Internal Revenue Bulletin 2003-12 (PDF rendition): IRS Announcements

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

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9043, page 611.
Final regulations under section 874 of the Code relate to the dis-
allowance of deductions and credits for nonresident alien indi-
viduals and foreign corporations that fail to file a timely U.S.
income tax return.
T.D. 9045, page 610.
Final regulations under section 32 of the Code were published
in the Federal Register on March 13, 1980. Due to subsequent
statutory amendments in the applicable tax law, substantial por-
tions of the regulations are no longer in conformity with cur-
rent legislative provisions. These regulations remove and amend
portions of the existing regulations to conform with statutory
changes.
REG–104385–01, page 634.
Proposed regulations under section 168 of the Code provide guid-
ance on the normalization requirements applicable to electric utili-
ties that benefit (or have benefitted) from accelerated depreciation
methods or from the investment tax credit permitted under pre-
1991 law. A public hearing is scheduled for June 25, 2003.
EMPLOYEE PLANS
Notice 2003–17, page 633.
Weighted average interest rate update.The weighted aver-
age interest rate for March 2003 and the resulting permissible
range of interest rates used to calculate current liability for pur-
poses of the full funding limitation of section 412(c)(7) of the Code
are set forth.
Announcement 2003–16, page 641.
This document contains corrections to final regulations (T.D.
9021, 2002–51 I.R.B. 973) relating to loans made from a quali-
fied employer plan to plan participants or beneficiaries.
ADMINISTRATIVE
T.D. 9046, page 614.
Final regulations provide the disclosure requirements relating to
reportable transactions under section 6011 of the Code, the reg-
istration requirements for confidential corporate tax shelters un-
der section 6111(d), and the list maintenance requirements under
section 6112.
Bulletin No. 2003–12
March 24, 2003
Announcements of Disbarments and Suspensions begin on page 637.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying
the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of the
Commissioner of Internal Revenue for announcing official rul-
ings and procedures of the Internal Revenue Service and for pub-
lishing Treasury Decisions, Executive Orders, Tax Conventions,
legislation, court decisions, and other items of general inter-
est. It is published weekly and may be obtained from the Super-
intendent of Documents on a subscription basis. Bulletin contents
are consolidated semiannually into Cumulative Bulletins, which
are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, modify,
or amend any of those previously published in the Bulletin. All pub-
lished rulings apply retroactively unless otherwise indicated. Pro-
cedures relating solely to matters of internal management are
not published; however, statements of internal practices and pro-
cedures that affect the rights and duties of taxpayers are pub-
lished.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpay-
ers or technical advice to Service field offices, identifying de-
tails 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 re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-
cedures, the effect of subsequent legislation, regulations, court
decisions, rulings, and procedures must be considered, and Ser-
vice personnel and others concerned are cautioned against reach-
ing 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, Legisla-
tion and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these sub-
jects are contained in the other Parts and Subparts. Also in-
cluded in this part are Bank Secrecy Act Administrative Rulings.
Bank Secrecy Act Administrative Rulings are issued by the De-
partment of the Treasury’s Office of the Assistant Secretary (En-
forcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first 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 first Bulletin of the succeeding semiannual pe-
riod, respectively.
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.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
March 24, 20032003–12 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 32.—Earned Income
26 CFR 1.32–2: Earned income credit for taxable
years beginning after December 31, 1978.
T.D. 9045
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Earned Income Credit for
Taxable Years Beginning After
December 31, 1978
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations relating to the earned in-
come credit. The regulations reflect changes
in the law since the existing regulations
were published in theFederal Registeron
March 13, 1980. Due to subsequent statu-
tory changes in the applicable tax law, sub-
stantial portions of the regulations are no
longer in conformity with current law. Ac-
cordingly, portions of the existing regula-
tions are removed. These regulations apply
to individual taxpayers claiming the earned
income credit.
DATES:Effective Date:These regulations
are effective, March 6, 2003.
FOR FURTHER INFORMATION CON-
TACT: Shoshanna Tanner at (202) 622–
6080 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Income Tax Regulations (26 CFR Part
1) under section 32 of the Internal Rev-
enue Code (Code). Section 32 allows a re-
fundable credit to low-income taxpayers
who meet certain income and eligibility re-
quirements. Section 43 (the predecessor of
section 32) was added to the Code by the
Tax Reduction Act of 1975 (Public Law 94–
12, 89 Stat. 26) and made permanent by the
Revenue Act of 1978 (Public Law 95–
600, 92 Stat. 2763). Final regulations (T.D.
7683, 1980–1, C.B. 3 [45 FR 16174]) un-
der section 43 were published in theFed-
eral Registeron March 13, 1980. Section
43 was redesignated as section 32 by the
Tax Reform Act of 1984 (Public Law 98–
369, 98 Stat. 494). Section 1.43–2 was re-
designated as §1.32–2 in Treasury Decision
8448 (1992–2 C.B. 21 [57 FR 54919]) on
November 23, 1992.
Section 1.32–2(b)(2) of the existing regu-
lations refers to section 143 for an expla-
nation of the term “married individual.” The
provisions of section 143 were reenacted as
section 7703 by the Tax Reform Act of
1986 (Public Law 99–514, 100 Stat. 2085).
In addition, portions of the existing regu-
lations are inconsistent with changes made
by the Omnibus Budget Reconciliation Act
of 1990 (Public Law 101–508, 104 Stat.
1388), the Economic Growth and Tax Re-
lief Reconciliation Act of 2001 (Public Law
107–16, 115 Stat. 38), and various other leg-
islative enactments.
Explanation of Provisions
To comport with the redesignation of
section 43 to section 32 and §§1.43–2 to
1.32–2, these final regulations replace ref-
erences to section 43 with references to sec-
tion 32. Similarly, these regulations replace
the references to section 143 in §1.32–
2(b)(2) with references to section 7703.
These regulations also remove the incon-
sistent provisions in the existing regula-
tions.
Special Analyses
It has been determined that these final
regulations are not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. Because no no-
tice of proposed rulemaking is required, the
provisions of the Regulatory Flexibility Act
(5 U.S.C. chapter 6) do not apply. Pursu-
ant to section 7805(f), these regulations
were submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on their impact on
small business.
Drafting Information
The principal author of these regula-
tions is Shoshanna Tanner of the Office of
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties). However, other personnel from the
IRS and Department of Treasury partici-
pated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR Part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority for part 1
continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 1.32–2 is amended as
follows:
1. Paragraphs (a), (b)(1), (c)(1), and (d)
are removed and reserved.
2. Paragraphs (b)(2), (b)(3), (c)(2), and
(e)(2) are revised.
The revisions read as follows:
§1.32–2 Earned income credit for
taxable years beginning after December
31, 1978.
(a) [Reserved].
(b)***(1) [Reserved].
(2)Married individuals.No credit is al-
lowed by section 32 in the case of an eli-
gible individual who is married (within the
meaning of section 7703 and the regula-
tions thereunder) unless the individual and
spouse file a single return jointly (a joint
return) for the taxable year (see section 6013
and the regulations thereunder relating to
joint returns of income tax by husband and
wife). The requirements of the preceding
sentence do not apply to an eligible indi-
vidual who is not considered as married un-
der section 7703(b) and the regulations
thereunder (relating to certain married in-
dividuals living apart).
(3)Length of taxable year.No credit is
allowed by section 32 in the case of a tax-
able year covering a period of less than 12
months. However, the rule of the preced-
ing sentence does not apply to a taxable
year closed by reason of the death of the
eligible individual.
2003–12 I.R.B.610March 24, 2003

(c)***(1) [Reserved].
(2)Earned income.For purposes of this
section, earned income is computed with-
out regard to any community property laws
which may otherwise be applicable. Earned
income is reduced by any net loss in earn-
ings from self-employment. Earned in-
come does not include amounts received as
a pension, an annuity, unemployment com-
pensation, or workmen’s compensation, or
an amount to which section 871(a) and the
regulations thereunder apply (relating to in-
come of nonresident alien individuals not
connected with United States business).
(d) [Reserved].
(e)***(1)***.
(2)Reconciliation of payments advanced
and credit allowed.Any additional amount
of tax under paragraph (e)(1) of this sec-
tion is not treated as a tax imposed by chap-
ter 1 of the Internal Revenue Code for
purposes of determining the amount of any
credit (other than the earned income credit)
allowable under part IV, subchapter A, chap-
ter 1 of the Internal Revenue Code.
David A. Mader,
Assistant Deputy Commissioner
of Internal Revenue.
Approved February 11, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on March 5, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for March 6, 2003, 68 F.R. 10655)
Section 874.—Allowance of
Deductions and Credits
26 CFR 1.874–1: Allowance of deductions and
credits to nonresident alien individuals.
T.D. 9043
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Disallowance of Deductions
and Credits for Failure to File
Timely Return
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
SUMMARY: This document contains fi-
nal regulations relating to the disallow-
ance of deductions and credits for
nonresident alien individuals and foreign
corporations (collectively, foreign taxpay-
ers) that fail to file a timely U.S. income
tax return. The regulations affect foreign
taxpayers that fail to file a return by the ap-
propriate deadlines.
DATES:Effective Date:These regulations
are effective March 10, 2003.
Applicability Date:For dates of appli-
cability, see§§1.874–1(b)(4) and 1.882–
4(a)(3)(iv) of these regulations.
FOR FURTHER INFORMATION CON-
TACT: Nina E. Chowdhry, (202) 622–3880
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
26 CFR part 1. On January 29, 2002, fi-
nal and temporary regulations (T.D. 8981,
2002–7 I.R.B. 496 [67 FR 4173]) relat-
ing to the disallowance of deductions and
credits for foreign taxpayers that fail to file
a timely U.S. income tax return under sec-
tions 874 and 882 of the Internal Rev-
enue Code (Code) were published in the
Federal Register. A notice of proposed
rulemaking (REG–107100–00, 2002–7
I.R.B. 529 [67 FR 4217]) cross-referencing
the temporary regulations was also pub-
lished in theFederal Register. No pub-
lic hearing was requested or held. No
written or electronic comments respond-
ing to the notice of proposed rulemaking
were received. The proposed regulations are
adopted by this Treasury decision, and the
corresponding temporary regulations are re-
moved.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations and, because the
regulations do not impose a collection of
information requirement on small enti-
ties, the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Therefore, a
Regulatory Flexibility Analysis is not re-
quired. Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding these regulations was submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for com-
ment on its impact on small businesses.
Drafting Information
The principal author of these regula-
tions is Nina Chowdhry of the Office of As-
sociate Chief Counsel (International).
However, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PA RT 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the en-
tries for“Section 1.874–1T”and“Sec-
tion 1.882–4T”and adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805***
Section 1.874–1 also issued under 26
U.S.C. 874.***
Section 1.882–4 also issued under 26
U.S.C. 882(c).***
Par. 2. Section 1.874–1, paragraphs (b)(2)
through (b)(4) are revised to read as follows:
§1.874–1 Allowance of deductions and
credits to nonresident alien individuals.
*****
(b)***
(2)Waiver.The filing deadlines set forth
in paragraph (b)(1) of this section may be
waived if the nonresident alien individual
establishes to the satisfaction of the Com-
missioner or his or her delegate that the in-
dividual, based on the facts and
circumstances, acted reasonably and in good
faith in failing to file a U.S. income tax re-
turn (including a protective return (as de-
scribed in paragraph (b)(6) of this section)).
For this purpose, a nonresident alien indi-
vidual shall not be considered to have acted
reasonably and in good faith if the indi-
March 24, 20036112003–12 I.R.B.

vidual knew that he or she was required to
file the return and chose not to do so. In
addition, a nonresident alien individual shall
not be granted a waiver unless the indi-
vidual cooperates in determining his or her
U.S. income tax liability for the taxable year
for which the return was not filed. The
Commissioner or his or her delegate shall
consider the following factors in determin-
ing whether the nonresident alien indi-
vidual,basedonthefactsand
circumstances, acted reasonably and in good
faith in failing to file a U.S. income tax
return—
(i) Whether the individual voluntarily
identifies himself or herself to the Inter-
nal Revenue Service as having failed to file
a U.S. income tax return before the Inter-
nal Revenue Service discovers the failure
to file;
(ii) Whether the individual did not be-
come aware of his or her ability to file a
protective return (as described in para-
graph (b)(6) of this section) by the dead-
line for filing the protective return;
(iii) Whether the individual had not pre-
viously filed a U.S. income tax return;
(iv) Whether the individual failed to file
a U.S. income tax return because, after ex-
ercising reasonable diligence (taking into ac-
count his or her relevant experience and
level of sophistication), the individual was
unaware of the necessity for filing the re-
turn;
(v) Whether the individual failed to file
a U.S. income tax return because of inter-
vening events beyond the individual’s con-
trol; and
(vi) Whether other mitigating or exac-
erbating factors existed.
(3)Examples.The following examples
illustrate the provisions of paragraph (b). In
all examples, A is a nonresident alien in-
dividual and uses the calendar year as A’s
taxable year. The examples are as follows:
Example 1. Nonresident alien individual dis-
closes own failure to file.In Year 1, A became a lim-
ited partner with a passive investment in a U.S. limited
partnership that was engaged in a U.S. trade or busi-
ness. During Year 1 through Year 4, A incurred losses
with respect to A’s U.S. partnership interest. A’s for-
eign tax advisor incorrectly concluded that because A
was a limited partner and had only losses from A’s
partnership interest, A was not required to file a U.S.
income tax return. A was aware neither of A’s obli-
gation to file a U.S. income tax return for those years
nor of A’s ability to file a protective return for those
years. A had never filed a U.S. income tax return be-
fore. In Year 5, A began realizing a profit rather than
a loss with respect to the partnership interest and, for
this reason, engaged a U.S. tax advisor to handle A’s
responsibility to file U.S. income tax returns. In pre-
paring A’s U.S. income tax return for Year 5, A’s U.S.
tax advisor discovered that returns were not filed for
Year 1 through Year 4. Therefore, with respect to those
years for which applicable filing deadlines in para-
graph (b)(1) of this section were not met, A would be
barred by paragraph (a) of this section from claim-
ing any deductions that otherwise would have given
rise to net operating losses on returns for these years,
and that would have been available as loss carryfor-
wards in subsequent years. At A’s direction, A’sU.S.
tax advisor promptly contacted the appropriate ex-
amining personnel and cooperated with the Internal
Revenue Service in determining A’s income tax li-
ability, for example, by preparing and filing the ap-
propriate income tax returns for Year 1 through Year
4 and by making A’s books and records available to
an Internal Revenue Service examiner. A has met the
standard described in paragraph (b)(2) of this sec-
tion for waiver of any applicable filing deadlines in
paragraph (b)(1) of this section.
Example 2. Nonresident alien individual refuses
to cooperate.Same facts as inExample 1, except that
while A’s U.S. tax advisor contacted the appropri-
ate examining personnel and filed the appropriate in-
come tax returns for Year 1 through Year 4, A refused
all requests by the Internal Revenue Service to pro-
vide supporting information (for example, books and
records) with respect to those returns. Because A did
not cooperate in determining A’s U.S. tax liability for
the taxable years for which an income tax return was
not timely filed, A is not granted a waiver as de-
scribed in paragraph (b)(2) of this section of any ap-
plicable filing deadlines in paragraph (b)(1) of this
section.
Example 3. Nonresident alien individual fails to
file a protective return.Same facts as inExample 1,
except that in Year 1 through Year 4, A also con-
sulted a U.S. tax advisor, who advised A that it was
uncertain whether U.S. income tax returns were nec-
essary for those years and that A could protect A’s right
subsequently to claim the loss carryforwards by fil-
ing protective returns under paragraph (b)(6) of this
section. A did not file U.S. income tax returns or pro-
tective returns for those years. A did not present evi-
dence that intervening events beyond A’s control
prevented A from filing an income tax return, and there
were no other mitigating factors. A has not met the
standard described in paragraph (b)(2) of this sec-
tion for waiver of any applicable filing deadlines in
paragraph (b)(1) of this section.
Example 4. Nonresident alien with effectively con-
nected income.In Year 1, A, a computer program-
mer, opened an office in the United States to market
and sell a software program that A had developed out-
side the United States. A had minimal business or tax
experience internationally, and no such experience in
the United States. Through A’s personal efforts, U.S.
sales of the software produced income effectively con-
nected with a U.S. trade or business. A, however, did
not file U.S. income tax returns for Year 1 or Year 2.
A was aware neither of A’s obligation to file a U.S.
income tax return for those years, nor of A’s ability
to file a protective return for those years. A had never
filed a U.S. income tax return before. In November
of Year 3, A engaged U.S. counsel in connection with
licensing software to an unrelated U.S. company. U.S.
counsel reviewed A’s U.S. activities and advised A
that A should have filed U.S. income tax returns for
Year 1 and Year 2. A immediately engaged a U.S. tax
advisor who, at A’s direction, promptly contacted the
appropriate examining personnel and cooperated with
the Internal Revenue Service in determining A’sin-
come tax liability, for example, by preparing and fil-
ing the appropriate income tax returns for Year 1 and
Year 2 and by making A’s books and records avail-
able to an Internal Revenue Service examiner. A has
met the standard described in paragraph (b)(2) of this
section for waiver of any applicable filing deadlines
in paragraph (b)(1) of this section.
Example 5. IRS discovers nonresident alien’s fail-
ure to file.In Year 1, A, a computer programmer,
opened an office in the United States to market and
sell a software program that A had developed out-
side the United States. Through A’s personal ef-
forts, U.S. sales of the software produced income
effectively connected with a U.S. trade or business.
A had extensive experience conducting similar busi-
ness activities in other countries, including making the
appropriate tax filings. A, however, was aware nei-
ther of A’s obligation to file a U.S. income tax re-
turn for those years, nor of A’s ability to file a
protective return for those years. A had never filed a
U.S. income tax return before. Despite A’s exten-
sive experience conducting similar business activi-
ties in other countries, A made no effort to seek advice
in connection with A’s U.S. tax obligations. A failed
to file either U.S. income tax returns or protective re-
turns for Year 1 and Year 2. In November of Year 3,
an Internal Revenue Service examiner asked A for an
explanation of A’s failure to file U.S. income tax re-
turns. A immediately engaged a U.S. tax advisor, and
cooperated with the Internal Revenue Service in de-
termining A’s income tax liability, for example, by pre-
paring and filing the appropriate income tax returns
for Year 1 and Year 2 and by making A’s books and
records available to the examiner. A did not present
evidence that intervening events beyond A’s control
prevented A from filing a return, and there were no
other mitigating factors. A has not met the standard
described in paragraph (b)(2) of this section for waiver
of any applicable filing deadlines in paragraph (b)(1)
of this section.
Example 6. Nonresident alien with prior filing his-
tory.A began a U.S. trade or business in Year 1 as a
sole proprietorship. A’s tax advisor filed the appro-
priate U.S. income tax returns for Year 1 through Year
6, reporting income effectively connected with A’s U.S.
trade or business. In Year 7, A replaced this tax ad-
visor with a tax advisor unfamiliar with U.S. tax law.
A did not file a U.S. income tax return for any year
from Year 7 through Year 10, although A had effec-
tively connected income for those years. A was aware
of A’s ability to file a protective return for those years.
In Year 11, an Internal Revenue Service examiner con-
tacted A and asked for an explanation of A’s failure
to file income tax returns after Year 6. A immedi-
ately engaged a U.S. tax advisor and cooperated with
the Internal Revenue Service in determining A’sin-
come tax liability, for example, by preparing and fil-
ing the appropriate income tax returns for Year 7
through Year 10 and by making A’s books and records
available to the examiner. A did not present evi-
dence that intervening events beyond A’s control pre-
vented A from filing a return, and there were no other
mitigating factors. A has not met the standard de-
scribed in paragraph (b)(2) of this section for waiver
of any applicable filing deadlines in paragraph (b)(1)
of this section.
(4)Effective date.Paragraphs (b)(2) and
(3) of this section are applicable to open
2003–12 I.R.B.612March 24, 2003

years for which a request for a waiver is
filed on or after January 29, 2002.
*****
§1.874–1T [Removed]
Par. 3. Section 1.874–1T is removed.
Par. 4. Section 1.882–4, paragraphs
(a)(3)(ii) through (a)(3)(iv) are revised to
read as follows:
§1.882–4 Allowance of deductions and
credits to foreign corporations.
(a)***
(3)***
(ii) The filing deadlines set forth in para-
graph (a)(3)(i) of this section may be
waived if the foreign corporation estab-
lishes to the satisfaction of the Commis-
sioner or his or her delegate that the
corporation, based on the facts and circum-
stances, acted reasonably and in good faith
in failing to file a U.S. income tax return
(including a protective return (as described
in paragraph (a)(3)(vi) of this section)). For
this purpose, a foreign corporation shall not
be considered to have acted reasonably and
in good faith if it knew that it was required
to file the return and chose not to do so. In
addition, a foreign corporation shall not be
granted a waiver unless it cooperates in the
process of determining its income tax li-
ability for the taxable year for which the re-
turn was not filed. The Commissioner or his
or her delegate shall consider the follow-
ing factors in determining whether the for-
eign corporation, based on the facts and
circumstances, acted reasonably and in good
faith in failing to file a U.S. income tax
return—
(A) Whether the corporation voluntar-
ily identifies itself to the Internal Rev-
enue Service as having failed to file a U.S.
income tax return before the Internal Rev-
enue Service discovers the failure to file;
(B) Whether the corporation did not be-
come aware of its ability to file a protec-
tive return (as described in paragraph
(a)(3)(vi) of this section) by the deadline
for filing a protective return;
(C) Whether the corporation had not pre-
viously filed a U.S. income tax return;
(D) Whether the corporation failed to file
a U.S. income tax return because, after ex-
ercising reasonable diligence (taking into ac-
count its relevant experience and level of
sophistication), the corporation was un-
aware of the necessity for filing the re-
turn;
(E) Whether the corporation failed to file
a U.S. income tax return because of inter-
vening events beyond its control; and
(F) Whether other mitigating or exac-
erbating factors existed.
(iii) The following examples illustrate the
provisions of this section. In all examples,
FC is a foreign corporation and uses the cal-
endar year as its taxable year. The examples
are as follows:
Example 1. Foreign corporation discloses own fail-
ure to file.In Year 1, FC became a limited partner with
a passive investment in a U.S. limited partnership that
was engaged in a U.S. trade or business. During Year
1 through Year 4, FC incurred losses with respect to
its U.S. partnership interest. FC’s foreign tax direc-
tor incorrectly concluded that because it was a lim-
ited partner and had only losses from its partnership
interest, FC was not required to file a U.S. income tax
return. FC’s management was aware neither of FC’s
obligation to file a U.S. income tax return for those
years, nor of its ability to file a protective return for
those years. FC had never filed a U.S. income tax re-
turn before. In Year 5, FC began realizing a profit
rather than a loss with respect to its partnership in-
terest and, for this reason, engaged a U.S. tax advi-
sor to handle its responsibility to file U.S. income tax
returns. In preparing FC’s income tax return for Year
5, FC’s U.S. tax advisor discovered that returns were
not filed for Year 1 through Year 4. Therefore, with
respect to those years for which applicable filing dead-
lines in paragraph (a)(3)(i) of this section were not met,
FC would be barred by paragraph (a)(2) of this sec-
tion from claiming any deductions that otherwise would
have given rise to net operating losses on returns for
those years, and that would have been available as loss
carryforwards in subsequent years. At FC’s direc-
tion, its U.S. tax advisor promptly contacted the ap-
propriate examining personnel and cooperated with the
Internal Revenue Service in determining FC’s in-
come tax liability, for example, by preparing and fil-
ing the appropriate income tax returns for Year 1
through Year 4 and by making FC’s books and records
available to an Internal Revenue Service examiner. FC
has met the standard described in paragraph (a)(3)(ii)
of this section for waiver of any applicable filing dead-
lines in paragraph (a)(3)(i) of this section.
Example 2. Foreign corporation refuses to coop-
erate. Same facts as inExample 1,except that while
FC’s U.S. tax advisor contacted the appropriate ex-
amining personnel and filed the appropriate income
tax returns for Year 1 through Year 4, FC refused all
requests by the Internal Revenue Service to provide
supporting information (for example, books and
records) with respect to those returns. Because FC did
not cooperate in determining its U.S. tax liability for
the taxable years for which an income tax return was
not timely filed, FC is not granted a waiver as de-
scribed in paragraph (a)(3)(ii) of this section of any
applicable filing deadlines in paragraph (a)(3)(i) of this
section.
Example 3. Foreign corporation fails to file a pro-
tective return.Same facts as inExample 1,except that
in Year 1 through Year 4, FC’s tax director also con-
sulted a U.S. tax advisor, who advised FC’s tax di-
rector that it was uncertain whether U.S. income tax
returns were necessary for those years and that FC
could protect its right subsequently to claim the loss
carryforwards by filing protective returns under para-
graph (a)(3)(vi) of this section. FC did not file U.S.
income tax returns or protective returns for those years.
FC did not present evidence that intervening events
beyond FC’s control prevented it from filing an in-
come tax return, and there were no other mitigating
factors. FC has not met the standard described in para-
graph (a)(3)(ii) of this section for waiver of any ap-
plicable filing deadlines in paragraph (a)(3)(i) of this
section.
Example 4. Foreign corporation with effectively
connected income.In Year 1, FC, a technology com-
pany, opened an office in the United States to mar-
ket and sell a software program that FC had developed
outside the United States. FC had minimal business
or tax experience internationally, and no such expe-
rience in the United States. Through FC’s direct ef-
forts, U.S. sales of the software produced income
effectively connected with a U.S. trade or business.
FC, however, did not file U.S. income tax returns for
Year 1 or Year 2. FC’s management was aware nei-
ther of FC’s obligation to file a U.S. income tax re-
turn for those years, nor of its ability to file a protective
return for those years. FC had never filed a U.S. in-
come tax return before. In January of Year 4, FC en-
gaged U.S. counsel in connection with licensing
software to an unrelated U.S. company. U.S. coun-
sel reviewed FC’s U.S. activities and advised FC that
it should have filed U.S. income tax returns for Year
1 and Year 2. FC immediately engaged a U.S. tax ad-
visor who, at FC’s direction, promptly contacted the
appropriate examining personnel and cooperated with
the Internal Revenue Service in determining FC’s in-
come tax liability, for example, by preparing and fil-
ing the appropriate income tax returns for Year 1 and
Year 2 and by making FC’s books and records avail-
able to an Internal Revenue Service examiner. FC has
met the standard described in paragraph (a)(3)(ii) of
this section for waiver of any applicable filing dead-
lines in paragraph (a)(3)(i) of this section.
Example 5. IRS discovers foreign corporation’s
failure to file.In Year 1, FC, a technology com-
pany, opened an office in the United States to mar-
ket and sell a software program that FC had developed
outside the United States. Through FC’s direct ef-
forts, U.S. sales of the software produced income ef-
fectively connected with a U.S. trade or business. FC
had extensive experience conducting similar busi-
ness activities in other countries, including making the
appropriate tax filings. However, FC’s management
was aware neither of FC’s obligation to file a U.S. in-
come tax return for those years, nor of its ability to
file a protective return for those years. FC had never
filed a U.S. income tax return before. Despite FC’s
extensive experience conducting similar business ac-
tivities in other countries, it made no effort to seek
advice in connection with its U.S. tax obligations. FC
failed to file either U.S. income tax returns or pro-
tective returns for Year 1 and Year 2. In January of
Year 4, an Internal Revenue Service examiner asked
FC for an explanation of FC’s failure to file U.S. in-
come tax returns. FC immediately engaged a U.S. tax
advisor, and cooperated with the Internal Revenue Ser-
vice in determining FC’s income tax liability, for ex-
ample, by preparing and filing the appropriate income
tax returns for Year 1 and Year 2 and by mak-
March 24, 20036132003–12 I.R.B.

ing FC’s books and records available to the examiner.
FC did not present evidence that intervening events
beyond its control prevented it from filing a return,
and there were no other mitigating factors. FC has not
met the standard described in paragraph (a)(3)(ii) of
this section for waiver of any applicable filing dead-
lines in paragraph (a)(3)(i) of this section.
Example 6. Foreign corporation with prior fil-
ing history.FC began a U.S. trade or business in Year
1. FC’s tax advisor filed the appropriate U.S. in-
come tax returns for Year 1 through Year 6, report-
ing income effectively connected with FC’s U.S. trade
or business. In Year 7, FC replaced its tax advisor with
a tax advisor unfamiliar with U.S. tax law. FC did not
file a U.S. income tax return for any year from Year
7 through Year 10, although it had effectively con-
nected income for those years. FC’s management was
aware of FC’s ability to file a protective return for
those years. In Year 11, an Internal Revenue Ser-
vice examiner contacted FC and asked its chief fi-
nancial officer for an explanation of FC’s failure to
file U.S. income tax returns after Year 6. FC imme-
diately engaged a U.S. tax advisor and cooperated with
the Internal Revenue Service in determining FC’s in-
come tax liability, for example, by preparing and fil-
ing the appropriate income tax returns for Year 7
through Year 10 and by making FC’s books and
records available to the examiner. FC did not present
evidence that intervening events beyond its control pre-
vented it from filing a return, and there were no other
mitigating factors. FC has not met the standard de-
scribed in paragraph (a)(3)(ii) of this section for waiver
of any applicable filing deadlines in paragraph (a)(3)(i)
of this section.
(iv) Paragraphs (a)(3)(ii) and (iii) of this
section are applicable to open years for
which a request for a waiver is filed on or
after January 29, 2002.
*****
§1.882–4T [Removed]
Par. 5. Section 1.882–4T is removed.
David A. Mader,
Assistant Deputy Commissioner
of Internal Revenue.
Approved January 17, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on March 7, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for March 10, 2003, 68 F.R. 11313)
Section 6011.—General
Requirement of Return,
Statement, or List
26 CFR 1.6011–4: Requirement of statement
disclosing participation in certain transactions by
taxpayers.
T.D. 9046
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 31,
53, 54, 56, 301, and 602
Tax Shelter Regulations
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: These regulations finalize the
rules relating to the filing by certain tax-
payers of a disclosure statement with their
federal tax returns under section 6011(a),
the rules relating to the registration of con-
fidential corporate tax shelters under sec-
tion 6111(d), and the rules relating to the
list maintenance requirements under sec-
tion 6112. These regulations affect taxpay-
ers participating in reportable transactions,
persons responsible for registering confi-
dential corporate tax shelters, and organiz-
ers and sellers of potentially abusive tax
shelters.
DATES:Effective Date:These regulations
are effective February 28, 2003.
Applicability Date:For dates of appli-
cability, see§1.6011–4(h),§20.6011–4(b),
§25.6011–4(b),§31.6011–4(b),§53.6011–
4(b),§54.6011–4(b),§56.6011–4(b),
§301.6111–2(h), and§301.6112–1(j).
FOR FURTHER INFORMATION CON-
TACT: Tara P. Volungis or Charlotte Chyr,
202–622–3070 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained
in these final regulations have been re-
viewed and approved by the Office of Man-
agement and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507)
under control numbers 1545–1685, 1545–
1687, and 1545–1686. Responses to these
collections of information are mandatory.
Form 8886,“Reportable Transaction Dis-
closure Statement”, reflects the collection
of information relating to the disclosure of
reportable transactions for the regulations
under§1.6011–4, and was approved by
OMB under control number 1545–1800.
Form 8264,“Application for Registration
of a Tax Shelter”, reflects the collection of
information relating to the registration of
tax shelters for the regulations under
§301.6111–2 and§301.6111–1T, and was
approved by OMB under control number
1545–0865.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
the collection of information displays a valid
OMB control number assigned by the Of-
fice of Management and Budget.
The estimated annual burden per
respondent/recordkeeper for the collec-
tion of information in§1.6011–4 will be re-
flected on Form 8886. The estimated annual
burden for the collection of information in
Form 8886 is 3,770 hours and the esti-
mated number of respondents/recordkeepers
is 500. The estimated annual burden per
respondent/recordkeeper for the collec-
tion of information in§301.6111–2isre-
flected on Form 8264. The estimated annual
burden for the collection of information in
Form 8264 is 14,382 hours and the esti-
mated number of respondents/recordkeepers
is 350. The estimated annual burden per re-
cordkeeper for the collection of informa-
tion in§301.6112–1 is 100 hours and the
estimated number of recordkeepers is 500.
Comments concerning the accuracy of
these burden estimates and suggestions for
reducing these burdens should be sent to the
Internal Revenue Service,Attn: IRS Re-
ports Clearance Officer, W:CAR:MP:T:T:
SP, Washington, DC 20224, and to the
Office of Management and Budget,Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Regu-
latory Affairs, Washington, DC 20503.
Books and records relating to these col-
lections of information must be retained as
long as their contents may become mate-
rial in the administration of any internal rev-
enue law. Generally, tax returns and tax
return information are confidential, as re-
quired by 26 U.S.C. 6103.
Background
This document amends 26 CFR part 1
to provide rules relating to the disclosure
of reportable transactions by certain tax-
payers on their federal tax returns under sec-
tion 6011, and also amends 26 CFR parts
20, 25, 31, 53, 54, and 56 to provide rules
for purposes of estate, gift, employment, and
pension and exempt organizations excise
2003–12 I.R.B.614March 24, 2003

taxes requiring the disclosure of listed trans-
actions by certain taxpayers on their fed-
eral tax returns under section 6011. This
document amends 26 CFR part 301 to pro-
vide rules regarding the registration of con-
fidential corporate tax shelters under section
6111(d) and rules relating to the list main-
tenance requirements under section 6112.
On February 28, 2000, the IRS issued
temporary and proposed regulations re-
garding sections 6011, 6111, and 6112 (T.D.
8877, 2000–1 C.B. 747, REG–103735–
00, 2000–1 C.B. 770; T.D. 8876, 2000–1
C.B. 753, REG–110311–98, 2000–1 C.B.
767; T.D. 8875, 2000–1 C.B. 761, REG–
103736–00, 2000–1 C.B. 768) (the Febru-
ary 2000 regulations). The February 2000
regulations were published in theFed-
eral Register(65 FR 11205, 65 FR 11269;
65 FR 11215, 65 FR 11272; 65 FR 11211,
65 FR 11271) on March 2, 2000. On Au-
gust 11, 2000, the IRS issued temporary and
proposed regulations modifying the rules
under sections 6011, 6111, and 6112 (T.D.
8896, 2000–2 C.B. 249, REG–103735–
00, REG–110311–98, REG–103736–00,
2000–2 C.B. 258) (the August 2000 regu-
lations). The August 2000 regulations were
published in theFederal Register(65 FR
49909, 65 FR 49955) on August 16, 2000.
On August 2, 2001, the IRS issued tem-
porary and proposed regulations modify-
ing the rules under sections 6011 and 6111
(T.D. 8961, 2001–2 C.B. 194, REG–
103735–00, REG–110311–98, REG–
103736–00, 2001–2 C.B. 204) (the August
2001 regulations). The August 2001 regu-
lations were published in theFederal Reg-
ister(66 FR 41133, 66 FR 41169) on
August 7, 2001. On June 14, 2002, the IRS
issued temporary and proposed regula-
tions modifying the rules under sections
6011 and 6111 (T.D. 9000, 2002–28 I.R.B.
87, REG–103735–00, REG–110311–98,
2002–28 I.R.B. 109) (the June 2002 regu-
lations). The June 2002 regulations were
published in theFederal Register(67 FR
41324, 67 FR 41362) on June 18, 2002. On
October 17, 2002, the IRS issued tempo-
rary and proposed regulations modifying the
rules under sections 6011, 6111, and 6112
(T.D. 9017, 2002–45 I.R.B. 815, REG–
103735–00, REG–154117–02, REG–
154116–02, REG–154115–02, REG–
154429–02, REG–154423–02, REG–
154426–02, REG–110311–98, 2002–45
I.R.B. 832; T.D. 9018, 2002–45 I.R.B. 823,
REG–103736–00, 2002–45 I.R.B. 834) (the
October 2002 regulations). The October
2002 regulations were published in theFed-
eral Register(67 FR 64799, 67 FR 64840;
67 FR 64807, 67 FR 64842) on October 22,
2002. On December 11, 2002, and on Janu-
ary 7, 2003, the IRS and Treasury Depart-
ment held a public hearing on these
regulations. Written and electronic com-
ments responding to the temporary regu-
lations and the notices of proposed
rulemaking were received. After consider-
ation of all the statements and comments,
the proposed regulations are adopted as
amended by this Treasury decision, and the
corresponding temporary regulations are re-
moved. The revisions are discussed be-
low.
Explanation and Summary of
Comments
1.In General
These regulations finalize the rules for
disclosure of reportable transactions, reg-
istration of confidential corporate tax shel-
ters, and list maintenance of potentially
abusive tax shelters. Sections 20.6011–4,
25.6011–4,31.6011–4,53.6011–4,
54.6011–4, 56.6011–4, and 301.6111–2 fi-
nalize each corresponding proposed regu-
lation with few, if any, changes. Sections
1.6011–4 and 301.6112–1 modify and fi-
nalize each corresponding proposed regu-
lation.
The IRS and Treasury Department re-
ceived numerous comments relating to the
October 2002 temporary regulations re-
garding disclosure under§1.6011–4T and
list maintenance under§301.6112–1T. All
comments were reviewed thoroughly. In
particular, the IRS and Treasury Depart-
ment reviewed the commentators’sug-
gested clarifications to the rules pertaining
to loss transactions and transactions with a
significant book-tax difference, and to the
rules pertaining to who must disclose trans-
actions under section 6011. The IRS and
Treasury Department also focused specifi-
cally on the comments relating to the rules
pertaining to material advisors and the rules
pertaining to the persons who must be in-
cluded on lists under section 6112. In re-
sponse to the commentators’suggested
clarifications, the final regulations have been
revised to tailor more narrowly the scope
of the transactions for which disclosure and
maintenance of information under sec-
tions 6011 and 6112 is required. The ma-
jor changes to the regulations are described
below.
2.Section 6011—Participants
The definition of participation has been
clarified in the final regulations. Report-
ing of transactions by RICs and reporting
of certain leasing transactions have been ex-
cluded from the requirements under
§1.6011–4, provided that the transactions
are not listed transactions.
3.Section 6011—Confidential
Transactions
A confidential transaction is a transac-
tion that is offered under conditions of con-
fidentiality. The regulations generally
provide a presumption of non-confidentiality
if the taxpayer receives written authoriza-
tion to disclose the tax treatment and tax
structure of the transaction. Some com-
mentators suggested the following changes
to the regulations: (1) clarification regard-
ing when the written authorization to dis-
close has to be effective, (2) clarification
regarding whether proprietary transactions
are confidential if there is a written autho-
rization to disclose, and (3) an exception for
certain merger and acquisition transac-
tions. In response to those comments, the
IRS and Treasury Department have made
modifications to the factors for a confiden-
tial transaction in the final regulation.
The final regulations delete the clarifi-
cation, under the definition of a confiden-
tial transaction for purposes of both section
6011 and section 6111, that a privilege held
by the taxpayer does not cause a transac-
tion to be confidential. The IRS and Trea-
sury Department believe that this
clarification is not necessary because the
attorney-client privilege (or the confiden-
tiality privilege of section 7525(a)) does not
affect whether a transaction is confiden-
tial. A claim of privilege does not restrict
the taxpayer’s ability to disclose the tax
treatment or tax structure of a transac-
tion.
4.Section 6011—Transactions with
Contractual Protection
Commentators indicated that it is inap-
propriate to require the reporting of a trans-
action for which the taxpayer obtains tax
insurance. Other commentators suggested
that the contractual protection factor would
require the reporting of numerous non-
abusive types of transactions, such as le-
gitimate business transactions with tax
indemnities or rights to terminate the trans-
March 24, 20036152003–12 I.R.B.

action in the event of a change in tax law.
In response to these comments, the IRS and
Treasury Department changed the focus of
the contractual protection factor to whether
fees are refundable or contingent. How-
ever, if it comes to the attention of the IRS
and Treasury Department that other types
of contractual protection, including tax in-
surance or tax indemnities, are being used
to facilitate abusive transactions, changes
to the regulations will be considered.
5.Section 6011—Loss Transactions
Many commentators suggested that the
loss transaction factor was over broad and
would require disclosure of a significant
number of transactions occurring in the or-
dinary course of business. In response to
these comments, exceptions to the loss
transaction factor will be issued in sepa-
rate published guidance.
6.Section 6011—Transactions with a
Significant Book-Tax Difference
The IRS and Treasury Department re-
ceived many comments on the use of U.S.
GAAP, the manner in which gross assets are
to be calculated, and the potential exclu-
sion of items for purposes of the book-
tax difference factor. In response, the final
regulations revise the book-tax difference
factor to provide that if a taxpayer in the
ordinary course of its business keeps books
on a basis other than U.S. GAAP and does
not use U.S. GAAP for any purpose, then
the taxpayer may determine the treatment
of a book item by using the books main-
tained by the taxpayer, provided the books
are kept on the same basis consistently from
year to year. In addition, the final regula-
tions increase the requisite gross asset
amount to $250 million or more and specify
that the amount of gross assets is deter-
mined by ascertaining whether the gross as-
sets equaled or exceeded $250 million for
book purposes at the end of any financial
accounting period that ends with or within
the entity’s taxable year in which the trans-
action occurs.
In response to comments that the scope
of the book-tax difference factor was over
broad, the IRS and Treasury Department
have revised the exceptions to this factor.
The exceptions to the book-tax difference
factor have been removed from the regu-
lations and will be issued in separate pub-
lished guidance.
7.Section 6011—Form 8886
Taxpayers will disclose reportable trans-
actions under the final regulations on Form
8886. Reportable transactions entered into
on or after January 1, 2003, and prior to
February 28, 2003, for which the taxpayer
does not choose to apply the final regula-
tions, may be disclosed on Form 8886 or
as provided in§1.6011–4T(c) as published
in theFederal Register(67 FR 41324) on
June 18, 2002. Form 8886 will allow tax-
payers to aggregate substantially similar
transactions on one form for disclosure pur-
poses.
8.Section 6112
Commentators requested clarification on
the definition of a material advisor and the
threshold fee requirement. In response to
those comments, the final regulations pro-
vide that a person is a material advisor if
the person is required to register a trans-
action under section 6111, or the person re-
ceives at least a minimum fee with respect
to the transaction and makes a tax state-
ment to certain taxpayers. In addition, the
IRS and Treasury Department have clari-
fied that fees are defined as all fees for ser-
vices for advice (whether or not tax advice)
or for the implementation of a transaction
that is a potentially abusive tax shelter.
In the final regulations, the IRS and
Treasury Department have clarified that the
procedures for asserting a privilege claim
apply to information required to be main-
tained in§301.6112–1(e)(3)(i)(I) that might
be privileged. This change reflects the IRS
and Treasury Department’s belief that the
other information covered by these regu-
lations is not privileged. These procedures
neither expand nor contract the scope of
items that may be privileged.
Effective Date
Regulations§§1.6011–4, 20.6011–4,
25.6011–4,31.6011–4,53.6011–4,
54.6011–4, 56.6011–4, 301.6111–2, and
301.6112–1 apply to transactions entered
into on or after February 28, 2003.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. It is hereby cer-
tified that the collection of information in
these regulations will not have a signifi-
cant economic impact on a substantial num-
ber of small entities. With regard to
disclosure and registration, this certifica-
tion is based upon the fact that the time re-
quired to prepare or retain the disclosure or
registration is not lengthy and will not have
a significant impact on those small enti-
ties that are required to provide disclo-
sure or to register. With regard to list
maintenance, this certification is based upon
the fact that the number of respondents is
small, those persons responsible for main-
taining the list described in the regula-
tions are principally sophisticated businesses,
including accounting firms and law firms,
and very few respondents, if any, are likely
to be small businesses. Therefore, a Regu-
latory Flexibility Analysis under the Regu-
latory Flexibility Act (5 U.S.C. chapter 6)
is not required. Pursuant to section 7805(f)
of the Internal Revenue Code, the notice of
proposed rulemaking preceding these regu-
lations was submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on their im-
pact on small business.
Drafting Information
The principal authors of these regula-
tions are Tara P. Volungis and Charlotte
Chyr of the Office of the Associate Chief
Counsel (Passthroughs and Special Indus-
tries). However, other personnel from the
IRS and Treasury Department participated
in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 20, 25, 31,
53, 54, 56, 301, and 602 are amended as
follows:
PA RT 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 1.6011–4 is added to read
as follows:
§1.6011–4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.
2003–12 I.R.B.616March 24, 2003

(a)In general.Every taxpayer that has
participated, as described in paragraph (c)(3)
of this section, in a reportable transaction
within the meaning of paragraph (b) of this
section and who is required to file a tax re-
turn must attach to its return for the tax-
able year described in paragraph (e) of this
section a disclosure statement in the form
prescribed by paragraph (d) of this sec-
tion. The fact that a transaction is a report-
able transaction shall not affect the legal
determination of whether the taxpayer’s
treatment of the transaction is proper.
(b)Reportable transactions—(1)In gen-
eral.A reportable transaction is a transac-
tion described in any of the paragraphs
(b)(2) through (7) of this section. The term
transactionincludes all of the factual ele-
ments relevant to the expected tax treat-
ment of any investment, entity, plan, or
arrangement, and includes any series of
steps carried out as part of a plan. There are
six categories of reportable transactions:
listed transactions, confidential transac-
tions, transactions with contractual protec-
tion, loss transactions, transactions with a
significant book-tax difference, and trans-
actions involving a brief asset holding pe-
riod.
(2)Listed transactions.A listed trans-
action is a transaction that is the same as
or substantially similar to one of the types
of transactions that the Internal Revenue
Service (IRS) has determined to be a tax
avoidance transaction and identified by no-
tice, regulation, or other form of published
guidance as a listed transaction.
(3)Confidential transactions—(i)In gen-
eral.A confidential transaction is a trans-
action that is offered to a taxpayer under
conditions of confidentiality. A transac-
tion is considered offered to a taxpayer un-
der conditions of confidentiality if the
taxpayer’s disclosure of the tax treatment
or the tax structure of the transaction is lim-
ited in any manner by an express or im-
plied understanding or agreement with or
for the benefit of any person who makes or
provides a statement, oral or written, to the
taxpayer (or for whose benefit a state-
ment is made or provided to the taxpayer)
as to the potential tax consequences that
may result from the transaction, whether or
not such understanding or agreement is le-
gally binding. A transaction also will be
considered offered to a taxpayer under con-
ditions of confidentiality if the taxpayer
knows or has reason to know that the tax-
payer’s use or disclosure of information re-
lating to the tax treatment or tax structure
of the transaction is limited in any other
manner (such as where the transaction is
claimed to be proprietary or exclusive) for
the benefit of any person, other than the tax-
payer, who makes or provides a statement,
oral or written, to the taxpayer (or for whose
benefit a statement is made or provided to
the taxpayer) as to the potential tax con-
sequences that may result from the trans-
action. All the facts and circumstances
relating to the transaction will be consid-
ered when determining whether a transac-
tion is offered to a taxpayer under
conditions of confidentiality, including the
prior conduct of the parties.
(ii)Exceptions—(A)Securities law.A
transaction is not considered offered to a
taxpayer under conditions of confidential-
ity if disclosure of the tax treatment or tax
structure of the transaction is subject to re-
strictions reasonably necessary to comply
with securities laws and such disclosure is
not otherwise limited.
(B)Mergers and acquisitions.In the case
of a proposed taxable or tax-free acquisi-
tion of historic assets of a corporation (other
than an investment company, as defined in
section 351(e), that is not publicly traded)
that constitute an active trade or business
the acquirer intends to continue, or a pro-
posed taxable or tax-free acquisition of more
than 50 percent of the stock of a corpora-
tion (other than an investment company, as
defined in section 351(e), that is not pub-
licly traded) that owns historic assets used
in an active trade or business the acquirer
intends to continue, the transaction is not
considered a confidential transaction un-
der this paragraph (b)(3) if the taxpayer is
permitted to disclose the tax treatment and
tax structure of the transaction no later than
the earlier of the date of the public an-
nouncement of discussions relating to the
transaction, the date of the public announce-
ment of the transaction, or the date of the
execution of an agreement (with or with-
out conditions) to enter into the transac-
tion. However, this exception is not
available where the taxpayer’s ability to
consult any tax advisor (including a tax ad-
visor independent from all other entities in-
volved in the transaction) regarding the tax
treatment or tax structure of the transac-
tion is limited in any way.
(iii)Presumption.Unless the facts and
circumstances indicate otherwise, a trans-
action is not considered offered to a tax-
payer under conditions of confidentiality if
every person who makes or provides a
statement, oral or written, to the taxpayer
(or for whose benefit a statement is made
or provided to the taxpayer) as to the po-
tential tax consequences that may result
from the transaction, provides express writ-
ten authorization to the taxpayer in sub-
stantially the following form:“the taxpayer
(and each employee, representative, or other
agent of the taxpayer) may disclose to any
and all persons, without limitation of any
kind, the tax treatment and tax structure of
the transaction and all materials of any kind
(including opinions or other tax analyses)
that are provided to the taxpayer relating
to such tax treatment and tax structure.”Ex-
cept as provided in paragraph (b)(3)(ii) of
this section, this presumption is available
only in cases in which each written autho-
rization permits the taxpayer to disclose the
tax treatment and tax structure of the trans-
action immediately upon commencement of
discussions with the person providing the
authorization and each written authoriza-
tion is given no later than 30 days from the
day the person providing the written au-
thorization first makes or provides a state-
ment to the taxpayer regarding the tax
consequences of the transaction. A trans-
action that is claimed to be exclusive or pro-
prietary to any party other than the taxpayer
will not be considered a confidential trans-
action under this paragraph (b)(3) if writ-
ten authorization to disclose is provided to
the taxpayer in accordance with this para-
graph (b)(3)(iii) and the transaction is not
otherwise confidential.
(4)Transactions with contractual
protection—(i)In general.A transaction
with contractual protection is a transac-
tion for which the taxpayer or a related
party (as described in section 267(b) or
707(b)) has the right to a full or partial re-
fund of fees (as described in paragraph
(b)(4)(ii) of this section) if all or part of the
intended tax consequences from the trans-
action are not sustained. A transaction with
contractual protection also is a transac-
tion for which fees (as described in para-
graph (b)(4)(ii) of this section) are
contingent on the taxpayer’s realization of
tax benefits from the transaction. All the
facts and circumstances relating to the trans-
action will be considered when determin-
March 24, 20036172003–12 I.R.B.

ing whether a fee is refundable or
contingent, including the right to reim-
bursements of amounts that the parties to
the transaction have not designated as fees
or any agreement to provide services with-
out reasonable compensation.
(ii)Fees.Paragraph (b)(4)(i) of this sec-
tion only applies with respect to fees paid
by or on behalf of the taxpayer or a re-
lated party to any person who makes or pro-
vides a statement, oral or written, to the
taxpayer or related party (or for whose ben-
efit a statement is made or provided to the
taxpayer or related party) as to the poten-
tial tax consequences that may result from
the transaction.
(iii)Exceptions—(A)Termination of
transaction.A transaction is not consid-
ered to have contractual protection solely
because a party to the transaction has the
right to terminate the transaction upon the
happening of an event affecting the taxa-
tion of one or more parties to the transac-
tion.
(B)Previously reported transaction.If
a person makes or provides a statement to
a taxpayer as to the potential tax conse-
quences that may result from a transac-
tion only after the taxpayer has entered into
the transaction and reported the conse-
quences of the transaction on a filed tax re-
turn, and the person has not previously
received fees from the taxpayer relating to
the transaction, then any refundable or con-
tingent fees are not taken into account in
determining whether the transaction has
contractual protection. This paragraph
(b)(4)(iii)(B) does not provide any sub-
stantive rules regarding when a person may
charge refundable or contingent fees with
respect to a transaction. See Circular 230,
31 CFR Part 10, for the regulations gov-
erning practice before the IRS.
(5)Loss transactions—(i)In general.A
loss transaction is any transaction result-
ing in the taxpayer claiming a loss under
section 165 of at least—
(A) $10 million in any single taxable
year or $20 million in any combination of
taxable years for corporations;
(B) $10 million in any single taxable
year or $20 million in any combination of
taxable years for partnerships that have only
corporations as partners (looking through
any partners that are themselves partner-
ships), whether or not any losses flow
through to one or more partners; or $2 mil-
lion in any single taxable year or $4 mil-
lion in any combination of taxable years for
all other partnerships, whether or not any
losses flow through to one or more part-
ners;
(C) $2 million in any single taxable year
or $4 million in any combination of tax-
able years for individuals, S corporations,
or trusts, whether or not any losses flow
through to one or more shareholders or ben-
eficiaries; or
(D) $50,000 in any single taxable year
for individuals or trusts, whether or not the
loss flows through from an S corporation
or partnership, if the loss arises with re-
spect to a section 988 transaction (as de-
fined in section 988(c)(1) relating to foreign
currency transactions).
(ii)Cumulative losses.In determining
whether a transaction results in a taxpayer
claiming a loss that meets the threshold
amounts over a combination of taxable
years as described in paragraph (b)(5)(i) of
this section, only losses claimed in the tax-
able year that the transaction is entered into
and the five succeeding taxable years are
combined.
(iii)Section 165 loss.(A) For purposes
of this section, in determining the thresh-
olds in paragraph (b)(5)(i) of this section,
the amount of a section 165 loss is ad-
justed for any salvage value and for any in-
surance or other compensation received. See
§1.165–1(c)(4). However, a section 165 loss
does not take into account offsetting gains,
or other income or limitations. For ex-
ample, a section 165 loss does not take into
account the limitation in section 165(d) (re-
lating to wagering losses) or the limita-
tions in sections 165(f), 1211, and 1212
(relating to capital losses). The full amount
of a section 165 loss is taken into account
for the year in which the loss is sustained,
regardless of whether all or part of the loss
enters into the computation of a net oper-
ating loss under section 172 or a net capi-
tal loss under section 1212 that is a
carryback or carryover to another year. A
section 165 loss does not include any por-
tion of a loss, attributable to a capital loss
carryback or carryover from another year,
that is treated as a deemed capital loss un-
der section 1212.
(B) For purposes of this section, a sec-
tion 165 loss includes an amount deduct-
ible pursuant to a provision that treats a
transaction as a sale or other disposition, or
otherwise results in a deduction under sec-
tion 165. A section 165 loss includes, for
example, a loss resulting from a sale or ex-
change of a partnership interest under sec-
tion 741 and a loss resulting from a section
988 transaction.
(6)Transactions with a significant book-
tax difference—(i)In general.A transac-
tion with a significant book-tax difference
is a transaction where the amount for tax
purposes of any item or items of income,
gain, expense, or loss from the transac-
tion differs by more than $10 million on a
gross basis from the amount of the item or
items for book purposes in any taxable year.
For purposes of this determination, offset-
ting items shall not be netted for either tax
or book purposes. For purposes of this para-
graph (b)(6), the amount of an item for
book purposes is determined by applying
U.S. generally accepted accounting prin-
ciples (U.S. GAAP) for worldwide income.
However, if a taxpayer, in the ordinary
course of its business, keeps books for re-
porting financial results to shareholders,
creditors, or regulators on a basis other than
U.S. GAAP, and does not maintain U.S.
GAAP books for any purpose, then the tax-
payer may determine the amount of a book
item for purposes of this paragraph (b)(6)
by using the books maintained by the tax-
payer, provided the books are kept on the
same basis consistently from year to year.
Adjustments to any reserve for taxes are
disregarded for purposes of determining the
book-tax difference.
(ii)Applicability—(A)In general.This
paragraph (b)(6) applies only to—
(1) Taxpayers that are reporting com-
panies under the Securities Exchange Act
of 1934 (15 USC 78a) and related busi-
ness entities (as described in section 267(b)
or 707(b)); or
(2) Business entities that have $250 mil-
lion or more in gross assets for book pur-
poses at the end of any financial accounting
period that ends with or within the enti-
ty’s taxable year in which the transaction
occurs (for purposes of this determina-
tion, the assets of all related business en-
tities (as defined in section 267(b) or
707(b)) must be aggregated).
(B)Consolidated returns.For purposes
of this paragraph (b)(6), in the case of tax-
payers that are members of a group of af-
filiated corporations filing a consolidated
return, transactions solely between or among
members of the group will be disregarded.
Moreover, where two or more members of
the group participate in a transaction that
is not solely between or among members
2003–12 I.R.B.618March 24, 2003

of the group, items shall be aggregated (as
if such members were a single taxpayer),
but any offsetting items shall not be net-
ted.
(C)Foreign persons.In the case of a
taxpayer that is a foreign person (other than
a foreign corporation that is treated as a do-
mestic corporation for federal tax purposes
under section 269B, 953(d), 1504(d) or any
other provision of the Internal Revenue
Code), only assets that are U.S. assets un-
der§1.884–1(d) shall be taken into ac-
countforpurposesofparagraph
(b)(6)(ii)(A)(2) of this section, and only
transactions that give rise to income that is
effectively connected with the conduct of
a trade or business within the United States
(or to losses, expenses, or deductions al-
located or apportioned to such income) shall
be taken into account for purposes of this
paragraph (b)(6).
(D)Owners of disregarded entities.In
the case of an eligible entity that is disre-
garded as an entity separate from its owner
for federal tax purposes, items of income,
gain, loss, or expense that otherwise are
considered items of the entity for book pur-
poses shall be treated as items of its owner,
and items arising from transactions be-
tween the entity and its owner shall be dis-
regarded, for purposes of this paragraph
(b)(6).
(E)Partners of partnerships.In the case
of a taxpayer that is a member or a part-
ner of an entity that is treated as a part-
nership for federal tax purposes, items of
income, gain, loss, or expense that are al-
locable to the taxpayer for federal tax pur-
poses, but otherwise are considered items
of the entity for book purposes, shall be
treated as items of the taxpayer for pur-
poses of this paragraph (b)(6).
(7)Transactions involving a brief as-
set holding period.A transaction involv-
ing a brief asset holding period is any
transaction resulting in the taxpayer claim-
ing a tax credit exceeding $250,000 (in-
cluding a foreign tax credit) if the
underlying asset giving rise to the credit is
held by the taxpayer for 45 days or less. For
purposes of determining the holding pe-
riod, the principles of sections 246(c)(3) and
(c)(4) apply. Transactions resulting in a for-
eign tax credit for withholding taxes or other
taxes imposed in respect of a dividend that
are not disallowed under section 901(k) (in-
cluding transactions eligible for the excep-
tion for securities dealers under section
901(k)(4)) are excluded from this para-
graph (b)(7).
(8)Exceptions—(i)In general.A trans-
action will not be considered a reportable
transaction, or will be excluded from any
individual category of reportable transac-
tion under paragraphs (b)(3) through (7) of
this section, if the Commissioner makes a
determination by published guidance that
the transaction is not subject to the report-
ing requirements of this section. The Com-
missioner may make a determination by
individual letter ruling under paragraph (f)
of this section that an individual letter rul-
ing request on a specific transaction or type
of transaction satisfies the reporting re-
quirements of this section with regard to that
transaction or type of transaction for the tax-
payer who requests the individual letter rul-
ing.
(ii)Special rule for RICs.For purposes
of this section, a regulated investment com-
pany (RIC) as defined in section 851 or an
investment vehicle that is owned 95 per-
cent or more by one or more RICs at all
times during the course of the transaction
are not required to disclose a transaction that
is described in any of paragraphs (b)(3)
through (7) of this section unless the trans-
action is also a listed transaction.
(iii)Special rule for lease transactions.
For purposes of this section, leasing trans-
actions of the type excepted from the reg-
istration requirements under section 6111(d)
of the Code and the list maintenance re-
quirements under section 6112 as described
in Notice 2001–18, 2001–1 C.B. 731 (see
§601.601(d)(2) of this chapter), are ex-
cluded from paragraphs (b)(3) through (7)
of this section.
(c)Definitions.For purposes of this sec-
tion, the following terms are defined as
follows:
(1)Taxpayer.The termtaxpayermeans
any person described in section 7701(a)(1),
including S corporations. Except as other-
wise specifically provided in this section,
the termtaxpayeralso includes an affili-
ated group of corporations that joins in the
filing of a consolidated return under sec-
tion 1501.
(2)Corporation.When used specifi-
cally in this section, the termcorporation
means an entity that is required to file a re-
turn for a taxable year on any 1120 series
form, or successor form, excluding S cor-
porations.
(3)Participation—(i)In general—(A)
Listed transactions.A taxpayer has partici-
pated in a listed transaction if the taxpay-
er’s tax return reflects tax consequences or
a tax strategy described in the published
guidance that lists the transaction under
paragraph (b)(2) of this section. A tax-
payer also has participated in a listed trans-
action if the taxpayer knows or has reason
to know that the taxpayer’s tax benefits are
derived directly or indirectly from tax con-
sequences or a tax strategy described in
published guidance that lists a transaction
under paragraph (b)(2) of this section. Pub-
lished guidance may identify other types or
classes of persons that will be treated as par-
ticipants in a listed transaction.
(B)Confidential transactions.A tax-
payer has participated in a confidential
transaction if the taxpayer’s tax return re-
flects a tax benefit from the transaction and
the taxpayer’s disclosure of the tax treat-
ment or tax structure of the transaction is
limited in the manner described in para-
graph (b)(3) of this section. If a partner-
ship’s, S corporation’s, or trust’s disclosure
is limited, and the partner’s, sharehold-
er’s, or beneficiary’s disclosure is not lim-
ited, then the partnership, S corporation, or
trust, and not the partner, shareholder, or
beneficiary, has participated in the confi-
dential transaction.
(C)Transactions with contractual pro-
tection.A taxpayer has participated in a
transaction with contractual protection if the
taxpayer’s tax return reflects a tax benefit
from the transaction and, as described in
paragraph (b)(4) of this section, the tax-
payer has the right to the full or partial re-
fund of fees or the fees are contingent. If
a partnership, S corporation, or trust has the
right to a full or partial refund of fees or
has a contingent fee arrangement, and the
partner, shareholder, or beneficiary does not
individually have the right to the refund of
fees or a contingent fee arrangement, then
the partnership, S corporation, or trust, and
not the partner, shareholder, or benefi-
ciary, has participated in the transaction with
contractual protection.
(D)Loss transactions.A taxpayer has
participated in a loss transaction if the tax-
payer’s tax return reflects a section 165 loss
and the amount of the section 165 loss
equals or exceeds the threshold amount ap-
plicable to the taxpayer as described in para-
graph (b)(5)(i) of this section. If a taxpayer
is a partner in a partnership, shareholder in
March 24, 20036192003–12 I.R.B.

an S corporation, or beneficiary of a trust
and a section 165 loss as described in para-
graph (b)(5) of this section flows through
the entity to the taxpayer (disregarding net-
ting at the entity level), the taxpayer has
participated in a loss transaction if the tax-
payer’s tax return reflects a section 165 loss
and the amount of the section 165 loss that
flows through to the taxpayer equals or ex-
ceeds the threshold amounts applicable to
the taxpayer as described in paragraph
(b)(5)(i) of this section. For this purpose,
a tax return is deemed to reflect the full
amount of a section 165 loss described in
paragraph (b)(5) of this section allocable to
the taxpayer under this paragraph
(c)(3)(i)(D), regardless of whether all or part
of the loss enters into the computation of
a net operating loss under section 172 or
net capital loss under section 1212 that the
taxpayer may carry back or carry over to
another year.
(E)Transactions with a significant book-
tax difference.A taxpayer has participated
in a transaction with a significant book-
tax difference if the taxpayer’s tax treat-
ment of an item from the transaction differs
from the book treatment of that item as de-
scribed in paragraph (b)(6) of this sec-
tion. In determining whether a transaction
results in a significant book-tax differ-
ence for a taxpayer, differences that arise
solely because a subsidiary of the tax-
payer is consolidated with the taxpayer, in
whole or in part, for book purposes, but not
for tax purposes, are not taken into ac-
count.
(F)Transactions involving a brief as-
set holding period.A taxpayer has partici-
pated in a transaction involving a brief asset
holding period if the taxpayer’s tax re-
turn reflects items giving rise to a tax credit
described in paragraph (b)(7) of this sec-
tion. If a taxpayer is a partner in a part-
nership, shareholder in an S corporation, or
beneficiary of a trust and the items giv-
ing rise to a tax credit described in para-
graph (b)(7) of this section flow through the
entity to the taxpayer (disregarding net-
ting at the entity level), the taxpayer has
participated in a transaction involving a brief
asset holding period if the taxpayer’s tax
return reflects the tax credit and the amount
of the tax credit claimed by the taxpayer ex-
ceeds $250,000.
(G)Shareholders of foreign corpor-
ations—(1)In general.A reporting share-
holder of a foreign corporation partici-
pates in a transaction described in para-
graphs (b)(2) through (5) and (b)(7) of this
section if the foreign corporation would be
considered to participate in the transac-
tion under the rules of this paragraph (c)(3)
if it were a domestic corporation filing a tax
return that reflects the items from the trans-
action. A reporting shareholder partici-
pates in a transaction described in paragraph
(b)(6) of this section only if the foreign cor-
poration would be considered to partici-
pate in the transaction under the rules of this
paragraph (c)(3) if it were a domestic cor-
poration and the transaction reduces or
eliminates an income inclusion that other-
wise would be required under section 551,
951, or 1293. A reporting shareholder (and
any successor in interest) is considered to
participate in a transaction under this para-
graph (c)(3)(i)(G) only for its first tax-
able year with or within which ends the first
taxable year of the foreign corporation in
which the foreign corporation participates
in the transaction, and for the reporting
shareholder’s five succeeding taxable years.
(2)Reporting shareholder.The termre-
porting shareholdermeans a United States
shareholder (as defined in section 551(a))
in a foreign personal holding company (as
defined in section 552), a United States
shareholder (as defined in section 951(b))
in a controlled foreign corporation (as de-
fined in section 957), or a 10 percent share-
holder (by vote or value) of a qualified
electing fund (as defined in section 1295).
(ii)Examples.The following examples
illustrate the provisions of paragraph
(c)(3)(i) of this section:
Example 1.Notice 95–53, 1995–2 C.B. 334 (see
§601.601(d)(2) of this chapter), describes a lease strip-
ping transaction in which one party (the transferor)
assigns the right to receive future payments under a
lease of tangible property and receives consider-
ation which the transferor treats as current income. The
transferor later transfers the property subject to the
lease in a transaction intended to qualify as a trans-
ferred basis transaction, for example, a transaction de-
scribed in section 351. The transferee corporation
claims the deductions associated with the high basis
property subject to the lease. The transferor’s and trans-
feree corporation’s tax returns reflect tax positions de-
scribed in Notice 95–53. Therefore, the transferor and
transferee corporation have participated in the listed
transaction. In the section 351 transaction, the trans-
feror will have received stock with low value and high
basis from the transferee corporation. If the
transferor subsequently transfers the high basis/low
value stock to a taxpayer in another transaction in-
tended to qualify as a transferred basis transaction and
the taxpayer uses the stock to generate a loss, and if
the taxpayer knows or has reason to know that the tax
loss claimed was derived indirectly from the lease strip-
ping transaction, then the taxpayer has participated in
the listed transaction. Accordingly, the taxpayer must
disclose the transaction and the manner of the tax-
payer’s participation in the transaction under the rules
of this section. If a bank lends money to the
transferor, transferee corporation, or taxpayer for use
in their transactions, the bank has not participated in
the listed transaction because the bank’s tax return does
not reflect tax consequences or a tax strategy de-
scribed in the listing notice (nor does the bank’stax
return reflect a tax benefit derived from tax conse-
quences or a tax strategy described in the listing no-
tice), nor is the bank described as a participant in
Notice 95–53.
Example 2.XYZ is a limited liability company
treated as a partnership for tax purposes. X, Y, and Z
are members of XYZ. X is an individual, Y is an S
corporation, and Z is a partnership. XYZ enters into
a confidential transaction under paragraph (b)(3) of
this section. X is bound by the confidentiality agree-
ment, but Y and Z are not bound by the agreement.
As a result of the transaction, XYZ, X, Y, and Z all
reflect a tax benefit on their tax returns. Because
XYZ’s and X’s disclosure of the tax treatment and tax
structure are limited in the manner described in para-
graph (b)(3) of this section and their tax returns re-
flect a tax benefit from the transaction, both XYZ and
X have participated in the confidential transaction. Nei-
ther Y nor Z has participated in the confidential trans-
action because they are not subject to the
confidentiality agreement.
Example 3.Partnership AB has gross assets with
a book value of over $250 million. Partner A is an SEC
reporting company and partner B is an individual. AB
enters into a transaction that results in a book-tax dif-
ference for AB of $25 million. The transaction is a
reportable transaction for AB under paragraph (b)(6)
of this section because the book-tax difference ex-
ceeds $10 million. As a result of A’s partnership in-
terest in AB and the allocation of items relating to the
transaction to A, A has a book-tax difference of $11
million. The transaction is a reportable transaction for
A under paragraph (b)(6) of this section because the
$11 million book-tax difference exceeds $10 mil-
lion. However, even though $14 million of the book-
tax difference would be allocated to B, the transaction
is not a reportable transaction for B under para-
graph (b)(6) of this section because B, an individual,
is not subject to paragraph (b)(6) of this section.
Example 4.(i) P corporation, the parent corpora-
tion of a group of corporations that file a consoli-
dated tax return, owns 60% of the stock of T
corporation. T files its own tax return and is not in-
cluded as a member of the P group on the P group
consolidated tax return. For book purposes, some or
all of T’s income is included by the group of corpo-
rations that includes P. T engages in a transaction that
results in items of book income but does not result
in items of income for tax purposes. P and T are SEC
reporting companies.
(ii) T participated in the transaction. T has no items
of taxable income but has items of book income. If
items from the transaction result in a book-tax dif-
ference determined in accordance with paragraph (b)(6)
of this section of $10 million in any single year, T will
be required to file Form 8886. The P group did not
participate in the transaction, and does not have a book-
tax difference for purposes of paragraph (b)(6) of this
section because, even if the P group included $10 mil-
2003–12 I.R.B.620March 24, 2003

lion in book income, the book tax difference arises
solely because T is not part of P’s consolidated group
for tax purposes.
(iii) If the facts were changed so that P corpora-
tion owned 80% of the stock of T and T was a mem-
ber of the P consolidated group for tax purposes, the
P group would be the taxpayer that participated in the
transaction. If, in any single year, the transaction pro-
duced items of income for book purposes of $10 mil-
lion but no items of taxable income, P would be
required to file Form 8886. This result would not
change if T separately reported its items for book pur-
poses, if P reported none of T’s items on its consoli-
dated financial statements, or if the P consolidated
financial statements included only part of a $10 mil-
lion book-tax difference relating to items from T’s
transaction.
Example 5. Domestic corporations X and Y each
own 50 percent of the voting stock of CFC, a con-
trolled foreign corporation. X, Y, and CFC each use
the calendar year as their taxable year. CFC is not en-
gaged in the conduct of a trade or business within the
United States and has no U.S. source income. Ac-
cordingly, CFC is not required to file a U.S. federal
income tax return.See§1.6012–2(g). Under para-
graph (c)(3)(i)(G)(2) of this section, X and Y are re-
porting shareholders with respect to CFC. CFC
purchases a Euro-denominated bond on June 1, 2003,
for 104,400,000 Euros. The bond matures on June 7,
2003, and CFC collects 104,500,000 Euros, equal to
the bond’s 100,000,000 Euro face amount plus
5,000,000 Euros of accrued but unpaid interest, less
a 10% foreign withholding tax of 500,000 Euros. The
average dollar-Euro exchange rate for the year is $.80
= 1 Euro, so CFC adds $400,000 to its post-1986 for-
eign income taxes pool as a result of the transac-
tion.Seesections 986(a)(1) and 902(c)(2). Under
paragraph (c)(3)(i)(G)(1) of this section, X and Y have
each participated in a transaction involving a brief as-
set holding period described in paragraph (b)(7) of this
section for their taxable years 2003 through 2008 be-
cause both X and Y are reporting shareholders of CFC,
and CFC would have been considered to have par-
ticipated in a reportable transaction if it were a do-
mestic corporation.
(4)Substantially similar.The termsub-
stantially similarincludes any transaction
that is expected to obtain the same or simi-
lar types of tax consequences and that is ei-
ther factually similar or based on the same
or similar tax strategy. Receipt of an opin-
ion regarding the tax consequences of the
transaction is not relevant to the determi-
nation of whether the transaction is the same
as or substantially similar to another trans-
action. Further, the termsubstantially simi-
larmust be broadly construed in favor of
disclosure. The following examples illus-
trate situations where a transaction is the
same as or substantially similar to a listed
transaction under paragraph (b)(2) of this
section. (Such transactions may also be re-
portable transactions under paragraphs (b)(3)
through (7) of this section.) The follow-
ing examples illustrate the provisions of this
paragraph (c)(4):
Example 1. Notice 2000–44, 2000–2 C.B. 255 (see
§601.601(d)(2) of this chapter), sets forth a listed trans-
action involving offsetting options transferred to a part-
nership where the taxpayer claims basis in the
partnership for the cost of the purchased options but
does not adjust basis under section 752 as a result of
the partnership’s assumption of the taxpayer’s obli-
gation with respect to the options. Transactions us-
ing short sales, futures, derivatives or any other type
of offsetting obligations to inflate basis in a partner-
ship interest would be the same as or substantially
similar to the transaction described in Notice 2000–
44. Moreover, use of the inflated basis in the part-
nership interest to diminish gain that would otherwise
be recognized on the transfer of a partnership asset
would also be the same as or substantially similar to
the transaction described in Notice 2000–44.
Example 2.Notice 2001–16, 2001–1 C.B. 730 (see
§601.601(d)(2) of this chapter), sets forth a listed trans-
action involving a seller (X) who desires to sell stock
of a corporation (T), an intermediary corporation (M),
and a buyer (Y) who desires to purchase the assets
(and not the stock) of T. M agrees to facilitate the sale
to prevent the recognition of the gain that T would oth-
erwise report. Notice 2001–16 describes M as a mem-
ber of a consolidated group that has a loss within the
group or as a party not subject to tax. Transactions uti-
lizing different intermediaries to prevent the recog-
nition of gain would be the same as or substantially
similar to the transaction described in Notice 2001–
16. An example is a transaction in which M is a cor-
poration that does not file a consolidated return but
which buys T stock, liquidates T, sells assets of T to
Y, and offsets the gain recognized on the sale of those
assets with currently generated losses.
(5)Tax.For purposes of this section, the
termtaxmeans federal income tax.
(6)Tax benefit.A tax benefit includes de-
ductions, exclusions from gross income,
nonrecognition of gain, tax credits, adjust-
ments (or the absence of adjustments) to the
basis of property, status as an entity ex-
empt from federal income taxation, and any
other tax consequences that may reduce a
taxpayer’s federal income tax liability by
affecting the amount, timing, character, or
source of any item of income, gain, ex-
pense, loss, or credit.
(7)Tax return.For purposes of this sec-
tion, the termtax returnmeans a federal in-
come tax return and a federal information
return.
(8)Tax treatment.The tax treatment of
a transaction is the purported or claimed
federal income tax treatment of the trans-
action.
(9)Tax structure.The tax structure of a
transaction is any fact that may be rel-
evant to understanding the purported or
claimed federal income tax treatment of the
transaction.
(d)Form and content of disclosure state-
ment.The IRS will release Form 8886,“Re-
portable Transaction Disclosure Statement”
(or a successor form), for use by taxpay-
ers in accordance with this paragraph (d).
A taxpayer required to file a disclosure
statement under this section must file a
completed Form 8886 in accordance with
the instructions to the form. The Form 8886
is the disclosure statement required under
this section. The form must be attached to
the appropriate tax returns as provided in
paragraph (e) of this section. If a copy of
a disclosure statement is required to be sent
to the Office of Tax Shelter Analysis
(OTSA) under paragraph (e) of this sec-
tion, it must be sent to: Internal Revenue
Service, LM:PFTG:OTSA, Large & Mid-
Size Business Division,1111Constitu-
tion Ave., NW, Washington, DC 20224, or
to such other address as provided by the
Commissioner.
(e)Time of providing disclosure—(1)In
general.The disclosure statement for a re-
portable transaction must be attached to the
taxpayer’s tax return for each taxable year
for which a taxpayer participates in a re-
portable transaction. In addition, a copy of
the disclosure statement must be sent to
OTSA at the same time that any disclo-
sure statement is first filed with the tax-
payer’s tax return. If a reportable transaction
results in a loss which is carried back to a
prior year, the disclosure statement for the
reportable transaction must be attached to
the taxpayer’s application for tentative re-
fund or amended tax return for that prior
year. In the case of a taxpayer that is a part-
nership or S corporation, the disclosure
statement for a reportable transaction must
be attached to the partnership’sorScor-
poration’s tax return for each taxable year
in which the partnership or S corporation
participates in the transaction under the rules
of paragraph (c)(3)(i) of this section.
(2)Special rules—(i)Listed transac-
tions.If a transaction becomes a listed trans-
action after the filing of the taxpayer’s final
tax return reflecting either tax consequences
or a tax strategy described in the published
guidance listing the transaction (or a tax
benefit derived from tax consequences or
a tax strategy described in the published
guidance listing the transaction) and be-
fore the end of the statute of limitations pe-
riod for that return, then a disclosure
statement must be filed as an attachment to
the taxpayer’s tax return next filed after the
date the transaction is listed.
(ii)Loss transactions.If a transaction be-
comes a loss transaction because the losses
March 24, 20036212003–12 I.R.B.

equal or exceed the threshold amounts as
described in paragraph (b)(5)(i) of this sec-
tion, a disclosure statement must be filed
as an attachment to the taxpayer’s tax re-
turn for the first taxable year in which the
threshold amount is reached and to any sub-
sequent tax return that reflects any amount
of section 165 loss from the transaction.
(3)Multiple disclosures.The taxpayer
must disclose the transaction in the time and
manner provided for under the provisions
of this section regardless of whether the tax-
payer also plans to disclose the transac-
tion under other published guidance, for
example, Rev. Proc. 94–69, 1994–2 C.B.
804 (see§601.601(d)(2) of this chapter).
(4)Example.The following example il-
lustrates the application of this paragraph
(e):
Example.In January of 2004, F, a domestic cal-
endar year corporation, enters into a transaction that
is not a listed transaction when entered into and is not
a transaction described in any of the paragraphs (b)(3)
through (7) of this section. All the tax benefits from
the transaction are reported on F’s 2004 tax return.
On March 1, 2008, the IRS publishes a notice iden-
tifying the transaction as a listed transaction de-
scribed in paragraph (b)(2) of this section. Thus, upon
issuance of the notice, the transaction becomes a re-
portable transaction described in paragraph (b) of this
section. The statute of limitations for F’s 2004 tax-
able year is still open. F is required to file Form 8886
for the transaction as an attachment to F’s next filed
federal income tax return and must send a copy of
Form 8886 to OTSA. If F’s 2007 federal income tax
return has not been filed on or before the date the Ser-
vice identifies the transaction as a listed transaction,
Form 8886 must be attached to F’s 2007 return and
at that time a copy of Form 8886 must be sent to
OTSA.
(f)Rulings and protective disclosures—
(1)Requests for ruling. A taxpayer may, on
or before the date that disclosure would oth-
erwise be required under this section, sub-
mit a request to the IRS for a ruling as to
whether a transaction is subject to the dis-
closure requirements of this section. If the
request fully discloses all relevant facts re-
lating to the transaction, the potential ob-
ligation of that taxpayer to disclose the
transaction will be suspended during the pe-
riod that the ruling request is pending and,
if the IRS subsequently concludes that the
transaction is a reportable transaction sub-
ject to disclosure under this section, until
the 60th day after the issuance of the rul-
ing (or, if the request is withdrawn, 60 days
after the date that the request is withdrawn).
Furthermore, in that taxpayer’s individual
ruling, the Commissioner in his discre-
tion may determine that the submission sat-
isfies the disclosure rules under this section
for that particular transaction or type of
transaction.
(2)Protective disclosures.If a taxpayer
is uncertain whether a transaction must be
disclosed under this section, the taxpayer
may disclose the transaction in accordance
with the requirements of this section, and
indicate on the disclosure statement that the
taxpayer is uncertain whether the transac-
tion is required to be disclosed under this
section and that the disclosure statement is
being filed on a protective basis.
(3)Rulings on the merits of a transac-
tion.If a taxpayer requests a ruling on the
merits of a specific transaction on or be-
fore the date that disclosure would other-
wise be required under this section, and
receives a favorable ruling as to the trans-
action, the disclosure rules under this sec-
tion will be deemed to have been satisfied
by that taxpayer with regard to that trans-
action, so long as the request fully dis-
closes all relevant facts relating to the
transaction which would otherwise be re-
quired to be disclosed under this section.
(g)Retention of documents.In accor-
dance with the instructions to Form 8886,
the taxpayer must retain a copy of all docu-
ments and other records related to a trans-
action subject to disclosure under this
section that are material to an understand-
ing of the tax treatment or tax structure of
the transaction. The documents must be re-
tained until the expiration of the statute of
limitations applicable to the final taxable
year for which disclosure of the transac-
tion was required under this section. (This
document retention requirement is in ad-
dition to any document retention require-
ments that section 6001 generally imposes
on the taxpayer.) The documents may in-
clude the following: marketing materials re-
lated to the transaction; written analyses
used in decision-making related to the trans-
action; correspondence and agreements be-
tween the taxpayer and any advisor, lender,
or other party to the reportable transac-
tion that relate to the transaction; docu-
ments discussing, referring to, or
demonstrating the purported or claimed tax
benefits arising from the reportable trans-
action; and documents, if any, referring to
the business purposes for the reportable
transaction. A taxpayer is not required to re-
tain earlier drafts of a document if the tax-
payer retains a copy of the final document
(or, if there is no final document, the most
recent draft of the document) and the fi-
nal document (or most recent draft) con-
tains all the information in the earlier drafts
of the document that is material to an un-
derstanding of the purported tax treatment
or tax structure of the transaction.
(h)Effective dates.This section applies
to federal income tax returns filed after Feb-
ruary 28, 2000. However, paragraphs (a)
through (g) of this section apply to trans-
actions entered into on or after February 28,
2003. All the rules in paragraphs (a) through
(g) of this section may be relied upon for
transactions entered into on or after Janu-
ary 1, 2003, and before February 28, 2003.
Otherwise, the rules that apply with re-
spect to transactions entered into before
February 28, 2003, are contained in
§1.6011–4T in effect prior to February 28,
2003 (see 26 CFR part 1 revised as of April
1, 2002, 2002–28 I.R.B. 90, and 2002–45
I.R.B. 818 (see§601.601(d)(2) of this chap-
ter)).
§1.6011–4T [Removed]
Par. 3. Section 1.6011–4T is removed.
PA RT 2 0—ESTATE TAX; ESTATES OF
DECEDENTS DYING AFTER
AUGUST 16, 1954
Par. 4. The authority citation for part 20
continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 5. Section 20.6011–4 is added to
read as follows:
§20.6011–4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.
(a)In general.If a transaction is iden-
tified as alisted transactionas defined in
§1.6011–4 of this chapter by the Commis-
sioner in published guidance (see
§601.601(d)(2) of this chapter), and the
listed transaction involves an estate tax un-
der chapter 11 of subtitle B of the Inter-
nal Revenue Code, the transaction must be
disclosed in the manner stated in such pub-
lished guidance.
(b)Effective date.This section applies
to transactions entered into on or after Janu-
ary 1, 2003.
§20.6011–4T [Removed]
Par. 6. Section 20.6011–4T is removed.
2003–12 I.R.B.622March 24, 2003

PA RT 2 5—GIFT TAX; GIFTS MADE
AFTER DECEMBER 31, 1954
Par. 7. The authority citation for part 25
continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 8. Section 25.6011–4 is added to
read as follows:
§25.6011–4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.
(a)In general.If a transaction is iden-
tified as alisted transactionas defined in
§1.6011–4 of this chapter by the Commis-
sioner in published guidance (see
§601.601(d)(2) of this chapter), and the
listed transaction involves a gift tax un-
der chapter 12 of subtitle B of the Inter-
nal Revenue Code, the transaction must be
disclosed in the manner stated in such pub-
lished guidance.
(b)Effective date.This section applies
to transactions entered into on or after Janu-
ary 1, 2003.
§25.6011–4T [Removed]
Par. 9. Section 25.6011–4T is removed.
PA RT 3 1—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT THE SOURCE
Par. 10. The authority citation for part
31 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 11. Section 31.6011–4 is added to
read as follows:
§31.6011–4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.
(a)In general.If a transaction is iden-
tified as alisted transactionas defined in
§1.6011–4 of this chapter by the Commis-
sioner in published guidance (see
§601.601(d)(2) of this chapter), and the
listed transaction involves an employment
tax under chapters 21 through 25 of sub-
title C of the Internal Revenue Code, the
transaction must be disclosed in the man-
ner stated in such published guidance.
(b)Effective date. This section applies
to transactions entered into on or after Janu-
ary 1, 2003.
§31.6011–4T [Removed]
Par. 12. Section 31.6011–4T is removed.
PA RT 5 3—FOUNDATION AND
SIMILAR EXCISE TAXES
Par. 13. The authority citation for part
53 continues to read as follows:
Authority: 26 U.S.C. 7805
Par. 14. Section 53.6011–4 is added to
read as follows:
§53.6011–4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.
(a)In general.If a transaction is iden-
tified as alisted transactionas defined in
§1.6011–4 of this chapter by the Commis-
sioner in published guidance (see
§601.601(d)(2) of this chapter), and the
listed transaction involves an excise tax un-
der chapter 42 of subtitle D of the Inter-
nal Revenue Code (relating to private
foundations and certain other tax-exempt or-
ganizations), the transaction must be dis-
closed in the manner stated in such
published guidance.
(b)Effective date.This section applies
to transactions entered into on or after Janu-
ary 1, 2003.
§53.6011–4T [Removed]
Par. 15. Section 53.6011–4T is removed.
PA RT 5 4—PENSION EXCISE TAXES
Par. 16. The authority citation for part
54 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 17. Section 54.6011–4 is added to
read as follows:
§54.6011–4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.
(a)In general.If a transaction is iden-
tified as alisted transactionas defined in
§1.6011–4 of this chapter by the Commis-
sioner in published guidance (see
§601.601(d)(2) of this chapter), and the
listed transaction involves an excise tax un-
der chapter 43 of subtitle D of the Inter-
nal Revenue Code (relating to qualified
pension, etc., plans), the transaction must
be disclosed in the manner stated in such
published guidance.
(b)Effective date.This section applies
to transactions entered into on or after Janu-
ary 1, 2003.
§54.6011–4T [Removed]
Par. 18. Section 54.6011–4T is removed.
PA RT 5 6—PUBLIC CHARITY EXCISE
TAXES
Par. 19. The authority citation for part
56 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 20. Section 56.6011–4 is added to
read as follows:
§56.6011–4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.
(a)In general.If a transaction is iden-
tified as alisted transactionas defined in
§1.6011–4 of this chapter by the Commis-
sioner in published guidance (see
§601.601(d)(2) of this chapter), and the
listed transaction involves an excise tax un-
der chapter 41 of subtitle D of the Inter-
nal Revenue Code (relating to public
charities), the transaction must be disclosed
in the manner stated in such published guid-
ance.
(b)Effective date.This section applies
to transactions entered into on or after Janu-
ary 1, 2003.
§56.6011–4T [Removed]
Par. 21. Section 56.6011–4T is removed.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 22. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 23. Section 301.6111–2 is added as
follows:
§301.6111–2 Confidential corporate tax
shelters.
(a)In general.(1) Under section 6111(d)
and this section, a confidential corporate tax
shelter is treated as a tax shelter subject to
the requirements of sections 6111(a) and (b).
(2) A confidential corporate tax shelter
is any transaction—
(i) A significant purpose of the struc-
ture of which is the avoidance or evasion
of federal income tax, as described in para-
graph (b) of this section, for a direct or in-
direct corporate participant;
(ii) That is offered to any potential par-
ticipant under conditions of confidential-
ity, as described in paragraph (c) of this
section; and
March 24, 20036232003–12 I.R.B.

(iii) For which the tax shelter promot-
ers may receive fees in excess of $100,000
in the aggregate, as described in paragraph
(d) of this section.
(3) For purposes of this section, refer-
ences to the termtransactioninclude all of
the factual elements relevant to the ex-
pected tax treatment of any investment, en-
tity, plan, or arrangement, and include any
series of steps carried out as part of a plan.
For purposes of this section, the termsub-
stantially similarincludes any transaction
that is expected to obtain the same or simi-
lar types of tax consequences and that is ei-
ther factually similar or based on the same
or similar tax strategy. Receipt of an opin-
ion regarding the tax consequences of the
transaction is not relevant to the determi-
nation of whether the transaction is the same
as or substantially similar to another trans-
action. Further, the termsubstantially simi-
larmust be broadly construed in favor of
registration. For examples, see§1.6011–
4(c)(4) of this chapter.
(4) A transaction described in paragraph
(b) of this section is for a direct or an in-
direct corporate participant if it is expected
to provide federal income tax benefits to
any corporation (U.S. or foreign) whether
or not that corporation participates directly
in the transaction.
(b)Transactions structured for avoid-
ance or evasion of federal income tax—
(1)In general.The avoidance or evasion
of federal income tax will be considered a
significant purpose of the structure of a
transaction if the transaction is described in
paragraph (b)(2) or (3) of this section. How-
ever, a transaction described in paragraph
(b)(3) of this section need not be regis-
tered if the transaction is described in para-
graph (b)(4) of this section. For purposes
of this section, federal income tax ben-
efits include deductions, exclusions from
gross income, nonrecognition of gain, tax
credits, adjustments (or the absence of ad-
justments) to the basis of property, status
as an entity exempt from federal income
taxation, and any other tax consequences
that may reduce a taxpayer’s federal in-
come tax liability by affecting the amount,
timing, character, or source of any item of
income, gain, expense, loss, or credit.
(2)Listed transactions.A transaction is
described in this paragraph (b)(2) if the
transaction is the same as or substantially
similar to one of the types of transactions
that the Internal Revenue Service (IRS) has
determined to be a tax avoidance transac-
tion and identified by notice, regulation, or
other form of published guidance as a listed
transaction. If a transaction becomes a listed
transaction after the date on which regis-
tration would otherwise be required un-
der this section, and if the transaction
otherwise satisfies the confidentiality and
fee requirements of paragraphs (a)(2)(ii) and
(iii) of this section, registration shall in all
events be required with respect to any in-
terests in the transaction that are offered for
sale after the transaction becomes a listed
transaction. However, because a transac-
tion identified as a listed transaction is gen-
erally considered to have been structured
for a significant tax avoidance purpose, such
a transaction ordinarily will have been sub-
ject to registration under this section be-
fore becoming a listed transaction if the
transaction previously satisfied the confi-
dentiality and fee requirements of para-
graphs (a)(2)(ii) and (iii) of this section.
(3)Other tax-structured transactions.A
transaction is described in this paragraph
(b)(3) if it has been structured to produce
federal income tax benefits that consti-
tute an important part of the intended re-
sults of the transaction and the tax shelter
promoter (or other person who would be re-
sponsible for registration under this sec-
tion) reasonably expects the transaction to
be presented in the same or substantially
similar form to more than one potential par-
ticipant, unless the promoter reasonably de-
termines that—
(i) The potential participant is expected
to participate in the transaction in the or-
dinary course of its business in a form con-
sistent with customary commercial practice
(a transaction involving the acquisition, dis-
position, or restructuring of a business, in-
cluding the acquisition, disposition, or other
change in the ownership or control of an
entity that is engaged in a business, or a
transaction involving a recapitalization or
an acquisition of capital for use in the tax-
payer’s business, shall be considered a trans-
action carried out in the ordinary course of
a taxpayer’s business); and
(ii) There is a generally accepted un-
derstanding that the expected federal in-
come tax benefits from the transaction
(taking into account any combination of in-
tended tax consequences) are properly al-
lowable under the Internal Revenue Code
for substantially similar transactions. There
is no minimum period of time for which
such a generally accepted understanding
must exist. In general, however, a tax shel-
ter promoter (or other person who would
be responsible for registration under this
section) cannot reasonably determine
whether the intended tax treatment of a
transaction has become generally accepted
unless information relating to the tax treat-
ment and tax structure of such transac-
tions has been in the public domain (e.g.,
rulings, published articles, etc.) and widely
known for a sufficient period of time (or-
dinarily a period of years) to provide knowl-
edgeable tax practitioners and the IRS
reasonable opportunity to evaluate the in-
tended tax treatment. The mere fact that one
or more knowledgeable tax practitioners
have provided an opinion or advice to the
effect that the intended tax treatment of the
transaction should or will be sustained, if
challenged by the IRS, is not sufficient to
satisfy the requirements of this paragraph
(b)(3)(ii).
(4)Excepted transactions.The avoid-
ance or evasion of federal income tax will
not be considered a significant purpose of
the structure of a transaction if the trans-
action is described in either paragraph
(b)(4)(i), (ii), or (iii) of this section.
(i) In the case of a transaction other than
a transaction described in paragraph (b)(2)
of this section, the tax shelter promoter (or
other person who would be responsible for
registration under this section) reason-
ably determines that there is no reason-
able basis under federal tax law for denial
of any significant portion of the expected
federal income tax benefits from the trans-
action. This paragraph (b)(4)(i) applies only
if the tax shelter promoter (or other per-
son who would be responsible for regis-
tration under this section) reasonably
determines that there is no basis that would
meet the standard applicable to taxpayers
under§1.6662–3(b)(3) of this chapter un-
der which the IRS could disallow any sig-
nificant portion of the expected federal
income tax benefits of the transaction. Thus,
the reasonable basis standard is not satis-
fied by an IRS position that would be
merely arguable or that would constitute
merely a colorable claim. However, the de-
termination of whether the IRS would or
would not have a reasonable basis for such
a position must take into account the en-
tirety of the transaction and any combina-
tion of tax consequences that are expected
to result from any component steps of the
2003–12 I.R.B.624March 24, 2003

transaction, must not be based on any un-
reasonable or unrealistic factual assump-
tions, and must take into account all relevant
aspects of federal tax law, including the stat-
ute and legislative history, treaties, admin-
istrative guidance, and judicial decisions that
establish principles of general application
in the tax law (e.g.,Gregory v.
Helvering,293 U.S. 465 (1935)). The de-
termination of whether the IRS would or
would not have such a reasonable basis is
qualitative in nature and does not depend
on any percentage or other quantitative as-
sessment of the likelihood that the tax-
payer would ultimately prevail if a
significant portion of the expected tax ben-
efits were disallowed by the IRS.
(ii) The IRS makes a determination by
published guidance that the transaction is
not subject to the registration requirements
of this section.
(iii) The IRS makes a determination by
individual ruling under paragraph (b)(5) of
this section that a specific transaction is not
subject to the registration requirements of
this section for the taxpayer requesting the
ruling.
(5)Requests for ruling.If a tax shelter
promoter (or other person who would be re-
sponsible for registration under this sec-
tion) is uncertain whether a transaction is
properly classified as a confidential cor-
porate tax shelter or is otherwise uncer-
tain whether registration is required under
this section, that person may, on or be-
fore the date that registration would oth-
erwise be required under this section, submit
a request to the IRS for a ruling as to
whether the transaction is subject to the reg-
istration requirements of this section. If the
request fully discloses all relevant facts re-
lating to the transaction, that person’s po-
tential obligation to register the transaction
will be suspended during the period that the
ruling request is pending and, if the IRS
subsequently concludes that the transac-
tion is a confidential corporate tax shelter
subject to registration under this section, un-
til the sixtieth day after the issuance of the
ruling (or, if the request is withdrawn, sixty
days from the date that the request is with-
drawn). In the alternative, that person may
register the transaction in accordance with
the requirements of this section and ap-
pend a statement to the Form 8264,“Ap-
plication for Registration of a Tax Shelter,”
which states that the person is uncertain
whether the transaction is required to be
registered as a confidential corporate tax
shelter, and that the Form 8264 is being
filed on a protective basis.
(6)Example. The following example il-
lustrates the application of paragraphs (b)(1)
through (4) of this section. Assume, for pur-
poses of the example, that the transaction
is not the same as or substantially similar
to any of the types of transactions that the
IRS has identified as listed transactions un-
der section 6111 and, thus, is not described
in paragraph (b)(2) of this section. The ex-
ample is as follows:
Example.(i)Facts.Y has designed a combina-
tion of financial instruments to be issued as a pack-
age by corporations. The financial instruments are
expected to be treated as equity for financial account-
ing purposes and as debt giving rise to allowable in-
terest deductions for federal income tax purposes. Y
reasonably expects to present this method of raising
capital to more than one potential corporate partici-
pant. Assume that, because of the unusual nature of
the combination of financial instruments, Y cannot con-
clude either that the transaction represented by the fi-
nancial instruments is in customary commercial form
or that there is a generally accepted understanding that
interest deductions are available to issuers of sub-
stantially similar combinations of financial instru-
ments. Further, assume that Y cannot reasonably
determine that the IRS would have no reasonable ba-
sis to deny the deductions.
(ii)Analysis. The transaction represented by this
combination of financial instruments is a transac-
tion described in paragraph (b)(3) of this section. How-
ever, if Y is uncertain whether this transaction is
described in paragraph (b)(3) of this section, or is oth-
erwise uncertain whether registration is required, Y
may apply for a ruling under paragraph (b)(5) of this
section, and Y will not be required to register the trans-
action while the ruling is pending or for sixty days
thereafter.
(c)Conditions of confidentiality—(1)In
general.All the facts and circumstances re-
lating to the transaction will be consid-
ered when determining whether an offer is
made under conditions of confidentiality as
described in section 6111(d)(2), including
prior conduct of the parties. Pursuant to sec-
tion 6111(d)(2)(A), if an offeree’s disclo-
sure of the tax treatment or tax structure of
the transaction is limited in any manner by
an express or implied understanding or
agreement with or for the benefit of any tax
shelter promoter, an offer is considered
made under conditions of confidentiality,
whether or not such understanding or agree-
ment is legally binding. The tax treatment
of a transaction is the purported or claimed
federal income tax treatment of the trans-
action. The tax structure of a transaction is
any fact that may be relevant to under-
standing the purported or claimed federal
income tax treatment of the transaction. Pur-
suant to section 6111(d)(2)(B), an offer will
also be considered made under conditions
of confidentiality in the absence of any such
understanding or agreement if any tax shel-
ter promoter knows or has reason to know
that the offeree’s use or disclosure of in-
formation relating to the tax treatment or
tax structure of the transaction is limited for
the benefit of any person other than the of-
feree in any other manner, such as where
the transaction is claimed to be propri-
etary or exclusive to the tax shelter pro-
moter or any party other than the offeree.
(2)Exceptions—(i)Securities law.An of-
fer is not considered made under condi-
tions of confidentiality if disclosure of the
tax treatment or tax structure of the trans-
action is subject to restrictions reason-
ably necessary to comply with securities
laws and such disclosure is not otherwise
limited.
(ii)Mergers and acquisitions.In the case
of a proposed taxable or tax-free acquisi-
tion of historic assets of a corporation (other
than an investment company, as defined in
section 351(e), that is not publicly traded)
that constitute an active trade or business
the acquirer intends to continue, or a pro-
posed taxable or tax-free acquisition of more
than 50 percent of the stock of a corpora-
tion (other than an investment company, as
defined in section 351(e), that is not pub-
licly traded) that owns historic assets used
in an active trade or business the acquirer
intends to continue, the transaction is not
considered offered under conditions of con-
fidentiality under paragraph (c)(1) of this
section if the offeree is permitted to dis-
close the tax treatment and tax structure of
the transaction no later than the earlier of
the date of the public announcement of dis-
cussions relating to the transaction, the date
of the public announcement of the trans-
action, or the date of the execution of an
agreement (with or without conditions) to
enter into the transaction. However, this ex-
ception is not available where the offer-
ee’s ability to consult any tax advisor
(including a tax advisor independent from
all other entities involved in the transac-
tion) regarding the tax treatment or tax
structure of the transaction is limited in any
way.
(3)Presumption.Unless facts and cir-
cumstances indicate otherwise, an offer is
not considered made under conditions of
confidentiality if the tax shelter promoter
provides express written authorization to
March 24, 20036252003–12 I.R.B.

each offeree permitting the offeree (and each
employee, representative, or other agent of
such offeree) to disclose to any and all per-
sons, without limitation of any kind, the tax
treatment and tax structure of the transac-
tion, and all materials of any kind (includ-
ing opinions or other tax analyses) that are
provided to the offeree related to such tax
treatment and tax structure. Except as pro-
vided in paragraph (c)(2) of this section, this
presumption is available only in cases in
which each written authorization permits the
offeree to disclose the tax treatment and tax
structure of the transaction immediately
upon commencement of discussions with
the tax shelter promoter providing the au-
thorization and each written authorization
is given no later than 30 days from the day
the tax shelter promoter commenced dis-
cussions with the offeree. A transaction that
is exclusive or proprietary to any party other
than the offeree will not be considered of-
fered under conditions of confidentiality if
written authorization to disclose is pro-
vided to the offeree in accordance with this
paragraph (c)(3) and the transaction is not
otherwise confidential.
(d)Determination of fees.All the facts
and circumstances relating to the transac-
tion will be considered when determining
the amount of fees, in the aggregate, that
the tax shelter promoters may receive. For
purposes of this paragraph (d), all consid-
eration that tax shelter promoters may re-
ceive is taken into account, including
contingent fees, fees in the form of eq-
uity interests, and fees the promoters may
receive for other transactions as consider-
ation for promoting the tax shelter. For ex-
ample, if a tax shelter promoter may receive
a fee for arranging a transaction that is a
confidential corporate tax shelter and a sepa-
rate fee for another transaction that is not
a confidential corporate tax shelter, part or
all of the fee paid with respect to the other
transaction may be treated as a fee paid with
respect to the confidential corporate tax
shelter if the facts and circumstances in-
dicate that the fee paid for the other trans-
action is in consideration for the confidential
corporate tax shelter. For purposes of de-
termining whether the tax shelter promot-
ers may receive fees in excess of $100,000,
the fees from all substantially similar trans-
actions are considered part of the same tax
shelter and must be aggregated.
(e)Registration—(1)Timefor
registering—(i)In general.A tax shelter
must be registered not later than the day on
which the first offering for sale of inter-
ests in the shelter occurs. An offer to par-
ticipate in a confidential corporate tax
shelter shall be treated as an offer for sale.
If interests in a confidential corporate tax
shelter were first offered for sale on or be-
fore February 28, 2000, the first offer for
sale of interests in the shelter that occurs
after February 28, 2000, shall be consid-
ered the first offer for sale under this sec-
tion.
(ii)Special rule.If a transaction be-
comes a confidential corporate tax shelter
(e.g., because of a change in the law or fac-
tual circumstances, or because the trans-
action becomes a listed transaction)
subsequent to the first offering for sale af-
ter February 28, 2000, and the transac-
tion was not previously required to be
registered as a confidential corporate tax
shelter under this section, the transaction
must be registered under this section if in-
terests are offered for sale after the trans-
action becomes a confidential corporate tax
shelter. The transaction must be registered
by the next offering for sale of interests in
the shelter. If, subsequent to the first of-
fering for sale, a transaction becomes a con-
fidential corporate tax shelter because the
transaction becomes a listed transaction on
or after February 28, 2003, and the trans-
action was not previously required to be
registered as a confidential corporate tax
shelter under this section, the transaction
must be registered under this section within
60 days after the transaction becomes a
listed transaction/confidential corporate tax
shelter if any interests were offered for sale
within the previous six years.
(2)Procedures for registering.To reg-
ister a confidential corporate tax shelter, the
person responsible for registering the tax
shelter must file Form 8264,“Application
for Registration of a Tax Shelter.”(Form
8264 is also used to register tax shelters de-
fined in section 6111(c).) Similar to the
treatment provided under Q&A–22 and
Q&A–48 of§301.6111–1T, transactions in-
volving similar business assets and simi-
lar plans or arrangements that are offered
to corporate taxpayers by the same per-
son or related persons are aggregated and
considered part of a single tax shelter. How-
ever, in contrast with the requirement of
Q&A–48 of§301.6111–1T, the tax shel-
ter promoter may file a single Form 8264
with respect to any such aggregated tax
shelter, provided an amended Form 8264
is filed to reflect any material changes and
to include any additional or revised writ-
ten materials presented in connection with
an offer to participate in the shelter. Fur-
thermore, all transactions that are part of the
same tax shelter and that are to be car-
ried out by the same corporate participant
(or one or more other members of the same
affiliated group within the meaning of sec-
tion 1504) must be registered on the same
Form 8264.
(f)Definition of tax shelter promoter.For
purposes of section 6111(d)(2) and this sec-
tion, the termtax shelter promoterincludes
a tax shelter organizer and any other per-
son who participates in the organization,
management, or sale of a tax shelter (as
those persons are described in section
6111(e)(1) and§301.6111–1T (Q&A–26
through Q&A–33) or any person related
(within the meaning of section 267 or 707)
to such tax shelter organizer or such other
person.
(g)Person required to register—(1)Ta x
shelter promoters.The rules in section 6111
(a) and (e) and§301.6111–1T (Q&A–34
through Q&A–39) determine who is re-
quired to register a confidential corporate
tax shelter. A promoter of a confidential cor-
porate tax shelter must register the tax shel-
ter only if it is a person required to register
under the rules in section 6111(a) and (e)
and§301.6111–1T (Q&A–34 through
Q&A–39).
(2)Persons who discuss the transac-
tion; all promoters are foreign persons—
(i)In general.If all of the tax shelter
promoters of a confidential corporate tax
shelter are foreign persons, any person who
discusses participation in the transaction
must register the shelter under this sec-
tion within 90 days after beginning such
discussions.
(ii)Exceptions.Registration by a per-
son discussing participation in a transac-
tion is not required if either—
(A) The person does not participate, di-
rectly or indirectly, in the shelter and no-
tifies the tax shelter promoter in writing,
within 90 days of beginning such discus-
sions, that the person will not participate;
or
(B) Within 90 days after beginning such
discussions, the person obtains and reason-
ably relies on both—
2003–12 I.R.B.626March 24, 2003

(1) A written statement from one of the
tax shelter promoters that such promoter has
registered the tax shelter under this sec-
tion; and
(2) A copy of the registration.
(iii)Determination of foreign status.For
purposes of this paragraph (g)(2), a per-
son must presume that all tax shelter pro-
moters are foreign persons unless the person
either—
(A) Discusses participation in the tax
shelter with a promoter that is a United
States person; or
(B) Obtains and reasonably relies on a
written statement from one of the promot-
ers that at least one of the promoters is a
United States person.
(iv)Discussion.Discussing participa-
tion in a transaction includes discussing such
participation with any person that con-
veys the tax shelter promoter’s proposal. For
purposes of this paragraph (g)(2), any per-
son that participates directly or indirectly
in a transaction will be treated as having
discussed participation in the transaction not
later than the date of the agreement to par-
ticipate. Thus, a tax shelter participant will
be treated as having discussed participa-
tion in the transaction even if all discus-
sions were conducted by an intermediary
and the agreement to participate was made
indirectly through another person acting on
the participant’s behalf (for example,
through an intermediary empowered to
commit the participant to participate in the
shelter).
(v)Special rule for controlled entities.
A person (first person) will be treated as
participating indirectly in a confidential cor-
porate tax shelter if a foreign person con-
trolled by the first person participates in the
shelter, and a significant purpose of the shel-
ter is the avoidance or evasion of the first
person’s federal income tax. For purposes
of this paragraph (g)(2)(v), control of a for-
eign corporation or partnership will be de-
termined under the rules of section
6038(e)(2) and (3), except that such sec-
tion shall be applied by substituting“10”
for“50”each place it appears and“at least”
for“more than”each place it appears. In
addition, section 6038(e)(2) shall be ap-
plied for these purposes without regard to
the constructive ownership rules of sec-
tion 318 and by treating stock as owned if
it is owned directly or indirectly. Section
6038(e)(3) shall be applied for these pur-
poses without regard to the last sentence of
section 6038(e)(3)(B). Any beneficiary with
a 10 percent or more interest in a foreign
trust or estate shall be treated as control-
ling that trust or estate for purposes of this
paragraph (g)(2)(v).
(vi)Other rules.(A) For purposes of the
registration requirements under section
6111(d)(3), it is presumed that the tax shel-
ter promoters will receive fees in excess of
$100,000 in the aggregate unless the per-
son responsible for registering the tax shel-
ter can show otherwise.
(B) Any person treated as a tax shelter
promoter under section 6111(d) solely by
reason of being related (within the mean-
ing of section 267 or 707) to a foreign pro-
moter will be treated as a foreign promoter
for purposes of this paragraph (g)(2).
(h)Effective dates.This section applies
to confidential corporate tax shelters in
which any interests are offered for sale af-
ter February 28, 2000. If an interest is sold
after February 28, 2000, it is treated as of-
fered for sale after February 28, 2000, un-
less the sale was pursuant to a written
binding contract entered into on or before
February 28, 2000. However, paragraphs (a)
through (g) of this section apply to confi-
dential corporate tax shelters in which any
interests are offered for sale on or after Feb-
ruary 28, 2003, and to transactions de-
scribed in paragraph (e)(1)(ii) of this section.
The rules that apply to confidential corpo-
rate tax shelters in which any interests are
offered for sale after February 28, 2000, and
before February 28, 2003, are contained in
§301.6111–2T in effect prior to February
28, 2003 (see 26 CFR part 301 revised as
of April 1, 2002, 2002–28 I.R.B 91, and
2002–45 I.R.B. 823 (see§601.601(d)(2) of
this chapter)).
§301.6111–2T [Removed]
Par. 24. Section 301.6111–2T is re-
moved.
Par. 25. Section 301.6112–1 is added as
follows:
§301.6112–1 Requirement to prepare,
maintain, and furnish lists with respect
to potentially abusive tax shelters.
(a)In general.Each organizer and seller,
as described in paragraph (c) of this sec-
tion, of a transaction that is a potentially
abusive tax shelter, as described in para-
graph (b) of this section, shall prepare and
maintain a list of persons in accordance with
paragraph (e) of this section and upon re-
quest shall furnish such list to the Inter-
nal Revenue Service (IRS) in accordance
with paragraph (g) of this section.
(b)Potentially abusive tax shelters.For
purposes of this section, a potentially abu-
sive tax shelter is any transaction that is a
section 6111 tax shelter, as described in
paragraph (b)(1) of this section, or that has
a potential for tax avoidance or evasion, as
described in paragraph (b)(2) of this sec-
tion. The termtransactionincludes all of
the factual elements relevant to the ex-
pected tax treatment of any investment, en-
tity, plan, or arrangement, and includes any
series of steps carried out as part of a plan.
(1)Transaction that is a section 6111 tax
shelter.A section 6111 tax shelter is any
transaction that is required to be regis-
tered with the IRS under section 6111, re-
gardless of whether that tax shelter is
properly registered pursuant to section 6111.
(2)Transaction that has a potential for
tax avoidance or evasion—(i)In general.
A transaction that has a potential for tax
avoidance or evasion includes—
(A) Any listed transaction as defined in
§1.6011–4(b)(2) of this chapter that is sub-
ject to disclosure under§§1.6011–4,
20.6011–4,25.6011–4,31.6011–4,
53.6011–4, 54.6011–4, or 56.6011–4 of this
chapter;
(B) Any transaction that a potential ma-
terial advisor (at the time the transaction is
entered into or an interest is acquired)
knows is or reasonably expects will be-
come a reportable transaction under
§1.6011–4(b)(3) through (7) of this chap-
ter; and
(C) Any interest in a type of transac-
tion that is transferred if the transferor
knows or reasonably expects that the trans-
feree will sell or transfer an interest in that
type of transaction to another transferee
(subsequent participant), and the type of
transaction would be a listed transaction un-
der§§1.6011–4, 20.6011–4, 25.6011–4,
31.6011–4, 53.6011–4, 54.6011–4, or
56.6011–4 of this chapter, or a transac-
tion described in§1.6011–4(b)(3) through
(7) of this chapter assuming that the rel-
evant thresholds are met.
(ii) The determination of whether a trans-
action has the potential for tax avoidance
or evasion does not depend upon whether
the transaction is properly disclosed pur-
suant to§§1.6011–4, 20.6011–4, 25.6011–4,
31.6011–4, 53.6011–4, 54.6011–4, or
56.6011–4 of this chapter.
March 24, 20036272003–12 I.R.B.

(iii) If a transaction becomes a poten-
tially abusive tax shelter on or after Feb-
ruary 28, 2003, because it is a listed
transaction as defined in§1.6011–4 of this
chapter and is subject to disclosure under
§1.6011–4 of this chapter this section shall
apply with respect to any such transac-
tion entered into or any interest acquired
therein after February 28, 2000 (includ-
ing interests acquired before the transac-
tion becomes a listed transaction). If a
transaction becomes a listed transaction as
defined in§1.6011–4 of this chapter and is
subject to disclosure under§§20.6011–4,
25.6011–4,31.6011–4,53.6011–4,
54.6011–4, or 56.6011–4 of this chapter, this
section shall apply with respect to any such
transaction entered into or any interest ac-
quired therein on or after January 1, 2003
(including interests acquired before the
transaction becomes a listed transaction).
(c)Organizer and seller—(1)In gen-
eral.A person is an organizer of, or a seller
of an interest in, a transaction that is a po-
tentially abusive tax shelter if that person
is a material advisor, as described in para-
graph (c)(2) of this section, with respect to
that transaction.
(2)Material advisor—(i)In general.A
person is a material advisor with respect to
a transaction that is a potentially abusive
tax shelter if the person is required to reg-
ister the transaction under section 6111; or
the person receives or expects to receive at
least a minimum fee (as defined in para-
graph (c)(3) of this section) with respect to
the transaction, and the person makes a tax
statement (as defined in paragraph (c)(2)(iii)
of this section) to or for the benefit of—
(A) A taxpayer who is required to dis-
close the transaction under§§1.6011–4,
20.6011–4,25.6011–4,31.6011–4,
53.6011–4, 54.6011–4, or 56.6011–4 of this
chapter because the transaction is a listed
transaction or who would have been re-
quired to disclose a listed transaction un-
der§§1.6011–4, 20.6011–4, 25.6011–4,
31.6011–4, 53.6011–4, 54.6011–4, or
56.6011–4 of this chapter if the transac-
tion had become a listed transaction within
the statute of limitations period in§1.6011–
4(e)(2);
(B) A taxpayer who the potential mate-
rial advisor (at the time the transaction is
entered into) knows is or reasonably ex-
pects to be required to disclose the trans-
action under§1.6011–4 because the
transaction is or is reasonably expected to
become a transaction described in§1.6011–
4(b)(3) through (7);
(C) A person who is required to regis-
ter the transaction under section 6111; or
(D) A person who purchases (or other-
wise acquires) an interest in a section 6111
tax shelter;
(E) A transferee of an interest if the in-
terest is described in paragraph (b)(2)(i)(C)
of this section.
(ii)Special rules.A material advisor gen-
erally does not include a person who makes
a tax statement solely in the person’s ca-
pacity as an employee, shareholder, part-
ner or agent of another person. Any tax
statement made by that person will be at-
tributed to that person’s employer, corpo-
ration, partnership or principal. However,
a person shall be treated as a material ad-
visor if that person forms or avails of an
entity with the purpose of avoiding the rules
of section 6111 or 6112 or the penalties un-
der section 6707 or 6708.
(iii)Tax statement—(A)In general.A
tax statement means any statement, oral or
written, that relates to a tax aspect of a
transaction that causes the transaction to be
a reportable transaction as defined in
§1.6011–4(b)(2) through (7) or a tax shel-
ter as described in section 6111.
(B)Confidential transactions.A tax
statement relates to an aspect of a trans-
action that causes it to be a confidential
transaction if the statement concerns a tax
benefit related to the transaction and ei-
ther the taxpayer’s disclosure of the tax
treatment or tax structure of the transac-
tion is limited in the manner described in
§1.6011–4(b)(3) of this chapter by or for the
benefit of the person making the state-
ment, or the person making the statement
knows the taxpayer’s disclosure of the tax
structure or tax aspects of the transaction
is limited in the manner described in
§1.6011–4(b)(3) of this chapter.
(C)Transactions with contractual pro-
tection.A tax statement relates to an as-
pect of a transaction that causes it to be a
transaction with contractual protection if the
statement concerns a tax benefit related to
the transaction and either—
(1) The taxpayer has the right to a full
or partial refund of fees paid to the per-
son making the statement or if these fees
are contingent in the manner described in
§1.6011–4(b)(4) of this chapter; or
(2) The person making the statement
knows that the taxpayer has the right to a
full or partial refund of fees (as described
in§1.6011–4(b)(4)(ii)) paid to another if all
or part of the intended tax consequences
from the transaction are not sustained or that
fees (as described in§1.6011–4(b)(4)(ii))
paid by the taxpayer to another are con-
tingent on the taxpayer’s realization of tax
benefits from the transaction in the man-
ner described in§1.6011–4(b)(4) of this
chapter.
(D)Loss transactions.A tax statement
relates to an aspect of a transaction that
causes it to be a loss transaction if the state-
ment concerns an item that gives rise to a
loss described in§1.6011–4(b)(5) of this
chapter.
(E)Transactions with a significant book-
tax difference.A tax statement relates to an
aspect of a transaction that causes it to be
a transaction with a significant book-tax dif-
ference if the statement concerns an item
that gives rise to a book-tax difference de-
scribed in§1.6011–4(b)(6) of this chap-
ter.
(F)Transactions involving a brief as-
set holding period.A tax statement re-
lates to an aspect of a transaction involving
a brief asset holding period if the state-
ment concerns an item that gives rise to a
tax credit described in§1.6011–4(b)(7) of
this chapter.
(iv)Exceptions—(A)Post-filing ad-
vice.A person will not be considered to be
a material advisor with respect to a trans-
action if that person does not make or pro-
vide a tax statement regarding the
transaction until after the first tax return re-
flecting tax benefit(s) of the transaction is
filed with the IRS.
(B)Publicly-filed statements.A tax state-
ment with respect to a transaction that in-
cludes only information about the
transaction contained in publicly-available
documents filed with the Securities and Ex-
change Commission no later than the close
of the transaction will not be considered a
tax statement to or for the benefit of a per-
son described in paragraph (c)(2)(i)(A)
through (E) of this section.
(3)Minimum fee—(i)In general.The
minimum fee is $250,000 for a transac-
tion if every person to whom or for whose
benefit the potential material advisor makes
or provides a tax statement with respect to
the transaction is a corporation. The mini-
mum fee is $50,000 for a transaction if any
2003–12 I.R.B.628March 24, 2003

person to whom or for whose benefit a po-
tential material advisor makes or provides
a tax statement with respect to the trans-
action is a partnership or trust, unless all
owners or beneficiaries are corporations
(looking through any partners or benefi-
ciaries that are themselves partnerships or
trusts), in which case the minimum fee is
$250,000. For all other transactions, the
minimum fee is $50,000. For purposes of
this paragraph (c)(3)(i), a corporation means
a corporation other than an S corporation.
(ii)Listed transactions.For listed trans-
actions described in§§1.6011–4(b)(2),
20.6011–4(a), 25.6011–4(a), 31.6011–4(a),
53.6011–4(a), 54.6011–4(a), or 56.6011–
4(a) of this chapter, the minimum fees in
paragraph (c)(3)(i) of this section are re-
duced from $250,000 to $25,000 and from
$50,000 to $10,000.
(iii)Determination of fees.In determin-
ing whether the minimum fee threshold is
satisfied, all fees for services for advice
(whether or not tax advice) or for the imple-
mentation of a transaction that is a poten-
tially abusive tax shelter are taken into
account. For purposes of this section, the
minimum fee threshold must be met inde-
pendently for each transaction that is a po-
tentially abusive tax shelter and aggregation
of fees among transactions is not required.
Fees for advice or implementation include
consideration in whatever form paid,
whether in cash or in kind, for services to
analyze the transaction (whether or not re-
lated to the tax consequences of the trans-
action), for services to implement the
transaction, for services to document the
transaction, and for services to prepare tax
returns to the extent return preparation fees
are unreasonable in light of all of the facts
and circumstances. The IRS will scruti-
nize carefully all of the facts and circum-
stancesindeterminingwhether
consideration received in connection with
a transaction that is a potentially abusive
tax shelter constitutes fees for purposes of
this section.
(d)Definitions.For purposes of this sec-
tion, the following terms are defined as
follows:
(1)Interest. The terminterestincludes,
but is not limited to, any right to partici-
pate in a transaction by reason of a part-
nership interest, a shareholder interest, or
a beneficial interest in a trust; any inter-
est in property (including a leasehold in-
terest); the entry into a leasing arrangement
or a consulting, management or other agree-
ment for the performance of services; or any
interest in any other investment, entity, plan,
or arrangement. The terminterestincludes
any interest that purportedly entitles the di-
rect or indirect holder of the interest to any
tax consequence (including, but not lim-
ited to, a deduction, loss, or adjustment to
tax basis in an asset) arising from the trans-
action. Aninterestalso includes informa-
tion or services regarding the organization
or structure of the transaction if the infor-
mation or services are relevant to the po-
tential tax consequences of the transaction.
(2)Substantially similar.The termsub-
stantially similarincludes any transaction
that is expected to obtain the same or simi-
lar types of tax consequences and that is ei-
ther factually similar or based on the same
or similar tax strategy. Receipt of an opin-
ion regarding the tax consequences of the
transaction is not relevant to the determi-
nation of whether the transaction is the same
as or substantially similar to another trans-
action. Further, the termsubstantially simi-
larmust be broadly construed in favor of
list maintenance.
(3)Person.The termpersonmeans any
person described in section 7701(a)(1), in-
cluding an affiliated group of corpora-
tions that join in the filing of a consolidated
return under section 1501.
(4)Related party.A person is a related
party with respect to another person if such
person bears a relationship to such other
person described in section 267 or 707.
(5)Tax.For purposes of this section, the
termtaxmeans federal tax.
(6)Tax benefit.A tax benefit includes de-
ductions, exclusions from gross income,
nonrecognition of gain, tax credits, adjust-
ments (or the absence of adjustments) to the
basis of property, status as an entity ex-
empt from federal income taxation, and any
other tax consequences that may reduce a
taxpayer’s federal tax liability by affect-
ing the amount, timing, character, or source
of any item of income, gain, expense, loss,
or credit.
(7)Tax return.For purposes of this sec-
tion, the termtax returnmeans a federal tax
return and a federal information return.
(8)Tax treatment.The tax treatment of
a transaction is the purported or claimed
federal tax treatment of the transaction.
(9)Tax structure.The tax structure of a
transaction is any fact that may be rel-
evant to understanding the purported or
claimed federal tax treatment of the trans-
action.
(e)Preparation and maintenance of
lists—(1)In general.A separate list of per-
sons must be prepared and maintained for
each transaction that is a potentially abu-
sive tax shelter. However, one list must be
maintained for substantially similar trans-
actions that are potentially abusive tax shel-
ters. A list may be maintained on paper, card
file, magnetic media, or in any other form,
provided the method of maintaining the list
enables the IRS to determine without un-
due delay or difficulty the information re-
quired in paragraph (e)(3) of this section.
(2)Persons required to be included on
lists—(i)In general.A material advisor is
required to list each person described in
paragraphs (c)(2)(i)(A) through (D) of this
section to whom (or for whose benefit) the
material advisor makes or provides a tax
statement with respect to a transaction that
is a potentially abusive tax shelter. How-
ever, a material advisor is not required to
list a person described in paragraph
(c)(2)(i)(A) of this section if that person en-
tered into, or acquired an interest in, a listed
transaction more than 6 years before the
transaction was listed.
(ii)Subsequent participant.A material
advisor must list any subsequent partici-
pant if the material advisor knows the iden-
tity of that subsequent participant, and the
material advisor knows that the subse-
quent participant either entered into a trans-
action that must be disclosed under
§1.6011–4(b) of this chapter or sold or
transferred to another subsequent partici-
pant an interest in that type of transac-
tion.
(iii)Section 6111 registrant.A mate-
rial advisor required to register a transac-
tion under section 6111 also must list each
person who purchases (or otherwise ac-
quires) an interest in the transaction.
(iv)Examples.The following examples
illustrate the provisions of this section:
Example 1. An investment firm provides a tax
statement as to a type of transaction to three taxpayers:
Corporation X, Corporation Y, and Corporation Z (all
of which are C corporations). Each taxpayer agrees
to pay the investment firm $300,000 in connection with
the transaction, and each taxpayer engages in a sepa-
rate transaction (transaction X, transaction Y, and trans-
action Z, respectively). At the time the transactions
are entered into, the investment firm knows or rea-
sonably expects that the transactions will result in a
single taxable year loss of $9 million for Corpora-
tion X, $15 million for Corporation Y, and $12 mil-
lion for Corporation Z. The transactions do not satisfy
March 24, 20036292003–12 I.R.B.

the definitions of a reportable transaction under
§1.6011–4(b)(2), (3), (4), (6), or (7) of this chapter.
(i)Transaction X.At the time transaction X is en-
tered into, the investment firm does not know or rea-
sonably expect that the transaction is a reportable
transaction, because the $9 million loss associated
solely with transaction X does not satisfy the $10 mil-
lion threshold under§1.6011–4(b)(5) of this chapter
(relating to loss transactions). Accordingly, transac-
tion X is not a potentially abusive tax shelter. The in-
vestment firm is not required to maintain a list with
respect to transaction X.
(ii)Transactions Y and Z.The investment firm sat-
isfies the requirements for being a material advisor with
respect to transaction Y and transaction Z. First, both
of the transactions are potentially abusive tax shel-
ters with respect to the investment firm because the
investment firm knows, or reasonably expects, at the
time the transactions are entered into, that the losses
for each of Corporation Y and Z will exceed the $10
million threshold and, thus, the investment firm knows
or reasonably expects that the transactions are or will
become reportable transactions under§1.6011–4(b)(5)
of this chapter (relating to loss transactions). Sec-
ond, the investment firm provides a tax statement to
Corporation Y and Corporation Z as to the transac-
tions. Third, the investment firm receives $300,000 in
connection with each transaction (viewed indepen-
dently of each other and without regard to any other
transaction), which exceeds the minimum fee with re-
spect to each transaction ($250,000). Accordingly, the
investment firm must maintain a list with respect to
transactions Y and Z. Because transactions Y and Z
are based on the same or similar tax strategy, trans-
actions Y and Z are substantially similar transac-
tions, and the investment firm must keep one list with
respect to both transactions. The list must contain in-
formation about Corporation Y and Corporation Z (see
paragraph (e)(2)(i) of this section).
Example 2.(i) Corporation M provides a tax state-
ment to Corporation N (a C corporation) describing
the potential loss from a type of transaction. Corpo-
ration N pays Corporation M $300,000 for the infor-
mation about that type of transaction. Corporation M
knows that Corporation N will sell the information to
Taxpayer O (a C corporation) and Taxpayer P (an in-
dividual), and that Taxpayer O and Taxpayer P will
participate in transactions of the type that Corpora-
tion M described to Corporation N. Corporation N,
in turn, provides a tax statement as to that type of
transaction to Taxpayer O and Taxpayer P. Each tax-
payer agrees to pay Corporation N $250,000 in con-
nection with its transaction, and each taxpayer engages
in a separate transaction (transaction O and transac-
tion P, respectively). At the time the transactions are
entered into, both Corporation M and Corporation N
know that the transactions are or will become report-
able transactions under§1.6011–4(b)(5) of this chap-
ter.
(ii) Corporation N is a material advisor with re-
spect to transaction O and transaction P. First, at the
time the transactions are entered into, Corporation N
knows that the transactions are reportable transac-
tions. Thus, the transactions are potentially abusive tax
shelters. Second, Corporation N provides a tax state-
ment to Taxpayer O and Taxpayer P as to the trans-
actions. Third, Corporation N receives $250,000 in
connection with transaction O and transaction P (each
viewed independently of any other transaction), which
equals or exceeds the minimum fee for those trans-
actions ($50,000 and $250,000, respectively). Ac-
cordingly, Corporation N must keep a list with respect
to transaction O and transaction P. The list must con-
tain information about Taxpayer P (see paragraph
(e)(2)(i) of this section). Because transactions O and
P are based on the same or similar tax strategy, trans-
actions O and P are substantially similar transac-
tions, and Corporation N must keep one list with
respect to both transactions. The list must contain in-
formation about Taxpayer O and Taxpayer P (see
(e)(2)(i) of this section).
(iii) Corporation M’s tax statement to Corpora-
tion N constitutes a potentially abusive tax shelter un-
der paragraph (b)(2)(C) of this section. Corporation
M transferred information to Corporation N regard-
ing the potential tax consequences of a type of trans-
action that, if entered into and if the relevant thresholds
are met, would be a reportable transaction described
in§1.6011–4(b)(5). In addition, Corporation M knew
that Corporation N would transfer that information to
another person. Corporation M is a material advisor
with respect to that potentially abusive tax shelter. Cor-
poration M made a tax statement to Corporation N and
Corporation M received $300,000 in connection with
the potentially abusive tax shelter, which exceeds the
minimum fee for that transaction ($250,000). Accord-
ingly, Corporation M must keep a list with respect to
that potentially abusive tax shelter. The list must con-
tain information with respect to Corporation N (see
paragraph (e)(2)(i) of this section). The list must also
contain information about Taxpayer O and Taxpayer
P because Corporation M knows the identity of Tax-
payer O and Taxpayer P, and Corporation M knows
that Taxpayer O and Taxpayer P entered into trans-
action O and transaction P, respectively (see para-
graph (e)(2)(ii) of this section).
(3)Contents—(i)In general. Each list
must contain the following information—
(A) The name of each transaction that
is a potentially abusive tax shelter and the
registration number, if any, obtained un-
der section 6111;
(B) The TIN (as defined in section
7701(a)(41)), if any, of each transaction;
(C) The name, address, and TIN of each
person required to be on the list;
(D) If applicable, the number of units
(i.e., percentage of profits, number of shares,
etc.) acquired by each person required to
be included on the list, if known by the ma-
terial advisor;
(E) The date on which each person re-
quired to be included on the list entered into
each transaction, if known by the mate-
rial advisor;
(F) The amount invested in each trans-
action by each person required to be in-
cluded on the list, if known by the material
advisor;
(G) A detailed description of each trans-
action that describes both the tax struc-
ture and its expected tax treatment;
(H) A summary or schedule of the tax
treatment that each person is intended or ex-
pected to derive from participation in each
transaction, if known by the material ad-
visor;
(I) Copies of any additional written ma-
terials, including tax analyses or opin-
ions, relating to each transaction that are
material to an understanding of the pur-
ported tax treatment or tax structure of the
transaction that have been shown or pro-
vided to any person who acquired or may
acquire an interest in the transactions, or to
their representatives, tax advisors, or agents,
by the material advisor or any related party
or agent of the material advisor. How-
ever, a material advisor is not required to
retain earlier drafts of a document pro-
vided the material advisor retains a copy of
the final document (or, if there is no final
document, the most recent draft of the docu-
ment) and the final document (or most re-
cent draft) contains all the information in
the earlier drafts of such document that is
material to an understanding of the pur-
ported tax treatment or the tax structure of
the transaction; and
(J) For each person required to be on the
list, if the interest in the transaction was not
acquired from the material advisor main-
taining the list, the name of the person from
whom the interest was acquired.
(ii) [Reserved].
(f)Retention of lists.Each material ad-
visor must maintain the list described in
paragraph (e) of this section for seven years
following the earlier of the date on which
the material advisor last made a tax state-
ment relating to the transaction, or the date
the transaction was entered into, if known.
If the material advisor required to pre-
pare, maintain, and furnish the list is a cor-
poration, partnership, or other entity (entity)
that has dissolved or liquidated before
completion of the seven-year period, the
person responsible under state law for wind-
ing up the affairs of the entity must pre-
pare, maintain and furnish the list on behalf
of the entity, unless the entity submits the
list to the Office of Tax Shelter Analysis
(OTSA) within 60 days after the dissolu-
tion or liquidation. If state law does not
specify any person as responsible for wind-
ing up the affairs, then each of the direc-
tors of the corporation, the general partners
of the partnership, or the trustees, own-
ers, or members of the entity are respon-
sible for preparing, maintaining and
furnishing the list on behalf of the entity,
unless the entity submits the list to the Of-
2003–12 I.R.B.630March 24, 2003

fice of Tax Shelter Analysis (OTSA) within
60 days after the dissolution or liquida-
tion. The responsible person must also pro-
vide notice to OTSA of such dissolution or
liquidation within 60 days after the disso-
lution or liquidation. The list and the no-
tice provided to OTSA may be sent to: IRS
LM:PFTG:OTSA, Large & Mid-Size Busi-
ness Division, 1111Constitution Ave., NW,
Washington, DC 20224, or to such other ad-
dress as provided by the Commissioner.
(g)Furnishing of lists—(1)In general.
Each material advisor and person respon-
sible for maintaining a list of persons must,
upon written request by the IRS, furnish the
list to the IRS within 20 days from the day
on which the request is provided. The re-
quest is not required to be in the form of
an administrative summons. The list may
be furnished to the IRS on paper, card file,
magnetic media, or in any other form, pro-
vided the method of furnishing the list en-
ables the IRS to determine without undue
delay or difficulty the information required
in paragraph (e)(3) of this section.
(2)Claims of privilege—(i) In any case
in which an attorney or federally autho-
rized tax practitioner within the meaning of
section 7525 is required to maintain a list
with respect to a transaction that is a po-
tentially abusive tax shelter, and that per-
son has a reasonable belief that information
specified in paragraph (e)(3)(i)(I) required
to be furnished under this paragraph (g) is
protected by the attorney-client privilege or
by the confidentiality privilege of section
7525(a), the attorney or federally autho-
rized tax practitioner must still maintain the
list of persons pursuant to the require-
ments of this section. When the list is re-
quested by the IRS, as provided in
paragraph (g)(1) of this section, the mate-
rial advisor may assert a privilege claim as
to the information specified in paragraph
(e)(3)(i)(I) subject to the requirements of this
paragraph (g)(2).
(ii) The claimed privilege must be sup-
ported by a statement that is signed by the
attorney or federally authorized tax prac-
titioner under penalties of perjury, must
identify and describe (as set forth in this
paragraph (g)(2)) the nature of each docu-
ment that is not produced which will al-
low the IRS to determine the applicability
of the privilege or protection claimed, with-
out revealing the privileged information it-
self, and must include the following
representations with respect to each docu-
ment for which the privilege is claimed—
(A) Specifically represent that the in-
formation was a confidential practitioner-
client communication and, in the case of
information which a federally authorized tax
practitioner claims is privileged under sec-
tion 7525, that the omitted information was
not part of tax advice that constituted the
promotion of the direct or indirect partici-
pation of a corporation in any tax shelter
(as defined in section 6662(d)(2)(C)(iii));
and
(B) Specifically represent that to the best
of such person’s knowledge and belief, that
the person and all others in possession of
the omitted information did not disclose the
omitted information to any person whose
receipt of such information would result in
a waiver of the privilege.
(iii) Identification and description of a
document includes, but is not limited to—
(A) The date appearing on such docu-
ment or, if it has no date, the date or ap-
proximate date that such document was
created;
(B) The general nature, description, and
purpose of such document and the iden-
tity of the person who signed such docu-
ment, and, if it was not signed, the identity
of each person who prepared it; and
(C) The identity of each person to whom
such document was addressed and the iden-
tity of each person, other than such ad-
dressee, to whom such document, or a copy
thereof, was given or sent.
(h)Designation agreements.If more than
one material advisor is required to main-
tain a list of persons, in accordance with
paragraph (e) of this section, for a poten-
tially abusive tax shelter, the material ad-
visors may designate by written agreement
a single material advisor to maintain the list
or a portion of the list. The designation of
one material advisor to maintain the list
does not relieve the other material advi-
sors from their obligation to furnish the list
to the IRS in accordance with paragraph
(g)(1) of this section, if the designated ma-
terial advisor fails to furnish the list to the
IRS in a timely manner. A material advi-
sor is not relieved from the requirement of
this section because a material advisor is
unable to obtain the list from any desig-
nated material advisor, any designated ma-
terial advisor did not maintain a list, or the
list maintained by any designated mate-
rial advisor is not complete.
(i)Procedure for obtaining rulings.A
person may submit a request to the IRS for
a ruling as to whether a specific transac-
tion will be considered a potentially abu-
sive tax shelter for purposes of this section
and whether that person is a material ad-
visor with respect to that transaction. If the
request fully discloses all relevant facts re-
lating to the transaction (including all facts
relevant to the person’s relationship to such
transaction), then the requirement to main-
tain a list shall be suspended for that per-
son during the period that the ruling request
is pending and for 60 days thereafter; how-
ever, if it is ultimately determined that the
transaction is a potentially abusive tax shel-
ter and that the person is a material advi-
sor with respect to that transaction, the
pendency of such a ruling request shall not
affect the requirement to maintain the list,
nor shall it affect the persons required to
be included on the list (including persons
who acquired interests in the potentially
abusive tax shelter prior to and during the
pendency of the ruling request), or the other
information required to be included as part
of the list.
(j)Effective date.This section applies to
any transaction that is a potentially abu-
sive tax shelter entered into, or any inter-
est acquired therein, on or after February
28, 2003. However, this section shall ap-
ply to any transaction that was entered into,
or in which an interest was acquired, af-
ter February 28, 2000, if the transaction be-
comes a potentially abusive tax shelter on
or after February 28, 2003, because it is a
listed transaction as defined in§1.6011–4
of this chapter, and is subject to disclo-
sure under§1.6011–4 of this chapter. This
section also shall apply to any transaction
that was entered into, or in which an in-
terest was acquired, after January 1, 2003,
if the transaction becomes a listed trans-
action as defined in§1.6011–4 of this chap-
ter and is subject to disclosure under
§§20.6011–4, 25.6011–4, 31.6011–4,
53.6011–4, 54.6011–4 or 56.6011–4 of this
chapter. The rules in§301.6112–1T as con-
tained in 2002–45 I.R.B. 826 (see
§601.601(d)(2) of this chapter) apply only
to a transaction entered into, or an inter-
est acquired therein, on or after January 1,
2003, and before February 28, 2003, if the
transaction is a listed transaction as de-
fined in§1.6011–4 of this chapter or a sec-
tion 6111 tax shelter. Otherwise, the rules
that apply with respect to any transaction
March 24, 20036312003–12 I.R.B.

that is a potentially abusive tax shelter en-
tered into, or any interest acquired therein,
before January 1, 2003, are contained in
§301.6112–1T in effect prior to January 1,
2003 (see 26 CFR part 301 revised as of
April 1, 2002). Additionally, the IRS will
not ask to inspect any list for a poten-
tially abusive tax shelter that is entered into,
or any interest acquired therein, on or af-
ter January 1, 2003, until June 1, 2003, un-
less the potentially abusive tax shelter is a
listed transaction as defined in§1.6011–4
of this chapter or a transaction that is a sec-
tion 6111 tax shelter.
§301.6112–1T [Removed]
Par. 26. Section 301.6112–1T is re-
moved.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 27. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 28. In§602.101, paragraph (b) is
amended as follows:
1. The following entries to the table are
removed:
§602.101 OMB Control numbers.
*****
(b)***
CFR part or section where
identified and described
Current OMB
control No.
*****
1.6011–4T ................................................................................................................................................... 1545–1685
*****
301.6111–2T ............................................................................................................................................... 1545–0865
1545–1687
301.6112–1T ............................................................................................................................................... 1545–0865
1545–1686
*****
2. The following entries are added in nu-
merical order to the table:
§602.101 OMB Control numbers.
*****
(b)***
CFR part or section where
identified and described
Current OMB
control No.
*****
1.6011–4 ..................................................................................................................................................... 1545–1685
*****
301.6111–2.................................................................................................................................................. 1545–0865
1545–1687
301.6112–1 ................................................................................................................................................. 1545–0865
1545–1686
*****
David A. Mader,
Assistant Deputy Commissioner
of Internal Revenue.
Approved February 26, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on February 28,
2003, 10:47 a.m., and published in the issue of the Federal
Register for March 4, 2003, 68 F.R. 10161)
2003–12 I.R.B.632March 24, 2003

Part III. Administrative, Procedural, and Miscellaneous
Weighted Average Interest
Rate Update
Notice 2003–17
Sections 412(b)(5)(B) and 412(l)(7)(C)(i)
of the Internal Revenue Code provide that
the interest rates used to calculate current
liability for purposes of determining the full
funding limitation under§412(c)(7) and the
required contribution under§412(l) must
be within a permissible range around the
weighted average of the rates of interest on
30-year Treasury securities during the four-
year period ending on the last day before
the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, pro-
vides guidelines for determining the
weighted average interest rate and the re-
sulting permissible range of interest rates
used to calculate current liability for the pur-
pose of the full funding limitation of
§412(c)(7) of the Code.
Section 417(e)(3)(A)(ii)(II) defines the
applicable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit un-
der§417(e)(1) and (2), as the annual rate
of interest on 30-year Treasury securities for
the month before the date of distribution or
such other time as the Secretary may by
regulations prescribe. Section 1.417(e)–
1(d)(3) of the Income Tax Regulations pro-
vides that the applicable interest rate for a
month is the annual interest rate on 30-
year Treasury securities as specified by the
Commissioner for that month in revenue
rulings, notices or other guidance pub-
lished in the Internal Revenue Bulletin.
The rate of interest on 30-year Trea-
sury Securities for February 2003 is 4.81
percent. Pursuant to Notice 2002–26,
2002–15 I.R.B. 743, the Service has de-
termined this rate as the monthly average
of the daily determination of yield on the
30-year Treasury bond maturing in Febru-
ary 2031.
Section 405 of the Job Creation and
Worker Assistance Act of 2002 amended
§412(l)(7)(C) of the Code to provide that
for plan years beginning in 2002 and 2003
the permissible range is extended to 120
percent.
The following rates were determined for
the plan years beginning in the month
shown below.
MonthYear
Weighted
Average
90% to 110%
Permissible
Range
90% to 120%
Permissible
Range
March20035.494.94 to 6.034.94 to 6.58
Drafting Information
The principal authors of this notice are
Tony Montanaro and Paul Stern of the Em-
ployee Plans, Tax Exempt and Govern-
ment Entities Division. For further infor-
mation regarding this notice, please con-
tact the Employee Plans’taxpayer assis-
tance telephone service at 1–877–829–
5500 (a toll-free number), between the hours
of 8:00 a.m. and 6:30 p.m. Eastern time,
Monday through Friday. Mr. Montanaro
may be reached at 1–202–283–9714 and
Mr. Stern may be reached at 1–202–283–
9703. The telephone numbers in the pre-
ceding sentence are not toll-free.
March 24, 20036332003–12 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Application of Normalization
Accounting Rules to Balances
of Excess Deferred Income
Taxes and Accumulated
Deferred Investment Tax
Credits of Public Utilities
Whose Generation Assets
Cease to be Public Utility
Property
REG–104385–01
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains pro-
posed regulations that provide guidance on
the normalization requirements applicable
to electric utilities that benefit (or have ben-
efitted) from accelerated depreciation meth-
ods or from the investment tax credit
permitted under pre-1991 law. The pro-
posed regulations permit a utility whose
electricity generation assets cease to be pub-
lic utility property to return to their rate-
payers the normalization reserves for excess
deferred income taxes (EDFIT) and accu-
mulated deferred investment tax credits
(ADITC) with respect to those assets. This
document also provides notice of a pub-
lic hearing on these proposed regulations.
DATES: Written or electronic comments
must be received by June 2, 2003. Re-
quests to speak and outlines of topics to be
discussed at the public hearing scheduled
for June 25, 2003, at 10 a.m. must be re-
ceived by June 2, 2003.
ADDRESSES: Send submissions to:
CC:PA:RU (REG–104385–01), room 5226,
Internal Revenue Service, Post Office Box
7604, Ben Franklin Station,Washington,
DC 20044. Submissions may be hand-
delivered Monday through Friday between
the hours of 8 a.m. and 5 p.m. to:
CC:PA:RU (REG–104385–01), Courier’s
Desk, Internal Revenue Service,1111Con-
stitution Avenue, NW, Washington, DC. Al-
ternatively, taxpayers may submit comments
electronically by submitting comments di-
rectly to the IRS Internet site at
www.irs.gov/regs. The public hearing will
be held in the Internal Revenue Building,
1111Constitution Avenue, NW, Washing-
ton, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, David Selig, at (202) 622–3040; con-
cerning submissions of comments, the
hearing, or to be placed on the building ac-
cess list to attend the hearing, Treena
Garrett, at (202) 622–7190 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR Part 1) relating to the nor-
malization requirements of sections
168(f)(2) and 168(i)(9) of the Internal Rev-
enue Code (Code), section 203(e) of the Tax
Reform Act of 1986, Public Law 99–514
(100 Stat. 2146), and former section 46(f)
of the Code. The proposed regulations re-
spond to changes in the electric power in-
dustry resulting from deregulation of
electricity generation facilities.
Section 168 of the Code permits the use
of accelerated depreciation methods. Sec-
tion 168(f)(2) provides, however, that ac-
celerated depreciation is permitted with
respect to public utility property only if the
taxpayer uses a normalization method of ac-
counting for ratemaking purposes.
Under a normalization method of ac-
counting, a utility calculates its ratemak-
ing tax expense using depreciation that is
no more accelerated than its ratemaking de-
preciation (typically straight-line). In the
early years of an asset’s life, this results in
ratemaking tax expense that is greater than
actual tax expense. The difference between
the ratemaking tax expense and the ac-
tual tax expense is added to a reserve (the
accumulated deferred federal income tax re-
serve, or ADFIT). The difference between
ratemaking tax expense and actual tax ex-
pense is not permanent and reverses in the
later years of the asset’s life when the rate-
making depreciation method provides larger
depreciation deductions and lower tax ex-
pense than the accelerated method used in
computing actual tax expense.
This accounting treatment prevents the
immediate flowthrough to utility ratepay-
ers of the reduction in current taxes result-
ing from the use of accelerated depreciation.
Instead, the reduction is treated as a de-
ferred tax expense that is collected from
current ratepayers through utility rates, and
thus is available to utilities as cost-free in-
vestment capital. When the accelerated
method provides lower depreciation de-
ductions in later years, only the ratemak-
ing tax expense is collected from ratepayers
and the difference between actual tax ex-
pense and ratemaking tax expense is
charged to ADFIT, depleting the utility’s
stock of cost-free capital.
Excess Deferred Income Tax
The Tax Reform Act of 1986 reduced the
highest corporate tax rate from 46 per-
cent to 34 percent. The excess deferred fed-
eral income tax (EDFIT) reserve is the
balance of the deferred tax reserve imme-
diately before the rate reduction over the
balance that would have been held in the
reserve if the 34 percent rate had been in
effect for prior periods. The EDFIT re-
serves were amounts that utilities had col-
lected from ratepayers to pay future taxes
that, as a result of the reduction in corpo-
rate tax rates, would not have to be paid.
Section 203(e) of the Tax Reform Act
of 1986 specifies the manner in which the
EDFIT reserve can be flowed through to
ratepayers under a normalization method of
accounting. It provides that the EDFIT re-
serve may be reduced, with a correspond-
ing reduction in the cost of service the
utility collects from ratepayers, no more rap-
idly than the EDFIT reserve would be re-
duced under the average rate assumption
method (ARAM). For taxpayers that did not
have adequate data to apply the average rate
assumption method, subsequent guidance
permitted use of the reverse South Geor-
gia method as an alternative. In general,
both the average rate assumption method
and the reverse South Georgia method
spread the flowthrough of the EDFIT re-
serve over the remaining lives of the prop-
erty that gave rise to the excess.
2003–12 I.R.B.634March 24, 2003

Accumulated Deferred Investment Tax
Credits (ADITC)
Former section 46 of the Code simi-
larly limited the ability of ratepayers to ben-
efit from the investment tax credit
determined under that section. Under former
section 46(f)(2), an electing utility could
flow through the investment credit rat-
ably (that is, could reduce the cost of ser-
vice collected from ratepayers by a ratable
portion of the credit) over the investment’s
regulatory life. The balance of the credit re-
maining to be flowed through to ratepay-
ers would be held in a reserve for
accumulated deferred investment tax cred-
its (ADITC). If the utility elected ratable
flowthrough of the credit, the rate base (the
amount on which the utility is permitted to
collect a return from ratepayers) could not
be reduced by reason of any portion of the
credit.
Deregulation of Generation Assets
When the normalization provisions were
added to the Internal Revenue Code, elec-
tric utilities were vertically integrated to in-
clude generation, transmission, and
distribution functions. Accelerated depre-
ciation, investment credits, and normaliza-
tion enhanced the cash flow needed to
acquire and construct new generation as-
sets. Driven by changes in technology and
economics, however, the electric industry
has been undergoing substantial changes.
Many utilities have been selling genera-
tion assets to new entities that are not sub-
ject to rate of return regulation and are
becoming transmission and distribution (or
distribution-only) companies. In many cases,
the deregulation of generation assets is oc-
curring before the EDFIT and ADITC re-
serves associated with those assets have
been flowed through to ratepayers.
The Service has issued a number of pri-
vate letter rulings holding that flowthrough
of the EDFIT and ADITC reserves asso-
ciated with an asset is not permitted after
the asset’s deregulation, whether by dis-
position or otherwise. These rulings were
based on the principle that flowthrough is
permitted only over the asset’s regulatory
life and when that life is terminated by de-
regulation no further flowthrough is per-
mitted. After further consideration, the
Service and Treasury have concluded that
neither former section 46(f)(2) nor sec-
tion 203(e) of the Tax Reform Act sug-
gests that the EDFIT and ADITC reserves
should not ultimately be flowed through to
ratepayers. Instead, Congress provided a
schedule for flowing through the reserves
so that utilities would have the benefit of
cost-free capital for a predictable period.
The proposed regulations provide that
utilities whose generation assets cease to be
public utility property, whether by dispo-
sition, deregulation, or otherwise, may con-
tinue to flow through EDFIT and ADITC
reserves associated with those assets with-
out violating the normalization rules. The
rate of flowthrough is limited, however, to
the rate that would have been permitted if
the assets had remained public utility prop-
erty and the taxpayer had continued to use
a normalization method of accounting (or
ratable flowthrough of the credit) with re-
spect to the assets. This result does not im-
pose on utilities any burden unanticipated
prior to deregulation and provides the flow-
through originally anticipated by ratepay-
ers, utility commissions, and utilities.
Comments Requested
In addition to comments relating to this
notice of proposed rulemaking, comments
are requested on the proper disposition of
tax reserves (ADFIT, EDFIT, and ADITC)
under the following set of facts. Regu-
lated transmission assets from several pub-
lic utilities (related or otherwise) are
transferred to a utility partnership. This part-
nership is created solely as a transmis-
sion company. The transaction is subject to
section 721 of the Code. The transmis-
sion assets are public utility property be-
fore the transfer and will be public utility
property after the transfer. Is there a nor-
malization violation if the deferred tax re-
serves are transferred to the new
transmission company’s regulated books and
are considered in setting rates for the new
transmission company? Alternatively, is
there a normalization violation if the de-
ferred tax reserves remain on the transfer-
ors’regulated books and are considered in
setting their rates?
In addition, the proposed regulations do
not address the treatment of deregulated as-
sets under former section 46(f)(1) (relat-
ing to the use of the investment credit to
reduce the rate base of electing taxpay-
ers). Comments are also requested on this
issue.
Proposed Effective Date
The regulations are proposed to apply to
property that becomes deregulated genera-
tion property after March 4, 2003. In ad-
dition, a utility may elect to apply the
proposed rules to property that becomes de-
regulated generation property on or be-
fore March 4, 2003. The election is made
by attaching a written statement to the utili-
ty’s return for the tax year in which the pro-
posed rules are published as final
regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Ex-
ecutive Order 12866. Therefore, a regulatory
assessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations
and, because the regulations do not im-
pose a collection of information on small
entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. There-
fore, a Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on small
business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are sub-
mitted (in the manner described in the AD-
DRESSES caption) timely to the IRS. All
comments will be available for public in-
spection and copying. Treasury and IRS
specifically request comments on the clar-
ity of the proposed regulations and how
they may be made clearer and easier to un-
derstand.
A public hearing has been scheduled for
June 25, 2003, at 10 a.m. in the Internal
Revenue Building,1111Constitution Av-
enue, NW, Washington, DC. Because of ac-
cess restrictions, visitors will not be
admitted beyond the Internal Revenue
Building lobby more than 30 minutes be-
fore the hearing starts.
March 24, 20036352003–12 I.R.B.

The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing.
Persons who wish to present oral com-
ments at the hearing must submit com-
ments and submit an outline of the topics
to be discussed and the time to be devoted
to each topic by June 2, 2003.
A period of 10 minutes will be allot-
ted to each person for making comments.
An agenda showing the scheduling of the
speakers will be prepared after the dead-
line for receiving outlines has passed. Cop-
ies of the agenda will be available free of
charge at the hearing.
Drafting Information
The principal author of these regula-
tions is David Selig, Office of the Associ-
ate Chief Counsel (Passthroughs and Special
Industries), IRS. However, other person-
nel from the IRS and Treasury Depart-
ment participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PA RT 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 1.46–6 is amended by
adding paragraph (k) to read as follows:
§1.46–6 Limitation in case of certain
regulated companies.
*****
(k) Treatment of accumulated deferred
investment tax credits upon the deregula-
tion of regulated generation assets—(1)
Scope.This paragraph (k) provides rules for
the application of former section 46(f)(2)
of the Internal Revenue Code with respect
to public utility property that is used in elec-
tric generation and ceases, whether by dis-
position, deregulation, or otherwise, to be
public utility property (deregulated gen-
eration property).
(2)Amount of reduction.If public util-
ity property of a taxpayer becomes deregu-
lated generation property to which this
section applies, the reduction in the tax-
payer’s cost of service permitted under
former section 46(f)(2) is equal to the
amount by which the cost of service could
be reduced under that provision if all such
property had remained public utility prop-
erty of the taxpayer and the taxpayer had
continued to reduce its cost of service by
a ratable portion of the credit with respect
to such property.
(3)Cross reference.See§1.168(i)–(3) for
rules relating to the treatment of balances
of excess deferred income taxes when utili-
ties dispose of regulated generation as-
sets.
(4)Effective date—(i)General rule.This
paragraph (k) applies to property that be-
comes deregulated generation property af-
ter March 4, 2003.
(ii)Election for retroactive applica-
tion.A utility may elect to apply this para-
graph (k) to property that becomes
deregulated generation property on or be-
fore March 4, 2003. The election is made
by attaching the statement“ELECTION
UNDER§1.46–6(k)”to the taxpayer’s re-
turn for the tax year in which this para-
graph (k) is published as a final regulation.
Par. 3. Section 1.168(i)–3 is added to
read as follows:
§1.168(i)–(3) Treatment of excess
deferred income tax reserve upon
disposition of regulated generation
assets.
(a)Scope.This section provides rules for
the application of section 203(e) of the Tax
Reform Act of 1986, Public Law 99–514
(100 Stat. 2146) with respect to public util-
ity property that is used in electric genera-
tion and ceases, whether by disposition,
deregulation, or otherwise, to be public util-
ity property (deregulated generation prop-
erty).
(b)Amount of reduction.If public util-
ity property of a taxpayer becomes deregu-
lated generation property to which this
section applies, the reduction in the tax-
payer’s excess tax reserve permitted un-
der section 203(e) of the Tax Reform Act
of 1986 is equal to the amount by which
the reserve could be reduced under that pro-
vision if all such property had remained
public utility property of the taxpayer and
the taxpayer had continued use of its nor-
malization method of accounting with re-
spect to such property.
(c)Cross reference.See§1.46–6(k) for
rules relating to the treatment of accumu-
lated deferred investment tax credits when
utilities dispose of regulated generation as-
sets.
(d)Effective date—(1)General rule.This
section applies to property that becomes de-
regulated generation property after March
4, 2003.
(2)Election for retroactive applica-
tion.A taxpayer may elect to apply this sec-
tion to property that becomes deregulated
generation property on or before March 4,
2003. The election is made by attach-
ing the statement“ELECTION UNDER
§1.168(i)–3”to the taxpayer’s return for the
tax year in which this section is published
as a final regulation.
David Mader,
Assistant Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on March 3, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for March 4, 2003, 68 F.R. 10190)
2003–12 I.R.B.636March 24, 2003

Announcement of Disciplinary Actions Involving Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled
Actuaries—Suspensions, Censures, Disbarments, and
Resignations
Announcement 2003–15
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified pub-
lic accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before the
Internal Revenue Service if the assistance
relates to a matter constituting practice be-
fore the Internal Revenue Service and may
not knowingly aid or abet another person
to practice before the Internal Revenue Ser-
vice during a period of suspension, disbar-
ment, or ineligibility of such other person.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled ac-
tuaries to identify persons to whom these
restrictions apply, the Director, Office of
Professional Responsibility will announce
in the Internal Revenue Bulletin their
names, their city and state, their profes-
sional designation, the effective date of dis-
ciplinary action, and the period of suspen-
sion. This announcement will appear in the
weekly Bulletin at the earliest practicable
date after such action and will continue to
appear in the weekly Bulletins for five suc-
cessive weeks.
Suspensions From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an
administrative law judge, the following in-
dividuals have been placed under suspen-
sion from practice before the Internal
Revenue Service:
NameAddressDesignationEffective Date
Cramer, GeorgeChicago, ILCPAJanuary 18, 2003
to
January 17, 2005
Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an
administrative law judge, the following in-
dividuals have been disbarred from prac-
tice before the Internal Revenue Service:
NameAddressDesignationEffective Date
Whalley, Christopher J.Ellsworth, MEAttorneyJuly 28, 2002
Chapin, Frank L.Sandpoint, IDEnrolled AgentAugust 13, 2002
Engstrand Jr., Edward E.Minneapolis, MNCPANovember 2, 2002
Fisher, JoannaPortland, OREnrolled AgentNovember 15, 2002
March 24, 20036372003–12 I.R.B.

Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid institution or con-
clusion of a proceeding for his or her dis-
barment or suspension from practice before
the Internal Revenue Service, may offer his
or her consent to suspension from such
practice. The Director, Office of Profes-
sional Responsibility, in his discretion, may
suspend an attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary in accordance with the consent offered.
The following individuals have been
placed under consent suspension from prac-
tice before the Internal Revenue Service:
NameAddressDesignationDate of Suspension
Kuhajda, BenPlainfield, ILCPAAugust 26, 2002
to
August 24, 2005
Vaughn, James A.Albuquerque, NMCPAOctober 1, 2002
to
September 29, 2004
McBroom, ByronManteca, CACPAOctober 21, 2002
to
October 19, 2006
Jacobs, RobertPhiladelphia, PAAttorneyOctober 21, 2002
to
April 20, 2006
Kwak, JongBeverly Hills, CAAttorneyOctober 22, 2002
to
October 20, 2003
Smith Frank L.Brooksville, FLAttorneyNovember 1, 2002
to
October 30, 2005
Schwartz, Kenneth J.Woodland Hills, CAAttorneyNovember 1, 2002
to
February 27, 2006
Agulnick, Barry W.New York, NYAttorneyNovember 1, 2002
to
April 29, 2004
O’Connor, Thomas P.Palos Park, ILCPANovember 1, 2002
to
October 20, 2003
Brand, Joe A.Dundee, OHCPANovember 18, 2002
to
November 16, 2004
Battino, StevenPlainview, NYCPANovember 25, 2002
to
May 23, 2004
2003–12 I.R.B.638March 24, 2003

NameAddressDesignationDate of Suspension
Chipman, KenFarmington, NMEnrolled AgentDecember 1, 2002
to
November 29, 2003
Kirgis, Grant A.Rochester, MNCPADecember 1, 2002
to
May 30, 2003
Welch, FrankStamford, CTCPAIndefinite
from
January 31, 2003
Pickens, ValerieSeattle, WACPAJanuary 1, 2003
to
December 30, 2004
Kidd, Roger F.Philadelphia, PAAttorneyJanuary 20, 2003
to
April 18, 2003
Sullivan, RaymondSonoma, CAAttorneyMarch 15, 2003
to
November 14, 2003
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice be-
fore the Internal Revenue Service any prac-
titioner who, within five years from the date
the expedited proceeding is instituted (1) has
had a license to practice as an attorney, cer-
tified public accountant, or actuary sus-
pended or revoked for cause or (2) has been
convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by vir-
tue of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Pirro, Anthony G.South Salem, NYCPAIndefinite
from
June 26, 2002
Scott, RogerBuffalo, NYAttorneyIndefinite
from
August 12, 2002
Patrick, GeorgeCheshire, CTCPAIndefinite
from
September 9, 2002
Rochon, Jason B.Lafayette, LAAttorneyIndefinite
from
September 9, 2002
March 24, 20036392003–12 I.R.B.

NameAddressDesignationDate of Suspension
Voccola, EdwardHingham, MAAttorneyIndefinite
from
October 18, 2002
Linn, Charles B.Croton-on-Hudson, NYAttorneyIndefinite
from
October 18, 2002
Lum, Eugene K.H.Long Beach, CAAttorneyIndefinite
from
October 18, 2002
Gwilliam, PeterLynn, MACPAIndefinite
from
October 28, 2002
Herlehy, Jon L.McHenry, ILCPAIndefinite
from
October 28, 2002
Herndon, HenryPikeville, NCCPAIndefinite
from
November 1, 2002
McCurry, ToddDurham, NCAttorneyIndefinite
from
November 25, 2002
Adams, James L.Breckenridge, COAttorneyIndefinite
from
November 25, 2002
Cloer, StewartPlano, TXAttorneyIndefinite
from
December 13, 2002
Caruso, RobertSaddle River, NJCPAIndefinite
from
December 16, 2002
Duru, Ike E.Atlanta, GAAttorneyIndefinite
from
January 10, 2003
Pelletier, Richard A.Bolton, CTCPAIndefinite
from
January 10, 2003
Austin, JackSteamboat Springs, COCPAIndefinite
from
January 10, 2003
Gibson, Brian M.Monroe, NYAttorneyIndefinite
from
January 10, 2003
2003–12 I.R.B.640March 24, 2003

NameAddressDesignationDate of Suspension
Jackson, RobertMt. Juliet, TNAttorneyIndefinite
from
January 10, 2003
Tenzer, James L.East Meadow, NYAttorneyIndefinite
from
February 4, 2003
Resignations of Enrolled Agents
Under Title 31, Code of Federal Regu-
lations, Part 10, an enrolled agent, in or-
der to avoid the institution or conclusion of
a proceeding for his or her disbarment or
suspension from practice before the Inter-
nal Revenue Service, may offer his or her
resignation as an enrolled agent. The Di-
rector, Office of Professional Responsibil-
ity, in his discretion, may accept the offered
resignation.
The Director, Office of Professional Re-
sponsibility, has accepted offers of resig-
nation as an enrolled agent from the
following individuals:
NameAddressDate of Resignation
Korman, LindaLas Vegas, NVJanuary 23, 2003
Loans From a Qualified
Employer Plan to Plan
Participants or Beneficiaries;
Correction
Announcement 2003–16
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Corrections to final regulations.
SUMMARY: This document contains cor-
rections to final regulations (T.D. 9021,
2002–51 I.R.B. 973) that were published in
theFederal Registeron Tuesday, Decem-
ber 3, 2002 (67 FR 71821). This docu-
ment contains final regulations relating to
loans made from a qualified employer plan
to plan participants or beneficiaries.
DATES: This correction is effective De-
cember 3, 2002.
FOR FURTHER INFORMATION CON-
TACT: Vernon S. Carter (202) 622–6060
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the sub-
ject of these corrections are under section
72 of Internal Revenue Code.
Need for Correction
As published, the final regulations (T.D.
9021) contains errors that may prove to be
misleading and are in need of clarifica-
tion.
Correction of Publication
Accordingly, the publication of the fi-
nal regulations (T.D. 9021), which is the
subject of FR. Doc. 02–29204, is corrected
as follows:
§1.72(p)–1 [Corrected]
1. On page 71825, column 1,
§1.72(p)–1, A–19, paragraph (a), last 2 lines
in the paragraph, the language“of the In-
ternal Revenue Code. See Q&A 16 of this
section”, is corrected to read“of the Inter-
nal Revenue Code. See Q&A–11 through
Q&A–16 of this section”.
2. On page 71825, column 3,
§1.72(p)–1, A–20, paragraph (a)(2), lines
4 and 5, the language“section (including
paragraph (a)(3) of this Q&A 20 and the
amount limitations”, is corrected to read
“section (including the amount limitations”.
3. On page 71825, column 3,
§1.72(p)–1, A–20, paragraph (a)(2), the last
line of the paragraph, the language“re-
placed loan.”, is corrected to read“replace-
ment loan.”.
Cynthia E. Grigsby,
Chief, Regulations Unit,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on February 27,
2003, 8:45 a.m., and published in the issue of the Federal Reg-
ister for February 28, 2003, 68 F.R. 9532)
March 24, 20036412003–12 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as“rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplifieddescribes 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
withmodified, below).
Clarifiedis 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.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modifiedis used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it
applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished position. (Compare withamplified
andclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revokeddescribes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Supersededdescribes 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
substance of a prior ruling, a combination
of terms is used. For example,modified
andsupersededdescribes a situation
where the substance of a previously pub-
lished 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 super-
seded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
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.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The 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.—Statements 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.
2003–12 I.R.B.iMarch 24, 2003

Numerical Finding List
1
Bulletins 2003–1 through 2003–11
Announcements:
2003–1, 2003–2 I.R.B.281
2003–2, 2003–3 I.R.B.301
2003–3, 2003–4 I.R.B.361
2003–4, 2003–5 I.R.B.396
2003–5, 2003–5 I.R.B.397
2003–6, 2003–6 I.R.B.450
2003–7, 2003–6 I.R.B.450
2003–8, 2003–6 I.R.B.451
2003–9, 2003–7 I.R.B.490
2003–10, 2003–7 I.R.B.490
2003–11, 2003–10 I.R.B.585
2003–12, 2003–10 I.R.B.585
2003–13, 2003–11 I.R.B.603
2003–14, 2003–11 I.R.B.603
2003–15, 2003–11 I.R.B.605
Notices:
2003–1, 2003–2 I.R.B.257
2003–2, 2003–2 I.R.B.257
2003–3, 2003–2 I.R.B.258
2003–4, 2003–3 I.R.B.294
2003–5, 2003–3 I.R.B.294
2003–6, 2003–3 I.R.B.298
2003–7, 2003–4 I.R.B.310
2003–8, 2003–4 I.R.B.310
2003–9, 2003–5 I.R.B.369
2003–10, 2003–5 I.R.B.369
2003–11, 2003–6 I.R.B.422
2003–12, 2003–6 I.R.B.422
2003–13, 2003–8 I.R.B.513
2003–14, 2003–8 I.R.B.515
2003–15, 2003–9 I.R.B.540
2003–16, 2003–10 I.R.B.575
Proposed Regulations:
REG–209500–86, 2003–2 I.R.B.262
REG–116641–01, 2003–8 I.R.B.518
REG–125638–01, 2003–5 I.R.B.373
REG–126016–01, 2003–7 I.R.B.486
REG–126485–01, 2003–9 I.R.B.542
REG–103580–02, 2003–9 I.R.B.543
REG–124069–02, 2003–7 I.R.B.488
REG–138882–02, 2003–8 I.R.B.522
REG–139768–02, 2003–10 I.R.B.583
REG–151043–02, 2003–3 I.R.B.300
REG–164464–02, 2003–2 I.R.B.262
Revenue Procedures:
2003–1, 2003–1 I.R.B.1
2003–2, 2003–1 I.R.B.76
2003–3, 2003–1 I.R.B.113
2003–4, 2003–1 I.R.B.123
2003–5, 2003–1 I.R.B.163
2003–6, 2003–1 I.R.B.191
2003–7, 2003–1 I.R.B.233
2003–8, 2003–1 I.R.B.236
2003–9, 2003–8 I.R.B.516
2003–10, 2003–2 I.R.B.259
2003–11, 2003–4 I.R.B.311
Revenue Procedures—Continued:
2003–12, 2003–4 I.R.B.316
2003–13, 2003–4 I.R.B.317
2003–14, 2003–4 I.R.B.319
2003–15, 2003–4 I.R.B.321
2003–16, 2003–4 I.R.B.359
2003–17, 2003–6 I.R.B.427
2003–18, 2003–6 I.R.B.439
2003–19, 2003–5 I.R.B.371
2003–20, 2003–6 I.R.B.445
2003–21, 2003–6 I.R.B.448
2003–22, 2003–10 I.R.B.577
2003–23, 2003–11 I.R.B.599
2003–24, 2003–11 I.R.B.599
2003–25, 2003–11 I.R.B.601
Revenue Rulings:
2003–1, 2003–3 I.R.B.291
2003–2, 2003–2 I.R.B.251
2003–3, 2003–2 I.R.B.252
2003–4, 2003–2 I.R.B.253
2003–5, 2003–2 I.R.B.254
2003–6, 2003–3 I.R.B.286
2003–7, 2003–5 I.R.B.363
2003–8, 2003–3 I.R.B.290
2003–9, 2003–4 I.R.B.303
2003–10, 2003–3 I.R.B.288
2003–11, 2003–3 I.R.B.285
2003–12, 2003–3 I.R.B.283
2003–13, 2003–4 I.R.B.305
2003–14, 2003–4 I.R.B.302
2003–15, 2003–4 I.R.B.302
2003–16, 2003–6 I.R.B.401
2003–17, 2003–6 I.R.B.400
2003–18, 2003–7 I.R.B.467
2003–19, 2003–7 I.R.B.468
2003–20, 2003–7 I.R.B.465
2003–21, 2003–8 I.R.B.509
2003–22, 2003–8 I.R.B.494
2003–23, 2003–8 I.R.B.511
2003–24, 2003–10 I.R.B.557
2003–26, 2003–10 I.R.B.563
2003–27, 2003–11 I.R.B.597
2003–28, 2003–11 I.R.B.594
2003–29, 2003–11 I.R.B.587
Treasury Decisions:
9024, 2003–5 I.R.B.365
9025, 2003–5 I.R.B.362
9026, 2003–5 I.R.B.366
9027, 2003–6 I.R.B.413
9028, 2003–6 I.R.B.415
9029, 2003–6 I.R.B.403
9030, 2003–8 I.R.B.495
9031, 2003–8 I.R.B.504
9032, 2003–7 I.R.B.471
9033, 2003–7 I.R.B.483
9034, 2003–7 I.R.B.453
9035, 2003–9 I.R.B.528
9036, 2003–9 I.R.B.533
9037, 2003–9 I.R.B.535
9038, 2003–9 I.R.B.524
9039, 2003–10 I.R.B.561
9040, 2003–10 I.R.B.568
Treasury Decisions—Continued:
9041, 2003–8 I.R.B.510
9042, 2003–10 I.R.B.564
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2002–26 through 2002–52 is
in Internal Revenue Bulletin 2003–1, dated January 6, 2003.
March 24, 2003ii2003–12 I.R.B.

Finding List of Current Actions
on Previously Published Items
2
Bulletins 2003–1 through 2003–11
Notices:
97–19
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2001–26
Obsoleted by
T.D. 9032, 2003–7 I.R.B.471
2001–46
Modified by
Notice 2003–6, 2003–3 I.R.B.298
2001–69
Modified and superseded by
Notice 2003–1, 2003–2 I.R.B.257
2002–27
Clarified by
Notice 2003–3, 2003–2 I.R.B.258
2002–46
Modified by
Notice 2003–10, 2003–5 I.R.B.369
Proposed Regulations:
REG–209500–86
Corrected by
Ann. 2003–6, 2003–6 I.R.B.450
REG–103829–99
Corrected by
Ann. 2003–12, 2003–10 I.R.B.585
REG–126485–01
Withdrawn by
REG–126485–01, 2003–9 I.R.B.542
REG–143321–02
Corrected by
Ann. 2003–12, 2003–10 I.R.B.585
REG–164464–02
Corrected by
Ann. 2003–6, 2003–6 I.R.B.450
Revenue Procedures:
83–23
Supplemented by
Rev. Proc. 2003–21, 2003–6 I.R.B.448
84–37
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
93–38
Obsoleted by
Rev. Proc. 2003–15, 2003–4 I.R.B.321
97–31
Modified by
Rev. Proc. 2003–9, 2003–8 I.R.B.516
Revenue Procedures—Continued:
98–13
Obsoleted by
T.D. 9032, 2003–7 I.R.B.471
2002–1
Superseded by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2002–2
Superseded by
Rev. Proc. 2003–2, 2003–1 I.R.B.76
2002–3
Superseded by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2002–4
Superseded by
Rev. Proc. 2003–4, 2003–1 I.R.B.123
2002–5
Superseded by
Rev. Proc. 2003–5, 2003–1 I.R.B.163
2002–6
Superseded by
Rev. Proc. 2003–6, 2003–1 I.R.B.191
2002–7
Superseded by
Rev. Proc. 2003–7, 2003–1 I.R.B.233
2002–8
Superseded by
Rev. Proc. 2003–8, 2003–1 I.R.B.236
2002–9
Modified and amplified by
Rev. Proc. 2003–20, 2003–6 I.R.B.445
Rev. Rul. 2003–3, 2003–2 I.R.B.252
2002–22
Modified by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2002–29
Modified by
Rev. Proc. 2003–10, 2003–2 I.R.B.259
2002–52
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2002–67
Supplemented by
Ann. 2003–3, 2003–4 I.R.B.361
2002–75
Superseded by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2003–3
Amplified by
Rev. Proc. 2003–14, 2003–4 I.R.B.319
2003–7
Corrected by
Ann. 2003–4, 2003–5 I.R.B396
Revenue Rulings:
53–131
Modified by
Rev. Rul. 2003–12, 2003–3 I.R.B.283
57–190
Obsoleted by
Rev. Rul. 2003–18, 2003–7 I.R.B.467
65–190
Revoked by
Rev. Rul. 2003–3, 2003–2 I.R.B.252
69–372
Revoked by
Rev. Rul. 2003–3, 2003–2 I.R.B.252
92–19
Supplemented in part by
Rev. Rul. 2003–24, 2003–10 I.R.B.557
2003–2
Revoked by
Rev. Rul. 2003–22, 2003–8 I.R.B.494
Treasury Decisions:
9002
Corrected by
Ann. 2003–8, 2003–6 I.R.B.451
9022
Supplemented by
Ann. 2003–7, 2003–6 I.R.B.450
Corrected by
Ann. 2003–11, 2003–10 I.R.B.585
2
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2002–26 through 2002–52 is in Internal Revenue
Bulletin 2003–1, dated January 6, 2003.
2003–12 I.R.B.iii*U.S. Government Printing Office: 2003—496–919/60075March 24, 2003