’s stock by $40.
(2) Sale in mid-year. The facts are the same as in
paragraph (b)(5)(ii)(H)(1) of this section (Example
8), except that S is a member of the M group at the
beginning of Year 1 but ceases to be a member on
June 30 as a result of M’s sale of S’s stock. Under
paragraph (b) of this section, M increases its basis in
S’s stock by $60 immediately before the stock sale.
(M’s basis increase would be the same if S became
a nonmember because S issued additional shares to
nonmembers.)
(3) Absorption of loss carryovers. Assume
instead that S is a member of the M group at the
beginning of Year 1 but ceases to be a member on
June 30 as a result of M’s sale of S’s stock, and a
$100 consolidated net operating loss attributable to
S is carried over by the M group to Year 1. The con-
solidated net operating loss may be apportioned to S
for its first separate return year only to the extent not
absorbed by the M group during Year 1. Under para-
graph (b)(3)(i) of this section, if the loss is absorbed
by the M group in Year 1, whether the offsetting
income arises before or after M’s sale of S’s stock,
the absorption of the loss carryover is included in the
determination of S’s taxable income or loss for Year
1. Thus, M’s basis in S’s stock is adjusted under para-
graph (b) of this section to reflect any absorption of
the loss by the M group.
(I) Example 9. Gross-ups—(1) Facts. M owns all
of the stock of S, and S owns all of the stock of T, a
newly formed controlled foreign corporation that is
not a passive foreign investment company. In Year 1,
T has $100 of subpart F income and pays $34 of for-
eign income tax, leaving T with $66 of earnings and
profits. The M group has $100 of consolidated tax-
able income when determined by taking into account
only S’s items (the inclusion under section 951(a),
taking into account the section 78 gross-up). As a
result of the section 951(a) inclusion, S increases its
basis in T’s stock by $66 under section 961(a).
(2) Analysis. Under paragraph (b)(3)(i) of this
section, S has $100 of taxable income. Under para-
graph (b)(3)(iii)(B) of this section, the $34 gross-up
for taxes paid by T that S is treated as having paid
is a noncapital, nondeductible expense (whether or
not any corresponding amount is claimed by the M
group as a tax credit). Thus, M increases its basis in
S’s stock under paragraph (b) of this section by the
net adjustment of $66.
(3) Subsequent distribution. The facts are the
same as in paragraph (b)(5)(ii)(I)(
1) of this section
(Example 9), except that T distributes its $66 of
earnings and profits in Year 2. The $66 distribution
received by S is excluded from S’s income under
section 959(a) because the distribution represents
earnings and profits attributable to amounts that were
included in S’s income under section 951(a) for Year
1. In addition, S’s basis in T’s stock is decreased by
$66 under section 961(b). The excluded distribution
is not tax-exempt income under paragraph (b)(3)(ii)
of this section because of the corresponding reduc-
tion to S’s basis in T’s stock. Consequently, M’s basis
in S’s stock is not adjusted under paragraph (b) of
this section for Year 2.
(J) Example 10. Recapture of tax-exempt items—
(1) Facts. S is a life insurance company. For Year
1, the M group has $200 of consolidated taxable
income, determined by including only S’s items of
income, gain, deduction, and loss taken into account
(including a $300 small company deduction under
section 806). In addition, S has $100 of tax-exempt
interest income, $60 of which is S’s company share.
The remaining $40 of tax-exempt income is the
policyholders’ share that reduces S’s deduction for
increase in reserves.

Bulletin No. 2025–4 469 January 20, 2025
(2) Tax-exempt items generally. Under para-
graph (b)(3)(i) of this section, S has $200 of tax-
able income for Year 1. Also for Year 1, S has $100
of tax-exempt income under paragraph (b)(3)(ii)
(A) of this section, and another $300 is treated
as tax-exempt income under paragraph (b)(3)(ii)
(B) of this section because of the deduction under
section 806. Under paragraph (b)(3)(iii) of this
section, S has $40 of noncapital, nondeductible
expenses for Year 1 because S’s deduction under
section 807 for its increase in reserves has been
permanently reduced by the $40 policyholders’
share of the tax-exempt interest income. Thus, M
increases its basis in S’s stock by $560 under para-
graph (b) of this section.
(3) Recapture. Assume instead that S is a
property and casualty company and, for Year 1,
S accrues $100 of estimated salvage recoverable
under section 832. Of this amount, $87 (87% of
$100) is excluded from gross income because of
the “fresh start” provisions of Sec. 11305(c) of P.L.
101-508 (the Omnibus Budget Reconciliation Act
of 1990). Thus, S has $87 of tax-exempt income
under paragraph (b)(3)(ii)(A) of this section that
increases M’s basis in S’s stock for Year 1. (S also
has $13 of taxable income over the period of inclu-
sion under section 481.) In Year 5, S determines that
the $100 salvage recoverable was overestimated by
$30 and deducts $30 for the reduction of the sal-
vage recoverable. However, S has $26.10 (87% of
$30) of taxable income in Year 5 due to the partial
recapture of its fresh start. Because S has no basis
corresponding to this income, S is treated under
paragraph (b)(3)(iii)(B) of this section as having a
$26.10 noncapital, nondeductible expense in Year
5. This treatment is necessary to reflect the elimi-
nation of the erroneous fresh start in S’s stock basis
and causes a decrease in M’s basis in S’s stock by
$30 for Year 5 (a $3.90 taxable loss and a $26.10
special adjustment).
* * * * *
(h) * * *
(2) * * *
(i) In general. If M disposes of stock of
S in a consolidated return year beginning
before January 1, 1995, the amount of
M’s income, gain, deduction, or loss, and
the basis reflected in that amount, are not
redetermined under this section.
* * * * *
(5) Continuing basis reductions for
certain deconsolidated subsidiaries. If
a subsidiary ceases to be a member of a
group in a consolidated return year begin-
ning before January 1, 1995, and its basis
was subject to reduction under §1.1502-
32T or §1.1502-32(g) as contained in the
26 CFR part 1 edition revised as of April
1, 1994, its basis remains subject to reduc-
tion under those principles. For example,
if S ceased to be a member in 1990, and
M’s basis in any retained S stock was
subject to a basis reduction account, the
basis remains subject to reduction. Simi-
larly, if an election could be made to apply
§1.1502-32T instead of §1.1502-32(g),
the election remains available. However,
§§1.1502-32T and 1.1502-32(g) do not
apply as a result of a subsidiary ceasing to
be a member in tax years beginning on or
after January 1, 1995.
(6) Loss suspended under §1.1502-
35(c) or disallowed under §1.1502-35(g)
(3)(iii). Paragraphs (a)(2), (b)(3)(iii)(C)
and (D), and (b)(4)(vi) of this section are
applicable on and after March 10, 2006.
(7) Rules related to discharge of
indebtedness income excluded from gross
income. Paragraphs (b)(1)(ii), (b)(3)(ii)(C)
(1), (b)(3)(iii)(A), and (b)(5)(ii), Example
4, paragraphs (a), (b), and (c) of this sec-
tion apply with respect to determinations
of the basis of the stock of a subsidiary
in consolidated return years the original
return for which is due (without regard to
extensions) after March 21, 2005. How-
ever, groups may apply those provisions
with respect to determinations of the basis
of the stock of a subsidiary in consolidated
return years the original return for which
is due (without regard to extensions) on or
before March 21, 2005, and after August
29, 2003.
(8) Determination of stock basis in
reorganization with boot. Paragraph (b)(5)
(ii)(F) of this section (Example 6) applies
only with respect to determinations of the
basis of the stock of a subsidiary on or
after January 23, 2006.
* * * * *
(10) Election to treat loss carryover
as expiring. Paragraph (b)(4)(iv) of this
section applies to any original consol-
idated Federal income tax return due
(without extensions) after June 14, 2007.
For original consolidated Federal income
tax returns due (without extensions) after
May 30, 2006, and on or before June 14,
2007, see §1.1502-32T as contained in 26
CFR part 1 in effect on April 1, 2007.
* * * * *
Par. 27. Section 1.1502-34 is revised to
read as follows:
§1.1502-34 Special aggregate stock
ownership rules.
(a) Determination of stock ownership.
For purposes of the consolidated return
regulations, in determining the stock
ownership of a member of a group in
another corporation (issuing corporation)
for purposes of determining the applica-
tion of section 165(g)(3)(A), 332(b)(1),
351(a), 732(f), or 904(f) in a consolidated
return year, stock in the issuing corpora-
tion owned by all other members of the
group is included. For the determination
of whether a member of the group is an
80-percent distributee, see section 337(c)
(providing that, for purposes of section
337, the determination of whether any
corporation is an 80-percent distributee
is made without regard to any consoli-
dated return regulation).
(b) Example regarding liquidation of
member. The following example illustrates
the stock ownership aggregation rule set
forth in paragraph (a) of this section.
(1) Facts. P wholly owns A, B, and C, each of
which is a member of the P group. A, B, and C each
owns 33 1/3 percent of the stock of D. D liquidates
in a transaction purported to qualify under section
332.
(2) Analysis. For purposes of determining satis-
faction of the 80-percent stock ownership require-
ment under section 332(b)(1), under the stock own-
ership aggregation rule set forth in paragraph (a)
of this section: A is treated as owning all of the D
stock owned by B and C; B is treated as owning all
of the D stock owned by A and C; and C is treated
as owning all of the D stock owned by A and B.
Therefore, each of A, B, and C is treated as owning
100 percent of the stock of D and thus meeting the
80-percent stock ownership requirement for pur-
poses of section 332. However, none of A, B, or C is
treated as an 80-percent distributee for purposes of
section 337. See section 337(c). Therefore, section
337(a) does not apply.
§1.1502-42 [Removed]
Par. 28. Section 1.1502-42 is removed.
Par. 29. Section 1.1502-43 is amended
by revising paragraphs (b)(2)(iii) through
(viii) and (e) to read as follows:
§1.1502-43 Consolidated accumulated
earnings tax.
* * * * *
(b) * * *
(2) * * *
(iii) Under section 535(b)(3), the
deduction determined under §1.1502-26
is not allowed.
(iv) Under section 535(b)(4), the con-
solidated net operating loss deduction
described in §1.1502-21(a) is not allowed.
(v) Under section 535(b)(5), there
is allowed as a deduction the consoli-

January 20, 2025 470 Bulletin No. 2025–4
dated net capital loss, determined under
§1.1502-22(a).
(vi) Under section 535(b)(6), there is
allowed as a deduction an amount equal
to—
(A) The consolidated capital gain net
income for the taxable year (determined
under §1.1502-22(a) and without the con-
solidated net capital loss carryovers and
carrybacks to the taxable year), minus
(B) The taxes attributable to such gain.
(vii) Under section 535(b)(7), the con-
solidated net capital loss carryovers and
carrybacks are not allowed. See §1.1502-
22(b).
(viii) Section 1.1502-15 does not apply.
* * * * *
(e) Effective/applicability date. This
section applies to any consolidated Fed-
eral income tax return due (without exten-
sions) on or after December 21, 2009.
Par. 30. Section 1.1502-44 is amended
by revising paragraph (b) to read as fol-
lows:
§1.1502-44 Percentage depletion for
independent producers and royalty
owners.
* * * * *
(b) Adjusted consolidated taxable
income. For purposes of this section,
adjusted consolidated taxable income is
an amount (not less than zero) equal to
the group’s consolidated taxable income
determined without—
(1) Any depletion with respect to an
oil or gas property (other than a gas prop-
erty with respect to which the depletion
allowance for all production is determined
pursuant to section 613A(b)) for which
percentage depletion would exceed cost
depletion in the absence of the depletable
quantity limitations contained in section
613A(c)(1) and (6) and the consolidated
taxable income limitation contained in
paragraph (a) of this section;
(2) Any consolidated net operating loss
carryback to the consolidated return year
under §1.1502-21; and
(3) Any consolidated net capital loss
carryback to the consolidated return year
under §1.1502-22.
* * * * *
Par. 31. Section 1.1502-45 is added to
read as follows:
§1.1502-45 Limitation on losses to
amount at risk.
(a) In general—(1) Scope. This section
applies to a loss of any subsidiary if the
common parent’s stock meets the stock
ownership requirement described in sec-
tion 465(a)(1)(B).
(2) Limitation on use of losses. Except
as provided in paragraph (a)(4) of this
section, a loss from an activity of a
subsidiary during a consolidated return
year is includible in the computation of
consolidated taxable income (or consol-
idated net operating loss) and consoli-
dated capital gain net income (or consol-
idated net capital loss) only to the extent
the loss does not exceed the amount that
the parent is at risk in the activity at the
close of that subsidiary’s taxable year. In
addition, the sum of a subsidiary’s losses
from all its activities is includible only to
the extent that the parent is at risk in the
subsidiary at the close of that year. Any
excess may not be taken into account for
the consolidated return year but will be
treated as a deduction allocable to that
activity of the subsidiary in the first suc-
ceeding taxable year.
(3) Amount parent is at risk in subsid-
iary’s activity. The amount the parent is
at risk in an activity of a subsidiary is the
lesser of the amount the parent is at risk in
the subsidiary, or the amount the subsidi-
ary is at risk in the activity. These amounts
are determined under paragraph (b) of this
section and the principles of section 465.
See section 465 and the regulations there-
under and the examples in paragraph (e)
of this section.
(4) Excluded activities. The limitation
on the use of losses in paragraph (a)(2) of
this section does not apply to a loss attrib-
utable to an activity described in section
465(c)(4).
(5) Substance over form. Any trans-
action or arrangement between members
(or between a member and a person that
is not a member) which does not cause
the parent to be economically at risk in
an activity of a subsidiary will be treated
in accordance with the substance of the
transaction or arrangement notwithstand-
ing any other provision of this section.
(b) Rules for determining amount at
risk—(1) Excluded amounts. The amount
a parent is at risk in an activity of a sub-
sidiary at the close of the subsidiary’s
taxable year does not include any amount
that would not be taken into account under
section 465 were the subsidiary not a sepa-
rate corporation. Thus, for example, if the
amount a parent is at risk in the activity of
a subsidiary is attributable to nonrecourse
financing, the amount at risk is not more
than the fair market value of the property
(other than the subsidiary’s stock or debt
or assets) pledged as security.
(2) Guarantees. If a parent guarantees
a loan by a person other than a member to
a subsidiary, the loan increases the amount
the parent is at risk in the activity of the
subsidiary.
(c) Application of section 465. This
section applies in a manner consistent with
the provisions of section 465. Thus, for
example, the recapture of losses provided
in section 465(e) applies if the amount the
parent is at risk in the activity of a subsid-
iary is reduced below zero.
(d) Other consolidated return pro-
visions unaffected. This section limits
only the extent to which losses of a sub-
sidiary may be used in a consolidated
return year. This section does not apply
for other purposes, such as §§1.1502-
32 and 1.1502-19, relating to invest-
ment in stock of a subsidiary and excess
loss accounts, respectively. Thus, a loss
which reduces a subsidiary’s earnings
and profits in a consolidated return year,
but is disallowed as a deduction for the
year by reason of this section, may none-
theless result in a negative adjustment to
the basis of an owning member’s stock
in the subsidiary or create (or increase)
an excess loss account.
(e) Examples. The provisions of this
section may be illustrated by the examples
in this paragraph (e). In each example, the
stock ownership requirement of section
465(a)(1)(B) is met for the stock of the
parent (P), and each affiliated group files
a consolidated return on a calendar year
basis and comprises only the members
described.
(1) Example 1. In 2022, P forms S with a con-
tribution of $200 in exchange for all of S’s stock.
During the year, S borrows $400 from a commer-
cial lender and P guarantees $100 of the loan. S uses
$500 of its funds to acquire a motion picture film. S
incurs a loss of $120 for the year with respect to the
film. At the close of 2022, the amount P is at risk

Bulletin No. 2025–4 471 January 20, 2025
in S’s activity is $300 ($200 contribution plus $100
guarantee). If S has no gain or loss in 2023, and there
are no contributions from or distributions to P, at the
close of 2023 P’s amount at risk in S’s activity will
be $180.
(2) Example 2. P forms S-1 with a capital con-
tribution of $1 on January 1, 2023. On February
1, 2023. S-1 borrows $100 with full recourse and
contributes all $101 to its newly formed subsidiary
S-2. S-2 uses the proceeds to explore for natural oil
and gas resources. S-2 incurs neither gain nor loss
from its explorations during the taxable year. As of
December 31, 2023, P is at risk in the exploration
activity of S-2 only to the extent of $1.
(f) Applicability date. This section
applies to consolidated return years for
which the due date of the income tax
return (without regard to extensions) is
after December 30, 2024.
Par. 32. Section 1.1502-47 is amended
by revising and republishing paragraphs
(a)(3), (b)(14)(iii), (c)(2)(ii), (h)(3)(i), (ii),
and (x), (h)(4) introductory text, (h)(4)(ii)
and (iii), (k), (l), and (m)(1)(i), (iv), and
(v) to read as follows:
§1.1502-47 Consolidated returns by
life-nonlife groups.
(a) * * *
(3) Other provisions. The provisions of
the consolidated return regulations apply
unless this section provides otherwise.
Further, unless otherwise indicated in this
section, a term used in this section has the
same meaning as in sections 801-848.
(b) * * *
(14) * * *
(iii) Example 3. Since 2012, L has
owned all the stock of L
1
, which has
owned all the stock of S
1
, a nonlife insur-
ance company. L
1
writes some accident
and health insurance business. In 2018,
L
1
transfers this business, and S
1
trans-
fers some of its business, to a new nonlife
insurance company, S
2
, in a transaction
described in section 351(a). The property
transferred to S
2
by L
1
had a fair mar-
ket value of $50 million. The property
transferred by S
1
had a fair market value
of $40 million. S
2
is ineligible for 2020
because the tacking rule in paragraph (b)
(12)(v) of this section does not apply. The
old corporations (L
1
and S
1
) and the new
corporation (S
2
) do not all have the same
tax character. See paragraph (b)(12)(v)(B)
and (D) of this section. The result would
be the same if L
1
transferred other prop-
erty (for example, stock and securities)
with the same value, rather than accident
and health insurance contracts, to S
2
.
* * * * *
(c) * * *
(2) * * *
(ii) Special rule. Notwithstanding
the general rule, however, if the nonlife
members in the group filed a consolidated
return for the immediately preceding
taxable year and had executed and filed
a Form 1122 (or successor form) that is
effective for the preceding year, then such
members will be treated as if they filed a
Form 1122 (or successor form) when they
join in the filing of a consolidated return
under section 1504(c)(2) and they will
be deemed to consent to the regulations
under this section. However, an affilia-
tion schedule (Form 851, or any successor
form) must be filed by the group and the
life members must execute a Form 1122
(or successor form) in the manner pre-
scribed in §1.1502-75(h)(2).
* * * * *
(h) * * *
(3) * * *
(i) Separate return years.
The carry-
overs in paragraph (h)(2)(ii) of this sec-
tion may include net operating losses and
net capital losses of the nonlife members
arising in separate return years, that may
be carried over to a succeeding year under
the principles (including limitations) of
§§1.1502-21 and 1.1502-22. But see para-
graph (h)(3)(ix) of this section.
(ii) Capital loss. Nonlife consolidated
net capital loss sets off consolidated LICTI
only to the extent of life consolidated cap-
ital gain net income (as determined under
paragraph (g)(3) of this section) and this
setoff applies before any nonlife consoli-
dated net operating loss sets off consoli-
dated LICTI.
* * * * *
(x) Percentage limitation. The offse-
table nonlife consolidated net operating
losses that may be set off against con-
solidated LICTI in a particular year may
not exceed a percentage limitation. This
limitation is the applicable percentage in
section 1503(c)(1) of the lesser of two
amounts—
(A) The first amount is the sum of the
offsetable nonlife consolidated net operat-
ing losses under paragraph (h)(2) of this
section that may serve in the particular
year (determined without this limitation)
as a setoff against consolidated LICTI.
(B) The second amount is consolidated
LICTI in the particular year reduced by
any nonlife consolidated net capital loss
that sets off consolidated LICTI in that
year.
* * * * *
(4) Examples. The following examples
illustrate the principles of this paragraph
(h). In the examples, L indicates a life
company, S is a nonlife insurance com-
pany, another letter indicates a nonlife
company that is not an insurance com-
pany, no company has farming losses
(within the meaning of section 172(b)(1)
(B)(ii)), and each corporation uses the cal-
endar year as its taxable year.
* * * * *
(ii) Example 2. (A) The facts are the same as
in paragraph (h)(4)(i) of this section (Example 1),
except that, for 2021, S’s separate net operating loss
is $200. Assume further that L’s consolidated LICTI
is $200. Under paragraph (h)(3)(vi) of this section,
the offsetable nonlife consolidated net operating loss
is $100 (the nonlife consolidated net operating loss
computed under paragraph (f)(2)(ii) of this section
($200), reduced by the separate net operating loss
of I ($100)). The offsetable nonlife consolidated
net operating loss that may be set off against con-
solidated LICTI in 2021 is $35 (35 percent of the
lesser of the offsetable $100 or consolidated LICTI
of $200). See section 1503(c)(1) and paragraph (h)
(3)(x) of this section. S carries over a loss of $65, and
I carries over a loss of $100, to 2022 under paragraph
(f)(2) of this section to be used against nonlife con-
solidated taxable income (consolidated net operating
loss ($200) less amount used in 2021 ($35)). Under
paragraph (h)(2)(ii) of this section, the offsetable
nonlife consolidated net operating loss that may be
carried to 2022 is $65 ($100 minus $35). The facts
and results are summarized in the following table.

January 20, 2025 472 Bulletin No. 2025–4
Table 1 to Paragraph (h)(4)(ii)(A)
FactsOffsetableLimitUnused Loss
(a)(b)(c)(d)
P100
S(200)(100)(65)
I(100)(100)
Nonlife subgroup(200)(100)(100)(165)
L200200
35% of the lower of line 4(c) or 5(c)35
Unused offsetable loss(65)
(B) Accordingly, under paragraph (e) of this sec-
tion, consolidated taxable income is $165 (line 5(a)
minus line 6(c)).
(iii) Example 3. The facts are the same as in para-
graph (h)(4)(ii) of this section (Example 2), with the
following additions for 2022. The nonlife subgroup
has nonlife consolidated taxable income of $50 (all
of which is attributable to I) before the nonlife con-
solidated net operating loss deduction under para-
graph (f)(2) of this section. Consolidated LICTI is
$100. Under paragraph (f)(2) of this section, $50 of
the nonlife consolidated net operating loss carryover
($165) is used in 2022 and, under paragraph (h)(3)
(vi) and (vii) of this section, the portion used in 2022
is attributable to I, the ineligible nonlife member.
Accordingly, the offsetable nonlife consolidated net
operating loss from 2021 under paragraph (h)(3)(ii)
of this section is $65, the unused loss from 2021. The
offsetable nonlife consolidated net operating loss in
2022 is $22.75 (35 percent of the lesser of the off-
setable loss of $65 or consolidated LICTI of $100).
Accordingly, under paragraph (e) of this section,
consolidated taxable income is $77.25 (consolidated
LICTI of $100 minus the offsetable loss of $22.75).
* * * * *
(k) Preemption. The rules in this sec-
tion preempt any inconsistent rules in
other sections of the consolidated return
regulations. For example, the rules in
paragraph (h)(3)(vi) of this section apply
notwithstanding §1.1502-21.
(l) Other consolidation principles. The
fact that this section treats the life and non-
life members as separate groups in com-
puting, respectively, consolidated LICTI
(or life consolidated net operating loss)
and nonlife consolidated taxable income
(or loss) does not affect the usual rules in
the consolidated return regulations unless
this section provides otherwise. Thus,
the usual rules in §1.1502-13 (relating to
intercompany transactions) apply to both
the life and nonlife members by treating
them as members of one affiliated group.
(m) * * *
(1) * * *
(i) File the applicable consolidated cor-
porate income tax return: a Form 1120-
L, U.S. Life Insurance Company Income
Tax Return, where the common parent is
a life insurance company; a Form 1120-
PC, U.S. Property and Casualty Insurance
Company Income Tax Return, where the
common parent is an insurance company,
other than a life insurance company; a
Form 1120, U.S. Corporation Income Tax
Return, where the common parent is any
other type of corporation; or any succes-
sor form;
* * * * *
(iv) Report separately the nonlife con-
solidated taxable income or loss, deter-
mined under paragraph (f) of this section,
on a Form 1120 or 1120-PC (or any suc-
cessor forms) (whether filed by the com-
mon parent or as an attachment to the
consolidated return), as the case may be,
of all nonlife members of the consolidated
group; and
(v) Report separately the consolidated
Life Insurance Company Taxable Income
or life consolidated net operating loss, on
a Form 1120-L (or any successor form)
(whether filed by the common parent or as
an attachment to the consolidated return),
of all life members of the consolidated
group.
* * * * *
Par. 33. Section 1.1502-75 is amended
by:
a. Revising and republishing para-
graphs (b)(1) through (3), (c)(1)(i), and
(c)(2)(i) and (ii);
b. Removing paragraph (d)(5); and
c. Revising and republishing para-
graphs (h)(1) and (2).
The revisions read as follows:
§1.1502-75 Filing of consolidated
returns.
* * * * *
(b) * * *
(1) General rule. The consent of a cor-
poration referred to in paragraph (a)(1) of
this section is made by such corporation
joining in the making of the consolidated
return for such year. A corporation is
deemed to have joined in the making of
such return for such year if it files a Form
1122 (or successor form) in the manner
specified in paragraph (h)(2) of this sec-
tion.
(2) Consent under facts and circum-
stances—(i) In general. If a member of the
group fails to file Form 1122 (or successor
form), the Commissioner may under the
facts and circumstances determine that
such member has joined in the making of
a consolidated return by such group. The
following circumstances, among others,
will be taken into account in making this
determination—
(A) Whether or not the income and
deductions of the member were included
in the consolidated return;
(B) Whether or not a separate return
was filed by the member for that taxable
year; and
(C) Whether or not the member was
included in the affiliations schedule, Form
851 (or successor form).
(ii) Treatment of member. If the Com-
missioner determines that the member
described in paragraph (b)(1)(i) of this
section has joined in the making of the
consolidated return, such member is
treated as if it had filed a Form 1122 (or
successor form) for such year for purposes
of paragraph (h)(2) of this section.

Bulletin No. 2025–4 473 January 20, 2025
(3) Failure to consent due to mistake.
If any member has failed to join in the
making of a consolidated return under
either paragraph (b)(1) or (2) of this sec-
tion, then the tax liability of each member
of the group is determined on the basis of
separate returns unless the common parent
corporation establishes to the satisfaction
of the Commissioner that the failure of
such member to join in the making of the
consolidated return was due to a mistake
of law or fact, or to inadvertence. In such
case, such member is treated as if it had
filed a Form 1122 (or successor form) for
such year for purposes of paragraph (h)
(2) of this section, and thus joined in the
making of the consolidated return for such
year.
(c) * * *
(1) * * *
(i) In general. Notwithstanding that a
consolidated return is required for a tax-
able year, the Commissioner, upon appli-
cation by the common parent, may for
good cause shown grant permission to a
group to discontinue filing consolidated
returns. Any such application must be
made through a letter ruling request filed
not later than the 90th day before the due
date of the consolidated return for the
taxable year (including extensions). In
addition, if an amendment of the Code, or
other law affecting the computation of tax
liability, is enacted and the enactment is
effective for a taxable year ending before
or within 90 days after the date of enact-
ment, then application for such a taxable
year may be made not later than the 180th
day after the date of enactment, and if the
application is approved the permission
to discontinue filing consolidated returns
will apply to such taxable year notwith-
standing that a consolidated return has
already been filed for such year.
* * * * *
(2) * * *
(i) Permission to all groups. The Com-
missioner, in the Commissioner’s discre-
tion, may grant all groups permission to
discontinue filing consolidated returns if
any provision of the Code or regulations
has been amended and such amendment is
of the type which could have a substantial
adverse effect on the filing of consolidated
returns by substantially all groups, relative
to the filing of separate returns. Ordinarily,
the permission to discontinue applies with
respect to the taxable year of each group
which includes the effective date of such
an amendment.
(ii) Permission to a class of groups.
The Commissioner, in the Commission-
er’s discretion, may grant a particular class
of groups permission to discontinue filing
consolidated returns if any provision of
the Code or regulations has been amended
and such amendment is of the type which
could have a substantial adverse effect on
the filing of consolidated returns by sub-
stantially all such groups relative to the
filing of separate returns. Ordinarily, the
permission to discontinue applies with
respect to the taxable year of each group
within the class which includes the effec-
tive date of such an amendment.
* * * * *
(h) * * *
(1) Consolidated return made by com-
mon parent or agent. The consolidated
return must be made on Form 1120, U.S.
Corporation Income Tax Return (or any
successor form), for the group by the
common parent or the agent for the group
as provided in §1.1502-77(c). The con-
solidated return, with Form 851, Affilia-
tions Schedule (or any successor form),
attached, must be filed with the service
center with which the common parent
would have filed a separate return.
(2) Filing of Form 1122 for first year.
If, under the provisions of paragraph (a)
(1) of this section, a group wishes to file a
consolidated return for a taxable year, then
a Form 1122 (Authorization and Consent
of Subsidiary Corporation To Be Included
in a Consolidated Income Tax Return)
(or successor form) must be executed by
each subsidiary. The group must attach
either executed Forms 1122 (or successor
forms) or unsigned copies of the com-
pleted Forms 1122 (or successor forms) to
the consolidated return. If the group sub
-
mits unsigned Forms 1122 (or successor
forms) with its return, it must retain the
signed originals in its records in the man-
ner required by §1.6001–1(e). Form 1122
(or any successor form) is not required for
a taxable year if a consolidated return was
filed (or was required to be filed) by the
group for the immediately preceding tax-
able year.
* * * * *
Par. 34. Section 1.1502-76 is amended
by revising and republishing paragraphs
(a), (b)(1)(ii)(A)(2), (b)(2)(v), (b)(6), (c)
(3), and (d) to read as follows:
§1.1502-76 Taxable year of members of
group.
(a) Taxable year of members of group.
The consolidated return of a group must
be filed on the basis of the common
parent’s taxable year, and each subsid-
iary must adopt the common parent’s
annual accounting period for the first
consolidated return year for which the
subsidiary’s income is includible in the
consolidated return. If any member is
on a 52–53-week taxable year, the rule
of the preceding sentence will, with the
advance consent of the Commissioner, be
deemed satisfied if the taxable years of
all members of the group end within the
same 7-day period. Any request for such
consent must be requested at the time and
in the manner that the Commissioner of
Internal Revenue may prescribe by Inter-
nal Revenue Service forms and instruc-
tions or by publication in the Internal
Revenue Bulletin (see §601.601(d)(2)(ii)
of this chapter).
(b) * * *
(1) * * *
(ii) * * *
(A) * * *
(2) Special rule for former S corpora-
tions. If S becomes a member in a trans-
action other than in a qualified stock pur-
chase for which an election under section
338(g) is made, and immediately before
becoming a member an election under
section 1362(a) was in effect, then S will
become a member at the beginning of the
day the termination of its S corporation
election is effective. S’s tax year ends for
all Federal income tax purposes at the end
of the preceding day.
* * * * *
(2) * * *
(v) Acquisition of S corporation. If a
corporation is acquired in a transaction to
which paragraph (b)(1)(ii)(A)(2) of this
section applies, then paragraphs (b)(2)(ii)
and (iii) of this section do not apply and
items of income, gain, loss, deduction,
and credit are assigned to each short tax-
able year on the basis of the corporation’s
normal method of accounting as deter-
mined under section 446.
* * * * *

January 20, 2025 474 Bulletin No. 2025–4
(6) Applicability date. Except as pro-
vided in paragraphs (b)(1)(ii)(A)(2) and
(b)(2)(v) of this section, this paragraph (b)
applies to corporations becoming or ceas-
ing to be members of consolidated groups
on or after January 1, 1995.
(c) * * *
(3) Examples. The provisions of this
paragraph (c) may be illustrated by the
following examples:
(i) Example 1. Corporation P, which filed a sepa-
rate return for the calendar year 2022, acquires all of
the stock of corporation S as of the close of Decem-
ber 31, 2022. Corporation S reports its income on the
basis of a fiscal year ending March 31. On July 15,
2023, the due date for the filing of a separate return
by S (assuming no extensions of time), a consoli-
dated return has not been filed for the group (P and
S). On such date S may either file a return for the
period April 1, 2022, through December 31, 2022,
or it may file a return for the complete fiscal year
ending March 31, 2023. If S files a return for the
short period ending December 31, 2022, and if the
group elects not to file a consolidated return for the
calendar year 2023, S, on or before April 15, 2024
(the due date of P’s return, assuming no extensions
of time), must file a substituted return for the com-
plete fiscal year ending March 31, 2023, in lieu of the
return previously filed for the short period. Interest
is computed from July 15, 2023. If, however, S files
a return for the complete fiscal year ending March
31, 2023, and the group elects to file a consolidated
return for the calendar year 2023, then S must file
an amended return covering the period from April
1, 2022, through December 31, 2022, in lieu of the
return previously filed for the complete fiscal year.
Interest is computed from July 15, 2023.
(ii) Example 2. Assume the same facts as in para-
graph (c)(3)(i) of this section (Example 1), except
that corporation P acquires all of the stock of cor-
poration S at the close of September 30, 2023, and P
files a consolidated return for the group for 2023 on
April 15, 2024 (not having obtained any extensions
of time). Since a consolidated return has been filed
on or before the due date (July 15, 2024) for the fil-
ing of the separate return for the taxable year ending
March 31, 2024, the return of S for the short taxable
year beginning April 1, 2023, and ending September
30, 2023, should be filed no later than April 15, 2024.
(d) Applicability date—(1) Taxable
years of members of group applicability
date. Paragraph (a) of this section applies
to any original consolidated Federal
income tax return due (without exten-
sions) after July 20, 2007.
(2) Election to ratably allocate items
applicability date. Paragraph (b)(2)(ii)(D)
of this section applies to any original con-
solidated Federal income tax return due
(without extensions) after July 20, 2007.
§1.1502-77 [Amended]
Par. 35. Section 1.1502-77 is amended
by:
1. Designating Examples 1 through
15 in paragraph (g) as paragraphs (g)(1)
through (15), respectively.
2. In paragraph (g), for each newly
redesignated paragraph listed in the “Para-
graph” column, removing the text indi-
cated in the “Remove” column and adding
in its place the text indicated in the “Add”
column:
ParagraphRemoveAdd
(g)(2)(i)Example 1
paragraph (g)(1)(i) of this section (Example 1)
(g)(4)(i)
Example 3paragraph (g)(3)(i) of this section (Example 3)
(g)(5)(i)
Example 4paragraph (g)(4) of this section (Example 4)
(g)(11)(i)(B)(1)
Histhe Commissioner’s
(g)(11)(ii)(A)
paragraph (i)(A) of this Example 11
paragraph (g)(11)(i)(A) of this section
(g)(12)(i)
paragraph (ii)(A) of Example 11paragraph (g)(11)(ii)(A) of this section (Example 11)
(g)(13)(i)March 15April 15
Par. 36. Section 1.1502-77A is amended
by revising and republishing paragraph
(d) to read as follows:
§1.1502-77A Common parent agent for
subsidiaries applicable for consolidated
return years beginning before June 28,
2002.
* * * * *
(d) Effect of dissolution of common
parent corporation. If the common par-
ent corporation contemplates dissolution,
or is about to be dissolved, or if for any
other reason its existence is about to ter-
minate, it must forthwith notify the Com-
missioner of such fact and designate,
subject to the approval of the Commis-
sioner, another member to act as agent in
its place to the same extent and subject
to the same conditions and limitations as
are applicable to the common parent. If
the notice thus required is not given by
the common parent, or the designation is
not approved by the Commissioner, the
remaining members may, subject to the
approval of the Commissioner, designate
another member to act as such agent,
and notice of such designation must be
given to the Commissioner. Until a notice
in writing designating a new agent has
been approved by the Commissioner, any
notice of deficiency or other communi-
cation mailed to the common parent will
be considered as having been properly
mailed to the agent of the group; or, if the
Commissioner has reason to believe that
the existence of the common parent has
terminated, the Commissioner may deal
directly with any member in respect of
its liability.
* * * * *
Par. 37. Section 1.1502-77B is amended
by revising and republishing paragraphs
(a)(6)(i) and (ii) to read as follows:
§1.1502-77B Agent for the group
applicable for consolidated return
years beginning on or after June 28,
2002, and before April 1, 2015.
(a) * * *
(6) * * *
(i) Several liability. The Commissioner
may, upon issuing to the common parent
written notice that expressly invokes the
authority of this provision, deal directly
with any member of the group with
respect to its liability under §1.1502-6 for
the consolidated tax of the group, in which
event such member has sole authority to
act for itself with respect to that liability.
However, if the Commissioner believes

Bulletin No. 2025–4 475 January 20, 2025
or has reason to believe that the existence
of the common parent has terminated, the
Commissioner may deal directly with any
member with respect to that member’s lia-
bility under §1.1502-6 without giving the
notice required by this provision.
(ii) Information requests. The Com-
missioner may, upon informing the com-
mon parent, request information relevant
to the consolidated tax liability from any
member of the group. However, if the
Commissioner believes or has reason to
believe that the existence of the common
parent has terminated, the Commissioner
may request such information from any
member of the group without informing
the common parent.
* * * * *
Par. 38. Section 1.1502-78 is amended
by revising paragraph (f) to read as fol-
lows:
§1.1502-78 Tentative carryback
adjustments.
* * * * *
(f) Applicability date. This section
applies to taxable years to which a loss or
credit may be carried back and for which
the due date (without extensions) of the
original return is after June 28, 2002,
except that the provisions of paragraph (e)
(2) of this section apply for applications
by new members of consolidated groups
for tentative carryback adjustments result-
ing from net operating losses, net capital
losses, or unused business credits arising
in separate return years of new members
that begin on or after January 1, 2001.
Par. 39. Section 1.1502-79 is amended
by revising paragraphs (a), (b), (d), and (e)
(1) and (2) to read as follows:
§1.1502-79 Separate return years.
(a) Carryover and carryback of con-
solidated net operating losses to separate
return years. For rules regarding the car-
ryover and carryback of consolidated net
operating losses to separate return years,
see §1.1502-21(b).
(b) Carryover and carryback of con-
solidated net capital loss to separate
return years. For rules regarding the car-
ryover and carryback of consolidated net
capital losses to separate return years, see
§1.1502-22(b).
* * * * *
(d) Carryover and carryback of con-
solidated unused foreign tax—(1) In gen-
eral. If a consolidated unused foreign tax
can be carried under the principles of sec-
tion 904(c) and §1.1502-4(d) to a sepa-
rate return year of a corporation (or could
have been so carried if such corporation
were in existence) that was a member of
the group in the year in which the unused
foreign tax arose, then the portion of the
consolidated unused foreign tax attrib-
utable to the corporation (as determined
under paragraph (d)(2) of this section) is
apportioned to the corporation (and any
successor to that corporation in a trans-
action to which section 381(a) applies)
under the principles of §1.1502-21(b)
and is deemed paid or accrued in such
separate return year to the extent pro-
vided in section 904(c).
(2) Portion of consolidated unused
foreign tax attributable to a member.
The portion of a consolidated unused
foreign tax for any year attributable
to a member is an amount equal to the
consolidated unused foreign tax mul-
tiplied by a fraction. The numerator of
the fraction is the foreign taxes paid
or accrued by the member for the year
(including those taxes deemed paid or
accrued, other than by reason of section
904(c)). The denominator of the fraction
is the aggregate of all such taxes paid
or accrued for the year (including those
taxes deemed paid or accrued, other
than by reason of section 904(c)) by all
members of the group.
(e) * * *
(1) In general. If the consolidated
excess charitable contributions for any
taxable year can be carried under the
principles of section 170(b)(2) and
§1.1502-24(b) to a separate return year
of a corporation (or could have been so
carried if such corporation were in exis-
tence) which was a member of the group
in the year in which such excess contri-
butions arose, then the portion of such
consolidated excess charitable contribu-
tions attributable to such corporation (as
determined under paragraph (e)(2) of this
section) is apportioned to such corpora-
tion (and any successor to such corpo-
ration in a transaction to which section
381(a) applies) under the principles of
§1.1502-21(b) and is a charitable contri-
bution carryover to such separate return
year.
(2) Portion of consolidated excess
charitable contributions attributable to
a member. The portion of the consoli-
dated excess charitable contributions for
any year attributable to a member is an
amount equal to the consolidated excess
contributions multiplied by a fraction. The
numerator of the fraction is the charitable
contributions paid by the member for the
year. The denominator of the fraction is
the aggregate of all charitable contribu-
tions paid for the year by all members of
the group.
* * * * *
Par. 40. Section 1.1502-80 is amended
by revising and republishing paragraph (c)
(2) to read as follows:
§1.1502-80 Applicability of other
provisions of law.
* * * * *
(c) * * *
(2) Cross reference. See §1.1502-36 for
additional rules relating to worthlessness
of subsidiary stock.
* * * * *
§1.1502-81T [Removed]
Par. 41. Section 1.1502-81T is
removed.
Par. 42. Section 1.1502-90 is amended
by revising the entry for §1.1502-99 to
read as follows:
§1.1502-90 Table of contents.
* * * * *
§1.1502-99 Effective/applicability dates.
(a) In general.
(b) Reattribution of losses under
§1.1502-36(d)(6).
(c) Application to section 163(j).
(1) Sections 1.382-2 and 1.382-5.
(2) Sections 1.382-6 and 1.383-1.
§1.1502-91 [Amended]
Par. 43. Section 1.1502-91 is amended
by removing paragraph (b)(3).
Par. 44. Section 1.1502-92 is amended
by:

January 20, 2025 476 Bulletin No. 2025–4
a. Designating Examples 1 through 3 in
paragraph (b)(3)(iii) as paragraphs (b)(3)
(iii)(A) through (C), respectively.
b. In newly redesignated paragraphs
(b)(3)(iii)(A) through (C), further redes-
ignating paragraphs in the first column as
paragraphs in the second column:
Old ParagraphsNew Paragraphs
(b)(3)(iii)(A)(i) and (ii)...........................
(b)(3)(iii)(A)(1) and (2)
(b)(3)(iii)(B)(i), (ii), (iii), and (iv)...............
(b)(3)(iii)(B)(1), (2), (3), and (4)
(b)(3)(iii)(C)(i) and (ii)...........................
(b)(3)(iii)(C)(1) and (2)
c. Revising newly redesignated para-
graphs (b)(3)(iii)(B)(2) through (4).
The revisions read as follows:
§1.1502-92 Ownership change of a loss
group or a loss subgroup.
* * * * *
(b) * * *
(3) * * *
(iii) * * *
(B) * * *
(2) For purposes of determining if the
L loss group has an ownership change
on November 22, Year 3, the day of the
merger, P is treated as a continuation of
L so that the testing period for P begins
on January 1, Year 2, the first day of the
taxable year of the L loss group in which
the consolidated net operating loss that is
carried over to Year 3 arose. Immediately
after the close of November 22, Year 3,
D is the only 5-percent shareholder that
has increased its ownership interest in P
during the testing period (from zero to 10
percentage points).
(3) The facts are the same as in para-
graph (b)(3)(iii)(B)(1) of this section
(Example 2), except that A has held 23
⅓ shares (23 ⅓ percent) of L’s stock
for five years, and A purchased an addi-
tional 10 shares of L stock from E two
years before the merger. Immediately
after the close of the day of the merger
(a testing date), A’s ownership interest
in P, the common parent of the L loss
group, has increased by 6 ⅔ percentage
points over A’s lowest percentage own-
ership during the testing period (23 ⅓
percent to 30 percent).
(4) The facts are the same as in para-
graph (b)(3)(iii)(B)(1) of this section
(Example 2), except that P has a net oper-
ating loss arising in Year 1 that is carried
to the first consolidated return year end-
ing after the day of the merger. Solely for
purposes of determining whether the L
loss group has an ownership change under
paragraph (b)(1)(i) of this section, the test-
ing period for P commences on January 1,
Year 2. P does not determine the earliest
day for its testing period by reference to
its net operating loss carryover from Year
1, which §§1.1502-1(f)(3) and 1.1502-
75(d)(3)(i) treat as arising in a SRLY. See
§1.1502-94 to determine the application
of section 382 with respect to P’s net oper-
ating loss carryover.
* * * * *
Par. 45. Section 1.1502-99 is amended
by:
a. Revising paragraphs (a) and (b).
b. Removing paragraph (c).
c. Redesignating paragraph (d) as para-
graph (c).
The revisions read as follows:
§1.1502-99 Effective/applicability
dates.
(a) In general. Sections 1.1502-91
through 1.1502-96 and §1.1502-98 apply
to any testing date that is on or after June
25, 1999. Sections 1.1502-94 through
1.1502-96 also apply to a corporation that
becomes a member of a group or ceases to
be a member of a group (or loss subgroup)
on or after June 25, 1999.
(b) Reattribution of losses under
§1.1502-36(d)(6). Section 1.1502-96(d)
applies to reattributions of net operating
loss carryovers, capital loss carryovers,
and deferred deductions in connection
with a transfer of stock to which §1.1502-
36 applies, and the election under §1.1502-
96(d)(5) (relating to an election to reattri-
bute section 382 limitation) can be made
with an election under §1.1502-36(d)(6)
to reattribute a loss to the common parent
that is filed at the time and in the manner
provided in §1.1502-36(e)(5)(x).
* * * * *
Par. 46. Section 1.1502-100 is amended
by revising and republishing paragraphs
(a)(2), (c)(2), and (d) to read as follows:
§1.1502-100 Corporations exempt from
tax.
(a) * * *
(2) Applicability of other consolidated
return provisions. The provisions of the
consolidated return regulations are appli-
cable to an exempt group to the extent
they are not inconsistent with the provi-
sions of this section or the provisions of
subchapter F of chapter 1 of the Code. For
purposes of applying the provisions of
the consolidated return regulations to an
exempt group, the following substitutions
must be made—
(i) The term “exempt group” is substi-
tuted for the term “group”;
(ii) The terms “unrelated business
taxable income”, “separate unrelated
business taxable income”, and “consoli-
dated unrelated business taxable income”
are substituted for the terms “taxable
income”, “separate taxable income”, and
“consolidated taxable income”; and
(iii) The term consolidated liability for
tax determined under §1.1502-2 (or an
equivalent term) means the consolidated
liability for tax of an exempt group deter-
mined under paragraph (b) of this section.
* * * * *
(c) * * *
(2) Any consolidated net operating loss
deduction (determined under §1.1502-21)
subject to the limitations provided in sec-
tion 512(b)(6);
* * * * *
(d) Separate unrelated business tax-
able income—(1) In general. The separate
unrelated business taxable income of a
member of an exempt group must be com-
puted in accordance with the provisions of
section 512 covering the determination of

Bulletin No. 2025–4 477 January 20, 2025
unrelated business taxable income of sep-
arate corporations, except that:
(i) The provisions of paragraphs (a)
through (d), (f) through (k), and (o) of
§1.1502-12 apply; and
(ii) No charitable contributions deduc-
tion is taken into account under section
512(b)(10).
(2) Section 501(c)(2) organizations.
See sections 511(c) and 512(a)(3)(C) for
special rules applicable to organizations
described in section 501(c)(2).
§§1.1502-9A, 1.1502-15A, 1.1502-21A,
1.1502-22A, 1.1502-23A, 1.1502-41A,
1.1502-79A, 1.1502-90A, 1.1502-91A,
1.1502-92A, 1.1502-93A, 1.1502-94A,
1.1502-95A, 1.1502-96A, 1.1502-97A,
1.1502-98A, 1.1502-99A, and 1.1503-2
[Removed]
Par. 47. Sections 1.1502-9A,
1.1502-15A, 1.1502-21A, 1.1502-22A,
1.1502-23A, 1.1502-41A, 1.1502-79A,
1.1502-90A, 1.1502-91A, 1.1502-92A,
1.1502-93A, 1.1502-94A, 1.1502-95A,
1.1502-96A, 1.1502-97A, 1.1502-98A,
1.1502-99A, and 1.1503-2 are removed.
Par. 48. Section 1.1503(d)-1 is amended
by revising and republishing paragraph
(b)(7) to read as follows:
§1.1503(d)-1 Definitions and special
rules for filings under section 1503(d).
* * * * *
(b) * * *
(7) Foreign country includes any U.S.
territory (as defined in §1.1502-1(l)).
* * * * *
Par. 49. Section 1.1503(d)-8 is
amended by:
a. Revising and republishing paragraph
(a).
b. Removing and reserving paragraphs
(b)(1) and (2), (b)(3)(ii) and (iii), and (b)(4).
The revision and republication read as
follows:
§1.1503(d)-8 Effective dates.
(a) General rule. Except as provided
in paragraph (b) of this section, this para-
graph (a) provides the dates of applicabil-
ity of §§1.1503(d)-1 through 1.1503(d)-7.
Sections 1.1503(d)-1 through 1.1503(d)-7
apply to dual consolidated losses incurred
in taxable years beginning on or after April
18, 2007. However, a taxpayer may apply
§§1.1503(d)-1 through 1.1503(d)-7, in their
entirety, to dual consolidated losses incurred
in taxable years beginning on or after Janu-
ary 1, 2007, by filing its return and attaching
to such return the domestic use agreements,
certifications, or other information in accor-
dance with these regulations. For purposes
of this section, the term application date
means either April 18, 2007, or, if the tax-
payer applies these regulations pursuant to
the preceding sentence, January 1, 2007.
Section 1.1503-2, as contained in 26 CFR
part 1, revised as of April 1, 2024, applies
for dual consolidated losses incurred in tax-
able years beginning on or after October 1,
1992, and before the application date.
* * * * *
Par. 50. Section 1.1504-3 is amended
by revising and republishing paragraph
(d)(1)(ii) to read as follows:
§1.1504-3 Treatment of stock in a
QOF C corporation for purposes of
consolidation.
* * * * *
(d) * * *
(1) * * *
(ii) Analysis. Under paragraph (b)(1) of
this section, stock of a QOF C corporation
(qualifying or otherwise) is not treated
as stock for purposes of determining
whether the QOF C corporation may join
in the filing of a consolidated return. Thus,
because no election has been made under
paragraph (b)(2) of this section, once Q1
becomes a QOF, Q1 ceases to be affiliated
with the P group members for purposes of
section 1501, and it deconsolidates from
the P group. See the consolidated return
regulations generally for the consequences
of deconsolidation.
* * * * *
Par. 51. Section 1.1552-1 is amended
by:
a. Redesignating paragraphs (a)(1)(ii)
(a) through (d) as paragraphs (a)(1)(ii)(A)
through (D), respectively.
b. Revising newly redesignated para-
graph (a)(1)(ii)(B).
c. Redesignating paragraphs (a)(2)(ii)
(a) through (i) as paragraphs (a)(2)(ii)(A)
through (I), respectively.
d. Removing and reserving newly
redesignated paragraph (a)(2)(ii)(B).
e. Revising newly redesignated para-
graph (a)(2)(ii)(I).
f. Adding paragraph (g).
The revisions and addition read as fol-
lows:
§1.1552-1 Earnings and Profits.
(a) * * *
(1) * * *
(ii) * * *
(B) Such member’s capital gain net
income (determined without regard to any
net capital loss carryover attributable to
such member);
* * * * *
(2) * * *
(ii) * * *
(I) For purposes of subtitle A of the
Code, if two or more taxable income
brackets are set forth in section 11(b)
of the Code, the amount in each taxable
income bracket is divided by the num-
ber of members (or such portion of each
bracket which is apportioned to the mem-
ber pursuant to a schedule attached to the
consolidated return for the consolidated
return year). However, if for the taxable
year some or all of the members are com-
ponent members of a controlled group
of corporations (within the meaning of
section 1563) and if there are other such
component members which do not join
in filing the consolidated return for such
year, the amount to be divided among the
members filing the consolidated return is
(in lieu of the taxable income brackets)
the sum of the amounts apportioned to the
component members which join in filing
the consolidated return.
* * * * *
(g) Applicability date. This section
applies to taxable years beginning on or
after January 1, 2025. See 26 CFR 1.1552-
1, as revised April 1, 2024, for rules appli-
cable prior to January 1, 2025.
Par. 52. Section 1.1563-1 is amended
by:
a. Revising and republishing para-
graphs (a)(2)(i)(A) and (B) and (a)(6);
b. In paragraph (b)(4), designating
Examples 1 through 4 as paragraphs (b)
(4)(i) through (iv), respectively;
c. Revising newly designated para-
graph (b)(4)(i); and
d. Revising paragraph (e).
The revisions read as follows:

January 20, 2025 478 Bulletin No. 2025–4
§1.1563-1 Definition of controlled
group of corporations and component
members and related concepts.
(a) * * *
(2) * * *
(i) * * *
(A) Stock possessing at least 80 per-
cent of the total combined voting power
of all classes of stock entitled to vote or at
least 80 percent of the total value of shares
of all classes of stock of each of the cor-
porations, except the common parent cor-
poration, is owned (directly and with the
application of §1.1563-3(b)(1), (2), and
(3)) by one or more of the other corpora-
tions; and
(B) The common parent corporation
owns (directly and with the application
of §1.1563-3(b)(1), (2), and (3)) stock
possessing at least 80 percent of the total
combined voting power of all classes of
stock entitled to vote or at least 80 percent
of the total value of shares of all classes of
stock of at least one of the other corpora-
tions, excluding, in computing such vot-
ing power or value, stock owned directly
by such other corporations.
* * * * *
(6) Voting power of stock. For pur-
poses of this section, and §§1.1563-2
and 1.1563-3, in determining whether
the stock owned by a person (or persons)
possesses a certain percentage of the total
combined voting power of all classes of
stock entitled to vote of a corporation,
consideration will be given to all the facts
and circumstances of each case. A share of
stock will generally be considered as pos-
sessing the voting power accorded to such
share by the corporate charter, by-laws,
or share certificate. On the other hand, if
there is any agreement, whether express or
implied, that a shareholder will not vote
the shareholder’s stock in a corporation,
the formal voting rights possessed by the
shareholder’s stock may be disregarded
in determining the percentage of the total
combined voting power possessed by the
stock owned by other shareholders in the
corporation, if the result is that the corpo-
ration becomes a component member of
a controlled group of corporations. More-
over, if a shareholder agrees to vote the
shareholder’s stock in a corporation in the
manner specified by another shareholder
in the corporation, the voting rights pos-
sessed by the stock owned by the first
shareholder may be considered to be pos-
sessed by the stock owned by such other
shareholder if the result is that the corpo-
ration becomes a component member of a
controlled group of corporations.
* * * * *
(b) * * *
(4) * * *
(i) Example 1. B, an individual, owns all of the
stock of corporations W and X on each day of 1964.
W and X each use the calendar year as their taxable
year. On January 1, 1964, B also owns all the stock
of corporation Y (a fiscal year corporation with a
taxable year beginning on July 1, 1964, and ending
on June 30, 1965), which stock B sells on October
15, 1964. On December 1, 1964, B purchases all
the stock of corporation Z (a fiscal year corporation
with a taxable year beginning on September 1, 1964,
and ending on August 31, 1965). On December 31,
1964, W, X, and Z are members of the same con-
trolled group. However, the component members of
the group on such December 31st are W, X, and Y.
Under paragraph (b)(2)(i) of this section, Z is treated
as an excluded member of the group on December
31, 1964, since Z was a member of the group for less
than one-half of the number of days (29 out of 121
days) during the period beginning on September 1,
1964 (the first day of its taxable year) and ending on
December 30, 1964. Under paragraph (b)(3) of this
section, Y is treated as an additional member of the
group on December 31, 1964, since Y was a member
of the group for at least one-half of the number of
days (107 out of 183 days) during the period begin-
ning on July 1, 1964 (the first day of its taxable year)
and ending on December 30, 1964.
* * * * *
(e) Applicability dates—(1) In general.
Except as provided in paragraph (e)(2) of
this section, this section applies to tax-
able years beginning on or after May 26,
2009. However, taxpayers may apply this
section to taxable years beginning before
May 26, 2009. For taxable years begin-
ning before May 26, 2009, see §1.1563-
1T as contained in 26 CFR part 1 in effect
on April 1, 2009.
(2) Exceptions. (i) Paragraph (a)(1)
(ii) of this section applies to taxable years
beginning on or after April 11, 2011.
(ii) Paragraphs (a)(2)(i)(A) and (B), (a)
(6), and (b)(4) of this section apply to tax-
able years beginning on or after December
30, 2024.
Par. 53. Section 1.1563-2 is amended by:
a. Revising and republishing para-
graphs (b)(2)(iii) and (b)(4)(ii);
b. In paragraph (b)(7), designating
Examples 1 through 3 as paragraphs (b)
(7)(i) through (iii), respectively;
c. Revising newly designated para-
graph (b)(7)(ii) and (iii); and
d. Adding paragraph (d).
The revisions and addition read as fol-
lows:
§1.1563-2 Excluded stock.
* * * * *
(b) * * *
(2) * * *
(iii) Employees. Stock in the subsidi-
ary corporation owned (directly and with
the application of the rules contained in
§1.1563-3(b)) by an employee of the sub-
sidiary corporation if such stock is subject
to conditions which substantially restrict
or limit the employee’s right (or if the
employee constructively owns such stock,
the direct owner’s right) to dispose of such
stock and which run in favor of the parent
or subsidiary corporation. In general, any
condition which extends, directly or indi-
rectly, to the parent corporation or the sub-
sidiary corporation preferential rights with
respect to the acquisition of the employee’s
(or direct owner’s) stock will be considered
to be a condition described in the preceding
sentence. It is not necessary, in order for a
condition to be considered to be in favor
of the parent corporation or the subsidiary
corporation, that the parent or subsidiary
be extended a discriminatory concession
with respect to the price of the stock. For
example, a condition whereby the parent
corporation is given a right of first refusal
with respect to any stock of the subsidiary
corporation offered by an employee for sale
is a condition which substantially restricts
or limits the employee’s right to dispose
of such stock and runs in favor of the par-
ent corporation. Moreover, any legally
enforceable condition which prohibits the
employee from disposing of the employ-
ee’s stock without the consent of the par-
ent (or a subsidiary of the parent) will be
considered to be a substantial limitation
running in favor of the parent corporation.
* * * * *
(4) * * *
(ii) Employees. Stock in such cor-
poration owned (directly and with the
application of the rules contained in
§1.1563-3(b)) by an employee of such
corporation if such stock is subject to con-
ditions which run in favor of a common
owner of such corporation (or in favor
of such corporation) and which substan-
tially restrict or limit the employee’s right

Bulletin No. 2025–4 479 January 20, 2025
(or if the employee constructively owns
such stock, the record owner’s right) to
dispose of such stock. The principles of
paragraph (b)(2)(iii) of this section apply
in determining whether a condition sat-
isfies the requirements of the preceding
sentence. Thus, in general, a condition
which extends, directly or indirectly, to a
common owner or such corporation pref-
erential rights with respect to the acquisi-
tion of the employee’s (or record owner’s)
stock will be considered to be a condition
which satisfies such requirements. For
purposes of this paragraph (b)(4)(ii), if
a condition which restricts or limits an
employee’s right (or record owner’s right)
to dispose of the employee’s (or record
owner’s) stock also applies to the stock
in such corporation held by such common
owner pursuant to a bona fide reciprocal
stock purchase arrangement, such condi-
tion is not treated as one which restricts or
limits the employee’s (or record owner’s)
right to dispose of such stock. An example
of a reciprocal stock purchase arrange-
ment is an agreement whereby a common
owner and the employee are given a right
of first refusal with respect to stock of the
employer corporation owned by the other
party. If, however, the agreement also
provides that the common owner has the
right to purchase the stock of the employer
corporation owned by the employee in
the event that the corporation should dis-
charge the employee for reasonable cause,
the purchase arrangement would not be
reciprocal within the meaning of this para-
graph (b)(4)(ii).
* * * * *
(7) * * *
(ii) Example 2. The facts are the same as in para-
graph (b)(7)(i) of this section (Example 1), except
that Jones owns 15 shares of the 100 shares of the
only class of stock of corporation S-1, and corpora-
tion S owns 75 shares of such stock. P satisfies the
50 percent stock ownership requirement of para-
graph (b)(1) of this section with respect to S-1 since
P is considered as owning 52.5 percent (70 percent x
75 percent) of the S-1 stock with the application of
§1.1563-3(b)(4). Since Jones is an officer of P, under
paragraph (b)(2)(ii) of this section, the S-1 stock
owned by Jones is treated as not outstanding for pur-
poses of determining whether S-1 is a member of the
parent-subsidiary controlled group of corporations.
Thus, S is considered to own stock possessing 88.2
percent (75÷85) of the voting power and value of the
S-1 stock. Accordingly, P, S, and S-1 are members of
a parent-subsidiary controlled group of corporations.
(iii) Example 3. Corporation X owns 60 percent
of the only class of stock of corporation Y. D, the
president of Y, owns the remaining 40 percent of
the stock of Y. D has agreed that, if D offers D’s
stock in Y for sale, D will first offer the stock to
X at a price equal to the fair market value of the
stock on the first date the stock is offered for sale.
Since D is an employee of Y within the meaning of
section 3306(i) of the Code, and D’s stock in Y is
subject to a condition which substantially restricts
or limits D’s right to dispose of such stock and
runs in favor of X, under paragraph (b)(2)(iii) of
this section such stock is treated as if it were not
outstanding for purposes of determining whether
X and Y are members of a parent-subsidiary con-
trolled group of corporations. Thus, X is consid-
ered to own stock possessing 100 percent of the
voting power and value of the stock of Y. Accord-
ingly, X and Y are members of a parent-subsidiary
controlled group of corporations. The result would
be the same if D’s spouse, instead of D, owned
directly the 40 percent stock interest in Y and such
stock was subject to a right of first refusal running
in favor of X.
* * * * *
(d) Applicability date. This section
applies to taxable years beginning on or
after December 30, 2024. For taxable
years beginning before December 30,
2024, see §1.1563-2 as contained in 26
CFR part 1 in effect on April 1, 2024.
Par. 54. Section 1.1563-3 is amended
by revising and republishing paragraphs
(b)(2)(i) and (ii), (b)(3)(i) and (ii), (b)(4)
(ii), (b)(5)(i) and (ii), (b)(6)(i), (ii), and
(iv), (c)(2) and (4), (d)(3), and (e) to read
as follows:
§1.1563-3 Rules for determining stock
ownership.
* * * * *
(b) * * *
(2) * * *
(i) Rule. Stock owned, directly or indi-
rectly, by or for a partnership is considered
as owned by any partner having an interest
of 5 percent or more in either the capital or
profits of the partnership in proportion to
the partner’s interest in capital or profits,
whichever such proportion is the greater.
(ii) Example—(A) Facts. Green, Jones, and
White are unrelated individuals and are partners
in the GJW partnership. The partners’ interests
in the capital and profits of the partnership are as
follows:
Table 1 to Paragraph (b)(2)(ii)(A)
PartnerCapital PercentProfit Percent
Green3625
Jones6071
White44
(B) Analysis. The GJW partnership owns the
entire outstanding stock (100 shares) of X Corpora-
tion. Under this paragraph (b)(2), Green is consid-
ered to own the X stock owned by the partnership in
proportion to Green’s interest in capital (36 percent)
or profits (25 percent), whichever such proportion is
the greater. Therefore, Green is considered to own
36 shares of the X stock. However, since Jones has a
greater interest in the profits of the partnership, Jones
is considered to own the X stock in proportion to
Jones’s interest in such profits. Therefore, Jones is
considered to own 71 shares of the X stock. Since
White does not have an interest of 5 percent or more
in either the capital or profits of the partnership,
White is not considered to own any shares of the X
stock.
(3) * * *
(i) Stock owned, directly or indirectly,
by or for an estate or trust is considered
as owned by any beneficiary who has an
actuarial interest of 5 percent or more in
such stock, to the extent of such actuarial
interest. For purposes of this paragraph (b)
(3)(i), the actuarial interest of each ben-
eficiary is determined by assuming the
maximum exercise of discretion by the
fiduciary in favor of such beneficiary and
the maximum use of such stock to satisfy
the beneficiary’s rights as a beneficiary.
A beneficiary of an estate or trust who
cannot under any circumstances receive
any interest in stock held by the estate
or trust, including the proceeds from the
disposition thereof, or the income there-
from, does not have an actuarial interest in
such stock. Thus, where stock owned by
a decedent’s estate has been specifically
bequeathed to certain beneficiaries and
the remainder of the estate is bequeathed
to other beneficiaries, the stock is attrib-
utable only to the beneficiaries to whom
it is specifically bequeathed. Similarly, a
remainderman of a trust who cannot under
any circumstances receive any interest
in the stock of a corporation which is a
part of the corpus of the trust (including
any accumulated income therefrom or
the proceeds from a disposition thereof)
does not have an actuarial interest in such
stock. However, an income beneficiary of
a trust does have an actuarial interest in
stock if that beneficiary has any right to
the income from such stock even though
under the terms of the trust instrument
such stock can never be distributed to
that beneficiary. The factors and methods
prescribed in §20.2031-7 of this chapter
(Estate Tax Regulations) for use in ascer-
taining the value of an interest in property
for estate tax purposes must be used for

January 20, 2025 480 Bulletin No. 2025–4
purposes of this paragraph (b)(3)(i) in
determining a beneficiary’s actuarial inter-
est in stock owned directly or indirectly by
or for a trust.
(ii) For the purposes of this paragraph
(b)(3), property of a decedent is consid-
ered as owned by the decedent’s estate
if such property is subject to administra-
tion by the executor or administrator for
the purposes of paying claims against the
estate and expenses of administration not-
withstanding that, under local law, legal
title to such property vests in the dece-
dent’s heirs, legatees or devisees imme-
diately upon death. With respect to an
estate, the term beneficiary includes any
person entitled to receive property of the
decedent pursuant to a will or pursuant to
laws of descent and distribution. A person
no longer is considered a beneficiary of
an estate when all the property to which
the person is entitled has been received
by the person, when the person no longer
has a claim against the estate arising out of
having been a beneficiary, and when there
is only a remote possibility that it will be
necessary for the estate to seek the return
of property or to seek payment from the
person by contribution or otherwise to sat-
isfy claims against the estate or expenses
of administration. When pursuant to the
preceding sentence, a person ceases to be
a beneficiary, stock owned by the estate
is not thereafter considered owned by the
person.
* * * * *
(4) * * *
(ii) Example. Brown, an individual,
owns 60 shares of the 100 shares of the
only class of outstanding stock of corpora-
tion P. Smith, an individual, owns 4 shares
of the P stock, and corporation X owns 36
shares of the P stock. Corporation P owns,
directly and indirectly, 50 shares of the
stock of corporation S. Under this para-
graph (b)(4), Brown is considered to own
30 shares of the S stock (60⁄100 × 50), and
X is considered to own 18 shares of the
S stock (36⁄100 × 50). Since Smith does
not own 5 percent or more in value of the
P stock, Smith is not considered as own-
ing any of the S stock owned by P. If, in
this example, Smith’s spouse had owned
directly 1 share of the P stock, Smith (and
Smith’s spouse) would each own 5 shares
of the P stock, and therefore Smith (and
Smith’s spouse) would be considered as
owning 2.5 shares of the S stock (5⁄100 ×
50).
(5) * * *
(i) Except as provided in paragraph (b)
(5)(ii) of this section, an individual is con-
sidered to own the stock owned, directly
or indirectly, by or for the individual’s
spouse, other than a spouse who is legally
separated from the individual under a
decree of divorce, whether interlocutory
or final, or a decree of separate mainte-
nance.
(ii) An individual is not considered
to own stock in a corporation owned,
directly or indirectly, by or for the individ-
ual’s spouse on any day of a taxable year
of such corporation, provided that each of
the following conditions are satisfied with
respect to such taxable year:
(A) Such individual does not, at any
time during such taxable year, own
directly any stock in such corporation.
(B) Such individual is not a member of
the board of directors or an employee of
such corporation and does not participate
in the management of such corporation at
any time during such taxable year.
(C) Not more than 50 percent of such
corporation’s gross income for such tax-
able year was derived from royalties,
rents, dividends, interest, and annuities.
(D) Such stock in such corporation is
not, at any time during such taxable year,
subject to conditions which substantially
restrict or limit the spouse’s right to dis-
pose of such stock and which run in favor
of the individual or the individual’s chil-
dren who have not attained the age of 21
years. The principles of §1.1563–2(b)(2)
(iii) apply in determining whether a con-
dition is a condition described in the pre-
ceding sentence.
* * * * *
(6) * * *
(i) An individual is considered to own
the stock owned, directly or indirectly, by
or for the individual’s children who have
not attained the age of 21 years, and, if the
individual has not attained the age of 21
years, the stock owned, directly or indi-
rectly, by or for the individual’s parents.
(ii) If an individual owns (directly,
and with the application of the rules of
this paragraph but without regard to this
paragraph (b)(6)(ii)) stock possessing
more than 50 percent of the total com-
bined voting power of all classes of stock
entitled to vote or more than 50 percent of
the total value of shares of all classes of
stock in a corporation, then such individ-
ual is considered to own the stock in such
corporation owned, directly or indirectly,
by or for the individual’s parents, grand-
parents, grandchildren, and children
who have attained the age of 21 years.
In determining whether the stock owned
by an individual possesses the requisite
percentage of the total combined voting
power of all classes of stock entitled to
vote of a corporation, see §1.1563-1(a)
(6).
* * * * *
(iv) Example—(A) Facts. Individual B owns
directly 40 shares of the 100 shares of the only class
of stock of Z Corporation. B’s child, M (20 years of
age), owns directly 30 shares of such stock, and B’s
child, A (30 years of age), owns directly 20 shares of
such stock. The remaining 10 shares of the Z stock
are owned by an unrelated person.
(B) B’s ownership. Individual B owns 40 shares
of the Z stock directly and is considered to own the
30 shares of Z stock owned directly by M. Since, for
purposes of the more-than-50-percent stock owner-
ship test contained in paragraph (b)(6)(ii) of this sec-
tion, B is treated as owning 70 shares or 70 percent
of the total voting power and value of the Z stock, B
is also considered as owning the 20 shares owned by
B’s adult child, A. Accordingly, B is considered as
owning a total of 90 shares of the Z stock.
(C) M’s ownership. Minor child, M, owns 30
shares of the Z stock directly, and is considered to
own the 40 shares of Z stock owned directly by B.
However, M is not considered to own the 20 shares
of Z stock owned directly by M’s sibling, A, and con-
structively by B, because stock constructively owned
by B by reason of family attribution is not consid-
ered as owned by M for purposes of making another
member of B’s family the constructive owner of such
stock. See paragraph (c)(2) of this section. Accord-
ingly, M owns and is considered as owning a total of
70 shares of the Z stock.
(D) A’s ownership. Adult child, A, owns 20
shares of the Z stock directly. Since, for purposes
of the more-than-50-percent stock ownership test
contained in paragraph (b)(6)(ii) of this section, A is
treated as owning only the Z stock which A owns
directly, A does not satisfy the condition precedent
for the attribution of Z stock from B. Accordingly,
A is treated as owning only the 20 shares of Z stock
which A owns directly.
(c) * * *
(2) Members of family. Stock construc-
tively owned by an individual by reason
of the application of paragraph (b)(5) or
(6) of this section is not treated as owned
by the individual for purposes of again
applying such paragraphs in order to make
another the constructive owner of such
stock.
* * * * *

Bulletin No. 2025–4 481 January 20, 2025
(4) Examples. The provisions of this
paragraph (c) may be illustrated by the
following examples:
(i) Example 1. A, 30 years of age, has a 90 percent
interest in the capital and profits of a partnership. The
partnership owns all the outstanding stock of corpora-
tion X and X owns 60 shares of the 100 outstanding
shares of corporation Y. Under paragraph (c)(1) of this
section, the 60 shares of Y constructively owned by
the partnership by reason of paragraph (b)(4) of this
section is treated as actually owned by the partnership
for purposes of applying paragraph (b)(2) of this sec-
tion. Therefore, A is considered as owning 54 shares
of the Y stock (90 percent of 60 shares).
(ii) Example 2. The facts are the same as in para-
graph (c)(4)(i) of this section (Example 1), except that
that B, who is 20 years of age and the sibling of A,
directly owns 40 shares of Y stock. Although the stock
of Y owned by B is considered as owned by C (the
parent of A and B) under paragraph (b)(6)(i) of this
section, under paragraph (c)(2) of this section such
stock may not be treated as owned by C for purposes
of applying paragraph (b)(6)(ii) of this section in order
to make A the constructive owner of such stock.
(iii) Example 3. The facts are the same as in para-
graph (c)(4)(ii) of this section (Example 2), except
that that C has an option to acquire the 40 shares of Y
stock owned by B. The rule contained in paragraph
(c)(2) of this section does not prevent the reattribu-
tion of such 40 shares to A because, under paragraph
(c)(3) of this section, C is considered as owning the
40 shares by reason of option attribution and not by
reason of family attribution. Therefore, since A sat-
isfies the more-than-50-percent stock ownership test
contained in paragraph (b)(6)(ii) of this section with
respect to Y, the 40 shares of Y stock constructively
owned by C are reattributed to A, and A is considered
as owning a total of 94 shares of Y stock.
(d) * * *
(3) Examples. The provisions of this
paragraph (d) may be illustrated by the
following examples, in which each cor-
poration referred to uses the calendar year
as its taxable year and the stated facts are
assumed to exist on each day of 1970
(unless otherwise provided in the exam-
ple):
(i) Example 1. Jones owns all the stock of corpo-
ration X and has an option to purchase from Smith all
the outstanding stock of corporation Y. Smith owns
all the outstanding stock of corporation Z. Since the
Y stock is considered as owned by two or more per-
sons, under paragraph (d)(2)(ii) of this section, the Y
stock is treated as owned only by Smith since Smith
has direct ownership of such stock. Therefore, on
December 31, 1970, Y and Z are component mem-
bers of the same brother-sister controlled group. If,
however, Smith had owned Smith’s stock in corpora-
tion Z for less than one-half of the number of days of
Z’s 1970 taxable year, then under paragraph (d)(1) of
this section, the Y stock would be treated as owned
only by Jones since Jones’s ownership results in Y
being a component member of a controlled group on
December 31,1970.
(ii) Example 2. Individual A owns directly all the
outstanding stock of corporation M. B (the spouse of
A) owns directly all the outstanding stock of corpo-
ration N. Neither spouse is considered as owning the
stock directly owned by the other because each of the
conditions prescribed in paragraph (b)(5)(ii) of this
section is satisfied with respect to each corporation’s
1970 taxable year. A owns directly 60 percent of the
only class of stock of corporation P and B owns the
remaining 40 percent of the P stock. Under paragraph
(d)(2)(iii) of this section, the stock of P is treated as
owned only by A since A owns (directly and with the
application of the rules contained in paragraphs (b)
(1) through (4) of this section) the stock possessing
the greatest percentage of the total value of shares of
all classes of stock of P. Accordingly, on December
31, 1970, P is treated as a component member of a
brother-sister group consisting of M and P.
(iii) Example 3. Unrelated individuals A and B
each own 49 percent of all the outstanding stock of
corporation R, which in turn owns 70 percent of the
only class of outstanding stock of corporation S. The
remaining 30 percent of the stock of corporation S
is owned by unrelated individual C. C also owns the
remaining 2 percent of the stock of corporation R.
Under the attribution rule of paragraph (b)(4) of this
section, A and B are each considered to own 34.3
percent of the stock of corporation S. Accordingly,
since five or fewer persons own at least 80 percent of
the stock of corporations R and S and also own more
than 50 percent identically (A’s and B’s identical
ownership each is 34.3 percent, C’s identical own-
ership is 2 percent), on December 31, 1970, corpora-
tions R and S are treated as component members of
the same brother-sister controlled group for purposes
of §1.1563-1(a)(3)(ii).
* * * * *
(e) Applicability dates. This section
applies to taxable years beginning on or
after December 30, 2024. For taxable
years beginning before December 30,
2024, see §1.1563-3 as contained in 26
CFR part 1 in effect on April 1, 2024.
PART 5—TEMPORARY INCOME
TAX REGULATIONS UNDER THE
REVENUE ACT OF 1978
Par. 55. The authority citation for part 5
continues to read as follows:
Authority: 26 U.S.C. 7805.
§5.1502-45 [Removed]
Par. 56. Section 5.1502-45 is removed.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 57. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 58. Section 301.6402-7 is amended
by revising and republishing paragraph
(g)(2)(iii) to read as follows:
§301.6402-7 Claims for refund and
applications for tentative carryback
adjustments involving consolidated
groups that include insolvent financial
institutions.
* * * * *
(g) * * *
(2) * * *
(iii) Absorption of net operating
losses. The absorption of net operating
losses generally is determined under
applicable principles of the Code and
regulations, including the principles of
section 172 and §1.1502-21(b) of this
chapter. Notwithstanding any contrary
rule or principle of the Code or regula-
tions, if an institution and another mem-
ber of the carryback year group have net
operating losses that arise in taxable years
ending on the same date and are carried
to the same consolidated carryback year,
the carryback year group’s consolidated
taxable income for that year is treated as
offset first by the loss attributable to the
institution to the extent thereof.
* * * * *
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 59. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
§602.101 [Amended]
Par. 60. Section 602.101 is amended
in the table in paragraph (b) by removing
the entries for §§1.1502-9A, 1.1502-18,
1.1502-76T, 1.1502-95A, 1.1503-2, and
1.1503-2A.
Douglas W. O’Donnell,
Deputy Commissioner
Approved: November 14, 2024.
Aviva R. Aron-Dine,
Deputy Assistant Secretary of the
Treasury (Tax Policy)
(Filed by the Office of the Federal Register Decem-
ber 27, 2024, 8:45 a.m., and published in the issue
of the Federal Register for December 30, 2024, 89
FR 106848)

January 20, 2025 482 Bulletin No. 2025–4
26 CFR 1.36B-1-6
T.D. 10019
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Definition of the Term
“Coverage Month” for
Computing the Premium
Tax Credit
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations that amend the definition of
“coverage month” and amend certain other
rules in existing income tax regulations
regarding the computation of an individual
taxpayer’s premium tax credit. The cover-
age month amendment generally provides
that, in computing a premium tax credit,
a month may be a coverage month for an
individual if the amount of the premium
paid, including by advance payments of the
premium tax credit, for the month for the
individual’s coverage is sufficient to avoid
termination of the individual’s coverage
for that month. The final regulations also
amend the existing regulations relating to
the amount of enrollment premiums used in
computing the taxpayer’s monthly premium
tax credit if a portion of the monthly enroll-
ment premium for a coverage month is
unpaid. Finally, the final regulations clarify
when an individual is considered to be not
eligible for coverage under a State’s Basic
Health Program. The final regulations affect
taxpayers who enroll themselves, or enroll
a family member, in individual health insur-
ance coverage through a Health Insurance
Exchange and may be allowed a premium
tax credit for the coverage.
DATES: Effective date: These final regula-
tions are effective on December 18, 2024.
Applicability Date: These final regula-
tions apply to taxable years beginning on
or after January 1, 2025.
FOR FURTHER INFORMATION
CONTACT: Clara Raymond at (202)
317-4718 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) under section 36B of the Internal
Revenue Code (Code).
1
Section 36B(h)
provides an express delegation of author-
ity for the Secretary of the Treasury or
her delegate (Secretary) to prescribe such
regulations as may be necessary to carry
out section 36B, including regulations
that provide for the coordination of the
premium tax credit (PTC) allowed under
36B with the program for advance pay-
ments of the PTC (APTC) under section
1412 of the Affordable Care Act.
2
The
final regulations are also issued under
the express delegation of authority under
section 7805(a), which authorizes the
Secretary to “prescribe all needful rules
and regulations for the enforcement of
[the Code], including all rules and regu-
lations as may be necessary by reason of
any alteration of law in relation to inter-
nal revenue.”
Background
I. Section 36B Rules Relating to
Coverage Months and Monthly PTC
Amount
Section 36B provides a PTC for appli-
cable taxpayers who meet certain eligibil-
ity requirements, including that a member
of the taxpayer’s family enrolls in a qual-
ified health plan (QHP) through a Health
Insurance Exchange (Exchange) for one
or more “coverage months.”
Section 1.36B-3(c)(1) provides that a
month is a coverage month for an indi-
vidual if (i) as of the first day of the
month, the individual is enrolled in a
QHP through an Exchange; (ii) the tax-
payer pays the taxpayer’s share of the
premium for the individual’s coverage
under the plan for the month by the unex-
tended due date for filing the taxpayer’s
income tax return for that taxable year,
or the full premium for the month is paid
by APTC; and (iii) the individual is not
eligible for the full calendar month for
minimum essential coverage (within the
meaning of §1.36B-2(c)) other than cov-
erage described in section 5000A(f)(1)
(C) of the Code (relating to coverage in
the individual market).
Section 1.36B-3(d)(1) provides that
the PTC (also called the premium assis-
tance amount) for a coverage month is
the lesser of (i) the premiums for the
month, reduced by any amounts that were
refunded, for one or more QHPs in which
a taxpayer or a member of the taxpayer’s
family enrolls (enrollment premiums); or
(ii) the excess of the adjusted monthly
premium for the applicable benchmark
plan over 1/12 of the product of a taxpay-
er’s household income and the applicable
percentage for the taxable year. The term
“family” is defined in §1.36B-1(d), and
the applicable percentage is defined in
§1.36B-3(g).
Section 1.36B-2(c)(2)(i) provides that,
for purposes of determining whether a
given month is a coverage month for an
individual, an individual generally is
considered eligible for government-spon-
sored minimum essential coverage if the
individual meets the criteria for coverage
under a government-sponsored program
described in section 5000A(f)(1)(A) as
of the first day of the first full month the
individual may receive benefits under the
program.
Section 1.36B-2(c)(2)(v) provides that
an individual is treated as not eligible for
Medicaid, CHIP, or a similar program
for a period of coverage under a QHP if,
when the individual enrolls in the QHP, an
Exchange determines or considers (within
the meaning of 45 CFR 155.302(b)) the
individual to be not eligible for Medicaid
or CHIP.
Section 36B(f)(3) and §1.36B-5 require
Exchanges to report to QHP enrollees and
the IRS certain information, including
monthly enrollment premiums, needed to
1
Unless otherwise indicated, references to “section” or “§” are to sections of the Code or the Treasury regulations issued thereunder.
1
Unless otherwise indicated, references to “section” or “§” are to sections of the Code or the Treasury regulations issued thereunder.

Bulletin No. 2025–4 483 January 20, 2025
compute the PTC allowed for the enrollee.
This information is reported to enroll-
ees on IRS Form 1095-A, Health Insur-
ance Marketplace Statement. The Cen-
ters for Medicare & Medicaid Services
(CMS), part of the Department of Health
and Human Services (HHS), is respon-
sible for the Form 1095-A reporting for
Exchanges that use the Federal eligibility
and enrollment platform (Federally-fa-
cilitated Exchanges, or FFEs, and State-
based Exchanges on the Federal platform,
or SBE-FPs). State Exchanges with their
own platforms (State Exchanges) are
responsible for the Form 1095-A report-
ing for individuals who enroll in a QHP
through their State Exchange.
II. HHS Rules Relating to Coverage when
Premiums are Unpaid
HHS regulations at 45 CFR 156.270(d)
implement section 1412(c)(2)(B)(iv)(II)
of the Affordable Care Act to require issu-
ers of QHPs to allow a “grace period”
for enrollees for whom the APTC is paid
but who fail to timely pay their share of
the premium for the coverage. In gen-
eral, a QHP issuer must provide a grace
period of 3 consecutive months for such
an enrollee before the issuer may termi-
nate the enrollee’s coverage. During the
first month of the grace period, the QHP
issuer must pay all appropriate claims for
services rendered, and, during the second
and third months of the grace period, the
QHP issuer may pend claims.
HHS regulations at 45 CFR 155.400(g)
allow issuers to implement a premium
payment threshold policy under which
issuers can consider enrollees to have paid
all amounts due if the enrollees pay an
amount sufficient to maintain a percent-
age of total premium paid out of the total
premium owed equal to or greater than a
level prescribed by the issuer, provided
that the level and the policy are applied
in a uniform manner to all enrollees. If
an enrollee satisfies these conditions, the
issuer may provide coverage even though
the full enrollment premium is not paid.
In certain States, issuers also may pro-
vide coverage without payment of the full
enrollment premium if a State department
of insurance prohibits an issuer from ter-
minating QHP coverage during a declared
emergency.
III. Proposed Regulations
On September 17, 2024, the Depart-
ment of the Treasury (Treasury Depart-
ment) and the IRS published a notice of
proposed rulemaking (REG-116787-23)
in the Federal Register (89 FR 75984)
under section 36B (proposed regula-
tions). The proposed regulations would
have changed the definition of “coverage
month” in §1.36B-3(c)(1) for some sce-
narios for which the full premium for the
month is unpaid by the unextended due
date of the taxpayer’s return for the year
of coverage, provided the amount of the
premium paid for the month, including
by APTC, is sufficient to avoid termina-
tion of the individual’s coverage for that
month. The proposed regulations would
have provided that a month for which
the enrollment premium is not fully paid
may be a coverage month in the follow-
ing scenarios: (i) the first month of a grace
period described in 45 CFR 156.270(d);
(ii) a month for which a premium pay-
ment threshold under 45 CFR 155.400(g)
has been met and for which month the
issuer of the individual’s qualified health
plan provides coverage; and (iii) a month
for which a State department of insur-
ance has, during a declared emergency,
issued an order prohibiting the issuer of
the individual’s qualified health plan from
terminating the individual’s coverage for
the month irrespective of whether the full
premium for the month is paid.
The proposed amendment to the defi-
nition of “coverage month” would have
required a conforming change to the cal-
culation of the monthly PTC amount under
§1.36B-3(d)(1)(i) so that the premium for
a month to be considered in determining
the monthly PTC for an individual’s cov-
erage would be reduced by any portion of
the premium that is unpaid as of the unex-
tended due date for filing the taxpayer’s
income tax return for the taxable year that
includes the month.
Finally, the proposed regulations
would have clarified §1.36B-2(c)(2)(v)
to provide that an individual is treated
as not eligible for Medicaid, CHIP, or a
similar program such as a State’s Basic
Health Program (BHP), for a period of
coverage under a QHP if, when the indi-
vidual enrolls in the QHP, an Exchange
conducts an eligibility determination or, if
applicable, eligibility assessment (within
the meaning of 45 CFR 155.302(b)) for
Medicaid, CHIP, or a similar program
and determines or assesses the individual
to be not eligible for coverage under the
program.
The Treasury Department and the IRS
received nine public comments in response
to the notice of proposed rulemaking.
Copies of the comments are available
for public inspection at http://www.reg-
ulations.gov or upon request. A public
hearing on the proposed regulations was
scheduled for December 13, 2024. There
were no requests to speak at the scheduled
public hearing. Consequently, the public
hearing was cancelled. After considering
all the comments received, the Treasury
Department and the IRS adopt the pro-
posed regulations without modifications.
Summary of Comments and
Explanation of Revisions
I. Overview
All nine public comments on the pro-
posed regulations were in support of the
rules in the proposed regulations. One
commenter requested that the final reg-
ulations include detailed requirements,
expectations, and examples relating to
reporting by Exchanges of enrollment pre-
miums and second lowest cost silver plan
(SLCSP) premiums on Form 1095-A for
a month for which a taxpayer’s share of
the enrollment premium is not paid in full
(non-payment month) that may be a cover-
age month. Another commenter requested
that all non-payment months for which
coverage is provided be considered cov-
erage months. Finally, several comment-
ers requested flexibility for Exchanges
to comply with the new coverage month
rule. The comments are addressed in more
detail in Parts II through IV of this Sum-
mary of Comments and Explanation of
Revisions.
II. Additional Guidance for Reporting on
Form 1095-A
As discussed in Part I of the Back-
ground section of this preamble, section
36B(f)(3) and §1.36B-5 require Exchanges
to report to QHP enrollees and the IRS
certain information needed to compute the

January 20, 2025 484 Bulletin No. 2025–4
PTC allowed for the enrollee. This infor-
mation is reported to enrollees on IRS
Form 1095-A. The enrollee’s monthly
enrollment premiums are reported in col-
umn A of Part III of Form 1095-A and the
enrollee’s monthly second lowest cost sil-
ver plan (SLCSP) premiums are reported
in column B of the form.
The current instructions for Form
1095-A require Exchanges to report $0 in
column A of Form 1095-A as the enroll-
ment premium for a non-payment month.
The instructions also require Exchanges
to report $0 for a non-payment month in
column B of Form 1095-A as the amount
of the taxpayer’s SLCSP premium for
the month. Reporting $0 as the monthly
amount in either column A or column B
signals to the taxpayer and the IRS that
this is not a coverage month and, thus, no
PTC is allowed for the month.
One commenter requested that the final
regulations include detailed requirements,
expectations, and examples relating to
how Exchanges should report enrollment
premiums and SLCSP premiums on Form
1095-A for non-payment months that
may be coverage months. The commenter
asked that the examples demonstrate how
Exchanges should report multiple grace
periods in a calendar year, mid-month
changes, and partial payments.
The commenter’s request for detailed
guidance on how Exchanges should
report amounts on Form 1095-A is best
addressed in the Instructions for Form
1095-A, rather than in regulatory text. The
IRS intends to revise the 2025 Instructions
for Form 1095-A to reflect the coverage
month changes in these final regulations.
Specifically, the revised instructions will
require Exchanges to report in column A
of Part III of Form 1095-A the full enroll-
ment premium for any month that is a cov-
erage month if such month is (i) the first
month of a grace period described in 45
CFR 156.270(d) for the plan enrollees;
(ii) a month for which a premium pay-
ment threshold under 45 CFR 155.400(g)
has been met and for which month the
issuer of the individual’s qualified health
plan provides coverage; or (iii) a month
for which a State department of insur-
ance has, during a declared emergency,
issued an order prohibiting the issuer of
the individual’s qualified health plan from
terminating the individual’s coverage for
the month (the three scenarios described
in §1.36B-3(c)(4)). The instructions
will continue to provide that Exchanges
must report $0 in column A for any other
months for which the full enrollment pre-
mium for the month is not paid, and that
the amount reported in column A should
be reduced by any enrollment premium
refunds or credits.
Similarly, the instructions for col-
umn B of Part III of Form 1095-A will
be amended to provide that Exchanges
should not report $0 as the SLCSP pre-
mium for any months for which the full
enrollment premium is not paid, if the
month is a coverage month under one of
the three scenarios described in §1.36B-
3(c)(4). Instead, Exchanges should report
the SLCSP premium that would apply if
the enrollment premium had been paid in
full.
With regard to the commenter’s request
for examples demonstrating how to report
amounts on Form 1095-A under the final
regulations, the Treasury Department and
the IRS understand that State Exchanges
may need additional guidance as they
proceed with implementation of these
final regulations. The Treasury Depart-
ment and the IRS welcome additional
input and will continue to work with State
Exchanges to ensure that the Instructions
for Form 1095-A adequately address how
Exchanges should report non-payment
months as coverage months under one of
the three scenarios described in §1.36B-
3(c)(4).
III. Additional Scenarios for Which
Non-Payment Months may be Coverage
Months
The proposed regulations included
a request for comments on whether the
final regulations should include scenarios
in addition to those provided in the pro-
posed regulations regarding non-payment
months that may be coverage months. One
commenter suggested that the final regu-
lations should permit all non-payment
months to be coverage months as long as
the amount of the premium paid for the
month, including by APTC, is sufficient to
avoid termination of the individual’s cov-
erage for that month.
In drafting the proposed regulations,
the Treasury Department and the IRS con-
sidered but rejected a rule that would allow
all non-payment months to be coverage
months if the amount of the premium paid
for the month, including by APTC, is suf-
ficient to avoid termination of the individ-
ual’s coverage for the month. As stated in
the preamble to the proposed regulations,
a main reason for amending the coverage
month definition is to promote reporting
consistency among Exchanges regarding
the reporting of enrollment premiums
for non-payment months. The Treasury
Department and the IRS worked closely
with HHS staff to identify the three sce-
narios described in §1.36B-3(c)(4) as
scenarios for which there is inconsistent
reporting among Exchanges. In addition,
the Treasury Department and the IRS
have determined that an open-ended rule
that could be interpreted differently by
different Exchanges, based on their par-
ticular State law or practices, would not
achieve more consistent reporting among
Exchanges. Exchanges, as well as tax-
payers and the IRS, need clarity on the
definition of a coverage month, and that
definition needs to apply uniformly to all
taxpayers under the Federal tax law. Con-
sequently, the Treasury Department and
the IRS do not adopt this comment, and
the change to the coverage month rule in
the final regulations applies only for the
three scenarios described in §1.36B-3(c)
(4).
IV. Applicability Date of Final
Regulations
The proposed regulations provided
that the changes under §§1.36B-2 and
1.36B-3 were proposed to apply for tax-
able years beginning on or after the first
date of the calendar year that begins after
the date these regulations are published
as final regulations in the Federal Regis-
ter. Several commenters noted that State
Exchanges will need to make extensive
changes to their platform architecture to
report for non-payment months that are
coverage months under one of the three
scenarios described in §1.36B-3(c)(4)
and, thus, requested that the final regu-
lations provide adequate time for states
to make the necessary changes to ensure
accurate reporting. One commenter stated
that a 9-12-month period is generally
needed to implement IT changes. Another

Bulletin No. 2025–4 485 January 20, 2025
commenter requested that the final rule
include detailed scenarios addressing the
applicability date. One commenter sup-
ported the proposed applicability date of
the next calendar year following the date
of publication.
Consistent with the proposed applica-
bility date, the rules in these final regu-
lations apply to taxable years beginning
on or after January 1, 2025. Thus, a tax-
payer may be allowed a PTC for 2025 for
a non-payment month that is a coverage
month as described in these final regula-
tions. However, the Treasury Department
and the IRS understand that Exchanges
need time to implement their reporting for
the coverage month rule in the final reg-
ulations, and some Forms 1095-A filed
by State Exchanges for the 2025 cover-
age year may not reflect that non-pay-
ment months described in §1.36B-3(c)
(4) are coverage months for which a PTC
is allowed. Exchanges should do the best
they can to timely implement the cover-
age month rule in these final regulations.
Exchanges are reminded that, because
section 36B(f)(3) imposes the requirement
on Exchanges to report QHP enrollment
information to the IRS and to Enrollees
on Form 1095-A, Form 1095-A is not
an information return within the mean-
ing of section 6721, and there is no pen-
alty imposed on an Exchange for filing a
Form 1095-A that does not include all of
the information required to be shown on
the return or that includes incorrect infor-
mation. The Treasury Department and the
IRS will continue to consult with State
Exchanges to assist with their implemen-
tation of the coverage month rule under
these final regulations.
Finally, the proposed regulations
included various applicability dates to
incorporate existing applicability dates for
prior amendments to the regulations under
section 36B, but all of the amendments
under §§1.36B-2 and 1.36B-3 in the pro-
posed regulations were proposed to apply
on the same date. Those amendments to
proposed §§1.36B-2 and 1.36B-3, as final-
ized in these regulations, all apply to tax-
able years beginning on or after January 1,
2025. Thus, the Treasury Department and
the IRS do not believe detailed scenarios
are needed to address the final regulation’s
applicability date as requested by one of
the commenters.
V. Conforming Change to the PTC
Calculation and Clarification of
Eligibility
As noted in Part III of the Background
section of this preamble, the proposed reg-
ulations addressed two items in addition to
the change to the coverage month definition.
First, the proposed regulations included
a proposed change that would have con-
formed the calculation of the monthly PTC
amount under §1.36B-3(d)(1)(i) with the
proposed rule allowing certain non-pay-
ment months to be coverage months.
Under the proposed rule, taxpayers would
have reduced the amount of the enrollment
premiums used to compute their monthly
PTC by any portion of the premium that is
unpaid as of the unextended due date of the
taxpayer’s income tax return for the taxable
year that includes the month. Second, the
proposed regulations would have clarified
§1.36B-2(c)(2)(v) to provide that an indi-
vidual is treated as not eligible for Medic-
aid, CHIP, or a similar program such as a
State BHP, for a period of coverage under a
QHP if, when the individual enrolls in the
QHP, an Exchange conducts an eligibility
determination or, if applicable, eligibil-
ity assessment (within the meaning of 45
CFR 155.302(b)) for Medicaid, CHIP, or a
similar program and determines or assesses
the individual to be not eligible for cover-
age under the program. Because no nega-
tive comments or suggested changes were
received with respect to these two items,
this Treasury decision adopts these amend-
ments without change.
VI. Severability
If any provision in this rulemaking
is held to be invalid or unenforceable
facially, or as applied to any person or
circumstance, it shall be severable from
the remainder of this rulemaking, and
shall not affect the remainder thereof, or
the application of the provision to other
persons not similarly situated or to other
dissimilar circumstances.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
These final regulations do not impose
any additional information collection
requirements in the form of reporting,
recordkeeping requirements, or third-
party disclosure statements. Taxpay-
ers who claim PTC on their income tax
returns are required to file Form 8962,
Premium Tax Credit (PTC), which is the
sole collection of information require-
ment imposed on individuals by section
36B and the regulations under section
36B. The rules in these final regulations
will require the IRS to revise the instruc-
tions for Form 8962. For purposes of the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(c)), the reporting burden
associated with the collection of informa-
tion for Form 8962 will be reflected in the
PRA submission associated with income
tax returns under the OMB control num-
ber 1545-0074. To the extent there is a
change in burden because of these final
regulations, the change in burden will be
reflected in the updated burden estimates
for Form 8962.
In addition, Exchanges are required to
report to QHP enrollees on Form 1095-A
certain information the enrollees need to
compute the PTC allowed for the enrollee
and to reconcile the PTC with any APTC
paid for their coverage. Exchanges must
also report this information to the IRS.
The rules in these final regulations will
require the IRS to revise the instructions
for recipients of Form 1095-A and the
instructions for Exchanges completing
Form 1095-A. For purposes of the Paper-
work Reduction Act of 1995 (44 U.S.C.
3507(c)), the reporting burden associated
with the collection of information for
Form 1095-A will be reflected in the PRA
submission associated with Form 1095-A
under the OMB control number 1545-
2232. To the extent there is a change in
burden because of these final regulations,
the change in burden will be reflected in
the updated burden estimates for Form
1095-A.

January 20, 2025 486 Bulletin No. 2025–4
III. Regulatory Flexibility Act
The Treasury Department and the IRS
hereby certify that these final regulations
will not have a significant economic
impact on a substantial number of small
entities pursuant to the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6). This certi-
fication is based on the fact that the major-
ity of the effect of the final regulations
falls on individual taxpayers, and entities
will experience only small changes.
Pursuant to section 7805(f), the notice
of proposed rulemaking preceding these
regulations was submitted to the Chief
Counsel for the Office of Advocacy of the
Small Business Administration for com-
ment on their impact on small business,
and no comments were received.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in
any one year by a State, local, or Tribal
government, in the aggregate, or by the
private sector, of $100 million (updated
annually for inflation). This final rule does
not include any Federal mandate that may
result in expenditures by State, local, or
Tribal governments, or by the private sec-
tor in excess of that threshold.
V. Executive Order 13132: Federalism
E.O. 13132 (Federalism) prohibits an
agency from publishing any rule that has
federalism implications if the rule either
imposes substantial, direct compliance
costs on State and local governments, and
is not required by statute, or preempts State
law, unless the agency meets the consulta-
tion and funding requirements of section
6 of the E.O. This rule does not have fed-
eralism implications and does not impose
substantial direct compliance costs on State
and local governments or preempt State
law within the meaning of the E.O.
VI. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs des-
ignated this rule as not a major rule, as
defined by 5 U.S.C. 804(2).
Statement of Availability of IRS
Documents
Guidance cited in this preamble is pub-
lished in the Internal Revenue Bulletin and
is available from the Superintendent of
Documents, U.S. Government Publishing
Office, Washington, DC 20402, or by visit-
ing the IRS website at https://www.irs.gov.
Drafting Information
The principal author of these final reg-
ulations is Clara L. Raymond of the Office
of Associate Chief Counsel (Income Tax
and Accounting). However, other person-
nel from the Treasury Department and the
IRS participated in the development of the
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS amend 26 CFR part 1 as fol-
lows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entry
for §1.36B-0, adding entries in numeri-
cal order for §§1.36B-1 through 1.36B-3,
and 1.36B-6, and revising the entries for
§§1.36B-4, and 1.36B-5 to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.36B-1 also issued under 26
U.S.C. 36B(h).
Section 1.36B-2 also issued under 26
U.S.C. 36B(h).
Section 1.36B-3 also issued under 26
U.S.C. 36B(h).
Section 1.36B-4 also issued under 26
U.S.C. 36B(h).
Section 1.36B-5 also issued under 26
U.S.C. 36B(h).
Section 1.36B-6 also issued under 26
U.S.C. 36B(h).
* * * * *
Par. 2. Section 1.36B-0 is amended by:
1. Redesignating the entries for
§1.36B-3(c)(4) and §1.36B-3(c)(5) as the
entries for §1.36B-3(c)(5) and §1.36B-
3(c)(6), respectively; and
2. Adding a new entry for §1.36B-3(c)
(4).
The addition reads as follows:
§1.36B-0 Table of contents.
* * * * *
§1.36B-3 Computing the premium
assistance credit amount.
* * * * *
(c) * * *
(4) Scenarios for payments sufficient to
avoid coverage termination.
* * * * *
Par. 3. Section 1.36B-2 is amended by:
1. Revising the first sentence in para-
graph (c)(2)(v);
2. Revising paragraph (e)(1); and
3. Adding paragraph (e)(6).
The revisions and addition read as fol-
lows:
§1.36B-2 Eligibility for premium tax
credit.
* * * * *
(c) * * *
(2) * * *
(v) * * * An individual is treated as not
eligible for Medicaid, CHIP, or a similar
program such as a Basic Health Program,
for a period of coverage under a qualified
health plan if, when the individual enrolls
in the qualified health plan, an Exchange
conducts an eligibility determination or, if
applicable, eligibility assessment (within
the meaning of 45 CFR 155.302(b)) for
Medicaid, CHIP, or a similar program and
determines or assesses the individual to be
not eligible for coverage under the pro-
gram.* * *
* * * * *
(e) * * *
(1) Except as provided in paragraphs
(e)(2) through (6) of this section, this sec-
tion applies to taxable years ending after
December 31, 2013.

Bulletin No. 2025–4 487 January 20, 2025
* * * * *
(6) The first sentence of paragraph (c)
(2)(v) of this section applies to taxable
years beginning on or after January 1,
2025. The first sentence of paragraph (c)
(2)(v) of this section, as contained in 26
CFR part I edition revised as of April 1,
2024, applies to taxable years ending after
December 31, 2013, and beginning before
January 1, 2025.
Par. 4. Section 1.36B-3 is amended by:
1. Revising paragraph (c)(1)(ii);
2. Redesignating paragraphs (c)(4)
and (c)(5) as paragraphs (c)(5) and (c)(6),
respectively, and adding new paragraph
(c)(4);
3. Revising paragraph (d)(1)(i); and
4. Revising paragraph (n).
The revisions and addition read as fol-
lows:
§1.36B-3 Computing the premium
assistance credit amount.
* * * * *
(c) * * *
(1) * * *
(ii) The taxpayer pays the taxpayer’s
share of the premium for the individual’s
coverage under the plan for the month
by the unextended due date for filing the
taxpayer’s income tax return for that tax-
able year, the full premium for the month
is paid by advance credit payments, or
the amount of the premium paid (includ-
ing by advance credit payments) for
the month is sufficient to avoid termi-
nation of the individual’s coverage for
that month under one of the scenarios
described in paragraph (c)(4) of this sec-
tion; and
* * * * *
(4) Scenarios for payments sufficient
to avoid coverage termination. The sce-
narios under which the amount of the pre-
mium paid (including by advance credit
payments) for the month is sufficient to
avoid termination of an individual’s cov-
erage for that month under paragraph (c)
(1)(ii) of this section are the following:
(i) The first month of a grace period
described in 45 CFR 156.270(d) for the
individual.
(ii) A month for which a premium pay-
ment threshold under 45 CFR 155.400(g)
has been met and for which month the
issuer of the individual’s qualified health
plan provides coverage.
(iii) A month for which a State depart-
ment of insurance has, during a declared
emergency, issued an order prohibiting
the issuer of the individual’s qualified
health plan from terminating the individ-
ual’s coverage for the month irrespective
of whether the full premium for the month
is paid.
* * * * *
(d) * * *
(1) * * *
(i) The enrollment premiums, which
are the premiums for the month for one
or more qualified health plans in which
a taxpayer or a member of the taxpayer’s
family enrolls, reduced by any amounts—
(A) Refunded in the same taxable year
as the premium liability is incurred; or
(B) Unpaid as of the unextended due
date for filing the taxpayer’s income tax
return for the taxable year that includes
the month, or
* * * * *
(n) Applicability dates.
(1) Except as provided in paragraphs
(n)(2) through (4) of this section, this sec-
tion applies to taxable years ending after
December 31, 2013.
(2) Paragraphs (d)(1) (except for para-
graph (d)(1)(i)) and (2) of this section
apply to taxable years beginning after
December 31, 2016. Paragraph (f) of this
section applies to taxable years beginning
after December 31, 2018. Paragraphs (d)
(1) and (2) of §1.36B–3, as contained in
26 CFR part I edition revised as of April
1, 2016, apply to taxable years ending
after December 31, 2013, and beginning
before January 1, 2017. Paragraph (f) of
§1.36B–3, as contained in 26 CFR part I
edition revised as of April 1, 2016, applies
to taxable years ending after December
31, 2013, and beginning before January 1,
2019.
(3) Paragraphs (c)(4) through (6) of this
section apply to taxable years beginning on
or after January 1, 2025. Paragraph (c)(4)
of this section, as contained in 26 CFR part
I edition revised as of April 1, 2024, applies
to taxable years beginning after December
31, 2016, and beginning before January 1,
2025. Paragraph (c)(5) of this section, as
contained in 26 CFR part I edition revised
as of April 1, 2024, applies to taxable
years ending after December 31, 2013, and
beginning before January 1, 2025.
(4) Paragraph (d)(1)(i) of this section
applies to taxable years beginning on or
after January 1, 2025. Paragraph (d)(1)
(i) of §1.36B–3, as contained in 26 CFR
part I edition revised as of April 1, 2016,
applies to taxable years ending after
December 31, 2013, and beginning before
January 1, 2017. Paragraph (d)(1)(i) of
§1.36B–3, as contained in 26 CFR part I
edition revised as of April 1, 2022, applies
to taxable years beginning after December
31, 2016, and beginning before January 1,
2023. Paragraph (d)(1)(i) of §1.36B–3, as
contained in 26 CFR part I edition revised
as of April 1, 2024, applies to taxable
years beginning after December 31, 2022,
and beginning before January 1, 2025.
Douglas W. O’Donnell,
Deputy Commissioner.
Approved: December 5, 2024.
Aviva R. Aron-Dine,
Deputy Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register Decem-
ber 17, 2024, 8:45 a.m., and published in the issue
of the Federal Register for December 18, 2024, 89
FR 102721)

January 20, 2025 488 Bulletin No. 2025–4
Part III
Transitional Relief Under
Sections 3403, 3406,
6721, 6722, 6651, and
6656 with Respect to the
Reporting of Information
and Backup Withholding
on Digital Assets under
Section 6045 for Digital
Asset Brokers Providing
Trading Front-End Services
Notice 2025-3
SECTION 1. PURPOSE
This notice provides transitional relief
from penalties for certain brokers who
fail to report sales of digital assets, as
defined in §1.6045-1(a)(19),
1
other than
digital assets not required to be reported
as digital assets pursuant to §1.6045-1(c)
(8)(ii), (iii), or (iv), on information returns
(Form 1099-DA, Digital Asset Proceeds
From Broker Transactions), or fail to
furnish payee statements under section
6045. The penalty relief provided by this
notice is available for brokers providing
trading front-end services, as described in
§1.6045-1(a)(21)(iii)(A) (DeFi brokers)
and is available for information returns
required to be filed and payee statements
required to be furnished in 2028 for sales
of digital assets effected in calendar year
2027, provided that the broker makes a
good faith effort to file the appropriate
information return and furnish the associ-
ated payee statement accurately.
In addition, this notice provides transi-
tional relief from the liability for the pay-
ment of backup withholding tax required
to be withheld under section 3406 and its
accompanying regulations as well as from
penalties for DeFi brokers who fail to pay
that tax with respect to certain sales of
digital assets required to be reported under
section 6045. Specifically, this notice pro-
vides certain relief from penalties (1) for
any sale of a digital asset effected by a
DeFi broker during calendar year 2027
and (2) for any sale of a digital asset
effected by a DeFi broker during calendar
year 2028 for a customer (payee) if the
broker submits that payee’s name and tax
identification number (TIN) combination
to the Internal Revenue Service’s (IRS)
TIN Matching Program and receives a
response that the name and TIN combi-
nation furnished by the payee matches the
name and TIN combination for that payee
in IRS records. For sales effected before
January 1, 2029, this notice also provides
that a DeFi broker may treat a customer as
an exempt foreign person if the customer
has not been previously classified as a
U.S. person by the DeFi broker, and the
information that the DeFi broker has for
the customer includes a residence address
that is not a U.S. address.
This notice also provides transitional
relief from penalties for DeFi brokers who
fail to backup withhold and pay the full
backup withholding tax due if such fail-
ure is due to a decrease in the value of
withheld digital assets in a sale of digital
assets in return for different digital assets
effected on or before December 31, 2028,
and the broker immediately liquidates the
withheld digital assets for cash.
SECTION 2. BACKGROUND
.01 Section 6045 and Final Regulations
Section 6045(a) provides that every
person doing business as a broker shall
make a return to the IRS showing the
name and address of each customer, with
details regarding gross proceeds and other
information as required. These rules apply
when required by the Secretary of the
Treasury or her delegate (Secretary) and
in accordance with regulations prescribed
by the Secretary. Other subsections of
section 6045 require a broker to furnish a
payee statement to customers, define the
term broker, require basis reporting for
specified securities that are also covered
securities, and provide other applicable
rules.
Section 80603 of the Infrastructure
Investment and Jobs Act, Pub. L. No.
117-58, 135 Stat. 429, 1339 (2021) (Infra-
structure Act) made several changes to the
broker reporting provisions under section
6045 to clarify the definition of broker,
to provide a definition of the term digi-
tal asset, and to expand the categories of
assets for which basis reporting is required
to include all digital assets.
On July 9, 2024, the Department of
the Treasury (Treasury Department) and
the IRS published in the Federal Regis-
ter (89 FR 56480) final regulations (TD
10000) to require certain brokers to file
information returns and furnish payee
statements reporting gross proceeds and
in certain circumstances adjusted basis on
sales of digital assets effected for custom-
ers beginning for sales on or after January
1, 2025. TD 10000 applies to operators of
custodial digital asset trading platforms,
certain digital asset hosted wallet provid-
ers, certain processors of digital asset pay-
ments (PDAPs), owners of digital asset
kiosks, brokers who accept digital assets
as payment for commissions and certain
other property, certain real estate reporting
persons, brokers that transact as dealers in
digital assets, and certain issuers of digital
assets who regularly offer to redeem those
digital assets. TD 10000 did not finalize
the portion of the definition of broker that
would have treated certain DeFi partici-
pants (referred to in the preamble to TD
10000 as non-custodial industry partici-
pants) as brokers.
On July 15, 2024, Notice 2024-56 was
published in the Internal Revenue Bulletin
(2024-29 I.R.B. 64) (Notice 2024-56) to
provide certain transitional relief to bro-
kers described in TD 10000 and additional
transitional relief available to all brokers.
Section 3.03 of Notice 2024-56 provides
that backup withholding under section
3406 will not be required on any digital
asset sale effected by a broker where the
reportable proceeds is a specified non-
fungible token until further guidance is
issued. Section 3.05 of Notice 2024-56
provides that backup withholding under
section 3406 will not be required on any
PDAP sale effected by a PDAP until fur-
ther guidance is issued.
1
Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code, the Income Tax Regulations (26 CFR part 1), or to the Employment Taxes and Col-
lection of Income Tax at Source Regulations (26 CFR part 31).

Bulletin No. 2025–4 489 January 20, 2025
On December 27, 2024, final regu-
lations (TD 10021) were filed for public
inspection with the Federal Register (89
FR 106928) (final regulations) which
treat certain persons as brokers that in
the ordinary course of a trade or business
stand ready to provide trading front-end
services, as described in §1.6045-1(a)(21)
(iii). Trading front-end service providers
are treated as brokers when the nature of
the service arrangement is such that the
person providing that service ordinarily
would know, or be in a position to know,
within the meaning of §1.6045-1(a)(21)
(ii) the nature of the transaction poten-
tially giving rise to gross proceeds from
the sale of digital assets. These brokers
are required to file information returns and
furnish payee statements reporting gross
proceeds on sales of digital assets effected
for customers beginning for sales of dig-
ital assets effected on or after January 1,
2027.
In addition to the relief provided by
this notice, these DeFi brokers are also
eligible for the relief provided in sec-
tions 3.03 and 3.05 of Notice 2024-56.
The Treasury Department and the IRS
also intend to issue a notice of proposed
rulemaking under §31.3406(h)-2(b) with
proposed regulations that would provide
brokers with greater flexibility to satisfy
their backup withholding obligations with
respect to digital asset transactions.
.02 Sections 6721, 6722 and 6724
Section 6721 imposes a penalty for
any failure to file an information return on
or before the required filing date, and for
any failure to include all the information
required to be shown on the return or the
inclusion of incorrect information. Section
6724(d)(1)(B)(iii) defines an information
return for this purpose as a return required
by section 6045(a) and (d).
Section 6722 imposes a penalty for
failure to furnish a payee statement on
or before the required furnishing date to
the person to whom such statement is
required to be furnished, and for any fail-
ure to include all the information required
to be shown on a payee statement or the
inclusion of incorrect information. Sec-
tion 6724(d)(2)(H) defines a payee state-
ment for this purpose as a return required
by section 6045(b) or (d).
Section 6724 provides that no penalty
shall be imposed under sections 6721 and
6722 if the filer (payor) shows that the
failure was due to reasonable cause and
was not due to willful neglect.
.03 Sections 3403 and 3406
Section 3406(a)(1) requires certain
payors of reportable payments to deduct
and withhold a tax on a payment at the
statutory backup withholding rate (backup
withholding tax) if the payee fails to fur-
nish the payee’s TIN to the payor in the
manner required. Pursuant to section
3406(b)(3)(C), a reportable payment
includes payments made by a broker that
are required to be shown on an informa-
tion return under section 6045.
Section 1.6045-1(g)(1) provides an
exception to a broker’s reporting of a sale
of digital assets effected for a customer
that is an exempt foreign person. Under
§1.6045-1(g)(4)(ii)(B) and (g)(4)(vi)(A)
(1), a U.S. digital asset broker may treat
a customer as an exempt foreign person if
the broker receives valid documentation
upon which it may rely for this purpose
(for example, Form W-8BEN, Certificate
of Foreign Status of Beneficial Owner
for United States Tax Withholding and
Reporting (Individuals)). Pursuant to
§§31.3406(d)-1 and 31.3406(h)-3(a)(1), a
payee that is not an exempt foreign person
must generally furnish to the broker on
a Form W-9, Request for Taxpayer Iden-
tification Number and Certification, the
payee’s TIN and certify under penalties of
perjury that the furnished TIN is correct
(certified TIN). Section 1.6045-1(g)(4)
(vi)(F) permits a broker to treat a customer
with an account established prior to Janu-
ary 1, 2026, as an exempt foreign person
with respect to digital asset sales effected
prior to January 1, 2027, if the customer
has not been previously classified as a
U.S. person by the broker and the infor-
mation the broker has for the customer
includes a residence address that is not a
U.S. address.
Section 3406(a) provides that the cur-
rent applicable rate of backup withholding
is the fourth lowest rate of tax applicable
under section 1(c) (currently 24 percent). A
payor is also required to report the amount
of backup withholding tax the payor with-
held from the payee on Form 945, Annual
Return of Withheld Federal Income Tax,
and on the information return filed with the
IRS and furnished to the payee. In the case
of the Form 1099-DA, once it is approved
by the Office of Management and Budget
(OMB) for information collection under
the Paperwork Reduction Act, the backup
withholding tax withheld from the payee
will be required to be reported in accor-
dance with the instructions for that form.
The payee may then report this tax as an
income tax payment on the payee’s Fed-
eral income tax return.
Section 3406(a)(1)(B) also requires
the payor to deduct and withhold the
backup withholding tax if the IRS noti-
fies the payor that the payee has provided
an incorrect name and TIN combination.
The IRS notifies a payor of an incorrect
name and TIN combination by sending
the payor a CP2100 Notice, Please Check
Your Backup Withholding List (“Large”
Payers), or a CP2100A Notice, Please
Check Your Backup Withholding, Contact
Your Payee, and/or Update Your Records.
The CP2100 and CP2100A Notices list
each payee with an incorrect name and
TIN combination reported on information
returns filed by the payor. Upon receiving
a CP2100 Notice or a CP2100A Notice,
payors must send a copy of the notice
identifying the incorrect name and TIN
combination to the payee and request a
corrected TIN (or name) from the payee
before beginning backup withholding. See
§31.3406(d)-5 (describing these proce-
dures, which are commonly known as B
Notice procedures).
Section 3406(h)(10) provides that pay-
ments subject to withholding under sec-
tion 3406 shall be treated as if they were
wages paid by an employer to an employee
and amounts deducted and withheld under
section 3406 shall be treated as if deducted
and withheld under section 3402. Accord-
ingly, a payor of reportable payments sub-
ject to backup withholding under section
3406 is liable under section 3403 for the
payment of the backup withholding tax
required to be withheld.
.04 TIN Matching Program
Section 31.3406(j)-1(a) provides that
the Commissioner of Internal Revenue
(Commissioner) has the authority to estab-
lish TIN matching programs and may pre-
scribe by revenue procedure or other guid-
ance the scope and terms and conditions
for participating in such programs.
Section 31.3406(j)-1(b) provides that
none of the matching details received by
a payor through a matching program will

January 20, 2025 490 Bulletin No. 2025–4
constitute an IRS notification regarding
incorrect name and TIN combination for
purposes of imposing backup withholding
under section 3406(a)(1)(B).
Section 31.3406(j)-1(d) provides that
the IRS will not use a payor’s decision
not to participate in the TIN Matching
Program as a basis to assert that the payor
lacks reasonable cause under section
6724(a) for failure to file a correct infor-
mation return under section 6721 or to
furnish a correct payee statement under
section 6722.
Revenue Procedure 97-31, 1997-26
I.R.B. 6 (June 30, 1997), established pro-
cedures under which Federal agencies
could submit payee names and TINs and
the IRS would inform the agency whether
the names and TINs matched the informa-
tion in the IRS’s database for the program.
Revenue Procedure 2003-9, 2003-8 I.R.B.
516 (February 24, 2003), established a
TIN Matching Program that permits pay-
ors to verify name and TIN combinations
provided by payees that are required to
be reported on information returns and
payee statements. To participate in the
TIN Matching Program, the payor must
complete an application. Then, prior to
filing an information return, a TIN Match-
ing Program participant may check the
name and TIN combination furnished
by the payee against the name and TIN
combination contained in the IRS-main-
tained database. More information is
available at https://www.irs.gov/tax-pro-
fessionals/taxpayer-identification-num-
ber-tin-matching. Publication 2108A,
On-Line Taxpayer Identification Number
(TIN) Matching Program, has complete
program information.
.05 Sections 6651 and 6656
A payor who fails to withhold and pay
backup withholding tax when required
may be subject to civil penalties under sec-
tions 6651 and 6656. Section 6651 gener-
ally imposes an addition to the tax owed
by a taxpayer for the failure to pay the
amount shown as tax, including backup
withholding tax, on a return required to
be filed by the taxpayer unless the failure
is due to reasonable cause and not due to
willful neglect. Section 6656 provides that
in the case of any failure by any person
to deposit taxes on the prescribed date in
an authorized government depository, a
penalty applies unless the failure is due
to reasonable cause and not due to willful
neglect. A failure to deposit backup with-
holding tax as required under section 6302
would generally subject a payor to the sec-
tion 6656 penalty.
SECTION 3. DISCUSSION
.01 Sales Effected in Calendar Year
2027
The final regulations under section
6045 require DeFi brokers to make infor-
mation returns and furnish payee state-
ments with respect to sales of digital
assets effected on or after January 1, 2027.
Sections 6721 and 6722 are applicable to
brokers that fail to file those information
returns and furnish those payee state-
ments. In order to provide DeFi brokers
with additional time to develop appro-
priate procedures to comply with these
new reporting requirements, the IRS will
not impose penalties under sections 6721
and 6722 on DeFi brokers that fail to file
information returns and furnish payee
statements under the final regulations with
respect to sales of digital assets effected
during calendar year 2027, provided that
such brokers make good faith efforts to
file accurate and timely Forms 1099-DA
and furnish accurate and timely payee
statements. For purposes of this notice,
good faith efforts do not include any fil-
ing of returns or furnishing of payee state-
ments made by the DeFi broker after the
later of the date that the IRS first contacts
the broker concerning an examination of
such broker or one year after the original
due date for filing such returns.
The final regulations under section 3406
and §31.3406(b)(3)-2 apply to reportable
payments by a DeFi broker to a payee
with respect to sales of digital assets on or
after January 1, 2027, that are required to
be reported under section 6045. Because
the final regulations require DeFi brokers
to report digital asset sales effected during
calendar year 2027 and because these bro-
kers may not have enough time to obtain
a certified TIN from a payee prior to the
date of a digital asset sale by that payee
during 2027, the Treasury Department and
the IRS are postponing the application of
backup withholding with respect to sales
of digital assets for an additional year to
provide DeFi brokers with additional time
to develop appropriate procedures for
collecting certified TINs from customers
and to otherwise comply with the backup
withholding requirements on digital asset
sales. Accordingly, backup withholding
under section 3406 will not be required on
any digital asset sale effected by DeFi bro-
kers during calendar year 2027.
.02 Sales Effected in Calendar Year
2028
Section 3406 backup withholding
applies to reportable digital asset sales if
the broker has not obtained the payee’s
certified TIN. DeFi brokers subject to sec-
tion 6045 reporting for digital asset sales
may experience challenges in obtaining
certified TINs from all payees that are
existing customers. Accordingly, for dig-
ital asset sales effected in calendar year
2028, the IRS will permit DeFi brokers
to rely on TINs provided by payees that
are not certified if those uncertified TINs
were provided by payees prior to January
1, 2028, and if the broker, prior to effect-
ing the digital asset sale transaction, sub-
mits the payee’s name and TIN combina-
tion to the IRS’s TIN Matching Program
and receives a response that the name and
TIN combination furnished by the payee
matches the name and TIN combination
for that payee in the IRS records.
.03 Sales Effected Before January 1,
2029
To provide additional time for DeFi
brokers to collect the necessary docu-
mentation to treat existing customers as
exempt foreign persons, the IRS will per-
mit DeFi brokers to treat a customer as an
exempt foreign person for sales of digital
assets effected before January 1, 2029,
as set forth in the following sentence. A
DeFi broker may apply this transitional
rule only if the customer has not been pre-
viously classified as a U.S. person by the
DeFi broker, the information that the DeFi
broker has for the customer includes a res-
idence address that is not a U.S. address,
and this information was provided by the
customer prior to January 1, 2028.
.04 Amount of Backup Withholding
In the case of a sale of a digital asset
for different digital assets, the value of
the digital assets received in such sales
can change between the time of the trans-
action and the time the received digital
assets are liquidated into U.S. dollars
for depositing with the IRS. To provide
DeFi brokers additional time to develop

Bulletin No. 2025–4 491 January 20, 2025
appropriate backup withholding proce-
dures, the amount of backup withholding
tax required to be withheld and paid as a
tax under section 3406 shall be limited
to the amount that such broker receives
upon the liquidation of 24 percent of
the customer’s received digital assets,
notwithstanding that such amount may
be less than 24 percent of customer’s
received digital assets at the time of the
transaction giving rise to the backup
withholding obligation, provided such
liquidation is undertaken immediately
after the transaction giving rise to the
backup withholding liability. The amount
that the broker receives upon liquidation
should be reported as Federal income tax
withheld on Form 1099-DA. This amount
should also be included on the broker’s
Form 945. Accordingly, the IRS will not
impose penalties under section 6651 or
6656 with respect to any decrease in the
value of received digital assets between
the time of the transaction giving rise to
the backup withholding obligation and
the time the broker liquidates 24 percent
of the received digital assets. Finally, the
IRS will not impose penalties on DeFi
brokers that are required to file Form 945
with respect to the backup withholding
tax due as described in this section 3.04
with respect to digital asset sales, pro-
vided such broker pays and reports the
amount of backup withholding tax that
is withheld and deposited with the IRS
in accordance with this section 3.04. For
this purpose, a broker that systemically
liquidates the received digital assets when
received as part of its services effectuat-
ing sales will be treated as immediately
liquidating the received digital assets.
The relief provided by this section 3.04
applies only to the amount required to
be withheld and paid as described in this
section 3.04 and the requirement to file
information returns and payee statements
pertaining to reportable digital asset sales
effected before January 1, 2029.
SECTION 4. EFFECTIVE DATE
This notice is effective December 27,
2024.
SECTION 5. DRAFTING
INFORMATION
The principal author of this notice is
the Office of the Associate Chief Counsel
(Procedure & Administration). For further
information regarding this notice, please
call (202) 317-5436 (not a toll-free num-
ber).
26 CFR 601.601: Rules and Regulations.
(Also Part I, Section 5000D; § 47.5000D-3.)
Rev. Proc. 2025-9
SECTION 1. PURPOSE
This revenue procedure provides a safe
harbor and safe harbor percentage that a
manufacturer, producer, or importer may
use to identify applicable sales of a desig-
nated drug made during a day described in
section 5000D(b) of the Internal Revenue
Code.
1

SECTION 2. BACKGROUND
.01 Section 5000D imposes an excise
tax on the applicable sales of a designated
drug made during a day described in sec-
tion 5000D(b) (section 5000D tax). For
additional background, see section 3.01 of
Notice 2023-52, 2023-35 I.R.B. 650.
.02 In conjunction with the publication
of this revenue procedure, the Department
of the Treasury and the Internal Revenue
Service (IRS) are publishing a notice of
proposed rulemaking that contains pro-
posed regulations issued under section
5000D (REG-115560-23) in the Federal
Register. The proposed regulations would
provide definitions and proposed rules
relating to the imposition and calculation
of the section 5000D tax.
.03 Section 47.5000D-3(a)(4)(iv) of
the proposed regulations would provide
a safe harbor under which a manufac-
turer, producer, or importer may identify
the applicable sales of a designated drug
made during a day described in section
5000D(b) by using a safe harbor percent-
age provided in guidance published in the
Internal Revenue Bulletin (IRB). This
revenue procedure provides a similar safe
harbor, including a safe harbor percentage,
that a manufacturer, producer, or importer
may use until the proposed regulations are
finalized or other guidance is published in
the IRB or the Federal Register.
SECTION 3. DEFINITIONS
Terms used in this revenue procedure
and not defined herein have the same
meaning as in section 5000D and the pro-
posed regulations.
SECTION 4. SCOPE
The safe harbor provided in section
5.01 of this revenue procedure and the
safe harbor percentage provided in sec-
tion 6.01 of this revenue procedure may
be used by any manufacturer, producer, or
importer of a designated drug that makes a
sale of such designated drug during a day
described in section 5000D(b).
SECTION 5. SAFE HARBOR
.01 Overview. A manufacturer, pro-
ducer, or importer may identify the
applicable sales of a designated drug
made during a day described in section
5000D(b) by using the safe harbor per-
centage provided in section 6.01 of this
revenue procedure, provided that the man-
ufacturer, producer, or importer satisfies
the requirements described in section 5.02
of this revenue procedure.
.02 Requirements.
(1) Must use safe harbor for four
consecutive calendar quarters. Except
as provided in section 6.02 of this reve-
nue procedure, a manufacturer, producer,
or importer that uses the safe harbor
described in section 5.01 of this revenue
procedure must use the safe harbor for a
period of four consecutive calendar quar-
ters, beginning with the calendar quarter
in which the safe harbor is first used.
(2) Uniform application required. A
manufacturer, producer, or importer that
uses the safe harbor described in section
1
Unless otherwise specified, all “Section” or “§” references are to sections of the Internal Revenue Code (26 U.S.C. 1, et seq.) or the Designated Drugs Excise Tax Regulations (26 CFR
part 47).

January 20, 2025 492 Bulletin No. 2025–4
5.01 of this revenue procedure for sales of
units of any designated drug made during
any day described in section 5000D(b) fall-
ing within a calendar quarter must apply
the safe harbor to all sales by such manu-
facturer, producer, or importer during all
days described in section 5000D(b) fall-
ing within that calendar quarter. Thus, if a
manufacturer, producer, or importer uses
the safe harbor described in section 5.01
of this revenue procedure with respect to
one sale of a designated drug during a day
described in section 5000D(b), it must use
the safe harbor for all sales of that desig-
nated drug and all sales of any other des-
ignated drug that occur in that calendar
quarter during a day described in section
5000D(b).
.03 Recalculation of liability not per-
mitted. Once a section 5000D tax liabil-
ity is reported to the IRS for a particular
calendar quarter using the safe harbor
described in section 5.01 of this revenue
procedure and the safe harbor percentage
described in section 6.01 of this revenue
procedure, the manufacturer, producer,
or importer liable for the section 5000D
tax may not later recalculate its section
5000D tax liability for that quarter using a
different method to identify its applicable
sales. Once a section 5000D tax liability is
reported to the IRS for a particular calen-
dar quarter using a method other than that
described in section 5.01 of this revenue
procedure and the safe harbor percentage
described in section 6.01 of this revenue
procedure, the manufacturer, producer,
or importer may not later recalculate its
section 5000D tax liability using the safe
harbor described in section 5.01 of this
revenue procedure and the safe harbor
percentage described in section 6.01 of
this revenue procedure.
.04 No election required. No election is
required for a manufacturer, producer, or
importer to use the safe harbor described
in section 5.01 of this revenue procedure.
SECTION 6. SAFE HARBOR
PERCENTAGE
.01 Overview. For purposes of this
revenue procedure, the “safe harbor
percentage” is 40 percent. The percent-
age represents the mean, rounded to the
nearest 10 percent, of the quotient of
the total units associated with Medicare
Part D prescription drug fills (that is, the
“quantity dispensed” field reported by
plan sponsors in prescription drug event
records) and the units of total retail phar-
macy sales reported by manufacturers
to the Centers for Medicare & Medicaid
Services (CMS) through average manu-
facturer price (AMP) data for qualifying
single-source drugs for the period from
June 1, 2022, through May 31, 2023,
removing qualifying single source drugs
with missing AMP units, zero AMP
units reported, or with greater than 100
percent of Medicare units or sales as a
proportion of AMP units or sales. A con-
version factor was applied to the Medi-
care Part D prescription drug units when
necessary to make them comparable to
AMP units.
.02 Updates to safe harbor percent-
age. Any update to the safe harbor per-
centage described in section 6.01 of this
revenue procedure will use a calculation
methodology similar to that described in
such section, use the most recent analy-
sis that the IRS has received from CMS
of data available to CMS, and relieve
a manufacturer, producer, or importer
from an existing obligation under section
5.02(1) of this revenue procedure to use
the safe harbor described in section 5.01
of this revenue procedure as of the effec-
tive date of such updated safe harbor per-
centage. If a manufacturer, producer, or
importer continues to use the safe harbor
described in section 5.01 of this revenue
procedure after the safe harbor percent-
age is updated, such manufacturer, pro-
ducer, or importer must use the updated
safe harbor percentage on and after the
effective date of such updated safe harbor
percentage and for the remainder of any
period required by section 5.02(1) of this
revenue procedure.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective
for returns filed on or after December 31,
2024, and will remain in effect through the
day before the effective date of supersed-
ing guidance published in the IRB or the
Federal Register.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is the Office of the Associate
Chief Counsel (Passthroughs & Spe-
cial Industries). For further information
regarding this revenue procedure, contact
at (202) 317-6855 (not a toll-free num-
ber).
[26 CFR 601.401] Employment Taxes
(Also: Sections 3102, 3111, 3301, 3403, 31.3102-1,
31.3111-4, 31.3301-1, 31.3403-1)
Rev. Proc. 2025-10
SECTION 1. PURPOSE
.01 The purpose of this revenue pro-
cedure is to provide updated guidance
regarding the implementation of section
530 of the Revenue Act of 1978, Pub. L.
No. 95-600, 92 Stat. 2763, as amended
(section 530) (addressing controver-
sies involving whether individuals are
employees for purposes of employment
taxes).
1
This revenue procedure modifies
and supersedes Revenue Procedure 85-18,
1985-1 CB 518.
.02 This revenue procedure clarifies
the provisions of Rev. Proc. 85-18 with
respect to the definition of employee, the
section 530 requirement for the filing
of required returns, and the reasonable
basis safe harbor rules. This revenue
procedure also amplifies the guidelines
set forth in section 3.03 of Rev. Proc.
85-18 (interpreting the word “treat”
for purposes of determining whether a
taxpayer did not treat an individual as
an employee for purposes of section
530(a)).
.03 This revenue procedure includes
new provisions that reflect statutory
changes made to section 530 since 1986
1
The uncodified statutory language of section 530 is included as Attachment 1 of this revenue procedure. The statutory language of section 530 can also usually be found in the publisher’s
notes following § 3401(a).

Bulletin No. 2025–4 493 January 20, 2025
that added sections 530(d), (e), and (f).
2

Section 530(d) is discussed in section
3.09. Section 530(f) is discussed in sec-
tion 3.10. Section 530(e) is discussed
throughout this revenue procedure.
.04 The provisions in Rev. Proc.
85-18 that explained how refunds, cred-
its, abatements, and handling of claims
applied to taxpayers who were under
audit or otherwise involved in admin-
istrative or judicial processes with the
Internal Revenue Service (IRS) at the
time of enactment of section 530 are no
longer applicable and have been omitted
from this revenue procedure.
.05 Section 530 relief remains avail-
able at any stage in the administrative or
judicial process if the requirements for
relief are met.
SECTION 2. BACKGROUND
.01 Section 530 (entitled “Controver-
sies Involving Whether Individuals are
Employees for Purposes of Employment
Taxes”) was originally enacted as a tem-
porary measure
3
to provide relief for tax-
payers who were involved in employment
status (worker classification) disputes with
the IRS, and who faced large employment
tax assessments as a result of the IRS’s
proposed reclassifications of workers.
Section 530 was extended indefinitely by
the Tax Equity and Fiscal Responsibility
Act of 1982.
4
Section 530 is not part of the
Internal Revenue Code (Code).
.02 Section 530 provides that a tax-
payer will not be liable for federal employ-
ment taxes, with respect to an individual
or class of workers if certain statutory
requirements are met. Under section 530,
the taxpayer, not the individual worker
5
,
is eligible for relief from the employment
tax liability that would otherwise apply
under subtitle C of the Code, and any
related interest or penalties attributable to
that employment tax liability. The taxes
imposed by subtitle C include the Fed-
eral Insurance Contributions Act (FICA)
taxes, the Railroad Retirement Tax Act
(RRTA) taxes,
6
the Federal Unemploy-
ment Tax Act (FUTA) taxes, and the col-
lection of income tax at source on wages
(income tax withholding).
.03 Section 530(a) generally provides
that if, for purposes of the employment
taxes under subtitle C of the Code, a tax-
payer did not treat an individual as an
employee for any period, then the individ-
ual will be deemed not to be an employee
for that period, unless the taxpayer had
no reasonable basis for not treating the
individual as an employee. For any
period after December 31, 1978, the relief
applies only if, pursuant to section 530(a)
(1)(B), all federal tax returns (including
information returns) required to be filed
by the taxpayer with respect to the indi-
vidual for the period are filed on a basis
consistent with the taxpayer’s treatment of
the individual as not being an employee,
and, pursuant to section 530(a)(3), the
taxpayer has not treated any individual
holding a substantially similar position
as an employee for purposes of employ-
ment taxes for any period beginning after
December 31, 1977.
.04 Section 530(a)(1)(A) provides that
a taxpayer is entitled to relief if the tax-
payer “did not treat an individual as an
employee” for purposes of employment
taxes (emphasis added). The legislative
history demonstrates that section 530
applies exclusively to taxpayers involved
in employment status controversies with
the IRS. Specifically, the legislative his-
tory explains that the relief measure
was for taxpayers that were “involved
in employment tax status controversies”
and explains that the legislation prevents
the IRS from reclassifying certain indi-
viduals as employees whom the taxpayer
has treated as independent contractors. S.
Rep. No. 95-1263, at 210 (1978). Like-
wise, the Joint Committee on Taxation
report on section 530 explains that “the
Act provides relief from employment tax
liability to certain taxpayers involved in
employment tax status controversies with
the Internal Revenue Service as a result
of the Service’s proposed reclassification
of workers, whom taxpayers have con-
sidered as having independent contractor
status.” Staff of Joint Committee on Tax-
ation, 95th Cong., General Explanation of
the Revenue Act of 1978, at 301 (Comm.
Print 1979) (emphasis added).
.05 Section 530 relief applies only if
the taxpayer did not treat the individual as
an employee for federal employment tax
purposes for the period at issue and meets
each of the following requirements for
such period:
(1) The taxpayer filed all required fed-
eral tax returns, including information
returns, on a basis that is consistent with
the taxpayer’s treatment of the individual
as not being an employee (reporting con-
sistency requirement);
(2) The taxpayer did not treat the indi-
vidual or any individual holding a sub-
stantially similar position as an employee
(substantive consistency requirement);
and
(3) The taxpayer had a reasonable
basis for not treating the individual as an
employee (reasonable basis requirement).
A taxpayer shall be treated as having a
reasonable basis if the taxpayer’s treat-
ment was in reasonable reliance on any of
the following:
(a) judicial precedent, published rul-
ings, technical advice with respect to the
taxpayer, or a letter ruling to the taxpayer
(judicial precedent);
(b) a past IRS audit of the taxpayer in
which there was no assessment attribut-
able to the treatment (for employment tax
purposes) of the individuals holding sub-
stantially similar positions (prior audit);
(c) long-standing recognized practice
of a significant segment of the industry in
which that individual was engaged (indus-
try practice); or
(d) If the taxpayer had some other rea-
sonable basis for not treating the individ-
ual as an employee.
2
Section 530(d) was added by the Tax Reform Act of 1986, Pub. L. No. 99-514, Title XVII, § 1706(a), 100 Stat. 2085. Section 530(e) was added by the Small Business Job Protection Act
of 1996, Pub. L. No. 104-188, Title I, § 1122(a), 110 Stat. 1755, 1766. Section 530(f) was added by the Pension Protection Act of 2006, Pub. L. No. 109-280, Title VIII, § 864(a), 120 Stat.
780, 1024.
3
H.R. Rep. No. 95-1748, 95th Cong., 2nd Sess. 4 (1978), 1978-3 C.B. (Vol. 1) 629 at 632, notes that, in general, the bill was intended to provide an interim solution for controversies between
the Internal Revenue Service and taxpayers.
4
Pub. L. No. 97-248, Title II, § 269(c)(1), (2), 96 Stat. 324, 552.
5
Section 530 relief does not extend to individual workers who remain liable for their personal employment taxes.
6
For purposes of simplicity, discussion of the RRTA is not included in this revenue procedure. However, the same rules discussed in this revenue procedure apply for purposes of the RRTA.

January 20, 2025 494 Bulletin No. 2025–4
.06 Section 530(b) prohibits the
Department of the Treasury from publish-
ing regulations or revenue rulings “with
respect to the employment status of any
individual for purposes of the employ-
ment taxes.” This revenue procedure, like
Rev. Proc. 85-18, does not violate that
prohibition because it only provides guid-
ance clarifying the application of section
530. Furthermore, this guidance is nei-
ther a regulation nor a revenue ruling that
addresses the classification of any individ-
ual or category of worker.
SECTION 3. APPLICATION AND
SCOPE OF SECTION 530
.01 Worker Classification Controver-
sies. Section 530 applies only when a
taxpayer did not treat an individual as an
employee for employment tax purposes,
and the IRS is proposing to reclassify
the individual from a non-employee to
an employee. Thus, section 530 relates
solely to worker classification contro-
versies involving the employment status
of an individual as an employee or as an
independent contractor (or other non-em-
ployee).
.02 Employee. For purposes of section
530, the term “employee”
7
includes:
(1) an officer of a corporation under
§§ 3121(d)(1), 3306(i), or 3401(c)
8
of the
Code;
(2) an individual, who under the
common law rules, has the status of an
employee under §§ 3121(d)(2) or 3306(i);
(3) agent-drivers, commission-driv-
ers, full-time life insurance salespersons,
home workers or traveling or city sales-
persons under §§ 3121(d)(3) (statutory
employees) or 3306(i);
(4) an individual who performs services
that are included under an agreement pur-
suant to Section 218 or Section 218A
9
of
the Social Security Act (218 Agreement)
under § 3121(d)(4) of the Code; and
(5) an officer, employee or elected offi-
cial of a State, or any political subdivision
thereof, or the District of Columbia, or
any agency or instrumentality of the fore-
going under § 3401(c).
10
.03 Treatment of an Individual as an
Employee
11
. The IRS applies the follow-
ing guidelines when determining whether
there was “treatment” of an individual as
an employee for a period within the mean-
ing of section 530(a)(1):
(1) The withholding of income tax or
FICA taxes from any payments made to an
individual, whether or not the tax is paid
to the IRS, indicates “treatment” of the
individual as an employee.
(2) Except as provided in paragraphs
(6) and (7) below, the filing of an origi-
nal or amended employment tax return
(including a Form 940 “Employer’s
Annual Federal Unemployment Tax
Return,” 941 “Employer’s Quarterly Fed-
eral Tax Return,” 943 “Employer’s Annual
Tax Return for Agricultural Employees,”
or 944 “Employer’s ANNUAL Federal
Tax Return”), with respect to an individ-
ual, whether or not tax was withheld from
the payments made to the individual, indi-
cates “treatment” of the individual as an
employee.
(3) The filing of Schedule H (Form
1040), Household Employment Taxes,
with respect to an individual, whether or
not tax was withheld from the payments
made to the individual, indicates “treat-
ment” of the individual as an employee.
(4) The filing of a Form W-2 “Wage
and Tax Statement” with respect to an
individual, or the furnishing of a Form
W-2 to an individual, whether or not tax
was withheld from the payments made to
the individual, indicates “treatment” of the
individual as an employee.
(5) Contracting with a third party to
perform acts required of employers with
respect to an individual, whether or not
tax is withheld or paid to the IRS or the
third party otherwise satisfies the terms of
the contract, indicates “treatment” of the
individual as an employee.
(6) The filing of a delinquent or
amended employment tax return for a
particular tax period with respect to an
individual as a result of IRS collection or
examination activities or other compli-
ance procedures, does not indicate “treat-
ment” of the individual as an employee
for that period. IRS correspondence that
merely advises the taxpayer that no return
has been filed and requests information
from the taxpayer is not a compliance
procedure. However, if the taxpayer takes
any of the actions identified in section
3.03 with respect to those individuals in
a later period (for example, the taxpayer
withholds employment taxes or files
employment tax returns with respect to
those individuals for the periods following
the period audited), those actions indicate
“treatment” of the individuals as employ-
ees for those later periods.
(7) A return prepared by the IRS under
§ 6020(b) for a period is not “treatment”
of an individual as an employee for that
period.
.04 Notice of Section 530 Relief. In
accordance with section 530(e)(1), the IRS
will provide written notice of the avail-
ability of section 530 treatment before or
at the start of any employment tax audit
inquiry relating to the employment sta-
tus of one or more individuals who per-
form services for the taxpayer or when it
appears that a determination concerning
worker classification will be made.
.05 Consideration of Section 530
Relief. In accordance with section 530(e)
(3), in any employment tax audit of a tax-
7
Although the definition of “employment status” in section 530(c)(2) and the legislative history to section 530 suggests that the provision was meant to address controversies involving the
status of individuals under the usual common law rules applicable in determining the employer-employee relationship as an employee or independent contractor, the IRS has long taken a
broader view of the definition of employee with respect to whom the relief may potentially apply, both in published guidance and in litigation. Compare S. Rep. No. 95-1263, at 210 (1978),
and Staff of Joint Committee on Taxation, 95th Cong., General Explanation of the Revenue Act of 1978, at 301 (Comm. Print 1979), with Rev. Rul. 82-83, 1982-1 CB 151.
8
Contrary to the decision in Joseph M. Grey Public Accountant, P.C. v. Commissioner, 119 T.C. 121 (2002), it is the IRS’s longstanding position that relief under section 530 with respect to
corporate officers may be available if the requirements of section 530 are met.
9
Pursuant to the Tribal Social Security Fairness Act of 2018, Pub. L. No. 115-243, 132 Stat. 2894, federally recognized Indian Tribes may enter into 218A agreements extending voluntary
Social Security coverage to Indian Tribal Council members, and § 3121(d)(4) of the Code includes within the definition of “employee” any individual who performs services that are included
under a 218A agreement.
10
The IRS interprets section 530(a) as allowing a state or local government to obtain section 530 relief for both FICA and federal income tax withholding purposes, provided that the require-
ments of section 530 are met. See Chief Counsel Memorandum 20203810.
11
See section 3.08 for a discussion on the treatment of dual status workers.

Bulletin No. 2025–4 495 January 20, 2025
payer relating to the employment status
of any individual who performs services
for the taxpayer, the IRS will first con-
sider whether the taxpayer has satisfied
the requirements of section 530 before
analyzing whether the individuals are
employees.
12
.06 Payment Characterizations do not
Qualify for Section 530 Relief. Based on
the language of section 530(a)(1) and the
legislative history of section 530, the IRS
considers the relief to apply only to mat-
ters involving the status of an individual
as an employee or non-employee and not
to matters involving the proper charac-
terization of payments to that individual.
Specifically, section 530 does not apply to
controversies concerning whether a partic-
ular type of payment made to an employee
constitutes “wages” as defined under the
FICA, FUTA, or income tax withholding
provisions. Nor does section 530 apply to
the issue of whether services performed by
an employee constitute “employment” as
defined under the FICA, FUTA, or income
tax withholding provisions. Matters
involving exceptions from “wages” and
“employment” involve the proper charac-
terization of payments made to employ-
ees, or services provided by employees, as
defined under the FICA, FUTA, or income
tax withholding provisions. Section 530 is
not applicable to these matters because
they do not involve an issue concerning
whether the individual is an employee or
non-employee. These matters involve the
issue of whether the payment made to an
employee is exempt from employment
taxes under a particular provision of the
Code (because the payment is not wages
or the services are not employment).
Accordingly, in determining if section
530 applies, the IRS will first determine
whether the matter involves the proper
classification of an individual as an
employee, or the proper characterization
of a payment as “wages,” or of services as
“employment.”
.07 Dual Status Workers. In unusual
cases, an individual may perform services
for a taxpayer that are completely separate
and distinct from the services giving rise to
the employment relationship, and the indi-
vidual may be separately compensated for
those services. For the services performed
outside of the employment relationship to
be completely separate and distinct from
the services performed within the employ-
ment relationship, there must be no inter-
relation as to duties or remuneration in
each capacity.
13
In circumstances where
an individual performs services for a tax-
payer in separate and distinct capacities,
the status of the individual as an employee
or non-employee, and the application of
section 530, will be considered separately
with respect to each distinct relationship
under which the separate services are pro-
vided.
.08 Treatment of Dual Status Workers.
In the circumstances described in sec-
tion 3.07, a taxpayer may have treated
an individual as an employee in one dis-
tinct relationship but may assert that sec-
tion 530 applies to another distinct rela-
tionship (referred to here as the “second
relationship”) because the individual was
being compensated for performing other
services separate from the services the
individual performed as an employee. As
in all cases, with respect to the second
relationship, the IRS will first determine
whether the matter involves the issue of
the proper classification of an individual
as an employee, or the proper characteri-
zation of a payment as “wages,” or of ser-
vices as “employment” (consistent with
section 3.06) before analyzing whether the
taxpayer is entitled to relief under section
530.
.09 Treatment of Certain Technical
Personnel. Section 530(d) provides that
section 530 does not apply in the case of
an individual who, through an arrange-
ment between the taxpayer and another
person, provides services for the other
person as an engineer, designer, drafter,
computer programmer, systems analyst,
or other similarly skilled worker engaged
in a similar line of work. Thus, whether
an individual retained by a taxpayer to
provide technical services to a client is
an employee of the taxpayer for purposes
of liability for employment taxes will be
determined under the usual common law
rules without applying section 530.
.10 Treatment of Test Room Super-
visors and Proctors. Section 530(f) pro-
vides that, for periods after December 31,
2006, section 530 relief may apply to ser-
vices performed by an individual as a test
proctor or room supervisor who assists
in the administration of college entrance
or placement examinations for a § 501(c)
organization, exempt from tax under §
501(a) of the Code, regardless of whether
the § 501(c) organization previously
treated the individual, or an individual
holding a substantially similar position, as
an employee.
.11 Federal Agencies. Section 530
relief is not available to taxpayers that are
federal agencies.
.12 Abatement and Refund. If a tax-
payer is relieved of liability for employ-
ment taxes under section 530, the IRS will
abate any assessed liability and refund any
payment of the assessed tax related to the
worker reclassification issue, including
applicable penalties and interest for any
tax periods for which the period of limita-
tions has not expired.
SECTION 4. REPORTING
CONSISTENCY REQUIREMENT
.01 To obtain section 530 relief, a tax-
payer must satisfy the reporting consis-
tency requirement in section 530(a)(1)(B).
The reporting consistency requirement is
intended to ensure that the taxpayer acted
in good faith in treating the individuals as
non-employees. S. Rep. No. 95-1263, at
210 (1978).
.02 Reporting consistency requires a
taxpayer to file all required federal tax
returns with respect to an individual for
the period, on a basis consistent with the
good faith treatment of the individual by
the taxpayer as a non-employee. Section
12
Section 530(e)(3) provides that for purposes of the availability of the safe harbors in section 530(a) “[n]othing in this section shall be construed to provide that subsection (a) only applies
where the individual involved is otherwise an employee of the taxpayer.” The legislative history explains that section 530(e)(3) was added solely to reverse the IRS’s prior position that a
worker classification determination must be performed prior to consideration of whether a taxpayer is entitled to section 530 relief. H.R. Rep. No. 104-737, at 199-204 (1996) (Conf. Rep.).
Thus, section 530(e)(3) does not act to extend relief to disputes involving whether a payment is wages or whether performance of services is employment.
13
See Rev. Rul. 58-505, 1958-2 CB 728 (finding that officers, President and Secretary, of a company were dual status workers because the services they performed as officers and as salesmen
were not interrelated and that they were performing services in two separate and unrelated capacities; holding that these individuals were employees for federal employment tax purposes with
respect to duties performed by them as officers of the company, but were not employees for such purposes with respect to their selling activities).

January 20, 2025 496 Bulletin No. 2025–4
530(a)(1)(B). See also Rev. Rul. 81-224,
1981-2 CB 197. For example, if a tax-
payer’s position is that an individual was
an independent contractor for a taxable
period, the taxpayer must have filed all
required Forms 1099 consistent with its
position that the individual was an inde-
pendent contractor for the period, report-
ing the payments for services for which
the taxpayer is treated as a non-employee.
All relevant returns will be considered in
determining whether the taxpayer satisfies
the requirement that all required returns
be filed on a basis consistent with good
faith treatment by the taxpayer of an indi-
vidual as a non-employee.
14

.03 Reporting consistency must be
satisfied on a period-by-period basis. A
taxpayer that filed information returns for
one period but that did not file information
returns for a prior or subsequent period
may satisfy the reporting consistency
requirement only for the period for which
it filed information returns. For example,
if a taxpayer whose position is that an
individual was an independent contractor
did not file Forms 1099-NEC “Nonem-
ployee Compensation”, in year 1, but did
file Forms 1099-NEC in year 2, the tax-
payer is not entitled to section 530 relief in
year 1 but may be entitled to section 530
relief for year 2 if it otherwise meets the
requirements for section 530 relief for that
year.
.04 Reporting consistency must be
satisfied on an individual-by-individual
basis. A taxpayer that filed information
returns for some individuals but that did
not file information returns for other indi-
viduals may satisfy the reporting consis-
tency requirement only for the individu-
als for whom it filed information returns.
For example, if a taxpayer whose position
is that an individual was an independent
contractor filed Forms 1099-NEC for indi-
vidual workers A, B, and C in year 1, but
did not file Forms 1099-NEC for individ-
ual workers D, E, and F in year 1, the tax-
payer is not entitled to section 530 relief
for individuals D, E, and F for year 1. The
taxpayer may be entitled to section 530
relief for individual workers A, B, and C
in year 1 if it otherwise meets the require-
ments for section 530 relief for that year.
If the taxpayer files Forms 1099-NEC for
all the individuals in year 2, the taxpayer
may be entitled to section 530 relief for
all the individuals in year 2 if it otherwise
meets the requirements for section 530
relief for that year.
.05 A taxpayer will not fail the report-
ing consistency requirement if the tax-
payer, in good faith, mistakenly files the
wrong type of information return or, as
long as the return demonstrates a good
faith attempt to accurately report the
amount paid, reports an inaccurate amount
paid. Moreover, a taxpayer will not fail the
reporting consistency requirement if the
taxpayer was not required to file an infor-
mation return because, for example, the
taxpayer paid the individual less than the
threshold amount required to file a Form
1099.
SECTION 5. SUBSTANTIVE
CONSISTENCY REQUIREMENT
.01 To obtain section 530 relief, a tax-
payer must satisfy the substantive con-
sistency requirement in section 530(a)
(3). The substantive consistency require-
ment is intended to ensure that section
530 relief applies only to a taxpayer that
has consistently treated all individuals
holding substantially similar positions
as non-employees. It prevents a taxpayer
from changing its treatment of employees
to non-employees to qualify for section
530 relief, including through reincorpo-
ration, reorganization, name change, or
otherwise. H.R. Rept. 95-1748 (1978),
reprinted in 1978-3 (Vol. 1) C.B. 629.
.02 Substantive consistency requires
that a taxpayer or a predecessor not have
treated an individual, or any individual
holding a substantially similar position,
as an employee for any period begin-
ning after December 31, 1977. Pursuant
to section 530(e)(6), the determination
of whether an individual holds a position
substantially similar to a position held by
another individual includes consideration
of the relationship between the taxpayer
and the individual. Accordingly, a sub-
stantially similar position exists if the job
functions, duties, and responsibilities are
substantially similar and the control and
supervision of those duties and responsi-
bilities are substantially similar.
.03 In determining if a taxpayer has
treated an individual, or any individual
holding a substantially similar position, as
an employee for purposes of the substan-
tive consistency requirement, the IRS will
apply the same guidelines as described in
section 3.03.
.04 Treatment of an individual, or an
individual holding a substantially similar
position, as an employee in a period sub-
sequent to the period under audit will not
cause a taxpayer to fail the substantive
consistency requirement for the period
under audit or prior periods under audit.
.05 Entering into a Classification Set-
tlement Program (CSP) or Voluntary Clas-
sification Settlement Program (VCSP)
agreement with the IRS with respect to an
individual will be considered treatment of
the individual as an employee for substan-
tive consistency purposes from the effec-
tive date of the agreement.
SECTION 6. REASONABLE BASIS
REQUIREMENT
.01 To obtain section 530 relief with
respect to an individual, a taxpayer must
satisfy the reasonable basis requirement
provided in sections 530(a)(1)(B) and
(e). The reasonable basis requirement
is intended to ensure that the taxpayer
reasonably considered the worker clas-
sification status of the individual as an
employee or non-employee prior to mak-
ing the classification decision.
.02 Reasonable basis requires a tax-
payer to demonstrate that it reasonably
relied on one of the safe harbors in sec-
tion 530(a)(2), or it had another reason-
able basis for treating the individual as a
non-employee, before it treated the indi-
vidual as a non-employee for the period
under audit.
.03 Section 530(a)(2) provides that for
purposes of satisfying section 530(a)(1),
14
In no event will a return filed after the date on which the IRS first contacts the taxpayer concerning an examination of the period to which the return relates be considered as filed on a basis
consistent with good faith treatment by the taxpayer of an individual as a non-employee. Additionally, section 530 relief is not available for any year and for any worker for whom the taxpayer
did not file the required returns. See, e.g., Bruecher Foundation Services, Inc. v. US 383 Fed.Appx. 381 (5th Cir. 2010), holding that a taxpayer filing returns after assessment is not entitled
to use Section 530 as a defense in a subsequent judicial proceeding.

Bulletin No. 2025–4 497 January 20, 2025
a taxpayer shall in any case be treated as
having a reasonable basis for not treating
an individual as an employee for a period
if the taxpayer’s treatment of such indi-
vidual for such period was in reasonable
reliance on any of the safe harbors listed
in section 2.05(3)(a), (b), and (c). The IRS
considers the following when determining
whether there was reasonable reliance on
a safe harbor:
(1) Judicial precedent or published
rulings, whether or not relating to the par-
ticular industry or business in which the
taxpayer is engaged, or technical advice,
a letter ruling, or a determination letter
issued to the taxpayer under audit.
(a) Reliance on judicial precedent or
published rulings requires that the tax-
payer reasonably relied upon the judi-
cial precedent or published rulings at the
time it began treating the individual as a
non-employee for the tax period under
audit.
(b) Thus, a taxpayer does not meet this
safe harbor if the judicial precedent that
the taxpayer relied on was issued after the
tax period for which the taxpayer treated
the individual as a non-employee.
(2) A past IRS audit that resulted in no
assessment of employment taxes attrib-
utable to the employment status reclassi-
fication of individuals holding positions
substantially similar to the position held
by the individual.
(a) If a taxpayer is relying on the
results of an audit that began before 1997,
the audit does not have to have been an
audit of whether the same individuals, or
individuals holding substantially similar
positions, should have been treated as
employees of the taxpayer, so long as the
prior audit did not result in an assessment
of employment taxes attributable to the
IRS’s reclassification of the same individ-
uals, or individuals holding substantially
similar positions.
(b) If a taxpayer is relying on the
results of an audit that began after 1996,
the audit must have been an employment
tax examination of the same individu-
als, or individuals holding substantially
similar positions, that did not result in a
reclassification of the same individuals or
individuals holding substantially similar
positions.
(c) A taxpayer does not meet this safe
harbor if, in the conduct of the prior audit,
a proposed assessment attributable to the
IRS’s reclassification of the individual
was offset by other claims asserted by the
taxpayer.
(d) A taxpayer does not meet this safe
harbor if the relationship between the
taxpayer and the individuals during the
period under audit is different from that
which existed at the time of the prior audit.
(e) A taxpayer does not meet this safe
harbor if the prior audit began after 1996
and was only for purposes of determin-
ing a taxpayer’s liability for failure to
subject a reportable payment to backup
withholding, as required by § 3406 of the
Code and accompanying regulations, if
the workers’ underlying worker classifi-
cation was not examined, since the impo-
sition of backup withholding liabilities
does not involve the reclassification of
workers by the IRS.
(3) A long-standing recognized prac-
tice of a significant segment of the indus-
try in which the individual was engaged.
(a) Reliance on industry practice
requires that the taxpayer reasonably
relied upon the industry practice at the
time it began treating the individual as
a non-employee for the tax period under
audit.
(b) An industry generally consists of
businesses located in the same geographic
or metropolitan area that compete for the
same customers. However, if the area
includes only one or a few businesses in
the same industry, or if the business com-
petes in regional or national markets, the
geographic area may be expanded.
(c) 25 percent of the taxpayer’s indus-
try (determined by not taking into account
the taxpayer) is deemed to be a significant
segment of the industry. A lower percent-
age may be a significant segment, depend-
ing on the facts and circumstances.
(d) A practice that has existed for 10
years is deemed to be long-standing. A
shorter period may be long-standing,
depending on the facts and circumstances.
.04 A taxpayer that does not meet any
of the three safe harbors enumerated in
section 2.05(3)(a), (b), or (c), may still
satisfy the reasonable basis requirement
in section 2.05(3)(d) if the taxpayer can
demonstrate by facts and circumstances
that it relied on another reasonable basis
for treating the individual as a non-em-
ployee.
.05 The legislative history of sec-
tion 530 states that the reasonable basis
requirement should be construed liber-
ally in favor of the taxpayer. H.R. Rept.
95-1748 (1978), reprinted in 1978-3 (Vol.
1) C.B. 629, 633. Liberal construction of
the reasonable basis requirement does not
mean that the reporting consistency and
substantive consistency requirements for
obtaining section 530 relief should be
liberally construed. Rather, the Congres-
sional direction to liberally construe the
reasonable basis requirement means the
facts that indicate whether the taxpayer
reasonably relied on one of the safe har-
bors in section 530(a)(2) are to be viewed
liberally in favor of the taxpayer. Fail-
ure to satisfy the reporting consistency
or substantive consistency requirements
for section 530 relief is not cured by the
application of liberal construction of the
reasonable basis requirement.
.06 Consistent with the legislative his-
tory of section 530, a taxpayer is not con-
sidered to have a reasonable basis for its
treatment of individuals as non-employ-
ees if the facts and circumstances indicate
negligence, intentional disregard of rules
and regulations, or fraud. S. Rep. No.
95-1263, at 211 (1978).
.07 When considering whether a tax-
payer had a reasonable basis to treat an
individual as a non-employee for employ-
ment tax purposes, if the taxpayer cannot
demonstrate reasonable reliance on any of
the safe harbors listed in 2.05(3)(a), (b),
and (c), then, if factually relevant, the IRS
may consider and the taxpayer may raise
facts demonstrating whether the taxpayer
considered the individual as an employee
for other purposes, including whether the
taxpayer during the years under audit:
(1) claimed income tax deductions, or
treated payments made to or on behalf of
the individual as excludable from income,
under provisions of the Code that are
applicable only to employees, including
under §§ 62(a)(2)(A), 105, 106, 117(d),
119, 127, 129, 132 (portions thereof), or
137 of the Code;
(2) claimed employer credits such as
credits for paid sick and/or family leave
under sections 7001 and/or 7003 of the
Families First Coronavirus Response Act
or §§ 3131 through 3133 of the Code, the
Employee Retention Credit under either §
2301 of the Coronavirus Aid, Relief, and

January 20, 2025 498 Bulletin No. 2025–4
Economic Security Act or § 3134 of the
Code, or any other credits specified in
future guidance that are calculated with
respect to wages or compensation paid to
an employee;
(3) complied with federal or state labor
law including minimum wage and over-
time pay rules with respect to the indi-
vidual that are applicable to employees or
treated workers as employees for purposes
of state or non-tax federal laws;
(4) treated the individual as an
employee for purposes of collectively
bargained agreements entered into by the
taxpayer;
(5) permitted participation of the indi-
vidual in any qualified pension, prof-
it-sharing, or stock bonus plan;
(6) permitted participation of the indi-
vidual in any nonqualified deferred com-
pensation plan if such participation is lim-
ited to employees of the taxpayer;
(7) provided state unemployment
insurance or worker’s compensation
insurance coverage for such individual if
the requirements for obtaining such state
unemployment or worker’s compensa-
tion insurance is that coverage is limited
to individuals performing services for the
taxpayer as common law employees under
the common law rules or persons that
would qualify as employees for federal
employment tax purposes.
SECTION 7. BURDEN OF PROOF
.01 In accordance with section 530(e)
(4), if a taxpayer establishes a prima facie
case that it had a reasonable basis for not
treating an individual as an employee for
530 purposes — in other words, it meets
the reporting consistency requirement,
the substantive consistency requirement,
and one of the reasonable basis safe har-
bors enumerated in section 530(a)(2)(A),
(B), and (C) — and the taxpayer has fully
cooperated with reasonable requests from
the IRS, then the burden of proof with
respect to that treatment will shift to the
IRS.
.02 The shift in the burden of proof
does not apply with respect to the rea-
sonable basis requirement if the taxpayer
relied on some other reasonable basis for
treating the individual as a non-employee.
See section 530(e)(4)(B); H.R. Rep. No.
104-737, at 203-04 (1996) (Conf. Rep.).
SECTION 8. STATUS OF
INDIVIDUALS
.01 Section 530 does not change the
status, liabilities, and rights of the individ-
ual whose classification is at issue. It does
not convert individuals from employees to
self-employed individuals.
.02 If a taxpayer receives section 530
relief for a class of workers, that taxpayer
is relieved from having to withhold income
tax and withhold and pay FICA taxes from
payments made to members of that class of
workers. However, if any individual mem-
ber or members of that class of workers is
otherwise determined to be an employee of
the taxpayer, each such employee remains
liable for their employee share of FICA tax
pursuant to § 31.3102-1(d) of the Employ-
ment Tax regulations.
15
Employees who
incorrectly paid the self-employment tax
may file a claim for refund if the period
of limitations has not expired; however,
the amount of any refund may be offset
by the amount of the employee’s share of
FICA tax as a result of the application of
§ 31.3102-1(d). If the period of limitations
to claim a refund of self-employment tax
has expired, § 6521 of the Code may autho-
rize a credit against the employee share of
FICA tax owed in the amount of self-em-
ployment tax that was erroneously paid.
SECTION 9. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 85-18, 1985-1 CB 518, is
modified and superseded.
SECTION 10. EFFECTIVE DATE
This revenue procedure is effective
when published in the Internal Revenue
Bulletin.
SECTION 11. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Kelli Cacciotti of the Office
of Associate Chief Counsel (Employee
Benefits, Exempt Organizations and
Employment Taxes). For further infor-
mation regarding this revenue procedure,
contact Ms. Cacciotti at (202) 317-6798
(not a toll-free number).
15
A worker or a firm can file a Form SS-8 to request a worker status determination under the common law rules for purposes of federal employment taxes and income tax withholding. For
additional information on the Form SS-8, see www.irs.gov/forms-pubs/about-form-ss-8.

Bulletin No. 2025–4 499 January 20, 2025
Attachment 1
16
Section 530. Controversies Involving Whether Individuals are Employees for Purposes of Employment Taxes.
(a) Termination of certain employment tax liability.—
(1) In general.—If—
(A) for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period, and
(B) in the case of periods after December 31, 1978, all Federal tax returns (including information returns) required to be filed by the
taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer’s treatment of such individual
as not being an employee, then, for purposes of applying such taxes for such period with respect to the taxpayer, the individual shall
be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee.
(2) Statutory standards providing one method of satisfying the requirements of paragraph (1).—For purposes of paragraph (1), a
taxpayer shall in any case be treated as having a reasonable basis for not treating an individual as an employee for a period if the
taxpayer’s treatment of such individual for such period was in reasonable reliance on any of the following:
(A) judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer;
(B) a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment (for employ-
ment tax purposes) of the individuals holding positions substantially similar to the position held by this individual; or
(C) long-standing recognized practice of a significant segment of the industry in which such individual was engaged.
(3) Consistency required in the case of prior tax treatment.—Paragraph (1) shall not apply with respect to the treatment of any indi-
vidual for employment tax purposes for any period ending after December 31, 1978, if the taxpayer (or a predecessor) has treated any
individual holding a substantially similar position as an employee for purposes of the employment taxes for any period beginning
after December 31, 1977.
(4) Refund or credit of overpayment.—If refund or credit of any overpayment of an employment tax resulting from the application of
paragraph (1) is not barred on the date of the enactment of this Act by any law or rule of law, the period for filing a claim for refund
or credit of such overpayment (to the extent attributable to the application of paragraph (1)) shall not expire before the date 1 year
after the date of the enactment of this Act [Nov. 6, 1978].
(b) Prohibition against regulations and rulings on employment status.—No regulation or Revenue Ruling shall be published on or
after the date of the enactment of this Act and before the effective date of any law hereafter enacted clarifying the employment status
of individuals for purposes of the employment taxes by the Department of the Treasury (including the Internal Revenue Service) with
respect to the employment status of any individual for purposes of the employment taxes.
(c) Definitions.—For purposes of this section—
(1) Employment tax.—The term “employment tax” means any tax imposed by subtitle C of the Internal Revenue Code of 1954.
(2) Employment status.—The term “employment status” means the status of an individual, under the usual common law rules appli-
cable in determining the employer-employee relationship, as an employee or as an independent contractor (or other individual who
is not an employee).
(d) Exception.—This section shall not apply in the case of an individual who, pursuant to an arrangement between the taxpayer and
another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or
other similarly skilled worker engaged in a similar line of work.
(e) Special rules for application of section.—
(1) Notice of availability of section.—An officer or employee of the Internal Revenue Service shall, before or at the commencement
of any audit inquiry relating to the employment status of one or more individuals who perform services for the taxpayer, provide the
taxpayer with a written notice of the provisions of this section.
16
Revenue Act of 1978, Pub. L. No. 95-600, 92 Stat. 2763, as amended by P.L. 96-167, P.L. 96-541, P.L. 97-248, P.L. 99-514, P.L. 104-188, and P.L. 109-280.

January 20, 2025 500 Bulletin No. 2025–4
(2) Rules relating to statutory standards.—For purposes of subsection (a)(2)—
(A) a taxpayer may not rely on an audit commenced after December 31, 1996, for purposes of subparagraph (B) thereof unless such
audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position
substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer,
(B) in no event shall the significant segment requirement of subparagraph (C) thereof be construed to require a reasonable showing
of the practice of more than 25 percent of the industry (determined by not taking into account the taxpayer), and
(C) in applying the long-standing recognized practice requirement of subparagraph (C) thereof—
(i) such requirement shall not be construed as requiring the practice to have continued for more than 10 years, and
(ii) a practice shall not fail to be treated as long standing merely because such practice began after 1978.
(3) Availability of safe harbors.—Nothing in this section shall be construed to provide that subsection (a) only applies where the
individual involved is otherwise an employee of the taxpayer.
(4) Burden of proof.—
(A) In general.—If—
(i) a taxpayer establishes a prima facie case that it was reasonable not to treat an individual as an employee for purposes of this sec-
tion, and
(ii) the taxpayer has fully cooperated with reasonable requests from the Secretary of the Treasury or his delegate, then the burden of
proof with respect to such treatment shall be on the Secretary.
(B) Exception for other reasonable basis.—In the case of any issue involving whether the taxpayer had a reasonable basis not to treat
an individual as an employee for purposes of this section, subparagraph (A) shall only apply for purposes of determining whether the
taxpayer meets the requirements of subparagraph (A), (B), or (C) of subsection (a)(2).
(5) Preservation of prior period safe harbor.—If—
(A) an individual would (but for the treatment referred to in subparagraph (B)) be deemed not to be an employee of the taxpayer under
subsection (a) for any prior period, and
(B) such individual is treated by the taxpayer as an employee for employment tax purposes for any subsequent period, then, for pur-
poses of applying such taxes for such prior period with respect to the taxpayer, the individual shall be deemed not to be an employee.
(6) Substantially similar position.—For purposes of this section, the determination as to whether an individual holds a position sub-
stantially similar to a position held by another individual shall include consideration of the relationship between the taxpayer and
such individuals.
(f) Treatment of test room supervisors and proctors who assist in the administration of college entrance and placement exams.—
(1) In general.—In the case of an individual described in paragraph (2) who is providing services as a test proctor or room supervisor
by assisting in the administration of college entrance or placement examinations, this section shall be applied to such services per-
formed after December 31, 2006 (and remuneration paid for such services) without regard to subsection (a)(3) thereof.
(2) Applicability.—An individual is described in this paragraph if the individual—
(A) is providing the services described in subsection (a) to an organization described in section 501(c), and exempt from tax under
section 501(a), of the Internal Revenue Code of 1986, and
(B) is not otherwise treated as an employee of such organization for purposes of subtitle C of such Code (relating to employment
taxes).

Bulletin No. 2025–4 501 January 20, 2025
26 CFR 601.201: Rulings
and determination letters.
Rev. Proc. 2025-11
SECTION 1. PURPOSE
This revenue procedure provides the
process under § 48E(h) of the Internal
Revenue Code (Code)
1
to apply for an
allocation of capacity limitation (Capacity
Limitation) as part of the Clean Electricity
Low-income Communities Bonus Credit
Amount Program (Program) for 2025 and
subsequent years. Receipt of an allocation
increases the amount of the clean electric-
ity investment credit determined under
§ 48E(a) (§ 48E credit) for the taxable
year in which the applicable facility, with
which the allocation of Capacity Limita-
tion is associated, is placed in service.
This revenue procedure provides guid-
ance regarding the application process,
including application review, documen-
tation requirements, and placed in service
reporting requirements. This revenue pro-
cedure also provides information on the
requirements specific to the Additional
Selection Criteria (ASC) application
options, including documentation submis-
sion requirements. Additionally, this rev-
enue procedure describes how the Capac-
ity Limitation will be divided across the
facility categories, and information on the
placed in service reporting requirements.
SECTION 2. BACKGROUND
Section 13702 of Public Law 117–169,
136 Stat. 1818, 1921 (August 16, 2022),
commonly known as the Inflation Reduc-
tion Act of 2022 (IRA), added new § 48E(h)
to the Code. Section 48E(h) increases the
amount of the § 48E credit with respect to
eligible property that is part of an applica-
ble facility that is awarded an allocation
of Capacity Limitation as part of the Pro-
gram. The amount of § 48E credit for a
taxable year is calculated by multiplying
the qualified investment for such taxable
year with respect to any qualified facility
placed in service during that taxable year
by the applicable percentage (as defined in
§ 48E(a)(2)). Section 48E(h) increases the
§ 48E credit by increasing the applicable
percentage used to calculate the amount of
the § 48E credit (§ 48E(h) Increase).
Section 48E(h)(4) directs the Secretary
of the Treasury or her delegate (Secretary)
to establish a program to allocate amounts of
Capacity Limitation to applicable facilities.
On September 3, 2024, the Department
of the Treasury (Treasury Department) and
the Internal Revenue Service (IRS) pub-
lished a notice of proposed rulemaking
(REG-108920-24) under § 48E(h). Final
regulations were published on January 13,
2025.
SECTION 3. APPLICABLE FACILITY
.01 In general. To be eligible to apply
for and receive an allocation of Capacity
Limitation, and to later claim the § 48E(h)
Increase, a facility must be an applica-
ble facility as defined under § 48E(h)(2)
(A) and § 1.48E(h)-1(b). Eligibility as an
applicable facility includes the requirement
under § 48E(h)(2)(A) and § 1.48E(h)-1(b)
(1) that the facility be a qualified facility, as
defined in § 48E(b)(3), and is a non-com-
bustion and gasification (Non-C&G Facil-
ity) that the Secretary has determined has
a greenhouse gas (GHG) emissions rate of
not greater than zero.
.02 Types of Qualified Facilities. Under
§ 1.48E(h)-1(b)(1) and consistent with
Treasury Department and IRS guidance
under §§ 45Y and 48E, the following types
or categories of qualified facilities are cate-
gorically Non-C&G Facilities with a GHG
emissions rate that is not greater than zero,
and may be eligible for an allocation of
Capacity Limitation: wind (including small
wind properties), hydropower (includ-
ing retrofits that add power production to
non-powered dams, conduit hydropower,
hydropower using new impoundments, and
hydropower using diversions such as a pen-
stock or channel), marine and hydrokinetic,
solar (including photovoltaic and concen-
trated solar power), geothermal (including
flash and binary plants), nuclear fission,
fusion energy, and waste energy recovery
property (WERP) that derives energy from
any of the energy sources described in this
list. Under § 1.48E(h)-1(b)(1), the types
or categories of qualified facilities that are
Non-C&G Facilities are determined based
on Treasury Department and IRS guidance
in effect as of the opening date of that Pro-
gram year.
SECTION 4. CAPACITY LIMITATION
AVAILABLE FOR ALLOCATION
.01 Annual Capacity Limitation. The
amount of Capacity Limitation available
for allocation through the application pro-
cess provided in this revenue procedure is
limited to the annual Capacity Limitation
of 1.8 gigawatts of direct current (DC)
capacity, as specified at § 48E(h)(4)(C),
plus any unallocated Capacity Limitation
carried over from the previous Program
year, as required under § 48E(h)(4)(D)(i)
and (ii) (specifically for the carryover of
unallocated capacity from calendar year
2024 under § 48(e) to calendar year 2025).
If any Capacity Limitation is remaining
when a Program year closes, then that
Capacity Limitation will be carried over
to the next Program year as described in
section 4.06 of this revenue procedure.
.02 Distribution of Annual Capacity
Limitation. As provided in § 1.48E(h)-
1(g)(1), the annual Capacity Limitation
available for allocation is divided across
the four facility categories described in
§ 48E(h)(2)(A)(iii) and § 1.48E(h)-1(b)
(2). For each Program year, the annual
Capacity Limitation of 1.8 gigawatts (as
measured in DC) is distributed across the
categories as shown in Table 1.
Table 1
Category 1: Located in a Low-Income Community 600 megawatts
Category 2: Located on Indian Land 200 megawatts
Category 3: Qualified Low-Income Residential Building Project 200 megawatts
Category 4: Qualified Low-Income Economic Benefit Project 800 megawatts
1
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

January 20, 2025 502 Bulletin No. 2025–4
.03 Category 1 sub-reservations. The
reservation for Category 1 is further subdi-
vided for each Program year into a sub-res-
ervation for eligible residential behind the
meter (BTM) facilities as described in §§
1.48E(h)-1(g)(2) and 1.48E(h)-1(i)(2)(ii),
and a sub-reservation for front of the meter
(FTM) facilities described in §§ 1.48E(h)-
1(g)(2) and 1.48E(h)-1(i)(2)(iii), and
non-residential BTM facilities that meet
the requirements of §§ 1.48E(h)-1(g)(2)
and 1.48E(h)-1(i)(2). The Category 1 reser-
vation from the annual Capacity Limitation
distribution is divided into further sub-res-
ervations as shown in Table 2.
Table 2
Eligible Residential BTM Facilities400 megawatts
Eligible FTM Facilities and Non-residential BTM Facilities 200 megawatts
.04 Additional Selection Criteria Res-
ervation. At the beginning of each appli-
cation period for a Program year, 50 per-
cent of the Capacity Limitation in each
category or Category 1 sub-reservation is
reserved for ASC applicants, as provided
for under § 1.48E(h)-1(h)(1) and section
8.03(1) of this revenue procedure.
.05 Redistribution of Capacity Limita-
tion within a Program year. If, at the close
of the application period (as described in
section 5.04 of this revenue procedure
and § 1.48E(h)-1(j)(4)) for a given Pro-
gram year, there are undersubscribed cat-
egories or sub-reservations, the remaining
Capacity Limitation will be redistrib-
uted to the oversubscribed categories or
sub-reservations in the manner provided
in § 1.48E(h)-1(g)(3).
.06 Carryover of Unallocated Capacity
Limitation. If, after redistributing Capac-
ity within a Program year, as described
in section 4.05 of this revenue procedure,
there is remaining unallocated Capacity
Limitation, that Capacity Limitation will
be carried over to the next Program year.
Carried over Capacity Limitation will be
equally divided, rounded to the nearest
kilowatt, and distributed across the cat-
egories as described in § 1.48E(h)-1(g)
(4). The carried over Capacity Limitation
will be further equally divided within
each category as described in § 1.48E(h)-
1(g)(4).
SECTION 5. GENERAL
APPLICATION PROCESS
.01 In general. An applicant (described
in section 6 of this revenue procedure)
must apply for an allocation of Capac-
ity Limitation through the online appli-
cant portal system (Portal), at https://eco.
energy.gov/licbonus. The Portal is also
linked at https://www.irs.gov/credits-de-
ductions/low-income-communities-bo-
nus-credit or https://www.irs.gov/lic-
BonusCredit (Program homepage). The
application must contain all information,
documentation, and attestations specified
in section 7 of this revenue procedure.
Additional guidance material and a User
Guide with detailed instructions for Por-
tal use are linked on the Program home-
page.
.02 Selection of the appropriate cat-
egory or sub-reservation. In the Portal,
applicants must select an application
option for a particular facility category,
as described in § 1.48E(h)-1(b)(2) (that is,
Category 1 Facility, Category 2 Facility,
Category 3 Facility, or Category 4 Facil-
ity). If the applicant is applying in Cate-
gory 1, the applicant must also select the
appropriate Category 1 sub-reservation
described in § 1.48E(h)-1(i) (that is, eli-
gible residential BTM facilities or eligible
FTM facilities and non-residential BTM
facilities located in low-income communi-
ties). Additionally, eligible applicants who
plan to apply under the ASC described
in § 1.48E(h)-1(h) must select the ASC
application option in each Category or
Category 1 sub-reservation. Applications
will not be moved to a different facility
category or Category 1 sub-reservation.
Applicants that should be considered in a
different Category or Category 1 sub-res-
ervation must withdraw the application
for the option under which the applicant
originally applied for a particular applica-
ble facility and create a new application
under the appropriate option. If an appli-
cant applies under two ASC criteria and it
is determined that the application does not
meet one of the two claimed ASC types
of criteria, that application will be updated
and processed as satisfying one ASC cri-
terion in the same Category or Category 1
sub-reservation. Additionally, if an appli-
cant applies under either one or two ASC
criteria, and it is determined that the appli-
cation does not meet any claimed ASC
criteria, that application will be moved to
non-ASC in the same Category or Cate-
gory 1 sub-reservation.
.03 One application. Applicants may
only submit one application per applicable
facility per Program year. For an applica-
ble facility that has integrated operations
with one or more other qualified facilities,
as described in § 1.48E-1(b)(3)(iv), and is
still eligible for the Program, applicants
may only submit one application for that
applicable facility (including any other
qualified facilities with integrated opera-
tions). If, after submitting an application
for an applicable facility, the applicant
decides that it would rather have the facil-
ity considered for an allocation under a
different facility category or Category 1
sub-reservation, or under an ASC criteria
if previously not submitted as ASC, the
applicant must withdraw the first applica-
tion and submit a new application under
the intended facility category or Category
1 sub-reservation. If it is identified that
an applicant has submitted more than one
application for a single applicable facil-
ity (and the applicant has not withdrawn
the previously submitted application(s)),
any application submitted after the first
submitted application will be considered
a duplicate application and will be treated
as withdrawn.
.04 Application period. For Program
year 2025, the application period will
open on January 16, 2025 at 9:00 AM
Eastern Standard Time (EST), and close

Bulletin No. 2025–4 503 January 20, 2025
on the first Friday in August 2025 at
11:59 PM EST. Beginning for Program
year 2026, and for each subsequent year
of the Program, the application period
will open the first Monday in February at
9:00 AM EST and close the first Friday
in August at 11:59 PM EST. See section
8.02(1) of this revenue procedure for
information on the application review
process and the initial 30-day period for
application submission.
SECTION 6. APPLICANT
.01 In general. The owner of the appli-
cable facility is the person who must apply
for an allocation of Capacity Limitation. If
the facility is determined to be eligible for
an allocation, and there is Capacity Lim-
itation available to allocate, the owner of
the applicable facility is the recipient of
the allocation of Capacity Limitation. In
addition to being the owner of the appli-
cable facility, the applicant should be the
taxpayer that intends to claim the under-
lying § 48E credit to which the § 48E(h)
Increase will be applied, provided facility
ownership is not transferred after alloca-
tion (as discussed in section 12 of this rev-
enue procedure).
.02 Disregarded entities. A disregarded
entity cannot be an applicant. If an appli-
cable facility is owned by an entity that is
disregarded as separate from its owner for
federal income tax purposes, the owner of
the disregarded entity, also known as the
regarded entity, is the owner of the facility
and must be the applicant. If a disregarded
entity improperly registers as another entity
type and applies as a regarded entity, then
any applications submitted by that entity
are invalid. The IRS relies on the informa-
tion the taxpayer submits at registration
as the applicant. If the IRS allocates an
amount of Capacity Limitation to an appli-
cant, and later discovers that the applicant
is a disregarded entity, the IRS will rescind
the allocation of Capacity Limitation. This
section also applies to sole proprietorships
where the disregarded entity is owned by a
single person.
.03 Tribal Enterprise. For entities
wholly owned and chartered under Tribal
law and corporations incorporated under
the authority of either section 17 of the
Indian Reorganization Act of 1934, 25
U.S.C. 5124 or section 3 of the Okla-
homa Indian Welfare Act, 25 U.S.C. 5203,
an application may be made as a Tribal
Enterprise.
.04 Partnerships and S corporations. If
an applicable facility is owned by a part-
nership or S corporation, then the partner-
ship or S corporation, and not its partners
or shareholders, is the owner of the facility
and is the applicant. For unincorporated
organizations that have made or will make
an election under § 761(a) to be excluded
from the application of subchapter K of
chapter 1, the organization, and not its
members, is still the applicant that must
register and apply for the allocation.
SECTION 7. APPLICATION
.01 In general. Applications for the
Program can only be completed and sub-
mitted through the Portal. Applicants must
register in the Portal before they can begin
the application process.
.02 Registration.
(1) An individual who is legally autho-
rized to bind the applicant entity for fed-
eral income tax purposes must first create
a login.gov account before the individual
can access and register the applicant in
the Portal. After a login.gov account has
been created, the user can then register
the taxpayer as the applicant in the Por-
tal. Each applicant that intends to submit
applications must separately register for
the Portal. The individual registering the
applicant must create a separate login.gov
account for each applicant on behalf of
which the individual will be completing
and submitting an application or appli-
cations. See the Applicant User Guide,
which is linked on the Program Homep-
age, for more information on creating a
login.gov account and for detailed instruc-
tions on the Portal Registration require-
ments, as updated.
(2) The user that created the login.gov
account and that is registering the applicant
must enter their name and email address
in the Organization Contact section. This
person is completing the application as the
applicant and, therefore, must be legally
authorized to bind the applicant. Third-
party representatives, which includes gen-
eral employees, are not qualified to regis-
ter or apply for an applicant.
(3) The “organization” on the registra-
tion page is the applicant. The information
provided at registration for the “organiza-
tion’s name” and “taxpayer identification
number (TIN)” must be the applicant’s
information.
(4) The applicant’s federal tax classifi-
cation must be provided under “organiza-
tion type.” A Limited Liability Company
(LLC) is a business structure allowed by
state statute and is not a federal tax classi-
fication. When registering an LLC, deter-
mine the correct federal tax classification
of the LLC before proceeding. An LLC
that is a disregarded entity cannot be an
applicant.
(5) Registrants must attest to the fol-
lowing attestation: “Under penalty of
perjury, I attest that the applicant is not a
disregarded entity as described in Treas.
Reg. §§ 301.7701-2(a) and 301.7701-3.
I attest that the applicant is either a per
se corporation as defined in § 301.7701-
2(b) or, if the entity is an eligible entity
as defined in §301.7701-3(a), it has either
(i) more than one owner, partner, mem-
ber, or shareholder or (ii) filed an election
to be classified as an association taxable
as a corporation. I further attest that the
applicant has not filed an election to be
classified as a qualified REIT subsidiary
(within the meaning of § 856(i)(2)), or a
qualified subchapter S subsidiary (within
the meaning of § 1361(b)(3)(B)).” This
attestation is included in the Portal, and
by proceeding with the registration pro-
cess and submitting this attestation, the
registrant will be treated as having signed
the attestation.
.03 Application Submission. The
applicant must submit their application,
including any required information, doc-
umentation, and attestations required by
section 7 of this revenue procedure, under
penalties of perjury. The person complet-
ing and submitting the application must
have personal knowledge of the facts
related to the application and be a per-
son who is legally authorized to (1) bind
the applicant entity for federal income
tax purposes, including providing, under
penalties of perjury, the attestations
under sections 7 and 10.02 of this rev-
enue procedure; (2) communicate with
reviewers about the application prior to
and after submission of the application;

January 20, 2025 504 Bulletin No. 2025–4
and (3) receive notifications, letters, and
other communications from reviewers
and the IRS. For example, an application
may be authorized by an officer of a cor-
poration, a general partner of a state law
partnership, a trustee on behalf of a trust,
or the proprietor in the case of a sole pro-
prietorship. The person submitting the
application must attest, through the Por-
tal, that they have the requisite authority
to legally bind the applicant with respect
to federal income tax matters. This per-
son must also first register in the Portal
as explained in section 7.02(1).
.04 Applicant Information. The appli-
cation must include the following identi-
fying information of the applicant.
(1) The name of the applicant;
(2) The unique TIN for the applicant.
Unless a transfer request is reviewed and
approved by the IRS or the unincorpo-
rated organization has made a § 761(a)
election to be excluded from the appli-
cation of subchapter K of chapter 1 (see
section 13 of this revenue procedure), the
TIN of the applicant must match the TIN
of the taxpayer that will claim the credit
under § 48E(a) in addition to the applica-
ble percentage increase under § 48E(h),
or, in the case of a partnership or S cor-
poration, the partnership or S corporation
that owns the facility when it is placed in
service;
(3) The applicant’s address;
(4) If the applicant is a subsidiary cor-
poration of a consolidated group filing a
consolidated federal income tax return,
the legal name and federal taxpayer iden-
tification number of the parent corporation
of the consolidated group; and
(5) Any other information required by
publicly available written procedures on
the Program Homepage.
.05 Applicable Facility Information.
(1) In general. For any applicable facil-
ity described in section 3.01 of this rev-
enue procedure, the application requires
the applicant to provide the information
described in sections 7.05(2) and 7.05(3)
of this revenue procedure, and any other
information required by publicly available
written procedures provided on the Pro-
gram Homepage.
(2) Applicable facility maximum net
output and nameplate capacity.
(a) Applicable facility with nameplate
capacity measured in alternating cur-
rent. Applicants seeking an allocation
for an applicable facility with a name-
plate capacity measured in alternating
current (AC) must report the expected
maximum net output of the facility in
AC. If an applicable facility has inte-
grated operations with one or more other
qualified facilities and is still eligible for
the Program, then the sum of the name-
plate capacity of the applicable facility
and each other qualified facility must be
reported, consistent with § 1.48E(h)-1(b)
(3)(iv). Applicable facilities with a name-
plate capacity measured in AC that are
selected for an allocation will be awarded
an amount of Capacity Limitation in DC
that is equal to the facility’s reported
nameplate capacity in AC.
(b) Applicable facility with name-
plate capacity measured in direct cur-
rent. Applicants seeking an allocation
for an applicable facility with a name-
plate capacity measured in DC (such as
solar facilities) must report the name-
plate capacity of the facility in DC and
the expected maximum net output of the
facility as measured in AC, to ensure the
facility meets the less than 5 megawatts
(MW) (as measured in AC) requirement
under § 48E(h)(2)(A)(ii). If an applica-
ble facility has integrated operations with
one or more other qualified facilities and
is still eligible for the Program, then the
sum of the nameplate capacity of the
applicable facility and each other quali-
fied facility must be reported, consistent
with § 1.48E(h)-1(b)(3)(iv). Applica-
ble facilities with a nameplate capacity
measured in DC that are selected for an
allocation will be awarded an amount of
Capacity Limitation in DC that is equal to
the facility’s reported nameplate capacity
in DC.
(3) Facility location. Applicants must
provide the location of the applicable
facility, including street address (if appli-
cable) and coordinates (latitude and longi-
tude). Applicants should provide a single
address and a single set of coordinates.
.06 Documentation.
(1) In general. Applicants must sub-
mit the documentation specified in sec-
tions 7.06(2) and 7.06(3) of this revenue
procedure with an application for an
allocation of Capacity Limitation. An
application is not complete and may be
rejected if any required documentation is
not included.
(2) Facility documentation for all cate-
gories. As specified in Table 3, the follow-
ing documents are required for each appli-
cable facility for which an application is
submitted:

Bulletin No. 2025–4 505 January 20, 2025
Table 3
Document RequirementFTM
2
BTM
3
<= 1 MW AC
BTM
> 1 MW AC
One of the following documents, in its entirety, inclusive of any amendments,
appendices, consumer disclosures, and schedules thereto, executed by each party
4

on or before the date of application submission:
1) If the applicant will not execute a lease or a power purchase agreement
(PPA) with respect to the facility, an executed contract for the installation of the
facility owned by the applicant (for example, an engineering, procurement, and
construction contract). For purposes of meeting this requirement, if the applicant
will self-install the facility, the applicant must submit a contract to purchase the
energy generation equipment.
2) If the applicant will execute a lease with respect to the facility, an executed
contract to lease the facility between the applicant (as the lessor) and the lessee.
3) If the applicant will execute a PPA with respect to the facility, an executed power
purchase agreement for the generation by the facility between the applicant and the
offtaker of the electricity generated.
NoYe sYe s
A copy of the final, executed interconnection agreement, if applicable (see below),
executed by each party on or before the date of application submission.
If the facility is located in a market where the interconnection agreement cannot be
countersigned by the interconnecting utility prior to completion of construction or
interconnection of the facility, the applicant must provide:
1) A copy of the submitted interconnection agreement with proof of submission or
offer signed by the applicant (or its agent),
2) a copy of the final completed interconnection screen/study, and
3) either a conditional approval letter that identifies the specific facility from the
interconnecting utility or an affidavit stating that, based on the interconnecting
utility’s guidance, the facility’s interconnection agreement cannot be countersigned
by the interconnecting utility and executed until after construction of the facility.
If an interconnection agreement is not applicable to the facility (for example, due to
utility ownership), the interconnection agreement requirement is satisfied by a final
written decision from a Public Utility Commission, cooperative board, or other
governing body with sufficient authority that financially authorizes the facility.
If the facility is under a utility jurisdiction that does not require a study or
additional approvals after interconnection application submission, then the
applicant must provide proof of interconnection application submission and either
public utility guidance or an executed letter from the utility that states that the
applicable facility has completed all interconnection requirements.
Ye sNoYe s
2
As defined in § 1.48E(h)-1(i)(2)(iii), for the purposes of the Program, an applicable facility is front of the meter (FTM) if it is directly connected to a grid and its primary purpose is to pro-
vide electricity to one or more offsite locations via such grid or utility meters with which it does not have an electrical connection; alternatively, FTM is defined as a facility that is not BTM.
For the purposes of Category 4, an applicable facility is also FTM if 50 percent or more of its electricity generation on an annual basis is physically exported to the broader electricity grid.
3
As defined in § 1.48E(h)-1(i)(2)(i), an applicable facility is behind the meter (BTM) if (1) it is connected with an electrical connection between the facility and the panelboard or sub-pan-
elboard of the site where the facility is located, (2) it is to be connected on the customer side of a utility service meter before it connects to a distribution or transmission system (that is,
before it connects to the electricity grid), and its primary purpose is to provide electricity to the utility customer of the site where the facility is located. This definition also includes systems
not connected to a grid and that may not have a utility service meter and that have a primary purpose of serving the electricity demand of the owner of the site where the system is located.
4
If the applicant is not a party named in the contract, the applicant must provide with the applicable contract a statement explaining why the applicant is not named in the contract and the
relationship between the appropriate entity named in the contract and the applicant. The applicant must be the owner of the applicable facility to be eligible to apply for an allocation of
Capacity Limitation.

January 20, 2025 506 Bulletin No. 2025–4
Document RequirementFTM
2
BTM
3
<= 1 MW AC
BTM
> 1 MW AC
If the facility is on land under the regulatory authority of a Tribe (including its
political subdivisions, agencies, or instrumentalities, and Tribal Enterprises), Alaska
Native Corporation, or the Department of Hawaiian Homelands, the applicant must
provide:
1) a Notice to Proceed issued by the applicable governing authority within the
relevant Tribe, Alaska Native Corporation, of the Department of Hawaiian Home
Lands, and
2) a copy of the submitted interconnection screen/study or a notice of intent to enter
into a PPA.
For 1), the Notice to Proceed issued by the relevant authority should be a notice,
letter, or resolution that clearly states the following information:
1) the applicant (or taxpayer) name,
2) energy facility location (address),
3) a description of the energy facility,
4) timeline of facility development, and
5) clear approval from the relevant regulatory authority that the facility has been
evaluated and is ready to proceed.
For 2), if an interconnection agreement is not applicable to the facility (for
example, due to utility ownership), the interconnection agreement requirement
is satisfied by the Notice to Proceed issued under the regulatory authority of a
Tribe (including its political subdivisions, agencies, or instrumentalities, and
Tribal Enterprises), Alaska Native Corporation, or the Department of Hawaiian
Homelands
Ye sNo Ye s
(3) Category 3 facility specific doc-
umentation. Applicants applying for an
allocation under Category 3 must provide
documentation demonstrating that the
applicable facility will be installed on an
eligible residential rental building and a
Benefits Sharing Statement as described
under § 1.48E(h)-1(e)(6)(i).
(a) Eligible Housing Programs. Sec-
tion 48E(h)(2)(B)(i) requires a facility to
be installed on a residential rental build-
ing that participates in a covered housing
program (as defined in section 41411(a)
of the Violence Against Women Act of
1994 (34 U.S.C. 12491(a)(3)), a hous-
ing assistance program administered by
the Department of Agriculture under title
V of the Housing Act of 1949, a housing
program administered by a tribally desig-
nated housing entity (as defined in section
4(22) of the Native American Housing
Assistance and Self-Determination Act of
1996 (25 U.S.C. 4103(22)), or any other
affordable housing program identified by
the Department of the Treasury. The eligi-
ble residential rental building (and not just
its tenants) must participate in an eligible
housing program. The Treasury Depart-
ment and the IRS, in consultation with
other Federal agencies, developed a list of
Federal housing programs and policies that
meet the requirements in § 48E(h)(2)(B)(i):
• Department of Housing and Urban
Development (HUD) section 202
Supportive Housing for the Elderly,
including the direct loan program
under section 202.
• HUD section 811 Supportive Hous-
ing for Persons with Disabilities.
• HUD Housing Opportunities for Per-
sons With AIDS (HOPWA) program.
• HUD homeless programs under title
IV of the McKinney-Vento Homeless
Assistance Act, including the Emer-
gency Solutions Grants program, the
Continuum of Care program, and the
Rural Housing Stability Assistance
program.
• HUD HOME Investment Partner-
ships (HOME) program.
• Federal Housing Administration
(FHA) mortgage insurance under
section 221(d)(3) subsidized with a
below-market interest rate (BMIR)
prescribed in the proviso of section
221(d)(5) of the National Housing
Act.
• HUD’s section 236 interest rate
reduction payments.
• HUD Public Housing assisted under
section 9 of the United States Hous-
ing Act of 1937.
• HUD project-based rental assistance
and project-based vouchers under
section 8 of the United States Hous-
ing Act of 1937.
• HUD section 8 Moderate Rehabilita-
tion Program.
• HUD section 8 Moderate Rehabili-
tation Single Room Occupancy Pro-
gram for Homeless Individuals.
• USDA section 515 Rural Rental
Housing.
• USDA section 514/516 Farm Labor
Housing.
• USDA section 538 Guaranteed Rural
Rental Housing.
• USDA section 533 Housing Preserva-
tion Grant Program.
• Treasury/IRS Low-Income Housing
Credit under § 42.

Bulletin No. 2025–4 507 January 20, 2025
• HUD National Housing Trust Fund.
• Veterans Administration (VA) Com-
prehensive Service Programs for
Homeless Veterans.
• VA grant program for homeless veter-
ans with special needs.
• VA financial assistance for supportive
services for very low-income veteran
families in permanent housing.
• Department of Justice transitional
housing assistance grants for victims
of domestic violence, dating violence,
sexual assault, or stalking.
• Housing assistance programs admin-
istered by the USDA under title V of
the Housing Act of 1949.
• Housing programs administered by
an Indian Tribe or a Tribally desig-
nated housing entity (as defined in
section 4(22) of the Native American
Housing Assistance and Self-De-
termination Act of 1996 (25 U.S.C.
4103(22)).
• Housing programs administered by
the Department of Hawaiian Home
Lands (DHHL) as defined in Title
VIII of the Native American Hous-
ing Assistance and Self-Determina-
tion Act of 1996 (24 CFR 1006.10),
Hawaiian Homestead Associations
(HHA) as defined in 43 CFR 48.6,
and DHHL or HHA lands adminis-
tered by Native Hawaiian Organiza-
tions as defined in 13 CFR 124.3.
(b) Category 3 facility draft Benefits
Sharing Statement. Applicants to Cate-
gory 3 must create and submit a draft Ben-
efits Sharing Statement that includes the
information described under § 1.48E(h)-
1(e)(6). This draft Benefits Sharing State-
ment must include a calculation of the
facility’s gross financial value, a calcula-
tion of the facility’s net financial value, a
calculation of the financial value required
to be distributed to building occupants, a
description of the means through which
the required financial value will be dis-
tributed to building occupants, and which
entity will be responsible for the distribu-
tion of benefits to the occupants. A Bene-
fits Sharing Statement template is linked
on the Program homepage. A final Bene-
fits Sharing Statement must be submitted
as part of placed in service reporting as
described under section 10 of this revenue
procedure.
(4) Category 4 facility draft Demon-
stration of Financial Benefits statement.
Applicants applying for an allocation
under Category 4 must provide a draft
Demonstration of Financial Benefits
statement (as defined in § 1.48E(h)-1(f)
(3)) demonstrating that the financial ben-
efits requirements will be met based on
the expected annual energy produced by
the as-built facility at placed in service
and during the recapture period under
§ 48E(h)(5) and § 1.48E(h)-1(n). This
draft Demonstration of Financial Bene-
fits statement must include a calculation
of the total financial benefits of annual
electricity production, the percent of the
total financial benefits provided and/or
assigned to Qualifying Households, the
bill credit discount rate method used (with
cost to participate or no or nominal cost
of participation), a calculation of the bill
credit discount rate, and a description of
the means of distributing the required
benefits to Qualifying Households. A final
statement must be submitted as part of
placed in service reporting as described
under section 10 of this revenue proce-
dure. The documentation described under
§ 1.48E(h)-1(f)(3)(vi) to demonstrate that
the facility is enrolled in a utility tariff,
program, or other arrangement used to
distribute financial benefits to Qualifying
Household is not required at application.
This documentation will be submitted as
part of the final Demonstration of Finan-
cial Benefits statement as part of placed
in service reporting. An example draft
Demonstration of Financial Benefits state-
ment is linked on the Program homepage.
.07 Attestations. All applicants must
make all the required attestations in Table
4 of this revenue procedure. The attesta-
tions in Table 4 are included as part of the
application in the Portal. These attesta-
tions will appear at the end of each appli-
cation, prior to submission. An applicant
will be unable to submit their application
if any required attestations are not com-
pleted. The person who registered the
applicant and who is completing the appli-
cation as the applicant, will be deemed to
have signed the attestations upon submit-
ting the application. If this person is not
legally authorized to bind the applicant, as
explained in section 7.03, and this person
nonetheless completes the application,
then the attestations and application are
invalid.
Table 4
Attestations
I attest that the owner of the applicable facility has site control of the real property on which the facility will be installed and
placed in service through ownership of the real property, an executed lease for the real property, or a site access agreement or
similar agreement between the real property owner and the applicant.
For an applicable facility on lands under 25 U.S.C. 3501(2)(A)-(C) (Indian Land), I attest that I have obtained the applicable
approval of the Tribal government or Alaska Native Corporation landowner. For an applicable facility not on Indian Land,
complete this attestation to attest that the facility is not on Indian Land.
I attest that the applicable facility has obtained all applicable federal, state, tribal, and local non-ministerial permits for the
facility, or that the facility is not required to obtain such permits.
5

5
Non-ministerial permits are permits in which one or more officials or agencies consider various factors and exercise some discretion in deciding whether to issue or deny permits. This
does not include ministerial permits based upon a determination that the request complies with established standards such as electrical or building permits. Non-ministerial permits typically
come with conditions and usually require public notice or hearings. Examples of non-ministerial permits include local planning board authorization, conditional use permits, variances, and
special orders.

January 20, 2025 508 Bulletin No. 2025–4
Attestations
I attest that when performing the activities that support this application, I was, or will be, in compliance with all relevant federal,
state, and local laws, including consumer protection provisions, and safety obligations, and that the applicant did not and will not
engage in any unfair or deceptive acts or practices.
I attest that the applicable facility is sized, or that customer/offtaker subscriptions will be sized, to meet the customer’s energy
needs, considering historical customer load and/or reasonable future load projections, and is in accordance with applicable state
and local requirements.
I attest that any end-use customer(s)/offtaker(s) of the applicable facility have and/or will receive consumer disclosures informing
them of their legal rights and protections prior to executing a contract to subscribe or purchase power from the facility or lease a
facility.
I attest that the applicable facility has not been placed in service at the time of this submission and will not be placed in service
prior to being awarded an allocation of Capacity Limitation.
I declare that I am authorized to legally bind [the applicant]. Under penalties of perjury, I declare that I have examined this
submission, including any accompanying documents, and, to the best of my knowledge and belief, all of the facts contained
herein are true, correct, and complete. I authorize the Internal Revenue Service and its contractors and reviewers (including the
Department of Energy) to verify the information provided in this submission. Such verification may include, but is not limited to,
conducting independent research via public maps, the internet, publicly available sources, and other sources.
.08 Ownership Criteria documentation
and attestation. In addition to the infor-
mation, documentation, and attestations
required above, any applicant purporting
to meet the ASC for Ownership Criteria,
as described under § 1.48E(h)-1(h)(2),
must submit with their application the
documentation specified below to demon-
strate that they meet the Ownership Cri-
teria.
(1) Tribal Enterprise. An applicant
claiming to be a Tribal Enterprise, as
described under § 1.48E(h)-1(h)(2)(iii),
must provide proof of inclusion of its
Indian Tribal government (Tribal govern-
ment) owner on the current list of Tribal
entities recognized and eligible for fund-
ing and services by the Bureau of Indian
Affairs (BIA).
(2) Alaska Native Corporation. An
applicant claiming to be an Alaska
Native Corporation (ANC), as described
under §1.48E(h)-1(h)(2)(iv), must pro-
vide a copy of the relevant portions of
the ANC’s articles of incorporation and
bylaws demonstrating that it is an ANC
pursuant to 43 U.S.C. 1602(m) (and any
relevant amendments), including the first
page with the title of the document and, if
applicable, the signature pages.
(3) Native Hawaiian Organization. An
applicant claiming to be a Native Hawai-
ian Organization (NHO), as described
under §1.48E(h)-1(h)(2)(v), must pro-
vide documentation that denotes that an
entity is a NHO under 13 CFR 124.3. This
may include their articles of incorpora-
tion, bylaws, or other documentation that
showcases a designation of NHO such as
a Small Business Administration certifica-
tion.
(4) Renewable Energy Cooperative.
An applicant that claims to be a Renew-
able Energy Cooperative, as described
under § 1.48E(h)-1(h)(2)(vi), must pro-
vide a copy of its articles of incorporation
and bylaws. The applicant must highlight
the relevant language in these documents
that demonstrates the entity meets either
the consumer/purchasing cooperative
requirements under § 1.48E(h)-1(h)(2)(vi)
(A) or is a worker cooperative controlled
by its worker-members with each member
having an equal voting right as described
under § 1.48E(h)-1(h)(2)(vi)(B).
(5) Qualified tax-exempt entity. An
applicant claiming to be a qualified tax-ex-
empt entity described in § 1.48E(h)-1(h)
(2)(vii) must provide documentation sup-
porting its claim as described below.
(a) An applicant claiming to be
described in § 501(c)(3), § 501(c)(12), or
§ 501(d) must provide the following:
(i) If its exempt status is recognized by
the IRS at the time of application submis-
sion, proof of listing in IRS Pub. 78, Cumu-
lative List of Organizations Described in §
170(c) (see the “Tax Exempt Organization
Search” page on the IRS website), or in
the Exempt Organizations Business Mas-
ter File Extract (also available on the IRS
website), such as a screenshot within the
last 30 days, or, if issued within the last 12
months, a copy of its IRS determination
letter or a letter from the IRS affirming
its exempt status. See Pub. 4573, Group
Exemptions, for information on group
exemptions and returns.
(ii) If its exempt status has never been
recognized by the IRS, a copy of its
annual information return or notice under
§ 6033 filed within the last two years (if it
has so filed). Section 501(c)(3) and 501(c)
(12) organizations file a Form 990-series
return or notice such as Form 990, Return
of Organization Exempt from Tax. Section
501(d) organizations file Form 1065, U.S.
Return of Partnership Income.
(iii) If an applicant’s exempt status has
never been recognized by the IRS and it
has not filed an annual information return
or notice within the last two years, the
applicant must provide other documen-
tation demonstrating that it is described
in § 501(c)(3), § 501(c)(12), or § 501(d)
(such as its governing documents) and
demonstrating that it is currently excepted
from, or otherwise in compliance with, its
exemption application requirements and
information return filing requirements,
unless it is a church or a convention or
association of churches described in §
170(b)(1)(A)(i), in which case it may sub-
mit the following attestation, uploaded by
the applicant in the Portal, signed by a per-
son authorized to bind the entity: “Solely
for purposes of the § 48E(h) credit, I
certify that [insert applicant name] is a

Bulletin No. 2025–4 509 January 20, 2025
church or a convention or association of
churches described in § 170(b)(1)(A)(i). I
further certify that I am an officer of the
Entity and that I am duly authorized to
sign this statement on behalf of the Entity.”
(iv) An applicant described in § 501(c)
(12) must also demonstrate that it is a cor-
poration that operates on a cooperative
basis and explain, in a statement uploaded
by the applicant in the Portal, the extent to
which it is engaged in furnishing electric
energy to persons in rural areas.
(b) An applicant claiming to be a State,
the District of Columbia, a Tribal govern-
ment (as defined in § 30D(g)(9)
6
), a politi-
cal subdivision of any of the foregoing,
7
or
an agency or instrumentality of any of the
foregoing,
8
must provide the following:
(i) A private letter ruling issued by the
IRS ruling on its status, if any, or
(ii) An attestation signed under penal-
ties of perjury, by a person authorized to
bind the applicant, certifying that, “to the
best of the person’s knowledge and belief,
that the entity is a State, the District of
Columbia, a Tribal government, a polit-
ical subdivision of any of the foregoing,
or an agency or instrumentality of any
of the foregoing, and acknowledging that
this representation is not for the purpose
of examination or inspection within the
meaning of IRC § 7605(b).” The attesta-
tion must be uploaded as part of the appli-
cation in the Portal by the applicant. In
addition to the acknowledgment described
above, the attestation must include the fol-
lowing statement: “Solely for purposes of
the § 48E(h)credit, the applicant qualifies
as a [insert the entity type as described
above in this section].”
(iii) In the case of an applicant claim-
ing to be a Tribal government, a subdivi-
sion of a Tribal government, or an agency
or instrumentality of any of the foregoing,
proof that the Tribe is on the current list
of Tribal entities recognized and eligible
for funding and services published by the
BIA, available on the BIA website.
(6) Qualified Renewable Energy Com-
pany. Applicants claiming to be a quali-
fied renewable energy company (QREC),
as described in § 1.48E(h)-1(h)(2)(viii),
must provide each of the below require-
ments in a single package upload in the
Portal as ASC documentation.
(a) Demonstration of Business Pur-
pose. The applicant must submit relevant
governing documentation dated at least
two years prior to application submis-
sion containing and highlighting language
which confirms the claimed business pur-
pose of the applicant to serve low-income
communities and provide pathways for the
adoption of clean energy by low-income
households, as required under § 1.48E(h)-
1(h)(2)(viii)(A).
(b) At least 51 percent ownership
requirement. The applicant must provide a
list of all individuals with an equity inter-
est in the entity and specify for each indi-
vidual the percentage of the individual’s
ownership interest in the applicant entity
and provide a diagram and description of
the ownership structure to demonstrate
that the applicant entity meets the at least
51 percent ownership requirements under
§ 1.48E(h)-1(h)(2)(viii)(B).
(c) Installation, operation, or services
requirement. To demonstrate the applicant
meets the requirements of § 1.48E(h)-1(h)
(2)(viii)(C), the applicant must provide:
(1) documentation indicating the applicant
entity has been in existence and operating
for at least two years; and (2) an executed
(by each party) contract including the
applicant, in its entirety (including any
amendments, appendices, consumer dis-
closures, and schedules, and dated at least
two years prior to the date of application
to this Program), to install, operate, or
provide services to a clean energy facility.
(d) Employment and gross receipts.
The applicant must provide a summary
document that demonstrates it meets the
employment and gross receipts require-
ments under § 1.48E(h)-1(h)(2)(viii)(D).
To demonstrate this, the applicant entity
must provide the following documentation:
(i) A list of all current full time and full-
time equivalent employees of the appli-
cant entity;
(ii) A copy of a federal tax filing for the
previous two tax years listing the appli-
cant entity’s gross receipts; and
(iii) Either a statement providing that
the applicant does not have any affiliates
or, if the applicant has affiliates, a summary
list of each affiliate entity of the applicant,
a description of how affiliation was deter-
mined, a list of all current employees of
affiliates, indicating the number of full-
time and full-time equivalent employees,
as provided in § 1.48E(h)-1(h)(2)(viii)(D),
and a list of affiliate entity gross receipts
for each affiliate entity from the previous
taxable year.
(7) Qualifying entity in a partner-
ship. If an applicant does not itself meet
the Ownership Criteria described in
§ 1.48E(h)-1(h)(2), but the applicant is
an entity treated as a partnership for fed-
eral income tax purposes, and an entity
described in § 1.48E(h)-1(h)(2)(i)(A)-(E)
or (h)(2)(iii)-(vii) and section 7.07(1)-(5)
of this revenue procedure owns at least
a one percent interest (either directly or
indirectly) in each material item of part-
nership income, gain, loss, deduction, and
credit and is a managing member or gen-
eral partner (or similar title) under State
law of the partnership (or directly owns
100 percent of the equity interests in the
managing member or general partner) at
all times during the existence of the part-
nership, the applicable facility owned by
the applicant will be deemed to meet the
Ownership Criteria. In addition to provid-
ing the documentation described in sec-
tion 7.08(1)-(4) of this revenue procedure
with respect to the relevant partner meet-
ing the requirements of § 1.48E(h)-1(h)
(2)(iii)-(vii) (that is, the partner which the
applicant is claiming meets the Ownership
Criteria), the applicant must also submit
documentation to demonstrate that the
requirements described in § 1.48E(h)-1(h)
(2)(ii)(B) are satisfied if the applicant is
claiming to meet the Ownership Criteria
based on this provision.
(8) Qualifying tax-exempt entity as
partner qualifying partnership involving
low-income housing credit. An applicant
must provide the applicable documenta-
tion described in section 7.08(1)-(5) of
this revenue procedure with respect to the
relevant partner meeting the requirements
6
For a general discussion of Tribal governments and their subdivisions, see section 5.12 of Rev. Proc. 2024-1, 2024-1 IRB 1, and § 7871.
7
For a general discussion of political subdivisions of States, see Rev. Rul. 77-164, 1977-1 C.B. 20, Rev. Rul. 78-276, 1978-2 C.B. 256, and Rev. Rul. 83-131, 1983-2 C.B. 184.
8
For a general discussion of agencies and instrumentalities of governments, see Rev. Rul. 57-128, 1957-1 C.B. 311, Rose v. Long Island Railroad Pension Plan, 828 F.2d 910, 918 (2d Cir.
1987), cert. denied, 485 U.S. 936 (1988), and Bernini v. Federal Reserve Bank of St. Louis, Eighth District, 420 F. Supp. 2d 1021 (E.D. Mo. 2005).

January 20, 2025 510 Bulletin No. 2025–4
of § 1.48E(h)-1(h)(2)(iii)-(vii) (that is, the
partner which the applicant is claiming
meets the Ownership Criteria), and the
§ 42 partnership agreement listing the rel-
evant partner which the applicant is claim-
ing meets the Ownership Criteria.
.09 Geographic Criteria attestation. If
the applicant claims that it meets the ASC
for Geographic Criteria described in §
1.48E(h)-1(h)(3) with respect to Catego-
ries 1, 3, or 4, the applicant attests that the
applicable facility will be located in a Per-
sistent Poverty County (PPC) or in a cen-
sus tract that is designated as disadvan-
taged in the Climate and Economic Justice
Screening Tool (CEJST) as defined in §
1.48E(h)-1(h)(3).
9

SECTION 8. REVIEW AND
SELECTION PROCESS
.01 In general. The IRS will decide
whether to award an applicant an amount
of Capacity Limitation with respect to a
facility based on the recommendation of
reviewers.
.02 Order of application review and
recommendation for allocation.
(1) Initial 30-day application period.
In accordance with § 1.48E(h)-1(j)(4)(ii),
when the application period opens, there
will be a 30-day period during which
applications will initially be accepted for
each facility category. All applications
submitted within the first 30 days will be
treated as submitted on the same date and
at the same time. The initial 30-day period
will begin on the opening day of the appli-
cation period described in section 5.04
and end at 11:59 pm on the 30th day after
the opening day of the application period.
The opening day is included in calculating
the 30-day period. Refer to section 8.02(2)
of this revenue procedure for information
regarding the randomization process for
applications submitted during the first 30
days.
(2) Randomization process for appli-
cations submitted during the 30-day
period. All applications submitted during
the 30-day period will be randomized
within their respective categories or Cat-
egory 1 sub-reservation to determine the
review order. The randomization process
will determine the order of application
review and consideration for an allocation
of Capacity Limitation if the category or
Category 1 sub-reservation is oversub-
scribed. The randomization process is
conducted prior to application review.
Regardless of an application’s position in
the review order, a facility will not receive
an allocation of Capacity Limitation if the
facility and the application with respect to
that facility do not meet the requirements
of the final regulations and this revenue
procedure.
(3) Applications submitted after the
initial 30-day period. Following the
30-day period, applications will continue
to be accepted until the close of the appli-
cation period described in section 5.04 of
this revenue procedure. Applications sub-
mitted after the initial 30-day period will
be held for review and consideration for
an allocation of Capacity Limitation after
the applications in the same category or
Category 1 sub-reservation which were
submitted during the initial 30-day period.
Review of such applications will occur
only if sufficient Capacity Limitation
remains to be allocated in a given category
or Category 1 sub-reservation, and in con-
junction with the redistribution provisions
described in section 4.05 of the revenue
procedure. See section 8.03 of this reve-
nue procedure for information regarding
the processing of ASC applications sub-
mitted during and after the initial 30-day
period.
(4) Close of Program year. The Pro-
gram year will close each year no later
than December 31 at 11:59 PM EST. At
the end of a Program year, applications
submitted but not awarded an allocation
will be withdrawn.
.03 Processing Additional Selection
Criteria applications.
(1) In general. As provided under §
1.48E(h)-1(h)(1) and section 4.04 of the
revenue procedure, 50 percent of the
Capacity Limitation in each facility cat-
egory will be reserved for applicable
facilities meeting the Ownership Crite-
ria described in § 1.48E(h)-1(h)(2) and
the Geographic Criteria described in §
1.48E(h)-1(h)(3)
(2) Prioritization of Additional Selec-
tion Criteria applications submitted
during the initial 30-day period. For appli-
cations submitted during the initial 30-day
period (described in section 8.02 of the
revenue procedure), applications purport-
ing to meet one or more ASC are included
in the randomization process (described in
section 8.02(2) of this revenue procedure)
with non-ASC applications for that cate-
gory or Category 1 sub-reservation. How-
ever, applications purporting to meet one
or more ASC, and which are submitted
during the initial 30-day period, will be
prioritized for an allocation over non-ASC
applications within the same category or
Category 1 sub-reservation. Allocations
of Capacity Limitation for facilities meet-
ing one or more of the ASC will be made
from the 50 percent ASC reservation for
such facilities. If during the initial 30-day
period, an ASC reservation for a category
or Category 1 sub-reservation is oversub-
scribed with ASC applications, Capacity
Limitation from the applicable category
or sub-reservation may be reallocated
to prioritize review and consideration of
ASC applications. Applications purport-
ing to meet two ASC qualifications (an
Ownership Criteria and a Geographic Cri-
teria), and that were submitted within the
initial 30-day period, will be prioritized
for review over applications purporting to
have one ASC qualification through a base
adder on top of the randomization result.
Applications purporting to have one ASC
qualification will be prioritized for review
ahead of applications submitted without
any ASC qualifications through a base
adder on top of the randomization result.
ASC qualifications may be removed
during the review process if unsupported
by the application, in which case the appli-
cation would have the applicable ASC
adder removed and the application would
be reordered to the original randomization
position prior to the addition of the base
adder(s).
(3) Additional Selection Criteria appli-
cations submitted after the initial 30-day
period. If after the initial 30-day period
(described in section 8.02(1) of this reve-
nue procedure) an ASC reservation for a
category or Category 1 sub-reservation is
undersubscribed, such ASC reservation
of 50 percent is maintained. However, as
described in § 1.48E(h)-1(g)(3) and section
4.05 of this revenue procedure, Capacity
9
Maps that capture applicable census tracts are linked on the Program homepage.

Bulletin No. 2025–4 511 January 20, 2025
Limitation may be redistributed to over-
subscribed categories and sub-reservations
within a Program year. ASC applications
submitted after the initial 30-day period
will be reviewed and considered for an
allocation from the given ASC reserva-
tion until all the Capacity Limitation for
that ASC reservation has been allocated
or Capacity Limitation from the ASC res-
ervation has been reallocated. If the ASC
reservation is exhausted, the ASC applica-
tions submitted after the close of the initial
30-day period are not prioritized for an
allocation from the overall Capacity Lim-
itation reservation for the category or Cate-
gory 1 sub-reservation. Instead, such ASC
applications are combined with the general
review queue for post-initial 30-day period
applications in a given Category or Cate-
gory 1 sub-reservation. Provided there is
still capacity remaining to be allocated in
the given Category or Category 1 sub-res-
ervation, these post-initial 30-day period
ASC applications are reviewed and consid-
ered for an allocation in the order in which
they were received, along with the other
non-ASC applications submitted after the
initial 30-day period.
.04 Cure period for application defects.
(1) In general. If the application
reviewer identifies a defect or is unable
to confirm application details, such as
missing or incorrect information or doc-
umentation, the applicant will be con-
tacted by the application reviewer in the
Portal. The reviewer will request that the
applicant submit additional information
or documentation to correct or complete
the application through the Portal. If the
review team determines the defect is not
able to be cured, then the review team will
recommend the application for rejection.
(2) Timing for applicant response. An
applicant that is contacted by a reviewer to
submit additional information or documen-
tation or provide corrected information will
have 12 business days (12 business day
cure period) to respond and provide such
requested information or documentation.
(3) Consequences for failure to respond
or provide information. If an applicant
fails to respond and provide the requested
information or documentation within the
12 business day cure period, review will
cease, and the application will be processed
with the information previously supplied,
which may result in a withdrawal or rec-
ommendation of rejection. The applicant
may create and submit a new application
for review if the facility remains eligible.
SECTION 9. NOTIFICATION OF
ALLOCATION DECISION
.01 In general. The IRS will send
final decision letters through the Portal to
inform applicants of the outcome of the
application process. For any applicant that
receives an award of Capacity Limitation,
the letter will state the amount of the allo-
cated Capacity Limitation.
.02 Allocation amount. The Capacity
Limitation allocated to an applicable facil-
ity will be determined based on the name-
plate capacity of the facility as stated in
the application. The Capacity Limitation
allocation will be provided in DC. For
facility types with a nameplate capacity
measured in AC, AC will be treated as
equivalent to DC for purposes of deter-
mining the amount of a Capacity Limita-
tion allocation.
.03 Effect of an allocation. A Capacity
Limitation allocation or a notification that
an applicable facility has met the eligi-
bility requirements under the Program at
the time the facility is placed in service
is not a final determination that property
is eligible for an increased credit under §
48E(h). The IRS may, upon examination,
determine that property does not qualify
for the increased credit.
SECTION 10. PLACED IN SERVICE
.01 In general. To satisfy the require-
ments of § 1.48E(h)-1(k), for any facility
that receives an allocation of Capacity
Limitation, the owner of the facility must
report through the Portal the date the
facility was placed in service and provide
documentation and make attestations as
required under section 10.02 of this rev-
enue procedure.
.02 Documentation and attestation
requirements. To satisfy the requirements
of § 1.48E(h)-1(k), the owner must pro-
vide the following through the Portal:
(1) A Permission to Operate (PTO) let-
ter (or commissioning report for off-grid
facilities) confirming the location of the
facility being placed in service.
(2) A Final, Professional Engineer (PE)
stamped (if required by applicable state or
local law) as-built design plan, PTO letter
with nameplate capacity listed, or other
documentation from an unrelated party
verifying as-built nameplate capacity. If
a PE stamped as-built design plan is not
mandated by local jurisdiction, then either
a signed statement from the facility owner
confirming the final facility size or an
upload of a single-line diagram accurately
describing the final build is required.
(3) For Category 3 Facilities, a final
Benefits Sharing Statement as described in
§ 1.48E(h)-1(e)(6) demonstrating that the
financial benefits requirements will be met
based on the expected annual energy pro-
duced by the as-built facility at placed in
service. The final statement should clarify
differences, if any, from the draft benefits
statement provided during the application
process. A template benefits sharing state-
ment is linked on the Program homepage.
(4) For Category 4 Facilities, a final
Demonstration of Financial Benefits
statement as defined in § 1.48E(h)-1(f)
(3)(vi)) demonstrating that the financial
benefits requirements will be met based
on the expected annual energy produced
by the as-built facility at placed in service
and during the recapture period under §
48E(h)(5) and § 1.48E(h)-1(n). The final
statement should clarify differences, if
any, from the draft Demonstration of
Financial Benefits statement provided
during the application process. An exam-
ple Demonstration of Financial Benefits
statement is linked on the Program home-
page. The taxpayer must include with
the Demonstration of Financial Benefits
statement documentation described under
§ 1.48E(h)-1(f)(3)(vi) to demonstrate the
facility is enrolled in a utility tariff, pro-
gram, or other arrangement used to dis-
tribute financial benefits in the form of
a bill credit discount rate to Qualifying
Households.
(5) An attestation confirming that a dis-
qualification event under § 1.48E(h)-1(m)
(1) through (5) has not occurred.
(6) An attestation stating that the person
submitting the information and documen-
tation at placed in service is authorized
to legally bind the taxpayer that owns the
applicable facility, and that, under pen-
alties of perjury, they have examined the
submission, including any accompanying
documents, and that, to the best of their
knowledge and belief, all of the facts con-

January 20, 2025 512 Bulletin No. 2025–4
tained therein are true, correct, and com-
plete.
SECTION 11. CLAIMING THE
ENERGY PERCENTAGE INCREASE
.01 In general. After the facility is
placed in service, and the owner submits
the additional documentation and attes-
tations described in § 1.48E(h)-1(k) and
section 10 of this revenue procedure, the
owner is notified that it (or the applica-
ble partners or shareholders in the case
of a partnership or an S corporation) may
claim the energy percentage increase on
Form 3468, Investment Credit (or succes-
sor form) or Form 3800, General Business
Credit (or successor form), or, if eligible,
make an elective payment election under
§ 6417, or, if eligible, make a transfer
election under § 6418.
.02 Reduction in Increased Energy
Percentage. In cases where the applicable
facility’s nameplate capacity is larger than
the allocated capacity when placed in ser-
vice (but still below the maximum net out-
put of 5 MW AC), the 10 percentage or 20
percentage point increase will be reduced
by a reduction factor which is calculated
by the amount of Capacity Limitation
allocated (kW) divided by the total name-
plate capacity installed (kW) at the time
the owner of the facility claims the energy
percentage increase under § 48E(h). See §
48E(h)(1)(B).
SECTION 12. ALLOCATION
TRANSFERS
.01 In general. Except as other-
wise provided in this section, a Capac-
ity Limitation allocation award applies
only to the taxpayer who applied for
and received an allocation award for the
facility the taxpayer owns. If the original
applicant and allocation awardee trans-
fers to another taxpayer ownership of the
applicable facility to which the allocation
of Capacity Limitation was made, the
parties must complete a transfer request
in the Portal for the allocation to be trans-
ferred to the successor owner. Written
instructions for the allocation transfer
request process are publicly available at
https://www.irs.gov/credits-deductions/
low-income-communities-bonus-credit.
This website can also be accessed using
irs.gov/licBonusCredit. Allocations can-
not be transferred from one facility to
another facility. Additionally, applicants
may only request transfers from one
regarded entity to another regarded entity
and may not request transfers to or from
disregarded entities. The IRS intends to
provide future guidance regarding unin-
corporated organizations that elect to be
excluded from the application of sub-
chapter K of chapter 1.
.02 Additional Selection Criteria.
Applicants who received an alloca-
tion based on the ASC should refer to
§ 1.48E(h)-1(m)(5) regarding potential
disqualification if the original applicant
does not retain the requisite interest
described in § 1.48E(h)-1(m)(5) in an
entity treated as a partnership for fed-
eral income tax purposes that owns the
facility.
SECTION 13. APPLICABILITY
AND EFFECTIVE DATE OF THIS
REVENUE PROCEDURE
The guidance in this revenue procedure
is effective on January 8, 2025 and applies
to Program year 2025 and subsequent
years.
SECTION 14. PAPERWORK
REDUCTION ACT
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501 - 3520) (PRA) requires
that a Federal agency obtain the approval
of the Office of Management and Bud-
get (OMB) before collecting information
from the public, whether such collection
of information is mandatory, voluntary,
or required to obtain or retain a benefit. A
Federal agency may not conduct or spon-
sor, and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number.
Sections 5, 7, and 10 of this revenue
procedure mention reporting and record-
keeping requirements that are necessary
to ensure that the facility meets the cri-
teria for the tax credit under § 48E(h). In
accordance with the Paperwork Reduction
Act (44 U.S.C. 3507), these collections of
information are included within the asso-
ciated regulation and have been submitted
to the Office of Management and Budget
under OMB Control Number 1545-2327
under PRA procedures 5 CFR 1320.11.
SECTION 15. DRAFTING
INFORMATION
The principal author of this revenue
procedure is the Office of Associate Chief
Counsel (Passthroughs & Special Indus-
tries). However, other personnel from the
Treasury Department and the IRS par-
ticipated in its development. For further
information regarding this revenue pro-
cedure, call the energy security guidance
contact number at (202) 317-5254 (not a
toll-free number).
26 CFR § 601.201: Rulings and determination
letters.
Revenue Procedure
2025-12
SECTION 1. PURPOSE
On December 30, 2024, Revenue
Procedure 2025-1 was published with
an incorrect user fee for requests for tax
treaty limitation of benefits determina-
tions. I.R.B. 2025-1. This revenue pro-
cedure contains the correct user fee for
requests for tax treaty limitation of ben-
efits determinations. Rev. Proc. 2025-1 is
modified.
SECTION 2. CORRECTION OF
REVENUE PROCEDURE 2025-1,
I.R.B. 2025-1
In Appendix A(8) of Rev. Proc. 2025-
1, Tax treaty limitation of benefits, the
second column incorrectly lists the user
fee for requests received after February 1,
2025 as $51,900. The correct user fee for
requests received after February 1, 2025
is $66,800.
SECTION 3. WHAT IS THE EFFECT
OF THIS REVENUE PROCEDURE
ON OTHER DOCUMENTS?
Rev. Proc. 2025-1 is modified.
SECTION 4. WHAT IS THE
EFFECTIVE DATE OF THIS
REVENUE PROCEDURE?
This revenue procedure is effective
January 20, 2025.

Bulletin No. 2025–4 513 January 20, 2025
Part IV
Notice of Proposed
Rulemaking
Revising Consolidated
Return Regulations and
Controlled Group of
Corporations Regulations
to Reflect Statutory
Changes, Modernize
Language, and Enhance
Clarity
REG-134420-10
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of Proposed Rulemak-
ing.
SUMMARY: This document contains
proposed regulations that affect affiliated
groups of corporations that file consoli-
dated Federal income tax returns. These
regulations would modify the consoli-
dated return regulations to clarify that,
in the case of certain transfers between
members of a consolidated group, a trans-
feree’s assumption of certain liabilities
will not reduce the transferor’s basis in the
transferee’s stock received in the transfer.
Final regulations modifying other consol-
idated return regulations are published in
the Rules section of this issue of the Fed-
eral Register.
DATES: Written or electronic comments
as well as requests for a public hearing
must be received by March 31, 2025.
Requests for a public hearing must be
submitted as prescribed in the “Comments
and Requests for a Public Hearing” sec-
tion.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at http://www.regulations.gov (indicate
IRS and REG-134420-10). Once submit-
ted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
The Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comment submit-
ted electronically or on paper to its public
docket.
Send paper submissions to: CC:PA:01:PR
(REG-134420-10), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, contact William W. Burhop at
(202) 317-5363 or Kelton P. Frye at (202)
317-5135 (not toll-free numbers); con-
cerning the submission of comments and/
or requests for a public hearing, contact
the Publications and Regulations Section
of the Office of Associate Chief Counsel
(Procedure and Administration) by email
at publichearings@irs.gov (preferred) or
by phone at (202) 317-5306 (not a toll-
free number).
SUPPLEMENTARY INFORMATION:
Authority
Section 1502 authorizes the Secretary
of the Treasury or her delegate (Secretary)
to prescribe consolidated return regula-
tions for an affiliated group of corpora-
tions that join in filing (or that are required
to join in filing) a consolidated return
(consolidated group) to clearly reflect the
Federal income tax liability of the consol-
idated group and to prevent avoidance of
such tax liability. See §1.1502-1(h) (defin-
ing the term “consolidated group”). For
purposes of carrying out those objectives,
section 1502 also permits the Secretary
to prescribe rules that may be different
from the provisions of chapter 1 of the
Code (chapter 1) that would apply if the
corporations composing the consolidated
group filed separate returns. Additionally,
section 7805(a) of the Code authorizes the
Secretary to “prescribe all needful rules
and regulations for the enforcement of
[the Code], including all rules and regu-
lations as may be necessary by reason of
any alteration of law in relation to internal
revenue.”
Background
This notice of proposed rulemaking
contains proposed regulations under sec-
tion 1502 of the Internal Revenue Code
(Code) that would revise the Income Tax
Regulations (26 CFR part 1) issued under
section 1502 (consolidated return regu-
lations). Terms used in the consolidated
return regulations generally are defined in
§1.1502-1.
I. Section 357(c) and §1.1502-80(d)
Section 1.1502-80 provides generally
that: (i) the Code, or other law, is applica-
ble to a consolidated group to the extent
the consolidated return regulations do
not exclude its application; and (ii) to
the extent not excluded, other rules oper-
ate in addition to, and may be modified
by, the consolidated return regulations.
See §1.1502-80(a)(1). Section 1.1502-
80(d) provides that section 357(c) of the
Code does not apply to any transaction
to which §1.1502-13 and other specified
sections of the consolidated return regu-
lations apply.
As discussed in the preamble to pro-
posed regulations (REG-137519-01)
published in the Federal Register (66 FR
57021, 57022) on November 14, 2001
(proposed consolidated section 357(c)
regulations), because section 357(c)
does not apply to certain intragroup sec-
tion 351 exchanges (that is, exchanges
between members of a consolidated group
to which section 351 of the Code applies)
under §1.1502-80(d), a concern arose that
no liabilities can technically be excluded
under section 357(c)(3). Therefore, in
such an intragroup section 351 exchange,
the transferor’s basis in the stock of the
transferee received in the transfer first
would be reduced by liabilities assumed
by the transferee, including those liabil-
ities described in section 357(c)(3) that
would not have reduced basis had section
357(c) applied. The transferor’s basis in

January 20, 2025 514 Bulletin No. 2025–4
the stock of the transferee then would be
reduced a second time under the principles
of §1.1502-32 at the time the liability does
in fact give rise to a deduction on the part
of the transferee and is taken into account
on the consolidated return. This result
ultimately could cause the transferor to
recognize an amount of gain on the sale
of the stock of the transferee that does not
clearly reflect income.
The Treasury Department and the
IRS published the proposed consolidated
section 357(c) regulations to eliminate
potential duplicative stock basis reduc-
tions arising from such transactions. As
discussed in the preamble to the pro-
posed consolidated section 357(c) reg-
ulations, those proposed regulations
were published to clarify that, in certain
transfers described in section 351 of the
Code between members of a consoli-
dated group, a transferee’s assumption
of liabilities described in section 357(c)
(3)(A), other than those also described in
section 357(c)(3)(B), will not reduce the
transferor’s basis in the transferee’s stock
received in the exchange.
II. 2023 Proposed Regulations
On August 7, 2023, the Treasury
Department and the IRS published a notice
of proposed rulemaking (REG-134420-
10) in the Federal Register (88 FR 52057)
under sections 52(a), 414(b), 1502, 1503,
1552, and 1563 of the Code (2023 pro-
posed regulations). The 2023 proposed
regulations primarily would revise the
consolidated return regulations and the
controlled group of corporations regula-
tions (i) to eliminate obsolete or otherwise
outdated provisions, (ii) to modernize the
language and improve the clarity of the
regulations, and (iii) to facilitate taxpayer
compliance. The 2023 proposed regula-
tions are adopted as final regulations (T.D.
10018) published in the Rules section in
this issue of the Federal Register.
The preamble to the 2023 proposed
regulations stated that the proposed rule
in the proposed consolidated section
357(c) regulations is unnecessary because
§§1.1502-32 and 1.1502-80 prevent any
duplicative stock basis reduction. Accord-
ingly, the 2023 proposed regulations with-
drew the proposed consolidated section
357(c) regulations.
III. Comment Received
A commenter stated that, in light of
the withdrawal of the proposed consol-
idated section 357(c) regulations, it is
unclear whether the transferor’s basis in
the transferee stock should be reduced
for an assumed section 357(c)(3)(A) lia-
bility: (i) at the time of the section 351
exchange under section 358 of the Code,
with no further basis reduction under
§1.1502-32(b) when the assumed section
357(c)(3)(A) liability generates a deduc-
tion that is absorbed (front-end adjust-
ment); or (ii) at the time the deduction for
the assumed section 357(c)(3)(A) liabil-
ity is absorbed that reduces basis under
§1.1502-32(b), with no prior basis reduc-
tion under section 358 at the time of the
section 351 exchange (back-end adjust-
ment). The commenter recommended
the back-end adjustment approach for
various reasons, including the additional
compliance costs and complexity asso-
ciated with tracking and monitoring the
transferee’s §1.1502-32(b) basis adjust-
ments (potentially over multiple years,
and potentially across multiple groups)
under the front-end adjustment approach.
The commenter also expressed the view
that the back-end adjustment approach is
the prevailing approach currently applied
by taxpayers.
Explanation of Provisions
The withdrawal of the proposed con-
solidated section 357(c) regulations was
not intended to suggest that a front-end
adjustment approach is required. To reflect
the Treasury Department’s and the IRS’s
view regarding the appropriate timing for
the single basis reduction for an assumed
section 357(c)(3)(A) liability, and to clar-
ify that a back-end adjustment is appro-
priate, this document would repropose the
proposed consolidated section 357(c) reg-
ulations in modified form.
Proposed Applicability Date
Pursuant to section 1503(a) of the Code,
these proposed regulations would apply to
consolidated return years for which the due
date of the return (without regard to exten-
sions) is after [date of publication of final
regulations in the Federal Register].
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
These regulations update the regula-
tions under section 1502 to clarify the tim-
ing of a single basis adjustment required
by statute. Therefore, the proposed regula-
tions would not impose additional report-
ing burden beyond what is otherwise
required by existing statutes, regulations,
and forms. The total burden associated
with the proposed regulations, if finalized
in their current form, would be $0.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), the Secretary of
the Treasury certifies that the proposed
regulations would not have a significant
economic impact on a substantial number
of small entities. This certification is based
on the fact that the proposed regulations
would apply only to corporations that file
consolidated Federal income tax returns,
and that such corporations tend to be
larger businesses. Therefore, the proposed
regulations would not create additional
obligations for, or impose an economic
impact on, small entities. Accordingly,
the Secretary certifies that these proposed
regulations will not have significant eco-
nomic impact on a significant number of
small entities.
Pursuant to section 7805(f) of the
Code, the proposed regulations have been
submitted to the Chief Counsel for the
Office of Advocacy of the Small Business
Administration for comment on its impact
on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies

Bulletin No. 2025–4 515 January 20, 2025
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in
any one year by a State, local, or Tribal
government, in the aggregate, or by the
private sector, of $100 million in 1995
dollars, updated annually for inflation.
The proposed regulations do not propose
any rule that would include any Federal
mandate that may result in expenditures
by State, local, or Tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Exec-
utive order. The proposed regulations
do not propose rules that would have
federalism implications, impose sub-
stantial direct compliance costs on State
and local governments, or preempt State
law within the meaning of the Executive
order.
Comments and Requests for a Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any comments
that are submitted timely to the IRS as
prescribed in this preamble under the
“ADDRESSES” heading. The Treasury
Department and the IRS request com-
ments on all aspects of the proposed
regulations. All commenters are strongly
encouraged to submit comments elec-
tronically. The Treasury Department and
the IRS will publish for public availabil-
ity any comment submitted electronically
or on paper to its public docket on https://
www.regulations.gov.
A public hearing will be scheduled
if requested in writing by any person
who timely submits electronic or written
comments. Requests for a public hearing
are encouraged to be made electroni-
cally. If a public hearing is scheduled, a
notice of the date and time for the public
hearing will be published in the Federal
Register.
Drafting Information
The principal authors of this document
are William W. Burhop and Kelton P. Frye
of the Office of Associate Chief Counsel
(Corporate). Other personnel from the
Treasury Department and the IRS partic-
ipated in its development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1502-80 is amended
by:
1. Revising paragraph (d)(1); and
2. Adding paragraphs (d)(3) and (4).
The revision and additions read as fol-
lows:
§1.1502-80 Applicability of other
provisions of law.
* * * * *
(d) * * *
(1) In general. Section 357(c) does
not apply to any transaction to which
§1.1502-13 applies if it occurs in a con-
solidated return year beginning on or
after [date of publication of final regu-
lations in the Federal Register]. Not-
withstanding the foregoing, for purposes
of determining the transferor’s basis in
property under section 358(a) received
in a transfer described in section 351,
section 358(d)(2) operates to exclude
liabilities described in section 357(c)(3)
(A), other than those also described in
section 357(c)(3)(B), from the computa-
tion of the amount of liabilities assumed
that is treated as money received under
section 358(d)(1), if the transfer occurs
in a consolidated return year beginning
after [date of publication of final regula-
tions in the Federal Register]. This para-
graph (d) does not apply to a transaction
if the transferor or transferee becomes a
nonmember as part of the same plan or
arrangement. The transferor (or trans-
feree) is treated as becoming a non-
member once it is no longer a member
of a consolidated group that includes the
transferee (or transferor). For purposes
of this paragraph (d), any reference to a
transferor or transferee includes, as the
context may require, a reference to a suc-
cessor or predecessor.
* * * * *
(3) Examples. The principles of para-
graph (d)(1) of this section are illustrated
by the following examples.
(i) Example 1—(A) Facts. P, S, and T are mem-
bers of a consolidated group. P owns all the stock
of S and T with bases of $30 and $20, respectively.
S has a $30 basis in its assets and $40 of liabilities.
S merges into T in a transaction described in section
368(a)(1)(A) (and in section 368(a)(1)(D)).
(B) Analysis. Section 357(c) does not apply to
the merger. P’s basis in T’s stock increases to $50
($30 + $20), and T succeeds to S’s $30 basis in the
assets transferred subject to the $40 liability. Sim-
ilarly, if S instead transferred its assets and liabili-
ties to a newly formed subsidiary in a transaction to
which section 351 applies, section 357(c) does not
apply, and S’s basis in the subsidiary’s stock is a $10
excess loss account.
(ii) Example 2—(A) Facts. P owns all the stock
of S1. S1 has assets with a total fair market value
equal to $100 and an aggregate basis of $30. S1 has
$40 of liabilities, $5 of which are described in sec-
tion 357(c)(3)(A), but not section 357(c)(3)(B), and
$35 of which are not described in section 357(c)(3)
(A). S1 transfers its assets to a newly formed subsidi-
ary, S2, in exchange for stock of S2 and S2’s assump-
tion of the liabilities of $40 in a transaction to which
section 351 applies. P, S1, and S2 are members of a
consolidated group.
(B) Analysis. Section 357(c) does not apply to
cause S1 to recognize gain in connection with the
transfer. For purposes of determining S1’s basis in
the S2 stock it received in the exchange, section
358(d)(2) operates to exclude $5 of the liabilities
from the computation of the amount of liabilities
assumed that are treated as money received under
section 358(d)(1). S1’s basis in the S2 stock received
in the exchange is a $5 excess loss account (reflect-
ing its $30 basis in the assets transferred reduced by

January 20, 2025 516 Bulletin No. 2025–4
$35, the amount of liabilities assumed that are not
described in section 357(c)(3)(A)).
(4) Applicability dates. Paragraphs (d)
(1) and (3) of this section apply to con-
solidated return years for which the due
date of the return (without regard to exten-
sions) is after [date of publication of final
regulations in the Federal Register]. For
rules that apply to earlier taxable years,
see §1.1502-80(d) as contained in 26 CFR
part 1, revised April 1, 2024.
* * * * *
Douglas W. O’Donnell,
Deputy Commissioner
(Filed by the Office of the Federal Register Decem-
ber 27, 2024, 8:45 a.m., and published in the issue
of the Federal Register for December 30, 2024, 89
FR 106884)

Bulletin No. 2025–4 i January 20, 2025
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations
to show that the previous published 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 following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.
—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

January 20, 2025 ii Bulletin No. 2025–4
Numerical Finding List
1
Bulletin 2025–4
Announcements:
2025-2, 2025-2 I.R.B. 305
2025-3, 2025-2 I.R.B. 306
2025-4, 2025-2 I.R.B. 306
2025-1, 2025-3 I.R.B. 431
2025-5, 2025-3 I.R.B. 433
Notices:
2025-1, 2025-3 I.R.B. 415
2025-2, 2025-3 I.R.B. 418
2025-4, 2025-3 I.R.B. 419
2025-5, 2025-3 I.R.B. 426
2025-3, 2025-4 I.R.B. 488
Proposed Regulations:
REG-117213-24, 2025-3 I.R.B. 433
REG-134420-10, 2025-4 I.R.B. 513
Revenue Procedures:
2025-1, 2025-1 I.R.B. 1
2025-2, 2025-1 I.R.B. 118
2025-3, 2025-1 I.R.B. 142
2025-4, 2025-1 I.R.B. 158
2025-5, 2025-1 I.R.B. 260
2025-7, 2025-1 I.R.B. 301
2025-8, 2025-3 I.R.B. 427
2025-9, 2025-4 I.R.B. 491
2025-10, 2025-4 I.R.B. 492
2025-11, 2025-4 I.R.B. 501
2025-12, 2025-4 I.R.B. 512
Revenue Rulings:
2025-1, 2025-3 I.R.B. 307
2025-2, 2025-3 I.R.B. 309
2025-3, 2025-4 I.R.B. 443
Treasury Decisions:
10016, 2025-3 I.R.B. 313
10020, 2025-3 I.R.B. 408
10018, 2025-4 I.R.B. 446
10019, 2025-4 I.R.B. 482
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2024–27 through 2024–52 is in Internal Revenue Bulletin
2024–52, dated December 23, 2024.

Bulletin No. 2025–4 iii January 20, 2025
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2025–4
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2024–27 through 2024–52 is in Internal Revenue Bulletin
2024–52, dated December 23, 2024.

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