us-irs-notices-irb-2017-4-pdf•Internal Revenue Bulletin 2017-4 (PDF rendition): IRS Notices
Internal Revenue Bulletin 2017-4 (PDF rendition): IRS Notices
us-irs-notices-irb-2017-4-pdfInternal Revenue Bulletin 2017-4 (PDF rendition): IRS NoticesGuidance
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.
# INTERNAL REVENUE BULLETIN
IRS
## 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
### REG-112800-16, page 569.
Nuclear Decommissioning Funds. The proposed regulations
provide rules under section 468A concerning deductions for
amounts contributed to a qualified nuclear decommissioning
reserve fund and the use of the amounts in those funds to
decommission nuclear plants. The proposed regulations revise
certain provisions to (1) address issues that have arisen as
more nuclear plants have begun the decommissioning pro-
cess, and (2) clarify provisions in the current regulations re-
garding self-dealing and the definition of substantial completion
of decommissioning.
Notice 2017-02, page 539.
This notice updates the appendix to Notice 2013-1, which lists
the Indian tribes who have settled tribal trust cases against the
United States. Notice 2012-60 originally was published in IRB
2012-41 (October 9, 2012). Notice 2012-60 was super-
ceded by Notice 2013-1 IRB 2013-3, and the appendix to
Notice 2013-1 was superceded by Notice 2013-16 (IRB
2013-14), then Notice 2013-36, then Notice 2013-55, then
Notice 2014-22, Notice 2014-38, then Notice 2014-61,
and then Notice 2015-20, and then Notice 2016-41, and
then Notice 2016-65. However, we noticed a typo in Notice
2016-65 after it was published. The correct spelling of Tribe
81 is "Southern Ute Indian Tribe." Notice 2017-02 simply
corrects the spelling. This notice would supersede Notice
2016-65.
### Rev. Rul. 2017-03, page 522.
The proposed revenue ruling updates, for certain insurance
contracts issued in 2016 and 2017, the prevailing state as-
sumed interest rates that life insurance companies need in
order to compute their life insurance reserves for federal tax
purposes.
Bulletin No. 2017-4
January 23, 2017
### Notice 2017-04, page 541.
Beginning of Construction for Sections 45 and 48. Notice
2017-04 updates and clarifies the guidance provided in prior
IRS notices regarding the beginning of construction for sec-
tions 45 and 48. Specifically, the notice provides clarification
regarding the extension and modification of the Continuity Safe
Harbor, the prohibition against combining methods by which to
satisfy the beginning of construction requirement, and the
costs that may be included in the Five Percent Safe Harbor for
retrofitted renewable energy facilities.
### Notice 2017-10, page 544.
The notice alerts participants and material advisors involved in
certain syndicated conservation easement transactions that
they are tax avoidance transactions and are listed transac-
tions.
### T.D. 9806, page 524.
The final regulations provide guidance on determining owner-
ship of a passive foreign investment company (PFIC) and on
certain annual reporting requirements for shareholders of
PFICs to file Form 8621, "Information Return by a Shareholder
of a Passive Foreign Investment Company or Qualified Electing
Fund." In addition, the final regulations provide guidance on an
exception to the requirement for certain shareholders of for-
eign corporations to file Form 5471, "Information Return of
U.S. Persons with Respect to Certain Foreign Corporations."
The regulations finalize proposed regulations and withdraw
temporary regulations published on December 31, 2013. The
final regulations affect United States persons that own inter-
ests in PFICs, and certain United States shareholders of foreign
corporations.
(Continued on the next page)
Finding Lists begin on page ii.
<!-- PageBreak -->
## EMPLOYEE PLANS
### REG-112324-15, page 547.
This document contains proposed regulations prescribing mor-
tality tables to be used by most defined benefit pension plans.
The tables specify the probability of survival year-by-year for an
individual based on age, gender, and other factors. This infor-
mation is used (together with other actuarial assumptions) to
calculate the present value of a stream of expected future
benefit payments for purposes of determining the minimum
funding requirements for the plan. These mortality tables are
also relevant to determining the minimum required amount of a
lump-sum distribution from such a plan. In addition, this docu-
ment contains proposed regulations to update the require-
ments that a plan sponsor must meet in order to obtain IRS
approval to use mortality tables specific to the plan for mini-
mum funding purposes (instead of the generally applicable
mortality tables). These regulations affect participants in, ben-
eficiaries of, employers maintaining, and administrators of cer-
tain retirement plans.
## EXEMPT ORGANIZATIONS
Notice 2017-10, page 544.
The notice alerts participants and material advisors involved in
certain syndicated conservation easement transactions that
they are tax avoidance transactions and are listed transac-
tions.
## ADMINISTRATIVE
Notice 2017-09, page 542.
Section 202 of the Protecting Americans from Tax Hikes Act of
2015 (P.L. 114-113) amended sections 6721 and 6722 to
provide that an error on an information return or payee state-
ment does not need to be corrected to avoid a penalty if the
error relates to an incorrect dollar amount and differs from the
correct amount by no more than $100 ($25 with respect to an
amount of tax withheld). This safe harbor does not apply to a
payee statement if a payee makes an election that the safe
harbor not apply "at such time and in such manner as the
Secretary may prescribe." This notice provides the require-
ments for making this election and seeks comment on the
matters discussed in the notice.
### Notice 2017-10, page 544.
The notice alerts participants and material advisors involved in
certain syndicated conservation easement transactions that
they are tax avoidance transactions and are listed transac-
tions.
<!-- PageBreak -->
## The IRS Mission
Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
## Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing 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.
It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal 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, identify-
ing details and information of a confidential nature are deleted
to prevent unwarranted invasions of privacy and to comply with
statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
### Part I .- 1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
### Part II .- Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.
Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury's Office of the Assistant Sec-
retary (Enforcement).
### Part IV .- Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
<!-- PageFooter="January 23, 2017" -->
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## Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
### Section 807 .- Rules for Certain Reserves
#### Rev. Rul. 2017-03
For purposes of § 807(d)(4) of the
Internal Revenue Code, for taxable
years beginning after December 31,
2015, this ruling supplements the sched-
ules of prevailing state assumed interest
rates set forth in Rev. Rul. 92-19,
1992-1 C.B. 227. This information is to
be used by insurance companies in com-
puting their reserves for (1) life insur-
ance and supplementary total and per-
manent disability benefits, (2) individual
annuities and pure endowments, and (3)
group annuities and pure endowments.
As § 807(d)(2)(B) requires that the in-
terest rate used to compute these re-
serves be the greater of (1) the applica-
ble federal interest rate, or (2) the
prevailing state assumed interest rate,
the table of applicable federal interest
rates in Rev. Rul. 92-19 is also supple-
mented.
Following are supplements to sched-
ules A, B, C, and D to Part III of Rev. Rul.
92-19, providing prevailing state assumed
interest rates for insurance products with
different features issued in 2016 and 2017,
and a supplement to the table in Part IV of
Rev. Rul. 92-19, providing the applicable
federal interest rates under § 807(d) for
2016 and 2017. This ruling does not sup-
plement Parts I and II of Rev. Rul. 92-19.
This is the twenty-fifth supplement to
the interest rates provided in Rev. Rul.
92-19. Earlier supplements were pub-
lished in Rev. Rul. 93-58, 1993-2 C.B.
241 (interest rates for insurance products
issued in 1992 and 1993); Rev. Rul. 94-
11, 1994-1 C.B. 196 (1993 and 1994);
Rev. Rul. 95-4, 1995-1 C.B. 141 (1994
and 1995); Rev. Rul. 96-2, 1996-1 C.B.
141 (1995 and 1996); Rev. Rul. 97-2,
1997-1 C.B. 134 (1996 and 1997); Rev.
Rul. 98-2, 1998-1 C.B. 259 (1997 and
1998); Rev. Rul. 99-10, 1999-1 C.B. 671
(1998 and 1999); Rev. Rul. 2000-17,
2000-1 C.B. 842 (1999 and 2000); Rev.
Rul. 2001-11, 2001-1 C.B. 780 (2000 and
2001); Rev. Rul. 2002-12, 2002-1 C.B.
624 (2001 and 2002); Rev. Rul. 2003-24,
2003-1 C.B. 557 (2002 and 2003); Rev.
Rul. 2004-14, 2004-1 C.B. 511 (2003
and 2004); Rev. Rul. 2005-29, 2005-1
C.B. 1080 (2004 and 2005); Rev. Rul.
2006-25, 2006-1 C.B. 882 (2005 and
2006); Rev. Rul. 2007-10, 2007-1 C.B.
660 (2006 and 2007); Rev. Rul. 2008-19,
2008-1 C.B. 669 (2007 and 2008); Rev.
Rul. 2009-3, 2009-5 I.R.B. 382 (2008
and 2009); Rev. Rul. 2010-7, 2010-8
I.R.B. 417 (2009 and 2010); Rev. Rul.
2011-23, 2011-43 I.R.B. 585 (2010 and
2011); Rev. Rul. 2012-6, 2012-6 I.R.B.
349 (2011 and 2012); Rev. Rul. 2013-4,
2013-9 I.R.B. 520 (2012 and 2013); Rev.
Rul. 2014-4, 2014-5 I.R.B. 449 (2013
and 2014); Rev. Rul. 2015-2, 2015-3
I.R.B. 321 (2014 and 2015); and Rev. Rul.
2016-02, 2016-4 I.R.B. 284 (2015 and
2016).
Part III. Prevailing State Assumed Interest Rates - Products Issued in Years After 1982 .*
Schedule A
STATUTORY VALUATION INTEREST RATES BASED ON THE 1980 AMENDMENTS TO THE NAIC STANDARD
VALUATION LAW
A. Life insurance valuation:
Guarantee Duration (years)
Calendar Year of Issue 2017
10 or fewer
3.75 **
More than 10 but not more than 20
3.75 **
More than 20
3.50 **
Source: Rates calculated from the monthly averages, ending June 30, 2016, of Moody's Composite Yield
on Seasoned Corporate Bonds.
*The terms used in the schedules in this ruling and in Part III of Rev. Rul. 92-19 are those used in the Standard
Valuation Law; the terms are defined in Rev. Rul. 92-19.
** As these rates exceed the applicable federal interest rate for 2017 of 1.46 percent, the valuation interest rate to
be used for this product under § 807 is the applicable rate specified in this table.
# Part III, Schedule B STATUTORY VALUATION INTEREST RATES BASED ON THE 1980 AMENDMENTS TO THE NAIC STANDARD VALUATION LAW
B. Single premium immediate annuities and annuity benefits involving life contingencies arising from other annuities with
cash settlement options and from guaranteed interest contracts with cash settlement options:
Calendar Year of Issue
Valuation Interest Rate
4.00*
2016
Source: Rates calculated from the monthly averages, ending June 30, 2016, of Moody's Composite Yield on Seasoned
Corporate Bonds.
*As this prevailing state assumed interest rate exceeds the applicable federal interest rate for 2016 of 1.56 percent, the
valuation interest rate of 4.00 percent is to be used for this product under § 807.
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## Part III, Schedule C24 - 2016 STATUTORY VALUATION INTEREST RATES BASED ON NAIC STANDARD VALUATION LAW FOR 2016 CALENDAR YEAR BUSINESS GOVERNED BY THE 1980 AMENDMENTS
C. Valuation interest rates for other annuities and guaranteed interest contracts that are valued on an issue year basis:
Cash Settlement
Future Interest Guarantee?
Guarantee Duration (years)
Valuation Interest Rate For Plan Type
Options?
A
B
C
Yes
Yes
5 or fewer
4.00*
3.75*
3.75*
More than 5, but not more than 10
4.00*
3.75*
3.75*
More than 10, but not more than 20
4.00*
3.75*
3.75*
More than 20
3.75*
3.50*
3.50*
Yes
No
5 or fewer
4.25*
4.00*
3.75*
More than 5, but not more than 10
4.00*
4.00*
3.75*
More than 10, but not more than 20
4.00*
3.75*
3.75*
More than 20
3.75*
3.50*
3.50*
No
Yes or No
5 or fewer
4.00*
More than 5, but not more than 10
4.00*
NOT APPLICABLE
More than 10, but not more than 20
4.00*
More than 20
3.75*
Source: Rates calculated from the monthly averages, ending June 30, 2016, of Moody's Composite Yield on Seasoned
Corporate Bonds.
*As these rates exceed the applicable federal interest rate for 2016 of 1.56 percent, the valuation interest rate to be used
for this product under § 807 is the applicable rate specified in the above table.
# Part III, Schedule D24 - 2016
## STATUTORY VALUATION INTEREST RATES BASED ON NAIC STANDARD VALUATION LAW FOR 2016 CALENDAR YEAR BUSINESS GOVERNED BY THE 1980 AMENDMENTS
D. Valuation interest rates for other annuities and guaranteed interest contracts that are contracts with cash settlement op-
tions and that are valued on a change in fund basis:
Cash
Future
Settlement Options?
Interest Guarantee?
Guarantee Duration (years)
Valuation Interest Rate For Plan Type
A
B
C
Yes
Yes
5 or fewer
4.25*
4.25*
3.75*
More than 5, but not more than 10
4.25*
4.25*
3.75*
More than 10, but not more than 20
4.00*
4.00*
3.75*
More than 20
3.75*
3.75*
3.50*
Yes
No
5 or fewer
4.50*
4.25*
3.75*
More than 5, but not more than 10
4.25*
4.25*
3.75*
More than 10, but not more than 20
4.25*
4.00*
3.75*
More than 20
4.00*
4.00*
3.75*
Source: Rates calculated from the monthly averages, ending June 30, 2016, of Moody's Composite Yield on Seasoned
Corporate Bonds.
*As these rates exceed the applicable federal interest rate for 2016 of 1.56 percent, the valuation interest rate to be used
for this product under § 807 is the applicable rate specified in the above table.
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Part IV. Applicable Federal Interest Rates. TABLE OF APPLICABLE FEDERAL INTEREST RATES FOR PURPOSES OF § 807
Year
Interest Rate
2016
1.56
2017
1.46
Sources: Rev. Rul. 2004-106, 2004-2 C.B. 893, for the 2005 rate; Rev. Rul. 2005-77, 2005-2 C.B. 1071, for the 2006
rate; Rev. Rul. 2006-61, 2006-2 C.B 1028 for the 2007 rate; Rev. Rul. 2007-70, 2007-2 C.B. 1158 for the 2008 rate;
Rev. Rul. 2008-53, 2008-2 C.B. 1231 for the 2009 rate; Rev. Rul. 2009-38, 2009-49 I.R.B. 736, for the 2010 rate; Rev.
Rul. 2010-29, 2010-50 I.R.B. 818 for the 2011 rate; Rev. Rul. 2011-31, 2011-49 I.R.B. 829 for the 2012 rate; Rev. Rul.
2012-31, 2012-49 I.R.B. 636 for the 2013 rate; Rev. Rul. 2013-26, 2013-50 I.R.B. 628 for the 2014 rate; Rev. Rul.
2014-31, 2014-50 I.R.B. 935 for the 2015 rate; Rev. Rul. 2015-25, 2015-49 I.R.B. 695 for the 2016 rate; and Rev. Rul.
2016-27, 2016-49 I.R.B. 781 for the 2017 rate.
## EFFECT ON OTHER REVENUE RULINGS
Rev. Rul. 92-19 is supplemented by
the addition to Part III of that ruling of
prevailing state assumed interest rates un-
der § 807 for certain insurance products
issued in 2016 and 2017 and is further
supplemented by an addition to the table
in Part IV of Rev. Rul. 92-19 listing ap-
plicable federal interest rates. Parts I and
II of Rev. Rul. 92-19 are not affected by
this ruling.
## DRAFTING INFORMATION
The principal author of this revenue
ruling is Sharon Y. Horn of the Office of
Associate Chief Counsel (Financial Insti-
tutions and Products). For further infor-
mation regarding this revenue ruling con-
tact Ms. Horn at (202) 317-6995 (not a
toll-free number).
### T.D. 9806
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Definitions and Reporting
Requirements for
Shareholders of Passive
Foreign Investment
Companies
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations that provide guidance on
determining ownership of a passive for-
eign investment company (PFIC) and on
certain annual reporting requirements
for shareholders of PFICs to file Form
8621, "Information Return by a Share-
holder of a Passive Foreign Investment
Company or Qualified Electing Fund."
In addition, the final regulations provide
guidance on an exception to the require-
ment for certain shareholders of foreign
corporations to file Form 5471, "Infor-
mation Return of U.S. Persons with Re-
spect to Certain Foreign Corporations."
The regulations finalize proposed regu-
lations and withdraw temporary regula-
tions published on December 31, 2013.
The final regulations affect United
States persons that own interests in
PFICs, and certain United States share-
holders of foreign corporations.
DATES: Effective Date: These regula-
tions are effective on December 28, 2016.
Applicability Dates: For dates of appli-
cability, see §§ 1.1291-1(j)(3), 1.1291-
9(k)(3), 1.1298-1(h), 1.6038-2(m), and
1.6046-1(1)(3).
FOR FURTHER INFORMATION CON-
TACT: Jeffery G. Mitchell at (202) 317-
6934 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
#### Background
On December 31, 2013, the Treasury
Department and the IRS published final
and temporary regulations (2013 tempo-
rary regulations) under sections 1291,
1298, 6038, and 6046 (T.D. 9650) in the
Federal Register (78 FR 79602, as cor-
rected at 79 FR 26836). On the same date,
the Treasury Department and the IRS pub-
lished a notice of proposed rulemaking
(REG-140974-11) in the Federal Regis-
ter (78 FR 79650, as corrected at 79 FR
27230) cross-referencing the 2013 tempo-
rary regulations (2013 proposed regula-
tions). No public hearing was requested or
held. Written comments were received,
and are available at www.regulations.gov
or upon request.
On April 28, 2014, the Treasury De-
partment and the IRS issued Notice
2014-28 (2014-18 I.R.B. 990), which
announced that the regulations under
section 1291 would provide that a
United States person that owns stock of
a PFIC through a tax-exempt organiza-
tion or account is not treated as a share-
holder of the PFIC with respect to the
stock. In addition, on September 29,
2014, the Treasury Department and the
IRS issued Notice 2014-51 (2014-40
I.R.B. 594), which announced that the
regulations under section 1298 would
provide guidance concerning United
States persons that own stock in a PFIC
that is marked to market under a provi-
sion of chapter 1 of the Code other than
section 1296.
This Treasury decision adopts the 2013
proposed regulations with the changes de-
scribed below as final regulations, includ-
ing implementing the rules described in
Notice 2014-28 and Notice 2014-51, and
removes the corresponding 2013 tempo-
rary regulations.
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### Summary of Comments and Explanation of Revisions
The final regulations retain the basic
approach and structure of the 2013 tem-
porary regulations, with certain revisions.
This Summary of Comments and Expla-
nation of Revisions section discusses
those revisions as well as comments re-
ceived in response to the solicitation of
comments in the notice of proposed rule-
making accompanying the 2013 tempo-
rary regulations. Several comments were
received that did not pertain to the rules in
the 2013 temporary regulations. These
comments are beyond the scope of this
rulemaking and are not addressed in this
preamble. The Treasury Department and
the IRS will consider these comments in
connection with any future guidance proj-
ects addressing the issues discussed in the
comments.
A. Definition of Shareholder and
Indirect Shareholder in § 1.1291-1(b)(7)
and (8)
#### 1. Revision to definition of shareholder announced in Notice 2014-28
As described in Notice 2014-28, the
application of the PFIC rules to a United
States person treated as owning stock of a
PFIC through a tax-exempt organization
or account described in § 1.1298-1(c)(1)
would be inconsistent with the tax policies
underlying the PFIC rules and the treat-
ment of tax-exempt organizations and ac-
counts. For example, applying the PFIC
rules to a United States person that owns
stock of a PFIC through an individual
retirement account (IRA) described in
section 408(a) would be inconsistent with
the principle of deferred taxation provided
by IRAs. Notice 2014-28 provides that
the regulations incorporating the guidance
described in the notice will be effective
for taxable years of United States persons
that own stock of a PFIC through a tax-
exempt organization or account ending on
or after December 31, 2013.
The final regulations modify the defi-
nition of shareholder in § 1.1291-1 as
announced in Notice 2014-28. Under
new § 1.1291-1(e)(2), a United States
person is not treated as a shareholder of a
PFIC to the extent the person owns PFIC
stock through a tax-exempt organization
or account described in § 1.1298-1(c)(1).
2\. Indirect shareholder as a result of
attribution through a domestic
corporation
#### a. 1992 Proposed Regulations
On April 1, 1992 (57 FR 11024) the
Treasury Department and the IRS issued
proposed regulations (1992 proposed reg-
ulations) that, among other things, in-
cluded rules for determining when a
United States person is treated as indi-
rectly owning stock of a PFIC. Consistent
with section 1298(a)(2)(A), § 1.1291-
1(b)(8)(ii)(A) of the 1992 proposed regu-
lations provided that a United States per-
son who directly or indirectly owns 50
percent or more in value of the stock of a
foreign corporation that is not a PFIC is
considered to own a proportionate amount
(by value) of any stock (including PFIC
stock) owned directly or indirectly by the
foreign corporation. Thus, for example, if
a United States person owned 100 percent
of the shares of FC, a foreign corporation
that is not a PFIC but that owns 50 shares
of a PFIC, the United States person would
be treated as indirectly owning the 50
PFIC shares under § 1.1291-1(b)(8)
(ii)(A) of the 1992 proposed regulations.
By contrast, section 1298(a)(1)(B) pro-
vides that PFIC stock owned by a domes-
tic corporation (which generally would be
treated as a PFIC shareholder itself) is not
attributed to any other person, except to
the extent provided in regulations. Pursu-
ant to this grant of regulatory authority,
§ 1.1291-1(b)(8)(ii)(C) of the 1992 pro-
posed regulations provided that, if stock
of a section 1291 fund was not treated as
owned indirectly by a United States per-
son under the other attribution rules pro-
vided in the proposed regulations, but
would be treated as owned by a United
States person if the ownership rule of
§ 1.1291-1(b)(8)(ii)(A) of the 1992 pro-
posed regulations applied to domestic cor-
porations (in addition to foreign corpora-
tions), then the stock of the section 1291
fund would be considered as owned by
such United States person.
Both § 1.1291-1(b)(8)(ii)(A) and (C)
of the 1992 proposed regulations were
withdrawn and reissued under the 2013
temporary regulations as § 1.1291-
1T(b)(8)(ii)(A) and (C), respectively.
b. Intended Scope of § 1.1291-
1T(b)(8)(ii)(C)
The purpose of § 1.1291-1(b)(8)(ii)(C)
of the 1992 proposed regulations and
§ 1.1291-1T(b)(8)(ii)(C), as explained in
the preamble to the 1992 proposed regu-
lations, was to attribute stock through a
domestic C corporation in certain circum-
stances if, absent such attribution, the
stock of a PFIC would not be treated as
owned by any United States person. In
particular, because § 1.1291-1T(b)(8)
(ii)(A) provides that a United States per-
son who directly or indirectly owns 50
percent or more in value of the stock of a
foreign corporation that is not a PFIC is
considered to own a proportionate amount
(by value) of any stock owned directly
or indirectly by the foreign corporation,
without § 1.1291-1T(b)(8)(ii)(C), a
United States person could interpose a
domestic C corporation into an ownership
structure to avoid shareholder status with
respect to stock of a PFIC that the United
States person indirectly owned through
one or more foreign corporations that
were not PFICs. In other words, § 1.1291-
1T(b)(8)(ii)(C) provides guidance as to
when a United States person is treated as
indirectly owning stock of a foreign cor-
poration through a domestic corporation
for purposes of § 1.1291-1T(b)(8)(ii)(A).
For example, assume that A, a United
States person, owns 49 percent of the
stock of FC1, a foreign corporation that is
not a PFIC, and separately all the stock of
DC, a domestic corporation that is not an
S corporation. DC, in turn, owns the re-
maining 51 percent of the stock of FC1,
and FC1 owns 100 shares of stock in a
PFIC (which is not a controlled foreign
corporation within the meaning of section
957(a)). DC is an indirect shareholder
with respect to 51 percent of the PFIC
stock held by FC1 under § 1.1291-
1T(b)(8)(ii)(A). Absent the application of
§ 1.1291-1T(b)(8)(ii)(C), because A di-
rectly or indirectly owns less than 50 per-
cent of the value of the stock of FC1 and
thus § 1.1291-1T(b)(8)(ii)(A) does not
apply, A would not be treated as an indi-
rect shareholder with respect to any of the
PFIC stock directly owned by FC1 when,
from an economic perspective, A indi-
rectly owns all the PFIC stock held by
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FC1. Therefore, without a rule treating A
as owning DC's stock in FC1, the remain-
ing 49 percent of the PFIC stock held by
FC1 would not be treated as owned by any
United States person.
On the other hand, the literal language
of § 1.1291-1T(b)(8)(ii)(C) could have
been interpreted to create overlapping
ownership by two or more United States
persons in the same stock of a section
1291 fund. Thus, in the foregoing exam-
ple, A may have been considered as own-
ing 100 percent of the stock of FC1, and
therefore as indirectly owning all 100
shares of the PFIC stock held by FC1,
even though 51 of those shares are con-
sidered indirectly owned by DC, a United
States person. This outcome is inconsis-
tent with the intended purpose of the rule
to attribute stock through a domestic C
corporation in certain circumstances if,
absent such attribution, the stock of a
PFIC would not be treated as owned by
any United States person.
#### c. Revisions to 2013 Temporary Regulations
To address this concern, the final
regulations include a non-duplication
rule. Specifically, the final regulations
provide under § 1.1291-1(b)(8)(ii)(C)(1)
that, solely for purposes of determining
whether a person owns 50 percent or more
in value of the stock of a foreign corpo-
ration that is not a PFIC under § 1.1291-
1(b)(8)(ii)(A), a person who directly or
indirectly owns 50 percent or more in
value of the stock of a domestic corpora-
tion is considered to own a proportionate
amount (by value) of any stock owned
directly or indirectly by the domestic cor-
poration. However, the non-duplication
rule in § 1.1291-1(b)(8)(ii)(C)(2) states
that a United States person will not be
treated, as a result of applying § 1.1291-
1(b)(8)(ii)(C)(1), as owning (other than
for purposes of determining whether a
person satisfies the ownership threshold of
§ 1.1291-1(b)(8)(ii)(A)) stock of a PFIC
that is directly owned or considered
owned indirectly under § 1.1291-1(b)(8)
by another United States person (deter-
mined without regard to § 1.1291-
1(b)(8)(ii)(C)(1)).
Applying the non-duplication rule to
the example above, to the extent that the
51 shares of PFIC stock are indirectly
owned by DC (a United States person)
under § 1.1291-1(b)(8)(ii)(A), those
shares are not also treated as indirectly
owned by A (other than for purposes of
determining whether A satisfies the own-
ership threshold of § 1.1291-1(b)(8)
(ii)(A)). Only the remaining 49 shares of
PFIC stock are considered to be indirectly
owned by A.
##### d. Additional Revisions to 2013 Temporary Regulations
Lastly, the final regulations make two
additional clarifications with respect to
this rule. First, the final regulations clar-
ify, under § 1.1291-1(b)(8)(ii)(C)(3), that
the ownership rule of § 1.1291-1(b)
(8)(ii)(C)(1) does not apply to stock
owned directly or indirectly by an S cor-
poration; rather, the indirect ownership
rule under § 1.1291-1(b)(8)(iii)(B) ap-
plies in those instances. Second, the final
regulations clarify that the attribution rule
in § 1.1291-1(b)(8)(ii)(C) applies to all
PFICs and not only section 1291 funds, in
order to ensure that United States persons
who are treated as indirect shareholders of
PFICs are permitted to make qualified
electing fund elections under section
1295.
##### B. Exceptions to Section 1298(f) Reporting
A number of comments requested that
the final regulations expand the excep-
tions to section 1298(f) reporting provided
in the 2013 temporary regulations or add
new exceptions.
1\. Exception for PFIC stock that is
marked to market under a non-section
1296 MTM provision announced in
Notice 2014-51
Two comments requested an exception
to section 1298(f) reporting for PFIC
stock that is marked to market under a
provision of chapter 1 of the Code other
than section 1296 (a non-section 1296
MTM provision), such as section 475(f).
In response to these comments, the Trea-
sury Department and the IRS issued No-
tice 2014-51, which announced that the
regulations under section 1298 would be
amended to provide that United States
persons that own stock in a PFIC that is
marked to market under a non-section
1296 MTM regime generally are not sub-
ject to section 1298(f) reporting. In addi-
tion, the notice states that the regulations
would provide that a shareholder's PFIC
stock that is marked to market under a
non-section 1296 MTM provision is not
taken into account in determining whether
the shareholder qualifies for the excep-
tions from reporting set forth in § 1.1298-
1T(c)(2)(i)(A)(1) or (c)(2)(iii), which gen-
erally exempt certain shareholders from
certain section 1298(f) reporting require-
ments when their aggregate PFIC hold-
ings do not exceed $25,000 (or, $50,000
in the case of a shareholder that files a
joint return). Notice 2014-51 states that
the regulations that incorporate the guid-
ance described in the notice would be
effective for taxable years of shareholders
ending on or after December 31, 2013.
The final regulations, in accordance
with Notice 2014-51, add § 1.1298-
1(c)(3), which provides that United States
persons that own PFIC stock that is
marked to market under a non-section
1296 MTM provision are not subject to
section 1298(f) reporting unless they are
subject to section 1291 under the coordi-
nation rule in § 1.1291-1(c)(4)(ii). Gener-
ally, under § 1.1291-1(c)(4)(ii), when a
United States person's PFIC stock is
marked to market under a non-section
1296 MTM provision in a taxable year
after the year in which the United States
person acquired the stock, the United
States person is subject to section 1291 for
the first taxable year in which the United
States person marks to market the PFIC
stock. Thus, the United States person is
subject to section 1291 with respect to any
unrealized gain in the stock as of the last
day of the first taxable year in which the
stock is marked to market, as if the person
disposed of the stock on that day. See
§ 1.1291-1(c)(4)(ii) and § 1.1296-1(i)(2)
and (3).
Also consistent with Notice 2014-51,
the final regulations add § 1.1298-
1(c)(2)(ii)(C), pursuant to which a United
States person's PFIC stock that is marked to
market under a non-section 1296 MTM pro-
vision is not taken into account in determin-
ing whether the person qualifies for the
exceptions from section 1298(f) reporting
set forth in § 1.1298-1(c)(2)(i)(A)(1) or
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(c)(2)(iii), provided that the rules of
§ 1.1296-1(i)(2) and (3) do not apply with
respect to the PFIC stock pursuant to
§ 1.1291-1(c)(4)(ii) for the taxable year.
See Section B.7 of this preamble for a de-
scription of these exceptions.
###### 2. Exception for certain domestic partnerships
A comment requested that the final
regulations add a new exception from the
section 1298(f) filing requirements for do-
mestic partnerships in which all of the
partners are tax-exempt organizations (or
other partnerships, all of the partners of
which are tax-exempt organizations) that
are not subject to the PFIC rules with
respect to a PFIC held by the partnership
because any income derived with respect
to the PFIC would not be taxable to the
tax-exempt partners under subchapter F of
Subtitle A of the Code. The comment
pointed out that a tax-exempt organization
is subject to section 1298(f) reporting with
respect to PFIC stock under § 1.1298-
1(c)(1) only if the income derived by the
organization with respect to the PFIC
stock would be taxable to the organization
under subchapter F of Subtitle A of the
Code. However, under the 2013 tempo-
rary regulations, a domestic partnership
(such as a domestic partnership that ex-
clusively pools the funds of tax-exempt
organizations to invest in PFICs) is re-
quired to file a Form 8621 with respect to
PFIC stock even when none of its partners
are subject to the PFIC rules with respect
to the PFIC stock.
Requiring reporting under section
1298(f) by a domestic partnership when
none of its direct and indirect owners are
subject to the PFIC rules may result in
undue compliance costs and burdens. Ac-
cordingly, consistent with the exception in
§ 1.1298-1(c)(1), the final regulations
adopt and expand upon this comment and
provide a final rule in § 1.1298-1(c)(6)
that exempts a domestic partnership from
section 1298(f) reporting with respect to
an interest in a PFIC for a taxable year
when none of its direct or indirect partners
are required to file Form 8621 (or succes-
sor form) with respect to the PFIC interest
under section 1298(f) and these regula-
tions because the partners are not subject
to the PFIC rules.
Thus, for example, if all the partners of
a domestic partnership are tax-exempt or-
ganizations exempt from PFIC taxation
under § 1.1291-1(e) with respect to PFIC
stock held by the partnership, and accord-
ingly are exempt from reporting pursuant
to § 1.1298-1(c)(1), the partnership, in
turn, is exempt from filing Form 8621
under section 1298(f) with respect to the
PFIC stock held by the partnership. Like-
wise, if all the partners of a domestic
partnership are foreign corporations that
are not considered to be shareholders un-
der § 1.1291-1(b)(7) of PFIC stock held
by the partnership, and no United States
person is an indirect shareholder of the
PFIC stock under § 1.1291-1(b)(8), the
partnership, in turn, is exempt from filing
Form 8621 under section 1298(f) with re-
spect to the PFIC stock held by the part-
nership.
In contrast, a domestic partnership is
not exempt from filing Form 8621 under
§ 1.1298-1(c)(6) with respect to stock it
holds in a section 1291 fund when some
or all of its partners are exempt from filing
Form 8621 with respect to that stock but
otherwise would be subject to tax on dis-
tributions on, or dispositions of, that
stock. PFIC information reporting by the
domestic partnership in these circum-
stances is appropriate because it furthers
PFIC tax compliance and enforcement.
3\. Exception for PFIC stock held
through certain foreign pension funds
that are covered by a U.S. income tax
treaty
In general, § 1.1298-1T(b)(3)(ii) ex-
empts a United States person from section
1298(f) reporting with respect to PFIC
stock that is owned by the United States
person through a foreign trust that is a
foreign pension fund operated principally
to provide pension or retirement benefits,
when, pursuant to the provisions of a U.S.
income tax treaty, the income earned by
the pension fund may be taxed as the
income of the United States person only
when, and to the extent, the income is paid
to, or for the benefit of, the United States
person.
As a threshold matter, this rule applies
only when the United States person owns
the PFIC through a foreign pension fund
that is treated as a foreign trust under
section 7701(a)(31)(B). However, the ap-
plicable provisions of U.S. income tax
treaties apply generally to foreign pension
funds, regardless of whether the foreign
pension fund is treated as a trust for U.S.
income tax purposes.
The Treasury Department and the IRS
have concluded that the treaty-based ex-
ception in § 1.1298-1T(b)(3)(ii) should
be expanded to apply to PFICs held by
United States persons through all applica-
ble foreign pension funds (or equivalents,
such as exempt pension trusts or pension
schemes referred to in certain U.S. income
tax treaties), regardless of their entity clas-
sification for U.S. income tax purposes.
Accordingly, the final regulations revise
the treaty-based exception for PFIC stock
held by a United States person through
certain foreign pension funds under
§ 1.1298-1T(b)(3)(ii) to eliminate the re-
quirement that the foreign pension fund be
treated as a foreign trust under section
7701(a)(31)(B). The final rule, which is
renumbered § 1.1298-1(c)(4), clarifies
that a foreign pension fund (or equivalent)
covered by this exception may be any type
of arrangement, including but not limited
to one of the arrangements listed in
§ 1.1298-1(c)(4). The final rule also ap-
plies in the case of an income tax treaty
that provides the relevant benefit by elec-
tion (or other procedure), such as under
paragraph 7 of Article 18 of the U.S .-
Canada income tax treaty, to the extent
that the election is in effect (or other pro-
cedure properly satisfied).
###### 4. Exception for dual resident taxpayers
A comment requested that an excep-
tion from the section 1298(f) filing re-
quirements be added for dual resident tax-
payers who are treated as residents of
another country (treaty country) pursuant
to an income tax treaty between the
United States and the treaty country. In
general, a "dual resident taxpayer" is an
individual who is considered a resident of
the United States under the Code, and is
also considered a resident of a treaty
country under the treaty country's internal
laws. § 301.7701(b)-7(a)(1). Certain U.S.
income tax treaties contain provisions that
resolve the conflicting claims of residence
by both countries (tie-breaker rules), pur-
suant to which dual resident taxpayers are
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treated as residents of only one country
for purposes of income taxation. A dual
resident taxpayer may claim the benefit of
treatment as a resident of a treaty country
for U.S. income tax purposes under a tie-
breaker rule of an applicable treaty provi-
sion by timely filing Form 8833, "Treaty-
Based Return Position Disclosure Under
Section 6114 or 7701(b)," with an appro-
priate income tax return, such as Form
1040NR, "U.S. Nonresident Alien Income
Tax Return." § 301.7701(b)-7(b) and (c).
A dual resident taxpayer who properly
claims this benefit is taxed as a nonresi-
dent alien (as defined in section 7701(b)
(1)(B)) for U.S. income tax purposes.
Nonresident aliens are not subject to
tax under the PFIC provisions (sections
1291 through 1298) because the PFIC
rules apply only to "United States per-
sons," and nonresident aliens are not
United States persons within the meaning
of section 7701(a)(30). However, dual
resident taxpayers treated as residents of a
treaty country for U.S. income tax pur-
poses generally are treated as United
States residents under the Code for pur-
poses other than the computation of their
income tax liability. § 301.7701(b)-
7(a)(3). Accordingly, dual resident tax-
payers who are treated as residents of a
treaty country under a tie-breaker rule and
who own PFICs are subject to the section
1298(f) reporting rules set forth in the
2013 temporary regulations even though
they are not subject to tax under the PFIC
provisions.
The requirement to file Form 8621 un-
der section 1298(f) increases taxpayer
awareness of, and compliance with, the
PFIC rules. However, because dual resi-
dent taxpayers treated as nonresident
aliens for purposes of computing their
U.S. tax liability are not subject to tax
under the PFIC rules, section 1298(f) re-
porting by these dual resident taxpayers is
not essential to the enforcement of the
PFIC provisions. Thus, the Treasury De-
partment and the IRS have determined
that it is appropriate to provide an excep-
tion from the section 1298(f) reporting
rules for dual resident taxpayers who are
treated as residents of a treaty country,
and, accordingly, not subject to tax under
the PFIC provisions.
Accordingly, the final regulations add
§ 1.1298-1(c)(5), which sets forth an ex-
ception from section 1298(f) reporting for
a dual resident taxpayer for a taxable year,
or the portion of a taxable year, during
which the dual resident taxpayer deter-
mines any U.S. income tax liability as a
nonresident alien under § 301.7701(b)-7,
and complies with the filing requirements
of § 301.7701(b)-7(b) and (c) and, if ap-
plicable, § 1.6012-1(b)(2)(ii)(b) (applica-
ble when the dual resident taxpayer is
treated as a resident of the treaty country
on the last day of the taxable year), or
§ 1.6012-1(b)(2)(ii)(a) (applicable when
the dual resident taxpayer is treated as a
resident of the United States on the last
day of the taxable year). This new section
1298(f) reporting exception is consistent
with § 1.6038D-2(e), which generally ex-
empts a dual resident taxpayer who is
taxed as a nonresident alien from section
6038D reporting for a taxable year, or the
portion of a taxable year, during which the
taxpayer is treated as a nonresident alien
and properly files Form 8833.
#### 5. Exception for certain PFIC stock held for a period of 30 days or less
Under the 2013 temporary regulations,
a shareholder who owns stock in a section
1291 fund for only a short period of time
during a year, and does not recognize an
excess distribution (or gain treated as an
excess distribution) with respect to the
section 1291 fund during the year may
still have a filing obligation under section
1298(f). Assume, for example, that during
a shareholder's taxable year, its section
1291 fund (upper-tier PFIC) acquires all
of the stock of another section 1291 fund
(lower-tier PFIC), which is liquidated into
the upper-tier PFIC a few days after it is
acquired. The lower-tier PFIC does not
make any distributions to the upper-tier
PFIC before the liquidation, and the
upper-tier PFIC does not recognize any
gain upon the liquidation of the lower-tier
PFIC. On the last day of its taxable year,
the shareholder owns PFIC stock with a
value of more than $25,000, and thus the
exception in § 1.1298-1T(c)(2) is not ap-
plicable. (See Section B.7 of this pream-
ble for an explanation of the reporting
exception in § 1.1298-1T(c)(2).) Accord-
ingly, under the 2013 temporary regula-
tions, the shareholder is required to report
its ownership in the lower-tier PFIC, even
though it only owned the PFIC for a few
days during the year and did not recognize
any income with respect to the PFIC.
The Treasury Department and the IRS
have concluded that compliance with, and
enforcement of, the PFIC regime would
not be adversely impacted by allowing a
reporting exception for transitory owner-
ship of section 1291 funds when there is
no taxation under section 1291 with re-
spect to the short period of ownership.
Thus, the final regulations provide an ex-
ception for section 1298(f) reporting for
certain shareholders with respect to PFICs
that were owned for a short period of time
during which no PFIC taxation was im-
posed on the shareholders. Specifically,
under § 1.1298-1(c)(7), a shareholder is
not required to file a Form 8621 under
section 1298(f) with respect to stock of a
section 1291 fund that it acquired either
during its taxable year or the immediately
preceding year, when the shareholder (i)
does not own any stock of the section
1291 fund for more than 30 days during
the period beginning 29 days before the
first day of the shareholder's taxable year
and ending 29 days after the close of the
shareholder's taxable year and (ii) did not
receive an excess distribution (including
gain treated as an excess distribution) with
respect to the section 1291 fund.
#### 6. Exception for certain bona fide residents of U.S. territories
A bona fide resident (within the mean-
ing of section 937(a)) of a possession of
the United States (U.S. territories)
(namely, American Samoa, Guam, the
Northern Mariana Islands, Puerto Rico,
and the United States Virgin Islands) may
include an individual who is also a United
States person, and thus the bona fide res-
ident may be a shareholder of a PFIC.
Under the 2013 temporary regulations,
the general section 1298(f) reporting re-
quirements in § 1.1298-1T(b)(1) apply
regardless of whether a shareholder is re-
quired to file a U.S. income tax return. As
a result, under the 2013 temporary regu-
lations, bona fide residents of U.S. terri-
tories who were shareholders of PFICs
were subject to the section 1298(f) filing
requirements set forth in the 2013 tempo-
rary regulations even when they were not
required to file a U.S. income tax return.
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As described in greater detail in this Sec-
tion B.6, the final regulations change this
result for bona fide residents of Guam, the
Northern Mariana Islands, and the United
States Virgin Islands and, as provided in
§ 1.1298-1(h)(1), the final regulations ap-
ply to taxable years ending on or after the
issuance of the 2013 temporary regulations.
Three of the five U.S. territories
(Guam, the Northern Mariana Islands, and
the United States Virgin Islands) have a
mirror code system of taxation, which
means that their income tax laws gener-
ally are identical to the Code (except for
the substitution of the name of the rele-
vant territory for the term "United States,"
where appropriate). Bona fide residents of
U.S. territories that are mirror code juris-
dictions have no income tax obligation (or
related filing obligation) with the United
States provided, generally, that they prop-
erly report income and fully pay their in-
come tax liability to the tax administration
of their respective U.S. territory. See sec-
tions 932 and 935. Thus, for example, a
bona fide resident of Guam who is a
shareholder of a PFIC would generally not
have a U.S. income tax obligation even in
a year when the shareholder is treated as
receiving an excess distribution (or recog-
nizing gain treated as an excess distribu-
tion) with respect to the PFIC.
Bona fide residents of non-mirror code
jurisdictions (American Samoa and Puerto
Rico) generally exclude territory-source
income from U.S. federal gross income
under sections 931 and 933, respectively.
(American Samoa currently is the only
territory to which section 931 applies be-
cause it is the only territory that has en-
tered into an implementing agreement un-
der sections 1271(b) and 1277(b) of the
Tax Reform Act of 1986.) However, un-
like mirror code jurisdictions, these bona
fide residents generally are subject to U.S.
income taxation, and have a related in-
come tax return filing requirement with
the United States, to the extent they have
non-territory-source income or income
from amounts paid for services performed
as an employee of the United States or any
agency thereof. See sections 931(a) and
(d) and 933. Further, under the 1992 pro-
posed regulations, certain excess distribu-
tions (or gains treated as excess distribu-
tions) from a PFIC would be exempt from
taxation with respect to a shareholder who
is a bona fide resident of Puerto Rico if the
amounts distributed were derived from
sources in Puerto Rico. Section 1.1291-
1(f) of the 1992 proposed regulations. Ac-
cordingly, for example, if a bona fide res-
ident of Puerto Rico is a shareholder of a
PFIC and is treated as receiving an ex-
cess distribution (or recognizing gain
treated as an excess distribution) with
respect to the PFIC that is from sources
outside of Puerto Rico, such shareholder
would be subject to U.S. income tax
under the PFIC provisions with respect
to such amounts.
The Treasury Department and the IRS
have concluded that relieving section
1298(f) reporting for PFIC stock held by
an individual who is a bona fide resident
of a U.S. territory that is a mirror code
jurisdiction who is not required to file a
U.S. income tax return for one or more
taxable years would not adversely impact
tax enforcement efforts related to PFICs.
This is because such individuals are not
subject to U.S. income tax in such years,
given that they have properly reported in-
come and fully paid their income tax lia-
bility to the tax administration of their
respective U.S. territory, and it is unlikely
such individuals will ever be subject to tax
under the PFIC provisions in the years
they receive excess distributions (or rec-
ognize gain treated as excess distribu-
tions). As a result, these final regulations
add § 1.1298-1(c)(8) to provide an excep-
tion from reporting under section 1298(f)
for a taxable year in which the individual
is a bona fide resident of Guam, the North-
ern Mariana Islands, or the United States
Virgin Islands and is not required to file a
U.S. income tax return.
However, no exception from reporting
is provided with respect to bona fide res-
idents of Puerto Rico and American Sa-
moa. Bona fide residents of Puerto Rico
and American Samoa who are not re-
quired to file U.S. income tax returns in a
given year may still be subject to tax
under the PFIC provisions if they are
shareholders of a PFIC and receive ex-
cess distributions (or recognize gain
treated as excess distributions) in a later
year. Thus, PFIC information reporting
by these individuals can reasonably be
expected to further PFIC tax compliance
and enforcement.
7\. $25,000 and $5,000 exceptions
Under § 1.1298-1T(c)(2)(i), a share-
holder generally is not required to file
Form 8621 with respect to a section 1291
fund when the shareholder is not treated
as receiving an excess distribution (or rec-
ognizing gain treated as an excess distri-
bution) with respect to the section 1291
fund stock, and, as of the last day of the
shareholder's taxable year, either the
value of all PFIC stock considered owned
by the shareholder is $25,000 (or $50,000
for shareholders that file a joint return) or
less, or, if the stock of the section 1291
fund is owned indirectly, the value of the
indirectly owned stock is $5,000 or less.
Stock in a PFIC that is indirectly owned
through another PFIC or United States
person that is a shareholder of the PFIC is
not taken into account in determining if
the $25,000 (or $50,000 for joint returns)
threshold is met. § 1.1298-1T(c)(2)(ii).
A comment generally requested that
the reporting exception thresholds in
§ 1.1298-1T(c)(2)(i) be increased for
U.S. individuals living abroad. The appar-
ent concern underlying the comment is the
commenter's view that such persons often
are not aware of the PFIC provisions. The
Treasury Department and the IRS have
determined that adopting an exception to
the reporting requirements on this basis
would adversely affect compliance with,
and enforcement of, the PFIC provisions,
because such individuals remain subject
to tax under section 1291 regardless of the
value of their PFIC stock, and a benefit of
requiring reporting with respect to a sec-
tion 1291 fund in a year in which a share-
holder is not subject to tax under section
1291 is to enhance the shareholder's
awareness of the PFIC requirements with
respect to the section 1291 fund. The
Treasury Department and the IRS pro-
posed the dollar amounts for the reporting
exception thresholds in the 2013 tempo-
rary regulations in order to balance ad-
ministrative burdens with compliance and
enforcement concerns. No comments
were submitted that recommended a spe-
cific higher dollar amount or that provided
a basis, consistent with the purposes of the
PFIC provisions, for increasing the mon-
etary thresholds. Accordingly, the final
regulations do not increase the monetary
thresholds for these exceptions.
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A separate comment requested that the
reporting exceptions under § 1.1298-
1T(c)(2) be expanded to apply when a
United States person recognizes an excess
distribution under section 1291 in a tax-
able year with respect to one or more
PFICs, to the extent the PFICs are indi-
rectly held through domestic pass-through
entities and the total excess distribution
income from the PFICs in the taxable year
is less than $1,000, indexed for inflation.
The comment explained that many United
States persons hold indirect interests in
section 1291 funds, particularly through
partnerships, that generate only small
amounts of excess distribution income,
and exempting reporting for these PFIC
shareholders would simplify PFIC report-
ing compliance. However, the section
1291 rules apply when a PFIC shareholder
receives (or is treated as receiving) an
excess distribution, regardless of the dol-
lar amount of the excess distribution. Af-
ter consideration of this comment, the
Treasury Department and the IRS con-
cluded that the request should not be ad-
opted because of the potential for such a
reporting exception to reduce compliance
with the substantive section 1291 rules.
#### C. Manner of Filing Form 8621
1\. Filing Form 8621 when a shareholder
is not otherwise obligated to file a return
Section 1.1298-1T(d) generally pro-
vides that a United States person required to
file Form 8621 under section 1298(f) with
respect to a PFIC for a taxable year must
attach the form to the person's U.S. income
tax return (or information return, if applica-
ble) for the relevant taxable year. The in-
structions for Form 8621 further provide
that a United States person who is required
to file Form 8621 for a taxable year in which
the person does not file an income tax return
(or other return) must send the Form 8621 to
the IRS at a mailing addressed designated in
the instructions.
These final regulations clarify how a
United States person files a Form 8621 (or
successor form) when the United States
person is not otherwise required to file a
U.S. income tax return (or information
return, if applicable). Section 1.1298-1(d)
of the final regulations states that a United
States person that is not otherwise re-
quired to file a U.S. income tax return
must file the Form 8621 (or successor
form) in accordance with the instructions
for the form.
##### 2. Protective filing procedure for Form 8621
A comment requested that the final
regulations allow a "protective" Form
8621 to be filed under section 1298(f)
with respect to a foreign corporation when
a shareholder is unsure of its PFIC status
due to factors beyond the control of the
shareholder that prevent access to the
books and records of the corporation nec-
essary to make a PFIC determination. The
purpose of the protective filing is to defer
any potential section 1298(f) filing re-
quirements so that the assessment period
for the shareholder's entire return under
section 6501(c)(8) would not be sus-
pended if the foreign corporation is sub-
sequently determined to have been a PFIC
in the year to which the protective filing
relates. The comment proposed that if the
foreign corporation subsequently is deter-
mined to be a PFIC for a taxable year for
which the protective filing was made, the
shareholder would be subject to PFIC tax-
ation in that year, and thus would be re-
quired to file Form 8621 for that year.
The failure to file Form 8621 to prop-
erly report PFIC information under sec-
tion 1298(f) for a taxable year suspends
the period of limitation on assessment un-
der section 6501(c)(8)(A) with respect to
any tax return, event, or period to which
the information relates until three years
after the information is reported. How-
ever, if the failure to file the information is
due to reasonable cause and not willful
neglect, the period of limitation on assess-
ment under section 6501(c)(8)(B) is sus-
pended only with respect to items related
to such failure. The Treasury Department
and the IRS have concluded that the rea-
sonable cause exception under section
6501(c)(8)(B) provides appropriate relief
for a failure to file Form 8621. When a
taxpayer can establish reasonable cause
for a failure to file Form 8621, the assess-
ment period is suspended only with re-
spect to items related to the PFIC that
were required to be reported on the Form
8621. Thus, the recommendation to add a
protective filing rule to the final regula-
tions is not adopted.
#### 3. Consolidated filings for Forms 8621
Two comments requested that the final
regulations allow a United States person
to file a consolidated Form 8621 that
would include all of the person's PFICs
and relevant information on a supporting
schedule attached to the Form 8621. One
of the comments explained that foreign
investment partnerships commonly hold
multiple PFIC investments, and, in such
cases, a United States person who is a
partner in the foreign partnership is re-
quired to file multiple Forms 8621 to re-
port each underlying PFIC. This comment
further noted that at least two commonly
used commercial tax return preparation
products, as of 2012, did not allow for
electronic filing of a Form 1040 contain-
ing more than five Forms 8621, which is
contrary to the IRS's goal of increasing
e-filings of tax returns.
The Treasury Department and the IRS
have concluded that the expenditures
needed to redesign and reprogram the
IRS's processing system to gather, com-
pile, and cross-reference information from
a consolidated Form 8621 outweigh the
marginal administrative burden for United
States persons to file a separate Form
8621 with respect to each of their PFICs.
Accordingly, the final regulations do not
adopt the comment to permit consolidated
filings.
### D. Form 5471 Filing Obligations
The final regulations adopt the 2013
temporary regulations with respect to
the removal of the requirement under sec-
tions 6038 and 6046 that certain United
States persons file a statement in circum-
stances where the United States person
qualifies for the constructive ownership
exception, with certain clarifying changes
to the language of the regulations.
### Effect on Other Documents
Notice 2014-28, 2014-18 I.R.B. 990,
is obsolete as of December 28, 2016.
Notice 2014-51, 2014-40 I.R.B. 594,
is obsolete as of December 28, 2016.
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### Special Analyses
Certain IRS regulations, including
these, are exempt from the requirements
of Executive Order 12866, as supple-
mented and reaffirmed by Executive Or-
der 13563. Therefore, a regulatory as-
sessment is not required. Pursuant to
section 7805(f) of the Code, the notice
of proposed rulemaking preceding these
regulations was submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small businesses.
It is hereby certified that the collec-
tion of information in these regulations
will not have a significant economic im-
pact on a substantial number of small
entities within the meaning of section
601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6). This certification is
based on the fact that most small entities
do not own an interest in a PFIC. More-
over, those small entities that are share-
holders of a PFIC generally either make
a qualified electing fund election under
section 1295 or make a mark to market
election under section 1296 and were
therefore required to file Form 8621
with respect to the PFIC stock under the
rules that preceded the 2013 temporary
regulations. Thus, there is a limited
class of small entities that are PFIC
shareholders that were required to file
Forms 8621 under the 2013 temporary
regulations and that were not required to
do so prior to the issuance of those
regulations. The final regulations, as
compared to the 2013 temporary regu-
lations, provide additional exceptions
that exempt certain PFIC shareholders,
some of which could include certain
small entities, from filing Form 8621.
Accordingly, the collection of informa-
tion required by these final regulations
does not affect a substantial number of
small entities.
Further, the collection of information
required under these final regulations
will not have a significant economic im-
pact on a substantial number of small
entities because neither the time nor the
costs necessary for shareholders to com-
ply with the collection of information
requirements is significant. Therefore, a
Regulatory Flexibility Analysis under
the Regulatory Flexibility Act is not re-
quired.
### Drafting Information
The principal author of these regula-
tions is Stephen M. Peng of the Office of
Associate Chief Counsel (International).
However, other personnel from the Trea-
sury Department and the IRS 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 entries for
§§ 1.1291-1, 1.1291-9, and 1.1298-1,
§ 1.1298-1, and § 1.6046-1 in numerical
order and revising the entry for § 1.6038-2
to read in part as follows:
Authority: 26 U.S.C. 7805
Sections 1.1291-1, 1.1291-9, and
1.1298-1 also issued under 26 U.S.C.
1298(a) and (g).
* * * * *
Section 1.1298-1 also issued under 26
U.S.C. 1298(f).
* * * * *
Section 1.6038-2 also issued under 26
U.S.C. 6038(d).
* * * * *
Section 1.6046-1 also issued 26
U.S.C. 6046(b).
* * * * *
Par. 2. Section 1.1291-0 is amended
by:
1\. Revising the heading and entries for
§ 1.1291-1.
2\. Revising the entry for § 1.1291-
9(k).
The revisions read as follows:
§ 1.1291-0 Treatment of shareholders
of certain passive foreign investment
companies; table of contents.
* * * * *
§ 1.1291-1 Taxation of U.S. persons
that are shareholders of section 1291
funds.
(a) through (b)(2)(i) [Reserved]
(ii) Pedigreed QEF.
(b)(2)(iii) and (iv) [Reserved]
(v) Section 1291 fund.
(3) through (6) [Reserved]
(7) Shareholder.
(8) Indirect shareholder.
(i) In general.
(ii) Ownership through a corporation.
(A) Ownership through a non-PFIC
foreign corporation.
(B) Ownership through a PFIC.
(C) Ownership through a domestic cor-
poration.
(iii) Ownership through pass-through
entities.
(A) Partnerships.
(B) S Corporations.
(C) Estates and nongrantor trusts.
(D) Grantor trusts.
(iv) Examples.
(c) Coordination with other PFIC rules.
(1) and (2) [Reserved]
(3) Coordination with section 1296:
distributions and dispositions.
(4) Coordination with mark to market
rules under chapter 1 of the Internal
Revenue Code other than section 1296.
(i) In general.
(ii) Coordination rule.
(d) [Reserved].
(e) Exempt organization as share-
holder.
(1) In general.
(2) Ownership through certain tax-
exempt organizations and accounts.
(f) through (i) [Reserved]
(j) Applicability dates.
§ 1.1291-9 Deemed dividend election.
* * * * *
(k) Effective/applicability dates.
* * * * *
##### § 1.1291-0T [Removed]
Par. 3. Section 1.1291-0T is removed.
Par. 4. Section 1.1291-1 is amended
by:
1\. Revising the section heading.
2\. Adding paragraphs (b)(2)(ii) and (v),
(b)(7), and (b)(8).
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3\. Revising paragraphs (e)(2) and (j).
The revisions and additions read as fol-
lows:
§ 1.1291-1 Taxation of U.S. persons
that are shareholders of section 1291
funds.
* * * * *
(b) * * *
(2) * * *
(ii) Pedigreed QEF. A PFIC is a ped-
igreed QEF with respect to a shareholder
if the PFIC has been a QEF with respect to
the shareholder for all taxable years dur-
ing which the corporation was a PFIC that
are included wholly or partly in the share-
holder's holding period of the PFIC stock.
* * * * *
(v) Section 1291 fund. A PFIC is a
section 1291 fund with respect to a share-
holder unless the PFIC is a pedigreed QEF
with respect to the shareholder or a sec-
tion 1296 election is in effect with respect
to the shareholder.
* * * * *
(7) Shareholder. A shareholder is a
United States person that directly owns
stock of a PFIC (a direct shareholder), or
that is an indirect shareholder (as defined
in section 1298(a) and paragraph (b)(8) of
this section), except as provided in para-
graph (e) of this section. For purposes of
sections 1291 and 1298, a domestic part-
nership or S corporation (as defined in
section 1361(a)(1)) is not treated as a
shareholder of a PFIC except for pur-
poses of any information reporting re-
quirements, including the requirement
to file an annual report under section
1298(f). In addition, to the extent that a
person is treated under sections 671
through 678 as the owner of a portion of
a domestic trust, the trust is not treated
as a shareholder of a PFIC with respect
to PFIC stock held by that portion of
the trust, except for purposes of the
information reporting requirements of
§ 1.1298-1(b)(3)(i) (imposing an infor-
mation reporting requirement on domes-
tic liquidating trusts and fixed invest-
ment trusts).
(8) Indirect shareholder-(i) In gen-
eral. An indirect shareholder of a PFIC is
a United States person that indirectly
owns stock of a PFIC. A person indirectly
owns stock when it is treated as owning
stock of a corporation owned by another
person, including another United States
person, under this paragraph (b)(8). In ap-
plying this paragraph (b)(8), the determi-
nation of a person's indirect ownership is
made on the basis of all the facts and
circumstances in each case; the substance
rather than the form of ownership is con-
trolling, taking into account the purposes
of sections 1291 through 1298.
(ii) Ownership through a corpora-
tion-(A) Ownership through a non-
PFIC foreign corporation. A person that
directly or indirectly owns 50 percent or
more in value of the stock of a foreign
corporation that is not a PFIC is consid-
ered to own a proportionate amount (by
value) of any stock owned directly or in-
directly by the foreign corporation.
(B) Ownership through a PFIC. A per-
son that directly or indirectly owns stock
of a PFIC is considered to own a propor-
tionate amount (by value) of any stock
owned directly or indirectly by the
PFIC. Section 1297(d) does not apply in
determining whether a corporation is a
PFIC for purposes of this paragraph
(b)(8)(ii)(B).
(C) Ownership through a domestic
corporation-(1) In general. Solely for
purposes of determining whether a person
satisfies the ownership threshold de-
scribed in paragraph (b)(8)(ii)(A) of this
section, a person that directly or indirectly
owns 50 percent or more in value of the
stock of a domestic corporation is consid-
ered to own a proportionate amount (by
value) of any stock owned directly or in-
directly by the domestic corporation.
(2) Non-duplication. Paragraph (b)(8)
(ii)(C)(1) of this section does not apply
to treat a United States person as owning
(other than for purposes of applying the
ownership threshold in paragraph (b)(8)
(ii)(A) of this section) stock of a PFIC
that is directly owned or considered
owned indirectly within the meaning of
this paragraph (b)(8) by another United
States person (determined without re-
gard to paragraph (b)(8)(ii)(C)(1)). See
Example 1 of paragraph (b)(8)(iv) of
this section.
(3) S corporations. The 50 percent lim-
itation in paragraph (b)(8)(ii)(C)(1) of this
section does not apply with respect to
stock owned directly or indirectly by an S
corporation. See paragraph (b)(8)(iii)(B)
of this section for rules regarding stock
owned directly or indirectly by an S cor-
poration.
(iii) Ownership through pass-through
entities-(A) Partnerships. If a foreign or
domestic partnership directly or indirectly
owns stock, the partners of the partnership
are considered to own such stock propor-
tionately in accordance with their owner-
ship interests in the partnership.
(B) S Corporations. If an S corporation
directly or indirectly owns stock, each S
corporation shareholder is considered to
own such stock proportionately in accor-
dance with the shareholder's ownership
interest in the S corporation.
(C) Estates and nongrantor trusts. If a
foreign or domestic estate or nongrantor
trust (other than an employees' trust de-
scribed in section 401(a) that is exempt
from tax under section 501(a)) directly or
indirectly owns stock, each beneficiary of
the estate or trust is considered to own a
proportionate amount of such stock. For
purposes of this paragraph (b)(8)(iii)(C), a
nongrantor trust is any trust or portion of
a trust that is not treated as owned by one
or more persons under sections 671
through 679.
(D) Grantor trusts. If a foreign or do-
mestic trust directly or indirectly owns
stock, a person that is treated under sec-
tions 671 through 679 as the owner of any
portion of the trust that holds an interest in
the stock is considered to own the interest
in the stock held by that portion of the
trust.
(iv) Examples. The rules of this para-
graph (b)(8) are illustrated by the follow-
ing examples:
Example 1. A is a United States person
who owns 49 percent of the stock of FC1,
a foreign corporation that is not a PFIC,
and separately all the stock of DC, a do-
mestic corporation that is not an S corpo-
ration. DC, in turn, owns the remaining 51
percent of the stock of FC1, and FC1
owns 100 shares of stock in a PFIC that is
not a controlled foreign corporation
(CFC) within the meaning of section
957(a). DC is an indirect shareholder with
respect to 51 percent of the PFIC stock
held by FC1 under paragraph (b)(8)(ii)(A)
of this section. In determining whether A
owns 50 percent or more of the value of
FC1 for purposes of applying paragraph
(b)(8)(ii)(A) of this section, A is consid-
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ered under paragraph (b)(8)(ii)(C)(1) of
this section as indirectly owning all the
stock of FC1 that DC directly owns. How-
ever, because 51 shares of the PFIC stock
held by FC1 are indirectly owned by DC
under paragraph (b)(8)(ii)(A) of this sec-
tion, pursuant to the limitation imposed by
paragraph (b)(8)(ii)(C)(2) of this section,
only the remaining 49 shares of the PFIC
stock are considered as indirectly owned
by A under paragraph (b)(8) of this sec-
tion.
* * * * *
(e) * * *
(2) Ownership through certain tax-
exempt organizations and accounts. To
the extent a United States person owns
stock of a PFIC through an organization
or account described in § 1.1298-1(c)(1),
that person is not treated as a shareholder
with respect to the PFIC stock.
* * * * *
(j) Applicability dates. (1) Paragraphs
(c)(3) and (4) of this section apply for
taxable years beginning on or after May 3,
2004.
(2) Paragraph (e)(1) of this section is
applicable on and after April 1, 1992.
(3) Paragraphs (b)(2)(ii), (b)(2)(v),
(b)(7), (b)(8), and (e)(2) of this section
apply to taxable years of shareholders
ending on or after December 31, 2013.
##### § 1.1291-1T [Removed]
Par. 5. Section 1.1291-1T is removed.
Par. 6. Section 1.1291-9 is amended by
revising paragraphs (j)(3) and (k)(3) to
read as follows:
§ 1.1291-9 Deemed dividend election.
* * * * *
(j) ** *
(3) A shareholder is a United States
person that is a shareholder as defined in
§ 1.1291-1(b)(7) or an indirect share-
holder as defined in § 1.1291-1(b)(8), ex-
cept as provided in § 1.1291-1(e).
(k) * * *
(3) Paragraph (j)(3) of this section ap-
plies to taxable years of shareholders end-
ing on or after December 31, 2013.
##### § 1.1291-9T [Removed]
Par. 7. Section 1.1291-9T is removed.
Par. 8. Section 1.1298-0 is amended
by:
1\. Revising the section heading and
introductory text.
2\. Adding a heading and entries for
§ 1.1298-1.
The revisions and additions read as fol-
lows:
###### § 1.1298-0 Passive foreign investment company - table of contents.
This section contains a listing of the
paragraph headings for §§ 1.1298-1 and
1.1298-3.
§ 1.1298-1 Section 1298(f) annual
reporting requirements for United States
persons that are shareholders of a
passive foreign investment company.
(a) Overview.
(b) Requirement to file.
(1) General rule.
(2) Additional requirement to file for
certain indirect shareholders.
(i) General rule.
(ii) Exception to indirect shareholder
reporting for certain QEF inclusions and
MTM inclusions.
(3) Special rules for estates and trusts.
(i) Domestic liquidating trusts and
fixed investment trusts.
(ii) Beneficiaries of foreign estates and
trusts.
(c) Exceptions.
(1) Exception if shareholder is a tax-
exempt entity.
(2) Exception if aggregate value of
shareholder's PFIC stock is $25,000 or
less, or value of shareholder's indirect
PFIC stock is $5,000 or less.
(i) General rule.
(ii) Determination of the $25,000
threshold in the case of indirect owner-
ship.
(iii) Application of the $25,000 excep-
tion to shareholders who file a joint return.
(iv) Reliance on periodic account state-
ments.
(3) Exception for PFIC stock marked
to market under a provision other than
section 1296.
(4) Exception for PFIC stock held
through certain foreign pension funds.
(5) Exception for certain shareholders
who are dual resident taxpayers.
(i) General rule.
(ii) Dual resident taxpayer filing as
nonresident alien at end of taxable year.
(iii) Dual resident taxpayer filing as
resident alien at end of taxable year.
(6) Exception for certain domestic
partnerships.
(7) Exception for certain short-term
ownership of PFIC stock.
(8) Exception for certain bona fide res-
idents of U.S. territories.
(9) Exception for taxable years ending
before December 31, 2013.
(d) Time and manner for filing.
(e) Separate annual report for each
PFIC.
(1) General rule.
(2) Special rule for shareholders who
file a joint return.
(f) Coordination rule.
(g) Examples.
(h) Applicability date.
* * * * *
###### § 1.1298-0T [Removed]
Par. 9. Section 1.1298-0T is removed.
Par. 10. Section 1.1298-1 is added to
read as follows:
§ 1.1298-1 Section 1298(f) annual re-
porting requirements for United States
persons that are shareholders of a passive
foreign investment company.
(a) Overview. This section provides
rules regarding the reporting requirements
under section 1298(f) applicable to a
United States person that is a shareholder
(as defined in § 1.1291-1(b)(7)) of a
passive foreign investment company
(PFIC). Paragraph (b) of this section
provides the section 1298(f) annual re-
porting requirements generally applica-
ble to United States persons. Paragraph
(c) of this section sets forth exceptions
to reporting for certain shareholders.
Paragraph (d) of this section provides
rules regarding the time and manner of
filing the annual report. Paragraph (e) of
this section sets forth the requirement to
file a separate annual report with respect
to each PFIC. Paragraph (f) of this sec-
tion coordinates the requirement to file
an annual report under section 1298(f)
with the requirement to file an annual
report under other provisions of the In-
ternal Revenue Code (Code). Paragraph
(g) of this section sets forth examples
illustrating the application of this sec-
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tion. Paragraph (h) of this section pro-
vides effective/applicability dates.
(b) Requirement to file-(1) General
rule. Except as otherwise provided in this
section, a United States person that is a
shareholder of a PFIC must complete and
file Form 8621, "Information Return by a
Shareholder of a Passive Foreign Invest-
ment Company or Qualified Electing
Fund" (or successor form), under section
1298(f) and these regulations for the PFIC
if, during the shareholder's taxable year,
the shareholder-
(i) Directly owns stock of the PFIC;
(ii) Is an indirect shareholder under
§ 1.1291-1(b)(8) that holds any interest in
the PFIC through one or more entities,
each of which is foreign; or
(iii) Is an indirect shareholder under
§ 1.1291-1(b)(8)(iii)(D) that is treated un-
der sections 671 through 678 as the owner
of any portion of a trust described in sec-
tion 7701(a)(30)(E) that owns, directly or
indirectly through one or more entities,
each of which is foreign, any interest in
the PFIC.
(2) Additional requirement to file for
certain indirect shareholders-(i) Gen-
eral rule. Except as otherwise provided in
this section, an indirect shareholder that
owns an interest in a PFIC through one or
more United States persons also must file
Form 8621 (or successor form) with re-
spect to the PFIC under section 1298(f)
and these regulations if, during the indi-
rect shareholder's taxable year, the indi-
rect shareholder is-
(A) Treated as receiving an excess dis-
tribution (within the meaning of section
1291(b)) with respect to the PFIC;
(B) Treated as recognizing gain that is
treated as an excess distribution (under
section 1291(a)(2)) as a result of a dispo-
sition of the PFIC;
(C) Required to include an amount in
income under section 1293(a) with respect
to the PFIC (QEF inclusion);
(D) Required to include or deduct an
amount under section 1296(a) with re-
spect to the PFIC (MTM inclusion); or
(E) Required to report the status of a
section 1294 election with respect to the
PFIC (see § 1.1294-1T(h)).
(ii) Exception to indirect shareholder
reporting for certain QEF inclusions and
MTM inclusions. Except as otherwise pro-
vided in this paragraph (b)(2)(ii), the filing
requirements under paragraph (b) of this
section do not apply with respect to an
interest in a PFIC owned by an indirect
shareholder described in paragraph (b)(2)
(i)(C) or (D) of this section if another
shareholder through which the indirect
shareholder owns such interest in the
PFIC timely files Form 8621 (or successor
form) with respect to the PFIC under para-
graph (b)(1) or (2) of this section. How-
ever, the exception in this paragraph
(b)(2)(ii) does not apply with respect to a
PFIC owned by an indirect shareholder
described in paragraph (b)(2)(i)(C) of this
section that owns the PFIC through a do-
mestic partnership or S corporation if the
domestic partnership or S corporation
does not make a qualified electing fund
election with respect to the PFIC (see
§ 1.1293-1(c)(2)(ii), addressing QEF
stock transferred to a pass through entity
that does not make a section 1295 elec-
tion).
(3) Special rules for estates and
trusts-(i) Domestic liquidating trusts
and fixed investment trusts. A United
States person that is treated under sections
671 through 678 as the owner of any
portion of a trust described in section
7701(a)(30)(E) that owns, directly or in-
directly, any interest in a PFIC is not
required under section 1298(f) and these
regulations to file Form 8621 (or succes-
sor form) with respect to the PFIC if the
trust is either a domestic liquidating trust
under § 301.7701-4(d) of this chapter
created pursuant to a court order issued in
a bankruptcy under Chapter 7 (11 U.S.C.
701 et seq.) of the Bankruptcy Code or a
confirmed plan under Chapter 11 (11
U.S.C. 1101 et seq.) of the Bankruptcy
Code, or a widely held fixed investment
trust under § 1.671-5. Such a trust itself is
treated as a shareholder for purposes of
section 1298(f) and these regulations, and
thus, except as otherwise provided in this
section, the trust is required under section
1298(f) and these regulations to file Form
8621 (or successor form) with respect to
the PFIC as provided in paragraphs (b)(1)
and (2) of this section.
(ii) Beneficiaries of foreign estates and
trusts. A United States person that is con-
sidered to own an interest in a PFIC be-
cause it is a beneficiary of an estate de-
scribed in section 7701(a)(31)(A) or a
trust described in section 7701(a)(31)(B)
that owns, directly or indirectly, stock of a
PFIC, and that has not made an election
under section 1295 or 1296 with respect to
the PFIC, is not required under section
1298(f) and these regulations to file Form
8621 (or successor form) with respect to
the stock of the PFIC that it is considered
to own through the estate or trust if, dur-
ing the beneficiary's taxable year, the ben-
eficiary is not treated as receiving an ex-
cess distribution (within the meaning of
section 1291(b)) or as recognizing gain
that is treated as an excess distribution
(under section 1291(a)(2)) with respect to
the stock.
(c) Exceptions-(1) Exception if share-
holder is a tax-exempt entity. A share-
holder that is an organization exempt un-
der section 501(a) to the extent that it is
described in section 501(c), 501(d), or
401(a), a state college or university de-
scribed in section 511(a)(2)(B), a plan de-
scribed in section 403(b) or 457(b), an
individual retirement plan or annuity as
defined in section 7701(a)(37), or a qual-
ified tuition program described in section
529, a qualified ABLE program described
in 529A, or a Coverdell education savings
account described in section 530 is not
required under section 1298(f) and these
regulations to file Form 8621 (or succes-
sor form) with respect to a PFIC unless
the income derived with respect to the
PFIC stock would be taxable to the orga-
nization under subchapter F of Subtitle A
of the Code.
(2) Exception if aggregate value of
shareholder's PFIC stock is $25,000 or
less, or value of shareholder's indirect
PFIC stock is $5,000 or less-(i) General
rule. A shareholder is not required under
section 1298(f) and these regulations to
file Form 8621 (or successor form) with
respect to a section 1291 fund (as defined
in § 1.1291-1(b)(2)(v)) for a sharehold-
er's taxable year if-
(A) On the last day of the shareholder's
taxable year:
(1) The value of all PFIC stock
owned directly or indirectly under sec-
tion 1298(a) and § 1.1291-1(b)(8) by
the shareholder is $25,000 or less; or
(2) The section 1291 fund stock is in-
directly owned by the shareholder under
section 1298(a)(2)(B) and § 1.1291-
1(b)(8)(ii)(B), and the value of the section
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1291 fund stock indirectly owned by the
shareholder is $5,000 or less;
(B) The shareholder is not treated as
receiving an excess distribution (within
the meaning of section 1291(b)) with re-
spect to the section 1291 fund during the
taxable year or as recognizing gain treated
as an excess distribution under section
1291(a)(2) as the result of a disposition of
the section 1291 fund during the taxable
year; and
(C) An election under section 1295 has
not been made to treat the section 1291
fund as a qualified electing fund with re-
spect to the shareholder.
(ii) Determination of the $25,000
threshold in the case of indirect owner-
ship. For purposes of determining the
value of stock held by a shareholder for
purposes of paragraph (c)(2)(i)(A)(1) of
this section, the shareholder must take into
account the value of all PFIC stock owned
directly or indirectly under section
1298(a) and § 1.1291-1(b)(8), except for
PFIC stock that is-
(A) Owned through another United
States person that itself is a shareholder of
the PFIC (including a domestic partner-
ship or S corporation treated as a share-
holder of a PFIC for purposes of informa-
tion reporting requirements applicable to a
shareholder);
(B) Owned through a PFIC under sec-
tion 1298(a)(2)(B) and § 1.1291-1(b)(8)
(ii)(B); or
(C) Marked to market for the share-
holder's taxable year under any provision
of chapter 1 of the Internal Revenue Code
other than section 1296, provided the rules
of § 1.1296-1(i)(2) and (3) do not apply
to the shareholder with respect to the
PFIC stock pursuant to § 1.1291-
1(c)(4)(ii) for the shareholder's taxable
year.
(iii) Application of the $25,000 excep-
tion to shareholders who file a joint
return. In the case of a joint return,
the exception described in paragraph
(c)(2)(i)(A)(1) of this section shall apply
if the value of all PFIC stock owned di-
rectly or indirectly (as determined under
section 1298(a), § 1.1291-1(b)(8), and
paragraph (c)(2)(ii) of this section) by
both spouses is $50,000 or less, and all of
the other applicable requirements of para-
graph (c)(2) of this section are met.
(iv) Reliance on periodic account
statements. A shareholder may rely upon
periodic account statements provided at
least annually to determine the value of a
PFIC unless the shareholder has actual
knowledge or reason to know based on
readily accessible information that the
statements do not reflect a reasonable es-
timate of the PFIC's value.
(3) Exception for PFIC stock marked
to market under a provision other than
section 1296. A shareholder is not re-
quired under section 1298(f) and these
regulations to file Form 8621 (or succes-
sor form) with respect to a PFIC for any
taxable year in which the PFIC is marked
to market under any provision of chapter 1
of the Internal Revenue Code other than
section 1296, provided the rules of
§ 1.1296-1(i)(2) and (3) do not apply to
the shareholder with respect to the PFIC
pursuant to § 1.1291-1(c)(4)(ii) for the
taxable year.
(4) Exception for PFIC stock held
through certain foreign pension funds. A
shareholder who is a member or benefi-
ciary of, or participant in, a plan, trust,
scheme, or other arrangement that is
treated as a foreign pension fund (or
equivalent) under an income tax treaty to
which the United States is a party and that
owns, directly or indirectly, an interest in
a PFIC is not required under section
1298(f) and these regulations to file Form
8621 (or successor form) with respect to
the PFIC interest if, pursuant to the appli-
cable income tax treaty, the income
earned by the foreign pension fund may
be taxed as the income of the shareholder
only when and to the extent the income is
paid to, or for the benefit of, the share-
holder.
(5) Exception for certain shareholders
who are dual resident taxpayers-(i)
General rule. Subject to the provisions of
paragraphs (c)(5)(ii) and (iii) of this sec-
tion, a shareholder is not required under
section 1298(f) and these regulations to
file Form 8621 (or successor form) with
respect to a PFIC for a taxable year, or the
portion of a taxable year, in which the
shareholder is a dual resident taxpayer
(within the meaning of § 301.7701(b)-
7(a)(1) of this chapter) who is treated as a
nonresident alien of the United States for
purposes of computing his or her United
States income tax liability pursuant to
§ 301.7701(b)-7 of this chapter.
(ii) Dual resident taxpayer filing as a
nonresident alien at end of taxable year. If
a shareholder to whom this paragraph
(c)(5) applies computes his or her U.S.
income tax liability as a nonresident alien
on the last day of the taxable year and
complies with the filing requirements of
§ 301.7701(b)-7(b) and (c) of this chapter
and, in particular, such individual timely
files with the Internal Revenue Service
Form 1040NR, "U.S. Nonresident Alien
Income Tax Return," or Form 1040NR-
EZ, "U.S. Income Tax Return for Certain
Nonresident Aliens With No Depen-
dents," as applicable, and attaches thereto
a properly completed Form 8833, "Treaty-
Based Return Position Disclosure Under
Section 6114 or 7701(b)," and the sched-
ule required by § 1.6012-1(b)(2)(ii)(b) (if
applicable), such shareholder will not be
required under section 1298(f) and these
regulations to file Form 8621 (or succes-
sor form) with respect to the taxable year,
or the portion of the taxable year, covered
by Form 1040NR (or Form 1040NR-EZ).
(iii) Dual resident taxpayer filing as
resident alien at end of taxable year. If a
shareholder to whom this paragraph (c)(5)
applies computes his or her U.S. income
tax liability as a resident alien on the last
day of the taxable year and complies with
the filing requirements of § 1.6012-
1(b)(2)(ii)(a) and, in particular such share-
holder timely files with the Internal Rev-
enue Service Form 1040, "U.S. Individual
Income Tax Return," or Form 1040EZ,
"Income Tax Return for Single and Joint
Filers With No Dependents," as applica-
ble, and attaches a properly completed
Form 8833 to the schedule required by
§ 1.6012-1(b)(2)(ii)(a), such shareholder
will not be required under section 1298(f)
and these regulations to file Form 8621 (or
successor form) with respect to the por-
tion of the taxable year reflected on the
schedule to such Form 1040 or Form
1040EZ required by § 1.6012-1(b)
(2)(ii)(a).
(6) Exception for certain domestic
partnerships. A shareholder that is a do-
mestic partnership is not required under
section 1298(f) and these regulations to
file Form 8621 (or successor form) with
respect to a PFIC directly or indirectly
held by the domestic partnership for a
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taxable year if each person that directly or
indirectly owns an interest in the domestic
partnership for its taxable year in which or
with which the taxable year of the part-
nership ends is either-
(i) Not a shareholder of the PFIC as
defined by § 1.1291-1(b)(7);
(ii) A tax-exempt entity or account not
required to file Form 8621 with respect to
the stock of the PFIC under paragraph
(c)(1) of this section;
(iii) A dual resident taxpayer not re-
quired to file Form 8621 with respect to
the stock of the PFIC under paragraph
(c)(5) of this section; or
(iv) A domestic partnership not re-
quired to file Form 8621 with respect to
the stock of the PFIC under this paragraph
(c)(6).
(7) Exception for certain short-term
ownership of PFIC stock. A shareholder is
not required under section 1298(f) and
these regulations to file Form 8621 (or
successor form) with respect to a section
1291 fund (as defined in § 1.1291-
1(b)(2)(v)) for a taxable year when the
shareholder-
(i) Acquires the section 1291 fund in
the taxable year or the immediately pre-
ceding taxable year;
(ii) Is a shareholder of the section 1291
fund for a total of 30 days or less during
the period beginning 29 days before the
first day of the shareholder's taxable year
and ending 29 days after the close of the
shareholder's taxable year; and
(iii) Is not treated as receiving an ex-
cess distribution (within the meaning of
section 1291(b)) with respect to the sec-
tion 1291 fund, including any gain recog-
nized that is treated as an excess distribu-
tion under section 1291(a)(2) as a result of
the disposition of the section 1291 fund.
(8) Exception for certain bona fide res-
idents of certain U.S. territories. A share-
holder is not required under section
1298(f) and these regulations to file Form
8621 (or successor form) with respect to a
PFIC for a taxable year when the share-
holder-
(i) Is a bona fide resident (as defined by
section 937(a)) of Guam, the Northern
Mariana Islands, or the United States Vir-
gin Islands; and
(ii) Is not required to file an income tax
return with the Internal Revenue Service
with respect to such taxable year.
(9) Exception for taxable years ending
before December 31, 2013. A United
States person is not required under section
1298(f) and these regulations to file an
annual report with respect to a PFIC for a
taxable year of the United States person
ending before December 31, 2013.
(d) Time and manner for filing. A
United States person required under sec-
tion 1298(f) and these regulations to file
Form 8621 (or successor form) with re-
spect to a PFIC must attach the form to
its Federal income tax return (or infor-
mation return, if applicable) for the tax-
able year to which the filing obligation
relates on or before the due date (includ-
ing extensions) for the filing of the re-
turn, or must separately file the form in
accordance with the instructions for the
form when the United States person is
not required to file a Federal income tax
return (or information return, if applica-
ble) for the taxable year. In the case of
any failure to report information that is
required to be reported pursuant to sec-
tion 1298(f) and these regulations, the
time for assessment of tax will be ex-
tended pursuant to section 6501(c)(8).
(e) Separate annual report for each
PFIC-(1) General rule. If a United
States person is required under section
1298(f) and these regulations to file Form
8621 (or successor form) with respect to
more than one PFIC, the United States
person must file a separate Form 8621 (or
successor form) for each PFIC.
(2) Special rule for shareholders who
file a joint return. United States persons
that file a joint return may file a single
Form 8621 (or successor form) with re-
spect to a PFIC in which they jointly or
individually own an interest.
(f) Coordination rule. A United States
person that is a shareholder of a PFIC
may file a single Form 8621 (or succes-
sor form) with respect to the PFIC that
contains all of the information required
to be reported pursuant to section
1298(f) and these regulations and any
other information reporting require-
ments or election rules under other pro-
visions of the Code.
(g) Examples. The following examples
illustrate the rules of this section:
Example 1. General requirement to file. (i)
Facts. In 2013, J, a United States citizen, directly
owns an interest in Partnership X, a domestic
partnership, which, in turn, owns an interest in A
Corp, which is a PFIC. In addition, J directly owns
an interest in Partnership Y, a foreign partnership,
which, in turn, owns an interest in A Corp. Neither
J nor Partnership X has made a qualified electing
fund election under section 1295 or a mark to
market election under section 1296 with respect to
A Corp. As of the last day of 2013, the value of
Partnership X's interest in A Corp is $200,000,
and the value of J's proportionate share of Part-
nership Y's interest in A Corp is $100,000. During
2013, J is not treated as receiving an excess dis-
tribution or recognizing gain treated as an excess
distribution with respect to A Corp. Partnership X
timely files a Form 8621 under section 1298(f) and
paragraph (b)(1) of this section with respect to A
Corp for 2013.
(ii) Results. J is the first United States person in
the chain of ownership with respect to J's interest in
A Corp held through Partnership Y. Under paragraph
(b)(1) of this section, J must file a Form 8621 under
section 1298(f) with respect to J's interest in A Corp
held through Partnership Y because J is an indirect
shareholder of A Corp under § 1.1291-1(b)(8) that
holds PFIC stock through a foreign entity (Partner-
ship Y), and there are no other United States persons
in the chain of ownership. The fact that Partnership
X filed a Form 8621 with respect to A Corp does not
relieve J of the obligation under paragraph (b)(1) of
this section to file a Form 8621 with respect to J's
interest in A Corp held through Partnership Y. J has
no filing obligation under section 1298(f) and para-
graph (b)(2) of this section with respect to J's pro-
portionate share of Partnership X's interest in A
Corp.
Example 2. Application of the $25,000 exception.
(i) Facts. In 2013, J, a United States citizen, directly
owns stock of A Corp, B Corp, and C Corp, all of
which were PFICs during 2013. As of the last day of
2013, the value of J's interests was $5,000 in A
Corp, $10,000 in B Corp, and $4,000 in C Corp. J
timely filed an election under section 1295 to treat A
Corp as a qualified electing fund for the first year in
which A Corp qualified as a PFIC, and a mark-to-
market election under section 1296 with respect to
the stock of B Corp. J did not make a qualified
electing fund election under section 1295 or a mark
to market election under section 1296 with respect to
C Corp. J did not receive an excess distribution or
recognize gain treated as an excess distribution in
respect of C Corp during 2013.
(ii) Results. Under paragraph (b)(1) of this sec-
tion, J must file separate Forms 8621 with respect to
A Corp and B Corp for 2013. However, J is not
required to file a Form 8621 with respect to C Corp
because J owns, in the aggregate, PFIC stock with a
value of less than $25,000 on the last day of J's
taxable year, C Corp is not subject to a qualified
electing fund election or mark to market election
with respect to J, and J did not receive an excess
distribution in respect of C Corp or recognize gain
treated as an excess distribution in respect of C Corp
during 2013. Therefore, J qualifies for the $25,000
exception in paragraph (c)(2) of this section with
respect to C Corp.
Example 3. Application of the $25,000 excep-
tion to indirect shareholder. (i) Facts. E, a United
States citizen, directly owns an interest in Partner-
ship X, a domestic partnership. Partnership X, in
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turn, directly owns an interest in A Corp and B
Corp, both of which are PFICs. Partnership X
timely filed an election under section 1295 to treat
B Corp as a qualified electing fund for the first
year in which B Corp qualified as a PFIC. In
addition, E directly owns an interest in C Corp,
which is a PFIC. C Corp, in turn, owns an interest
in D Corp, which is a PFIC. E has not made a
qualified electing fund election under section 1295
or a mark to market election under section 1296
with respect to A Corp, C Corp, or D Corp. As of
the last day of 2013, the value of Partnership X's
interest in A Corp is $30,000, the value of Part-
nership X's interest in B Corp is $30,000, the
value of E's indirect interest in A Corp is $10,000,
the value of E's indirect interest in B Corp is
$10,000, the value of E's interest in C Corp is
$20,000, and the value of C Corp's interest in D
Corp is $10,000. During 2013, E did not receive
an excess distribution, or recognize gain treated as
an excess distribution, with respect to A Corp, C
Corp, or D Corp. Partnership X timely files Forms
8621 under section 1298(f) and paragraph (b)(1)
of this section with respect to A Corp and B Corp
for 2013.
(ii) Results. Under paragraph (b) of this section,
E does not have to file a Form 8621 under section
1298(f) and these regulations with respect to A
Corp because E is not the United States person
that is at the lowest tier in the chain of ownership
with respect to A Corp and E did not receive an
excess distribution or recognize gain treated as an
excess distribution with respect to A Corp. Fur-
thermore, under paragraph (b)(2)(ii) of this sec-
tion, E does not have to file a Form 8621 under
section 1298(f) and these regulations with respect
to B Corp because Partnership X timely filed a
Form 8621 with respect to B Corp. In addition,
under paragraph (c)(2)(ii)(A) of this section, E
does not take into account the value of A Corp and
B Corp, which E owns through Partnership X, in
determining whether E qualifies for the $25,000
exception. Further, under paragraph (c)(2)(ii)(B)
of this section, E does not take into account the
value of D Corp in determining whether E quali-
fies for the $25,000 exception. Therefore, even
though E is the United States person that is at the
lowest tier in the chain of ownership with
respect to C Corp and D Corp, E does not have to
file a Form 8621 with respect to C Corp or D
Corp because E qualifies for the $25,000 excep-
tion set forth in paragraph (c)(2)(i)(A)(1) of this
section.
Example 4. Indirect shareholder's requirement
to file. (i) Facts. The facts are the same as in Exam-
ple 3 of this paragraph (g), except that the value of
E's interest in C Corp is $30,000 and the value of E's
proportionate share of C Corp's interest in D Corp is
$3,000.
(ii) Results. The results are the same as in Ex-
ample 3 of this paragraph (g) with respect to E
having no requirement to file a Form 8621 under
section 1298(f) and these regulations with respect to
A Corp and B Corp. However, under the facts in this
Example 4, E does not qualify for the $25,000 ex-
ception under paragraph (c)(2)(i)(A)(1) of this sec-
tion with respect to C Corp because the value of E's
interest in C Corp is $30,000. Accordingly, E must
file a Form 8621 under section 1298(f) and these
regulations with respect to C Corp. However, E does
qualify for the $5,000 exception under paragraph
(c)(2)(i)(A)(2) of this section with respect to D Corp,
and thus does not have to file a Form 8621 with
respect to D Corp.
Example 5. Application of the domestic part-
nership exception. (i) Facts. Tax Exempt Entity A
and Tax Exempt Entity B are both organizations
exempt under section 501(a) because they are de-
scribed in section 501(c). Tax Exempt Entity A
and Tax Exempt Entity B own all the interests in
Partnership X, a domestic partnership, which, in
turn, owns, an interest in Partnership Y, also a
domestic partnership. The remaining interests in
Partnership Y are owned by F Corp, a foreign
corporation owned solely by individuals that are
not residents or citizens of the United States. Part-
nership Y owns an interest in A Corp, which is a
PFIC. Any income derived with respect to A Corp
would not be taxable to Tax Exempt Entity A or
Tax Exempt Entity B under subchapter F of Sub-
title A of the Code. Tax Exempt Entity A, Tax
Exempt Entity B, Partnership X, and Partnership
Y all are calendar year taxpayers.
(ii) Results. Under paragraph (c)(1) of this sec-
tion, Tax Exempt Entity A and Tax Exempt Entity
B do not have to file Form 8621 under section
1298(f) and these regulations with respect to A
Corp because neither entity would be subject to
tax under subchapter F of Subtitle A of the Code
with respect to income derived from A Corp. In
addition, under paragraph (c)(6) of this section,
neither Partnership X nor Partnership Y is re-
quired to file Form 8621 under section 1298(f) and
these regulations with respect to A Corp because
all of the direct and indirect interests in Partner-
ship X and Partnership Y are owned by persons
described in paragraph (c)(1) of this section or
persons that are not a shareholder of A Corp as
defined by § 1.1291-1(b)(7).
(h) Applicability dates. (1) Except as
provided in paragraph (h)(2) of this sec-
tion, this section applies to taxable years
of shareholders ending on or after Decem-
ber 31, 2013.
(2) Paragraph (c)(9) of this section ap-
plies to taxable years of shareholders end-
ing before December 31, 2013.
##### § 1.1298-1T [Removed]
Par. 11. Section 1.1298-1T is re-
moved.
Par. 12. Section 1.6038-2 is amended
by revising paragraphs (j)(3) and (m) to
read as follows:
§ 1.6038-2 Information returns re-
quired of United States persons with re-
spect to annual accounting periods of cer-
tain foreign corporations beginning after
December 31, 1962.
* * * * *
(j) ***
(3) Statement required. Any United
States person required to furnish infor-
mation under this section with his return
who does not do so by reason of the
provisions of paragraph (j)(1) of this
section shall file a statement with his
income tax return indicating that such
requirement has been (or will be) satis-
fied and identifying the return with
which the information was or will be
filed and the place of filing.
* * * * *
(m) Applicability dates. Except as oth-
erwise provided, this section applies with
respect to information for annual account-
ing periods beginning on or after June 21,
2006. Paragraphs (k)(1) and (5) Examples
3 and 4 of this section apply June 21,
2006. Paragraph (d) of this section applies
to taxable years ending after April 9,
2008. Paragraph (j)(3) of this section ap-
plies to returns filed on or after December
31, 2013.
### § 1.6038-2T [Removed]
Par. 13. Section 1.6038-2T is re-
moved.
Par. 14. Section 1.6046-1 is amended
by revising paragraph (e)(5) and adding
paragraph (l)(3) to read as follows:
§ 1.6046-1 Returns as to organiza-
tions or reorganizations of foreign corpo-
rations and as to acquisitions of their
stock.
* * * * *
(e) * * *
(5) Persons excepted from furnishing
items of information. Any person required
to furnish any item of information under
paragraph (b) or (c) of this section with
respect to a foreign corporation may, if
such item of information is furnished by
another person having an equal or
greater stock interest (measured in terms
of either the total combined voting
power of all classes of stock of the for-
eign corporation entitled to vote or the
total value of the stock of the foreign
corporation) in such foreign corpora-
tion, satisfy such requirement by filing a
statement with his return on Form 5471
indicating that such requirement has
been satisfied and identifying the return
in which such item of information was
included. This paragraph (e)(5) does not
apply to persons excepted from filing a
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return by reason of the provisions of § 1.6046-1T [Removed]
paragraph (e)(4) of this section.
(l) * * *
(3) Paragraph (e)(5) of this section ap-
plies to returns filed on or after December
31, 2013. See paragraph (e)(5) of
§ 1.6046-1, as contained in 26 CFR part 1
revised as of April 1, 2012, for returns
filed before December 31, 2013.
Approved: December 13, 2016.
Par. 15. Section 1.6046-1T is re-
moved.
Mark D. Mazur,
Assistant Secretary of the Treasury
(Tax Policy).
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
(Filed by the Office of the Federal Register on December 27,
2016, 8:45 a.m., and published in the issue of the Federal
Register for December 28, 2016, 81 F.R. 95459)
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# Part III. Administrative, Procedural, and Miscellaneous
## Per Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases
## Notice 2017-02
### BACKGROUND
Notice 2013-1, 2013-3 IRB 281, pro-
vides guidance on the federal tax treat-
ment of per capita payments that mem-
bers of Indian tribes receive from
proceeds of certain settlements of tribal
trust cases between the United States
and those Indian tribes. Additional
tribes have settled tribal trust cases
against the United States since publica-
tion of Notice 2013-1. This notice pro-
vides an updated Appendix that reflects
the additional settlement agreements.
## FURTHER INFORMATION
For further information regarding this
notice, please contact Jon Damm at phone
number (202) 317-8493 (not a toll-free
number).
## EFFECT ON OTHER DOCUMENTS
Notice 2013-1 Appendix is modified
and superseded.
## Appendix
### Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases
1\. Assiniboine and Sioux Tribes of the Fort Peck Reservation
2\. Bad River Band of Lake Superior Chippewa Indians
3\. Blackfeet Tribe of the Blackfeet Indian Reservation
4\. Bois Forte Band of Chippewa
5\. Cachil Dehe Band of Wintun Indians of the Colusa Rancheria
6\. Chippewa Cree Tribe of the Rocky Boy's Reservation
7\. Coeur d'Alene Tribe
8\. Confederated Salish and Kootenai Tribes
9\. Confederated Tribes of Siletz Indians
10\. Confederated Tribes of the Colville Reservation
11\. Confederated Tribes of the Goshute Reservation
12\. Crow Creek Sioux Tribe
13\. Eastern Shawnee Tribe of Oklahoma
14\. Hualapai Indian Tribe
15\. Iowa Tribe of Kansas and Nebraska
16\. Kaibab Band of Paiute Indians of Arizona
17\. Kickapoo Tribe of Kansas
18\. Lac Courte Oreilles Band of Lake Superior Chippewa Indians
19\. Lac du Flambeau Band of Lake Superior Chippewa Indians
20\. Leech Lake Band of Ojibwe
21\. Lower Brule Sioux Tribe
22\. Makah Indian Tribe of the Makah Reservation
23\. Mescalero Apache Tribe
24\. Minnesota Chippewa Tribe
25\. Nez Perce Tribe
26\. Nooksack Indian Tribe
27\. Northern Cheyenne Tribe of Indians
28\. Omaha Tribe of Nebraska
29\. Passamaquoddy Tribe of Maine
30\. Pawnee Nation
31\. Prairie Band of Potawatomi Nation
32\. Pueblo of Zia
33\. Quechan Tribe of the Fort Yuma Reservation
34\. Red Cliff Band of Lake Superior Chippewa Indians
35\. Rincon Luiseño Band of Indians
36\. Rosebud Sioux Tribe
37\. Round Valley Indian Tribes
38\. Salt River Pima-Maricopa Indian Community
39\. Santee Sioux Tribe of Nebraska
40\. Sault Ste. Marie Tribe
41\. Shoshone-Bannock Tribes of the Fort Hall Reservation
42\. Soboba Band of Luiseno Indians
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43\. Spirit Lake Dakotah Nation
44\. Spokane Tribe of Indians
45\. Standing Rock Sioux Tribe
46\. Stillaguamish Tribe of Indians
47\. Summit Lake Paiute Tribe
48\. Swinomish Indian Tribal Community
49\. Te-Moak Tribe of Western Shoshone Indians
50\. Tohono O'odham Nation
51\. Tulalip Tribes
52\. Tule River Indian Tribe
53\. Ute Indian Tribe of the Uintah and Ouray Reservation
54\. Ute Mountain Ute Tribe
55\. Winnebago Tribe of Nebraska
56\. Qawalangin Tribe of Unalaska
57\. Tlingit & Haida Tribes of Alaska
58\. Northwestern Band of Shoshone Indians
59\. Hoopa Valley Tribe
60\. Ak-Chin Indian Community
61\. Oglala Sioux Tribe
62\. Yoruk Tribe
63\. Cheyenne River Sioux Tribe
64\. Paiute-Shoshone Indians of the Bishop Community of the Bishop Colony
65\. Seminole Nation of Oklahoma
66\. Otoe-Missouria Tribe of Oklahoma
67\. Samish Indian Nation
68\. Tonkawa Tribe of Indians of Oklahoma
69\. Yakama Nation
70\. Miami Tribe of Oklahoma
71\. Shoshone Indian Tribe and the Northern Arapahoe Indian Tribe of the Wind River Reservation
72\. Pueblo of Laguna
73\. Navajo Nation
74\. Caddo Nation of Oklahoma
75\. Gros Ventre and Assiniboine Tribes of the Fort Belknap Indian Reservation
76\. Chickasaw Nation
77\. Choctaw Nation
78\. Klamath Tribe
79\. Skokomish Indian Tribe
80\. Quinault Indian Nation
81\. Southern Ute Indian Tribe
82\. Confederated Tribes of the Umatilla Indian Reservation
83\. White Earth Nation
84\. Kickapoo Tribe of Oklahoma
85\. Sisseton Wahpeton Oyate of the Lake Traverse Reservation
86\. Grand Traverse Band of Ottawa and Chippewa Indians
87\. Muscogee (Creek) Nation of Oklahoma
88\. Gila River Indian Community
89\. Aleut Community of St. Paul Island
90\. San Carlos Apache Tribe
91\. Comanche Nation
92\. Colorado River Indian Tribes
93\. Jicarilla Apache Nation
94\. Pueblo of Acoma
95\. Penobscot Indian Nation
96\. Seminole Tribe of Florida
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## Beginning of Construction for Sections 45 and 48
### Notice 2017-04
#### SECTION 1. PURPOSE
Section 38 of the Internal Revenue Code
(the Code) allows certain business credits
against the tax imposed by Chapter 1 of the
Code. Among the credits allowed by § 38 is
the credit for renewable electricity produc-
tion described in § 45(a). To qualify for the
renewable electricity production tax credit,
electricity must, among other things, be pro-
duced by the taxpayer at a qualified facility
as defined in § 45(d). If the taxpayer makes
an election under § 48(a)(5), the taxpayer
may instead claim the investment tax credit
with respect to the facility.
On December 18, 2015, the Protecting
American from Tax Hikes Act of 2015,
Pub. L. No. 114-113, Div. Q, 129 Stat.
2242 (the PATH Act), enacted amend-
ments to the production tax credit under
§ 45 (PTC) and the investment tax credit
under § 48 (ITC) for certain renewable
energy facilities. The PATH Act extended
the PTC for two years with respect to
certain facilities the construction of which
begins before January 1, 2017, and further
extended the PTC for wind facilities the
construction of which begins before Jan-
uary 1, 2020. The PATH Act also modi-
fied the PTC for wind facilities by provid-
ing that the credit will phase out over the
next four years. Under § 45(b)(5) as mod-
ified by the PATH Act, wind facilities the
construction of which begins before Jan-
uary 1, 2017 are eligible to receive 100
percent of the PTC; wind facilities the
construction of which begins after De-
cember 31, 2016 and before January 1,
2018 are eligible to receive 80 percent of
the PTC; wind facilities the construction
of which begins after December 31, 2017
and before January 1, 2019 are eligible to
receive 60 percent of the PTC; and wind
facilities the construction of which begins
after December 31, 2018 and before Jan-
uary 1, 2020 are eligible to receive 40
percent of the PTC. In addition, the PATH
Act extended the election to claim the ITC
in lieu of the PTC with respect to certain
renewable energy facilities if construction
of such facility begins before January 1,
2017 (or January 1, 2020 in the case of
wind facilities).
Similarly, the PATH Act also extended
and modified the ITC for solar energy facil-
ities the construction of which begins before
January 1, 2022. The Treasury Department
and the Internal Revenue Service (Service)
anticipate issuing separate guidance ad-
dressing the extension and modification of
the ITC for solar energy facilities.
This notice updates and clarifies the
guidance provided in Notice 2013-29,
2013-1 C.B. 1085; Notice 2013-60,
2013-2 C.B. 431; Notice 2014-46, 2014-2
C.B. 520; Notice 2015-25, 2015-13 I.R.B.
814; and Notice 2016-31, 2016-23 I.R.B.
1025 (collectively "the prior IRS notices").
The Service will not issue private letter rul-
ings to taxpayers regarding the application
of this notice, the prior IRS notices, or the
beginning of construction requirement un-
der §§ 45(d) and 48(a)(5).
### SECTION 2. BACKGROUND
On June 6, 2016, the Treasury Depart-
ment and the Service published Notice
2016-31 to extend and modify the Con-
tinuity Safe Harbor, as defined in section
3.02 of Notice 2013-60, and to provide
additional guidance regarding the begin-
ning of construction requirement. Notice
2016-31 also clarifies the application of
the Five Percent Safe Harbor, as defined
in section 5 of Notice 2013-29, to retro-
fitted renewable energy facilities.
After the publication of Notice 2016-
31, the Treasury Department and the Ser-
vice received requests for further clarifi-
cation regarding the extension and
modification of the Continuity Safe Har-
bor, the prohibition against combining
methods by which to satisfy the beginning
of construction requirement, and the costs
that may be included in the Five Percent
Safe Harbor for retrofitted renewable en-
ergy facilities. This notice modifies and
clarifies Notice 2016-31. Except as oth-
erwise specified in this notice, the guid-
ance provided in the prior IRS notices
continues to apply.
### SECTION 3. EXTENSION AND MODIFICATION OF THE CONTINUITY SAFE HARBOR
Section 3.02 of Notice 2013-60 pro-
vides a Continuity Safe Harbor that allows
a facility to be deemed to satisfy the Con-
tinuous Construction Test, as defined in
section 4.06 of Notice 2013-29 (for pur-
poses of satisfying the Physical Work Test
provided in section 4 of Notice 2013-29),
or the Continuous Efforts Test, as defined
in section 5.02 of Notice 2013-29 (for
purposes of satisfying the Five Percent
Safe Harbor), based on the date on which
a facility is placed in service. If a facility
does not satisfy the Continuity Safe Har-
bor, whether the facility satisfies the Con-
tinuous Construction or Continuous Ef-
forts Tests is determined by the relevant
facts and circumstances.
Section 3 of Notice 2016-31 modifies
and extends the Continuity Safe Harbor
by providing that if a taxpayer places a
facility in service by the later of (1) a
calendar year that is no more than four
calendar years after the calendar year dur-
ing which construction of the facility be-
gan or (2) December 31, 2016, the facility
will be considered to satisfy the Continu-
ity Safe Harbor.
This notice modifies the Continuity
Safe Harbor provided in section 3 of No-
tice 2016-31 by providing that if a tax-
payer places a facility in service by the
later of (1) a calendar year that is no more
than four calendar years after the calendar
year during which construction of the fa-
cility began or (2) December 31, 2018, the
facility will be considered to satisfy the
Continuity Safe Harbor. For example, if
construction begins on a facility on Janu-
ary 15, 2013, and the facility is placed in
service by December 31, 2018, the facility
will be considered to satisfy the Continu-
ity Safe Harbor. Alternatively, if construc-
tion begins on a facility on January 15,
2016, and the facility is placed in service
by December 31, 2020, the facility will be
considered to satisfy the Continuity Safe
Harbor.
# SECTION 4. PROHIBITION AGAINST COMBINING METHODS BY WHICH TO SATISFY THE BEGINNING OF CONSTRUCTION REQUIREMENT
Section 4.01 of Notice 2016-31 pro-
vides that a taxpayer may not rely upon
the Physical Work Test and the Five Per-
cent Safe Harbor in alternating calendar
years to satisfy the beginning of construc-
tion requirement or the Continuity Re-
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quirement. For example, if a taxpayer per-
forms physical work of a significant
nature on a facility in 2015, and then pays
or incurs five percent or more of the total
cost of the facility in 2016, the Continuity
Safe Harbor will be applied beginning in
2015, not in 2016.
This notice modifies section 4.01 of
Notice 2016-31 by providing that this
rule applies to facilities the construction
of which begins after June 6, 2016 (the
date on which Notice 2016-31 was pub-
lished in I.R.B. 2016-23).
## SECTION 5. COSTS INCLUDED IN THE APPLICATION OF FIVE PERCENT SAFE HARBOR TO RETROFITTED FACILITIES
Section 6.01 of Notice 2016-31 pro-
vides that a facility may qualify as origi-
nally placed in service even though it con-
tains some used property, provided the
fair market value of the used property is
not more than 20 percent of the facility's
total value (the cost of the new property
plus the value of the used property) (the
80/20 Rule).
Section 6.02 of Notice 2016-31 pro-
vides that to satisfy the beginning of con-
struction requirement for §§ 45 and 48,
the Five Percent Safe Harbor is applied
only with respect to the cost of new prop-
erty used to retrofit an existing facility.
Therefore, only expenditures paid or in-
curred that relate to new construction
should be taken into account for purposes
of the Five Percent Safe Harbor.
Section 5.01(1) of Notice 2013-29 pro-
vides that for purposes of the Five Percent
Safe Harbor, all costs properly included in
the depreciable basis of the facility are
taken into account to determine whether
the Safe Harbor has been met. The total
cost of the facility does not include the
cost of land or any property not integral to
the facility, as described in section 4.05(1)
of Notice 2013-29.
This notice clarifies that for purposes
of the 80/20 rule, the cost of new property
includes all costs properly included in the
depreciable basis of the new property.
## SECTION 6. EFFECT ON OTHER DOCUMENTS
Notice 2013-29, Notice 2013-60, No-
tice 2014-46, Notice 2015-25, and No-
tice 2016-31 are clarified and modified.
The guidance provided in this notice is
applicable to any project for which a tax-
payer claims the PTC or the ITC under
§§ 45 or 48, as modified by ATRA, that is
placed in service after January 2, 2013.
## SECTION 7. DRAFTING INFORMATION
The principal author of this notice is
Jennifer C. Bernardini of the Office of
Associate Chief Counsel (Passthroughs &
Special Industries). For further informa-
tion regarding this notice contact Ms. Ber-
nardini on (202) 317-6853 (not a toll-free
number).
## De Minimis Error Safe Harbor to the I.R.C. §§ 6721 and 6722 Penalties
## Notice 2017-09
### SECTION 1. PURPOSE
This notice provides guidance to im-
plement changes made by the Protecting
Americans from Tax Hikes Act of 2015
(P.L. 114-113) (PATH Act) regarding the
de minimis error safe harbor from infor-
mation reporting penalties under sections
6721 and 6722 of the Internal Revenue
Code (Code) and the payee election to
have the safe harbor not apply. These pro-
visions are effective for information re-
turns required to be filed and payee state-
ments required to be furnished after
December 31, 2016. The notice also an-
nounces that the Treasury Department and
the IRS intend to issue regulations under
sections 6721 and 6722 with respect to the
de minimis error safe harbor and the
payee election to have the safe harbor not
apply. To the extent the regulations incor-
porate the rules contained in this notice,
the regulations will be effective for re-
turns required to be filed, and payee state-
ments required to be furnished, after De-
cember 31, 2016.
# SECTION 2. BACKGROUND
Section 202 of the PATH Act amended
sections 6721 and 6722 of the Code to
establish a safe harbor from penalties for
failure to file correct information returns
and failure to furnish correct payee state-
ments for certain de minimis errors. The
penalties apply when a person is required
to file an information return, or furnish a
payee statement, but the person fails to do
so on or before the prescribed date, fails to
include all of the information required to
be shown, or includes incorrect informa-
tion. Under the safe harbor, an error on an
information return or payee statement is
not required to be corrected, and no pen-
alty is imposed, if the error relates to an
incorrect dollar amount and the error dif-
fers from the correct amount by no more
than $100 ($25 in the case of an error with
respect to an amount of tax withheld).
Section 6722(c)(3)(B) provides that the
safe harbor does not apply to any payee
statement if the payee makes an election
that the safe harbor not apply at such time
and in such manner as the Secretary may
prescribe. Section 6721(c)(3)(B) provides
that the safe harbor does not apply with
respect to any incorrect dollar amount to
the extent that such an error on an infor-
mation return relates to an amount with
respect to which an election is made under
section 6722(c)(3)(B). Accordingly, if an
election is in effect, a payor may be sub-
ject to penalties for an incorrect dollar
amount appearing on an information re-
turn or payee statement even if the incor-
rect amount is a de minimis error.
Sections 6721(c)(3)(C) and 6722(c)
(3)(C) provide that the Secretary may is-
sue regulations to prevent the abuse of the
safe harbor, including regulations provid-
ing that the safe harbor shall not apply to
the extent necessary to prevent such
abuse.
The amendments by Section 202 of the
PATH Act to sections 6721 and 6722 are
effective for returns required to be filed,
and payee statements required to be fur-
nished, after December 31, 2016. Section
6724(d) of the Code lists the information
returns and payee statements subject to
section 6721 and 6722 penalties.
This notice provides requirements for
the election under section 6722(c)(3)(B),
including the time and manner for making
the election. This notice clarifies that the
de minimis error safe harbor does not ap-
ply in the case of an intentional error or if
a payor fails to file an information return
or furnish a payee statement. This notice
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requires payors to retain certain records.
Finally, this notice solicits comments re-
garding the rules contained in this notice
and regarding any potential abuse of the
de minimis error safe harbor.
## SECTION 3. ELECTION TO HAVE THE SAFE HARBOR NOT APPLY
.01 In general. Pursuant to sections
6721(c)(3)(B) and 6722(c)(3)(B), a payee
may make an election that the de minimis
error safe harbor not apply so that penal-
ties are applicable to a payor who fails to
correct an error on an information return
or payee statement, even if the error is de
minimis under sections 6721(c)(3)(A) and
6722(c)(3)(A). If a payee has made the
election under section 6722(c)(3)(B), and
the payor both furnishes a corrected payee
statement to the payee and files a cor-
rected information return with the IRS
within 30 days of the date of the election,
the error will be treated as due to reason-
able cause and not willful neglect, and the
section 6721 and 6722 penalties will not
apply to the error. Where specific rules
provide for additional time in which to
furnish a corrected payee statement and
file a corrected information return, the 30-
day rule does not apply and the specific
rules will apply. See e.g., § 31.6051-1(c)-
(d) and § 31.6051-2(b).
A payor may prescribe any reasonable
manner for making the election, including
in writing, on-line (electronic), or by tele-
phone, provided that the payor furnishes
the payee written notification of the rea-
sonable manner before the date the payee
makes the election. If the payor provides
an on-line (electronic) option to make the
election, this must not be the exclusive
manner to make the election. If a payor
has prescribed a reasonable manner for
making the election, the payee must ad-
here to that prescribed manner to make a
valid election. If the payor has not pre-
scribed a manner to make the election, a
payee may make the election under sec-
tion 6722(c)(3)(B) in writing to the pay-
or's address appearing on a payee state-
ment furnished by the payor to the payee
or as directed by the payor after making
an appropriate inquiry.
The payor may not impose any prereq-
uisite, condition, or time limitation on the
payee's ability to request a corrected
payee statement, other than prescribing a
reasonable manner for making the elec-
tion as described above.
This notice does not prohibit a payor
from filing corrected information returns
and furnishing corrected payee statements
if the payee does not make an election.
The IRS encourages employers to cor-
rect any errors on Form W-2 (Wage and
Tax Statement) and Form W-2c (Cor-
rected Wage and Tax Statement). The IRS
and Social Security Administration (SSA)
have long maintained the Combined An-
nual Wage Reporting (CAWR) program
to ensure that employees receive proper
credit for their earnings and ensure that
employers have paid and reported the
proper amount of taxes. CAWR is a doc-
ument matching program that compares
the Federal income tax withheld, Medi-
care wages, social security wages, and
social security tips reported to the IRS on
the employment tax returns (e.g., Form
941 (Employer's QUARTERLY Federal
Tax Return) and Schedule H (Household
Employment Taxes)) against the amounts
reported to SSA via Forms W-3 (Trans-
mittal of Wage and Tax Statements) and
the processed totals of the Forms W-2.
Employers can help resolve discrepancies
between employment tax returns and
amounts reported to SSA by filing cor-
rected information returns and furnishing
corrected payee statements whenever
Forms W-2 and W-2c include incorrect
information, even if the error is de mini-
mis under sections 6721(c)(3)(A) and
6722(c)(3)(A). Corrections help prevent
mismatches and aid the IRS and SSA in
the efficient administration of the tax laws
and benefits programs.
.02 Time for making the election and
duration. A payee may make an election
with respect to payee statements required
to be furnished in the calendar year in
which the payee makes the election (for
example, a payee making an election on
June 15, 2017, may make an election with
respect to payee statements required to be
furnished in calendar year 2017), or, al-
ternatively, with respect to payee state-
ments required to be furnished in the
calendar year of the election and suc-
ceeding calendar years. The payee's
election under section 6722(c)(3)(B) ap-
plies to related information returns un-
der section 6721(c)(3)(B).
A payee may revoke an election at any
time subsequent to making the election by
providing the payor with written notifica-
tion of revocation. Such revocation ap-
plies to all information returns of the type
set forth in the revocation required to be
filed and payee statements required to be
furnished on or after the date the payor
receives the revocation until the payee
makes a new election.
Nothing in this notice prevents a payee
from requesting that the payor file a cor-
rected information return or furnish a cor-
rected payee statement required to be filed
or furnished in a calendar year preceding
the calendar year in which the payee
makes the election.
.03 Information required to be in-
cluded in the election. When making the
election, the payee must: (1) clearly state
that the payee is making the election; (2)
provide the payee's name, address, and
taxpayer identification number (TIN) (as
defined in section 7701(a)(41) of the
Code) to the payor; (3) identify the type of
payee statement(s) and account num-
ber(s), if applicable, to which the election
applies (e.g., Form 1099-DIV (Dividends
and Distributions)) if the payee wants the
election to apply only to specific state-
ments; and (4) if the payee wants the
election to apply only to the year for
which the payee makes the election, state
that the election applies only to payee
statements required to be furnished in that
calendar year. If the payee does not iden-
tify (i) the type of payee statement and
account number or (ii) the calendar year to
which the election relates, the payor must
treat the election as applying to all types
of payee statements the payor is required
to furnish to the payee and as applying to
payee statements required to be furnished
in the calendar year in which the payee
makes the election and in any succeeding
calendar years.
.04 Safe harbor only applies to inad-
vertent errors and not to failure to file or
furnish. The de minimis error safe harbor
applies only to inadvertent errors on a
filed information return or furnished
payee statement. A payor that intention-
ally misreports a dollar amount on an in-
formation return or payee statement,
whether or not the amount otherwise qual-
ifies as de minimis, falls under the inten-
tional disregard provisions of sections
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6721(e) and 6722(e), and, therefore, the
de minimis error safe harbor does not ap-
ply. A pattern of non-compliance may in-
dicate intentional disregard for purposes
of the penalties.
Also, the de minimis error safe harbor
does not apply to a failure to file or furnish
an information return or payee statement,
even if the payee statement or information
return would report dollar amounts of
$100 or less (or $25 or less with respect to
any amount of tax withheld). Section
6721(c)(3) applies only to information re-
turns that have been filed, and section
6722(c)(3) applies only to payee state-
ments that have been furnished.
.05 Recordkeeping. Payors must retain
records of any election, or revocation of
an election, for as long as that information
may be relevant to the administration of
any internal revenue law.
## SECTION 4. REGULATIONS TO IMPLEMENT THE DE MINIMIS ERROR SAFE HARBOR
The Treasury Department and the IRS
intend to issue regulations to implement
the de minimis error safe harbor and the
payee election to have the safe harbor not
apply. These regulations are expected to
incorporate the rules contained in this no-
tice, and to the extent that they do, the
regulations will be effective for informa-
tion returns required to be filed, and payee
statements required to be furnished, after
December 31, 2016. The regulations are
also expected to include a requirement for
payors to notify payees regarding the de
minimis error safe harbor and the election
for the safe harbor not to apply. The reg-
ulations may also provide that, to prevent
abuse of the de minimis error safe harbor,
the safe harbor does not apply to certain
information returns and payee statements.
## SECTION 5. EFFECTIVE DATE
This notice applies with respect to in-
formation returns required to be filed, and
payee statements required to be furnished,
after December 31, 2016.
## SECTION 6. PAPERWORK REDUCTION ACT
The collection of information con-
tained in this notice has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
3507(c)) under control number 1545-
2270.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less the collection of information displays
a valid OMB control number.
The collection of information in this
notice is in section 3. This information is
required to facilitate the making of elec-
tions by payees under section 6722(c)
(3)(B), to allow payees to revoke the elec-
tions, and to provide records to facilitate
proof of compliance with information re-
porting requirements. This information
will be used by payors to determine
whether they are required to furnish cor-
rected payee statements to payees and file
corrected information returns with the IRS
to avoid application of penalties under
sections 6721 and 6722. This information
will also be used by the IRS to determine
whether payors are subject to penalties
under sections 6721 and 6722. The collec-
tion of information is both voluntary to
obtain a benefit and mandatory. The likely
respondents are individuals, state or local
governments, farms, business or other for-
profit institutions, nonprofit institutions,
and small businesses or organizations.
The estimated total annual reporting
burden is 760,569 hours.
The estimated annual burden per re-
spondent is approximately 0.09 hours.
The estimated number of respondents is
8,307,625.
The estimated annual frequency of re-
sponses is 8,984,600.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become rele-
vant to the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. § 6103.
## SECTION 7. REQUEST FOR COMMENTS
Comments are requested regarding the
rules contained in this notice. Comments
are also requested regarding potential
abuses of the de minimis error safe harbor
and any information returns or payee
statements that should be excepted from
the de minimis error safe harbor provi-
sions in sections 6721(c)(3)(C) and
6722(c)(3)(C).
Any person or persons wishing to sub-
mit comments in response to this notice
should submit such comments by April
24, 2017. Comments should be submitted
to: Internal Revenue Service, CC:PA:LP-
D:PR (Notice 2017-09), Room 5205,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20224. Alternatively,
comments may be hand-delivered Mon-
day through Friday between the hours of
8:00 a.m. to 4:00 p.m. to: CC:PA:LPD:PR
(Notice 2017-09), Courier's Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, N.W., Washington, DC. Com-
ments may also be submitted electroni-
cally via the following e-mail address:
Notice.Comments@irscounsel.treas.gov.
Please include Notice 2017-09 in the sub-
ject line of any electronic submissions.
Comments will be available for public
inspection and copying.
# SECTION 8. DRAFTING INFORMATION
The principal author of this notice is
Mark A. Bond of the Office of the Asso-
ciate Chief Counsel (Procedure and Ad-
ministration). For further information re-
garding this notice contact Mr. Bond on
(202) 317-6844 (not a toll-free number).
# Listing Notice-Syndicated Conservation Easement Transactions
## Notice 2017-10
The Department of the Treasury (Trea-
sury Department) and the Internal Reve-
nue Service (IRS) are aware that some
promoters are syndicating conservation
easement transactions that purport to give
investors the opportunity to obtain chari-
table contribution deductions in amounts
that significantly exceed the amount in-
vested. This notice alerts taxpayers and
their representatives that the transaction
described in section 2 of this notice is a
tax avoidance transaction and identifies
this transaction, and substantially similar
transactions, as listed transactions for pur-
poses of § 1.6011-4(b)(2) of the Income
Tax Regulations (Regulations) and
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§§ 6111 and 6112 of the Internal Revenue
Code (Code). This notice also alerts per-
sons involved with these transactions that
certain responsibilities may arise from
their involvement.
# SECTION 1. BACKGROUND
Section 170(f)(3)(B)(iii) of the Code
allows a deduction for a qualified conser-
vation contribution. A qualified conserva-
tion contribution is a contribution of a
qualified real property interest to a qual-
ified organization exclusively for con-
servation purposes. Section 170(h)(1)
through (5); § 1.170A-14. A qualified
real property interest includes a restric-
tion, granted in perpetuity, on the use
that may be made of real property. Sec-
tion 170(h)(2)(C). For purposes of this
notice, a qualified real property interest
is referred to as a conservation ease-
ment.
The Treasury Department and the IRS
have become aware that some promoters
are syndicating conservation easement
transactions that purport to give investors
the opportunity to claim charitable contri-
bution deductions in amounts that signif-
icantly exceed the amount invested. In
such a syndicated conservation easement
transaction, a promoter offers prospective
investors in a partnership or other pass-
through entity ("pass-through entity") the
possibility of a charitable contribution de-
duction for donation of a conservation
easement.
The promoters (i) identify a pass-
through entity that owns real property, or
(ii) form a pass-through entity to acquire
real property. Additional tiers of pass-
through entities may be formed. The pro-
moters then syndicate ownership interests
in the pass-through entity that owns the
real property, or in one or more of the tiers
of pass-through entities, using promo-
tional materials suggesting to prospective
investors that an investor may be entitled
to a share of a charitable contribution de-
duction that equals or exceeds an amount
that is two and one-half times the amount
of the investor's investment. The promot-
ers obtain an appraisal that purports to be
a qualified appraisal as defined in
§ 170(f)(11)(E)(i) but that greatly inflates
the value of the conservation easement
based on unreasonable conclusions about
the development potential of the real
property. After an investor invests in the
pass-through entity, either directly or
through one or more tiers of pass-through
entities, the pass-through entity donates a
conservation easement encumbering the
property to a tax-exempt entity. Investors
who held their direct or indirect interests
in the pass-through entity for one year or
less may rely on the pass-through entity's
holding period in the underlying real
property to treat the donated conservation
easement as long-term capital gain prop-
erty under § 170(e)(1). The promoter re-
ceives a fee or other consideration with
respect to the promotion, which may be in
the form of an interest in the pass-through
entity. The IRS intends to challenge the
purported tax benefits from this transac-
tion based on the overvaluation of the
conservation easement. The IRS may also
challenge the purported tax benefits from
this transaction based on the partnership
anti-abuse rule, economic substance, or
other rules or doctrines.
# SECTION 2. FACTS
A transaction described in this section
is a listed transaction. An investor re-
ceives promotional materials that offer
prospective investors in a pass-through
entity the possibility of a charitable con-
tribution deduction that equals or exceeds
an amount that is two and one-half times
the amount of the investor's investment.
The promotional materials may be oral or
written. For purposes of this notice, pro-
motional materials include, but are not
limited to, documents described in
§ 301.6112-1(b)(3)(iii)(B) of the Regula-
tions. The investor purchases an interest,
directly or indirectly (through one or more
tiers of pass-through entities), in the pass-
through entity that holds real property.
The pass-through entity that holds the real
property contributes a conservation ease-
ment encumbering the property to a tax-
exempt entity and allocates, directly or
through one or more tiers of pass-through
entities, a charitable contribution deduc-
tion to the investor. Following that contri-
bution, the investor reports on his or her
federal income tax return a charitable con-
tribution deduction with respect to the
conservation easement.
# SECTION 3. LISTED TRANSACTIONS
Transactions entered into on or after
January 1, 2010, that are the same as, or
substantially similar to, the transaction de-
scribed in section 2 of this notice are
identified as "listed transactions" for pur-
poses of § 1.6011-4(b)(2) and §§ 6111
and 6112 effective December 23, 2016.
Persons entering into these transactions on
or after January 1, 2010, must disclose the
transactions as described in § 1.6011-4
for each taxable year in which the tax-
payer participated in the transactions, pro-
vided that the period of limitations for
assessment of tax has not ended on or
before December 23, 2016. Material ad-
visors, including appraisers, who make a
tax statement on or after January 1,
2010, with respect to transactions en-
tered into on or after January 1, 2010,
have disclosure and list maintenance ob-
ligations under §§ 6111 and 6112. See
§§ 301.6111-3, 301.6112-1.
For rules regarding the time for pro-
viding disclosure of a transaction de-
scribed in this notice, see §§ 1.6011-
4(e) and 301.6111-3(e). However, if,
under § 1.6011-4(e)(1), a taxpayer is
required to file a disclosure statement
with respect to a transaction described
in this notice after December 23, 2016,
and prior to May 1, 2017, that disclosure
statement will be considered to be
timely filed if the taxpayer alternatively
files the disclosure with the Office of
Tax Shelter Analysis by May 1 (because
April 30 is a Sunday). In addition, for
purposes of disclosure of transactions
described in this notice, the 90-day pe-
riod provided in § 1.6011-4(e)(2)(i) is
extended to 180 days. Further, if under
§ 301.6111-3(e), a material advisor is
required to file a disclosure statement
with respect to the listed transaction de-
scribed in this notice by January 31,
2017, that disclosure statement will be
considered to be timely filed if the tax-
payer files the disclosure with the Office
of Tax Shelter Analysis by May 1, 2017
(because April 30 is a Sunday).
Independent of their classification as
listed transactions, transactions that are
the same as, or substantially similar to, the
syndicated conservation easement trans-
action described in section 2 may already
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be subject to the requirements of §§ 6011,
6111, 6112, or the regulations thereunder.
The transaction described in section 2 is
identified as a listed transaction regardless
of whether the transaction has the charac-
teristics described in section 1 of this
notice.
Whether a taxpayer has participated in
the listed transaction described in section
2 of this notice will be determined under
§ 1.6011-4(c)(3)(i)(A). Participants in-
clude, but are not limited to, investors, the
pass-through entity (any tier, if multiple
tiers are involved in the transaction), or
any other person whose tax return reflects
tax consequences or a tax strategy de-
scribed in section 2.
For purposes of this notice, a donee
described in § 170(c) shall not be treated
as a party to the transaction under § 4965
or a participant under § 1.6011-4.
Participants required to disclose these
transactions under § 1.6011-4 who fail to
do so will be subject to penalties under
§ 6707A. Participants required to disclose
these transactions under § 1.6011-4 who
fail to do so may also be subject to an
extended period of limitations under
§ 6501(c)(10). Material advisors required
to disclose these transactions under
§ 6111 who fail to do so may be subject to
the penalty under § 6707. Material advi-
sors required to maintain lists of investors
under § 6112 who fail to do so (or who
fail to provide such lists when requested
by the IRS) may be subject to the penalty
under § 6708(a). In addition, the IRS may
impose other penalties on persons in-
volved in these transactions or substan-
tially similar transactions, including the
accuracy-related penalty under § 6662 or
§ 6662A, the § 6694 penalty for under-
statements of a taxpayer's liability by a
tax return preparer, and the § 6695A pen-
alty for certain valuation misstatements
attributable to incorrect appraisals.
The Treasury Department and the IRS
recognize that some taxpayers may have
filed tax returns taking the position that
they were entitled to the purported tax
benefits of the type of transaction de-
scribed in this notice. These taxpayers
should take appropriate corrective action
and ensure that their transactions are dis-
closed properly.
# DRAFTING INFORMATION
The principal authors of this notice are
Angella L. Warren and Maxine M. Woo-
Garcia of the Office of Associate Chief
Counsel (Income Tax & Accounting). For
further information regarding this notice
contact Ms. Warren at (202) 317-7003
(not a toll-free number) or Ms. Woo-
Garcia at (202) 317-7011 (not a toll-free
number).
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# Part IV. Items of General Interest
REG-112324-15
Mortality Tables for
Determining Present Value
Under Defined Benefit
Pension Plans
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations prescribing mortal-
ity tables to be used by most defined ben-
efit pension plans. The tables specify the
probability of survival year-by-year for an
individual based on age, gender, and other
factors. This information is used (together
with other actuarial assumptions) to cal-
culate the present value of a stream of
expected future benefit payments for pur-
poses of determining the minimum fund-
ing requirements for the plan. These
mortality tables are also relevant to deter-
mining the minimum required amount of a
lump-sum distribution from such a plan.
In addition, this document contains pro-
posed regulations to update the require-
ments that a plan sponsor must meet in
order to obtain IRS approval to use mor-
tality tables specific to the plan for mini-
mum funding purposes (instead of the
generally applicable mortality tables).
These regulations affect participants in,
beneficiaries of, employers maintaining,
and administrators of certain retirement
plans.
DATES: Comments and outlines of topics
to be discussed at the public hearing
scheduled for April 13, 2017 must be re-
ceived by March 29, 2017.
ADDRESSES: Send submissions to: CC:
PA:LPD:PR (REG-112324-15), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG-112324-15),
Courier's Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224, or sent elec-
tronically, via the Federal eRulemaking
Portal at www.regulations.gov (IRS
REG-112324-15). The public hearing
will be held in the IRS Auditorium, In-
ternal Revenue Building, 1111 Consti-
tution Avenue, NW, Washington, DC
20224.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Thomas Morgan at (202) 317-6700; con-
cerning the construction of the base mor-
tality tables and the static mortality tables
for 2018, Michael Spaid at (206) 946-
3480; concerning submission of com-
ments, the hearing, and/or to be placed on
the building access list to attend the hear-
ing, Regina Johnson at (202) 317-6901
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
## Background
A. Generally applicable mortality
tables
Section 412 of the Internal Revenue
Code (Code) prescribes minimum funding
requirements for defined benefit pension
plans. Section 430, which was added to
the Code by the Pension Protection Act of
1996, Public Law No. 109-280 (120 Stat.
780 (2006)), specifies the minimum fund-
ing requirements that apply generally to
defined benefit plans that are not multiem-
ployer plans.1 Section 430(a) defines the
minimum required contribution by refer-
ence to the plan's funding target for the
plan year. Under section 430(d)(1), a
plan's funding target for a plan year gen-
erally is the present value of all benefits
accrued or earned under the plan as of the
first day of that plan year.
Section 430(h)(3) contains rules re-
garding the mortality tables to be used
under section 430. Under section 430(h)
(3)(A), except as provided in section
430(h)(3)(C) or (D), the Secretary is to
prescribe by regulation mortality tables to
be used in determining any present value
or making any computation under section
430. Those mortality tables are to be
based on the actual mortality experience
of pension plan participants and projected
trends in that experience. In prescribing
those mortality tables, the Secretary is re-
quired to take into account results of
available independent studies of mortality
of individuals covered by pension plans.2
Under section 430(h)(3)(B), the Secretary
is required to revise any mortality table in
effect under section 430(h)(3)(A) at least
every 10 years to reflect actual mortality
experience of pension plan participants
and projected trends in that experience.
Section 430(h)(3)(D) provides for the
use of separate mortality tables with re-
spect to certain individuals who are enti-
tled to benefits on account of disability.
These separate mortality tables are per-
mitted to be used with respect to disabled
individuals in lieu of the generally appli-
cable mortality tables provided pursuant
to section 430(h)(3)(A) or the substitute
mortality tables under section 430(h)(3)
(C). The Secretary is to establish separate
tables for individuals with disabilities oc-
curring in plan years beginning before
January 1, 1995, and in later plan years,
with the mortality tables for individuals
with disabilities occurring in those later
plan years applying only to individuals
who are disabled within the meaning of
Title II of the Social Security Act.
Section 417(e)(3) generally provides
that the present value of certain benefits
under a qualified pension plan (including
single-sum distributions) must not be less
1Section 302 of the Employee Retirement Income Security Act of 1974, Public Law No. 93-406, as amended (ERISA) sets forth funding rules that are parallel to those in section 412 of
the Code, and section 303 of ERISA sets forth additional funding rules for defined benefit plans (other than multiemployer plans) that are parallel to those in section 430 of the Code. Under
section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713) and section 302 of ERISA, the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed
in these proposed regulations for purposes of ERISA, as well as the Code. Thus, these proposed Treasury regulations issued under section 430 of the Code apply as well for purposes of
section 303 of ERISA.
2The standards prescribed for developing these mortality tables are the same as the standards that are prescribed for developing mortality tables for multiemployer plans under section
431(c)(6)(D)(iv)(II) (which are used determine current liability in order to determine the minimum full funding limitation under section 431(c)(6)(B)). These standards also apply for purposes
of determining current liability in order to determine the minimum full funding limitation under section 433(c)(2)(C) for a CSEC plan (as defined in section 414(y)).
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than the present value of the accrued ben-
efit using applicable interest rates and the
applicable mortality table. Section 417(e)
(3)(B) defines the term "applicable mor-
tality table" as the mortality table speci-
fied for the plan year for minimum fund-
ing purposes under section 430(h)(3)(A)
(without regard to the rules for substitute
mortality tables under section 430(h)(3)
(C) or mortality tables for disabled indi-
viduals under section 430(h)(3)(D)), mod-
ified as appropriate by the Secretary. The
modifications made by the Secretary to
the section 430(h)(3)(A) mortality table to
determine the section 417(e)(3)(B) appli-
cable mortality table are not addressed in
these proposed regulations. Revenue Rul-
ing 2007-67, 2007-2 CB 1047, describes
the modifications that are currently ap-
plied to determine the section 417(e)
(3)(B) applicable mortality table.
Final regulations under section 430(h)
(3) were published in the Federal Regis-
ter on July 31, 2008 in TD 9419, 73 FR
44632. The final regulations issued in
2008 include rules regarding generally ap-
plicable mortality tables, which are set
forth in § 1.430(h)(3)-1 (the 2008 general
mortality table regulations). The final reg-
ulations issued in 2008 also include rules
regarding substitute mortality tables,
which are set forth in § 1.430(h)(3)-2 (the
2008 substitute mortality table regula-
tions).
The 2008 general mortality table regu-
lations prescribe a base mortality table
and a set of mortality improvement rates,
which may be reflected through the use of
either generational mortality tables or
static mortality tables. Generational mor-
tality tables are a series of mortality ta-
bles, one for each year of birth, each of
which fully reflects projected trends in
mortality rates. The static mortality tables
(which are updated annually) use a single
mortality table for all years of birth to
approximate the present value that would
be determined using the generational mo-
rality tables. Section 1.430(h)(3)-1 in-
cludes static mortality tables for valuation
dates occurring in 2008 and provides that
static mortality tables for valuation dates
occurring in later years are to be published
in the Internal Revenue Bulletin.
The mortality tables included in
§ 1.430(h)(3)-1 are based on the mortality
tables included in the RP-2000 Mortality
Tables Report (referred to in this pream-
ble as the RP-2000 mortality tables) re-
leased by the Society of Actuaries in July
2000 (updated in May 2001) and a set of
mortality improvement projection factors
(the Scale AA Projection Factors) that
was also included in the RP-2000 Mortal-
ity Tables Report.
Section 1.431(c)(6)-1 provides that the
same mortality assumptions that apply for
purposes of section 430(h)(3)(A) and
§ 1.430(h)(3)-1(a)(2) are used to deter-
mine a multiemployer plan's current lia-
bility for purposes of applying the full-
funding rules of section 431(c)(6). For this
purpose, a multiemployer plan is permit-
ted to apply either the annually-adjusted
static mortality tables or the generational
mortality tables.
Static mortality tables for valuation
dates occurring during 2009-2013 were
published in Notice 2008-85, 2008-42
IRB 905. Updated static mortality tables
for valuation dates occurring during 2014
and 2015 were published in Notice 2013-
49, 2013-32 IRB 127. Updated static
mortality tables for valuation dates occur-
ring in 2016 were published in Notice
2015-53, 2015-33 IRB 190. Updated
static mortality tables for valuation dates
occurring in 2017 were published in No-
tice 2016-50, 2016-38 IRB 371.
Notice 2013-49 requested comments
on whether it continues to be necessary to
provide multiple alternative versions of
the mortality tables in order to accommo-
date limitations in some actuarial soft-
ware. Notice 2013-49 also requested
comments on whether a separate disability
mortality table is still warranted with re-
spect to participants who became disabled
before 1995. Finally, Notice 2013-49
noted that the Treasury Department (Trea-
sury) and the IRS were aware that the
Society of Actuaries was conducting a
mortality study of pension plan partici-
pants and specifically requested com-
ments on whether other studies of actual
mortality experience of pension plan par-
ticipants and projected trends of that ex-
perience are available that should be con-
sidered for use in developing mortality
tables for future use under section
430(h)(3).
In October 2014, the Retirement Plans
Experience Committee (RPEC) of the So-
ciety of Actuaries issued a new mortality
study of participants in private pension
plans, referred to as the RP-2014 Mortal-
ity Tables Report (which sets forth mor-
tality tables that are referred to as the
RP-2014 mortality tables). The RP-2014
Mortality Tables Report, as revised No-
vember 2014, is available at www.soa.
org/Research/Experience-Study/pension/
research-2014-rp.aspx. At the same time,
RPEC issued a companion study of mor-
tality improvement, referred to as the
Mortality Improvement Scale MP-2014
Report (which sets forth mortality im-
provement rates that are referred to as
Scale MP-2014 Rates). As described in
the Mortality Improvement Scale MP-
2014 Report, (available at www.soa.org/
Research/Experience-Study/pension/
research-2014-mp.aspx), the Scale MP-
2014 rates were based on mortality im-
provement experience for the general pop-
ulation through 2009.
In October 2015, RPEC released an
update to the Scale MP-2014 Rates. The
updated rates, referred to as Scale MP-
2015 Rates, were released as part of the
Mortality Improvement Scale MP-2015
Report (which is available at https://
www.soa.org/Research/Experience-
Study/Pension/research-2015-mp.aspx).
The Scale MP-2015 Rates were created
using historical data for mortality im-
provement for the general population
through 2011, and the same model and
parameters that were used to produce
Scale MP-2014 Rates. In conjunction
with the release of the updated rates,
RPEC indicated the intent to reflect the
latest data available by providing future
annual updates to the model as soon as
practicable following the public release of
updated data upon which the model is
constructed.
In October 2016, RPEC released a
further update to the Scale MP-2014
Rates, which are referred to as the Scale
MP-2016 Rates. The Scale MP-2016
Rates take into account data for mortal-
ity improvement for the general popula-
tion for years 2012 and 2013, along with
an estimate of mortality rates for 2014.
As described in the Mortality Improve-
ment Scale MP-2016 Report (which
is available at www.soa.org/Research/
Experience-Study/Pension/research-2016-
mp.aspx), in developing the Scale MP-2016
rates, RPEC changed some of the parame-
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ters from those that were used in developing
the Scale MP-2014 Rates.
B. Plan-specific substitute mortality
tables
Section 430(h)(3)(C) prescribes rules
for a plan sponsor's use of substitute mor-
tality tables reflecting the specific mortal-
ity experience of a plan's population in-
stead of using the generally applicable
mortality tables. Under section 430(h)(3)
(C), the plan sponsor may request the Sec-
retary's approval to use plan-specific sub-
stitute mortality tables that meet require-
ments specified in the statute. If approved,
these substitute mortality tables are used
to determine present values and make
computations under section 430 during
the period of consecutive plan years (not
to exceed 10) specified in the request. In
order for a plan sponsor to use a substitute
mortality table for a plan, the statute re-
quires that: (1) the plan has a sufficient
number of plan participants and has been
maintained for a sufficient period of time
in order to have credible mortality infor-
mation necessary to create a substitute
mortality table; and (2) the tables reflect
the actual mortality experience of the
plan's participants and projected trends in
general mortality experience of partici-
pants in pension plans. Except as provided
by the Secretary, a plan sponsor must not
use substitute mortality tables for any plan
unless substitute mortality tables are es-
tablished and used for each plan main-
tained by the plan sponsor and its con-
trolled group.
Regulations issued in 2008 set forth
rules regarding the use of substitute mor-
tality tables. Under § 1.430(h)(3)-2(b), in
order to use substitute mortality tables
with respect to a plan, a plan sponsor must
submit a written request to the Commis-
sioner that demonstrates that those
substitute mortality tables comply with
applicable requirements. A request to use
substitute mortality tables must specify
the first plan year, and the term of years
(not more than 10), for which the tables
are requested to be used. In general, sub-
stitute mortality tables may not be used
for a plan year unless the plan sponsor
submits the request at least 7 months prior
to the first day of the first plan year for
which the substitute mortality tables are to
apply.
The Commissioner has a 180-day pe-
riod to review a request for the use of
substitute mortality tables. If the Commis-
sioner does not issue a denial within this
180-day period, the request is deemed to
have been approved unless the Commis-
sioner and the plan sponsor have agreed to
extend that period. The Commissioner
may request additional information with
respect to a submission. Failure to provide
that information on a timely basis is
grounds for denial of the plan sponsor's
request. In addition, the Commissioner
will deny a request if the request fails to
meet the requirements to use substitute
mortality tables or if the Commissioner
determines that a substitute mortality table
does not sufficiently reflect the mortality
experience of the applicable plan popula-
tion.
Under § 1.430(h)(3)-2(c)(1)(i), substi-
tute mortality tables must reflect the actual
mortality experience of the pension plan
for which the tables are to be used. Sep-
arate mortality tables must be established
for each gender under the plan, and a
substitute mortality table may be estab-
lished for a gender only if the plan has
credible mortality experience with respect
to that gender. If the mortality experience
for one gender is credible but the mortal-
ity experience for the other gender is not
credible, the substitute mortality tables are
used for the gender that has credible mor-
tality experience, and the mortality tables
under § 1.430(h)(3)-1 are used for the
gender that does not have credible mortal-
ity experience.
Section 1.430(h)(3)-2(c)(1)(ii) pro-
vides that, for purposes of determining
whether substitute mortality tables may be
used, there is credible mortality experi-
ence for a gender within a plan if and only
if, over the period covered by the experi-
ence study, there are at least 1,000
deaths within that gender.3 Pursuant to
§ 1.430(h)(3)-2(c)(2)(ii), the minimum
length of the experience study period is 2
years and the maximum length of the ex-
perience study period is 5 years (and can
be lengthened in published guidance).
Furthermore, under that provision, the last
day of the final year reflected in the expe-
rience data must be less than three years
before the first day of the first plan year
for which the substitute mortality tables
are to apply.
Under § 1.430(h)(3)-2(c)(2), develop-
ment of a substitute mortality table under
the regulations requires creation of a base
table and identification of a base year,
which are then used to determine a sub-
stitute mortality table. The base table must
be developed from a study of the mortality
experience of the plan using amounts-
weighted data.
Under § 1.430(h)(3)-2(c)(3), a plan's
substitute mortality tables must be gener-
ational mortality tables. Substitute mortal-
ity tables are determined using the base
mortality tables developed from the expe-
rience study and the Scale AA Projection
Factors, which are also used for the gen-
erally applicable mortality tables.
Under § 1.430(h)(3)-2(c)(4), separate
substitute mortality tables are permitted
(but not required) to be established for
separate populations within a gender, such
as annuitants and nonannuitants or hourly
and salaried individuals. Under that pro-
vision, separate substitute mortality tables
generally are permitted to be used for a
separate population within a gender under
a plan only if all individuals of that gender
in the plan are divided into separate pop-
ulations, each separate population has
credible mortality experience (determined
in the same manner as determining
whether a gender has credible mortality
experience), and the separate substitute
mortality table for each separate popula-
tion is developed using mortality experi-
ence data for that population.
Section 1.430(h)(3)-2(d)(3) prescribes
rules for aggregating plans for purposes of
using substitute mortality tables. Under
§ 1.430(h)(3)-2(d)(3), in order to use a set
of substitute mortality tables for two or
more plans, the rules set forth in the reg-
ulations must be applied by treating those
plans as a single plan. In such a case, the
substitute mortality tables must be used
3The 1,000-death threshold for credible mortality experience under the regulations was intended to provide a high degree of confidence that the plan's past mortality experience will be
predictive of its future mortality, and is consistent with relevant actuarial literature (see, for example, Thomas N. Herzog, Introduction to Credibility Theory (1999); Stuart A. Klugman, et.
al., Loss Models: From Data to Decisions (2004)).
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for all such plans and must be based on
data collected with respect to all such
plans.
Section 1.430(h)(3)-2(d)(4) provides
for the early termination of the use of
substitute mortality tables in certain spec-
ified circumstances, including pursuant to
a replacement of the mortality tables spec-
ified in § 1.430(h)(3)-1. The early termi-
nation pursuant to such a replacement
must be effective as of a date specified in
guidance published in the Internal Reve-
nue Bulletin.
Rev. Proc. 2008-62, 2008-2 CB 935,
sets forth the procedure by which a plan
sponsor of a defined benefit plan may re-
quest and obtain approval for the use of
plan-specific substitute mortality tables in
accordance with section 430(h)(3)(C).
The revenue procedure specifies the infor-
mation that must be provided in order to
request the use of substitute mortality ta-
bles and specifies two alternative accept-
able methods of construction for base sub-
stitute mortality tables. Under section 11
of Rev. Proc. 2008-62, a base table for a
population can be created from the unad-
justed base table for the population
through the application of a graduation
method generally used by the actuarial
profession in the United States (for exam-
ple, the Whittaker-Henderson Type B
graduation method or the Karup-King
graduation method). Section 12 of Rev.
Proc. 2008-62 provides for an alternative
method of constructing a base table
through the application of a fixed percent-
age to the mortality rates of a standard
mortality table, projected to the base year.
This alternative method can be used only
if the IRS determines that the resulting
base table sufficiently reflects the mortal-
ity experience of the applicable plan pop-
ulation. In general, the standard mortality
table that is used under this alternative
method is a projection of the base mortal-
ity table that applies for the population
under § 1.430(h)(3)-1; however, the IRS
will consider requests for the approval of
base tables constructed through the appli-
cation of a fixed percentage to the mortal-
ity rates of other published generally ac-
cepted mortality tables.
Section 503 of the Bipartisan Budget
Act of 2015, Public Law No. 114-74, 129
Stat. 584, which was enacted November 2,
2015, provides for changes to the rules on
the use of substitute mortality tables. Un-
der that section, the determination of
whether a plan has credible information
that can be used to develop a substitute
mortality table must be made in accor-
dance with established actuarial credibil-
ity theory, which (1) is materially differ-
ent from the rules for using substitute
mortality tables (including Revenue Pro-
cedure 2007-37)4 that are in effect on
November 2, 2015; and (2) permits the
use of mortality tables that reflect adjust-
ments to the generally applicable mortal-
ity tables, if those adjustments are based
on the actual experience of the pension
plan maintained by the plan sponsor. This
provision applies to plan years beginning
after December 31, 2015.
## Explanation of Provisions
These proposed regulations set forth
the methodology Treasury and the IRS
would use to update the generally appli-
cable mortality tables that are used to de-
termine present value or make any com-
putation under section 430. Pursuant to
section 417(e)(3)(B), a modified version
of these updated tables would be used for
purposes of determining the amount of a
single-sum distribution (or another accel-
erated form of distribution).5 This meth-
odology for developing updated tables
under section 430(h)(3)(A) is being pro-
posed pursuant to the requirement under
section 430(h)(3)(B) to revise the mortal-
ity tables used under section 430 to reflect
the actual mortality experience of pension
plan participants and projected trends in
that experience. As under the 2008 gen-
eral mortality table regulations, the meth-
odology involves the separate determina-
tion of base tables and the projection of
mortality improvement.
These proposed regulations also set
forth rules for the use of substitute mor-
tality tables. The rules on substitute mor-
tality tables are being proposed pursuant
to section 503 of the Bipartisan Budget
Act of 2015, which requires that the de-
termination of whether the plan has cred-
ible information be made in accordance
with established actuarial credibility the-
ory. Pursuant to that requirement, Trea-
sury and the IRS undertook a review of
actuarial literature regarding credibility
theory and consulted with experts on that
topic from the Society of Actuaries. Based
on that review and analysis, the proposed
regulations set forth a method for devel-
oping substitute mortality tables that is
materially different from the method that
is required under the 2008 substitute mor-
tality table regulations and the associated
revenue procedure.
The method for developing substitute
mortality tables that is set forth in the
proposed regulations is simpler than the
method that applies under the 2008 sub-
stitute mortality table regulations, and also
accommodates the use of substitute mor-
tality tables by plans with smaller popu-
lations that have partially credible mortal-
ity experience. Comments are requested
regarding additional simplifications that
might be appropriate for use in developing
substitute mortality tables.
### I. Generally Applicable Mortality Tables
#### A. Base mortality tables
The base mortality tables proposed for
use under section 430(h)(3)(A) are de-
rived from the tables contained in the RP-
2014 Mortality Tables Report. In response
to Notice 2013-49, commentators gener-
ally recommended that the RP-2014 mor-
tality tables form the basis for the mortal-
ity tables used under section 430.6 After
reviewing the RP-2014 mortality tables,
the accompanying report published by the
Society of Actuaries, and related public
comments, Treasury and the IRS have de-
4Rev. Proc. 2007-37, 2007-1 CB 1433, was not in effect on November 2, 2015. It was issued in 2007 in conjunction with proposed regulations regarding substitute mortality tables
(REG-143601-06, 72 FR 29456), and was replaced by Rev. Proc. 2008-62 when those regulations were finalized in 2008.
5 After these regulations are finalized, the section 417(e)(3)(B) applicable mortality table will be specified in guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2)(ii)(b)
of this chapter.
6These proposed regulations also apply the new generally applicable mortality tables under section 430 for purposes of determining the current liability of a multiemployer plan pursuant
to section 431(c)(6)(D)(iv)(II) or a CSEC plan pursuant to section 433(h)(3).
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termined that the experience study used to
develop the RP-2014 mortality tables is
the best available study of the actual mor-
tality experience of pension plan partici-
pants (other than disabled individuals).
Accordingly, the RP-2014 mortality ta-
bles are the foundation for the base mor-
tality tables used to project the mortality
of pension plan participants under these
proposed regulations.7
Like the mortality tables provided in
the 2008 general mortality table regula-
tions, the mortality tables set forth in these
proposed regulations are gender-distinct
because of significant differences between
expected male mortality and expected fe-
male mortality. In addition, as under the
2008 general mortality table regulations,
these proposed regulations set forth sepa-
rate mortality rates for annuitants and
nonannuitants. This distinction has been
made because these two groups have sig-
nificantly different mortality experience.
See chapter 3 of the RP-2000 Mortality
Tables Report, available at www.soa.org/
research/experience-study/pension/
research-rp-2000-mortality-tables.aspx.
Under these proposed regulations, the
annuitant mortality tables are applied to
determine the present value of benefits for
an annuitant. For a nonannuitant, the non-
annuitant mortality tables are applied for
the periods before the participant is pro-
jected to commence receiving benefits,
and the annuitant mortality tables are used
for later periods. With respect to a bene-
ficiary of a participant, the annuitant mor-
tality table applies for the period begin-
ning with each assumed commencement
of benefits for the participant. If the par-
ticipant has died (or to the extent the par-
ticipant is assumed to die before com-
mencing benefits), the annuitant mortality
table applies with respect to the benefi-
ciary for the period beginning with each
assumed commencement of benefits for
the beneficiary.
The proposed regulations set forth base
tables that are to be used to develop
the mortality tables for future years. These
base tables have a base year of 2006 (the
central year of the experience study used
to develop the mortality tables in the RP-
2014 Mortality Tables Report). These
base tables generally have the same rates
as the RP-2014 mortality tables after fac-
toring out the mortality improvements
from 2007 to 2014 (calculated using the
Scale MP-2014 Rates). However, these
base tables also include nonannuitant rates
for ages below age 18 and above age 80
and annuitant rates for ages below age 50.
This generally is the same approach that
was used to develop the base tables in-
cluded in the 2008 general mortality table
regulations.
The nonannuitant rates for ages above
age 80 were developed by (1) using the
annuitant rates from the base tables for
ages 90 and older and (2) interpolating
between the rates for age 80 and age 90 in
order to produce a smooth transition be-
tween the age 80 rates from the nonannui-
tant tables to the age 90 rates from the
annuitant tables. The interpolation uses
increasing fractions with a denominator of
55 to allocate the total difference between
the rates at ages 80 and 90 over those 10
years. Thus, the rate at age 81 is set equal
to the rate at age 80 plus 1/55 of the total
difference, the age 82 rate is equal to the
rate at age 81 plus 2/55 of the total differ-
ence (so that the age 82 rate is equal to the
rate at age 80 plus 3/55 of the total differ-
ence), and so on for other ages.
A similar approach was used to de-
velop annuitant rates for ages below age
50. The annuitant rates for ages under age
50 were determined by (1) using the non-
annuitant rates from the base tables for
ages 18 to 40, and (2) interpolating be-
tween the rates for age 40 and age 50,
using the same methodology described in
the prior paragraph. This method produces
a smooth transition between the age 40
rates from the nonannuitant table and the
age 50 rates from the annuitant table. For
ages below age 18, both the annuitant and
nonannuitant rates incorporate the juve-
nile rates from the RP-2014 Mortality Ta-
bles Report, after factoring out the mor-
tality improvements from 2007 to 2014
(calculated using the Scale MP-2014
Rates).
### B. Reflection of mortality improvement
The proposed regulations provide that
expected trends in mortality experience
must be taken into account through the
use of either generational or annually up-
dated static mortality tables. In accor-
dance with section 430(h)(3)(B), the pro-
posed regulations update the mortality
improvement rates from the Scale AA
Projection Factors that were set forth un-
der the 2008 general mortality table reg-
ulations.
In order to select up-to-date mortality
improvement rates, Treasury and the IRS
reviewed the Mortality Improvement
Scale MP-2014 Report, related public
comments, the data sources cited in those
comments, the Mortality Improvement
Scale MP-2015 Report, the Mortality Im-
provement Scale MP-2016 Report, and
other published data sources.8 Pursuant to
this review, Treasury and the IRS deter-
mined that the procedures that RPEC used
to develop the Scale MP-2016 Rates
generate the most appropriate currently
available mortality improvement rates.
Accordingly, the proposed regulations
provide that, for valuation dates in 2018,
the mortality tables for use under section
430(h)(3)(A) must reflect the mortality
improvement rates contained in the Mor-
tality Improvement Scale MP-2016 Re-
port.
The Scale MP-2016 Rates are struc-
tured as two-dimensional tables that con-
tain mortality improvement rates that vary
according to both age and calendar year
(so that the mortality improvement rate
for someone who is age 72 in 2020 is
different than the mortality improvement
rate for someone who is age 72 in 2030).
RPEC provided for two-dimensional ta-
bles of mortality improvement rates in
order to reflect differences in mortality
improvement at different ages as well as
mortality improvement trends that vary
for different age cohorts. The proposed
regulations include numerical examples
illustrating how to apply these two-
dimensional mortality improvement rates.
7Mortality tables that may be used as an alternative to the tables provided in these regulations with respect to certain disabled individuals are provided in Rev. Rul. 96-7, 1996-1 CB 59.
8See the August 2013 Literature Review and Assessment of Mortality Improvement Rates in the U.S. Population: Past Experience and Future Long-Term Trends, available at
www.soa.org/Files/Research/Exp-Study/research-2013-lit-review.pdf; and the 2015 Technical Panel on Assumptions and Methods Report to the Social Security Advisory Board, available
at www.ssab.gov/Details-Page/ArticleID/656/2015-Technical-Panel-on-Assumptions-and-Methods-A-Report-to-the-Board-September-2015.
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As under the current regulations, the
proposed regulations take into account the
limitations of some current actuarial soft-
ware that is not designed to use genera-
tional mortality tables. Accordingly, the
proposed regulations continue to permit
the use of static mortality tables. These
static tables consist of a single table for
each gender, updated annually, that ap-
proximates the effect of projected mortal-
ity improvement under the generational
mortality tables. The static mortality ta-
bles that would be used for 2018 are in-
cluded in these proposed regulations. For
later years, updated static mortality tables
will be set forth in guidance published
in the Internal Revenue Bulletin. See
§ 601.601(d)(2)(ii)(b) of this chapter.
The static mortality tables that would
be permitted to be used under the pro-
posed regulations are constructed from the
base tables that are used for purposes of
the generational mortality tables. For each
calendar year, the static mortality tables
are based on a projection of mortality im-
provement applied to the mortality rates in
the base tables for the period beginning
with 2006 and ending with the year of the
table, with a further projection from that
year for a specified projection period. The
rates in the static mortality tables are not
the expected mortality rates for the current
plan year, nor are they the mortality rates
under the generational mortality tables
that would apply for any current age. In-
stead, the projection period has been se-
lected so that the use of the static mortal-
ity tables to calculate present values
produces approximately the same results
as would be calculated using the genera-
tional tables. Based on modeling of annu-
ity values at different ages, Treasury and
the IRS have selected a projection period
of 8 years for males and 9 years for fe-
males, with a further adjustment based on
age. For ages below 80, the projection
period is increased by 1 year for each year
below 80. For ages above 80, the projec-
tion period is reduced (but not below zero)
by 1/3 year for each year above 80.
These proposed regulations provide an
option for smaller plans (plans for which
the total number of active and inactive
participants and beneficiaries of deceased
participants is not more than 500 on the
valuation date for the plan year) to use
gender distinct blended static tables for all
participants and beneficiaries-in lieu of
the separate static tables for annuitants
and nonannuitants-in order to simplify
the actuarial valuation for these plans.
These blended tables are constructed from
the separate nonannuitant and annuitant
static mortality tables using the same non-
annuitant and annuitant weighting factors
as in the 2008 general mortality table reg-
ulations.
Treasury and the IRS understand that
RPEC expects to issue updated mortality
improvement rates that reflect new data
for mortality improvement trends for the
general population on an annual basis.
Treasury and the IRS expect to take those
updates into account in determining the
mortality rates to be used under section
430(h)(3) for valuation dates in years after
2018. Those rates will be specified in
guidance to be published in the Internal
Revenue Bulletin. See § 601.601(d)
(2)(ii)(b) of this chapter.
### II. Plan-specific substitute mortality tables
#### A. Overview
These proposed regulations contain a
comprehensive set of rules regarding
plan-specific substitute mortality tables.
The proposed regulations contain many of
the rules regarding substitute mortality ta-
bles from the 2008 substitute mortality
table regulations. However, after analyz-
ing the actuarial literature regarding cred-
ibility theory, Treasury and the IRS pro-
pose to make a number of changes to the
regulations relating to the development of
substitute mortality tables. Specifically,
the proposed regulations would require a
substitute mortality table to be constructed
by multiplying the mortality rates from a
projected version of the generally applica-
ble base mortality table by a mortality
ratio (that is, a ratio of the actual deaths
for the plan population to expected deaths
determined using the standard mortality
tables for that population).
Use of mortality ratios (rather than pro-
viding for the graduation of raw mortality
rates as under the 2008 substitute mortal-
ity table regulations) should make it easier
for plan sponsors to develop the substitute
tables, because it would eliminate the
need to apply a graduation technique. It
would also make it easier for the IRS to
review applications to use substitute mor-
tality tables. This simplification is partic-
ularly important in light of the other major
change made in the proposed regulations,
which would permit the use of substitute
mortality tables for a plan that has only
partially credible mortality information.
Treasury and the IRS expect significantly
more plan sponsors to request the use of
substitute mortality tables after this
change becomes effective.
##### B. Development of substitute mortality tables for plans with full credibility
The substitute mortality table for a
population with full credibility would be
determined by applying projected mortal-
ity improvement to a base substitute mor-
tality table which is developed using an
experience study of the population. The
proposed regulations would use the same
requirements for an experience study as
under the 2008 substitute mortality table
regulations. Specifically, the experience
study would have to cover a period of at
least 2 years (and no more than 5 years)
that ends less than 3 years before the first
day of the first plan year for which the
substitute mortality tables are to apply. As
under the 2008 substitute mortality table
regulations, the calendar year that con-
tains the day before the midpoint of the
experience study is the base year for the
base substitute mortality table. In addi-
tion, the proposed regulations include the
rule in the 2008 substitute mortality table
regulations that requires an additional
demonstration that the experience study
results are predictive of future mortality
for a plan population if the number of
individuals in that population has changed
by more than 20 percent compared to the
average number of individuals in that
population during the experience study
period.
The base substitute mortality table is
determined by multiplying the mortality
rates from the standard mortality table
(that is, the generally applicable base mor-
tality table projected with mortality im-
provement to the base year for the base
substitute mortality table) by the plan's
mortality ratio. For this purpose, the mor-
tality improvement rates that apply for the
calendar year during which the plan spon-
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sor submits the request to use substitute
mortality tables are used to project the
generally applicable base mortality table
to the base year for the base substitute
mortality table.9 The mortality ratio is de-
termined as a fraction, the numerator of
which is the number of actual deaths dur-
ing the experience study period (with each
death weighted by the amount of benefit)
and the denominator of which is the num-
ber of expected deaths during that period
(determined using the standard mortality
table) weighted by the amount of the ben-
efit. For this purpose, the amount of ben-
efit is the accrued benefit (substituting the
current periodic payment in the case of
individuals in pay status). Consistent with
section 503 of the Bipartisan Budget
Act of 2015 (and unlike § 1.430(h)(3)-
2(c)(2)(ii)(D) of the 2008 substitute mor-
tality table regulations, which provides
that the Commissioner may permit the use
of other recognized mortality tables to
construct the base substitute mortality ta-
ble), these proposed regulations provide
that the standard mortality table that must
be used for this purpose is the generally
applicable base mortality table projected
with mortality improvement to the base
year for the base substitute mortality table.
##### C. Standards for full credibility
The proposed regulations revise the
standard for full credibility of a popula-
tion under the 2008 substitute mortality
table regulations (which is 1,000 actual
deaths for the relevant population during
the experience study period). This is be-
cause, under established actuarial credibil-
ity theory, that threshold (which is a
rounding down of the 1,082 actual deaths
that would be needed for a 90% confi-
dence level that the measured rate is
within 5% of the underlying rate of mor-
tality) should apply to the credibility for a
single rate of mortality and not an entire
mortality table.10 Moreover, the 1,000
death threshold did not take into account
the well-established actuarial principle
that mortality experience within a popula-
tion will vary predictably based on the
amount of the annuity (or life insurance,
as applicable). The base tables for the
generally applicable mortality tables were
constructed on an amounts-weighted basis
(under which the individuals with higher
benefit amounts have a greater weight in
the computation of the mortality rate for a
particular age); accordingly, substitute
mortality tables should be constructed us-
ing the same principle.
The variability of benefit amounts for
different individuals in different popula-
tions within a plan means that a single
1,000 actual-death standard that would ap-
ply to all populations is not appropriate.
Instead, established actuarial credibility
theory would require a plan-specific cal-
culation of the full-credibility standard
that takes into account the dispersion of
benefits within the plan.
Under the proposed regulations, the
number of deaths that are needed for the
population within a plan to have fully
credible mortality information is deter-
mined as the product of 1,082 and the
benefit dispersion factor for the popula-
tion.11 The benefit dispersion factor for a
population is equal to the number of ex-
pected deaths for the population during
the experience study period, times the sum
of the mortality-weighted square of the
benefits, divided by the square of the
mortality-weighted benefits.12
##### D. Partial Credibility
The proposed regulations permit sub-
stitute mortality tables to be used for a
plan that does not have sufficient deaths to
have fully credible mortality information.
In accordance with established actuarial
credibility theory, such a plan would use a
weighted average of the standard mortal-
ity table (projected with mortality im-
provement to the base year of the base
substitute mortality table) and the mortal-
ity table that would be developed for the
plan if it were to have fully credible mor-
tality information. The weight for the
mortality table that would apply if the
plan were to have fully credible mortality
information is the square-root of a frac-
tion, the numerator of which is the actual
number of deaths for the population
within the experience study period and the
denominator of which is the number of
deaths needed for the plan to have fully
credible mortality information.
In order to avoid the need to create a
substitute mortality table for a plan with a
relatively small population, the proposed
regulations provide that a population does
not have credible mortality information if
the actual number of deaths for that pop-
ulation during the experience study period
is less than 100. For this purpose, the
length of the experience study period must
be the same length as the longest experi-
ence study period for any plan in the con-
trolled group.
Treasury and the IRS chose the thresh-
old of 100 deaths as a result of balancing
the burdens of developing substitute mor-
tality tables and the benefit of the use of
those tables, in light of the requirement
under section 430(h)(3)(C)(iv) that substi-
tute mortality tables be used for all plans
within a controlled group (and the excep-
tion to this requirement for plans that lack
fully or partially credible mortality infor-
mation). Comments are requested regard-
ing whether this is the appropriate thresh-
old or whether a different number of
deaths should be used for this purpose.
#### E. Mortality Improvement Rates
As required under the 2008 substitute
mortality table regulations, the proposed
regulations provide that substitute mortal-
ity tables must be generational mortality
tables. These proposed regulations require
that the mortality improvement rates that
are used for the generally applicable mor-
tality tables also be applied beginning
with the base year of the base substitute
mortality tables.
9If the plan sponsor submits such a request during 2017, then the cumulative mortality improvement factors are determined using the Scale MP-2016 Rates.
10Note, however, the use of a graduation technique set forth in Rev. Proc. 2008-62 enables a plan to have credible mortality experience in order to establish a substitute mortality table
even though there are fewer than 1000 deaths at each age.
11This is based on the assumption that the distribution of releases from liability due to deaths follows a compound Poisson model. See www.actuaries.ca/members/publications/2002/
202037e.pdf.
12See Gavin Benjamin, Selecting Mortality Tables: A Credibility Approach, available at www.soa.org/Files/Research/Projects/research-2008-benjamin.pdf.
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##### F. Other rules relating to the use of substitute mortality tables
###### 1. Use of separate subpopulations within a gender under plan
The proposed regulations continue to
apply the rules under the 2008 substitute
mortality table regulations regarding the
applicability of substitute mortality tables
for separate populations within a plan.
Specifically, separate substitute mortality
tables must be developed for each gender
under the plan. In addition, the regulations
permit separate substitute mortality tables
to be developed for separate subpopula-
tions (such as hourly and salaried partici-
pants) within a gender under the plan in
certain circumstances.
As under the 2008 substitute mortality
table regulations, permission to separate a
gender into separate subpopulations is
generally limited to situations in which
each of the subpopulations have fully
credible mortality information. However,
that requirement does not apply if the sep-
arate subpopulations are annuitants and
non-annuitants. Comments are requested
on whether there should be other excep-
tions to this rule. For example:
· Should the regulations allow sepa-
rate sub-populations to be used if
one subpopulation has full credibil-
ity while the other one has only
partial credibility?
· Should the regulations provide for the
use of separate sub-populations based
on age, even if those groups have only
partial credibility?
· Should there be a rule to "normalize"
the mortality tables for separate sub-
populations (so that the total number
of expected deaths for the separate
subpopulations is the same as the total
number of expected deaths for the en-
tire population without regard to the
separation)?
###### 2. Requirement to use substitute mortality tables for all plans with credible mortality information
As under the 2008 substitute mortality
table regulations, the proposed regulations
provide that substitute mortality tables are
permitted to be used for a plan for a plan
year only if, for that plan year, substitute
mortality tables are also approved and
used for each other pension plan subject to
the requirements of section 430 that is
maintained by the plan sponsor or by a
member of the sponsor's controlled group.
However, this rule does not prohibit the
use of substitute mortality tables for one
plan if the only other plan or plans main-
tained by the plan sponsor (or by a mem-
ber of the plan sponsor's controlled
group) for which substitute mortality ta-
bles are not used are too small to have
fully or partially credible mortality infor-
mation for the plan year. Thus, if a spon-
sor's controlled group contains two pen-
sion plans that are subject to section 430,
each of which has fully or partially cred-
ible mortality information for at least one
gender, either the plan sponsors of both
plans must obtain approval from the Com-
missioner to use substitute mortality ta-
bles or substitute mortality tables may not
be used for either plan. In contrast, if for
one of those plans neither males nor fe-
males have fully or partially credible mor-
tality information, then the plan without
credible mortality information will not
prevent the use of substitute mortality ta-
bles for the plan with credible mortality
information.
As under the 2008 substitute mortality
table regulations, the proposed regulations
provide that the requirement that the plan
sponsor demonstrate the lack of credible
mortality information for both the male
and female populations in other plans
maintained by the plan sponsor (and by
members of the plan sponsor's controlled
group) for which substitute mortality ta-
bles are not used must be satisfied for each
plan year for which substitute mortality
tables are used. This demonstration is
made for a plan population by showing
that the population has not experienced at
least 100 deaths over a time period that
satisfies the requirements set forth in the
regulations. In general, for each plan year
in which substitute mortality tables are
used for a plan, in order to demonstrate
that a gender within a plan does not have
credible mortality information for a plan
year, the demonstration that the gender
within the plan has fewer than 100 deaths
must be made by analyzing the actual
number of deaths over a period that is the
same length as the period for the experi-
ence study on which the substitute mor-
tality tables are based and that ends less
than three years before the first day of the
plan year.
###### 3. Permitted aggregation of plans
The proposed regulations retain the
rules contained in the 2008 substitute
mortality table regulations regarding ag-
gregation of plans for purposes of using
substitute mortality tables. Under these
rules, in order for a plan sponsor to use the
same substitute mortality tables for two or
more plans, the rules set forth in the reg-
ulations are applied by treating those
plans as a single plan. In such a case, the
substitute mortality tables must be used
for all such plans and must be based on
data collected with respect to all such
plans. Although plans generally are not
required to be aggregated for purposes of
substitute mortality tables, the regulations
require a plan to be aggregated with any
plan that was previously spun off from
that plan if the Commissioner determines
that one purpose of the spinoff was to
avoid the use of substitute mortality tables
for any of the plans involved in the spi-
noff.
###### 4. Special rules for newly-acquired plans
If substitute mortality tables are used
for at least one plan within a controlled
group, in order for the plan sponsor to
continue to use substitute mortality tables
for that plan after a plan joins the con-
trolled group, substitute mortality tables
must be used for the newly affiliated plan
unless the newly affiliated plan demon-
strates that it lacks credible mortality in-
formation. However, the proposed regula-
tions provide for a transition period during
which the standard mortality table is per-
mitted to be used for a newly affiliated
plan (without affecting the use of substi-
tute mortality tables for other plans within
the controlled group) even if the newly
affiliated plan fails to demonstrate a lack
of credible mortality information. Simi-
larly, the use of substitute mortality tables
for a newly affiliated plan is not affected
during the transition period merely be-
cause the standard mortality tables are
used for another plan within the controlled
group despite the failure of that other plan
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to demonstrate a lack of credible mortality
information. Notably, these rules do not
change the requirement that the continued
use of substitute mortality tables for any
plan within the controlled group is permit-
ted only if the other pre-affiliation plans
within the controlled group for which sub-
stitute mortality tables are not used dem-
onstrate a lack of credible mortality infor-
mation.
Like the 2008 substitute mortality table
regulations, the proposed regulations do
not require the use of pre-affiliation expe-
rience in order to establish whether a
newly-affiliated plan has credible mortal-
ity information. If the pre-affiliation data
is excluded and substitute mortality tables
will be used for the plan, then the experi-
ence study period may be as short as one
year (instead of two years). If the pre-
affiliation data is excluded and substitute
mortality tables will not be used for the
plan, then the experience study period
used to demonstrate that the plan does not
have credible mortality information may
also be shortened, provided that the period
ends not more than one year and one day
before the first day of the plan year.
###### 5. Treatment of mortality experience with respect to disabled individuals
As under the 2008 substitute mortality
table regulations, if separate mortality ta-
bles under section 430(h)(3)(D) are used
for certain disabled individuals under a
plan, then those individuals are disre-
garded for all purposes with respect to
substitute mortality tables under section
430(h)(3)(C). Thus, if the mortality tables
under section 430(h)(3)(D) are used for
certain disabled individuals under a plan,
mortality experience with respect to those
individuals must be excluded in determin-
ing mortality rates for substitute mortality
tables with respect to a plan.
##### 6. Early termination of use of substitute mortality tables
The proposed regulations retain the
rules from the 2008 substitute mortality
table regulations regarding the early ter-
mination of use of substitute mortality ta-
bles. Under those rules, a plan's substitute
mortality tables may not be used begin-
ning with the earliest of: (1) for a plan for
which substitute mortality tables are used
for only one gender because of a lack of
credible mortality information with re-
spect to the other gender, the first plan
year for which there is credible mortality
information with respect to the gender that
had lacked credible mortality information
(unless the plan receives approval to use a
substitute mortality table for that other
gender); (2) the first plan year for which
the requirements regarding use of substi-
tute mortality tables by controlled group
members are not satisfied; (3) the second
plan year following the plan year for
which there is a significant change in in-
dividuals covered by the plan (unless the
plan's actuary certifies in writing to the
satisfaction of the Commissioner that
the substitute mortality tables used for the
plan population continue to be accurately
predictive of future mortality of that pop-
ulation (taking into account the effect of
the change in the population)); (4) the first
plan year following the plan year for
which a substitute mortality table used for
a plan population is no longer accurately
predictive of future mortality of that pop-
ulation, as determined by the Commis-
sioner or as certified by the plan's actuary
to the satisfaction of the Commissioner; or
(5) the date specified in guidance pub-
lished in the Internal Revenue Bulletin in
conjunction with a replacement of gener-
ally applicable mortality tables (other than
annual updates to the static mortality ta-
bles or changes to the mortality improve-
ment rates).
###### G. Procedures for requesting approval of substitute mortality tables
As under the 2008 substitute mortality
table regulations, the proposed regulations
provide that a plan sponsor that wishes to
use substitute mortality tables for a plan
must submit a request to the IRS for ap-
proval to use the proposed tables. In gen-
eral, the request must be submitted at least
7 months before the first day of the plan
year for which the proposed substitute ta-
bles would be used. If the IRS does not
deny the request within 180 days (which
may be extended as agreed to by the IRS
and the plan sponsor), the request is
deemed to have been approved.
The IRS intends to issue an updated
version of Rev. Proc. 2008-62 after final
regulations regarding substitute mortality
tables are issued. If the timing of the re-
lease of those final regulations and the
associated revenue procedure does not
leave adequate time to submit an applica-
tion to use substitute mortality tables for
the plan year beginning in 2018, Treasury
and the IRS expect that they would pro-
vide a transition rule that would permit
extra time to submit such an application
Before final regulations adopting the
provisions set forth in these proposed reg-
ulations are issued, plan sponsors request-
ing the use of substitute mortality tables
should continue to use the procedures set
forth in Rev. Proc. 2008-62. During that
period, the IRS will not evaluate whether
a substitute mortality table for a popula-
tion with only partially credible mortality
information is appropriate.
## Applicability Date
These regulations are proposed to ap-
ply to plan years beginning on or after
January 1, 2018. Under the proposed reg-
ulations, a plan sponsor may use a substi-
tute mortality table for a plan year begin-
ning on or after January 1, 2018 only if
that substitute mortality table is approved
as provided in these proposed regulations.
## Statement of Availability of IRS Documents
IRS Revenue Rulings, Revenue Proce-
dures, and Notices cited in this document
are published in the Internal Revenue Bul-
letin (or Cumulative Bulletin) and are
available from the Superintendent of Doc-
uments, U.S. Government Printing Office,
Washington, DC 20402, or by visiting the
IRS website at www.irs.gov.
## Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements of
Executive Order 12866, as supplemented
and reaffirmed by Executive Order 13563.
Therefore, a regulatory assessment is not
required. The regulations do not impose a
collection of information on small entities,
therefore the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant
to section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
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istration for comment on their impact on
small business.
## Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to Treasury and the IRS
as prescribed in this preamble in the "AD-
DRESSES" section. Treasury and the IRS
request comments on all aspects of these
proposed regulations. All comments will
be available for public inspection and
copying at www.regulations.gov or upon
request.
A public hearing on these proposed
regulations has been scheduled for April
13, 2017 beginning at 10 a.m. in the Au-
ditorium, Internal Revenue Service, 1111
Constitution Avenue, NW, Washington,
DC 20224. Due to building security pro-
cedures, visitors must enter at the Consti-
tution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the "FOR FURTHER
INFORMATION CONTACT" section
of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
March 29, 2017, and an outline of topics
to be discussed and the amount of time to
be devoted to each topic by March 29,
2017. A period of 10 minutes will be
allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
## Drafting Information
The principal authors of these regula-
tions are Thomas Morgan and Linda S. F.
Marshall of Office of Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel from
Treasury and the IRS participated in the
development of these regulations.
<!-- PageHeader="** * * *" -->
## Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
### PART 1-INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * *
Par. 2. Section 1.430(h)(3)-1 is revised
to read as follows:
§ 1.430(h)(3)-1 Mortality tables used to
determine present value
(a) Basis for mortality tables-(1) In
general. This section sets forth rules for
the mortality tables to be used in deter-
mining present value or making any com-
putation under section 430. Generally ap-
plicable mortality tables for participants
and beneficiaries are set forth in this sec-
tion pursuant to section 430(h)(3)(A). In
general, either the generational mortality
tables set forth in paragraph (a)(2) of this
section or the static mortality tables set
forth in paragraph (a)(3) of this section
must be used for a plan. In lieu of using
the mortality tables provided under this
section with respect to participants and
beneficiaries, plan-specific substitute mor-
tality tables are permitted to be used for
this purpose pursuant to section 430(h)
(3)(C), provided that the requirements of
§ 1.430(h)(3)-2 are satisfied. Mortality ta-
bles that may be used with respect to
disabled individuals are to be provided in
guidance published in the Internal Reve-
nue Bulletin. See § 601.601(d)(2)(ii)(b) of
this chapter.
(2) Generational mortality tables-(i)
In general-(A) Use of generational mor-
tality tables. The generational mortality
tables that are permitted to be used under
section 430(h)(3)(A) and paragraph (a)(1)
of this section are determined using the
base mortality tables described in para-
graph (a)(2)(i)(B) of this section and the
mortality improvement rates described in
paragraph (a)(2)(i)(C) of this section.
(B) Base mortality tables. The base
mortality tables are set forth in paragraph
(d) of this section. The base year for those
tables is 2006.
(C) Mortality improvement rates. The
mortality improvement rates for valuation
dates occurring during 2018 are the mor-
tality improvement rates contained in the
Mortality Improvement Scale MP-2016
Report (issued by the Retirement Plans
Experience Committee (RPEC) of the So-
ciety of Actuaries and available at
www.soa.org/Research/Experience-Study/
Pension/research-2016-mp.aspx). For
later years, updated mortality improve-
ment rates that take into account new
data for mortality improvement trends
of the general population are to be
provided in guidance published in
the Internal Revenue Bulletin. See
§ 601.601(d)(2)(ii)(b) of this chapter.
(D) Application of mortality improve-
ment rates. Under the generational mor-
tality tables described in this paragraph
(a)(2), the probability of an individual's
death at a particular age in the future is
determined as the individual's base mor-
tality rate that applies at that age (that is,
the applicable mortality rate from the ta-
ble set forth in paragraph (d) of this sec-
tion for that age, gender, and status as an
annuitant or a nonannuitant) multiplied by
the cumulative mortality improvement
factor for the individual's gender and for
that age for the period from 2006 through
the calendar year in which the individual
is projected to reach the particular age.
Paragraph (a)(2)(ii) of this section shows
how the base mortality tables in paragraph
(d) of this section and the mortality im-
provement rates for valuation dates occur-
ring during 2018 are combined to deter-
mine projected mortality rates.
(E) Cumulative mortality improvement
factor. The cumulative mortality improve-
ment factor for an age and gender for a
period is the product of the annual mor-
tality improvement factors for that age
and gender for each year within that pe-
riod.
(F) Annual mortality improvement fac-
tor. The annual mortality improvement
factor for an age and gender for a year is
1 minus the mortality improvement rate
that applies for that age and gender for
that year.
(ii) Example of calculation-(A) Cal-
culation of mortality rate. The mortality
rate for 2018 that is applied to male an-
nuitants who are age 66 in 2018 is equal to
the product of the mortality rate for 2006
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that applied to male annuitants who were
age 66 in 2006 (0.013855) and the cumu-
lative mortality improvement factor for
age 66 males from 2006 to 2018. The
cumulative mortality improvement factor
for age 66 males for the period from 2006
to 2018 is 0.8929, and the mortality rate
for 2018 for male annuitants who are age
66 in that year would be 0.012371, as
shown in the following table.
Calendar Year
Scale MP-2016 Mortality Improvement Rate
Annual Mortality improvement factor (1- Scale MP-2016 Rate)
Cumulative Mortality Improvement Factor
Mortality Rate
2006
n/a
n/a
n/a
0.013855
2007
0.0237
0.9763
0.9763
2008
0.0211
0.9789
0.9557
2009
0.0180
0.9820
0.9385
2010
0.0142
0.9858
0.9252
2011
0.0099
0.9901
0.9160
2012
0.0053
0.9947
0.9112
2013
0.0043
0.9957
0.9072
2014
0.0035
0.9965
0.9041
2015
0.0030
0.9970
0.9014
2016
0.0028
0.9972
0.8988
2017
0.0030
0.9970
0.8961
2018
0.0036
0.9964
0.8929
0.012371
(B) Probability of survival for an indi-
vidual. After the projected mortality rates
are derived for each age for each year, the
rates are used to calculate the present
value of a benefit stream that depends on
the probability of survival year-by-year.
For example, for purposes of calculating
the present value (for a 2018 valuation
date) of future payments in a benefit
stream payable for a male annuitant who
is age 66 in 2018, the probability of sur-
vival for the annuitant is based on the
mortality rate for a male annuitant who is
age 66 in 2018 (0.012371), and the pro-
jected mortality rate for a male annuitant
who will be age 67 in 2019 (0.013302),
age 68 in 2020 (0.014321), and so on.
(3) Static mortality tables. The static
mortality tables that are permitted to be
used under section 430(h)(3)(A) and para-
graph (a)(1) of this section are updated
annually by the IRS according to the
methodology described in paragraph (c)
(2) of this section. Paragraph (e) of this
section sets forth static tables that are per-
mitted to be used for valuation dates in
2018. For valuation dates in later years,
static mortality tables are to be provided
in guidance published in the Internal Rev-
enue Bulletin. See § 601.601(d)(2)(ii)(b)
of this chapter.
(b) Use of the tables-(1) Separate
tables for annuitants and nonannui-
tants-(i) In general. Separate tables are
provided for use for annuitants and non-
annuitants. The nonannuitant mortality
table is applied to determine the proba-
bility of survival for a nonannuitant for
the period before the nonannuitant is
projected to commence receiving bene-
fits. The annuitant mortality table is ap-
plied to determine the present value of
benefits for each annuitant. In addition,
the annuitant mortality table is applied
for each nonannuitant with respect to
each assumed commencement of bene-
fits for the period beginning with that
assumed commencement. For purposes
of this section, an annuitant means a
plan participant who has commenced re-
ceiving benefits and a nonannuitant
means a plan participant who has not yet
commenced receiving benefits (for ex-
ample, an active employee or a termi-
nated vested participant). A participant
whose benefit has partially commenced
is treated as an annuitant with respect to
the portion of the benefit that has com-
menced and treated as a nonannuitant
with respect to the balance of the bene-
fit. In addition, with respect to a bene-
ficiary of a participant, the annuitant
mortality table applies for the period
beginning with each assumed com-
mencement of benefits for the partici-
pant. If the participant has died (or to
the extent the participant is assumed to
die before commencing benefits), the
annuitant mortality table applies with
respect to the beneficiary for the period
beginning with each assumed com-
mencement of benefits for the benefi-
ciary.
(ii) Examples of calculation using sep-
arate annuitant and nonannuitant tables.
With respect to a 45-year-old active par-
ticipant who is projected to commence
receiving an annuity at age 55, the funding
target is determined using the nonannui-
tant mortality table for the period before
the participant attains age 55 (so that,
if the static mortality tables are used pur-
suant to paragraph (a)(3) of this section,
the probability of an active male partici-
pant living from age 45 to age 55 using
the table that applies for a valuation date
in 2018 is 0.988857) and using the annu-
itant mortality table for the period ages 55
and above. Similarly, for a 45-year-old
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terminated vested participant who is pro-
jected to commence an annuity at age 65,
the funding target is determined using the
nonannuitant mortality table for the period
before the participant attains age 65 and
using the annuitant mortality table for
ages 65 and above.
(2) Small plan tables. If static mortality
tables are used pursuant to paragraph
(a)(3) of this section, as an alternative to
the separate static tables specified for an-
nuitants and nonannuitants pursuant to
paragraph (b)(1) of this section, combined
static tables that apply the same mortality
rates to both annuitants and nonannuitants
are permitted to be used for a small plan.
For this purpose, a small plan is defined as
a plan with 500 or fewer total participants
(including both active and inactive partic-
ipants and beneficiaries of deceased par-
ticipants) on the valuation date. The com-
bined static tables that are permitted to be
used for small plans pursuant to this para-
graph (b)(2) are constructed from the sep-
arate nonannuitant and annuitant static
mortality tables using the weighting fac-
tors for small plans that are set forth in
paragraph (d) of this section. The weight-
ing factors are applied to develop these
combined static tables using the following
equation: Combined mortality rate =
[nonannuitant rate * (1- weighting factor)]
\+ [annuitant rate * weighting factor].
(c) Static tables-(1) Source of rates.
The static mortality tables that are used
pursuant to paragraph (a)(3) of this sec-
tion are determined using the base mortal-
ity tables described in paragraph (a)(2)
(i)(B) of this section taking into account
the mortality improvement rates described
in paragraph (a)(2)(i)(C) of this section, in
accordance with the rules set forth in para-
graph (c)(3) of this section.
(2) Selection of static tables. The static
mortality tables that are used for a valua-
tion date are the static mortality tables for
the calendar year that contains the valua-
tion date.
(3) Projection of mortality improve-
ments-(i) General rule. Except as pro-
vided in paragraph (c)(3)(iii) of this sec-
tion, the static mortality tables for a
calendar year are determined by multiply-
ing the applicable mortality rate for each
age from the base mortality tables by
both-
(A) The cumulative mortality improve-
ment factor (determined under the rules of
paragraph (a)(2) of this section) for the
period from 2006 through that calendar
year; and
(B) The cumulative mortality improve-
ment factor (determined under the rules of
paragraph (a)(2) of this section) for the
period beginning in that calendar year and
continuing beyond that calendar year for
the number of years in the projection pe-
riod described in paragraph (c)(3)(ii) of
this section.
(ii) Projection period for static mortal-
ity tables-(A) In general. The projection
period is 8 years for males and 9 years for
females, as adjusted based on age as pro-
vided in paragraph (c)(3)(ii)(B) of this
section.
(B) Age adjustment. For ages below
80, the projection period is increased by 1
year for each year below age 80. For ages
above 80, the projection period is reduced
(but not below zero) by 1/3 year for each
year above 80.
(iii) Fractional projection periods. If
for an age the number of years in the
projection period determined under this
paragraph (c)(3) is not a whole number,
then the mortality rate for that age is de-
termined by using linear interpolation be-
tween-
(A) The mortality rate for that age that
would be determined under paragraph
(c)(3)(i) of this section if the number of
years in the projection period were the
next lower whole number; and
(B) The mortality rate for that age that
would be determined under paragraph
(c)(3)(i) of this section if the number of
years in the projection period were the
next higher whole number.
(iv) Example. For example, at age 85
the projection period for a male is 61/3
years (8 years minus 1/3 year for each of
the 5 years above age 80). For a valuation
date in 2018, the mortality rate in the
static mortality table for an 85-year-old
male is based on a projection of mortality
improvement for 61/3 years beyond 2018.
Under paragraph (c)(3)(iii) of this section,
the mortality rate for an 85-year-old male
annuitant in the static mortality table for
2018 is 2/3 times the projected mortality
rate for a male annuitant that age in 2024
plus 1/3 times the projected mortality rate
for a male annuitant that age in 2025.
Accordingly, the mortality rate for an 85-
year-old male annuitant in the static mor-
tality table for 2018 is 0.075196 (2/3 times
the projected mortality rate for an 85-year
old male annuitant in 2024 (0.075447)
plus 1/3 times the projected mortality rate
for an 85-year old male annuitant in 2025
(0.074693)).
(d) Base mortality tables. The follow-
ing are the base mortality tables. The base
year for these tables is 2006.
Males
Weighting Factor For Small Plans
Non-Annuitant
Females
Weighting Factor For Small Plans
Age
Non-Annuitant
Annuitant
Annuitant
0
0.008878
0.008878
0
0.007278
0.007278
0
1
0.000515
0.000515
0
0.000451
0.000451
0
2
0.000348
0.000348
0
0.000295
0.000295
0
3
0.000289
0.000289
0
0.000220
0.000220
0
4
0.000225
0.000225
0
0.000165
0.000165
0
5
0.000197
0.000197
0
0.000149
0.000149
0
6
0.000177
0.000177
0
0.000137
0.000137
0
7
0.000156
0.000156
0
0.000127
0.000127
0
8
0.000132
0.000132
0
0.000117
0.000117
0
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Age
Males
Females
Non-Annuitant
Annuitant
Weighting Factor For Small Plans
Non-Annuitant
Annuitant
Weighting For Small
Factor Plans
9
0.000107
0.000107
0
0.000109
0.000109
0
10
0.000090
0.000090
0
0.000102
0.000102
0
11
0.000095
0.000095
0
0.000105
0.000105
0
12
0.000142
0.000142
0
0.000121
0.000121
0
13
0.000187
0.000187
0
0.000137
0.000137
0
14
0.000230
0.000230
0
0.000151
0.000151
0
15
0.000274
0.000274
0
0.000165
0.000165
0
16
0.000318
0.000318
0
0.000177
0.000177
0
17
0.000364
0.000364
0
0.000187
0.000187
0
18
0.000412
0.000412
0
0.000196
0.000196
0
19
0.000463
0.000463
0
0.000202
0.000202
0
20
0.000510
0.000510
0
0.000202
0.000202
0
21
0.000552
0.000552
0
0.000197
0.000197
0
22
0.000587
0.000587
0
0.000191
0.000191
0
23
0.000599
0.000599
0
0.000190
0.000190
0
24
0.000594
0.000594
0
0.000188
0.000188
0
25
0.000545
0.000545
0
0.000186
0.000186
0
26
0.000510
0.000510
0
0.000186
0.000186
0
27
0.000486
0.000486
0
0.000188
0.000188
0
28
0.000472
0.000472
0
0.000192
0.000192
0
29
0.000468
0.000468
0
0.000198
0.000198
0
30
0.000470
0.000470
0
0.000209
0.000209
0
31
0.000480
0.000480
0
0.000222
0.000222
0
32
0.000495
0.000495
0
0.000238
0.000238
0
33
0.000514
0.000514
0
0.000257
0.000257
0
34
0.000534
0.000534
0
0.000278
0.000278
0
35
0.000557
0.000557
0
0.000301
0.000301
0
36
0.000581
0.000581
0
0.000325
0.000325
0
37
0.000611
0.000611
0
0.000355
0.000355
0
38
0.000648
0.000648
0
0.000389
0.000389
0
39
0.000694
0.000694
0
0.000428
0.000428
0
40
0.000750
0.000750
0
0.000471
0.000471
0
41
0.000814
0.000823
.0045
0.000518
0.000515
0
42
0.000890
0.000969
.0091
0.000570
0.000603
0
43
0.000982
0.001188
.0136
0.000628
0.000735
0
44
0.001088
0.001480
.0181
0.000691
0.000911
0
45
0.001207
0.001846
.0226
0.000758
0.001131
.0084
46
0.001342
0.002285
.0272
0.000831
0.001395
.0167
47
0.001487
0.002797
.0317
0.000908
0.001703
.0251
48
0.001643
0.003382
.0362
0.000986
0.002055
.0335
49
0.001807
0.004040
.0407
0.001065
0.002451
.0419
50
0.001979
0.004771
.0453
0.001151
0.002891
.0502
51
0.002159
0.005059
.0498
0.001242
0.002993
.0586
52
0.002351
0.005343
.0686
0.001344
0.003124
.0744
53
0.002539
0.005592
.0953
0.001458
0.003291
.0947
<!-- PageFooter="Bulletin No. 2017-4" -->
<!-- PageFooter="January 23, 2017" -->
<!-- PageBreak -->
Age
Males Non-Annuitant
Annuitant
Weighting Factor For Small Plans
Non-Annuitant
Females Annuitant
Weighting Factor For Small Plans
54
0.002741
0.005839
.1288
0.001588
0.003499
.1189
55
0.002967
0.006102
.2066
0.001735
0.003755
.1897
56
0.003231
0.006399
.3173
0.001902
0.004065
.2857
57
0.003548
0.006746
.3780
0.002091
0.004435
.3403
58
0.003932
0.007155
.4401
0.002302
0.004869
.3878
59
0.004396
0.007639
.4986
0.002537
0.005373
.4360
60
0.004954
0.008211
.5633
0.002795
0.005942
.4954
61
0.005616
0.008878
.6338
0.003080
0.006581
.5805
62
0.006392
0.009646
.7103
0.003388
0.007283
.6598
63
0.007291
0.010523
.7902
0.003724
0.008043
.7520
64
0.008320
0.011514
.8355
0.004089
0.008870
.8043
65
0.009486
0.012621
.8832
0.004482
0.009760
.8552
66
0.010668
0.013855
.9321
0.005004
0.010731
.9118
67
0.011973
0.015221
.9510
0.005575
0.011790
.9367
68
0.013414
0.016736
.9639
0.006205
0.012952
.9523
69
0.015006
0.018421
.9714
0.006898
0.014226
.9627
70
0.016761
0.020288
.9740
0.007662
0.015628
.9661
71
0.018690
0.022348
.9766
0.008507
0.017170
.9695
72
0.020824
0.024638
.9792
0.009438
0.018861
.9729
73
0.023176
0.027176
.9818
0.010470
0.020723
.9763
74
0.025770
0.029992
.9844
0.011615
0.022780
.9797
75
0.028623
0.033113
.9870
0.012887
0.025057
.9830
76
0.031761
0.036585
.9896
0.014301
0.027590
.9864
77
0.035214
0.040457
.9922
0.015885
0.030438
.9898
78
0.039007
0.044778
.9948
0.017656
0.033653
.9932
79
0.043169
0.049605
.9974
0.019639
0.037296
.9966
80
0.047750
0.055022
1.0
0.021859
0.041440
1.0
81
0.049804
0.061087
1.0
0.023791
0.046181
1.0
82
0.053911
0.067902
1.0
0.027655
0.051564
1.0
83
0.060072
0.075550
1.0
0.033451
0.057714
1.0
84
0.068286
0.084162
1.0
0.041179
0.064709
1.0
85
0.078554
0.093775
1.0
0.050838
0.072601
1.0
86
0.090876
0.104507
1.0
0.062429
0.081490
1.0
87
0.105251
0.116487
1.0
0.075952
0.091444
1.0
88
0.121680
0.129770
1.0
0.091407
0.102470
1.0
89
0.140162
0.144470
1.0
0.108794
0.114635
1.0
90
0.160698
0.160698
1.0
0.128113
0.128113
1.0
91
0.177741
0.177741
1.0
0.142619
0.142619
1.0
92
0.195154
0.195154
1.0
0.157939
0.157939
1.0
93
0.212642
0.212642
1.0
0.173886
0.173886
1.0
94
0.230055
0.230055
1.0
0.190319
0.190319
1.0
95
0.247257
0.247257
1.0
0.207191
0.207191
1.0
96
0.265940
0.265940
1.0
0.225057
0.225057
1.0
97
0.284940
0.284940
1.0
0.243507
0.243507
1.0
98
0.304432
0.304432
1.0
0.262587
0.262587
1.0
<!-- PageFooter="January 23, 2017" -->
<!-- PageFooter="Bulletin No. 2017-4" -->
<!-- PageBreak -->
Age
Males
Weighting Factor For Small Plans
Non-Annuitant
Females
Weighting Factor For Small Plans
Non-Annuitant
Annuitant
Annuitant
99
0.324272
0.324272
1.0
0.282171
0.282171
1.0
100
0.344364
0.344364
1.0
0.302162
0.302162
1.0
101
0.364420
0.364420
1.0
0.322282
0.322282
1.0
102
0.384058
0.384058
1.0
0.342371
0.342371
1.0
103
0.403188
0.403188
1.0
0.362210
0.362210
1.0
104
0.421533
0.421533
1.0
0.381534
0.381534
1.0
105
0.438903
0.438903
1.0
0.400321
0.400321
1.0
106
0.455492
0.455492
1.0
0.418418
0.418418
1.0
107
0.470810
0.470810
1.0
0.435390
0.435390
1.0
108
0.484965
0.484965
1.0
0.451459
0.451459
1.0
109
0.498023
0.498023
1.0
0.466408
0.466408
1.0
110
0.509768
0.509768
1.0
0.480123
0.480123
1.0
111
0.512472
0.512472
1.0
0.492664
0.492664
1.0
112
0.509296
0.509296
1.0
0.503970
0.503970
1.0
113
0.506193
0.506193
1.0
0.507361
0.507361
1.0
114
0.503061
0.503061
1.0
0.503564
0.503564
1.0
115
0.500000
0.500000
1.0
0.500000
0.500000
1.0
116
0.500000
0.500000
1.0
0.500000
0.500000
1.0
117
0.500000
0.500000
1.0
0.500000
0.500000
1.0
118
0.500000
0.500000
1.0
0.500000
0.500000
1.0
119
0.500000
0.500000
1.0
0.500000
0.500000
1.0
120
1.000000
1.000000
1.0
1.000000
1.000000
1.0
(e) Static tables for 2018. The follow-
ing static mortality tables are used pursu-
ant to paragraph (a)(3) of this section for
determining present value or making any
computation under section 430 with respect
to valuation dates occurring during 2018.
Age
Males
Females
Non-Annuitant
Annuitant
Optional Combined Table for Small Plans
Non-Annuitant
Annuitant
Optional Combined Table for Small Plans
0
0.002420
0.002420
0.002420
0.002234
0.002234
0.002234
1
0.000142
0.000142
0.000142
0.000140
0.000140
0.000140
2
0.000097
0.000097
0.000097
0.000092
0.000092
0.000092
3
0.000081
0.000081
0.000081
0.000070
0.000070
0.000070
4
0.000064
0.000064
0.000064
0.000053
0.000053
0.000053
5
0.000056
0.000056
0.000056
0.000048
0.000048
0.000048
6
0.000051
0.000051
0.000051
0.000045
0.000045
0.000045
7
0.000046
0.000046
0.000046
0.000042
0.000042
0.000042
8
0.000039
0.000039
0.000039
0.000039
0.000039
0.000039
9
0.000032
0.000032
0.000032
0.000037
0.000037
0.000037
10
0.000027
0.000027
0.000027
0.000035
0.000035
0.000035
11
0.000029
0.000029
0.000029
0.000036
0.000036
0.000036
12
0.000044
0.000044
0.000044
0.000042
0.000042
0.000042
13
0.000058
0.000058
0.000058
0.000048
0.000048
0.000048
<!-- PageFooter="Bulletin No. 2017-4" -->
<!-- PageFooter="January 23, 2017" -->
<!-- PageBreak -->
Age
Males Optional Combined Non-Annuitant Annuitant Table for Small Plans Non-Annuitant
Females Optional Combined Annuitant Table for Small Plans
14
0.000072
0.000072
0.000072
0.000053
0.000053
0.000053
15
0.000087
0.000087
0.000087
0.000059
0.000059
0.000059
16
0.000102
0.000102
0.000102
0.000064
0.000064
0.000064
17
0.000118
0.000118
0.000118
0.000068
0.000068
0.000068
18
0.000135
0.000135
0.000135
0.000072
0.000072
0.000072
19
0.000153
0.000153
0.000153
0.000075
0.000075
0.000075
20
0.000170
0.000170
0.000170
0.000076
0.000076
0.000076
21
0.000192
0.000192
0.000192
0.000078
0.000078
0.000078
22
0.000214
0.000214
0.000214
0.000080
0.000080
0.000080
23
0.000229
0.000229
0.000229
0.000084
0.000084
0.000084
24
0.000238
0.000238
0.000238
0.000087
0.000087
0.000087
25
0.000230
0.000230
0.000230
0.000090
0.000090
0.000090
26
0.000226
0.000226
0.000226
0.000094
0.000094
0.000094
27
0.000226
0.000226
0.000226
0.000099
0.000099
0.000099
28
0.000230
0.000230
0.000230
0.000105
0.000105
0.000105
29
0.000238
0.000238
0.000238
0.000111
0.000111
0.000111
30
0.000249
0.000249
0.000249
0.000120
0.000120
0.000120
31
0.000263
0.000263
0.000263
0.000130
0.000130
0.000130
32
0.000278
0.000278
0.000278
0.000142
0.000142
0.000142
33
0.000294
0.000294
0.000294
0.000155
0.000155
0.000155
34
0.000309
0.000309
0.000309
0.000168
0.000168
0.000168
35
0.000323
0.000323
0.000323
0.000182
0.000182
0.000182
36
0.000336
0.000336
0.000336
0.000196
0.000196
0.000196
37
0.000350
0.000350
0.000350
0.000213
0.000213
0.000213
38
0.000366
0.000366
0.000366
0.000231
0.000231
0.000231
39
0.000385
0.000385
0.000385
0.000251
0.000251
0.000251
40
0.000410
0.000410
0.000410
0.000273
0.000273
0.000273
41
0.000438
0.000443
0.000438
0.000298
0.000296
0.000298
42
0.000474
0.000516
0.000474
0.000326
0.000344
0.000326
43
0.000518
0.000627
0.000519
0.000358
0.000419
0.000358
44
0.000573
0.000779
0.000577
0.000395
0.000520
0.000395
45
0.000636
0.000973
0.000644
0.000436
0.000651
0.000438
46
0.000712
0.001213
0.000726
0.000484
0.000813
0.000489
47
0.000798
0.001502
0.000820
0.000538
0.001010
0.000550
48
0.000896
0.001844
0.000930
0.000597
0.001245
0.000619
49
0.001005
0.002248
0.001056
0.000661
0.001522
0.000697
50
0.001128
0.002719
0.001200
0.000734
0.001844
0.000790
51
0.001265
0.002963
0.001350
0.000814
0.001961
0.000881
52
0.001418
0.003224
0.001542
0.000903
0.002099
0.000992
53
0.001580
0.003481
0.001761
0.001003
0.002263
0.001122
54
0.001761
0.003751
0.002017
0.001114
0.002454
0.001273
55
0.001964
0.004040
0.002393
0.001235
0.002673
0.001508
56
0.002200
0.004357
0.002884
0.001367
0.002921
0.001811
57
0.002474
0.004704
0.003317
0.001509
0.003200
0.002084
58
0.002796
0.005088
0.003805
0.001661
0.003512
0.002379
<!-- PageFooter="January 23, 2017" -->
<!-- PageFooter="Bulletin No. 2017-4" -->
<!-- PageBreak -->
Age
Males Optional Combined Non-Annuitant Annuitant Table for Small Plans Non-Annuitant
Females Optional Combined Annuitant Table for Small Plans
59
0.003174
0.005515
0.004341
0.001823
0.003860
0.002711
60
0.003613
0.005989
0.004951
0.001994
0.004238
0.003106
61
0.004122
0.006516
0.005639
0.002181
0.004659
0.003619
62
0.004705
0.007100
0.006406
0.002381
0.005119
0.004188
63
0.005364
0.007742
0.007243
0.002600
0.005616
0.004868
64
0.006111
0.008457
0.008071
0.002842
0.006165
0.005515
65
0.006940
0.009234
0.008966
0.003107
0.006766
0.006236
66
0.007779
0.010103
0.009945
0.003465
0.007430
0.007080
67
0.008697
0.011056
0.010940
0.003863
0.008170
0.007897
68
0.009709
0.012114
0.012027
0.004308
0.008993
0.008770
69
0.010836
0.013302
0.013231
0.004806
0.009912
0.009722
70
0.012093
0.014637
0.014571
0.005366
0.010945
0.010756
71
0.013486
0.016126
0.016064
0.006001
0.012111
0.011925
72
0.015044
0.017799
0.017742
0.006711
0.013412
0.013230
73
0.016794
0.019693
0.019640
0.007521
0.014886
0.014711
74
0.018751
0.021823
0.021775
0.008439
0.016552
0.016387
75
0.020950
0.024237
0.024194
0.009485
0.018443
0.018291
76
0.023428
0.026986
0.026949
0.010678
0.020600
0.020465
77
0.026183
0.030081
0.030051
0.012035
0.023061
0.022949
78
0.029308
0.033645
0.033622
0.013582
0.025888
0.025804
79
0.032774
0.037661
0.037648
0.015347
0.029144
0.029097
80
0.036705
0.042295
0.042295
0.017347
0.032886
0.032886
81
0.038556
0.047291
0.047291
0.019058
0.036992
0.036992
82
0.042087
0.053009
0.053009
0.022345
0.041662
0.041662
83
0.047283
0.059466
0.059466
0.027251
0.047017
0.047017
84
0.054248
0.066860
0.066860
0.033811
0.053130
0.053130
85
0.062990
0.075196
0.075196
0.042053
0.060056
0.060056
86
0.073605
0.084646
0.084646
0.052009
0.067888
0.067888
87
0.086115
0.095308
0.095308
0.063725
0.076724
0.076724
88
0.100513
0.107196
0.107196
0.077205
0.086549
0.086549
89
0.116840
0.120431
0.120431
0.092462
0.097426
0.097426
90
0.135087
0.135087
0.135087
0.109484
0.109484
0.109484
91
0.150610
0.150610
0.150610
0.122541
0.122541
0.122541
92
0.166534
0.166534
0.166534
0.136397
0.136397
0.136397
93
0.182546
0.182546
0.182546
0.150811
0.150811
0.150811
94
0.198598
0.198598
0.198598
0.165818
0.165818
0.165818
95
0.214442
0.214442
0.214442
0.181360
0.181360
0.181360
96
0.232944
0.232944
0.232944
0.198746
0.198746
0.198746
97
0.251903
0.251903
0.251903
0.216930
0.216930
0.216930
98
0.271612
0.271612
0.271612
0.235921
0.235921
0.235921
99
0.291889
0.291889
0.291889
0.255617
0.255617
0.255617
100
0.312680
0.312680
0.312680
0.275938
0.275938
0.275938
101
0.333720
0.333720
0.333720
0.296628
0.296628
0.296628
102
0.354570
0.354570
0.354570
0.317471
0.317471
0.317471
103
0.375136
0.375136
0.375136
0.338385
0.338385
0.338385
<!-- PageFooter="Bulletin No. 2017-4" -->
<!-- PageFooter="January 23, 2017" -->
<!-- PageBreak -->
Age
Non-Annuitant
Males Annuitant
Optional Combined Table for Small Plans
Non-Annuitant
Females Optional Combined Annuitant Table for Small Plans
104
0.395172
0.395172
0.395172
0.358868
0.358868
0.358868
105
0.413945
0.413945
0.413945
0.379183
0.379183
0.379183
106
0.432145
0.432145
0.432145
0.398878
0.398878
0.398878
107
0.449197
0.449197
0.449197
0.417703
0.417703
0.417703
108
0.465497
0.465497
0.465497
0.435384
0.435384
0.435384
109
0.480869
0.480869
0.480869
0.452108
0.452108
0.452108
110
0.495080
0.495080
0.495080
0.467928
0.467928
0.467928
111
0.500557
0.500557
0.500557
0.482562
0.482562
0.482562
112
0.500454
0.500454
0.500454
0.496164
0.496164
0.496164
113
0.500352
0.500352
0.500352
0.502110
0.502110
0.502110
114
0.500201
0.500201
0.500201
0.500952
0.500952
0.500952
115
0.500000
0.500000
0.500000
0.500000
0.500000
0.500000
116
0.500000
0.500000
0.500000
0.500000
0.500000
0.500000
117
0.500000
0.500000
0.500000
0.500000
0.500000
0.500000
118
0.500000
0.500000
0.500000
0.500000
0.500000
0.500000
119
0.500000
0.500000
0.500000
0.500000
0.500000
0.500000
120
1.000000
1.000000
1.000000
1.000000
1.000000
1.000000
Par. 3. Section 1.430(h)(3)-2 is revised
to read as follows:
§ 1.430(h)(3)-2 Plan-specific substitute
mortality tables used to determine
present value.
(a) In general. This section sets forth
rules for the use of substitute mortality
tables under section 430(h)(3)(C) in deter-
mining any present value or making any
computation under section 430 in accor-
dance with § 1.430(h)(3)-1(a)(1). In order
to use substitute mortality tables, a plan
sponsor must obtain approval to use sub-
stitute mortality tables for the plan in ac-
cordance with the procedures set forth in
paragraph (b) of this section. Paragraph
(c) of this section sets forth rules for the
development of substitute mortality ta-
bles, including guidelines providing that a
plan must have either full or partial cred-
ibility in order to have sufficient credible
mortality information to use substitute
mortality tables. Paragraph (d) of this sec-
tion describes the requirements for full
credibility. Paragraph (e) of this section
describes the requirements for partial
credibility. Paragraph (f) of this section
provides special rules for newly affiliated
plans not using substitute mortality tables.
Paragraph (g) of this section specifies the
effective date and applicability date of this
section. The Commissioner may, in reve-
nue rulings and procedures, notices or
other guidance published in the Internal
Revenue Bulletin (see § 601.601(d)
(2)(ii)(b) of this chapter), provide addi-
tional guidance regarding approval and
use of substitute mortality tables under
section 430(h)(3)(C) and related matters.
(b) Procedures for obtaining approval
to use substitute mortality tables-(1)
Written request to use substitute mortality
tables-(i) General requirements. In or-
der to use substitute mortality tables, a
plan sponsor must submit a written re-
quest to the Commissioner that demon-
strates that those substitute mortality ta-
bles meet the requirements of section
430(h)(3)(C) and this section. This request
must specify the first plan year and the
term of years (not more than 10) for which
the tables are to apply.
(ii) Time for written request. Substitute
mortality tables may not be used for a plan
year unless the plan sponsor submits the
written request described in paragraph
(b)(1)(i) of this section at least 7 months
prior to the first day of the first plan year
for which the substitute mortality tables
are to apply.
(2) Commissioner's review of re-
quest-(i) In general. During the 180-day
period that begins on the date the plan
sponsor submits a request to use substitute
mortality tables for a plan pursuant to this
section, the Commissioner will determine
whether the request to use substitute mor-
tality tables satisfies the requirements of
this section (including any published
guidance issued pursuant to paragraph (a)
of this section), and will either approve or
deny the request. The Commissioner will
deny a request if the request fails to meet
the requirements of this section or if the
Commissioner determines that a substitute
mortality table does not sufficiently reflect
the mortality experience of the applicable
plan population.
(ii) Request for additional information.
The Commissioner may request additional
information with respect to the submis-
sion. Failure to provide that information
on a timely basis constitutes grounds for
denial of the request.
(iii) Deemed approval. Except as pro-
vided in paragraph (b)(2)(iv) of this sec-
tion, if the Commissioner does not issue a
denial within the 180-day review period,
the request is deemed to have been ap-
proved.
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(iv) Extension of time permitted. The
Commissioner and a plan sponsor may,
before the expiration of the 180-day re-
view period, agree in writing to extend
that period, provided that any such agree-
ment also specifies any revisions in the
plan sponsor's request, including any
change in the requested term of use of the
substitute mortality tables.
(c) Development of substitute mortality
tables-(1) Substitute mortality tables
must be used for all plans in controlled
group-(i) General rule. Except as other-
wise provided in this paragraph (c), sub-
stitute mortality tables are permitted to be
used for a plan for a plan year only if, for
that plan year (or any portion of that plan
year), substitute mortality tables are also
approved and used for each other pension
plan subject to the requirements of section
430 that is maintained by the plan sponsor
and by each member of the plan sponsor's
controlled group. For purposes of this sec-
tion, the term controlled group means any
group treated as a single employer under
paragraph (b), (c), (m), or (o) of section
414.
(ii) Treatment of plans without credible
mortality information. The rule of para-
graph (c)(1)(i) of this section does not
prohibit use of substitute mortality tables
for one plan for a plan year if the only
other plan or plans maintained by the plan
sponsor (or by a member of the plan spon-
sor's controlled group) for which substi-
tute mortality tables are not used are too
small to have fully or partially credible
mortality information for the plan year.
For purposes of demonstrating that neither
males nor females under a plan have cred-
ible mortality information for a plan year,
the length of the experience study period
must be the same length as the longest
experience study period used for any plan
within the controlled group.
(2) Mortality experience requirements-
(i) In general. Substitute mortality tables
must reflect the actual mortality experience
of the pension plan for which the tables are
to be used and that mortality experience
must be credible mortality information as
described in paragraph (c)(2)(ii) of this sec-
tion. Separate mortality tables must be es-
tablished for each gender under the plan,
and a substitute mortality table is permitted
to be established for a gender only if the
plan has credible mortality information with
respect to that gender. See paragraph (d)(5)
of this section for rules permitting the use of
substitute mortality tables for populations
within a gender that have full credibility.
(ii) Credible mortality information-
(A) In general. There is credible mortality
information for a gender within a plan if
and only if the mortality experience with
respect to that gender satisfies the require-
ment for either-
(1) Full credibility (as described in
paragraph (d) of this section); or
(2) Partial credibility (as described in
paragraph (e) of this section).
(B) Simplified rule. Whether there is
credible mortality information for a gen-
der may be determined by only taking into
account people who are at least age 50 and
less than age 100. If there is credible mor-
tality information for a gender when ap-
plying this simplified rule, the entire gen-
der (not just those who are at least age 50
and less than age 100) has credible mor-
tality information.
(iii) Gender without credible mortality
information-(A) In general. If for a plan,
one gender has credible mortality infor-
mation but for a plan year the other gender
does not have credible mortality informa-
tion, then the substitute mortality tables
are established for the gender that does
have credible mortality information and
the mortality tables under § 1.430(h)(3)-1
are used for the gender that does not have
credible mortality information.
(B) Demonstration of lack of credible
mortality information for a gender. In
general, in order to demonstrate that a
gender within a plan does not have cred-
ible mortality information for a plan year,
the demonstration that the gender within
the plan has fewer than the minimum
number of actual deaths to have partial
credibility, as described in paragraph
(e)(1) of this section, must be made by
analyzing the actual number of deaths
over a period that is the same length as the
period for the experience study on which
the substitute mortality tables are based
and that ends less than three years before
the first day of the plan year.
(3) Determination of substitute mortal-
ity tables-(i) Requirement to use gener-
ational mortality table. A plan's substitute
mortality tables must be generational mor-
tality tables. A plan's substitute mortality
tables are determined using the plan's
base substitute mortality tables developed
pursuant to paragraph (d) or (e) of this
section and the mortality improvement
factors described in paragraph (c)(3)(ii) of
this section.
(ii) Determination of mortality im-
provement factors. The mortality im-
provement factor for an age and a gender
is the cumulative mortality improvement
factor determined under § 1.430(h)(3)-
1(a)(2)(i)(E) for the applicable period.
The applicable period is the period begin-
ning with the base year of the base sub-
stitute mortality table determined under
paragraph (d) or (e) of this section and
ending in the calendar year in which the
individual attains the age for which the
probability of death is being determined.
The base year for the base substitute mor-
tality table is the calendar year that con-
tains the day before the midpoint of the
experience study period.
(4) Disabled individuals. Under section
430(h)(3)(D), separate mortality tables are
permitted to be used for certain disabled
individuals. If such separate mortality ta-
bles are used for those disabled individu-
als, then those individuals are disregarded
for all purposes under this section. Thus,
if the mortality tables under section
430(h)(3)(D) are used for disabled indi-
viduals under a plan, mortality experience
with respect to those individuals must be
excluded in developing mortality rates for
substitute mortality tables under this sec-
tion.
(5) Aggregation-(i) Permissive ag-
gregation of plans. A plan sponsor may
use a set of substitute mortality tables for
two or more its plans provided that the
rules of this section are applied by treating
those plans as a single plan. In such a
case, the substitute mortality tables must
be used for the aggregated plans and must
be based on data collected with respect to
those aggregated plans.
(ii) Required aggregation of plans. In
general, plans are not required to be ag-
gregated for purposes of applying the
rules of this section. However, for pur-
poses of this section, a plan is required to
be aggregated with any plan that was pre-
viously spun off from that plan if a pur-
pose of the spinoff is to avoid the use of
substitute mortality tables for any of the
plans that were involved in the spinoff.
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(6) Duration of use of tables-(i) Gen-
eral rule. Except as provided in this para-
graph (c)(6), substitute mortality tables
are used for a plan for the term of consec-
utive plan years specified in the plan spon-
sor's written request to use such tables
under paragraph (b)(1) of this section and
approved by the Commissioner, or a
shorter period prescribed by the Commis-
sioner in the approval to use substitute
mortality tables. Following the end of the
approved term of use, or following any
early termination of use described in this
paragraph (c)(6), the mortality tables
specified in § 1.430(h)(3)-1 are used for
the plan unless approval under paragraph
(b)(1) of this section has been received by
the plan sponsor to use substitute mortal-
ity tables for a further term.
(ii) Early termination of use of tables.
A plan's substitute mortality tables must
not be used beginning with the earliest
of-
(A) For a plan using a substitute mor-
tality table for only one gender because of
a lack of credible mortality information
with respect to the other gender, the first
plan year for which there is credible mor-
tality information with respect to the gen-
der that had lacked credible mortality in-
formation (unless an approved substitute
mortality table is used for that gender);
(B) The first plan year for which the
plan fails to satisfy the requirements of
paragraph (c)(1) of this section (regarding
use of substitute mortality tables by con-
trolled group members);
(C) The second plan year following the
plan year for which there is a significant
change in individuals covered by the plan
as described in paragraph (c)(6)(iii) of this
section;
(D) The first plan year following the
plan year for which a substitute mortality
table used for a plan population is no
longer accurately predictive of future
mortality of that population, as deter-
mined by the Commissioner or as certified
by the plan's actuary to the satisfaction of
the Commissioner; or
(E) The date specified in guidance pub-
lished in the Internal Revenue Bulletin
(see § 601.601(d)(2)(ii)(b) of this chapter)
in conjunction with a replacement of
mortality tables specified under section
430(h)(3)(A) and § 1.430(h)(3)-1 (other
than annual updates to the static mortality
tables issued pursuant to § 1.430(h)(3)-
1(a)(3) or changes to the mortality im-
provement rates pursuant to § 1.430(h)
(3)-1(a)(2)(i)(C)).
(iii) Significant change in coverage-
(A) Change in coverage from time of ex-
perience study. For purposes of applying
the rules of paragraph (c)(6)(ii)(C) of this
section, a significant change in the indi-
viduals covered by a substitute mortality
table occurs if there is an increase or de-
crease in the number of individuals of at
least 20 percent compared to the average
number of individuals in that population
over the years covered by the experience
study on which the substitute mortality
tables are based. However, a change in
coverage is not treated as significant if the
plan's actuary certifies in writing to the
satisfaction of the Commissioner that
the substitute mortality tables used for the
plan population continue to be accurately
predictive of future mortality of that pop-
ulation (taking into account the effect of
the change in the population).
(B) Change in coverage from time of
certification. For purposes of applying the
rules of paragraph (c)(6)(ii)(C) of this sec-
tion, a significant change in the individu-
als covered by a substitute mortality table
occurs if there is an increase or decrease
in the number of individuals covered by a
substitute mortality table of at least 20
percent compared to the number of indi-
viduals in a plan year for which a certifi-
cation described in paragraph (c)(6)(iii)
(A) of this section was made on account
of a prior change in coverage. However, a
change in coverage is not treated as sig-
nificant if the plan's actuary certifies in
writing to the satisfaction of the Commis-
sioner that the substitute mortality tables
used by the plan with respect to the cov-
ered population continue to be accurately
predictive of future mortality of that pop-
ulation (taking into account the effect of
the change in the plan population).
(d) Full credibility-(1) In general.
The mortality experience with respect to a
gender or other population within a plan
has full credibility if the actual number of
deaths for that population during the ex-
perience study period described in para-
graph (d)(2) of this section is at least the
full credibility threshold described in
paragraph (d)(3) of this section. Paragraph
(d)(4) of this section provides rules for the
creation of a base substitute mortality ta-
ble from the experience study, which ap-
ply if the mortality experience for the pop-
ulation has full credibility.
(2) Experience study period require-
ments. The base substitute mortality table
for a gender or other population within a
plan must be developed from an experi-
ence study of the mortality experience of
that population that is collected over an
experience study period. The length of the
experience study period must be at least 2
years and no more than 5 years. The last
day of the final year reflected in the expe-
rience data must be less than 3 years be-
fore the first day of the first plan year for
which the substitute mortality tables are to
apply. For example, if July 1, 2019, is the
first day of the first plan year for which the
substitute mortality tables will be used,
then an experience study using calendar
year data must include data collected for a
period that ends no earlier than December
31, 2016.
(3) Full credibility threshold-(i)
Threshold number of deaths. The full
credibility threshold for a gender or
other population within a plan is the
product of 1,082 and the population's
benefit dispersion factor. In calculating
the population's benefit dispersion
factor, for purposes of paragraphs
(d)(3)(iii), (iv), and (v) of this section,
the population is adjusted, as appropri-
ate, for people who leave on account of
reason other than death.
(ii) Population's benefit dispersion fac-
tor. The population's benefit dispersion
factor is equal to-
(A) The number of expected deaths for
the population during the experience
study period (as defined in paragraph
(d)(3)(iii) of this section); multiplied by
(B) The mortality-weighted square of
the benefits (as defined in paragraph
(d)(3)(iv) of this section); divided by
(C) The square of the mortality-
weighted benefits (as defined in paragraph
(d)(3)(v) of this section).
(iii) Number of expected deaths. The
number of expected deaths for a popula-
tion during the experience study period is
equal to the sum, for each year in the
experience study period, of the expected
number of deaths in the population during
the year using the mortality rates from the
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standard mortality tables set forth in para-
graph (d)(4)(iii) of this section.
(iv) Mortality-weighted square of the
benefits. The mortality-weighted square of
the benefits for a population is the sum,
for each year in the experience study pe-
riod, for all individuals for each age in the
population at the beginning of the year, of
the product of-
(A) The probability of death of those
individuals using the mortality rate for
that age from the standard mortality table
set forth in paragraph (d)(4)(iii) of this
section; and
(B) The sum of the square of the ac-
crued benefits (substituting the current pe-
riodic payment in the case of individuals
in pay status) for those individuals.
(v) Square of the mortality-weighted
benefits. The square of the mortality-
weighted benefits is equal to the square of
the sum, for each year in the experience
study period, for all individuals for each
age in the population at the beginning of
the year, of the product of-
(A) The probability of death of those
individuals using the mortality rate for
that age from the standard mortality table
set forth in paragraph (d)(4)(iii) of this
section; and
(B) The sum of the accrued benefits
(substituting the current periodic payment
in the case of individuals in pay status) for
those individuals.
(4) Development of mortality rates-
(i) In general. The mortality rates derived
from the experience study must be
amounts-weighted mortality rates that are
derived by multiplying the mortality rate
from the standard mortality table de-
scribed in paragraph (d)(4)(iii) of this sec-
tion by the mortality ratio determined un-
der paragraph (d)(4)(ii) of this section. If
the simplified rule of paragraph (c)(2)
(ii)(B) of this section is used for the pop-
ulation, then the mortality ratio is deter-
mined only taking into account people
who are at least 50 years old and less than
100 years old, but the mortality ratio is
applied to all ages. Because amounts-
weighted mortality rates for a plan cannot
be determined without benefit amounts,
the mortality experience study used to de-
velop a base table must not include peri-
ods before the plan was established.
(ii) Mortality ratio. The mortality ratio
for a gender or other population within a
plan is equal to the quotient determined by
dividing-
(A) The sum, for each year in the ex-
perience study period, of the accrued ben-
efits (substituting the current periodic pay-
ment in the case of individuals in pay
status) for all individuals in the population
at the beginning of the year who died
during the year, by
(B) The sum, for each year in the ex-
perience study period, for all individuals
for each age in the population at the be-
ginning of the year (adjusted, as appropri-
ate, for people who leave on account of
reason other than death), of the product
of-
(1) The probability of death of those
individuals using the mortality rate for
that age from the standard mortality table
set forth in paragraph (d)(4)(iii) of this
section; and
(2) The sum of the accrued benefits
(substituting the current periodic payment
in the case of individuals in pay status) for
those individuals.
(iii) Standard mortality table-(A)
Projection of base table. The standard
mortality table for a year is the mortality
table determined by applying cumulative
mortality improvement factors determined
under § 1.430(h)(3)-1(a)(2)(i)(E) to the
base mortality table under § 1.430(h)(3)-
1(d) for the period beginning with 2006
and ending in the base year for the base
substitute mortality table determined un-
der paragraph (d) or (e) of this section. For
purposes of the previous sentence, the cu-
mulative mortality improvement factors
are determined using the mortality im-
provement rates described in § 1.430(h)
(3)-1(a)(2)(i)(C) that apply for the calen-
dar year during which the plan sponsor
submits the request to use substitute mor-
tality tables. If the plan sponsor submits
such a request during 2017, then the cu-
mulative mortality improvement factors
are determined using the mortality im-
provement rates contained in the Mortal-
ity Improvement Scale MP-2016 Report
(issued by the Retirement Plans Experi-
ence Committee (RPEC) of the Society of
Actuaries and available at www.soa.org/
Research/Experience-Study/Pension/
research-2016-mp.aspx).
(B) Selection of base table. If the pop-
ulation consists solely of annuitants, the
annuitant base mortality table under
§ 1.430(h)(3)-1(d) must be used for pur-
poses of paragraph (d)(4)(iii)(A) of this
section. If the population consists solely
of nonannuitants, the nonannuitant base
mortality table under § 1.430(h)(3)-1(d)
must be used for that purpose. If the pop-
ulation includes both annuitants and non-
annuitants, a combination of the annuitant
and nonannuitant base tables under
§ 1.430(h)(3)-1(d) must be used for that
purpose. The combined table is con-
structed using the weighting factors for
small plans that are set forth in
§ 1.430(h)(3)-1(d). The weighting factors
are applied to develop the combined table
using the following equation: Combined
mortality rate = [nonannuitant rate * (1-
weighting factor)] + [annuitant rate *
weighting factor].
(iv) Change in number of individuals
covered by table. Experience data may not
be used to develop a base table if the
number of individuals in the population
covered by the table (for example, the
male annuitant population) as of the last
day of the plan year before the year the
request to use substitute mortality tables is
made, compared to the average number of
individuals in that population over the
years covered by the experience study on
which the substitute mortality tables are
based, reflects a difference of 20 percent
or more, unless it is demonstrated to the
satisfaction of the Commissioner that the
experience data is accurately predictive of
future mortality of that plan population
(taking into account the effect of the
change in individuals) after appropriate
adjustments to the data are made (for ex-
ample, excluding data from individuals
with respect to a spun-off portion of the
plan). For this purpose, a reasonable esti-
mate of the number of individuals in the
population covered by the table may be
used.
(5) Separate tables for specified popu-
lations-(i) In general. Except as pro-
vided in this paragraph (d)(5), separate
substitute mortality tables are permitted to
be used for separate populations within a
gender under a plan only if-
(A) All individuals of that gender in the
plan are divided into separate populations;
(B) Each separate population has mor-
tality experience that has full credibility as
determined under the rules of paragraph
(d)(5)(iii) of this section; and
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(C) The separate base substitute mor-
tality table for each separate population
is developed applying the rules of para-
graphs (d)(1) through (4) of this section
using an experience study that takes into
account solely members of that popula-
tion.
(ii) Annuitant and nonannuitant
separate populations. Notwithstanding
paragraph (d)(5)(i)(B) of this section,
substitute mortality tables for separate
populations of annuitants and nonannui-
tants within a gender may be used even if
only one of those separate populations has
credible mortality information. Similarly, if
separate populations that satisfy paragraph
(d)(5)(i)(B) of this section are established,
then any of those populations may be fur-
ther subdivided into separate annuitant and
nonannuitant subpopulations, provided that
at least one of the two resulting subpopula-
tions has credible mortality experience. The
standard mortality tables under § 1.430(h)
(3)-1 are used for a resulting subpopulation
that does not have credible mortality infor-
mation. For example, in the case of a plan
with mortality experience for both its male
hourly and salaried individuals that has full
credibility, if the male salaried annuitant
population has credible mortality informa-
tion, substitute mortality tables may be used
for the plan with respect to that population
even if the standard mortality tables under
§ 1.430(h)(3)-1 are used with respect to the
male salaried nonannuitant population (be-
cause that nonannuitant population does not
have credible mortality information).
(iii) Credible mortality experience for
separate populations. In determining
whether the mortality experience for a
separate population within a gender has
full credibility, the requirements of para-
graph (d)(1) of this section must be satis-
fied but, in applying that paragraph (d)(1),
the separate population should be substi-
tuted for the particular gender. In demon-
strating that an annuitant or nonannuitant
population within a gender or within a
separate population does not have credible
mortality information, the requirements of
paragraph (c)(2)(iii)(B) of this section
must be satisfied but, in applying that
paragraph, the annuitant (or nonannuitant)
population should be substituted for the
particular gender.
(e) Partial credibility-(1) In general.
The mortality experience with respect to a
population has partial credibility if the
actual number of deaths for that popula-
tion during the experience study period
described in paragraph (d)(2) of this sec-
tion is at least equal to the partial credi-
bility threshold of 100 and is less than the
full credibility threshold described for the
population in paragraph (d)(3) of this sec-
tion. If the mortality experience for the
population has partial credibility, then in
lieu of creating a base substitute mortality
table as described in paragraph (d) of this
section, the base substitute mortality table
is created as the sum of-
(i) The product of-
(A) The partial credibility weighting
factor determined under paragraph (e)(2)
of this section; and
(B) The mortality rates that are derived
from the experience study determined un-
der paragraph (d)(4)(i) of this section, and
(ii) The product of-
(A) One minus the partial credibility
weighting factor described in paragraph
(e)(2) of this section; and
(B) The mortality rate from the stan-
dard mortality tables described in para-
graph (d)(4)(iii) of this section.
(2) Partial credibility weighting factor.
The partial credibility weighting factor is
equal to the square root of the fraction-
(i) The numerator of which is the actual
number of deaths for the population dur-
ing the experience study period, and
(ii) The denominator of which is the
full credibility threshold for the popula-
tion described in paragraph (d)(3) of this
section.
(f) Special rules for newly affiliated
plans-(1) In general. This paragraph (f)
provides special rules that provide tempo-
rary relief from certain rules in this sec-
tion in the case of a controlled group that
includes a newly affiliated plan. Paragraph
(f)(2) of this section provides a transition
period during which the requirement in
paragraph (c)(1) of this section (that is, the
requirement that all plans within the con-
trolled group that have credible mortality
information must use substitute mortality
tables) is not applicable. Paragraph (f)(3)
of this section provides special rules that
permit the use of a shorter experience
study period in the case of a newly affil-
iated plan that excludes the mortality ex-
perience data for the period prior to the
date the plan sponsor becomes maintained
by a member of the new plan sponsor's
controlled group. Paragraph (f)(4) of this
section defines newly affiliated plan.
(2) Transition period for newly affili-
ated plans. The use of substitute mortality
tables for a plan within a controlled group
is not prohibited merely because substi-
tute mortality tables are not used during
the transition period for a newly affiliated
plan that fails to demonstrate a lack of
credible mortality information during the
that period. Similarly, during the transi-
tion period, the use of substitute mortality
tables for a newly affiliated plan is not
prohibited merely because substitute mor-
tality tables are not used for another plan
within the controlled group that fails to
demonstrate a lack of credible mortality
information during that period. The tran-
sition period runs through the last day of the
plan year that contains the last day of the
period described in section 410(b)(6)(C)(ii)
for either of the plans, whichever is later.
(3) Experience study period for newly
affiliated plan-(i) In general. The mor-
tality experience data for a newly affili-
ated plan may either include or exclude
mortality experience data for the period
prior to the date the plan becomes main-
tained by a member of the new plan spon-
sor's controlled group. If a plan sponsor
excludes mortality experience data for the
period prior to the date the plan becomes
maintained within the new plan sponsor's
controlled group, the exclusion must ap-
ply for all populations within the plan.
(ii) Demonstration relating to lack of
credible mortality experience. If the expe-
rience study for a newly affiliated plan
excludes mortality experience data for the
period prior to the date the plan becomes
maintained by a member of the new plan
sponsor's controlled group, then the dem-
onstration that the plan does not have
credible mortality information for a plan
year that begins after the transition period
can be made using a shorter experience
study period than would otherwise be per-
mitted under paragraph (c)(2)(iii)(B) of
this section, provided that the experience
study period begins with the date the plan
becomes maintained within the sponsor's
controlled group and ends not more than
one year and one day before the first day
of the plan year.
(iii) Demonstration relating to credible
mortality experience. If the experience
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study for a newly affiliated plan excludes
mortality experience data for the period
prior to the date the plan becomes main-
tained by a member of the new plan spon-
sor's controlled group and the plan fails to
demonstrate that it does not have credible
mortality information for the plan year
under the rules of paragraph (f)(3)(ii) of
this section, then other plans within the
controlled group can continue to use sub-
stitute mortality tables only if substitute
mortality tables are used for the newly
affiliated plan the plan year. In such a
case, the experience study period can be a
shorter period than the period in para-
graph (d)(2) of this section, provided that
the period is at least one year.
(4) Definition of newly affiliated plan.
For purposes of this paragraph (f), a plan
is treated as a newly affiliated plan if it
becomes maintained by the plan sponsor
(or by a member of the plan sponsor's
controlled group) in connection with a
merger, acquisition, or similar transaction
described in § 1.410(b)-2(f). A plan also
is treated as a newly affiliated plan for
purposes of this section if the plan is es-
tablished in connection with a transfer of
assets and liabilities from another employ-
er's plan in connection with a merger,
acquisition, or similar transaction de-
scribed in § 1.410(b)-2(f).
(g) Effective/applicability date. This
section applies for plan years beginning
on or after January 1, 2018, and any sub-
stitute mortality table used for a plan for
such a plan year must comply with the
rules of this section.
Par. 4. Section 1.431(c)(6)-1 is revised
to read as follows:
§ 1.431(c)(6)-1 Mortality tables used to
determine current liability.
(a) Mortality tables used to determine
current liability. The mortality assumptions
that apply to a defined benefit plan for the
plan year pursuant to section 430(h)(3)(A)
and § 1.430(h)(3)-1(a) are used to deter-
mine a multiemployer plan's current liabil-
ity for purposes of applying the rules of
section 431(c)(6). Either the generational
mortality tables used pursuant to § 1.430(h)
(3)-1(a)(2) or the static mortality tables used
pursuant to § 1.430(h)(3)-1(a)(3) are per-
mitted to be used for a multiemployer plan
for this purpose. However, for this purpose,
substitute mortality tables under § 1.430(h)
(3)-2 are not permitted to be used for a
multiemployer plan.
(b) Effective/applicability date. This
section applies for plan years beginning
on or after January 1, 2018. For rules that
apply to plan years beginning before Jan-
uary 1, 2018 and on or after January 1,
2008, see § 1.431(c)(6)-1 (as contained in
26 CFR part 1 revised April 1, 2015).
Par. 5. Section 1.433(h)(3)-1 is added
to read as follows:
§ 1.433(h)(3)-1 Mortality tables used to
determine current liability.
(a) Mortality tables used to determine
current liability. In accordance with section
433(h)(3)(B), the mortality assumptions that
apply to a defined benefit plan for the plan
year pursuant to section 430(h)(3)(A) and
§ 1.430(h)(3)-1(a) are used to determine a
CSEC plan's current liability for purposes
of applying the rules of section 433(c)
(7)(C). Either the static mortality tables used
pursuant to § 1.430(h)(3)-1(a)(3) or gener-
ational mortality tables used pursuant to
§ 1.430(h)(3)-1(a)(2) are permitted to be
used for a CSEC plan for this purpose, but
substitute mortality tables under
§ 1.430(h)(3)-2 are not permitted to be
used for this purpose.
(b) Effective/applicability date. This
section applies for plan years beginning
on or after January 1, 2018.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
(Filed by the Office of the Federal Register on December 28,
2016, 8:45 a.m., and published in the issue of the Federal
Register for December 29, 2016, 81 F.R. 95911)
## Nuclear Decommissioning Funds
REG-112800-16
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document provides pro-
posed changes to the regulations under sec-
tion 468A of the Internal Revenue Code of
1986 (Code) relating to deductions for con-
tributions to trusts maintained for decom-
missioning nuclear power plants and the use
of the amounts in those trusts to decommis-
sion nuclear plants. The proposed regula-
tions revise certain provisions to: address
issues that have arisen as more nuclear
plants have begun the decommissioning
process; and clarify provisions in the current
regulations regarding self-dealing and the
definition of substantial completion of
decommissioning.
DATES: Written or electronic comments
and requests for a public hearing must be
received by March 29, 2017.
ADDRESSES: Send submissions to: CC:
PA:LPD:PR (REG-112800-16), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand deliv-
ered Monday through Friday between the
hours of 8 a.m. and 4 p.m. to: CC:PA:
LPD:PR (REG-112800-16), Courier's
Desk, Internal Revenue Service, 1111 Con-
stitution Avenue N.W., Washington, DC, or
sent electronically, via the Federal eRule-
making Portal at http://www.regulations.
gov/ (IRS REG-112800-16).
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Jenni-
fer C. Bernardini, (202) 317-6853; con-
cerning submissions and to request a
hearing, Regina Johnson, (202) 317-6901
(not toll-free numbers).
# SUPPLEMENTARY INFORMATION:
## Paperwork Reduction Act
There is no new collection of informa-
tion contained in this notice of proposed
rulemaking. The collection of information
contained in the regulations under section
468A 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 1545-2091. Responses to
these collections of information are re-
quired to obtain a tax benefit.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less it displays a valid control number
assigned by the Office of Management
and Budget.
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Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by section 6103 of the Code.
## Background
This proposed rulemaking consists of
several amendments to the existing regu-
lations under section 468A. Section 468A
was originally enacted by section 91(c)(1)
of the Deficit Reduction Act of 1984, Pub-
lic Law 98-369, (98 Stat 604) and has
been amended, most recently by section
1310 of the Energy Policy Act of 2005,
Public Law 109-58 (119 Stat 594). Tem-
porary regulations (TD 9374) under sec-
tion 468A were published in the Federal
Register for December 31, 2007 (72 FR
74175). Regulations finalizing and remov-
ing the temporary regulations (TD 9512)
were published in the Federal Register on
December 23, 2010 (75 FR 80697).
## Explanation of Provisions
1\. Definition of Nuclear Decommissioning
Costs
A. Inclusion of amounts related to the
storage of spent fuel within definition of
nuclear decommissioning costs
Section 468A is intended to allow tax-
payers to currently deduct amounts set
aside in a qualified fund (Fund) for the
purpose of decommissioning a nuclear
power plant. The taxpayer must include
the amount of any actual or deemed dis-
tribution from the Fund in gross income in
the year of the distribution, as provided in
§ 1.468A-2(d)(1). Taxpayers may then
claim an offsetting deduction for amounts
spent on decommissioning costs as deter-
mined under section 461(h) and other sec-
tions. See § 1.468A-2(e).
Taxpayers that operate nuclear power
plants, whether such plants are currently
operating or have ceased operations, must
safely store spent fuel. Nuclear fuel as-
semblies are removed from the reactor
and those assemblies are stored in a spent
fuel pool for cooling. Subsequently, the
spent fuel may be inserted into storage
casks and the casks transferred to an on-
site Independent Spent Fuel Storage In-
stallation (ISFSI). An ISFSI consists of a
concrete storage pad on which the storage
casks are placed. Although the Nuclear
Waste Policy Act of 1982, 42 U.S.C.
10101, et seq, requires the Department of
Energy (DOE) to take and dispose of
spent nuclear fuel in a permanent geologic
repository, no such repository has been
established and the government has not
yet begun accepting spent fuel. Thus, op-
erators of nuclear power plants must
safely store spent fuel in an on-site ISFSI.
Existing § 1.468A-1(b)(6) defines nu-
clear decommissioning costs as including
"all otherwise deductible expenses to be
incurred in connection with" the disposal
of certain nuclear assets. Section 1.468A-
1(b)(6) continues that "such term also in-
cludes costs incurred in connection with
the construction, operation, and ultimate
decommissioning of a facility used solely
to store, pending acceptance by the gov-
ernment for permanent storage or dis-
posal, spent nuclear fuel generated by the
nuclear power plant or plants located on
the same site as the storage facility." The
Treasury Department and the IRS have
become aware that there are questions re-
garding whether ISFSI-related costs for
the construction or purchase of assets that
would not necessarily qualify as "other-
wise deductible" expenses under the cur-
rent regulation are included as nuclear
decommissioning costs. The proposed
regulations clarify the definition of nu-
clear decommissioning costs to specifi-
cally provide for ISFSI-related costs.
B. Inclusion of amounts for purchase or
construction of a depreciable asset as
part of decommissioning process within
definition of nuclear decommissioning
costs
Under the existing regulations, ques-
tions have arisen as to whether a cost must
be currently deductible for that amount to
be payable currently from the Fund under
the "otherwise deductible" language of
§ 1.468A-1(b)(6). For example, where a
depreciable asset is purchased or con-
structed as part of the decommissioning
process (and the asset is not considered
abandoned) questions have arisen regard-
ing whether the "otherwise deductible"
language is satisfied solely by the fact that
the property is depreciable or whether the
expense is treated as a deductible decom-
missioning expense only to the extent that
depreciation is currently allowed. This
raises a timing issue regarding whether a
fund may pay for the purchase or con-
struction of a depreciable asset to be used
in decommissioning that is not considered
abandoned when completed. Under the
present regulations, because the asset
would be fully depreciable but the cost of
the asset is not otherwise deductible, a
fund may only pay for the portion of the
depreciation allowable in the tax year in
which such property is placed in service.
The intent of section 468A is to allow
owners of nuclear power plants to put
amounts in a Fund on a tax-free basis and
then to use those amounts and the earn-
ings on those amounts to pay for decom-
missioning. In order to effectuate that in-
tent, the proposed regulations broaden the
definition of nuclear decommissioning
costs to include the total cost of deprecia-
ble assets by adding the words "or recov-
erable through depreciation" following
"otherwise deductible" in § 1.468A-
1(b)(6).
2\. Clarification of the Applicability of
the Self-Dealing Rules to Transactions
Between the Fund and Related Parties
Section 4951 imposes an excise tax on
acts of self-dealing between a “disquali-
fied person" and a trust described in sec-
tion 501(c)(21). Section 468A(e)(5) pro-
vides that, under regulations prescribed by
the Secretary, for purposes of section
4951, the Fund shall be treated in the same
manner as a trust described in section
501(c)(21). Section 1.468A-5(b)(1) states
that the excise taxes imposed by section
4951 apply to each act of self-dealing
between the Fund and a disqualified per-
son. Section 1.468A-5(b)(2) defines "self-
dealing," for purposes of § 1.468A-5(b),
as any act described in section 4951(d),
but provides for some exclusions, includ-
ing a payment by a Fund for the purpose
of satisfying, in whole or in part, the lia-
bility of the taxpayer who has elected sec-
tion 468A and established a Fund (elect-
ing taxpayer) for decommissioning costs
of the nuclear power plant to which the
Fund relates. Section 1.468A-5(b)(3), by
reference to section 4951(e)(4) and
§ 53.4951-1(d), provides that the term
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"disqualified person" includes, with re-
spect to a trust, a contributor to the trust
and a trustee of the trust.
The IRS has issued several private letter
rulings holding that a reimbursement to an
electing taxpayer or an unrelated party by a
Fund of decommissioning costs, such as
severance payments and pre-dismantlement
decommissioning costs, is made for the pur-
pose of satisfying the liability of the electing
taxpayer for decommissioning costs of the
nuclear power plant to which the Fund re-
lates and therefore is not self-dealing. Thus,
under these rulings, the reimbursement by a
Fund of these costs represents a permissible
use of the Funds. To remove any lingering
uncertainty, as well as to avoid the burden
on taxpayers of filing additional ruling re-
quests on these issues, the proposed regula-
tions clarify that reimbursements of decom-
missioning costs by the Fund to related
parties (including the electing taxpayer) that
paid such costs are not an act of self-dealing.
However, no amount beyond what is actu-
ally paid by the related party, including
amounts such as direct or indirect overhead
or a reasonable profit element, may be in-
cluded in the reimbursement by the Fund.
### 3. Definition of "Substantial Completion" in § 1.468A-5(d)(3)(i)
Existing § 1.468A-5(d)(3)(i) defines
the substantial completion date as "the
date that the maximum acceptable radio-
activity levels mandated by the Nuclear
Regulatory Commission [NRC] with re-
spect to a decommissioned nuclear power
plant are satisfied." However, § 1.468A-
5(d)(3)(ii) provides that, if a significant
portion of the total estimated decommis-
sioning costs are not incurred on or before
the substantial completion date, the elect-
ing taxpayer may request a ruling that
designates a date subsequent to the sub-
stantial completion date as the termination
date; such later date may be no later than
the last day of the third taxable year after
the taxable year that includes the substan-
tial completion date. Under certain state
and local requirements, the plant operator
must return the site of the plant to condi-
tions requiring time beyond that needed to
reach the maximum radioactivity level
mandated by the NRC. To accommodate
these situations without requiring that the
taxpayer request a ruling, the proposed
regulations amend the definition of "sub-
stantial completion" to the date on which
all Federal, state, local, and contractual
decommissioning liabilities are fully sat-
isfied.
## Proposed Effective/Applicability Date
The rules contained in these regula-
tions are proposed to apply to taxable
years ending on or after the date of pub-
lication of the Treasury decision adopting
these rules as final regulations in the Fed-
eral Register. Notwithstanding the pro-
spective effective date, the IRS will not
challenge return positions consistent with
these proposed regulations for taxable
years ending on or after the date these
proposed regulations are published.
## Special Analyses
Certain IRS regulations, including
these, are exempt from the requirements
of Executive Order 12866, as supple-
mented and affirmed by Executive Order
13563. Therefore, a regulatory assessment
is not required. It is hereby certified that
these regulations will not have a signifi-
cant economic impact on a substantial
number of small entities. This certification
is based on (1) the fact that the rules in
these proposed regulations primarily af-
fect owners of nuclear power plants which
are not small entities as defined by the
Regulatory Flexibility Act (5 U.S.C. 601)
and (2) the proposed regulations do not
impose a collection of information on
small entities. Accordingly, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. 601) is not re-
quired. We request comment on the accu-
racy of this certification. Pursuant to sec-
tion 7805(f) of the Code, these regulations
have been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration 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 comments (a
signed original and eight (8) copies) or
electronically generated comments that
are submitted timely to the IRS. The Trea-
sury Department and the IRS generally
request comments on the clarity of the
proposed rule and how it may be made
easier to understand. All comments will
be available for public inspection and
copying. A public hearing may be sched-
uled if requested in writing by a person
who timely submits comments. If a public
hearing is scheduled, notice of the date,
time, and place for the hearing will be
published in the Federal Register.
## Drafting Information
The principal author of these regula-
tions is Jennifer C. Bernardini, Office of
Associate Chief Counsel (Passthroughs
and Special Industries). However, other
personnel from the IRS and Treasury De-
partment participated in their develop-
ment.
* * * * *
## Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed 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 * * *
Par. 2. Section § 1.468A-1 is amended
by revising paragraph (b)(6) to read as
follows:
### § 1.468A-1 Nuclear decommissioning costs; general rules.
* * * * *
(b) * * *
(6)(i) The term nuclear decommission-
ing costs or decommissioning costs in-
cludes all otherwise deductible expenses
to be incurred in connection with the en-
tombment, decontamination, dismantle-
ment, removal and disposal of the struc-
tures, systems and components of a
nuclear power plant, whether that nuclear
power plant will continue to produce elec-
tric energy or has permanently ceased to
produce electric energy. Such term in-
cludes all otherwise deductible expenses
to be incurred in connection with the prep-
aration for decommissioning, such as en-
gineering and other planning expenses,
and all otherwise deductible expenses to
be incurred with respect to the plant after
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the actual decommissioning occurs, such
as physical security and radiation moni-
toring expenses. An expense is otherwise
deductible for purposes of this paragraph
(b)(6) if it would be deductible or recov-
erable through depreciation or amortiza-
tion under chapter 1 of the Internal Rev-
enue Code without regard to section
280B.
(ii) The term nuclear decommissioning
costs or decommissioning costs also in-
cludes costs incurred in connection with
the construction, operation, and ultimate
decommissioning of a facility used solely
to store, pending delivery to a permanent
repository or disposal, spent nuclear fuel
generated by the nuclear power plant or
plants located on the same site as the
storage facility (for example, an Indepen-
dent Spent Fuel Storage Installation).
Such term does not include otherwise de-
ductible expenses to be incurred in con-
nection with the disposal of spent nuclear
fuel under the Nuclear Waste Policy Act
of 1982 (Public Law 97-425).
Par. 3. Paragraph § 1.468A-5 is
amended by revising the heading and
paragraphs (b)(2)(i) and (d)(3)(i) to read
as follows:
§ 1.468A-5 Nuclear decommissioning
fund-miscellaneous provisions.
* * * * *
(b) * * *
(2) * * *
(i) A payment by a nuclear decommis-
sioning fund for the purpose of satisfying,
in whole or in part, the liability of the
electing taxpayer for decommissioning
costs of the nuclear power plant to which
the nuclear decommissioning fund relates,
whether such payment is made to an un-
related party in satisfaction of the decom-
missioning liability or to the plant opera-
tor or other otherwise disqualified person
as reimbursement solely for actual ex-
penses paid by such person in satisfaction
of the decommissioning liability;
* * * * *
(d) * * *
(3) * * *
(i) The substantial completion of the
decommissioning of a nuclear power plant
occurs on the date on which all Federal,
state, local, and contractual decommis-
sioning requirements are fully satisfied
(the substantial completion date). Except
as otherwise provided in paragraph
(d)(3)(ii) of this section, the substantial
completion date is also the termination
date.
* * * * *
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
(Filed by the Office of the Federal Register on December 28,
2016, 8:45 a.m., and published in the issue of the Federal
Register for December 29, 2016, 81 F.R. 95929)
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# Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as "rulings") that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future 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.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
# Abbreviations
The following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.
A-Individual.
Acq .- Acquiescence.
B-Individual.
BE-Beneficiary.
F.R .- Federal Register.
FUTA-Federal Unemployment Tax Act.
FX-Foreign corporation.
G.C.M .- Chief Counsel's Memorandum.
GE-Grantee.
GP-General Partner.
GR-Grantor.
COOP-Cooperative.
IC-Insurance Company.
Ct.D .- Court Decision.
I.R.B .- Internal Revenue Bulletin.
CY-County.
LE-Lessee.
D-Decedent.
LP-Limited Partner.
LR-Lessor.
M-Minor.
Nonacq .- Nonacquiescence.
O Organization.
P-Parent Corporation.
PHC-Personal Holding Company.
PO-Possession of the U.S.
PR-Partner.
PRS-Partnership.
PTE-Prohibited Transaction Exemption.
Pub. L .- Public Law.
REIT-Real Estate Investment Trust.
Rev. Proc .- Revenue Procedure.
Rev. Rul .- Revenue Ruling.
S-Subsidiary.
S.P.R .- Statement of Procedural Rules.
Stat .- Statutes at Large.
T-Target Corporation.
T.C .- Tax Court.
T.D .- Treasury Decision.
TFE-Transferee.
TFR-Transferor.
T.I.R .- Technical Information Release.
TP-Taxpayer.
TR-Trust.
TT-Trustee.
U.S.C .- United States Code.
DE-Donee.
Del. Order-Delegation Order.
DISC-Domestic International Sales Corporation.
DR-Donor.
E-Estate.
EE-Employee.
E.O .- Executive Order.
ER-Employer.
ERISA-Employee Retirement Income Security Act.
EX-Executor.
F-Fiduciary.
FC-Foreign Country.
FICA-Federal Insurance Contributions Act.
FISC-Foreign International Sales Company.
FPH-Foreign Personal Holding Company.
BK-Bank.
B.T.A .- Board of Tax Appeals.
C-Individual.
C.B .- Cumulative Bulletin.
CFR-Code of Federal Regulations.
CI-City.
DC-Dummy Corporation.
X-Corporation.
Y-Corporation.
Z-Corporation.
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## Numerical Finding List1
Bulletin 2017-1 through 2017-4
Notices:
2017-1, 2017-2 I.R.B. 367
2017-2, 2017-4 I.R.B. 539
2017-3, 2017-2 I.R.B. 368
2017-4, 2017-4 I.R.B. 541
2017-6, 2017-3 I.R.B. 422
2017-7, 2017-3 I.R.B. 423
2017-8, 2017-3 I.R.B. 423
2017-9, 2017-4 I.R.B. 542
2017-10, 2017-4 I.R.B. 544
## Proposed Regulations:
REG-128276-12, 2017-2 I.R.B. 369
REG-112324-15, 2017-4 I.R.B. 547
REG-134438-15, 2017-2
I.R.B. 373
REG-112800-16, 2017-4 I.R.B. 569
REG-133353-16, 2017-2 I.R.B. 372
## Revenue Procedures:
2017-1, 2017-1 I.R.B. 1
2017-2, 2017-1 I.R.B. 106
2017-3, 2017-1 I.R.B. 130
2017-4, 2017-1 I.R.B. 146
2017-5, 2017-1 I.R.B. 230
2017-7, 2017-1 I.R.B. 269
2017-12, 2017-3 I.R.B. 424
2017-14, 2017-3 I.R.B. 426
2017-15, 2017-3 I.R.B. 437
2017-16, 2017-3 I.R.B. 501
## Revenue Rulings:
2017-1, 2017-3 I.R.B. 377
2017-2, 2017-2 I.R.B. 364
2017-3, 2017-4 I.R.B. 522
## Treasury Decisions:
9794, 2017-2 I.R.B. 273
9795, 2017-2 I.R.B. 326
9796, 2017-3 I.R.B. 380
9801, 2017-2 I.R.B. 355
9802, 2017-2 I.R.B. 361
9803, 2017-3 I.R.B. 384
9804, 2017-3 I.R.B. 406
9806, 2017-4 I.R.B. 524
1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016-27 through 2016-52 is in Internal Revenue Bulletin
2016-52, dated December 26, 2016.
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## Finding List of Current Actions on Previously Published Items1
Bulletin 2017-1 through 2017-4
Notices:
2002-1
Amplified by
Notice 2017-1, 2017-2 I.R.B. 367
2011-86
Obsoleted by
Notice 2017-1, 2017-2 I.R.B. 367
2016-29
Modified by
Notice 2017-6, 2017-3 I.R.B. 422
1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016-27 through 2016-52 is in Internal Revenue Bulletin
2016-52, dated December 26, 2016.
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# INTERNAL REVENUE BULLETIN
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