Internal Revenue Bulletin 2009-33 (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.

Bulletin No. 200
9-33
August 17, 2009
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9456, page 188.
Final regulations under section 482 of the Code provide guid-
ance regarding the treatment of controlled services transac-
tions and the allocation of income and deductions from intan-
gible property, in particular with respect to contributions by a
controlled party to the value of intangible property owned by
another controlled party. The regulations also modify the regu-
lations under section 861 concerning stewardship expenses to
be consistent with the changes made to the regulations under
section 482.
REG–113289–08, page 244.
Proposed regulations under section 330 of title 31 propose
modifications to section 10.27 of Circular 230 governing prac-
tice before the Internal Revenue Service. Notice 2008–43 ob-
soleted. A public hearing is scheduled for November 9, 2009.
EXEMPT ORGANIZATIONS
Announcement 2009–61, page 246.
The IRS has revoked its determination that Frank and Nora
Harty Center of Staten Island, Inc., of Staten Island, NY;
Higgs Carter King, Inc., of San Antonio, TX; World Orphanage
and Refugee Relief Foundation, Inc., of Ft. Lauderdale, FL;
Triple EEE of Long Beach, CA; American Budget Credit Debt
Services, Inc., of Spring Valley, NY; Craig Family Foundation
of Chicago, IL; Aloha Consumer Credit Counseling Service
of Kaneohe, HI; Charity Neighborhood Auxiliary of Brooklyn,
NY; Lamar Dixon Expo Foundation of Prairieville, LA; Reno
& BJ Foundation of Detroit, MI; Reading Enhancement and
Development of Tumwater, WA; First Foundation of Petersburg,
VA; The Denis B and Mary Elizabeth O’Donnell Foundation of
West Orange, NJ; Good Times Foundation of Salt Lake City,
UT; Animal Adoption Center of Garland of Garland, TX; Le Tulle
Foundation of Bay City, TX; YMCA of Manchester Coffee County
of Manchester, TN; The Light Center, Inc., of Columbus, OH;
Seventh Regiment Fund, Inc., of New York, NY; Fair Credit
Foundation of Los Angeles, CA; Student Loan Fund of Idaho of
Fruitland, ID; Positive Alternatives of Salt Lake City, UT; Family
Budget Association of America, Inc., of Washington, DC; Scott
Olsen Foundation of Alpine, UT; Helping Other People Excel
Faith-Based Coalition, Inc., of Jackson, MS; Changing Attitudes
Counseling Services, Inc., of Washington, DC; Christian Center
for the Performing Arts – Denver of Lakewood, CO; and The
Advancement of Sound Science Center, Inc., of Potomac, MD,
qualify as organizations described in sections 501(c)(3) and
170(c)(2) of the Code.
Announcement 2009–62, page 247.
This announcement provides procedures that a supporting or-
ganization under section 509(a)(3) of the Code may use to re-
quest a change in its public charity classification. Announce-
ment 2006–93 superseded.
(Continued on the next page)
Announcements of Disbarments and Suspensions begin on page 248.
Finding Lists begin on page ii.

EMPLOYMENT TAX
T.D. 9456, page 188.
Final regulations under section 482 of the Code provide guid-
ance regarding the treatment of controlled services transac-
tions and the allocation of income and deductions from intan-
gible property, in particular with respect to contributions by a
controlled party to the value of intangible property owned by
another controlled party. The regulations also modify the regu-
lations under section 861 concerning stewardship expenses to
be consistent with the changes made to the regulations under
section 482.
ADMINISTRATIVE
T.D. 9455, page 239.
Final regulations under section 6503 of the Code provide guid-
ance regarding the use of designated summonses and related
summonses and the effect on the period of limitations on as-
sessment when a case is brought with respect to a designated
or related summons.
REG–113289–08, page 244.
Proposed regulations under section 330 of title 31 propose
modifications to section 10.27 of Circular 230 governing prac-
tice before the Internal Revenue Service. Notice 2008–43 ob-
soleted. A public hearing is scheduled for November 9, 2009.
August 17, 20092009–33 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2009–33 I.R.B.August 17, 2009

August 17, 20092009–33 I.R.B.
Place missing child here.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 482.—
Allocation
of Income and D
eductions
Among Taxpaye
rs
26 CFR 1.482: A
llocations of income and deductions
among taxpaye
rs.
T.D. 9456
DEPARTMENT O
FTHE
TREASURY
Internal Re
venue Service
26 CFR Parts
1 and 31, and
602
Treatment
of Services Under
Section 48
2; Allocation of
Income an
d Deductions
from Inta
ngible Property;
Apporti
onment of Stewardship
Expense
AGENCY:
Internal Revenue Service
(IRS), T
reasury.
ACTION:
Final regulations and removal
of tempo
rary regulations.
SUMMARY
: This document contains final
regula
tions that provide guidance regard-
ing the
treatment of controlled services
transa
ctions under section 482 and the al-
locati
on of income from intangible prop-
erty, i
n particular with respect to contribu-
tions
by a controlled party to the value of
intan
gible property owned by another con-
troll
ed party. This document also contains
final
regulations that modify the regula-
tions
under section 861 concerning stew-
ards
hip expenses to be consistent with the
chan
ges made to the regulations under sec-
tion
482. These final regulations poten-
tial
ly affect controlled taxpayers within the
mean
ing of section 482. They provide up-
date
d guidance necessary to reflect eco-
nom
ic and legal developments since the is-
sua
nce of the current guidance.
DAT
ES:Effective Date:These regulations
are
effective on July 31, 2009.
App
licability Dates:These regulations
app
ly to taxable years beginning after July
31,
2009.
FOR FURTHER IN
FORMATION
CONTACT: Caro
lB.Tanor
Gregory A. Spr
ing, (202) 435–5265
for matters r
elating to section 482, or
Richard L. Ch
ewning (202) 622–3850 for
matters rela
ting to stewardship expenses
(not toll-fr
ee numbers).
SUPPLEMENT
ARY INFORMATION:
Paperwork R
eduction Act
The collect
ion of information con-
tained in th
ese final regulations has been
reviewed a
nd approved by the Office of
Managemen
t and Budget in accordance
with the Pa
perwork Reduction Act of 1995
(44 U.S.C.
3507(d)) under control number
1545–2149
. The collection of information
in these f
inal regulations is in §1.482–9.
This info
rmation is required to enable the
IRS to ver
ify that a taxpayer is reporting
the corre
ct amount of taxable income. An
agency ma
y not conduct or sponsor, and
aperson
is not required to respond to, a
collect
ion of information unless it displays
avalidc
ontrol number.
Books an
d records relating to a collec-
tion of i
nformation must be retained as
long as t
heir contents might become ma-
terial
in the administration of any internal
revenu
e law. Generally, tax returns and tax
return
information are confidential, as re-
quired
by 26 U.S.C. 6103.
Backgr
ound
Secti
on 482 of the Internal Revenue
Code g
enerally provides that the Secre-
tary m
ay allocate gross income, deduc-
tions
, and credits between or among two
or mor
e organizations, trades or businesses
owne
d or controlled by the same inter-
ests
in order to prevent evasion of taxes
or cl
early to reflect income of a controlled
taxp
ayer.
Regu
lations under section 482 pub-
lish
ed in theFederal Register(33 FR
5849
) on April 16, 1968, provided guid-
ance
with respect to a wide range of
con
trolled transactions, including trans-
fer
s of tangible and intangible property
and
the provision of services. Revised and
upd
ated transfer pricing regulations were
pub
lished in theFederal Register(T.D.
8552, 1994–2 C
.B. 93 [59 FR 34971],
T.D. 8632, 199
6–1 C.B. 85 [60 FR 65553],
T.D. 8670, 199
6–1 C.B. 99 [61 FR 21955],
and T.D. 9088
, 2003–2 C.B. 841 [68 FR
51171]) on Ju
ly 8, 1994, December 20,
1995, May 13,
1996, and August 26, 2003.
While compre
hensive in other respects,
these regul
ations did not modify substan-
tively the r
ules dealing with controlled
services tr
ansactions. On September 10,
2003, propo
sed regulations relating to the
treatment o
f controlled services transac-
tions and t
he allocation of income from
intangibl
e property, in particular with re-
spect to co
ntributions by a controlled party
to the valu
e of intangible property owned
by anothe
r controlled party (the 2003 pro-
posed reg
ulations), were published in the
Federal R
egister
(REG–146893–02 and
REG–1150
37–00, 2003–2 C.B. 976 [68
FR 53448]
).
On August
4, 2006, temporary regula-
tions rel
ating to the treatment of controlled
service
s transactions, the allocation of
income f
rom intangible property, and
steward
ship expenses (the 2006 temporary
regulat
ions) were published in theFederal
Regist
er(T.D. 9278, REG–146893–02,
REG–11
5037–00, and REG–138603–03,
2006–2
C.B. 256 [71 FR 44465]). A notice
of prop
osed rulemaking cross-referencing
the tem
porary regulations was published
in the
Federal Registeronthesameday
(REG–
146893–02, REG–115037–00, and
REG–1
38603–03, 2006–2 C.B. 317 [FR
44247
]). Written comments responding to
the no
tice of proposed rulemaking were
rece
ived, and a public hearing was held on
Octo
ber 27, 2006.
The 2
006 temporary regulations are
gene
rally effective with respect to taxable
year
s beginning after December 31, 2006,
and N
otice 2007–5, 2007–1 C.B. 269,
publ
ished on January 16, 2007, partially
modi
fied the effective date of the 2006
tem
porary regulations as it pertained to
the
identification of controlled services
tra
nsactions eligible to be priced at cost.
Acc
ordingly, the 2006 temporary regu-
lat
ions related to the new services cost
me
thod in §1.482–9T(b) (described in
Se
ction A.1 in this preamble) apply to tax-
ab
le years after December 31, 2007, with
th
e exception of the business judgment
2009–33 I.R.B.188August 17, 2009

rule described in §1.482–9T(b)(2), which
had the same effective date (taxable years
after December 31, 2006) as the other
provisions of the temporary regulations.
By issuing the 2006 temporary regu-
lations in temporary and proposed form,
the Treasury Department and the IRS pro-
vided taxpayers an opportunity to submit
additional comments prior to the time
these regulations became effective. See
§601.601(d)(2)(ii)(b). After consideration
of all the comments, the proposed regu-
lations under section 482 are adopted as
revised by this Treasury decision, and the
corresponding temporary regulations are
removed.
Explanation of Revisions and Summary
of Comments
Introduction
The Treasury Department and the IRS
received a number of comments on the
2006 temporary regulations from taxpay-
ers, their representatives, as well as indus-
try and professional groups. Commenta-
tors generally approved of the 2006 tem-
porary regulations and found the changes
from the 2003 proposed regulations to
be useful. Specifically, commentators
approved of the replacement of the simpli-
fied cost-based method with the services
cost method (SCM) and the inclusion of
the shared services arrangement provision
in the SCM rules. Commentators also
generally approved of changes made to
the profit split method. However, com-
mentators did express concerns with some
aspects of the 2006 temporary regulations.
While these final regulations reflect
some modifications in response to com-
ments received on the 2006 temporary
regulations, both the format and the sub-
stance of the final regulations are generally
consistent with the 2006 temporary regula-
tions. The changes adopted are intended to
make certain clarifications and improve-
ments without fundamentally altering the
policies reflected in the 2006 temporary
regulations.
Explanation of Provisions
A. Controlled Services
1. Services Cost Method—Treas. Reg.
§1.482–9(b)
a. Applicability of the Services Cost
Method
Most comments focused on the SCM.
Several commentators requested confir-
mation that application of the SCM is a
matter within the control of the taxpayer,
provided that the underlying services oth-
erwise qualify for the SCM. Some com-
mentators stated that the 2006 temporary
regulations could be interpreted as requir-
ing a taxpayer to apply the SCM if all the
conditions for that method were satisfied.
Notice 2007–5 confirmed that taxpay-
ers control whether the SCM applies. The
final regulations make this clear. Section
1.482–9(b)(1) provides that, if a taxpayer
applies the SCM in accordance with the
rules of §1.482–9(b), which requires that a
statement evidencing the taxpayer’s intent
to apply the SCM be contained in the tax-
payer’s books and records, then the SCM
will be considered the best method for pur-
poses of §1.482–1(c).
b. Specified Covered Services
Several commentators contended that
the proposed list of specified covered ser-
vices in Announcement 2006–50, 2006–2
C.B. 321, is too narrow. One commen-
tator listed tax planning and public rela-
tions activities as examples of activities
notonthelistthatillustratedthenarrow-
ness of the list. Some commentators sug-
gested that the list should refer to depart-
ments, cost centers, or accounting classi-
fications, rather than to specific activities
or groups of activities. One commenta-
tor suggested that allactivities in particular
departments should be identified as eligi-
ble for the SCM. Commentators also stated
that a comprehensive analysis would be re-
quired and that it would be too burden-
some to track employee time for activ-
ities that are specified covered services
vs. non-specified covered services. See
§601.601(d)(2)(ii)(b). The Treasury De-
partment and the IRS also received sug-
gestions to broaden the general adminis-
trative provision and add additional spe-
cific activities to the list of specified cov-
ered services, including warehousing and
distribution, quality control and quality as-
surance relating to manufacturing and con-
struction, and environmental remediation.
The SCM is intended to provide a
practical and administrable means of iden-
tifying low-margin services that may be
evaluated by reference to total services
cost without a markup. The list of ser-
vices eligible to be priced at cost in the
specified covered services portion of the
SCM was added specifically in response
to requests from commentators that the
former simplified cost-based method be
eliminated and replaced with just such a
list of eligible services. In response to
public comments, the Treasury Depart-
ment and the IRS published Rev. Proc.
2007–13, 2007–1 C.B. 295, which added
several categories as well as activities
within existing categories. In particular,
public relations and tax planning services
were added to the list, and the individual
categories of specified covered services
were expanded to include “other similar
activities.”
After careful consideration, the Trea-
sury Department and the IRS believe that
Rev. Proc. 2007–13 strikes the appro-
priate balance between broadening the list
to include services similar to the specific
services described and expanding the cat-
egories of services. The Treasury Depart-
ment and the IRS do not believe that other
additional services suggested by commen-
tators were appropriate, but will continue
to consider other recommendations for ad-
ditional services to be added to the list in
the future.
One commentator expressed concern
that a review of services to determine if
they qualify as specified covered services
may require a more extensive analysis
than under previous regulations, including
interviews of individual employees or of
small groups of employees. Although the
covered services list is not applied on a de-
partmental basis, a reasonable aggregation
of similar services may be appropriate for
performing the specified covered services
analysis in some cases. To determine if
the services cost method should apply
to a particular service (or group of ser-
vices) performed by a group of employees,
the aggregation principle of Treas. Reg.
§1.482–1(f)(2)(i)(A) should be followed
as appropriate. In certain cases, aggrega-
tion may assure a more accurate result,
August 17, 20091892009–33 I.R.B.

especially if it recognizes synergies that
an individual employee analysis might
ignore. An aggregation of employee ser-
vices may, thus, efficiently evaluate the
work of employees engaged in a com-
mon function, as well as recognize the
added value that their collaborative effort
might produce. Conversely, analysis on
an aggregate basis does not permit char-
acterization of an individual service as a
specified covered service if it, in fact, is
not a specified covered service.
c. Low Margin Covered Services
Commentators provided comments on
low margin covered services described in
§1.482–9T(b)(4)(ii) of the 2006 temporary
regulations. One commentator believed
that the 7 percent limit is too high for
the SCM. In the commentator’s view, the
limit should be lower because the 7 percent
figure will cover activities that are risky.
Most of the commentators, however, be-
lieved that the 7 percent limit is an appro-
priate measure. The Treasury Department
and the IRS continue to believe that the 7
percent limit is appropriate in light of its
purpose. That is, it minimizes the compli-
ance burden on taxpayers and the IRS for
relatively low-margin services.
Several commentators requested more
guidance on low margin covered services.
One commentator suggested that the Trea-
sury Department and the IRS develop an
analysis to determine if certain services
have a markup of 7 percent or less and
publish the results. For example, the IRS
could develop a set of comparables for var-
ious groups of low margin services, such
as human resources, accounting and fi-
nance, information services, and training.
Some commentators requested guidance
on when and how often a transfer pricing
study is needed to support a determina-
tion that services are low margin covered
services. In this regard, some commenta-
tors requested that the regulations specify
a period of years (such as three years) for
which a transfer pricing study may be valid
for purposes of determining if a service is a
low margin covered service. In support of
this request, one commentator stated that
the regulations could provide, for exam-
ple, that the reliance period could apply to
taxpayers whose facts and circumstances
have not changed materially from the time
the service was most recently established
as a covered service.
The Treasury Department and IRS did
not adopt this proposal. Because there may
be significant differences among services
across different businesses, a standardized,
IRS-developed comparables set would not
be feasible and would conflict with the fact
intensive nature of an appropriately ro-
bust transfer pricing analysis. For similar
reasons, the Treasury Department and the
IRS did not adopt the proposal to specify
the frequency or timing of transfer pricing
analyses to support taxpayer positions. To
do so would be inconsistent with a proper
comparability analysis, including consid-
eration of the time at which transactions
were undertaken, as well as other relevant
economic circumstances.
One other commentator requested that
themidpointshouldbeusedinmeasuringa
comparable markup on total services costs
for purposes of low margin covered ser-
vices. While it may be true that, in some
cases, the midpoint could be used depend-
ing on the statistical method used, the in-
terquartile range ordinarily provides an ac-
ceptable measure of an arm’s length range.
See §1.482–1(e)(2)(iii)(B). Therefore, the
Treasury Department and the IRS believe
that the interquartile range of the compara-
ble median markup is an appropriate mea-
sure.
d. Excluded Activities
One commentator requested that en-
gineering be removed from the list of
services that are ineligible for the SCM
in §1.482–9T(b)(3) of the 2006 tempo-
rary regulations. This comment was not
adopted, since, in the view of the Trea-
sury Department and the IRS, intragroup
engineering services generally should be
subject to a robust transfer pricing analy-
sis.
e. Business Judgment Rule
Several commentators expressed con-
cern over how the business judgment rule
would be administered. Some commen-
tators requested that statements in the
preamble about the business judgment
rule in the 2006 temporary regulations be
incorporated in final regulations. Other
commentators suggested that the busi-
ness judgment rule should be applied by
reference to one or more trades or busi-
ness of the controlled group rather than
of the renderer, recipient, or both. These
commentators claimed that the business
judgment rule may yield incorrect results
in some cases, for example, where a head-
quarters services company or other legal
entity is established solely to provide cen-
tralized support services. The activities
performed by such an entity would po-
tentially be ineligible for the SCM under
the business judgment rule because they
would constitute the entity’s core capabil-
ity.
The Treasury Department and the IRS
agree that the business judgment rule
should be determined on a controlled
group basis and expressed this view in No-
tice 2007–5. The final regulations clarify
that the business judgment rule is deter-
mined by reference to a trade or business
of the controlled group.
Section3.04ofNotice2007–5clarified
that the business judgment rule “is satis-
fied by a reasonable exercise of the tax-
payer’s business judgment, not a reason-
able exercise of the IRS’s judgment in ex-
amining the taxpayer.” The Treasury De-
partment and the IRS reiterate that the fi-
nal regulations incorporate a high thresh-
old for application of the business judg-
ment rule to exclude services otherwise el-
igible for the SCM. Section 1.482–9(b)(5)
provides that the rule is based on a tax-
payer’s reasonable conclusion in its busi-
ness judgment that the rule is satisfied. It
has come to the attention of the Treasury
Department and the IRS that the clarifi-
cation in the notice of the business judg-
ment rule has been misconstrued as cre-
ating a non-rebuttable presumption that a
taxpayer’s determination under the busi-
ness judgment rule is always correct. This
construction of the clarification was not in-
tended and is not supported by the plain
language of the business judgment rule.
The business judgment rule requires a rea-
sonable conclusion by the taxpayer. Thus,
the taxpayer’s business judgment is only
the starting point of the analysis, and the
taxpayer must make a reasonable conclu-
sion in that regard. Whether the taxpayer’s
conclusion is reasonable may be subject to
examination by the IRS in the course of an
audit.
One commentator suggested that the
regulations adopt a “principal activity”
test similar to the test described in the
2009–33 I.R.B.190August 17, 2009

Organisation for Economic Cooperation
and Development Transfer Pricing Guide-
lines for Multinational Enterprises and
Tax Administrations (OECD Guidelines)
in place of the business judgment rule.
The Treasury Department and the IRS
decline to adopt this suggestion. Another
commentator pointed out that the exam-
ples illustrating the business judgment
rule more accurately describe a high value
service or intangible property, rather than
a covered service. The Treasury Depart-
ment and the IRS agree that some of the
examples in the temporary regulations
could be read as describing transfers of
intangible property rather than provisions
of services involving the intangible prop-
erty. Some examples have been edited to
improve clarity, including to ensure that
they cannot be read as describing transfers
of intangible property.
Commentators also raised questions
concerning how to evidence the necessary
business judgment, for example, whether
an executive’s representation must be pre-
ferred to the tax director’s. The business
judgment rule is applied on a case-by-case
basis and takes into account the taxpayer’s
facts and circumstances.
One other commentator requested that
the business judgment rule take into ac-
count whether a particular activity, such
as that of a corporate tax department, con-
tributes to the operating profit (as defined
in §1.482–5(d)(3)) of one or more con-
trolled parties. Notice 2007–5 provided
several clarifications to the business judg-
ment rule, including a clarification that the
business judgment rule should take into
account whether a particular activity con-
tributes to the operating profit of one or
more controlled parties. After further con-
sideration, the Treasury Department and
the IRS decided not to add an operating
profit consideration to the business judg-
ment rule because the operating profit con-
cept is broader than the intended rule and
because it would implicitly require tax-
payers to do the type of economic anal-
ysis (and create the attendant administra-
tive burden for taxpayers) that the business
judgment rule is intended to eliminate.
The Treasury Department and the IRS
continue to believe, however, that the con-
clusion in Notice 2007–5 is correct — that
activities such as back office tax services
should not fail the business judgment rule
because they may affect net income by re-
ducing domestic or foreign income taxes.
Depending on the facts and circumstances,
tax services may or may not satisfy the
business judgment rule.
f. Reorganization of the SCM
Section 1.482–9T(b) of the 2006 tem-
porary regulations contains several re-
quirements, all of which have to be satis-
fied in order for the SCM to be applicable.
In other words, the requirements under
§1.482–9T(b) are conjunctive; failure to
satisfy one of the requirements renders
a service ineligible for SCM treatment
regardless of whether any of the other
requirements is satisfied. The Treasury
Department and the IRS are aware that
the rules under §1.482–9T(b) have been
misinterpreted as disjunctive such that sat-
isfaction of only one of the requirements
renders a service eligible for the SCM.
This view is unsupported by the plain
language of §1.482–9T(b). To improve
clarity, the requirements for the SCM are
reorganized in the final regulations. Sec-
tion §1.482–9(b)(2) lists the conditions
necessary for a service to be eligible for
the SCM and provides a cross-reference
to the paragraph in §1.482–9(b) that cor-
responds to each condition. In summary,
to be eligible for the SCM, a service must
be a covered service, the service cannot
be an excluded activity, the service cannot
be precluded from constituting a covered
service by reason of the business judgment
rule, and adequate books and records must
be maintained with respect to the service.
The reorganization does not substantively
change the SCM rules.
Modifications have also been made to
the list of excluded activities to harmonize
it with Rev. Proc. 2007–13. In particu-
lar, instead of referring to “excluded trans-
actions,” the regulations now refer to “ex-
cluded activities.”
g. Shared Services Arrangements
In general, commentators supported the
shared services arrangement (SSA) provi-
sion in the 2006 temporary regulations as
a useful mechanism for allocation of costs
from shared or centralized services. Com-
mentators called into question, however,
the restriction of SSAs to covered services
priced under the SCM. In response, No-
tice 2007–5 provided that a SSA may be
used for controlled services transactions
outside of the SCM context. Specifically,
Notice 2007–5 states: “This notice con-
firms that taxpayers may also make allo-
cations of arm’s length charges for services
ineligible for the SCM that yield a benefit
to multiple members of a controlled group.
In such a case, however, the flexible rules
under the SCM for establishing the joint
benefits and selecting the allocation key
are inapplicable. Instead, the more robust
analysis under the general transfer pric-
ing rules applies for purposes of determin-
ing the appropriate arm’s length charges,
benefits, allocations keys, etc.” The Trea-
sury Department and the IRS considered
providing additional SSA rules to services
priced under methods other than the SCM,
but concluded that such rules would be un-
necessary. In any event, as stated in No-
tice 2007–5, the flexible SSA rules for es-
tablishing the joint benefits and selecting
the allocation key are inapplicable in the
non-SCM context.
Other commentators requested that a
SSA should be respected even if a party
that reasonably anticipates a benefit makes
a payment equivalent to its share under
an SSA to the service provider pursuant
to a different arrangement. For example,
assume that a controlled service provider
performs services to ten taxpayers that are
members of its controlled group. Assume
further that nine of the service recipients
agree in a single written contract to allo-
cate the arm’s length charge based on a
reasonable allocation basis, but the tenth
service recipient pays for its share of the
services pursuant to a separate agreement.
These comments were not adopted be-
cause whether an agreement constitutes a
SSA requires a case-by-case determina-
tion based on the facts and circumstances.
Some commentators observed that the
SSA rules require the allocation of costs
on the basis that “most reliably reflects”
the participants’ respective shares of rea-
sonably anticipated benefits, but some of
the examples use the phrase “precisely
known.” This led the commentators to
question whether the SSA rules create an
unattainable standard or, at least, a higher
standard than the reasonable standard for
allocation of costs described in Treas. Reg.
§1.482–9T(k) and to suggest a change to
theexamples. Theexamplesdonotcre-
ate a standard based on precisely known
shares of reasonably anticipated benefits.
Rather, the examples use hypothetical,
August 17, 20091912009–33 I.R.B.

precisely known reasonably anticipated
benefits as a measuring stick to provide
an easily understood comparative analysis
of potential allocation keys for illustrative
purposes. The suggested changes are not
adopted.
2. Comparable Uncontrolled Services
Price Method-Treas. Reg. §1.482–9(c)
The comparable uncontrolled services
price (CUSP) method evaluates whether
the consideration in a controlled services
transaction is arm’s length by compari-
son to the price charged in a compara-
ble uncontrolled services transaction. This
method is closely analogous to the compa-
rable uncontrolled price (CUP) method in
§1.482–3(b).
One commentator objected to the
statement in the second sentence of
§1.482–9T(c)(1) of the 2006 temporary
regulations that, to be evaluated under
the CUSP method, a controlled service
ordinarily must be “identical to or have
a high degree of similarity” to the un-
controlled comparable transactions. The
commentator claimed that such language
creates a higher standard for determining
the best method than in the rest of the sec-
tion 482 regulations. For example, both
§1.482–1(c)(1) and §1.482–9T(c)(2)(i)
refer to the “most reliable measure of an
arm’s length result” standard. The sen-
tence in question was intended merely
as a guide to when the CUSP method is
applicable. It was not intended to change
the standard under the best method rule.
To avoid further confusion, the sentence is
removed, but without effecting a substan-
tive change.
TheCUSPmethodinthesefinalregu-
lations is substantially similar to the cor-
responding method in the 2006 temporary
regulations.
3. Cost of Services Plus Method-Treas.
Reg. §1.482–9(e)
The cost of services plus method is gen-
erally analogous to the cost plus method
for transfers of tangible property in ex-
isting §1.482–3(d). The cost of services
plus method evaluates whether the amount
charged in a controlled services transac-
tion is arm’s length by reference to the
gross services profit markup realized in
comparable uncontrolled transactions.
Section 1.482–9T(e)(3)(ii)(A) provides
that, if the appropriate gross services profit
markup is derived from comparable un-
controlled services transactions of other
service providers, then, in evaluating com-
parability, the controlled taxpayer must
consider the results under this method
expressed as a markup on total services
costs of the controlled taxpayer because
functional differences may be reflected
in differences in service costs other than
those included in comparable transactional
costs.
One commentator objected to the re-
quired consideration of the results of the
cost of services plus method expressed as
a markup on total services costs of the con-
trolled taxpayer when external compara-
bles are utilized. In the commentator’s
view, this rule requires a confirming anal-
ysis under a comparable profits method
(CPM) and, therefore, places an undue
burden on taxpayer. The same commen-
tator also expressed the concern that the
rule would create an even greater burden
by requiring two sets of external compara-
bles for application of the two methods.
These comments are not adopted for
several reasons. First, the restatement of
the price does not require researching two
sets of external comparables under two dif-
ferent methods. The sole purpose of the
calculation is to determine whether it is
necessary to perform additional evaluation
of functional comparability under the cost
of services plus method. That is, if the
price indicates a markup on the renderer’s
total services cost that is either low or neg-
ative when restated, this may indicate dif-
ferences in functions that have not been ac-
counted for under the traditional compara-
bility factors under the cost of services plus
method. Thus, a low or negative markup
merely suggests the need for additional in-
quiry, which may lead to a determination
that the cost of services plus method is
not the most reliable measure of an arm’s
length result under the best method rule.
The cost of services plus method is
adopted in the final regulations without
change.
4. Profit Split Method-Treas. Reg.
§§1.482–9(g) and 1.482–6(c)(3)(i)(B)
The final regulations provide addi-
tional guidance concerning application
of the comparable profit split and the
residual profit split methods to controlled
services transactions in §1.482–9(g) and
§1.482–6(c)(3)(i)(B). Generally, the com-
parable profit split and the residual profit
split methods evaluate whether the allo-
cation of the combined operating profit or
loss attributable to one or more controlled
transactions is arm’s length by reference
to the relative value of each controlled
taxpayer’s contributions to the combined
operating profit or loss.
The Treasury Department and the IRS
received several comments on the profit
split method. One commentator requested
that §1.482–8T(b),Example 12of the
2006 temporary regulations explain why
the profit split method is preferable to
using the financial results of a set of pub-
licly-traded companies engaged in selling
merchandise and related promotion and
marketing activities.Example 12is re-
vised in the final regulations to address
this comment.
Another commentator argued that the
profit split method should not apply to a
party that does not own valuable intan-
gible property or does not use any such
property in the related party transaction
being evaluated. The commentator noted
that other parts of the regulations, such
as the CPM, CUSP method, and costs
of services plus method reference valu-
able intangible property in the examples.
The same commentator asserted that the
profit split method should be limited to
parties that bear substantial risk in their
intercompany transactions. The Treasury
Department and the IRS believe that lim-
iting application of the profit split method
to contributions of valuable intangible
property or the bearing of risks would
be inappropriate. The changes in the
2006 temporary regulations to routine and
non-routine contributions is an appropriate
standard and conformed to the changes to
§1.482–6T(c)(3)(i)(B)(1), which defines a
nonroutine contribution as “a contribution
that is not accounted for as a routine con-
tribution.” In other words, a nonroutine
contribution is one for which the return
cannot be determined by reference to mar-
ket benchmarks.
The 2006 temporary regulations pro-
vide that the residual profit split method
ordinarily is used where multiple con-
trolled taxpayers make significant non-
routine contributions. A commentator
requested that this provision be removed
2009–33 I.R.B.192August 17, 2009

because it suggests that the method al-
ways applies where there are no market
benchmarks. The provision regarding
the residual profit split method that the
commentator requested be removed has
been changed to conform to language
in the cost sharing regulations. Accord-
ingly, §1.482–9(g)(1) provides that the
residual profit split method may not be
used where only one controlled taxpayer
makes significant nonroutine contribu-
tions. The commentator also claimed that
the residual profit split method contains
an inconsistency because, although the
method applies when there are no market
benchmarks, the method includes a mar-
ket benchmark analysis for comparability
purposes. Compare §§1.482–9(g)(1) and
1.482–6(c)(3)(i)(B)(2). The Treasury De-
partment and the IRS do not consider that
there is an inconsistency. The method
contemplates the use of market bench-
marks, if available, to determine the profit
split that will be applied to the return to
nonroutine contributions already deter-
mined under the method. The same com-
mentator requested that the sentence in
§1.482–6T(c)(2)(ii)(B) of the 2006 tempo-
rary regulations relating to the comparable
profit split method that states that “the
comparable profit split method may not be
used if the combined operating profit (as a
percentage of the combined assets) of the
uncontrolled comparables varies signifi-
cantly from that earned by the controlled
taxpayers” should be deleted. These com-
ments are not adopted, since the stated
condition is fundamental to comparability
under the method.
5. Contingent Payments-Treas. Reg.
§1.482–9(i)
The 2006 temporary regulations pro-
vide detailed guidanceconcerning contin-
gent-payment contractual terms. The rules
built on the principle that, in structuring
controlled transactions, taxpayers are free
to choose from among a wide range of risk
allocations. The provision acknowledged
that contingent-payment terms — terms
requiring compensation to be paid only if
specified results are obtained — may be
particularly relevant in the context of con-
trolled servicestransactions.
Commentators raised several concerns
about the substance and scope of this pro-
vision. One commentator said that the reg-
ulations do not address whether a taxpayer
may, in the absence of a written agreement,
present facts to demonstrate that a con-
tingent payment arrangement best reflects
the economic substance of the underlying
transactions. The Treasury Department
and the IRS do not agree that an arrange-
ment may be treated as a contingent pay-
ment arrangement under §1.482–9(i)(2)
if the arrangement does not satisfy the
requirements of the contingent payment
arrangement provision, including the writ-
ten contract requirement. However, where
the Commissioner exercises its author-
ity pursuant to §1.482–1(d)(3)(ii)(B) to
impute contractual terms, the taxpayer
may present additional facts to indicate
if an alternative agreement best reflects
the economic substance of the underlying
transaction, consistent with the parties’
course of conduct in a particular case. See
§1.482–1(d)(3)(ii)(C),Examples 4and6.
The same commentator also pointed out
that the requirement to evaluate whether
a specified contingency bears a direct
relationship to the controlled services
transaction based on all of the facts and
circumstances should be combined with
the specified contingency requirement.
The Treasury Department and the IRS
agree that the language in §1.482–9(i)(2)
should be clarified. Accordingly, the
regulations remove the last sentence in
§1.482–9T(i)(2)(i)(C) of the 2006 tem-
porary regulations relating to a specified
contingency and combine it with the re-
quirement under §1.482–9T(i)(2)(i)(B).
Thus, §1.482–9(i)(2)(i)(B) now requires
that the contract state that payment for
a controlled services transaction is con-
tingent (in whole or in part) upon the
happening of a future benefit (within the
meaning of §1.482–9(l)(3)) for the recipi-
ent directly related to the activity or group
of activities. For this purpose, whether
the future benefit is directly related to the
activity or group of activities is evaluated
based on all the facts and circumstances.
6. Total Services Costs-Treas. Reg.
§1.482–9(j)
In the 2006 temporary regulations, to-
tal services costs include all costs directly
identified with provision of the controlled
services, as well as all other costs rea-
sonably allocable to such services under
§1.482–9(k). “Costs” must reflect all re-
sources expended, used, or made available
to render the service. Generally accepted
accounting principles (GAAP) or Federal
income tax accounting rules may provide
an appropriate starting point, but neither
would necessarily be conclusive in evalu-
ating whether an item must be included in
total services costs.
Another commentator requested that
value added costs (that is, labor costs
and depreciation) should be distinguished
from total services costs. The commen-
tator stated that a markup on value added
costs may be more reliable than a markup
on total costs in certain instances and that
this could be a useful measure for any of
the transfer pricing methods, including
the cost of services plus method. The
regulations already provide flexibility in
the context of the cost of services plus
method, which is determined by refer-
ence to comparable transactional costs,
the comparable profits method, and un-
specified methods. Consequently, the
comment is not adopted. The definition of
total services costs in these regulations is,
thus, similar to the provisions in the 2006
temporary regulations.
Section 1.482–9T(j) of the 2006 tem-
porary regulations explicitly states that
total services costs include stock-based
compensation, andExamples 3through
6of §1.482–9T(f)(3) illustrate when
stock-based compensation constitutes
a material difference requiring adjust-
ments for comparability and reliability
purposes. Commentators requested fur-
ther guidance regarding the valuation,
comparability, and reliability considera-
tions for stock-basedcompensation. Other
commentators objected to the explicit
statement that stock-based compensation
can be a total services cost. These final
regulations do not provide further guid-
ance regarding stock-based compensation.
The Treasury Department and the IRS
continue to considertechnical issues in-
volving stock-basedcompensation in the
services and other contexts and intend to
address those issues in a subsequent guid-
ance project.
7. Controlled Services Transactions
and Shareholder Activities-Treas. Reg.
§1.482–9(l)
Section 1.482–9(l) sets forth a thresh-
old test for determining whether an activ-
August 17, 20091932009–33 I.R.B.

ity constitutes a controlled services trans-
action subject to the general framework of
§1.482–9. Section 1.482–9(l)(3) provides
rules for determining whether an activity
provides a benefit. Paragraphs (l)(3)(ii)
through (v) provide guidelines that indi-
cate the presence or absence of a bene-
fit. Section 1.482–9T(l)(3)(iv) of the 2006
temporary regulations provides that an ac-
tivity is a shareholder activity if the sole ef-
fect of that activity is either to protect the
renderer’s capital investment in the recipi-
ent or in other members of the controlled
group, or to facilitate compliance by the
renderer with reporting, legal, or regula-
tory requirements applicable specifically
to the renderer, or both.
The Treasury Department and the IRS
received comments on shareholder activi-
ties. Some commentators asserted that the
“sole effect” language is too restrictive and
that the language should be replaced by a
“primary effect” standard. Other commen-
tators argued that the language appropri-
ately encompasses shareholder activities.
Another commentator requested a change
to the regulations such that a shareholder
activity should be considered to have a sole
effect only if the benefits provided to the
other controlled group members are either
(i) indirect or remote or (ii) duplicative.
The Treasury Department and the IRS
believe that the “sole effect” language is
appropriate. The “primary effect” lan-
guage in the 2003 proposed regulations
could inappropriately include activities
that are not true shareholder activities and
may even consist of substantial activities
that are non-shareholder activities. An ac-
tivity that is described in §1.482–9(l)(3)(ii)
through (iv) does not produce a benefit,
but the mere fact that an activity is not
described in §1.482–9(l)(3)(ii) through
(iv) does not mean that the activity neces-
sarily provides a benefit. An activity not
described in §1.482–9(l)(3)(ii) through
(iv) provides a benefit only if it satis-
fies the incremental value standard of
§1.482–9(l)(3)(i). Furthermore, for that
purpose, it may be more reliable, depend-
ing on the facts and circumstances, to
measure incremental value on a functional
aggregate activity, rather than a compo-
nent activity-by-activity basis.
8. Third Party Costs-Treas. Reg.
§1.482–9(l)(4)
Under §1.482–9T(l)(4) of the 2006
temporary regulations, a controlled ser-
vices transaction may be analyzed as a
single transaction or as two separate trans-
actions depending on which approach
provides the most reliable measure of the
arm’s length result under the best method
rule in existing §1.482–1(c). Two ex-
amples are provided illustrating different
alternatives when a controlled services
transaction included expenses related to a
third-party contract (third party costs) with
a controlled taxpayer. In both examples,
third party costs that could be reliably
disaggregated could be charged at cost.
Commentators requested that all third
party costs be treated as “pass through”
items that are not subject to a markup ap-
plicable to costs incurred by the renderer
in its capacity as service provider.
The Treasury Department and the IRS
continue to maintain the view that whether
to consider “pass through” items as dis-
aggregated from, or aggregated with,
other functions and costs, depends on
which analysis most reliably reflects an
arm’s length result. Therefore, the rules
of §1.482–9(l)(4) are adopted without
change.
9. Coordination with Other Transfer
Pricing Rules-Treas. Reg. §1.482–9(m)
and Guarantees
Section 1.482–9(m) provides coordi-
nation rules applicable to a controlled
services transaction that is combined with,
or includes elements of, a non-services
transaction. These coordination rules
rely on the best method rule in exist-
ing §1.482–1(c)(1) to determine which
method or methods would provide the
most reliable measure of an arm’s length
result for a particular controlled transac-
tion.
a. Services Subject to a Qualified
Cost Sharing Arrangement-Treas. Reg.
§1.482–9(m)(3)
Section 1.482–9T(m)(3) of the 2006
temporary regulationsstates that services
provided by a controlled participant under
a qualified cost sharing arrangement are
subject to existing §1.482–7. As part of
the temporary cost sharing regulations
(T.D. 9441, 2009–7 I.R.B. 460 [74 FR
340]) published on January 5, 2009, the
Treasury Department and the IRS re-
placed the coordination rules with new
§1.482–9T(m)(3). Section 1.482–9(m)(3)
is reserved pending finalization of the cost
sharing regulations.
b. Global Dealing Operations
The Treasury Department and the IRS
are working on new global dealing regu-
lations. The intent of the Treasury De-
partment and the IRS is that, when final
global dealing regulations are issued, those
regulations will govern the evaluation of
the activities performed by a global deal-
ing operation. Pending the issuance of new
global dealing regulations, taxpayers may
rely on the proposed global dealing reg-
ulations to govern financial transactions
entered into in connection with a global
dealing operation as defined in proposed
§1.482–8. Thus, the cross-reference under
proposed §1.482–9(m)(6) (71 FR 44247),
which provides that a controlled services
transaction does not include a financial
transaction entered into in connection with
a global dealing operation as defined in
proposed §1.482–8, remains in proposed
form. Section 1.482–9(m)(6) in these final
regulations is reserved pending issuance of
global dealing regulations.
c. Guarantees, Including Financial
Guarantees
Financial transactions, including guar-
antees, are explicitly excluded from eligi-
bility for the SCM by §1.482–9(b)(4)(viii).
However, no inference is intended that
financial transactions (including guaran-
tees) would otherwise be considered the
provision of services for transfer pricing
purposes. The Treasury Department and
the IRS intend to issue future guidance
regarding financial guarantees.
B. Income Attributable to Intangible
Property-Treas. Reg. §1.482–4(f)(3) and
(4)
Paragraphs (3) and (4) of §1.482–4(f)
provide rules for determining the owner
of intangible property for purposes of
section482andalsoproviderulesforde-
termining the arm’s length compensation
in situations where a controlled party other
than the owner makes contributions to
2009–33 I.R.B.194August 17, 2009

the value of intangible property. Section
1.482–4(f)(3)(i)(A) provides that the legal
owner of intangible property pursuant to
the intellectual property law of the rele-
vant jurisdiction, or the holder of rights
constituting intangible property pursuant
to contractual terms (such as the terms of
a license) or other legal provision, will be
considered the sole owner of intangible
property for purposes of this section un-
less such ownership is inconsistent with
the economic substance of the underlying
transactions. Some commentators believe
that the rules should specify that a holder
of bare legal title to intangible property
should not be presumed to be the owner
when other parties have all of the other
benefits and burdens of ownership. Af-
ter considering the public comments, the
Treasury Department and the IRS continue
to believe that the legal ownership stan-
dard as set forth in §1.482–4(f)(3)(i)(A)
is the appropriate framework for deter-
mining ownership of intangible property
under section 482.
The provisions of §1.482–4(f)(3) and
(4) are adopted without change.
C. Economic Substance
A number of commentators expressed
similar and sometimes interrelated con-
cerns regarding economic substance con-
siderations, imputation of contractual
terms, the realistic alternatives principle,
and the rules for income attributable to
intangible property. The common thread
running through these comments is a con-
cern that the IRS will inappropriately treat
taxpayers as having engaged in transac-
tions different from those in which they
actually engaged.
Section 1.482–4(f)(3)(i)(A) provides
that, if no owner of intangible property is
identified under the intellectual property
law of the relevant jurisdiction, or pursuant
to contractual terms (including terms im-
puted pursuant to §1.482–1(d)(3)(ii)(B))
or other legal provision, then the con-
trolled taxpayer that has control of in-
tangible property, based on all the facts
and circumstances, will be considered the
sole owner of intangible property for pur-
poses of this section. One commentator
believes that the control rule for determin-
ing ownership of non-legally protected
intangibles allows the IRS to attribute
ownership of intangible property in a
manner that is inconsistent with economic
substance. Accordingly, the comment
suggests that such control determina-
tions must be consistent with economic
substance in all cases. In the context of
the control rule in §1.482–4(f)(3)(i)(A),
this is already reflected in the language
“including terms imputed pursuant to
§1.482–1(d)(3)(ii)(B).”
Section 1.482–9T(h) of the 2006 tem-
porary regulations provides that, consis-
tent with the specified methods, an un-
specified method should take into account
the general principle that uncontrolled tax-
payers compare the terms of a particular
transaction to the realistic alternatives to
that transaction, including economically
similar transactions structured as other
than services transactions, and only enter
into a transaction if none of the alter-
natives is preferable to it. The realistic
alternatives concept was imported from
§1.482–1(f)(2)(ii) to be consistent with
the general aim to coordinate the analyses
under the various sections of the regula-
tions under section 482. This provision
allows flexibility to consider non-services
alternatives to a services transaction, for
example, a transfer or license of intangible
property, if such an approach provides the
most reliable measure of an arm’s length
result.
Commentators suggested that the real-
istic alternative principle be clarified so
that only transactions actually engaged in
by the controlled taxpayer can constitute
realistic alternatives or that the principle
be removed altogether on the grounds
that it inappropriately treats taxpayers
as engaging in transactions other than
those they chose. The Treasury Depart-
ment and the IRS do not agree with the
assertion that consideration of realistic
alternatives improperly disregards a tax-
payer’s chosen arrangement and that the
realistic alternative principle is limited to
internal comparables. It is a longstand-
ing principle under §1.482–1(f)(2)(ii)(A)
and in the valuation field, generally, that,
although the Commissioner will evalu-
ate the results of a transaction as actually
structured by the taxpayer unless it lacks
economic substance, the Commissioner
may consider alternatives available in de-
termining the arm’s length valuation of
the controlled transaction. The realistic
alternatives principle does not recast the
transaction. Rather, it assumes that tax-
payers are rational and will not choose
to price an arrangement in a manner that
makes them worse off economically than
another available alternative. Thus, if the
price associated with a realistic alternative
appears preferable in comparison with the
price associated with the chosen arrange-
ment, the logical implication is that the
actual arrangement has been priced incor-
rectly through a flawed application of the
best method rule. This is further reflected
in the example in §1.482–9T(h), which
illustrates when realistic alternatives may
be considered to evaluate the arm’s length
consideration, and explicitly states that the
best method rule of §1.482–1(c) governs
the analysis.
The unspecified method provisions in
these final regulations are adopted without
change.
Section 1.482–9(i)(3) provides
that, consistent with the authority in
§1.482–1(d)(3)(ii)(B), the Commissioner
may impute contingent-payment con-
tractual terms in a controlled services
transaction if the economic substance of
the transaction is consistent with the ex-
istence of such terms. When the 2003
proposed regulations were issued, com-
mentators expressed concerns with the rule
for imputing contingent payment terms
totheextentthatitpermitstheIRSto
recast arrangements if there is a disagree-
ment about the pricing of a service. The
temporary regulations responded to this
concern by providing a newExample 5in
§1.482–1T(d)(3)(ii)(C) to illustrate that if
a taxpayer’s pricing is outside of the arm’s
length range, that fact alone would not
support imputation of additional contrac-
tual terms based on economic substance
grounds. Commentators responded, how-
ever, that the last sentence ofExample 5
perpetuated the same problem of allowing
the IRS to recast arrangements if there
were pricing disputes between a taxpayer
and the IRS.
The Treasury Department and the IRS
agree that the last sentence ofExample 5
in §1.482–1T(d)(3)(ii)(C) did not clearly
convey its intended meaning, which is that
a transfer pricing method and the price de-
rived from the application of that method
do not inform the terms of the transaction
or the risks borne by the entities. Rather,
the selection and application of a trans-
fer pricing method should be based on
a comparability analysis of the transac-
August 17, 20091952009–33 I.R.B.

tion, which must consider the risks borne
by each entity in the transaction. Thus,
the last sentence in §1.482–1T(d)(3)(ii)(C)
Example 5, paragraph (iv), was intended to
explain that the IRS is not required to ac-
cept the transfer pricing method and form
of payment terms of a transaction as rep-
resented by a taxpayer if they are incon-
sistent with the conduct of the entities and
the economic substance of the transaction.
Because this sentence caused confusion, it
has been removed. However, the Trea-
sury Department and the IRS affirm that
the IRS may impute contingent-payment
terms where the economic substance of the
transaction is consistent with the existence
of such terms.
D. Apportionment of Stewardship
Expenses—§1.861–8
The regulations under §1.861–8(e)(4)
conform to, and are consistent with, the
language relating to controlled services
transactions as set forth in §1.482–9(l).
The regulations under §1.861–8(e)(4) are
applicable for taxable years beginning af-
ter December 31, 2006.
E. Effective/Applicability
Date—§1.482–9(n)
These regulationsare applicable for
taxable years beginning after July 31,
2009. Controlled taxpayers may elect to
apply retroactively all of the provisions
of these regulations to any taxable year
beginning after September 10, 2003. Such
election will be effective for the year of the
election and all subsequent taxable years.
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 this regulation. It is hereby
certified that the collections of informa-
tion in this regulation will not have a sig-
nificant economic impact on a substantial
number of small entities. This certification
is based on the fact that the collections of
information are related to elective provi-
sions for determining taxable income that
simplify and reduce compliance burdens in
connection with controlled services trans-
actions. When collection of information
is required, it is expected to take taxpay-
ers approximately 2 hours to comply, and
the administrative and economic costs will
be nominal in comparison with the result-
ing simplification and reduction of compli-
ance burdens. Thus, the economic impact
of the collections of information will not
be significant. Similarly, while some small
entities may be subject to the collections
of information if they elect one of the pro-
visions, the collections of information are
not expected to affect a substantial num-
ber of small entities. Accordingly, 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 reg-
ulations was submitted to the Small Busi-
ness Administration for comment on its
impact on small business.
Drafting Information
The principal authors of these
regulations are Carol B. Tan and
Gregory A. Spring, Office of Associate
Chief Counsel (International) for
matters relating to section 482, and
Richard L. Chewning, Office of Associate
Chief Counsel (International) for matters
relating to stewardship expenses.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 31, and
602 are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.482–9 also issued under
26 U.S.C. 482. * * *
Par. 2. Section 1.482–0 is amended as
follows:
1. The introductory text is revised.
2. The entries for §1.482–1(a)(1),
(d)(3)(ii)(C), (d)(3)(v), (f)(2)(ii)(A),
(f)(2)(iii)(B), (g)(4)(iii), (i) and (j) are re-
vised.
3. The entries for §1.482–2(b), (e) and
(f) are revised.
4. The entries for §1.482–4(f)(3),
(f)(4), (g), and (h) are revised.
5. The entry for §1.482–4(f)(7) is re-
moved.
6. The entries for §1.482–6(c)(2)
(ii)(B)(1), (c)(2)(ii)(D), (c)(3)(i)(A),
(c)(3)(i)(B), (c)(3)(ii)(D), and (d) are
revised
7. The entry for §1.482–8(c) is added.
8. The entries for §1.482–9 are revised.
The addition and revisions read as fol-
lows:
§1.482–0 Outline of regulations under
section 482.
This section contains major captions for
§§1.482–1 through 1.482–9.
§1.482–1 Allocation of income and
deductions among taxpayers.
(a) * * *
(1) Purpose and scope.
*****
(d) * * *
(3) * * *
(ii) * * *
(C) Examples.
*****
(v) Property or services.
*****
(f) * * *
(2) * * *
(ii) * * *
(A) In general.
*****
(iii) * * *
(A) * * *
(B) Circumstances warranting consid-
eration of multiple year data.
*****
(g) * * *
(4) * * *
(iii) Examples.
*****
(i) Definitions.
(j) Effective/applicability date.
§1.482–2 Determination of taxable
income in specific situations.
*****
(b) Rendering of services.
*****
(e) [Reserved]. For further guidance,
see §1.482–0T, the entry for §1.482–2T(e).
2009–33 I.R.B.196August 17, 2009

(f) Effective/applicability date.
*****
§1.482–4 Methods to determine taxable
income in connection with a transfer of
intangible property.
*****
(f) * * *
(3) Ownership of intangible property.
(i) Identification of owner.
(A) In general.
(B) [Reserved]. For further guid-
ance, see §1.482–0T, the entry for
§1.482–4T(f)(3)(i)(B).
(ii) Examples.
(4) Contribution to the value of intangi-
ble property owned by another.
(i) In general.
(ii) Examples.
*****
(g) [Reserved]. For further guidance,
see §1.482–0T, the entry for §1.482–4T(g).
(h) Effective/applicability date.
*****
§1.482–6 Profit split method.
*****
(c) * * *
(2) * * *
(ii) * * *
(B)***.
(1) In general.
*****
(D) Other factors affecting reliability.
*****
(3) * * *
(i) * * *
(A) Allocate income to routine contri-
butions.
(B) Allocate residual profit.
(1) Nonroutine contributions generally.
(2) Nonroutine contributions of intangi-
ble property.
(ii) * * *
(D) Other factors affecting reliability.
*****
(d) Effective/applicability date.
§1.482–8 Examples of the best method
rule.
*****
(c) Effective/applicability date.
§1.482–9 Methods to determine taxable
income in connection with a controlled
services transaction.
(a) In general.
(b) Services cost method.
(1) In general.
(2) Eligibility for the services cost
method.
(3) Covered services.
(i) Specified covered services.
(ii) Low margin covered services.
(4) Excluded activities.
(5) Not services thatcontribute signif-
icantly to fundamental risks of business
success or failure.
(6) Adequate books and records.
(7) Shared services arrangement.
(i) In general.
(ii) Requirements for shared services
arrangement.
(A) Eligibility.
(B) Allocation.
(C) Documentation.
(iii) Definitions and special rules.
(A) Participant.
(B) Aggregation.
(C) Coordination with cost sharing ar-
rangements.
(8) Examples.
(c) Comparable uncontrolled services
price method.
(1) In general.
(2) Comparability and reliability con-
siderations.
(i) In general.
(ii) Comparability.
(A) In general.
(B) Adjustments for differences be-
tween controlled and uncontrolled trans-
actions.
(iii) Data and assumptions.
(3) Arm’s length range.
(4) Examples.
(5) Indirect evidence of the price of a
comparable uncontrolled services transac-
tion.
(i) In general.
(ii) Example.
(d) Gross services margin method.
(1) In general.
(2) Determination of arm’s length price.
(i) In general.
(ii) Relevant uncontrolled transaction.
(iii) Applicable uncontrolled price.
(iv) Appropriate gross services profit.
(v) Arm’s length range.
(3) Comparability and reliability con-
siderations.
(i) In general.
(ii) Comparability.
(A) Functional comparability.
(B) Other comparability factors.
(C) Adjustments for differences be-
tween controlled and uncontrolled trans-
actions.
(D) Buy-sell distributor.
(iii) Data and assumptions.
(A) In general.
(B) Consistency in accounting.
(4) Examples.
(e) Cost of services plus method.
(1) In general.
(2) Determination of arm’s length price.
(i) In general.
(ii) Appropriate gross services profit.
(iii) Comparable transactional costs.
(iv) Arm’s length range.
(3) Comparability and reliability con-
siderations.
(i) In general.
(ii) Comparability.
(A) Functional comparability.
(B) Other comparability factors.
(C) Adjustments for differences be-
tween the controlled and uncontrolled
transactions.
(iii) Data and assumptions.
(A) In general.
(B) Consistency in accounting.
(4) Examples.
(f) Comparable profits method.
(1) In general.
(2) Determination of arm’s length re-
sult.
(i) Tested party.
(ii) Profit level indicators.
(iii) Comparability and reliabil-
ity considerations—Data and assump-
tions—Consistency in accounting.
(3) Examples.
(g) Profit split method.
(1) In general.
(2) Examples.
(h) Unspecified methods.
(i) Contingent-payment contractual
terms for services.
(1) Contingent-payment contractual
terms recognized in general.
(2) Contingent-payment arrangement.
(i) General requirements
(A) Written contract.
(B) Specified contingency.
(C)Basisforpayment.
August 17, 20091972009–33 I.R.B.

(ii) Economic substance and conduct.
(3) Commissioner’s authority to impute
contingent-payment terms.
(4) Evaluation of arm’s length charge.
(5) Examples.
(j) Total services costs.
(k) Allocation of costs.
(1) In general.
(2) Appropriate method of allocation
and apportionment.
(i) Reasonable method standard.
(ii) Use of general practices.
(3) Examples.
(l) Controlled services transaction.
(1) In general.
(2) Activity.
(3) Benefit.
(i) In general.
(ii) Indirect or remote benefit.
(iii) Duplicative activities.
(iv) Shareholder activities.
(v) Passive association.
(4) Disaggregation of transactions.
(5) Examples.
(m) Coordination with transfer pricing
rules for other transactions.
(1) Services transactions that include
other types of transactions.
(2) Services transactions that effect a
transfer of intangible property.
(3) [Reserved]. For further guid-
ance, see §1.482–0T, the entry for
§1.482–9T(m)(3).
(4) Other types of transactions that in-
clude controlled services transactions.
(5) Examples.
(n) Effective/applicability date.
(1) In general.
(2) Election to apply regulations to ear-
lier taxable years.
Par. 3. Section 1.482–0T is amended as
follows:
1. Revise the section heading and intro-
ductory text.
2. Revise the section headings for
§§1.482–1T, 1.482–4T and 1.482–9T and
the entries for §§1.482–1T, 1.482–2T,
1.482–4T and 1.482–9T.
3. Remove the entries for §1.482–6T.
The revisions read as follows:
§1.482–0T Outline of regulations under
section 482 (temporary).
This section contains major captions
for §§1.482–1T, 1.482–2T, 1.482–4T,
1.482–7T, 1.482–8T, and 1.482–9T.
§1.482–1T Allocation of income and
deductions among taxpayers (temporary).
(a) through (b)(2) [Reserved]. For fur-
ther guidance, see §1.482–0, the entries for
§1.482–1(a) through (b)(2).
(i) Methods.
(ii) [Reserved]. For further guid-
ance, see §1.482–0, the entry for
§1.482–1(b)(2)(ii).
(iii) Coordination of methods applica-
ble to certain intangible development ar-
rangements.
(c) through (i) [Reserved]. For fur-
ther guidance, see §1.482–0, the entries for
§1.482–1(c) through (i).
(j) Effective/applicability date.
(k) Expiration date.
§1.482–2T Determination of taxable
income in specific situations (temporary).
(a) through (d) [Reserved]. For fur-
ther guidance, see §1.482–0, the entries for
§1.482–2(a) through (d).
(e) Cost sharing arrangement.
(f) Effective/applicability date.
(1) In general.
(2) Election to apply regulation to ear-
lier taxable years.
(3) Expiration date.
§1.482–4T Methods to determine taxable
income in connection with a transfer of
intangible property (temporary).
(a) through (f)(3)(i)(A) [Reserved]. For
further guidance, see §1.482–0, the entries
for §1.482–4(a) through (f)(3)(i)(A).
(B) Cost sharing arrangements.
(f)(3)(ii) through (f)(6) [Reserved]. For
further guidance, see §1.482–0, the entries
for §1.482–4(f)(3)(ii) through (f)(6).
(g) Coordination with rules governing
cost sharing arrangements.
(h) Effective/applicability date.
(i) Expiration date.
*****
§1.482–9T Methods to determine taxable
income in connection with a controlled
services transaction (temporary).
(a) through (m)(2) [Reserved]. For fur-
ther guidance, see §1.482–0, the entries for
§1.482–9(a) through (m)(2).
(3) Coordination with rules governing
cost sharing arrangements.
(n) Effective/applicability dates.
(o) Expiration date.
Par. 4. Section 1.482–1 is amended by
revising paragraphs (a)(1), (d)(3)(ii)(C)
Examples 3,4,5,and6,(d)(3)(v),
(f)(2)(ii)(A), (f)(2)(iii)(B), (g)(4)(i),
(g)(4)(iii)Example 1, (i), and (j)(6) to read
as follows:
§1.482–1 Allocation of income and
deductions among taxpayers.
(a)In general—(1)Purpose and scope.
The purpose of section 482 is to ensure that
taxpayers clearly reflect income attribut-
able to controlled transactions and to pre-
vent the avoidance of taxes with respect
to such transactions. Section 482 places a
controlledtaxpayeronataxparitywithan
uncontrolled taxpayer by determining the
true taxable income of the controlled tax-
payer. This section sets forth general prin-
ciples and guidelines to be followed un-
der section 482. Section 1.482–2 provides
rules for the determination of the true tax-
able income of controlled taxpayers in spe-
cific situations, including controlled trans-
actions involving loans or advances or the
use of tangible property. Sections 1.482–3
through 1.482–6 provide rules for the de-
termination of the true taxable income of
controlled taxpayers in cases involving the
transfer of property. Section 1.482–7T sets
forth the cost sharing provisions applica-
ble to taxable years beginning on or af-
ter January 5, 2009. Section 1.482–8 pro-
vides examples illustrating the application
of the best method rule. Finally, §1.482–9
provides rules for the determination of the
true taxable income of controlled taxpay-
ers in cases involving the performance of
services.
*****
(d) * * *
(3) * * *
(ii) * * *
(C) * * *
Example 3.Contractual terms imputed from eco-
nomic substance. (i) FP, a foreign producer of wrist-
watches, is the registered holder of the YY trademark
in the United States and in other countries world-
wide. In year 1, FP enters the United States mar-
ket by selling YY wristwatches to its newly orga-
nized United States subsidiary, USSub, for distribu-
tion in the United States market. USSub pays FP a
fixed price per wristwatch. USSub and FP undertake,
without separate compensation, marketing activities
to establish the YY trademark in the United States
market. Unrelated foreign producers of trademarked
2009–33 I.R.B.198August 17, 2009

wristwatches and their authorized United States dis-
tributors respectively undertake similar marketing ac-
tivities in independent arrangements involving dis-
tribution of trademarked wristwatches in the United
States market. In years 1 through 6, USSub markets
and sells YY wristwatches in the United States. Fur-
ther, in years 1 through 6, USSub undertakes incre-
mental marketing activities in addition to the activi-
ties similar to those observed in the independent dis-
tribution transactions in the United States market. FP
does not directly or indirectly compensate USSub for
performing these incremental activities during years
1 through 6. Assume that, aside from these incremen-
tal activities, and after any adjustments are made to
improve the reliability of the comparison, the price
paid per wristwatch by the independent, authorized
distributors of wristwatches would provide the most
reliable measure of the arm’s length price paid per YY
wristwatch by USSub.
(ii) By year 7, the wristwatches with the YY trade-
mark generate a premium return in the United States
market, as compared to wristwatches marketed by the
independent distributors. In year 7, substantially all
the premium return from the YY trademark in the
United States market is attributed to FP, for exam-
ple through an increase in the price paid per watch
by USSub, or by some other means.
(iii) In determining whether an allocation of in-
come is appropriate in year 7, the Commissioner may
consider the economic substance of the arrangements
between USSub and FP, and the parties’ course of
conduct throughout their relationship. Based on
this analysis, the Commissioner determines that it
is unlikely that,ex ante, an uncontrolled taxpayer
operating at arm’s length would engage in the incre-
mental marketing activities to develop or enhance
intangible property owned by another party unless
it received contemporaneous compensation or oth-
erwise had a reasonable anticipation of receiving
a future benefit from those activities. In this case,
USSub’s undertaking the incremental marketing
activities in years 1 through 6 is a course of conduct
that is inconsistent with the parties’ attribution to
FP in year 7 of substantially all the premium return
from the enhanced YY trademark in the United
States market. Therefore, the Commissioner may
impute one or more agreements between USSub and
FP, consistent with the economic substance of their
course of conduct, which would afford USSub an
appropriate portion of the premium return from the
YY trademark wristwatches. For example, the Com-
missioner may impute a separate services agreement
that affords USSub contingent-payment compensa-
tion for its incremental marketing activities in years
1 through 6, which benefited FP by contributing to
the value of the trademark owned by FP. In the alter-
native, the Commissioner may impute a long-term,
exclusive agreement to exploit the YY trademark in
the United States that allows USSub to benefit from
the incremental marketing activities it performed. As
another alternative, the Commissioner may require
FP to compensate USSub for terminating USSub’s
imputed long-term, exclusive agreement to exploit
the YY trademark in the United States, an agreement
that USSub made more valuable at its own expense
and risk. The taxpayer may present additional facts
that could indicate which of these or other alternative
agreements best reflects the economic substance
of the underlying transactions, consistent with the
parties’ course of conduct in the particular case.
Example 4.Contractual terms imputed from eco-
nomic substance. (i) FP, a foreign producer of athletic
gear, is the registered holder of the AA trademark
in the United States and in other countries world-
wide. In year 1, FP enters into a licensing agree-
ment that affords its newly organized United States
subsidiary, USSub, exclusive rights to certain manu-
facturing and marketing intangible property (includ-
ing the AA trademark) for purposes of manufactur-
ing and marketing athletic gear in the United States
under the AA trademark. The contractual terms of
this agreement obligate USSub to pay FP a royalty
based on sales, and also obligate both FP and USSub
to undertake without separate compensation specified
types and levels of marketing activities. Unrelated
foreign businesses license independent United States
businesses to manufacture and market athletic gear in
the United States, using trademarks owned by the un-
related foreign businesses. The contractual terms of
these uncontrolled transactions require the licensees
to pay royalties based on sales of the merchandise,
and obligate the licensors and licensees to undertake
without separate compensation specified types and
levels of marketing activities. In years 1 through 6,
USSub manufactures and sells athletic gear under the
AA trademark in the United States. Assume that,
after adjustments are made to improve the reliabil-
ity of the comparison for any material differences re-
lating to marketing activities, manufacturing or mar-
keting intangible property, and other comparability
factors, the royalties paid by independent licensees
would provide the most reliable measure of the arm’s
length royalty owed by USSub to FP, apart from the
additional facts in paragraph (ii) of thisExample 4.
(ii) In years 1 through 6, USSub performs incre-
mental marketing activities with respect to the AA
trademark athletic gear, in addition to the activities re-
quired under the terms of the license agreement with
FP, that are also incremental as compared to those ob-
served in the comparables. FP does not directly or
indirectly compensate USSub for performing these
incremental activities during years 1 through 6. By
year 7, AA trademark athletic gear generates a pre-
mium return in the United States, as compared to sim-
ilar athletic gear marketed by independent licensees.
In year 7, USSub and FP enter into a separate ser-
vices agreement under which FP agrees to compen-
sate USSub on a cost basis for the incremental mar-
keting activities that USSub performed during years 1
through 6, and to compensate USSub on a cost basis
for any incremental marketing activities it may per-
form in year 7 and subsequent years. In addition, the
parties revise the license agreement executed in year
1, and increase the royalty to a level that attributes to
FP substantially all the premium return from sales of
the AA trademark athletic gear in the United States.
(iii) In determining whether an allocation of
income is appropriate in year 7, the Commissioner
may consider the economic substance of the arrange-
ments between USSub and FP and the parties’ course
of conduct throughout their relationship. Based on
this analysis, the Commissioner determines that it is
unlikely that, ex ante, an uncontrolled taxpayer oper-
ating at arm(s length would engage in the incremental
marketing activities to develop or enhance intangible
property owned by another party unless it received
contemporaneous compensation or otherwise had a
reasonable anticipation of a future benefit. In this
case, USSub(s undertaking the incremental mar-
keting activities in years 1 through 6 is a course of
conduct that is inconsistent with the parties’ adoption
in year 7 of contractual terms by which FP com-
pensates USSub on a cost basis for the incremental
marketing activities that it performed. Therefore, the
Commissioner may impute one or more agreements
between USSub and FP, consistent with the eco-
nomic substance of their course of conduct, which
would afford USSub an appropriate portion of the
premium return from the AA trademark athletic
gear. For example, the Commissioner may impute
a separate services agreement that affords USSub
contingent-payment compensation for the incremen-
tal activities it performed during years 1 through 6,
which benefited FP by contributing to the value of
the trademark owned by FP. In the alternative, the
Commissioner may impute a long-term, exclusive
United States license agreement that allows USSub
to benefit from the incremental activities. As another
alternative, the Commissioner may require FP to
compensate USSub for terminating USSub’s imputed
long-term United States license agreement, a license
that USSub made more valuable at its own expense
and risk. The taxpayer may present additional facts
that could indicate which of these or other alternative
agreements best reflects the economic substance
of the underlying transactions, consistent with the
parties’ course of conduct in this particular case.
Example 5.Non-arm’s length compensation.(i)
The facts are the same as in paragraph (i) ofExam-
ple 4.AsinExample 4, assume that, after adjust-
ments are made to improve the reliability of the com-
parison for any material differences relating to mar-
keting activities, manufacturing or marketing intangi-
ble property, and other comparability factors, the roy-
alties paid by independent licensees would provide
the most reliable measure of the arm’s length royalty
owed by USSub to FP, apart from the additional facts
described in paragraph (ii) of thisExample 5.
(ii) In years 1 through 4, USSub performs certain
incremental marketing activities with respect to the
AA trademark athletic gear, in addition to the ac-
tivities required under the terms of the basic license
agreement, that are also incremental as compared
with those activities observed in the comparables. At
the start of year 1, FP enters into a separate services
agreement with USSub, which states that FP will
compensate USSub quarterly, in an amount equal to
specified costs plus X%, for these incremental mar-
keting functions. Further, these written agreements
reflect the intent of the parties that USSub receive
such compensation from FP throughout the term of
the agreement, without regard to the success or failure
of the promotional activities. During years 1 through
4, USSub performs marketing activities pursuant
to the separate services agreement and in each year
USSub receives the specified compensation from FP
on a cost of services plus basis.
(iii) In evaluating year 4, the Commissioner per-
forms an analysis of independent parties that perform
promotional activities comparable to those performed
by USSub and that receive separately-stated compen-
sation on a current basis without contingency. The
Commissioner determines that the magnitude of the
specified cost plus X% is outside the arm’s length
range in each of years 1 through 4. Based on an eval-
uation of all the facts and circumstances, the Com-
August 17, 20091992009–33 I.R.B.

missioner makes an allocation to require payment of
compensation to USSub for the promotional activities
performed in year 4, based on the median of the in-
terquartile range of the arm’s length markups charged
by the uncontrolled comparables described in para-
graph (e)(3) of this section.
(iv) Given that based on facts and circumstances,
the terms agreed by the controlled parties were that
FP would bear all risks associated with the promo-
tional activities performed by USSub to promote the
AA trademark product in the United States market,
and given that the parties’ conduct during the years
examined was consistent with this allocation of
risk, the fact that the cost of services plus markup
on USSub’s services was outside the arm’s length
range does not, without more, support imputation
of additional contractual terms based on alternative
views of the economic substance of the transaction,
such as terms indicating that USSub, rather than FP,
bore the risk associated with these activities.
Example 6.Contractual terms imputed from eco-
nomic substance. (i) Company X is a member of
acontrolledgroupthathasbeeninoperationinthe
pharmaceutical sector for many years. In years 1
through 4, Company X undertakes research and de-
velopment activities. As a result of those activities,
Company X developed a compound that may be more
effective than existing medications in the treatment of
certain conditions.
(ii)CompanyYisacquiredinyear4bythecon-
trolled group that includes Company X. Once Com-
pany Y is acquired, Company X makes available to
Company Y a large amount of technical data concern-
ing the new compound, which Company Y uses to
register patent rights with respect to the compound
in several jurisdictions, making Company Y the legal
owner of such patents. Company Y then enters into
licensing agreements withgroup members that afford
Company Y 100% of the premium return attributable
to use of the intangible property by its subsidiaries.
(iii) In determining whether an allocation is ap-
propriate in year 4, the Commissioner may consider
the economic substance ofthe arrangements between
Company X and Company Y, and the parties’ course
of conduct throughout their relationship. Based on
this analysis, the Commissioner determines that it is
unlikely that an uncontrolled taxpayer operating at
arm’s length would make available the results of its
research and development or perform services that re-
sulted in transfer of valuable know how to another
party unless it received contemporaneous compen-
sation or otherwise had a reasonable anticipation of
receiving a future benefit from those activities. In
this case, Company X’s undertaking the research and
development activities and then providing technical
data and know-how to Company Y in year 4 is incon-
sistent with the registration and subsequent exploita-
tion of the patent by Company Y. Therefore, the Com-
missioner may impute one or more agreements be-
tween Company X and Company Y consistent with
the economic substance of their course of conduct,
which would afford Company X an appropriate por-
tion of the premium return from the patent rights. For
example, the Commissioner may impute a separate
services agreement that affords Company X contin-
gent-payment compensation for its services in year 4
for the benefit of Company Y, consisting of making
available to Company Y technical data, know-how,
and other fruits of research and development con-
ducted in previous years. These services benefited
Company Y by giving rise to and contributing to the
value of the patent rights that were ultimately regis-
tered by Company Y. In the alternative, the Commis-
sioner may impute a transfer of patentable intangible
property rights from Company X to Company Y im-
mediately preceding the registration of patent rights
by Company Y. The taxpayer may present additional
facts that could indicate which of these or other al-
ternative agreements best reflects the economic sub-
stance of the underlying transactions, consistent with
the parties( course of conduct in the particular case.
*****
(v)Property or services.Evaluat-
ing the degree of comparability between
controlled and uncontrolled transactions
requires a comparison of the property or
services transferred in the transactions.
This comparison may include any intangi-
ble property that is embedded in tangible
property or services being transferred
(embedded intangibles). The compara-
bility of the embedded intangibles will
be analyzed using the factors listed in
§1.482–4(c)(2)(iii)(B)(1) (comparable in-
tangible property). The relevance of prod-
uct comparability in evaluating the relative
reliability of the results will depend on the
method applied. For guidance concerning
the specific comparability considerations
applicable to transfers of tangible and
intangible property and performance of
services, see §§1.482–3 through 1.482–6
and §1.482–9; see also §§1.482–3(f),
1.482–4(f)(4), and 1.482–9(m), dealing
with the coordination of the intangible
and tangible property and performance of
services rules.
*****
(f) * * *
(2) * * *
(ii)Allocation based on taxpayer’s ac-
tual transactions—(A)In general.The
Commissioner will evaluate the results
of a transaction as actually structured
by the taxpayer unless its structure lacks
economic substance. However, the Com-
missioner may consider the alternatives
available to the taxpayer in determin-
ing whether the terms of the controlled
transaction would be acceptable to an un-
controlled taxpayer faced with the same
alternatives and operating under compa-
rable circumstances. In such cases the
Commissioner may adjust the considera-
tion charged in the controlled transaction
based on the cost or profit of an alternative
as adjusted to account for material dif-
ferences between the alternative and the
controlled transaction, but will not restruc-
ture the transaction as if the alternative
had been adopted by the taxpayer. See
paragraph (d)(3) of this section (factors
for determining comparability; contractual
terms and risk); §§1.482–3(e), 1.482–4(d),
and 1.482–9(h) (unspecified methods).
*****
(iii) * * *
(B)Circumstances warranting consid-
eration of multiple year data.Theextent
to which it is appropriate to consider multi-
ple year data depends on the method being
applied and the issue being addressed.
Circumstances that may warrant consider-
ation of data from multiple years include
the extent to which complete and accurate
data are available for the taxable year un-
der review, the effect of business cycles
in the controlled taxpayer’s industry, or
the effects of life cycles of the product
or intangible property being examined.
Data from one or more years before or
after the taxable year under review must
ordinarily be considered for purposes
of applying the provisions of paragraph
(d)(3)(iii) of this section (risk), paragraph
(d)(4)(i) of this section (market share
strategy), §1.482–4(f)(2) (periodic ad-
justments), §1.482–5 (comparable profits
method), §1.482–9(f) (comparable prof-
its method for services), and §1.482–9(i)
(contingent-payment contractual terms for
services). On the other hand, multiple
year data ordinarily will not be considered
for purposes of applying the comparable
uncontrolled price method of §1.482–3(b)
or the comparable uncontrolled services
price method of §1.482–9(c) (except to the
extent that risk or market share strategy
issues are present).
*****
(g) * * *
(4)Setoffs—(i)In general.Ifanal-
location is made under section 482 with
respect to a transaction between con-
trolled taxpayers, the Commissioner will
take into account the effect of any other
non-arm’s length transaction between the
same controlled taxpayers in the same
taxable year which will result in a setoff
against the original section 482 allocation.
Such setoff, however, will be taken into
account only if the requirements of para-
graph (g)(4)(ii) of this section are satisfied.
If the effect of the setoff is to change the
characterization or source of the income
2009–33 I.R.B.200August 17, 2009

or deductions, or otherwise distort taxable
income, in such a manner as to affect the
U.S. tax liability of any member, adjust-
ments will be made to reflect the correct
amount of each category of income or
deductions. For purposes of this setoff
provision, the term arm’s length refers to
the amount defined in paragraph (b) of this
section (arm’s length standard), without
regard to the rules in §1.482–2(a) that treat
certain interest rates as arm’s length rates
of interest.
*****
(iii) * * *
Example 1. P, a U.S. corporation, renders con-
struction services to S, its foreign subsidiary in Coun-
try Y, in connection with the construction of S’s fac-
tory. An arm’s length charge for such services de-
termined under §1.482–9 would be $100,000. Dur-
ing the same taxable year P makes available to S the
useofamachinetobeusedintheconstructionof
the factory, and the arm’s length rental value of the
machine is $25,000. P bills S $125,000 for the ser-
vices, but does not charge S for the use of the ma-
chine. No allocation will be made with respect to the
undercharge for the machine if P notifies the district
director of the basis of the claimed setoff within 30
days after the date of the letter from the district direc-
tor transmitting the examination report notifying P of
the proposed adjustment, establishes that the excess
amount charged for services was equal to an arm’s
length charge for the use of the machine and that the
taxable income and income tax liabilities of P are not
distorted, and documents the correlative allocations
resulting from the proposed setoff.
*****
(i)Definitions. The definitions set forth
in paragraphs (i)(1) through (i)(10) of this
section apply to this section and §§1.482–2
through 1.482–9.
*****
(j) * * *
(6)(i) The provisions of paragraphs
(a)(1), (d)(3)(ii)(C)Example 3,Example
4,Example 5,andExample 6, (d)(3)(v),
(f)(2)(ii)(A), (f)(2)(iii)(B), (g)(4)(i),
(g)(4)(iii), and (i) of this section are gener-
ally applicable for taxable years beginning
after July 31, 2009.
(ii) A person may elect to apply the
provisions of paragraphs (a)(1), (b)(2)(i),
(d)(3)(ii)(C)Example 3,Example 4,
Example 5,andExample 6, (d)(3)(v),
(f)(2)(ii)(A), (f)(2)(iii)(B), (g)(4)(i),
(g)(4)(iii), and (i) of this section to earlier
taxable years in accordance with the rules
set forth in §1.482–9(n)(2).
Par. 5. Section 1.482–1T is amended
by revising paragraphs (a), (b)(1), the
first sentence in paragraph (b)(2)(i),
(b)(2)(ii), the second sentence in para-
graph(b)(2)(iii),(c),(d),(e),(f),(g),(h),
(i), and (j) to read as follows:
§1.482–1T Allocation of income and
deductions among taxpayers (temporary).
(a) through (b)(1) [Reserved]. For fur-
ther guidance, see §1.482–1(a) through
(b)(1).
(b)(2) * * *(i) * * *Sections 1.482–2
through 1.482–6, 1.482–7T and 1.482–9
provide specific methods to be used to
evaluate whether transactions between or
among members of the controlled group
satisfy the arm’s length standard, and if
they do not, to determine the arm’s length
result. ***
(ii) [Reserved]. For further guidance,
see §1.482–1(b)(2)(ii).
(iii)***Sections1.482–4and
1.482–9, as appropriate, provide the spe-
cific methods to be used to determine
arm’s length results of arrangements, in-
cluding partnerships, for sharing the costs
and risks of developing intangible prop-
erty, other that a cost sharing arrangement
covered by §1.482–7T. * * *
(c) through (j)(5) [Reserved]. For fur-
ther guidance, see §1.482–1(c) through
(j)(5).
(j)(6)(i) The provisions of paragraphs
(b)(2)(i) and (b)(2)(iii) of this section are
generally applicable on January 5, 2009.
(ii) [Reserved]. For further guidance,
see §1.482–1(j)(6)(ii).
(iii) The applicability of paragraphs
(b)(2)(i) and (b)(2)(iii) of this section ex-
pires on or before December 30, 2011.
Par. 6. Section 1.482–2 is amended
by revising paragraph (b), (e), and adding
paragraph (f) to read as follows:
§1.482–2 Determination of taxable
income in specific situations.
*****
(b)Rendering of services.Forrules
governing allocations under section 482
to reflect an arm’s length charge for con-
trolled transactions involving the render-
ing of services, see §1.482–9.
*****
(e) [Reserved]. For further guidance,
see §1.482–2T(e).
(f)Effective/applicability date—(1)In
general. The provision of paragraph (b) of
this section is generally applicable for tax-
able years beginning after July 31, 2009.
(2)Election to apply regulation to ear-
lier taxable years. A person may elect
to apply the provisions of paragraph (b)
of this section to earlier taxable years
in accordance with the rules set forth in
§1.482–9(n)(2).
Par. 7. Section 1.482–2T is amended as
follows:
1. Revise paragraphs (a), (b), (c), (d),
and (f)(2).
2. Remove the first sentence in both
paragraphs (f)(1) and (f)(3).
The revisions read as follows:
§1.482–2T Determination of taxable
income in specific situations (temporary).
(a) through (d) [Reserved]. For further
guidance, see §1.482–2(a) through (d).
*****
(f) * * *
(2) [Reserved]. For further guidance,
see §1.482–2(f)(2).
*****
Par. 8. Section 1.482–4 is amended as
follows:
1. Revise paragraphs (f)(3) and (f)(4).
2. Add paragraphs (g) and (h).
The revisions and addition read as fol-
lows:
§1.482–4 Methods to determine taxable
income in connection with a transfer of
intangible property.
*****
(f) * * *
(3)Ownership of intangible prop-
erty—(i)Identification of owner—(A)In
general. The legal owner of intangible
property pursuant to the intellectual prop-
erty law of the relevant jurisdiction, or
the holder of rights constituting an in-
tangible property pursuant to contractual
terms (such as the terms of a license) or
other legal provision, will be considered
the sole owner of the respective intangible
property for purposes of this section un-
less such ownership is inconsistent with
the economic substance of the underlying
transactions. See (1.482–1(d)(3)(ii)(B)
(identifying contractual terms). If no
owner of the respective intangible property
is identified under the intellectual property
law of the relevant jurisdiction, or pursuant
August 17, 20092012009–33 I.R.B.

to contractual terms (including terms im-
puted pursuant to §1.482–1(d)(3)(ii)(B))
or other legal provision, then the con-
trolled taxpayer who has control of the
intangible property, based on all the facts
and circumstances, will be considered the
sole owner of the intangible property for
purposes of this section.
(B) [Reserved]. For further guidance,
see §1.482–4T(f)(3)(i)(B).
(ii)Examples. The principles of this
paragraph (f)(3) are illustrated by the fol-
lowing examples:
Example 1. FP, a foreign corporation, is the regis-
tered holder of the AA trademark in the United States.
FP licenses to its U.S. subsidiary, USSub, the exclu-
sive rights to manufacture and market products in the
United States under the AA trademark. FP is the
owner of the trademark pursuant to intellectual prop-
erty law. USSub is the owner of the license pursuant
to the terms of the license, but is not the owner of the
trademark. See paragraphs (b)(3) and (4) of this sec-
tion (defining an intangible as, among other things, a
trademark or a license).
Example 2. ThefactsarethesameasinExam-
ple 1. As a result of its sales and marketing activi-
ties,USSubdevelopsalistof several hundred credit-
worthy customers that regularly purchase AA trade-
marked products. Neither the terms of the contract
between FP and USSub nor the relevant intellectual
property law specify which party owns the customer
list. Because USSub has knowledge of the contents
of the list, and has practical control over its use and
dissemination, USSub is considered the sole owner of
the customer list for purposes of this paragraph (f)(3).
(4)Contribution to the value of intangi-
ble property owned by another—(i)In gen-
eral. The arm(s length consideration for
a contribution by one controlled taxpayer
that develops or enhances the value, or
may be reasonably anticipated to develop
or enhance the value, of intangible prop-
erty owned by another controlled taxpayer
will be determined in accordance with the
applicable rules under section 482. If the
consideration for such a contribution is
embedded within the contractual terms for
a controlled transaction that involves such
intangible property, then ordinarily no sep-
arate allocation will be made with respect
to such contribution.In such cases, pur-
suant to §1.482–1(d)(3), the contribution
must be accounted for in evaluating the
comparability of the controlled transaction
to uncontrolled comparables, and accord-
ingly in determining the arm’s length con-
sideration in the controlled transaction.
(ii)Examples. The principles of this
paragraph (f)(4) are illustrated by the fol-
lowing examples:
Example 1. A, a member of a controlled group,
allows B, another member of the controlled group,
to use tangible property, such as laboratory equip-
ment, in connection with B’s development of an in-
tangible that B owns. By furnishing tangible prop-
erty, A makes a contribution to the development of
intangible property owned by another controlled tax-
payer, B. Pursuant to paragraph (f)(4)(i) of this sec-
tion, the arm’s length charge for A’s furnishing of tan-
gible property will be determined under the rules for
use of tangible property in (1.482–2(c).
Example 2.(i)Facts. FP, a foreign producer
of wristwatches, is the registered holder of the YY
trademark in the United States and in other countries
worldwide. FP enters into an exclusive, five-year,
renewable agreement with its newly organized U.S.
subsidiary, USSub. The contractual terms of the
agreement grant USSub the exclusive right to re-sell
YY trademark wristwatches in the United States,
obligate USSub to pay a fixed price per wristwatch
throughout the entire term of the contract, and ob-
ligate both FP and USSub to undertake without
separate compensation specified types and levels of
marketing activities.
(ii) The consideration for FP’s and USSub’s mar-
keting activities, as well as the consideration for the
exclusive right to re-sell YY trademarked merchan-
dise in the United States, are embedded in the trans-
fer price paid for the wristwatches. Accordingly, pur-
suant to paragraph (f)(4)(i) of this section, ordinarily
no separate allocation would be appropriate with re-
spect to these embedded contributions.
(iii) Whether an allocation is warranted with re-
spect to the transfer price for the wristwatches is de-
termined under ((1.482–1, 1.482–3, and this section
through §1.482–6. The comparability analysis would
include consideration of all relevant factors, includ-
ing the nature of the intangible property embedded
in the wristwatches and the nature of the marketing
activities required under the agreement. This analy-
sis would also take into account that the compensa-
tion for the activities performed by USSub and FP,
as well as the consideration for USSub’s use of the
YY trademark, is embedded in the transfer price for
the wristwatches, rather than provided for in separate
agreements. See ((1.482–3(f) and 1.482–9(m)(4).
Example 3.(i)Facts. FP, a foreign producer of
athletic gear, is the registered holder of the AA trade-
mark in the United States and in other countries. In
year 1, FP licenses to a newly organized U.S. sub-
sidiary, USSub, the exclusive rights to use certain
manufacturing and marketing intangible property to
manufacture and market athletic gear in the United
States under the AA trademark. The license agree-
ment obligates USSub to pay a royalty based on sales
of trademarked merchandise. The license agreement
also obligates FP and USSub to perform without sep-
arate compensation specified types and levels of mar-
keting activities. In year 1, USSub manufactures
and sells athletic gear under the AA trademark in the
United States.
(ii) The consideration for FP’s and USSub’s re-
spective marketing activities is embedded in the con-
tractual terms of the license for the AA trademark.
Accordingly, pursuant to paragraph (f)(4)(i) of this
section, ordinarily no separate allocation would be
appropriate with respect to the embedded contribu-
tions in year 1. See (1.482–9(m)(4).
(iii) Whether an allocation is warranted with
respect to the royalty under the license agreement
would be analyzed under (1.482–1, and this section
through (1.482–6. The comparability analysis would
include consideration of all relevant factors, such as
the term and geographical exclusivity of the license,
the nature of the intangible property subject to the
license, and the nature of the marketing activities
required to be undertaken pursuant to the license.
Pursuant to paragraph (f)(4)(i) of this section, the
analysis would also take into account the fact that the
compensation for the marketing services is embed-
ded in the royalty paid for use of the AA trademark,
rather than provided for in a separate services agree-
ment. For illustrations of application of the best
method rule, see (1.482–8Examples 10,11,and12.
Example 4.(i)Facts. The year 1 facts are the
same as inExample 3, with the following exceptions.
In year 2, USSub undertakes certain incremental mar-
keting activities in addition to those required by the
contractual terms of the license for the AA trademark
executed in year 1. The parties do not execute a sepa-
rate agreement with respect to these incremental mar-
keting activities performed by USSub. The license
agreement executed in year 1 is of sufficient dura-
tion that it is reasonable to anticipate that USSub will
obtain the benefit of its incremental activities, in the
form of increased sales or revenues of trademarked
products in the U.S. market.
(ii) To the extent that it was reasonable to antic-
ipate that USSub’s incremental marketing activities
would increase the value only of USSub’s intangi-
ble property (that is, USSub’s license to use the AA
trademark for a specified term), and not the value of
the AA trademark owned by FP, USSub’s incremen-
tal activities do not constitute a contribution for which
an allocation is warranted under paragraph (f)(4)(i) of
this section.
Example 5.(i)Facts. The year 1 facts are the
same as inExample 3.Inyear2,FPandUSSuben-
ter into a separate services agreement that obligates
USSub to perform certain incremental marketing ac-
tivities to promote AA trademark athletic gear in the
United States, above and beyond the activities spec-
ified in the license agreement executed in year 1. In
year 2, USSub begins to perform these incremental
activities, pursuant to the separate services agreement
with FP.
(ii) Whether an allocation is warranted with re-
spect to USSub’s incremental marketing activities
covered by the separate services agreement would
be evaluated under ((1.482–1 and 1.482–9, including
a comparison of the compensation provided for the
services with the results obtained under a method
pursuant to (1.482–9, selected and applied in accor-
dance with the best method rule of §1.482–1(c).
(iii) Whether an allocation is warranted with re-
spect to the royalty under the license agreement is
determined under (1.482–1, and this section through
§1.482–6. The comparability analysis would include
consideration of all relevant factors, such as the term
and geographical exclusivity of the license, the nature
of the intangible property subject to the license, and
the nature of the marketing activities required to be
undertaken pursuant to thelicense. The comparabil-
ity analysis would take into account that the compen-
sation for the incremental activities by USSub is pro-
vided for in the separate services agreement, rather
than embedded in the royalty paid for use of the AA
trademark. For illustrations of application of the best
method rule, see §1.482–8Examples 10,11,and12.
2009–33 I.R.B.202August 17, 2009

Example 6.(i)Facts. The year 1 facts are the
same as inExample 3.Inyear2,FPandUSSubenter
into a separate services agreement that obligates FP to
perform incremental marketing activities, not speci-
fied in the year 1 license, by advertising AA trade-
marked athletic gear in selected international sport-
ing events, such as the Olympics and the soccer World
Cup. FP(s corporate advertising department develops
and coordinates these special promotions. The sep-
arate services agreement obligates USSub to pay an
amount to FP for the benefit to USSub that may rea-
sonably be anticipated as the result of FP’s incremen-
tal activities. The separate services agreement is not a
qualified cost sharing arrangement under (1.482–7T.
FP begins to perform the incremental activities in
year 2 pursuant to the separate services agreement.
(ii) Whether an allocation is warranted with
respect to the incremental marketing activities per-
formed by FP under the separate services agreement
would be evaluated under §1.482–9. Under the
circumstances, it is reasonable to anticipate that
FP(s activities would increase the value of USSub’s
license as well as the value of FP(s trademark.
Accordingly, the incremental activities by FP may
constitute in part a controlled services transaction
for which USSub must compensate FP. The analysis
of whether an allocation is warranted would include
a comparison of the compensation provided for the
services with the results obtained under a method
pursuant to §1.482–9, selected and applied in accor-
dance with the best method rule of §1.482–1(c).
(iii) Whether an allocation is appropriate with
respect to the royalty under the license agree-
ment would be evaluated under (§1.482–1 through
1.482–3, this section, and §§1.482–5 and 1.482–6.
The comparability analysis would include consid-
eration of all relevant factors, such as the term and
geographical exclusivity of USSub(s license, the
nature of the intangible property subject to the li-
cense, and the marketing activities required to be
undertaken by both FP and USSub pursuant to the
license. This comparability analysis would take into
account that the compensation for the incremental
activities performed by FP was provided for in the
separate services agreement, rather than embedded
in the royalty paid for use of the AA trademark.
For illustrations of application of the best method
rule, see §1.482–8,Example 10,Example 11,and
Example 12.
*****
(g) [Reserved]. For further guidance,
see §1.482–4T(g).
(h)Effective/applicability date—(1)In
general. The provisions of paragraphs
(f)(3)(i)(A), (f)(3)(ii), and (f)(4) of this
section are generally applicable for tax-
able years beginning after July 31, 2009.
(2)Election to apply regulation to
earlier taxable years. A person may
elect to apply the provisions of para-
graphs (f)(3)(i)(A), (f)(3)(ii), and (f)(4)
of this section to earlier taxable years
in accordance with the rules set forth in
§1.482–9(n)(2).
Par. 9. Section 1.482–4T is amended as
follows:
1. Revise paragraphs (a), (b), (c), (d),
(e), (f)(1), (f)(2), (f)(3)(i)(A), (f)(3)(ii),
(f)(4), (f)(5), (f)(6), and (h)(3).
2. Redesignate paragraph (h)(1) as
paragraph (h), revise the heading and
remove the first sentence in newly-desig-
nated paragraph (h).
3. Remove paragraph (h)(2).
4. Redesignate paragraph (h)(3) as
paragraph (i).
The revisions read as follows:
§1.482–4T Methods to determine taxable
income in connection with a transfer of
intangible property (temporary).
(a) through (f)(3)(i)(A) [Reserved]. For
further guidance, see §1.482–4(a) through
(f)(3)(i)(A).
(B)***
(f)(3)(ii) through (f)(6) [Reserved]. For
further guidance, see §1.482–4(f)(3)(ii)
through (f)(6)
(g) * * *
(h)Effective/applicability date.***
*****
Par. 10. Section 1.482–6 is amended
by revising paragraphs (c)(2)(ii)(B)(1),
(c)(2)(ii)(D), (c)(3)(i)(A), (c)(3)(i)(B),
(c)(3)(ii)(D), and adding paragraph (d) to
read as follows:
§1.482–6 Profit split method.
*****
(c) * * *
(2) * * *
(ii) * * *
(B)Comparability—(1)In general.
The degree of comparability between the
controlled and uncontrolled taxpayers is
determined by applying the comparability
provisions of §1.482–1(d). The compa-
rable profit split compares the division
of operating profits among the controlled
taxpayers to the division of operating
profits among uncontrolled taxpayers en-
gaged in similar activities under similar
circumstances. Although all of the fac-
tors described in §1.482–1(d)(3) must
be considered, comparability under this
method is particularly dependent on the
considerations described under the com-
parable profits method in §1.482–5(c)(2)
or §1.482–9(f)(2)(iii) because this method
is based on a comparison of the operating
profit of the controlled and uncontrolled
taxpayers. In addition, because the con-
tractual terms of the relationship among
the participants in the relevant business
activity will be a principal determinant of
the allocation of functions and risks among
them, comparability under this method
also depends particularly on the degree
of similarity of the contractual terms of
the controlled and uncontrolled taxpayers.
Finally, the comparable profit split may
not be used if the combined operating
profit (as a percentage of the combined
assets) of the uncontrolled comparables
varies significantly from that earned by
the controlled taxpayers.
*****
(D)Other factors affecting reliability.
Like the methods described in §§1.482–3,
1.482–4, 1.482–5, and 1.482–9, the com-
parable profit split relies exclusively on
external market benchmarks. As indi-
cated in §1.482–1(c)(2)(i), as the degree
of comparability between the controlled
and uncontrolled transactions increases,
the relative weight accorded the analysis
under this method will increase. In addi-
tion, the reliability of the analysis under
this method may be enhanced by the fact
that all parties to the controlled transaction
are evaluated under the comparable profit
split. However, the reliability of the re-
sults of an analysis based on information
from all parties to a transaction is affected
by the reliability of the data and the as-
sumptions pertaining to each party to the
controlled transaction. Thus, if the data
and assumptions are significantly more
reliable with respect to one of the parties
than with respect to the others, a different
method, focusing solely on the results of
that party, may yield more reliable results.
*****
(3) * * *
(i) * * *
(A)Allocate income to routine contri-
butions. The first step allocates operating
income to each party to the controlled
transactions to provide a market return for
its routine contributions to the relevant
business activity. Routine contributions
are contributions of the same or a sim-
ilar kind to those made by uncontrolled
taxpayers involved in similar business ac-
tivities for which it is possible to identify
August 17, 20092032009–33 I.R.B.

market returns. Routine contributions or-
dinarily include contributions of tangible
property, services and intangible property
that are generally owned by uncontrolled
taxpayers engaged in similar activities.
A functional analysis is required to iden-
tify these contributions according to the
functions performed, risks assumed, and
resources employed by each of the con-
trolled taxpayers. Market returns for the
routine contributions should be deter-
mined by reference to the returns achieved
by uncontrolled taxpayers engaged in sim-
ilar activities, consistent with the methods
described in §§1.482–3, 1.482–4, 1.482–5
and 1.482–9.
(B)Allocate residual profit—(1)Non-
routine contributions generally.The
allocation of income to the controlled
taxpayer’s routine contributions will not
reflect profits attributable to each con-
trolled taxpayer’s contributions to the rel-
evant business activity that are not routine
(nonroutine contributions). A nonroutine
contribution is a contribution that is not
accounted for as a routine contribution.
Thus, in cases where such nonroutine
contributions are present there normally
will be an unallocated residual profit af-
ter the allocation of income described in
paragraph (c)(3)(i)(A) of this section. Un-
der this second step, the residual profit
generally should be divided among the
controlled taxpayers based upon the rela-
tive value of their nonroutine contributions
to the relevant business activity. The rela-
tive value of the nonroutine contributions
of each taxpayer should be measured in
a manner that most reliably reflects each
nonroutine contribution made to the con-
trolled transaction and each controlled
taxpayer’s role in the nonroutine contri-
butions. If the nonroutine contribution by
one of the controlled taxpayers is also used
in other business activities (such as trans-
actions with other controlled taxpayers),
an appropriate allocation of the value of
the nonroutine contribution must be made
among all the business activities in which
it is used.
(2)Nonroutine contributions of intan-
gible property. In many cases, nonrou-
tine contributions of a taxpayer to the rel-
evant business activity may be contribu-
tions of intangible property. For purposes
of paragraph (c)(3)(i)(B)(1)ofthissection,
the relative value of nonroutine intangible
property contributed by taxpayers may be
measured by external market benchmarks
that reflect the fair market value of such
intangible property. Alternatively, the rel-
ative value of nonroutine intangible prop-
erty contributions may be estimated by the
capitalized cost of developing the intangi-
ble property and all related improvements
and updates, less an appropriate amount
of amortization based on the useful life of
each intangible property. Finally, if the
intangible property development expendi-
tures of the parties are relatively constant
over time and the useful life of the intan-
gible property contributed by all parties is
approximately the same, the amount of ac-
tual expenditures in recent years may be
used to estimate the relative value of non-
routine intangible property contributions.
*****
(ii) * * *
(D)Other factors affecting reliability.
Like the methods described in §§1.482–3,
1.482–4, 1.482–5, and 1.482–9, the first
step of the residual profit split relies ex-
clusively on external market benchmarks.
As indicated in §1.482–1(c)(2)(i), as the
degree of comparability between the con-
trolled and uncontrolled transactions in-
creases, the relative weight accorded the
analysis under this method will increase.
In addition, to the extent the allocation of
profits in the second step is not based on
external market benchmarks, the reliabil-
ity of the analysis will be decreased in rela-
tion to an analysis under a method that re-
lies on market benchmarks. Finally, the re-
liability of the analysis under this method
may be enhanced by the fact that all par-
ties to the controlled transaction are eval-
uated under the residual profit split. How-
ever, the reliability of the results of an anal-
ysis based on information from all parties
to a transaction is affected by the reliability
of the data and the assumptions pertaining
to each party to the controlled transaction.
Thus, if the data and assumptions are sig-
nificantly more reliable with respect to one
of the parties than with respect to the oth-
ers, a different method, focusing solely on
the results of that party, may yield more re-
liable results.
*****
(d)Effective/applicability date—(1)In
general. The provisions of paragraphs
(c)(2)(ii)(B)(1) and (D), (c)(3)(i)(A) and
(B), and (c)(3)(ii)(D) of this section are
generally applicable for taxable years be-
ginning after July 31, 2009.
(2)Election to apply regulation to ear-
lier taxable years. A person may elect
to apply the provisions of paragraphs
(c)(2)(ii)(B)(1) and (D), (c)(3)(i)(A) and
(B), and (c)(3)(ii)(D) of this section to
earlier taxable years in accordance with
the rules set forth in §1.482–9(n)(2).
§1.482–6T [Removed]
Par. 11. Section 1.482–6T is removed.
Par. 12. Section 1.482–8 is amended
by revising paragraph (b)Examples 10,11,
12,13,14,15,16,17and18, and adding
paragraph (c) to read as follows:
§1.482–8 Examples of the best method
rule.
*****
(b) * * *
Example 10.Cost of services plus method pre-
ferred to other methods. (i) FP designs and man-
ufactures consumer electronic devices that incorpo-
rate advanced technology. In year 1, FP introduces
Product X, an entertainment device targeted primar-
ily at the youth market. FP’s wholly-owned, exclu-
sive U.S. distributor, USSub, sells Product X in the
U.S. market. USSub hires an independent marketing
firm, Agency A, to promote Product X in the U.S.
market. Agency A has successfully promoted other
electronic products on behalf of other uncontrolled
parties. USSub executes aone-year, renewable con-
tract with Agency A that requires it to develop the
market for Product X, within an annual budget set by
USSub. In years 1 through 3, Agency A develops ad-
vertising, buys media, and sponsors events featuring
Product X. Agency A receives a markup of 25% on all
expenses of promoting Product X, with the exception
of media buys, which are reimbursed at cost. During
year 3, sales of Product X decrease sharply, as Prod-
uct X is displaced by competitors’ products. At the
end of year 3, sales of Product X are discontinued.
(ii) Prior to the start of year 4, FP develops a
new entertainment device, Product Y. Like Product
X, Product Y is intended for sale to the youth mar-
ket, but it is marketed under a new trademark dis-
tinct from that used for Product X. USSub decides
to perform all U.S. market promotion for Product Y.
USSubhireskeyAgencyAstaffmemberswhohan-
dled the successful Product X campaign. To pro-
mote Product Y, USSub intends to use methods sim-
ilar to those used successfully by Agency A to pro-
mote Product X (print advertising, media, event spon-
sorship, etc.). FP and USSub enter into a one-year,
renewable agreement concerning promotion of Prod-
uct Y in the U.S. market. Under the agreement, FP
compensates USSub for promoting Product Y, based
on a cost of services plus markup of A%. Third-party
media buys by USSub in connection with Product Y
are reimbursed at cost.
(iii) Assume that under the contractual arrange-
ments between FP and USSub, the arm’s length con-
sideration for Product Y and the trademark or other
2009–33 I.R.B.204August 17, 2009

intangible property may be determined reliably un-
der one or more transfer pricing methods. At issue in
this example is the separate evaluation of the arm’s
length compensation for the year 4 promotional ac-
tivities performed by USSub pursuant to its contract
with FP.
(iv) USSub’s accounting records contain reliable
data that separately state the costs incurred to promote
Product Y. A functional analysis indicates that US-
Sub’s activities to promote Product Y in year 4 are
similar to activities performed by Agency A during
years 1 through 3 under the contract with FP. In other
respects, no material differences exist in the market
conditions or the promotional activities performed in
year 4, as compared to those years 1 through 3.
(v) It is possible to identify uncontrolled distribu-
tors or licensees of electronic products that perform,
as one component of their business activities, pro-
motional activities similar to those performed by
USSub. However, it is unlikely that publicly avail-
able accounting data from these companies would
allow computation of the comparable transactional
costs or total services costs associated with the mar-
keting or promotional activities that these entities
perform, as one component of business activities. If
that were possible, the comparable profits method
for services might provide a reliable measure of an
arm’s length result. The functional analysis of the
marketing activities performed by USSub in year 4
indicates that they are similar to the activities per-
formed by Agency A in years 1 through 3 for Product
X. Because reliable information is available concern-
ing the markup on costs charged in a comparable
uncontrolled transaction, the most reliable measure
of an arm’s length price is the cost of services plus
method in §1.482–9(e).
Example 11. CPM for services preferred to other
methods. (i) FP manufactures furniture and acces-
sories for residential use. FP sells its products to
retailers in Europe under the trademark, “Moda.” FP
holds all worldwide rights to the trademark, including
in the United States. USSub is FP’s wholly-owned
subsidiary in the U.S. market and the exclusive
U.S. distributor of FP’s merchandise. Historically,
USSub dealt only with specialized designers in the
U.S. market and advertised in trade publications
targeted to this market. Although items sold in the
U.S. and Europe are physically identical, USSub’s
U.S. customers generally resell the merchandise as
non-branded merchandise.
(ii) FP retains an independent firm to evaluate the
feasibility of selling FP’s trademarked merchandise
in the general wholesale and retail market in the
United States. The study concludes that this seg-
ment of the U.S. market, which is not exploited by
USSub, may generate substantial profits. Based on
this study, FP enters into a separate agreement with
USSub, which provides that USSub will develop this
market in the United States for the benefit of FP.
USSub separately accountsfor personnel expenses,
overhead, and out-of-pocket costs attributable to the
initial stage of the marketing campaign (Phase I).
USSub receives as compensation its costs, plus a
markup of X%, for activities in Phase I. At the end
of Phase I, FP will evaluate the program. If success
appears likely, USSub will begin full-scale distribu-
tion of trademarked merchandise in the new market
segment, pursuant to agreements negotiated with FP
at that time.
(iii) Assume that under the contractual arrange-
ments in effect between FP and USSub, the arm’s
length consideration for the merchandise and the
trademark or other intangible property may be de-
termined reliably under one or more transfer pricing
methods. At issue in this example is the separate
evaluation of the arm’s length compensation for the
marketing activities conducted by USSub in years 1
and following.
(iv) A functional analysis reveals that USSub’s
activities consist primarily of modifying the promo-
tional materials created by FP, negotiating media
buys, and arranging promotional events. FP sepa-
rately compensates USSub for all Phase I activities,
and detailed accounting information is available
regarding the costs of these activities. The Phase I ac-
tivities of USSub are similar to those of uncontrolled
companies that perform, as their primary business
activity, a range of advertising and media relations
activities on a contract basis for uncontrolled parties.
(v) No information is available concerning the
comparable uncontrolled prices for services in trans-
actions similar to those engaged in by FP and USSub.
Nor is any information available concerning uncon-
trolled transactions that would allow application of
the cost of services plus method. It is possible to iden-
tify uncontrolled distributors or licensees of home
furnishings that perform, as one component of their
business activities, promotional activities similar to
those performed by USSub. However, it is unlikely
that publicly available accounting data from these
companies would allow computation of the compara-
ble transactional costs or total services costs associ-
ated with the marketing or promotional activities that
these entities performed, as one component of their
business activities. On the other hand, it is possible to
identify uncontrolled advertising and media relations
companies, the principal business activities of which
are similar to the Phase I activities of USSub. Under
these circumstances, the most reliable measure of an
arm’s length price is the comparable profits method
of §1.482–9(f). The uncontrolled advertising compa-
rables’ treatment of material items, such as classifica-
tion of items as cost of goods sold or selling, general,
and administrative expenses, may differ from that of
USSub. Such inconsistencies in accounting treatment
between the uncontrolled comparables and the tested
party, or among the comparables, are less important
when using the ratio of operating profit to total ser-
vices costs under the comparable profits method for
services in §1.482–9(f). Under this method, the op-
erating profit of USSub from the Phase I activities is
compared to the operating profit of uncontrolled par-
ties that perform general advertising and media rela-
tions as their primary business activity.
Example 12.Residual profit split preferred to
other methods. (i) USP is a manufacturer of athletic
apparel sold under the AA trademark, to which FP
owns the worldwide rights. USP sells AA trademark
apparel in countries throughout the world, but prior to
year 1, USP did not sell its merchandise in Country
X. In year 1, USP acquires an uncontrolled Country
X company which becomes its wholly-owned sub-
sidiary, XSub. USP enters into an exclusive distri-
bution arrangement with XSub in Country X. Before
being acquired by USP in year 1, XSub distributed
athletic apparel purchased from uncontrolled suppli-
ers and resold that merchandise to retailers. After be-
ing acquired by USP in year 1, XSub continues to dis-
tribute merchandise from uncontrolled suppliers and
also begins to distribute AA trademark apparel. Un-
der a separate agreement with USP, XSub uses its best
efforts to promote the AA trademark in Country X,
with the goal of maximizing sales volume and rev-
enues from AA merchandise.
(ii) Prior to year 1, USP executed long-term en-
dorsement contracts with several prominent profes-
sional athletes. These contracts give USP the right
to use the names and likenesses of the athletes in any
country in which AA merchandise is sold during the
term of the contract. These contracts remain in ef-
fect for five years, starting in year 1. Before being
acquired by USP, XSub renewed a long-term agree-
ment with SportMart, an uncontrolled company that
owns a nationwide chain of sporting goods retailers
in Country X. XSub has been SportMart’s primary
supplier from the time that SportMart began opera-
tions. Under the agreement, SportMart will provide
AA merchandise preferred shelf-space and will fea-
ture AA merchandise at no charge in its print ads and
seasonal promotions. In consideration for these com-
mitments, USP and XSub grant SportMart advance
access to new products and the right to use the profes-
sional athletes under contract with USP in SportMart
advertisements featuring AA merchandise (subject to
approval of content by USP).
(iii) Assume that it is possible to segregate all
transactions by XSub that involve distribution of
merchandise acquired from uncontrolled distributors
(non-controlled transactions). In addition, assume
that, apart from the activities undertaken by USP and
XSub to promote AA apparel in Country X, the arm’s
length compensation for other functions performed
by USP and XSub in the Country X market in years
1 and following can be reliably determined. At issue
in thisExample 12is the application of the residual
profit split analysis to determine the appropriate
division between USP and XSub of the balance of
the operating profits from the Country X market, that
is the portion attributable to nonroutine contributions
to the marketing and promotional activities.
(iv) A functional analysis of the marketing and
promotional activities conducted in the Country X
market, as described in this example, indicates that
both USP and XSub made nonroutine contribu-
tions to the business activity. USP contributed the
long-term endorsement contracts with professional
athletes. XSub contributed its long-term contractual
rights with SportMart, which were made more valu-
able by its successful, long-term relationship with
SportMart.
(v) Based on the facts and circumstances, includ-
ing the fact that both USP and XSub made valuable
nonroutine contributions to the marketing and pro-
motional activities and an analysis of the availabil-
ity (or lack thereof) of comparable and reliable mar-
ket benchmarks, the Commissioner determines that
the most reliable measure of an arm’s length result is
the residual profit split method in §1.482–9(g). The
residual profit split analysis would take into account
both routine and nonroutine contributions by USP
and XSub, in order to determine an appropriate allo-
cation of the combined operating profits in the Coun-
try X market from the sale of AA merchandise and
from related promotional and marketing activities.
August 17, 20092052009–33 I.R.B.

Examples 13through18.[Reserved].
For further guidance, see §1.482–8T(b)
Examples 13through18.
(c)Effective/applicability date—(1)In
general. The provisions of paragraph (b)
Examples 10,11,and12of this section
are generally applicable for taxable years
beginning after July 31, 2009.
(2)Election to apply regulation to ear-
lier taxable years. A person may elect to
apply the provisions of paragraph (b)Ex-
amples 10,11,and12of this section to
earlier taxable years in accordance with the
rules set forth in §1.482–9(n)(2).
Par. 13. Section 1.482–8T is amended
as follows:
1. Revise paragraph (b)Examples 1,2,
3,4,5,6,7,8,9,10,11and12.
2. Redesignate paragraph (c)(1) as
paragraph (c), revise the heading and
remove the first sentence in newly-desig-
nated paragraph (c).
3. Remove paragraph (c)(2).
4. Redesignate paragraph (c)(3) as
paragraph (d) and remove the first sen-
tence.
The revisions read as follows:
§1.482–8T Examples of the best method
rule (temporary).
*****
(b)Examples 1through12.[Reserved].
For further guidance, see §1.482–8(b)Ex-
amples 1through12.
*****
(c)Effective/applicability date.***
*****
Par. 14. Section 1.482–9 is added to
read as follows:
§1.482–9 Methods to determine taxable
income in connection with a controlled
services transaction.
(a)In general. The arm’s length amount
charged in a controlled services transac-
tion must be determined under one of the
methods provided for in this section. Each
method must be applied in accordance
with the provisions of §1.482–1, including
the best method rule of §1.482–1(c), the
comparability analysis of §1.482–1(d),
and the arm’s length range of §1.482–1(e),
except as those provisions are modified in
this section. The methods are—
(1) The services cost method, described
in paragraph (b) of this section;
(2) The comparable uncontrolled ser-
vices price method, described in paragraph
(c)ofthissection;
(3) The gross services margin method,
described in paragraph (d) of this section;
(4) The cost of services plus method,
described in paragraph (e) of this section;
(5) The comparableprofits method, de-
scribed in §1.482–5 and in paragraph (f) of
this section;
(6) The profit split method, described
in §1.482–6 and in paragraph (g) of this
section; and
(7) Unspecified methods, described in
paragraph (h) of this section.
(b)Services cost method—(1)In gen-
eral. The services cost method evaluates
whether the amount charged for certain
services is arm’s length by reference to
the total services costs (as defined in para-
graph (j) of this section) with no markup.
If a taxpayer applies the services cost
method in accordance with the rules of
this paragraph (b), then it will be con-
sidered the best method for purposes of
§1.482–1(c), and the Commissioner’s al-
locations will be limited to adjusting the
amount charged for such services to the
properly determined amount of such total
services costs.
(2)Eligibility for the services cost
method. To apply the services cost method
to a service in accordance with the rules of
this paragraph (b), all of the following re-
quirements must be satisfied with respect
to the service—
(i) The service is a covered service as
defined in paragraph (b)(3) of this section;
(ii) The service is not an excluded ac-
tivity as defined in paragraph (b)(4) of this
section;
(iii) The service is not precluded from
constituting a covered service by the busi-
ness judgment rule described in paragraph
(b)(5) of this section; and
(iv) Adequate books and records are
maintained as described in paragraph
(b)(6) of this section.
(3)Covered services. For purposes
of this paragraph (b), covered services
consist of a controlled service transaction
or a group of controlled service transac-
tions (see §1.482–1(f)(2)(i) (aggregation
of transactions)) that meet the definition of
specified covered services or low margin
covered services.
(i)Specified covered services. Speci-
fied covered services are controlled ser-
vices transactions that the Commissioner
specifies by revenue procedure. Services
will be included in such revenue pro-
cedure based upon the Commissioner’s
determination that the specified covered
services are support services common
among taxpayers across industry sectors
and generally do not involve a signifi-
cant median comparable markup on total
services costs. For the definition of the
median comparable markup on total ser-
vices costs, see paragraph (b)(3)(ii) of
this section. The Commissioner may add
to, subtract from, or otherwise revise the
specified covered services described in the
revenue procedure by subsequent revenue
procedure, which amendments will ordi-
narily be prospective only in effect.
(ii)Low margin covered services.Low
margin covered services are controlled ser-
vices transactions for which the median
comparable markup on total services costs
is less than or equal to seven percent. For
purposes of this paragraph (b), the median
comparable markup on total services costs
means the excess of the arm’s length price
of the controlled services transaction deter-
mined under the general section 482 reg-
ulations without regard to this paragraph
(b), using the interquartile range described
in §1.482–1(e)(2)(iii)(C) and as necessary
adjusting to the median of such interquar-
tile range, over total services costs, ex-
pressed as a percentage of total services
costs.
(4)Excluded activity. The following
types of activities are excluded activities:
(i) Manufacturing.
(ii) Production.
(iii) Extraction, exploration, or process-
ing of natural resources.
(iv) Construction.
(v) Reselling, distribution, acting as a
sales or purchasing agent, or acting under a
commission or other similar arrangement.
(vi) Research, development, or experi-
mentation.
(vii) Engineering or scientific.
(viii) Financial transactions, including
guarantees.
(ix) Insurance or reinsurance.
(5)Not services that contribute signif-
icantly to fundamental risks of business
success or failure. A service cannot con-
stitute a covered service unless the tax-
payer reasonably concludes in its business
judgment that the service does not con-
tribute significantly to key competitive ad-
2009–33 I.R.B.206August 17, 2009

vantages, core capabilities, or fundamen-
tal risks of success or failure in one or
more trades or businesses of the controlled
group, as defined in §1.482–1(i)(6). In
evaluating the reasonableness of the con-
clusion required by this paragraph (b)(5),
consideration will be given to all the facts
and circumstances.
(6)Adequate books and records.Per-
manent books of account and records are
maintained for as long as the costs with re-
spect to the covered services are incurred
by the renderer. Such books and records
must include a statement evidencing the
taxpayer’s intention to apply the services
cost method to evaluate the arm’s length
charge for such services. Such books and
records must be adequate to permit ver-
ification by the Commissioner of the to-
tal services costs incurred by the renderer,
including a description of the services in
question, identification of the renderer and
the recipient of such services, and suffi-
cient documentation to allow verification
of the methods used to allocate and appor-
tion such costs to the services in question
in accordance with paragraph (k) of this
section.
(7)Shared services arrangement—(i)
In general. If the services cost method is
used to evaluate the amount charged for
covered services, and such services are the
subject of a shared services arrangement,
then the arm’s length charge to each partic-
ipant for such services will be the portion
of the total costs of the services otherwise
determined under the services cost method
of this paragraph (b) that is properly allo-
cated to such participant pursuant to the ar-
rangement.
(ii)Requirements for shared services
arrangement.A shared services arrange-
ment must meet the requirements de-
scribed in this paragraph (b)(7).
(A)Eligibility.Tobeeligiblefortreat-
ment under this paragraph (b)(7), a shared
services arrangement must—
(1) Include two or more participants;
(2) Include as participants all controlled
taxpayers that reasonably anticipate a ben-
efit (as defined under paragraph (l)(3)(i) of
this section) from one or more covered ser-
vices specified in the shared services ar-
rangement; and
(3) Be structured such that each covered
service (or each reasonable aggregation of
services within the meaning of paragraph
(b)(7)(iii)(B) of this section) confers a ben-
efit on at least one participant in the shared
services arrangement.
(B)Allocation. The costs for covered
services must be allocated among the par-
ticipants based on their respective shares
of the reasonably anticipated benefits from
those services, without regard to whether
the anticipated benefits are in fact real-
ized. Reasonably anticipated benefits are
benefits as defined in paragraph (l)(3)(i)
of this section. The allocation of costs
must provide the most reliable measure of
the participants’ respective shares of the
reasonably anticipated benefits under the
principles of the best method rule. See
§1.482–1(c). The allocation must be ap-
plied on a consistent basis for all partici-
pants and services. The allocation to each
participant in each taxable year must rea-
sonably reflect that participant’s respec-
tive share of reasonably anticipated bene-
fits for such taxable year. If the taxpayer
reasonably concluded that the shared ser-
vices arrangement (including any aggre-
gation pursuant to paragraph (b)(7)(iii)(B)
of this section) allocated costs for covered
services on a basis that most reliably re-
flects the participants’ respective shares of
the reasonably anticipated benefits attrib-
utable to such services, as provided for in
this paragraph (b)(7), then the Commis-
sioner may not adjust such allocation ba-
sis.
(C)Documentation.The taxpayer must
maintain sufficient documentation to es-
tablish that the requirements of this para-
graph (b)(7) are satisfied, and include—
(1) A statement evidencing the tax-
payer’s intention to apply the services cost
method to evaluate the arm’s length charge
for covered services pursuant to a shared
services arrangement;
(2) A list of the participants and the
renderer or renderers of covered services
under the shared services arrangement;
(3) A description of the basis of allo-
cation to all participants, consistent with
the participants’ respective shares of rea-
sonably anticipated benefits; and
(4) A description of any aggregation of
covered services for purposes of the shared
services arrangement, and an indication
whether this aggregation (if any) differs
from the aggregation used to evaluate the
median comparable markup for any low
margin covered services described in para-
graph (b)(3)(ii) of this section.
(iii)Definitions and special rules—(A)
Participant. A participant is a controlled
taxpayer that reasonably anticipates ben-
efits from covered services subject to a
shared services arrangement that substan-
tially complies with the requirements de-
scribed in this paragraph (b)(7).
(B)Aggregation.Twoormorecovered
servicesmaybeaggregatedinareasonable
manner taking into account all the facts
and circumstances, including whether the
relative magnitude of reasonably antici-
pated benefits of the participants sharing
the costs of such aggregated services may
be reasonably reflected by the allocation
basis employed pursuant to paragraph
(b)(7)(ii)(B) of this section. The aggre-
gation of services under a shared services
arrangement may differ from the aggrega-
tion used to evaluate the median compa-
rable markup for any low margin covered
services described in paragraph (b)(3)(ii)
of this section, provided that such alterna-
tive aggregation canbe implemented on a
reasonable basis, including appropriately
identifying and isolating relevant costs, as
necessary.
(C)Coordination with cost sharing
arrangements. To the extent that an allo-
cation is made to a participant in a shared
services arrangement that is also a partici-
pant in a cost sharing arrangement subject
to §1.482–7T, such amount with respect to
covered services is first allocated pursuant
to the shared services arrangement un-
der this paragraph (b)(7). Costs allocated
pursuant to a shared services arrangement
may (if applicable) be further allocated
between the intangible property develop-
ment activity under §1.482–7T and other
activities of the participant.
(8)Examples. The application of this
section is illustrated by the following ex-
amples. No inferenceis intended whether
thepresenceorabsenceofoneormore
facts is determinative of the conclusion
in any example. For purposes ofExam-
ples 1through14, assume that Company P
and its subsidiaries, Company Q and Com-
pany R, are corporations and members of
the same group of controlled entities (PQR
Controlled Group). For purposes ofEx-
ample 15, assume that Company P and its
subsidiary, Company S, are corporations
and members of the same group of con-
trolled entities (PS Controlled Group). For
purposes ofExamples 16through24,as-
sume that Company P and its subsidiaries,
August 17, 20092072009–33 I.R.B.

Company X, Company Y, and Company
Z, are corporations and members of the
same group of controlled entities (PXYZ
Group) and that Company P and its sub-
sidiaries satisfy all of the requirements for
a shared services arrangement specified in
paragraphs (b)(7)(ii) and (iii) of this sec-
tion.
Example 1.Data entry services. (i) Company P,
Company Q, and Company R own and operate hos-
pitals. Each owns an electronic database of medi-
cal information gathered by doctors and nurses dur-
ing interviews and treatment of its patients. All three
databases are maintained and updated by Company
P’s administrative support employees who perform
data entry activities by entering medical information
from the paper records of Company P, Company Q,
and Company R into their respective databases.
(ii) Assume that these services relating to data en-
try are specified covered services within the mean-
ingofparagraph(b)(3)(i)ofthissection. Underthe
facts and circumstances of the business of the PQR
Controlled Group, the taxpayer could reasonably con-
clude that these services do not contribute signifi-
cantly to the controlled group’s key competitive ad-
vantages, core capabilities, or fundamental risks of
success or failure in the group’s business. If these ser-
vices meet the other requirements of this paragraph
(b), Company P will be eligible to charge these ser-
vices to Company Q and Company R in accordance
with the services cost method.
Example 2.Data entry services. (i) Company P,
CompanyQ,andCompanyRspecializeindataen-
try, data processing, and data conversion. Company
Q and Company R’s data entry activities involve con-
verting medical information data contained in paper
records to a digital format. Company P specializes in
data entry activities. This specialization reflects, in
part, proprietary quality control systems and specially
trained data entry experts used to ensure the highest
degree of accuracy of data entry services. Company
P is engaged by Company Q and Company R to per-
form these data entry activities for them. Company Q
and Company R then charge their customers for the
data entry activities performed by Company P.
(ii) Assume that these services performed by
Company P relating to data entry are specified
covered services within the meaning of paragraph
(b)(3)(i) of this section. Under the facts and cir-
cumstances, the taxpayer is unable to reasonably
conclude that these services do not contribute sig-
nificantly to the controlled group’s key competitive
advantages, core capabilities, or fundamental risks of
success or failure in the group’s business. Company
P is not eligible to charge these services to Company
Q and Company R in accordance with the services
cost method.
Example 3.Recruiting services.(i)Company
P,CompanyQ,andCompanyRaremanufacturing
companies that sell their products to unrelated retail
establishments. Company P’s human resources de-
partment recruits mid-level managers and engineers
for itself as well as for Company Q and Company R
by attending job fairs and other recruitment events.
For recruiting higher-level managers and engineers,
each of these companies uses recruiters from unre-
lated executive search firms.
(ii) Assume that these services relating to recruit-
ing are specified covered services within the mean-
ing of paragraph (b)(3)(i) of this section. Under the
facts and circumstances of the business of the PQR
Controlled Group, the taxpayer could reasonably con-
clude that these services do not contribute signifi-
cantly to the controlled group’s key competitive ad-
vantages, core capabilities, or fundamental risks of
success or failure in the group’s business. If these ser-
vices meet the other requirements of this paragraph
(b), Company P will be eligible to charge these ser-
vices to Company Q and Company R in accordance
with the services cost method.
Example 4.Recruiting services.(i)CompanyQ
and Company R are executive recruiting service com-
panies that are hired by other companies to recruit
professionals. Company P is a recruiting agency that
is engaged by Company Q and Company R to per-
form recruiting activities on their behalf in certain ge-
ographic areas.
(ii) Assume that the services performed by Com-
pany P are specified covered services within the
meaning of paragraph (b)(3)(i) of this section. Under
the facts and circumstances, the taxpayer is unable
to reasonably conclude that these services do not
contribute significantly to the controlled group’s
key competitive advantages, core capabilities, or
fundamental risks of success or failure in the group’s
business. Company P is not eligible to charge these
services to Company Q and Company R in accor-
dance with the services cost method.
Example 5.Credit analysis services.(i)Com-
pany P is a manufacturer and distributor of clothing
for retail stores. Company Q and Company R are dis-
tributors of clothing for retail stores. As part of its
operations, personnel in Company P perform credit
analysis on its customers. Most of the customers
have a history of purchases from Company P, and the
credit analysis involvesa review of the recent pay-
ment history of the customer’s account. For new cus-
tomers, the personnel in Company P perform a ba-
sic credit check of the customer using reports from
a credit reporting agency. On behalf of Company Q
and Company R, Company Pperforms credit analy-
sis on customers who order clothing from Company
Q and Company R using the same method as Com-
pany P uses for itself.
(ii) Assume that these services relating to credit
analysis are specified covered services within the
meaning of paragraph (b)(3)(i) of this section. Under
the facts and circumstances of the business of the
PQR Controlled Group, the taxpayer could reason-
ably conclude that these services do not contribute
significantly to the controlled group’s key compet-
itive advantages, core capabilities, or fundamental
risks of success or failurein the group’s business.
If these services meet the other requirements of this
paragraph (b), Company P will be eligible to charge
these services to Company Q and Company R in
accordance with the services cost method.
Example 6.Credit analysis services.(i)Com-
pany P, Company Q, and Company R lease furniture
to retail customers who present a significant credit
risk and are generally unable to lease furniture from
other providers. As part of its leasing operations,
personnel in Company P perform credit analysis on
each of the potential lessees. The personnel have de-
veloped special expertise in determining whether a
particular customer who presents a significant credit
risk (as indicated by credit reporting agencies) will
be likely to make the requisite lease payments on a
timely basis. Also, as part of its operations, Company
P performs similar credit analysis services for Com-
pany Q and Company R, which charge correspond-
ingly high monthly lease payments.
(ii) Assume that these services relating to credit
analysis are specified covered services within the
meaning of paragraph (b)(3)(i)ofthissection.Under
the facts and circumstances, the taxpayer is unable
to reasonably conclude that these services do not
contribute significantly to the controlled group’s
key competitive advantages, core capabilities, or
fundamental risks of success or failure in the group’s
business. Company P is not eligible to charge these
services to Company Q and Company R in accor-
dance with the services cost method.
Example 7.Credit analysis services.(i)Com-
pany P is a large full-service bank, which provides
products and services to corporate and consumer mar-
kets, including unsecured loans, secured loans, lines
of credit, letters of credit, conversion of foreign cur-
rency, consumer loans, trust services, and sales of cer-
tificates of deposit. Company Q makes routine con-
sumer loans to individuals, such as auto loans and
home equity loans. Company R makes only business
loans to small businesses.
(ii) Company P performs credit analysis and pre-
pares credit reports for itself, as well as for Com-
pany Q and Company R. Company P, Company Q and
Company R regularly employ these credit reports in
the ordinary course of business in making decisions
regarding extensions of credit to potential customers
(including whether to lend, rate of interest, and loan
terms).
(iii) Assume that these services relating to credit
analysis are specified covered services within the
meaning of paragraph (b)(3)(i) of this section. Un-
der the facts and circumstances, the credit analysis
services constitute part of a “financial transaction”
described in paragraph (b)(4)(viii) of this section.
Company P is not eligible to charge these services to
Company Q and Company R in accordance with the
services cost method.
Example 8.Data verification services.(i)Com-
pany P, Company Q and Company R are manufac-
turers of industrial supplies. Company P’s account-
ing department performs periodic reviews of the ac-
counts payable information of Company P, Company
Q and Company R, and identifies any inaccuracies
in the records, such as double-payments and dou-
ble-charges.
(ii) Assume that these services relating to verifi-
cation of data are specified covered services within
the meaning of paragraph (b)(3)(i) of this section.
Under the facts and circumstances of the business of
the PQR Controlled Group, the taxpayer could rea-
sonably conclude that these services do not contribute
significantly to the controlled group’s key compet-
itive advantages, core capabilities, or fundamental
risks of success or failure in the group’s business.
If these services meet the other requirements of this
paragraph (b), Company P will be eligible to charge
these services to Company Q and Company R in ac-
cordance with the services cost method.
Example 9.Data verification services.(i)Com-
pany P gathers and inputs information regarding ac-
counts payable and accounts receivable from unre-
lated parties and utilizes its own computer system
2009–33 I.R.B.208August 17, 2009

to analyze that information for purposes of identi-
fying errors in payment and receipts (data mining).
Company P is compensated for these services based
on a fee that reflects a percentage of amounts col-
lected by customers as a result of the data mining ser-
vices. These activities constitute a significant portion
of Company P’s business. Company P performs sim-
ilar activities for Company Q and Company R by ana-
lyzing their accounts payable and accounts receivable
records.
(ii) Assume that these services relating to data
mining are specified covered services within the
meaning of paragraph (b)(3)(i) of this section. Under
the facts and circumstances, the taxpayer is unable
to reasonably conclude that these services do not
contribute significantly to the controlled group’s
key competitive advantages, core capabilities, or
fundamental risks of success or failure in the group’s
business. Company P is not eligible to charge these
services to Company Q and Company R in accor-
dance with the services cost method.
Example 10.Legal services. (i) Company P is
a domestic corporation with two wholly-owned for-
eign subsidiaries, Company Q and Company R. Com-
pany P and its subsidiaries manufacture and distribute
equipment used by industrial customers. Company
P maintains an in-house legal department consisting
of attorneys experienced in a wide range of business
and commercial matters. Company Q and Company
R maintain small legal departments, consisting of at-
torneys experienced in matters that most frequently
arise in the normal course of business of Company Q
and Company R in their respective jurisdictions.
(ii) Company P seeks to maintain in-house legal
staff with the ability to address the majority of legal
matters that arise in the United States with respect to
the operations of Company P, as well as any U.S. re-
porting or compliance obligations of Company Q or
Company R. These include the preparation and re-
view of corporate contracts relating to, for example,
product sales, equipment purchases and leases, busi-
ness liability insurance, real estate, employee salaries
and benefits. Company P relies on outside attorneys
for major business transactions and highly technical
matters such as patent licenses. The in-house legal
staffs of Company Q and Company R are much more
limited. It is necessary for Company P to retain sev-
eral local law firms to handle litigation and business
disputes arising from the activities of Company Q and
Company R. Although Company Q and Company R
pay the fees of these law firms, the hiring authority
and general oversight of the firms’ representation is
in the legal department of Company P.
(iii) In determining what portion of the legal ex-
penses of Company P may be allocated to Company
Q and Company R, Company P first excludes any ex-
penses relating to legal services that constitute share-
holder activities and other items that are not prop-
erly analyzed as controlled services. Assume that
the remaining services relating to general legal func-
tions performed by in-house legal counsel are spec-
ified covered services within the meaning of para-
graph (b)(3)(i) of this section. Under the facts and
circumstances of the business of the PQR Controlled
Group, the taxpayer could reasonably conclude that
these latter services do not contribute significantly to
the controlled group’s key competitive advantages,
core capabilities, or fundamental risks of success or
failure in the group’s business. If these services meet
the other requirements of this paragraph (b), Com-
pany P will be eligible to charge these services to
Company Q and Company R in accordance with the
services cost method.
Example 11.Legal services. (i) Company P is
a domestic holding company whose operating com-
panies, Company Q and Company R, generate elec-
tric power for consumers by operating nuclear plants.
Assume that, although Company P owns 100% of the
stock of Companies Q and R, the companies do not
elect to file a consolidated Federal income tax return
with Company P.
(ii) Company P maintains an in-house legal de-
partment that includes attorneys who are experts in
the areas of Federal utilities regulation, Federal labor
and environmental law, and securities law. Compa-
nies Q and R maintain their own, smaller in-house
legal staffs comprising experienced attorneys in the
areas of state and local utilities regulation, state labor
andemploymentlaw,andgeneralcommerciallaw.
The legal department of Company P performs general
oversight of the legal affairs of the company and de-
termines whether a particular matter would be more
efficiently handled by the Company P legal depart-
ment, by the legal staffs in the operating companies,
or in rare cases, by retained outside counsel. In gen-
eral, Company P has succeeded in minimizing du-
plication and overlap of functions between the legal
staffs of the various companies or by retained outside
counsel.
(iii) The domestic nuclear power plant operations
of Companies Q and R are subject to extensive reg-
ulation by the U.S. Nuclear Regulatory Commission
(NRC). Operators are required to obtain pre-construc-
tion approval, operating licenses, and, at the end of
the operational life of the nuclear reactor, nuclear de-
commissioning certificates. Company P files consol-
idated financial statements on behalf of itself, as well
as Companies Q and R, with the United States Securi-
ties and Exchange Commission (SEC). In these SEC
filings, Company P discloses that failure to obtain any
of these licenses (and the related periodic renewals)
or agreeing to licenses on terms less favorable than
those granted to competitors would have a material
adverse impact on the operations of Company Q or
Company R. Company Q and Company R do not have
in-house legal staff with experience in the NRC area.
Company P maintains a group of in-house attorneys
with specialized expertise in the NRC area that exclu-
sively represents Company Q and Company R before
the NRC. Although Company P occasionally hires an
outside law firm or industry expert to assist on par-
ticular NRC matters, the majority of the work is per-
formed by the specialized legal staff of Company P.
(iv) Certain of the legal services performed by
Company P constitute duplicative or shareholder ac-
tivities that do not confer a benefit on the other com-
panies and therefore do not need to be allocated to the
other companies, while certain other legal services
are eligible to be charged to Company Q and Com-
pany R in accordance with the services cost method.
(v) Assume that the specialized legal services re-
lating to nuclear licenses performed by in-house le-
gal counsel of Company P are specified covered ser-
vices within the meaning of paragraph (b)(3)(i) of this
section. Under the facts and circumstances, the tax-
payer is unable to reasonably conclude that these ser-
vices do not contribute significantly to the controlled
group’s key competitive advantages, core capabili-
ties, or fundamental risks of success or failure in the
group’s business. Company P is not eligible to charge
these services to Company Q and Company R in ac-
cordance with the services cost method.
Example 12.Group of services.(i)Company
P, Company Q, and Company R are manufacturing
companies that sell their products to unrelated re-
tail establishments. Company P has an enterprise re-
source planning (ERP) system that maintains data re-
lating to accounts payable and accounts receivable
information for all three companies. Company P’s
personnel perform the daily operations on this ERP
system such as inputting data relating to accounts
payable and accounts receivable into the system and
extracting data relating toaccounts receivable and ac-
counts payable in the form of reports or electronic
media and providing those data to all three compa-
nies. Periodically, Company P’s computer special-
ists also modify the ERP system to adapt to changing
business functions in all three companies. Company
P’s computer specialists make these changes by ei-
ther modifying the underlying software program or
by purchasing additional software or hardware from
unrelated third party vendors.
(ii) Assume that the services relating to ac-
counts payable and accounts receivable are specified
covered services within the meaning of paragraph
(b)(3)(i) of this section. Under the facts and cir-
cumstances of the business of the PQR Controlled
Group, the taxpayer could reasonably conclude that
these services do not contribute significantly to the
controlled group’s key competitive advantages, core
capabilities, or fundamental risks of success or fail-
ure in the group’s business. If these services meet the
other requirements of this paragraph (b), Company P
will be eligible to charge these services to Company
Q and Company R in accordance with the services
cost method.
(iii) Assume that the services performed by Com-
pany P’s computer specialists that relate to modifying
the ERP system are specifically excluded from the
services described in a revenue procedure referenced
in paragraph (b)(3) of this section as developing
hardware or software solutions (such as systems
integration, website design, writing computer pro-
grams, modifying general applications software, or
recommending the purchase of commercially avail-
able hardware or software). If these services do not
constitute low margin covered services within the
meaning of paragraph (b)(3)(ii) of this section, then
Company P is not eligible to charge these services to
Company Q and Company R in accordance with the
services cost method.
Example 13.Group of services.(i)CompanyP
manufactures and sells widgets under an exclusive
contract to Customer 1. Company Q and Company
R sell widgets under exclusive contracts to Customer
2 and Customer 3, respectively. At least one year
in advance, each of these customers can accurately
forecast its need for widgets. Using these forecasts,
each customer over the course of the year places or-
ders for widgets with the appropriate company, Com-
pany P, Company Q, or Company R. A customer’s ac-
tual need for widgets seldom deviates from that cus-
tomer’s forecasted need.
(ii) It is most efficient for the PQR Controlled
Group companies to manufacture and store an inven-
tory of widgets in advance of delivery. Although all
three companies sell widgets, only Company P main-
August 17, 20092092009–33 I.R.B.

tains a centralized warehouse for widgets. Pursuant
to a contract, Company P provides storage of these
widgets to Company Q and Company R at an arm’s
length price.
(iii) Company P’s personnel also obtain orders
from all three companies’ customers to draw up pur-
chase orders for widgets as well as make payment to
suppliers for widget replacement parts. In addition,
Company P’s personnel use data entry to input infor-
mation regarding orders and sales of widgets and re-
placement parts for all three companies into a central-
ized computer system. Company P’s personnel also
maintain the centralized computer system and extract
data for all three companies when necessary.
(iv) Assume that these services relating to track-
ing purchases and sales of inventory are specified
covered services within the meaning of paragraph
(b)(3)(i) of this section. Under the facts and circum-
stances of the business of the PQR Controlled Group,
the taxpayer could reasonably conclude that these ser-
vices do not contribute significantly to the controlled
group’s key competitive advantages, core capabili-
ties, or fundamental risks of success or failure in the
group’s business. If these services meet the other re-
quirements of this paragraph (b), Company P will
be eligible to charge these services to Company Q
and Company R in accordance with the services cost
method.
Example 14.Group of services.(i)CompanyP,
Company Q, and Company R assemble and sell gad-
gets to unrelated customers. Each of these companies
purchases the components necessary for assembly of
the gadgets from unrelated suppliers. As a service
to its subsidiaries, Company P’s personnel obtain or-
ders for components from all three companies, pre-
pare purchase orders, and make payment to unrelated
suppliers for the components. In addition, Company
P’s personnel use data entry to input information re-
garding orders and sales of gadgets for all three com-
panies into a centralized computer. Company P’s per-
sonnel also maintain the centralized computer sys-
tem and extract data for all three companies on an
as-needed basis. The services provided by Company
P personnel, in conjunction with the centralized com-
puter system, constitute a state-of-the-art inventory
management system that allows Company P to order
components necessary for assembly of the gadgets on
a “just-in-time” basis.
(ii) Unrelated suppliers deliver the components
directly to Company P, Company Q and Company R.
Each company stores the components in its own fa-
cilities for use in filling specific customer orders. The
companies do not maintain any inventory that is not
identified in specific customer orders. Because of the
efficiencies associated with services provided by per-
sonnel of Company P, all three companies are able
to significantly reduce their inventory-related costs.
Company P’s Chief Executive Officer makes a state-
ment in one of its press conferences with industry an-
alysts that its inventory management system is critical
to the company’s success.
(iii) Assume that these services relating to track-
ing purchases and sales of inventory are specified
covered services within the meaning of paragraph
(b)(3)(i) of this section. Under the facts and circum-
stances, the taxpayer isunable to reasonably con-
clude that these services do not contribute signifi-
cantly to the controlled group’s key competitive ad-
vantages, core capabilities, or fundamental risks of
success or failure in the group’s business. Company
P is not eligible to charge these services to Company
Q and Company R in accordance with the services
cost method.
Example 15.Low margin covered services.Com-
pany P renders certain accounting services to Com-
pany S. Company P uses the services cost method for
the accounting services, and determines the amount
charged as its total cost of rendering the services, with
nomarkup. Basedonanapplicationofthesection
482 regulations without regard to this paragraph (b),
the interquartile range of arm’s length markups on to-
tal services costs for these accounting services is be-
tween 3% and 9%, and the median is 6%. Because
the median comparable markup on total services costs
is 6%, which is less than 7%, the accounting ser-
vices constitute low margin covered services within
the meaning of paragraph (b)(3)(ii) of this section.
Example 16.Shared services arrangement and
reliable measure of reasonably anticipated benefit
(allocation key). (i) Company P operates a central-
ized data processing facility that performs automated
invoice processing and order generation for all of its
subsidiaries, Companies X, Y, Z, pursuant to a shared
services arrangement.
(ii) In evaluating the shares of reasonably antic-
ipated benefits from the centralized data processing
services, the total value of the merchandise on the in-
voices and orders may not provide the most reliable
measure of reasonably anticipated benefits shares, be-
cause value of merchandise sold does not bear a rela-
tionship to the anticipated benefits from the underly-
ing covered services.
(iii) The total volume of orders and invoices pro-
cessed may provide a more reliable basis for eval-
uating the shares of reasonably anticipated benefits
from the data processing services. Alternatively, de-
pending on the facts and circumstances, total central
processing unit time attributable to the transactions of
each subsidiary may provide a more reliable basis on
which to evaluate the sharesof reasonably anticipated
benefits.
Example 17.Shared services arrangement and
reliable measure of reasonably anticipated benefit
(allocation key). (i) Company P operates a central-
ized center that performs human resources functions,
such as administration of pension, retirement, and
health insurance plans that are made available to
employees of its subsidiaries, Companies X, Y, Z,
pursuant to a shared services arrangement.
(ii) In evaluating the shares of reasonably antici-
pated benefits from these centralized services, the to-
tal revenues of each subsidiary may not provide the
most reliable measure of reasonably anticipated ben-
efit shares, because total revenues do not bear a rela-
tionship to the shares of reasonably anticipated bene-
fits from the underlying services.
(iii) Employee headcount or total compensation
paid to employees may provide a more reliable ba-
sis for evaluating the sharesof reasonably anticipated
benefits from the covered services.
Example 18.Shared services arrangement and
reliable measure of reasonably anticipated benefit
(allocation key). (i) Company P performs human
resource services (service A) on behalf of the PXYZ
Group that qualify for the services cost method.
Under that method, Company P determines the
amount charged for these services pursuant to a
shared services arrangement based on an applica-
tion of paragraph (b)(7) of this section. Service A
constitutes a specified covered service described in
a revenue procedure pursuant to paragraph (b)(3)(i)
of this section. The total services costs for service A
otherwise determined under the services cost method
is 300.
(ii) Companies X, Y and Z reasonably anticipate
benefits from service A. Company P does not reason-
ably anticipate benefits from service A. Assume that
if relative reasonably anticipated benefits were pre-
cisely known, the appropriate allocation of charges
pursuant to paragraph (k) of this section to Company
X, Y and Z for service A is as follows:
Service A
[Tot
al cost 300]
Company
X .....................................................................................................
150
Y .....................................................................................................
75
Z......................................................................................................
75
(iii) The total number of employees (employee
headcount) in each company is as follows:
Company X — 600 employees
Company Y — 250 employees
Company Z — 250 employees
2009–33 I.R.B.210August 17, 2009

(iv) Company P allocates the 300 total services
costs of service A based on employee headcount as
follows:
Service A
[Total cost 300]
Company
Allocation key
Headcount
Amount
X .............................................................
600164
Y .............................................................
250
68
Z..............................................................
250
68
(v) Based on these facts, Company P may reason-
ably conclude that the employee headcount allocation
basis most reliably reflects the participants’ respec-
tive shares of the reasonably anticipated benefits at-
tributable to service A.
Example 19.Shared services arrangement and
reliable measure of reasonably anticipated benefit
(allocation key). (i) Company P performs accounts
payable services (service B) on behalf of the PXYZ
Group and determines the amount charged for the
services under such method pursuant to a shared
services arrangement based on an application of
paragraph (b)(7) of this section. Service B is a
specified covered service described in a revenue
procedure pursuant to paragraph (b)(3)(i) of this sec-
tion. The total services costs for service B otherwise
determined under the services cost method is 500.
(ii) Companies X, Y and Z reasonably anticipate
benefits from service B. Company P does not reason-
ably anticipate benefits from service B. Assume that
if relative reasonably anticipated benefits were pre-
cisely known, the appropriate allocation of charges
pursuant to paragraph (k) of this section to Compa-
nies X, Y and Z for service B is as follows:
Service B
[Total cost 500]
Company
X .....................................................................................................
125
Y .....................................................................................................
205
Z......................................................................................................
170
(iii) The total number of employees (employee
headcount) in each company is as follows:
Company X — 600
Company Y — 200
Company Z — 200
(iv) The total number of transactions (transaction
volume) with uncontrolled customers by each com-
pany is as follows:
Company X — 2,000
Company Y — 4,000
Company Z — 3,500
(v) If Company P allocated the 500 total services
costs of service B based on employee headcount, the
resulting allocation would be as follows:
August 17, 20092112009–33 I.R.B.

Service B
[Total cost 500]
Company
Allocation key
Headcount
Amount
X .............................................................
600300
Y .............................................................
200100
Z..............................................................
200100
(vi) In contrast, if Company P used volume of
transactions with uncontrolled customers as the allo-
cation basis under the shared services arrangement,
the allocation would be as follows:
Service B
[Total cost 500]
Company
Allocation key
Transaction Volume
Amount
X .............................................................
2,000
105
Y .............................................................
4,000211
Z..............................................................
3,500
184
(vii)Basedonthesefacts,CompanyPmayrea-
sonably conclude that the transaction volume, but not
the employee headcount, allocation basis most reli-
ably reflects the participants’ respective shares of the
reasonably anticipated benefits attributable to service
B.
Example 20.Shared services arrangement and
aggregation. (i) Company P performs human re-
source services (service A) and accounts payable
services (service B) on behalf of the PXYZ Group
that qualify for the services cost method. Company
P determines the amount charged for these services
under such method pursuant to a shared services
arrangement based on an application of paragraph
(b)(7) of this section. Service A and service B are
specified covered services described in a revenue
procedure pursuant to paragraph (b)(3)(i) of this sec-
tion. The total services costs otherwise determined
under the services cost method for service A is 300
and for service B is 500; total services costs for
services A and B are 800. Company P determines
that aggregation of services A and B for purposes of
the arrangement is appropriate.
(ii) Companies X, Y and Z reasonably anticipate
benefits from services A and B. Company P does not
reasonably anticipate benefits from services A and B.
Assume that if relative reasonably anticipated bene-
fits were precisely known, the appropriate allocation
of total charges pursuant to paragraph (k) of this sec-
tion to Companies X, Y and Z for services A and B is
as follows:
Services A and B
[Total cost 800]
Company
X .....................................................................................................
350
Y .....................................................................................................
100
Z......................................................................................................
350
(iii) The total volume of transactions with uncon-
trolled customers in each company is as follows:
Company X — 2,000
Company Y — 4,000
Company Z — 4,000
(iv) The total number of employees in each com-
pany is as follows:
2009–33 I.R.B.212August 17, 2009

Company X — 600
Company Y — 200
Company Z — 200
(v) If Company P allocated the 800 total services
costsofservicesAandBbasedontransactionvol-
ume or employee headcount, the resulting allocation
would be as follows:
Aggregated Services AB
[Total cost 800]
Allocation keyAllocation key
Company
Transaction
Volume
Amount
Headcount
Amount
X ................................................................
2,000160600480
Y ................................................................
4,000320200160
Z.................................................................
4,000320200160
(vi) In contrast, if aggregated services AB were
allocated by reference to the total U.S. dollar value
of sales to uncontrolled parties (trade sales) by each
company, the following results would obtain:
Aggregated Services AB
[Total costs 800]
Allocation key
Company
Trade sales (millions)
Amount
X .............................................................
$400
314
Y .............................................................
$120
94
Z..............................................................
$500
392
(vii)Basedonthesefacts,CompanyPmayrea-
sonably conclude that the trade sales, but not the
transaction volume or the employee headcount, al-
location basis most reliably reflects the participants’
respective shares of the reasonably anticipated bene-
fits attributable to services AB.
Example 21.Shared services arrangement and
aggregation. (i) Company P performs services A
through P on behalf of the PXYZ Group that qual-
ify for the services cost method. Company P deter-
mines the amount charged for these services under
such method pursuant to a shared services arrange-
ment based on an application of paragraph (b)(7) of
this section. All of these services A through P con-
stitute either specified covered services or low mar-
gin covered services described in paragraph (b)(3) of
this section. The total services costs for services A
through P otherwise determined under the services
cost method is 500. Company P determines that ag-
gregation of services A through P for purposes of the
arrangement is appropriate.
(ii) Companies X and Y reasonably anticipate
benefits from services A through P and Company
Z reasonably anticipates benefits from services
A through M but not from services N through P
(Company Z performs services similar to services
N through P on its own behalf). Company P does
not reasonably anticipate benefits from services A
through P. Assume that if relative reasonably antici-
pated benefits were precisely known, the appropriate
allocation of total charges pursuant to paragraph (k)
of this section to Company X, Y, and Z for services
A through P is as follows:
Company
Services A — M
(cost 490)
Services N — P
(cost 10)
Services A — P
(total cost 500)
X ................................................
90
595
Y ................................................
240
5245
Z.................................................
160
........................
160
(iii) The total volume of transactions with uncon-
trolled customers in each company is as follows:
Company X — 2,000
Company Y — 4,500
Company Z — 3,500
(iv) Company P allocates the 500 total services
costs of services A through P based on transaction
volume as follows:
August 17, 20092132009–33 I.R.B.

Aggregated Services A — Z
[Total costs 500]
Allocation key
Company
Trade sales (millions)
Amount
X .............................................................
2,000100
Y .............................................................
4,500225
Z..............................................................
3,500175
(v) Based on these facts, Company P may reason-
ably conclude that the transaction volume allocation
basis most reliably reflects the participants’ respec-
tive shares of the reasonably anticipated benefits at-
tributable to services A through P.
Example 22.Renderer reasonably anticipates
benefits. (i) Company P renders services on behalf
of the PXYZ Group that qualify for the services cost
method. Company P determines the amount charged
for these services under such method. Company P’s
share of reasonably anticipated benefits from ser-
vices A, B, C, and D is 20% of the total reasonably
anticipated benefits of all participants. Company
P’s total services cost for services A, B, C, and D
charged within the Group is 100.
(ii) Based on an application of paragraph (b)(7) of
this section, Company P charges 80 which is allocated
among Companies X, Y, and Z. No charge is made
to Company P under the shared services arrangement
for activities that it performs on its own behalf.
Example 23.Coordination with cost sharing ar-
rangement. (i) Company P performs human resource
services (service A) on behalf of the PXYZ Group
that qualify for the services cost method. Company
P determines the amount charged for these services
under such method pursuant to a shared services
arrangement based on an application of paragraph
(b)(7) of this section. Service A constitutes a speci-
fied covered service described in a revenue procedure
pursuant to paragraph (b)(3)(i) of this section. The
total services costs for service A otherwise deter-
mined under the services cost method is 300.
(ii) Company X, Y, Z, and P reasonably anticipate
benefits from service A. Using a basis of allocation
that is consistent with the controlled participants’ re-
spective shares of the reasonably anticipated benefits
from the shared services, the total charge of 300 is al-
located as follows:
X—100
Y—50
Z—25
P—125
(iii) In addition to performing services, P un-
dertakes 500 of R&D and incurs manufacturing and
other costs of 1,000.
(iv) Companies P and X enter into a cost sharing
arrangement in accordance with §1.482–7T. Under
the arrangement, Company P will undertake all intan-
gible property development activities. All of Com-
pany P’s research and development (R&D) activity is
devoted to the intangible property development activ-
ity under the cost sharing arrangement. Company P
will manufacture, market, and otherwise exploit the
product in its defined territory. Companies P and
X will share intangible property development costs
in accordance with their reasonably anticipated ben-
efits from the intangible property, and Company X
will make payments to Company P as required un-
der §1.482–7T. Company X will manufacture, mar-
ket, and otherwise exploit the product in the rest of
the world.
(v) A portion of the charge under the shared ser-
vices arrangement is in turn allocable to the intan-
gible property development activity undertaken by
Company P. The most reliable estimate of the pro-
portion allocable to the intangible property develop-
ment activity is determined to be 500 (Company P’s
R&D expenses) divided by 1,500 (Company P’s to-
tal non-covered services costs), or one-third. Accord-
ingly, one-third of Company P’s charge of 125, or 42,
is allocated to the intangible property development
activity. Companies P and X must share the intan-
gible property development costs of the cost shared
intangible property (including the charge of 42 that is
allocated under the shared services arrangement) in
proportion to their respective shares of reasonably an-
ticipated benefits under the cost sharing arrangement.
That is, the reasonably anticipated benefit shares un-
der the cost sharing arrangement are determined sep-
arately from reasonably anticipated benefit shares un-
der the shared services arrangement.
Example 24.Coordination with cost sharing ar-
rangement. (i) The facts and analysis are the same as
inExample 25, except that Company X also performs
intangible property development activities related to
the cost sharing arrangement. Using a basis of alloca-
tion that is consistent with the controlled participants’
respective shares of the reasonably anticipated bene-
fits from the shared services, the 300 of service costs
is allocated as follows:
X—100
Y—50
Z—25
P—125
(ii) In addition to performing services, Company
P undertakes 500 of R&D and incurs manufacturing
and other costs of 1,000. Company X undertakes 400
of R&D and incurs manufacturing and other costs of
600.
(iii) Companies P and X enter into a cost sharing
arrangement in accordance with §1.482–7T. Under
the arrangement, both Companies P and X will under-
take intangible property development activities. All
of the research and development activity conducted
by Companies P and X is devoted to the intangible
property development activity under the cost sharing
arrangement. Both Companies P and X will man-
ufacture, market, and otherwise exploit the product
in their respective territories and will share intangi-
ble property development costs in accordance with
their reasonably anticipated benefits from the intan-
gible property, and both will make payments as re-
quired under §1.482–7T.
(iv) A portion of the charge under the shared ser-
vices arrangement is in turn allocable to the intan-
gible property development activities undertaken by
Companies P and X. The most reliable estimate of the
portion allocable to Company P’s intangible property
development activity is determined to be 500 (Com-
pany P’s R&D expenses) divided by 1,500 (P’s total
non-covered services costs), or one-third. Accord-
ingly, one-third of Company P’s allocated services
cost method charge of 125, or 42, is allocated to its
intangible property development activity.
(v) In addition, it is necessary to determine the
portion of the charge under the shared services ar-
rangement to Company X that should be further al-
located to Company X’s intangible property develop-
ment activities under the cost sharing arrangement.
The most reliable estimate of the portion allocable to
Company X’s intangible property development activ-
ity is 400 (Company X’s R&D expenses) divided by
1,000 (Company X’s costs), or 40%. Accordingly,
40% of the 100 that was allocated to Company X,
or 40, is allocated in turn to Company X’s intangible
property development activities. Company X makes
2009–33 I.R.B.214August 17, 2009

a payment to Company P of 100 under the shared ser-
vices arrangement and includes 40 of services cost
method charges in the pool of intangible property de-
velopment costs.
(vi) The parties’ respective contributions to intan-
gible property development costs under the cost shar-
ing arrangement are as follows:
P: 500 + (0.333 * 125) = 542
X: 400 + (0.40 * 100) = 440
(c)Comparable uncontrolled services
price method—(1)In general.The compa-
rable uncontrolled services price method
evaluates whether the amount charged in
a controlled services transaction is arm’s
length by reference to the amount charged
in a comparable uncontrolled services
transaction.
(2)Comparability and reliability con-
siderations—(i)In general.Whether
results derived from application of this
method are the most reliable measure of
the arm’s length result must be determined
using the factors described under the best
method rule in §1.482–1(c). The applica-
tion of these factors under the comparable
uncontrolled services price method is dis-
cussed in paragraphs (c)(2)(ii) and (iii) of
this section.
(ii)Comparability—(A)In general.
The degree of comparability between con-
trolled and uncontrolled transactions is
determined by applying the provisions
of §1.482–1(d). Although all of the fac-
tors described in §1.482–1(d)(3) must
be considered, similarity of the services
rendered, and of the intangible property
(if any) used in performing the services,
generally will have the greatest effects on
comparabilityunder this method. In ad-
dition, because even minor differences in
contractual terms or economic conditions
could materially affect the amount charged
in an uncontrolled transaction, compara-
bility under this method depends on close
similarity with respect to these factors, or
adjustments to account for any differences.
The results derived from applying the
comparable uncontrolled services price
method generally will be the most direct
and reliable measure of an arm’s length
price for the controlled transaction if an
uncontrolled transaction has no differ-
ences from the controlled transaction that
would affect the price, or if there are only
minor differences that have a definite and
reasonably ascertainable effect on price
and for which appropriate adjustments
are made. If such adjustments cannot be
made, or if there are more than minor
differences between the controlled and
uncontrolled transactions, the comparable
uncontrolled services price method may
be used, but the reliability of the results as
a measure of the arm’s length price will
be reduced. Further, if there are material
differences for which reliable adjustments
cannot be made, this method ordinarily
will not provide a reliable measure of an
arm’s length result.
(B)Adjustments for differences between
controlled and uncontrolled transactions.
If there are differences between the con-
trolled and uncontrolled transactions that
would affect price, adjustments should be
made to the price of the uncontrolled trans-
action according to thecomparability pro-
visions of §1.482–1(d)(2). Specific ex-
amples of factors that may be particularly
relevant to application of this method in-
clude—
(1) Quality of the services rendered;
(2) Contractual terms (for example,
scope and terms of warranties or guaran-
tees regarding the services, volume, credit
and payment terms, allocation of risks,
including any contingent-payment terms
and whether costs were incurred without a
provision for current reimbursement);
(3) Intangible property (if any) used in
rendering the services;
(4) Geographic market in which the ser-
vices are rendered or received;
(5) Risks borne (for example, costs in-
curred to render the services, without pro-
vision for current reimbursement);
(6) Duration or quantitative measure of
services rendered;
(7) Collateral transactions or ongo-
ing business relationships between the
renderer and the recipient, including ar-
rangement for the provision of tangible
property in connection with the services;
and
(8) Alternatives realistically available
to the renderer and the recipient.
(iii)Data and assumptions.The re-
liability of the results derived from the
comparable uncontrolled services price
method is affected by the completeness
and accuracy of the data used and the re-
liability of the assumptions made to apply
the method. See §1.482–1(c) (best method
rule).
(3)Arm’s length range.See
§1.482–1(e)(2) for the determination of an
arm’s length range.
(4)Examples.The principles of this
paragraph (c) are illustrated by the follow-
ing examples:
Example 1.Internal comparable uncontrolled
services price. Company A, a United States corpo-
ration, performs shipping,stevedoring, and related
services for controlled and uncontrolled parties on a
short-term or as-needed basis. Company A charges
uncontrolled parties in Country X a uniform fee of
$60 per container to place loaded cargo containers
in Country X on oceangoing vessels for marine
transportation. Company Aalso performs identical
services in Country X for its wholly-owned sub-
sidiary, Company B, and there are no substantial
differences between the controlled and uncontrolled
transactions. In evaluating the appropriate measure
of the arm’s length price for the container-load-
ing services performed for Company B, because
Company A renders substantially identical services
in Country X to both controlled and uncontrolled
parties, it is determined that the comparable uncon-
trolled services price constitutes the best method for
determining the arm’s length price for the controlled
services transaction. Based on the reliable data pro-
vided by Company A concerning the price charged
for services in comparable uncontrolled transactions,
a loading charge of $60 per cargo container will be
considered the most reliable measure of the arm’s
length price for the services rendered to Company B.
See paragraph (c)(2)(ii)(A) of this section.
Example 2.External comparable uncontrolled
services price. (i) The facts are the same as inEx-
ample 1, except that Company A performs services
for Company B, but not for uncontrolled parties.
Based on information obtained from unrelated par-
ties (which is determined to be reliable under the
comparability standards set forth in paragraph (c)(2)
of this section), it is determined that uncontrolled
parties in Country X perform services comparable to
those rendered by Company A to Company B, and
that such parties charge $60 per cargo container.
(ii) In evaluating the appropriate measure of an
arm’s length price for theloading services that Com-
pany A renders to Company B, the $60 per cargo
container charge is considered evidence of a com-
parable uncontrolled services price. See paragraph
(c)(2)(ii)(A) of this section.
Example 3.External comparable uncontrolled
services price. The facts are the same as inExam-
ple 2, except that uncontrolled parties in Country X
render similar loading and stevedoring services, but
August 17, 20092152009–33 I.R.B.

only under contracts that have a minimum term of one
year. If the difference in the duration of the services
has a material effect on prices, adjustments to account
for these differences must be made to the results of the
uncontrolled transactions according to the provisions
of §1.482–1(d)(2), and such adjusted results may be
used as a measure of the arm’s length result.
Example 4.Use of valuable intangibleproperty.
(i) Company A, a United States corporation in the
biotechnology sector, renders research and develop-
ment services exclusively to its affiliates. Company
B is Company A’s wholly-owned subsidiary in Coun-
try X. Company A renders research and development
services to Company B.
(ii) In performing its research and development
services function, Company A uses proprietary
software that it developed internally. Company A
uses the software to evaluate certain genetically
engineered compounds developed by Company B.
Company A owns the copyright on this software and
does not license it to uncontrolled parties.
(iii) No uncontrolled parties can be identified that
perform services identical or with a high degree of
similarity to those performed by Company A. Be-
cause there are material differences for which reliable
adjustments cannot be made, the comparable uncon-
trolled services price method is unlikely to provide a
reliable measure of the arm’s length price. See para-
graph (c)(2)(ii)(A) of this section.
Example 5.Internal comparable.(i)Company
A, a United States corporation, and its subsidiaries
render computer consulting services relating to sys-
tems integration and networking to business clients
in various countries. Company A and its subsidiaries
render only consulting services, and do not manu-
facture computer hardware or software nor distribute
such products. The controlled group is organized ac-
cording to industry specialization, with key industry
specialists working for Company A. These personnel
typically form the core consulting group that teams
with consultants from the local-country subsidiaries
to serve clients in the subsidiaries’ respective coun-
tries.
(ii) Company A and its subsidiaries sometimes
undertake engagements directly for clients, and
sometimes work as subcontractors to unrelated
parties on more extensive supply-chain consulting
engagements for clients. In undertaking the latter
engagements with third party consultants, Company
A typically prices its services based on consulting
hours worked multiplied by a rate determined for
each category of employee. The company also
charges, at no markup, for out-of-pocket expenses
such as travel, lodging, and data acquisition charges.
The Company has established the following schedule
of hourly rates:
Category
Rate
Projectmanagers .................................................
$400 per hour
Technicalstaff ...................................................
$300 per hour
(iii
) Thus, for example, a project involving 100
hours of the time of project managers and 400 hours
of technical staff time would result in the follow-
ing p
roject fees (without regard to any out-of-pocket
expenses): ([100 hrs. × $400/hr.] + [400 hrs. ×
$300/hr.]) = $40,000 + $120,000 = $160,000.
(iv
) Company B, a Country X subsidiary of Com-
pany A, contracts to perform consulting services for a
Country X client in the banking industry. In undertak-
ing
this engagement, Company B uses its own consul-
tants and also uses Company A project managers and
technical staff that specialize in the banking industry
fo
r 75 hours and 380 hours, respectively. In determin-
ing an arm’s length charge, the price that Company A
charges for consulting services as a subcontractor in
co
mparable uncontrolled transactions will be consid-
ered evidence of a comparable uncontrolled services
price. Thus, in this case, a payment of $144,000,
(o
r [75 hrs. × $400/hr.] + [380 hrs. × $300/hr.] =
$30,000 + $114,000) may be used as a measure of the
arm’s length price for the work performed by Com-
p
any A project mangers and technical staff. In ad-
dition, if the comparable uncontrolled services price
method is used, then, consistent with the practices
e
mployed by the comparables with respect to similar
types of expenses, Company B must reimburse Com-
pany A for appropriate out-of-pocket expenses. See
paragraph (c)(2)(ii)(A) of this section.
Example 6.Adjustments for differences.(i)The
facts are the same as inExample 5, except that the en-
gagement is undertaken with the client on a fixed fee
basis. That is, prior to undertaking the engagement
Company B and Company A estimate the resources
required to undertake the engagement, and, based on
hourly fee rates, charge the client a single fee for com-
pletion of the project. Company A’s portion of the en-
gagement results in fees of $144,000.
(ii) The engagement, once undertaken, requires
20% more hours by each of Companies A and B
than originally estimated. Nevertheless, the unrelated
client pays the fixed fee that was agreed upon at the
start of the engagement. Company B pays Company
A $14
4,000, in accordance with the fixed fee arrange-
ment.
(iii) Company A often enters into similar fixed fee
enga
gements with clients. In addition, Company A’s
records for similar engagements show that when it ex-
periences cost overruns, it does not collect additional
fee
s from the client for the difference between pro-
jected and actual hours. Accordingly, in evaluating
whether the fees paid by Company B to Company A
are
arm’s length, it is determined that no adjustments
to the intercompany service charge are warranted.
See §1.482–1(d)(3)(ii) and paragraph (c)(2)(ii)(A) of
th
is section.
(5)
Indirect evidence of the price of a
co
mparable uncontrolled services transac-
ti
on—(i)In general.Thepriceofacom-
pa
rable uncontrolled services transaction
ma
y be derived based on indirect measures
of
the price charged in comparable uncon-
tr
olled services transactions, but only if—
(A
) The data are widely and routinely
us
ed in the ordinary course of business in
t
he particular industry or market segment
f
or purposes of determining prices actually
c
harged in comparableuncontrolled ser-
v
ices transactions;
(
B) The data are used to set prices in
t
he controlled services transaction in the
s
ame way they are used to set prices in
uncontrolled services transactions of the
controlled taxpayer, or in the same way
they are used by uncontrolled taxpayers to
set prices in uncontrolled services transac-
tions; and
(C) The amount charged in the con-
trolled services transaction may be reliably
adjusted to reflect differences in quality
of the services, contractual terms, mar-
ket c
onditions, risks borne (including
cont
ingent-payment terms), duration or
quan
titative measure of services rendered,
and
other factors that may affect the price
to w
hich uncontrolled taxpayers would
agr
ee.
(ii
)Example.The following example
ill
ustrates this paragraph (c)(5):
Example.Indirect evidence of comparable
uncontrolled services price. (i) Company A is a
Uni
ted States insurance company. Company A’s
wholly-owned Country X subsidiary, Company B,
performs specialized risk analysis for Company A
as
well as for uncontrolled parties. In determining
the price actually charged to uncontrolled entities for
performing such risk analysis, Company B uses a
pr
oprietary, multi-factor computer program, which
relies on the gross value of the policies in the cus-
tomer’s portfolio, the relative composition of those
po
licies, their location, and the estimated number of
personnel hours necessary to complete the project.
Uncontrolled companiesthat performcomparable
r
isk analysis in the same industry or market-seg-
ment use similar proprietary computer programs to
price transactions with uncontrolled customers (the
c
ompetitors’ programs may incorporate different
inputs, or may assign different weights or values to
individual inputs, in arriving at the price).
(
ii) During the taxable year subject to audit,
Company B performed risk analysis for uncontrolled
parties as well as for Company A. Because prices
charged to uncontrolled customers reflected the com-
position of each customer’s portfolio together with
other factors, the prices charged in Company B’s un-
controlled transactions do not provide a reliable basis
for determining the comparable uncontrolled services
price for the similar services rendered to Company
A. However, in evaluating an arm’s length price for
the studies performed by Company B for Company
A, Company B’s proprietary computer program may
be considered as indirect evidence of the comparable
uncontrolled services price that would be charged to
2009–33 I.R.B.216August 17, 2009

perform the services for Company A. The reliability
of the results obtained by application of this internal
computer program as a measure of an arm’s length
price for the services will be increased to the extent
that Company A used the internal computer program
to generate actual transaction prices for risk-analysis
studies performed for uncontrolled parties during the
same taxable year under audit; Company A used data
thatarewidelyandroutinelyusedintheordinary
course of business in the insurance industry to de-
termine the price charged; and Company A reliably
adjusted the price charged in the controlled services
transaction to reflect differences that may affect the
price to which uncontrolled taxpayers would agree.
(d)Gross services margin method—(1)
In general. The gross services margin
method evaluates whether the amount
charged in a controlled services trans-
action is arm’s length by reference to
the gross profit margin realized in com-
parable uncontrolled transactions. This
method ordinarily is used in cases where
a controlled taxpayer performs services
or functions in connection with an uncon-
trolled transaction between a member of
the controlled group and an uncontrolled
taxpayer. This method may be used where
a controlled taxpayer renders services
(agent services) to another member of
the controlled group in connection with
a transaction between that other mem-
ber and an uncontrolled taxpayer. This
method also may be used in cases where
a controlled taxpayer contracts to provide
services to an uncontrolled taxpayer (in-
termediary function)and another member
of the controlled group actually performs
a portion of the services provided.
(2)Determination of arm’s length
price—(i)In general. The gross services
margin method evaluates whether the
price charged or amount retained by a con-
trolled taxpayer in the controlled services
transaction in connection with the relevant
uncontrolled transaction is arm’s length by
determining the appropriate gross profit of
the controlled taxpayer.
(ii)Relevant uncontrolled transaction.
The relevant uncontrolled transaction is a
transaction between a member of the con-
trolled group and an uncontrolled taxpayer
as to which the controlled taxpayer per-
forms agent services or an intermediary
function.
(iii)Applicable uncontrolled price.The
applicable uncontrolled price is the price
paid or received by the uncontrolled tax-
payer in the relevant uncontrolled transac-
tion.
(iv)Appropriate gross services profit.
The appropriate gross services profit is
computed by multiplying the applicable
uncontrolled price by the gross services
profit margin in comparable uncontrolled
transactions. The determination of the ap-
propriate gross services profit will take
into account any functions performed by
other members of the controlled group, as
well as any other relevant factors described
in §1.482–1(d)(3). The comparable gross
services profit margin may be determined
by reference to the commission in an un-
controlled transaction, where that commis-
sion is stated as a percentage of the price
charged in the uncontrolled transaction.
(v)Arm’s length range.See
§1.482–1(e)(2) for determination of the
arm’s length range.
(3)Comparability and reliability con-
siderations—(i)In general.Whether
results derived fromapplication of this
method are the most reliable measure of
the arm’s length result must be determined
using the factors described under the best
method rule in §1.482–1(c). The appli-
cation of these factors under the gross
services margin method is discussed in
paragraphs (d)(3)(ii) and (iii) of this sec-
tion.
(ii)Comparability—(A)Functional
comparability. The degree of compara-
bility between an uncontrolled transaction
and a controlled transaction is determined
by applying the comparability provisions
of §1.482–1(d). A gross services profit
provides compensation for services or
functions that bear a relationship to the
relevant uncontrolled transaction, includ-
inganoperatingprofitinreturnforthe
investment of capital and the assumption
of risks by the controlled taxpayer per-
forming the services or functions under
review. Therefore, although all of the
factors described in §1.482–1(d)(3) must
be considered, comparability under this
method is particularly dependent on simi-
larity of services or functions performed,
risks borne, intangible property (if any)
used in providing the services or functions,
and contractual terms, or adjustments to
account for the effects of any such differ-
ences. If possible, the appropriate gross
services profit margin should be derived
from comparable uncontrolled transac-
tions by the controlled taxpayer under
review, because similar characteristics are
more likely found among different trans-
actions by the same controlled taxpayer
than among transactions by other parties.
In the absence of comparable uncontrolled
transactions involving the same controlled
taxpayer, an appropriate gross services
profit margin may be derived from transac-
tions of uncontrolled taxpayers involving
comparable services or functions with re-
spect to similarly related transactions.
(B)Other comparability factors.Com-
parability under this method is not depen-
dent on close similarity of the relevant
uncontrolled transaction to the related
transactions involved in the uncontrolled
comparables. However, substantial dif-
ferences in the nature of the relevant
uncontrolled transaction and the relevant
transactions involved in the uncontrolled
comparables, such as differences in the
type of property transferred or service pro-
vided in the relevant uncontrolled transac-
tion, may indicate significant differences
in the services or functions performed by
the controlled and uncontrolled taxpayers
with respect to their respective relevant
transactions. Thus, it ordinarily would be
expected that the services or functions per-
formed in the controlled and uncontrolled
transactions would be with respect to rel-
evant transactions involving the transfer
of property within the same product cat-
egories or the provision of services of
the same general type (for example, in-
formation-technology systems design).
Furthermore, significant differences in
the intangible property (if any) used by
the controlled taxpayer in the controlled
services transaction as distinct from the
uncontrolled comparables may also affect
the reliability of the comparison. Finally,
the reliability of profit measures based
on gross services profit may be adversely
affected by factors that have less effect
on prices. For example, gross services
profit may be affected by a variety of
other factors, including cost structures or
efficiency (for example, differences in the
level of experience of the employees per-
forming the service in the controlled and
uncontrolled transactions). Accordingly,
if material differences in these factors are
identified based on objective evidence, the
reliability of the analysis may be affected.
(C)Adjustments for differences between
controlled and uncontrolled transactions.
If there are material differences between
the controlled and uncontrolled transac-
tions that would affectthe gross services
August 17, 20092172009–33 I.R.B.

profit margin, adjustments should be made
to the gross services profit margin, ac-
cording to the comparability provisions of
§1.482–1(d)(2). For this purpose, consid-
eration of the total services costs associ-
ated with functions performed and risks
assumed may be necessary because dif-
ferences in functions performed are of-
ten reflected in these costs. If there are
differences in functions performed, how-
ever, the effect on gross services profit of
such differences is not necessarily equal
to the differences in the amount of related
costs. Specific examples of factors that
may be particularly relevant to this method
include—
(1) Contractual terms (for example,
scope and terms of warranties or guaran-
tees regarding the services or function,
volume, credit and payment terms, and
allocation of risks, including any contin-
gent-payment terms);
(2) Intangible property (if any) used in
performing the services or function;
(3) Geographic market in which the ser-
vices or function are performed or in which
the relevant uncontrolled transaction takes
place; and
(4) Risks borne, including, if applica-
ble, inventory-type risk.
(D)Buy-sell distributor. If a controlled
taxpayer that performs an agent service or
intermediary function is comparable to a
distributor that takes title to goods and re-
sells them, the gross profit margin earned
by such distributor on uncontrolled sales,
stated as a percentage of the price for the
goods, may be used as the comparable
gross services profit margin.
(iii)Data and assumptions—(A)In
general. The reliability of the results
derived from the gross services margin
method is affected by the completeness
and accuracy of the data used and the
reliability of the assumptions made to ap-
ply this method. See §1.482–1(c) (best
method rule).
(B)Consistency in accounting. The de-
gree of consistency in accounting practices
between the controlled transaction and the
uncontrolled comparables that materially
affect the gross services profit margin af-
fects the reliability of the results under this
method.
(4)Examples. The principles of this
paragraph (d) are illustrated by the follow-
ing examples:
Example 1.Agent services. Company A and
Company B are members of a controlled group.
Company A is a foreign manufacturer of industrial
equipment. Company B is a U.S. company that
acts as a commission agent for Company A by ar-
ranging for Company A to make direct sales of the
equipment it manufactures to unrelated purchasers in
the U.S. market. Company B does not take title to
the equipment but instead receives from Company
A commissions that are determined as a specified
percentage of the sales price for the equipment that
is charged by Company A to the unrelated purchaser.
Company B also arranges for direct sales of similar
equipment by unrelated foreign manufacturers to
unrelated purchasers in the U.S. market. Company
B charges these unrelated foreign manufacturers a
commission fee of 5% of the sales price charged by
the unrelated foreign manufacturers to the unrelated
U.S. purchasers for the equipment. Information
regarding the comparable agent services provided
by Company B to unrelated foreign manufacturers is
sufficiently complete to conclude that it is likely that
all material differences between the controlled and
uncontrolled transactions have been identified and
adjustments for such differences have been made.
If the comparable gross services profit margin is
5% of the price charged in the relevant transactions
involved in the uncontrolled comparables, then the
appropriate gross services profit that Company B
may earn and the arm’s length price that it may
charge Company A for its agent services is equal to
5% of the applicable uncontrolled price charged by
Company A in sales of equipment in the relevant
uncontrolled transactions.
Example 2.Agent services. The facts are the
same as inExample 1, except that Company B does
not act as a commission agent for unrelated parties
and it is not possible to obtain reliable information
concerning commission rates charged by uncon-
trolled commission agents that engage in comparable
transactions with respect to relevant salesof property.
It is possible, however, to obtain reliable information
regarding the gross profit margins earned by unre-
lated parties that briefly take title to and then resell
similar property in uncontrolled transactions, in
which they purchase the property from foreign man-
ufacturers and resell the property to purchasers in the
U.S. market. Analysis of the facts and circumstances
indicates that, aside from certain minor differences
for which adjustments can be made, the uncontrolled
parties that resell property perform similar functions
and assume similar risks as Company B performs
and assumes when it acts as a commission agent
for Company A’s sales of property. Under these
circumstances, the gross profit margin earned by the
unrelated distributors on the purchase and resale of
property may be used, subject to any adjustments for
any material differences between the controlled and
uncontrolled transactions, as a comparable gross ser-
vices profit margin. The appropriate gross services
profit that Company B may earn and the arm’s length
price that it may charge Company A for its agent
services is therefore equal to this comparable gross
services margin, multiplied by the applicable uncon-
trolled price charged by Company A in its sales of
equipment in the relevant uncontrolled transactions.
Example 3.Agent services. (i) Company A and
Company B are members of a controlled group.
Company A is a U.S. corporation that renders
computer consulting services, including systems
integration and networking, to business clients.
(ii) In undertaking engagements with clients,
Company A in some cases pays a commission of
3% of its total fees to unrelated parties that assist
Company A in obtaining consulting engagements.
Typically, such fees are paid to non-computer con-
sulting firms that provide strategic management
services for their clients. When Company A ob-
tains a consulting engagement with a client of a
non-computer consulting firm, Company A does not
subcontract with the other consulting firm, nor does
the other consulting firm play any role in Company
A’s consulting engagement.
(iii) Company B, a Country X subsidiary of Com-
pany A, assists Company A in obtaining an engage-
ment to perform computer consulting services for a
Company B banking industry client in Country X.
Although Company B has an established relationship
with its Country X client and was instrumental in ar-
ranging for Company A’s engagement with the client,
Company A’s particular expertise was the primary
consideration in motivating the client to engage Com-
pany A. Based on the relative contributions of Com-
panies A and B in obtaining and undertaking the en-
gagement, Company B’s role was primarily to facili-
tate the consulting engagement between Company A
and the Country X client. Information regarding the
commissions paid by Company A to unrelated par-
ties for providing similar services to facilitate Com-
pany A’s consulting engagements is sufficiently com-
plete to conclude that it is likely that all material dif-
ferences between these uncontrolled transactions and
the controlled transaction between Company B and
Company A have been identified and that appropriate
adjustments have been madefor any such differences.
If the comparable gross services margin earned by un-
related parties in providing such agent services is 3%
of total fees charged in the relevant transactions in-
volved in the uncontrolled comparables, then the ap-
propriate gross services profit that Company B may
earn and the arm’s length price that it may charge
Company A for its agent services is equal to this com-
parable gross services margin (3%), multiplied by the
applicable uncontrolled price charged by Company
A in its relevant uncontrolled consulting engagement
with Company B’s client.
Example 4
.Intermediary function. (i) The facts
are the same as inExample 3, except that Company
B contracts directly with its Country X client to pro-
vide computer consulting services and Company A
performs the consulting services on behalf of Com-
pany B. Company A does not enter into a consulting
engagement with Company B’s Country X client. In-
stead, Company B charges its Country X client an un-
controlled price for the consulting services, and Com-
pany B pays a portion of the uncontrolled price to
Company A for performing the consulting services
on behalf of Company B.
(ii) Analysis of the relative contributions of Com-
panies A and B in obtaining and undertaking the con-
sulting contract indicates that Company B functioned
primarily as an intermediary contracting party, and
the gross services margin method is the most reliable
method for determining the amount that Company B
may retain as compensation for its intermediary func-
tion with respect to Company A’s consulting services.
In this case, therefore, because Company B entered
into the relevant uncontrolled transaction to provide
2009–33 I.R.B.218August 17, 2009

services, Company B receives the applicable uncon-
trolled price that is paid by the Country X client for
the consulting services. Company A technically per-
forms services for Company B when it performs, on
behalf of Company B, the consulting services Com-
pany B contracted to provide to the Country X client.
The arm’s length amount that Company A may charge
Company B for performing the consulting services
on Company B’s behalf is equal to the applicable un-
controlled price received by Company B in the rele-
vant uncontrolled transaction, less Company B’s ap-
propriate gross services profit, which is the amount
thatCompanyBmayretainascompensationforper-
forming the intermediary function.
(iii) Reliable data concerning the commissions
that Company A paid to uncontrolled parties for as-
sisting it in obtaining engagements to provide con-
sulting services similar to those it has provided on
behalf of Company B provide useful information in
applying the gross services margin method. How-
ever, consideration should be given to whether the
third party commission data may need to be adjusted
to account for any additional risk that Company B
may have assumed as a result of its function as an in-
termediary contracting party, compared with the risk
it would have assumed if it had provided agent ser-
vices to assist Company A in entering into an en-
gagement to provide its consulting service directly. In
this case, the information regarding the commissions
paid by Company A to unrelated parties for provid-
ing agent services to facilitate its performance of con-
sulting services for unrelated parties is sufficiently
complete to conclude that all material differences be-
tween these uncontrolled transactions and the con-
trolled performance of an intermediary function, in-
cluding possible differences in the amount of risk as-
sumed in connection with performing that function,
have been identified and that appropriate adjustments
have been made. If the comparable gross services
margin earned by unrelated parties in providing such
agent services is 3% of total fees charged in Com-
pany B’s relevant uncontrolled transactions, then the
appropriate gross services profit that Company B may
retain as compensation for performing an intermedi-
ary function (and the amount, therefore, that is de-
ducted from the applicable uncontrolled price to ar-
rive at the arm’s length price that Company A may
charge Company B for performing consulting ser-
vices on Company B’s behalf) is equal to this com-
parable gross services margin (3%), multiplied by the
applicable uncontrolled price charged by Company B
in its contract to provide services to the uncontrolled
party.
Example 5.External comparable. (i) The facts
are the same as inExample 4, except that neither
Company A nor Company B engages in transactions
with third parties that facilitate similar consulting en-
gagements.
(ii) Analysis of the relative contributions of Com-
panies A and B in obtaining and undertaking the con-
tract indicates that Company B’s role was primarily to
facilitate the consulting arrangement between Com-
pany A and the Country X client. Although no reli-
able internal data are available regarding comparable
transactions with uncontrolled entities, reliable data
exist regarding commission rates for similar facilitat-
ing services between uncontrolled parties. These data
indicate that a 3% commission (3% of total engage-
ment fee) is charged in such transactions. Informa-
tion regarding the uncontrolled comparables is suffi-
ciently complete to conclude that it is likely that all
material differences between the controlled and un-
controlled transactions have been identified and ad-
justed for. If the appropriate gross services profit mar-
gin is 3% of total fees, then an arm’s length result of
the controlled services transaction is for Company B
to retain an amount equal to 3% of total fees paid to
it.
(e)Cost of services plus method—(1)In
general. The cost of services plus method
evaluates whether the amount charged in
a controlled services transaction is arm’s
length by reference to the gross services
profit markup realized in comparable
uncontrolled transactions. The cost of
services plus method is ordinarily used in
cases where the controlled service renderer
provides the same or similar services to
both controlled and uncontrolled parties.
This method is ordinarily not used in cases
where the controlled services transaction
involves a contingent-payment arrange-
ment, as described in paragraph (i)(2) of
this section.
(2)Determination of arm’s length
price—(i)In general. The cost of services
plus method measures an arm’s length
price by adding the appropriate gross ser-
vices profit to the controlled taxpayer’s
comparable transactional costs.
(ii)Appropriate gross services profit.
The appropriate gross services profit is
computed by multiplying the controlled
taxpayer’s comparable transactional costs
by the gross services profit markup, ex-
pressed as a percentage of the compara-
ble transactional costs earned in compara-
ble uncontrolled transactions.
(iii)Comparable transactional costs.
Comparable transactional costs consist of
the costs of providing the services under
review that are taken into account as the
basis for determining the gross services
profit markup in comparable uncontrolled
transactions. Depending on the facts and
circumstances, such costs typically in-
clude all compensation attributable to
employees directly involved in the per-
formance of such services, materials and
supplies consumed or made available in
rendering such services, and may include
as well other costs of rendering the ser-
vices. Comparable transactional costs
must be determined on a basis that will
facilitate comparison with the comparable
uncontrolled transactions. For that reason,
comparable transactional costs may not
necessarily equal total services costs, as
defined in paragraph (j) of this section,
and in appropriate cases may be a subset
of total services costs. Generally accepted
accounting principles or Federal income
tax accounting rules (where Federal in-
come tax data for comparable transactions
or business activities are available) may
provide useful guidance but will not con-
clusively establish the appropriate compa-
rable transactional costs for purposes of
this method.
(iv)Arm’s length range.See
§1.482–1(e)(2) for determination of an
arm’s length range.
(3)Comparability and reliability con-
siderations—(i)In general.Whetherre-
sults derived from the application of this
method are the most reliable measure of
the arm’s length result must be determined
using the factors described under the best
method rule in §1.482–1(c).
(ii)Comparability—(A)Functional
comparability. The degree of comparabil-
ity between controlled and uncontrolled
transactions is determined by applying the
comparability provisions of §1.482–1(d).
A service renderer’s gross services profit
provides compensation for performing
services related to the controlled services
transaction under review, including an
operating profit for the service renderer’s
investment of capital and assumptions
of risks. Therefore, although all of the
factors described in §1.482–1(d)(3) must
be considered, comparability under this
method is particularly dependent on simi-
larity of services or functions performed,
risks borne, intangible property (if any)
used in providing the services or functions,
and contractual terms, or adjustments to
account for the effects of any such differ-
ences. If possible, the appropriate gross
services profit markup should be derived
from comparable uncontrolled transac-
tions of the same taxpayer participating in
the controlled services transaction because
similar characteristics are more likely to
be found among services provided by the
same service provider than among ser-
vices provided by other service providers.
In the absence of such services transac-
tions, an appropriate gross services profit
markup may be derived from compara-
ble uncontrolled services transactions of
other service providers. If the appropriate
gross services profit markup is derived
from comparable uncontrolled services
transactions of other service providers, in
August 17, 20092192009–33 I.R.B.

evaluating comparability the controlled
taxpayer must consider the results under
this method expressed as a markup on
total services costs of the controlled tax-
payer, because differences in functions
performed may be reflected in differences
in service costs other than those included
in comparable transactional costs.
(B)Other comparability factors.Com-
parability under this method is less de-
pendent on close similarity between the
services provided than under the compa-
rable uncontrolled services price method.
Substantial differences in the services may,
however, indicate significant functional
differences between the controlled and
uncontrolled taxpayers. Thus, it ordinar-
ily would be expected that the controlled
and uncontrolled transactions would in-
volve services of the same general type
(for example, information-technology
systems design). Furthermore, if a signif-
icant amount of the controlled taxpayer’s
comparable transactional costs consists of
service costs incurred in a tax account-
ing period other than the tax accounting
period under review, the reliability of the
analysis would be reduced. In addition,
significant differences in the value of the
services rendered, due for example to
the use of valuable intangible property,
may also affect the reliability of the com-
parison. Finally, the reliability of profit
measures based on gross services profit
may be adversely affected by factors that
have less effect on prices. For example,
gross services profit may be affected by
a variety of other factors, including cost
structures or efficiency-related factors (for
example, differences in the level of expe-
rience of the employees performing the
service in the controlled and uncontrolled
transactions). Accordingly, if material
differences in these factors are identified
based on objective evidence, the reliability
of the analysis may be affected.
(C)Adjustments for differences be-
tween the controlled and uncontrolled
transactions. If there are material dif-
ferences between the controlled and un-
controlled transactions that would affect
the gross services profit markup, adjust-
ments should be made to the gross services
profit markup earned in the comparable
uncontrolled transaction according to the
provisions of §1.482–1(d)(2). For this
purpose, consideration of the compara-
ble transactional costs associated with the
functions performed and risks assumed
may be necessary, because differences in
the functions performed are often reflected
in these costs. If there are differences in
functions performed, however, the effect
on gross services profit of such differences
is not necessarily equal to the differences
in the amount of related comparable trans-
actional costs. Specific examples of the
factors that may be particularly relevant to
this method include—
(1) The complexity of the services;
(2) The duration or quantitative mea-
sure of services;
(3) Contractual terms (for example,
scope and terms of warranties or guaran-
tees provided, volume, credit and payment
terms, allocation of risks, including any
contingent-payment terms);
(4) Economic circumstances; and
(5)Risksborne.
(iii)Data and assumptions—(A)In
general. The reliability of the results de-
rived from the cost of services plus method
is affected by the completeness and ac-
curacy of the data used and the reliability
of the assumptions made to apply this
method. See §1.482–1(c) (Best method
rule).
(B)Consistency in accounting. The de-
gree of consistency in accounting practices
between the controlled transaction and the
uncontrolled comparables that materially
affect the gross services profit markup af-
fects the reliability of the results under
this method. Thus, for example, if differ-
ences in cost accounting practices would
materially affect the gross services profit
markup, the ability to make reliable ad-
justments for such differences would affect
the reliability of the results obtained un-
der this method. Further, reliability under
this method depends on the extent to which
the controlled and uncontrolled transac-
tions reflect consistent reporting of compa-
rable transactional costs. For purposes of
this paragraph (e)(3)(iii)(B), the termcom-
parable transactional costsincludes the
cost of acquiring tangible property that is
transferred (or used) with the services, to
the extent that the arm’s length price of the
tangible property is not separately evalu-
ated as a controlled transaction under an-
other provision.
(4)Examples. The principles of this
paragraph (e) are illustrated by the follow-
ing examples:
Example 1.Internal comparable. (i) Company A
designs and assembles information-technology net-
works and systems. When Company A renders ser-
vices for uncontrolled parties, it receives compensa-
tion based on time and materials as well as certain
other related costs necessary to complete the project.
This fee includes the cost of hardware and software
purchased from uncontrolled vendors and incorpo-
rated in the final network or system, plus a reason-
able allocation of certain specified overhead costs in-
curred by Company A in providing these services.
Reliable accounting records maintained by Company
A indicate that Company A earned a gross services
profit markup of 10% on its time, materials and spec-
ified overhead in providing design services during the
year under examination on information technology
projects for uncontrolled entities.
(ii) Company A designed an information-technol-
ogy network for its Country X subsidiary, Company
B. The services rendered to Company B are similar
in scope and complexity to services that Company
A rendered to uncontrolled parties during the year
under examination. Using Company A’s accounting
records (which are determined to be reliable under
paragraph (e)(3) of this section), it is possible to iden-
tify the comparable transactional costs involved in
the controlled services transaction with reference to
the costs incurred by Company A in rendering simi-
lar design services to uncontrolled parties. Company
A’s records indicate that it does not incur any addi-
tional types of costs in rendering similar services to
uncontrolled customers. The data available are suffi-
ciently complete to conclude that it is likely that all
material differences between the controlled and un-
controlled transactions have been identified and ad-
justed for. Based on the gross services profit markup
data derived from Company A’s uncontrolled trans-
actions involving similar design services, an arm’s
length result for the controlled services transaction is
equal to the price that will allow Company A to earn
a 10% gross services profit markup on its comparable
transactional costs.
Example 2.Inability to adjust for differences in
comparable transactional costs. The facts are the
same as inExample 1, except that Company A’s staff
that rendered the services to Company B consisted
primarily of engineers in training status or on tem-
porary rotation from other Company A subsidiaries.
In addition, the Company B network incorporated in-
novative features, including specially designed soft-
ware suited to Company B’s requirements. The use of
less-experienced personnel and staff on temporary ro-
tation, together with the special features of the Com-
pany B network, significantly increased the time and
costs associated with the project as compared to time
and costs associated with similar projects completed
for uncontrolled customers. These factors constitute
material differences between the controlled and the
uncontrolled transactions that affect the determina-
tion of Company A’s comparable transactional costs
associated with the controlled services transaction,
as well as the gross services profit markup. More-
over, it is not possible to perform reliable adjustments
for these differences on the basis of the available ac-
counting data. Under these circumstances, the relia-
bility of the cost of services plus method as a measure
of an arm’s length price is substantially reduced.
Example 3.Operating loss by reference to to-
tal services costs. The facts and analysis are the
2009–33 I.R.B.220August 17, 2009

same as inExample 1, except that an unrelated
Company C, instead of Company A, renders similar
services to uncontrolled parties and publicly avail-
able information indicates that Company C earned
a gross services profit markup of 10% on its time,
materials and certain specified overhead in provid-
ing those services. As inExample 1, Company A
still provides services for its Country X subsidiary,
Company B. In accordance with the requirements
in paragraph (e)(3)(ii) of this section, the taxpayer
performs additional analysis and restates the results
of Company A’s controlled services transaction with
its Country X subsidiary, Company B, in the form
of a markup on Company A’s total services costs.
This analysis by reference to total services costs
shows that Company A generated an operating loss
on the controlled services transaction, which indi-
cates that functional differences likely exist between
the controlled services transaction performed by
Company A and uncontrolled services transactions
performed by Company C, and that these differences
may not be reflected in the comparable transactional
costs. Upon further scrutiny, the presence of such
functional differences between the controlled and
uncontrolled transactions may indicate that the cost
of services plus method does not provide the most
reliable measure of an arm’s length result under the
facts and circumstances.
Example 4.Internal comparable.(i)Company
A, a U.S. corporation, and its subsidiaries perform
computer consulting services relating to systems in-
tegration and networking for business clients in vari-
ous countries. Company A and its subsidiaries render
only consulting services and do not manufacture or
distribute computer hardware or software to clients.
The controlled group is organized according to indus-
try specialization, with key industry specialists work-
ing for Company A. These personnel typically form
the core consulting group that teams with consultants
from the local-country subsidiaries to serve clients in
the subsidiaries’ respective countries.
(ii) On some occasions, Company A and its sub-
sidiaries undertake engagements directly for clients.
On other occasions, they work as subcontractors for
uncontrolled parties on more extensive consulting en-
gagements for clients. In undertaking the latter en-
gagements with third-party consultants, Company A
typically prices its services at four times the compen-
sation costs of its consultants, defined as the consul-
tants’ base salary plus estimated fringe benefits, as
defined in this table:
Category
Rate
Projectmanagers .................................................
$100 per hour
Technicalstaff ...................................................
$75 per hour
(iii) In uncontrolled transactions, Company
A also charges the customer, at no markup, for
out-
of-pocket expenses such as travel, lodging, and
data acquisition charges. Thus, for example, a project
involving 100 hours of time from project managers,
and 4
00 hours of technical staff time would result
in total compensation costs to Company A of (100
hrs. × $100/hr.) + (400 hrs. × $75/hr.) = $10,000 +
$30
,000 = $40,000. Applying the markup of 300%,
the total fee charged would thus be (4 × $40,000), or
$160,000, plus out-of-pocket expenses.
(iv
) Company B, a Country X subsidiary of Com-
pany A, contracts to render consulting services to a
Country X client in the banking industry. In undertak-
ing
this engagement, Company B uses its own consul-
tants and also uses the services of Company A project
managers and technical staff that specialize in the
ba
nking industry for 75 hours and 380 hours, respec-
tively. The data available are sufficiently complete to
conclude that it is likely that all material differences
be
tween the controlled and uncontrolled transactions
have been identified and adjusted for. Based on reli-
able data concerning the compensation costs to Com-
p
any A, an arm’s length result for the controlled ser-
vices transaction is equal to $144,000. This is calcu-
latedasfollows:[4×(75hrs.×$100/hr.)]+[4×(380
h
rs. × $75/hr.)] = $30,000 + $114,000 = $144,000,
reflecting a 300% markup on the total compensation
costs for Company A project managers and technical
s
taff. In addition, consistent with Company A’s pric-
ing of uncontrolled transactions, Company B must
reimburse Company A for appropriate out-of-pocket
expenses incurred in performing the services.
(f)Comparable profits method—(1)In
general. The comparable profits method
evaluates whether the amount charged in
a controlled transaction is arm’s length,
based on objective measures of profitabil-
ity (profit level indicators) derived from
uncontrolled taxpayers that engage in sim-
ilar business activities under similar cir-
cumstances. The rules in §1.482–5 relat-
ing to the comparable profits method apply
to controlled services transactions, except
as modified in this paragraph (f).
(2)Determination of arm’s length re-
sult—(i)Tested party. This paragraph (f)
applies where the relevant business activ-
ity of the tested party as determined un-
der §1.482–5(b)(2) is the rendering of ser-
vices in a controlled services transaction.
Where the tested party determined under
§1.482–5(b)(2) is instead the recipient of
the controlled services, the rules under this
paragraph (f) are not applicable to deter-
mine the arm’s length result.
(ii)Profit level indicators. In addition
to the profit level indicators provided in
§1.482–5(b)(4), a profit level indicator that
may provide a reliable basis for compar-
ing operating profits of the tested party in-
volved in a controlled services transaction
and uncontrolled comparables is the ratio
of operating profit to total services costs
(as defined in paragraph (j) of this section).
(iii)Comparability and reliabil-
ity considerations—Data and assump-
tions—Consistency in accounting.Con-
sistency in accounting practices between
the relevant business activity of the
tested party and the uncontrolled service
providers is particularly important in de-
termining the reliability of the results
under this method, but less than in ap-
plying the cost of services plus method.
Adjustments may be appropriate if ma-
terially different treatment is applied to
particular cost items related to the relevant
business activity of the tested party and
the uncontrolled service providers. For
example, adjustments may be appropriate
where the tested party and the uncontrolled
comparables use inconsistent approaches
to classify similar expenses as “cost of
goods sold” and “selling, general, and
administrative expenses.” Although dis-
tinguishing between these two categories
may be difficult, the distinction is less
important to the extent that the ratio of
operating profit to total services costs is
used as the appropriate profit level indi-
cator. Determining whether adjustments
are necessary under these or similar cir-
cumstances requires thorough analysis of
the functions performed and consideration
of the cost accounting practices of the
tested party and the uncontrolled compa-
rables. Other adjustments as provided in
§1.482–5(c)(2)(iv) may also be necessary
to increase the reliability of the results
under this method.
(3)Examples.The principles of this
paragraph (f) are illustrated by the follow-
ing examples:
Example 1.Ratio of operating profit to total ser-
v
ices costs as the appropriate profit level indicator.
(i) A Country T parent firm, Company A, and its
Country Y subsidiary, Company B, both engage in
m
anufacturing as their principal business activity.
Company A also performs certain advertising ser-
vices for itself and its affiliates. In year 1, Company
A renders advertising services to Company B.
(ii) Based on the facts and circumstances, it is de-
termined that the comparable profits method will pro-
vide the most reliable measure of an arm’s length re-
sult. Company A is selected as the tested party. No
data are available for comparable independent man-
ufacturing firms that render advertising services to
third parties. Financial data are available, however,
for ten independent firms that render similar adver-
tising services as their principal business activity in
Country X. The ten firms are determined to be compa-
August 17, 20092212009–33 I.R.B.

rable under §1.482–5(c). Neither Company A nor the
comparable companies use valuable intangible prop-
erty in rendering the services.
(iii) Based on the available financial data of
the comparable companies, it cannot be determined
whether these comparable companies report costs for
financial accounting purposes in the same manner as
the tested party. The publicly available financial data
of the comparable companies segregate total services
costs into cost of goods sold and sales, general and
administrative costs, with no further segmentation of
costs provided. Due to the limited information avail-
able regarding the cost accounting practices used
by the comparable companies, the ratio of operating
profits to total services costs is determined to be the
most appropriate profit level indicator. This ratio
includes total services costs to minimize the effect of
any inconsistency in accounting practices between
Company A and the comparable companies.
Example 2.Application of the operating profit to
total services costs profit level indicator. (i) Com-
pany A is a foreign subsidiary of Company B, a U.S.
corporation. Company B is under examination for
its year 1 taxable year. Company B renders manage-
ment consulting services to Company A. Company
B’s consulting function includes analyzing Company
A’s operations, benchmarking Company A’s financial
performance against companies in the same indus-
try, and to the extent necessary, developing a strategy
to improve Company A’s operational performance.
The accounting records of Company B allow reliable
identification of the total services costs of the consult-
ing staff associated with the management consulting
services rendered to Company A. Company A reim-
burses Company B for its costs associated with ren-
dering the consulting services, with no markup.
(ii) Based on all the facts and circumstances, it is
determined that the comparable profits method will
provide the most reliable measure of an arm’s length
result. Company B is selected as the tested party, and
its rendering of management consulting services is
identified as the relevant business activity. Data are
available from ten domestic companies that operate
in the industry segment involving management con-
sulting and that perform activities comparable to the
relevant business activity of Company B. These com-
parables include entities that primarily perform man-
agement consulting services for uncontrolled parties.
The comparables incur similar risks as Company B
incurs in performing the consulting services and do
not make use of valuable intangible property or spe-
cial processes.
(iii) Based on the available financial data of the
comparables, it cannot be determined whether the
comparables report their costs for financial account-
ing purposes in the same manner as Company B re-
ports its costs in the relevant business activity. The
available financial data for the comparables report
only an aggregate figure for costs of goods sold and
operating expenses, and do not segment the underly-
ing services costs. Due to this limitation, the ratio of
operating profits to total services costs is determined
to be the most appropriate profit level indicator.
(iv) For the taxable years 1 through 3, Company
B shows the following results for the services per-
formed for Company A:
Year 1Year 2Year 3
Average
Revenues ..........................................................
1,200,0001,100,0001,300,0001,200,000
CostofGoodsSold ..................................................100,000100,000N/A66,667
OperatingExpenses..................................................1,100,0001,000,0001,300,0001,133,333
OperatingProfit.....................................................0000
(v) After adjustments have been made to ac-
count for identified material differences between the
relevant business activity of Company B and the
comparables, the average ratio for the taxable years
1 through 3 of operating profit to total services costs
is calculated for each of the uncontrolled service
providers. Applying each ratio to Company B’s av-
erage total services costs from the relevant business
activity for the taxable years 1 through 3 would lead
to the following comparable operating profit (COP)
for the services rendered by Company B:
U
ncontrolledServiceProviderOP/TotalCompanyBServiceCostsCOP
Company 1
15.75%
$189,000
Company 2
15.00%
$180,000
Company 314.00%
$168,000
Company 413.30%
$159,600
Company 5
12.00%
$144,000
Company 611.30%
$135,600
Company 7
11.25%
$135,000
Company 811.18%
$134,160
Company 911.11%
$133,320
Company 10
10.75%
$129,000
(vi) The available data are not sufficiently com-
plete to conclude that it is likely that all material
differences between the relevant business activity of
Company B and the comparables have been identi-
fied. Therefore, an arm’s length range can be estab-
lished only pursuant to §1.482–1(e)(2)(iii)(B). The
arm’s length range is established by reference to the
interquartile range of the results as calculated under
§1.482–1(e)(2)(iii)(C), which consists of the results
ranging from $168,000, to $134,160. Company B’s
reported average operating profit of zero ($0) falls
outside this range. Therefore, an allocation may be
appropriate.
(vii) Because Company B reported income of
zero,todeterminetheamount,ifany,ofthealloca-
tion, Company B’s reported operating profit for year
3 is compared to the comparable operating profits
derived from the comparables’ results for year 3.
The ratio of operating profit to total services costs in
year 3 is calculated for each of the comparables and
applied to Company B’s year 3 total services costs to
derive the following results:
2009–33 I.R.B.222August 17, 2009

UncontrolledServiceProviderOP/TotalCompanyBServiceCosts(foryear3)COP
Company 1
15.00%
$195,000
Company 2
14.75%
$191,750
Company 314.00%
$182,000
Company 4
13.50%
$175,500
Company 5
12.30%
$159,900
Company 6
11.05%
$143,650
Company 711.03%
$143,390
Company 811.00%
$143,000
Company 9
10.50%
$136,500
Company 10
10.25%
$133,250
(viii) Based on these results, the median of the
comparable operating profits for year 3 is $151,775.
Therefore, Company B’s income for year 3 is in-
creased by $151,775, the difference between Com-
pany B’s reported operating profit for year 3 of zero
and the median of the comparable operating profits
for year 3.
Example 3.Material difference in accounting for
stock-based compensation. (i) Taxpayer, a U.S. cor-
poration the stock of which is publicly traded, per-
forms controlled services for its wholly-owned sub-
sidiaries. The arm’s length price of these controlled
services is evaluated under the comparable profits
method for services in paragraph (f) of this section
by reference to the net cost plus profit level indicator
(PLI). Taxpayer is the tested party under paragraph
(f)(2)(i) of this section. The Commissioner identifies
the most narrowly identifiable business activity of the
tested party for which data are available that incor-
porate the controlled transaction (the relevant busi-
ness activity). The Commissioner also identifies four
uncontrolled domestic service providers, Companies
A, B, C, and D, each of which performs exclusively
activities similar to the relevant business activity of
Taxpayer that is subject to analysis under paragraph
(f) of this section. The stock of Companies A, B, C,
and D is publicly traded on a U.S. stock exchange.
Assume that Taxpayer makes an election to apply
these regulations to earlier taxable years.
(ii) Stock options are granted to the employees of
Taxpayer that engage in the relevant business activ-
ity. Assume that, as determined under a method in
accordance with U.S. generally accepted accounting
principles, the fair value of such stock options attrib-
utable to the employees’ performance of the relevant
business activity is 500 for the taxable year in ques-
tion. In evaluating the controlled services, Taxpayer
includes salaries, fringe benefits, and related compen-
sation of these employees in “total services costs,” as
defined in paragraph (j) of this section. Taxpayer does
not include any amount attributable to stock options
in total services costs, nor does it deduct that amount
in determining “reported operating profit” within the
meaning of §1.482–5(d)(5), for the year under exam-
ination.
(iii) Stock options are granted to the employees of
Companies A, B, C, and D. Under a fair value method
in accordance with U.S. generally accepted account-
ing principles, the comparables include in total com-
pensation the value of the stock options attributable to
the employees’ performance of the relevant business
activity for the annual financial reporting period, and
treat this amount as an expense in determining oper-
ating profit for financial accounting purposes. The
treatment of employee stock options is summarized
in the following table:
Salaries and other
non-option compensation
Stock options
fair value
Stock options
expensed
Taxpayer ..........................................
1,000
500
0
CompanyA ........................................7,0002,0002,000
CompanyB ........................................4,300
250250
CompanyC ........................................12,000
4,5004,500
CompanyD ........................................
15,000
2,0002,000
(iv) A material difference in accounting for
stock-based compensation (within the meaning of
§1.482–7T(d)(3)(i)) exists. Analysis indicates that
this difference would materially affect the measure
of an arm’s length result under this paragraph (f).
In making an adjustment to improve comparability
under §§1.482–1(d)(2) and 1.482–5(c)(2)(iv), the
Commissioner includes in total services costs of the
tested party the total compensation costs of 1,500
(including stock option fair value). In addition, the
Commissioner calculates the net cost plus PLI by
reference to the financial-accounting data of Com-
panies A, B, C, and D, which take into account
compensatory stock options.
Example 4. Material difference in utilization of
stock-based compensation.
(i) The facts are the same as in paragraph (i) of
Example 3.
(ii) No stock options are granted to the employees
of Taxpayer that engage in the relevant business ac-
tivity. Thus, no deduction for stock options is made
in determining “reported operating profit” (within the
meaning of §1.482–5(d)(5)) for the taxable year un-
der examination.
(iii) Stock options are granted to the employees of
Companies A, B, C, and D, but none of these compa-
nies expense stock optionsfor financial accounting
purposes. Under a method in accordance with U.S.
generally accepted accounting principles, however,
Companies A, B, C, and D disclose the fair value of
the stock options for financial accounting purposes.
The utilization and treatment of employee stock op-
tions is summarized in the following table:
Salaries and other
non-option compensation
Stock options
fair value
Stock options
expensed
Taxpayer ..........................................
1,0000N/A
CompanyA ........................................7,0002,0000
CompanyB ........................................4,300
250
0
CompanyC ........................................12,000
4,500
0
CompanyD ........................................
15,000
2,0000
(iv) A material difference in the utilization of
stock-based compensation (within the meaning of
§1.482–7T(d)(3)(i)) exists. Analysis indicates that
these differences would materially affect the measure
of an arm’s length result under this paragraph (f). In
evaluating the comparableoperating profits of the
August 17, 20092232009–33 I.R.B.

tested party, the Commissioner uses Taxpayer’s total
services costs, which include total compensation
costs of 1,000. In considering whether an adjust-
ment is necessary to improve comparability under
§§1.482–1(d)(2) and 1.482–5(c)(2)(iv), the Com-
missioner recognizes that the total compensation
provided to employees of Taxpayer is comparable
to the total compensation provided to employees
of Companies A, B, C, and D. Because Companies
A, B, C, and D do not expense stock-based com-
pensation for financial accounting purposes, their
reported operating profits must be adjusted in order
to improve comparability with the tested party. The
Commissioner increases each comparable’s total
services costs, and also reduces its reported operating
profit, by the fair value ofthe stock-based compen-
sation incurred by the comparable company.
(v) The adjustments to the data of Companies A,
B, C, and D described in paragraph (iv) of thisExam-
ple 4are summarized in the following table:
Salaries and other
non-option
compensation
Stock options
fair value
Total services
costs
(A)
Operating
profit
(B)
Netcostplus
PLI
(B/A)
Perfinancialstatements:
CompanyA .................................7,0002,000
25,000
6,00024.00%
CompanyB .................................4,300
25012,5002,500
20.00%
CompanyC .................................12,000
4,500
36,00011,000
30.56%
CompanyD .................................
15,000
2,00027,0007,000
25.93%
A
sadjusted:
CompanyA .................................7,0002,00027,0004,00014.81%
CompanyB .................................4,300
25012,7502,25017.65%
CompanyC .................................12,000
4,50040,5006,50016.05%
CompanyD .................................
15,000
2,00029,000
5,000
17.24%
Example 5.Non-material difference in utilization
of stock-based compensation.
(i) The facts are the same as in paragraph (i) of
Example 3.
(ii) Stock options are granted to the employees of
Taxpayer that engage in the relevant business activity.
Assume that, as determined under a method in accor-
dance with U.S. generally accepted accounting prin-
ciples, the fair value of such stock options attributable
to the employees’ performance of the relevant busi-
ness activity is 50 for the taxable year. Taxpayer in-
cludes salaries, fringe benefits, and all other compen-
sation of these employees (including the stock option
fair value) in “total services costs,” as defined in para-
graph (j) of this section, and deducts these amounts
in determining “reported operating profit” within the
meaning of §1.482–5(d)(5), for the taxable year un-
der examination.
(iii) Stock options are granted to the employees of
Companies A, B, C, and D, but none of these compa-
nies expense stock optionsfor financial accounting
purposes. Under a method in accordance with U.S.
generally accepted accounting principles, however,
Companies A, B, C, and D disclose the fair value of
the stock options for financial accounting purposes.
The utilization and treatment of employee stock op-
tions is summarized in the following table:
Salaries and other
non-option compensation
Stock options
fair value
Stock options
expensed
Taxpayer ..........................................
1,000
5050
CompanyA ........................................7,0001000
CompanyB ........................................4,300400
CompanyC ........................................12,0001300
CompanyD ........................................
15,00075
0
(iv) Analysis of the data reported by Companies
A, B, C, and D indicates that an adjustment for dif-
ferences in utilization of stock-based compensation would not have a material effect on the determination
of an arm’s length result.
Salaries and other
non-option
compensation
Stock options
fair value
Total services
costs
(A)
Operating
profit
(B)
Netcostplus
PLI
(B/A)
Perfinancialstatements:
CompanyA .................................7,000100
25,000
6,00024.00%
CompanyB .................................4,30040
12,5002,500
20.00%
CompanyC .................................12,00013036,00011,000
30.56%
CompanyD .................................
15,00075
27,0007,000
25.93%
A
sadjusted:
CompanyA .................................7,000100
25,1005,90023.51%
CompanyB .................................4,30040
12,540
2,46019.62%
CompanyC .................................12,00013036,13010,87030.09%
CompanyD .................................
15,0007527,0756,92525.58%
2009–33 I.R.B.224August 17, 2009

(v) Under the circumstances, the difference in uti-
lization of stock-based compensation would not ma-
terially affect the determination of the arm’s length
result under this paragraph (f). Accordingly, in calcu-
lating the net cost plus PLI, no comparability adjust-
ment is made to the data of Companies A, B, C, or D
pursuant to §§1.482–1(d)(2) and 1.482–5(c)(2)(iv).
Example 6.Material difference in comparables’
accounting for stock-based compensation.(i)The
facts are the same as in paragraph (i) ofExample 3.
(ii) Stock options are granted to the employees of
Taxpayer that engage in the relevant business activity.
Assume that, as determined under a method in accor-
dance with U.S. generally accepted accounting prin-
ciples, the fair value of such stock options attributable
to employees’ performance of the relevant business
activity is 500 for the taxable year. Taxpayer includes
salaries, fringe benefits, and all other compensation
of these employees (including the stock option fair
value) in “total services costs,” as defined in para-
graph (j) of this section, and deducts these amounts
in determining “reported operating profit” (within the
meaning of §1.482–5(d)(5)) for the taxable year un-
der examination.
(iii) Stock options are granted to the employees
ofCompaniesA,B,C,andD.CompaniesAand
B expense the stock options for financial account-
ing purposes inaccordance with U.S. generally ac-
cepted accounting principles. Companies C and D do
not expense the stock options for financial account-
ing purposes. Under a method in accordance with
U.S. generally accepted accounting principles, how-
ever, Companies C and D disclose the fair value of
these options in their financial statements. The uti-
lization and accounting treatment of options are de-
picted in the following table:
Salaries and other
non-option compensation
Stock options
fair value
Stock options
expensed
Taxpayer ..........................................
1,000
500500
CompanyA ........................................7,0002,0002,000
CompanyB ........................................4,300
250250
CompanyC ........................................12,000
4,500
0
CompanyD ........................................
15,000
2,0000
(iv) A material difference in accounting for
stock-based compensation (within the meaning of
§1.482–7T(d)(3)(i)) exists. Analysis indicates that
this difference would materially affect the measure of
the arm’s length result under paragraph (f) of this sec-
tion. In evaluating the comparable operating profits
of the tested party, the Commissioner includes in total
services costs Taxpayer’s total compensation costs
of 1,500 (including stock option fair value of 500).
In considering whether an adjustment is necessary to
improve comparability under §§1.482–1(d)(2) and
1.482–5(c)(2)(iv), the Commissioner recognizes that
the total employee compensation (including stock
options provided by Taxpayer and Companies A, B,
C, and D) provides a reliable basis for comparison.
Because Companies A and B expense stock-based
compensation for financial accounting purposes,
whereas Companies C and D do not, an adjustment
to the comparables’ operating profit is necessary. In
computing the net cost plus PLI, the Commissioner
uses the financial-accounting data of Companies A
and B, as reported. The Commissioner increases
the total services costs of Companies C and D by
amounts equal to the fair value of their respective
stock options, and reduces the operating profits of
Companies C and Daccordingly.
(v) The adjustments described in paragraph (iv)
of thisExample 6are depicted in the following table.
For purposes of illustration, the unadjusted data of
Companies A and B are also included.
Salaries and other
non-option
compensation
Stock options
fair value
Total services
costs
(A)
Operating
profit
(B)
Netcostplus
PLI
(B/A)
Perfinancialstatements:
CompanyA .................................7,0002,00027,0004,00014.80%
CompanyB .................................4,300
25012,7502,25017.65%
A
sadjusted:
CompanyC .................................12,000
4,50040,5006,50016.05%
CompanyD .................................
15,000
2,00029,000
5,000
17.24%
(g)Profit split method—(1)In general.
The profit split method evaluates whether
the allocation of the combined operating
profit or loss attributable to one or more
controlled transactions is arm’s length by
reference to the relative value of each
controlled taxpayer’s contribution to that
combined operating profit or loss. The rel-
ative value of each controlled taxpayer’s
contribution is determined in a manner
that reflects the functions performed, risks
assumed and resources employed by such
controlled taxpayer in the relevant busi-
ness activity. For application of the profit
split method (both the comparable profit
split and the residual profit split), see
§1.482–6. The residual profit split method
may not be used where only one controlled
taxpayer makes significant nonroutine
contributions.
(2)Examples. The principles of this
paragraph (g) are illustrated by the follow-
ing examples:
Example 1.Residual profit split.(i)CompanyA,
a
corporation resident in Country X, auctions spare
parts by means of an interactive database. Company
A maintains a database that lists all spare parts avail-
a
ble for auction. Company A developed the soft-
ware used to run the database. Company A’s data-
base is managed by Company A employees in a data
center located in Country X, where storage and ma-
nipulation of data also take place. Company A has
a wholly-owned subsidiary, Company B, located in
Country Y. Company B performs marketing and ad-
vertising activities to promote Company A’s interac-
tive database. Company B solicits unrelated compa-
nies to auction spare parts on Company A’s database,
and solicits customers interestedinpurchasingspare
parts online. Company B owns and maintains a com-
puter server in Country Y, where it receives informa-
t
ion on spare parts available for auction. Company B
has also designed a specialized communications net-
work that connects its data center to Company A’s
d
ata center in Country X. The communications net-
work allows Company B to enter data from uncon-
trolled companies on Company A’s database located
in Country X. Company B’s communications net-
work also allows uncontrolled companies to access
Company A’s interactive database and purchase spare
parts. Company B bore the risks and cost of develop-
ing this specialized communications network. Com-
pany B enters into contracts with uncontrolled com-
panies and provides the companies access to Com-
pany A’s database through the Company B network.
(ii) Analysis of the facts and circumstances indi-
cates that both Company A and Company B possess
valuable intangible property that they use to conduct
the spare parts auction business. Company A bore
the economic risks of developing and maintaining
August 17, 20092252009–33 I.R.B.

software and the interactive database. Company B
bore the economic risks of developing the necessary
technology to transmit information from its server to
Company A’s data center, and to allow uncontrolled
companies to access Company A’s database. Com-
pany B helped to enhance the value of Company A’s
trademark and to establish a network of customers
in Country Y. In addition, there are no market com-
parables for the transactions between Company A
and Company B to reliably evaluate them separately.
Given the facts and circumstances, the Commissioner
determines that a residual profit split method will pro-
vide the most reliable measure of an arm’s length re-
sult.
(iii) Under the residual profit split method, profits
are first allocated based on the routine contributions
of each taxpayer. Routine contributions include gen-
eral sales, marketing or administrative functions per-
formed by Company B for Company A for which it
is possible to identify market returns. Any residual
profits will be allocated based on the nonroutine con-
tributions of each taxpayer. Since both Company A
and Company B provided nonroutine contributions,
the residual profits are allocated based on these con-
tributions.
Example 2.Residual profit split.(i)Company
A, a Country 1 corporation, provides specialized
services pertaining to the processing and storage
of Level 1 hazardous waste (for purposes of this
example, the most dangerous type of waste). Un-
der long-term contracts with private companies and
governmental entities in Country 1, Company A
performs multiple services, including transportation
of Level 1 waste, development of handling and
storage protocols, recordkeeping, and supervision
of waste-storage facilities owned and maintained by
the contracting parties. Company A’s research and
development unit has also developed new and unique
processes for transport and storage of Level 1 waste
that minimize environmental and occupational ef-
fects. In addition to this novel technology, Company
A has substantial know-how and a long-term record
of safe operations in Country 1.
(ii) Company A’s subsidiary, Company B, has
been in operation continuously for a number of years
in Country 2. Company B has successfully com-
pleted several projects in Country 2 involving Level
2 and Level 3 waste, including projects with gov-
ernment-owned entities. Company B has a license
inCountry2tohandleLevel2waste(Level3does
not require a license). Company B has established a
reputation for completing these projects in a respon-
sible manner. Company B has cultivated contacts
with procurement officers,regulatory and licensing
officials, and other government personnel in Country
2.
(iii) Country 2 government publishes invitations
to bid on a project to handle the country’s burgeon-
ing volume of Level 1 waste, all of which is gener-
ated in government-owned facilities. Bidding is lim-
ited to companies that are domiciled in Country 2 and
that possess a license from the government to handle
Level 1 or Level 2 waste. In an effort to submit a win-
ning bid to secure the contract, Company B points to
its Level 2 license and its record of successful com-
pletion of projects, and also demonstrates to these of-
ficials that it has access to substantial technical exper-
tise pertaining to processing of Level 1 waste.
(iv) Company A enters into a long-term techni-
cal services agreement with Company B. Under this
agreement, Company A agrees to supply to Com-
pany B project managers and other technical staff
who have detailed knowledge of Company A’s pro-
prietary Level 1 remediation techniques. Company
A commits to perform under any long-term contracts
enteredintobyCompanyB.CompanyBagreesto
compensateCompanyAbasedonamarkuponCom-
pany A’s marginal costs (pro ratacompensation and
current expenses of Company A personnel). In the
bid on the Country 2 contract for Level 1 waste re-
mediation, Company B proposes to use a multi-dis-
ciplinary team of specialists from Company A and
Company B. Project managers from Company A will
direct the team, which will also include employees
of Company B and will make use of physical assets
and facilities owned by Company B. Only Company
A and Company B personnel will perform services
under the contract. Country 2 grants Company B a
license to handle Level 1 waste.
(v) Country 2 grants Company B a five-year, ex-
clusive contract to provide processing services for all
Level 1 hazardous waste generated in County 2. Un-
der the contract, Company B is to be paid a fixed price
per ton of Level 1 waste that it processes each year.
Company B undertakes that all services provided will
meet international standards applicable to processing
of Level 1 waste. Company B begins performance
under the contract.
(vi) Analysis of the facts and circumstances
indicates that both Company A and Company B
make nonroutine contributions to the Level 1 waste
processing activity in Country 2. In addition, it is
determined that reliable comparables are not avail-
able for the services that Company A provides under
the long-term contract, in part because those services
incorporate specializedknowledge and process in-
tangible property developed by Company A. It is
also determined that reliable comparables are not
available for the Level 2 license in Country 2, the
successful track record, the government contacts
with Country 2 officials, and other intangible prop-
erty that Company B provided. In view of these
facts, the Commissioner determines that the residual
profit split method for services in paragraph (g) of
this section provides the most reliable means of eval-
uating the arm’s length results for the transaction. In
evaluating the appropriate returns to Company A and
Company B for their respective contributions, the
Commissioner takes into account that the controlled
parties incur different risks, because the contract
between the controlled parties provides that Com-
pany A will be compensated on the basis of marginal
costs incurred, plus a markup, whereas the contract
between Company B and the government of Country
2 provides that Company B will be compensated on a
fixed-price basis per ton of Level 1 waste processed.
(vii) In the first stage of the residual profit split,
an arm’s length return is determined for routine ac-
tivities performed by Company B in Country 2, such
as transportation, recordkeeping, and administration.
In addition, an arm’s length return is determined for
routine activities performed by Company A (admin-
istrative, human resources, etc.) in connection with
providing personnel to Company B. After the arm’s
length return for these functions is determined, resid-
ual profits may be present. In the second stage of the
residual profit split, any residual profit is allocated by
reference to the relative value of the nonroutine con-
tributions made by each taxpayer. Company A’s non-
routine contributions include its commitment to per-
form under the contract and the specialized technical
knowledge made available through the project man-
agers under the services agreement with Company B.
Company B’s nonroutine contributions include its li-
censes to handle Level 1 and Level 2 waste in Country
2, its knowledge of and contacts with procurement,
regulatory and licensing officials in the government
of Country 2, and its record in Country 2 of success-
fully handling non-Level 1 waste.
(h)Unspecified methods. Methods not
specified in paragraphs (b) through (g)
of this section may be used to evaluate
whether the amount charged in a con-
trolled services transaction is arm’s length.
Anymethodusedunderthisparagraph
(h) must be applied in accordance with
the provisions of §1.482–1. Consistent
with the specified methods, an unspeci-
fied method should take into account the
general principle that uncontrolled tax-
payers evaluate the terms of a transaction
by considering the realistic alternatives to
that transaction, including economically
similar transactions structured as other
than services transactions, and only enter
into a particular transaction if none of the
alternatives is preferable to it. For exam-
ple, the comparable uncontrolled services
price method compares a controlled ser-
vices transaction to similar uncontrolled
transactions to provide a direct estimate of
the price to which the parties would have
agreed had they resorted directly to a mar-
ket alternative to the controlled services
transaction. Therefore, in establishing
whether a controlled services transaction
achieved an arm’s length result, an unspec-
ified method should provide information
on the prices or profits that the controlled
taxpayer could have realized by choosing
a realistic alternative to the controlled ser-
vices transaction (for example, outsourc-
ing a particular service function, rather
than performing the function itself). As
with any method, an unspecified method
will not be applied unless it provides the
most reliable measure of an arm’s length
result under the principles of the best
method rule. See §1.482–1(c). Therefore,
in accordance with §1.482–1(d) (compa-
rability), to the extent that an unspecified
method relies on internal data rather than
uncontrolled comparables, its reliability
will be reduced. Similarly, the reliability
of a method will be affected by the relia-
bility of the data and assumptions used to
2009–33 I.R.B.226August 17, 2009

apply the method, including any projec-
tions used.
Example. (i) Company T, a U.S. corporation, de-
velops computer software programs including a real
estate investment program that performs financial
analysis of commercial real properties. Companies
U, V, and W are owned by Company T. The pri-
mary business activity of Companies U, V, and W is
commercial real estate development. For business
reasons, Company T does not sell the computer
program to its customers (on a compact disk or via
download from Company T’s server through the In-
ternet). Instead, Company T maintains the software
program on its own server and allows customers to
access the program through the Internet by using
a password. The transactions between Company T
and Companies U, V, and W are structured as con-
trolled services transactions whereby Companies U,
V, and W obtain access via the Internet to Company
T’s software program for financial analysis. Each
year, Company T provides a revised version of the
computer program including the most recent data on
the commercial real estate market, rendering the old
version obsolete.
(ii) In evaluating whether the consideration paid
by Companies U, V, and W to Company T was arm’s
length, the Commissioner may consider, subject
to the best method rule of §1.482–1(c), Company
T’s alternative of selling the computer program to
CompaniesU,V,andWonacompactdiskorvia
download through the Internet. The Commissioner
determines that the controlled services transactions
between Company T and Companies U, V, and W
are comparable to the transfer of a similar software
program on a compact disk or via download through
the Internet between uncontrolled parties. Subject
to adjustments being made for material differences
between the controlled services transactions and the
comparable uncontrolled transactions, the uncon-
trolled transfers of tangible property may be used to
evaluate the arm’s length results for the controlled
services transactions between Company T and Com-
panies U, V, and W.
(i)Contingent-payment contractual
terms for services—(1)Contingent-pay-
ment contractual terms recognized in
general. In the case of a contingent-pay-
ment arrangement, the arm’s length result
for the controlled services transaction gen-
erally would not require payment by the
recipient to the renderer in the tax account-
ing period in which the service is rendered
if the specified contingency does not occur
in that period. If the specified contingency
occurs in a tax accounting period subse-
quent to the period in which the service
is rendered, the arm’s length result for the
controlled services transaction generally
would require payment by the recipient
to the renderer on a basis that reflects the
recipient’s benefit from the services ren-
dered and the risks borne by the renderer
in performing the activities in the absence
of a provision that unconditionally obli-
gates the recipient to pay for the activities
performed in the tax accounting period in
which the service is rendered.
(2)Contingent-payment arrangement.
For purposes of this paragraph (i), an
arrangement will be treated as a contin-
gent-payment arrangement if it meets all
of the requirements in paragraph (i)(2)(i)
of this section and is consistent with the
economic substance and conduct require-
ment in paragraph (i)(2)(ii) of this section.
(i)General requirements—(A)Written
contract. The arrangement is set forth in
a written contract entered into prior to, or
contemporaneous with the start of the ac-
tivity or group of activities constituting the
controlled services transaction.
(B)Specified contingency. The contract
states that payment for a controlled ser-
vices transaction is contingent (in whole or
in part) upon the happening of a future ben-
efit (within the meaning of §1.482–9(l)(3))
for the recipient directly related to the ac-
tivity or group of activities. For purposes
of the preceding sentence, whether the fu-
ture benefit is directly related to the activ-
ity or group of activities is evaluated based
on all the facts and circumstances.
(C)Basis for payment. The contract
provides for payment on a basis that re-
flects the recipient’s benefit from the ser-
vices rendered and the risks borne by the
renderer.
(ii)Economic substance and con-
duct. The arrangement, including the
contingency and the basis for payment,
is consistent with the economic sub-
stance of the controlled transaction and
the conduct of the controlled parties. See
§1.482–1(d)(3)(ii)(B).
(3)Commissioner’s authority to
impute contingent-payment terms.
Consistent with the authority in
§1.482–1(d)(3)(ii)(B), the Commissioner
may impute contingent-payment contrac-
tual terms in a controlled services trans-
action if the economic substance of the
transaction is consistent with the existence
of such terms.
(4)Evaluation of arm’s length charge.
Whether the amount charged in a contin-
gent-payment arrangement is arm’s length
will be evaluated in accordance with this
section and other applicable regulations
under section 482. In evaluating whether
the amount charged in a contingent-pay-
ment arrangement for the manufacture,
construction, or development of tangible
or intangible property owned by the recip-
ient is arm’s length, the charge determined
under the rules of §§1.482–3 and 1.482–4
for the transfer of similar property may be
considered. See §1.482–1(f)(2)(ii).
(5)Examples. The principles of this
paragraph (i) are illustrated by the follow-
ing examples:
Example 1. (i) Company X is a member of a con-
trolled group that has operated in the pharmaceuti-
cal sector for many years. In year 1, Company X en-
ters into a written services agreement with Company
Y, another member of the controlled group, whereby
Company X will perform certain research and devel-
opment activities for Company Y. The parties enter
into the agreement before Company X undertakes any
of the research and development activities covered by
the agreement. At the time the agreement is entered
into, the possibility that any new products will be de-
veloped is highly uncertain and the possible market or
markets for any products that may be developed are
not known and cannot be estimated with any reliabil-
ity. Under the agreement, Company Y will own any
patent or other rights that result from the activities
of Company X under the agreement and Company
Y will make payments to Company X only if such
activities result in commercial sales of one or more
derivative products. In that event, Company Y will
pay Company X, for a specified period, x% of Com-
pany Y’s gross sales of each of such products. Pay-
ments are required with respect to each jurisdiction
in which Company Y has sales of such a derivative
product, beginning with the first year in which the
sale of a product occurs in the jurisdiction and con-
tinuing for six additional years with respect to sales
of that product in that jurisdiction.
(ii) As a result of research and development ac-
tivities performed by Company X for Company Y
in years 1 through 4, a compound is developed that
may be more effective than existing medications in
the treatment of certain conditions. Company Y reg-
isters the patent rights with respect to the compound
in several jurisdictions in year 4. In year 6, Company
Y begins commercial sales of the product in Jurisdic-
tion A and, in that year, Company Y makes the pay-
ment to Company X that is required under the agree-
ment. Sales of the product continue in Jurisdiction A
in years 7 through 9 and Company Y makes the pay-
ments to Company X in years 7 through 9 that are
required under the agreement.
(iii) The years under examination are years 6
through 9. In evaluating whether the contingent-pay-
ment terms will be recognized, the Commissioner
considers whether the conditions of paragraph (i)(2)
of this section are met and whether the arrangement,
including the specified contingency and basis of
payment, is consistent with the economic substance
of the controlled services transaction and with the
conduct of the controlled parties. The Commissioner
determines that the contingent-payment arrangement
is reflected in the written agreement between Com-
pany X and Company Y; that commercial sales of
products developed under the arrangement represent
future benefits for Company Y directly related to
the controlled services transaction; and that the basis
for the payment provided for in the event such sales
occur reflects the recipient’s benefit and the ren-
derer’s risk. Consistent with §1.482–1(d)(3)(ii)(B)
August 17, 20092272009–33 I.R.B.

and (iii)(B), the Commissioner determines that the
parties’ conduct over the term of the agreement has
been consistent with their contractual allocation of
risk; that Company X has the financial capacity to
bear the risk that its research and development ser-
vices may be unsuccessful and that it may not receive
compensation for such services; and that Company
X exercises managerial and operational control over
the research and development, such that it is rea-
sonable for Company X to assume the risk of those
activities. Based on all these facts, the Commissioner
determines that the contingent-payment arrangement
is consistent with economic substance.
(iv) In determining whether the amount charged
under the contingent-payment arrangement in each
of years 6 through 9 is arm’s length, the Commis-
sioner evaluates under this section and other appli-
cable rules under section 482 the compensation paid
in each year for the research and development ser-
vices. This analysis takes into account that under the
contingent-payment terms Company X bears the risk
that it might not receive payment for its services in the
eventthatthoseservicesdonotresultinmarketable
products and the risk that the magnitude of its pay-
ment depends on the magnitude of product sales, if
any. The Commissioner also considers the alterna-
tives reasonably available to the parties in connection
with the controlled services transaction. One such al-
ternative, in view of Company X’s willingness and
ability to bear the risk and expenses of research and
development activities, would be for Company X to
undertake such activities on its own behalf and to li-
cense the rights to products successfully developed
as a result of such activities. Accordingly, in evalu-
ating whether the compensation of x% of gross sales
that is paid to Company X during the first four years
of commercial sales of derivative products is arm’s
length, the Commissioner may consider the royal-
ties (or other consideration) charged for intangible
property that are comparable to those incorporated in
the derivative products and that resulted from Com-
pany X’s research and development activities under
the contingent-payment arrangement.
Example 2. (i)ThefactsarethesameasinEx-
ample 1, except that no commercial sales ever mate-
rialize with regard to the patented compound so that,
consistent with the agreement, Company Y makes no
payments to Company X in years 6 through 9.
(ii) Based on all the facts and circumstances, the
Commissioner determines that the contingent-pay-
ment arrangement is consistent with economic
substance, and the result (no payments in years 6
through 9) is consistent with an arm’s length result.
Example 3. (i)ThefactsarethesameasinEx-
ample 1, except that, in the event that Company X’s
activities result in commercial sales of one or more
derivative products by Company Y, Company Y will
pay Company X a fee equal to the research and devel-
opment costs borne by Company X plus an amount
equal to x% of such costs, with the payment to be
made in the first year in which any such sales occur.
The x% markup on costs is within the range, ascer-
tainable in year 1, of markups on costs of indepen-
dent contract researchers that are compensated under
terms that unconditionally obligate the recipient to
pay for the activities performed in the tax account-
ing period in which the service is rendered. In year 6,
Company Y makes the single payment to Company
X that is required under the arrangement.
(ii) The years under examination are years 6
through 9. In evaluating whether the contingent-pay-
ment terms will be recognized, the Commissioner
considers whether the requirements of paragraph
(i)(2) of this section were met at the time the written
agreement was entered into and whether the ar-
rangement, including the specified contingency and
basis for payment, is consistent with the economic
substance of the controlled services transaction and
with the conduct of the controlled parties. The Com-
missioner determines that the contingent-payment
terms are reflected in the written agreement between
Company X and Company Y and that commercial
sales of products developed under the arrangement
represent future benefits for Company Y directly re-
lated to the controlled services transaction. However,
in this case, the Commissioner determines that the
basis for payment provided for in the event such sales
occur (costs of the services plus x%, representing
the markup for contract research in the absence of
any nonpayment risk) does not reflect the recipient’s
benefit and the renderer’s risks in the controlled
services transaction. Based on all the facts and cir-
cumstances, the Commissioner determines that the
contingent-payment arrangement is not consistent
with economic substance.
(iii) Accordingly, the Commissioner determines
to exercise its authority to impute contingent-pay-
ment contractual termsthat accord with economic
substance, pursuant to paragraph (i)(3) of this section
and §1.482–1(d)(3)(ii)(B). In this regard, the Com-
missioner takes into account that at the time the ar-
rangement was entered into, the possibility that any
new products would be developed was highly uncer-
tain and the possible market or markets for any prod-
ucts that may be developed were not known and could
not be estimated with any reliability. In such circum-
stances, it is reasonable to conclude that one possible
basis of payment, in order to reflect the recipient’s
benefit and the renderer’s risks, would be a charge
equal to a percentage of commercial sales of one or
more derivative products that result from the research
and development activities. The Commissioner in
this case may impute terms that require Company Y
to pay Company X a percentage of sales of the prod-
ucts developed under the agreement in each of years
6 through 9.
(iv) In determining an appropriate arm’s length
charge under such imputed contractual terms, the
Commissioner conducts an analysis under this sec-
tion and other applicable rules under section 482,
and considers the alternatives reasonably available to
the parties in connection with the controlled services
transaction. One such alternative, in view of Com-
pany X’s willingness and ability to bear the risks
and expenses of research and development activities,
would be for Company X to undertake such activ-
ities on its own behalf and to license the rights to
products successfully developed as a result of such
activities. Accordingly, for purposes of its determi-
nation, the Commissioner may consider the royalties
(or other consideration) charged for intangible prop-
erty that are comparable to those incorporated in
the derivative products that resulted from Company
X’s research and development activities under the
contingent-payment arrangement.
(j)Total services costs. For purposes
of this section, total services costs means
all costs of rendering those services for
which total services costs are being de-
termined. Total services costs include all
costsincashorinkind(includingstock-
based compensation) that, based on anal-
ysis of the facts and circumstances, are
directly identified with, or reasonably al-
located in accordance with the principles
of paragraph (k)(2) of this section to, the
services. In general, costs for this pur-
pose should comprise provision for all re-
sources expended, used, or made available
to achieve the specific objective for which
the service is rendered. Reference to gen-
erally accepted accounting principles or
Federal income tax accounting rules may
provide a useful starting point but will not
necessarily be conclusive regarding inclu-
sion of costs in total services costs. Total
services costs do notinclude interest ex-
pense, foreign income taxes (as defined in
§1.901–2(a)), or domestic income taxes.
(k)Allocation of costs—(1)In general.
In any case where the renderer’s activity
that results in a benefit (within the mean-
ing of paragraph (l)(3) of this section) for
one recipient in a controlled services trans-
action also generates a benefit for one or
more other members of a controlled group
(including the benefit, if any, to the ren-
derer), and the amount charged under this
section in the controlled services transac-
tion is determined under a method that
makes reference to costs, costs must be al-
located among the portions of the activity
performed for the benefit of the first men-
tioned recipient and such other members of
the controlled group under this paragraph
(k). The principles of this paragraph (k)
must also be used whenever it is appropri-
ate to allocate and apportion any class of
costs (for example, overhead costs) in or-
der to determine the total services costs of
rendering the services. In no event will an
allocation of costs based on a generalized
or non-specific benefit be appropriate.
(2)Appropriate method of alloca-
tion and apportionment—(i)Reasonable
method standard. Any reasonable method
may be used to allocate and apportion
costs under this section. In establishing
the appropriate method of allocation and
apportionment, consideration should be
given to all bases and factors, including,
for example, total services costs, total
costs for a relevant activity, assets, sales,
compensation, space utilized, and time
spent. The costs incurred by support-
2009–33 I.R.B.228August 17, 2009

ing departments may be apportioned to
other departments on the basis of rea-
sonable overall estimates, or such costs
may be reflected in the other departments’
costs by applying reasonable departmental
overhead rates. Allocations and appor-
tionments of costs must be made on the
basis of the full cost, as opposed to the
incremental cost.
(ii)Use of general practices. The prac-
tices used by the taxpayer to apportion
costs in connection with preparation of
statements and analyses for the use of man-
agement, creditors, minority shareholders,
joint venturers, clients, customers, poten-
tial investors, or other parties or agencies
in interest will be considered as poten-
tial indicators of reliable allocation meth-
ods, but need not be accorded conclusive
weight by the Commissioner. In determin-
ing the extent to which allocations are to be
made to or from foreign members of a con-
trolled group, practices employed by the
domestic members in apportioning costs
among themselves will also be considered
if the relationships with the foreign mem-
bers are comparable to the relationships
among the domestic members of the con-
trolled group. For example, if for purposes
of reporting to public stockholders or to
a governmental agency, a corporation ap-
portions the costs attributable to its execu-
tive officers among the domestic members
of a controlled group on a reasonable and
consistent basis, and such officers exercise
comparable control over foreign members
of the controlled group, such domestic ap-
portionment practice will be considered in
determining the allocations to be made to
the foreign members.
(3)Examples. The principles of this
paragraph (k) are illustrated by the follow-
ing examples:
Example 1. Company A pays an annual license
fee of 500x to an uncontrolled taxpayer for unlimited
use of a database within the corporate group. Un-
der the terms of the license with the uncontrolled tax-
payer, Company A is permitted to use the database
for its own use and in rendering research services to
its subsidiary, Company B. Company B obtains ben-
efits from the database that are similar to those that
it would obtain if it had independently licensed the
database from the uncontrolled taxpayer. Evaluation
of the arm’s length charge (under a method in which
costs are relevant) to Company B for the controlled
services that incorporate use of the database must take
into account the full amount of the license fee of 500x
paid by Company A, as reasonably allocated and ap-
portioned to the relevant benefits, although the incre-
mental use of the database for the benefit of Company
B did not result in an increase in the license fee paid
by Company A.
Example 2. (i) Company A is a consumer prod-
ucts company located in the United States. Compa-
nies B and C are wholly-owned subsidiaries of Com-
pany A and are located in Countries B and C, respec-
tively. Company A and its subsidiaries manufacture
products for sale in their respective markets. Com-
pany A hires a consultant who has expertise regard-
ing a manufacturing process used by Company A and
its subsidiary, Company B. Company C, the Country
C subsidiary, uses a different manufacturing process,
and accordingly will not receive any benefit from the
outside consultant hired by Company A. In allocating
and apportioning the cost of hiring the outside consul-
tant (100), Company A determines that sales consti-
tute the most appropriate allocation key.
(ii) Company A and its subsidiaries have the fol-
lowing sales:
Company
A
B
C
D
Sales..............................................................400100200700
(iii) Because Company C does not obtain any ben-
efit from the consultant, none of the costs are allo-
cated to it. Rather, the costs of 100 are allocated and
apportioned ratably to Company A and Company B
as the entities that obtain a benefit from the campaign,
based on the total sales of those entities (500). An ap-
propriate allocation of the costs of the consultant is as
follows:
Company
A
B
Total
Allocation .........................................
400/500100/500
.......................
Amount ...........................................
8020100
(l)Controlled services transaction—(1)
In general. A controlled services trans-
action includes any activity (as defined in
paragraph (l)(2) of this section) by one
member of a group of controlled taxpay-
ers (the renderer) that results in a benefit
(as defined in paragraph (l)(3) of this sec-
tion) to one or more other members of the
controlled group (the recipient(s)).
(2)Activity. An activity includes the
performance of functions, assumptions of
risks, or use by a renderer of tangible or in-
tangible property or other resources, capa-
bilities, or knowledge, such as knowledge
of and ability to take advantage of partic-
ularly advantageous situations or circum-
stances. An activity also includes making
available to the recipient any property or
other resources of the renderer.
(3)Benefit—(i)In general. An activity
is considered to provide a benefit to the re-
cipient if the activity directly results in a
reasonably identifiable increment of eco-
nomic or commercial value that enhances
the recipient’s commercial position, or that
may reasonably be anticipated to do so. An
activity is generally considered to confer a
benefit if, taking into account the facts and
circumstances, an uncontrolled taxpayer in
circumstances comparable to those of the
recipient would be willing to pay an un-
controlled party to perform the same or
similar activity on either a fixed or con-
tingent-payment basis, or if the recipient
otherwise would have performed for itself
the same activity or a similar activity. A
benefit may result to the owner of intan-
gible property if the renderer engages in
an activity that is reasonably anticipated to
result in an increase in the value of that
intangible property. Paragraphs (l)(3)(ii)
through (v) of this section provide guide-
lines that indicate the presence or absence
of a benefit for the activities in the con-
trolled services transaction.
(ii)Indirect or remote benefit. An ac-
tivity is not considered to provide a ben-
efit to the recipient if, at the time the ac-
tivity is performed, the present or reason-
ably anticipated benefit from that activity
is so indirect or remote that the recipient
would not be willing to pay, on either a
fixed or contingent-payment basis, an un-
controlled party to perform a similar ac-
tivity, and would not be willing to per-
form such activity for itself for this pur-
pose. The determination whether the ben-
August 17, 20092292009–33 I.R.B.

efit from an activity is indirect or remote is
based on the nature of the activity and the
situation of the recipient, taking into con-
sideration all facts and circumstances.
(iii)Duplicative activities. If an activity
performed by a controlled taxpayer dupli-
cates an activity that is performed, or that
reasonably may be anticipated to be per-
formed, by another controlled taxpayer on
or for its own account, the activity is gen-
erally not considered to provide a benefit
to the recipient, unless the duplicative ac-
tivity itself provides an additional benefit
to the recipient.
(iv)Shareholder activities. An activity
is not considered to provide a benefit if the
sole effect of that activity is either to pro-
tect the renderer’s capital investment in the
recipient or in other members of the con-
trolled group, or to facilitate compliance
by the renderer with reporting, legal, or
regulatory requirements applicable specif-
ically to the renderer, or both. Activities in
the nature of day-to-day management gen-
erally do not relate to protection of the ren-
derer’s capital investment. Based on anal-
ysis of the facts and circumstances, activ-
itiesinconnectionwith a corporate reor-
ganization may be considered to provide a
benefit to one or more controlled taxpay-
ers.
(v)Passive association. A controlled
taxpayer generally will not be considered
to obtain a benefit where that benefit re-
sults from the controlled taxpayer’s sta-
tusasamemberofacontrolledgroup. A
controlled taxpayer’s status as a member
of a controlled group may, however, be
taken into account for purposes of evaluat-
ing comparability between controlled and
uncontrolled transactions.
(4)Disaggregation of transactions.A
controlled services transaction may be an-
alyzed as two separate transactions for pur-
poses of determining the arm’s length con-
sideration, if that analysis is the most reli-
able means of determining the arm’s length
consideration for the controlled services
transaction. See the best method rule un-
der §1.482–1(c).
(5)Examples. The principles of this
paragraph (l) are illustrated by the follow-
ing examples. In each example, assume
that Company X is a U.S. corporation and
Company Y is a wholly-owned subsidiary
of Company X in Country B.
Example 1.In general. Indevelopingaworld-
wide advertising and promotional campaign for a
consumer product, Company X pays for and obtains
designation as an official sponsor of the Olympics.
This designation allows Company X and all its
subsidiaries, including Company Y, to identify them-
selves as sponsors and to use the Olympic logo
in advertising and promotional campaigns. The
Olympic sponsorship campaign generates benefits to
Company X, Company Y, and other subsidiaries of
Company X.
Example 2.Indirect or remote benefit. Based
on recommendations contained in a study performed
by its internal staff, Company X implements certain
changes in its management structure and the compen-
sation of managers of divisions located in the United
States. No changes were recommended or considered
for Company Y in Country B. The internal study and
the resultant changes in its management may increase
the competitiveness and overall efficiency of Com-
pany X. Any benefits to Company Y as a result of the
study are, however, indirect or remote. Consequently,
Company Y is not considered to obtain a benefit from
the study.
Example 3.Indirect or remote benefit. Based
on recommendations contained in a study performed
by its internal staff, Company X decides to make
changes to the managementstructure and manage-
ment compensation of its subsidiaries, in order to
increase their profitability. As a result of the rec-
ommendations in the study, Company X implements
substantial changes in the management structure and
management compensation scheme of Company Y.
The study and the changes implemented as a result of
the recommendations are anticipated to increase the
profitability of Company X and its subsidiaries. The
increased management efficiency of Company Y that
results from these changes is considered to be a spe-
cific and identifiable benefit, rather than remote or
speculative.
Example 4.Duplicative activities. At its corpo-
rate headquarters in the United States, Company X
performs certain treasury functions for Company X
and for its subsidiaries, including Company Y. These
treasury functions include raising capital, arranging
medium and long-term financing for general corpo-
rate needs, including cash management. Under these
circumstances, the treasury functions performed by
Company X do not duplicate the functions performed
by Company Y’s staff. Accordingly, Company Y is
considered to obtain a benefit from the functions per-
formed by Company X.
Example 5.Duplicative activities. The facts are
the same as inExample 4, except that Company Y’s
functions include ensuring that the financing require-
ments of its own operations are met. Analysis of
the facts and circumstances indicates that Company
Y independently administers all financing and cash-
management functions necessary to support its op-
erations, and does not utilize financing obtained by
Company X. Under the circumstances, the treasury
functions performed by Company X are duplicative
of similar functions performed by Company Y’s staff,
and the duplicative functions do not enhance Com-
pany Y’s position. Accordingly, Company Y is not
considered to obtain a benefit from the duplicative ac-
tivities performed by Company X.
Example 6.Duplicative activities. Company X’s
in-house legal staff has specialized expertise in sev-
eral areas, including intellectual property. The in-
tellectual property legal staff specializes in technol-
ogy licensing, patents, copyrights, and negotiating
and drafting intellectual property agreements. Com-
pany Y is involved in negotiations with an unrelated
party to enter into a complex joint venture that in-
cludes multiple licenses and cross-licenses of patents
and copyrights. Company Y retains outside coun-
sel that specializes in intellectual property law to re-
view the transaction documents. Company Y does
not have in-house counsel of its own to review in-
tellectual property transaction documents. Outside
counsel advises that the terms for the proposed trans-
action are advantageous to Company Y and that the
contracts are valid and fully enforceable. Company
X’s intellectual property legal staff possess valuable
knowledge of Company Y’s patents and technolog-
ical achievements. They are capable of identifying
particular scientific attributes protected under patent
that strengthen Company Y’s negotiating position,
and of discovering flaws in the patents offered by the
unrelated party. To reduce risk associated with the
transaction, Company X’s intellectual property legal
staff reviews the transaction documents before Com-
pany Y executes the contracts. Company X’s intellec-
tual property legal staff also separately evaluates the
patents and copyrights with respect to the licensing
arrangements and concurs in the opinion provided by
outside counsel. The activities performed by Com-
pany X substantially duplicate the legal services ob-
tained by Company Y, but they also reduce risk as-
sociated with the transaction in a way that confers an
additional benefit on Company Y.
Example 7.Shareholder activities. Company X
is a publicly held corporation. U.S. laws and regula-
tions applicable to publicly held corporations such as
Company X require the preparation and filing of peri-
odic reports that show, among other things, profit and
loss statements, balance sheets, and other material fi-
nancial information concerning the company’s opera-
tions. Company X, Company Y and each of the other
subsidiaries maintain their own separate accounting
departments that record individual transactions and
prepare financial statements in accordance with their
local accounting practices. Company Y, and the other
subsidiaries, forward the results of their financial per-
formance to Company X, which analyzes and com-
piles these data into periodic reports in accordance
with U.S. laws and regulations. Because Company
X’s preparation and filing of the reports relate solely
to its role as an investor of capital or shareholder in
Company Y or to its compliance with reporting, legal,
or regulatory requirements, or both, these activities
constitute shareholder activities and therefore Com-
pany Y is not considered to obtain a benefit from the
preparation and filing of the reports.
Example 8.Shareholder activities.Thefactsare
thesameasinExample 7, except that Company Y’s
accounting department maintains a general ledger
recording individual transactions, but does not pre-
pare any financial statements (such as profit and loss
statements and balance sheets). Instead, Company
Y forwards the general ledger data to Company X,
and Company X analyzes and compiles financial
statements for Company Y, as well as for Company
X’s overall operations, for purposes of complying
with U.S. reporting requirements. Company Y is
subject to reporting requirements in Country B sim-
ilar to those applicable to Company X in the United
States. Much of the data that Company X analyzes
and compiles regarding Company Y’s operations for
2009–33 I.R.B.230August 17, 2009

purposes of complying with the U.S. reporting re-
quirements are made available to Company Y for its
use in preparing reports that must be filed in Country
B. Company Y incorporatesthese data, after minor
adjustments for differences in local accounting prac-
tices, into the reports that it files in Country B. Under
these circumstances, because Company X’s analysis
and compilation of Company Y’s financial data does
not relate solely to its role as an investor of capital
or shareholder in Company Y, or to its compliance
with reporting, legal, or regulatory requirements, or
both, these activities do not constitute shareholder
activities.
Example 9.Shareholder activities.Membersof
Company X’s internal audit staff visit Company Y on
a semiannual basis in order to review the subsidiary’s
adherence to internal operating procedures issued by
Company X and its compliance with U.S. anti-bribery
laws, which apply to Company Y on account of its
ownership by a U.S. corporation. Because the sole
effect of the reviews by Company X’s audit staff is
to protect Company X’s investment in Company Y,
or to facilitate Company X’s compliance with U.S.
anti-bribery laws, or both, the visits are shareholder
activities and therefore Company Y is not considered
to obtain a benefit from the visits.
Example 10.Shareholder activities. Country B
recently enacted legislation that changed the foreign
currency exchange controls applicable to foreign
shareholders of Country B corporations. Company X
concludes that it may benefit from changing the cap-
ital structure of Company Y, thus taking advantage
of the new foreign currency exchange control laws
in Country B. Company X engages an investment
banking firm and a law firm to review the Country
B legislation and to propose possible changes to the
capital structure of Company Y. Because Company
X’s retention of the firms facilitates Company Y’s
ability to pay dividends and other amounts and has
the sole effect of protecting Company X’s investment
in Company Y, these activities constitute shareholder
activities and Company Y is not considered to obtain
a benefit from the activities.
Example 11.Shareholder activities. The facts are
the same as inExample 10, except that Company Y
bears the full cost of retaining the firms to evaluate the
new foreign currency control laws in Country B and
to make appropriate changes to its stock ownership
by Company X. Company X is considered to obtain a
benefit from the rendering by Company Y of these
activities, which would be shareholder activities if
conducted by Company X (seeExample 10).
Example 12.Shareholder activities. The facts are
thesameasinExample 10, except that the new laws
relate solely to corporate governance in Country B,
and Company X retains the law firm and investment
banking firm in order to evaluate whether restructur-
ing would increase Company Y’s profitability, reduce
the number of legal entities in Country B, and in-
crease Company Y’s ability to introduce new prod-
ucts more quickly in Country B. Because Company
X retained the law firm and the investment banking
firm primarily to enhance Company Y’s profitability
and the efficiency of its operations, and not solely to
protect Company X’s investment in Company Y or
to facilitate Company X’s compliance with Country
B’s corporate laws, or to both, these activities do not
constitute shareholder activities.
Example 13.Shareholder activities. Company
X establishes detailed personnel policies for its sub-
sidiaries, including Company Y. Company X also re-
views and approves the performance appraisals of
Company Y’s executives, monitors levels of compen-
sation paid to all Company Y personnel, and is in-
volved in hiring and firing decisions regarding the
senior executives of Company Y. Because this per-
sonnel-related activity by Company X involves day-
to-day management of Company Y, this activity does
not relate solely to Company X’s role as an investor
of capital or a shareholder of Company Y, and there-
fore does not constitute a shareholder activity.
Example 14.Shareholder activities.Eachyear,
Company X conducts a two-day retreat for its senior
executives. The purpose of the retreat is to refine
the long-term business strategy of Company X and
its subsidiaries, including Company Y, and to pro-
duce a confidential strategy statement. The strategy
statement identifies several potential growth initia-
tives for Company X and its subsidiaries and lists
general means of increasing the profitability of the
company as a whole. The strategy statement is made
available without charge to Company Y and the other
subsidiaries of Company X. Company Y indepen-
dently evaluates whether to implement some, all, or
none of the initiatives contained in the strategy state-
ment. Because the preparation of the strategy state-
ment does not relate solely to Company X’s role as
an investor of capital or a shareholder of Company Y,
the expense of preparing the document is not a share-
holder expense.
Example 15.Passive association/benefit.Com-
pany X is the parent corporation of a large controlled
group that has been in operation in the information-
technology sector for ten years. Company Y is a
small corporation that wasrecently acquired by the
Company X controlled group from local Country B
owners. Several months after the acquisition of Com-
pany Y, Company Y obtained a contract to redesign
and assemble the information-technology networks
and systems of a large financial institution in Coun-
try B. The project was significantly larger and more
complex than any other project undertaken to date by
Company Y. Company Y did not use Company X’s
marketing intangible property to solicit the contract,
and Company X had no involvement in the solicita-
tion, negotiation, or anticipated execution of the con-
tract. For purposes of this section, Company Y is not
considered to obtain a benefit from Company X or
any other member of the controlled group because
the ability of Company Y to obtain the contract, or
to obtain the contract on more favorable terms than
would have been possible prior to its acquisition by
the Company X controlled group, was due to Com-
pany Y’s status as a member of the Company X con-
trolled group and not to any specific activity by Com-
pany X or any other member of the controlled group.
Example 16.Passive association/benefit.The
facts are the same as inExample 15,exceptthatCom-
pany X executes a performance guarantee with re-
spect to the contract, agreeing to assist in the project
if Company Y fails to meet certain mileposts. This
performance guarantee allowed Company Y to obtain
the contract on materially more favorable terms than
otherwise would have been possible. Company Y is
considered to obtain a benefit from Company X’s ex-
ecution of the performance guarantee.
Example 17.Passive association/benefit.The
facts are the same as inExample 15, except that Com-
pany X began the process of negotiating the contract
with the financial institution in Country B before ac-
quiring Company Y. Once Company Y was acquired
by Company X, the contractwith the financial insti-
tutionwasenteredintobyCompanyY.CompanyY
is considered to obtain a benefit from Company X’s
negotiation of the contract.
Example 18.Passive association/benefit.The
facts are the same as inExample 15, except that Com-
pany X sent a letter to the financial institution in
Country B, which represented that Company X had
a certain percentage ownership in Company Y and
that Company X would maintain that same percent-
age ownership interest in Company Y until the con-
tract was completed. This letter allowed Company Y
to obtain the contract on more favorable terms than
otherwise would have been possible. Since this letter
from Company X to the financial institution simply
affirmed Company Y’s status as a member of the con-
trolled group and represented that this status would be
maintained until the contract was completed, Com-
pany Y is not consideredto obtain a benefit from
Company X’s furnishing of the letter.
Example 19.Passive association/benefit.(i)Sis
a company that supplies plastic containers to compa-
nies in various industries. S establishes the prices for
its containers through a price list that offers customers
discounts based solely on the volume of containers
purchased.
(ii) Company X is the parent corporation of a large
controlled group in the information technology sec-
tor. Company Y is a wholly-owned subsidiary of
Company X located in Country B. Company X and
Company Y both purchase plastic containers from
unrelated supplier S. In year 1, Company X purchases
1 million units and Company Y purchases 100,000
units. S, basing its prices on purchases by the entire
group, completes the order for 1.1 million units at a
price of $0.95 per unit, and separately bills and ships
the orders to each company. Companies X and Y un-
dertake no bargaining with supplier S with respect
to the price charged, and purchase no other products
from supplier S.
(iii) R1 and its wholly-owned subsidiary R2 are a
controlled group of taxpayers (unrelated to Company
X or Company Y) each of which carries out functions
comparable to those of Companies X and Y and un-
dertakes purchases of plastic containers from supplier
S, identical to those purchased from S by Company
X and Company Y, respectively. S, basing its prices
on purchases by the entire group, charges R1 and R2
$0.95 per unit for the 1.1 million units ordered. R1
and R2 undertake no bargaining with supplier S with
respect to the price charged, and purchase no other
products from supplier S.
(iv) U is an uncontrolled taxpayer that carries out
comparable functions and undertakes purchases of
plastic containers from supplier S identical to Com-
pany Y. U is not a member of a controlled group, un-
dertakes no bargaining with supplier S with respect
to the price charged, and purchases no other products
from supplier S. U purchases 100,000 plastic contain-
ers from S at the price of $1.00 per unit.
(v) Company X charges Company Y a fee
of $5,000, or $0.05 per unit of plastic containers
purchased by Company Y, reflecting the fact that
August 17, 20092312009–33 I.R.B.

Company Y receives the volume discount from sup-
plier S.
(vi) In evaluating the fee charged by Company X
to Company Y, the Commissioner considers whether
the transactions between R1, R2, and S or the trans-
actions between U and S provide a more reliable
measure of the transactions between Company X,
Company Y and S. The Commissioner determines
that Company Y’s status as a member of a controlled
group should be taken into account for purposes of
evaluating comparability of the transactions, and
concludes that the transactions between R1, R2,
and S are more reliably comparable to the transac-
tionsbetweenCompanyX,CompanyY,andS.The
comparable charge for the purchase was $0.95 per
unit. Therefore, obtaining the plastic containers at
a favorable rate (and the resulting $5,000 savings)
is entirely due to Company Y’s status as a member
of the Company X controlled group and not to any
specific activity by Company X or any other member
of the controlled group. Consequently, Company Y
is not considered to obtain a benefit from Company
X or any other member of the controlled group.
Example 20.Disaggregation of transactions.(i)
X, a domestic corporation, is a pharmaceutical com-
pany that develops and manufactures ethical phar-
maceutical products. Y, a Country B corporation, is
a distribution and marketing company that also per-
forms clinical trials for X in Country B. Because Y
does not possess the capability to conduct the trials,
it contracts with a third party to undertake the trials at
a cost of $100. Y also incurs $25 in expenses related
to the third-partycontract (for example, in hiring and
working with the third party).
(ii) Based on a detailed functional analysis, the
Commissioner determines that Y performed func-
tions beyond merely facilitating the clinical trials for
X, such as audit controls of the third party performing
those trials. In determining the arm’s length price,
the Commissioner may consider a number of alter-
natives. For example, for purposes of determining
the arm’s length price, the Commissioner may deter-
mine that the intercompany service is most reliably
analyzed on a disaggregated basis as two separate
transactions: in this case, the contract between Y
and the third party could constitute an internal CUSP
with a price of $100. Y would be further entitled
to an arm’s length remuneration for its facilitating
services. If the most reliable method is one that
provides a markup on Y’s costs, then “total services
cost” in this context would be $25. Alternatively, the
Commissioner may determine that the intercompany
service is most reliably analyzed as a single transac-
tion, based on comparableuncontrolled transactions
involving the facilitation of similar clinical trial ser-
vices performed by third parties. If the most reliable
method is one that provides a markup on all of Y’s
costs, and the base of the markup determined by
the comparable companies includes the third-party
clinical trial costs, then such a markup would be
applied to Y’s total services cost of $125.
Example 21.Disaggregation of transactions.(i)
X performs a number of administrative functions for
its subsidiaries, including Y, a distributor of widgets
in Country B. These services include those relating
to working capital (inventory and accounts receiv-
able/payable) management. To facilitate provision of
these services, X purchases an ERP system specifi-
cally dedicated to optimizing working capital man-
agement. The system, which entails significant third-
party costs and which includes substantial intellectual
property relating to its software, costs $1000.
(ii) Based on a detailed functional analysis, the
Commissioner determines that in providing adminis-
trative services for Y, X performed functions beyond
merely operating the ERP system itself, since X was
effectively using the ERP as an input to the adminis-
trative services it was providing to Y. In determining
arm’s length price for the services, the Commissioner
may consider a number of alternatives. For example,
if the most reliable uncontrolled data is derived from
companies that use similar ERP systems purchased
from third parties to perform similar administrative
functions for uncontrolled parties, the Commissioner
may determine that a CPM is the best method for
measuring the functions performed by X, and, in ad-
dition, that a markup on total services costs, based
on the markup from the comparable companies, is
the most reliable PLI. In this case, total services cost,
and the basis for the markup, would include appro-
priate reflection of the ERP costs of $1000. Alter-
natively, X’s functions may be most reliably mea-
sured based on comparable uncontrolled companies
that perform similar administrative functions using
their customers’ own ERP systems. Under these cir-
cumstances, the total services cost would equal X’s
costs of providing the administrative services exclud-
ing the ERP cost of $1000.
(m)Coordination with transfer pricing
rules for other transactions—(1)Services
transactions that include other types of
transactions. A transaction structured as
a controlled services transaction may in-
clude other elements for which a sepa-
rate category or categories of methods are
provided, such as a loan or advance, a
rental, or a transfer of tangible or intan-
gible property. See §§1.482–1(b)(2) and
1.482–2(a), (c), and (d). Whether such
an integrated transaction is evaluated as a
controlled services transaction under this
section or whether one or more elements
should be evaluated separately under other
sections of the section 482 regulations de-
pends on which approach will provide the
most reliable measure of an arm’s length
result. Ordinarily, an integrated transac-
tion of this type may be evaluated under
this section and its separate elements need
not be evaluated separately, provided that
each component of the transaction may be
adequately accounted for in evaluating the
comparability of the controlled transaction
to the uncontrolled comparables and, ac-
cordingly, in determining the arm’s length
result in the controlled transaction. See
§1.482–1(d)(3).
(2)Services transactions that effect a
transfer of intangible property.Atrans-
action structured as a controlled services
transaction may in certain cases include an
element that constitutes the transfer of in-
tangible property or may result in a trans-
fer, in whole or in part, of intangible prop-
erty. Notwithstanding paragraph (m)(1) of
this section, if such element relating to in-
tangible property is material to the evalu-
ation, the arm’s length result for the ele-
ment of the transaction that involves intan-
gible property must be corroborated or de-
termined by an analysis under §1.482–4.
(3) [Reserved]. For further guidance,
see §1.482–9T(m)(3).
(4)Other types of transactions that
include controlled services transactions.
A transaction structured other than as a
controlled services transaction may in-
clude one or more elements for which
separate pricing methods are provided in
this section. Whether such an integrated
transaction is evaluated under another
section of the section 482 regulations or
whether one or more elements should be
evaluated separatelyunder this section de-
pends on which approach will provide the
most reliable measure of an arm’s length
result. Ordinarily, a single method may
beappliedtosuchanintegratedtransac-
tion, and the separate services component
of the transaction need not be separately
analyzed under this section, provided that
the controlled services may be adequately
accounted for in evaluating the compa-
rability of the controlled transaction to
the uncontrolled comparables and, ac-
cordingly, in determining the arm’s length
results in the controlled transaction. See
§1.482–1(d)(3).
(5)Examples. The principles of this
paragraph (m) are illustrated by the follow-
ing examples:
Example 1. (i) U.S. parent corporation Company
X enters into an agreement to maintain equipment
of Company Y, a foreign subsidiary. The mainte-
nance of the equipment requires the use of spare parts.
The cost of the spare parts necessary to maintain the
equipment amounts to approximately 25 percent of
the total costs of maintaining the equipment. Com-
pany Y pays a fee that includes a charge for labor and
parts.
(ii) Whether this integrated transaction is eval-
uated as a controlled services transaction or is
evaluated as a controlled services transaction and the
transfer of tangible property depends on which ap-
proach will provide the most reliable measure of an
arm’s length result. If it is not possible to find compa-
rable uncontrolled services transactions that involve
similar services and tangible property transfers as
the controlled transaction between Company X and
Company Y, it will be necessary to determine the
arm’s length charge for the controlled services, and
then to evaluate separately the arm’s length charge for
2009–33 I.R.B.232August 17, 2009

the tangible property transfers under §1.482–1 and
§§1.482–3 through 1.482–6. Alternatively, it may
be possible to apply the comparable profits method
of §1.482–5 to evaluate the arm’s length profit of
Company X or Company Y from the integrated con-
trolled transaction. The comparable profits method
may provide the most reliable measure of an arm’s
length result if uncontrolled parties are identified that
perform similar, combined functions of maintaining
and providing spare parts for similar equipment.
Example 2. (i) U.S. parent corporation Company
X sells industrial equipment to its foreign subsidiary,
Company Y. In connection with this sale, Company
X renders to Company Y services that consist of
demonstrating the use of the equipment and assisting
in the effective start-up of the equipment. Company
X structures the integrated transaction as a sale of
tangible property and determines the transfer price
under the comparable uncontrolled price method of
§1.482–3(b).
(ii) Whether this integrated transaction is evalu-
ated as a transfer of tangible property or is evaluated
as a controlled services transaction and a transfer of
tangible property depends on which approach will
provide the most reliable measure of an arm’s length
result. In this case, the controlled services may be
similar to services rendered in the transactions used
to determine the comparable uncontrolled price, or
they may appropriately be considered a difference
between the controlled transaction and comparable
transactions with a definite and reasonably ascertain-
able effect on price for which appropriate adjustments
can be made. See §1.482–1(d)(3)(ii)(A)(6). In either
case, application of the comparable uncontrolled
price method to evaluate the integrated transaction
may provide a reliable measure of an arm’s length
result, and application of a separate transfer pricing
method for the controlled services element of the
transaction is not necessary.
Example 3. (i)ThefactsarethesameasinEx-
ample 2except that, after assisting Company Y in
start-up, Company X also renders ongoing services,
including instruction and supervision regarding Com-
pany Y’s ongoing use of the equipment. Company X
structures the entire transaction, including the incre-
mental ongoing services, as a sale of tangible prop-
erty, and determines the transfer price under the com-
parable uncontrolled price method of §1.482–3(b).
(ii) Whether this integrated transaction is evalu-
ated as a transfer of tangible property or is evalu-
ated as a controlled services transaction and a trans-
fer of tangible property depends on which approach
will provide the most reliable measure of an arm’s
length result. It may not be possible to identify com-
parable uncontrolled transactions in which a seller of
merchandise renders services similar to the ongoing
services rendered by Company X to Company Y. In
such a case, the incremental services in connection
with ongoing use of the equipment could not be taken
into account as a comparability factor because they
are not similar to the services rendered in connection
with sales of similar tangible property. Accordingly,
it may be necessary to evaluate separately the transfer
price for such services under this section in order to
produce the most reliable measure of an arm’s length
result. Alternatively, it may be possible to apply the
comparable profits method of §1.482–5 to evaluate
the arm’s length profit of Company X or Company Y
from the integrated controlled transaction. The com-
parable profits method may provide the most reliable
measure of an arm’s length result if uncontrolled par-
ties are identified that perform the combined func-
tions of selling equipment and rendering ongoing af-
ter-sale services associated with such equipment. In
that case, it would not be necessary to separately eval-
uate the transfer price for the controlled services un-
der this section.
Example 4. (i) Company X, a U.S. corporation,
and Company Y, a foreign corporation, are members
of a controlled group. Both companies perform re-
search and development activities relating to inte-
grated circuits. In addition, Company Y manufac-
tures integrated circuits. In years 1 through 3, Com-
pany X engages in substantial research and develop-
ment activities, gains significant know-how regard-
ing the development of a particular high-temperature
resistant integrated circuit, and memorializes that re-
search in a written report. In years 1 through 3, Com-
pany X generates overall net operating losses as a re-
sult of the expenditures associated with this research
and development effort. At the beginning of year 4,
Company X enters into a technical assistance agree-
ment with Company Y. As part of this agreement,
the researchers from Company X responsible for this
project meet with the researchers from Company Y
and provide them with a copy of the written report.
Three months later, the researchers from Company
Y apply for a patent for a high-temperature resis-
tant integrated circuit based in large part upon the
know-how obtained from the researchers from Com-
pany X.
(ii) The controlled services transaction between
Company X and Company Y includes an element that
constitutes the transfer of intangible property (such
as, know-how). Because the element relating to the
intangible property is material to the arm’s length
evaluation, the arm’s length result for that element
must be corroborated or determined by an analysis
under §1.482–4.
(6)Global dealing operations.[Re-
served].
(n)Effective/applicability date—(1)In
general. This section is generally applica-
ble for taxable years beginning after July
31, 2009. In addition, a person may elect
to apply the provisions of this section to
earlier taxable years. See paragraph (n)(2)
of this section.
(2)Election to apply regulations to
earlier taxable years—(i)Scope of elec-
tion. A taxpayer may elect to apply
§1.482–1(a)(1), (b)(2)(i), (d)(3)(ii)(C)Ex-
amples 3through6, (d)(3)(v), (f)(2)(ii)(A),
(f)(2)(iii)(B), (g)(4)(i), (g)(4)(iii)Example
1, (i), (j)(6)(i) and (j)(6)(ii), §1.482–2(b),
(f)(1) and (2), §1.482–4(f)(3)(i)(A),
(f)(3)(ii)Examples 1and2, (f)(4),
(h)(1) and (2), §1.482–6(c)(2)(ii)(B)(1),
(c)(2)(ii)(D), (c)(3)(i)(A), (c)(3)(i)(B),
(c)(3)(ii)(D), and (d), §1.482–8(b)
Examples 10through12,(c)(1)and
(c)(2), §1.482–9(a) through (m)(2), and
(m)(4) through (n)(2), §1.861–8(a)(5)(ii),
(b)(3), (e)(4), (f)(4)(i), (g)Examples
17,18,and30, §1.6038A–3(a)(3)Ex-
ample 4and (i), §1.6662–6(d)(2)(ii)(B),
(d)(2)(iii)(B)(4), (d)(2)(iii)(B)(6), and (g),
and §31.3121(s)–1(c)(2)(iii) and (d) of
this chapter to any taxable year beginning
after September 10, 2003. Such election
requires that all of the provisions of such
sections be applied to such taxable year
and all subsequent taxable years (earlier
taxable years) of the taxpayer making the
election.
(ii)Effect of election.Anelectiontoap-
ply the regulations to earlier taxable years
has no effect on the limitations on assess-
ment and collection or on the limitations
on credit or refund (see Chapter 66 of the
Internal Revenue Code).
(iii)Time and manner of making elec-
tion. An election to apply the regula-
tions to earlier taxable years must be made
by attaching a statement to the taxpayer’s
timely filed U.S. tax return (including ex-
tensions) for its first taxable year begin-
ning after July 31, 2009.
(iv)Revocation of election. An election
to apply the regulations to earlier taxable
years may not be revoked without the con-
sent of the Commissioner.
Par. 15. Section 1.482–9T is amended
by revising paragraphs (a), (b), (c), (d),
(e), (f), (g), (h), (i), (j), (k), (l), (m)(1),
(m)(2), (m)(4), (m)(5), and (n), and adding
paragraph (o) to read as follows:
§1.482–9T Methods to determine taxable
income in connection with a controlled
services transaction (temporary).
(a) through (m)(2) [Reserved]. For
further guidance, see §1.482–9(a) through
(m)(2).
(3) * * *
(4) and (m)(5) [Reserved]. For further
guidance, see §1.482–9(m)(4) and (m)(5).
(n)Effective/applicability date. Para-
graph (m)(3) of this section is generally ap-
plicable on January 5, 2009.
(o)Expiration date. The applicability
of paragraph (m)(3) of this section expires
on December 30, 2011.
Par. 16. Section 1.861–8 is amended
by revising paragraphs (a)(5)(ii), (b)(3),
(e)(4), (f)(4), (g)Examples 17,18and30,
and (h) to read as follows:
August 17, 20092332009–33 I.R.B.

§1.861–8 Computation of taxable income
from sources within the United States and
from other sources and activities.
*****
(a) * * *
(5) * * *
(ii) Paragraph (e)(4), the last sentence
of paragraph (f)(4)(i), and paragraph (g),
Examples 17,18,and30of this section are
generally applicable for taxable years be-
ginning after July 31, 2009. In addition,
a person may elect to apply the provisions
of paragraph (e)(4) of this section to ear-
lier years. Such election shall be made
in accordance with the rules set forth in
§1.482–9(n)(2).
*****
(b) * * *
(3)Supportive functions. Deductions
which are supportive in nature (such as
overhead, general and administrative, and
supervisory expenses) may relate to other
deductions which can more readily be al-
located to gross income. In such instance,
such supportive deductions may be allo-
cated and apportioned along with the de-
ductions to which they relate. On the
other hand, it would be equally accept-
able to attribute supportive deductions on
some reasonable basis directly to activi-
ties or property which generate, have gen-
erated or could reasonably be expected to
generate gross income. This would ordi-
narily be accomplished by allocating the
supportive expenses to all gross income
or to another broad class of gross income
and apportioning the expenses in accor-
dance with paragraph (c)(1) of this section.
For this purpose, reasonable departmental
overhead rates may be utilized. For ex-
amples of the application of the principles
of this paragraph (b)(3) to expenses other
than expenses attributable to stewardship
activities, seeExamples 19through21of
paragraph (g) of this section. See para-
graph (e)(4)(ii) of this section for the allo-
cation and apportionment of deductions at-
tributable to stewardship expenses. How-
ever, supportive deductions that are de-
scribed in §1.861–14T(e)(3) shall be allo-
cated and apportioned in accordance with
the rules of §1.861–14T and shall not be al-
located and apportioned by reference only
to the gross income of a single member of
an affiliated group of corporations as de-
fined in §1.861–14T(d).
*****
(e) * * *
(4)Stewardship and controlled ser-
vices—(i)Expenses attributable to con-
trolled services. If a corporation performs
a controlled servicestransaction (as de-
fined in §1.482–9(l)(3)), which includes
any activity by one member of a group
of controlled taxpayers that results in a
benefit to a related corporation, and the
rendering corporation charges the related
corporation for such services, section 482
and these regulations provide for an allo-
cation where the charge is not consistent
with an arm’s length result as determined.
The deductions for expenses of the cor-
poration attributable to the controlled
services transaction are considered defi-
nitely related to the amounts so charged
and are to be allocated to such amounts.
(ii)Stewardship expenses attributable
to dividends received.Stewardshipex-
penses, which result from “overseeing”
functions undertaken for a corporation’s
own benefit as an investor in a related
corporation, shall be considered defi-
nitely related and allocable to dividends
received, or to be received, from the re-
lated corporation. For purposes of this
section, stewardship expenses of a corpo-
ration are those expenses resulting from
“duplicative activities” (as defined in
§1.482–9(l)(3)(iii)) or “shareholder activ-
ities” (as defined in §1.482–9(l)(3)(iv))
of the corporation with respect to the re-
lated corporation. Thus, for example,
stewardship expenses include expenses
of an activity the sole effect of which is
either to protect the corporation’s capital
investment in the related corporation or
to facilitate compliance by the corpora-
tion with reporting, legal, or regulatory
requirements applicable specifically to
the corporation, or both. If a corporation
has a foreign or international department
which exercises overseeing functions with
respect to related foreign corporations
and, in addition, the department per-
forms other functions that generate other
foreign-source income (such as fees for
services rendered outside of the United
States for the benefit of foreign related
corporations, foreign-source royalties, and
gross income of foreign branches), some
part of the deductions with respect to that
department are considered definitely re-
lated to the other foreign-source income.
In some instances, the operations of a
foreign or international department will
also generate United States source income
(such as fees for services performed in the
United States). Permissible methods of
apportionment with respect to stewardship
expenses include comparisons of time
spent by employees weighted to take into
account differences in compensation, or
comparisons of each related corporation’s
gross receipts, gross income, or unit sales
volume, assuming that stewardship activ-
ities are not substantially disproportionate
to such factors. See paragraph (f)(5) of
this section for the type of verification
that may be required in this respect. See
§1.482–9(l)(5) for examples that illustrate
the principles of §1.482–9(l)(3). SeeEx-
ample 17andExample 18of paragraph
(g) of this section for the allocation and
apportionment of stewardship expenses.
See paragraph (b)(3) of this section for the
allocation and apportionment of deduc-
tions attributable to supportive functions
other than stewardship expenses, such
as expenses in the nature of day-to-day
management, and paragraph (e)(5) of this
section generally for the allocation and
apportionment of deductions attributable
to legal and accounting fees and expenses.
*****
(f) * * *
(4)Adjustments made under other pro-
visions of the Code—(i)In general.Ifan
adjustment which affects the taxpayer is
made under section 482 or any other pro-
vision of the Code, it may be necessary
to recompute the allocations and appor-
tionments required by this section in or-
der to reflect changes resulting from the
adjustment. The recomputation made by
the Commissioner shall be made using the
same method of allocation and apportion-
ment as was originally used by the tax-
payer, provided such method as originally
used conformed with paragraph (a)(2) of
this section and, in light of the adjustment,
such method does not result in a mate-
rial distortion. In addition to adjustments
which would be made aside from this sec-
tion, adjustments to the taxpayer’s income
and deductions which would not otherwise
be made may be required before applying
this section in order toprevent a distortion
in determining taxable income from a par-
ticular source of activity. For example, if
an item included as a part of the cost of
goods sold has been improperly attributed
2009–33 I.R.B.234August 17, 2009

tospecificsales,and,asaresult,grossin-
come under one of the operative sections
referred to in paragraph (f)(1) of this sec-
tion is improperly determined, it may be
necessary for the Commissioner to make
an adjustment to the cost of goods sold,
consistent with the principles of this sec-
tion, before applying this section. Sim-
ilarly, if a domestic corporation transfers
the stock in its foreign subsidiaries to a do-
mestic subsidiary and the parent corpora-
tion continues to incur expenses in con-
nection with protecting its capital invest-
ment in the foreign subsidiaries (see para-
graph (e)(4) of this section), it may be nec-
essary for the Commissioner to make an al-
location under section 482 with respect to
such expenses before making allocations
and apportionments required by this sec-
tion, even though the section 482 alloca-
tion might not otherwise be made.
*****
(g) * * *
Example 17.Stewardship expenses (consoli-
dation).(i)(A)Facts. X, a domestic corporation,
wholly owns M, N, and O, also domestic corpora-
tions. X, M, N, and O file a consolidated income tax
return. All the income of X and O is from sources
within the United States, all of M’s income is gen-
eral category income from sources within South
America, and all of N’s income is general category
income from sources within Africa. X receives
no dividends from M, N, or O. During the taxable
year, the consolidated group of corporations earned
consolidated gross income of $550,000 and incurred
total deductions of $370,000 as follows:
Gross incomeDeductions
Corporations:
X .............................................................
$100,000$50,000
M .............................................................
250,000
100,000
N .............................................................
150,000
200,000
O .............................................................
5
0,000
20,000
Total........................................................
550,000
370,000
(B) Of the $50,000 of deductions incurred by
X, $15,0
00 relates to X’s ownership of M; $10,000
relates to X’s ownership of N; $5,000 relates to X’s
ownership of O; and the sole effect of the entire
$30,000
of deductions is to protect X’s capital in-
vestment in M, N, and O. X properly categorizes
the $30,000 of deductions as stewardship expenses.
The rema
inder of X’s deductions ($20,000) relates to
production of United States source income from its
plant in the United States.
(ii) (A)Allocation. X’s deductions of $50,000 are
definit
ely related and thus allocable to the types of
gross income to which they give rise; namely $25,000
wholly to general category income from sources out-
side the
United States ($15,000 for stewardship of M
and $10,000 for stewardship of N) and the remain-
der ($25,000) wholly to gross income from sources
within t
he United States. Expenses incurred by M
and N are entirely related and thus wholly allocable
to general category income earned from sources with-
out the
UnitedStates,andexpensesincurredbyOare
entirely related and thus wholly allocable to income
earned w
ithin the United States. Hence, no appor-
tionmentofexpensesofX,M,N,orOisnecessary.
For purposes of applying the foreign tax credit limita-
tion, th
e statutory grouping is general category gross
income from sources without the United States and
the residual grouping is gross income from sources
within t
he United States. As a result of the allocation
of deductions, the X consolidated group has taxable
income from sources without the United States in the
amount
of $75,000, computed as follows:
Foreignsourcegeneralcategorygrossincome($250,000fromM+$150,000fromN) ..................................$400,000
Less: Deductions allocable to foreign source general category gross income ($25,000 from X, $100,000 from M, and $200,000
fromN) ................................................................................................(
325,000)
Totalforeign-sourcetaxableincome .......................................................................
75,000
(B) Thus, in the combined computation of the
general category limitation, the numerator of the lim-
iting fraction (taxable income from sources outside
the United States) is $75,000.
Example 18.Stewardship and supportive ex-
penses.(i)(A)Facts. X, a domestic corporation,
manufactures and sells pharmaceuticals in the United
States. X’s domestic subsidiary S, and X’s foreign
subsidiaries T, U, and V perform similar functions
in the United States and foreign countries T, U, and
V, respectively. Each corporation derives substantial
net income during the taxable year that is general
category income described in section 904(d)(1). X’s
gross income for the taxable year consists of:
Domesticsalesincome ............................................
$32,000,000
Dividends from S (before dividends received deduction) . . . . . . . . . . . . . . . . . .3,000,000
DividendsfromT ................................................2,000,000
DividendsfromU ................................................1,000,000
DividendsfromV ................................................0
Royalties from T and U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,000,000
FeesfromUforservicesperformedbyX..............................1
,000,000
Totalgrossincome................................................40,000,000
(B) In addition, X incurs expenses of its supervi-
sion department of $1,500,000.
(C) X’s supervision department (the Depart-
ment) is responsible for the supervision of its four
subsidiaries and for rendering certain services to
the subsidiaries, and this Department provides all
the supportive functions necessary for X’s foreign
activities. The Department performs three principal
types of activities. The first type consists of ser-
vices for the direct benefit of U for which a fee is
paid by U to X. The cost of the services for U is
$900,000 (which results in a total charge to U of
$1,000,000). The second type consists of activities
described in §1.482–9(l)(3)(iii) that are in the nature
of shareholder oversight that duplicate functions
performed by the subsidiaries’ own employees and
that do not provide an additional benefit to the sub-
sidiaries. For example, a team of auditors from
X’s accounting department periodically audits the
subsidiaries’ books and prepares internal reports for
use by X’s management. Similarly, X’s treasurer
August 17, 20092352009–33 I.R.B.

periodically reviews for the board of directors of X
the subsidiaries’ financial policies. These activities
do not provide an additional benefit to the related
corporations. The cost of the duplicative services
and related supportive expenses is $540,000. The
third type of activity consists of providing services
which are ancillary to the license agreements which
X maintains with subsidiaries T and U. The cost of
the ancillary services is $60,000.
(ii)Allocation. The Department’s outlay of
$900,000 for services rendered for the benefit of U
is allocated to the $1,000,000 in fees paid by U. The
remaining $600,000 in the Department’s deductions
are definitely related to the types of gross income to
which they give rise, namely dividends from sub-
sidiaries S, T, U, and V and royalties from T and
U. However, $60,000 of the $600,000 in deductions
are found to be attributable to the ancillary services
and are definitely related (and therefore allocable)
solely to royalties received from T and U, while the
remaining $540,000 in deductions are definitely re-
lated (and therefore allocable) to dividends received
from all the subsidiaries.
(iii) (A)Apportionment. For purposes of applying
the foreign tax credit limitation, the statutory group-
ing is general category gross income from sources
outside the United States and the residual grouping is
gross income from sources within the United States.
X’s deduction of $540,000 for the Department’s ex-
penses and related supportive expenses which are al-
locable to dividends received from the subsidiaries
must be apportioned between the statutory and resid-
ual groupings before the foreign tax credit limita-
tion may be applied. In determining an appropriate
method for apportioning the $540,000, a basis other
than X’s gross income must be used since the divi-
dend payment policies of the subsidiaries bear no re-
lationship either to the activities of the Department or
to the amount of income earned by each subsidiary.
This is evidenced by the fact that V paid no divi-
dends during the year, whereas S, T, and U paid div-
idends of $1 million or more each. In the absence
of facts that would indicate a material distortion re-
sulting from the use of such method, the stewardship
expenses ($540,000) may be apportioned on the basis
of the gross receipts of each subsidiary.
(B) The gross receipts of the subsidiaries were as
follows:
S..............................................................
$4,000,000
T..............................................................
3,000,000
U .............................................................
500,000
V .............................................................
1
,500,000
Total...........................................................9,000,000
(C) Thus, the expenses of the Department are ap-
portioned for purposes of the foreign tax credit limi-
tation as follows:
Apportionment of stewardship expenses to the statutory grouping of gross income: $540,000 x [($3,000,000 + $500,000 +
$1,500,000)/$9,000,000] ...................................................................................$300,000
Apportionment of supervisory expenses to the residual grouping of gross income: $540,000 x [$4,000,000/9,000,000] . . . . . . . .
2
40,000
Total:Apportionedstewardshipexpense ......................................................................
$540,000
*****
Exam
ple 30.Income taxes.(i)(A)Facts.As
inExample 17of this paragraph (g), X is a domes-
tic corporation that wholly owns M, N, and O, also
dom
estic corporations. X, M, N, and O file a con-
solidated income tax return. All the income of X
and O is from sources within the United States, all of
M’s
income is general category income from sources
within South America, and all of N’s income is gen-
eral category income from sources within Africa. X
re
ceives no dividends from M, N, or O. During the
taxable year, the consolidated group of corporations
earned consolidated gross income of $550,000 and in-
cu
rred total deductions of $370,000. X has gross in-
come of $100,000 and deductions of $50,000, with-
out regard to its deduction for state income tax. Of
t
he $50,000 of deductions incurred by X, $15,000 re-
lates to X’s ownership of M; $10,000 relates to X’s
ownership of N; $5,000 relates to X’s ownership of
O
; and the entire $30,000 constitutes stewardship ex-
penses. The remainder of X’s $20,000 of deductions
(which is assumed not to include state income tax)
relates to production of U. S. source income from its
plant in the United States. M has gross income of
$250,000 and deductions of $100,000, which yield
foreign-source general category taxable income of
$150,000. N has gross income of $150,000 and de-
ductions of $200,000, which yield a foreign-source
general category loss of $50,000. O has gross income
of $50,000 and deductions of $20,000, which yield
U.S. source taxable income of $30,000.
(B) UnlikeExample 17of this paragraph (g),
however, X also has a deduction of $1,800 for state
A income taxes. X’s state A taxable income is com-
put
ed by first making adjustments to the Federal
taxable income of X to derive apportionable taxable
income for state A tax purposes. An analysis of state
Ala
w indicates that state A law also includes in its
definition of the taxable business income of X which
is apportionable to X’s state A activities, the taxable
in
come of M, N, and O, which is related to X’s
business. As inExample 25of this paragraph (g), the
amount of apportionable taxable income attributable
to
business activities conducted in state A is deter-
mined by multiplying apportionable taxable income
by a fraction (the “state apportionment fraction”) that
c
ompares the relative amounts of payroll, property,
and sales within state A with worldwide payroll,
property, and sales. Assuming that X’s apportion-
a
ble taxable income equals $180,000, $100,000 of
which is from sources without the United States, and
$80,000 is from sources within the United States,
a
nd that the state apportionment fraction is equal to
10 percent, X has state A taxable income of $18,000.
The state A income tax of $1,800 is then derived by
applying the state A income tax rate of 10 percent to
the $18,000 of state A taxable income.
(ii)Allocation and apportionment. Assume that
underExample 29of this paragraph (g), it is deter-
mined that X’s deduction for state A income tax is
definitely related to a class of gross income consist-
ing of income from sources both within and without
the United States, and that the state A tax is appor-
tioned $1,000 to sources without the United States,
and $800 to sources within the United States. Un-
derExample 17of this paragraph (g), without regard
to the deduction for X’s state A income tax, X has a
sep
arate loss of ($25,000) from sources without the
United States. After taking into account the deduc-
tion for state A income tax,X’s separate loss from
sou
rces without the United States is increased by the
$1,000 state A tax apportioned to sources without the
United States, and equals a loss of ($26,000), for pur-
po
ses of computing the numerator of the consolidated
general category foreign tax credit limitation.
Par. 17. Section 1.861–8T is amended
by revising paragraphs (a)(3), (a)(4),
(a)(5), (b), (e)(3), (e)(4), (e)(5), (e)(6),
(e)(7), (e)(8), (e)(9), (e)(10), (e)(11),
(f)(1)(i), (f)(1)(iii), (f)(2), (f)(3), (f)(4),
(f)(5), (g)Examples 1,2,3,4,5,6,7,8,9,
10,11,12,13,14,15,16,17,18,19,20,
21,22,22,23,and30, and (h) to read as
follows:
§
1.861–8T Computation of taxable
income from sources within the United
States and from other sources and
activities (temporary).
*****
(a)(3) through (b) [Reserved]. For fur-
ther guidance, see §1.861–8(a)(3) through
(b).
*****
2009–33 I.R.B.236August 17, 2009

(e) * * *
(3) through (f)(1)(i) [Reserved]. For
further guidance, see §1.861–8(e)(3)
through (f)(1)(i).
*****
(f)(1)(iii) through (g)Examples 1
through 23[Reserved]. For further guid-
ance, see §1.861–8(f)(1)(iii) through (g)
Examples 1 through 23.
*****
Example 30. [Reserved]. For further
guidance, see §1.861–8(g)Example 30.
(h)Effective/applicability date.(1)
Paragraphs (f)(1)(vi)(E), (f)(1)(vi)(F), and
(f)(1)(vi)(G) of this section apply to tax-
able years ending after April 9, 2008.
(2) Paragraph (e)(4), the last sentence
of paragraph (f)(4)(i), and paragraph (g),
Examples 17,18,and30of this section
apply to taxable years beginning after July
31, 2009.
(3) Also, see paragraph (e)(12)(iv) of
this section and 1.861–14(e)(6) for rules
concerning the allocation and apportion-
ment of deductions for charitable contribu-
tions.
Par. 18. Section 1.861–9T(k) is
amended by adding new first and second
sentences to read as follows:
§1.861–9T Allocation and apportionment
of interest expense (temporary).
*****
(k) * * *In general, the rules of this sec-
tion apply for taxable years beginning af-
ter December 31, 1986. Paragraphs (b)(2)
(concerning the treatment of certain for-
eign currency) and (d)(2) (concerning the
treatment of interest incurred by nonresi-
dent aliens) of this section are applicable
for taxable years commencing after De-
cember 31, 1988. * * *
Par. 19. Section 1.861–10T is amended
by revising the section heading and adding
new paragraph (f) to read as follows:
§1.861–10T Special allocations of interest
expense (temporary).
*****
(f)Effective/applicability date.(1)In
general, the rules of this section apply for
taxable years beginning after December
31, 1986.
(2) Paragraphs (b)(3)(ii) (providing an
operating costs test for purposes of the
nonrecourse indebtedness exception) and
(b)(6) (concerning excess collaterization
of nonrecourse borrowings) of this section
are applicable for taxable years commenc-
ing after December 31, 1988.
(3) Paragraph (e) (concerning the treat-
ment of related controlled foreign corpora-
tion indebtedness) of this section is appli-
cable for taxable years commencing after
December 31, 1987. For rules for taxable
years beginning before January 1, 1987,
and for later years to the extent permitted
by §1.861–13T, see §1.861–8 (revised as
of April 1, 1986).
Par. 20. Section 1.861–11T is amended
by revising the section heading and adding
new paragraph (h) to read as follows:
§1.861–11T Special rules for allocating
and apportioning interest expense of
an affiliated group of corporations
(temporary).
*****
(h)Effective/applicability date.The
rules of this section apply for taxable years
beginning after December 31, 1986.
Par. 21. Section 1.861–12T is amended
by revising the section heading and adding
new paragraph (k) to read as follows:
§1.861–12T Characterization rules
and adjustments for certain assets
(temporary).
*****
(k)Effective/applicability date.The
rules of this section apply for taxable years
beginning after December 31, 1986.
Par. 22. Section 1.861–14T is amended
by adding new paragraph (k) to read as
follows:
§1.861–14T Special rules for allocating
and apportioning certain expenses (other
than interest expense) of an affiliated
group of corporations (temporary).
*****
(k)Effective/applicability date.The
rules of this section apply for taxable years
beginning after December 31, 1986.
§1.6038A–1 [Amended]
Par. 23. Section 1.6038A–1 is amended
by removing paragraph (n)(3) and redesig-
nating paragraphs (n)(4), (n)(5), (n)(6) and
(n)(7) as paragraphs (n)(3), (n)(4), (n)(5)
and (n)(6), respectively.
Par. 24. Section 1.6038A–3 is amended
by revising paragraphs (a)(3)Example 4,
and (i) to read as follows:
§1.6038A–3 Record maintenance
.
(a) * * *
(3) * * *
Example 4. S, a U.S. reporting corporation, pro-
vides computer consulting services for its foreign par-
ent, X. Based on the application of section 482 and
the regulations, it is determined that the cost of ser-
vices plus method, as described in §1.482–9(e), will
provide the most reliable measure of an arm’s length
result, based on the facts and circumstances of the
controlled transaction between S and X. S is required
to maintain records to permit verification upon audit
of the comparable transactional costs (as described in
§1.482–9(e)(2)(iii)) used to calculate the arm’s length
price. Based on the facts and circumstances, if it is
determined that X’s records are relevant to determine
the correct U.S. tax treatment of the controlled trans-
action between S and X, the record maintenance re-
quirements under section 6038A(a) and this section
will be applicable to the records of X.
*****
(i)Effective/applicability date—(1)In
general. This section is generally appli-
cable on December 10, 1990. However,
records described in this section in exis-
tence on or after March 20, 1990, must
be maintained, without regard to when the
taxable year to which the records relate be-
gan. Paragraph (a)(3)Example 4of this
section is generally applicable for taxable
years beginning after July 31, 2009.
(2)Election to apply regulation to ear-
lier taxable years. A person may elect to
apply the provisions of paragraph (a)(3)
Example 4of this section to earlier taxable
years in accordance with the rules set forth
in §1.482–9(n)(2).
§1.6038A–3T [Removed]
Par. 25. Section 1.6038A–3T is re-
moved.
Par. 26. Section 1.6662–6 is amended
by revising paragraphs (d)(2)(ii)(B),
(d)(2)(iii)(B)(4), (d)(2)(iii)(B)(6), and (g)
to read as follows:
§1.6662–6 Transactions between persons
described in section 482 and net section
482 transfer price adjustments.
*****
(d) * * *
(2) * * *
(ii) * * *
(B)Services cost method. A taxpayer’s
selection of the services cost method for
August 17, 20092372009–33 I.R.B.

certain services, described in §1.482–9(b),
and its application of that method to a
controlled services transaction will be
considered reasonable for purposes of
the specified method requirement only
if the taxpayer reasonably allocated and
apportioned costsin accordance with
§1.482–9(k), and reasonably concluded
that the controlled services transaction
satisfies the requirements described in
§1.482–9(b)(2). Whether the taxpayer’s
conclusion was reasonable must be de-
termined from all the facts and circum-
stances. The factors relevant to this de-
termination include those described in
paragraph (d)(2)(ii)(A) of this section, to
the extent applicable.
*****
(iii) * * *
(B)***
(4) A description of the method selected
and an explanation of why that method
was selected, including an evaluation of
whether the regulatory conditions and re-
quirements for application of that method,
if any, were met;
*****
(6) A description of the controlled
transactions (including the terms of sale)
and any internal data used to analyze those
transactions. For example, if a profit
split method is applied, the documenta-
tion must include a schedule providing
the total income, costs, and assets (with
adjustments for different accounting prac-
tices and currencies) for each controlled
taxpayer participating in the relevant busi-
ness activity and detailing the allocations
of such items to that activity. Similarly,
if a cost-based method (such as the cost
plus method, the services cost method for
certain services, or a comparable prof-
its method with a cost-based profit level
indicator) is applied, the documentation
must include a description of the manner
in which relevant costs are determined
and are allocated and apportioned to the
relevant controlled transaction.
*****
(g)Effective/applicability date—(1)In
general. This section is generally applica-
ble on February 9, 1996. However, tax-
payers may elect to apply this section to
all open taxable years beginning after De-
cember 31, 1993.
(2)Special rules. The provisions of
paragraphs (d)(2)(ii)(B), (d)(2)(iii)(B)(4)
and (d)(2)(iii)(B)(6)ofthissectionare
applicable for taxable years beginning
after July 31, 2009. However, taxpayers
may elect to apply the provisions of para-
graphs (d)(2)(ii)(B), (d)(2)(iii)(B)(4)and
(d)(2)(iii)(B)(6) of this section to earlier
taxable years in accordance with the rules
set forth in §1.482–9(n)(2).
§1.6662–6T [Removed]
Par. 27. Section 1.6662–6T is removed.
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT THE SOURCE
Par. 28. The authority citation for part
31 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 29. Section 31.3121(s)–1 is
amended by revising paragraphs (c)(2)(iii)
and (d) to read as follows:
§31.3121(s)–1 Concurrent employment
by related corporations with common
paymaster.
*****
(c) * * *
(2) * * *
(iii)Group-wide allocation rules.Un-
der the group-wide method of allocation,
the Commissioner may allocate the taxes
imposed by sections 3102 and 3111 in an
appropriate manner to a related corpora-
tion that remunerates an employee through
a common paymaster if the common pay-
master fails to remit the taxes to the Inter-
nal Revenue Service. Allocation in an ap-
propriate manner varies according to the
circumstances. It may be based on sales,
property, corporate payroll, or any other
basis that reflects the distribution of the
services performed by the employee, or a
combination of the foregoing bases. To
the extent practicable, the Commissioner
may use the principles of §1.482–2(b) of
this chapter in making the allocations with
respect to wages paid after December 31,
1978, and on or before July 31, 2009. To
the extent practicable, the Commissioner
may use the principles of §1.482–9 of this
chapter in making the allocations with re-
spect to wages paid after July 31, 2009.
(d)Effective/applicability date—(1)In
general. This section is applicable with
respect to wages paid after December 31,
1978. The fourth sentence of paragraph
(c)(2)(iii) of this section is applicable with
respect to wages paid after December 31,
1978, and on or before July 31, 2009. The
fifth sentence of paragraph (c)(2)(iii) of
this section is applicable with respect to
wages paid after July 31, 2009.
(2)Election to apply regulation to ear-
lier taxable years. A person may elect
to apply the fifth sentence of paragraph
(c)(2)(iii) of this section to earlier taxable
years in accordance with the rules set forth
in §1.482–9(n)(2) of this chapter.
§31.3121(s)–1T [Removed]
Par. 30. Section 31.3121(s)–1T is re-
moved.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 31. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 32. In §602.101, paragraph
(b) is amended by adding an entry for
“§1.482–9(b)” to the table to read follows:
§602.101 OMB Control numbers.
*****
(b) * * *
2009–33 I.R.B.238August 17, 2009

CFR part or section where
identified and described
Current OMB
Control No.
*****
1.482–9(b)...........................................................
1545–2149
*****
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved July 25, 2009.
Michael Mundaca,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on July 31, 2009,
8:45 a.m., and published in the issue of the Federal Register
for August 4, 2009, 74 F.R. 38830)
Section 6503.—Suspension
of Running of Period
of Limitation
26 CFR 301.6
503(j)–1: Suspension of running of pe-
riod of limi
tations; extension in case of designated
and related
summonses.
T.D. 9455
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Suspension of Running of
Period of Limitations During
a Proceeding To Enforce
or Quash a Designated or
Related Summons
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations regarding the use of
designated summonses and related sum-
monses and the effect on the period of
limitations on assessment when a case
is brought with respect to a designated
or related summons. These final regula-
tions reflect changes to section 6503 of
the Internal Revenue Code of 1986 made
by the Omnibus Budget Reconciliation
Act of 1990 and the Small Business Job
Protection Act of 1996. These final regu-
lations affect corporate taxpayers that are
examined under the coordinated industry
case (CIC) program and are served with
designated or related summonses. These
final regulations also affect third parties
that are served with designated or related
summonses for information pertaining to
the corporate examination.
DATES:Effective Date:These regulations
are effective on July 31, 2009.
Applicability Date:For the date of ap-
plicability, see §301.6503(j)–1(e).
FOR FURTHER INFORMATION
CONTACT: Elizabeth Rawlins, (202)
622–3620 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regula-
tions amending the Procedure and Admin-
istration regulations (26 CFR part 301)
under section 6503. Section 11311 of
the Omnibus Budget Reconciliation Act
of 1990 (Public Law 101–508, 104 Stat.
1388) amended section 6503(k) to suspend
the period of limitations on assessment
when a case is brought with respect to
a designated or related summons. Sec-
tion 6503(k) was redesignated as section
6503(j) by section 1702(h)(17)(A) of the
Small Business Job Protection Act of 1996
(Public Law 104–188, 110 Stat. 1874).
On April 28, 2008, the IRS published in
theFederal Registera notice of proposed
rulemaking (REG–208199–91, 2008–21
I.R.B. 1017 [73 FR 22879]), interpret-
ing section 6503(j) and withdrawing a
prior notice of proposed rulemaking, here-
inafter referred to as the 2003 proposed
regulations, published in theFederal Reg-
isteron July 31, 2003 (REG–208199–91,
2003–2 C.B. 755 [68 FR 44905]). Written
comments from one commentator were
received. No request for a public hear-
ing was received, nor was one held. The
proposed regulations are adopted as fi-
nal regulations with one minor clarifying
change.
As described more fully in the pream-
ble to the proposed regulations, these reg-
ulations generally provide that the period
of limitations on assessment provided for
in section 6501 is suspended with respect
to any return of tax by a corporation that is
the subject of a designated or related sum-
mons if a court proceeding to enforce or
quash is instituted with respect to that sum-
mons. These final regulations define a des-
ignated summons, a related summons, and
the period of suspension. The final regula-
tions also provide guidance regarding the
component concepts of judicial enforce-
ment period, court proceeding, the date
when the proceeding is no longer pending,
final resolution, compliance, and the date
when compliance occurs. These regula-
tions also provide special rules on the num-
ber of designated and related summonses
that may be issued, the time within which
court proceedings must be brought to sus-
pend the period of limitations on assess-
ment, the computation of the suspension
period if multiple court proceedings are in-
stituted, the effect on the suspension provi-
sions under section 7609(e), and the appli-
cation of section 7503 when the last day of
an assessment period falls on a Saturday,
Sunday, or legal holiday.
Comments on the Proposed Regulations
§301.6503(j)–1(c)(5)(ii)—Date
Compliance Occurs
Proposed §301.6503(j)–1(c)(5)(ii) pro-
vides, in pertinent part, that “[c]ompli-
ance with a court order that grants en-
forcement, in whole or in part, of a des-
ignated or related summons, occurs on the
date it is determined that the testimony
given, or the books, papers, records, or
other data produced, or both, by the sum-
moned party fully satisfy the court order
August 17, 20092392009–33 I.R.B.

concerning the summons. The determina-
tion of whether there has been full com-
pliance will be made within a reasonable
time, given the volume and complexity of
the records produced, after the later of the
giving of all testimony or the production of
all records requested by the summons or
required by any order enforcing any part
of the summons.” The commentator sug-
gested that this provision be changed to
conform to the language appearing in the
2003 proposed regulation, which in per-
tinent part provides “[c]ompliance with a
court order that grants enforcement ... oc-
curs on the date the Commissioner or his
delegate (Commissioner) determines that
... the summoned party fully satisf[ied] the
court order ... . The determination whether
there has been compliance will be made
as soon as practicable after the testimony
is given or the materials are produced.” In
particular, the commentator recommended
that the phrase “as soon as practicable,”
used in the 2003 proposed regulations, be
substituted for the phrase “within a reason-
able time,” used in the 2008 proposed reg-
ulations. The commentator indicated this
suggestion was intended to protect cooper-
ative taxpayers from uncertainty about the
suspension of their period of limitations.
This suggestion has not been adopted.
The 2008 proposed regulations identify
the facts and circumstances to which
the phrase “within a reasonable time” is
intended to relate, including whether a de-
termination is “practicable,” by adding the
phrase “given the volume and complexity
of the records produced.” Moreover, the
term “reasonable” is a term that is rou-
tinely interpreted by the courts.
The commentator also expressed con-
cern over the 2008 proposed regulatory
phrase “it is determined,” appearing in the
phrase “occurs on the date it is determined
that the testimony given ... or other data
produced ... by the summoned party fully
satisfy the court order.” Although the com-
mentator did not expressly suggest other
language, the commentator did note that
the 2003 proposed regulations had pro-
vided “the Commissioner or his delegate
determines” and expressed the view that
the 2008 phrase “it is determined” is am-
biguous and will leave the taxpayer with-
out guidance as to who will actually make
the determination.
CIC corporate taxpayers and their tax
advisors are aware that the first point of
inquiry for any matter involving the exam-
ination is the examination team conducting
the audit and the team’s management and
supervisory chain of command. These are
the persons who will examine the sum-
moned information and, under Internal
Revenue Manual (IRM) procedures that
will be issued based on these regulations,
will decide whether the summoned per-
son’s production satisfies the court’s order.
The final regulations amend the proposed
regulations to clarify this understanding
and practice.
§301.6503(j)–1(d)—Special Rules
Proposed§301.6503(j)–1(d)(1)
through (5) provides several special rules
that apply to designated and related sum-
monses, such as the rule limiting the num-
ber of designated summonses that may
be issued. Proposed §301.6503(j)–1(d)
does not include provisions appearing
in the 2003 proposed regulations as
§301.6503(j)–1(d)(6) and (7), containing
aprocedurewherebyasummonedperson
could request from the IRS a determina-
tion that the summoned person had fully
complied with a designated or related sum-
mons to the extent required by court order.
Accordingtothis2003proposedregu-
latory procedure, unless the taxpayer’s
request was responded to timely, the sum-
mons would be treated as having been
fully complied with as of the 180th day.
This proposed procedure was not included
in the 2008 proposed regulations.
The commentator suggested that this
provision be revised to include 2003 pro-
posed §301.6503(j)–1(d)(6) and (7), with
one modification. The commentator sug-
gested that the “fully complied with” pro-
cedure be reinstated and that a new pro-
vision be added to permit the taxpayer to
request a “fully complied with” determi-
nation in cases where the summons was
served on a third party. The commenta-
tor suggested that reinserting the proce-
dure would protect cooperative CIC tax-
payers from receiving unnecessary desig-
nated summonses, assist CIC taxpayers in
knowing the date on which the suspension
terminates, and avoid unnecessary litiga-
tion.
This commentator’s suggestion has not
been adopted. The final regulations and
existing extensive safeguard protect co-
operative CIC taxpayers from receiving
unnecessary designated summonses. For
example, pursuant to section 1003 of the
Taxpayer Bill of Rights 2 of 1996 (Pub-
lic Law 104–168, 110 Stat.1468), Con-
gress requires the Treasury Department
to report on an annual basis the number
of designated summonses issued in the
preceding year. Also, pursuant to sec-
tion 6503(j)(2)(A)(i), Congress requires
preissuance review by a high ranking ex-
ecutive of the Office of Chief Counsel.
The IRS and these regulations require
preissuance review by both the Division
Counsel of the Office of Chief Counsel
and the Division Commissioner for the
organizations that have jurisdiction over
the corporate taxpayer. Additionally, the
Office of Chief Counsel requires that the
National Office provide preissuance re-
view of all designated summonses. IRM
34.6.3.1(6)c. The public may access the
IRM athttp://www.irs.gov/irm/index.html.
To obtain approval for the issuance of a
designated summons, the issuing office
must explain why the corporate taxpayer
refused to extend the period of limitations
on assessment, and if the summons is to be
issued near the end of the period permitted
by section 6503(j), the issuing office must
explain why the summons was not issued
at an earlier date. IRM 25.5.3.3(3)b. The
effectiveness of these safeguards is evi-
denced by the IRS’s circumspect use of
the designated summons authority.
The IRS also will issue IRM provisions
that will include procedures whereby the
CIC taxpayer will be promptly informed
of whether the production of summoned
information fully complies with the sum-
mons. The IRM procedures depend on the
issuance of the interpretative rules in these
regulations, particularly the definition of
final resolution and compliance, and can-
not be published until these final regula-
tions are effective. Once these regulations
are effective, the IRM procedures will be
published. Moreover, even without such
IRM procedures, a CIC taxpayer may as-
certain when the IRS determined full com-
pliance and when the suspension termi-
nated by contacting the examining agent.
The final regulations also effectively
prevent unnecessary litigation. In addi-
tion to the extensive safeguards discussed
above, the IRS is committed to examining
the summoned information and determin-
ing whether the production satisfies the en-
forcement order within a reasonable time
2009–33 I.R.B.240August 17, 2009

given the volume and complexity of the
information produced. The CIC taxpayer
may contact the IRS at any time to inquire
about the status of the suspension.
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 been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to this regulation, and because the
regulation does not impose a collection of
information requirement on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to sec-
tion 7805(f), the notice of proposed rule-
making preceding this final regulation was
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Elizabeth Rawlins of the Office
of the Associate Chief Counsel, Procedure
and Administration, Internal Revenue Ser-
vice.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6503(j)–1 is added
to read as follows:
§301.6503(j)–1 Suspension of running of
period of limitations; extension in case of
designated and related summonses.
(a)General rule. The running of the
applicable period of limitations on assess-
ment provided for in section 6501 is sus-
pended with respect to any return of tax by
a corporation that is the subject of a desig-
nated or related summons if a court pro-
ceeding is instituted with respect to that
summons.
(b)Period of suspension. The period
of suspension is the time during which the
running of the applicable period of limita-
tions on assessment provided for in section
6501 is suspended under section 6503(j).
If a court requires any compliance with a
designated or related summons by order-
ing that any record, document, paper, ob-
ject, or items be produced, or the testi-
mony of any person be given, the period
of suspension consists of the judicial en-
forcement period plus 120 days. If a court
does not require any compliance with a
designated or related summons, the period
of suspension consists of the judicial en-
forcement period, and the period of limi-
tations on assessment provided in section
6501 shall not expire before the 60th day
after the close of the judicial enforcement
period.
(c)Definitions—(1) Adesignated sum-
monsis a summons issued to a corporation
(or to any other person to whom the corpo-
ration has transferred records) with respect
to any return of tax bysuch corporation for
a taxable period for which such corpora-
tion is being examined under the coordi-
nated industry case program or any other
successor to the coordinated examination
program if—
(i) The Division Commissioner and the
Division Counsel of the Office of Chief
Counsel (or their successors) for the or-
ganizations that have jurisdiction over the
corporation whose tax liability is the sub-
ject of the summons have reviewed the
summons before it is issued;
(ii) The Internal Revenue Service (IRS)
issues the summons at least 60 days before
thedaytheperiodprescribedinsection
6501 for the assessment of tax expires (de-
termined with regard to extensions); and
(iii) The summons states that it is a des-
ignated summons for purposes of section
6503(j).
(2) Arelated summonsis any summons
issued that—
(i) Relates to the same return of the cor-
poration under examination as the desig-
nated summons; and
(ii) Is issued to any person, including
the person to whom the designated sum-
mons was issued, during the 30-day period
that begins on the day the designated sum-
mons is issued.
(3) Thejudicial enforcement periodis
the period that begins on the day on which
a court proceeding is instituted with re-
spect to a designated or related summons
andendsonthedayonwhichthereisafi-
nal resolution as to the summoned person’s
response to that summons.
(4)Court proceeding—(i)In general.
Forpurposesofthissection,acourt pro-
ceedingis a proceeding filed in a United
States district court either to quash a des-
ignated or related summons under section
7609(b)(2) or to enforce a designated or
related summons under section 7604. A
court proceeding includes any collateral
proceeding, such as a civil contempt pro-
ceeding.
(ii)Date when proceeding is no longer
pending. A proceeding to quash or to en-
force a designated or related summons is
no longer pending when all appeals (in-
cluding review by the Supreme Court) are
disposed of or after the expiration of the
period in which an appeal may be taken
or a request for further review (includ-
ing review by the Supreme Court) may
be made. If, however, following an en-
forcement order, a collateral proceeding
is brought challenging whether the testi-
mony given or production made by the
summoned party fully satisfied the court
order and whether sanctions should be im-
posed against the summoned party for a
failure to so testify or produce, the pro-
ceeding to quash or to enforce the sum-
mons shall include the time from which
the proceeding to quash or to enforce the
summons was brought until the decision
in the collateral proceeding becomes final.
The decision becomes final on the date
when all appeals (including review by the
Supreme Court) are disposed of or when
all appeal periods or all periods for further
review (including review by the Supreme
Court) expire. A decision in a collateral
proceeding becomes final when all appeals
(including review by the Supreme Court)
are disposed of or when all appeal periods
or all periods for further review (including
review by the Supreme Court) expire.
(5)Compliance—(i)In general.Com-
plianceis the giving of testimony or the
performance of an act or acts of produc-
tion, or both, in response to a court order
concerning the designated or related sum-
August 17, 20092412009–33 I.R.B.

mons and the determination that the terms
of the court order have been satisfied.
(ii)Date compliance occurs. Compli-
ance with a court order that wholly de-
nies enforcement of a designated or related
summons is deemed to occur on the date
when all appeals (including review by the
Supreme Court) are disposed of or when
the period in which an appeal may be taken
or a request for further review (includ-
ing review by the Supreme Court) may be
made expires. Compliance with a court or-
der that grants enforcement, in whole or in
part, of a designated or related summons,
occurs on the date the IRS determines that
the testimony given, or the books, papers,
records, or other data produced, or both,
by the summoned party fully satisfy the
court order concerning the summons. The
IRS will determine whether there has been
full compliance within a reasonable time,
given the volume and complexity of the
records produced, after the later of the giv-
ing of all testimony or the production of
all records requested by the summons or
required by any order enforcing any part
of the summons. If, following an en-
forcement order, collateral proceedings are
brought challenging whether the produc-
tion made by the summoned party fully
satisfied the court order and whether sanc-
tions should be imposed against the sum-
monedpartyforafailingtodoso,thesus-
pension of the periods of limitations shall
continue until the order enforcing any part
of the summons is fully complied with and
the decision in the collateral proceeding
becomes final. A decision in a collateral
proceeding becomes final when all appeals
are disposed of, the period in which an ap-
peal may be taken has expired or the period
in which a request for further review may
be made has expired.
(6)Final resolutionoccurs when the
designated or related summons or any or-
der enforcing any part of the designated
or related summons is fully complied with
and all appeals or requests for further re-
view are disposed of, the period in which
an appeal may be taken has expired or the
period in which a request for further re-
view may be made has expired.
(d)Special rules—(1)Number of sum-
monsesthatmaybeissued—(i)Desig-
nated summons. Only one designated
summons may be issued in connection
with the examination of a specific taxable
year or other period of a corporation. A
designated summons may cover more than
one year or other period of a corporation.
The designated summons may require pro-
duction of information that was previously
sought in a summons (other than a desig-
nated summons) issued in the course of
the examination of that particular corpora-
tion if that information was not previously
produced.
(ii)Related summonses.Thereisno
restriction on the number of related sum-
monses that may be issued in connection
with the examination of a corporation. As
provided in paragraph (c)(2) of this sec-
tion, however, a related summons must be
issued within the 30-day period that be-
gins on the date on which the designated
summons to which it relates is issued and
must relate to the same return as the desig-
nated summons. A related summons may
request the same information as the desig-
nated summons.
(2)Time within which court proceed-
ings must be brought. In order for the
period of limitations on assessment to be
suspended under section 6503(j), a court
proceeding to enforce or to quash a des-
ignated or related summons must be insti-
tuted within the period of limitations on as-
sessment provided in section 6501 that is
otherwise applicable to the tax return.
(3)Computation of suspension period
if multiple court proceedings are insti-
tuted. If multiple court proceedings are
instituted to enforce or to quash a desig-
nated or one or more related summonses
concerning the same tax return, the period
of limitations on assessment is suspended
beginning on the date the first court pro-
ceeding is brought. The suspension shall
end on the date that is the latest date on
which the judicial enforcement period,
plus the 120 day or 60 day period (de-
pending on whether the court requires any
compliance) as providedinparagraph(b)
of this section, expires with respect to each
summons.
(4)Effect on other suspension peri-
ods—(i)In general. Suspensions of the
period of limitations under section 6501
provided for under subsections 7609(e)(1)
and (e)(2) do not apply to any summons
that is issued pursuant to section 6503(j).
The suspension under section 6503(j) of
the running of the period of limitations on
assessment under section 6501 is indepen-
dent of, and may run concurrent with, any
other suspension of the period of limita-
tions on assessment that applies to the tax
return to which the designated or related
summons relates.
(ii)Examples. The rules of paragraph
(d)(4)(i) of this section are illustrated by
the following examples:
Example 1. The period of limitations on assess-
ment against Corporation P, a calendar year taxpayer,
for its 2007 return is scheduled to end on March 17,
2011. (Ordinarily, Corporation P’s returns are filed
on March 15
th
of the following year, but March 15,
2008, was a Saturday, and Corporation P timely filed
its return on the subsequent Monday, March 17, 2008,
making March 17, 2011 the last day of the period of
limitations on assessment for Corporation P’s 2007
tax year.) On January 4, 2011, a designated sum-
mons is issued to Corporation P concerning its 2007
return. On March 3, 2011 (14 days before the period
of limitations on assessment would otherwise expire
with respect to Corporation P’s 2007 return), a court
proceeding is brought to enforce the designated sum-
mons issued to Corporation P. On June 6, 2011, the
court orders Corporation P to comply with the des-
ignated summons. Corporation P does not appeal
the court’s order. On September 6, 2011, agents for
Corporation P deliver material that they state are the
records requested by the designated summons. On
October 13, 2011, a final resolution to Corporation
P’s response to the designated summons occurs when
it is determined that Corporation P has fully com-
plied with the court’s order. The suspension period
applicable with respect to the designated summons
issued to Corporation P consists of the judicial en-
forcement period (March 3, 2011, through October
13, 2011) and an additional 120-day period under sec-
tion 6503(j)(1)(B), becausethe court required Cor-
poration P to comply with the designated summons.
Thus, the suspension period applicable with respect
to the designated summons issued to Corporation P
begins on March 3, 2011, and ends on February 10,
2012. Under the facts of thisExample 1, the period of
limitations on assessment against Corporation P fur-
ther extends to February 24, 2012, to account for the
additional 14 days that remained on the period of lim-
itations on assessment under section 6501 when the
suspension period under section 6503(j) began.
Example 2. Assume the same facts set forth in
Example 1, except that in addition to the issuance
of the designated summons and related enforcement
proceedings, on April 5,2011, a summons concern-
ing Corporation P’s 2007 return is issued and served
on individual A, a third party. This summons is not
a related summons because it was not issued during
the 30-day period that began on the date the desig-
nated summons was issued. The third-party sum-
mons served on individual A is subject to the notice
requirements of section 7609(a). Final resolution of
individual A’s response to this summons does not oc-
cur until February 15, 2012. Because there is no final
resolution of individual A’s response to this summons
by October 5, 2011, which is six months from the date
of service of the summons, the period of limitations
on assessment against Corporation P is suspended un-
der section 7609(e)(2) to the date on which there is a
final resolution to that response for the purposes of
section 7609(e)(2). Moreover, because final resolu-
tion to the summons served on individual A does not
occur until after February 10, 2012, the end of the sus-
2009–33 I.R.B.242August 17, 2009

pension period for the designated summons, the pe-
riod of limitations on assessment against Corporation
P expires 14 days after the date that the final resolu-
tion as provided for in section 7609(e)(2) occurs with
respect to the summons served on individual A.
(5)Computation of 60-day period when
last day of assessment period falls on a
weekend or holiday. For purposes of para-
graph (c)(1)(ii) of this section, in deter-
mining whether a designated summons has
been issued at least 60 days before the date
on which the period of limitations on as-
sessment prescribed in section 6501 ex-
pires, the provisions of section 7503 apply
when the last day of the assessment period
falls on a Saturday, Sunday, or legal holi-
day.
(e)Effective/applicability date.This
section is applicable on July 31, 2009.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved July 15, 2009.
Michael Mundaca,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on July 30, 2009,
8:45 a.m., and published in the issue of the Federal Register
for July 31, 2009, 74 F.R. 38095)
August 17, 20092432009–33 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Contingent Fe
es Under
Circular 230
REG–113289–08
AGENCY: Office of the Secretary, Trea-
sury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document proposes
modifications of the regulations govern-
ing practice before the Internal Revenue
Service (Circular 230). These proposed
regulations affect individuals who practice
before the IRS. The proposed amendments
modify the rules relating to contingent
fees under Circular 230. This document
also provides notice of a public hearing on
the proposed regulations.
DATES: Written or electronically gen-
erated comments must be received by
September 10, 2009. Outlines of topics to
be discussed at the public hearing sched-
uled for November 20, 2009 at 10 a.m.
must be received by September 10, 2009.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–113289–08), room
5203, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–113289–08),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC, or sent electroni-
cally via the Federal eRulemaking Por-
tal atwww.regulations.gov(IRS and
REG–113289–08). The public hearing
will be held in Auditorium, Internal
Revenue Building, 1111 Constitution
Avenue, NW, Washington DC.
FO
R FURTHER INFORMATION
CO
NTACT: Concerning the proposed
re
gulations, Amy L. Mielke at (202)
62
2–4940; concerning submissions
of
comments and the public hearing,
Regina Johnso
n at (202) 622–7180; (not
toll-free num
bers).
SUPPLEMENTARY INFORMATION:
Background
Section 330 of
title 31 of the United
States Code au
thorizes the Secretary of
the Treasury t
o regulate practice before
the Treasury
Department. The Secretary
has publishe
d the regulations in Circular
230 (31 CFR pa
rt 10). On September 26,
2007, the Tre
asury Department and the
IRS publish
ed final regulations in theFed-
eral Regist
er(REG–138637–07, 2007–45
I.R.B. 977 [
72 FR 54540]) modifying rules
governing t
he general standards of prac-
tice before
the IRS, including the rules re-
lating to c
ontingent fees in §10.27 of Cir-
cular 230.
Section 10.27 of the final reg-
ulations g
enerally preclude a practitioner
from charg
ing a contingent fee for services
rendered
in connection with any matter be-
fore the I
nternal Revenue Service, includ-
ing the pr
eparation or filing of a tax re-
turn, ame
nded tax return or claim for re-
fund or cr
edit. The final regulations, how-
ever, pe
rmit a practitioner to charge a con-
tingent
fee for services rendered in connec-
tion wit
h the IRS examination of, or chal-
lenge to
: (i) an original tax return, or (ii)
an amend
ed return or claim for refund or
credit
when the amended return or claim
for ref
undorcreditwasfiledwithin120
days of
the taxpayer receiving a written
notice
of the examination of, or a written
challe
nge to, the original tax return. The
final
regulations also permit a practitioner
to cha
rge a contingent fee for services ren-
dered
in connection with a claim for refund
or cre
dit of interest and penalties assessed
by the
IRS, and for services rendered in
conn
ection with a judicial proceeding aris-
ing u
nder the Internal Revenue Code. The
fina
l amendments to §10.27 made by the
fina
l regulations apply to fee arrangements
ente
redintoafterMarch26,2008.
Sect
ion 406 of the Tax Relief and
Heal
th Care Act of 2006, Public Law
109–
432 (120 Stat. 2958) (December 20,
200
6) (the Act) amended section 7623
of t
he Internal Revenue Code concerning
the
payment of awards to certain persons
who
detect underpayments of tax. Prior
sta
tutory authority to pay awards at the
discretion of
the Secretary was re-desig-
nated as secti
on 7623(a), and a new section
7623(b) was ad
ded to the Code. Addi-
tional off-Co
de provisions in section 406
of the Act esta
blished a Whistleblower
Office withi
n the IRS and addressed re-
ward program
administration issues. See
Notice 2008–
4, 2008–2 I.R.B. 253, for in-
terim guidan
ce applicable to award claims
submitted u
nder the authority of section
7623.
After consi
deration of comments re-
ceived foll
owing the publication of the
final regul
ations on contingent fees and
the Act, on M
arch 26, 2008, the Treasury
Departmen
t and the IRS published Notice
2008–43, 2
008–15 I.R.B. 748, providing
interim gu
idance and information concern-
ing contin
gent fees under Circular 230.
The interi
m guidance in Notice 2008–43
clarifie
d that §10.27(b)(2)(ii) of Circular
230 does n
ot require the IRS to furnish a
written n
otice of examination to a taxpayer
as a prere
quisite to a practitioner charging
a contin
gent fee for services rendered in
connect
ion with an IRS examination of,
or chall
enge to, an amended return. The
interim
guidance also clarified that §10.27
permits
practitioners to charge a contin-
gent fe
e with respect to whistleblower
claims
under section 7623. The interim
rules i
n Notice 2008–43 are applicable to
fee arr
angements entered into after March
26, 200
8, and will remain in effect until
these
proposed regulations are finalized.
Expla
nation of Provisions
This d
ocument proposes modifications
to the
standards for contingent fees con-
siste
nt with the interim guidance provided
in Not
ice 2008–43. Section 10.27 gener-
ally p
rohibits a practitioner from charging
acon
tingent fee for services rendered in
conn
ection with any matter before the
IRS.
The primary rationales behind the
proh
ibition on contingent fees is to pre-
clud
e any fee arrangement that is related
to or
requires a favorable ruling by the
IRS
and that has the potential to exploit
the
audit selection process or compro-
mis
e a practitioner’s duty of independent
jud
gment. Consistent with the interim
gui
dance provided in Notice 2008–43,
pr
oposed revisions to §10.27 provide that
ap
ractitioner may charge a contingent
2009–33 I.R.B.244August 17, 2009

fee in three limited exceptions. Under
proposed §10.27(b)(2)(i) and (ii), a prac-
titioner may charge a contingent fee for
services rendered in connection with the
IRS’s examination of, or challenge to: (i)
an original tax return; or (ii) an amended
return or claim for refund or credit filed
before the taxpayer received a written
notice of examination of, or a written chal-
lenge to, the original tax return (or filed
no later than 120 days after the receipt of
such written notice or written challenge).
The intent of this exception is to discour-
age the tactical preparation of a refund
claim or amended return filed late in the
examination process. The exception for
contingent fee arrangements with respect
to an amended return or claim for refund
or credit may be used if the amended re-
turn or claim for refund or credit is filed
before the taxpayer receives written notice
of the examination or written challenge to
the original return (or if the taxpayer never
receives such notice or writing) or within
120 days of the taxpayer receiving the no-
tice or writing. For purposes of proposed
§10.27(b)(2)(ii), the 120 days is computed
from the earlier of a written notice of the
examination, if any, or a written challenge
to the original return. Further, under pro-
posed §10.27(b)(3) and (4), practitioners
also may charge a contingent fee for ser-
vices rendered in connection with a claim
for refund or credit of interest and penal-
ties assessed by the IRS, and for services
rendered in connection with a claim under
section 7623.
In response to comments received fol-
lowing the publication of the final regu-
lations on contingent fees, this document
also clarifies the definition of a contingent
fee in §10.27(c)(1) to provide that a con-
tingent fee includes a fee that is based on a
percentage of the refund reported on a re-
turn, that is based on a percentage of the
taxes saved, or that otherwise depends on
the specific tax result attained. The def-
inition in §10.27(c)(1) states that a con-
tingent fee depends on the specific result
attained without directly providing that it
is the specific tax result that is relevant to
the definition of a contingent fee. Contin-
gent fees based on the closing of a transac-
tion or other non-tax contingencies do not
present the same concerns posed by tax-re-
lated contingent fees. Accordingly, this
document clarifies the existing definition
to provide that a contingent fee includes,
but is not limited to, any fee that depends
on the specific tax result obtained in any
given transaction.
The scope of these regulations is limited
to the rules relating to contingent fees un-
der the general standards of practice before
the IRS. These regulations do not alter or
supplant other ethical standards applicable
to practitioners.
Effect on Other Documents
Notice 2008–43, 2008–15 I.R.B. 257,
will be obsolete when regulations final-
izing these proposed regulations are pub-
lished in theFederal Register.
Special Analyses
It has been determined that this pro-
posed rule is not a significant regulatory
action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It is hereby certified that
these regulations will not have a signif-
icant economic impact on a substantial
number of small entities. Persons autho-
rized to practice before the IRS have long
been required to comply with certain stan-
dards of conduct. These regulations do
not alter the basic nature of the obligations
and responsibilities of these practitioners.
These regulations clarify when a practi-
tioner may charge a contingent fee under
§10.27(b)(2) in response to public com-
ments. Therefore, a regulatory flexibility
analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small businesses.
Comments and Public Hearing
Before the regulations are adopted as fi-
nal regulations, consideration will be given
to any written comments (a signed orig-
inal and eight (8) copies) and electronic
comments that are submitted timely to the
IRS. The Treasury Department and the IRS
specifically request comments on the clar-
ity of the proposed regulations and how
they can be made easier to understand. All
comments will be available for public in-
spection and copying.
The public hearing is scheduled for
November 20, 2009, at 10 a.m., and will
be held in the Auditorium, Internal Rev-
enue Building, 1111 Constitution Avenue,
NW, Washington, DC. Due to building
security procedures, visitors must enter
at the Constitution Avenue entrance. All
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediateentrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the FOR FURTHER IN-
FORMATION CONTACT section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
September 10, 2009 and an outline of the
topics to be discussed and the time to be
devoted to each topic by September 10,
2009. A period of 10 minutes will be al-
located to each person for making com-
ments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receivingoutlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of the regulations
is Amy L. Mielke of the Office of the As-
sociate Chief Counsel (Procedure and Ad-
ministration).
*****
Proposed Amendments to the
Regulations
Accordingly, 31 CFR part 10 is pro-
posed to be amended as follows:
Paragraph 1. The authority citation for
31 CFR part 10 continues to read as fol-
lows:
Authority: Sec. 3, 23 Stat. 258, secs.
2–12, 60 Stat. 237et. seq.; 5 U.S.C. 301,
500, 551–559; 31 U.S.C. 321; 31 U.S.C.
330; Reorg. Plan No. 26 of 1950, 15 FR
4935, 64 Stat. 1280, 3 CFR, 1949–1953
Comp., p. 1017.
Par. 2. Section 10.27 is amended by re-
vising (b),(c)(1) and (d) and adding para-
graph (e) to read as follows:
August 17, 20092452009–33 I.R.B.

§10.27 Fees.
*****
(b)Contingent fees—(1) Except as pro-
vided in paragraphs (b)(2), (3), (4), and
(5) of this section, a practitioner may not
charge a contingent fee for services ren-
dered in connection with any matter before
the Internal Revenue Service.
(2) A practitioner may charge a contin-
gent fee for services rendered in connec-
tion with the Internal Revenue Service’s
examination of, or challenge to—
(i) An original tax return; or
(ii) An amended return or claim for re-
fund or credit filed before the taxpayer re-
ceived a written notice of examination of,
or a written challenge to, the original tax
return; or filed no later than 120 days after
the receipt of such written notice or writ-
ten challenge. The 120 days is computed
from the earlier of a written notice of the
examination, if any, or a written challenge
to the original return.
(3) A practitioner may charge a contin-
gent fee for services rendered in connec-
tion with a claim for credit or refund filed
solely in connection with the determina-
tion of statutory interest or penalties as-
sessed by the Internal Revenue Service.
(4) A practitioner may charge a contin-
gent fee for services rendered in connec-
tion with a claim under section 7623 of the
Internal Revenue Code.
(5) A practitioner may charge a contin-
gent fee for services rendered in connec-
tion with any judicial proceeding arising
under the Internal Revenue Code.
(c)***Forpurposesofthissection—
(1)Contingent feeis any fee that is
based, in whole or in part, on whether
or not a position taken on a tax return or
other filing avoids challenge by the Inter-
nal Revenue Service or is sustained either
by the Internal Revenue Service or in liti-
gation. A contingent fee includes a fee that
is based on a percentage of the refund re-
ported on a return, that is based on a per-
centage of the taxes saved, or that other-
wise depends on the specific tax result at-
tained. A contingent fee also includes any
fee arrangement in which the practitioner
will reimburse the client for all or a por-
tion of the client’s fee in the event that a
position taken on a tax return or other fil-
ing is challenged by the Internal Revenue
Service or is not sustained, whether pur-
suant to an indemnity agreement, a guaran-
tee, rescission rights, or any other arrange-
ment with a similar effect.
(2) * * *
(d)Applicability date.This section is
applicable to fee arrangements entered into
after March 26, 2008.
(e)Effective date.This section is effec-
tive on the date that the final regulations
are published in theFederal Register.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July 27, 2009,
8:45 a.m., and published in the issue of the Federal Register
for July 28, 2009, 74 F.R. 37183)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2009–61
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on August 17, 2009,
andwouldendonthedatethecourtfirst
determines that the organization is not de-
scribed in section 170(c)(2) as more partic-
ularly set forth in section 7428(c)(1). For
individual contributors, the maximum de-
duction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.
Frank and Nora Harty Center of Staten
Island, Inc.
Staten Island, NY
Higgs Carter King, Inc
San Antonio, TX
World Orphanage and Refugee Relief
Foundation, Inc.
Ft. Lauderdale, FL
Triple EEE
Long Beach, CA
American Budget Credit Debt Services,
Inc.
Spring Valley, NY
Craig Family Foundation
Chicago, Illinois
Aloha Consumer Credit Counseling
Service
Kaneohe, HI
Charity Neighborhood Auxiliary
Brooklyn, NY
Lamar Dixon Expo Foundation
Prairieville, LA
Reno & BJ Foundation
Detroit, MI
Reading Enhancement and Development
Tumwater, WA
First Foundation
Petersburg, VA
The Denis B and Mary Elizabeth
O’Donnell Foundation
West Orange, NJ
Good Times Foundation
Salt Lake City, UT
Animal Adoption Center of Garland
Garland, TX
Le Tulle Foundation
Bay City, TX
YMCA of Manchester Coffee County
Manchester, TN
The Light Center, Inc.
Columbus, OH
Seventh Regiment Fund, Inc.
New York, NY
Fair Credit Foundation
Los Angeles, CA
Student Loan Fund of Idaho
Fruitland, ID
2009–33 I.R.B.246August 17, 2009

Positive Alternatives
Salt Lake City, UT
Family Budget Association of America,
Inc.
Washington, DC
Scott Olsen Foundation
Alpine, UT
Helping Other People Excel Faith-Based
Coalition, Inc.
Jackson, MS
Changing Attitudes Counseling Services,
Inc.
Washington, DC
Christian Center for the Performing Arts
—Denver
Lakewood, CO
Advancement of Sound Science Center,
Inc.
Potomac, MD
Procedures for Section
509(a)(3) Supporting
Organizations to Change
Public Charity Classification
Announcement 2009–62
This announcement provides proce-
dures that a section 509(a)(3) supporting
organization may use to request a change
in its public charity classification. This
announcement supersedes Announcement
2006–93, 2006–2 C.B. 1017.
Background
In the Pension Protection Act of 2006,
Pub. L. 109–280 (PPA), Congress enacted
a number of changes to the tax law affect-
ing supporting organizations described in
section 509(a)(3) of the Internal Revenue
Code (Code). In recognition of the fact
that organizations classified as support-
ing organizations under section 509(a)(3)
might wish to seek reclassification under
sections 509(a)(1) and 170(b)(1)(A)(vi) or
section 509(a)(2) of the Code, the Internal
Revenue Service (IRS) issued Announce-
ment 2006–93, 2006–2 C.B. 1017, to
provide procedures under which support-
ing organizations could request a change
in public charity classification for reasons
related to the changes made by the PPA.
The IRS processed status change requests
submitted under Announcement 2006–93
on an expedited basis.
On September 9, 2008, the Treasury
Department and the IRS issued temporary
and proposed regulations to implement the
redesign of the Form 990,Return of Or-
ganization Exempt From Income Tax.73
Fed. Reg. 52,528. The new regulations
provide for the elimination of the advance
ruling process and a change in the public
support computation period from the four
years preceding the tested year to a five
year-period that includes the tested year.
An organization that meets a public sup-
port test for the tested year is a public char-
ity for the tested year and the next suc-
ceeding year. The new regulations also
made changes to the method of account-
ing for computing public support. This
announcement provides procedures con-
sistent with the new regulations for sup-
porting organizations to request changes
in public charity classification. In addi-
tion, this announcement provides that the
IRS will no longer process classification
changes on an expedited basis unless the
request otherwise meets the expedite crite-
ria set forth in Revenue Procedure 2009–4,
2009–1 I.R.B. 118.
Procedures for Supporting Organizations
to Request Change in Public Charity
Classification
Organizations that are seeking to
change their public charity classification
from a section 509(a)(3) supporting or-
ganization to a section 509(a)(1) or (a)(2)
organization should submit a written re-
quest for a determination as to public
charity status pursuant to Revenue Proce-
dure 2009–4, 2009–1 I.R.B. 118.
The request for reclassification must in-
clude the following:
1. A subject line or other indicator on
the first page of the request in bold,
underlined, or all capitals font indi-
cating “REQUEST FOR DETERMI-
NATION AS TO PUBLIC CHARITY
STATUS.”
2. A statement requesting reclassifi-
cation from section 509(a)(3) to
another public charity classifica-
tion under sections 509(a)(1) and
170(b)(1)(A)(vi) or section 509(a)(2);
and
3. Either
a. A copy of the organization’s
signed Form 990, Parts I through
XI, or Form 990–EZ, Parts I
through VI, with the completed
Schedule A, Public Charity Sta-
tus and Public Support, as filed
with the Internal Revenue Ser-
vice for the taxable year immedi-
ately preceding the taxable year
in which the request is made; or
b. The organization’s support in-
formation for the past five com-
pleted tax years, using the or-
ganization’s overall method of
accounting used to complete the
Form 990 or Form 990–EZ for
such years. This information
may be provided to the Internal
Revenue Service on a completed
Schedule A, Public Charity Sta-
tus and Public Support, to the
Form 990 or Form 990–EZ (2008
or later year, as appropriate).
Like all requests for a determination,
the request must be signed under penal-
ties of perjury by the organization’s officer,
director, trustee, or other authorized offi-
cial. The complete reclassification request
should be mailed to:
IRS-TEGE
Attn: Correspondence Unit,
Room 4024
P.O. Box 2508
Cincinnati, OH 45201
If an organization previously submit-
ted a request for reclassification pursuant
to Announcement 2006–93 before the is-
suance of this announcement, that request
will still be processed. Organizations will
receive a determination letter in response
to their request for reclassification indi-
cating whether a change in public charity
classification has been made. There is no
user fee for this determination letter.
This announcement supersedes An-
nouncement 2006–93, which is revoked.
For further information, contact
Melinda Williams at (202) 283–9467 (not
a toll-free call).
August 17, 20092472009–33 I.R.B.

Announcement of Disciplinary Sanctions From the Office
of Professional Responsibility
Announcement 2009-63
TheOfficeofProfessionalResponsi-
bility (OPR) announcesrecent disciplinary
sanctions involving attorneys, certified
public accountants, enrolled agents, en-
rolled actuaries, enrolled retirement plan
agents, and appraisers. These individuals
are subject to the regulations governing
practice before the Internal Revenue Ser-
vice (IRS), which are set out in Title 31,
Code of Federal Regulations, Part 10, and
which are published in pamphlet form as
Treasury Department Circular No. 230.
The regulations prescribe the duties and
restrictions relating to such practice and
prescribe the disciplinary sanctions for
violating the regulations.
The disciplinary sanctions to be im-
posed for violation of the regulations are:
Disbarred from practice before the
IRS—An individual who is disbarred is
not eligible to represent taxpayers before
the IRS.
Suspended from practice before the
IRS—An individual who is suspended is
not eligible to represent taxpayers before
the IRS during the term of the suspension.
Censured in practice before the
IRS—Censure is a public reprimand. Un-
like disbarment or suspension, censure
does not affect an individual’s eligibility
to represent taxpayers before the IRS, but
OPR may subject the individual’s future
representations to conditions designed to
promote high standards of conduct.
Monetary penalty—A monetary
penalty may be imposed on an individual
who engages in conduct subject to sanc-
tion or on an employer, firm, or entity
if the individual was acting on its behalf
and if it knew, or reasonably should have
known, of the individual’s conduct.
Disqualification of appraiser—An
appraiser who is disqualified is barred
from presenting evidence or testimony in
any administrative proceeding before the
Department of the Treasury or the IRS.
Under the regulations, attorneys, cer-
tified public accountants, enrolled agents,
enrolled actuaries, and enrolled retirement
plan agents may not assist, or accept assis-
tance from, individuals who are suspended
or disbarred with respect to matters consti-
tuting practice (i.e., representation) before
the IRS, and they may not aid or abet sus-
pended or disbarred individuals to practice
before the IRS.
Disciplinary sanctions are described in
these terms:
Disbarred by decision after hearing,
Suspended by decision after hearing,
Censured by decision after hearing,
Monetary penalty imposed after hear-
ing, and Disqualified after hearing—An
administrative law judge (ALJ) conducted
an evidentiary hearing upon OPR’s com-
plaint alleging violation of the regulations
and issued a decision imposing one of
these sanctions. After 30 days from the
issuance of the decision, in the absence of
an appeal, the ALJ’s decision became the
final agency decision.
Disbarred by default decision, Sus-
pended by default decision, Censured by
default decision, Monetary penalty im-
posed by default decision, and Disqual-
ified by default decision—An ALJ, after
findingthatnoanswertoOPR’scomplaint
had been filed, granted OPR’s motion for a
default judgment and issued a decision im-
posing one of these sanctions.
Disbarment by decision on appeal,
Suspended by decision on appeal, Cen-
sured by decision on appeal, Monetary
penalty imposed by decision on ap-
peal, and Disqualified by decision on
appeal—The decision of the ALJ was
appealed to the agency appeal authority,
acting as the delegate of the Secretary
of the Treasury, and the appeal authority
issued a decision imposing one of these
sanctions.
Disbarred by consent, Suspended by
consent, Censured by consent, Mone-
tary penalty imposed by consent, and
Disqualified by consent—In lieu of a
disciplinary proceeding being instituted
or continued, an individual offered a con-
sent to one of these sanctions and OPR
accepted the offer. Typically, an offer
of consent will provide for: suspension
for an indefinite term; conditions that the
individual must observe during the sus-
pension; and the individual’s opportunity,
after a stated number of months, to file
with OPR a petition for reinstatement af-
firming compliance with the terms of the
consent and affirming current eligibility
to practice (i.e., an active professional
license or active enrollment status). An
enrolled agent or an enrolled retirement
plan agent may also offer to resign in order
to avoid a disciplinary proceeding.
Suspended by decision in expedited
proceeding, Suspended by default de-
cision in expedited proceeding, Sus-
pended by consent in expedited pro-
ceeding—OPR instituted an expedited
proceeding for suspension (based on cer-
tain limited grounds, including loss of a
professional license and criminal convic-
tions).
OPR has authority to disclose the
grounds for disciplinary sanctions in these
situations: (1) an ALJ or the Secretary’s
delegate on appeal has issued a decision
on or after September 26, 2007, which was
theeffectivedateofamendmentstothe
regulations that permit making such deci-
sions publicly available; (2) the individual
has settled a disciplinary case by signing
OPR’s “consent to sanction” form, which
requires consenting individuals to admit to
one or more violations of the regulations
and to consent to the disclosure of the in-
dividual’s own return information related
to the admitted violations (for example,
failure to file Federal income tax returns);
or (3) OPR has issued a decision in an
expedited proceeding for suspension.
Announcements of disciplinary sanc-
tions appear in the Internal Revenue Bul-
letin at the earliest practicable date. The
sanctions announced below are alphabet-
ized first by the names of states and sec-
ond by the last names of individuals. Un-
less otherwise indicated, section numbers
(e.g., §10.51) refer to the regulations.
2009–33 I.R.B.248August 17, 2009

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Arizona
PhoenixHamilton, Douglas A. CPAConsent SuspensionIndefinite from
November 23,
2007
California
Studio CityKenney, Elizabeth K.Enrolled AgentSuspended by consent
for admitted violation
of § 10.51 (failed to
file several Federal tax
returns)
Indefinite from
July 30, 2009
HaywardNeal, Thomas R.CPASuspended by decision
in expedited proceeding
under § 10.82 (revocation
of CPA license)
Indefinite from
July 10, 2009
Connecticut
Corso, Stephen P.,
See Nevada
Florida
Miami BeachMurphree, Gary M.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
July 23, 2009
Boca RatonSchmidt, Peter H.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
July 23, 2009
MiamiTodd, Mayumi O.CPASuspended by decision
in expedited proceeding
under § 10.82 (suspension
of CPA license in
Washington)
Indefinite from
July 17, 2009
Illinois
AlbionNead, Morris J.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (attorney
disbarment)
Indefinite from
July 2, 2009
Iowa
MuscatineBarry, James P.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (suspension
of CPA license in
Missouri)
Indefinite from
July 2, 2009
August 17, 20092492009–33 I.R.B.

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Kentucky
Fort WrightRobison, Jean P.CPASuspended by decision
in expedited proceeding
under § 10.82 (suspension
of attorney license)
Indefinite from
July 7, 2009
Maryland
RockvilleHall, Jr., Ralph E.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
July 21, 2009
Massachusetts
ManchesterGoldstein, FrederickAttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
July 21, 2009
South DartmouthQuinn, Mary M.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
July 7, 2009
Minnesota
St. PaulBrost, Linda A.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
July 7, 2009
StillwaterHouge, Benjamin S.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
July 21, 2009
Missouri
Barry, James P.,
See Iowa
Nevada
Las VegasCorso, Stephen P.CPASuspended by default
decision in expedited
proceeding under §10.82
(conviction under 18
U.S.C. § 1343, wire fraud,
and26U.S.C.§7201,
attempted income tax
evasion) in Connecticut
Indefinite from
July 21, 2009
2009–33 I.R.B.250August 17, 2009

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
New Jersey
Cedar KnollsKimmel, Andrew M.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
July 7, 2009
New York
BronxBurke, Thomas P.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
July 7, 2009
North Carolina
Kar, James,
See Oregon
Oregon
MilwaukieKar, JamesCPASuspended by default
decision in expedited
proceeding under § 10.82
(revocation of CPA
license in North Carolina)
Indefinite from
July 7, 2009
Texas
DallasBrooks, Jeffrey K.Enrolled AgentSuspended by decision
in expedited proceeding
under §10.82 (conviction
under state law for theft
over $200,000)
Indefinite from
July 28, 2009
Washington
Todd, Mayumi O.,
See Florida
August 17, 20092512009–33 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2009–33 I.R.B.iAugust 17, 2009

Numerical Finding List
1
Bulletins 2009–27 through 2009–33
Announcements:
2009-56, 2009-28 I.R.B.145
2009-57, 2009-29 I.R.B.158
2009-58, 2009-29 I.R.B.158
2009-59, 2009-29 I.R.B.158
2009-60, 2009-30 I.R.B.166
2009-61, 2009-33 I.R.B.246
2009-62, 2009-33 I.R.B.247
2009-63, 2009-33 I.R.B.248
Notices:
2009-51, 2009-28 I.R.B.128
2009-55, 2009-31 I.R.B.170
2009-57, 2009-29 I.R.B.147
2009-58, 2009-30 I.R.B.163
2009-59, 2009-31 I.R.B.170
2009-60, 2009-32 I.R.B.181
2009-61, 2009-32 I.R.B.181
Proposed Regulations:
REG-152166-05, 2009-32 I.R.B.183
REG-112994-06, 2009-28 I.R.B.144
REG-130200-08, 2009-31 I.R.B.174
REG-113289-08, 2009-33 I.R.B.244
Revenue Procedures:
2009-30, 2009-27 I.R.B.27
2009-31, 2009-27 I.R.B.107
2009-32, 2009-28 I.R.B.142
2009-33, 2009-29 I.R.B.150
Revenue Rulings:
2009-18, 2009-27 I.R.B.1
2009-19, 2009-28 I.R.B.111
2009-20, 2009-28 I.R.B.112
2009-21, 2009-30 I.R.B.162
2009-22, 2009-31 I.R.B.167
2009-23, 2009-32 I.R.B.177
Treasury Decisions:
9452, 2009-27 I.R.B.1
9453, 2009-28 I.R.B.114
9454, 2009-32 I.R.B.178
9455, 2009-33 I.R.B.239
9456, 2009-33 I.R.B.188
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin
2009–26, dated June 29, 2009.
August 17, 2009ii2009–33 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2009–27 through 2009–33
Announcements:
2006-93
Superseded by
Ann. 2009-62, 2009-33 I.R.B.247
Notices:
2004-67
Supplemented and superseded by
Notice 2009-59, 2009-31 I.R.B.170
2006-70
Obsoleted by
T.D. 9453, 2009-28 I.R.B.114
2006-109
Superseded in part by
Rev. Proc. 2009-32, 2009-28 I.R.B.142
2008-43
Obsoleted by
REG-113289-08, 2009-33 I.R.B.244
Revenue Procedures:
97-49
Modified and superseded by
Rev. Proc. 2009-31, 2009-27 I.R.B.107
2008-38
Superseded by
Rev. Proc. 2009-30, 2009-27 I.R.B.27
2008-65
Modified by
Rev. Proc. 2009-33, 2009-29 I.R.B.150
2009-16
Modified by
Rev. Proc. 2009-33, 2009-29 I.R.B.150
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin 2009–26, dated June 29, 2009.
2009–33 I.R.B.iiiAugust 17, 2009

August 17, 20092009–33 I.R.B.

2009–33 I.R.B.August 17, 2009

August 17, 20092009–33 I.R.B.

INTERNAL REVENUE BULLETIN
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