Internal Revenue Bulletin 2011-46 (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. 201
1-46
November 14, 201
1
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. 9548, page 716.
Final regulations under section 355(a)(3)(B) of the Code harmo-
nize its application with the application of section 355(b), con-
sistent with the 2006 amendments to section 355(b), the 2007
proposed regulations under section 355(b), and the 2007 grant
of authority that was provided in the Tax Technical Corrections
Act of 2007.
REG–133002–10, page 766.
Proposed regulations under section 1502 of the Code will ap-
ply to corporations filing consolidated returns. The regulations
will require a consolidated loss group or loss subgroup to re-
determine its consolidated net unrealized built-in gain and loss
in certain circumstances.
Rev. Proc. 2011–53, page 749.
Insurance companies; loss reserves; discounting unpaid
losses.The loss payment patterns and discount factors are
set forth for the 2011 accident year. These factors will be used
for computing discounted unpaid losses under section 846 of
the Code.
Rev. Proc. 2011–54, page 759.
Insurance companies; discounting estimated salvage re-
coverable.The salvage discount factors are set forth for the
2011 calendar year. These factors will be used for computing
discounted estimated salvage recoverable under section 832
of the Code.
Announcement 2011–71, page 770.
This announcement solicits public comments regarding the re-
allocation of available amounts of volume cap for Tribal Eco-
nomic Development Bonds and provides requirements for a
three-month extension of time to issue bonds to Indian tribal
governments that have previously received an allocation of
Tribal Economic Development Bond volume cap.
EXEMPT ORGANIZATIONS
T.D. 9549, page 718.
Final regulations under sections 170, 507, 509, 6033, and
6043 of the Code affect tax-exempt organizations required to
file an annual return under section 6033. The regulations pro-
vide guidance relating to the elimination of the advance ruling
process for new organizations and change in public support
computation, procedures for organizations seeking classifica-
tion as public charities, and guidance regarding the reporting
of other information required on the annual return.
ADMINISTRATIVE
Notice 2011–88, page 748.
This notice postpones the effective date for potential backup
withholding obligations imposed under section 3406 of the
Code for payments made in settlement of payment card and
third party network transactions (section 6050W payments).
Notice 2011–89, page 748.
This notice provides transitional relief from penalties for a sec-
tion 6050W filer reporting incorrect information on information
returns (Form 1099-K) and payee statements filed under sec-
tion 6050W of the Code.
Finding Lists begin on page ii.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th 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.
November 14, 20112011–46 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 355.—
Distribution
of Stock and Se
curities of
a Controlled C
orporation
26 CFR 1.355–2
(g): Guidance regarding the treat-
ment of a contr
olled corporation under section
355(a)(3)(B
).
A final regul
ation narrows the reach of section
355(a)(3)(B
) to harmonize its application with the ap-
plication of
section 355(b), consistent with the 2006
amendments t
o section 355(b), the 2007 proposed
regulations
under section 355(b), and the 2007 grant
of authorit
y that was provided in the Tax Technical
Correction
s Act of 2007. See T.D. 9548, page 716.
T.D. 9548
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Guidance Regarding the
Treatment of Stock of a
Controlled Corporation Under
Section 355(a)(3)(B)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations regarding the distribution
of stock of a controlled corporation ac-
quired in a transaction described in section
355(a)(3)(B) of the Internal Revenue Code
(Code). This action is necessary in light of
amendments to section 355(b). These fi-
nal regulations will affect corporations and
their shareholders.
DATES:Effective Date:These final regu-
lations are effective on October 20, 2011.
Applicability Date:For dates of appli-
cability, see §1.355–2(i).
FOR FURTHER INFORMATION
CONTACT: Russell P. Subin, (202)
622–7790 (not a toll-free number).
SUPPLEMENTAR
Y INFORMATION:
Background
This document
contains amendments
to 26 CFR part 1
regarding section
355(a)(3)(B)
.
Section 355(a
) provides that, under cer-
tain circumst
ances, a corporation may dis-
tribute stoc
k and securities in a corpora-
tion it contr
ols to its shareholders and secu-
rity holders
without causing either the dis-
tributing c
orporation (distributing) or its
shareholde
rs and security holders to recog-
nize income
, gain, or loss.
Sections 35
5(a)(1)(C) and 355(b)(1)
generally r
equire that distributing and the
controlled
corporation (controlled) each
be engaged,
immediately after the distri-
bution, in
the active conduct of a trade or
business.
Section 355(b)(2)(A) provides
that a corp
oration shall be treated as en-
gagedinth
e active conduct of a trade or
business i
f and only if it is engaged in the
active co
nduct of a trade or business.
Section 3
55(b)(2)(B) requires that
the trade
or business have been actively
conducte
d throughout the five-year pe-
riod endi
ng on the date of the distribu-
tion (pre
-distribution period). Section
355(b)(
2)(C) provides that the trade or
busines
s must not have been acquired in
atransa
ctioninwhichgainorlosswas
recogni
zed in whole or in part (taxable
transac
tion) within the pre-distribution pe-
riod. S
ection 355(b)(2)(D) provides that
contro
l of a corporation that (at the time
of acqu
isition of control) was conduct-
ing the
trade or business must not have
been di
rectly or indirectly acquired by any
distr
ibutee corporation or by distributing
durin
g the pre-distribution period in a tax-
able t
ransaction.
Secti
on 355(b)(3)(A) provides that for
purpo
ses of determining whether a corpo-
ratio
n meets the requirements of section
355(b
)(2)(A), all members of such cor-
pora
tion’s separate affiliated group (SAG)
shal
l be treated as one corporation. Section
355(
b)(3)(B) provides that for purposes of
sect
ion 355(b)(3), the termSAGmeans,
with
respect to any corporation, the affili-
ated
group that would be determined under
sec
tion 1504(a) if suchcorporation were
the common par
ent and section 1504(b)
did not apply.
Section 355(b)(3)(C) pro-
vides that if a
corporation became a SAG
member as a re
sult of one or more taxable
transaction
s, any trade or business con-
ducted by suc
h corporation (at the time
that such cor
poration became such a mem-
ber) shall b
e treated for purposes of section
355(b)(2) a
s acquired in a taxable transac-
tion.
Section 355
(a)(3)(B) provides that for
purposes of
section 355 (other than sec-
tion 355(a)
(1)(D)) and so much of section
356 as rela
tes to section 355, stock of con-
trolled ac
quiredbydistributingbyreason
of any tran
saction (i) which occurs within
five years
of the distribution of such stock,
and (ii) wh
ich is a taxable transaction, shall
not be tre
ated as stock of controlled, but as
other pro
perty.
Section 3
55(b)(3)(D) provides that the
Secretar
y shall prescribe such regulations
as are nec
essary or appropriate to carry out
the purpo
ses of section 355(b)(3), includ-
ing regul
ations that provide for the proper
applica
tion of section 355(b)(2)(B), (C),
and (D),
and modify the application of sec-
tion 355
(a)(3)(B), in connection with the
applica
tion of section 355(b)(3).
Pursuan
t to section 355(b)(3)(D) and
section
7805, temporary regulations
(T.D. 9
435, 2009–4 I.R.B. 333) under
sectio
n 355(a)(3)(B) were published in
theFed
eral Register(73 FR 75946)
on Dece
mber 15, 2008. A notice of
propos
ed rulemaking (REG–150670–07,
2009–
4 I.R.B. 378) cross-referencing the
tempo
rary regulation was published in the
Feder
al Registeronthesameday(73FR
75979
). The temporary regulations were
inten
ded to harmonize the application of
sect
ion 355(a)(3)(B) with section 355(b).
Gene
rally, the temporary regulations:
(1) D
isregarded transfers of controlled
stoc
k between members of the distributing
corp
oration’s SAG (DSAG), (2) did not
trea
t controlled stock as other property
if c
ontrolled became a DSAG member,
and
(3) retained the exception of prior
reg
ulation §1.355–2(g) as contained in 26
CFR
part 1, revised as of April 1, 2008,
for
acquisitions from affiliates described
in
§1.355–3(b)(4)(iii).
2011–46 I.R.B.716November 14, 2011

The preamble to the temporary regula-
tions requested comments regarding a va-
riety of issues under section 355(a)(3)(B).
One written comment responding to the re-
quest was received. No public hearing was
requested or held.
Summary of Comment and Guidance
The comment generally agreed with the
text of the temporary regulations. In addi-
tion, the comment addressed, among other
things, the treatment of cash paid to ac-
quire controlled stock in lieu of fractional
shares, indirect acquisitions and acquisi-
tions of controlled stock by a predecessor
to a member of the DSAG, issuances of
controlled stock, and redemptions of con-
trolled stock. Afterconsidering the com-
ment, the IRS and Treasury Department
have decided not to expand the scope of the
final regulation to cover additional situa-
tions at this time. These final regulations
adopt the substantive rules of the tempo-
rary regulations without change.
The IRS and Treasury Department
continue to study the interrelationship be-
tween section 355(a)(3)(B) and section
355(b). No inference regarding the content
of future section 355(b) guidance should
be drawn from these final regulations. In
addition, further guidance may be issued
under section 355(a)(3)(B) in connection
with future section 355(b) guidance if it
is necessary to harmonize the two provi-
sions.
Special Analyses
It has been determined that this Trea-
sury Decision is not asignificant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It is hereby certified
that these final regulations will not have a
significant economic impact on a substan-
tial number of small entities. This certi-
fication is based on the fact that section
355(a)(3)(B) generally applies to parent-
subsidiary groups of corporations, which
tend to be larger businesses, and that these
regulations primarily grant relief from the
application of section355(a)(3)(B) in cer-
tain situations. 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 Code, the proposed regulations were
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on their impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Russell P. Subin of the Office
of Associate Chief Counsel (Corporate).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
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 1.355–2(g) and (i) also issued
under 26 U.S.C. 355(b)(3)(D). * * *
Par. 2. Section 1.355–0 is amended by
revising the entries under §1.355–2(g) and
(i) to read as follows:
§1.355–0 Outline of sections.
*****
§1.355–2 Limitations.
*****
(g) Recently acquired controlled stock
under section 355(a)(3)(B).
(1) Other property.
(2) Exceptions.
(3) DSAG.
(4) Taxable transaction.
(5) Examples.
*****
(i) Effective/applicability date.
Par. 3. Section 1.355–1 is amended by
revising paragraph (a) to read as follows:
§1.355–1 Distribution of stock and
securities of a controlled corporation.
(a)Effective/applicability date of cer-
tain sections. Except as otherwise pro-
vided, this section and §§1.355–2 through
1.355–4 apply to transactions occurring
after February 6, 1989. For transac-
tions occurring on or before that date,
see 26 CFR 1.355–1 through 1.355–4
(revised as of April 1, 1987). This section
and §§1.355–2 through 1.355–4, other
than §1.355–2(g) and (i), do not reflect
the amendments to section 355 made by
the Revenue Act of 1987, the Technical
and Miscellaneous Revenue Act of 1988,
and the Tax Technical Corrections Act
of 2007. For the applicability date of
§§1.355–2(g), 1.355–5, 1.355–6, and
1.355–7, see §§1.355–2(i), 1.355–5(e),
1.355–6(g), and 1.355–7(k), respectively.
*****
Par. 4. Section 1.355–2 is amended by
revising paragraphs (g) and (i) to read as
follows:
§1.355–2 Limitations.
*****
(g)Recently acquired controlled stock
under section 355(a)(3)(B)—(1)Other
property. Except as provided in paragraph
(g)(2) of this section, for purposes of sec-
tion 355(a)(1)(A), section 355(c), and so
much of section 356 as relates to section
355, stock of a controlled corporation ac-
quired by the DSAG in a taxable transac-
tion (as defined in paragraph (g)(4) of this
section) within the five-year period ending
onthedateofthedistribution (pre-distri-
bution period) shallnot be treated as stock
of the controlled corporation but shall be
treated as “other property.” Transfers of
controlled corporation stock that is owned
by the DSAG immediately before and im-
mediately after the transfer are disregarded
and are not acquisitions for purposes of
this paragraph (g)(1).
(2)Exceptions. Paragraph (g)(1) of this
sectiondoesnotapplytoanacquisitionof
stock of the controlled corporation—
(i) If the controlled corporation is a
DSAG member at any time after the ac-
quisition (but prior to the distribution); or
(ii) Described in §1.355–3(b)(4)(iii).
(3)DSAG. For purposes of this para-
graph (g), aDSAGis the distributing
corporation’s separate affiliated group
(theaffiliatedgroupwhichwouldbede-
termined under section 1504(a) if such
corporation were the common parent and
section 1504(b) did not apply) that con-
sists of the distributing corporation as the
common parent and all corporations af-
filiated with the distributing corporation
November 14, 20117172011–46 I.R.B.

through stock ownership described in sec-
tion 1504(a)(1)(B) (regardless of whether
the corporations are includible corpora-
tions under section 1504(b)). For purposes
of paragraph (g)(1) of this section, any
reference to the DSAG is a reference to
the distributing corporation if it is not the
common parent of a separate affiliated
group.
(4)Taxable transaction—(i)Generally.
For purposes of this paragraph (g), atax-
able transactionis a transaction in which
gain or loss was recognized in whole or in
part.
(ii)Dunn Trust and predecessor issues.
[Reserved].
(5)Examples. The following exam-
ples illustrate this paragraph (g). Assume
that C, D, P, and S are corporations, X is
an unrelated individual, each of the trans-
actions is unrelated to any other transac-
tion and, but for the issue of whether C
stock is treated as “other property” under
section 355(a)(3)(B), the distributions sat-
isfy all of the requirements of section 355.
No inference should be drawn from any
of these examples as to whether any re-
quirements of section 355 other than sec-
tion 355(a)(3)(B), as specified, are satis-
fied. Furthermore, the following defini-
tions apply:
(i)Purchaseis an acquisition that is a
taxable transaction.
(ii)Section 368(c) stockis stock consti-
tuting control within the meaning of sec-
tion 368(c).
(iii)Section 1504(a)(2) stockis stock
meeting the requirements of section
1504(a)(2).
Example 1.Hot stock. For more than five years,
D has owned section 368(c) stock but not section
1504(a)(2) stock of C. In year 6, D purchases addi-
tional C stock from X. However, D does not own
section 1504(a)(2) stock of C after the year 6 pur-
chase. If D distributes all of its C stock within five
years after the year 6 purchase, for purposes of section
355(a)(1)(A), section 355(c), and so much of section
356 as relates to section 355, the C stock purchased
in year 6 would be treated as “other property.” See
paragraph (g)(1) of this section.
Example 2.C becomes a DSAG member.For
more than five years, D has owned section 368(c)
stock but not section 1504(a)(2) stock of C. In year 6,
D purchases additional C stock from X such that D’s
total ownership of C is section 1504(a)(2) stock. If
D distributes all of its C stock within five years after
the year 6 purchase, the distribution of the C stock
purchased in year 6 would not be treated as “other
property” because C becomes a DSAG member. See
paragraph (g)(2)(i) of this section. The result would
be the same if D did not own any C stock prior to year
6 and D purchased all of the C stock in year 6. See
paragraph (g)(2)(i) of this section. Similarly, if D did
not own any C stock prior to year 6, D purchased 20
percent of the C stock in year 6, and then acquired
all of the remaining C stock in year 7, the C stock
purchased in year 6 and the C stock acquired in year
7 (even if purchased) wouldnot be treated as “other
property” because C becomes a DSAG member. See
paragraph (g)(2)(i) of this section.
Example 3.Intra-SAG transaction.Formore
than five years, D has owned all of the stock of S.
D and S, in the aggregate, have owned section 368(c)
stock but not section 1504(a)(2) stock of C. There-
fore, D and S are DSAG members, but C is not. In
year 6, D purchases S’s C stock. If D distributes all of
its C stock within five years after the year 6 purchase,
the distribution of the C stock purchased in year 6
would not be treated as “other property.” D’s purchase
of the C stock from S is disregarded for purposes of
paragraph (g)(1) of this section because that C stock
was owned by the DSAG immediately before and im-
mediately after the purchase. See paragraph (g)(1) of
this section.
Example 4.Affiliate exception.Formorethan
five years, P has owned 90 percent of the sole out-
standing class of the stock of D and a portion of the
stockofC,andXhasownedtheremaining10per-
cent of the D stock. Throughout this period, D has
owned section 368(c) stock but not section 1504(a)(2)
stock of C. In year 6, D purchases P’s C stock. How-
ever, D does not own section 1504(a)(2) stock of C
after the year 6 purchase. If D distributes all of its
C stock to X in exchange for X’s D stock within five
years after the year 6 purchase, the distribution of the
C stock purchased in year 6 would not be treated as
“other property” because the C stock was purchased
from a member (P) of the affiliated group (as defined
in §1.355–3(b)(4)(iv)) of which D is a member, and P
did not purchase that C stock within the pre-distribu-
tion period. See paragraph (g)(2)(ii) of this section.
*****
(i)Effective/applicability date. Para-
graphs (g)(1) through (g)(5) of this sec-
tion apply to distributions occurring af-
ter October 20, 2011. For rules regard-
ing distributions occurring on or before
October 20, 2011, see §1.355–2T(i), as
contained in 26 CFR part 1, revised as of
April 1, 2011.
§1.355–0T [Removed]
Par. 5. Section 1.355–0T is removed.
§1.355–2T [Removed]
Par. 6. Section 1.355–2T is removed.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved October 14, 2011.
Emily S. McMahon,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on October 19,
2011, 8:45 a.m., and published in the issue of the Federal
Register for October 20, 2011, 76 F.R. 65110)
Section 832.—Insurance
Company Taxable Income
26 CFR 1.832–4: Gross income.
The salvage discount factors are set forth for 2011.
These factors must be used to compute discounted
estimated salvage recoverable for purposes of section
832 of the Code. See Rev. Proc. 2011-54, page 759.
Section 846.—Discounted
Unpaid Losses Defined
26 CFR 1.846–1: Application of discount factors.
The composite loss discount factor for Reinsur-
ance (Nonproportional Assumed Property). See Rev.
Proc. 2011-53, page 749.
The salvage discount factors are set forth for 2011.
These factors must be used to compute discounted
estimated salvage recoverable for purposes of section
832 of the Code. See Rev. Proc. 2011-54, page 759.
Section 6033.—Returns by
Exempt Organizations
26 CFR 1.6033–2: Returns by exempt organizations
(taxable years beginning after December 31, 1969)
and returns by certain nonexempt organizations (tax-
able years beginning after December 31, 1980.)
T.D. 9549
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Implementation of Form 990
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains final
regulations necessaryto implement the re-
designed Form 990,“Return of Organiza-
tion Exempt From Income Tax.”These fi-
nal regulations make revisions to the regu-
lations to allow for new threshold amounts
2011–46 I.R.B.718November 14, 2011

for reporting compensation, to require that
compensation be reported on a calendar
year basis, and to modify the scope of orga-
nizations subject to information reporting
requirements upon a substantial contrac-
tion. The final regulations also eliminate
the advance ruling process for new organi-
zations, change the public support compu-
tation period for publicly supported orga-
nizations to five years, consistent with the
revised Form 990, and clarify that support
must be reported using the organization’s
overall method of accounting. All tax-ex-
empt organizations required to file annual
information returns are affected by these
regulations.
DATES:Effective Date:These regulations
are effective on September 8, 2011.
Applicability Date:For dates of
applicability,see §§1.170A–9(k),
1.507–2(f), 1.509(a)–3(o), 1.6033–2(k),
and 1.6043–3(e).
FOR FURTHER INFORMATION
CONTACT: Terri Harris at (202)
622–6070 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)) under control number
1545–2117. The estimated annual burden
per recordkeeper will vary, depending on
individual circumstances. The collection
of information in this final regulation is
in §1.6033–2. The information collected
under §1.6033–2 relates to compensation
reporting by tax-exempt organizations.
The information that is required to be
collected for purposes of §1.6033–2 is
required to be submitted on Form 990,
“Return of Organization Exempt From
Income Tax.”For further information con-
cerning this collection of information and
the burden associated with the Form 990,
or where to submit comments on this col-
lection of information and the accuracy of
the estimated burden, please refer to the
instructions of the Form 990. The total
annual reporting burden associated with
this document is one hour.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
Form 990
Under section 6033 of the Internal Rev-
enue Code (Code), organizations that are
exempt from Federal income tax under
section 501(a) are generally required to
file an annual information return report-
ing gross income, receipts, disbursements,
and such other information as the IRS re-
quires. Certain exceptions to this filing re-
quirement apply. For example, churches
are not required to file annual information
returns. The Treasury regulations direct
that the annual information return shall be
filed on Form 990,“Return of Organiza-
tion Exempt From Income Tax”or Form
990-PF,“Return of Private Foundation or
Section 4947(a)(1) Nonexempt Charitable
Trust Treated as a Private Foundation.”
The regulations further specify certain in-
formationtobereportedonthereturn.
The IRS revises forms and instructions
on an annual basis to reflect changes in the
law and evolving tax administration needs.
On December 20, 2007, the IRS released
a redesigned Form 990. The Form 990
had not been significantly revised since
1979, and both the IRS and stakeholders
regarded the form as needing major revi-
sion to keep pace with changes in the law
and with the increasing size, diversity, and
complexity of the exempt sector. With the
exception of certain smaller organizations
for which there is a graduated transition
period, organizations began using the new
form for the 2008 tax year (returns filed in
2009).
On September 9, 2008, the IRS and the
Treasury Department issued final and tem-
porary regulations under sections 170(b),
507, 509(a), 6033, and 6043 necessary to
implement the redesigned Form 990,’’Re-
turn of Organization Exempt From Income
Tax,”(T.D. 9423, 2008–2 C.B. 966) in the
Federal Register(73 FR 52528). Also on
September 9, 2008, the IRS and the Trea-
sury Department issued a notice of pro-
posed rulemaking cross-referencing those
Temporary Regulations and inviting public
comment and requests for a public hearing
(REG–142333–07, 2008–2 C.B. 1008) in
theFederal Register(73 FR 52218).
The IRS did not receive any requests for
a public hearing. The IRS received one
written comment responding to this notice.
After consideration of the comment, the
proposed regulations are revised and pub-
lished in final form substantially as pro-
posed. The major areas of comment and
revision are discussed in the following Ex-
planation of Provisions.
Summary of Comments and
Explanation of Provisions
Private Foundation Status and Advance
Rulings
In its application for recognition of
tax-exempt status (Form 1023,“Applica-
tion for Recognition of Exemption Under
Section 501(c)(3) of the Internal Revenue
Code”),a section 501(c)(3) organization
also requests a determination of its private
foundation status or public charity status,
that is, whether it is a private foundation
and, if not, the Code provision excepting
it from private foundation classification.
Under the current statute and prior regula-
tions, an organization could request either
an advance ruling or a definitive ruling
addressing the organization’s exemption
under section 501(c)(3) and its private
foundation status under section 509(a).
The proposed regulations eliminated the
advance ruling process and provided in-
stead that an organization would be a
publicly supported organization (thus
qualifying for public charity status) in
its first five years if it could show, in its
application for exemption, that it could
reasonably be expected to receive the req-
uisite public support during such period.
The comment suggested that the final
regulations clarify the process for request-
ing an updated ruling or determination
letter as to public charity status under
§§1.170A–9(f)(5) and 1.509(a)–3(e). This
process is now explained in Rev. Proc.
2011–10, 2011–2 I.R.B. 294 and its suc-
November 14, 20117192011–46 I.R.B.

cessors. Thus, the final regulations do not
incorporate this suggestion.
Computation Period for Public Support
The proposed regulations changed the
computation period for public support
from a four-year period comprised of the
four years prior to the taxable year being
tested to a five-year period ending with the
taxable year being tested. An organization
that meets a public support test for a tax-
able year is treated aspublicly supported
for that taxable year and the immediately
succeeding taxable year. An organization
that does not meet a public support test
for a taxable year may be at risk of be-
ing classified as a private foundation as
of the first day of the succeeding taxable
year if the organization also fails to meet
a public support test for that succeeding
taxable year. Because the IRS and the
Treasury Department recognized that an
organization will not be able to compute
its public support for a taxable year un-
der the changed computation period until
the subsequent taxable year, the notice of
proposed rulemaking requested comments
on specific situations that might warrant
relief from the imposition of Chapter 42
excise taxes. In addition, organizations
that believed that it would be unfair or in-
equitable to impose the private foundation
excise taxes or penalties against them for
all or part of the first year in which they
were reclassified as private foundations
were invited to contact the IRS, Exempt
Organizations, Rulings and Agreements,
Washington, DC. No organizations con-
tacted the IRS.
The comment suggested that the final
regulations should treat organizations that
fail a public support test for two consec-
utive years as private foundations as of
the beginning of the second test year only
for purposes of section 507 (termination
of private foundation status) and section
4940 (excise tax on investment income),
and that such an organization should not be
treated as a private foundation for all other
purposes until the beginning of the third
consecutive taxable year. The commenter
suggested that such a rule was necessary
because organizations cannot always pre-
dict the amount of support they receive
from year-to-year. The comment analo-
gized this suggestion to the rule that pre-
viously applied when a new organization
reached the end of its five-year advance
ruling period. Under the prior regulations,
an organization generally was treated as
publicly supported until 90 days after the
end of the advance ruling period, or, if
Form 8734,“Support Schedule for Ad-
vance Ruling Period,”was timely submit-
ted, until the IRS made a final determina-
tion of its status. If an organization failed
to qualify as a publicly supported organiza-
tion, only the section 4940 investment in-
come tax and section 507 termination tax
applied for the five-year advance ruling
period that had already ended. The reclas-
sified organization and its disqualified per-
sons would be subject to all the Chapter
42 excise taxes applicable to private foun-
dations and disqualified persons only after
the end of the 90-day period or when the
IRS made a final determination.
In response to the comment, the final
regulations provide that an organization
that fails a public support test for two con-
secutive taxable years will be treated as a
private foundation as of the beginning of
the second year of failure only for purposes
of sections 507, 4940, and 6033. An or-
ganization will be treated as a private foun-
dation for all purposes beginning the first
day of the third consecutive taxable year.
The comment also suggested adding
examples applying the “facts and circum-
stances test” under §1.170(A)–9T(f)(3) or
issuing other guidance providing exam-
ples of the application of this test. The
proposed regulations contained numerous
examples reflecting the five-year com-
putation period in §§1.170A–9T(f)(9),
1.509(a)–3T(c)(6), and 1.509(a)–3T(e)(3),
including several examples illustrating the
application of the facts and circumstances
test in §1.170A–9T(f)(9). The final regu-
lations retain the examples in the proposed
regulations but do not include additional
examples, as it was not clear what addi-
tional clarification was needed.
Method of Accounting
Previously, when a section 501(c)(3)
organization computed its public support,
itwasrequiredtousethecashmethodof
accounting to report the amount of public
support it received on Schedule A,“Pub-
lic Charity Status and Public Support,”
even if the organization used the accrual
method of accounting to keep its books un-
der section 446, and otherwise report on
Form 990. Under the proposed regula-
tions, when a section 501(c)(3) organiza-
tion computed its public support and re-
ported the information on Schedule A, it
was required to use the same accounting
method that it uses to keep its books under
section 446 and that it otherwise uses to re-
port on its Form 990.
The comment observed that an organ-
ization using the accrual method of ac-
counting to keep its books and to calculate
its public support will need to include the
present value of a multi-year grant as sup-
port in the year in which the grant com-
mitment is received. The commenter sug-
gested that this could deter private founda-
tions from making substantial multi-year
grants to an organization due to a concern
that the grant could cause the organiza-
tion to fail the public support test and be
reclassified as a private foundation. The
comment suggested that the unusual grant
rules in the final regulations be expanded
to add a new factor giving favorable con-
sideration to certain types of multi-year
private foundation grants. Alternatively,
the comment suggested that the regula-
tions should permit organizations to elect,
for purposes of the public support test, to
accrue multi-year grants ratably over the
period to which they relate.
The final regulations do not incorporate
these suggestions. While the requirement
to compute public support in accordance
with an organization’s normal method of
accounting generally is advantageous and
less cumbersome for most organizations,
the IRS and the Treasury Department
recognize that some accrual-method orga-
nizations receiving substantial multi-year
grants from private foundations and indi-
viduals may be concerned that the require-
ment to account for those multi-year grants
on an accrual-method may adversely af-
fect their public charity status. However,
the longer, five-yeartestingperiodinthe
proposed and final regulations should mit-
igate the impact of recognizing a larger
amount of support from one source in a
single year.
In addition, one of the goals of the
redesign of the Form 990 was to imple-
ment consistent reporting throughout each
organization’s Form 990 and financial
records in order to reduce an organization’s
recordkeeping burden and to increase
transparency of an organization’s activities
to the general public. In general, use of an
2011–46 I.R.B.720November 14, 2011

organization’s normal method of account-
ing for calculation of its public support
reduces the recordkeeping and reporting
burden on accrual-method taxpayers, as
they no longer must maintain separate cash
method records solely for reporting public
support on Schedule A. The revised Form
990, Schedule A, sets forth easier-to-fol-
low rules for calculating public support
and captures the information necessary
for the organization and the general public
to monitor an organization’s compliance
with the public support tests. Consistent
financial reporting on the basis of an or-
ganization’s normal accounting method
throughout the organization’s Form 990,
including the support test in Schedule A,
facilitates reconciliation of the Form 990
reporting with an organization’s audited
financial statements, increasing the abil-
ity of the general public to rely on an
organization’s Form 990 as an accurate
reflection of the organization’s financial
circumstances. Consistent reporting thus
assists in the oversight of the charitable
community by the general public, as well
as by the IRS. Given these considerations,
the IRS and the Treasury Department have
determined not to adopt the suggested
elective change to the accounting method
for multi-year grants.
The IRS and the Treasury Department
also decline to adopt the suggestion that
the unusual grant rules be expanded to in-
clude multi-year grants. The public sup-
port test is designed to ensure that an or-
ganization is not funded by a small num-
ber of large donors, and IRS and the Trea-
sury Department do not believe it should
exclude a large contribution from a sin-
gle donor simply because it is paid out
over a number of years. The fact that a
grant is a multi-year grant has historically
been taken into consideration in determin-
ing whether a particular grant constitutes
an unusual grant, at times to the benefit
and at times to the detriment of the recipi-
ent organization. Theunusual grant exclu-
sion generally applies to substantial con-
tributions or bequests that (1) are attracted
by the publicly supported nature of the or-
ganization, (2) are unusual or unexpected
in their amount, and (3) would adversely
affect the organization’s public charity sta-
tus because of their amount. The final
regulations in §§1.170A–9(f)(6)(ii)(B) and
1.509(a)–3(c)(3)(iii) provide that all perti-
nent facts and circumstances continue to
be taken into consideration when deter-
mining whether a particular contribution
will be excluded from the support calcu-
lation under the unusual grant exclusion,
with no single factor being determinative.
If an accrual basis organization re-
ceives a substantial multi-year grant from
a private foundation or individual that,
taken along with all other facts and cir-
cumstances, would satisfy the standards
in §§1.170A–9(f)(6) and 1.509(a)–3(c)(3)
for treatment as an unusual grant, such a
grant generally would be excluded from
the computation of public support. An
organization may request a private letter
ruling pursuant to §§1.170A–9(f)(6)(iv)
and 1.509(a)–3(c)(5) that a multi-
year grant constitutes an unusual
grant under §§1.170A–9(f)(6)(ii) and
1.509(a)–3(c)(3), based on all the facts
and circumstances. See also Rev. Proc
2011–4, 2011–1 I.R.B. 123, and its suc-
cessors. Additionally, Rev. Proc. 81–7,
1981–1 C.B. 621, provides guidelines
regarding grants and contributions, includ-
ing multi-year grants to finance capital
items, that will be considered unusual
grants under §§1.170A–9(f)(6)(ii) and
1.509(a)–3(c)(3) and related provisions
without a private letter ruling from the
IRS.
Reliance
The proposed regulations provided that
donors may rely on an organization’s rul-
ing that the organization is described in
sections 170(b)(1)(A)(vi) and 509(a)(1)
or in section 509(a)(2) until notice of a
change in status is provided to the public
(suchasbypublicationintheInternal
Revenue Bulletin), unless the donor was
responsible for, or aware of, the act or fail-
ure to act that results in the organization’s
loss of public charity status. The proposed
regulations further provided that donors
may rely on advance rulings that expire
on or after June 9, 2008, until notice of a
change in status is provided to the public
(suchasbypublicationintheInternal
Revenue Bulletin).
The comment suggested that the final
regulations should incorporate a safe har-
bor under which a grantor or contribu-
tor will not be considered responsible for,
or aware of, an act or failure to act that
will result in loss of public charity sta-
tus, such as those set forth in Rev. Proc.
89–23, 1989–1 C.B. 844, and Rev. Proc.
81–6, 1981–1 C.B. 620. The IRS and the
Treasury Department agree that grantor re-
liance safe harbors, such as those noted,
are still appropriate, but believe that this
guidance is more appropriately provided in
non-regulatory form, such as revenue pro-
cedures. Therefore, the final regulations
do not incorporate this suggestion.
However, the final regulations do
restore, in §§1.170A–9(f)(5)(iii) and
1.509–3(e)(2)(ii), language that was in-
advertently deleted from the proposed
regulations giving limited grantor and
donor reliance based on a written state-
ment from the grantee organization.
Section 4966 imposes an excise tax on
a sponsoring organization of a donor ad-
vised fund (DAF) for each taxable distri-
bution it makes from aDAF. Under section
4966(c), a taxable distribution generally is
any distribution from a DAF to any natu-
ral person, or to any other person if (i) the
distribution is for any purpose other than
one specified in section 170(c)(2)(B), or
(ii) the sponsoring organization maintain-
ing the DAF does not exercise expenditure
responsibility with respect to such distri-
bution in accordance with section 4945(h).
Among other things, a taxable distribu-
tion does not include a distribution from a
DAF to any organization described in sec-
tion 170(b)(1)(A) (other than a disquali-
fied supporting organization).
Notice 2006–109, 2006–2 C.B. 1121,
requested comments on the application of
the Pension Protection Act of 2006, Pub-
lic Law 109–280 (120 Stat. 780 (2006))
(PPA) to DAFs and supporting organiza-
tions. Several comments were received
requesting that sponsoring organizations
ofDAFsbeallowedtorelyonanIRSrul-
ing or determination of an organization’s
public charity status for various purposes,
including for purposes of determining
whether a distributiontoanorganization
would be a taxable distribution under
section 4966. The IRS and the Trea-
sury Department agree that reliance relief
for sponsoring organizations of DAFs is
appropriate. Accordingly, the final regula-
tions provide that, for purposes of section
4966, sponsoring organizations of DAFs
mayrelyonanIRSdeterminationletteror
ruling that the organization is described in
sections 170(b)(1)(A)(vi) and 509(a)(1) or
in section 509(a)(2) to the same extent as
other grantors and contributors. The final
November 14, 20117212011–46 I.R.B.

regulations also allow sponsoring orga-
nizations of DAFs to rely on a favorable
determination issued to a grantee that a
grant is an unusual grant.
Private Foundation Termination
Section 1.507–2 addresses private
foundation terminations under section
507(b). The proposed regulations re-
vised §1.507–2 to delete references to
the four-year computation period and
the transition rules related to 12-month
terminations that are obsolete. Section
507(b)(1)(B) allows an organization to
terminate its private foundation status
by meeting the requirements of section
509(a)(1), (a)(2), or (a)(3) (and thus oper-
ating as a public charity) for a continuous
period of 60 months, provided the organ-
ization (1) prior to commencement of the
60-month period, notifies the Secretary in
the manner prescribed by regulations that
it is terminating private foundation status,
and (2) later establishes to the satisfaction
of the Secretary in a manner prescribed
by regulations that it operated as a public
charity during the 60-month period. The
proposed regulations continued to provide
that a terminating private foundation could
request an advance ruling regarding its
public charity status under §1.507–2T(d).
The proposed regulations also retained the
provision requiring terminating private
foundations to provide sufficient informa-
tion to the IRS within 90 days of the end
of the 60-month period to allow the IRS
to make a determination on public charity
status.
The comment suggested that the final
regulations should simplify the process of
terminating private foundation status un-
der §1.507–2 by eliminating the require-
ment that an organization file certain infor-
mation with the IRS within 90 days after
completing the 60-month termination pe-
riod. The comment observed that the IRS
eliminated the Form 8734 filing require-
ment for newly-formed organizations with
advance rulings, choosing instead to rely
on the information reported on Schedule A
to monitor public support.
The final regulations do not incorporate
this suggestion. In eliminating the advance
ruling period and liberalizing the proce-
dures for new organizations, the IRS took
into consideration the experiential data in-
dicating the high incidence of qualification
for public charity status at the end of the
advance ruling period. As stated in the
notice of proposed rulemaking, approxi-
mately 95 percent of the organizations that
received advance rulings later received de-
finitive rulings that they were public char-
ities. The IRS does not have analogous
experiential data relating to organizations
attempting to terminate private foundation
status under section 507(b)(1)(B) to sup-
port a similar change in these procedures.
In addition, if the organization fails to
qualify as a public charity for the entire
60-month period, it will continue to be
treated as a private foundation for the en-
tire 60-month period. Thus, unlike a new
organization that had an advance ruling
as a public charity, anorganization termi-
nating its private foundation status contin-
ues to be classified as a terminating pri-
vate foundation during the 60-month pe-
riod and continues as such until the IRS
receives and makes a determination on the
organization’s 90-day submission of infor-
mation following the end of its advance
ruling period.
Substantial Contributor
The term “substantial contributor,” for
purposes of Chapter 42, is defined under
section 507(d)(2) and §1.507–6. The com-
ment suggested that, given that a new or-
ganization that fails to qualify as publicly
supported after its first five years of exis-
tence will not be treated as a private foun-
dation for any purpose during its first five
years, the final regulations should clarify
whether, for purposes of Chapter 42, the
identity of substantial contributors to the
organization will be determined by taking
into account contributions received while
the organization was a public charity, or
only contributions received after the date
the organization is reclassified as a private
foundation.
Because section 1.507–6 is not within
the scope of these final regulations, the fi-
nal regulations do not incorporate this sug-
gestion.
Miscellaneous
In §1.170A–9(f), changes were made
in the proposed regulation to clarify that
the facts and circumstances test described
in paragraph (f)(3) takes into account all
pertinent facts and circumstances, and not
just those listed in paragraph (f)(3)(iii);
additional conforming changes were made
in the final regulations. In §1.507–2, lan-
guage inadvertently added to the proposed
regulationwhenclarifyingthefactors
for determining whether a grantee or-
ganization has an independent governing
body was deleted. In addition, the final
regulations include language conform-
ing §1.6033–2(g) to the changes made
to section 6033(a)(3)(B) of the Code
under the PPA. Since the date of enact-
ment of the PPA, August 17, 2006, the
Commissioner’s discretionary authority
to relieve organizations from the annual
filing requirement under section 6033(a)
has not applied to supporting organizations
described in section 509(a)(3) of
the Code.Section 1.6033–2(g)(6),
which provides the general statement
of the Commissioner’s discretionary
authority to relieveorganizations from
the annual filing requirement under
section 6033(a), has been corrected to
include the modifying language provided
by the PPA in section 6033(a)(3)(B).
Sections1.6033–2(g)(1)(iii)and
1.6033–2(g)(1)(iv) have been amended
to include conforming changes. Several
other incidental changes were made
throughout the final regulations in order
to increase clarity and consistency, none
of which modify the substance of the
proposed regulations.
Additionally, the final regulations in-
clude a correction in §1.6033–2(i) to the
place to which an organization’s change of
operation notifications is sent.
Effective/Applicability Date and
Transition Rules
These final regulations generally are ef-
fective on September 8, 2011 and gener-
ally apply to taxable years beginning on or
after January 1, 2008. All organizations,
including organizations that received a de-
finitive ruling prior to the effective date of
these regulations, must use the new five-
year computation period to calculate pub-
lic support for their first taxable year be-
ginning on or after January 1, 2008, and
for all subsequent taxable years.
Special Analyses
It has been determined that this Trea-
sury decision is not asignificant regula-
tory action as defined in Executive Order
2011–46 I.R.B.722November 14, 2011

12866, as supplemented by Executive Or-
der 13565. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply. It is hereby certified
that the collection of information in this
regulation will not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that burden on tax-exempt en-
tities will be reduced by (1) eliminating
the separate advance ruling process and the
additional process for subsequently seek-
ing a definitive ruling, (2) clarifying rules
regarding the method of accounting and
period for reporting certain items, and (3)
providing discretion for the IRS to narrow
or clarify circumstances under which re-
porting is required. Accordingly, a Regu-
latory Flexibility Analysis under the Reg-
ulatory Flexibility Act (5 U.S.C. chapter 6)
is not required. Pursuant to section 7805(f)
of the Code, these regulations have been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Statement of Availability for Documents
Published in the Internal Revenue
Bulletin
For copies of recently issued rev-
enue procedures, revenue rulings, notices
and other guidance published in the In-
ternal Revenue Bulletin or Cumulative
Bulletin, please visit the IRS website at
http://www.irs.gov.
Drafting Information
The principal author of this regulation
is Terri Harris, Office of Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel from
the IRS and the Treasury Department
participated in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section1.170A–9 is amended
by revising paragraphs (f) and (k) to read
as follows:
§1.170A–9 Definition of section
170(b)(1)(A) organization.
*****
(f)Definitionofsection
170(b)(1)(A)(vi) organization—(1)In
general.An organization is described in
section 170(b)(1)(A)(vi) if it—
(i) Is referred to in section 170(c)(2)
(other than an organization specifically de-
scribed in paragraphs (b) through (e) of
this section); and
(ii) Normally receives a substantial part
of its support from a governmental unit re-
ferred to in section 170(c)(1) or from di-
rect or indirect contributions from the gen-
eral public (“publicly supported”). For
purposes of this paragraph (f), an organ-
ization is publicly supported if it meets
the requirements of either paragraph (f)(2)
of this section (33
1
/3percent support test)
or paragraph (f)(3) of this section (facts
and circumstances test). Paragraph (f)(4)
of this section defines “normally” for pur-
poses of the 33
1
/3percent support test and
the facts and circumstances test, and for
new organizations in the first five years
of the organization’s existence as a section
501(c)(3) organization. Paragraph (f)(5) of
this section provides for determinations of
foundation classification and rules for re-
liance by donors and contributors. Para-
graphs (f)(6), (f)(7), and (f)(8) of this sec-
tion list the items that are included and ex-
cluded from the term support. Paragraph
(f)(9) of this section provides examples of
the application of this paragraph. Types
of organizations that, subject to the provi-
sions of this paragraph (f), generally qual-
ify under section 170(b)(1)(A)(vi) as “pub-
licly supported” are publicly or govern-
mentally supported museums of history,
art, or science, libraries, community cen-
ters to promote the arts, organizations pro-
viding facilities for the support of an opera,
symphony orchestra, ballet, or repertory
drama or for some other direct service to
the general public.
(2)Determination whether an organ-
ization is “publicly supported”; 33
1
/3
percent support test. An organization is
publicly supported if the total amount of
support (see paragraphs (f)(6), (f)(7), and
(f)(8) of this section) that the organization
normally (see paragraph (f)(4)(i) of this
section) receives from governmental units
referred to in section 170(c)(1), from con-
tributions made directly or indirectly by
the general public, or from a combination
of these sources, equals at least 33
1
/3per-
cent of the total support normally received
by the organization. See paragraph (f)(9),
Example 1of this section.
(3)Determination whether an organi-
zation is “publicly supported”; facts and
circumstances test. Even if an organiza-
tion fails to meet the 33
1
/3percent support
test described in paragraph (f)(2) of this
section, it is publicly supported if it nor-
mally (see paragraph (f)(4)(i) of this sec-
tion) receives a substantial part of its sup-
port from governmental units, from con-
tributions made directly or indirectly by
the general public, or from a combination
of these sources, and meets the other re-
quirements of this paragraph (f)(3). In or-
der to satisfy the facts and circumstances
test, an organization must meet the require-
ments of paragraphs (f)(3)(i) and (f)(3)(ii)
of this section. In addition, the organi-
zation must be in the nature of an organ-
ization that is publicly supported, taking
into account all pertinent facts and circum-
stances, including the factors listed in para-
graphs (f)(3)(iii)(A) through (f)(3)(iii)(E)
of this section.
(i)Ten-percent support limitation.The
percentage of support (see paragraphs
(f)(6), (f)(7) and (f)(8) of this section) nor-
mally received by an organization from
governmental units, from contributions
made directly or indirectly by the general
public, or from a combination of these
sources, must be substantial. For purposes
of this paragraph (f)(3), an organization
will not be treated as normally receiving
a substantial amount of governmental or
public support unless the total amount of
governmental and public support normally
received equals at least 10 percent of the
total support normally received by such
organization.
(ii)Attraction of public support.An
organization must be so organized and
operated as to attract new and additional
public or governmental support on a con-
tinuous basis. An organization will be
considered to meet this requirement if
it maintains a continuous andbona fide
program for solicitation of funds from the
general public, community, or member-
November 14, 20117232011–46 I.R.B.

ship group involved, or if it carries on
activities designed to attract support from
governmental units or other organiza-
tions described in section 170(b)(1)(A)(i)
through (b)(1)(A)(vi). In determining
whether an organization maintains a con-
tinuous andbona fideprogram for solici-
tation of funds from the general public or
community, consideration will be given
to whether the scope of its fundraising
activities is reasonable in light of its chari-
table activities. Consideration will also be
given to the fact that an organization, in
its early years of existence, may limit the
scope of its solicitation to persons deemed
most likely to provide seed money in an
amount sufficient to enable it to com-
mence its charitableactivities and expand
its solicitation program.
(iii) In addition to the requirements set
forth in paragraphs (f)(3)(i) and (f)(3)(ii)
of this section that must be satisfied, all
pertinent facts and circumstances, includ-
ing the following factors, will be taken
into consideration in determining whether
an organization is “publicly supported”
within the meaning of paragraph (f)(1) of
this section. However, an organization is
not generally required to satisfy all of the
factors in paragraphs (f)(3)(iii)(A) through
(f)(3)(iii)(E) of this section. The factors
relevant to each case and the weight ac-
corded to any one of them may differ
depending upon the nature and purpose of
the organization and the length of time it
has been in existence.
(A)Percentage of financial support.
The percentage of support received by an
organization from public or governmental
sources will be taken into consideration
in determining whether an organization
is “publicly supported.” The higher the
percentage of support above the 10 per-
cent requirement of paragraph (f)(3)(i) of
this section from public or governmental
sources, the lesser will be the burden of
establishing the publicly supported nature
of the organization through other factors,
including those described in this paragraph
(f)(3), while the lower the percentage, the
greater will be the burden. If the percent-
age of the organization’s support from
public or governmental sources is low
because it receives a high percentage of
its total support from investment income
on its endowment funds, such fact will
be treated as evidence of an organization
being “publicly supported” if such endow-
ment funds were originally contributed by
a governmental unit or by the general pub-
lic. However, if such endowment funds
were originally contributed by a few indi-
viduals or members of their families, such
fact will increase theburden on the organ-
ization of establishing that it is “publicly
supported” taking into account all perti-
nent facts and circumstances, including
the other factors described in paragraph
(f)(3)(iii) of this section.
(B)Sources of support. The fact that
an organization meets the requirement of
paragraph (f)(3)(i) of this section through
support from governmental units or di-
rectly or indirectly from a representative
number of persons, rather than receiving
almost all of its support from the members
of a single family, will be considered ev-
idence of an organization being “publicly
supported.” In determining what is a “rep-
resentative number of persons,” consider-
ation will be given to the type of organiza-
tion involved, the length of time it has been
in existence, and whether it limits its activ-
ities to a particular community or region or
to a special field which can be expected to
appeal to a limited number of persons.
(C)Representative governing body.
The fact that an organization has a govern-
ing body which represents the broad inter-
ests of the public, rather than the personal
or private interests of a limited number of
donors (or persons standing in a relation-
ship to such donors which is described in
section 4946(a)(1)(C) through (a)(1)(G)),
will be considered evidence of an organ-
ization being “publicly supported.” An
organization will be treated as having a
representative governing body if it has a
governing body (whether designated in
the organization’s governing instrument
or bylaws as a Board of Directors, Board
of Trustees, or similar governing body)
which is comprised of public officials
acting in their capacities as such; of indi-
viduals selected by public officials acting
in their capacities as such; of persons hav-
ing special knowledge or expertise in the
particular field or discipline in which the
organization is operating; of community
leaders, such as elected or appointed offi-
cials, clergymen, educators, civic leaders,
or other such persons representing a broad
cross-section of the views and interests
of the community; or, in the case of a
membership organization, of individuals
elected pursuant to the organization’s gov-
erning instrument or bylaws by a broadly
based membership.
(D)Availability of public facilities or
services; public participation in programs
or policies.(1) The fact that an organi-
zation generally provides facilities or ser-
vices directly for the benefit of the gen-
eral public on a continuing basis (such
as a museum or library which holds open
its building or facilities to the public, a
symphony orchestra which gives public
performances, a conservation organization
which provides educational services to the
public through the distribution of educa-
tional materials, or an old age home which
provides domiciliary or nursing services
for members of the general public) will be
considered evidence that such organization
is “publicly supported.”
(2) The fact that an organization is an
educational or research institution which
regularly publishes scholarly studies that
are widely used by colleges and universi-
ties or by members of the general public
will also be considered evidence that such
organization is “publicly supported.”
(3) The following factors will also be
considered evidence that an organization is
“publicly supported”:
(i) The participation in, or sponsor-
ship of, the programs of the organization
by members of the public having special
knowledge or expertise, public officials,
or civic or community leaders.
(ii) The maintenance of a definitive pro-
gram by an organization to accomplish its
charitable work in the community, such as
combating community deterioration in an
economically depressed area that has suf-
fered a major loss of population and jobs.
(iii) The receipt of a significant part
of its funds from a public charity or gov-
ernmental agency to which it is in some
way held accountable as a condition of the
grant, contract, or contribution.
(E)Additional factors pertinent to
membership organizations. The following
are additional factors to be considered in
determining whether a membership organ-
ization is “publicly supported”:
(1) Whether the solicitation for dues-
paying members is designed to enroll a
substantial number of persons in the com-
munity or area, or in a particular profession
or field of special interest (taking into ac-
count the size of the area and the nature of
the organization’s activities).
2011–46 I.R.B.724November 14, 2011

(2) Whether membership dues for indi-
vidual (rather than institutional) members
have been fixed at rates designed to make
membership available to a broad cross sec-
tion of the interested public, rather than to
restrict membership to a limited number of
persons.
(3) Whether the activities of the or-
ganization will be likely to appeal to per-
sons having some broad common interest
or purpose, such as educational activities
in the case of alumni associations, musi-
cal activities in the case of symphony so-
cieties, or civic affairs in the case of par-
ent-teacher associations. SeeExample 2
throughExample 5contained in paragraph
(f)(9) of this section for illustrations of this
paragraph (f)(3).
(4)Definition of normally; general
rule—(i)Normally; 33
1
/3percent support
test. An organization “normally” receives
the requisite amount of public support
and meets the 33
1
/3percent support test
for a taxable year and the taxable year
immediately succeeding that year, if, for
the taxable year being tested and the four
taxable years immediately preceding that
taxable year, the organization meets the
33
1
/3percent support test on an aggregate
basis.
(ii)Normally;facts and circumstances
test. An organization “normally” receives
the requisite amount of public support and
meets the facts and circumstances test of
paragraph (f)(3) for a taxable year and the
taxable year immediately succeeding that
year, if, for the taxable year being tested
and the four taxable years immediately
preceding that taxable year, the organiza-
tion meets the facts and circumstances test
on an aggregate basis. In the case of para-
graphs (f)(3)(iii)(A) and (f)(3)(iii)(B) of
this section, facts pertinent to years preced-
ing the five-year period may also be taken
into consideration. The combination of
factors set forth in paragraphs (f)(3)(iii)(A)
through (f)(3)(iii)(E) of this section that
an organization normally must meet does
not have to be the same for each five-year
period so long as there exists a sufficient
combination of factors to show compli-
ance with the facts and circumstances test.
(iii)Special rule. The fact that an or-
ganization has normally met the require-
ments of the 33
1
/3percent support test for
a current taxable year, but is unable nor-
mally to meet such requirements for a suc-
ceeding taxable year, will not in itself pre-
vent such organization from meeting the
facts and circumstances test for such suc-
ceeding taxable year.
(iv)Example. The application of para-
graphs (f)(4)(i), (f)(4)(ii), and (f)(4)(iii) of
this section may be illustrated by the fol-
lowing example:
Example. (i) X is recognized as an organization
described in section 501(c)(3). On the basis of sup-
port received during taxable years 2008, 2009, 2010,
2011, and 2012, in the aggregate, X receives at least
33
1
/3percent of its support from governmental units
referred to in section 170(c)(1), from contributions
made directly or indirectly by the general public, or
from a combination of these sources. Consequently,
X meets the 33
1
/3percent support test for taxable year
2012 (the current taxable year). X also meets the 33
1
/3
support test for 2013, as the immediately succeeding
taxable year.
(ii) In taxable years 2009, 2010, 2011, 2012, and
2013, in the aggregate, X does not receive at least
33
1
/3percent of its support from governmental units
referred to in section 170(c)(1), from contributions
made directly or indirectly by the general public, or
from a combination of these sources. However, X
still meets the 33
1
/3percent support test for taxable
year 2013 based on the aggregate support received
for taxable years 2008 through 2012.
(iii) In taxable years 2010, 2011, 2012, 2013, and
2014, in the aggregate, X does not receive at least
33
1
/3percent of its support from governmental units
referred to in section 170(c)(1), from contributions
made directly or indirectly by the general public, or
from a combination of these sources. X does not meet
the 33
1
/3percent support test for taxable year 2014.
(iv) X meets the facts and circumstances test
for taxable year 2013 and for taxable year 2014
(the immediately succeeding taxable year) based on
the aggregate support X receives, X’s fundraising
program, and consideration of other factors, includ-
ing those listed in paragraphs (f)(3)(iii)(A) through
(f)(3)(iii)(E) of this section, during taxable years
2009, 2010, 2011, 2012, and 2013. Therefore, even
though X does not meet the 33
1
/3percent support
test for taxable year 2014, X is still an organization
described in section 170(b)(1)(A)(vi) for that year.
(v)Normally; first five years of an or-
ganization’s existence. (A) An organi-
zation “normally” receives the requisite
amount of public support and meets the
33
1
/3percent public support test or the
facts and circumstances test during its first
five taxable years as a section 501(c)(3)
organization if the organization can rea-
sonably be expected to meet the require-
ments of the 33
1
/3percent support test or
the facts and circumstances test during that
period. With respect tosuch organization’s
sixth taxable year, the general definition of
normally set forth in paragraphs (f)(4)(i),
(f)(4)(ii), and (f)(4)(iii) of this section ap-
ply. Alternatively, the organization shall
be treated as “normally” meeting the 33
1
/3
percent support test or the facts and cir-
cumstances test for its sixth taxable year
(but not its seventh taxable year) if it meets
the 33
1
/3percent support test or the facts
and circumstances test under the defini-
tion of normally set forth in paragraphs
(f)(4)(i), (f)(4)(ii), and (f)(4)(iii) of this
section for its fifth taxable year (based on
support received in itsfirst through fifth
taxable years).
(B)Basic consideration. In determin-
ing whether an organization can reason-
ably be expected (within the meaning of
paragraph (f)(4)(v)(A) of this section) to
meet the requirements of the 33
1
/3percent
support test or the facts and circumstances
test during its first five taxable years, the
basic consideration is whether its organi-
zational structure, current or proposed pro-
grams or activities, and actual or intended
method of operation are such as can rea-
sonably be expected to attract the type of
broadly based support from the general
public, public charities, and governmental
units that is necessary to meet such tests.
The factors that are relevant to this deter-
mination, and the weight accorded to each
of them, may differ from case to case, de-
pending on the nature and functions of the
organization. The information to be con-
sidered for this purpose shall consist of all
pertinent facts and circumstances, includ-
ing the factors set forth in paragraph (f)(3)
of this section.
(vi)Example. The application of para-
graph (f)(4)(v) of this section may be illus-
trated by the following example:
Example. (i) Organization Y was formed in Jan-
uary 2008, and uses a taxable year ending Decem-
ber 31. After September 9, 2008, and before De-
cember 31, 2008, Organization Y filed Form 1023
requesting recognition of exemption as an organiza-
tion described in section 501(c)(3) and in sections
170(b)(1)(A)(vi) and 509(a)(1). In its application,
Organization Y established that it can reasonably be
expected to operate as a publicly supported organi-
zation under paragraph (f)(2) or (f)(3) and paragraph
(f)(4)(v) of this section. Subsequently, Organization
Y received a ruling or determination letter that it is an
organization described in section 501(c)(3) and sec-
tions 170(b)(1)(A)(vi) and 509(a)(1) effective as of
the date of its formation.
(ii) Organization Y is described in sections
170(b)(1)(A)(vi) and 509(a)(1) for its first five tax-
able years (the taxable years ending December 31,
2008, through December 31, 2012).
(iii) Organization Y can qualify as a publicly
supported organization for the taxable year ending
December 31, 2013, if Organization Y can meet
the requirements of either paragraph (f)(2) or para-
graph (f)(3) of this section or §1.509(a)–3(a) and
§1.509(a)-(3)(b) for the taxable years ending Decem-
ber 31, 2009, through December 31, 2013, or for the
November 14, 20117252011–46 I.R.B.

taxable years ending December 31, 2008, through
December 31, 2012.
(vii)Organizations reclassified as pri-
vate foundations.(A)New publicly sup-
ported organizations.Ifanewpublicly
supported organization described under
section 170(b)(1)(A)(vi) cannot meet the
requirements of the 33
1
/3percent test of
paragraph (f)(2) or the facts and circum-
stances test of paragraph (f)(3) for its sixth
taxable year under the general definition of
normally set forth in paragraphs (f)(4)(i),
(f)(4)(ii), and (f)(4)(iii) of this section or
under the alternate rule set forth in para-
graph (f)(4)(v) of thissection (effectively
failing to meet a public support test for
both its fifth and sixth taxable years), it
will be treated as a private foundation as
of the first day of its sixth taxable year
only for purposes of sections 507, 4940,
and 6033. Such an organization must file
a Form 990-PF,“Return of Private Foun-
dation or Section 4947(a)(1) Nonexempt
Charitable Trust Treated as a Private
Foundation,”andwillbeliableforthenet
investment tax imposed by section 4940
and, if applicable, the private foundation
termination tax imposed by section 507(c),
for its sixth taxable year. For succeed-
ing taxable years, the organization will
be treated as a private foundation for all
purposes.
(B)Other publicly supported organiza-
tions. A publicly supported organization
described in section 170(b)(1)(A)(vi)
(other than a new publicly supported
organization described in paragraph
(f)(4)(vii)(A) of this section) that has
failed to meet both the 33
1
/3percent sup-
port test and the facts and circumstances
test for any two consecutive taxable years
will be treated as a private foundation as
of the first day of the second consecutive
taxable year only for purposes of sections
507, 4940, and 6033. Such an organiza-
tion must file a Form 990-PF,“Return of
Private Foundation or Section 4947(a)(1)
Nonexempt Charitable Trust Treated as
a Private Foundation,”and will be liable
for the net investment tax imposed by sec-
tion 4940 and, if applicable, the private
foundation termination tax imposed by
section 507(c), for the second consecutive
failed taxable year. For succeeding taxable
years, the organization will be treated as a
private foundation for all purposes.
(5)Determinations of foundation clas-
sification and reliance. (i) A ruling or
determination letter that an organization
is described in section 170(b)(1)(A)(vi)
may be issued to an organization. Such
determination may be made in conjunction
with the recognition of the organization’s
tax-exempt status or at such other time as
the organization believes it is described in
section 170(b)(1)(A)(vi). The ruling or de-
termination letter that the organization is
described in section 170(b)(1)(A)(vi) may
be revoked if, upon examination, the or-
ganization has not met the requirements of
paragraph (f) of this section. The ruling or
determination letter that the organization
is described in section 170(b)(1)(A)(vi)
also may be revoked if the organization’s
application for a ruling or determination
contained one or more material misstate-
ments or omissions of fact or if such
application was part of a scheme or plan
to avoid or evade any provision of the
Internal Revenue Code. The revocation of
the determination that an organization is
described in section 170(b)(1)(A)(vi) does
not preclude revocation of the determina-
tion that the organization is described in
section 501(c)(3).
(ii)Status of grantors or contribu-
tors. For purposes of sections 170, 507,
545(b)(2), 642(c), 4942, 4945, 4966, 2055,
2106(a)(2), and 2522, grantors or contrib-
utors may rely upon a determination letter
or ruling that an organization is described
in section 170(b)(1)(A)(vi) until the IRS
publishes notice of a change of status (for
example, in the Internal Revenue Bulletin
or Publication 78,“Cumulative List of
Organizations described in Section 170(c)
of the Internal Revenue Code of 1986,”
which can be searched atwww.irs.gov).
For this purpose, grantors or contributors
also may rely on an advance ruling that
expires on or after June 9, 2008. How-
ever, a grantor or contributor may not rely
on such an advance ruling or any deter-
mination letter or ruling if the grantor or
contributor was responsible for, or aware
of, the act or failure to act that resulted
in the organization’s loss of classification
under section 170(b)(1)(A)(vi) or acquired
knowledge that the IRS had given notice to
such organization that it would be deleted
from such classification.
(iii)Reliance by grantors or contrib-
utors. A grantor or contributor, other
than one of the organization’s founders,
creators, or foundation managers (within
the meaning of section 4946(b)), will not
be considered to be responsible for, or
aware of, the act or failure to act that
resulted in the loss of the organization’s
“publicly supported” classification under
section 170(b)(1)(A)(vi), if such grantor or
contributor has made such grant or contri-
bution in reliance upon a written statement
by the grantee organization that such grant
or contribution will not result in the loss of
such organization’s classification as a pub-
licly supported organization as described
in section 170(b)(1)(A)(vi). Such state-
ment must be signed by a responsible of-
ficer of the grantee organization and must
set forth sufficient information, including
a summary of the pertinent financial data
for the five taxable years immediately pre-
ceding the current taxable year, to assure
a reasonably prudent person that his grant
or contribution will not result in the loss
of the grantee organization’s classification
as a publicly supported organization as
described in section 170(b)(1)(A)(vi). If a
reasonable doubt exists as to the effect of
such grant or contribution, or if the grantor
or contributor is one of the organization’s
founders, creators, or foundation man-
agers, the procedure set forth in paragraph
(f)(6)(iv) of this section for requesting a
determination from the IRS may be fol-
lowed by the grantee organization for the
protection of the grantor or contributor.
(6)Definition of support; meaning of
general public—(i)In general. In deter-
mining whether the 33
1
/3percent support
test or the 10 percent support limitation de-
scribed in paragraph (f)(3)(i) of this sec-
tion is met, contributions by an individ-
ual, trust, or corporation shall be taken
into account as support from direct or in-
direct contributions from the general pub-
lic only to the extent that the total amount
of the contributions by any such individ-
ual, trust, or corporation during the period
described in paragraph (f)(4)(i) or para-
graph (f)(4)(ii) of this section does not ex-
ceed two percent of the organization’s to-
tal support for such period, except as pro-
vided in paragraph (f)(6)(ii) of this sec-
tion. Therefore, for example, any contri-
bution by one individual will be included
in full in the denominator of the fraction
determining the 33
1
/3percent support or
the 10 percent support limitation, but will
be includible in the numerator of such frac-
tion only to the extent that such amount
does not exceed two percent of the denom-
inator. In applying the two percent limi-
2011–46 I.R.B.726November 14, 2011

tation, all contributions made by a donor
and by any person or persons standing
in a relationship to the donor that is de-
scribed in section 4946(a)(1)(C) through
(a)(1)(G) and the related regulations shall
be treated as made by one person. The
two percent limitation shall not apply to
support received fromgovernmental units
referred to in section 170(c)(1) or to con-
tributions from organizations described in
section 170(b)(1)(A)(vi), except as pro-
vided in paragraph (f)(6)(v) of this sec-
tion. For purposes of paragraphs (f)(2),
(f)(3)(i), and (f)(7)(iii)(A)(2) of this sec-
tion, the termindirect contributions from
the general publicincludes contributions
received by the organization from organi-
zations (such as section 170(b)(1)(A)(vi)
organizations) that normally receive a sub-
stantial part of their support from direct
contributions from the general public, ex-
cept as provided in paragraph (f)(6)(v) of
this section. See the examples in para-
graph (f)(9) of this section for the appli-
cation of this paragraph (f)(6)(i). For pur-
poses of this paragraph (f), the termcon-
tributionsincludes qualified sponsorship
payments (as defined in §1.513–4) in the
form of money or property (but not ser-
vices).
(ii)Exclusion of unusual grants.(A)
For purposes of applying the two percent
limitation described in paragraph (f)(6)(i)
of this section to determine whether the
33
1
/3percent support test or the 10 percent
support limitation in paragraph (f)(3)(i) of
this section is satisfied, one or more con-
tributions may be excluded from both the
numerator and the denominator of the ap-
plicable support fraction if such contribu-
tions meet the requirements of paragraph
(f)(6)(iii) of this section. The exclusion
provided by this paragraph (f)(6)(ii) is gen-
erally intended to apply to substantial con-
tributions or bequests from disinterested
parties, which contributions or bequests—
(1) Are attracted by reason of the pub-
licly supported nature of the organization;
(2) Are unusual or unexpected with re-
spect to the amount thereof; and
(3) Would, by reason of their size, ad-
versely affect the status of the organiza-
tion as normally being publicly supported
for the applicable period described in para-
graph (f)(4) of this section.
(B) In the case of a grant (as defined
in §1.509(a)–3(g)) that meets the require-
ments of this paragraph (f)(6)(ii), if the
terms of the granting instrument require
that the funds be paid to the recipient or-
ganization over a period of years, the grant
amounts received by the organization may
be excluded for such year or years in
which they would otherwise be includible
in computing support under the method
of accounting on the basis of which the
organization regularly computes its in-
come in keeping its books under section
446. However, no item of gross invest-
ment income may be excluded under this
paragraph (f)(6). The provisions of this
paragraph (f)(6) shall apply to exclude
unusual grants made during any of the
applicable periods described in paragraph
(f)(4) or paragraph (f)(6) of this section.
See paragraph (f)(6)(iv) of this section
as to reliance by a grantee organization
upon an unusual grant ruling under this
paragraph (f)(6).
(iii)Determining factors. In determin-
ing whether a particular contribution may
be excluded under paragraph (f)(6)(ii) of
this section, all pertinent facts and circum-
stances will be taken into consideration.
No single factor will necessarily be deter-
minative. For some of the factors sim-
ilar to the factors to be considered, see
§1.509(a)–3(c)(4).
(iv)Grantors and contributors.Prior
to the making of any grant or contribution
that will allegedly meet the requirements
for exclusion under paragraph (f)(6)(ii) of
this section, a potential grantee organiza-
tion may request a determination whether
such grant or contribution may be so ex-
cluded. Requests for such determination
may be filed by the grantee organization in
the time and manner specified by revenue
procedure or other guidance published in
the Internal RevenueBulletin. The is-
suance of such determination will be at
the sole discretion of the Commissioner.
The organization must submit all infor-
mation necessary to make a determina-
tion on the factors referred to in paragraph
(f)(6)(iii) of this section. If a favorable
determination is issued, such determina-
tion may be relied upon by the grantor
or contributor of the particular contribu-
tion in question for purposes of sections
170, 507, 545(b)(2), 642(c), 4942, 4945,
4966, 2055, 2106(a)(2), and 2522 and by
the grantee organization for purposes of
paragraph (f)(6)(ii) of this section.
(v)Grants from public charities.Pur-
suant to paragraph (f)(6)(i) of this section,
contributions received from a governmen-
tal unit or from a section 170(b)(1)(A)(vi)
organization are not subject to the two
percent limitation described in para-
graph (f)(6)(i) of this section unless such
contributions represent amounts which
have been expressly or impliedly ear-
marked by a donor to such governmental
unit or section 170(b)(1)(A)(vi) organ-
ization as being for, or for the benefit
of, the particular organization claim-
ing section 170(b)(1)(A)(vi) status. See
§1.509(a)–3(j)(3) for examples illustrating
the rules of this paragraph (f)(6)(v).
(7)Definition of support; special rules
and meaning of terms—(i)Definition of
support. For purposes of this paragraph
(f), the term “support” shall be as defined
in section 509(d) (without regard to section
509(d)(2)). The term “support” does not
include—
(A) Any amounts received from the ex-
ercise or performance by an organization
of its charitable, educational, or other pur-
pose or function constituting the basis for
its exemption under section 501(a). In
general, such amounts include amounts re-
ceived from any activity the conduct of
which is substantially related to the fur-
therance of such purpose or function (other
than through the production of income); or
(B) Contributions of services for which
a deduction is not allowable.
(ii) For purposes of the 33
1
/3percent
support test and the 10 percent support
limitation in paragraph (f)(3)(i) of this
section, all amounts received that are
described in paragraph (f)(7)(i)(A) or
paragraph (f)(7)(i)(B) of this section are
to be excluded from both the numerator
and the denominator of the fractions deter-
mining compliance with such tests, except
as provided in paragraph (f)(7)(iii) of this
section.
(iii)Organizations dependent primar-
ily on gross receipts from related activi-
ties. (A) Notwithstanding the provisions
of paragraph (f)(7)(i) of this section, an
organization will not be treated as satis-
fying the 33
1
/3percent support test or the
10 percent support limitation in paragraph
(f)(3)(i) of this section if it receives—
(1) Almost all of its support (as defined
in section 509(d)) from gross receipts from
related activities; and
(2) An insignificant amount of its sup-
port from governmental units (without re-
gard to amounts referred to in paragraph
November 14, 20117272011–46 I.R.B.

(f)(7)(i)(A) of this section) and contribu-
tions made directly or indirectly by the
general public.
(B)Example. The application of this
paragraph (f)(7)(iii) may be illustrated by
the following example:
Example. Z, an organization described in sec-
tion 501(c)(3), is controlled by A, its president. Z
received $500,000 during the period consisting of
the current taxable year and the four immediately
preceding taxable years under a contract with the De-
partment of Transportation, pursuant to which Z has
engaged in research to improve a particular vehicle
used primarily by the Federal government. During
this same period, the only other support received
by Z consisted of $5,000 in small contributions pri-
marily from Z’s employeesand business associates.
The $500,000 amount constitutes support under
sections 509(d)(2) and 509(a)(2)(A). Under these
circumstances, Z meets the conditions of paragraphs
(f)(7)(iii)(A)(1) and (f)(7)(iii)(A)(2)ofthissection
and will not be treated as meeting the requirements
of either the 33
1
/3percent support test or the facts
and circumstances test. As to the rules applicable
to organizations that fail to qualify under section
170(b)(1)(A)(vi) because of the provisions of this
paragraph (f)(7)(iii), see section 509(a)(2) and the
related regulations. For the distinction between gross
receipts (as referred to in section 509(d)(2)) and
gross investment income (as referred to in section
509(d)(4)), see §1.509(a)–3(m).
(iv)Membership fees. For purposes
of this paragraph (f)(7), the termsupport
shall include “membership fees” within
the meaning of §1.509(a)–3(h) (that is, if
the basic purpose for making a payment
is to provide support for the organization
rather than to purchase admissions, mer-
chandise, services, or the use of facilities).
(8)Support from a governmental unit.
(i) For purposes of the 33
1
/3percent sup-
port test and the 10 percent support limita-
tion described in paragraph (f)(3)(i) of this
section, the termsupport from a govern-
mental unitincludes any amounts received
from a governmental unit, including do-
nations or contributions and amounts re-
ceived in connection with a contract en-
tered into with a governmental unit for the
performance of services or in connection
with a government research grant. How-
ever, such amounts will not constitute sup-
port from a governmental unit for such pur-
poses if they constitute amounts received
from the exercise or performance of the or-
ganization’s exempt functions as provided
in paragraph (f)(7)(i)(A) of this section.
(ii) For purposes of paragraph (f)(8)(i)
of this section, any amount paid by a gov-
ernmental unit to an organization is not
to be treated as received from the exer-
cise or performance of its charitable, edu-
cational, or other purpose or function con-
stituting the basis for its exemption un-
der section 501(a) (within the meaning of
paragraph (f)(7)(i)(A) of this section) if the
purpose of the payment is primarily to en-
able the organization to provide a service
to, or maintain a facility for, the direct ben-
efit of the public (regardless of whether
part of the expense of providing such ser-
vice or facility is paid for by the public),
rather than to serve the direct and immedi-
ate needs of the payor. For example—
(A) Amounts paid for the maintenance
of library facilities which are open to the
public;
(B) Amounts paid under government
programs to nursing homes or homes for
the aged in order to provide health care or
domiciliary services to residents of such
facilities; and
(C) Amounts paid to child placement
or child guidance organizations under gov-
ernment programs for services rendered
to children in the community, are consid-
ered payments the purpose of which is pri-
marily to enable the recipient organiza-
tion to provide a service or maintain a fa-
cility for the direct benefit of the public,
rather than to serve the direct and immedi-
ate needs of the payor. Furthermore, any
amount received from a governmental unit
under circumstances such that the amount
would be treated as a “grant” within the
meaning of §1.509(a)–3(g) will generally
constitute “support from a governmental
unit” described in this paragraph (f)(8),
rather than an amount described in para-
graph (f)(7)(i)(A) of this section.
(9)Examples. The application of para-
graphs (f)(1) through (f)(8) of this section
maybeillustratedbythefollowingexam-
ples:
Example 1. (i) M is recognized as an organization
described in section 501(c)(3). For the years 2008
through 2012 (the applicable period with respect to
the taxable year 2012 under paragraph (f)(4) of this
section), M received support (as defined in para-
graphs (f)(6) through (8) of this section) of $600,000
from the following sources:
Investment income
$ 300,000
City R (a governmental unit described
in section 170(c)(1))40,000
United Fund (an organization described
in section 170(b)(1)(A)(vi))40,000
Contributions (including six contributions in excess of the two-percent limit, totaling $170,000)
220,000
Total support
$ 600,000
2011–46 I.R.B.728November 14, 2011

(ii) With respect to the taxable year 2012, M’s
public support is computed as follows:
Support from a governmental unit described in section 170(c)(1)40,000
Indirect contributions from the general public (United Fund)40,000
Contributions by various donors that were not in excess of
$12,000, or two percent of total support
50,000
Six contributions that were each in excess of$12,000, or two percent of total support,
uptothetwo-percentlimitation,6x$12,000
72,000
202,000
(iii) M’s support from governmental units re-
ferred to in section 170(c)(1) and from direct and
indirect contributions from the general public (as
defined in paragraph (f)(6) of this section) with re-
spect to the taxable year 2012 normally exceeds 33
1
/3
percent of M’s total support ($202,000/$600,000
= 33.67 percent) for the applicable period (2008
through 2012). M meets the 33
1
/3percent support
test with respect to 2012 and is therefore publicly
supported for the taxable years 2012 and 2013.
Example 2. (i) N is recognized as an organiza-
tion described in section 501(c)(3). It was created to
maintain public gardens containing botanical speci-
mens and displaying statuary and other art objects.
The facilities, works of art, and a large endowment
were all contributed by a single contributor. The
members of the governing body of the organization
are unrelated to its creator. The gardens are open
to the public without charge and attract a substantial
number of visitors each year. For the current taxable
year and the four taxable years immediately preced-
ing the current taxable year, 95 percent of the organ-
ization’s total support was received from investment
income from its original endowment. N also main-
tains a membership society that is supported by mem-
bers of the general public who wish to contribute to
the upkeep of the gardens by paying a small annual
membership fee. Over the five-year period in ques-
tion, these fees from the general public constituted
the remaining five percent of the organization’s total
support for such period.
(ii) Under these circumstances, N does not meet
the 33
1
/3percent support test for its current taxable
year. Furthermore, because only five percent of its to-
talsupportis,withrespecttothecurrenttaxableyear,
normally received from the general public, N does
not satisfy the 10 percent support limitation described
in paragraph (f)(3)(i) of this section and therefore
does not qualify as publicly supported under the facts
and circumstances test. Because N has failed to sat-
isfy the 10 percent support limitation under paragraph
(f)(3)(i) of this section, none of the other require-
ments or factors set forth in paragraphs (f)(3)(iii)(A)
through (f)(3)(iii)(E) of this section can be consid-
ered in determining whether N qualifies as a publicly
supported organization. For its current taxable year,
therefore, N is not an organization described in sec-
tion 170(b)(1)(A)(vi).
Example 3. (i) O, an art museum, is recognized
as an organization described in section 501(c)(3).
In 1930, O was founded in S City by the members
of a single family to collect, preserve, interpret,
and display to the public important works of art. O
is governed by a Board of Trustees that originally
consisted almost entirely of members of the found-
ing family. However, since 1945, members of the
founding family or persons standing in a relationship
to the members of such family described in section
4946(a)(1)(C) through (G) have annually constituted
less than one-fifth of the Board of Trustees. The re-
maining board members are citizens of S City from a
variety of professions and occupations who represent
the interests and views of the people of S City in the
activities carried on by the organization rather than
the personal or private interests of the founding fam-
ily. O solicits contributions from the general public
and, for the current taxable year and each of the
four taxable years immediately preceding the current
taxable year, O has received total contributions (in
small sums of less than $100, none of which exceeds
two percent of O’s total support for such period) in
excess of $10,000. These contributions from the
general public (as defined in paragraph (f)(6) of
this section) represent 25 percent of the organiza-
tion’s total support for such five-year period. For
this same period, investment income from several
large endowment funds has constituted 75 percent
of O’s total support. O expends substantially all of
its annual income for its exempt purposes and thus
depends upon the funds it annually solicits from the
public as well as its investment income in order to
carry out its activities on a normal and continuing
basis and to acquire new works of art. O has, for
the entire period of its existence, been open to the
public and more than 300,000 people (from S City
and elsewhere) have visited the museum in each of
the current taxable year and the four immediately
preceding taxable years.
(ii) Under these circumstances, O does not meet
the 33
1
/3percent support test for its current year be-
cause it has received only 25 percent of its total sup-
port for the applicable five-year period from the gen-
eral public. However, underthe facts set forth above,
O meets the 10 percent support limitation under para-
graph (f)(3)(i) of this section, as well as the require-
ments of paragraph (f)(3)(ii) of this section. Under
all of the facts set forth in this example, O is con-
sidered as meeting the requirements of the facts and
circumstances test on the basis of satisfying para-
graphs (f)(3)(i) and (f)(3)(ii) of this section and the
factors set forth in paragraphs (f)(3)(iii)(A) through
(f)(3)(iii)(D) of this section. O is therefore publicly
supported for its current taxable year and the imme-
diately succeeding taxable year.
Example 4. (i) In 1960, the P Philharmonic Or-
chestra was organized in T City through the combined
efforts of a local music society and a local women’s
club to present to the public a wide variety of musi-
cal programs intended to foster music appreciation in
the community. P is recognized as an organization
described in section 501(c)(3). The orchestra is com-
posed of professional musicians who are paid by the
association. Twelve performances open to the pub-
lic are scheduled each year. A small admission fee
is charged for each of these performances. In addi-
tion, several performances are staged annually with-
out charge. During the current taxable year and the
four taxable years immediately preceding the current
taxable year, P has received separate contributions of
$200,000 each from A and B (not members of a single
family) and support of $120,000 from the T Commu-
nity Chest, a public federated fundraising organiza-
tion operating in T City. P depends on these funds
in order to carry out its activities and will continue to
depend on contributions of this type to be made in the
future. P has also begun a fundraising campaign in an
attempt to expand its activities for the coming years.
P is governed by a Board of Directors comprised of
five individuals. A faculty member of a local college,
the president of a local music society, the head of a
local banking institution, a prominent doctor, and a
member of the governing body of the local chamber
of commerce currently serve on P’s Board and repre-
sent the interests and views of the community in the
activities carried on by P.
November 14, 20117292011–46 I.R.B.

(ii) With respect to P’s current taxable year, P’s
sources of support are computed on the basis of the
current taxable year and the four taxable years imme-
diately preceding the current taxable year, as follows:
Contributions
$520,000
Receipts from performances100,000
Total support
$ 620,000
Less:
Receipts from performances (excluded under paragraph
(f)(7)(i)(A) of this section)100,000
Total support for purposes of
$ 520,000
paragraphs (f)(2) and (f)(3)(i) of this section
(iii) For purposes of paragraphs (f)(2) and (f)(3)(i)
of this section, P’s public support is computed as fol-
lows:
T Community Chest (indirect support from the general public)
$ 120,000
Two contributions from A & B(each in excess of $10,400—
20,800
2 percent of total support) 2 x $10,400
Total
$ 140,800
(iv) Under these circumstances, P does not meet
the 33
1
/3percent support test for its current year be-
cause it has received only 27 percent of its total sup-
port ($140,800/$520,000) for the applicable five-year
period from the general public. However, under the
facts set forth above, P meets the 10 percent support
limitation under paragraph (f)(3)(i) of this section, as
well as the requirements of paragraph (f)(3)(ii) of this
section. Under all of the facts set forth in this exam-
ple, P is considered as meeting the requirements of
the facts and circumstances test on the basis of satis-
fying paragraphs (f)(3)(i) and (f)(3)(ii) of this section
and the factors set forth in paragraphs (f)(3)(iii)(A)
through (f)(3)(iii)(D) of this section. P is therefore
publicly supported for its current taxable year and the
immediately succeeding taxable year.
Example 5. (i) Q is recognized as an organization
described in section 501(c)(3). It is a philanthropic
organization founded in 1965 by C for the purpose of
making annual contributions to worthy charities. C
created Q as a charitable trust by the transfer of ap-
preciated securities worth $500,000 to Q. Pursuant to
the trust agreement, C and two other members of his
family are the sole trustees of Q and are vested with
the right to appoint successor trustees. In each of the
current taxable year and the four taxable years im-
mediately preceding the current taxable year, Q re-
ceived $12,000 in investment income from its orig-
inal endowment. Each year Q makes a solicitation
for funds by operating a charity ball at C’s residence.
Guests are invited and requested to make contribu-
tions of $100 per couple. During the five-year period
at issue, $15,000 was received from the proceeds of
these events. C and his family have also made con-
tributions to Q of $25,000 over the five-year period
at issue. Q makes disbursements each year of sub-
stantially all of its net income to the public charities
chosen by the trustees.
(ii) Q’s sources of support for the current taxable
year and the four taxable years immediately preced-
ing the current taxable year as follows:
Investment income
$ 60,000
Contributions40,000
Total support
$ 100,000
(iii) For purposes of paragraphs (f)(2) and (f)(3)(i)
of this section, Q’s public support is computed as fol-
lows:
Contributions from the general public
$ 15,000
C’s contribution (in excess of $
2,000
2,000
— 2 percent of total support) 1 X $2,000
Total
$ 17,000
(iv) Under these circumstances, Q does not meet
the 33
1
/3percent support test for its current year be-
cause it has received only 17 percent of its total sup-
port ($17,000/$100,000) for the applicable five-year
period from the general public. Thus, Q’s classifica-
tion as a “publicly supported” organization depends
on whether it meets the requirements of the facts and
circumstances test. Even though it satisfies the 10
percent support limitation under paragraph (f)(3)(i) of
this section, its method of solicitation makes it ques-
tionable whether Q satisfies the requirements of para-
graph (f)(3)(ii) of this section. Because of its method
of operating, Q also has a greater burden of estab-
lishing its publicly supported nature under paragraph
(f)(3)(iii)(A) of this section. Based upon the forego-
ing facts and circumstances, including Q’s failure to
receive favorable consideration under the factors set
forth in paragraphs (f)(3)(iii)(B), (f)(3)(iii)(C), and
2011–46 I.R.B.730November 14, 2011

(f)(3)(iii)(D) of this section, Q does not satisfy the
facts and circumstances test.
(10)Community trust; introduction.
Community trusts have often been estab-
lished to attract large contributions of a
capital or endowment nature for the benefit
of a particular community or area, and of-
ten such contributions have come initially
from a small number of donors. While the
community trust generally has a governing
body comprised of representatives of the
particular community or area, its contri-
butions are often received and maintained
in the form of separate trusts or funds,
which are subject to varying degrees of
control by the governing body. To qualify
as a “publicly supported” organization, a
community trust must meet the 33
1
/3per-
cent support test, or, if it cannot meet that
test, be organized and operated so as to
attract new and additional public or gov-
ernmental support on a continuous basis
sufficient to meet the facts and circum-
stances test. Such facts and circumstances
test includes a requirement of attraction
of public support in paragraph (f)(3)(ii)
of this section which, as applied to com-
munity trusts, generally will be satisfied if
they seek gifts and bequests from a wide
range of potential donors in the commu-
nity or area served, through banks or trust
companies, through attorneys or other pro-
fessional persons, or in other appropriate
ways that call attention to the commu-
nity trust as a potential recipient of gifts
and bequests made for the benefit of the
community or area served. A community
trust is not required to engage in periodic,
community-wide, fundraising campaigns
directed toward attracting a large num-
ber of small contributions in a manner
similar to campaigns conducted by a com-
munity chest or united fund. Paragraph
(f)(11) of this section provides rules for
determining the extent to which separate
trusts or funds may be treated as compo-
nent parts of a community trust, fund, or
foundation (herein collectively referred to
as a “community trust,” and sometimes
referred to as an “organization”) for pur-
poses of meeting the requirements of this
paragraph for classification as a publicly
supported organization. Paragraph (f)(12)
of this section contains rules for trusts or
funds that are prevented from qualifying
as component parts of a community trust
by paragraph (f)(11) of this section.
(11)Community trusts; requirements
for treatment as a single entity—(i)Gen-
eral rule. For purposes of sections 170,
501, 507, 508, 509, and Chapter 42,
any organization that meets the require-
ments contained in paragraphs (f)(11)(iii)
through (f)(11)(vi) of this section will be
treated as a single entity, rather than as an
aggregation of separate funds, and except
as otherwise provided, all funds associated
with such organization (whether a trust,
not-for-profit corporation, unincorporated
association, or a combination thereof)
which meet the requirements of paragraph
(f)(11)(ii) of this section will be treated as
component parts of such organization.
(ii)Componentpartofacommunity
trust. In order to be treated as a compo-
nent part of a community trust referred to
in this paragraph (f)(11) (rather than as a
separate trust or not-for-profit corporation
or association), a trust or fund:
(A) Must be created by a gift, bequest,
legacy, devise, or other transfer to a com-
munity trust which is treated as a single en-
tity under this paragraph (f)(11); and
(B) May not be directly or indirectly
subjected by the transferor to any material
restriction or condition (within the mean-
ing of §1.507–2(a)(7)) with respect to the
transferred assets. For purposes of this
paragraph (f)(11)(ii)(B), if the transferor is
not a private foundation, the provisions of
§1.507–2(a)(7) shall be applied to the trust
or fund as if the transferor were a private
foundation established and funded by the
person establishing the trust or fund and
such foundation transferred all its assets to
the trust or fund. Any transfer made to a
fund or trust which is treated as a compo-
nent part of a community trust under this
paragraph (f)(11)(ii) will be treated as a
transfer made “to” a “publicly supported”
community trust for purposes of sections
170(b)(1)(A) and 507(b)(1)(A) if such
community trust meets the requirements
of section 170(b)(1)(A)(vi) as a “publicly
supported” organization at the time of the
transfer, except as provided in paragraph
(f)(5)(ii) of this section or §§1.508–1(b)(4)
and 1.508–1(b)(6) (relating, generally, to
reliance by grantors and contributors). See
also paragraphs (f)(12)(ii) and (f)(12)(iii)
of this section for special provisions re-
lating to split-interest trusts and certain
private foundations described in section
170(b)(1)(F)(iii).
(iii)Name. The organization must be
commonly known as a community trust,
fund, foundation, or other similar name
conveying the concept of a capital or
endowment fund to support charitable
activities (within the meaning of section
170(c)(1) or section 170(c)(2)(B)) in the
community or area it serves.
(iv)Common instrument. All funds of
the organization must be subject to a com-
mon governing instrument or a master trust
or agency agreement (herein referred to as
the “governing instrument”), which may
be embodied in a single document or sev-
eral documents containing common lan-
guage. Language in an instrument of trans-
fer to the community trust making a fund
subject to the community trust’s govern-
ing instrument or master trust or agency
agreement will satisfy the requirements of
this paragraph (f)(11)(iv). In addition, if
a community trust adopts a new govern-
ing instrument (or creates a corporation)
to put into effect new provisions (apply-
ing to future transfers to the community
trust), the adoption of such new govern-
ing instrument (or creation of a corporation
with a governing instrument) which con-
tains common language with the existing
governing instrument shall not preclude
the community trust from meeting the re-
quirements of this paragraph (f)(11)(iv).
(v)Common governing body.(A)The
organization must have a common govern-
ing body or distribution committee (herein
referred to as the “governing body”) which
either directs or, in the case of a fund des-
ignated for specified beneficiaries, moni-
tors the distribution of all of the funds ex-
clusively for charitable purposes (within
the meaning of section 170(c)(1) or section
170(c)(2)(B)). For purposes of this para-
graph (f)(11)(v), a fund is designated for
specified beneficiaries only if no person is
left with the discretion to direct the distri-
bution of the fund.
(B)Powers of modification and re-
moval. The fact that the exercise of
any power described in this paragraph
(f)(11)(v)(B) is reviewable by an appro-
priate State authority will not preclude the
community trust from meeting the require-
ments of this paragraph (f)(11)(v)(B). Ex-
cept as provided in paragraph (f)(11)(v)(C)
of this section, the governing body must
have the power in the governing instru-
ment, the instrument of transfer, the reso-
November 14, 20117312011–46 I.R.B.

lutions or by-laws of the governing body,
a written agreement, or otherwise—
(1) To modify any restriction or condi-
tion on the distribution of funds for any
specified charitablepurposes or to speci-
fied organizations if in the sole judgment
of the governing body (without the neces-
sity of the approval of any participating
trustee, custodian, or agent), such restric-
tion or condition becomes, in effect, un-
necessary, incapable of fulfillment, or in-
consistent with the charitable needs of the
community or area served;
(2) To replace any participating trustee,
custodian, or agent for breach of fiduciary
duty under State law; and
(3) To replace any participating trustee,
custodian, or agent for failure to produce a
reasonable (as determined by the govern-
ing body) return of net income (within the
meaning of paragraph (f)(11)(v)(F) of this
section) over a reasonable period of time
(as determined by the governing body).
(C)Transitional rule—(1) Notwith-
standing paragraph (f)(11)(v)(B) of this
section, if a community trust meets the re-
quirements of paragraph (f)(11)(v)(C)(3)
of this section, then in the case of any
instrument of transfer which is executed
before July 19, 1977, and is not revoked
or amended thereafter (with respect to any
dispositive provisionaffecting the transfer
to the community trust), and in the case of
any instrument of transfer which is irrevo-
cable on January 19, 1982, the governing
body must have the power to cause pro-
ceedings to be instituted (by request to the
appropriate State authority)—
(i) To modify any restriction or condi-
tion on the distribution of funds for any
specified charitablepurposes or to speci-
fied organizations if in the judgment of the
governing body such restriction or condi-
tion becomes, in effect, unnecessary, inca-
pable of fulfillment, or inconsistent with
the charitable needs of the community or
area served; and
(ii) To remove any participating trustee,
custodian, or agent for breach of fiduciary
duty under State law.
(2) The necessity for the governing
body to obtain the approval of a partic-
ipating trustee to exercise the powers
described in paragraph (f)(11)(v)(C)(1)of
this section shall be treated as not prevent-
ingthegoverningbodyfromhavingsuch
power, unless (and until) such approval
has been (or is) requested by the governing
body and has been (or is) denied.
(3) Paragraph (f)(11)(v)(C)(1)ofthis
section shall not apply unless the com-
munity trust meets the requirements
of paragraph (f)(11)(v)(B) of this sec-
tion, with respectto funds other than
those under instruments of transfer de-
scribed in the first sentence of such para-
graph (f)(11)(v)(C)(1) of this section,
by January 19, 1978, or such later date
as the Commissioner may provide for
such community trust, and unless the
community trust does not, once it so
complies, thereafter solicit for funds that
will not qualify under the requirements of
paragraph (f)(11)(v)(B) of this section.
(D)Inconsistent State law—(1)For
purposes of paragraphs (f)(11)(v)(B)(1),
(f)(11)(v)(B)(2),(f)(11)(v)(B)(3),
(f)(11)(v)(C)(1)(i), (f)(11)(v)(C)(1)(ii),
and (f)(11)(v)(E) of this section, if a power
described in such a provision is incon-
sistent with State law even if such power
were expressly granted to the governing
body by the governing instrument and
were accepted without limitation under an
instrument of transfer, then the community
trust will be treated as meeting the require-
ments of such a provision if it meets such
requirements to the fullest extent possible
consistent with State law (if such power is
or had been so expressly granted).
(2) For example, if, under the condi-
tions of paragraph (f)(11)(v)(D)(1)ofthis
section, the power to modify is inconsis-
tent with State law, but the power to insti-
tute proceedings to modify, if so expressly
granted, would be consistent with State
law, the community trust will be treated
as meeting such requirements to the fullest
extent possible if the governing body has
the power (in the governing instrument or
otherwise) to institute proceedings to mod-
ify a condition or restriction. On the other
hand, if in such a case the community trust
has only the power to cause proceedings to
be instituted to modify a condition or re-
striction, it will not be treated as meeting
such requirements to the fullest extent pos-
sible.
(3) In addition, if, for example,
under the conditions of paragraph
(f)(11)(v)(D)(1) of this section, the power
to modify and the power to institute pro-
ceedings to modify a condition or restric-
tion is inconsistent with State law, but
the power to cause such proceedings to
be instituted would be consistent with
State law, if it were expressly granted in
the governing instrument and if the ap-
proval of the State Attorney General were
obtained, then the community trust will
be treated as meeting such requirements
to the fullest extent possible if it has the
power (in the governing instrument or
otherwise) to cause such proceedings to
be instituted, even if such proceedings can
be instituted only with the approval of the
State Attorney General.
(E)Exercise of powers. The govern-
ing body shall (by resolution or other-
wise) commit itself to exercise the powers
described in paragraphs (f)(11)(v)(B),
(f)(11)(v)(C), and (f)(11)(v)(D) of this sec-
tion in the best interests of the community
trust. The governing body will be consid-
ered not to be so committed where it has
grounds to exercise such a power and fails
to exercise it by taking appropriate action.
Such appropriate action may include, for
example, consulting with the appropriate
State authority prior to taking action to
replace a participating trustee.
(F)Reasonable return.Inaddi-
tion to the requirements of paragraphs
(f)(11)(v)(B), (f)(11)(v)(C), (f)(11)(v)(D),
or (f)(11)(v)(E) of this section, the govern-
ing body shall (by resolution or otherwise)
commit itself to obtain information and
take other appropriate steps with the view
to seeing that each participating trustee,
custodian, or agent, with respect to each
restricted trust or fund that is, and with
respect to the aggregate of the unrestricted
trusts or funds that are, a component part
of the community trust, administers such
trust or fund in accordance with the terms
of its governing instrument and accepted
standards of fiduciary conduct to pro-
duce a reasonable return of net income
(or appreciation where not inconsistent
with the community trust’s need for cur-
rent income), with due regard to safety
of principal, in furtherance of the exempt
purposes of the community trust (except
for assets held for the active conduct of
the community trust’s exempt activities).
In the case of a low return of net income
(and, where appropriate, appreciation), the
IRS will examine carefully whether the
governing body has, in fact, committed
itself to take the appropriate steps. For
purposes of this paragraph (f)(11)(v)(F),
any income that has been designated by
the donor of the gift or bequest to which
2011–46 I.R.B.732November 14, 2011

such income is attributable as being avail-
able only for the use or benefit of a broad
charitable purpose, such as the encourage-
ment of higher education or the promotion
of better health care in the community,
will be treated as unrestricted. However,
any income that has been designated for
the use or benefit of a named charitable
organization or agency or for the use or
benefit of a particular class of charitable
organizations or agencies, the members
of which are readily ascertainable and are
less than five in number, will be treated as
restricted.
(vi)Common reports. The organiza-
tion must prepare periodic financial re-
ports treating all of the funds which are
held by the community trust, either directly
or in component parts, as funds of the or-
ganization.
(12)Community trusts; treatment of
trusts and not-for-profit corporations and
associations not included as components.
(i) For purposes of sections 170, 501, 507,
508, 509, and Chapter 42, any trust or
not-for-profit corporation or association
that is alleged to be a component part of a
community trust, but that fails to meet the
requirements of paragraph (f)(11)(ii) of
this section, shall not be treated as a com-
ponent part of a community trust and, if a
trust, shall be treatedas a separate trust and
be subject to the provisions of section 501,
section 4947(a)(1), or section 4947(a)(2),
as the case may be. If such organization is
a not-for-profit corporation or association,
it will be treated as a separate entity, and, if
it is described in section 501(c)(3), it will
be treated as a private foundation unless it
is described in section 509(a)(1), section
509(a)(2), section 509(a)(3), or section
509(a)(4). In the case of a fund that is ul-
timately treated as not being a component
part of a community trust pursuant to this
paragraph (f)(12), if the Forms 990 filed
annually by the community trust included
financial information with respect to such
fund and treated such fund in the same
manner as other component parts thereof,
such returns filed by the community trust
prior to the taxable year in which the
Commissioner notifies such fund that it
will not be treated as a component part
will be treated as its separate return for
purpose of Subchapter A of Chapter 61 of
Subtitle F, and the first such return filed by
the community trust will be treated as the
notification required of the separate entity
for purposes of section 508(a).
(ii) If a transfer is made in trust to a
community trust to make income or other
payments for a period of a life or lives in
being or a term of years to any individual
or for any noncharitable purpose, followed
by payments to or for the use of the com-
munity trust (such as in the case of a char-
itable remainder annuity trust or a chari-
table remainder unitrust described in sec-
tion 664 or a pooled income fund described
in section 642(c)(5)), such trust will be
treated as a component part of the commu-
nity trust upon the termination of all inter-
vening noncharitable interests and rights to
the actual possession or enjoyment of the
property if such trust satisfies the require-
mentsofparagraph(f)(11)ofthissection
at such time. Until such time, the trust will
be treated as a separate trust. If a transfer is
made in trust to a community trust to make
income or other payments to or for the use
of the community trust, followed by pay-
ments to any individual or for any nonchar-
itable purpose, such trust will be treated as
a separate trust rather than as a component
part of the community trust. See section
4947(a)(2) and the related regulations for
the treatment of such split-interest trusts.
The provisions of this paragraph (f)(12)(ii)
provide rules only for determining when
a charitable remainder trust or pooled in-
come fund may be treated as a component
part of a community trust and are not in-
tended to preclude a community trust from
maintaining a charitable remainder trust
or pooled income fund. For purposes of
grantors and contributors, a pooled income
fund of a publicly supported community
trust shall be treated no differently than a
pooled income fundof any other publicly
supported organization.
(iii) An organization described in sec-
tion 170(b)(1)(F)(iii) will not ordinarily
satisfy the requirements of paragraph
(f)(11)(ii) of this section because of the
unqualified right of the donor to designate
the recipients of the income and principal
of the trust. Such organization will there-
fore ordinarily be treated as other than
a component part of a community trust
under paragraph (f)(12)(i) of this section.
However, see section 170(b)(1)(F)(iii) and
the related regulations with respect to the
treatment of contributions to such organi-
zations.
(13)Method of accounting. For pur-
poses of section 170(b)(1)(A)(vi), an
organization’s support will be determined
under the method of accounting on the
basis of which the organization regularly
computes its income in keeping its books
under section 446. For example, if a
grantor makes a grant to an organization
payable over a term of years, such grant
will be includible in the support fraction of
the grantee organization under the method
of accounting on the basis of which the
grantee organization regularly computes
its income in keeping its books under sec-
tion 446.
(14)Transition rules. (i) An organ-
ization that received an advance ruling,
that expires on or after June 9, 2008, that
it will be treated as an organization de-
scribed in sections 170(b)(1)(A)(vi) and
509(a)(1) will be treated as meeting the
requirements of paragraph (f)(2) or para-
graph (f)(3) of this section for the first five
taxable years of its existence as a section
501(c)(3) organization unless the IRS is-
sued to the organization a proposed deter-
mination prior to September 9, 2008, that
the organization is not described in sec-
tions 170(b)(1)(A)(vi) and 509(a)(1) or in
section 509(a)(2).
(ii) Paragraph (f)(4)(v) of this section
shall not apply with respect to an organi-
zation that received an advance ruling that
expired prior to June 9, 2008, and that did
not timely file with the Internal Revenue
Service the required information to estab-
lish that it is an organization described in
sections 170(b)(1)(A)(vi) and 509(a)(1) or
in section 509(a)(2).
(iii) An organization that fails to meet
apublicsupporttestforitsfirsttaxable
year beginning on or after January 1,
2008, under the regulations in this sec-
tion may use the prior tests set forth in
§1.170A–9(e)(2) or §1.170A–9(e)(3), or in
§§1.509(a)–3(a)(2) and 1.509(a)–3(a)(3),
as in effect before September 9, 2008
(as contained in 26 CFR part 1 revised
April 1, 2008), to determine whether the
organization was publicly supported for its
2008 taxable year based on its satisfaction
of a public support test for taxable year
2007, computed over the period 2003
through 2006.
(iv)Examples. The application of this
paragraph(f)(14)maybeillustratedbythe
following examples:
November 14, 20117332011–46 I.R.B.

Example 1. (i) Organization X was formed in Jan-
uary 2004 and uses a taxable year ending June 30. Or-
ganization X received an advance ruling letter that it
is recognized as an organization described in section
501(c)(3) effective as of the date of its formation and
that it is treated as a publicly supported organization
under sections 170(b)(1)(A)(vi) and 509(a)(1) during
the five-year advance ruling period that will end on
June 30, 2008. This date is on or after June 9, 2008.
(ii) Under the transition rule, Organization X is a
publicly supported organization described in sections
170(b)(1)(A)(vi) and 509(a)(1) for the taxable years
ending June 30, 2004, through June 30, 2008. Organ-
ization X does not need toestablish within 90 days
after June 30, 2008, that it met a public support test
under §1.170A–9(e) or §1.509(a)–3, as in effect prior
to September 9, 2008, (as contained in 26 CFR part 1
revised April 1, 2008), for its advance ruling period.
(iii) Organization X can qualify as a publicly
supported organization for the taxable year end-
ing June 30, 2009, if Organization X can meet the
requirements of paragraph (f)(2) or (f)(3) of this
section or §§1.509(a)–3(a)(2) and 1.509(a)–3(a)(3)
for the taxable years ending June 30, 2005, through
June 30, 2009, or for the taxable years ending
June 30, 2004, through June 30, 2008. In addition, for
its taxable year ending June 30, 2009, Organization
X may qualify as a publicly supported organization
by availing itself of the transition rule contained in
paragraph (f)(14)(iii) of this section, which looks to
support received by X in the taxable years ending
June 30, 2004, through June 30, 2007.
Example 2. (i) Organization Y was formed in Jan-
uary 2000, and uses a taxable year ending Decem-
ber 31. Organization Y received a final determina-
tion that it was recognized as tax-exempt under sec-
tion 501(c)(3) and as a publicly supported organiza-
tion prior to September 9, 2008.
(ii) For taxable year 2008, Organization Y will
qualify as publicly supported if it meets the require-
ments under either paragraph (f)(2) or (f)(3) of this
section or §§1.509(a)–3(a)(2) or 1.509(a)–3(a)(3)
for the five-year period January 1, 2004, through
December 31, 2008.Organization Y will
also qualify as publicly supported for taxable
year 2008 if it meets the requirements under
§1.170A–9(e)(2) or §1.170A–9(e)(3), or under
§§1.509(a)–3(a)(2) and 1.509(a)–3(a)(3), as in effect
prior to September 9, 2008, (as contained in 26 CFR
part 1 revised April 1, 2008) for taxable year 2007,
using the four-year period from January 1, 2003,
through December 31, 2006.
*****
(k)Effective/applicability date—(1)
In general. These regulations shall ap-
ply to taxable years beginning after
December 31, 1969.
(2)Applicability date. The regulations
in paragraph (f) of this section shall apply
to taxable years beginning on or after Jan-
uary 1, 2008. For tax years beginning af-
ter December 31, 1969, and beginning be-
fore January 1, 2008, see §1.170A–9(e) (as
containedin26CFRpart1revisedApril1,
2008).
§1.170A–9T [Removed]
Par. 3. Section 1.170A–9T is removed.
Par. 4. Section 1.507–2 is revised to
read as follows:
§1.507–2 Special rules; transfer to, or
operation as, public charity.
(a)Transfer to public charities—(1)
General rule. Under section 507(b)(1)(A)
a private foundation, with respect to which
there have not been either willful repeated
acts (or failures to act) or a willful and
flagrant act (or failure to act) giving rise
to liability for tax under Chapter 42, may
terminate its private foundation status by
distributing all of its net assets to one or
more organizations described in section
170(b)(1)(A) (other than in clauses (vii)
and (viii)) each of which has been in ex-
istence and so described for a continuous
period of at least 60 calendar months im-
mediately preceding such distribution.
Because section 507(a) does not apply to
such a termination, a private foundation
which makes such a termination is not
required to give the notification described
in section 507(a)(1). A private founda-
tion that terminates its private foundation
status under section 507(b)(1)(A) does
not incur tax under section 507(c) and,
therefore, no abatement of such tax under
section 507(g) is required.
(2)Effect of current ruling.Apri-
vate foundation seeking to terminate its
private foundation status pursuant to sec-
tion 507(b)(1)(A) may rely on a ruling
or determination letter issued to a po-
tential distributee organization that such
distributee organization is an organiza-
tion described in section 170(b)(1)(A)(i),
170(b)(1)(A)(ii),170(b)(1)(A)(iii),
170(b)(1)(A)(iv), 170(b)(1)(A)(v), or
170(b)(1)(A)(vi) in accordance with the
provisions of §1.509(a)–7.
(3)Organizations described in more
than one clause of section 170(b)(1)(A).
For purposes of this paragraph and
section 507(b)(1)(A), the parenthetical
term “other than inclauses (vii) and
(viii)”shallreferonlytoanorganiza-
tion that is described only in section
170(b)(1)(A)(vii) or section 170(b)(1)(A)
(viii). Thus, an organization described in
section 170(b)(1)(A)(i), 170(b)(1)(A)(ii),
170(b)(1)(A)(iii),170(b)(1)(A)(iv),
170(b)(1)(A)(v), or 170(b)(1)(A)(vi) will
not be precluded from being a distributee
described in section 507(b)(1)(A) merely
because it also appears to meet the de-
scription of an organization described
in section 170(b)(1)(A)(vii) or section
170(b)(1)(A)(viii).
(4)Applicability of Chapter 42 to
foundations terminating under section
507(b)(1)(A). An organization that termi-
nates its private foundation status pursuant
to section 507(b)(1)(A) will remain sub-
ject to the provisions of Chapter 42 until
the distribution of all of its net assets to
distributee organizations described in sec-
tion 507(b)(1)(A) has been completed.
(5)Return required from organizations
terminating private foundation status un-
der section 507(b)(1)(A)—(i) An organi-
zation that terminates its private founda-
tion status under section 507(b)(1)(A) is
required to file a return under the provi-
sions of section 6043(b).
(ii) An organization that terminates its
private foundation status under section
507(b)(1)(A) is not required to comply
with section 6104(d) for the taxable year
in which such termination occurs.
(6)Distribution of net assets.Aprivate
foundation will meet the requirement to
“distribute all of its net assets” within the
meaningofsection507(b)(1)(A)onlyifit
transfers all of its right, title, and interest
in and to all of its net assets to one or
more organizations referred to in section
507(b)(1)(A).
(7)Effect of restrictions and conditions
upon distributions of net assets—(i)In
general. In order to effectuate a transfer
of “all of its right, title, and interest in and
to all of its net assets” within the mean-
ing of paragraph (a)(6) of this section, a
transferor private foundation may not im-
pose any material restriction or condition
that prevents the transferee organiza-
tion referred to in section 507(b)(1)(A)
(herein sometimes referred to as the “pub-
lic charity”) from freely and effectively
employing the transferred assets, or the
income derived therefrom, in furtherance
of its exempt purposes. Whether or not a
particular condition or restriction imposed
upon a transfer of assets is material (within
the meaning of this paragraph (a)(7)) must
be determined from all of the facts and
circumstances of the transfer. Some of the
more significant facts and circumstances
to be considered in making such a deter-
mination are—
2011–46 I.R.B.734November 14, 2011

(A) Whether the publiccharity (includ-
ing a participating trustee, custodian, or
agent in the case of a community trust) is
the owner in fee of the assets it receives
from the private foundation;
(B) Whether such assets are to be held
and administered by the public charity in a
manner consistent with one or more of its
exempt purposes;
(C) Whether the governing body of the
public charity has the ultimate authority
and control over such assets, and the in-
come derived therefrom; and
(D) Whether, and to what extent, the
governing body of the public charity is or-
ganized and operated so as to be indepen-
dent from the transferor.
(ii)Independent governing body.As
provided in paragraph (a)(7)(i)(D) of this
section, one of the more significant facts
and circumstances to be considered in
making the determination whether a par-
ticular condition or restriction imposed
upon a transfer of assets is material within
the meaning of this paragraph (a)(7) is
whether, and the extent to which, the gov-
erning body is organized and operated so
as to be independent from the transferor.
In turn, the determination as to such factor
must be determined from all of the facts
and circumstances. Some of the more
significant facts and circumstances to be
considered in making such a determina-
tion are—
(A) Whether, and to what extent, mem-
bers of the governing body are comprised
of persons selected by the transferor pri-
vate foundation or disqualified persons
with respect thereto or are themselves such
disqualified persons;
(B) Whether, and to what extent, mem-
bers of the governing body are selected by
public officials acting in their capacities as
such; and
(C) How long a period of time each
member of the governing body may serve
in such capacity. In the case of a transfer
that is to a community trust, the com-
munity trust shall meet this paragraph
(a)(7)(ii)(C) if—
(1) Its governing body is comprised of
members who may serve a period of not
more than ten consecutive years; and
(2) Upon completion of a period of ser-
vice (beginning before or after the date
of transfer), no member may serve again
within a period consisting of the lesser of
five years or the number of consecutive
years the member has immediately com-
pleted serving.
(iii)Factors not adversely affecting de-
termination. The presence of some or all
of the following factors will not be con-
sidered as preventing the transferee “from
freely and effectively employing the trans-
ferred assets, or the income derived there-
from, in furtherance of its exempt pur-
poses” (within the meaning of paragraph
(a)(7)(i) of this section):
(A)Name. The fund is given a name
or other designation which is the same as
or similar to that of the transferor private
foundation or otherwise memorializes the
creator of the foundation or his family.
(B)Purpose. The income and assets of
the fund are to be used for a designated
purpose or for one or more particular sec-
tion 509(a)(1), section 509(a)(2), or sec-
tion 509(a)(3) organization, and such use is
consistent with the charitable, educational,
or other basis for the exempt status of the
public charity under section 501(c)(3).
(C)Administration. The transferred as-
sets are administered in an identifiable or
separate fund, some or all of the princi-
pal of which is not to be distributed for a
specified period, if the public charity (in-
cluding a participating trustee, custodian,
or agent in the case of a community trust)
is the legal and equitable owner of the fund
and the governing body exercises ultimate
and direct authority and control over such
fund, as, for example, a fund to endow a
chair at a university or a medical research
fund at a hospital. In the case of a com-
munity trust, the transferred assets must be
administered in or as a component part of
the community trust within the meaning of
§1.170A–9(f)(11).
(D)Restrictions on disposition.The
transferor private foundation transfers
property the continued retention of which
by the transferee is required by the trans-
feror if such retention is important to the
achievement of charitable or other similar
purposes in the community because of
the peculiar featuresof such property, as,
for example, where a private foundation
transfers a woodland preserve which is to
be maintained by the public charity as an
arboretum for the benefit of the commu-
nity. Such a restriction does not include a
restriction on the disposition of an invest-
ment asset or the distribution of income.
(iv)Adverse factors. The presence of
any of the following factors will be con-
sidered as preventing the transferee “from
freely and effectively employing the trans-
ferred assets, or the income derived there-
from, in furtherance of its exempt pur-
poses” (within the meaning of paragraph
(a)(7)(i) of this section):
(A)Distributions.(1) With respect to
distributions made after April 19, 1977, the
transferor private foundation, a disquali-
fied person with respect thereto, or any
person or committee designated by, or pur-
suant to the terms of an agreement with,
such a person (hereinafter referred to as
donor), reserves the right, directly or in-
directly, to name (other than by designa-
tion in the instrument of transfer of partic-
ular section 509(a)(1), section 509(a)(2),
or section 509(a)(3) organizations) the per-
sons to which the transferee public char-
ity must distribute, or to direct the timing
of such distributions (other than by direc-
tion in the instrument of transfer that some
or all of the principal, as opposed to spe-
cific assets, not be distributed for a spec-
ified period) as, for example, by a power
of appointment. The IRS will examine
carefully whether the seeking of advice by
the transferee from, or the giving of ad-
vice by, any donor after the assets have
been transferred to the transferee consti-
tutes an indirect reservation of a right to
direct such distributions. In any such case,
the reservation of such a right will be con-
sidered to exist where the only criterion
considered by the public charity in mak-
ing a distribution of income or principal
from a donor’s fund is advice offered by
the donor. Whether there is a reservation
of such a right will be determined from
all of the facts and circumstances, includ-
ing, but not limited to, the factors con-
tained in paragraphs (a)(7)(iv)(A)(2)and
(a)(7)(iv)(A)(3) of this section.
(2) The presence of some or all of the
following factors will indicate that the
reservation of a right to direct distributions
does not exist:
(i) There has been an independent in-
vestigation by the staff of the public char-
ity evaluating whether the donor’s advice
is consistent with specific charitable needs
most deserving of support by the public
charity (as determined by the public char-
ity).
(ii) The public charity has promulgated
guidelines enumerating specific charitable
needs consistent with the charitable pur-
November 14, 20117352011–46 I.R.B.

poses of the public charity and the donor’s
advice is consistent with such guidelines.
(iii) The public charity has instituted an
educational program publicizing to donors
and other persons the guidelines enumer-
ating specific charitable needs consistent
with the charitable purposes of the public
charity.
(iv) The public charity distributes funds
in excess of amounts distributed from the
donor’s fund to the same or similar types of
organizations or charitable needs as those
recommended by the donor.
(v) The public charity’s solicitations
(written or oral) for funds specifically state
that such public charity will not be bound
by advice offered by the donor.
(3) The presence of some or all of the
following factors will indicate the reserva-
tion of a right to direct distributions does
exist:
(i) The solicitations (written or oral) of
funds by the public charity state or imply,
or a pattern of conduct on the part of the
public charity createsan expectation, that
the donor’s advice will be followed.
(ii) The advice of a donor (whether or
not restricted to a distribution of income
or principal from the donor’s trust or fund)
is limited to distributions of amounts from
the donor’s fund, and the factors described
in paragraph (a)(7)(iv)(A)(2)(i)orpara-
graph (a)(7)(iv)(A)(2)(ii)ofthissection
are not present.
(iii) Only the advice of the donor as to
distributions of such donor’s fund is so-
licited by the public charity and no pro-
cedure is provided for considering advice
from persons other than the donor with re-
spect to such fund.
(iv) For the taxable year and all prior
taxable years the public charity follows the
advice of all donors with respect to their
funds substantially all of the time.
(B)Other action or withholding of ac-
tion. The terms of the transfer agreement,
or any expressed or implied understanding,
required the public charity to take or with-
hold action with respect to the transferred
assets which is not designed to further one
or more of the exempt purposes of the pub-
lic charity, and such action or withhold-
ing of action would, if performed by the
transferor private foundation with respect
to such assets, have subjected the trans-
feror to tax under Chapter 42 (other than
with respect to the minimum investment
return requirement of section 4942(e)).
(C)Assumption of leases, contractual
obligations, or liabilities. The public char-
ity assumes leases, contractual obligations,
or liabilities of the transferor private foun-
dation, or takes the assets thereof subject to
such liabilities (including obligations un-
der commitments or pledges to donees of
the transferor private foundation), for pur-
poses inconsistent with the purposes or
best interests of the public charity, other
than the payment of the transferor’s Chap-
ter 42 taxes incurred prior to the transfer to
the public charity to the extent of the value
of the assets transferred.
(D)Retention of investment assets.The
transferee public charityisrequiredbyany
restriction or agreement (other than a re-
striction or agreement imposed or required
by law or regulatory authority), express or
implied, to retain any securities or other
investment assets transferred to it by the
private foundation. In a case where such
transferred assets consistently produce a
low annual return of income, the IRS will
examine carefully whether the transferee is
required by any such restriction or agree-
ment to retain such assets.
(E)Rightoffirstrefusal. An agreement
is entered into in connection with the trans-
fer of securities or other property which
grants directly or indirectly to the trans-
feror private foundation or any disquali-
fied person with respect thereto a right of
first refusal with respect to the transferred
securities or other property when and if
disposed of by the public charity, unless
such securities or other property was ac-
quired by the transferor private foundation
subject to such right of first refusal prior to
October 9, 1969.
(F)Relationships. An agreement is
entered into between the transferor pri-
vate foundation and the transferee public
charity which establishes irrevocable rela-
tionships with respect to the maintenance
or management of assets transferred to
the public charity, such as continuing re-
lationships with banks, brokerage firms,
investment counselors, or other advisors
with regard to the investments or other
property transferred to the public charity
(other than a relationship with a trustee,
custodian, or agent for a community trust
acting as such). The transfer of property
to a public charity subject to contrac-
tual obligations which were established
prior to November 11, 1976, between
the transferor private foundation and
persons other than disqualified persons
with respect to such foundation will
not be treated as prohibited under the
preceding sentence, but only if such
contractual obligations were not entered
into pursuant to a plan to terminate
the private foundation status of the
transferor under section 507(b)(1)(A) and
if the continuation of such contractual
obligations is in the best interests of the
public charity.
(G)Other conditions. Any other con-
dition is imposed on action by the public
charity which prevents it from exercising
ultimate control over the assets received
from the transferor private foundation for
purposes consistent with its exempt pur-
poses.
(v)Examples. The provisions of this
paragraph (a)(7) may be illustrated by the
following examples:
Example 1. The M Private Foundation transferred
all of its net assets to the V Cancer Institute, a public
charity described in section 170(b)(1)(A)(iii). Prior
to the transfer, M’s activities consisted of making
grants to hospitals and universities to further research
into the causes of cancer. Under the terms of the
transfer, V is required to keep M’s assets in a separate
fund and use the income and principal to further can-
cer research. Although the assets may be used only
for a limited purpose, this purpose is consistent with
and in furtherance of V’s exempt purposes, and does
not prevent the transfer from being a distribution for
purposes of section 507(b)(1)(A).
Example 2. The N Private Foundation transferred
all of its net assets to W University, a public char-
ity described in section 170(b)(1)(A)(ii). Under the
terms of the transfer, W is required to use the income
and principal to endow a chair at the university to be
known as the “John J. Doe Memorial Professorship,”
named after N’s creator. Although the transferred as-
sets are to be used for a specified purpose by W, this
purpose is in furtherance of W’s exempt educational
purposes, and there are no conditions on investment
or reinvestment of the principal or income. The use
of the name of the foundation’s creator for the chair
is not a restriction which would prevent the trans-
fer from being a distribution for purposes of section
507(b)(1)(A).
Example 3. The O Private Foundation transferred
all of its net assets to X Bank as trustee for the Q Com-
munity Trust, a community trust that is a public char-
ity described in section 170(b)(1)(A)(vi). Under the
terms of the transfer, X is to hold the assets in trust
for Q and is directed to distribute the income annu-
ally to the Y Church, a public charity described in
section 170(b)(1)(A)(i). The distribution of income
to Y Church is consistent with Q’s exempt purposes.
If the trust created by this transfer otherwise meets
the requirements of §1.170A–9(f)(11) as a compo-
nent part of the Q Community Trust, the assets trans-
ferred by O to X will be treated as distributed to one
or more public charities within the meaning of sec-
tion 507(b)(1)(A). The direction to distribute the in-
come to Y Church meets the conditions of paragraph
2011–46 I.R.B.736November 14, 2011

(a)(7)(iii)(B) of this section and will therefore not dis-
qualify the transfer under section 507(b)(1)(A).
Example 4. (i) The P Private Foundation trans-
ferred all of its net assets to Z Bank as trustee for the
R Community Trust, a community trust that is a pub-
lic charity described in section 170(b)(1)(A)(vi). Un-
der the terms of the transfer, Z is to hold the assets in
trust for R and distribute the income to those public
charities described in section 170(b)(1)(A)(i) through
(b)(1)(A)(vi) that are designatedbyB,thecreatorof
P. R’s governing body has no authority during B’s
lifetime to vary B’s direction. Under the terms of the
transfer, it is intended that Z retain the transferred as-
sets in their present form for a period of 20 years, or
until the date of B’s death if it occurs before the ex-
piration of such period. Upon the death of B, R will
have the power to distribute the income to such public
charities as it selects and may dispose of the corpus
as it sees fit.
(ii) Under paragraph (a)(7)(iv)(A) or paragraph
(a)(7)(iv)(D) of this section, as a result of the re-
strictions imposed with respect to the transferred as-
sets, there has been no distribution of all P’s net as-
sets within the meaning of section 507(b)(1)(A) at
the time of the transfer. In addition, P has not trans-
ferred its net assets to a component part of R Com-
munity Trust, but rather to a separate trust described
in §1.170A–9(f)(12).
(b)Operation as a public charity—(1)
In general. Under section 507(b)(1)(B),
an organization can terminate its private
foundation status if the organization—
(i) Meets the requirements of section
509(a)(1), section 509(a)(2) or section
509(a)(3) for a continuous period of 60
calendar months beginning with the first
day of any taxable year that begins after
December 31, 1969;
(ii) In compliance with section
507(b)(1)(B)(ii) and paragraph (b)(3) of
this section, properly notifies the IRS,
in such manner as may be provided by
published guidance, publication, form or
instructions, before the commencement of
such 60-month period, that it is terminat-
ing its private foundation status; and
(iii) Properly establishes immediately
after the expiration of such 60-month pe-
riod that such organization has complied
with the requirements of section 509(a)(1),
section 509(a)(2) or section 509(a)(3) dur-
ing the 60-month period, in the manner de-
scribed in paragraph (b)(4) of this section.
(2)Relationship of section 507(b)(1)(B)
to sections 507(a), 507(c), and 507(g).
Because section 507(a) does not apply
to a termination described in section
507(b)(1)(B), a privatefoundation’s notifi-
cation that it is commencing a termination
pursuant to section 507(b)(1)(B) will not
be treated as a notification described in
section 507(a) even if the private foun-
dation does not successfully terminate
its private foundation status pursuant to
section 507(b)(1)(B). A private founda-
tion that terminates its private foundation
status under section 507(b)(1)(B) does
not incur tax under section 507(c) and,
therefore, no abatement of such tax under
section 507(g) is required.
(3)Notification of termination.In
order to comply with the requirements
under section 507(b)(1)(B)(ii), an organ-
ization shall beforethe commencement
of the 60-month period under section
507(b)(1)(B)(i) notify the IRS, in such
manner as may be provided by published
guidance, publication, form or instruc-
tions, of its intention to terminate its pri-
vate foundation status. Such notification
shall contain the following information—
(i) The name and address of the private
foundation;
(ii) Its intention to terminate its private
foundation status;
(iii) The Code section under which it
seeks classification (section 509(a)(1),
section 509(a)(2) or section 509(a)(3));
(iv) If section 509(a)(1) is applicable,
the clause of section 170(b)(1)(A) in-
volved;
(v) The date its regular taxable year be-
gins; and
(vi) The date of commencement of the
60-month period.
(4)Establishment of termination.Inor-
der to comply with the requirements under
section 507(b)(1)(B)(iii), an organization
shall within 90 days after the expiration of
the 60-month period file such information
with the IRS, in such manner as may be
provided by published guidance, publica-
tion, form or instructions, as is necessary
to make a determination as to the organi-
zation’s status as an organization described
under section 509(a)(1), section 509(a)(2)
or section 509(a)(3) and the related regula-
tions. See paragraph (c) of this section as
to the information required to be submitted
under this paragraph (b)(4).
(5)Incomplete information.Thefail-
ure to supply, within the required time,
all of the information required by para-
graph (b)(3) or paragraph (b)(4) of this
section is not alone sufficient to consti-
tute a failure to satisfy the requirements
of section 507(b)(1)(B). If the information
that is submitted within the required time
is incomplete and the organization sup-
plies the necessary additional information
at the request of the Commissioner within
the additional time period allowed by him,
the original submission will be considered
timely.
(6)Application of special rules and fil-
ing requirements. An organization that has
terminated its private foundation status un-
der section 507(b)(1)(B) is not required to
comply with the special rules set forth in
sections 508(a) and 508(b). Such organi-
zation is also not required to file a return
under the provisions of section 6043(b) by
reason of termination of its private founda-
tion status under the provisions of section
507(b)(1)(B).
(7)Extension of time to assess deficien-
cies. If a private foundation files a no-
tification (described in paragraph (b)(3)
of this section) that it intends to begin a
60-month termination pursuant to section
507(b)(1)(B) and does not file a request for
an advance ruling pursuant to paragraph
(d) of this section, such private foundation
may file with the notification described
in paragraph (b)(3) of this section a con-
sent under section 6501(c)(4) to the effect
that the period of limitation upon assess-
ment under section 4940 for any taxable
year within the 60-month termination pe-
riod shall not expireprior to one year af-
ter the date of expiration of the time pre-
scribed by law for the assessment of a de-
ficiency for the last taxable year within the
60-month period. Such consents, if filed,
will ordinarily be accepted by the Com-
missioner. See paragraph (e)(3) of this sec-
tion for an illustration of the procedure re-
quired to obtain a refund of the tax im-
posedbysection4940inacasewheresuch
a consent is not in effect.
(c)Sixty-month terminations—(1)
Method of determining normal sources
of support. (i) In order to meet the re-
quirements of section 507(b)(1)(B) for
the 60-month termination period as a
section 509(a)(1) or section 509(a)(2)
organization, an organization must meet
the requirements of section 509(a)(1) or
section 509(a)(2), as the case may be, for
a continuous period of at least 60 cal-
endar months. In determining whether
an organization seeking status under
section 509(a)(1) as an organization de-
scribed in section 170(b)(1)(A)(iv) or
section 170(b)(1)(A)(vi) or under section
509(a)(2) normally meets the requirements
set forth under such sections, support
received in taxable years prior to the com-
November 14, 20117372011–46 I.R.B.

mencement of the 60-month period shall
not be taken into consideration, except as
otherwise provided in this section.
(ii) For purposes of section
507(b)(1)(B), an organization will be con-
sidered to be a section 509(a)(1) organiza-
tion described in section 170(b)(1)(A)(vi)
for a continuous period of 60 calendar
months only if the organization satisfies
the provisions of §1.170A–9(f), other
than §1.170A–9(f)(4)(v), based upon
aggregate data for such entire period.
The calculation of public support shall
be made over the period beginning with
the date of the commencement of the
60-month period, and ending with the last
day of the 60-month period.
(iii) For purposes of section
507(b)(1)(B), an organization will be
considered to be a section 509(a)(2)
organization only if such organization
meets the support requirements set forth
in sections 509(a)(2)(A) and 509(a)(2)(B)
and the related regulations, other than
§1.509(a)–3(d), for the continuous period
of 60 calendar months prescribed under
section 507(b)(1)(B). The calculation of
public support shall be made over the
period beginning with the date of the com-
mencement of the 60-month period, and
ending with the last day of the 60-month
period.
(2)Organizational and operational
tests. In order to meet the requirements
of section 507(b)(1)(B) for the 60-month
termination period as an organization
describedinsection170(b)(1)(A)(i),
170(b)(1)(A)(ii),170(b)(1)(A)(iii),
170(b)(1)(A)(iv), or 170(b)(1)(A)(v) or
section 509(a)(3), as the case may be, an
organization must meet the requirements
of the applicable provisions for a continu-
ous period of at least 60 calendar months.
For purposes of section 507(b)(1)(B), an
organization will be considered to be such
an organization only if it satisfies the re-
quirements of the applicable provision (in-
cluding with respect to section 509(a)(3),
the organizational and operational test
set forth in section 509(a)(3)(A)) at the
commencement of such 60-month period
and continuously thereafter during such
period.
(d)Advance rulings for 60-month
terminations—(1)In general.Anor-
ganization that files the notification re-
quired by section 507(b)(1)(B)(ii) that it
is commencing a 60-month termination
mayobtainanadvancerulingfromthe
Commissioner that it can be expected
to satisfy the requirements of section
507(b)(1)(B)(i) during the 60-month pe-
riod. Such an advance ruling may be is-
sued if the organization can reasonably be
expected to meet the requirements of sec-
tion 507(b)(1)(B)(i) during the 60-month
period. The issuance of a ruling will be
discretionary with the Commissioner.
(2)Basic consideration. In determining
whether an organization can reasonably be
expected (within the meaning of paragraph
(d)(1) of this section) to meet the require-
ments of section 507(b)(1)(B)(i) for the
60-month period, the basic consideration
is whether its organizational structure (tak-
ing into account any revisions made prior
to the beginning of the 60-month period),
current or proposed programs or activities,
actual or intended method of operation,
and current or projected sources of sup-
port are such as to indicate that the organ-
ization is likely to satisfy the requirements
of section 509(a)(1),section 509(a)(2), or
section 509(a)(3) and paragraph (c) of this
section during the 60-month period. In
making such a determination, all pertinent
facts and circumstances shall be consid-
ered.
(3)Reliance by grantors and con-
tributors. For purposes of sections 170,
545(b)(2), 642(c), 4942, 4945, 4966,
2055, 2106(a)(2), and 2522, grants or
contributions to an organization which
has obtained a ruling referred to in this
paragraph will be treated as made to an or-
ganization described in section 509(a)(1),
section 509(a)(2), or section 509(a)(3), as
the case may be, until the IRS publishes
notice that such advance ruling is being
revoked(suchasbypublicationinthe
Internal Revenue Bulletin). However, a
grantor or contributor may not rely on
such an advance ruling if the grantor or
contributor was responsible for, or aware
of, the act or failure to act that resulted
in the organization’s failure to meet the
requirements of section 509(a)(1), section
509(a)(2), or section 509(a)(3), or ac-
quired knowledge that the IRS had given
notice to such organization that its advance
ruling would be revoked. Prior to the
making of any grant or contribution which
allegedly will not result in the grantee’s
failure to meet the requirements of section
509(a)(1), section 509(a)(2), or section
509(a)(3), a potential grantee organization
may request a ruling whether such grant
or contribution may be made without such
failure. A request for such ruling may be
filed by the grantee organization with the
IRS. The issuance of such ruling will be at
the sole discretion of the Commissioner.
The organization must submit all informa-
tion necessary to make a determination on
the factors referred to in paragraph (d)(2)
of this section. If a favorable ruling is
issued, such ruling may be relied upon by
the grantor or contributor of the particu-
lar contribution in question for purposes
of sections 170, 507, 545(b)(2), 642(c),
4942, 4945, 4966, 2055, 2106(a)(2), and
2522.
(4)Reliance by organization.Anor-
ganization obtaining an advance ruling
pursuant to this paragraph cannot rely on
such a ruling. Consequently, if the or-
ganization does not pay the tax imposed
by section 4940 for any taxable year or
years during the 60-month period, and it
is subsequently determined that such tax
is due for such year or years (because the
organization did not in fact complete a
successful termination pursuant to section
507(b)(1)(B) and was not treated as an or-
ganization described insection 509(a)(1),
section 509(a)(2), or section 509(a)(3)
for such year or years), the organization
is liable for interest in accordance with
section 6601 if any amount of tax under
section 4940 has not been paid on or be-
fore the last date prescribed for payment.
However, because any failure to pay such
tax during the 60-month period (or prior
to the revocation of such ruling) is due to
reasonable cause, the penalty under sec-
tion 6651 with respect to the tax imposed
by section 4940 shall not apply.
(5)Extension of time to assess deficien-
cies. The advance ruling described in para-
graph (d)(1) of this section shall be issued
only if such organization’s request for an
advance ruling is filed with a consent un-
der section 6501(c)(4) to the effect that
the period of limitations upon assessment
under section 4940 for any taxable year
within the advance ruling period shall not
expire prior to one year after the date of the
expiration of the time prescribed by law for
the assessment of a deficiency for the last
taxable year within the 60-month period.
(e)Effect on grantors or contributors
and on the organization itself—(1)Effect
of satisfaction of requirements for termi-
nation; treatment during the termination
2011–46 I.R.B.738November 14, 2011

period. In the event that an organiza-
tion satisfies the requirements of section
507(b)(1)(B) for termination of its private
foundation status during the continuous
60-month period, such organization shall
be treated for such entire 60-month period
in the same manner as an organization
described in section 509(a)(1), section
509(a)(2), or section 509(a)(3), as the case
may be.
(2)Failure to meet termination re-
quirements—(i)In general. Except as
otherwise provided in paragraphs (d) and
(e)(2)(ii) of this section, any organiza-
tion that fails to satisfy the requirements
of section 507(b)(1)(B) for termination
of its private foundation status during
the continuous 60-month period shall be
treated as a private foundation for the
entire 60-month period, for purposes of
sections 507 through 509 and Chapter
42, and grants or contributions to such an
organization shall be treated as made to a
private foundation for purposes of sections
170, 507(b)(1)(A), 4942, and 4945.
(ii)Certain 60-month terminations.
Notwithstanding paragraph (e)(2)(i) of
this section, if an organization fails to sat-
isfy the requirements of section 509(a)(1),
section 509(a)(2), or section 509(a)(3)
for the continuous 60-month period but
does satisfy the requirements of section
509(a)(1), section 509(a)(2), or section
509(a)(3), as the case may be, for any tax-
able year or years during such 60-month
period, the organization shall be treated
as a section 509(a)(1), section 509(a)(2),
or section 509(a)(3) organization for such
taxable year or years, and grants or con-
tributions made during such taxable year
or years shall be treated as made to an or-
ganization described in section 509(a)(1),
section 509(a)(2), or section 509(a)(3). In
addition, sections 507 through 509 and
Chapter 42 shall not apply to such organ-
ization for any taxable year within such
60-month period for which it does meet
such requirements. For purposes of deter-
mining whether an organization satisfies
the requirements of section 509(a)(1),
section 509(a)(2), or section 509(a)(3)
for any taxable year in the 60-month pe-
riod, the calculation of public support
shall be made over the period beginning
with the date of the commencement of
the 60-month period, and ending with the
last day of the taxable year being tested.
The organization shall not be treated as
a section 509(a)(1) or section 509(a)(2)
organization for any taxable year during
the60-monthperiodsolelybyreasonof
having met a public support test for the
preceding year. In addition, the transi-
tion rules in §§1.170–9(f)(14)(iii) and
1.509(a)–3(n)(iii) shall not apply.
(iii)Aggregate tax benefit. For purposes
of section 507(d), the organization’s ag-
gregate tax benefit resulting from the or-
ganization’s section 501(c)(3) status shall
continue to be computed from the date
from which such computation would have
been made, but for the notice filed under
section 507(b)(1)(B)(ii), except that any
taxable year within such 60-month period
for which such organization meets the re-
quirements of section 509(a)(1), section
509(a)(2), or section 509(a)(3) shall be ex-
cluded from such computations.
(iv)Excess business holdings.See
section 4943 and the related regulations
for rules relating to decreases in a private
foundation’s holdings in a business enter-
prise which are caused by the foundation’s
failure to terminate its private foundation
status after giving the notification for ter-
mination under section 507(b)(1)(B)(ii).
(3)Example. The provisions of this
paragraph (e) may be illustrated by the fol-
lowing example:
Example. Y, a calendar year private founda-
tion, notifies the IRS that it intends to terminate
its private foundation status by converting into a
publicly supported organization described in section
170(b)(1)(A)(vi) and that its 60-month termination
period will commence on January 1, 2010. Y does
not obtain a ruling described in paragraph (d) of this
section. Based upon its support for 2010, Y does not
qualify as a publicly supported organization within
the meaning of §1.170A–9(f) and this paragraph for
2010. Consequently, in order to avoid the risks of
penalties and interest if Y fails to terminate within the
60-month period, Y files its 2010 return as a private
foundation and pays the tax imposed by section 4940.
Because a consent (described in paragraph (b)(7)
of this section), which would prevent the period of
limitations for all years in the 60-month period from
expiring, is not in effect, in order to be able to file a
claim for refund, Y and the IRS must agree to extend
the period of limitation for all taxes imposed under
Chapter 42 for 2010. Based on the aggregate data
for the entire 60-month period (2010 through 2014),
Y does qualify as a publicly-supported organization
for the entire 60-month period. Consequently, Y is
treated as a publicly-supported organization for the
entire 60-month period. Y files a claim for refund
for the taxes paid under section 4940 for 2010, and
such taxes are refunded.
(f)Effective/applicability date—(1)Ef-
fective date. These regulations are effec-
tive on September 8, 2011.
(2)Applicability date.Theregula-
tions in this section shall apply to tax
years beginning on or after January 1,
2008. For taxable years beginning af-
ter December 31, 1969, and beginning
before January 1, 2008, see §1.507–2
(as contained in 26 CFR part 1 revised
April 1, 2008).
§1.507–2T [Removed]
Par.5. Section 1.507–2T is removed.
Par. 6. Section 1.509(a)–3 is amended
as follows:
1. Revising paragraphs (a)(2), (a)(3)(i),
(c), (d), (e), (k) and (n).
2. Adding new paragraph (o).
The revisions and addition read as fol-
lows:
§1.509(a)–3 Broadly, publicly supported
organizations.
(a) * * *
(2)One-third support test.Anorgani-
zation will meet the one-third support test
if it normally (within the meaning of para-
graph (c) or paragraph (d) of this section)
receives from permitted sources more than
one-third of its support in each taxable year
from any combination of—
(i) Gifts, grants, contributions, or mem-
bership fees; and
(ii) Gross receipts from admissions,
sales of merchandise, performance of ser-
vices, or furnishing of facilities, in an ac-
tivity that is not an unrelated trade or busi-
ness (within the meaning of section 513),
subject to certain limitations described in
paragraph (b) of this section. For purposes
of this section, governmental units, organi-
zations described in section 509(a)(1), and
persons other than disqualified persons
with respect to the organization shall be
referred to as permitted sources. For pur-
poses of this section, the amount of support
received from the sources described in
paragraph (a)(2)(i) of this section and this
paragraph (a)(2)(ii) (subject to the limita-
tions referred to in this paragraph (a)(2))
will be referred to as the numerator of the
one-third support fraction, and the total
amount of support received (as defined
in section 509(d)) will be referred to as
the denominator of the one-third support
fraction. Section 1.509(a)–3(f) distin-
guishes gifts and contributions from gross
receipts; §1.509(a)–3(g) distinguishes
grants from gross receipts; §1.509(a)–3(h)
November 14, 20117392011–46 I.R.B.

defines membership fees; §1.509(a)–3(i)
defines “any bureau or similar agency
of a governmental unit”; §1.509(a)–3(j)
describes the treatment of certain indirect
forms of support; paragraph (k) of this
section describes the method of account-
ing for support; §1.509(a)–3(l) describes
the treatment of gross receipts from sec-
tion 513(a)(1), section 513(a)(2), or sec-
tion 513(a)(3) activities; §1.509(a)–3(m)
distinguishes grossreceipts from gross
investment income; and §1.509(a)–3(n)
describes transition rules for organizations
that received advancerulings that expire
on or after June 9, 2008.
(3) * * *
(i)In general. An organization will
meet the not-more-than-one-third support
test under section 509(a)(2)(B) if it nor-
mally (within the meaning of paragraph (c)
or (d) of this section) receives not more
than one-third of its support in each tax-
able year from the sum of its gross invest-
ment income (as defined in section 509(e))
and the excess (if any) of the amount of its
unrelated business taxable income (as de-
fined in section 512) derived from trades
or businesses that were acquired by the or-
ganization after June 30, 1975, over the
amount of tax imposed on such income by
section 511. For purposes of this section
the amount of support received from items
described in section 509(a)(2)(B) will be
referred to as the numerator of the not-
more-than-one-third support fraction, and
the total amount of support (as defined
in section 509(d)) will be referred to as
the denominator of the not-more-than-one-
third support fraction. For purposes of
section 509(a)(2), paragraph (m) of this
section distinguishes gross receipts from
gross investment income. For purposes of
section 509(e), gross investment income
includes the items of investment income
described in §1.512(b)–1(a).
*****
(c)Normally—(1)In general—(i)Def-
inition. The support tests set forth in
section 509(a)(2) are to be computed on
the basis of the nature of the organization’s
normal sources of support. An organi-
zation will be considered as “normally”
receiving one third ofits support from any
combination of gifts, grants, contributions,
membership fees, and gross receipts from
permitted sources (subject to the limita-
tions described in §1.509(a)–3(b)) and not
more than one third of its support from
items described in section 509(a)(2)(B)
for a taxable year and the taxable year
immediately succeeding such year, if, for
such taxable year and the four taxable
years immediately preceding such taxable
year, the aggregate amount of the support
received during the applicable period from
gifts, grants, contributions, membership
fees, and gross receipts from permitted
sources (subject to the limitations de-
scribed in §1.509(a)–3(b)) is more than
one third, and the aggregate amount of
the support received from items described
in section 509(a)(2)(B) is not more than
one third, of the total support of the or-
ganization for such five-year period. A
publicly supported organization described
under section 509(a)(2) that has failed
to meet either the one-third support test
of paragraph (a)(2) of this section or the
not-more-than-one-third support test of
paragraph (a)(3) of this section for two
consecutive years will be treated as a pri-
vate foundation as of the first day of the
second consecutive taxable year only for
purposes of sections 507, 4940, and 6033.
Such an organization must file a Form
990-PF, “Return of Private Foundation or
Section 4947(a)(1) Nonexempt Charitable
Trust Treated as a Private Foundation,”
andwillbeliableforthenetinvestment
tax imposed by section 4940 and, if appli-
cable, the private foundation termination
tax imposed by section 507(c), for that
second consecutive failed year. For the
succeeding years, the organization will
be treated as a private foundation for all
purposes.
(ii)First five years of an organization’s
existence. See paragraph (d)(1) of this sec-
tion for the definition of “normally” for or-
ganizations in the first five years of their
existence.
(2)Terminations under section
507(b)(1)(B). For the special rules appli-
cable to the term normally as applied to
private foundations that elect to terminate
their private foundation status pursuant
to the 60-month procedure provided in
section 507(b)(1)(B), see the regulations
under such section.
(3)Exclusion of unusual grants.For
purposes of applying the tests for support
set forth in paragraphs (a)(2) and (a)(3)
of this section, one or more contributions
may be excluded from the numerator of
the one-third support fraction and from
the denominator of both the one-third sup-
port and not-more-than-one-third support
fractions only if such a contribution meets
the requirements of this paragraph (c)(3).
The exclusion provided by this paragraph
(c)(3) is generally intended to apply to sub-
stantial contributions and bequests from
disinterested parties, which contributions
or bequests—
(i) Are attracted by reason of the pub-
licly supported nature of the organization;
(ii) Are unusual or unexpected with re-
spect to the amount thereof; and
(iii) Would by reason of their size, ad-
versely affect the status of the organization
as normally meeting the one-third support
test for any of the applicable periods de-
scribed in this paragraph (c) or paragraph
(d) of this section. In the case of a grant
(as defined in §1.509(a)–3(g)) that meets
the requirements of this paragraph (c)(3),
if the terms of the granting instrument re-
quire that the funds be paid to the recip-
ient organization over a period of years,
the grant amounts may be excluded for
such year or years in which they would
otherwise be includible in computing sup-
port under the method of accounting on the
basis of which the organization regularly
computes its income in keeping its books
under section 446. However, no item de-
scribed in section 509(a)(2)(B) may be ex-
cluded under this paragraph (c)(3). The
provisions of this paragraph (c)(3) shall
apply to exclude unusual grants made dur-
ing any of the applicable periods described
in this paragraph (c) or paragraph (d) of
this section. See paragraph (c)(5) of this
section as to reliance by a grantee organi-
zation upon an unusual grant ruling under
this paragraph (c)(3).
(4)Determining factors. In determin-
ing whether a particular contribution may
be excluded under paragraph (c)(3) of this
section, all pertinent facts and circum-
stances will be taken into consideration.
No single factor will necessarily be de-
terminative. Among the factors to be
considered are—
(i) Whether the contribution was made
by any person (or persons standing in a
relationship to such person which is de-
scribed in section 4946(a)(1)(C) through
4946(a)(1)(G)) who created the organiza-
tion, previously contributed a substantial
part of its support or endowment, or stood
in a position of authority, such as a founda-
tion manager (within the meaning of sec-
2011–46 I.R.B.740November 14, 2011

tion 4946(b)), with respect to the organi-
zation. A contribution made by a person
other than those persons described in this
paragraph (c)(4)(i) will ordinarily be given
more favorable consideration than a con-
tribution made by a person described in
this paragraph (c)(4)(i);
(ii) Whether the contribution was a be-
quest or aninter vivostransfer. A bequest
will ordinarily be given more favorable
consideration than aninter vivostransfer;
(iii) Whether the contribution was in
the form of cash, readily marketable secu-
rities, or assets which further the exempt
purposes of the organization, such as a gift
ofapaintingtoamuseum;
(iv) Except in the case of a new or-
ganization, whether, prior to the receipt
of the particular contribution, the organ-
ization has carried on an actual program
of public solicitation and exempt activities
and has been able to attract a significant
amount of public support;
(v) Whether the organization may rea-
sonably be expected toattract a significant
amount of public support subsequent to
the particular contribution. In this connec-
tion, continued reliance on unusual grants
to fund an organization’s current operat-
ing expenses (as opposed to providing new
endowment funds) may be evidence that
the organization cannot reasonably be ex-
pected to attract future support from the
general public;
(vi) Whether, prior to the year in which
the particular contribution was received,
the organization met the one-third support
test described in paragraph (a)(2) of this
section without the benefit of any exclu-
sions of unusual grants pursuant to para-
graph (c)(3) of this section;
(vii) Whether neither the contributor
nor any person standing in a relationship to
such contributor which is described in sec-
tion 4946(a)(1)(C) through 4946(a)(1)(G)
continues directly or indirectly to exercise
control over the organization;
(viii) Whether the organization has
a representative governing body as de-
scribed in §1.509(a)–3(d)(3)(i); and
(ix) Whether material restrictions
or conditions (within the meaning of
§1.507–2(a)(7)) have been imposed by the
transferor upon the transferee in connec-
tion with such transfer.
(5)Grantors and contributors.Priorto
the making of any grant or contribution ex-
pected to meet the requirements for exclu-
sion under paragraph (c)(3) of this section,
a potential grantee organization may re-
quest a determination whether such grant
or contribution may be so excluded. Re-
quests for such determination may be filed
by the grantee organization in the time and
manner specified by revenue procedure or
other guidance published in the Internal
Revenue Bulletin. The issuance of such
determination will be at the sole discretion
of the Commissioner. The organization
must submit all information necessary to
make a determination of the applicability
of paragraph (c)(3) of this section, includ-
ing all information relating to the factors
described in paragraph (c)(4) of this sec-
tion. If a favorable determination is issued,
such determination may be relied upon by
the grantor or contributor of the particu-
lar contribution in question for purposes of
sections 170, 507, 545(b)(2), 642(c), 4942,
4945, 4966, 2055, 2106(a)(2), and 2522
and by the grantee organization for pur-
poses of paragraph (c)(3) of this section.
(6)Examples. The application of the
principles set forth in this paragraph is
illustrated by the examples as follows. For
purposes of these examples, the termgen-
eral publicis defined as persons other than
disqualified persons and other than per-
sons from whom the foundation received
gross receipts in excess of the greater of
$5,000 or 1 percent of its support in any
taxable year, the termgross investment
incomeis as defined in section 509(e),
and the termgross receiptsis limited to
receipts from activities which are not un-
related trades or businesses (within the
meaning of section 513).
Example 1. (i) For the years 2008 through 2012,
X, an organization exempt under section 501(c)(3)
that makes scholarship grants to needy students of a
particular city, received support from the following
sources:
2008
Gross receipts (general public) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,000
Contributions(substantialcontributors) .............................................................................36,000
Grossinvestmentincome ........................................................................................29,000
Totalsupport ...............................................................................................100,000
2009
Gross receipts (general public) . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34,000
Contributions(substantialcontributors) .............................................................................
35,000
Grossinvestmentincome ........................................................................................31,000
Totalsupport ..................................................................................................100,000
2010
Gross receipts (general public) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,000
Contributions(substantialcontributors)..............................................................................30,000
Grossinvestmentincome ........................................................................................
35,000
Totalsupport ..................................................................................................100,000
November 14, 20117412011–46 I.R.B.

2011
Gross receipts (general public) . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33,000
Contributions(substantialcontributors) .............................................................................32,000
Grossinvestmentincome ........................................................................................
35,000
Totalsupport ..................................................................................................100,000
2012
Gross receipts (general public). . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31,000
Contributions(substantialcontributors)..............................................................................39,000
Grossinvestmentincome.........................................................................................30,000
Totalsupport...................................................................................................100,000
(ii) In applying section 509(a)(2) to the taxable
year 2012, on the basis of paragraph (c)(1)(i) of this
section, the total amount of support from gross re-
ceipts from the general public ($168,000) for the pe-
riod 2008 through 2012, was more than one third, and
the total amount of support from gross investment in-
come ($160,000) was less than one third, of X’s to-
tal support for the same period ($500,000). For the
taxable years 2012 and 2013, X is therefore consid-
ered normally to receive more than one third of its
support from the public sources described in section
509(a)(2)(A) and less than one third of its support
fromitemsdescribedinsection509(a)(2)(B).The
fact that X received less than one third of its support
from section 509(a)(2)(A) sources in 2012 and more
than one third of its support from items described in
section 509(a)(2)(B) in 2011 does not affect its sta-
tus because it normally met the applicable tests over
a five-year period.
Example 2. Assume the same facts as inExam-
ple 1except that in 2012, X also received an unex-
pected bequest of $50,000 from A, an elderly widow
who was interested in encouraging the work of X, but
had no other relationship to it. Solely by reason of
the bequest, A became a disqualified person. X used
thebequesttocreatefivenewscholarships. Itsop-
erations otherwise remained the same. Under these
circumstances, if A’s bequest is included in X’s sup-
port calculation, X could not meet the five-year sup-
port test because the total amount received from gross
receipts from the generalpublic ($168,000) would
not be more than one-third of its total support for the
five-year period ($550,000). Because A is a disqual-
ified person, her bequest cannot be included in the
numerator of the one-third support test under section
509(a)(2)(A). However, based on the factors set forth
in paragraph (c)(4) of this section, A’s bequest may be
excluded as an unusual grant under paragraph (c)(3)
of this section. Therefore, X will be considered to
have met the support test for the taxable years 2012
and 2013.
Example 3. Y, an organization described in sec-
tion 501(c)(3), was created by A, the holder of all the
common stock in M corporation; B, A’s wife; and
C, A’s business associate. The purpose of Y was to
sponsor and equip athletic teams for underprivileged
children in the community. Each of the three creators
makes small cash contributions to Y. A, B, and C have
been active participants in the affairs of Y since its
creation. Y regularly raises small amounts of contri-
butions through fundraising drives and selling admis-
sion to some of the sponsored sporting events. The
operations of Y are carried out on a small scale, usu-
ally being restricted to the sponsorship of two to four
baseball teams of underprivileged children. In 2009,
M recapitalizes and creates a first and second class of
6 percent nonvoting preferred stock, most of which
is held by A and B. In 2010, A contributes 49 per-
cent of his common stock in M to Y. A’s contribution
of M’s common stock was substantial and constitutes
90 percent of Y’s total support for 2010. A combina-
tion of the facts and circumstances described in para-
graph (c)(4) of this section preclude A’s contribution
of M’s common stock in 2010 from being excluded
as an unusual grant under paragraph (c)(3) of this sec-
tion for purposes of determining whether Y meets the
one-third support test under section 509(a)(2).
Example 4. (i) M is organized in 2009 to pro-
mote the appreciation of ballet in a particular region
of the United States. Its principal activities consist of
erecting a theater for the performance of ballet and
the organization and operation of a ballet company.
M receives a determination letter that it is an organ-
ization described in section 501(c)(3) and that it is
a public charity described in section 509(a)(2). The
governing body of M consists of nine prominent un-
related citizens residing in the region who have either
an expertise in ballet or a strong interest in encourag-
ing appreciation of the art form.
(ii) In 2010, Z, a private foundation, proposes to
makes a grant of $500,000 in cash to M to provide
sufficient capital for M to commence its activities.
Although A, the creator of Z, is one of the nine mem-
bers of M’s governing body, was one of M’s original
founders, and continues to lend his prestige to M’s ac-
tivities and fund raising efforts, A does not, directly
or indirectly, exercise any control over M. M also re-
ceives a significant amount of support from a num-
ber of smaller contributions and pledges from other
members of the general public. M charges admission
to the ballet performancesto the general public.
(iii) Although the support received in 2010 will
not impact M’s status as a public charity for its first
five taxable years, it will be relevant to the determina-
tion of whether M meets the one-third support test un-
der section 509(a)(2) for the 2014 taxable year, using
the computation period 2010 through 2014. Within
the appropriate timeframe, M may submit a request
for a private letter ruling that the $500,000 contribu-
tion from Z qualifies as an unusual grant.
(iv) Under the above circumstances, even though
A was a founder and member of the governing body
of M, M may exclude Z’s contribution of $500,000
in 2010 as an unusual grant under paragraph (c)(3)
of this section for purposes of determining whether
M meets the one-third support test under section
509(a)(2) for 2014.
Example 5. (i) Assume the same facts asExample
4(i)except that, in addition, in 2013, B, a widow,
passes away and bequeaths $4 million to M. During
2009 through 2013, B made small contributions to M,
none exceeding $10,000 in any year. During 2009
through 2013, M received approximately $450,000
from receipts for admissions and contributions from
the general public. At the time of B’s death, no person
standing in a relationship to B described in section
4946(a)(1)(C) through 4946(a)(1)(G) was a member
of M’s governing body. B’s bequest was in the form
of cash and readily marketable securities. The only
condition placed upon the bequest was that it be used
by M to advance the art of ballet.
(ii) Although the support received in 2013 will not
impact M’s status as a public charity for its first five
taxable years, it will be relevant to the determination
of whether M meets the one-third support test under
section 509(a)(2) for future years. Within the appro-
priate timeframe, M may submit a request for a pri-
vate letter ruling that the $4 million bequest from B
qualifies as an unusual grant.
(iii) Under the above circumstances, M may ex-
clude B’s bequest of $4 million in 2013 as an unusual
grant under paragraph (c)(3) of this section for pur-
poses of determining whether M meets the one-third
support test under section 509(a)(2) for 2014 and sub-
sequent years.
Example 6. (i) N is a research organization that
was created by A in 2009 for the purpose of carrying
on economic studies primarily through persons re-
ceiving grants from N and engaging in the sale of eco-
nomic publications. N received a determination letter
that it is described in section 501(c)(3) and that it is a
public charity described in 509(a)(2). N’s five-mem-
ber governing body consists of A; A’s sons, B and C;
and two unrelated economists. In 2009, A made a
contribution to N of $100,000 to help establish the
organization. During 2009 through 2013, A made
annual contributions to N averaging $20,000 a year.
During the same period, N received annual contri-
butions from members of the general public averag-
ing $15,000 per year and receipts from the sale of its
publications averaging $50,000 per year. In 2013, B
made an inter vivos contribution to N of $600,000 in
cash and readily marketable securities.
2011–46 I.R.B.742November 14, 2011

(ii) Although the support received in 2013 will
not impact N’s status as a public charity for its first
five taxable years, it will be relevant to the determina-
tion of whether N meets the one-third support test un-
der section 509(a)(2) for future years. In determining
whether B’s contribution of $600,000 in 2013 may be
excluded as an unusual grant, the support N received
in 2009 through 2013 is relevant in considering the
factor described in paragraph (c)(4)(vi) of this sec-
tion, notwithstanding that N received a determination
letter that it is described in section 509(a)(2).
(iii) Under the above circumstances, in particular
the facts that B is a disqualified person described in
section 4946(a)(1)(D) and N does not have a repre-
sentative governing body as described in paragraphs
(c)(4)(viii) and (d)(3)(i) of this section, N cannot ex-
clude B’s contribution of $600,000 in 2013 as an un-
usual grant under paragraph (c)(3) of this section for
purposes of determining whether N meets the one-
third support test under section 509(a)(2) for 2014
and future years.
Example 7. (i) O is an educational organization
created in 2009. O received a determination letter
that it is described in section 501(c)(3) and that it is
a public charity described in section 509(a)(2). The
governing body of O has 9 members, consisting of A,
a prominent civic leader, and 8 other unrelated civic
leaders and educators in the community, all of whom
participated in the creation of O. During 2009 through
2013, the principal source of income for O has been
receipts from the sale of its educational periodicals.
These sales have amounted to $200,000 for this pe-
riod. Small contributions amounting to $50,000 have
also been received during the same period from mem-
bers of the governing body, including A, as well as
other members of the general public.
(ii) In 2013, A contributed $750,000 of the non-
voting stock of S, a closely held corporation, to O. A
retained a substantial portion of the voting stock of S.
By a majority vote, the governing body of O decided
to retain the S stock for a period of at least five years.
(iii) Although the support received in 2013 will
not impact O’s status as a public charity for its first
five taxable years, it will be relevant to the determi-
nation of whether O meets the one-third support test
under section 509(a)(2) for future years. In determin-
ing whether A’s contribution of the S stock in 2013
may be excluded as an unusual grant, the support O
received in 2009 through 2013 is relevant in consider-
ing the factor described in paragraph (c)(4)(vi) of this
section, notwithstanding that O received a determina-
tion letter that it is described in section 509(a)(2).
(iv) Under the above circumstances, in particular
the facts that A is a foundation manager within the
meaning of section 4946(b) and A’s contribution is in
the form of closely held stock, O cannot exclude A’s
contribution of the S stock in 2013 as an unusual grant
under paragraph (c)(3) of this section for purposes of
determining whether O meets the one-third support
test under section 509(a)(2) for 2014 and future years.
(d)Definition of normally; first five
years of an organization’s existence—(1)
In general. An organization will “nor-
mally” meet the one-third support test
and the not-more-than-one-third support
test during its first five taxable years as a
section 501(c)(3) organization if the or-
ganization can reasonably be expected to
meet the requirements of the one-third sup-
port test and the not-more-than-one-third
support test during that period. With
respect to an organization’s sixth tax-
able year, the general definition of nor-
mally in paragraph (c)(1) of this section
applies. Alternatively, the organiza-
tion shall be treated as normally meet-
ing the one-third support test and the
not-more-than-one-third support test for
its sixth taxable year (but not its seventh
taxable year) if it meets the one-third sup-
port test and the not-more-than-one-third
support test under the definition of nor-
mally set forth in paragraph (c)(1)(i) of
this section for its fifth taxable year (based
on support received in its first through
fifth taxable years). If a new publicly
supported organization described under
section 509(a)(2) cannot meet the require-
ments of the one-third support test or the
not-more-than-one-third support test for
its sixth taxable year using either the gen-
eral definition of normally in paragraph
(c)(1) of this section or the alternate rule
above (effectively failing to meet a public
support test for both its fifth and sixth
years), it will be reclassified as a private
foundation as of the first day of its sixth
taxable year only for purposes of sections
507, 4940, and 6033. Such an organiza-
tion must file a Form 990-PF, “Return of
Private Foundation or Section 4947(a)(1)
Nonexempt Charitable Trust Treated as
a Private Foundation,” and is liable for
the net investment tax imposed by section
4940 and, if applicable, the private foun-
dation termination tax imposed by section
507(c), for its sixth taxable year. Begin-
ning the first day of its seventh taxable
year, the organization will be treated as a
private foundation for all purposes.
(2)Basic consideration. In deter-
mining whether an organization can
reasonably be expected (within the
meaning of paragraph (c)(1)(i) of this
section) to meet the one-third support
test under section 509(a)(2)(A) and the
not-more-than-one-third support test un-
der section 509(a)(2)(B) described in
paragraph (a) of this section during its
first five taxable years, the basic con-
sideration is whether its organizational
structure, current or proposed programs or
activities, and actual or intended method
of operation are such as to attract the
type of broadly based support from the
general public, public charities, and gov-
ernmental units that is necessary to meet
such tests. The factors that are relevant
to this determination, and the weight ac-
corded to each of them, may differ from
case to case, depending on the nature and
functions of the organization. An organ-
ization cannot reasonably be expected
to meet the one-third support test and
the not-more-than-one-third support test
where the facts indicate that an organiza-
tion is likely during its first five taxable
years to receive less than one-third of its
support from permitted sources (subject to
the limitations of paragraph (b) of this sec-
tion) or to receive more than one-third of
its support from items described in section
509(a)(2)(B).
(3)Factors taken into account.All
pertinent facts and circumstances shall be
taken into account under paragraph (d)(2)
of this section in determining whether the
organizational structure, programs or ac-
tivities, and method of operation of an or-
ganization are such as to enable it to meet
the tests under section 509(a)(2) during its
first five taxable years. Some of the perti-
nent factors are:
(i) Whether the organization has or
will have a representative governing body
which is comprised of public officials,
or individuals chosen by public officials
acting in their capacity as such; of persons
having special knowledge in the particular
field or discipline in which the organiza-
tion is operating; of community leaders,
such as elected officials, clergymen, and
educators; or, in the case of a member-
ship organization, of individuals elected
pursuant to the organization’s governing
instrument or bylaws by a broadly based
membership. This characteristic does not
exist if the membership of the organiza-
tion’s governing body is such as to indicate
that it represents the personal or private
interests of disqualified persons, rather
than the interests of the community or the
general public.
(ii) Whether a substantial portion of the
organization’s initial funding is to be pro-
vided by the general public, by public char-
ities, or by government grants, rather than
by a limited number of grantors or contrib-
utors who are disqualified persons with re-
spect to the organization. The fact that the
organization plans to limit its activities to
a particular community or region or to a
special field which can be expected to ap-
November 14, 20117432011–46 I.R.B.

peal to a limited number of persons will
be taken into consideration in determining
whether those persons providing the initial
support for the organization are represen-
tative of the general public. On the other
hand, the subsequent sources of funding
which the organization can reasonably ex-
pect to receive after it has become estab-
lished and fully operational will also be
taken into account.
(iii) Whether a substantial proportion of
the organization’s initial funds are placed,
or will remain, in an endowment, and
whether the investment of such funds is
unlikely to result in more than one third of
its total support being received from items
describedinsection509(a)(2)(B).
(iv) In the case of an organization that
carries on fundraising activities, whether
the organization has developed a concrete
plan for solicitation of funds from the gen-
eral public on a community or area-wide
basis; whether any steps have been taken
to implement such plan; whether any firm
commitments of financial or other sup-
port have been made to the organization
by civic, religious, charitable, or simi-
lar groups within the community; and
whether the organization has made any
commitments to, or established any work-
ing relationships with, those organizations
or classes of persons intended as the future
recipients of its funds.
(v) In the case of an organization that
carries on community services, such as
combating community deterioration in an
economically depressed area that has suf-
fered a major loss of population and jobs,
whether the organization has a concrete
program to carry out its work in the com-
munity; whether any steps have been taken
to implement that program; whether it will
receive any part ofits funds from a public
charity or governmental agency to which
it is in some way held accountable as a
condition of the grant or contribution; and
whether it has enlisted the sponsorship or
support of other civic or community lead-
ers involved in community service pro-
grams similar to those of the organization.
(vi) In the case of an organization that
carries on educational or other exempt
activities for, or on behalf of, members,
whether the solicitation for dues-paying
members is designed to enroll a substan-
tial number of persons in the community,
area, profession, or field of special interest
(depending on the size of the area and
the nature of the organization’s activities);
whether membership dues for individual
(rather than institutional) members have
been fixed at rates designed to make mem-
bership available to a broad cross-section
of the public rather than to restrict mem-
bershiptoalimitednumberofpersons;
and whether the activities of the organi-
zation will be likely to appeal to persons
having some broad common interest or
purpose, such as educational activities
in the case of alumni associations, mu-
sical activities in the case of symphony
societies, or civic affairs in the case of
parent-teacher associations.
(vii) In the case of an organization
that provides goods, services, or facili-
ties, whether the organization is or will
be required to make its services, facili-
ties, performances, or products available
(regardless of whether a fee is charged)
to the general public, public charities, or
governmental units, rather than to a lim-
ited number of persons or organizations;
whether the organization will avoid exe-
cuting contracts to perform services for a
limited number of firms or governmental
agencies or bureaus; and whether the ser-
vice to be provided is one which can be
expected to meet a special or general need
among a substantial portion of the general
public.
(4)Example. The application of this
paragraph (d) may be illustrated by the fol-
lowing example:
Example. (i) Organization X was formed
in January 2008 and uses a taxable year ending
December 31. After September 9, 2008, and before
December 31, 2008, Organization X filed Form
1023 requesting recognition of exemption as an
organization described in section 501(c)(3) and in
section 509(a)(2). In its application, Organization
X established that it can reasonably be expected
to operate as a publicly supported organization
under paragraph (d) of this section. Subsequently,
Organization X received a ruling or determination
letter that it is an organization described in sections
501(c)(3) and 509(a)(2) effective as of the date of its
formation.
(ii) Organization X is described in section
509(a)(2) for its first five taxable years (for the
taxable years ending December 31, 2008, through
December 31, 2012).
(iii) Organization X can qualify as a publicly sup-
ported organization beginning with the taxable year
ending December 31, 2013, if Organization X can
meet the requirements of either §1.170A–9(f)(2) or
§1.170A–9(f)(3) or paragraphs (a) and (b) of this sec-
tion for the taxable years ending December 31, 2009,
through December 31, 2013, or for the taxable years
ending December 31, 2008, through December 31,
2012.
(e)Determinations on foundation clas-
sification and reliance—(1) A ruling or de-
termination letter that an organization is
described in section 509(a)(2) may be is-
sued to an organization. Such determina-
tion may be made in conjunction with the
recognition of the organization’s tax-ex-
empt status or at such other time as the or-
ganization believes it is described in sec-
tion 509(a)(2). The ruling or determi-
nation letter that the organization is de-
scribedinsection509(a)(2)maybere-
voked if, upon examination, the organiza-
tion has not met the requirements of this
section. The ruling or determination letter
that the organization is described in section
509(a)(2) also may be revoked if the or-
ganization’s application for a ruling or de-
termination contained one or more mate-
rial misstatements or omissions of fact or
such application was part of a scheme or
plan to avoid or evade any provision of the
Code. The revocation of the determination
that an organization is described in section
509(a)(2) does not preclude revocation of
the determination thatthe organization is
described in section 501(c)(3).
(2)Status of grantors or contribu-
tors.(i) For purposes of sections 170,
507, 545(b)(2), 642(c), 4942, 4945, 4966,
2055, 2106(a)(2), and 2522, grantors and
contributors may rely upon a determina-
tion letter or ruling that an organization
is described in section 509(a)(2) until the
IRS publishes notice of a change of status
(for example, in the Internal Revenue Bul-
letin or Publication 78, “Cumulative List of
Organizations described in Section 170(c)
of the Internal Revenue Code of 1986,”
which can be searched atwww.irs.gov).
For this purpose, grantors or contributors
mayalsorelyonanadvancerulingthatex-
pires on or after June 9, 2008. However, a
grantor or contributor may not rely on such
an advance ruling or any determination
letter or ruling if the grantor or contributor
was responsible for, or aware of, the act or
failure to act that resulted in the organiza-
tion’s loss of classification under section
509(a)(2) or acquired knowledge that the
IRS had given notice to such organization
that it would be deleted from such classi-
fication.
(ii) A grantor or contributor (other than
one of the organization’s founders, cre-
ators, or foundation managers (within the
meaning of section 4946(b)) will not be
considered to be responsible for, or aware
2011–46 I.R.B.744November 14, 2011

of, the act or failure to act that resulted
in the loss of the organization’s publicly
supported classification under section
509(a)(2) if such grantor or contributor
has made such grant or contribution in
reliance upon a written statement by the
grantee organization that such grant or
contribution will not result in the loss
of such organization’s classification as
not a private foundation under section
509(a). Such statement must be signed
by a responsible officer of the grantee
organization and must set forth sufficient
information, including a summary of the
pertinent financial data for the five taxable
years immediately preceding the current
taxable year, to assure a reasonably pru-
dent person that his grant or contribution
will not result in the loss of the grantee
organization’s classification as a pub-
licly supported organization under section
509(a). If a reasonable doubt exists as to
the effect of such grant or contribution,
or if the grantor or contributor is one of
the organization’s founders, creators, or
foundation managers, the procedure for
requesting a determination letter set forth
in paragraph (c)(5) of this section may be
followed by the grantee organization for
the protection of the grantor or contributor.
(3)Examples. The provisions of this
paragraph (e) may be illustrated by the fol-
lowing examples:
Example 1. Y, a calendar year organization de-
scribed in section 501(c)(3), is created in February
2008 for the purpose of displaying African art. On
its exemption application Y shows, under penalties of
perjury, that it can reasonably, in accordance with the
requirements of paragraph (d) of this section, expect
to receive support from the public in 2008 through
2012 that will satisfy the one-third support and not-
more-than-one-third support tests described in sec-
tion 509(a)(2) for its first five taxable years, 2008
through 2012. Y may therefore receive a determina-
tion that it meets the requirements of paragraph (a) of
this section for its first five taxable years (2008, 2009,
2010, 2011, and 2012), regardless of the public sup-
port Y in fact receives during this period.
Example 2. Z, a calendar year organization
described in section 501(c)(3), is created in July
2008. On its exemption application Z shows, un-
der penalties of perjury, that it can reasonably, in
accordance with the requirements of paragraph
(d) of this section, expect to receive support from
the public in 2008 through 2012 that will satisfy
the one-third support and not-more-than-one-third
support tests described in section 509(a)(2) for its
first five taxable years, 2008 through 2012. Z re-
ceives a determination that it is described in section
509(a)(2). However, the support actually received
from the public over Z’s first five taxable years (2008
through 2012) does not satisfy the one-third support
and not-more-than-one-third support tests described
in section 509(a)(2). Moreover, the support Z re-
ceives from 2009 through 2013, also does not meet
the one-third support and not-more-than-one-third
support tests described in section 509(a)(2). Z is
described in section 509(a)(2) during its first five
years for all purposes. However, because Z has not
met the requirements of paragraph (a) of this section
for either 2008 through 2012 or 2009 through 2013,
Z is not described in section 509(a)(2) for its taxable
year 2013. If Z is not described in section 509(a)(1),
section 509(a)(3), or section 509(a)(4), then Z will be
reclassified as a private foundation as of the first day
of 2013. However, for 2013, Z will be treated as a
private foundation only for purposes of sections 507,
4940 and 6033. Z must file Form 990-PF and will
be liable for the net investment tax imposed by sec-
tion 4940 and, if applicable, the private foundation
termination tax imposed by section 507(c) for 2013.
For 2014 and succeeding years, Z will be treated as
a private foundation for all purposes (except as pro-
vided in paragraph (e)(2) of this section with respect
to grantors and contributors).
*****
(k)Method of accounting. For purposes
of section 509(a)(2), an organization’s sup-
port will be determined under the method
of accounting on the basis of which the or-
ganization regularly computes its income
in keeping its books under section 446. For
example, if a grantor makes a grant to an
organization payable over a term of years,
such grant will be includible in the support
fraction of the grantee organization under
the method of accounting on the basis of
which it regularly computes its income in
keeping its books under section 446.
*****
(n)Transition rules. (1) An organiza-
tion that received an advance ruling, that
expires on or after June 9, 2008, that it will
be treated as an organization described in
section 509(a)(2) will be treated as meet-
ing the requirements of paragraph (d)(1)
of this section for the first five taxable
years of its existence as a section 501(c)(3)
organization unless the IRS issued to the
organization a proposed determination
prior to September 9, 2008, that the or-
ganization is not described in sections
170(b)(1)(A)(vi) and 509(a)(1) or in sec-
tion 509(a)(2).
(2) Paragraph (d)(1) of this section
shall not apply to an organization that re-
ceived an advance ruling that expired prior
to June 9, 2008, and that did not timely
file with the IRS the required information
to establish that it is an organization
described in sections 170(b)(1)(A)(vi) and
509(a)(1) or in section 509(a)(2).
(3) An organization that fails to meet
apublicsupporttestforitsfirsttaxable
year beginning on or after January 1,
2008, under the regulations in this sec-
tion may use the prior test set forth in
§§1.509(a)–3(a)(2) and 1.509(a)–3(a)(3)
or §1.170A–9(e)(2) or §1.170A–9(e)(3)
as in effect before September 9, 2008,
(as contained in 26 CFR part 1 revised
April 1, 2008) to determine whether the
organization may be publicly supported
for its 2008 taxable year based on its
satisfaction of a public support test for
taxable year 2007, computed over the
period 2003 through 2006.
(4)Examples. The application of this
paragraph (n) may be illustrated by the fol-
lowing examples:
Example 1.(i) Organization M was formed in
January 2004, and uses a taxable year ending June 30.
Organization M received an advance ruling letter that
it is recognized as an organization described in sec-
tion 501(c)(3) effective as of the date of its formation
and that it is treated as a publicly supported organ-
ization under section 509(a)(2) during the five-year
advance ruling period that will end on June 30, 2008.
This date is on or after June 9, 2008.
(ii) Under the transition rule, Organization M is a
publicly supported organization described in section
509(a)(2) for the taxable years ending June 30, 2004,
through June 30, 2008. Organization M does not need
to establish within 90 days after June 30, 2008, that
it met a public support test under §1.170A–9(e) or
§1.509(a)–3, as in effect prior to September 9, 2008,
(as contained in 26 CFR part 1 revised April 1, 2008)
for its advance ruling period.
(iii) Organization M can qualify as a public char-
ity beginning with the taxable year ending June 30,
2009, if Organization M can meet the requirements of
§1.170A–9(f)(2) or §1.170A–9(f)(3) or paragraphs
(a)(2) and (a)(3) of this section for the taxable years
ending June 30, 2005, through June 30, 2009, or
for the taxable years ending June 30, 2004, through
June 30, 2008. In addition, for its taxable year ending
June 30, 2009, Organization M may qualify as a
publicly supported organization by availing itself of
the transition rule contained in paragraph (n)(iii) of
this section, which looks to support received by M
in the taxable years ending June 30, 2004, through
June 30, 2007.
Example 2.(i)OrganizationNwasformedinJan-
uary 2000 and uses a December 31 taxable year. Or-
ganization N received a final determination that it was
recognized as tax-exemptunder section 501(c)(3) and
as a public charity prior to September 9, 2008.
(ii) For taxable year2008, Organization N
will qualify as publicly supported if it meets the
requirements under either §1.170A–9(f)(2) or
§1.170A–9(f)(3) or paragraphs (a)(2) and (a)(3) of
this section for the five-year period January 1, 2004,
through December 31, 2008. Organization N
will also qualify as publicly supported for taxable
year 2008 if it meets the requirements under
either §1.170A–9(e)(2) or §1.170A–9(e)(3) or
§§1.509(a)–3(a)(2) and 1.509(a)–3(a)(3) as in effect
prior to September 9, 2008, (as contained in 26 CFR
November 14, 20117452011–46 I.R.B.

part 1 revised April 1, 2008) for taxable year 2007,
using the four-year period from January 1, 2003,
through December 31, 2006.
(o)Effective/applicability date.This
section shall generally apply to taxable
years beginning after December 31, 1969
except paragraphs (a)(2), (a)(3)(i), (c),
(d), (e), (k) and (n) of this section shall
apply to tax years beginning on or
after January 1, 2008. For tax years
beginning after December 31, 1969
and beginning before January 1, 2008,
§§1.509(a)–3(a)(2), 1.509(a)–3(a)(3)(i),
1.509(a)–3(c),1.509(a)–3(d),
1.509(a)–3(e), and 1.509(a)–3(k) as in
effect on December 31, 2007 (as contained
in 26 CFR part 1 revised April 1, 2008)
shall apply.
§1.509(a)–3T [Removed]
Par. 7. Section 1.509(a)–3T is re-
moved.
Par. 8. Section 1.6033–2 is amended
by revising paragraphs (a)(1), (a)(2)(ii)(g),
(a)(2)(ii)(h), (g)(1)(iii), (g)(1)(iv), (g)(6),
(i)(1) and (k) to read as follows:
§1.6033–2 Returns by exempt
organizations (taxable years beginning
after December 31, 1969) and returns by
certain nonexempt organizations (taxable
years beginning after December 31,
1980).
(a) * * *
(1) Except as provided in section
6033(a)(3) and paragraph (g) of this sec-
tion, every organization exempt from
taxation under section 501(a) shall file
an annual information return specifically
setting forth its items of gross income,
gross receipts and disbursements, and such
other information as may be prescribed in
the instructions, issued with respect to the
return. Except as provided in paragraph
(d) of this section, such return shall be
filed annually regardless of whether such
organization is chartered by, or affiliated
or associated with, any central, parent, or
other organization.
(2) * * *
(ii) * * *
(g) The names and addresses of all offi-
cers, directors, or trustees (or any person
having responsibilities or powers similar
to those of officers, directors or trustees)
of the organization, and, in the case of
a private foundation, all persons who are
foundation managers, within the meaning
of section 4946(b)(1). Organizations must
also attach a schedule showing the names
and addresses and/or total numbers of key
employees, highly compensated employ-
ees, and independent contractors as pre-
scribed by publication, form, or instruc-
tions.
(h) A schedule showing the compensa-
tion and other payments made to each per-
son whose name is required to be listed
pursuant to paragraph (a)(2)(ii)(g)ofthis
section during the calendar year ending
within the organization’s annual account-
ing period, or during such other period as
prescribed by publication, form, or instruc-
tions.
*****
(g) * * *
(1) * * *
(iii)Anorganization(otherthana
private foundation) described in section
6033(a)(3)(C), the gross receipts of which
in each taxable year are normally not more
than $5,000 (as described in paragraph
(g)(3) of this section);
(iv) A mission society (other than an or-
ganization described in section 509(a)(3))
sponsored by or affiliated with one or more
churches or church denominations, more
than one-half of the activities of which so-
ciety are conducted in, or directed at per-
sons in foreign countries;
*****
(6) The Commissioner may relieve
any organization or class of organizations
(other than an organization described in
section 509(a)(3)) from filing, in whole
or in part the annual return required by
this section where he determines that such
returns are not necessary for the efficient
administration of the internal revenue
laws.
*****
(i) * * *
(1) An organization that is exempt from
taxation under section 501(a) and is not re-
quired to file annually an information re-
turn required by this section shall imme-
diately notify in writing Exempt Organi-
zations Determinations, at an address pre-
scribed by publication (including publica-
tion on the Internal Revenue Service web-
site), of any changes in its character, oper-
ations, or purpose for which it was origi-
nally created.
*****
(k)Effective/applicability date—(1)
Generally. The provisions of this sec-
tion shall apply with respect to returns
filed for taxable years beginning after
December 31, 1969.
(2) The applicability of paragraphs
(g)(1)(iii), (g)(1)(iv), and (g)(6) of
this section shall be limited to returns
filed for taxable years ending after
August 17, 2006. For returns filed for
taxable years ending on or before Au-
gust 17, 2006, §§1.6033–(2)(g)(1)(iii),
1.6033–(2)(g)(1)(iv),and
1.6033–(2)(g)(6) (as contained in 26 CFR
part 1 revised April 1, 2006) shall apply.
(3) The applicability of paragraphs
(a)(2)(ii)(g) and (a)(2)(ii)(h)ofthissection
shallbelimitedtoreturnsfiledonorafter
January 1, 2008. For returns filed before
January 1, 2008, §§1.6033–(a)(2)(ii)(g)
and 1.6033–(2)(a)(2)(ii)(h) (as contained
in 26 CFR part 1 revised April 1, 2008)
shall apply.
§1.6033–2T [Removed]
Par. 9. Section 1.6033–2T is removed
Par. 10. Section 1.6043–3 is amended
by revising paragraphs (b)(8), (d) and (e)
to read as follows:
§1.6043–3 Returns regarding liquidation,
dissolution, termination, or substantial
contraction of organizations exempt from
taxation under section 501(a).
*****
(b) * * *
(8) Any organization no longer exempt
from taxation under section 501(a) and that
during the period of its exemption under
such section was not an organization de-
scribedinsection501(c)(3),acorporation
described in section 501(c)(2) that held
title to property for an organization de-
scribedinsection501(c)(3),oranorgan-
ization described in such other section as
prescribed by publication, form, or instruc-
tions.
*****
(d)Definitions. (1) For the definition of
the term “normally” as used in paragraph
(b)(2) of this section, see §1.6033–2(g)(3).
(2) For the definition of the term “in-
tegrated auxiliaries” as used in paragraph
(b)(1) of this section, see §1.6033–2(h).
2011–46 I.R.B.746November 14, 2011

(3) For returns filed for taxable years
beginning before January 1, 2008, for pur-
poses of this section the definition of the
term “substantial contraction” set forth in
§1.6043–3(d)(1) (as contained in 26 CFR
part 1 revised April 1, 2008) may be used.
(e)Effective/applicability date—(1)
Generally. The provisions of this sec-
tion shall apply with respect to returns
filed for taxable years beginning after
December 31, 1969.
(2) Paragraphs (b)(8) and (d) of this
section shall apply for taxable years be-
ginning on or after January 1, 2008. For
taxable years beginning before January 1,
2008, §§1.6043–3(b)(8) and 1.6043–3(d)
(as contained in 26 CFR part 1 revised
April 1, 2008) shall apply.
§1.6043–3T [Removed]
Par. 11. Section 1.6043–3T is removed.
PART 602—OMB CONTROL
NUMBER UNDER THE PAPERWORK
REDUCTION ACT
Par. 12. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 13. In §602.101, paragraph (b) is
amended as follows:
1. The following entry to the table is
removed:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
identified and described
Current OMB
Control No.
*****
1.6033–2T...........................................................
1545–2117
*****
2. The following entry is added in nu-
merical order to the table:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
identified and described
Current OMB
Control No.
*****
1.6033–2...........................................................
1545–2117
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved August 19, 2011.
Emily S. McMahon,
Acting Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on
September 7, 2011, 8:45 a.m., and published in the issue of
the Federal Register for September 8, 2011, 76 F.R. 55745)
November 14, 20117472011–46 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Postponement of Backup
Withholding Requirement for
PaymentCardandThirdParty
Network Payments Made
Under Section 6050W
Notice 2011–88
PURPOSE
This notice postpones the effective date
for potential backup withholding obliga-
tions imposed under section 3406 for pay-
ments made in settlement of payment card
and third party network transactions (sec-
tion 6050W payments). The regulations
under section 3406 require that backup
withholding apply to section 6050W pay-
ments made after December 31, 2011, if
a payee has not furnished a correct tax-
payer identification number (TIN) to a sec-
tion 6050W payor. This notice will post-
pone for one year the requirement to ap-
ply backup withholding on section 6050W
payments. Specifically, the backup with-
holding requirements of section 3406 will
apply only to section 6050W payments
made after December 31, 2012.
BACKGROUND
Section 6050W, added by section 3091
of the Housing Assistance Tax Act of
2008, Div. C of Pub. L. No. 110–289, 122
Stat. 2653 (the Act), requires information
returns to be made by certain payors with
respect to payments made in settlement of
payment card transactions and third party
payment network transactions. All pay-
ments made in settlement of payment card
transactions are required to be reported
under section 6050W. Payments made in
settlement of third party network transac-
tions, however, are required to be reported
only if the amount paid exceeds $20,000
and the aggregate number of transactions
exceeds 200 with respect to any payee
within a calendar year.
Section 3406(a)(1) requires certain pay-
ors to perform backup withholding by de-
ducting and withholding income tax from
a reportable payment if a payee fails to
furnish the payee’s correct taxpayer iden-
tification number to the payor. The Act
amended section 3406(b)(3) by including
payments required to be reported under
section 6050W as reportable payments po-
tentially subject to backup withholding.
The regulations under section 3406
require that backup withholding apply
to section 6050W payments made after
December 31, 2011, if a payee has not fur-
nished a correct TIN to a section 6050W
payor. Treas. Reg. § 31.3406(b)(3)–5(e).
In addition, the regulations subject all
payments, regardless of any monetary
or transactional thresholds, to potential
backup withholding. Earlier this year,
the Treasury Department and the IRS an-
nounced that not all payments made in
settlement of third party network transac-
tions are subject to backup withholding.
Notice 2011–42, 2011–23 I.R.B. 866. In-
stead, a payment made by a third party
settlement organization (“TPSO”) is a re-
portable payment potentially subject to
section 3406 backup withholding only
if the payee has received payment from
that TPSO in more than 200 transactions
within a calendar year.
DISCUSSION
Requests to postpone the effective date
for backup withholding on section 6050W
payments have been made by a number
of payors. Among the reasons cited in
support of this postponement include the
payors’ unfamiliarity with procedures for
backup withholdingbecause of no prior
withholding obligations, the need for ad-
ditional time to develop systems to enable
withholding, unfamiliarity with the IRS’
TIN matching programand general diffi-
culties in matching TINs already obtained
with the correct taxpayers.
After careful consideration of these
comments, Treasury and the IRS are
postponing the effective date for the appli-
cation of backup withholding on section
6050W payments for an additional year
from the current effective date. Thus,
backup withholding will be required on
section 6050W payments made after De-
cember 31, 2012.
DRAFTING INFORMATION
The principal author of this no-
tice is Girish Prasad of the Office of
Associate Chief Counsel (Procedure &
Administration). For further information
regarding this notice, please contact
Girish Prasad at (202) 622–4910 (not a
toll-free call).
Transitional Penalty Relief
for Information Reporting
Relating to Payment Card
and Third Party Network
Transactions
Notice 2011–89
PURPOSE
This notice provides transitional relief
from penalties for a section 6050W filer
reporting incorrect information on infor-
mation returns (Form 1099-K) and payee
statements filed under section 6050W of
the Internal Revenue Code. The relief
provided by this notice is available for
information returnsand payee statements
to be filed only in 2012, based on pay-
ments made in calendar year 2011, pro-
vided that the section 6050W filer makes
a good faith effort to accurately file the
appropriate information return and the ac-
companying payee statement.
BACKGROUND
Under section 6050W, added by section
3091 of the Housing Assistance Tax Act
of 2008, Div. C of Pub. L. No. 110–289,
122 Stat. 2653 (the Act), a payment settle-
ment entity (“payor”) making payment to a
participating payee (“payee”) in settlement
of reportable payment transactions must
make an information return for each calen-
dar year to be filed with the Internal Rev-
enue Service setting forth the gross amount
of such reportable payment transactions, as
well as the name, address, and taxpayer
identification number (TIN) of the payee.
A similar statement must be furnished to
the payee setting forth the gross amount
of such reportable payment transactions, as
well as the name, address and phone num-
ber of the information contact of the person
requiredtomakesuchreturn.
Section 6050W applies to two types
of transactions: (1) payment card trans-
actions and (2) third party network trans-
actions. All payments made in settlement
2011–46 I.R.B.748November 14, 2011

of payment card transactions must be re-
ported in the manner described above.
Payments made in settlement of third party
network transactions need be reported
only if gross payments to a payee exceed
$20,000 and the number of such trans-
actions exceeds 200 with respect to the
participating payee. The information is to
be reported to the IRS on Form 1099-K,
Merchant Card and Third Party Network
Payments.
Section 6721 imposes penalties on a
person for, among other things, failing to
include all required information or includ-
ingincorrectinformationonaninforma-
tion return. Section 6722 imposes penal-
ties on a person for, among other things,
failing to include all required information
or including incorrect information on a
payee statement.
DISCUSSION
Sections 6721 and 6722 are applicable
to section 6050W payors that must file
information returns for payments made in
settlement of reportable payment transac-
tions. Prior to the enactment of section
6050W, payors were not required to file
the specific type of information return or
to furnish the specific type of payee state-
ment now required by section 6050W. In
order to provide additional time to develop
appropriate procedures for compliance
with these new reporting requirements, the
IRS will not impose penalties under sec-
tions 6721 and 6722 on payors that must
file information returns and payee state-
ments provided that they make good-faith
efforts in filing accurate Forms 1099-K
and furnishing the accompanying payee
statements.
This notice does not apply to a payor
who erroneously fails to file an informa-
tion return or payee statement. Addition-
ally, the relief provided by this notice only
applies to information returns and payee
statements pertaining to reportable pay-
ments made in calendar year 2011.
DRAFTING INFORMATION
The principal author of this no-
tice is Girish Prasad of the Office of
Associate Chief Counsel (Procedure &
Administration). For further information
regarding this notice, please contact
Girish Prasad at (202) 622–4910 (not a
toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, Sections 846; 1.846–1.)
Rev. Proc. 2011–53
SECTION 1. PURPOSE
This revenue procedure prescribes the
loss payment patterns and discount factors
for the 2011 accident year. These factors
will be used for computing discounted un-
paid losses under § 846 of the Internal Rev-
enue Code.SeeRev. Proc. 2008–10,
2008–1 C.B. 290, for background concern-
ing the loss payment patterns and applica-
tion of the discount factors.
SECTION 2. SCOPE
This revenue procedure applies to any
taxpayer that is required to discount its un-
paid losses under § 846 for a line of busi-
ness using discount factors published by
the Secretary.
SECTION 3. TABLES OF DISCOUNT
FACTORS
.01 The following tables present sepa-
rately for each line of business the discount
factors under § 846 for accident year 2011.
All the discount factors presented in this
section were determined using the appli-
cable interest rate under § 846(c) for 2011,
which is 3.46 percent, and by assuming all
loss payments occur in the middle of the
calendar year.
.02 If the groupings of individual
lines of business on the annual state-
ment change, taxpayers must discount the
unpaid losses on the affected lines of busi-
ness in accordance with the discounting
patterns that would have applied to those
unpaid losses based on their classification
on the 2005 annual statement.SeeRev.
Proc. 2008–10, section 2, for additional
background on discounting under § 846
and the use of the Secretary’s tables.
.03 Section V of Notice 88–100,
1988–2 C.B. 439, sets forth a composite
method for computing discounted unpaid
losses for accident years that are not sep-
arately reported on the annual statement.
The tables separately provide discount
factors for taxpayers who elect to use the
composite method of section V of Notice
88–100.SeeRev. Proc. 2002–74, 2002–2
C.B. 980.
.04 Tables.
Tables of Factors to be Used to Discount
Unpaid Losses Incurred in
Accident Year 2011
(Interest rate: 3.46 percent)
Lines of Business
Accident and Health
(Other Than Disability Income or Credit Disability Insurance)
Taxpayers that do not use the composite method of Notice 88–100 should use 98.3136 percent to discount unpaid losses incurred
in this line of business in the 2011 accident year and that are outstanding at theend of the 2011 and later taxable years.
Taxpayers that use the composite method of Notice 88–100 should use 98.3136 percent to discount all unpaid losses in this line of
business that are outstanding at the end of the 2011 taxable year.
November 14, 20117492011–46 I.R.B.

Auto Physical Damage
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
201189.409689.4096
10.5904
10.3964
98.1685
201299.6848
10.27520.3152
0.304796.6697
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2013 and later years
0.15760.15760.1549
98.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.3136 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that areoutstanding at the end of the 2013 taxable year.
Commercial Auto
/Truck Liability/Medical
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
201123.671823.671876.328271.031993.0611
2012
47.5425
23.8708
52.4575
49.209493.8082
201366.684719.1421
33.3153
31.4416
94.3756
2014
81.510514.825818.4895
17.449394.3741
201590.05488.54439.9452
9.362294.1377
201694.73114.6763
5.2689
4.9297
93.5605
201797.06022.32922.93982.7311
92.9015
201898.1174
1.0572
1.8826
1.7502
92.9713
201998.8692
0.7518
1.13081.0461
92.5132
202099.11600.24670.88400.831394.0394
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
20210.24670.63730.6092
95.5812
20220.24670.39060.379397.1026
2023 and later years0.24670.14390.141498.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 96.2951 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Composite
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
201134.700434.7004
65.2996
60.080092.0067
2012
58.6076
23.907241.3924
37.8415
91.4214
201371.7608
13.1532
28.2392
25.7720
91.2632
201481.49879.7379
18.501316.758890.5816
2011–46 I.R.B.750November 14, 2011

Composite
2015
87.8488
6.350112.1512
10.8797
89.5353
201691.4226
3.57398.5774
7.620988.8491
2017
93.4057
1.9831
6.59435.867588.9785
201894.22800.8222
5.77205.2341
90.6813
2019
95.48751.25954.5125
4.134191.6149
2020
96.35600.8685
3.64403.393793.1328
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2021
0.86852.7754
2.627794.6779
2022
0.8685
1.9069
1.8352
96.2404
2023
0.8685
1.0383
1.0152
97.7760
2024 and later years
0.8685
0.16980.166998.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 95.6434 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Fidelity/Surety
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
25.232825.2328
74.767271.6094
95.7765
2012
61.102535.869838.8975
37.602096.6697
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2013 and later years19.448719.448719.120798.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.3136 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that areoutstanding at the end of the 2013 taxable year.
Financial Gu
aranty/Mortgage Guaranty
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
20117.78247.782492.217688.816096.3114
201262.1390
54.3565
37.861036.600196.6697
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2013 and later years
18.930518.9305
18.611398.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.3136 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that areoutstanding at the end of the 2013 taxable year.
November 14, 20117512011–46 I.R.B.

International (Composite)
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
201134.700434.7004
65.2996
60.080092.0067
2012
58.6076
23.907241.3924
37.8415
91.4214
201371.7608
13.1532
28.2392
25.7720
91.2632
201481.49879.7379
18.501316.758890.5816
2015
87.8488
6.350112.1512
10.8797
89.5353
201691.4226
3.57398.5774
7.620988.8491
2017
93.4057
1.9831
6.59435.867588.9785
201894.22800.8222
5.77205.2341
90.6813
2019
95.48751.25954.5125
4.134191.6149
2020
96.35600.8685
3.64403.393793.1328
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2021
0.86852.7754
2.627794.6779
2022
0.8685
1.9069
1.8352
96.2404
2023
0.8685
1.0383
1.0152
97.7760
2024 and later years
0.8685
0.16980.166998.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 95.6434 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Medical Malpractice — Claims-Made
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
4.94254.942595.0575
86.379790.8709
201219.936914.994480.063174.1168
92.5729
201344.348924.4120
55.651151.8504
93.1706
201464.8374
20.488535.1626
32.804693.2939
201580.253015.4156
19.7470
18.259692.4675
2016
85.79075.5377
14.2093
13.2586
93.3097
201791.2722
5.4815
8.72788.141993.2867
201893.3314
2.0593
6.66866.329094.9084
2019
96.1257
2.79423.8743
3.705895.6514
2020
97.65381.5281
2.34622.279897.1671
Taxpaye
rs that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurre
d in this line of business in the 2011 accident year and that are outstanding at the end of the tax year shown.
2021 and
later years
1.5281
0.81820.804498.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.3136 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
2011–46 I.R.B.752November 14, 2011

Medical Malpractice — Occurrence
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
1.58781.5878
98.412284.2728
85.6325
20124.47202.8842
95.528084.2550
88.1992
201317.773813.301882.226273.6402
89.5581
2014
35.8814
18.107664.1186
57.7700
90.0986
201552.9447
17.0633
47.0553
42.412890.1340
201668.4348
15.490131.565228.1245
89.0998
2017
79.5616
11.126820.438417.779986.9929
2018
85.81986.2582
14.180212.029684.8338
201990.12674.30699.8733
8.065081.6854
202090.37010.24349.6299
8.0965
84.0769
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
20210.2434
9.3865
8.129186.6041
20220.24349.14318.162889.2781
20230.24348.89988.1977
92.1115
20240.2434
8.6564
8.2338
95.1182
2025 and later years
0.24348.41308.271198.3136
Taxpayers
that use the composite method of Notice 88–100 should use 91.4625 percent to discount unpaid losses incurred in this
line of bus
iness in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Miscellaneous Casualty
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
201172.906472.906427.093626.3237
97.1587
2012
93.5836
20.67716.41646.202896.6697
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2013 and later years3.20823.2082
3.1541
98.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.3136 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that areoutstanding at the end of the 2013 taxable year.
November 14, 20117532011–46 I.R.B.

Multiple Peril Lines
(Homeowners/Farmowners, Commercial Multiple Peril, and Special Liability
(Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
52.588052.5880
47.412044.679894.2372
201280.0449
27.457019.9551
18.297891.6948
2013
86.16256.117513.8375
12.708491.8401
2014
90.74524.58279.2548
8.486891.7013
2015
93.9006
3.1555
6.0994
5.570991.3350
2016
95.7613
1.86074.23873.8710
91.3257
2017
96.8755
1.1141
3.1245
2.871791.9076
2018
97.6715
0.7960
2.3285
2.161492.8219
201998.0329
0.3615
1.9671
1.868594.9895
202098.68100.64811.31901.2740
96.5862
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
20210.64810.6709
0.6588
98.2018
2022 and later years0.64810.02280.022498.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.2000 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Other (Including Credit)
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
67.952867.9528
32.047230.992896.7098
201289.4609
21.508110.5391
10.188196.6697
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2013 and later years
5.26955.26955.1807
98.3136
Taxpayers th
at use the composite method of Notice 88–100 should use 98.3136 percent to discount unpaid losses incurred in this
line of busin
ess in 2011 and prior years and that are outstanding at the end of the 2013 taxable year.
Other Liability — Claims-Made
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
5.87965.8796
94.120484.691189.9817
2012
18.8735
12.9938
81.1265
74.404791.7144
201341.6840
22.810558.316053.7774
92.2171
2011–46 I.R.B.754November 14, 2011

Other Liability — Claims-Made
2014
62.5322
20.848337.467834.432291.8982
201573.520710.9885
26.479324.446692.3234
201682.00368.482917.996416.6641
92.5965
201788.62796.624411.3721
10.502692.3548
201890.71072.08289.2893
8.7475
94.1680
201994.84394.1332
5.1561
4.846193.9880
202096.26891.42493.7311
3.564495.5308
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
20211.42492.30622.2383
97.0573
2022 and late
r years
1.42490.88120.866498.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 97.3588 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Other Liability — Occurrence
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
13.659413.6594
86.340676.099988.1392
201224.8389
11.179575.1611
67.361689.6231
201341.779216.9403
58.220852.4615
90.1079
2014
58.4995
16.7203
41.5005
37.2696
89.8052
201569.5197
11.020330.480327.349989.7297
2016
77.7513
8.231622.248719.9234
89.5486
201784.22436.4730
15.7757
14.028788.9261
2018
83.2275
-0.9968
16.772515.528092.5801
2019
88.85245.6249
11.147610.343992.7903
2020
91.38522.5328
8.6148
8.1256
94.3207
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2021
2.5328
6.0820
5.830495.8639
2022
2.53283.54923.4559
97.3721
2023 and later years
2.5328
1.01640.999298.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 96.4881 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Private Passenger Auto Liability/Medical
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
201142.610842.6108
57.389254.5122
94.9868
2012
71.5827
28.971928.4173
26.9295
94.7643
201384.694713.1120
15.305314.5243
94.8972
2014
92.3556
7.66107.6444
7.2345
94.6384
November 14, 20117552011–46 I.R.B.

Private Passenger Auto Liability/Medical
2015
96.23693.88123.7631
3.5370
93.9912
2016
97.9275
1.6907
2.0725
1.9397
93.5951
201798.77190.84441.22811.148093.4770
201899.26920.49730.73080.6818
93.3059
2019
99.5053
0.23610.4947
0.4653
94.0619
202099.64400.1387
0.3560
0.3404
95.6034
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
20210.13870.21740.211197.1228
2022 and later years0.13870.07870.077498.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 97.3953 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Products Liability — Claims-Made
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
1.02591.0259
98.9741
85.699586.5878
201211.792710.766788.207377.713288.1029
201329.3642
17.571670.635862.529188.5234
2014
55.165525.801244.8345
38.4488
85.7572
2015
83.4171
28.251616.5829
11.0430
66.5925
201664.8933
-18.523835.1067
30.266686.2132
201782.334617.4414
17.665413.573376.8357
201886.39864.064013.60149.9092
72.8547
201976.3310-10.067623.669020.4924
86.5791
202078.79102.460021.209018.699388.1666
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
20212.460018.749016.844189.8398
20222.460016.289014.924791.6242
20232.460013.829012.9389
93.5633
20242.460011.369110.8844
95.7372
2025 and later years
2.46008.9091
8.7588
98.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 92.5254 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Products Liability — Occurrence
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
5.04665.046694.9534
82.083986.4466
2012
13.6935
8.6469
86.3065
76.1288
88.2075
2013
28.254114.560671.745963.9525
89.1376
2011–46 I.R.B.756November 14, 2011

Products Liability — Occurrence
201441.3083
13.054258.691752.8872
90.1102
201559.3693
18.061040.630736.3463
89.4552
201673.071713.702426.928323.666487.8868
201774.6612
1.589525.338822.868590.2510
201878.98334.322121.016719.2636
91.6582
201986.12317.139813.876912.667891.2869
202088.6931
2.5700
11.306910.492092.7930
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2021
2.5700
8.73698.2410
94.3235
2022
2.5700
6.1669
5.912095.8667
2023
2.57003.59693.5025
97.3749
2024 and later years
2.5700
1.02691.009698.3136
Taxpayers t
hat use the composite method of Notice 88–100 should use 95.3617 percent to discount unpaid losses incurred in this
line of busi
ness in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Reinsurance — Nonproportional Assumed Liability
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
12.945812.945887.0542
81.672893.8183
201260.179647.233839.8204
36.454791.5477
2013
80.8225
20.6429
19.1775
16.719087.1802
201484.9430
4.120515.0570
13.1063
87.0445
201585.66800.7250
14.332012.822389.4664
2016
80.0452-5.622919.954818.985395.1412
201786.7013
6.6561
13.298712.871896.7903
2018
97.253310.5520
2.7467
2.5843
94.0847
201997.67210.41882.32792.2476
96.5528
202098.8078
1.1357
1.19221.1702
98.1580
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2021 and later years
1.13570.05640.0555
98.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.3136 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Reinsurance — Nonproportional Assumed Liability
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
32.591732.5917
67.4083
56.1766
83.3379
2012
33.3995
0.8078
66.600557.298786.0335
2013
35.49482.095364.505257.150088.5975
201444.0321
8.537355.967950.4437
90.1297
November 14, 20117572011–46 I.R.B.

Reinsurance — Nonproportional Assumed Liability
2015
64.829920.7979
35.1701
31.034488.2411
2016
66.43581.605933.5642
30.4748
90.7956
201777.809711.373822.190319.9603
89.9504
201882.44384.6341
17.556215.9373
90.7787
201984.1944
1.750715.8056
14.7081
93.0562
202087.92233.727912.0777
11.425194.5971
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
20213.72798.34988.0286
96.1534
20223.72794.6219
4.5146
97.6776
2023 and late
r years
3.72790.89400.879098.3136
Taxpayers th
at use the composite method of Notice 88–100 should use 96.7069 percent to discount unpaid losses incurred in this
line of busin
ess in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Reinsurance — Nonproportional Assumed Financial Lines
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
20118.47838.4783
91.5217
83.8160
91.5804
2012
28.047519.569371.9525
66.8111
92.8545
2013
60.435132.387539.5649
36.179791.4438
201482.444822.0097
17.555215.044285.6967
2015
90.27207.82719.72807.6033
78.1590
2016
85.3168-4.9551
14.6831
12.9065
87.9002
201788.37773.060811.622310.239788.1042
201889.9934
1.6157
10.0066
8.9507
89.4471
201981.6664-8.326918.333617.730196.7084
202091.04919.3827
8.9509
8.799998.3136
Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
2021 and later years---98.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.3136 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
Special Property
(Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
2011
44.575644.575655.424453.8278
97.1193
201288.4263
41.850713.5737
13.121796.6697
Taxpayers
that do not use the composite method of Notice 88–100 should use the following factor to discount unpaid losses
incurred i
n this line of business in the 2011 accident year and that are outstanding at the end of the tax year shown.
2011–46 I.R.B.758November 14, 2011

Special Property
(Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
2013 and later years6.78696.78696.672498.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 98.3136 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that areoutstanding at the end of the 2013 taxable year.
Workers’ Compensation
Tax Year
Estimated
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factors
(%)
201119.041019.0410
80.959071.053987.7653
201240.244221.2032
59.755851.945486.9295
2013
57.149716.905542.850336.547285.2906
201467.860110.710432.139926.9177
83.7516
201575.5399
7.679724.4601
20.0375
81.9192
2016
80.11574.5758
19.884316.0766
80.8504
201782.18282.067217.8172
14.530281.5516
2018
84.4045
2.2217
15.5955
12.773181.9028
2019
85.51951.115014.4805
12.081083.4293
2020
86.2855
0.7661
13.7145
11.7198
85.4558
Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount unpaid losses
incurred in this line of business in the 2011 accident yearand that are outstanding at the end of the tax year shown.
20210.766112.948411.3461
87.6256
20220.766112.1823
10.9595
89.9620
20230.766111.4163
10.5595
92.4949
20240.7661
10.650210.145695.2622
2025 and later years
0.76619.8842
9.7175
98.3136
Taxpayers that use the composite method of Notice 88–100 shoulduse 91.7432 percent to discount unpaid losses incurred in this
line of business in 2011 and prior years and that are outstanding at the end of the 2021 taxable year.
DRAFTING INFORMATION
The principal author of this rev-
enue procedure is Sarah E. Swan of
the Office of Associate Chief Counsel
(Financial Institutions & Products). For
further information regarding this revenue
procedure, contact Ms. Swan at (202)
622–8443 (not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, Sections 832, 846; 1.832–4, 1.846–1.)
Rev. Proc. 2011–54
SECTION 1. PURPOSE
This revenue procedure prescribes the
salvage discount factors for the 2011 acci-
dent year. These factors must be used to
compute discounted estimated salvage re-
coverable under § 832 of the Internal Rev-
enue Code.
SECTION 2. BACKGROUND
Section 832(b)(5)(A) requires that all
estimated salvage recoverable (including
that which cannot be treated as an asset
for state accounting purposes) be taken
into account in computing the deduction
for losses incurred. Under § 832(b)(5)(A),
paid losses are to be reduced by salvage
and reinsurance recovered during the tax-
able year. This amount is adjusted to
reflect changes in discounted unpaid losses
on nonlife insurance contracts and in un-
paid losses on life insurance contracts.
An adjustment is then made to reflect any
changes in discounted estimated salvage
recoverable and in reinsurance recover-
able.
Pursuant to § 832(b), the amount of es-
timated salvage is determined on a dis-
counted basis in accordance with proce-
dures established by the Secretary.
S
ECTION 3. SCOPE
This revenue procedure applies to any
taxpayer that is required to discount esti-
mated salvage recoverable under § 832.
SECTION 4. APPLICATION
.01 The following tables present sepa-
rately for each line of business the discount
factors under § 832 for the 2011 accident
year. All the discount factors presented
in this section were determined using the
applicable interest rate under § 846(c) for
November 14, 20117592011–46 I.R.B.

2011, which is 3.46 percent, and by as-
suming all estimated salvage is recovered
in the middle of each calendar year.See
Rev. Proc. 2008–11, 2008–1 C.B. 301, for
background regarding the tables.
.02 These tables must be used by tax-
payers irrespective of whether they elected
to discount unpaid losses using their own
historical experience under § 846.
.03 Section V of Notice 88–100,
1988–2 C.B. 439, provides a composite
discount factor to be used in determining
the discounted unpaid losses for accident
years that are not separately reported on
the annual statement approved by the
National Association of Insurance Com-
missioners. The tables separately provide
discount factors for taxpayers who elect
to use the composite method. Rev. Proc.
2002–74, 2002–2 C.B. 980, clarifies that
for certain insurance companies subject
to tax under § 831 the composite method
for discounting unpaid losses set forth in
Notice 88–100, section V, is permitted
but not required. This revenue procedure
further provides alternative methods for
computing discounted unpaid losses that
are permitted for insurance companies not
using the composite method, and sets forth
a procedure for insurance companies to
obtain automatic consent of the Commis-
sioner to change to one of the methods
described in Rev. Proc. 2002–74.
.04 Tables.
Tables of Factors to be Used to
Discount Salvage Recoverable With
Respect to Losses Incurred in
Accident Year 2011
(Interest rate: 3.46 percent)
Lines of Business
Accident and Health (Other Than
Disability Income or Credit Disability
Insurance)
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
98.3136 percent to discount salvage re-
coverable with respect to losses incurred
in this line of business in the 2011 acci-
dent year as of the end of the 2011 and
later taxable years.
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount all salvage
recoverable in this line of business as of
the end of the 2011 taxable year.
Auto Physical Damage
Tax Year
Discount
Factors
(%)
2011
97.6275
201296.6697
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2013 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2013
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Commercial Auto/Truck
Liability/Medical
Tax Year
Discount
Factors
(%)
2011
93.3955
201293.3497
2013
93.6495
2014
93.9535
201594.5922
2016
94.4105
2017
93.0655
2018
93.8651
201996.7732
202098.3136
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
2011–46 I.R.B.760November 14, 2011

Composite
Tax Year
Discount
Factors
(%)
201193.4039
201293.1846
201393.0306
201492.8794
2015
92.3429
2016
91.5493
201792.2931
2018
93.4656
2019
95.2188
202096.7927
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Fidelity/Surety
Tax Year
Discount
Factors
(%)
2011
94.5806
201296.6697
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
Fidelity/Surety
2013 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2013
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Financial Guaranty/Mortgage
Guaranty
Tax Year
Discount
Factors
(%)
2011
95.4821
201296.6697
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2013 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2013
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
International (Composite)
Tax Year
Discount
Factors
(%)
201193.4039
201293.1846
201393.0306
201492.8794
2015
92.3429
2016
91.5493
International (Composite)
201792.2931
2018
93.4656
2019
95.2188
202096.7927
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Medical Malpractice —
Claims-Made
Tax Year
Discount
Factors
(%)
201193.6663
2012
94.5958
2013
93.2150
2014
93.7553
2015
93.1492
2016
89.3501
201786.4691
201891.6464
2019
96.9508
202098.313
6
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
November 14, 20117612011–46 I.R.B.

Medical Malpractice —
Claims-Made
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Medical Malpractice — Occurrence
Tax Year
Discount
Factors
(%)
2011
87.4530
201291.2904
2013
93.3358
201486.4191
201595.5109
2016
92.6085
201793.9918
2018
96.4593
2019
97.5134
202098.3136
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Miscellaneous Casualty
Tax Year
Discount
Factors
(%)
201197.0682
201296.6697
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2013 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2013
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Multiple Peril Lines (Homeown-
ers/Farmowners, Commercial
Multiple Peril, and Special Liability
(Ocean Marine, Aircraft (All Perils),
Boiler and Machinery))
Tax Year
Discount
Factors
(%)
2011
93.9591
2012
93.4315
201393.3624
201493.3066
2015
92.6060
2016
91.2535
201792.2618
201894.3624
2019
95.5747
202097.0967
Multiple Peril Lines (Homeown-
ers/Farmowners, Commercial
Multiple Peril, and Special Liability
(Ocean Marine, Aircraft (All Perils),
Boiler and Machinery))
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Other (Including Credit)
Tax Year
Discount
Factors
(%)
2011
96.2595
201296.6697
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2013 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2013
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
2011–46 I.R.B.762November 14, 2011

Other Liability — Claims-Made
Tax Year
Discount
Factors
(%)
201189.9640
201290.9400
201389.3209
201492.1248
2015
93.4120
2016
95.0362
201794.1167
201892.9293
201997.7390
202098.3136
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Other Liability — Occurrence
Tax Year
Discount
Factors
(%)
201188.8323
201289.7443
201391.7691
201492.4298
2015
91.9481
2016
92.0560
201791.6100
2018
93.98
15
201996.3629
Other Liability — Occurrence
202097.9202
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Private Pas
senger Auto
Liability/
Medical
Tax Year
Discount
Factors
(%)
2011
95.2907
2012
95.3106
2013
95.0938
201494.3448
2015
93.8406
201693.1778
2017
93.9588
2018
95.3067
2019
95.3731
202096.9202
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Private Passenger Auto
Liability/Medical
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Products Liability — Claims-Made
Tax Year
Discount
Factors
(%)
201190.3287
2012
57.4781
2013
59.7457
201491.9244
2015
82.7270
2016
92.5554
201764.8394
2018
91.7750
201992.7747
2020
93.7745
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021
95.3256
202296.8802
2023 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
96.1358 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
November 14, 20117632011–46 I.R.B.

Products Liability — Occurrence
Tax Year
Discount
Factors
(%)
201189.2922
201291.1086
201392.7443
2014
93.4548
2015
93.8417
201691.7263
2017
92.2857
201894.8423
2019
95.0804
2020
96.6835
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Reinsurance — Nonproportional
Assumed Property
Tax Year
Discount
Factors
(%)
2011
92.3051
201293.7306
201396.2743
201482.696
7
2015
91.1729
2016
83.9159
2017
57.7951
2018
93.79
15
2019
76.8594
202089.7
124
Reinsurance — Nonproportional
Assumed Property
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
202191.2427
202292.8279
202394.4867
202496.2644
2025 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
93.2014 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Reinsurance — Nonproportional
Assumed Liability
Tax Year
Discount
Factors
(%)
2011
88.5261
201291.3783
2013
92.6425
201490.1633
2015
91.9672
201692.7246
201792.6419
201894.171
6
2019
95.8463
2020
97.3545
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
Reinsurance — Nonproportional
Assumed Liability
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Reinsurance — Nonproportional
Assumed Financial Lines
Tax Year
Discount
Factors
(%)
2011
88.8405
2012
87.7511
2013
91.2356
2014
81.3485
201591.5590
2016
82.9553
201791.7407
201892.1114
201997.8713
202098.3136
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
2011–46 I.R.B.764November 14, 2011

Special Property (Fire, Allied Lines,
Inland Marine, Earthquake, Glass,
Burglary and Theft)
Tax Year
Discount
Factors
(%)
2011
95.6046
201296.6697
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factor to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2013 and later
years
98.3136
Taxpayers that use the composite
method of Notice 88–100 should use
98.3136 percent to discount salvage
recoverable as of the end of the 2013
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
Workers’ Compensation
Tax Year
Discount
Factors
(%)
201189.9261
201291.7002
201392.3933
201492.3172
2015
91.0146
201689.7934
201790.3201
201890.0878
201991.9867
2020
93.5222
Taxpayers that do not use the compos-
ite method of Notice 88–100 should use
the following factors to discount salvage
recoverable as of the end of the tax year
shown with respect to losses incurred in
this line of business in the 2011 accident
year.
2021
95.0909
202296.6917
2023 and later
years
98.3136
Workers’ Compensation
Taxpayers that use the composite
method of Notice 88–100 should use
96.0008 percent to discount salvage
recoverable as of the end of the 2021
taxable year with respect to losses in-
curred in this line of business in 2011
and prior years.
DRAFTING INFORMATION
The principal author of this rev-
enue procedure is Sarah E. Swan of the
Office of the Associate Chief Counsel
(Financial Institutions & Products). For
further information regarding this revenue
procedure, contact Ms. Swan at (202)
622–8443 (not a toll free call).
November 14, 20117652011–46 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking
Redeterminat
ion of the
Consolidated
Net Unrealized
Built-In Gai
nandLoss
REG–133002–
10
AGENCY: Inte
rnal Revenue Service
(IRS), Treas
ury.
ACTION: Noti
ce of proposed rulemaking.
SUMMARY: Thi
s document contains pro-
posed regul
ations under section 1502 of
the Interna
l Revenue Code. The regula-
tions will a
pply to corporations filing con-
solidated r
eturns. The regulations will re-
quirealoss
group or loss subgroup to re-
determine
its consolidated net unrealized
built-in g
ain and loss in certain circum-
stances. T
his document also invites com-
ments from
the public regarding these pro-
posed reg
ulations.
DATES: Wr
itten or electronic comments
and reque
sts for a public hearing must be
received
by January 23, 2012.
ADDRESSE
S: Send submissions to:
CC:PA:LP
D:PR (REG–133002–10), room
5205, Int
ernal Revenue Service, PO Box
7604, Be
n Franklin Station, Washing-
ton, DC 2
0044. Submissions may be
hand-de
livered Monday through Friday
between
the hours of 8 a.m. and 4 p.m.
to CC:PA
:LPD:PR (REG–133002–10),
Courie
r’s Desk, Internal Revenue
Servic
e, 1111 Constitution Avenue, NW,
Washin
gton, DC, or sent electronically,
via the
Federal eRulemaking Portal
athttp
://www.regulations.gov(IRS
REG–1
33002–10).
FOR FU
RTHER INFORMATION
CONTA
CT: Concerning the proposed
regul
ations, Grid Glyer (202) 622–7930;
conce
rning submissions of comments
and re
quests for a public hearing,
Oluwa
funmilayo Taylor (202) 622–7180
(not
toll-free numbers).
SUPPLEMENTAR
Y INFORMATION:
Background
To prevent los
s trafficking, section 382
imposes a limi
tation (the section 382 limi-
tation) on a lo
ss corporation’s ability to use
net operating
losses that arose prior to an
ownership ch
ange. Section 382(b)(1). In
addition, if
a loss corporation has a net un-
realized bui
lt-in loss (NUBIL) at the time
of an ownersh
ip change, built-in losses
will be subje
ct to the section 382 limi-
tation as if
they were pre-change losses
of the loss c
orporation if they are recog-
nized durin
g the five-year period follow-
ing the owne
rship change (the recogni-
tion perio
d). Section 382(h)(1)(B). If a
corporati
on has a net unrealized built-in
gain (NUBI
G) at the time of its owner-
ship chang
e, recognized built-in gains will
increase
the section 382 limitation if they
are recog
nized during the recognition pe-
riod. Sec
tion 382(h)(1)(A). Rules for de-
terminin
g whether a loss corporation has
aNUBIGor
NUBILarefoundinsection
382(h)(3
).
Sections
1.1502–90 through 1.1502–99
provide
guidance for applying section 382
with res
pect to a consolidated loss group or
loss sub
group. In this preamble, the term
loss gro
up refers to both loss groups and
loss sub
groups. See §§1.1502–91(c)(1)
and 1.1
502–91(d).
Section
1.1502–91(g) provides rules
for det
ermining whether a loss group
has a NU
BIG or NUBIL. Section
1.1502
–91(g)(1) provides that the deter-
minati
on of whether a loss group has a
consol
idated NUBIG or NUBIL is based
on the
aggregate amount of the separately
deter
mined NUBIGs and NUBILs of each
membe
r included in the loss group. Un-
der th
is rule, unrealized gain or loss with
respe
ct to the stock of a member of the
loss
group (an included subsidiary) is dis-
rega
rded in determining the separately
dete
rmined NUBIG or NUBIL.
Expl
anation of Provisions
The c
urrent regulations under
§1.1
502–91(g) are premised upon the ob-
serv
ation that unrecognized gain or loss
on in
cluded subsidiary stock generally
ref
lects the same economic gain or loss
reflected in t
he subsidiary’s assets and that
the consolida
ted return regulations gen-
erally preven
t the group from taking that
duplicative g
ain or loss into account more
than once. Thi
s is the case because, if the
subsidiary f
irst recognizesthe duplicated
gain or loss o
n its assets, §1.1502–32
eliminates t
he duplicative gain or loss
reflected in
stock basis. Conversely, if a
member firs
t recognizes duplicated loss
on the subsi
diary stock, §1.1502–36 elim-
inates the d
uplicative asset loss. Although
the regulat
ions do not specifically address
the recogn
ition of duplicated gain on sub-
sidiary st
ock, taxpayers generally avoid
duplicati
ve gain recognition, for example,
through ac
tual and section 338 deemed
asset sale
s and through stock elimination
transact
ions, such as section 332 liquida-
tions. Be
cause duplicative gain and loss
is expect
ed to be taken into account only
once, the
determination of NUBIG and
NUBIL wo
uld be distorted if it included
such amo
unts more than once.
To illus
trate, assume P, the common
parent o
f a consolidated group, contributes
$100 to S
in exchange for S’s sole share of
stock. S
uses the $100 to purchase a truck.
The valu
e of the truck then declines to $70.
At this
point, the stock has a basis of $100
and a va
lue of $70, reflecting a $30 loss.
In addi
tion, the truck has a basis of $100
and val
ue of $70, also reflecting a $30 loss.
Thus, i
t would appear the group has $60
of los
s available. However, if S sells the
truck
and the group absorbs the $30 loss,
P will
reduce its basis in the S stock by
$30 un
der §1.1502–32, and the duplicative
stock
loss will be eliminated. On the other
hand
, if P sells its S share before the loss on
the t
ruck is recognized and absorbed, the
dupl
icated loss (on either the truck or the
stoc
k, as P chooses) will be eliminated by
§1.1
502–36. As a result, the group takes
into
account a single $30 economic loss,
and
the inclusion of both the unrecognized
sto
ck loss and the unrecognized asset loss
in t
he NUBIL determination would over-
sta
te the amount of loss actually available
to t
he group.
How
ever, if an unrecognized gain or
los
s on subsidiary stock exceeds the in-
cl
uded subsidiary’s gain or loss on its as-
se
ts, disregarding this unduplicated gain or
2011–46 I.R.B.766November 14, 2011

loss on the stock understates the amount
that the group may take into account.
To illustrate, assume the same facts as
in the previous example except that P orig-
inally purchased the S stock for $150 (S’s
basis in the truck is still $100). In this case,
there is $80 of loss available to the group,
the $30 loss that is duplicated (reflected in
the bases of both the stock and the truck),
as well as the $50 unduplicated stock loss.
Disregarding P’s loss in its S stock causes
thegroup’sNUBILtobeunderstatedby
$50. These proposed regulations are in-
tended to prevent such understatement.
The current rule is administratively less
burdensome to taxpayers and the govern-
ment than a rule that would require tax-
payers to identify and take into account
all unduplicated gain and loss on stock
of included subsidiaries when determin-
ing NUBIG and NUBIL. Nevertheless, the
IRS and the Treasury Department believe
that the purpose of section 382(h) would
be better served by a rule that does not
wholly disregard such gain and loss. A
rule that takes intoaccount unduplicated
gain or loss on stock would avoid both the
understating of loss available to the group
(when there is unduplicated stock loss) and
the overstating of loss trafficking potential
(when there is unduplicated stock gain).
The IRS and the Treasury Department
are concerned, however, that requiring all
consolidated NUBIG and NUBIL determi-
nations to include all unduplicated stock
gains and losses would significantly in-
crease the administrative burden on both
taxpayers and the government.
Accordingly, the IRS and the Treasury
Department propose to modify the cur-
rent regulations to take into account the
unduplicated gain or loss on stock of in-
cluded subsidiaries, but only to the ex-
tent that such gain or loss is taken into
account by the group during the recogni-
tion period. This will generally be the case
only if, within the recognition period, such
stockissoldtoanonmemberorbecomes
worthless, or a member takes an intercom-
pany item into account with respect to such
stock.
More specifically, the proposed reg-
ulations would revise §1.1502–91(g) by
adding a rule that would apply when any
member of the consolidated group di-
rectly or indirectly (for example, through
a partnership) takes any amount of gain
or loss into account with respect to a
share of stock of an included subsidiary
(S), whether or not such amount is ab-
sorbed. When the rule applies, the loss
group would be required to redetermine
NUBIG or NUBIL to include any undu-
plicated built-in gain or loss with respect
to the share. As used in these proposed
regulations, the term unduplicated built-in
stock gain or loss refers to the portion of
the built-in stock gain or loss that was
not originally reflected in the loss group’s
NUBIG or NUBIL as unrealized gain or
loss on the assets of a lower-tier included
subsidiary. The proposed regulations
identify unduplicated built-in stock gain
or loss by treating the separate NUBIG or
NUBIL of each included subsidiary that is
lower-tier to S as having been taken into
account and absorbed immediately before
the change date. These amounts are then
deemed to tier-up to tentatively adjust the
basis in the S shares under the principles
of §1.1502–32. The difference between
the tentatively adjusted change-date basis
in a share of S stock and the fair market
valueoftheshare(asofthechangedate)
is the unduplicated gain or loss in the S
share. However, if, immediately before
the change date, a member of the loss
group has a deferred gain or loss on S
stock and that gain or loss is taken into
account during the recognition period, the
unduplicated portion of such gain or loss
is determined as of the date of the trans-
action in which the deferred gain or loss
was recognized, notwithstanding that such
date would be prior to the change date.
The loss group then redetermines its
NUBIG or NUBIL by including its undu-
plicated gain or loss on the S share (or
shares) with respect to which an amount
is taken into account. Under the proposed
regulations, the redetermined NUBIG or
NUBIL is given effect only immediately
beforethegainorlossonthestockistaken
into account. It has no effect on the treat-
ment of built-in gain or loss that is rec-
ognized and taken into account prior to
the time that built-in stock gain or loss
is taken into account. Thus, for exam-
ple, the fact that a NUBIL group was re-
determined to be a NUBIG group, or that
a NUBIL that exceeded the 15 percent
threshold amount in section 382(h)(3)(B)
no longer exceeds such amount, has no ef-
fect on the tax treatment of amounts taken
into account prior to the redetermination of
NUBIG or NUBIL.
The proposed regulations also re-
organize §1.1502–91(g) and revise
§1.1502–91(h)(2) and (h)(4) without sub-
stantive change.
Effective/Applicability Date
These proposed regulations will apply
to amounts taken into account with respect
to a share of stock of an included sub-
sidiary on or after the date that final reg-
ulations are published in theFederal Reg-
ister, but only with respect to ownership
changes occurring on or after October 24,
2011.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866, as supplemented by Exec-
utive Order 13565. Therefore, a regula-
tory assessment is not required. Pursuant
to the Regulatory Flexibility Act (5 U.S.C.
chapter 6), it is hereby certified that these
proposed regulations would not have a sig-
nificant economic impact on a substantial
number of small entities. This certification
is based on the fact that these proposed reg-
ulations would primarily affect members
of consolidated groups which tend to be
large corporations. Accordingly, a regu-
latory flexibility analysis is not required.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, these regulations have
been submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on their impact on
small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
All comments will be available for public
inspection and copying. A public hearing
may be scheduled if requested in writing
by any person that timely submits written
or electronic comments. If a public hear-
ing is scheduled, notice of the date, time,
and place for the public hearing will be
published in theFederal Register.
November 14, 20117672011–46 I.R.B.

Drafting Information
The principal author of these regu-
lations is Grid Glyer of the Office of
Associate Chief Counsel (Corporate).
However, other personnel from the IRS
and the Treasury Department participated
in its development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–91 also issued under
26 U.S.C. 1502.
Par. 2. Section 1.1502–91 is amended
by:
1. Revising paragraph (g)(1).
2. Adding paragraphs (g)(7) and (g)(8).
3. Revising paragraph (h)(2) and the
heading of paragraph (h)(4).
4. Adding paragraph (k).
The revisions and additions read as fol-
lows:
§1.1502–91 Application of section 382
with respect to a consolidated group.
*****
(g)Netunrealizedbuilt-ingainand
loss—(1)In general. The determination of
whether a loss group or loss subgroup has
a net unrealized built-in gain (NUBIG) or
loss (NUBIL) under section 382(h)(3) is
based on the aggregate amount of the sep-
arately determined NUBIGs or NUBILs
(including items of built-in income and
deduction described in section 382(h)(6))
of each member that is included in the loss
group or loss subgroup, as the case may
be, under paragraph (g)(2) of this section.
The threshold requirement under section
382(h)(3)(B) applies on an aggregate ba-
sis.
(i)Members included in group.Ifa
member is not included in the determi-
nation of whether a loss group or loss
subgroup has a NUBIL under paragraph
(g)(2)(ii) or (g)(2)(iv) of this section, that
member is not included in the loss group
or loss subgroup. See §1.1502–94(c) (re-
latingtobuilt-ingainorlossofanew
loss member) and §1.1502–96(a) (relating
to the end of separate tracking of certain
losses).
(ii)Determination of separate NUBIG
or NUBIL. For purposes of determining a
member’s separate NUBIG or NUBIL—
(A) Stock of a subsidiary that is a mem-
ber of the loss group or loss subgroup
(an included subsidiary) is disregarded, ex-
cept as provided for in paragraph (g)(7) of
this section. For this purpose, the term
stock includes stock described in section
1504(a)(4) and §1.382–2T(f)(18)(ii) and
(f)(18)(iii);
(B) Intercompany obligations are disre-
garded; and
(C) Deferred amounts, such as amounts
deferred under section 267 or §1.1502–13,
are built-in items unless they are deferred
with respect to—
(1) An intercompany obligation; or
(2) A share of stock of an included sub-
sidiary; however, if an amount deferred
with respect to a share of such stock is
taken into account at any time during the
recognition period (whether or not any
such loss amount is absorbed), NUBIG
or NUBIL must be redetermined in ac-
cordance with paragraph (g)(7) of this
section.
*****
(7)Redetermination of NUBIG or
NUBIL of a loss group or loss subgroup
to reflect unduplicated built-in gain or
loss with respect to stock of an included
subsidiary—
(i)In general. This paragraph (g)(7)
applies if, during the recognition period,
any member of the consolidated group
directly or indirectly takes into account
any gain or loss with respect to a share of
stock of an included subsidiary (S) that
was held by another member of the loss
group or loss subgroup immediately be-
fore the change date, regardless of whether
any such loss is absorbed. If this para-
graph (g)(7) applies, the loss group or loss
subgroup must redetermine its NUBIG
or NUBIL to include any unduplicated
built-in gain or loss with respect to the S
share in accordance with the provisions
of paragraphs (g)(7)(ii) and (g)(7)(iii) of
this section. The redetermination is given
effect immediately before the time the gain
or loss on stock of an included subsidiary
is taken into account. The redetermined
NUBIG or NUBIL does not affect the
tax treatment of transactions taken into
account prior to the event that causes a
redetermination of NUBIG or NUBIL
under this paragraph(g)(7). However,
the redetermined NUBIG or NUBIL is
effective for all purposes immediately
before the gain or loss on stock of an
included subsidiary is taken into account.
Thus, for example, the redetermined
NUBIG or NUBIL is used to determine
whether the loss group or subgroup is
a NUBIG or NUBIL group, as well as
whether the group meets the threshold
requirement of section 382(h)(3)(B), at the
time of the redetermination.
(ii)Computation of unduplicated
built-in gain or loss with respect to shares
of S stock that are subject to this paragraph
(g)(7). The loss group or loss subgroup
computes its unduplicated built-in gain or
loss with respect to each share of S stock
that is subject to this paragraph (g)(7) by
first treating the basis in the share as ten-
tatively adjusted immediately before the
change date or, in the case of an amount
with respect to S stock that was deferred
on the change date, as of the date of the
transaction that gave rise to the amount,
as though the following occurred immedi-
ately before the ownership change or the
transaction that gave rise to the deferred
amount—
(A)Deemed recognition of built-in gain
or loss of lower-tier included subsidiaries.
The separate NUBIG and NUBIL of S and
all included subsidiaries that are lower-tier
to S are treated as recognized, taken into
account, and absorbed.
(B)Tiering up of recognized amounts.
All amounts deemed recognized, taken
into account, and absorbed under para-
graph (g)(7)(ii)(A) of this section are then
deemed to tier up under the principles of
§1.1502–32 to tentatively adjust the basis
in all of the S shares that are subject to this
paragraph (g)(7).
(C)Unduplicated gain or loss with re-
spect to S stock. If the aggregate tenta-
tively adjusted basis in the S shares subject
to this paragraph (g)(7) exceeds the aggre-
gate fair market value of those shares im-
mediately before the change date or, in the
case of a deferred amount, on the date of
the transaction that gave rise to the item,
the excess is the unduplicated loss with re-
spect to those shares. Alternatively, if the
2011–46 I.R.B.768November 14, 2011

aggregate fair market value of the S shares
subject to this paragraph (g)(7) exceeds
the aggregate tentatively adjusted basis in
those shares on such date, the excess is
the unduplicated gain with respect to those
shares.
(iii)Redetermination of the group’s
NUBIG or NUBIL. The loss group or
loss subgroup’s redetermined NUBIG or
NUBIL is the sum of—
(A) The loss group or loss subgroup’s
NUBIG or NUBIL as originally deter-
mined without regard to the stock of any
included subsidiary;
(B) Any unduplicated gain or loss with
respect to a share of stock of an included
subsidiary that was previously included in
the loss group or loss subgroup’s NUBIG
or NUBIL under this paragraph (g)(7); and
(C) The unduplicated gain or loss on
shares of S stock computed under para-
graph (g)(7)(ii) of this section.
(iv)Anti-avoidance rule. If any person
acts with a principal purpose contrary to
the purposes of this paragraph (g), to avoid
the effect of the rules of this paragraph (g),
or to apply the rules of this paragraph (g)
to avoid the effect of any other provision of
the consolidated return regulations, adjust-
ments must be made as necessary to carry
out the purposes of this paragraph (g).
(8)Examples. The following examples
illustrate the application of the provisions
of paragraph (g) of this section. Unless
otherwise stated, P is the common parent
of a consolidated group that is a loss group
and all members of the P group are in-
cluded subsidiaries with respect to the loss
group. P can establish that its gains are rec-
ognized built-in gains; P cannot establish
that its losses are not recognized built-in
losses. In addition, the threshold require-
ment of section 382(h)(3)(B) is satisfied.
All other relevant facts are set forth in the
examples.
Example 1.Basic application of provision.(i)
Facts. On January 1, Year 1, P owns the sole out-
standing share of S stock (basis $210, value $160) and
the sole outstanding share of M stock. S owns the sole
outstanding share of S1 stock (basis $100, value $80)
and Truck (basis $70, value $80). S1 owns three of
the five outstanding shares of S2 common stock (ba-
sis $40, value $20 for each share; thus, basis $120,
value $60 in the aggregate). S2 owns Truck 2 (basis
$70, value $40) and Truck 3 (basis $30, value $40).
M owns the fourth of the five outstanding shares of
S2 stock. X, a nonmember of the P group, owns the
fifth outstanding share of S2 stock. January 1, Year 1,
is a change date for the P group.
(ii)Determination of the separate NUBIG or
NUBIL of each member of the P loss group.(A)S2’s
separate NUBIG or NUBIL. S2’s assets are Truck
2 (with a built-in loss of $30) and Truck 3 (with a
built-in gain of $10); therefore, S2 has a NUBIL of
$20.
(B)S1’s separate NUBIG or NUBIL. S1’s only as-
sets are the shares of S2 stock, which are disregarded
under paragraph (g)(1)(ii)(A) of this section; there-
fore, S1 has a NUBIG or NUBIL of zero.
(C)S’s separate NUBIG or NUBIL. S’s assets are
Truck (with a built-in gain of $10) and the share of
S1 stock (which is disregarded); therefore, S has a
NUBIG of $10.
(D)M’s separate NUBIG or NUBIL. M’s only as-
set is the share of S2 stock, which is disregarded un-
der paragraph (g)(1)(ii)(A) of this section; therefore,
M has a NUBIG or NUBIL of zero.
(E)P’s separate NUBIG or NUBIL. P’s only as-
sets are the shares of M and S stock, which are disre-
garded; therefore, P has a NUBIG or NUBIL of zero.
(iii)Determination of the P group’s NUBIG or
NUBIL. The P group has a NUBIL of $10, reflecting
the sum of S2’s $20 NUBIL and S’s $10 NUBIG.
Example 2.Transfer of shares of stock of an in-
cluded subsidiary during recognition period.(i)Sale
to nonmember.(A)Facts. The facts are the same as
inExample 1. In addition, in Year 4, S sells its share
ofS1stockfor$65toanunrelatedparty.Atthetime
of the sale, S’s basis in the share had been reduced to
$90 due to adjustments for depreciation on S2’s assets
that tiered up under §1.1502–32. (No adjustments are
made to S’s basis in the S1 share under §1.1502–36,
including by reason of an election to waive stock loss
or reattribute losses.) As a result of the sale of the S1
share during the recognition period, the P group must
redetermine its NUBIL under paragraph (g)(7) of this
section.
(B)Redetermination of the P group’s NUBIG or
NUBIL.(1)Unduplicated built-in gain or loss with
respecttoS1share. Under paragraph (g)(7)(ii)(A)
of this section, the unduplicated built-in gain or loss
with respect to the S1 share sold in Year 4 is com-
puted by first treating the separate NUBIG or NUBIL
of S1 and S2 (the only included subsidiary that is
lower-tier to S1) as having been recognized, taken
into account, and absorbed immediately before the
change date. Under paragraph (g)(7)(ii)(B) of this
section, those amounts are then treated as tiering up
under the principles of §1.1502–32 and tentatively
adjusting S’s basis in its S1 share, in order to identify
the unduplicated gain or loss in the basis of the share
under paragraph (g)(7)(ii)(C) of this section. S1
has no separate NUBIG or NUBIL to be treated as
recognized, taken into account, and absorbed. S2 has
a $20 separate NUBIL that is treated as recognized,
taken into account, and absorbed and that is then
treated as tiering up to adjust S’s basis in the S1 share
under the principles of §1.1502–32. As a result, $12
of S2’s $20 NUBIL would be treated as tiering up
to S1 through the three S2 shares (of the total five
outstanding) held by S1, and that $12 would then be
treated as tiering up through S1 to tentatively adjust
S’s basis in the S1 share. S’s tentatively reduced
basis in the S1 share is therefore $100 - $12, or $88.
Because the tentatively reduced basis of the share
exceeds the value of the share by $8 ($88 - $80), S
has an $8 unduplicated loss in its basis in its S1 stock.
(2)Redetermined NUBIG or NUBIL of the P
group. Immediately before S takes into account the
$25 loss on the sale of its share of S1 stock, the P
group’s NUBIL is redetermined to be $18, the sum of
S2’s NUBIL of $20, S1’s NUBIL of $0, S’s NUBIG
of $10, P’s NUBIG or NUBIL of $0, M’s NUBIG or
NUBIL of $0, and the $8 unduplicated loss in the S1
stock.
(C)Effect of redetermination. Of the $25 loss on
the sale of the S1 share, $20 is recognized built-in
loss, but the group only has an $18 NUBIL and so
only $18 of the recognized built-in loss is subject to
limitation under section 382.
(ii)Nonrecognition transfer to member followed
by sale to nonmember. The facts are the same as in
paragraph (i)(A) of thisExample 2, except that, in
Year 3, M1 joined the P group and S transferred its
share of S1 stock to M1 in a transaction qualifying
under section 351; as a result, it is M1, not S, that
sells the S1 share to X in Year 4. The analysis and re-
sults are the same as in paragraphs (i)(B) and (i)(C) of
thisExample 2because this section applies when any
member of the group recognizes gain or loss with re-
spect to stock of an included subsidiary that was held
by a member of the loss group immediately before the
change date.
Example 3.Recognition of built-in loss prior to
stock sale.(i)Facts. The facts are the same as in para-
graph (i)(A) ofExample 2except that, in addition,
in Year 2, S2 sold Truck 2 and recognized the $30
built-in loss on Truck 2, and the P group absorbed the
$30 loss. The loss is a recognized built-in loss under
section 382(h)(2)(B) and thus subject to limitation to
the extent of the originally determined $10 NUBIL.
(ii)Redetermination of the P group’s NUBIG or
NUBIL.(A)Unduplicated built-in gain or loss with
respect to the S1 share. Because unduplicated stock
gain or loss is computed immediately before the
change date, the unduplicated stock loss is $8 for the
reasons set forth in paragraph (i)(B)(1)ofExample 2.
(B)Redetermined NUBIG or NUBIL of the P
group. The computation of the P group’s redeter-
mined NUBIG or NUBIL is the same as in paragraph
(i)(B)(2)ofExample 2, except that the $30 of rec-
ognized built-in loss in Year 2 reduces the P group’s
$10 NUBIL (before NUBIL is redetermined under
paragraph (g)(7) of this section) to zero. As a result,
immediately before the sale of the S1 share, the P
group’s NUBIL is redetermined to be $8, which is
the sum of zero and the $8 unduplicated loss in the
S1 stock.
(iii)Effect of redetermination. Of the $25 loss on
the sale of the S1 share, $20 is recognized built-in
loss, but the group only has an $8 NUBIL and so
only $8 of the recognized built-in loss is subject to
limitation under section 382. The treatment of the
loss recognized on the Year 2 sale of Truck 2 is not
affected by the Year 4 redetermination.
Example 4.Sale of less than all shares of stock of
an included subsidiary.(i)Facts. The facts are the
same as in paragraph (i)(A) ofExample 2, except that
S1 has ten shares of stock outstanding, designated
Share 1 through Share 10, all of which are owned by
S. S’s basis in Share 1 is $15.50, and S’s basis in Share
2 is $4.50. In addition, instead of selling its one share
of S1 stock, on January 1, Year 4, S sells Share 1 and
Share 2 to an unrelated partyfor $16 (their aggregate
fair market value).
November 14, 20117692011–46 I.R.B.

(ii)Redetermination of the P group’s NUBIG or
NUBIL.(A)Unduplicated built-in gain or loss with
respect to S1 Share 1 and S1 Share 2. The analysis
is the same as in paragraph (i)(B)(1)ofExample 2
except that the unduplicated loss is $1.60, computed
as the excess of $17.60 ($20aggregate basis in the
shares that are sold, tentatively reduced by $2.40, the
shares’ portion (2/10) of the $12 tentative adjustment
that tiered-up from S2) over $16 (the shares’ aggre-
gate value).
(B)Redetermined NUBIG or NUBIL of the
Pgroup. The P group’s redetermined NUBIL is
$11.60, which is the sum of S2’s NUBIL of $20, S1’s
NUBIL of $0, S’s NUBIG of $10, P’s NUBIG or
NUBIL of $0, M’s NUBIG or NUBIL of $0, and the
unduplicated stock loss of $1.60.
(C)Effect of redetermination. Of the $4 loss rec-
ognized on the Year 4 sale of Share 1 and Share 2,
all $4 is recognized built-in loss. The group’s rede-
termined NUBIL is $11.60, and thus all $4 of the $4
recognized built-in loss is subject to limitation under
section 382.
Example 5.NUBIL redetermined to be NUBIG.
(i)Disposition of stock of included member.(A)
Facts. On January 1, Year 1, P owns the sole out-
standing share of S stock (basis $10, value $100).
S owns Truck 1 (basis $65, value $50) and Truck 2
(basis $45, value $50). January 1, Year 1, is a change
date for the P group. In Year 3, P sells its S share for
$100.
(B)Determination of the P group’s NUBIG or
NUBIL on change date. S’s assets are Truck 1 (with a
built-in loss of $15) and Truck 2 (with a built-in gain
of $5); therefore S has a separate NUBIL of $10. P’s
sole asset is the share of S stock, which is disregarded;
therefore, P has a separate NUBIG or NUBIL of zero.
Accordingly, on the change date, the P group has a
NUBIL of $10, reflecting the sum of S’s $10 NUBIL
and P’s $0 NUBIG/NUBIL.
(C)Redetermination of the P group’s NUBIG or
NUBIL on disposition of stock of included subsidiary.
(1)Unduplicated built-in gain or loss with respect to
the S share. Under paragraph (g)(7)(ii)(A) of this sec-
tion, the unduplicated built-in gain or loss with re-
spect to the S share sold in Year 3 is computed by
first treating S’s $10 NUBIL as having been recog-
nized, taken into account, and absorbed immediately
before the ownership change. Then, under paragraph
(g)(7)(ii)(B) of this section, S’s $10 NUBIL is treated
as tentatively adjusting P’s basis in the S share under
the principles of §1.1502–32. Accordingly, P’s tenta-
tively reduced basis in the S share is $10 - $10, or $0.
Further, the value of the S share was $100 immedi-
ately before the change date. The share’s $100 value
exceeds the $0 tentatively reduced basis in the share
by $100, and thus P has a $100 unduplicated gain in
its S stock.
(2)Redetermined NUBIG or NUBIL of the P
group. Immediately before P takes into account the
$90 gain on the sale of its share of S stock, the P
group’s $10 NUBIL is redetermined to be a $90
NUBIG, the sum of S’s NUBIL of $10 and the undu-
plicated gain in the S stock of $100.
(D)Effect of redetermination. Of the $90 gain
P recognized on the sale of the S share, all $90 is
recognized built-in gain and therefore, under section
382(h)(2)(A), the group’s section 382 limitation is in-
creased by $90.
(ii)Disposition of loss asset prior to disposition
of stock of included subsidiary.(A)Facts. The facts
are the same as in paragraph (i)(A) of thisExample
5, except that, in addition, in Year 2, S sells Truck
1 for $50, recognizing a $15 loss that is taken into
account and absorbed. As a result of the $15 loss
absorption, P’s basis in the S share is reduced to an
excess loss account of $5 in Year 2 and, thus, when P
sells the S share in Year 3, P recognizes $105 gain on
the sale ($100 sale proceeds + $5 excess loss account
recapture).
(B)Determination of the P group’s NUBIG or
NUBIL on change date. For the reasons set forth in
paragraph (i)(B) of thisExample 5, the P group has a
NUBIL of $10 on the change date. Accordingly, S’s
$15 loss on Truck 1 is a recognized built-in loss under
section 382(h)(2)(B), and therefore subject to limita-
tion to the extent of the $10 NUBIL.
(C)Redetermination of the P group’s NUBIG or
NUBIL on disposition of stock of included subsidiary.
(1)Unduplicated built-in gain or loss with respect to
the S share. For the reasons set forth in paragraph
(i)(C)(1)ofthisExample 5, the unduplicated built-in
gain with respect to the S share is $100.
(2)Redetermined NUBIG or NUBIL of the P
group. For the reasons set forth in paragraph (i)(C)(2)
of thisExample 5, the P group’s NUBIG is redeter-
mined to be $90. Immediately before P takes into
account the $100 gain on the sale of its share of S
stock, the P group’s $10 NUBIL is redetermined to
be a $90 NUBIG, the sum of S’s NUBIL of $10 and
P’s NUBIG of $100.
(D)Effect of redetermination. Of the $105 gain
P recognized on the sale of the S share, $90 is rec-
ognized built-in gain and therefore, under section
382(h)(2)(A), the group’s section 382 limitation is
increased by $90. The redetermination of P’s original
$10 NUBIL to a $100 NUBIG in Year 4 has no effect
on the treatment of the Year 2 recognized built-in
loss from the sale of Truck 1.
(h) * * *
(2)Disposition of stock or an inter-
company obligation of a member.Built-in
gain or loss recognized by a member
on the disposition of stock (including
stock described in section 1504(a)(4) and
§1.382–2T(f)(18)(ii)and (f)(18)(iii)) of
another member is treated as a recog-
nized gain or loss for purposes of section
382(h)(2) (unless disallowed) without re-
gard to the extent to which such gain or
loss was included in the determination of
a net unrealized built-in gain or loss un-
der paragraph (g) of this section. Built-in
gain or loss recognized by a member with
respect to an intercompany obligation is
treated as recognized gain or loss only
to the extent (if any) that the transaction
gives rise to aggregate income or loss
within the consolidated group.
*****
(4)Successor assets.***
*****
(k)Effective/Applicability date. Para-
graphs (g)(1), (g)(7), (g)(8), (h)(2) and
(h)(4) of this section apply to amounts
taken into account with respect to a share
of stock of an included subsidiary on or af-
ter the date that final regulations are pub-
lished in theFederal Register, but only
with respect to ownership changes occur-
ring on or after October 24, 2011. For
amounts taken into account with respect to
a share of stock of an included subsidiary
not described in the preceding sentence,
see §§1.1502–91(g) and 1.1502–91(h) as
contained in 26 CFR part 1 in effect on
April 1, 2011.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on October 21,
2011, 8:45 a.m., and published in the issue of the Federal
Register for October 24, 2011, 76 F.R. 65634)
Tribal Economic Development
Bonds — Request for Public
Comment on Volume Cap
Allocation Process and
Optional Extension of Deadline
to Issue Bonds
Announcement 2011–71
SECTION 1. BACKGROUND
Section 1402 of Title I of Division B
of the American Recovery and Reinvest-
ment Act of 2009, Pub. L. No. 111–5,
123 Stat. 115 (2009), added § 7871(f) to
the Internal RevenueCode (the “Code”).
In general, the purpose of § 7871(f) is
to give Indian tribal governments greater
flexibility to use tax-exempt bonds to fi-
nance economic development projects,
through the issuance of tribal economic
development bonds (“Tribal Economic
Development Bonds”), than is allowable
under the existing standard of § 7871(c).
Section 7871(f)(1) provides that the Trea-
sury Department shall allocate the $2
billion national bond volume limitation
authority (“Volume Cap”) for Tribal Eco-
nomic Development Bonds among the
Indian tribal governments in such manner
as the Treasury Department, in consul-
tation with the Secretary of the Interior,
determines appropriate.
2011–46 I.R.B.770November 14, 2011

In Notice 2009–51, 2009–28 I.R.B. 128
(July 13, 2009), the Treasury Department
and the IRS addressed administrative pro-
cedures for initial allocations of the $2 bil-
lion Volume Cap.
On September 15, 2009, the IRS
announced allocations in an aggregate
amount of approximately $1 billion of
Volume Cap in the first tranche of alloca-
tion (the “First Allocation”) of authority
to issue Tribal Economic Development
Bonds. Section 7(f) of Notice 2009–51
provided that if bonds were not issued
by December 31, 2010, for any or all of
the allocation received by an Indian tribal
government from the First Allocation,
then such allocation would be treated as
forfeited. In Announcement 2010–88,
2010–47 I.R.B. 753 (November 22,
2010), the IRS announced an automatic
six-month extension of the administrative
deadline to issue bonds under bonding
authority from the First Allocation from
December 31, 2010, to June 30, 2011,
and a process by which Indian tribal
governments could receive an additional
six-month extension of the administrative
deadline to issue bonds under bonding
authority from the First Allocation from
June 30, 2011, to December 31, 2011.
Section 3 of Announcement 2010–88
provides that an allocation received
pursuant to the First Allocation shall
be treated as forfeited if bonds are
not issued by June 30, 2011, for an
allocation with respect to which the Indian
tribal government does not receive an
additional extension as described in the
announcement, or by December 31, 2011,
for an allocation with respect to which
the Indian tribal government receives an
additional extension.
On February 9, 2010, the IRS an-
nounced allocations in an aggregate
amount of approximately $1 billion of
Volume Cap in the second tranche of
allocation (the “Second Allocation”) of
authority to issue Tribal Economic De-
velopment Bonds. Section 7(f) of Notice
2009–51 provides that if bonds are not
issued by December 31, 2011, for any or
all of the allocation received by an Indian
tribal government from the Second Allo-
cation, then such allocation will be treated
as forfeited.
Both Notice 2009–51 and Announce-
ment 2010–88 provide that any allocation
amounts treated as forfeited may be avail-
able for allocation by the IRS as part of
an allocation process to be announced by
the IRS at some future date. The IRS esti-
mates that, as of the date of this announce-
ment, up to 95% or more of the $2 billion
in Volume Cap authorized for Tribal Eco-
nomic Development Bonds may become
available for reallocation as of January 1,
2012.
SECTION 2. REQUEST FOR PUBLIC
COMMENT ON VOLUME CAP
ALLOCATION PROCESS
The IRS seeks public comment regard-
ing the reallocation of available amounts
of Volume Cap for Tribal Economic De-
velopment Bonds in order to facilitate
issuance of such bonds by Indian tribal
governments. These available amounts
include amounts that were previously al-
located and have been, or subsequently
are, forfeited under Notice 2009–51 and
Announcement 2010–88. The IRS seeks
public comment from Indian tribal gov-
ernments and other interested members
of the public regarding appropriate meth-
ods to employ and criteria to consider in
reallocating this Volume Cap, based on
facts and circumstances affecting Indian
tribal governments and any other relevant
factors. The publiccomment deadline is
December 12, 2011.
On July 12, 2010, the Treasury De-
partment published a notice in the Federal
Register (75 Fed. Reg. 39730 (July 12,
2010)) soliciting comments regarding the
Tribal Economic Development Bonds pro-
vision in § 7871(f) of the Code. The Trea-
sury Department received 27 responses to
the notice from various Indian tribal gov-
ernments, tribal organizations, and indi-
vidual taxpayers. One question in the no-
tice asked about Volume Cap and specifi-
cally referenced the $2 billion Tribal Eco-
nomic Development Bonds authorization
as an example. The responses presented a
wide variety of thoughtful comments and
suggestions regarding Volume Cap.
The IRS is considering potential meth-
ods of reallocating Volume Cap that would
use an application process and criteria sim-
ilar to those used to allocate Volume Cap
under Notice 2009–51. However, in re-
sponse to tribal and public input and to
facilitate availability of Volume Cap for
projects, the IRS is considering improve-
ments to the process and reallocation cri-
teria. The IRS is seeking additional in-
put on the processes and criteria to be in-
cluded in a method for reallocation. In ad-
dition to other processes and criteria, the
IRS is considering improvements relating
to the following categories of information
to increase the likelihood that an allocation
will result in issuance of Tribal Economic
Development Bonds. The IRS seeks gen-
eral comments on each of these proposed
improvements. Certain additional com-
ments about a proposed improvement are
also specifically requested below.
•Project cost.The application process
may require information regarding the
estimated cost of the project, including
the portion to be financed by Tribal
Economic Development Bonds and
any portion to be financed by other
sources, if any, and how the estimated
cost was determined.
•Plan for financing.The application
process may require information on
the plan for financing for the project,
including the following: (1) all rea-
sonably expected sources and uses of
financing and the expected security
and sources of payment for the bonds,
(2) the anticipated date of issuance
of the Tribal Economic Development
Bonds and any other source of financ-
ing, (3) the issuer’s reasonably ex-
pected schedule for spending proceeds
of the Tribal Economic Development
Bonds and any other financing taking
into account such things as required
permits, engineering studies, architec-
tural plans, and other commitments
or studies that are required in order
for the project to proceed with due
diligence, (4) whether amounts to be
made available by the Tribal Economic
Development Bonds plus other avail-
able funds (whether obtained through
financing or otherwise) are sufficient
to pay for the cost of the project, (5)
whether the Tribal Economic Devel-
opment Bonds are marketable taking
into account the typeand location of
project, the creditworthiness of the ap-
plicant, and other considerations, and
(6) whether the applicant will be able
to obtain financing from other sources
if required for project costs.The IRS
seeks specific comments on appropri-
ate evidence to show the applicant’s
November 14, 20117712011–46 I.R.B.

ability to obtain the expected security
and sources of payment for the bonds.
•Evidence of readiness to issue.The ap-
plication process may require informa-
tion regarding an allocation recipients’
ability to use the allocation to issue
Tribal Economic Development Bonds
prior to the forfeiture deadline. A re-
cipient’s ability to use the allocation
to issue Tribal Economic Development
Bonds prior to the forfeiture deadline
may be indicated by information re-
lating to project cost and readiness,
marketability of Tribal Economic De-
velopment Bonds, and availability of
other required financing. Additionally,
the application process may require a
demonstration that, assuming receipt
of the requested Volume Cap and based
on the project and financing structure
described in the application (includ-
ing the proposed security and source of
payment for the bonds), the proposed
bonds are expected to satisfy, upon is-
suance, all applicable requirements for
Tribal Economic Development Bonds
under federal tax law (for example, this
could be demonstrated through discus-
sion with or preliminary tax analysis
from a recognized public finance attor-
ney or law firm).The IRS seeks com-
ments on the appropriate evidence that
will ensure that recipients are ready to
issue bonds and to use the proceeds
of such bonds if an allocation is re-
ceived. Should the IRS require docu-
mentation supporting the readiness of
an applicant to issue the bonds and to
construct the project? If so, what doc-
uments should be required?
•Allocation process.The IRS is con-
sidering a two-step allocation process.
Thefirststepwouldbetoprovideap-
plicants with written commitments for
an allocation award in the order of pri-
ority based on the application submis-
sion date and amount requested. The
second step – the actual allocation –
would be made a certain number of
days before closing, for instance, 60
days before closing on the loan or is-
suance of the bonds.The IRS seeks
specific comments on the number of
days an allocation would be “locked
in” before closing, as well as the max-
imum number of days from the date of
the allocation award commitment let-
ter to the date of the actual allocation.
•Reduced allocations.The IRS is con-
sidering a process to award allocations
less than the amount requested if the
total amount of Volume Cap requested
exceeds the remaining amount of un-
used and unallocated Volume Cap.
Generally, a reduced allocation would
not be awarded unless the applicant
demonstrates that it has the additional
financial resources to complete the
project.
Consistent with Executive Order
13175, the IRS expects to hold multiple
telephone consultations during the period
commencing on the publication of this
Announcement and ending December 12,
2011. After the consultations are com-
pleted and the comments are received and
considered, the IRS expects to provide
information about the determined process
through published guidance.
SECTION 3. SUBMISSION OF
COMMENTS.
Interested persons should send com-
ments by mail to Internal Revenue
Service, CC:PA:LPD:PR (Announce-
ment 2011–71), Room 5203, P.O. Box
7604, Ben Franklin Station, Washing-
ton, D.C. 20044. Alternatively, com-
ments may be hand delivered Monday
through Friday between the hours of
8:00a.m. and4:00p.m. toCourier’s
Desk, Internal Revenue Service, 1111
Constitution Avenue, NW, Washing-
ton, D.C. 20224, Attn: CC:PA:LPD:PR
(Announcement 2011–71). Comments
mayalsobetransmittedelectroni-
cally via the following e-mail address:
Notice.Comments@irscounsel.treas.gov.
Please include “Announcement 2011–71”
in the subject line of any electronic
communication.Written comments
should be received by December 12, 2011.
All submissions will be available for
public inspection and copying.
SECTION 4. OPTIONAL EXTENSION
OF ADMINISTRATIVE DEADLINE TO
ISSUE BONDS
Except as otherwise provided in this an-
nouncement, an Indiantribal government
that received an allocation of volume cap
from the First Allocation (if such Indian
tribal government received an extension
of the administrative deadline to issue
bonds pursuant to such allocation to De-
cember 31, 2011, pursuant to the process
described in Announcement 2010–88) or
the Second Allocation may submit a writ-
ten request for an extension of time of
three months from December 31, 2011, to
March 31, 2012, to issue Tribal Economic
Development Bonds pursuant to those al-
locations. Indian tribal governments must
submit requests for such extensions to the
IRS by November 30, 2011. A request
for an extension must include: (1) a copy
of the allocation letter from the IRS for
the allocation to which the request relates;
and (2) statements from an official of the
Indian tribal government duly authorized
to execute legal documents on behalf of
the Indian tribal government in making
the request, made under penalty of per-
jury, including (a) a statement explaining
the reason for the extension of time, (b)
a statement that the Indian tribal govern-
ment reasonably expects to issue Tribal
Economic Development Bonds pursuant
to such allocation on or before March 31,
2012, to finance the project described in
the Indian tribal government’s original ap-
plication (“Application”), (c) a statement
that upon issuance of the bonds, the In-
dian tribal government will proceed with
due diligence to spend the proceeds of the
bonds for the qualified project described
in the Application, and (d) a statement that
such official has knowledge of the rele-
vant facts and circumstances relating to
the request and the Application, has exam-
ined the request and the Application, and
that the information contained in the re-
quest and the Application is true, correct,
and complete. The request for an exten-
sion must also include documentation that
demonstrates the reasonableness of the
statements that the bonds are expected to
be issued on or before March 31, 2012 and
that, subsequent to the bond issuance, the
Indian tribal government will proceed with
due diligence to expend bond proceeds
for the qualified project described in
the Application. Extensions are not
expected to be granted unless the
request demonstrates that there is both a
substantial and reasonable basis for the
expectation of bond issuance on or before
March 31, 2012 and an expectation of
proceeding with due diligence to expend
the bond proceeds for the project.
2011–46 I.R.B.772November 14, 2011

A request for an extension must be
submitted by mail to the Internal Rev-
enue Service (IRS), SE:T:GE:TEB:CPM,
Attention: Mark Helfer, 1122 Town &
Country Commons, Chesterfield, Mis-
souri 63017.
A request for an extension should not
include an inquiry relating to deviations
from information submitted in the Appli-
cation under Section 8 of Notice 2009–51.
Section 8 of Notice 2009–51 provides
that an allocation of Volume Cap is valid
notwithstanding insubstantial deviations
from the information submitted in the Ap-
plication. Section 8 of Notice 2009–51
also describes criteria applicable to de-
terminations of whether a deviation with
respect to the information submitted in
the Application is insubstantial, as well
as procedures to apply for approval of
specific insubstantial deviations.
For requests submitted in compliance
with the requirements described in this An-
nouncement for extensions from Decem-
ber 31, 2011, to March 31, 2012, the IRS
expects to confirm the extensions by De-
cember 31, 2011.
If bonds are not issued by March 31,
2012, for any or all of an allocation of Vol-
ume Cap received by an Indian tribal gov-
ernment with respect to which the Indian
tribal government receives an extension as
described in this section, then any part of
such allocation that is not used is treated as
forfeited. Any allocation amounts treated
as forfeited may be available for reallo-
cation by the IRS as part of an allocation
process already announced or to be an-
nounced by the IRS at some future date.
SECTION 5. EFFECT ON OTHER
TIMING REQUIREMENTS
Except as otherwise provided in this an-
nouncement, this announcement does not
modify any provisions relating to the for-
feiture of allocations of Volume Cap re-
ceived by Indian tribal governments pur-
suant to the First Allocation or the Second
Allocation.
SECTION 6. DRAFTING
INFORMATION
The principal authors of this announce-
ment are Todd Mitchell of the IRS office of
Tax Exempt Bonds and Telly Meier of the
IRS office of Indian Tribal Governments.
However, other personnel from the IRS
and Treasury Department participated in
its development. For further information
regarding this announcement, contact
Debbie Cho of the IRS office of Tax
Exempt Bonds at (714) 347–9431 (not a
toll-free call).
November 14, 20117732011–46 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.
2011–46 I.R.B.iNovember 14, 2011

Numerical Finding List
1
Bulletins 2011–27 through 2011–46
Announcements:
2011-37, 2011-27 I.R.B.37
2011-38, 2011-28 I.R.B.45
2011-39, 2011-28 I.R.B.46
2011-40, 2011-29 I.R.B.56
2011-41, 2011-28 I.R.B.47
2011-42, 2011-32 I.R.B.138
2011-43, 2011-35 I.R.B.198
2011-44, 2011-33 I.R.B.164
2011-45, 2011-34 I.R.B.178
2011-46, 2011-34 I.R.B.178
2011-47, 2011-34 I.R.B.178
2011-48, 2011-36 I.R.B.227
2011-49, 2011-36 I.R.B.228
2011-50, 2011-38 I.R.B.409
2011-51, 2011-38 I.R.B.409
2011-52, 2011-38 I.R.B.409
2011-53, 2011-38 I.R.B.409
2011-54, 2011-38 I.R.B.409
2011-55, 2011-38 I.R.B.409
2011-56, 2011-38 I.R.B.409
2011-57, 2011-38 I.R.B.409
2011-58, 2011-38 I.R.B.410
2011-59, 2011-37 I.R.B.335
2011-61, 2011-39 I.R.B.453
2011-62, 2011-40 I.R.B.483
2011-63, 2011-41 I.R.B.503
2011-64, 2011-41 I.R.B.503
2011-65, 2011-44 I.R.B.691
2011-66, 2011-44 I.R.B.691
2011-67, 2011-44 I.R.B.691
2011-68, 2011-44 I.R.B.691
2011-69, 2011-44 I.R.B.691
2011-70, 2011-45 I.R.B.715
2011-71, 2011-46 I.R.B.770
Notices:
2011-47, 2011-27 I.R.B.34
2011-50, 2011-27 I.R.B.35
2011-51, 2011-27 I.R.B.36
2011-52, 2011-30 I.R.B.60
2011-53, 2011-32 I.R.B.124
2011-54, 2011-29 I.R.B.53
2011-55, 2011-29 I.R.B.53
2011-56, 2011-29 I.R.B.54
2011-57, 2011-31 I.R.B.84
2011-58, 2011-31 I.R.B.85
2011-59, 2011-31 I.R.B.86
2011-60, 2011-31 I.R.B.90
2011-61, 2011-31 I.R.B.91
2011-62, 2011-32 I.R.B.126
2011-63, 2011-34 I.R.B.172
Notices— Continued:
2011-64, 2011-37 I.R.B.231
2011-65, 2011-34 I.R.B.173
2011-66, 2011-35 I.R.B.184
2011-67, 2011-34 I.R.B.174
2011-68, 2011-36 I.R.B.205
2011-69, 2011-39 I.R.B.445
2011-70, 2011-32 I.R.B.135
2011-71, 2011-37 I.R.B.233
2011-72, 2011-38 I.R.B.407
2011-73, 2011-40 I.R.B.474
2011-74, 2011-41 I.R.B.496
2011-75, 2011-40 I.R.B.475
2011-76, 2011-40 I.R.B.479
2011-78, 2011-41 I.R.B.497
2011-79, 2011-41 I.R.B.498
2011-80, 2011-43 I.R.B.591
2011-81, 2011-42 I.R.B.513
2011-82, 2011-42 I.R.B.516
2011-83, 2011-43 I.R.B.593
2011-84, 2011-43 I.R.B.595
2011-85, 2011-44 I.R.B.605
2011-86, 2011-45 I.R.B.698
2011-87, 2011-45 I.R.B.699
2011-88, 2011-46 I.R.B.748
2011-89, 2011-46 I.R.B.748
Proposed Regulations:
REG-128224-06, 2011-42 I.R.B.533
REG-137128-08, 2011-28 I.R.B.43
REG-140280-09, 2011-45 I.R.B.709
REG-112805-10, 2011-40 I.R.B.482
REG-120391-10, 2011-39 I.R.B.451
REG-125592-10, 2011-32 I.R.B.137
REG-125949-10, 2011-45 I.R.B.712
REG-131491-10, 2011-36 I.R.B.208
REG-133002-10, 2011-46 I.R.B.766
REG-140038-10, 2011-42 I.R.B.537
REG-109006-11, 2011-37 I.R.B.334
REG-101352-11, 2011-30 I.R.B.75
REG-111283-11, 2011-42 I.R.B.573
REG-116284-11, 2011-43 I.R.B.598
REG-118809-11, 2011-33 I.R.B.162
REG-122813-11, 2011-35 I.R.B.197
REG-126519-11, 2011-39 I.R.B.452
Revenue Procedures:
2011-38, 2011-30 I.R.B.66
2011-39, 2011-30 I.R.B.68
2011-40, 2011-37 I.R.B.235
2011-41, 2011-35 I.R.B.188
2011-42, 2011-37 I.R.B.318
2011-43, 2011-37 I.R.B.326
2011-44, 2011-39 I.R.B.446
2011-45, 2011-39 I.R.B.449
2011-46, 2011-42 I.R.B.518
Revenue Procedures— Continued:
2011-47, 2011-42 I.R.B.520
2011-48, 2011-42 I.R.B.527
2011-49, 2011-44 I.R.B.608
2011-50, 2011-44 I.R.B.628
2011-51, 2011-44 I.R.B.669
2011-52, 2011-45 I.R.B.701
2011-53, 2011-46 I.R.B.749
2011-54, 2011-46 I.R.B.759
Revenue Rulings:
2011-14, 2011-27 I.R.B.31
2011-15, 2011-30 I.R.B.57
2011-16, 2011-32 I.R.B.93
2011-17, 2011-33 I.R.B.160
2011-18, 2011-39 I.R.B.428
2011-19, 2011-36 I.R.B.199
2011-20, 2011-36 I.R.B.202
2011-21, 2011-40 I.R.B.458
2011-22, 2011-41 I.R.B.489
2011-23, 2011-43 I.R.B.585
2011-24, 2011-41 I.R.B.485
2011-25, 2011-45 I.R.B.695
Treasury Decisions:
9527, 2011-27 I.R.B.1
9528, 2011-28 I.R.B.38
9529, 2011-30 I.R.B.57
9530, 2011-31 I.R.B.77
9531, 2011-31 I.R.B.79
9532, 2011-32 I.R.B.95
9533, 2011-33 I.R.B.139
9534, 2011-33 I.R.B.144
9535, 2011-39 I.R.B.415
9536, 2011-39 I.R.B.426
9537, 2011-35 I.R.B.181
9538, 2011-37 I.R.B.229
9539, 2011-35 I.R.B.179
9540, 2011-38 I.R.B.341
9541, 2011-39 I.R.B.438
9542, 2011-39 I.R.B.411
9543, 2011-40 I.R.B.470
9544, 2011-40 I.R.B.458
9545, 2011-41 I.R.B.490
9546, 2011-42 I.R.B.505
9547, 2011-43 I.R.B.580
9548, 2011-46 I.R.B.716
9549, 2011-46 I.R.B.718
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin
2011–26, dated June 27, 2011.
November 14, 2011ii2011–46 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2011–27 through 2011–46
Announcements:
2007-47
Updated and superseded by
Ann. 2011-59, 2011-37 I.R.B.335
Notices:
2002-1
Amplified by
Notice 2011-86, 2011-45 I.R.B.698
2006-101
Amplified and superseded by
Notice 2011-64, 2011-37 I.R.B.231
2007-93
Obsoleted by
T.D. 9545, 2011-41 I.R.B.490
2010-23
Modified and supplemented by
Notice 2011-54, 2011-29 I.R.B.53
2010-77
Modified by
Notice 2011-85, 2011-44 I.R.B.605
2010-81
Amended and supplemented by
Notice 2011-63, 2011-34 I.R.B.172
2010-88
Modified by
Ann. 2011-40, 2011-29 I.R.B.56
2010-90
Modified by
Notice 2011-85, 2011-44 I.R.B.605
Proposed Regulations:
REG-118761-09
Hearing scheduled by
Ann. 2011-38, 2011-28 I.R.B.45
REG-151687-10
Hearing scheduled by
Ann. 2011-48, 2011-36 I.R.B.227
Revenue Procedures:
72-36
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2004-29
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2005-16
Modified and superseded by
Rev. Proc. 2011-49, 2011-44 I.R.B.608
Revenue Procedures— Continued:
2006-56
Modified and amplified by
Rev. Proc. 2011-46, 2011-42 I.R.B.607
2007-35
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2008-24
Modified and superseded by
Rev. Proc. 2011-38, 2011-30 I.R.B.66
2008-32
Superseded by
Rev. Proc. 2011-39, 2011-30 I.R.B.68
2010-33
Superseded by
Rev. Proc. 2011-50, 2011-44 I.R.B.628
2010-37
Superseded by
Rev. Proc. 2011-51, 2011-44 I.R.B.669
2010-39
Amplified, modified, and superseded by
Rev. Proc. 2011-47, 2011-42 I.R.B.520
2011-4
Modified by
Rev. Proc. 2011-44, 2011-39 I.R.B.446
2011-6
Modified by
Rev. Proc. 2011-49, 2011-44 I.R.B.608
2011-8
Modified by
Rev. Proc. 2011-49, 2011-44 I.R.B.608
2011-14
Modified by
Rev. Proc. 2011-43, 2011-37 I.R.B.326
2011-35
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
Revenue Rulings:
58-225
Obsoleted by
Rev. Rul. 2011-15, 2011-30 I.R.B.57
92-19
Supplemented in part by
Rev. Rul. 2011-23, 2011-43 I.R.B.585
Treasury Decisions:
9527
Corrected by
Ann. 2011-49, 2011-36 I.R.B.228
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin 2011–26, dated June 27, 2011.
2011–46 I.R.B.iiiNovember 14, 2011

November 14, 20112011–46 I.R.B.

2011–46 I.R.B.November 14, 2011

November 14, 20112011–46 I.R.B.

INTERNAL REVENUE BULLETIN
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