us-irs-revenue-procedures-irb-2008-21-pdf•Internal Revenue Bulletin 2008-21 (PDF rendition): IRS Revenue Procedures
Internal Revenue Bulletin 2008-21 (PDF rendition): IRS Revenue Procedures
us-irs-revenue-procedures-irb-2008-21-pdfInternal Revenue Bulletin 2008-21 (PDF rendition): IRS Revenue ProceduresGuidance
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Bulletin No. 200 8-21 May 27, 2008 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 Rev. Rul. 2008–25, page 986. Section 338.This ruling discusses an integrated transaction where stock of a target corporation is acquired in a taxable re- verse subsidiary merger, followed by liquidation of target. The ruling addresses the proper treatment and application of the step transaction doctrine in light of the policies behind section 338 of the Code. Rev. Rul. 2008–26, page 985. Medicaid rebates.This ruling holds that Medicaid rebates paid by a pharmaceutical manufacturer are adjustments to the sales price in calculating gross receipts, rather than deductions from gross income under section 162 of the Code. Rev. Rul. 2005–28 clarified and superseded. T.D. 9394, page 988. Final regulations under section 1446 of the Code provide rules permitting a partnership under certain circumstances to con- sider partner-level items when computing its section 1446 with- holding tax obligation on income that is effectively connected with its U.S. trade or business, which is allocable under section 704 to foreign partners. Notice 2008–48, page 1008. Renewable electricity production, refined coal produc- tion, and Indian coal production; calendar year 2008 inflation adjustment factors and reference prices.This notice announces the calendar year 2008 inflation adjustment factors and reference prices for the renewable electricity pro- duction credit, refined coal production credit, and Indian coal production credit under section 45 of the Code. Rev. Proc. 2008–26, page 1014. This procedure sets forth circumstances under which the IRS will not challenge whether a security is “readily marketable” for purposes of section 956(c)(2)(J). EMPLOYEE PLANS Notice 2008–50, page 1010. Weighted average interest rate update; corporate bond indices; 30-year Treasury securities; segment rates. This notice contains updates for the corporate bond weighted average interest rate for plan years beginning in May 2008; the 24-month average segment rates; the funding transitional segment rates applicable for May 2008; and the minimum present value transitional rates for April 2008. EXEMPT ORGANIZATIONS Announcement 2008–49, page 1024. The IRS has revoked its determination that Heritage Christian Schools for Children of Stone Mountain, GA, and Lima Legion- naires Charitable Foundation, Inc., of Lima, OH, qualify as orga- nizations described in sections 501(c)(3) and 170(c)(2) of the Code. (Continued on the next page) Fi nding Lists begin on page ii. Index for January through May begins on page vi. ESTATE TAX REG–112196–07, page 1021. Proposed regulations under section 2032 of the Code clarify that the election to use the alternate valuation method is avail- able to estates that qualify under section 2032(c) and that ex- perience a reduction in the value of the decedent’s gross estate duetomarketconditions.Theregulationsalsodefinetheterm “market conditions,” clarify that post-death events may not be taken into account in valuing the gross estate on the alternate valuation date, and provide examples, which are not intended to be exclusive. ADMINISTRATIVE REG–208199–91, page 1017. Proposed regulations under section 6503 of the Code pertain to the use of designated summonses and related summonses, particularly as they suspend the period of limitations on assess- ment when a case is brought with respect to the designated or related summonses. Rev. Proc. 2008–27, page 1014. This procedure provides a simplified method for taxpayers to request relief for certain late filings under sections 897 and 1445 of the Code. The provisions of this procedure apply to certain nonrecognition transactions and transfers of domestic corporations that are not United States real property holding corporations. Announcement 2008–50, page 1024. The Office of Professional Responsibility intends to publish an- nouncements of disciplinary sanctions in a redesigned format that will list specific violations of Treasury Department Circu- lar No. 230. A new "Disciplinary Sanction" column of the an- nouncements will include the relevant section number of Circu- lar 230 and a brief description of misconduct. May 27, 20082008–21 I.R.B. The IRS Mission Provide Americ a’s taxpayers top quality service by helping them understand an d meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conven- tions, legislation, court decisions, and other items of general interest. It is published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin contents are compiled semiannually into Cumulative Bulletins, which are sold on a single-copy basis. It is the policy of the Service to publish in the Bulletin all sub- stantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, mod- ify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indi- cated. Procedures relating solely to matters of internal man- agement are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—19 86 Code. This part i ncludes rulings and decisions based on provisions of the Intern al Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Leg- islation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rul- ings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secre- tary (Enforcement). Part IV .—Items of General Interest. This par t includes notices of proposed rulemakings, disbar- ment an d suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The c ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402. 2008–21 I.R.B.May 27, 2008 May 27, 20082008–21 I.R.B. Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 61.—G ross Income Defined 26 CFR 1.61–3: Gross income derived from business. (Also § 162; 1.162–1.) Medicaid rebates.This ruling holds that Medicaid rebates paid by a pharma- ceutical manufacturer are adjustments to the sales price in calculating gross receipts, rather than deductions from gross income under section 162 of the Code. Rev. Rul. 2005–28 clarified and superseded. Rev. Rul. 2008–26 ISSUE Are Medicaid Rebates that a pharma- ceutical manufacturer pays to State Medic- aid Agencies adjustments to the sales price in calculating gross receipts, or are they ordinary and necessary business expenses that are deductible from gross income un- der § 162 of the Internal Revenue Code? FACTS M,whou ses an accrual method of ac- counti ng and files returns on a calendar year ba sis, manufactures and sells pre- script ion drugs. In 1992,Mentered into a “Reba te Agreement” with the Department of Hea lth and Human Services (HHS) pursu ant to the Medicaid Rebate Pro- gram e stablished by the Omnibus Budget Recon ciliation Act of 1990, Pub. L. No. 101– 508, 104 Stat. 1388 (1990) (the Act). The M edicaid Rebate Program is de- sign ed to reduce the cost of drugs paid for by th e Medicaid Program and to increase Medi caid beneficiaries’ access to prescrip- tion drugs. Under the Act, pharmaceutical manu facturers must sign a “Rebate Agree- men t” with HHS (who acts on behalf of eac h State Medicaid Agency) to gain ac- ces s to the Medicaid-funded segment of the pharmaceutical market. The Rebate Agreements require phar- mac eutical manufacturers to pay Medic- aid Rebates directly to each State Medic- ai d Agency. A Medicaid Rebate is a por- ti on of the price paid by State Medicaid Ag encies to retailers for covered outpa- ti ent drugs dispensed to Medicaid benefi- ciaries. The a mount of the Medicaid Re- bate is design ed to ensure that the Medic- aid Program is charged no more for cov- ered outpati ent drugs than any other pur- chaser.SeeH .R. Rep. No. 101–881 at 96 (1990). In 2005, the f ollowing events occur: (1) MsellsProdu ct D, a prescription drug, to W, a wholesal er; (2)WsellsProduct Dto R, a retail p harmacy; (3)RdispensesProd- uct Dto indi vidualA, a Medicaid benefi- ciary, and t hen files a reimbursement claim withS,aSta te Medicaid Agency; (4)Sap- proves the claim and then reimbursesRfor the cost of Product Dplus a dispensing fee; and (5)Mpa ys a Medicaid Rebate toSpur- suant to th e Rebate Agreement. LAW AND AN ALYSIS Section 6 1(a) provides that, except as otherwis e provided, gross income means all incom e from whatever source derived. Section 1.61–3(a) of the Income Tax Reg- ulation s provides that in a manufacturing, merchan dising, or mining business, “gross income” means the total sales, less the cost of good s sold, plus any income from in- vestme nts and from incidental or outside operat ions or sources. Sectio n 162 allows as a deduction all the ord inary and necessary expenses paid or incu rred during the taxable year in car- rying o n any trade or business. Section 1.162 –1(a) provides, in part, that business expen ses deductible from gross income in- clude the ordinary and necessary expendi- tures directly connected with or pertaining to the taxpayer’s trade or business. InPit tsburghMilkCo.v.Commis- sione r, 26 T.C. 707 (1956),nonacq. 1959 –2 C.B. 8–9,nonacq. withdrawn and a cq. 1962–2 C.B. 5–6,acq. with- draw n and nonacq. 1976–2 C.B. 3–4, and nona cq. withdrawn in part and acq. in part 1982–2 C.B. 2, the Tax Court ad- dres sed whether allowances, discounts, or reb ates paid by a milk producer to certain pur chasers of its milk, in willful viola- tio n of state law, are adjustments to the pur chase price of the milk resulting in a red uced sales price, or ordinary and nec- es sary business expenses under § 162 (in wh ich case no deduction would be allowed under the rule s of § 162(c)). The court reasoned that for income derived from thesaleofpro perty, in determining gain, the amount re alized must be based on the actual price or consideration for which the property was sold and not on some greater pric e for which it possibly should have been, b ut was not, sold. The court focusedont he facts and circumstances of the transac tion, what the parties intended, and the purp ose or consideration for which the allowan ce was made. The court found that the al lowances were part of the sales transacti on and concluded that gross in- come must b e computed on the price for which the m ilk was actually sold. Thus, underPit tsburgh Milk, where a payment is made from a seller to a purchaser, and the purpose a nd intent of the parties is to reach an agreed upon selling price, the payment is proper ly viewed as an adjustment to the purchas e price that reduces gross sales. In contra st, inUnited Draperies, Inc. v. Commiss ioner, 41 T.C. 457 (1964),aff’d, 340 F.2d 936 (7 th Cir.),cert. denied,382 U.S. 813 (1965), the Tax Court held that adraper y manufacturer could not exclude from in come kickbacks paid to employees of the c ompanies that purchased the tax- payer’ s draperies. The court noted that the kic kbacks were made to employees of its cus tomers and were “independent of its agree ment with its purchasers fixing the selli ng price of the products sold,” and that “[t]h ese amounts were paid for a consider- ation separate from the selling price of its produ cts, namely these employees send- ing t he business of their employers to peti- tion er ....”United Draperiesat 465. Rev. Rul. 76–96, 1976–1 C.B. 23, ad- dres ses the tax treatment of rebates paid by an au tomobile manufacturer to retail cus- tome rs. The manufacturer offered rebates of a s et amount to retail customers who inde pendently negotiated at arm’s length wit h one of the manufacturer’s dealers to arr ive at a purchase price for a new car. The ruling holds that the rebates reduce the pur chase price of the cars and are not in- clu dible in the retail customer’s gross in- co me. The ruling further holds that the ma nufacturer may deduct the rebates as or dinary and necessary business expenses un der § 162. 2008–21 I.R.B.985May 27, 2008 The Medicaid Rebate is paid byMtoS pursuant to the terms of the rebate agree- ment. Under the purpose and intent test ofPittsburgh Milk, the Medicaid Rebate is a factor used in setting the actual selling price, negotiated and agreed to before the sale toWtakes place. HOLDING Medicaid Rebates that a pharmaceuti- cal manufacturer paysto State Medicaid Agencies are adjustments to the sales price in calculating gross receipts. This holding is limited to Medicaid Rebates that a phar- maceutical manufacturer pays pursuant to the Medicaid Rebate Program established by the Act. EFFECT ON OTHER DOCUMENTS Rev. Rul. 2005–28, 2005–1 C.B. 997, is clarified and superseded. Rev. Rul. 2005–28 suspended, in part, Rev. Rul. 76–96. Whether a rebate of the type de- scribed in Rev. Rul. 76–96 is an ordinary and necessary business expense or, alter- natively, is an adjustment to the sales price in calculating gross receipts, is an issue un- der reconsideration. Therefore, pending the Service’s reconsideration of the issue and publication of subsequent guidance, the Service will not apply, and taxpayers may not rely on, the conclusion of Rev. Rul. 76–96 that rebates made by the man- ufacturer are ordinary and necessary busi- ness expenses deductible under § 162. DRAFTING INFORMATION The principal author of this revenue rul- ing is Susie K. Bird of the Office of Asso- ciate Chief Counsel (Income Tax and Ac- counting). For further information regard- ing this revenue ruling, contact Ms. Bird at (202) 622–4950 (not a toll-free call). Section 162.—Trade or Business Expenses A revenue ruling holds that Medicaid Rebates paid by a pharmaceutical manufacturer are adjustments to the sales price in calculating gross receipts, rather than deductions from gross income under section 162 of the Internal Revenue Code. The ruling clarifies and supersedes Rev. Rul. 2005–28, 2005–1 C.B. 997. See Rev. Rul. 2008-26, page 985. Section 368.—Definitions Relating to Corporate Reorganizations 26 CFR 1.368–1: Purpose and scope of exception of reorganization exchanges. (Also § 338; 1.338–3; 1.368–2.) Section 338.This ruling discusses an integrated transaction where stock of a tar- get corporation is acquired in a taxable re- verse subsidiary merger, followed by liq- uidation of target. The ruling addresses the proper treatment and application of the step transaction doctrine in light of the policies behind section 338 of the Code. Rev. Rul. 2008–25 ISSUE What is the proper Federal income tax treatment of the transaction described be- low? FACTS T is a corporation all of the stock of which is owned by individual A. T has 150x dollars worth of assets and 50x dol- lars of liabilities. P is a corporation that is unrelated to A and T. The value of P’s assets, net of liabilities, is 410x dollars. P forms corporation X, a wholly owned sub- sidiary, for the sole purpose of acquiring all of the stock of T by causing X to merge into T in a statutory merger (the “Acquisi- tion Merger”). In the Acquisition Merger, P acquires all of the stock of T, and A ex- changes the T stock for 10x dollars in cash and P voting stock worth 90x dollars. Fol- lowing the Acquisition Merger and as part of an integrated plan that included the Ac- quisition Merger, T completely liquidates into P (the “Liquidation”). In the Liquida- tion, T transfers all of its assets to P and P assumes all of T’s liabilities. The Liquida- tion is not accomplished through a statu- tory merger. After the Liquidation, P con- tinues to conduct the business previously conducted by T. LAW Section 368(a)(1)(A) of the Internal Revenue Code provides that the term “re- organization” means a statutory merger or consolidation. Section 368(a)(2)(E) provides that a transaction otherwise qual- ifying under § 368(a)(1)(A) shall not be disqualified by reason of the fact that stock of a corporation in control of the merged corporation is used in the transaction, if (i) after the transaction, the corporation surviving the merger holds substantially all of its propertiesand of the properties of the merged corporation (other than stock of the controlling corporation dis- tributed in the transaction), and (ii) in the transaction, former shareholders of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of the surviving corporation. Fur- ther, §1.368–2(j)(3)(iii) of the Income Tax Regulations provides that “[i]n applying the ‘substantially all’ test to the merged corporation, assets transferred from the controlling corporation to the merged corporation in pursuance of the plan of reorganization are not taken into account.” Section 368(a)(1)(C) provides in part that a reorganization is the acquisition by one corporation, in exchange solely for all or part of its voting stock, of substantially all of the propertiesof another corpora- tion, but in determining whether the ex- change is solely for stock, the assumption by the acquiring corporation of a liability of the other shall be disregarded. Section 368(a)(2)(B) provides that if one corpora- tion acquires substantially all of the prop- erties of another corporation, the acquisi- tion would qualify under § 368(a)(1)(C) but for the fact that the acquiring corpo- ration exchanges money or other property in addition to voting stock, and the acquir- ing corporation acquires, solely for voting stock described in § 368(a)(1)(C), property of the other corporation having a fair mar- ket value which is at least 80 percent of the fair market value of all of the property of the other corporation, then such acqui- sition shall (subject to § 368(a)(2)(A)) be treated as qualifying under § 368(a)(1)(C). Section 368(a)(2)(B) further provides that solely for purposes of determining whether its requirements are satisfied, the amount of any liabilities assumed by the acquiring corporation shall be treated as money paid for the property. Section 1.368–1(a) generally provides that in determining whether a transac- tion qualifies as a reorganization under § 368(a), the transaction must be evaluated under relevant provisions of law, including the step transaction doctrine. May 27, 20089862008–21 I.R.B. Section 1.368–2(k) provides, in part, that a transaction otherwise qualifying as a reorganization under § 368(a) shall not be disqualified or recharacterized as a re- sult of one or more distributions to share- holders (including distribution(s) that in- volve the assumption of liabilities) if the requirements of §1.368–1(d) are satisfied, the property distributed consists of assets of the surviving corporation, and the ag- gregate of such distributions does not con- sist of an amount of assets of the surviv- ing corporation (disregarding assets of the merged corporation)that would result in a liquidation of such corporation for Federal income tax purposes. Rev. Rul. 67–274, 1967–2 C.B. 141, holds that an acquiring corporation’s ac- quisition of all of the stock of a target corporation solely in exchange for vot- ing stock of the acquiring corporation, fol- lowed by the liquidation of the target cor- poration as part of the same plan, will be treated as an acquisition by the acquiring corporation of substantially all of the tar- get corporation’s assets in a reorganization described in § 368(a)(1)(C). The ruling ex- plains that, under these circumstances, the stock acquisition and the liquidation are part of the overall plan of reorganization and the two steps may not be considered independently of each other for Federal in- come tax purposes. See also, Rev. Rul. 72–405, 1972–2 C.B. 217. Rev. Rul. 2001–46, 2001–2 C.B. 321, holds that, where a newly formed wholly owned subsidiary of an acquiring corpora- tion merged into a target corporation, fol- lowed by the merger of the target corpo- ration into the acquiring corporation, the step transaction doctrine is applied to in- tegrate the steps and treat the transaction as a single statutory merger of the target corporation into the acquiring corporation. Noting that the rejection of step integration in Rev. Rul. 90–95, 1990–2 C.B. 67, and § 1.338–3(d) is based on Congressional in- tent that § 338 replaceany nonstatutory treatment of a stock purchase as an asset purchase under the Kimbell-Diamond doc- trine, the Service found that the policy un- derlying § 338 is not violated by treating the steps as a single statutory merger of the target into the acquiring corporation because such treatment results in a trans- action that qualifies as a reorganization in which the acquiring corporation acquires the assets of the target corporation with a carryover basis under § 362, rather than re- ceiving a cost basis in those assets under § 1012. (InKimbell-Diamond Milling Co. v. Commissioner,14T.C.74,aff’d per cu- riam, 187 F.2d 718 (1951),cert. denied, 342 U.S. 827 (1951), the court held that the purchase of the stock of a target corpo- ration for the purpose of obtaining its as- sets through a prompt liquidation should be treated by the purchaser as a purchase of the target corporation’s assets with the purchaser receiving a cost basis in the as- sets.) Section 338(a) provides that if a cor- poration makes a qualified stock purchase and makes an election under that section, then the target corporation (i) shall be treated as having sold all of its assets at the close of the acquisition date at fair market value and (ii) shall be treated as a new cor- poration which purchased all of its assets as of the beginning of the day after the ac- quisition date. Section 338(d)(3) defines a qualified stock purchase as any transaction or series of transactions in which stock (meeting the requirements of § 1504(a)(2)) of one corporation is acquired by an- other corporation by purchase during a 12-month acquisition period. Section 338(h)(3) defines a purchase generally as any acquisition of stock, but excludes ac- quisitions of stock in exchanges to which § 351, § 354, § 355, or § 356 applies. Section 338 was enacted in 1982 and was “intended to replace any nonstatutory treatment of a stock purchase as an as- set purchase under the Kimbell-Diamond doctrine.” H.R. Conf. Rep. No. 760, 97th Cong, 2d Sess. 536 (1982), 1982–2 C.B. 600, 632. Stock purchase or as- set purchase treatment generally turns on whether the purchasing corporation makes or is deemed to make a § 338 election. If the election is made or deemed made, as- set purchase treatment results and the ba- sis of the target assets is adjusted to reflect the stock purchase price and other relevant items. If an election is not made or deemed made, the stock purchase treatment gener- ally results. In such a case, the basis of the target assets is not adjusted to reflect the stock purchase price and other relevant items. Rev. Rul. 90–95 (Situation 2), holds that the merger of a newly formed wholly owned domestic subsidiary into a target corporation with the target corporation shareholders receiving solely cash in exchange for their stock, immediately followed by the merger of the target cor- poration into the domestic parent of the merged subsidiary, will be treated as a qualified stock purchase of the target cor- poration followed by a § 332 liquidation of the target corporation. As a result, the parent’s basis in the target corporation’s assets will be the same as the basis of the assets in the target corporation’s hands. The ruling explains that even though “the step-transaction doctrine is properly ap- plied to disregard the existence of the [merged subsidiary],” so that the first step is treated as a stock purchase, the acqui- sition of the target corporation’s stock is accorded independent significance from the subsequent liquidation of the target corporation and, therefore, is treated as a qualified stock purchase regardless of whether a § 338 election is made. Thus, in that case, the step transaction doctrine was not applied to treat the transaction as a di- rect acquisition by the domestic parent of the assets of the target corporation because such an application would have resulted in treating a stock purchase as an asset purchase, which would be inconsistent with the repeal of the Kimbell-Diamond doctrine and § 338. Section 1.338–3(d) incorporates the approach of Rev. Rul. 90–95 into the regulations by requiring the purchasing corporation (or a member of its affiliated group) to treat certain asset transfers fol- lowing a qualified stock purchase (where no § 338 election is made) independently of the qualified stock purchase. In the ex- ample in § 1.338–3(d)(5), the purchase for cash of 85 percent of the stock of a target corporation, followed by the merger of the target corporation into a wholly owned subsidiary of the purchasing corporation, is treated (other than by certain minority shareholders) as a qualified stock purchase of the stock of the target corporation fol- lowedbya§368reorganizationofthe target corporation into the subsidiary. As a result, the subsidiary’s basis in the target corporation’s assets is the same as the ba- sis of the assets in the target corporation’s hands. ANALYSIS If the Acquisition Merger and the Liq- uidation were treated as separate from each other, the Acquisition Merger would be 2008–21 I.R.B.987May 27, 2008 treated as a stock acquisition that qualifies as a reorganization under § 368(a)(1)(A) by reason of § 368(a)(2)(E), and the Liquidation would qualify under § 332. However, as provided in § 1.368–1(a), in determining whether a transaction qual- ifies as a reorganization under § 368(a), the transaction must be evaluated under relevant provisions of law, including the step transaction doctrine. In this case, because T was completely liquidated, the § 1.368–2(k) safe harbor exception from the application of the step transaction doctrine does not apply. Accordingly, the Acquisition Merger and the Liquida- tion may not be considered independently of each other for purposes of determin- ing whether the transaction satisfies the statutory requirements of a reorganization described in § 368(a)(1)(A) by reason of § 368(a)(2)(E). As such, this transaction does not qualify as a reorganization de- scribed in § 368(a)(1)(A) by reason of § 368(a)(2)(E) because, after the trans- action, T does not hold substantially all of its properties and the properties of the merged corporation. In determining whether the transaction is a reorganization, the approach reflected in Rev. Rul. 67–274 and Rev. Rul. 2001–46 is applied to ignore P’s acqui- sition of the T stock in the Acquisition Merger and to treat the transaction as a di- rect acquisition by P of T’s assets in ex- change for 10x dollars in cash, 90x dollars worth of P voting stock, and the assump- tion of T’s liabilities. However, unlike the transactions con- sidered in Revenue Rulings 67–274, 72–405 and 2001–46, a direct acquisition by P of T’s assets in this case does not qualify as a reorganization under § 368(a). P’s acquisition of T’s assets is not a re- organization described in § 368(a)(1)(C) because the consideration exchanged is not solely P voting stock and the require- ments of § 368(a)(2)(B) are not satisfied. Section 368(a)(2)(B) would treat P as acquiring 40 percent of T’s assets for consideration other than P voting stock (liabilities assumed of 50x dollars, plus 10x dollars cash). See Rev. Rul. 73–102, 1973–1 C.B. 186 (analyzing the applica- tion of § 368(a)(2)(B)). P’s acquisition of T’s assets is not a reorganization de- scribed in § 368(a)(1)(D) because neither T nor A (nor a combination thereof) was in control of P (within the meaning of § 368(a)(2)(H)(i)) immediately after the transfer. Additionally, the transaction is not a reorganization under § 368(a)(1)(A) because T did not merge into P. Accord- ingly, the overall transaction is not a reorganization under § 368(a). Additionally, P’s acquisition of the T stock in the Acquisition Merger is not a transaction to which § 351 applies because A does not control P (within the mean- ing of § 368(c)) immediately after the ex- change. Rev. Rul. 90–95 and § 1.338–3(d) re- ject the step integration approach reflected in Rev. Rul. 67–274 where the applica- tion of that approach would treat the pur- chase of a target corporation’s stock with- out a § 338 election followed by the liqui- dation or merger of the target corporation as the purchase of the target corporation’s assets resulting in a cost basis in the as- sets under § 1012. Rev. Rul. 90–95 and § 1.338–3(d) treat the acquisition of the stock of the target corporation as a qual- ified stock purchase followed by a sepa- rate carryover basis transaction in order to preclude any nonstatutory treatment of the steps as an integrated asset purchase. In this case, further application of the approach reflectedin Rev. Rul. 67–274, integrating the acquisition of T stock with the liquidation of T, would result in treat- ing the acquisition of T stock as a tax- able purchase of T’s assets. Such treatment would violate the policy underlying § 338 that a cost basis in acquired assets should not be obtained through the purchase of stock where no § 338 election is made. Ac- cordingly, consistent with the analysis set forth in Rev. Rul. 90–95, the acquisition of the stock of T is treated as a qualified stockpurchasebyPfollowedbytheliqui- dation of T into P under § 332. HOLDING The transaction is not a reorganization under § 368(a). The Acquisition Merger is a qualified stock purchase by P of the stock of T under § 338(d)(3). The Liquidation is a complete liquidation of a controlled subsidiary under § 332. PROSPECTIVE APPLICATION The Service will consider the applica- tion of § 7805(b) on a case-by-case basis. DRAFTING INFORMATION The principal author of this revenue ruling is Mary W. Lyons of the Office of Associate Chief Counsel (Corporate). For further information regarding this rev- enue ruling, contact Ms. Lyons at (703) 622–7930 (not a toll-free call). Section 897.—Disposition of Investment in United States Real Property A revenue procedure describes simplified relief in the case of certain nonrecognition transactions and dispositions of domestic corporations that are not United States real property holding corporations. See Rev. Proc. 2008-27, page 1014. Section 144 5.—Withholding of Tax on Dispositions of United States Real Property Interests A revenue procedure describes simplified relief in the case of certain nonrecognition transactions and dispositions of domestic corporations that are not United States real property holding corporations. See Rev. Proc. 2008-27, page 1014. Section 1446.—Withholding Tax on Fo reign Partners’ Share of Effectively Conne cted Income 26 CFR 1 .1446–6: Special rules to reduce a partner- ship’s 1446 tax with respect to a foreign partner’s al- locabl e share of effectively connected taxable income. T.D. 9 394 DEPAR TMENT OF THE TREAS URY Inte rnal Revenue Service 26 CF R Parts 1, 301, and 602 Spec ial Rules to Reduce Sect ion 1446 Withholding AGEN CY: Internal Revenue Service (IR S), Treasury. ACT ION: Final regulations and removal of t emporary regulations. SUM MARY: This document contains final reg ulations regarding when a partnership may consider certain deductions and losses of a foreign partner to reduce or eliminate May 27, 20089882008–21 I.R.B. the partnership’s obligation to pay with- holding tax under section 1446 on effec- tively connected taxable income allocable under section 704 to such partner. The reg- ulations will affect partnerships engaged in a trade or business in the United States that have one or more foreign partners. The final regulations also include conforming amendments to §§1.1446–3 and 1.1446–5 and to regulations under sections 1464, 6071, 6091, 6151, 6302, 6402, 6414, and 6722. DATES:Effective Date:These regulations are effective on April 29, 2008. Applicability Dates:The regulations are generally applicable for partnership taxable years beginning after December 31, 2007. See §1.1446–6(f). For a transi- tion rule see §1.1446–6(g). FOR FURTHER INFORMATION CONTACT: Ronald M. Gootzeit at (202) 622–3860 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information con- tained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545–1934. The collection of information in these final regulations is in §1.1446–6(c) and (d). This information is required to determine the extent to which a partnership will consider certifications of losses and deductions in calculating the amount of withholding tax it must pay with respect to a foreign partner on the partner’s allocable share of effectively connected taxable income earned by such partnership. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background On September 3, 2003, the IRS and the Treasury Department published in the Federal Registera notice of proposed rulemaking (REG–108524–00, 2003–2 C.B. 869 [68 FR 52466]), corrected at 68 FR 62553 (November 5, 2003), under sec- tions 871, 1443, 1446, 1461, 1462, 1463, 6109, and 6721 of the Internal Revenue Code (Code). The regulations provide guidance for partnerships required to pay withholding tax under section 1446 of the Code (1446 tax). On May 18, 2005, the IRS and the Treasury Department issued final and temporary regulations under section 1446. The 2005 final regulations set forth the provisions of the 2003 pro- posed regulations in final form and the temporary regulations established a new procedure by which a partnership could consider certain partner-level deductions and losses when computing its 1446 tax. The temporary regulations generally ap- ply to partnership taxable years beginning after the date of their issuance, but an election was provided that permitted a partnership to apply the regulations to partnership taxable years beginning after December 31, 2004, provided the part- nership elected to apply the 2005 final regulations to partnership taxable years beginning after December 31, 2004. On May 18, 2005, the IRS and the Treasury Department also published in theFederal Registera notice of proposed rulemaking (REG–108524–00, 2005–1 C.B. 1158 [70 FR 28701]) under sections 1464, 6071, 6091, 6151, 6302, 6402, 6414, and 6722 of the Code to implement the section 1446 regime, as well as cross-referencing the temporary regulations under §1.1446–6T (see 26 CFR Part 1, revised as of April 1, 2007). Written comments were received in response to the notice of proposed rule- making, and a public hearing was held on November 16, 2005. After consider- ation of all the comments, the proposed regulations are adopted, as revised by this Treasury decision and the temporary reg- ulations are removed. Explanation of Provisions Section 1446 requires a partnership to pay section 1446 tax on a foreign part- ner’s allocable share of effectively con- nected taxable income (ECTI) from the partnership. The temporary regulations al- low certain foreign partners to certify cer- tain deductions and losses to a partnership to reduce the 1446 tax required to be paid by the partnership with respect to ECTI al- locable to such partners. The temporary regulations also permit a nonresident alien partner to certify to the partnership that the partnership investment is (and will be) its only activity for its taxable year that gives rise to effectively connected income, gain, deduction, or loss. In that case, the part- nership is not required to pay 1446 tax (or any installment of such tax) with respect to such partner if the partnership estimates that the annualized (or, in the case of a partnership completing its Form 8804 “An- nual Return for Partnership Withholding Tax (Section 1446),” the actual) 1446 tax due with respect to such nonresident alien partner is less than $1,000. I.Modifications to the Temporary Regulations A.Format of certificate submitted to a partnership The temporary regulations state that no particular form is required for the partner’s certificate of deduction and losses to the partnership. However, the temporary reg- ulations list 13 items the certificate must contain and the caption that must appear at the top of the certificate. To ensure uni- formity of the certificates and to reduce the likelihood of an inadvertently omitted item causing the certificate to be defective, the IRS developed a form (Form 8804–C, “Certificate of Partner-Level Items to Re- duce Section 1446 Withholding”)tobe used by the partner providing a certifi- cate to the partnership. The IRS and the Treasury Department believe that the Form 8804–C will facilitate a partner’s ability to provide original and updated certificates. B.Partners entitled to certify deductions and losses 1.Filing period requirement: number of years To be eligible to provide a certificate to a partnership the temporary regulations require a partner to have timely filed (or to represent that it will timely file) a U.S. income tax return for each of its preced- ing four taxable years and for the taxable 2008–21 I.R.B.989May 27, 2008 year during which thecertificate is pro- vided and will be considered by the part- nership. The partner is also required to have timely paid (or to represent that it will timely pay) all tax shown on such returns. The final regulations clarify that only re- turns that report income or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities will satisfy the tax return filing requirement (for the current or relevant prior years). Accord- ingly, the partner may not fulfill this re- quirement with a U.S. income tax return that reports no items of income or gain ef- fectively connectedwith a U.S. trade or business or deductions or losses properly allocated and apportioned to such activi- ties. Several commentators suggested reduc- ing the temporary regulations’ prior years U.S. tax return filing requirement. One commentator suggested reducing the re- quirement to the lesser of the two prior years or the number of years the partner has been a partner in the relevant partner- ship. Another commentator suggested re- ducing the requirement from four to two years. The IRS and the Treasury Department believe it is appropriate to require the for- eign partner to have filed a certain number of returns and paid any tax relating to those returns regardless of the number of years the partner has been a member of the rel- evant partnership. The IRS and the Trea- sury Department do not believe that a re- duction to two years is appropriate. Be- cause the return for the year immediately preceding the year a partner submits a cer- tificate to a partnership may not have been filed by the date when the certificate is sub- mitted, reducing the prior years filing re- quirement to two years could result in only one return being filed by the date on which the certificate is submitted. In response to these comments, however, the IRS and the Treasury Department have determined that it is appropriate to reduce the prior years filing requirement to three years. The IRS and the Treasury Department have also decided to modify the filing re- quirement of a tax return for a preceding taxable year in which the partner did not submit a certificate to any partnership, if the return has a due date (without exten- sions) before the beginning of the part- nership taxable year for which the certifi- cate is provided. The final regulations pro- vide that such returns must be filed and all amounts due with such return (includ- ing interest, penalties, and additions to tax, if any) must be paid on or before the ear- lier of: (1) The date that is one year from the due date (without extensions) of such return; or (2) The date on which the cer- tificate for the current taxable year is sub- mitted to the partnership. Once a partner submits a certificate to a partnership, how- ever, it must timely file all its subsequent years’ returns (and timely pay all amounts due with the returns) to submit a certifi- cate to a partnership in a later year. The IRS and the Treasury Department antic- ipate that this modified rule will permit more foreign partners to provide certifi- cates to partnerships under the final regu- lations. 2.Trusts and estates One commentator requested that the IRS and the Treasury Department explain why foreign estates and domestic or for- eign trusts, other than grantor trusts, are not permitted to certify deductions and losses to partnerships. Another commen- tator asked that the decedent’s compli- ance record be considered in determining whether the estate can certify deductions and losses to a partnership. The final reg- ulations do not modify the treatment of estates and trusts. The IRS and the Trea- sury Department continue to believe, as stated in the preamble to the temporary regulations, that because trusts and estates are not always pure conduits for tax pur- posesitisdifficultforapartnershipto determine the taxpayer (that is, the trust, estate or beneficiary) that will pay tax on the ECTI allocated to the trust or estate. Further, a decedent’s filing history may have limited relevance in predicting the estate’s likely compliance. 3.Tiered partnerships In a tiered partnership structure, a lower-tier partnership must withhold 1446 tax on ECTI allocable to an upper-tier foreign partnership that is a partner in the lower-tier partnership. However, if the upper-tier foreign partnership pro- vides sufficient information regarding its partners to the lower-tier partnership, the lower-tier partnership may withhold 1446 tax based on the partners in the upper-tier partnership. These rules may also apply to upper-tier domestic partnerships that have foreign partners. See §1.1446–5. Similarly, an upper-tier partnership that re- ceives certificates of deductions and losses from its foreign partners may provide the certificates to the lower-tier partnerships. The final regulations add several rules to ensure that deductions and losses cer- tified to an upper-tier partnership are not taken into account by both the upper-tier partnership and a lower-tier partnership or by more than one lower-tier partnership. A new rule is also added requiring that suffi- cient information regarding a partner in the upper-tier partnership submitting the cer- tificate be provided to the lower-tier part- nership and then to the IRS so that the IRS can reliably associate the ECTI and the cer- tificate with the partner in the upper-tier partnership. C.Submissions of certificates 1.Time Lags for submission of certificates The temporary regulations provide that the partnership may rely on the first cer- tificate submitted by the foreign partner for a partnership taxable year only if the partnership receives the certificate at least 30 days before the installment due date or the annual Form 8804 filing due date (without regard to extensions) for the part- nership taxable year for which the partner would like the certificate to be considered in computing the 1446 tax due with respect to the partner. Updated certificates may only be considered if received at least ten days before the installment due date or the Form 8804 filing date (without regard to extensions). Several commentators ques- tioned the appropriateness of these timing requirements if the partnership is willing to rely on a certification submitted at the last moment and remits the 1446 tax install- ment or files the final return on a timely ba- sis. The IRS and the Treasury Department agree with the commentators and have re- moved these requirements in the final reg- ulations. 2.Resubmission of certificates The temporary regulations require the partnership to attach a copy of any certifi- cate, and the computation of 1446 tax due with respect to a partner, to both the Form May 27, 20089902008–21 I.R.B. 8813,“Partnership Withholding Tax Pay- ment Voucher (Section 1446),”and Form 8805,“Foreign Partner’s Information Statement of Section 1446 Withholding Tax,”filed with the IRS for any period for which such certificate is considered in computing the partnership’s 1446 tax (or any installment of such tax). One commentator suggested that a certificate submitted with Form 8813 should not be required to be submitted with subsequent filings of Form 8813 or with Form 8805. The IRS and the Treasury Department agree with the comment regarding Form 8813. The final regulations provide that a partner’s certificate need only be sub- mitted for the first installment period for which it is considered. For subsequent in- stallment periods for which the certificate is considered, the partnership may instead attach a list of the name, taxpayer identifi- cation number, and the amount of certified deductions of each foreign partner whose certificate was previously considered dur- ing the taxable year and whose certificate was again considered in the subject install- ment period. The partnership would also indicate if it was relying on the state and local taxes withheld and remitted on behalf of the partner. If the partnership is relying on thede minimisrule for the partner, the partnership would indicate that, in lieu of indicating the amount of certified deduc- tions. However, if a partnership receives an updated certificate from a partner, that certificate must be attached with the Form 8813 for the first installment period it is considered. In all events, a partnership must attach to the Form 8813 and Form 8805, a computation of 1446 tax due with respect to such partner for all periods for which a certificate received from the part- ner is considered by the partnership. In addition, in all events the partnership must attach to the Form 8805 a copy of the partner’s original or updated certificate, as appropriate. 3.Denying partnerships the ability to submit certificates Consistent with the temporary regu- lations, the final regulations provide that upon receipt of written notification from the IRS that a foreign partner’s certificate is defective, the partnership may no longer rely on the defective certificate or any other certificate submitted by the partner until the IRS notifies the partnership in writing and revokes or modifies the orig- inal notice. The final regulations provide thattheIRSmayalsonotifythepart- nership in writing if either a substantial portion of the certificates submitted by the partnership are defective or a substantial amount of the deductions and losses relied on by the partnership in computing its 1446 tax due are reported on one or more defective certificates. Upon receiving that notification the partnership may not rely on any certificate submitted by any partner for the partnership taxable year in which such notification is received or any sub- sequent partnership taxable year, until the IRS notifies the partnership again in writ- ing and revokes or modifies the original notice. D.Deductions and losses certified to the partnership 1.Current year deductions The temporary regulations provide that a foreign partner can only certify deduc- tions and losses that are or will be re- flected on the partner’s U.S. income tax return filed (or to be filed) for a taxable year ending prior to the installment due date or Form 8804 filing date (without re- gard to extensions) for the partnership tax- able year for which the certificate is con- sidered. Therefore,no anticipated deduc- tion or loss with respect to current opera- tions may be considered. One commenta- tor suggested that partners should be per- mitted to certify current year deductions to the partnership. The IRS and the Treasury Department are concerned about the uncer- tainty associated with fluctuations in esti- mates of current-year activities and there- fore have not adopted this suggestion. 2.Charitable deductions One commentator requested that part- ners be permitted to certify charitable con- tribution deductions. The IRS and the Treasury Department have not adopted this recommendation because of the difficulty a partnership would have in determining the amount of a charitable contribution deductionallowedtotheforeignpartner. Section 170 provides separate rules for corporations and individuals, the type of charity to which the contribution is made, and the type of property contributed to the charity. In addition, separate rules apply to determine the deduction amount in the case of charitable contribution carryover. 3.Suspended losses One commentator raised a concern that a foreign partner could certify a passive ac- tivity loss to a partnership that conducts a different activity in which the partner ma- terially participates. If the partnership took that loss into account it would inappro- priately reduce its 1446 tax due with re- spect to that partner. Because on its in- come tax return the partner could not off- set the loss against its allocable share of partnership ECTI, the partner might inap- propriately each year recertify that loss to the partnership. To address that concern the final regulations clarify that a partner must identify any certified deductions and losses that are subjectto special limitations at the partner level and provide informa- tion to the partnership that will allow the partnership to take into account the special limitations. 4.Net operating losses The temporary regulations provide that a partnership may not consider a partner’s net operating loss (NOL) deduction in an amount greater than 90 percent of the part- ner’s allocable share of ECTI. Two com- mentators discerned that this requirement reflects a concern about the alternative minimum tax (AMT) limitation on NOL deductions and suggested the regulations should be tied to the continuing applica- bility of the 90 percent AMT limitation on the use of NOL carryovers. The IRS and the Treasury Department have adopted this suggestion. One commentator further suggested that if the 90 percent limitation is retained, or as long as it applies, the regulations should be clarified to explain that the limitation should be applied on a cumulative basis for each installment period. This suggestion has also been adopted. With this clarification, if the partnership’s annualized income changes during the year, the NOL deduction that the partnership may take into account can increase or decrease accordingly. E.Partnership items allocable to partners that give rise to partner level deductions, losses or credits but are not partnership 2008–21 I.R.B.991May 27, 2008 allocations of deductions and losses under section 704 1.State income taxes One commentator suggested allowing the partnership to reduce a foreign part- ner’s ECTI by the amount of any state and local taxes paid by the partnership on behalf of the partner with respect to the partner’s allocable share of partnership in- come. The final regulations adopt this rec- ommendation but provide that the partner- ship may only consider 90 percent of the state and local taxes withheld and remit- ted on behalf of the partner but only with respect to the partner’s allocable share of ECTI. The partnership may consider these amounts regardless of whether the partner submits a certification of deductions and lossesorofitsde minimisstatus to the part- nership for the relevant partnership taxable year. 2.Section 199 deductions One commentator suggested allowing a partnership to consider a partner’s avail- able deduction under section 199 in deter- mining its section 1446 tax with respect to that partner. The section 199 deduction is a percentage of the lesser of the qualified production activities income (QPAI) of the taxpayer for the taxable year or the tax- payer’s taxable income or, in the case of an individual, adjusted gross income de- termined without regard to section 199 for the taxable year. In addition, the deduction islimitedto50percentoftheFormW–2, “WageandTaxStatement”, wages for the taxpayer for the taxable year. Depending on a taxpayer’s gross receipts and assets, there are up to three permissible methods for calculating QPAI. In the case of a pass-through en- tity (such as a partnership), section 199(d)(1)(A) provides that the section 199 deduction is calculated at the partner level. A partner may be a member of more than one partnership and may engage in its own qualifying activities under section 199. The QPAI and Form W–2 wages, and any other QPAI and Form W–2 wages reported by a partnership to the partner, must be added to the partner’s own cal- culation of QPAI and Form W–2 wages. Therefore, because of the difficulty in a partnership determining the section 199 deduction of a partner, the IRS and the Treasury Department determined it would be inappropriate to allow a partnership to consider the section 199 deduction of a partner in determining the amount of sec- tion 1446 tax to be withheld with respect to that partner. 3.Section 470 deductions One commentator suggested that the regulations allow the partnership to con- sider partner-level deductions previously suspended under section 470 (limitation on deductions allocable to property used by governments or other tax-exempt enti- ties) and relating to the partnership, when the deductions becomeavailable. Section 470 currently allows the partnership to consider these suspended partner-level deductions in determining the partner’s ECTI. Therefore, there is no need to mod- ify the regulations in response to this suggestion. 4.Tax credits One commentator suggested that a for- eign partner should beable to certify cred- its to the partnership and that the partner- ship be able to considercurrent-year cred- its in determining the amount of its 1446 tax. Section 1446 requires that a partner- ship pay a withholding tax on its ECTI al- locable to foreign partners. It provides no authority for partnerships to consider cred- its in determining the amount of 1446 tax the partnership is required to withhold and pay. Therefore, this suggestion has not been adopted. F.Effect on reasonable reliance on certificate of deductions and losses The temporary regulations provide that a partnership is not relieved from liabil- ity for 1446 tax under section 1461 or for any applicable addition to the tax, interest, or penalties if a partner’s certificate is de- fective or the partner submits an updated certificate that increases the 1446 tax due with respect to such partner. If a certificate is determined to be defective for a reason other than the amount or character of the deductions and losses set forth on such cer- tificate (for example, the partner failed to timely file a U.S. income tax return), then the partnership is liable for the entire 1446 tax amount under section 1461 (or any in- stallment of such tax). Further, under the temporary regula- tions, if it is determined that a certificate is defective because the actual deductions and losses available to the partner are less than the amount certified to the partnership (other than when it is determined that the partner certified the same deduction or loss to more than one partnership), the partner- ship is liable for 1446 tax under section 1461 (or any installment of such tax) only to the extent the amount of certified de- ductions and losses taken into account by the partnership is greater than the amount determined to be actually available to the partner and permitted to be used under reg- ulations. Similarly, if it is determined that a cer- tificate is defective because the character of the certified deductions and losses is er- roneous, the partnership is liable for 1446 tax under section 1461 (or any installment of such tax) only to the extent the actual character of the deductions and losses re- sults in an increase in the 1446 tax due with respect to such partner. However, the temporary regulations provide that the partnership is not liable for the addition to tax under section 6655 (as applied though §1.1446–3) for the period during which the partnership reasonably relied on the certificate. Further, the tem- porary regulations provide that although a partnership is generally liable for the 1446 tax, any addition to the tax, interest, and penalties, the partnership may be relieved of some penalties in certain circumstances. One commentator stated that reason- able reliance on a certificate should protect a partnership against liability not only un- der section 6655, but also for liability for the tax under section 1461, interest on the tax under section 6601, and various other penalty provisions. The IRS and the Trea- sury Department have not adopted this rec- ommendation. Use of the certification pro- cedures under §1.1446–6 is voluntary. The foreign partner is not required to submit a certificate of deductions and losses to the partnership. Moreover, even if the partner- ship receives a certificate it may consider all, none or only a portion of the certified deductions and losses when calculating its payment of 1446 tax. Further, as the tem- porary regulations stated, the partnership may be relieved of some penalties in cer- tain circumstances. May 27, 20089922008–21 I.R.B. G.Relief for a partnership’s failure to timely comply with the requirements of this section Among other requirements, to apply the rules of §1.1446–6 the partnership must re- ceive a valid certificate from the foreign partner and attach the certificate, along with the computation of 1446 tax due with respect to that partner, to certain Forms 8813 and Form 8805 filed with respect to that partner. The IRS and the Treasury De- partment believe that a reasonable cause standard should be applied to determine whether a partnership that failed to attach the certificate and 1446 tax computation to the relevant filing is eligible for an exten- sion of time to comply with this require- ment. Under the reasonable cause standard, if a partnership that may otherwise rely on a partner’s certificate fails to comply timely with the requirements of §1.1446–6, the partnership is considered to have satisfied the timeliness requirement if it demon- strates, to the satisfaction of the Area Director, Field Examination, Small Busi- ness/Self-Employed or the Director, Field Operations, Large and Mid-Size Business (Director) having jurisdiction of the part- nership’s return for the taxable year, that such failure was due to reasonable cause and not willful neglect. Once the part- nership becomes aware of the failure, the partnership must demonstrate reasonable cause and must satisfy the filing require- ment by attaching the certificate and the partnership’s computation of 1446 tax due with respect to that partner to an amended Form 8813 or Forms 8804 and 8805 (that amends the tax return to which the certifi- cate and computation should have been attached). A written statement must be included that explains the reasons for the failure to comply. In determining whether the partnership has reasonable cause, the Director shall determine whether the partnership acted reasonably and in good faith based on all the facts and circumstances. The Direc- tor shall notify the partnership in writing within 120 days of the filing if it is de- termined that the failure to comply was not due to reasonable cause or if additional time will be needed to make such determi- nation. If the Director fails to notify the partnership within 120 days of the filing, the partnership shall be considered to have demonstrated to the Director that such fail- ure was due to reasonable cause and not willful neglect. H.Effective/Applicability dates and transition rule The final regulations are effective for partnership taxable years beginning after December 31, 2007. However, any certifi- cate submitted on or before July 28, 2008, that met the requirements of the temporary regulations shall not be considered defec- tive solely because it does not meet the re- quirements of the final regulations. How- ever, any certificate (including any up- dated certificates and status reports) sub- mitted, or required to be submitted, after July 28, 2008, must comply with the re- quirements of these final regulations. II.Modifications to the 2005 Final Regulations The final regulations make several clar- ifying and conforming changes to the 2005 final regulations including with respect to the calculation of installment payments of 1446 tax when a partnership considers a certificate received under §1.1446–6 and the information that a lower-tier partner- ship must receive from an upper-tier part- nership when the lower-tier partnerships pays 1446 tax on behalf of the partners in the upper-tier partnership. Also the prior year safe harbor provision in §1.1446–3 wasconformedwithsection6655topro- vide that the partnership must compute its current year 1446 tax installments based on the total 1446 tax (without regard to §1.1446–6) as computed for the prior tax- able year. These revisions are effective for partnership taxable years beginning after December 31, 2007. Special Analyses It has been determined that this Trea- sury decision is not a significant regula- tory action as defined in Executive Order 12866. It also has been determined that section553(b)oftheAdministrativePro- cedures Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collections of informa- tion contained in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that only a few small entities are expected to be impacted by these collections and the burden associated with such collections is estimated to be 0.5 hours. Moreover, the information collection in §1.1446–6 and its use is voluntary.Therefore, a Regula- tory Flexibility Analysis under the Regula- tory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rule- making preceding the final regulations was submitted to the Chief Counsel for Advo- cacy of the Small Business Administration for comment on their impact on small busi- ness. Drafting Information The principal author of these regula- tions is Ronald M. Gootzeit of the Office of the Associate Chief Counsel (Interna- tional). However, other personnel from the IRS and the Treasury Department partici- pated in their development. ***** Adoption of Amendments to the Regulations Accordingly, 26 CFR parts 1, 301, and 602 are amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.1446–0 is amended as follows: 1. Adding entries for §1.1446–6. 2. Removing entries for §1.1446–6T. 3. Revising the entry for §1.1446–7. The addition and revision read as fol- lows: §1.1446–0 Table of contents. ***** §1.1446–6 Special rules to reduce a partnership’s 1446 tax with respect to a foreign partner’s allocable share of effectively connected taxable income. (a) In general. (1) Purpose and scope. (2) Reasonable reliance on a certificate. (b) Foreign partners to whom this sec- tion applies. (1) In general. 2008–21 I.R.B.993May 27, 2008 (2) Definitions. (i) U.S. income tax return. (ii) Timely-filed. (iii) Qualifying U.S. income tax return. (3) Special rules. (c) Reduction of 1446 tax with respect to a foreign partner. (1) General rules. (i) Certified deductions and losses. (A) Deductions and losses from the partnership. (B) Deductions and loss from other sources. (C) Limit on the consideration of a part- ner’s net operating loss deduction. (D) Limitation on losses subject to cer- tain partner level limitations. (E) Certification of deductions and losses to other partnerships. (F) Partner level use of deductions and losses certified to a partnership. (ii)De minimiscertificate for nonresi- dent alien individual partners. (A) In general. (B) Requirements for exception. (iii) Consideration of certain current year state and local taxes. (2) Form and time of certification. (i) Form of certification. (ii) Time of certification provided to partnership. (A) First certificate submitted for a part- nership’s taxable year. (B) Updated certificates and status up- dates. (1) Preceding year tax returns not yet filed. (2) Other circumstances requiring an updated certificate. (3) Form and content of updated certifi- cate. (4) Partnership consideration of an up- dated certificate. (3) Notification to partnership when a partner’s certificate cannot be relied upon. (4) Partner to receive copy of notice. (5) Notification to partnership when no foreign partner’s certificate can be relied upon. (6) Partnership notification to partner regarding use of deductions and losses. (7) Partner’s certificate valid only for partnership taxable year for which submit- ted. (d) Effect of certificate of deductions and losses on partner and partnership. (1) Effect on partner. (i) No effect on liability for income tax of foreign partner. (ii) No effect on partner’s estimated tax obligations. (iii) No effect on partner’s obligation to file U.S. income tax return. (2) Effect on partnership. (i) Reasonable reliance to relieve part- nership from addition to tax under section 6665. (ii) Continuing liability for withholding tax under section 1461 and for applicable interest and penalties. (A) In general. (B) Certificate defective because of amount or character of deductions and losses. (3) Partnership level rules and require- ments. (i) Filing requirement. (ii) Reasonable cause for failure to timely file a valid certificate and compu- tation. (A) Determining reasonable cause. (B) Notification. (e) Examples. (f) Effective/Applicability date. (g) Transition rule. §1.1446–7 Effective/Applicability date. Par. 3. For each entry in the table in the “Section” column remove the phrase in the “Remove” column and add the phrase in the “Add” column in its place. SectionRemoveAdd 1.1446–1(a) (First sentence)1.1446–6T1.1446–6 1.1446–1(a)1.1446–6T1.1446–6 1.1446–1(b)§1.1446–6T§1.1446–6 1.1446–1(c)(5) (Second sentence) 1.1446–6T1.1446–6 1.1446–2(a) (Third sentence)§1.1446–6T§1.1446–6 1.1446–2(b)(1) (Second sentence)§1.1446–6T§1.1446–6 1.1446–2(b)(1) (Last sentence)1.1446–6T1.1446–6 1.1446–2(b)(3)(iii) (First sentence)§1.1446–6T§1.1446–6 1.1446–2(b)(3)(iii) (Second sentence)§1.1446–6T§1.1446–6 1.1446–2(b)(3)(vii)§1.1446–6T§1.1446–6 1.1446–2(b)(5)Example 3(Sixth sentence) §1.1446–6T§1.1446–6 1.1446–3(b)(2)(v)(F) (Second sentence) §1.1446–6T§1.1446–6(c)(1)(ii) 1.1446–3(d)(1)(i) (Third sentence§1.1446–6T§1.1446–6(d)(3) 1.1446–3(d)(1)(iii) (Third sentence)§1.1446–6T§1.1446–6 May 27, 20089942008–21 I.R.B. SectionRemoveAdd 1.1446–3(e)(3)(i) (Last sentence)§1.1446–6T§1.1446–6(d)(2)(i) 1.1446–5(f)Example 1(i) (Ninth sentence) §1.1446–6T§1.1446–6 Par. 4. Section 1.1446–3 is amended by: 1. Removing the acronym “ECTI” from the first sentence in paragraph (b)(1) and adding the language “effectively con- nected taxable income (ECTI)” in its place. 2. Revising paragraphs (b)(2)(i) and (b)(3)(i)(A). The revisions read as follows: §1.1446–3 Time and manner of calculating and paying over the 1446 tax. ***** (b) * * * (2) * * * (i)Application of the principles of section 6655—(A)In general. Install- ment payments of 1446 tax required dur- ing the partnership’s taxable year are based upon partnership ECTI for the portion of the partnership taxable year to which the payments relate, and, except as set forth in this paragraph (b)(2) or paragraph (b)(3) of this section, shall be calculated using the principles of section 6655. The principles of section 6655, except as otherwise pro- vided in §1.6655–2, are applied to annu- alize the partnership’s items of effectively connected income, gain, loss, and deduc- tion to determine each foreign partner’s al- locable share of partnership ECTI. Each foreign partner’s allocable share of part- nershipECTIisthenmultipliedbytherel- evant applicable percentage for the type of income allocable to the foreign part- ner under paragraph (a)(2) of this section. The respective 1446 tax amounts are then added for each foreign partner to yield an annualized 1446 tax with respect to such partner. The installment of 1446 tax due with respect to a foreign partner equals the excess of the section 6655(e)(2)(B)(ii) per- centage of the annualized 1446 tax for that partner (or, if applicable, the adjusted sea- sonal amount) for the relevant installment period, over the aggregate amount of 1446 tax installment payments previously paid with respect to that partner during the part- nership’s taxable year. The partnership’s total 1446 tax installment payment equals the sum of the installment payments due for such period on behalf of all the part- nership’s foreign partners. (B)Calculation rules when certificates are submitted under §1.1446–6—(1)To the extent applicable, in computing the 1446 tax due with respect to a foreign partner, a partnership may consider a cer- tificate received from such partner under §1.1446–6(c)(1)(i) or (ii) and the amount of state and local taxes permitted to be considered under §1.1446–6(c)(1)(iii). For this purpose, a partnership shall first annualize the partner’s allocable share of the partnership’s items of effectively con- nected income, gain, deduction, and loss before— (i) Considering under §1.1446– 6(c)(1)(i) the partner’s certified deductions and losses; (ii) Determining under §1.1446– 6(c)(1)(ii) whether the 1446 tax otherwise due with respect to that partner is less than $1,000 (determined with regard to any certified deductions or losses); or (iii) Considering under §1.1446–6 (c)(1)(iii) the amount of state and local taxes withheld and remitted on behalf of the partner. (2) The amount of the limitation pro- vided in §1.1446–6(c)(1)(i)(C) shall be based on the partner’s allocable share of these annualized amounts. For any in- stallment period in which the partnership considers a partner’s certificate, the part- nership must also consider the following events to the extent they occur prior to the due date for paying the 1446 tax for such installment period— (i) The receipt of an updated certifi- cate or status update from the partner under §1.1446–6(c)(2)(ii)(B) certifying an amount of deductions or losses that is less than the amount reflected on the su- perseded certificate (see §1.1446–6(e)(2) Example 4); (ii) The failure to receive an updated certificate or status update from the part- ner that should have been provided under §1.1446–6(c)(2)(ii)(B); and (iii) The receipt of a notification from the IRS under §1.1446–6(c)(3) or (c)(5) (see §1.1446–6(e)(2)Example 5). ***** (3)***(i)*** (A) The average of the amount of the current installment and prior installments during the taxable year is at least 25 per- cent of the total 1446 tax (without regard to §1.1446–6) for the prior taxable year; ****** Par. 5. Section 1.1446–5(c)(2) is amended by adding two new sentences after the first sentence to read as follows: §1.1446–5 Tiered partnership structures. **** * (c) * ** (2) * * * The lower-tier partnership re- quir ed to pay 1446 tax must be able to pro- vid e the information necessary for the IRS to d etermine the chain of ownership, al- loc ation of effectively connected items at eac h partnership level, as well as to the ul- tim ate beneficial owner of the effectively con nected items, and whether the amount of 1446 tax paid was appropriate. This in- fo rmation should permit each partnership in the tiered structure and the IRS to re- li ably associate any effectively connected it ems allocable to such upper-tier partner- s hip, as well as to the ultimate beneficial o wner of the effectively connected items. * ** §1.1446–6T [Removed] Par. 6. Section 1.1446–6T is removed. Par. 7. Section 1.1446–6 is added to read as follows: §1.1446–6 Special rules to reduce a partnership’s 1446 tax with respect to a foreign partner’s allocable share of effectively connected taxable income. (a)In general—(1)Purpose and scope. This section provides rules regarding when a partnership required to pay withholding tax under section 1446 (1446 tax), or an installment of 1446 tax, may consider cer- tain partner-level deductions and losses in computing its 1446 tax obligation under §1.1446–3, or otherwise not pay ade min- imisamount of 1446 tax due with respect 2008–21 I.R.B.995May 27, 2008 to a nonresident alien individual partner. A partnership determines the applicability of the rules of this section on a partner- by-partner basis foreach installment pe- riod and when completing its Form 8804, “Annual Return for Partnership Withhold- ing Tax (Section 1446),”and paying 1446 tax for the partnership taxable year. Ex- cept with respect to certain state and lo- cal taxes paid by the partnership on be- half of the partner, to apply the rules of this section with respect to a foreign part- ner, the partnership must receive a certifi- cate from such partner for each partner- ship taxable year. Paragraph (b) of this section identifies the foreign partners to which this section applies. Paragraph (c) of this section identifies the deductions and losses that a foreign partner may certify to the partnership as well as the state and local taxes paid by the partnership on be- half of the foreign partner that can be taken into account without a certification, and es- tablishes an exception that permits a part- nership to not pay ade minimisamount of 1446 tax with respect to a nonresident alien partner. Paragraph (c) of this sec- tion also sets forth the requirements for a valid certificate. Paragraphs (a)(2) and (d) of this section establish when a partner- ship may rely on and consider a foreign partner’s certificate in computing its 1446 tax, and the effects of relying on such a certificate. Paragraph (d) of this section also describes the effects of a partnership relying on a certificate (including an up- dated certificate) and the reporting require- ments of a partnership with respect to a cer- tificate. Paragraph (e)of this section sets forth examples that illustrate the rules of this section. Paragraph (f) of this section provides the Effective/Applicability date. Paragraph (g) of this section provides a transition rule. (2)Reasonable reliance on a certifi- cate. Subject to §1.1446–2 and the rules of this section, a partnership receiving a cer- tificate (including an updated certificate or status update under paragraph (c)(2)(ii)(B) of this section) of deductions and losses from a partner provided in accordance with the provisions of this section may reason- ably rely on such certificate (to the extent of the certified deductions and losses or other representations set forth in the cer- tificate) until such time that it has actual knowledge or reason to know that the cer- tificate is defective or that the time for receiving an updated certificate or status update from the partner under paragraph (c)(2)(ii)(B) of this section has expired. For this purpose, a partnership shall be considered to have actual knowledge or reason to know that a certificate is defec- tive upon receipt of written notification from the IRS under paragraph (c)(3) or (c)(5) of this section. (b)Foreign partner to whom this sec- tion applies—(1)In general. Except as otherwise provided in paragraph (b)(3) of this section, a foreign partner to whom this section applies is a foreign partner that meets the requirements of this paragraph (b)(1). (i) The partner has provided valid doc- umentation to the partnership to which a certificate is submitted under this section in accordance with §1.1446–1. (ii) If the partner’s current taxable year is the first taxable year in which the part- ner submits a certificate to any partnership, the partner has filed (or will file) a quali- fying U.S. income tax return for each of its three taxable years ending before the end of the partnership’s taxable year for which the partner is submitting a certifi- cate (regardless of whether it was a part- ner in that partnership during each of these years). A qualifying U.S. income tax re- turn for a taxable year that is prior to the first taxable year the partner submits a cer- tificate to any partnership is a U.S. income tax return filed within the time specified in paragraph (b)(2)(iii) of this section. (iii) If the current taxable year of the partner is not the first taxable year in which the partner submits a certificate to any partnership, the partner met the require- ments in paragraph (b)(1)(ii) of this section for the first taxable year in which it sub- mitted a certificate to any partnership and has filed (or will file) a qualifying U.S. in- come tax return for its first taxable year in which it submitted a certificate to any part- nership and each subsequent taxable year ending before the beginning of the current taxable year (regardless of whether it was a partner in any partnership during each of those years). A qualifying U.S. income tax return for a taxable year that is prior to the taxable year the partner submits a certifi- cate to any partnership is a U.S. income tax return filed within the time specified in paragraph (b)(2)(iii) of this section. (iv) The partner files a qualifying U.S. income tax return (within the meaning of paragraph (b)(2)(iii) of this section) for its taxable year in which a certificate is pro- vided to any partnership. (2)Definitions—(i)U.S. income tax return. A U.S. income tax return means a Form 1040NR,“U.S. Nonresident Alien Income Tax Return,”in the case of a nonresident alien individual and a Form 1120F,“U.S. Income Tax Return of a For- eign Corporation,”in the case of a foreign corporation. (ii)Timely-filed. Only for purposes of this section, a U.S. income tax return shall be considered timely-filed if the return is filedonorbeforetheduedatesetforthin section 6072(c), plus any extension of time to file such return granted under section 6081. (iii)Qualifying U.S. income tax return. A U.S. income tax return shall constitute a qualifying U.S. income tax return if the return reports income or gain that is effectively connected with a U.S. trade or business or deductions or losses prop- erly allocated and apportioned to such activities and if the return is described in paragraph (b)(2)(iii)(A), (B), or (C) of this section. A protective return described in §1.874–1(b)(6) or §1.882–4(a)(3)(vi) is not a qualifying U.S. income tax return for purposes of this section. (A) A U.S. income tax return for a part- ner’s preceding taxable year in which it did not submit a certificate to any partnership (but not including a taxable year follow- ing the first taxable year in which the part- ner submitted a certificate to any partner- ship), with a due date as set forth in sec- tion 6072(c), not including any extensions of time to file, which falls before the be- ginning of the current partnership taxable year for which the certificate is provided is described in this paragraph (b)(2)(iii)(A) if the return is filed and all amounts due with respect to such return (including interest, penalties, and additions to tax, if any) are paid on or before the earlier of— (1)The date that is one year after the due date set forth in section 6072(c) for such return, not including any extensions of time to file; or (2)The date on which the certificate for the current partnership taxable year is submitted to the partnership. (B) A U.S. income tax return for a part- ner’s preceding taxable year in which it did not submit a certificate to any partner- ship (but not including a taxable year fol- May 27, 20089962008–21 I.R.B. lowing the first taxable year in which the partner submitted a certificate to any part- nership), with a due date as set forth in section 6072(c), not including any exten- sions of time to file, which falls within the current partnership taxable year for which the certificate is provided is described in this paragraph (b)(2)(iii)(B) if the return is timely-filed and all amounts due with re- spect to such return are timely paid. (C) A U.S. income tax return for a tax- able year in which the partner submits a certificate to any partnership and for a tax- able year following the first taxable year in which the partner submits a certificate to any partnership is described in this para- graph (b)(2)(iii)(C) if the return is timely- filed and all amounts due with such return are timely paid with respect to such return. (3)Special rules—(i) In the case of a partnership (upper-tier partnership) that is a partner in another partnership (lower-tier partnership)— (A) The rules of this section may apply to reduce or eliminate the 1446 tax (or any installment of such tax) of the lower-tier partnership with respect to a foreign part- ner of the upper-tier partnership only to the extent the provisions of §1.1446–5 apply to look through the upper-tier partnership to the foreign partner of such upper-tier partnership and the certificate described in paragraph (c) of this section is provided by such foreign partner to the upper-tier partnership and, in turn, provided to the lower-tier partnership with other appropri- ate documentation (see §1.1446–5(c) and (e)); (B) An upper-tier partnership that sub- mits a certificate of deductions and losses or ade minimiscertificate to a lower-tier partnership may not submit that certificate to another lower-tier partnership; (C) An upper-tier partnership that relies on a certificate submitted to it by a foreign partner under this section for computing its 1446 tax due on effectively connected tax- able income (ECTI) allocable to that part- ner (other than ECTI allocable to it from a lower-tier partnership) may not submit that certificate to any lower-tier partner- ship; and (D) In addition to any other information required by this section, a lower-tier part- nership must submit with a Form 8813, “Partnership Withholding Tax Payment Voucher (Section 1446),”and Form 8805, “Foreign Partner’s Information Statement ofSection1446WithholdingTax,”for which it relies on a certificate from an upper-tier partnership to reduce the 1446 tax due with respect to a foreign partner of the upper-tier partnership, sufficient information so that the IRS may reliably associate the ECTI and the certificate of deductions and losses with the partner in the upper-tier partnership submitting the certificate, including the name, taxpayer identification number (TIN) and alloca- tion of effectively connected items at each partnership tier, as well as to the ultimate upper-tier partner submitting the certifi- cate. (ii) This section shall not apply to a part- ner that is a foreign estate or its beneficia- ries. (iii) This section shall not apply to a partner that is a trust or to its beneficiaries, except to the extent that such trust is owned by a grantor or other person under subpart E of subchapter J of the Internal Revenue Code, the documentation requirements of §1.1446–1 have been met by the grantor or other owner of such trust, and the cer- tificate described in paragraph (c) of this section is provided by the grantor or other owner of such trust to the partnership. (iv) This section shall not apply to a partner in a publicly-traded partnership subject to §1.1446–4. (c)Reduction of 1446 tax with respect to a foreign partner—(1)General rules. Under paragraph (c)(1)(i) of this section a foreign partner to whom this section ap- plies may certify to a partnership for a part- nership taxable year that it has certain de- ductions (other than charitable deductions) and losses properly allocated and appor- tioned to gross income that is effectively connected (or treatedas effectively con- nected) with the conduct of the partner’s trade or business in the United States, and that the partner reasonably expects those deductions and losses to be available and claimed on the partner’s U.S. income tax return to be filed for that taxable year. Under paragraph (c)(1)(ii) of this section, a nonresident alien individual partner to whom this section applies may also cer- tify to a partnership for a partnership tax- able year that its only investment or ac- tivity giving rise to effectively connected items for the partnership’s taxable year that ends with or within the partner’s taxable year is (and will be) the partner’s invest- ment in the partnership. A certificate sub- mitted by a foreign partner to a partnership under this section must be in accordance with the form and requirements set forth in paragraph (c)(2)(ii) of this section. Under paragraph (c)(1)(iii) of this section, a part- nership may take into account certain state and local taxes withheld by the partnership on behalf of the partner. (i)Certified deductions and losses—(A)Deductions and losses from the partnership. Under this paragraph (c)(1)(i)(A), a partner may certify to a partnership for a partnership taxable year deductions (other than charitable deductions) and losses properly allocated and apportioned to gross income which is effectively connected (or treated as effectively connected) with the conduct of the partner’s trade or business in the United States, that are reported on a Form 1065 (Schedule K–1),“Partner’s Share of Income, Deductions, Credits, etc.,”issued (or to be issued) to the partner by the partnership for a prior partnership taxable year, that are (or will be) reported on a qualifying U.S. income tax return for a partner’s taxable year that ends before the installment due date or the close of the partnership taxable year for which the partner is certifying such deductions and losses, and that the partner reasonably expects to be available and claimed on a qualifying U.S. income tax return for the partner’s taxable year ending with or after the close of the partnership taxable year. A partner that has a loss reported on a Form 1065 (Schedule K–1) issued (or to be issued) to the partner by the partnership for a prior partnership taxable year, but that is not (and will not be) reported on a qualifying U.S. income tax return for a prior taxable year of the partner because the loss is suspended under section 704(d) may also certify such suspended loss to the partnership under this paragraph (c)(1)(i)(A). (B)Deductions and losses from other sources. Under this paragraph (c)(1)(i)(B), a foreign partner may certify to a part- nership for a partnership taxable year de- ductions (other than charitable deductions) and losses properly allocated and appor- tioned to gross income that is effectively connected (or treated as effectively con- nected) with the conduct of the partner’s trade or business in the United States and that are from sources other than the part- nership to whom the certificate is submit- 2008–21 I.R.B.997May 27, 2008 ted if the deductions and losses are (or will be) reported on a qualifying U.S. income tax return of the partner for a taxable year that ends before the installment due date or the close of the partnership taxable year for which the partner is certifying the deduc- tions and losses and the partner reasonably expects the deductions and losses to be available and claimed on the a qualifying U.S. income tax return filed for its taxable year ending with or after the close of the partnership taxable year. Any deductions and losses certified under this paragraph (c)(1)(i)(B) that are allocated to the partner from another partnership must be reported on a Form 1065 (Schedule K–1) issued (or to be issued) to the partner by such other partnership. However, the partner may not certify any deduction or loss allocated to it from another partnership that is suspended under section 704(d). (C)Limit on the consideration of a part- ner’s net operating loss deduction.Apart- nership may not consider a net operating loss deduction (as determined under sec- tion 172) certified by the partner under this paragraph (c)(1)(i) in an amount greater than the percentage limitation, if any, pro- vided in section 56(a)(4) and (d) multiplied by the partner’s allocable share of ECTI from the partnership reduced by all other certified deductions and losses whether or not taken into account by the partnership, as well as deductions considered under paragraph (c)(1)(iii) of this section. (D)Limitation on losses subject to cer- tain partner level limitations.Pursuantto paragraph (c)(2)(i) of this section, a part- ner must identify any certified losses or de- ductions that are subject to special limita- tions at the partner level (for example, sec- tions 465 and 469) and provide informa- tion to the partnership that will allow the partnership to take the special limitations into account. For example, where a partner certifies a loss to the partnership that is a passive activity loss under section 469, the partner shall identify the activities the part- nership conducts that the partner expects will be passive activities. The partnership shall then ensure that these limitations are taken into account when determining the 1446 tax due with respect to the partner. (E)Certification of deductions and losses to other partnerships. Deductions and losses certified to a partnership for a taxable year of the partnership may not be certified for the taxable year of another partnership that begins or ends with or within the taxable year of the partnership to which the deductions and losses were certified. (F)Partner level use of deductions and losses certified to a partnership.Any deductions and losses certified to a part- nership for a taxable year of the partner and considered by the partnership in com- puting its section 1446 tax due may not be considered by that partner for the same taxable year in computing the amount of its required installments under section 6654(d) or 6655(d) on income unrelated to the partnership to which the partner has submitted the certificate. (ii)De minimis certificate for nonres- ident alien individual partners—(A)In general. Under this paragraph (c)(1)(ii), a nonresident alien individual partner to whom this section applies and that satisfies the requirements of paragraph (c)(1)(ii)(B) of this section may certify to a partnership that its only activity giving rise to effectively connected income, gain, deduction, or loss for the partnership’s taxable year that ends with or within the partner’s taxable year is (and will be) the partner’s investment in the partnership. A partnership that receives a certificate from a nonresident alien partner under this para- graph (c)(1)(ii) and that may reasonably rely on such certificate is not required to pay 1446 tax (or any installment of such tax) with respect to such partner if the part- nership estimates that the annualized (or, in the case of a partnership completing its Form 8804, the actual) 1446 tax otherwise due with respect to such partner is less than $1,000, without taking into account any deductions or losses certified by the partner to the partnership under paragraph (c)(1)(i) of this section or any amounts under paragraph (c)(1)(iii) of this section. (B)Requirements for exception.There- quirements of this paragraph (c)(1)(ii)(B) are met if the nonresident individual alien partner’s only activity giving rise to effec- tively connected income, gain, deduction, or loss for the partnership taxable year that ends with or within the partner’s taxable year is (and will be) the partner’s invest- ment in the partnership. For this purpose, if the partner has (or has reason to expect to have) income or gain described in section 864(c)(6), such income or gain shall be considered derived from a separate invest- ment activity. A certificate submitted by a nonresident alien individual partner un- der this paragraph (c)(1)(ii) is valid even if such certificate does not certify deductions and losses to partnership under this sec- tion. A nonresident alien individual part- ner that submits a certificate to a partner- ship under this paragraph (c)(1)(ii) must notifythepartnershipinwritingandre- voke such certificate within 10 days of the date that the partner invests or otherwise engages in another activity that may give rise to effectively connected income, gain, deduction, or loss for the partner’s taxable year. For example, while an investment in a U.S. real property interest (as defined in section 897(c)) would not give rise to an activity requiring a notification (unless an election is in effect under section 871(d)), the disposition of the U.S. real property in- terestwouldgiverisetoanactivityrequir- ing a notification. (iii)Consideration ofcertain current year state and local taxes. In addition to any deductions and losses certified by a foreign partner to a partnership under para- graph (c)(1)(i) of this section, the part- nership may consider as a deduction of such partner 90-percent of any state and local income taxes withheld and remitted by the partnership on behalf of such part- ner with respect to the partner’s allocable share of partnership ECTI. The partnership may consider the amount of state and local taxes of the foreign partner determined un- der this paragraph (c)(1)(iii) regardless of whether the foreign partner submits a cer- tificate to the partnership under paragraph (c)(1)(i) or (ii) of this section. (2)Form and time of certification—(i) Form of certification. A partner’s certi- fication to a partnership under paragraph (c)(1)(i) or (iii) of this section shall be made using Form 8804–C,“Certificate of Partner-Level Items to Reduce Section 1446 Withholding”in accordance with the instructions of the form and the rules of this section. (ii)Time for certification provided to partnership—(A)First certificate submit- ted for a partnership’s taxable year.Pro- vided the other requirements of this sec- tion are met, a partnership may only rely on the first certificate received from a foreign partner for any 1446 tax installment due or Form 8804 filing due (without regard to extensions) on or after the date on which the certificate is received. See §1.1446–3 for 1446 tax installment due dates. See May 27, 20089982008–21 I.R.B. also paragraph (e) of this section for exam- ples illustrating the rules of this paragraph (c)(2). (B)Updated certificates and status updates—(1)Preceding year tax returns not yet filed. If a foreign partner’s U.S. income tax return for a preceding taxable year has not been filed as of the time the partner submits to the partnership its first certificate under thisparagraph (c), the certificate shall specify this fact and set forth the filing due date for such return set forth in section 6072(c), plus any ex- tensionoftimetofilesuchreturngranted under section 6081 and the regulations under section 6081. The partner shall also submit an updated certificate to the part- nership in accordance with this paragraph (c) within 10 days of the date the partner files its U.S. income tax return for any such taxable year. In addition, prior to the partnership’s final 1446 tax installment due date the partner shall provide to the partnership, under penalties of perjury, a status update regarding any U.S. income tax return for the prior taxable year that has not (or will not) be filed as of the final installment due date. The status update must identify the due date, set forth in sec- tion 6072(c), plus any extension of time to file such return granted under section 6081 and the regulations under section 6081, for any un-filed return identified in the first certificate and state whether the first certificate submitted may continue to be considered by the partnership. If the partnership does not receive an up- dated certificate or a status update from the partner prior to the partnership’s final installment due date, the partnership shall disregard the partner’s certificate when computing the 1446 tax due with respect to that partner for the final installment period and when completing its Form 8804 for the taxable year. In addition, the foreign partner shall not be permit- ted to submit an additional or substitute certificate for the disregarded certificate. See §1.1446–3(b)(2)(i) for computation requirements for installment payments of 1446 tax when a partnership receives, or fails to receive, an updated certificate or status update. See also paragraph (e)(2) Examples 4 and 8of this section. Notwith- standing this paragraph (c)(2)(ii)(B)(1), a partner that can meet the requirements of this section for a subsequent partnership taxable year may submit a certificate to the partnership under this section for such taxable year. (2)Other circumstances requiring an updated certificate. If at any time during the partnership taxable year the partner de- termines that its most recent certificate fur- nished to the partnership for such taxable year is incorrect, then the partner shall sub- mit to the partnership an updated certifi- cate in accordance with this paragraph (c) within 10 days of such determination. For example, if the partnerdetermines that the amount or character of the certified deduc- tions or losses is incorrect, the partner shall submit an updated certificate to the part- nership. See §1.1446–3(b)(2)(i) for com- putation requirements for installment pay- ments of 1446 tax when a partnership re- ceives an updated certificate. (3)Form and content of updated certifi- cate. The updated certificate required by this paragraph (c)(2)(ii) must be provided using the form and instructions identified in paragraph (c)(2)(i) of this section. The updated certificate must indicate that it is an updated certificate filed in accordance with this paragraph (c)(2)(ii). The partner is not required to attach to the updated cer- tificate a copy of the certificate that is be- ing updated (superseded certificate). (4)Partnership consideration of an up- dated certificate. A partnership may con- sider an updated certificate, that meets the requirements of this paragraph (c), that is received prior to an installment due date in the same partnership taxable year for which the superseded certificate was pro- vided, or prior to the due date of its Form 8804 (without regard to extensions) to be filed for the year the superseded certificate was provided. A partnership must con- sider an updated certificate that meets all the requirements of this paragraph (c) if it would increase the amount of 1446 tax the partnership would pay by the next install- ment due date, if any, or the due date of its Form 8804. An updated certificate con- sidered by the partnership under this para- graph (c)(2)(ii)(B)(4) supersedes all prior certificates submitted by the foreign part- ner for the same partnership taxable year, beginning with the installment period or Form 8804 filing date for which the part- nership considers the updated certificate. See paragraph (e)(2)Example 4of this sec- tion. (3)Notification to partnership when a partner’s certificate cannot be relied upon. If the IRS determines, in its discretion based on all the facts and circumstances, that a foreign partner’s certificate is de- fective (or that it lacks information suffi- cient to make this determination after pro- viding written request for such informa- tion to the partnership), the IRS shall no- tify the partnership of such determination in writing. Upon receipt of such written notification, the partnership shall not rely on any certificate submitted by that foreign partner for the partnership taxable year to which the defective certificate relates (or any subsequent partnership taxable year), until the IRS provides written notification to the partnership revoking or modifying the original written notification. For pur- poses of this section, a foreign partner’s certificate of deductions and losses shall be defective if— (i) The partner is not described in para- graph (b) of this section; (ii) Any deductions or losses set forth in such certificate are not described in para- graph (c)(1)(i) of this section; (iii) The timing requirements under paragraph (c)(2) of this section for sub- mitting an original certificate, an updated certificate or a status update to the part- nership are not met; (iv) The certificate does not include all of the information required by paragraph (c)(2)(i) of this section; (v) Any representation made on the cer- tificate is incorrect; (vi) The actual amount of deductions and losses available to the partner is less than the amount of deductions and losses certified to the partnership for the part- nership taxable year and considered by the partnership in determining its 1446 tax due; or (vii) There is a failure to comply with any other provision of this section. (4)Partner to receive copy of notice.If the IRS notifies a partnership under para- graph (c)(3) of this section that a certifi- cate of a foreign partner is defective, the IRS shall send a copy of such notice to the partner’s address as shown on the certifi- cate. The partnership shall also promptly furnish a copy of the IRS notice to such partner. (5)Notification to partnership when no foreign partner’s certificate can be relied upon. If the IRS determines, in its dis- cretion based on all the facts and circum- stances, that there would be a substantial 2008–21 I.R.B.999May 27, 2008 reduction in section 1446 tax as a result of the submission of one or more defec- tive certificates or that a substantial por- tion of all certificates being submitted by partners to the partnership and by the part- nership to the IRS are defective (or lack in- formation sufficient to make this determi- nation), then the IRS shall notify the part- nership of such determination in writing. Upon receipt of such written notification, the partnership shall not rely on any certifi- cate submitted by any partner for the part- nership taxable year to which the notice re- lates or any subsequent partnership taxable year, until the IRS provides written notifi- cation to the partnership revoking or mod- ifying the original notice. (6)Partnership notification to partner regarding use of deductions and losses. Unless §1.1446–3(d)(1)(i)(A) or (B) ap- plies (relating to waiver of notice of tax paid during the partnership taxable year), a partnership must notify each foreign part- ner of the amount of such partner’s certi- fied deductions and losses and state and local taxes, if any, taken into account un- der this paragraph (c) in determining the 1446 tax due with respect to such partner for each installment period or Form 8804 filing date, as applicable. (7)Partner’s certificate valid only for partnership taxable year for which submit- ted. A partnership that receives a certifi- cate from a partnership under this para- graph (c) shall consider such certificate only for the partnership taxable year for which the certificate is submitted, as set forth on the certificate. (d)Effect of certificate of deductions and losses on partners and partner- ship—(1)Effect on partner—(i)No effect on liability for income tax of foreign partner. A foreign partner that certifies deductions and losses to a partnership un- der this section is not relieved of liability for income tax on its allocable share of ECTI from the partnership. Further, the submission of a certificate under this sec- tion does not constitute an acceptance by the IRS of the amount or character of the deductions or losses certified therein. (ii)No effect on partner’s estimated tax obligations. A foreign partner that certi- fies deductions and losses to a partnership under this section is not relieved of any es- timated tax obligation otherwise applica- ble to such partner with respect to income or gain allocated to such partner from the partnership. (iii)No effect on partner’s obligation to file U.S. income tax return.Thesubmis- sion of a certificate under paragraph (c) of this section does not relieve the foreign partner from its obligation to file a U.S. in- come tax return even if as a result of the partnership considering the certificate the partner would have no additional tax due with such return. See also §1.1446–3(f). (2)Effect on partnership—(i)Reason- able reliance to relieve partnership from addition to tax under section 6655.Apart- nership that has reasonably relied on a cer- tificate received from a foreign partner and complied with the filing requirements of paragraph (d)(3)(i) of this section, shall not be liable for any addition to tax under sec- tion 6655 (as applied through §1.1446–3) for any period during which the partner- ship reasonably relied on such certificate, even if such certificate is later determined to be defective or the partner submits an updated certificate under paragraph (c)(2) of this section that increases the 1446 tax due with respect to such partner. (ii)Continuing liability for withholding tax under section 1461 and for applica- ble interest and penalties—(A)In general. Except as otherwise provided in this sec- tion, a partnership that has reasonably re- lied on a certificate received from a for- eign partner and complied with the fil- ing requirements of paragraph (d)(3)(i) of this section, is not relieved from liabil- ity for the 1446 tax (or any installment of such tax) under section 1461, any addi- tions to the tax, interest or penalties. How- ever, the partnership may be relieved of additions to the tax or penalties in certain circumstances. See §§301.6651–1(c) and 301.6724–1 of this chapter. Further, see §1.1446–3(e) which deems a partnership to have paid 1446 tax with respect to ECTI allocable to a partner in certain circum- stances. See also paragraph (e)(2)Exam- ple 5of this section. (B)Certificate defective because of amount or character of deductions and losses. If a certificate is determined to be defective because the actual amount of de- ductions and losses available to the partner is less than the amount reflected on the cer- tificate (other than when it is determined that the partner certified the same deduc- tion or loss to more than one partnership), or because the character of the certified deductions and losses is erroneous, the partnership shall be liable for 1446 tax under section 1461 (or any installment of such tax) with respect to such partner to the extent the partnership considered an amount of certified deductions and losses greater than the amount actually available to the partner and permitted to be used under §§1.1446–1 through 1.1446–5 and this section, or to the extent that the proper character of the certified deductions and losses results in a greater amount of 1446 tax due with respect to such partner. See paragraph (e)(2)Example 6of this section. (3)Partnership level rules and require- ments—(i)Filing requirement.Apart- nership that relies in whole or in part on a certificate received from a partner un- der this section in computing its 1446 tax due with respect to such partner must still file Form 8813 or Form 8804 and 8805, whichever is applicable, for the period for which the certificate is considered, even if as a result of relying on the certificate no 1446 tax (or an installment of such tax) is due with respect to such foreign part- ner. See generally §1.1446–3(d)(1). Ex- cept as otherwise provided in this para- graph (d)(3)(i), the partnership must at- tach a copy of the foreign partner’s certifi- cate, and the computation of the 1446 tax due with respect to such partner, to both the Form 8813 and Form 8805 filed with the IRS for any installment period or year for which such certificate is considered in computing the partnership’s 1446 tax. See §1.1446–3(d)(1)(iii) requiring the partner- shiptofurnishForm8805totheIRSand such foreign partner even if no 1446 tax is paid on behalf of the partner. The part- nership must include in that computation the amount of state and local taxes de- scribed in paragraph (c)(1)(iii) of this sec- tion taken into account in computing the 1446 tax due with respect to that partner. The partnership must also attach a com- putation of the 1446 tax due with respect to a partner for whom only state and lo- cal taxes described in paragraph (c)(1)(iii) are taken into account. For an installment period other than the first installment pe- riod for which the partnership considers a foreign partner’s certificate or updated certificate, the partnership may, instead of attaching any partner’s certificate, attach to Form 8813 a list containing the name, TIN, the amount of certified deductions and losses, and the amount of state and lo- May 27, 200810002008–21 I.R.B. cal taxes the partnership may consider un- der paragraph (c)(1)(iii) of this section for each foreign partner whose certificate was relied upon. For purposes of the preced- ing sentence, if the partnership is relying on a certificate received under paragraph (c)(1)(ii) of this section, instead of provid- ing the amounts described in the prior sen- tence, it should attach a statement to Form 8813 which provides that, relying on that certificate, no 1446 tax is due with respect to that partner. (ii)Reasonable cause for failure to timely file a valid certificate and compu- tation. This paragraph (d)(3)(ii) provides thesolesourceofreliefforapartnership that fails to timely file a valid certifi- cate or attach a computation of 1446 tax as required under paragraph (d)(3)(i) of this section. To permit the partnership to reasonably rely on such certificate, the partnership shall be considered to have satisfied the requirements of paragraph (d)(3)(i) of this section if the partnership demonstrates to the Area Director, Field Examination, Small Business/Self-Em- ployed or the Director, Field Operations, Large and Mid-Size Business (Director) having jurisdiction of the partnership’s re- turn for the taxable year, that such failure was due to reasonable cause and not willful neglect and if once the partnership be- comes aware of the failure, the partnership attaches the certificate and computation, as well as a written statement setting forth the reasons for the failure to comply with the requirements of paragraph (d)(3)(i) of this section, to an amended Form 8813 or amended Forms 8804 and 8805 for the relevant period. (A)Determining reasonable cause.In determining whether the partnership has reasonable cause, the Director shall con- sider whether the partnership acted reason- ably and in good faith considering all the facts and circumstances. (B)Notification. If the IRS has notified, as provided in paragraph (c)(3) of this sec- tion, the partnership that the certificate is defective or that no foreign partner’s cer- tificate may be relied upon, as provided in paragraph (c)(5) of this section, the part- nership will be deemed not to have acted reasonably and in good faith. Otherwise, the Director shall notify the partnership in writing within 120 days of the amended fil- ing if it is determined that the failure to comply was not due to reasonable cause, or if additional timewill be needed to make such determination. If the Director fails to notify the partnership within 120 days of the amended filing, the partnership shall be considered to have demonstrated to the Di- rector that such failure was due to reason- able cause and not willful neglect. (e)Examples. (1) The rules of this sec- tion are illustrated by the examples in para- graph (e)(2) of this section. Except as oth- erwise provided, in each example assume: (i) Section 1.1446–3(b)(2)(v)(F) (relat- ingtothede minimisexception to paying 1446 tax) does not apply; (ii) Paragraph (c)(1)(ii) of this section (relating to a nonresident alien individual partner whose sole investment generating effectively connected income or gain is the partnership) does not apply; (iii) All income and losses are ordinary; (iv) For purposes of applying paragraph (c)(1)(i)(C) of this section, the percentage limitation under section 56(a)(4) and (d) is 90 percent; (v) Any loss is not a passive activity loss within the meaning of section 469; (vi) The partnership uses an acceptable annualization method under §1.1446–3; (vii) NRA is a nonresident alien indi- vidual who maintainsa calendar taxable year for U.S. tax purpose; (viii) B and C are U.S. individuals who maintain a calendar taxable year; and (ix) Any partnershipmaintains a calen- dar taxable year. (2) The examples are as follows: Example 1.Qualifying U.S. income tax return. (i) NRA and B form a partnership (PRS) in year 4 to conduct a trade or business in the United States. NRA and B provide PRS appropriate documentation under §1.1446–1 to establish their status for purposes of section 1446. NRA submits a certificate to PRS (using Form 8804–C) on March 20, year 4, to be con- sidered by PRS in determining its 1446 tax due with respect to NRA for the first installment period in the year 4. The Form 8804–C states that NRA reason- ably expects to have an effectively connected net op- erating loss of $5,000 available to offset its allocable share of ECTI from PRS in year 4. Prior to year 4, NRA had not submitted a certificate to a partnership under this section. NRA filed (or will file) its year 1 U.S. income tax return on March 11, year 3; its year 2 U.S. income tax return on February 12, year 4; its year 3 U.S. income tax return on April 13, year 4; and its year 4 U.S. income tax return on May 14, year 5. NRA paid or (will pay) all amounts due with respect to the returns (including interest, penalties, and addi- tions to tax, if any) by the date they are filed. NRA’s years 1 though 3 U.S. income tax returns report in- come or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities. (ii) To be eligible to submit a certificate of de- ductions and losses to PRS under this section, NRA must satisfy the requirements of paragraph (b)(1) of this section. In accordance with §1.1446–1, NRA provided valid documentation to PRS to establish its status for purposes of section 1446. NRA’s year 1 U.S. income tax return is a qualifying U.S. in- come tax return because it reported income or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and ap- portioned to such activities and is described under paragraph (b)(2)(iii)(A) of this section. Although NRA filed its year 1 return after the due date of the return (determined under section 6072(c) without regard to any extension of time to file) the return was filed on March 11, year 3, which was on or before the earlier of June 15, year 3, the date one year after its section 6072(c) due date without regard to any extension of time to file, and March 20, year 4, the date on which NRA submitted the certificate to PRS. NRA’s year 2 U.S. income tax return is a qualifying U.S. income tax return because it reported income or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities and is described under paragraph (b)(2)(iii)(A) of this section. Al- though NRA filed its year 2 return after the due date of the return (determined under section 6072(c) without regard to any extension of time to file) the return was filed on February 12, year 4, which was on or before the earlier of June 15, year 4, the date one year after its section 6072(c) due date without regard to any extension of time to file, and March 20, year 4, the date on which NRA submitted the certificate to PRS. NRA’s year 3 U.S. income tax return is a qualifying U.S. income tax return because it reported income or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities and is described under paragraph (b)(2)(iii)(B) of this section. Because NRA filed its year 3 U.S. income tax return on April 13, year 4, the return will be considered timely-filed under paragraph (b)(2)(ii) of this section, as the due date under section 6072(c) was June 15, year 4. NRA’s year 4 U.S. income tax return is a qualifying U.S. income tax return because it reported income or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities and is described under paragraph (b)(2)(iii)(C) of this section. Because NRA filed its year 4 U.S. income tax return on May 14, year 5, the return will be considered timely-filed under paragraph (b)(2)(ii) of this section. Accordingly, NRA meets the conditions of paragraph (b)(1) of this section and is eligible to provide a certificate of deductions and losses to PRS for year 4. Example 2.Subsequent year qualifying U.S. in- come tax return. (i) Assume the same facts as inEx- ample 1. Further, NRA and C form a second partner- ship (XYZ) in year 7 to conduct a trade or business in the United States. NRA and C provide XYZ appro- priate documentation under §1.1446–1 to establish their status for purposes of section 1446. NRA did not submit a certificate under this section to any part- nership for years 5 and 6. NRA submits a certificate to XYZ (using Form 8804–C) on April 10, year 7, to be considered by XYZ in determining its 1446 tax due with respect to NRA for its first installment period in 2008–21 I.R.B.1001May 27, 2008 year 7. The certificate states that NRA reasonably ex- pects to have an effectively connected net operating loss of $8,000 available to offset its allocable share of ECTI from XYZ in year 7. Further, the certificate contains all of the necessaryrepresentations required under this section. NRA will file its U.S. income tax return for year 5 on March 25, year 7, (after its sec- tion 6072(c) due date and any extension of time to file that could have been granted under section 6081), its U.S. income tax return for year 6 on April 26, year 7; and its U.S. income tax return for year 7 on May 27, year 8. NRA will pay all amounts due with the returns (including interest, penalties, and additions to tax, if any) by the dates they are filed. NRA’s years 5, 6, and 7 U.S. income tax returns will report income or gain that is effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities. (ii) To be eligible to submit a certificate of de- ductions and losses to XYZ under this section, NRA must satisfy the requirements of paragraph (b)(1) of this section. NRA provided valid documentation to XYZ in accordance with §1.1446–1. As described in Example 1, NRA’s year 4 U.S. income tax return is a qualifying U.S. income tax return because it will re- port income or gain effectively connected with a U.S. trade or business and is described under paragraph (b)(2)(iii)(C) of this section. Although NRA’s year 5 U.S. income tax return reports income or gain effec- tively connected with a U.S. trade or business or de- ductions or losses properly allocated and apportioned to such activities it is not a qualifying U.S. income tax return under paragraph (b)(2)(iii) of this section. Be- cause NRA submitted a certificate to PRS in year 4, to constitute a qualifying U.S. income tax return the year 5 U.S. income tax return must be timely-filed and all amounts due with such return must be timely paid. See paragraph (b)(2)(iii)(C) of this section. However, NRA will not file its U.S. income tax return for year 5 until March 25, year 7, (after its section 6072(c) due date and any extension of time to file that could have been granted under section 6081). Because the year 5 tax return is not a qualifying U.S. income tax return under paragraph (b)(2)(iii) of this section, NRA does not satisfy the requirements of paragraph (b)(1)(ii) of this section and, therefore, may not submit a certifi- cate of deductions and losses to XYZ under this sec- tion in year 7. Example 3.General application of the rules of this section. NRA and B form a partnership (PRS) to conduct a trade or business in the United States. NRA and B are equal partners under the partnership agree- ment. NRA and B provide PRS appropriate docu- mentation under §1.1446–1 to establish their status for purposes of section 1446. Prior to the formation of PRS, NRA had not invested in or engaged in the con- duct of a U.S. trade or business. PRS incurs a $1,500 effectively connected net operating loss in years 1 and 2. The loss incurred in each is allocated equally be- tween NRA and B. NRA has filed a qualifying U.S. income tax return (within the meaning of paragraph (b)(2)(iii) of this section) for years 1 and 2 that report its allocable share of effective connected net operat- ing loss allocated to it from PRS, as reported on the Form 1065 (Schedule K–1) issued to NRA for each year. (i) In year 3, NRA may not submit a certificate to PRS under paragraph (c) because it will not have filed qualifying U.S. income tax returns for the preceding three years. In year 3, PRS has ECTI of $1,000 that is allocated equally between NRA and B. PRS satisfies its 1446 tax obligation with respect to NRA for year 3. (ii) In year 4, PRS estimates that it will have ECTI of $4,000, which will be allocated equally between NRA and B. On or before April 15 th of year 4 (the first installment due date), NRA submits a certificate to PRS under this section (using Form 8804–C) certi- fying that it reasonably expects to have an effectively connected net operating loss of $1,000 ($750 loss in both years 1 and 2, less $500 of income in year 3) available to offset its allocable share of ECTI from PRS in year 4. As of the date the certificate is sub- mitted, NRA has received the Form 1065 (Schedule K–1) from PRS for year 3 but has not yet filed its U.S. income tax return for year 3. (iii) With respect to year 4, and based upon para- graph (b)(1) of this section, NRA can include year 3 (NRA’s preceding taxable year) as one of the preced- ing three years that it has filed or will file qualifying U.S. income tax returns (within the meaning of para- graph (b)(2)(iii) of this section). Therefore, provided PRS has, in accordance with paragraph (a)(2) of this section, no actual knowledge or reason to know the certificate is defective, PRS may reasonably rely on NRA’s certificate. Accordingly, PRS may consider NRA’s certificate to reduce the 1446 tax that would otherwise be required to be paid on NRA’s behalf. Specifically, subject to paragraph (c)(1)(i)(C) of this section, the $1,000 of net losses that have been re- ported on Forms 1065 (Schedule K–1) issued to NRA that are available to reduce NRA’s U.S. income tax on NRA’s allocable share of effectively connected in- come or gain allocable from PRS may be used to re- duce the $2,000 of ECTI estimated to be allocable to NRA. As a result, PRS must pay 1446 tax on only $1,100 of NRA’s allocable share of partnership ECTI for the first installment period in year 5 ($2,000 - ($1,000 x .90)). PRS must pay 1446 tax of $96.25 for its first installment period with respect to the ECTI allocable to NRA ($1,100 (net ECTI after consider- ing certified losses) x .35 (withholding tax rate) x .25 (section 6655(e)(2)(B) percentage for the first in- stallment period)). See §1.1446–3(b)(2). Pursuant to paragraph (d)(3) of this section, PRS must attach NRA’s certificate and PRS’s computation of its 1446 tax obligation with respect to NRA to its Form 8813, “Partnership Withholding Tax Payment Voucher (Sec- tion 1446),”filed for the first installment period. Un- der paragraph (c)(2)(ii)(B) of this section, NRA is re- quired to provide an updated certificate on or before the 10 th day after NRA files its U.S. income tax re- turn for year 3, even if the updated certificate results in no change to the amount of deductions and losses reported on the superseded certificate. (iv) The results are the same if NRA had not yet received a Form 1065 (Schedule K–1) from PRS for year 3. See paragraph (c)(1)(i)(A) of this section. Example 4.Updated certificate submitted for losses. On January 1, year 8, NRA and B form a part- nership (PRS) to conduct a trade or business in the United States. NRA and B are equal partners in PRS. NRA and B provide PRS appropriate documentation under §1.1446–1 to establish their status for purposes of section 1446. During years 1 through 7 NRA held an interest in another partnership (XYZ) that conducted a trade or business in the United States. NRA timely-filed (within the meaning of paragraph (b)(2) of this section) U.S. income tax returns for years 1 through 6 reporting its allocable year of ECTI (or loss) from XYZ (and timely paid all tax shown on such returns). NRA files its U.S. income tax return for year 7 on June 9, year 8 (and timely pays all tax due with such return). Therefore, NRA has filed qualifying U.S. income tax returns (within the meaning of paragraph (b)(2)(iii) of this section) for years 1 through 7. During years 1 through 7, NRA’s only investment generating effectively connected items was its interest in XYZ. The XYZ partnership liquidated and ceased doing business on December 31, year 7. (i) On or before April 15, year 8, PRS receives from NRA a valid certificate under this section using Form 8804–C in which NRA certifies that it reason- ably expects to have available effectively connected net operating losses in the amount of $5,000. Among other statements made in accordance with paragraph (c) of this section, NRA represents that it has not yet filed its year 7 U.S. income tax return, but will timely file such return (and timely pay all tax due with such return). For its first installment period in year 8, PRS estimates that it will earn taxable income of $10,000 for the year which will be allocated equally to NRA and B (NRA’s allocable share of PRS’s ECTI is $5,000). (ii) Provided PRS has, in accordance with para- graph (a)(2) of this section, no actual knowledge or reason to know the certificate is defective, PRS may reasonably rely on NRA’scertificate when comput- ing its 1446 tax obligation for the first installment period. PRS is limited under paragraph (c)(1)(i)(C) of this section and PRS may only consider $4,500 ($5,000 x .90) of the certified net operating loss. After consideration of the certified loss, PRS owes 1446 tax in the amount of $43.75 for the first in- stallment period ($5,000estimated allocable ECTI less $4,500 (certified loss as limited under paragraph (c)(1)(i)(C)) x .35 (1446 tax applicable percentage) x .25 (section 6655(e)(2)(B) percentage for the first installment period)). See §1.1446–3(b)(2). Pursuant to paragraph (d)(3) of this section, PRS must attach a copy of NRA’s certificate and the computation of 1446 tax due with respect to NRA to the Form 8813 filed with respect to NRA. (iii) PRS’s estimate of ECTI allocable to NRA for the second installment period remains unchanged from the first installment period. On June 10, year 8, NRA provides PRS an updated certificate reporting that NRA now reasonably expects to have an effec- tively connected net operating loss of $4,000 avail- able to offset its allocable share of ECTI from PRS in year 4. NRA provided the updated certificate within 10 days of filing its U.S. income tax return for the year 7 taxable year, as required by paragraph (c)(2)(ii)(B) of this section. Provided the updated certificate is otherwise valid, PRS may rely on the updated certifi- cate for the second installment period (due date June 15, year 8). Even if the updated certificate were not valid, PRS could no longer rely on the original cer- tificate. (iv) Under paragraph (d) of this section, PRS is not relieved from liability for the 1446 tax due with respect to NRA under section 1461 if it relies on a cer- tificate determined to be defective, or if it receives an updated certificate reporting an amount of deductions and losses less than the amount reported on the su- perseded certificate. Under the principles of section May 27, 200810022008–21 I.R.B. 6655 (as applied through §1.1446–3), PRS is required to have paid 50-percent of the annualized 1446 tax due with respect to NRA on or before the due date of the second installment period (section 6655(e)(2)(B) percentage for the second installment period). Under paragraph (c)(2)(ii)(B) of this section, because NRA’s updated certificate is valid for the second installment period, if PRS considers a certificate for that period it must consider the updated certificate. Under para- graph (c)(1)(i)(C) of this section, PRS can only con- sider $3,600 ($4,000 x .90) of NRA’s updated effec- tively connected net operating loss. Assuming PRS considers NRA’s updated certificate for the second in- stallment period, PRS must have paid a total of $245 of 1446 tax with respect to the ECTI estimated to be allocable to NRA as of the second installment due date ($1,400 ($5,000 ECTI less $3,600 net operat- ing loss deduction) x .35 (withholding tax rate) x .50 (section 6655(e)(2)(B) percentage for the second in- stallment period)). After considering PRS’s payment of 1446 tax for the first installment period, PRS is required to pay $201.25 for the second installment period ($245 less previous payment of $43.75). See §1.1446–3(b)(2). Further, if PRS considers NRA’s updated certificate for the second installment period, when PRS files Form 8813 it must attach the updated certificate along with PRS’s computation of 1446 tax due with respect to NRA. (v) Under paragraph (d) of this section, PRS is not liable for the addition to the tax under section 6655 (as applied through §1.1446–3) for the first installment period because PRS reasonably relied on NRA’s cer- tificate of losses for that period. (vi) Assume that PRS’s estimate of its ECTI al- locable to NRA for the third and fourth installment periods is the same as for the first and second install- ment periods. Assume PRS may reasonably rely on NRA’s updated certificate in calculating its payment of 1446 tax for the third and fourth installment pe- riods. The third installment of 1446 tax would be $122.50 (($5,000 - $3,600) x .35 x .75 = $367.50 - $245 (total previous payments)). The fourth in- stallment of 1446 tax would be $122.50 (($5,000- $3,600) x .35 x 1.00 = $490 - $367.50 (total previ- ous payments)). See §1.1446–3(b)(2). PRS must at- tach to each Form 8813 a computation of the 1446 tax due with respect to NRA that takes into account the amount of effectively connected net operating loss re- ported on NRA’s updated certificate. (vii) Because NRA’s certified net operating loss has not changed for the third and fourth installments, in lieu of attaching NRA’s certificate, PRS may at- tach a statement containing NRA’s name, TIN, and the certified net operating loss amount. However, PRS must attach NRA’s certificate and a computation of the 1446 tax due with respect to NRA that takes into account NRA’s certified net operating loss to the Form 8805 filed with respect to NRA. See paragraph (d)(3) of this section. Example 5.IRS determines in subsequent tax- able year that partner’s certificate is defective be- cause partner failed to timely file a U.S. income tax return. NRA and B form a partnership (PRS) in year 1 to conduct a trade or business in the United States. NRA and B provide PRS appropriate documentation under §1.1446–1 to establish their status for purposes of section 1446. In year 4, NRA timely submits a certificate under this section (using Form 8804–C) to be considered by PRS for its first installment pe- riod. The certificate reports that NRA reasonably ex- pects to have an effectively connected net operating loss of $5,000 available to offset its allocable share of ECTI from PRS in year 4. Further, the certificate contains all of the necessary representations required under this section. PRS estimates for each installment period that NRA’s allocable share of ECTI will be $5,000 for the taxable year. PRS’s actual operating results for the year result in $5,000 of ECTI allocable to NRA. (i) PRS reasonably relies on (within the mean- ing of paragraph (a)(2) of this section) NRA’s certifi- cate when computing each installment payment dur- ing year 4 and the 1446 tax due on Form 8804 and appropriately considers the limitation in paragraph (c)(1)(i)(C) of this section. As a result, PRS paid $175 of 1446 tax on behalf of NRA for the taxable year ($5,000 of ECTI less $4,500 net operating loss deduction x .35 applicable percentage). As required under paragraph (d) of this section, PRS attached the certificate to the Form 8813 for the first installment period and the Form 8805 for year 4. Because NRA did not submit an updated certificate to PRS in year 4, PRS attached to the Forms 8813 for the second, third and fourth installment periods a statement containing NRA’s name, TIN, and the certified net operating loss as well as the computation of 1446 tax due with re- spect to NRA reflecting theamount of net operating loss considered. (ii) In year 5, NRA timely submits to PRS a certificate under this section to be considered for the first installment period. The certificate represents that NRA reasonably expects to have an effectively connected net operating loss of $5,000 available to offset its allocable share of ECTI from PRS in year 5. For the first installment period, PRS estimates that NRA’s allocable share of partnership ECTI is $5,000. PRS reasonably relies on the certificate for the first installment period and determines that it is required to make a 1446 tax installment payment of $43.75 ($5,000 allocable ECTI less $4,500 (certified net operating loss as limited under paragraph (c)(1)(i)(C) of this section) x .35 (1446 tax applicable percent- age) x .25 (section 6655(e)(2)(B) percentage for the first installment period)). See §1.1446–3(b)(2). PRS makes the installment payment with the Form 8813 filed for the first installment period, and complies with paragraph (d)(3) of this section by attaching NRA’s certificate and the computation of 1446 tax due with respect to NRA to the Form 8813. (iii) The IRS provides written notification to PRS on June 1, year 5, (pursuant to paragraph (c)(3) of this section) that the certificate received from NRA in year 4 is defective because NRA failed to file a qualifying U.S. income tax return (within the mean- ing of paragraph (b)(2)(iii) of this section) for one of the preceding taxable years as required under para- graph (b)(1) of this section. The notice further states that PRS is not to rely on any certificate received from NRA in year 5. (iv) Under paragraph (d)(2)(ii) of this section, be- cause the certificate submitted by NRA in year was determined to be defective for a reason other than the amount or character of the certified deductions and losses, under section 1461 PRS is fully liable for the 1446 tax due with respect to NRA’s allocable share of ECTI year 4 without regard to the certificate. The total 1446 tax due for year 4 without regard to the cer- tificate is $1,750 ($5,000 ECTI x .35) and PRS paid $175 of 1446 tax in year 4. Therefore, PRS owes $1,575 of 1446 tax. However, PRS may be deemed to have paid the outstanding 1446 tax due if NRA paid all of its U.S. tax due in year 4. See §1.1446–3(e). (v) However, because PRS did not have actual knowledge or reason to know that the certificate NRA submitted in year 4 was defective, PRS reasonably re- lied on the certificate for purposes of paragraph (d)(2) of this section. Therefore,PRS is not liable for an ad- dition to the tax with respect to its underpayment of 1446 tax under the principles of section 6655 (as ap- plied through §1.1446–3) for any installment period in year 4. (vi) However, PRS is generally liable for interest under section 6601 and for the failure to pay addition to tax under section 6651(a)(2) on the $1,575 of 1446 tax due for year 4 for the period from April 15, year 5 (last date prescribed for payment of 1446 tax) to the date PRS pays the 1446 tax or is deemed to have paid the 1446 tax under §1.1446–3(e). (vii) With respect to the year 5, PRS reasonably relied on NRA’s certificate when computing its first installment payment (due onApril 15, year 5). There- fore, in accordance with paragraph (d)(2)(i) of this section, PRS will not be liable for an addition to the tax under the principles of section 6655 (as applied through §1.1446–3) for the first installment period. However, because the IRS provided written notifica- tion to PRS on June 1, year 5, to disregard any certifi- cate received from NRA for year 5, PRS may not rely on any certificate received from NRA certificate (or any new certificate provided by NRA) when it com- putes its second installment payment in year 5. PRS is not permitted to consider any certificate submit- ted by NRA until the IRS provides written notifica- tion to PRS revoking or modifying the original notice. PRS’s second installment payment in year 5 must in- clude the additional amount of 1446 tax it would have paid for the first installment period without regard to the certificate received from NRA. Example 6.IRS determines in subsequent tax- able year that partner’s certificate is defective be- cause partner’s actual losses are less than amount certified and considered by the partnership.Assume the same facts as inExample 5, except that the IRS determines that NRA’s certificate submitted in year 4 is defective because the actual effectively connected net operating loss available to NRA for year 4 was $1,000 rather than the $5,000 certified. (i) Under paragraph (d)(2)(ii) of this section, PRS is not relieved from its liability for 1446 tax under section 1461 when it relies on a certificate of losses from a foreign partner that is later determined to be defective. However, when the IRS determines that a partner’s certificate is defective because of the amount of the certified deductions and losses, the partnership is liable for the 1446 tax, interest, addi- tions to tax, and penalties to the extent the amount of certified deductions and losses taken into account when computing 1446 tax (or, unless there was rea- sonable reliance on the certificate, any installment of such tax) is greater than the actual amount of avail- able deductions and losses. Here, PRS considered the certified deductions and losses in the amount of $4,500. The IRS subsequently determined that NRA only had $1,000 of actual losses, only $900 of which were permitted to be considered under paragraph (c)(1)(i)(C) of this section. Accordingly, PRS is liable for the 1446 tax due with respect to 2008–21 I.R.B.1003May 27, 2008 the portion of the overstated losses that it considered when computing its 1446 tax. The remaining 1446 tax due for year 4 is $1,260 ($3,600 ($4,500 less $900) of excess losses considered x .35). However, PRS may be deemed to have paid the $1,260 of 1446 tax under §1.1446–3(e) if NRA has paid all of NRA’s U.S. income tax. (ii) If PRS had considered only $900 (or a lesser amount) of NRA’s certified net operating loss when computing and paying its 1446 tax during year 4 then, under paragraph (d)(2)(iii) of this section, PRS would not be liable for 1446 tax because it did not consider a net operating loss greater than the amount actually available to NRA. Example 7.Partner with different taxable year than partnership. PRS partnership has two equal partners, FC, a foreign corporation, and DC, a domes- tic corporation. PRS conducts a trade or business in the United States and generates effectively connected income. FC maintains a June 30 fiscal taxable year end, while DC and PRS maintain a calendar taxable year end. FC and DC provide a valid Form W–8BEN and Form W–9, respectively, to PRS. FC and DC are the only persons that have ever been partners in PRS. For its year 1 through year 3 taxable years, PRS is- sued Forms 1065 (Schedule K–1) reporting in the ag- gregate $100 of net loss to each partner. For its year 4 taxable year, PRS issued Forms 1065 (Schedule K–1) to its partners reporting $150 of loss to each partner. All of the losses reported on the Forms 1065 (Sched- ule K–1) are effectively connected to PRS’s and FC’s trade or business in the United States. (i) Assume that FC submits a valid certificate un- der this section certifying losses to the partnership for the partnership’s year 5 taxable year. Further, as- sume that FC’s only sourceof effectively connected income, gain, deduction, or loss is the activity of PRS. (ii) For PRS’s first installment period in year 5, FC may only certify deductions and losses under this section in the amount of $100 (the losses as reported on the Forms 1065 (Schedule K–1) issued for PRS’s year 1 through 3 taxable years). Under section 706, the taxable income of a partner shall include the in- come, gain, loss, deduction, or credit of the partner- ship for the partnership taxable year ending within or with the taxable year of the partner. PRS’s year 4 calendar taxable year ends during FC’s fiscal tax- able year ending June 30, year 5. Therefore, under paragraph (c)(1) of this section, as of April 15, year 5 (the last date FC may submit its first certificate un- der paragraph (c) of this section to have it considered for PRS’s first installment due date of April 15, year 5), FC’s allocable share of the PRS losses for years 1 through 3 are the only losses that FC can represent have been or will be reported on an FC U.S. income tax return filed for a taxable year ending prior to such installment due date. (iii) The result in paragraph (ii) of thisExample 7 is the same for the year 5 second installment period, the due date of which is June 15, year 5. (iv) FC may submit an updated certificate under this section after June 30, year 5, which includes the $150 loss for year 4. PRS may consider such an up- dated certificate for its third installment period (due date September 15, year 5), provided the updated cer- tificate is received by the due date for such install- ment in accordance with paragraph (c) of this section. Example 8.Failure to provide status update with respect to prior year unfiled returns.FC,aforeign corporation, and DC, a domestic corporation, form a partnership (PRS) to conduct a trade or business in the United States. FC and DC provide PRS appropri- ate documentation under §1.1446–1 to establish their status for purposes of section 1446. FC and DC are equal partners in PRS, and all partnership items are allocated equally between FC and DC. (i) In the current taxable year FC submits a certifi- cate under this section using Form 8804–C prior to PRS’s first installment due date. FC represents that it has filed or will file a qualifying U.S. income tax return (within the meaning of paragraph (b)(2)(iii) of this section) in each of the preceding three taxable years. FC specifies that it has not filed its U.S. in- come tax return for the immediately preceding tax- able year. FC also represents that it will timely file its U.S. income tax return for the partnership taxable year during which the certificate is considered (and will timely pay all tax due with such return). Assume all other requirements under paragraph (c) of this sec- tion are met for FC’s certificate to be valid. (ii) Provided that PRS does not possess actual knowledge or reason to know that FC’s certificate is defective under paragraph (a)(2) of this section, PRS may reasonably rely on FC’s certificate for its first, second, and third installment payments. (iii) If FC does not submit to PRS either an up- dated certificate or a status update as required by paragraph (c)(2)(ii)(B)(1) of this section by Decem- ber 15 th (PRS’s final installment due date), PRS must disregard FC’s certificate when computing its fourth installment payment of 1446 tax and when complet- ing its Form 8804 for the taxable year. PRS’s pay- ment of 1446 tax for its fourth installment period must include the additional amount of 1446 tax it would have paid in the first, second and third installment pe- riods had it not considered FC’s certificate. Further, even if the status update is provided by December 15 th ,PRSmayonlyrelyonthecertificateifthestatus update does not contradict the original certificate and such update indicates that the immediately preceding year’s return will be timely filed. Finally, even if the status update is provided by December 15 th ,FCmust also submit an updated certificate to the partnership in accordance with paragraph (c) of this section within 10 days of the date FC timely files its U.S. income tax return for the preceding taxable year. Example 9.Partnership consideration of certified deductions and losses or de minimis certificate.For purposes of this example assume paragraph (c)(1)(ii) of this section may apply. On January 1, year 4, NRA and B form a partnership (PRS) to conduct a trade or business in the United States. NRA and B are equal partners in PRS and all partnership items are shared equally. NRA and B provide PRS appropri- ate documentation under §1.1446–1 to establish their status for purposes of section 1446. During years 1 through 3, NRA’s only activity generating effec- tively connected items was an interest in partnership XYZ. XYZ allocated NRA a loss for all three years. NRA filed qualifying U.S. income tax returns (within the meaning of paragraph (b)(2)(iii) of this section) reporting its allocable share of losses from XYZ in years 1 through 3. The XYZ partnership dissolved on December 31, year 3. (i) In year 4, NRA’s only activity giving rise to ef- fectively connected income, gain, deduction, or loss is its interest in PRS. NRA submits to PRS a valid cer- tificate (using Form 8804–C) certifying under para- graph (c)(1)(i) its effectively connected net operating losses from years 1 through 3 and under (c)(1)(ii) of this section that its only activity giving rise to effec- tively connected income, gain, deduction, or loss for the PRS taxable year that ends with or within its tax- able year is (and will be) its investment in PRS. (ii) During year 4, PRS allocates ECTI to NRA. If the 1446 tax otherwise due on the annualized amount allocated to NRA is less than $1,000, determined without regard to any deductions and losses certified by NRA under paragraph (c)(1)(i) of this section, PRS may consider the certificate received from NRA under paragraph (c)(1)(ii) of this section and not pay 1446 tax (or any installment of such tax) with respect to NRA. Alternatively, PRS may consider the deductions and losses certified by NRA under paragraph (c)(1)(i) of this section. (iii) Regardless of whether PRS considers NRA’s certification under paragraph (c)(1)(i) or (c)(1)(ii) of this section in computing its 1446 tax due with re- spect to NRA, PRS must file Form 8813 for all install- ment periods as well as a Form 8805 for NRA with its Form 8804. If PRS considers NRA’s certification under paragraph (c)(1)(i) or (c)(1)(ii) of this section, PRS must attach to each Form 8813, as well as to the Form 8805, a computation of the 1446 tax with re- spect to NRA that takes into account its consideration of NRA’s certificate. In addition, PRS must attach NRA’s certificate to the Form 8813 for the first in- stallment period it considers the certificate, as well as to the Form 8805. For all subsequent installment pe- riods, PRS may attach a statement containing NRA’s name, and TIN. If PRS is relying on NRA’s certified losses under paragraph (c)(1)(i) of this section, the statement must indicate the amount of losses and de- ductions NRA certified. If PRS is relying on NRA’s certification under paragraph (c)(ii) of this section, the statement must indicate that it is relying on NRA meeting the requirements under paragraph (c)(1)(ii) of this section and the 1446 tax on the annualized amount allocated to NRA is less than $1,000. See paragraph (d)(3)(i) of this section. Example 10.Application of transition rule.NRA and B form a partnership (PRS) on January 1, 2004, to conduct a trade or business in the United States. NRA and B are equal partners in PRS and all partnership items are shared equally. NRA and B provide PRS appropriate documentation under §1.1446–1 to estab- lish their status for purposes of section 1446. For its 2004 through 2007 tax years, PRS issued Forms 1065 (Schedule K–1) to NRA and B reporting a $1,000 net loss from its U.S. trade or business to each partner for each year (for an aggregate loss of $4,000 per part- ner). During the 2004 through 2007 tax years, NRA’s only activity generating effectively connected items was its investment in PRS. (i) On February 10, 2008, NRA submitted a cer- tificate to PRS, reporting its aggregate $4,000 effec- tively connected loss to PRS, that met the require- ments of §1.1446–6T(c) (See 26 CFR Part 1, revised as of April 1, 2007), as in effect before January 1, 2008. The certificate stated that NRA had timely filed its U.S. income tax returns for the 2004, 2005 and 2006 tax years, and that it would timely file a U.S. income tax return for its 2007 tax year. For the first and second installments period in 2008, PRS es- timates that it will earn ECTI of $10,000. (ii) Because the certificate submitted by NRA to PRS on February 10, 2008, met the requirements of May 27, 200810042008–21 I.R.B. §1.1446–6T (See 26 CFR Part 1, revised as of April 1, 2007), as in effect before January 1, 2008, PRS may consider such certificate when computing its 1446 tax due for the first and second installment period even if the certificate does not meet all the requirements of paragraph (c) of this section. (iii) NRA timely files its U.S. income tax return for the 2007 tax year on July 24, 2008. In accor- dance with paragraph (c)(2)(ii)(B)(1) of this section, within 10 days of filing such return NRA prepares an updated certificate to be submitted to PRS certify- ing that it reasonably expects to have only $3,500 of losses available to reduce its allocable share of ECTI from PRS. Because the updated certificate will be submitted after July 28, 2008, to be valid the updated certificate must meet the requirements of paragraph (c) this section. (f)Effective/Applicability date. Except as otherwise provided in this paragraph (f), the rules of this section are applicable for partnership taxable years beginning after December 31, 2007. The rules of para- graphs (b)(3)(i)(B) through (D) shall apply to partnership taxable years beginning af- ter July 28, 2008. (g)Transition rule. A certificate that met the requirements of §1.1446–6T(c) (See 26 CFR Part 1, revised as of April 1, 2007), as in effect before January 1, 2008, submitted on or before July 28, 2008 by a partner that met the requirements of §1.1446–6T(b) (See 26 CFR Part 1, revised as of April 1, 2007), as in effect before January 1, 2008, shall not be con- sidered defective because it does not meet the requirements of this section. However, any certificate (including any updated cer- tificates and status updates) submitted, or required to be submitted, under paragraph (c) of this section after July 28, 2008, must meet the requirements of this section. See paragraph (e)(2)Example 10of this sec- tion. Par. 8. In §1.1446–7, the section head- ing is revised and two new sentences are added at the end of the paragraph to read as follows: §1.1446–7 Effective/Applicability date. ***Therevisionsto §§1.1446–3(b)(2), 1.1446–3(b)(3)(i)(A) and 1.1446–5(c)(2) contained in the final regulations published in 2008 apply to partnership taxable years beginning after December 31, 2007. See §1.1446–6(f) and (g) for the Effective/Applicability date and Transition rule for §1.1446–6. Par. 9. In §1.1464–1, paragraph (a) is amended by adding one sentence at the end of the paragraph and new paragraph (c) is added to read as follows: §1.1464–1 Refunds or credits. (a) * * * With respect to section 1446, this section shall only apply to a publicly traded partnership described in §1.1446–4. ***** (c)Effective/Applicability date.The last two sentences in paragraph (a) of this section shall apply to partnership taxable years beginning after April 29, 2008. Par. 10. In §1.6071–1, paragraph (c)(15) is revised and paragraph (d) is added to read as follows: §1.6071–1 Time for filing returns and other documents. ***** (c) * * * (15) For provisions relating to the time for filing an annual information re- turn on Form 1042–S,“Foreign Person’s U.S. Source Income Subject to Withhold- ing,”or Form 8805,“Foreign Partner’s Information Statement of Section 1446 Withholding Tax,”for any tax withheld under chapter 3 of the Internal Revenue Code (relating to withholding of tax on nonresident aliens and foreign corpora- tions and tax-free covenant bonds), see §1.1461–1(c) and §1.1446–3(d). ***** (d)Effective/Applicability date.The references to Form 8805 and §1.1446–3(d) in paragraph (c)(15) of this section shall apply to partnership taxable years begin- ning after April 29, 2008. Par. 11. In §1.6091–1, paragraph (b)(17) and paragraph (c) are added to read as follows: §1.6091–1 Place for filing returns or other documents. ***** (b) * * * (17) For the place for filing information returns on Form 8805,“Foreign Partner’s Information Statement of Section 1446 Withholding Tax,”with respect to certain amounts paid on behalf of foreign part- ners, see the instructions to the form. (c)Effective/Applicability date. Para- graph (b)(17) of this section shall apply to partnership taxable years beginning after April 29, 2008. Par. 12. In §1.6151–1, paragraph (d)(2) is amended by adding one sentence at the end of the paragraph and paragraph (e) is added to read as follows: §1.6151–1 Time and place for paying tax shown on returns. ***** (d) * * * (2) * * * With respect to section 1446, the previous sentence shall apply only to a publicly traded partnership described in §1.1446–4. (e)Effective/Applicability date. Para- graph (d)(2) of this section shall apply to publicly traded partnerships described in §1.1446–4 for partnership taxable years beginning after April 29, 2008. Par. 13. In §1.6302–2, paragraphs (a)(1)(i), (a)(2) and (g) are revised to read as follows: §1.6302–2 Use of Government depositaries for payment of tax withheld on nonresident aliens and foreign corporations. (a)***(1)*** (i)Monthly deposits. Except as pro- vided in paragraphs (a)(1)(ii) and (iv) of this section, every withholding agent who, pursuant to chapter 3 of the Internal Revenue Code, has accumulated at the close of any calendar month beginning on or after January 1, 1973, an aggregate amount of undeposited taxes of $200 or more shall deposit such aggregate amount with an authorized financial institution (see paragraph (b)(1)(ii) of this section) within 15 days after the close of such calendar month. However, the preceding sentence shall not apply if the withholding agent has made a deposit of taxes pur- suant to paragraph (a)(1)(ii) of this section with respect to a quarter monthly period which occurred during such month. With respect to section 1446, this section shall only apply to a publicly traded partnership described in §1.1446–4. ***** (2)Cross reference. For rules relat- ing to the adjustment of deposits, see §§1.1461–2(b) and 1.6414–1. For rules requiring payment of any undeposited tax, see §1.1461–1. 2008–21 I.R.B.1005May 27, 2008 ***** (g)Effective/Applicability date. Except as otherwise provided, this section shall apply to tax required to be withheld under chapter 3 of the Internal Revenue Code af- ter 1966. The last sentence of paragraph (a)(1)(i) of this section shall apply to part- nership taxable years beginning after April 29, 2008. Par. 14. Section 1.6414–1 is amended by: 1. Adding two sentences at the end of paragraph (a)(2). 2. Revising the third sentence of para- graph (b). 3. Adding paragraph (d). The additions and revision read as fol- lows: §1.6414–1 Credit or refund of tax withheld on nonresident aliens and foreign corporations. (a) * * * (2)***Withrespecttothepayment of withholding tax under section 1446, this section shall only apply to a publicly traded partnership described in §1.1446–4. See §1.1446–3(d)(2)(iv) for rules regard- ing refunds to a withholding agent under section 1446. (b) * * * The amount claimed as a credit may be applied, to the extent it has not been applied under §1.1461–2(b), by the withholding agent to reduce the amount of a payment or deposit of tax required by §1.1461–1 or §1.6302–2(a) for any pay- ment period occurring in the calendar year following the calendar year of overwith- holding. * * * ***** (d)Effective/Applicability date.The last two sentences of paragraph (a) of this section shall apply to partnership taxable years beginning after April 29, 2008. PART 301—PROCEDURE AND ADMINISTRATION Par. 15. The authority for 26 CFR part 301 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 16. In §301.6402–3, the second and third sentences of paragraph (e) are revised and paragraph (f) is added to read as follows: §301.6402–3 Special rules applicable to income tax. ***** (e)***Also,iftheoverpaymentof tax resulted from the withholding of tax at source under chapter 3 of the Internal Rev- enue Code, a copy of the Form 1042–S, “Foreign Person’s U.S. Source Income Subject to Withholding,”Form 8805,“For- eign Partner’s Information Statement of Section 1446 Withholding Tax,”or other statement (see §1.1446–3(d)(2) of this chapter) required to be provided to the beneficial owner or partner pursuant to §1.1461–1(c)(1)(i) or §1.1446–3(d) of this chapter must be attached to the return. For purposes of claiming a refund, the Form 1042–S, Form 8805, or other statement must include the taxpayer identification number of the beneficial owner or partner even if not otherwise required. * * * (f)Effective/Applicability date. Refer- ences in paragraph (e) of this section to Form 8805 or other statements required under §1.1446–3(d)(2) shall apply to part- nership taxable years beginning after April 29, 2008. Par. 17. In §301.6722–1, paragraph (d)(3) is revised and paragraph (e) is added to read as follows: §301.6722–1 Failure to furnish correct payee statements. ***** (d) * * * (3)Other items.Thetermpayee state- mentalso includes any form, statement, or schedule required to be furnished to the recipient of any amount from which taxisrequiredtobedeductedandwith- held under chapter 3 of the Internal Rev- enue Code (or from which tax would be required to be so deducted and withheld but for an exemptionunder the Internal Revenue Code or any treaty obligation of the United States) (generally the recipient copy of Form 1042–S,“Foreign Person’s U.S. Source Income Subject to Withhold- ing,”or Form 8805,“Foreign Partner’s In- formation Statement of Section 1446 With- holding Tax.”) (e)Effective/Applicability date.The reference in paragraph (d)(3) of this sec- tion to Form 8805 shall apply to partner- ship taxable years beginning after April 29, 2008. PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT Par. 18. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805 * * * Par. 19. In §602.101, paragraph (b) is amended by removing the entry for §1.1446–6T from the table, adding an en- try for §1.1446–6, and revising the entries to the table to read as follows: §602.101 OMB Control numbers. ***** (b) * * * CFR part or section where identified and described Current OMB control No. ***** 1.1446–1........................................................... 1545–1934 1.1446–3........................................................... 1545–1934 1.1446–4........................................................... 1545–1934 1.1446–5 ........................................................... 1545–1934 1.1446–6........................................................... 1545–1934 ***** May 27, 200810062008–21 I.R.B. Linda E. Stiff, Deputy Commissioner for Services and Enforcement. Approved April 23, 2008. Eric Solomon, Assistant Secretary of the Treasury. (Filed by the Office of the Federal Register on April 28, 2008, 8:45 a.m., and published in the issue of the Federal Register for April 29, 2008, 73 F.R. 23069) 2008–21 I.R.B.1007May 27, 2008 Part III. Administrative, Procedural, and Miscellaneous Credit for Renewable Electricity Production, Refined Coal Production, and Indian Coal Production, and Publication of Inflation Adjustment Factors and Reference Prices for Calendar Year 2008 Notice 2008–48 This notice publishes the inflation ad- justment factors and reference prices for calendar year 2008 for the renewable elec- tricity production credit, the refined coal production credit, and the Indian coal pro- ductioncreditunder§45oftheInternal Revenue Code. The 2008 inflation adjust- ment factors and reference prices are used in determining the availability of the cred- its. The 2008 inflation adjustment factors and reference pricesapply to calendar year 2008 sales of kilowatt-hours of electricity produced in the United States or a pos- session thereof from qualified energy re- sources and to calendar year 2008 sales of refined coal and Indian coal produced in the United States or a possession thereof. BACKGROUND Section 45(a) provides that the renew- able electricity production credit for any tax year is an amount equal to the prod- uct of 1.5 cents multiplied by the kilowatt hours of specified electricity produced by the taxpayer and sold to an unrelated per- son during the tax year. This electricity must be produced from qualified energy resources and at a qualified facility during the 10-year period beginning on the date the facility was originally placed in ser- vice. Section 45(b)(1) provides that the amount of the credit determined under § 45(a) is reduced by an amount which bears the same ratio to the amount of the credit as (A) the amount by which the reference price for the calendar year in which the sale occurs exceeds 8 cents, bears to (B) 3 cents. Under § 45(b)(2), the 1.5 cent amount in § 45(a), the 8 cent amount in § 45(b)(1), the $4.375 amount in § 45(e)(8)(A), and in § 45(e)(8)(B)(i) the reference price of fuel used as feedstock (within the meaning of § 45(c)(7)(A)) in 2002 are each adjusted by multiplying the amount by the inflation adjustment factor for the calendar year in which the sale occurs. If any amount as increased under the preceding sentence is not a multiple of 0.1 cent, the amount is rounded to the nearest multiple of 0.1 cent. Section 45(c)(1) defines qualified energy resources as wind, closed-loop biomass, open-loop biomass, geother- mal energy, solar energy, small irrigation power, municipal solid waste, and quali- fied hydropower production. Section 45(d)(1) defines a qualified fa- cility using wind to produce electricity as any facility owned by the taxpayer that is originally placed in service after Decem- ber 31, 1993, and before January 1, 2009. See § 45(e)(7) for rules relating to the in- applicability of the credit to electricity sold to utilities under certain contracts. Section 45(d)(2)(A) defines a qualified facility using closed-loop biomass to pro- duce electricity as any facility (i) owned by the taxpayer that is originally placed in service after December 31, 1992, and be- fore January 1, 2009, or (ii) owned by the taxpayer which before January 1, 2009, is originally placed in service and modified to use closed-loop biomass to co-fire with coal, with other biomass, or with both, but only if the modification is approved under the Biomass Power for Rural De- velopment Programs or is part of a pilot project of the Commodity Credit Corpora- tion as described in 65 Fed. Reg. 63052. Section 45(d)(2)(B) provides that in the case of a qualified facility described in § 45(d)(2)(A)(ii), (i) the 10-year period re- ferred to in § 45(a) is treated as begin- ning no earlier than the date of enactment of § 45(d)(2)(B)(i); (ii) the amount of the credit determined under § 45(a) with re- spect to the facility is an amount equal to the amount determined without regard to § 45(d)(2)(B)(ii) multiplied by the ratio of the thermal content of the closed-loop biomass used in the facility to the thermal content of all fuels used in the facility; and (iii) if the owner of the facility is not the producer of the electricity, the person eli- gible for the credit allowable under § 45(a) is the lessee or the operator of the facility. Section 45(d)(3)(A) defines a qualified facility using open-loop biomass to pro- duce electricity as any facility owned by the taxpayer which (i) in the case of a facil- ity using agriculturallivestock waste nutri- ents, (I) is originally placed in service after the date of enactment of § 45(d)(3)(A)(i)(I) and before January 1, 2009, and (II) the nameplate capacity rating of which is not less than 150 kilowatts; and (ii) in the case of any other facility,is originally placed in service before January 1, 2009. In the case of any facility described in § 45(d)(3)(A), if the owner of the facility is not the pro- ducer of the electricity, § 45(d)(3)(B) pro- vides that the person eligible for the credit allowable under § 45(a) is the lessee or the operator of the facility. Section 45(d)(4) defines a qualified fa- cility using geothermal or solar energy to produce electricityas any facility owned by the taxpayer which is originally placed in service after the date of enactment of § 45(d)(4) and before January 1, 2009 (Jan- uary 1, 2006, in the case of a facility us- ing solar energy). A qualified facility us- ing geothermal or solar energy does not in- clude any property described in § 48(a)(3) the basis of which is taken into account by the taxpayer for purposes of determining the energy credit under § 48. Section 45(d)(5) defines a qualified facility using small irrigation power to produce electricityas any facility owned by the taxpayer which is originally placed in service after the date of enactment of § 45(d)(5) and before January 1, 2009. Section 45(d)(6) defines a qualified fa- cility using gas derived from the biodegra- dation of municipal solid waste to produce electricity as any facility owned by the tax- payer which is originally placed in service after the date of enactment of § 45(d)(6) and before January 1, 2009. Section 45(d)(7) defines a qualified fa- cility that burns municipal solid waste to produce electricityas any facility owned by the taxpayer which is originally placed in service after the date of enactment of § 45(d)(7) and before January 1, 2009. A qualified facility burning municipal solid waste includes a new unit placed in service in connection with a facility placed in ser- vice on or before the date of enactment of § 45(d)(7), but only to the extent of the in- May 27, 200810082008–21 I.R.B. creased amount of electricity produced at the facility by reason of such new unit. Section 45(d)(8) provides in the case of a facility that produces refined coal, the term “refined coal production facility” means a facility which is placed in service after the date of enactment of § 45(d)(8) and before January 1, 2009. Section 45(d)(9) defines a qualified facility producing qualified hydroelec- tric production described in § 45(c)(8) as (A) any facility producing incremental hydropower production, but only to the extent of its incremental hydropower pro- duction attributable to efficiency improve- ments or additions to capacity described in § 45(c)(8)(B) placed in service after the date of enactment of § 45(d)(9) and before January 1, 2009, and (B) any other facility placed in service after the date of enact- ment of § 45(d)(9) and before January 1, 2009. Section 45(d)(9)(C) provides that in the case of a qualified facility described in § 45(d)(9)(A), the 10-year period referred to in § 45(a) is treated as beginning on the date the efficiency improvements or additions to capacity are placed in service. Section 45(d)(10) provides in the case of a facility that produces Indian coal, the term “Indian coal production facility” means a facility which is placed in service before January 1, 2009. Section 45(e)(8)(A) provides that the refined coal production credit is an amount equal to $4.375 per ton of qualified re- fined coal (i) produced by the taxpayer at a refined coal production facility dur- ing the 10-year period beginning on the date the facility was originally placed in service, and (ii) sold by the taxpayer (I) to an unrelated person and (II) during the 10-year period and the tax year. Section 45(e)(8)(B) provides that the amount of credit determined under § 45(e)(8)(A) is reduced by an amount which bears the same ratio to the amount of the increase as (i) the amount by which the reference price of fuel used as feedstock (within the meaning of § 45(c)(7)(A)) for the calendar year in which the sale occurs exceeds an amount equal to 1.7 multiplied by the ref- erence price for such fuel in 2002, bears to (ii) $8.75. Section 45(e)(10)(A) provides in the case of a producer of Indian coal, the credit determined under section 45 for any tax- able year shall be increased by an amount equal to the applicable dollar amount per ton of Indian coal (i) produced by the tax- payer at an Indian coal production facility during the 7-year period beginning on Jan- uary 1, 2006, and (ii) sold by the taxpayer (I) to an unrelated person, and (II) during such 7-year period and such taxable year. Section 45(e)(10)(B)(i) defines “ap- plicable dollar amount” for any taxable year as (I) $1.50 in the case of calendar years 2006 through 2009, and (II) $2.00 in the case of calendar years beginning after 2009. Section 45(e)(2)(A) requires the Secre- tary to determine and publish in the Fed- eral Register each calendar year the infla- tion adjustment factor and the reference price for the calendar year. The inflation adjustment factors and the reference prices for the 2008 calendar year were published in the Federal Register on April 30, 2008 (73 Fed. Reg. 23525). Section 45(e)(2)(B) defines the infla- tion adjustment factor for a calendar year as the fraction the numerator of which is the GDP implicit price deflator for the pre- ceding calendar year and the denominator of which is the GDP implicit price defla- tor for the calendar year 1992. The term “GDP implicit price deflator” means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Depart- ment of Commerce before March 15 of the calendar year. Section 45(e)(2)(C) provides that the reference price is the Secretary’s determi- nation of the annual average contract price per kilowatt hour of electricity generated from the same qualified energy resource and sold in the previous year in the United States. Only contracts entered into af- ter December 31, 1989, are taken into ac- count. Under § 45(e)(8)(C), the determination of the reference price for fuel used as feed- stock within the meaning of § 45(c)(7)(A) is made according to rules similar to the rules under § 45(e)(2)(C). Under section 45(e)(10)(B)(ii), in the case of any calendar year after 2006, each of the dollar amounts under section 45(e)(10)(B)(i) shall be equal to the prod- uct of such dollar amount and the inflation adjustment factor determined under sec- tion 45(e)(2)(B) for the calendar year, except that section 45(e)(2)(B) shall be applied by substituting 2005 for 1992. INFLATION ADJUSTMENT FACTORS AND REFERENCE PRICES The inflation adjustment factor for calendar year 2008 for qualified energy resources and refined coal is 1.3854. The inflation adjustment factor for Indian coal is 1.0591. The reference price for calendar year 2008 for facilities producing elec- tricity from wind (based upon information provided by the Department of Energy) is 3.60 cents per kilowatt hour. The ref- erence prices for fuel used as feedstock within the meaning of § 45(c)(7)(A), re- lating to refined coal production (based upon information provided by the Depart- ment of Energy) are $31.90 per ton for calendar year 2002 and $45.56 per ton for calendar year 2008. The reference prices for facilities producing electricity from closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small ir- rigation power, municipal solid waste, and qualified hydropower production have not been determined for calendar year 2008. The IRS is exploring methods of deter- mining those reference prices for calendar year 2009. PHASE-OUT CALCULATION Because the 2008 reference price for electricity producedfrom wind does not exceed 8 cents multiplied by the infla- tion adjustment factor, the phaseout of the credit provided in § 45(b)(1) does not apply to such electricity sold during calendar year 2008. Because the 2008 ref- erence price of fuel used as feedstock for refined coal does not exceed the $31.90 reference price of such fuel in 2002 mul- tiplied by the inflation adjustment factor and 1.7, the phaseout of credit provided in § 45(e)(8)(B) does not apply to re- fined coal sold during calendar year 2008. Further, for electricity produced from closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, and qualified hydropower production, the phaseout of credit provided in § 45(b)(1) does not apply to such electricity sold dur- ing calendar year 2008. 2008–21 I.R.B.1009May 27, 2008 CREDIT AMOUNT BY QUALIFIED ENERGY RESOURCE AND FACILITY, REFINED COAL, AND INDIAN COAL As required by § 45(b)(2), the 1.5 cent amount in § 45(a)(1), the 8 cent amount in § 45(b)(1), and the $4.375 amount in § 45(e)(8)(A) are each adjusted by mul- tiplying such amount by the inflation adjustment factor for the calendar year in which the sale occurs. If any amount as increased under the preceding sen- tence is not a multiple of 0.1 cent, such amount is rounded to the nearest multi- ple of 0.1 cent. In the case of electricity produced in open-loopbiomass facilities, small irrigation power facilities, landfill gas facilities, trash combustion facili- ties, and qualified hydropower facilities, § 45(b)(4)(A) requires the amount in ef- fect under § 45(a)(1) (before rounding to the nearest 0.1 cent) to be reduced by one-half. Under the calculation required by § 45(b)(2), the credit for renewable electricity production for calendar year 2008 under § 45(a) is 2.1 cents per kilowatt hour on the sale of electricity produced from the qualified energy resources of wind, closed-loop biomass, geothermal energy, and solar energy, and 1.0 cent per kilowatt hour on the sale of electricity produced in open-loopbiomass facilities, small irrigation power facilities, landfill gas facilities, trash combustion facilities, and qualified hydropower facilities. Under the calculation required by § 45(b)(2), the credit for refined coalproduction for cal- endar year 2008 under section 45(e)(8)(A) is $6.061 per ton on the sale of qualified refined coal. The credit for Indian coal production for calendar year 2008 under § 45(e)(10)(B) is $1.589 per ton on the sale of Indian coal. DRAFTING AND CONTACT INFORMATION The principal author of this notice is Philip Tiegerman of the Office of Asso- ciate Chief Counsel (Passthroughs and Special Industries). For further infor- mation regarding this notice, contact Mr. Tiegerman at (202) 622–3110 (not a toll-free call). Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates Notice 2008–50 This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code as in ef- fect for plan years beginning before 2008. It also provides guidance on the corpo- rate bond monthly yield curve (and the corresponding spot segment rates), the 24-month average segment rates, and the funding transitional segment rates under § 430(h)(2). In addition, this no- tice provides guidance as to the interest rate on 30-year Treasury securities un- der § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the min- imum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007. CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE Sections412(b)(5)(B)(ii)and 412(l)(7)(C)(i), as amended by the Pen- sion Funding Equity Act of 2004 and by the Pension Protection Act of 2006 (PPA), provide that the interest rates used to cal- culate current liability and to determine the required contribution under § 412(l) for plan years beginning in 2004 through 2007 must be within a permissible range based on the weighted average of the rates of interest on amounts invested conser- vatively in long term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year. Notice 2004–34, 2004–1 C.B. 848, pro- vides guidelines for determining the cor- porate bond weighted average interest rate and the resulting permissible range of in- terest rates used to calculate current liabil- ity. That notice establishes that the corpo- rate bond weighted average is based on the monthly composite corporate bond rate de- rived from designated corporate bond in- dices. The methodology for determining the monthly composite corporate bond rate as set forth in Notice 2004–34 continues to apply in determining that rate. See Notice 2006–75, 2006–2 C.B. 366. The composite corporate bond rate for April 2008 is 6.45 percent. Pursuant to No- tice 2004–34, the Service has determined this rate as the average of the monthly yields for the included corporate bond in- dices for that month. The following corporate bond weighted average interest rate was determined for plan years beginning in the month shown below. For Plan Years Beginning inPermissible Range MonthYear Corporate Bond Weighted Average90%to100% May20086.00 5.40 6.00 YIELD CURVE AND SEGMENT RATES Generally for plan years beginning after 2007 (except for delayed effective dates for certain plans under sections 104, 105, and 106 of PPA), § 430 of the Code specifies the minimum funding require- ments that apply to single employer plans pursuant to § 412. Section 430(h)(2) spec- ifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined us- ing three 24-month average interest rates (“segment rates”), each of which applies to cash flows during specified periods. However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates. For plan years beginning in 2008 and 2009, a transitional rule under § 430(h)(2)(G) pro- vides that the segment rates are blended with the corporate bond weighted average May 27, 200810102008–21 I.R.B. as specified above. An election may be made under § 430(h)(2)(G)(iv) to use the segment rates without applying the transi- tional rule. Notice 2007–81, 2007–44 I.R.B. 899, provides guidelinesfor determining the monthly corporate bond yield curve, the 24-month average corporate bond segment rates, and the funding transitional segment rates used to compute the target normal cost and the funding target. Pursuant to Notice 2007–81, the monthly corporate bond yield curve derived from April 2008 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of April 2008 are, respectively, 4.60, 6.28, and 6.96. The three 24-month average corporate bond segment rates applicable for May 2008 under the election of § 430(h)(2)(G)(iv) are as follows: First Segment Second Segment Third Segment 5.16 6.00 6.53 The transitional segment rates under § 430(h)(2)(G) applicable for May 2008, taking into account the corporate bond weighted average of 6.00 stated above, are as follows: For Plan Years Beginning in First Segment Second Segment Third Segment 2008 5.72 6.006.18 30-YEAR TREASURY SECURITIES INTEREST RATES Section 417(e)(3)(A)(ii)(II) (prior to amendment by PPA) defines the appli- cable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury se- curities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applica- ble interest rate for a month is the annual rate of interest on 30-year Treasury secu- rities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin. The rate of interest on 30-year Treasury securities for April 2008 is 4.44 percent. The Service has determined this rate as the monthly average of the daily determina- tion of yield on the 30-year Treasury bond maturing in February 2038. Generally for plan years beginning after 2007, § 431 specifies the minimum fund- ing requirements that apply to multiem- ployer plans pursuant to § 412. Section 431(c)(6)(B) specifies a minimum amount for the full-funding limitation described in § 431(c)(6)(A), based on the plan’s current liability. Section 431(c)(6)(E)(ii)(I) pro- vides that the interest rate used to calculate current liability for this purpose must be no more than 5 percent above and no more than 10 percent below the weighted aver- age of the rates of interest on 30-year Trea- sury securities during the four-year period ending on the last day before the beginning of the plan year. Notice 88–73, 1988–2 C.B. 383, provides guidelines for deter- mining the weighted average interest rate. The following rates were determined for plan years beginning in the month shown below. For Plan Years Beginning inPermissible Range MonthYear 30-Year Treasury Weighted Average 90%to 105% May20084.764.29 5.00 MINIMUM PRESENT VALUE SEGMENT RATES Generally for plan years beginning af- ter December 31, 2007, the applicable in- terest rates under § 417(e)(3)(D) are seg- ment rates computed without regard to a 24-month average. For plan years begin- ning in 2008 through 2011, the applica- ble interest rate is the monthly spot seg- ment rate blended with the applicable rate under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning in 2007. No- tice 2007–81 provides guidelines for de- termining the minimum present value seg- ment rates. Pursuant to that notice, the minimum present value transitional seg- ment rates determined for April 2008, tak- ing into account theApril 2008 30-year Treasury rate of 4.44 stated above, are as follows: 2008–21 I.R.B.1011May 27, 2008 For Plan Years Beginning in First Segment Second Segment Third Segment 20084.474.814.94 DRAFTING INFORMATION The principal author of this notice is Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Di- vision. Mr. Montanaro may be e-mailed at RetirementPlanQuestions@irs.gov. May 27, 200810122008–21 I.R.B. Table I Monthly Yield Curve for April 2008 Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield 0.5 3.42 20.5 6.76 40.5 6.98 60.5 7.06 80.5 7.10 1.03.8421.06.7741.0 6.99 61.07.0681.07.10 1.5 4.20 21.5 6.78 41.5 6.99 61.5 7.07 81.5 7.11 2.0 4.49 22.0 6.79 42.0 6.99 62.07.0782.07.11 2.5 4.71 22.5 6.80 42.5 7.00 62.5 7.07 82.5 7.11 3.04.8623.06.8143.07.0063.07.0783.07.11 3.5 4.97 23.5 6.81 43.5 7.00 63.5 7.07 83.5 7.11 4.0 5.07 24.06.8244.07.0064.07.0784.07.11 4.55.1724.5 6.83 44.5 7.01 64.5 7.07 84.5 7.11 5.05.2625.06.8445.07.0165.07.0785.07.11 5.55.3525.5 6.84 45.5 7.01 65.5 7.08 85.5 7.11 6.0 5.44 26.0 6.85 46.07.0166.07.0886.07.11 6.55.5326.5 6.86 46.5 7.01 66.5 7.08 86.5 7.11 7.0 5.63 27.06.8647.07.0267.07.0887.07.11 7.55.7227.5 6.87 47.5 7.02 67.5 7.08 87.5 7.11 8.05.8128.06.8848.07.0268.07.0888.07.11 8.5 5.89 28.5 6.88 48.5 7.02 68.5 7.08 88.5 7.11 9.0 5.97 29.06.8949.0 7.03 69.0 7.08 89.0 7.12 9.5 6.05 29.5 6.89 49.57.0369.57.0889.57.12 10.06.1230.0 6.90 50.0 7.0370.0 7.0990.0 7.12 10.5 6.19 30.5 6.90 50.5 7.03 70.5 7.09 90.57.12 11.06.2531.0 6.91 51.07.0371.0 7.0991.0 7.12 11.5 6.30 31.5 6.92 51.5 7.04 71.5 7.0991.57.12 12.0 6.35 32.0 6.92 52.0 7.0472.0 7.0992.0 7.12 12.5 6.40 32.5 6.92 52.5 7.04 72.5 7.09 92.57.12 13.06.4433.0 6.93 53.0 7.0473.0 7.0993.0 7.12 13.5 6.48 33.5 6.93 53.5 7.04 73.5 7.09 93.57.12 14.06.5234.0 6.94 54.07.0474.0 7.0994.0 7.12 14.56.5534.5 6.94 54.57.0574.5 7.0994.57.12 15.06.5735.0 6.95 55.07.0575.0 7.09 95.07.12 15.5 6.60 35.5 6.95 55.57.0575.5 7.1095.57.12 16.06.6236.06.95 56.07.05 76.07.10 96.0 7.12 16.5 6.64 36.5 6.96 56.57.0576.5 7.1096.57.12 17.06.6637.0 6.96 57.07.05 77.07.10 97.0 7.12 17.5 6.68 37.5 6.96 57.5 7.06 77.5 7.1097.57.12 18.06.7038.0 6.97 58.0 7.0678.07.10 98.0 7.13 18.5 6.71 38.5 6.97 58.5 7.06 78.5 7.1098.57.13 19.0 6.72 39.06.97 59.07.06 79.0 7.10 99.0 7.13 19.56.7439.5 6.98 59.57.0679.57.1099.57.13 20.06.7540.0 6.98 60.07.0680.07.10100.07.13 2008–21 I.R.B.1013May 27, 2008 26 CFR 1.956–1: Definition of United States prop- erty. (Also: 956(c)(2)(J).) Rev. Proc. 2008–26 SECTION 1. PURPOSE This revenue procedure sets forth cir- cumstances in which the Internal Rev- enue Service (Service) will not challenge whether a security is a “readily mar- ketable security” for purposes of section 956(c)(2)(J) of the Internal Revenue Code (Code). No inference should be drawn regarding whether a security would be described in section 956(c)(2)(J) if it falls outside the scope of this revenue proce- dure. Furthermore, there should be no inference regarding whether securities within the scope of this revenue procedure would be readily marketable or would not be readily marketable for purposes of section 956(c)(2)(J) but for this revenue procedure. In addition, this revenue pro- cedure does not address any United States federal income tax issue arising under any other section of the Code. SECTION 2. BACKGROUND Section 951(a)(1) requires that a United States shareholder of a controlled foreign corporation include in gross income for his taxable year in which or with which such taxable year of the corporation ends cer- tain amounts including the amount deter- mined under section 956 with respect to such shareholder for such year. Section 951(a)(1)(B). The amount determined under sec- tion 956 is generally the lesser of (i) the excess (if any) of the United States share- holder’spro ratashare of the average of the amounts of United States property held (directly or indirectly) by the con- trolled foreign corporation as of the close of each quarter of the controlled foreign corporation’s taxable year over the amount of earnings and profits described in sec- tion 959(c)(1)(A) with respect to such shareholder or (ii) the United States share- holder’spro ratashare of the applicable earnings (as defined in section 956(b)(1)) of such controlled foreign corporation. Section 956(a). The term United States property in- cludes an obligation of a United States person, excluding, however: an obligation of a United States person to the extent the principal amount of the obligation does not exceed the fair mar- ket value ofreadily marketable securi- tiessold or purchased pursuant to a sale and repurchase agreement or otherwise posted or received as collateral for the obligation in the ordinary course of its business by a United States or foreign person which is a dealer in securities or commodities. Section 956(c)(2)(J) (emphasis added). Current market conditions and liquidity constraints are creating some uncertainty regarding whether a security is “read- ily marketable” for purposes of section 956(c)(2)(J). For example, the market for certain securities that were readily mar- ketable in the past has become severely curtailed. As a result, there is uncer- tainty whether many securities are readily marketable in the current economic envi- ronment even though they are of a type that are readily marketable under ordinary market conditions. In response to tax- payers’ concerns, this revenue procedure provides certainty to taxpayers by setting forth circumstances under which the Ser- vice will not challenge whether a security is “readily marketable” for purposes of section 956(c)(2)(J) to the extent that it is of a type that would be readily marketable under ordinary market conditions. SECTION 3. SCOPE This revenue procedure applies to determine whether securities are “read- ily marketable” for purposes of section 956(c)(2)(J) for any day during calendar years 2007 or 2008 for which it is relevant whether securities are readily marketable for purposes of that section. SECTION 4. APPLICATION With respect to a determination within the scope of this revenue procedure, the Service will not challenge whether a se- curity is readily marketable for purposes of section 956(c)(2)(J) if the security is of a type that was readily marketable at any time within three years prior to the effec- tive date of this revenue procedure. For example, the Service will not challenge whether a mortgage-backed security or corporate debt security (whether secured or unsecured) is “readily marketable” if such a security is described in Section 3 of this revenue procedure and is of a type that was readily marketable at any time within three years prior to the effective date of this revenue procedure. This revenue procedure does not ad- dress any other issue relating to the qual- ification of a transaction under section 956(c)(2)(J) (e.g.,whether the transaction is undertaken in the ordinary course of business by a dealer in securities or com- modities). SECTION 5. EFFECTIVE DATE This revenue procedure is effective May 12, 2008. SECTION 6. DRAFTING INFORMATION The principal author of this revenue procedure is John H. Seibert of the Of- fice of Associate Chief Counsel (Inter- national). For further information re- garding this revenue procedure, contact Mr. Seibert at (202) 622–0171 (not a toll-free call). 26 CFR 1.1445–2: Situations in which withholding is not required under section 1445(a). (Also: §§ 897; 1445; 1.897–1; 1.897–2; 1.897–5T; 1.897–6T; 1.1445–5.) Rev. Proc. 2008–27 SECTION 1. PURPOSE This revenue procedure provides a simplified method for taxpayers to re- quest relief for late filings under sec- tions 1.897–2(g)(1)(ii)(A), 1.897–2(h), 1.1445–2(c)(3)(i),1.1445–2(d)(2), 1.1445–5(b)(2), and 1.1445–5(b)(4) of the Income Tax Regulations. SECTION 2. BACKGROUND .01 Section 897(a)(1) of the Internal Revenue Code treats the gain or loss of a nonresident alien or foreign corporation from the disposition of a U.S. real property interest as if the taxpayer were engaged in a trade or business in the United States, and as if such gain or loss were effectively May 27, 200810142008–21 I.R.B. connected with such trade or business un- der sections 871(b) or 882. A U.S. real property interest includes an interest in real property located in the United States or the Virgin Islands and any interest (other than an interest solely as a creditor) in a domes- tic corporation unless the taxpayer estab- lishes that the corporation was at no time a U.S. real property holding corporation (USRPHC) during the period described in section 897(c)(1)(A)(ii). .02 Section 1.897–2 provides require- ments to establish that a corporation is not a USRPHC. Unless these requirements are satisfied, it is presumed that a domestic corporation is a USRPHC. .03 Section 1445(a) generally requires the transferee of a U.S. real property inter- est to withhold 10 percent of the amount realized by the foreign person on the dis- position of the U.S. real property inter- est. Section 1445(b) and the regulations thereunder provide several exceptions to this general requirement. In addition, sec- tion 1445(e) provides special rules for cer- tain dispositions and distributions. Sec- tion 1445(e)(1) requires withholding on certain dispositions of U.S. real property interests by a domestic partnership, do- mestic trust, or domestic estate. Section 1445(e)(2) requires withholding on certain distributions by foreign corporations. Sec- tion 1445(e)(3) requires withholding on distributions by certain domestic corpo- rations to foreign shareholders. Section 1445(e)(4) addresses taxable distributions by domestic or foreign partnerships, trusts, or estates, and section 1445(e)(5) provides rules relating to dispositions of interests in such entities. Section 1445(e)(6) ad- dresses certain distributions by a regulated investment company or real estate invest- ment trust. .04 One exception to section 1445 with- holding involves nonrecognition transac- tions. Pursuant to section 1.1445–2(d)(2), a transferee is not required to withhold if the transferee provides notice that, by rea- son of the operation of a nonrecognition provision of the Internal Revenue Code or the provisions of any United States treaty, the transferor is not required to recognize any gain or loss with respect to the trans- fer. Under section 1.1445–2(d)(2)(i)(A), the transferor may provide a notice to the transferee that the transferor is not required to recognize gain or loss. The notice must include the information described in section 1.1445–2(d)(2)(iii). The trans- feree must provide a copy of the notice to the IRS within 20 days of the trans- fer. § 1.1445–2(d)(2)(i)(B). Similarly, in transfers described in section 1445(e), an entity or fiduciary otherwise required to withhold is not required to withhold if, by reason of the operation of a nonrecognition provision of the Internal Revenue Code or the provisions of any United States treaty, no gain or loss is required to be recognized by the foreign person with respect to which withholding would otherwise be required. § 1.1445–5(b)(2)(i)(A). Withholding is not required if, within 20 days of the transfer, the entity or fiduciary delivers a notice to the IRS that includes the information described in section 1.1445–5(b)(2)(ii). § 1.1445–5(b)(2)(i)(B). .05 Another exception to withhold- ing involves the transfer of an interest in a domestic corporation which is not a USRPHC. Because section 897(a)(1) does not apply to the gain (or loss) from a foreign person’s disposition of stock in a domestic corporation that is not a USRPHC, section 1445 does not require the transferee to withhold upon a foreign person’s disposition of stock in a domestic corporation that is not a USRPHC. To establish that an interest in a domestic corporation was not a U.S. real property interest as of the date of the disposition, the foreign person must either obtain a statement from the corporation or a determination from the IRS. To qualify for the rule permitting a statement from the corporation, a foreign transferor must obtain from the transferred domestic corporation a statement that the domestic corporation is not a USRPHC as of the date of the disposition. This statement must be obtained no later than the date, including any extensions, on which a tax return would otherwise be due with respect to the foreign transferor’s disposition.§ 1.897–2(g)(1)(ii)(A). The domestic corporation must mail a notice of the statement to the IRS within 30 days after it is provided to the foreign transferor, unless it meets the requirements of section 1.897–2(h)(4)(i). §§ 1.897–2(h)(2) and 1.897–2(h)(4)(i). If the IRS has been so notified, and the transferee receives a copy of the statement, then the transferee is not required to withhold.§§1.897–2(g)(1)(ii)(B) and 1.1445–2(c)(3)(i). Similarly, in transactions involving the transfer of an interest in a domestic corporation which is not a USRPHC under section 1445(e), where the transferor or its fiduciary obtains a statement that the domestic corporation is not a USRPHC, and timely notice of such statement is provided to the IRS pursuant to section 1.897–2(h), section 1.1445–5(b)(4)(iii) provides that no withholding is required. .06 Under section 301.9100–1(c), the Commissioner may grant a reasonable ex- tension of time to make a regulatory elec- tion or certain statutory elections under all subtitles of the Code, except subtitles E, G, H, and I, if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting the relief will not prejudice the interests of the government. § 301.9100–3(a). Section 301.9100–1(b) defines the term “regulatory election” as an election whose due date is prescribed by a regulation, a revenue ruling, revenue procedure, notice, or announcement pub- lished in the Internal Revenue Bulletin. The statements and notices described in sections 1.897–2(g)(1)(ii)(A), 1.897–2(h), 1.1445–2(c)(3)(i),1.1445–2(d)(2), 1.1445–5(b)(2), and 1.1445–5(b)(4) all fall within the definition of a regulatory election. .07 The Commissioner has au- thority under sections 301.9100–1 and 301.9100–3 to grant an exten- sion of time if a taxpayer fails to file a timely election under sec- tions 1.897–2(g)(1)(ii)(A), 1.897–2(h), 1.1445–2(c)(3)(i),1.1445–2(d)(2), 1.1445–5(b)(2), or 1.1445–5(b)(4). Sec- tion 301.9100–3 provides that the Com- missioner will grant an extension of time when the taxpayer provides the evidence to the satisfaction of the Commissioner that the taxpayer has acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the govern- ment. SECTION 3. SCOPE This revenue procedure provides a simplified method to request re- lief for certain late filings under sec- tions 1.897–2(g)(1)(ii)(A), 1.897–2(h), 1.1445–2(c)(3)(i),1.1445–2(d)(2), 1.1445–5(b)(2), and 1.1445–5(b)(4). This procedure is in lieu of the letter ruling 2008–21 I.R.B.1015May 27, 2008 procedure that otherwise would be used to obtain relief under section 301.9100–3. Accordingly, user fees do not apply to corrective action under this revenue proce- dure, and a taxpayer can request relief by applying for a letter ruling under section 301.9100–3 only if the taxpayer is denied relief by the IRS pursuant to this revenue procedure. SECTION 4. APPLICATION .01Eligibility for Relief. A taxpayer is eligible for relief under section 4.03 of this revenue procedure for a late filing under sections 1.897–2(g)(1)(ii)(A), 1.897–2(h), 1.1445–2(c)(3)(i),1.1445–2(d)(2), 1.1445–5(b)(2), or 1.1445–5(b)(4) if a statement or notice described in one or more of those sections was not provided to the relevant person or the IRS by the specified deadline and the taxpayer has reasonable cause for the failure to make a timely filing. .02Procedural Requirements for Re- questing Relief. Once the taxpayer be- comes aware of the failure to file the statements or notices required by sec- tions 1.897–2(g)(1)(ii)(A), 1.897–2(h), 1.1445–2(c)(3)(i),1.1445–2(d)(2), 1.1445–5(b)(2), or 1.1445–5(b)(4), the taxpayer must file the completed state- ment or notice with the appropriate person or the IRS, as applicable. The completed statement or notice filed with the appro- priate person or the IRS must state at the top of the document that it is “FILED PURSUANT TO REV. PROC. 2008–27.” With respect to a completed statement or notice required to be filed with the IRS un- der sections 1.897–2(h), 1.1445–2(d)(2), or 1.1445–5(b)(2), as applicable, the tax- payer must attach an explanation describ- ing why the taxpayer’s failure to timely file the statement or notice was due to rea- sonable cause. Additionally, within the ex- planation, the taxpayer must provide that it filed with, or obtained from, an appropriate person the statements or notices required under sections 1.897–2(g)(1)(ii)(A), 1.1445–2(c)(3)(i), 1.1445–2(d)(2)(i)(A), or 1.1445–5(b)(4)(iii)(A), as applicable. The completed statement or notice at- tached to the taxpayer’s explanation must be sent to the Ogden Service Center, P.O. Box 409101, Ogden, UT 84409. .03Relief for Late Filing.Upon receipt of a completed application requesting re- lief under this revenue procedure, the IRS will determine whether the requirements for granting additional time have been sat- isfied. The IRS will notify the taxpayer in writing within 120 days of the filing of the completed application if the IRS deter- mines that the failure to comply was not due to reasonable cause, or if additional time will be needed to make a determi- nation. For this purpose, the 120-day pe- riod shall begin on the date the taxpayer is notified in writing that the request has been received and assigned for review. If, once such period commences, the taxpayer is not again notified within 120 days, then the taxpayer shall be deemed to have es- tablished reasonable cause. SECTION 5. EFFECTIVE DATE This revenue procedure applies to all requests for relief received after June 26, 2008. Taxpayers that have ruling requests pending as of May 27, 2008, are not re- quired to use the procedures of this rev- enue procedure. However, if taxpayers have not received a determination of their request as of May 27, 2008, they may with- draw their request consistent with the pro- cedures in Rev. Proc. 2008–1, 2008–1 I.R.B. 1, (or any succeeding document). In that event, the IRS will refund the tax- payer’s user fee. SECTION 6. PAPERWORK REDUCTION ACT The collection of information con- tained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accor- dance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–2098. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a valid OMB control number. The collection of information in this revenue procedure is in section 4.02. This information is required to be submitted to the applicable service center in order to obtain relief for late filings under sec- tions 1.897–2(g)(1)(ii)(A), 1.897–2(h), 1.1445–2(c)(3)(i),1.1445–2(d)(2), 1.1445–5(b)(2), or 1.1445–5(b)(4). This information will be used to determine whether the eligibility requirements for obtaining relief have been met. The col- lection of information is required to obtain a benefit. The likely respondents are busi- nesses or other for-profit institutions. The estimated annual burden per re- spondent varies from 3 to 5 hours, depend- ing on individual circumstances, with an estimated average of 4 hours. The esti- mated number of respondents is 200. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. SECTION 7. DRAFTING INFORMATION The principal author of this revenue procedure is Jeffrey P. Cowan of the Office of Associate Chief Counsel (In- ternational). For further information re- garding this revenue procedure, contact Jeffrey P. Cowan at (202) 622–3860 (not a toll-free call). May 27, 200810162008–21 I.R.B. Part IV. Items o fGeneralInterest Notice of Prop osed Rulemaking an dWithdrawal of Notice of Pr oposed Rulemaking Suspension o f Running of Period of Lim itations During a Proceedin gtoEnforce or Quash a De signated or Related Su mmons REG–20819 9–91 AGENCY: In ternal Revenue Service (IRS), Tre asury. ACTION: No tice of proposed rulemaking and withdr awal of notice of proposed rule- making. SUMMARY: This document contains pro- posed reg ulations regarding the use of designat ed summonses and related sum- monses an d the effect on the period of limitati ons on assessment when a case is brought with respect to a designated or related summons. This document also withdra ws the previous proposed regula- tions pu blishedintheFederal Registeron July 31, 2003 (REG–208199–91, 2003–2 C.B. 75 7 [68 FR 44905]). These proposed regula tions reflect changes to section 6503 of the I nternal Revenue Code of 1986 made by the Omnibus Budget Reconcili- ation A ct of 1990 and the Small Business Job Pr otection Act of 1996. These reg- ulati ons affect corporate taxpayers that are ex amined under the coordinated issue case ( CIC) program and are served with desig nated or related summonses. These regu lations also affect third parties that are s erved with designated or related sum- mons es for information pertaining to the corp orate examination. DATE S: Written or electronic comments and r equests for a public hearing must be rece ived by July 28, 2008. ADDR ESSES: Send submissions to: CC: PA:LPD:PR(REG–208199–91), roo m 5203, Internal Revenue Service, P.O . Box 7604, Ben Franklin Station, Was hington, DC 20044. Alternatively, sub missions may be hand delivered be- tween the hour s of 8 a.m. and 4 p.m. to: CC:PA:LPD :PR (REG–208199–91), Courier’s Des k, Internal Revenue Service, 1111 Constitu tion Avenue, NW, Washing- ton, DC. Comme nts may also be submitted electronica llytotheFederaleRulemak- ing Portal at www.regulations.gov(IRS REG–208199– 91). FOR FURTHER I NFORMATION CONTACT: Co ncerning the pro- posed regul ations, Elizabeth Rawlins, (202)622–3 630;concerning submission sofcomments, Richard Hu rst, (202) 622–7180 or Richard.A .Hurst@IRSCounsel.Treas.Gov (not toll- free numbers). SUPPLEMEN TARY INFORMATION: Backgroun d This docu ment contains proposed reg- ulations amending the Procedure and Administ ration regulations (26 CFR part 301) unde r section 6503. Section 11311 of the Omnib us Budget Reconciliation Act of 1990 ( Public Law 101–508, 104 Stat. 1388) am ended section 6503(k) to suspend the peri od of limitations on assessment when a ca se is brought with respect to adesign ated or related summons. Sec- tion 65 03(k) was redesignated as section 6503(j ) by section 1702(h)(17)(A) of the Small B usiness Job Protection Act of 1996 (Publi c Law 104–188, 110 Stat. 1874). Propos ed regulations under section 6503(j ) were previously published in the Federa lRegisteron July 31, 2003 (68 FR 44905 ) (the 2003 proposed regulations). The 20 03 proposed regulations contained aproc edure for determining the date of compl iance with a designated or related summo ns issued with respect to a taxpayer whos e statute of limitations on assessment was s uspended under section 6503(j) be- caus e a court proceeding was brought. No co mments were received with respect to th is procedure or any other aspect of the 2 003 proposed regulations, and no hea ring was requested or held. The IRS and the Treasury Department have deter- min ed that, in the interest of effective tax adm inistration, the procedure in the 2003 pro posed regulations is not warranted. In- st ead, the IRS intends to create procedures by which taxpa yers can inquire about the suspension of their periods of limitations under section 6503(j), including the date of compliance with the summons, and to publish the se procedures in the Inter- nal Revenue M anual. In addition, the IRS has estab lished administrative proce- dures in the I nternal Revenue Manual that ensure subst antial IRS executive involve- ment and ove rsight of any designated and related sum mons issued. Additionally, §301.6503( j)–1(c)(1)(i) of these proposed regulation s requires that any designated summons be reviewed by the IRS Division Commissio ner and Division Counsel of the Office of Chief Counsel before it is issued. Ac cordingly, the 2003 proposed regulatio ns are withdrawn. Explanat ion of Provisions These pro posed regulations generally provide t hat the period of limitations on assessme nt provided for in section 6501 is suspen ded with respect to any return of taxbyac orporation that is the subject of adesign ated or related summons if a court proceed ingtoenforceorquashisinstituted with res pect to that summons. Designa ted Summonses and Related Summon ses Adesig nated summons is a summons issued to determine the amount of any intern al revenue tax of a corporation for which a return was filed if certain addi- tiona l requirements are satisfied. A des- ignat ed summons may only be issued to a corpo ration (or any other person to whom the co rporation has transferred records) if the corporation is being examined un- der t he IRS’s coordinated examination prog ram or “any successor program.” The e xisting successor program to the coor dinated examination program is the coor dinated issue case (CIC) program. Sect ion 6503(j)(2)(A)(i) requires that the i ssuance of the summons be preceded by a r eview by the regional counsel of the Office of Chief Counsel for the re- gio n in which the examination of the cor- por ation is being conducted. The office of r egional counsel was eliminated by the IRS reorganization implemented pursuant to the IRS Reform and Restructuring Act 2008–21 I.R.B.1017May 27, 2008 of 1998. Because the office of regional counsel no longer exists, these proposed regulations provide that the review must by completed by the Division Commis- sioner and the Division Counsel of the Of- fice of Chief Counsel (or their successors) for the organizations that have jurisdiction over the corporation whose liability is the subject of the summons. The summons also must be issued at least 60 days be- fore the day on which the statute of limi- tations on assessment under section 6501 would otherwise expire. Finally, the sum- mons must clearly state that it is a des- ignated summons for purposes of section 6503(j). A related summons is any other sum- mons that is issued with respect to the same tax return of the corporation as a desig- nated summons and is issued during the 30-day period that begins on the date the designated summons is issued. Suspension of Period of Limitations on Assessment Section 6503(j)(1) suspends the period of limitations on assessment under section 6501 for the applicable tax period when a court proceeding is brought with respect to a designated or related summons. For purposes of these proposed regulations, a court proceeding is aproceeding brought in a United States district court either to quash a designated or related summons under section 7609(b)(2) or to enforce a designated or related summons under sec- tion 7604. The court proceeding must be brought within the otherwise applicable period of limitationsin order to suspend that period under section 6503(j). The proposed regulations provide that the suspension begins on the day that a court proceeding is brought and continues until there is a final resolution as to the summoned party’s response to the sum- mons (discussed in the next section), plus an additional 120 days if a court requires any compliance with the summons at is- sue. If a court does not require any compli- ance, then the period of limitations on as- sessment resumes running on the day fol- lowing the date of the final resolution and in no event shall expire before the 60th day following the date of final resolution. Final Resolution of a Summoned Party’s Response to a Summons Under section 6503(j)(3)(B), the length of the suspension under section 6503(j) de- pends on when “final resolution” of a sum- moned party’s response to the designated or related summons occurs. The term “fi- nal resolution” is not defined in the statute. The legislative history states that the term “final resolution” has the same meaning it has under section 7609(e)(2)(B), relat- ing to third-party summonses. H.R. Conf. Rep. No. 101–964 (1990). Specifically, the conference report states that final res- olution means that no court proceeding remains pending and that the summoned party has complied with the summons to the extent required by a court. Accordingly, the proposed regulations provide that final resolution occurs when no court proceeding remains pending and the summoned party complies with the summons to the extent required by the court. If the summoned party has complied with the summons to the extent required by the court but there still remains time to appeal that order, final resolution occurs when all appeals have been either disposed of or the period in which an appeal may be taken or a request for further review may be made has expired. If all appeal periods have expired but the summoned party has not complied with the summons to the extent required by the court, the proposed regulations provide that final resolution does not occur until the summoned party has complied with the summons to the extent required by the court. Whether a party has complied with the terms of the summons as enforced by a court cannot be determined until the completeness of the materials produced and the testimony given has been evaluated. The IRS in- tends to create administrative procedures by which the taxpayer can inquire about the suspension of its period of limitations under section 6503(j) and to publish these procedures in the Internal Revenue Man- ual. In cases in which a court wholly denies enforcement or orders that the summons in its entirety be quashed, the date of com- pliance with the court’s order is treated as occurring on the date when all appeals are disposed of or when all appeal periods ex- pire. In cases in which a court orders the summons enforced, in whole or in part, the determination of whether there has been full compliance will be made within a rea- sonable time after the later of the giving of all testimony or the production of all records required by the order. What con- stitutes a reasonable time will depend on the volume and complexity of the records produced. If, following an enforcement order, col- lateral proceedings are brought challeng- ing whether the production made by the summoned party fully satisfied the court order and whether sanctions should be im- posed against the summoned party for a failing to do so, the suspension of the pe- riods of limitations shall continue until the order enforcing any part of the summons is fully complied with and the decision in the collateral proceeding becomes final. A de- cision in a collateral proceeding becomes final when all appeals are disposed of or when the period for appeal or further re- view has expired. Other Rules These proposed regulations provide ad- ditional rules regarding the number of des- ignated and related summonses that may be issued with respectto a return for any taxable period, the time within which a court proceeding must be brought to en- force or quash a designated or related sum- mons, the computation of the suspension period in cases of multiple court proceed- ings, and the computation of the 60-day pe- riod for assessment when the last day falls on a weekend or holiday. The proposed regulations also address the relationship of the suspension pe- riod provided for in section 6503(j) with other suspension provisions in the Code. The proposed regulations provide that if a designated or related summons also could be subject to the suspension rules governing third-party summonses under section 7609(e), then the suspension rules in section 6503(j) govern. In addition, the proposed regulations provide that the section 6503(j) suspension period is in- dependent of, and may run concurrently with, any other period of suspension, such as the suspension period for third-party summonses under section 7609(e) if a separate third-party summons also was issued in a case. Examples of these rules are contained in the proposed regulations. May 27, 200810182008–21 I.R.B. Proposed Effective Date These regulations are proposed to be applicable on the date final regulations are published in theFederal Register. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory as- sessment is not required. It has been deter- mined that section 553(b) of the Admin- istrative Procedure Act (5 U.S.C. chapter 5) does not apply to this regulation, and because the regulation does not impose a collection of information requirement on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f), this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Ad- ministration for comment on its 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 electronic comments that are submitted timely to the IRS. The IRS and the Trea- sury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public in- spection and copying. A public hearing may be scheduled if requested in writing by a person who timely submits written comments. If a public hearing is sched- uled, notice of the date, time, and place for the hearing will be published in theFed- eral Register. Drafting Information The principal author of these regula- tions is Elizabeth Rawlins of the Office of the Associate Chief Counsel, Procedure and Administration. ***** Withdrawal of Proposed Regulations Accordingly, under the authority of 26 U.S.C. 7805, the notice of proposed rule- making (REG–208199–91) that was pub- lished in theFederal Registeron Thurs- day, July 31, 2003 (68 FR 44905) is with- drawn. Proposed Amendments to the Regulations Accordingly, 26 CFR part 301 is pro- posed to be amended as follows: PART 301—PROCEDURE AND ADMINISTRATION Paragraph 1. The authority citation for part 301 continues to read in part as fol- lows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 301.6503(j)–1 is added to read as follows: §301.6503(j)–1 Suspension of running of period of limitations; extension in case of designated and related summonses. (a)General rule. The running of the applicable period of limitations on assess- ment provided for in section 6501 is sus- pended with respect to any return of tax by a corporation that is the subject of a desig- nated or related summons if a court pro- ceeding is instituted with respect to that summons. (b)Period of suspension. The period of suspension is the time during which the running of the applicable period of limita- tions on assessment provided for in section 6501 is suspended under section 6503(j). If a court requires any compliance with a designated or related summons by order- ing that any record, document, paper, ob- ject, or items be produced, or the testi- mony of any person be given, the period of suspension consists of the judicial en- forcement period plus 120 days. If a court does not require any compliance with a designated or related summons, the period of suspension consists of the judicial en- forcement period, and the period of limi- tations on assessment provided in section 6501 shall not expire before the 60th day after the close of the judicial enforcement period. (c)Definitions—(1) Adesignated sum- monsis a summons issued to a corporation (or to any other person to whom the corpo- ration has transferred records) with respect to any return of tax bysuch corporation for a taxable period for which such corpora- tion is being examined under the coordi- nated industry case program or any other successor to the coordinated examination program if— (i) The Division Commissioner and the Division Counsel of the Office of Chief Counsel (or their successors) for the or- ganizations that have jurisdiction over the corporation whose tax liability is the sub- ject of the summons have reviewed the summons before it is issued; (ii) The IRS issues the summons at least 60 days before the day the period pre- scribedinsection6501fortheassessment of tax expires (determined with regard to extensions); and (iii)Thesummonsstatesthatitisades- ignated summons for purposes of section 6503(j). (2) Arelated summonsis any summons issued that— (i) Relates to the same return of the cor- poration under examination as the desig- nated summons; and (ii) Is issued to any person, including the person to whom the designated sum- mons was issued, during the 30-day period that begins on the day the designated sum- mons is issued. (3) Thejudicial enforcement periodis the period that begins on the day on which a court proceeding is instituted with re- spect to a designated or related summons andendsonthedayonwhichthereisafi- nal resolution as to the summoned person’s response to that summons. (4)Court proceeding—(i)In general. Forpurposesofthissection,acourt pro- ceedingis a proceeding filed in a United States district court either to quash a des- ignated or related summons under section 7609(b)(2) or to enforce a designated or related summons under section 7604. A court proceeding includes any collateral proceeding, such as a civil contempt pro- ceeding. (ii)Date when proceeding is no longer pending. A proceeding to quash or to en- force a designated or related summons is no longer pending when all appeals (in- cluding review by the Supreme Court) are disposed of or after the expiration of the period in which an appeal may be taken or a request for further review (includ- ing review by the Supreme Court) may be made. If, however, following an en- forcement order, a collateral proceeding is brought challenging whether the testi- mony given or production made by the 2008–21 I.R.B.1019May 27, 2008 summoned party fully satisfied the court order and whether sanctions should be im- posed against the summoned party for a failure to so testify or produce, the pro- ceeding to quash or to enforce the sum- mons shall include the time from which the proceeding to quash or to enforce the summons was brought until the decision in the collateral proceeding becomes final. The decision becomes final on the date when all appeals (including review by the Supreme Court) are disposed of or when all appeal periods or all periods for further review (including review by the Supreme Court) expire. A decision in a collateral proceeding becomes final when all appeals (including review by the Supreme Court) are disposed of or when all appeal periods or all periods for further review (including review by the Supreme Court) expire. (5)Compliance—(i)In general.Com- plianceis the giving of testimony or the performance of an act or acts of produc- tion, or both, in response to a court order concerning the designated or related sum- mons and the determination that the terms of the court order have been satisfied. (ii)Date compliance occurs. Compli- ance with a court order that wholly de- nies enforcement of a designated or related summons is deemed to occur on the date when all appeals (including review by the Supreme Court) are disposed of or when the period in which an appeal may be taken or a request for further review (includ- ing review by the Supreme Court) may be made expires. Compliance with a court or- der that grants enforcement, in whole or in part, of a designated or related summons, occurs on the date it is determined that the testimony given, or the books, papers, records, or other data produced, or both, by the summoned party fully satisfy the court order concerning the summons. The determination of whether there has been full compliance will be made within a rea- sonable time, given the volume and com- plexity of the records produced, after the later of the giving of all testimony or the production of all records requested by the summons or required by any order enforc- ing any part of the summons. If, following an enforcement order, collateral proceed- ings are brought challenging whether the production made by the summoned party fully satisfied the court order and whether sanctions should be imposed against the summoned party for a failing to do so, the suspension of the periods of limitations shall continue until the order enforcing any part of the summons is fully complied with and the decision in the collateral proceed- ing becomes final. A decision in a collat- eral proceeding becomes final when all ap- peals are disposed of, the period in which an appeal may be taken has expired or the period in which a request for further re- view may be made has expired. (6)Final resolutionoccurs when the designated or related summons or any or- der enforcing any part of the designated or related summons is fully complied with and all appeals or requests for further re- view are disposed of, the period in which an appeal may be taken has expired or the period in which a request for further re- view may be made has expired. (d)Special rules—(1)Number of sum- monsesthatmaybeissued—(i)Desig- nated summons. Only one designated summons may be issued in connection with the examination of a specific taxable year or other period of a corporation. A designated summons may cover more than one year or other period of a corporation. The designated summons may require pro- duction of information that was previously sought in a summons (other than a desig- nated summons) issued in the course of the examination of that particular corpora- tion if that information was not previously produced. (ii)Related summonses.Thereisno restriction on the number of related sum- monses that may be issued in connection with the examination of a corporation. As provided in paragraph (c)(2) of this sec- tion, however, a related summons must be issued within the 30-day period that be- gins on the date on which the designated summons to which it relates is issued and must relate to the same return as the desig- nated summons. A related summons may request the same information as the desig- nated summons. (2)Time within which court proceed- ings must be brought. In order for the period of limitations on assessment to be suspended under section 6503(j), a court proceeding to enforce or to quash a des- ignated or related summons must be insti- tuted within the period of limitations on as- sessment provided in section 6501 that is otherwise applicable to the tax return. (3)Computation of suspension period if multiple court proceedings are insti- tuted. If multiple court proceedings are instituted to enforce or to quash a desig- nated or one or more related summonses concerning the same tax return, the period of limitations on assessment is suspended beginning on the date the first court pro- ceeding is brought. The suspension shall end on the date that is the latest date on which the judicial enforcement period, plus the 120 day or 60 day period (de- pending on whether the court requires any compliance) as provided in paragraph (b) of this section, expires with respect to each summons. (4)Effect on other suspension peri- ods—(i)In general. Suspensions of the period of limitations under section 6501 provided for under subsections 7609(e)(1) and (e)(2) do not apply to any summons that is issued pursuant to section 6503(j). The suspension under section 6503(j) of the running of the period of limitations on assessment under section 6501 is indepen- dent of, and may run concurrent with, any other suspension of the period of limita- tions on assessment that applies to the tax return to which the designated or related summons relates. (ii)Examples. The rules of paragraph (d)(4)(i) of this section are illustrated by the following examples: Example 1. The period of limitations on assess- ment against Corporation P, a calendar year taxpayer, for its 2007 return is scheduled to end on March 17, 2011. (Ordinarily, Corporation P’s returns are filed on March 15 th of the following year, but March 15, 2008 was a Saturday, and Corporation P timely filed its return on the subsequent Monday, March 17, 2008, making March 17, 2011 the last day of the period of limitations on assessment for Corporation P’s 2007 tax year.) On January 4, 2011, a designated sum- mons is issued to Corporation P concerning its 2007 return. On March 3, 2011 (14 days before the period of limitations on assessment would otherwise expire with respect to Corporation P’s 2007 return), a court proceeding is brought to enforce the designated sum- mons issued to Corporation P. On June 6, 2011, the court orders Corporation P to comply with the des- ignated summons. Corporation P does not appeal the court’s order. On September 6, 2011, agents for Corporation P deliver material that they state are the records requested by the designated summons. On October 13, 2011, a final resolution to Corporation P’s response to the designated summons occurs when it is determined that Corporation P has fully com- plied with the court’s order. The suspension period applicable with respect to the designated summons issued to Corporation P consists of the judicial en- forcement period (March 3, 2011 through October 13, 2011) and an additional 120-day period under sec- tion 6503(j)(1)(B), becausethe court required Cor- poration P to comply with the designated summons. Thus, the suspension period applicable with respect May 27, 200810202008–21 I.R.B. to the designated summons issued to Corporation P begins on March 3, 2011, and ends on February 10, 2012. Under the facts of thisExample 1, the period of limitations on assessment against Corporation P fur- ther extends to February 24, 2012, to account for the additional 14 days that remained on the period of lim- itations on assessment under section 6501 when the suspension period under section 6503(j) began. Example 2. Assume the same facts set forth in Example 1, except that in addition to the issuance of the designated summonsand related enforcement proceedings, on April 5, 2011, a summons concern- ing Corporation P’s 2007 return is issued and served on individual A, a third party. This summons is not a related summons because it was not issued during the 30-day period that began on the date the desig- nated summons was issued. The third-party sum- mons served on individual A is subject to the notice requirements of section 7609(a). Final resolution of individual A’s response to this summons does not oc- cur until February 15, 2012. Because there is no final resolution of individual A’s response to this summons by October 5, 2011, which is six months from the date of service of the summons, the period of limitations on assessment against Corporation P is suspended un- der section 7609(e)(2) to the date on which there is a final resolution to that response for the purposes of section 7609(e)(2). Moreover, because final resolu- tion to the summons served on individual A does not occur until after February 10, 2012, the end of the sus- pension period for the designated summons, the pe- riod of limitations on assessment against Corporation P expires 14 days after the date that the final resolu- tion as provided for in section 7609(e)(2) occurs with respect to the summons served on individual A. (5)Computation of 60-day period when last day of assessment period falls on a weekend or holiday. For purposes of para- graph (c)(1)(ii) of this section, in deter- mining whether a designated summons has been issued at least 60 days before the date on which the period of limitations on as- sessment prescribed in section 6501 ex- pires, the provisions of section 7503 apply when the last day of the assessment period falls on a Saturday, Sunday, or legal holi- day. (e)Effective/applicability date.This section is applicable on the date the final regulations are published in theFederal Register. Kevin M. Brown, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on April 25, 2008, 8:45 a.m., and published in the issue of the Federal Register for April 28, 2008, 73 F.R. 22879) Notice of Proposed Rulemaking Gross Estate; Election to Value on Alternate Valuation Date REG–112196–07 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains pro- posed regulations that provide guidance relating to the availability of the election to use the alternate valuation method under section 2032 of the Internal Revenue Code (Code). The proposed regulations will affect estates that file Form 706,United States Estate (and Generation-Skipping Transfer) Tax Return, and elect to use the alternate valuation method. DATES: Written or electronic comments and requests for a public hearing must be received by July 24, 2008. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–112196–07), In- ternal Revenue Service, Room 5203, PO Box 7604, Ben Franklin Station, Wash- ington, DC 20044. Submissions may be hand delivered Monday through Friday betweenthehoursof8a.m. and4p.m. to CC:PA:LPD:PR (REG–112196–07), Courier’s Desk, Internal Revenue Ser- vice, 1111 Constitution Avenue, NW, Washington, DC 20224; or sent elec- tronically via the Federal eRulemak- ing Portal athttp://www.regulations.gov (IRS-REG–112196–07). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Theresa M. Melchiorre, at (202) 622–3090; concerning submissions of comments or to request a hearing, Kelly Banks, at (202) 622–7180 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document contains proposed amendments to the Estate Tax Regulations (26 CFR part 20) under section 2032 of the Code. Section 2001 imposes a tax on thetransferofthetaxableestateofevery decedent who is a citizen or resident of the United States. Section 2031(a) provides that the value of the decedent’s gross estate includes the value at the time of decedent’s death of all property, real or personal, tangible or intangible,wherever situated. Section 2032(a) provides that the value of the gross estate instead may be deter- mined, if the executor so elects, by valuing all the property included in the gross estate as follows. Property distributed, sold, ex- changed, or otherwise disposed of within 6 months after the decedent’s death must be valued as of the date of distribution, sale, exchange, or other disposition. I.R.C. sec- tion 2032(a)(1). Property not distributed, sold, exchanged, or otherwise disposed of within 6 months after the decedent’s death must be valued as of the date that is 6 months after the decedent’s death. I.R.C. section 2032(a)(2). Any interest or estate which is affected by the mere lapse of time is included at its value as of the time of death (instead of the later date), with ad- justment for any difference in its value as of the later date that is not due to the mere lapse of time. I.R.C. section 2032(a)(3). The predecessor to section 2032 is sec- tion 302(j) of the Revenue Act of 1926, as added by section 202(a) of the Revenue Act of 1935. Revenue Act of 1935, 74 Public Law 407, 49 Stat. 1014 (1935). Section 302(j) allowed executors to elect to use a date that was one year after the date of decedent’s death to value estate property. Section 302(j) contained provi- sions for valuing the property on the date of its sale or disposition during the alter- nate valuation period and for not taking into account changes in value due to a mere lapse of time. Congress enacted section 302(j) in response to “the hardships which were experienced after 1929 when market values decreased very materially between the period from the date of death and the date of distribution to the beneficiaries.” 79 Cong. Rec. 14632 (1935) (statement of Mr. Samuel B. Hill). See, also, H.R. Rep. No. 74–1681, at 9 (1935); S. Rep. No. 74–1240, part 1, at 9–10 (1935); and S. Rep. No. 74–1240, part 2, at 8–9 (1935). Section 302(j) was codified as sec- tion 811(j) in the Internal Revenue Code of 1939. In 1941, the U. S. Supreme Court ad- dressed whether rents, dividends, and in- terest received and accrued during the al- 2008–21 I.R.B.1021May 27, 2008 ternate valuation period are includible in the decedent’s gross estate under section 811(j).Maass v. Higgins, 312 U.S. 443 (1941). In that case, the Court stated that the purpose of section 811(j) is “to mitigate the hardship consequent upon shrinkage in the value of estates during the year follow- ing death. Congress enacted it in the light of the fact that, due to such shrinkages, many estates were almost obliterated by the necessity of paying a tax on the value of the assets at the date of decedent’s death.” Id. at 446. In 1954, section 811(j) was recodified as section 2032. Congress considered pro- posals to amend section 811(j) and, again, Congress stated that, “The option to value property [on the alternate valuation date] initially was provided during the depres- sion of the early 1930’s because by the time estate taxes were paid, property val- ues had dropped substantially, sometimes to such an extent that the proceeds of the sale would not pay the estate tax due.” H. Rep. No. 83–1337 at 90 (1954). See, also, S. Rep. No. 83–1622, at 122–123 (1954). In 1958, §20.2032–1 of the Estate Tax Regulations was published. This regula- tion restates the rule in section 2032(a)(3) and provides an example that illustrates the rule that only changes in the value of the decedent’s gross estate due to market con- ditions, and not changes to the value due to a mere lapse of time, are to be consid- ered in valuing the decedent’s gross estate under the alternate valuation method. See example in §20.2032–1(f)(1). Two judicial decisions have interpreted the language of section 2032 and its leg- islative history differently in determining whether post-death events other than mar- ket conditions may be taken into account under the alternate valuation method. In Flanders v. United States,347F.Supp.95 (N.D. Cal. 1972), the district court held that the reduction in value of property in- cluded in the decedent’s estate as a result of a voluntary act by the trustee, instead of as a result of market conditions, could not be taken into consideration in valuing the property under the alternate valuation method. In that case, a few months af- ter the death of the decedent, the trustee of the trust owning decedent’s undivided one-half interest in real property entered into a Land Conservation Agreement pur- suant to the California Land Conservation Act of 1965. In exchange for restricting the property to agricultural uses for a pe- riod of 10 years, the trustee was allowed to reduce the assessed value of the land for purposes of paying property taxes. The estate elected to use the alternate valua- tion method for estate tax purposes and re- ported the value of the decedent’s interest in the land as $25,000. This value repre- sented one-half of the value of the ranch af- ter the land use restriction was placed upon it, less a lack of marketability discount. The district court stated that, “It seems clear that Congress intended that the char- acter of the property be established for val- uation purposes at the date of death. The option to select the alternate valuation date is merely to allow an estate to pay a lesser tax if unfavorable market conditions (as distinguished from voluntary acts chang- ing the character of the property) result in a lessening of its fair market value.”Id.at 98. InKohler v. Commissioner,T.C. Memo. 2006–152, the U.S. Tax Court held that valuation discounts attributable to restrictions imposed on closely-held corporate stock pursuant to a post-death reorganization of the Kohler Company should be taken into consideration in valu- ing stock on the alternate valuation date. In that case, approximately two months after the death of the decedent, the Kohler Company underwent a reorganization that qualified as a tax-free reorganization un- der section 368(a) and, thus, was not a sale or disposition for purposes of section 2032(a)(1). The estate opted to receive new Kohler shares that were subject to transfer restrictions. The estate elected to use the alternate valuation method under section 2032(a)(2) and took into account discounts attributable to the transfer re- strictions on the stock in determining the value for Federal estate tax purposes. In the Internal RevenueBulletin No. 2008–9 on March 3, 2008, the IRS nonacquiesced to the Tax Court opinion inKohler (AOD 2008–1). Explanation of Provisions The proposed regulations will amend §20.2032–1 by restructuring paragraph (f) of this section to clarify that the election to use the alternate valuation method un- der section 2032 is available to estates that experience a reduction in the value ofthegrossestatefollowingthedateof the decedent’s death due to market con- ditions, but not due to other post-death events. The termmarket conditionsis de- fined in the proposed regulations and ex- amples are provided, which are not in- tended to be exclusive. Proposed Effective Date Thefourthsentenceof §20.2032–1(f)(2)(i) is applicable to dece- dents dying after May 1, 1999, subject to transition rules for certain incapac- itated individuals. The fifth sentence of §20.2032–1(f)(2)(i) is applicable to decedents dying afterNovember 30, 1983, subject to transition rules for certain inca- pacitated individuals. The first, second, and third sentences of §20.2032–1(f)(2)(i), §20.2032–1(f)(2)(ii), and all but the last sentence in §20.2032–1(f)(2) are applica- ble to decedent’s dying after August 16, 1954. When adopted as final regulations, the rules contained in §20.2032–1(f)(1), §20.2032–1(f)(3), and the last sentence of §20.2032–1(f)(2), will be made applicable to estates of decedents dying on or after April 25, 2008. Special Analyses It has been determined that this pro- posed regulation is not a significant regu- latory action as defined in Executive Or- der 12866. Therefore, a regulatory assess- ment is not required. It also has been de- termined that section 553(b) of the Admin- istrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because these regulations do not impose on small entities a collection of informa- tion requirement, the Regulatory Flexibil- ity Act (5 U.S.C. chapter 6) does not ap- ply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to sec- tion 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed origi- nal and eight (8) copies)orelectroniccom- May 27, 200810222008–21 I.R.B. ments that are submitted timely to the IRS. The IRS and the Treasury Department also request comments on the clarity of the pro- posed regulations and how they 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 any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in theFederal Register. Drafting Information The principal author of these proposed regulations is Theresa M. Melchiorre, Office of Associate Chief Counsel (Passthroughs and Special Industries). ***** Proposed Amendments to the Regulations Accordingly, 26 CFR part 20 is pro- posedtobeamendedasfollows: PART 20—ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954 Paragraph 1. The authority citation for part 20 continues to read in part as follows: Authority:26U.S.C.7805*** Par. 2. Section 20.2032–1 is amended as follows: 1. Paragraph (f)(1) is redesignated as paragraph (f)(2)(i). 2. Paragraph (f)(2) is redesignated as paragraph (f)(2)(ii). 3. Paragraph (f) introductory text is redesignated as paragraph (f)(2) introduc- tory text and the last sentence in the para- graph is revised. 4. New paragraphs (f)(1) and (f)(3) are added. 5. The heading for paragraph (h) is revised and four sentences are added at the end of the paragraph. The additions and revisions read as fol- lows. §20.2032–1 Alternate valuation. ***** (f)Post-death market conditions and other post-death events—(1)In general. The election to use the alternate valua- tion method under section 2032 permits the property included in the gross estate to be valued as of the alternate valuation date to the extent that the change in value dur- ing the alternate valuation period is the re- sult of market conditions. The termmar- ket conditionsis defined as events outside of the control of the decedent (or the dece- dent’s executor or trustee) or other person whose property is being valued that affect the fair market value of the property be- ing valued. Changes in value due to mere lapse of time or to other post-death events other than market conditions will be ig- nored in determining the value of dece- dent’s gross estate under the alternate val- uation method. (2)Mere lapse of time.***Theappli- cation of this paragraph (f)(2) is illustrated in paragraphs (f)(2)(i) and (f)(2)(ii) of this section: (3)Post-death events—(i)In general. In order to eliminate changes in value due to post-death events other than market con- ditions, any interest or estate affected by post-death events other than market condi- tions is included in a decedent’s gross es- tate under the alternate valuation method at its value as of the date of the decedent’s death, with adjustment for any change in value that is due to market conditions. The termpost-death eventsincludes, but is not limited to, a reorganization of an entity (for example, corporation,partnership, or lim- ited liability company) in which the estate holds an interest, a distribution of cash or other property to the estate from such en- tity, or one or more distributions by the es- tate of a fractional interest in such entity. (ii)Examples. The following exam- ples illustrate the application of this para- graph (f)(3). In each example, decedent’s (D’s) estate elects to value D’s gross es- tate under the alternate valuation method, so that the valuation date of the property included in D’s gross estate as of D’s date of death is either the date the property is distributed, sold, exchanged, or disposed of under section 2032(a)(1) (the date of distribution (distribution date)) or the date that is 6 months after the date of the dece- dent’s death under section 2032(a)(2) (the six month alternate valuation date (AVD)). Example 1. At D’s death, D owned common stock in Corporation, a closely-held subchapter C corpora- tion. At that time, the common stock was not sub- ject to transfer restrictions. D’s stock was valued at $50X at the date of death. Two months after D’s death, D’s estate participated in a tax-free reorga- nization of Corporation that qualified under section 368(a) with respect to which no gain or loss was rec- ognized for income tax purposes under section 354 or 355. Pursuant to the reorganization, D’s estate opted to exchange its stock for stock subject to trans- fer restrictions. Although the value of the stock did not change during the alternate valuation period, dis- counts for lack of marketability and lack of control (totaling $20X) were applied in determining the value of the stock held by D’s estate on the AVD, and D’s estate reported the value of the stock on the AVD as $30X. Because the claimed reduction in value is not attributable to market conditions, the discounts may not be taken into account in determining the value of the stock on the AVD. Accordingly, the value on the AVD is $50X. Example 2. ThefactsarethesameasinExam- ple 1except that the value of the stock declined from $50X to $40X during the alternate valuation period because of changes in market conditions during that period. D’s estate may report the value of the stock as $40X on the AVD. As inExample 1, however, no dis- counts resulting from the reorganization are allowed in computing the value on the AVD. Example 3. At D’s death, D owned property val- ued at $100X. Two months after D’s death, the execu- tor of D’s estate and other family members formed four limited partnerships. The estate contributed the estate’s property to the partnerships in exchange for a 25% interest in each partnership. Discounts for lack of marketability and lack of control (totaling $25X) were applied in determining the value of the estate’s partnership interests, and the estate reported $75X as the total value of the estate’s partnership interests on the AVD. Because the reduction in value is not at- tributable to market conditions, the discounts for lack of marketability and control may not be taken into account in determining the value of the partnership interests on the AVD. The result would be the same if the limited partnerships were formed prior to D’s death, and the estate transferred property into the part- nerships after D’s death but prior to the AVD. Example 4. At D’s death, D owned 100% of the units of a limited liability company (LLC). The ex- ecutor elected the alternative valuation method. Dur- ing the 6 months following D’s death and in accor- dance with D’s will, the executor made 6 distribu- tions, each to a different residuary legatee on a differ- ent date and each of a 10% interest in the LLC. Pur- suant to section 2032(a)(1), each distribution is val- ued on the distribution date. On the AVD, the estate held 40% of the units in the LLC. Pursuant to section 2032(a)(2), the 40% is valued on the AVD. In valu- ing the 10% interests distributed and the 40% interest held on the AVD, discounts for lack of control and lack of marketability were applied. The reduction in value of the units is not attributable to market con- ditions. Accordingly, the discounts for lack of mar- ketability and control may not be taken into account in determining the value of the units distributed or held by the estate. The value of each 10% distribution is determined by taking 10% of the value on the dis- tribution date of the units (100%) owned by the estate at D’s death. The value of the units held by the estate on the AVD is determined by taking 40% of the value on the AVD of all of the units (100%) owned by the estate at D’s death. If because of market conditions, the units had declined in value as of each distribution date or as of the AVD, D’s estate would take such re- duction in value into account. 2008–21 I.R.B.1023May 27, 2008 Example 5. D died owning 100% of Blackacre. D’s will directs that Blackacre be divided between two trusts, 70% to Trust A for the benefit of S, D’s surviving spouse, and 30% to Trust B for the benefit of C, D’s surviving child. The executor of D’s es- tate distributed a 70% interest in Blackacre to Trust A three months after D’s death, and distributed a 30% interest in Blackacre to Trust B four months af- ter D’s death. On the estate tax return, the execu- tor elected to value the estate’s property under the al- ternate valuation method under section 2032. There was no change in the value of Blackacre during the four-month period following D’s death. The 70% in- terest in Blackacre is to be valued as of the distribu- tion date to Trust A, and that value is determined by taking 70% of the value of all (100%) of Blackacre as of the distribution date. The 30% interest in Black- acre is to be valued as of the distribution date to Trust B, and that value is determined by taking 30% of the value of all (100%) of Blackacre as of the distribu- tion date. If, however, because of market conditions such as a decline in the real estate market, Blackacre’s value had declined by 10% between D’s date of death and the distribution date of the 30% interest, the value of the 30% interest would be determined by ascertain- ing 30% of the value of all (100%) of Blackacre as of the distribution date, which would equal 30% of 90% of the date of death value of Blackacre. ***** (h)Effective/applicability date. *** The fourth sentence of paragraph (f)(2)(i) of this section is applicable to decedents dying after May 1, 1999, subject to tran- sition rules for certain incapacitated indi- viduals. The fifth sentence of paragraph (f)(2)(i) of this section is applicable to decedents dying after November 30, 1983, subject to transition rules for certain inca- pacitated individuals. The first, second, and third sentences of paragraph (f)(2)(i), paragraph (f)(2)(ii), and all but the last sentence in paragraph (f)(2) of this section are applicable to decedent’s dying after August 16, 1954. When adopted as final regulations, the rules contained in para- graphs (f)(1), (f)(3), and the last sentence of paragraph (f)(2) of this section, will be made applicable to estates of decedents dying on or after April 25, 2008. ***** Linda E. Stiff, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on April 24, 2008, 8:45 a.m., and published in the issue of the Federal Register for April 25, 2008, 73 F.R. 22300) Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code Announcement 2008–49 The Internal Revenue Service has re- voked its determination that the organi- zations listed below qualify as organiza- tions described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986. Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an or- ganization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation. If on the other hand a suit for declara- tory judgment has been timely filed, con- tributions from individuals and organiza- tions described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on May 27, 2008, and would end on the date the court first deter- mines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For indi- vidual contributors, the maximum deduc- tion protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in wholeorinpart,fortheactsoromissions of the organization that were the basis for revocation. Heritage Christian Schools for Children Stone Mountain, GA Lima Legionnaires Charitable Foundation, Inc. Lima, OH Announcements of Disciplinary Sanctions From theOfficeofProfessional Responsibility Will List Specific Violations of Circular 230 Announcement 2008–50 The Office of Professional Responsi- bility intends to publish announcements of disciplinary sanctions in a redesigned format that will list specific violations of Treasury Department Circular No. 230. A new “Disciplinary Sanction” column of the announcements will include the rele- vant section number of Circular 230 and a brief description of misconduct. Each an- nouncement will be headed by an introduc- tion that explains the various types of sanc- tions, for example, disbarment or suspen- sion from practice before the IRS. The listing of individuals sanctioned will continue to include the professional designation: attorney, certified public accountant, enrolled agent, enrolled ac- tuary, enrolled retirement plan agent, or appraiser. The listing in the new format will be alphabetized first by the names of the individuals’ states of residence and second by the last names of the individuals sanctioned. Previously, OPR endeavored to pub- lish announcements of disciplinary sanc- tions on a quarterly basis, and each an- nouncement was published in five consec- utive issues of the Internal Revenue Bul- letin (IRB). Future announcements will be published more frequently, and each an- nouncement will be published in one issue of the IRB and also in the Cumulative Bul- letin. OPR redesigned the format of the an- nouncements in order to expand the pub- lic availability of information about disci- plinary proceedings and disciplinary sanc- tions. The first announcement in the new format is expected to be published in June 2008. May 27, 200810242008–21 I.R.B. Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the ef- fect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is be- ingextendedtoapplytoavariationofthe fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare withmodi- fied,below). Clarifiedis used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare withamplifiedandclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is beingstatedinanewruling. Supersededdescribes a situation where the new ruling does nothing more than re- state the substance and situation of a previ- ously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same po- sition published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single rul- ing a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new rul- ing does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsu- persededdescribes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case, the previously pub- lished ruling is first modified and then, as modified, is superseded. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original rul- ing has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the ad- ditions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rulings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The fol lowing abbreviations in current use and for merly used will appear in material publis hedintheBulletin. A—Individual. Acq.—A cquiescence. B—Individual. BE—Beneficiary. BK—Bank . B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cu mulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Coo perative. Ct.D.—Court Decision. CY—County. D—Decede nt. DC—Dummy Corporation. DE—Donee. Del. Order —Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Emp loyer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduc iary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Fo reign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Fed eral Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grante e. GP—General Partner. GR—Grantor. IC—Insura nce Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—No nacquiescence. O—Organization. P—Parent Corporation. PHC—Persona l Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Pa rtnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Re al Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsi diary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Trans feree. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpay er. TR—Trust. TT—Trustee. U.S.C.—Uni ted States Code. X—Corporation. Y—Corporation. Z—Corporat ion. 2008–21 I.R.B.iMay 27, 2008 Numerical Finding List 1 Bulletins 2008–1 through 2008–21 Announcements: 2008-1, 2008-1 I.R.B.246 2008-2, 2008-3 I.R.B.307 2008-3, 2008-2 I.R.B.269 2008-4, 2008-2 I.R.B.269 2008-5, 2008-4 I.R.B.333 2008-6, 2008-5 I.R.B.378 2008-7, 2008-5 I.R.B.379 2008-8, 2008-6 I.R.B.403 2008-9, 2008-7 I.R.B.444 2008-10, 2008-7 I.R.B.445 2008-11, 2008-7 I.R.B.445 2008-12, 2008-7 I.R.B.446 2008-13, 2008-8 I.R.B.480 2008-14, 2008-8 I.R.B.481 2008-15, 2008-9 I.R.B.511 2008-16, 2008-9 I.R.B.511 2008-17, 2008-9 I.R.B.512 2008-18, 2008-12 I.R.B.667 2008-19, 2008-11 I.R.B.624 2008-20, 2008-11 I.R.B.625 2008-21, 2008-13 I.R.B.691 2008-22, 2008-13 I.R.B.692 2008-23, 2008-14 I.R.B.731 2008-24, 2008-13 I.R.B.692 2008-25, 2008-14 I.R.B.732 2008-26, 2008-13 I.R.B.693 2008-27, 2008-15 I.R.B.751 2008-28, 2008-14 I.R.B.733 2008-29, 2008-15 I.R.B.786 2008-30, 2008-16 I.R.B.825 2008-31, 2008-15 I.R.B.787 2008-32, 2008-16 I.R.B.826 2008-33, 2008-16 I.R.B.826 2008-34, 2008-17 I.R.B.849 2008-35, 2008-17 I.R.B.849 2008-36, 2008-16 I.R.B.827 2008-37, 2008-17 I.R.B.850 2008-38, 2008-17 I.R.B.851 2008-39, 2008-18 I.R.B.867 2008-40, 2008-19 I.R.B.941 2008-41, 2008-19 I.R.B.943 2008-42, 2008-19 I.R.B.943 2008-43, 2008-19 I.R.B.944 2008-44, 2008-20 I.R.B.982 2008-45, 2008-20 I.R.B.982 2008-46, 2008-20 I.R.B.983 2008-47, 2008-20 I.R.B.983 2008-48, 2008-20 I.R.B.983 2008-49, 2008-21 I.R.B.1024 2008-50, 2008-21 I.R.B.1024 Court Decisions: 2085, 2008-17 I.R.B.828 2086, 2008-19 I.R.B.905 Notices: 2008-1, 2008-2 I.R.B.251 2008-2, 2008-2 I.R.B.252 2008-3, 2008-2 I.R.B.253 2008-4, 2008-2 I.R.B.253 2008-5, 2008-2 I.R.B.256 2008-6, 2008-3 I.R.B.275 2008-7, 2008-3 I.R.B.276 2008-8, 2008-3 I.R.B.276 2008-9, 2008-3 I.R.B.277 2008-10, 2008-3 I.R.B.277 2008-11, 2008-3 I.R.B.279 2008-12, 2008-3 I.R.B.280 2008-13, 2008-3 I.R.B.282 2008-14, 2008-4 I.R.B.310 2008-15, 2008-4 I.R.B.313 2008-16, 2008-4 I.R.B.315 2008-17, 2008-4 I.R.B.316 2008-18, 2008-5 I.R.B.363 2008-19, 2008-5 I.R.B.366 2008-20, 2008-6 I.R.B.406 2008-21, 2008-7 I.R.B.431 2008-22, 2008-8 I.R.B.465 2008-23, 2008-7 I.R.B.433 2008-24, 2008-8 I.R.B.466 2008-25, 2008-9 I.R.B.484 2008-26, 2008-9 I.R.B.487 2008-27, 2008-10 I.R.B.543 2008-28, 2008-10 I.R.B.546 2008-29, 2008-12 I.R.B.637 2008-30, 2008-12 I.R.B.638 2008-31, 2008-11 I.R.B.592 2008-32, 2008-11 I.R.B.593 2008-33, 2008-12 I.R.B.642 2008-34, 2008-12 I.R.B.645 2008-35, 2008-12 I.R.B.647 2008-36, 2008-12 I.R.B.650 2008-37, 2008-12 I.R.B.654 2008-38, 2008-13 I.R.B.683 2008-39, 2008-13 I.R.B.684 2008-40, 2008-14 I.R.B.725 2008-41, 2008-15 I.R.B.742 2008-42, 2008-15 I.R.B.747 2008-43, 2008-15 I.R.B.748 2008-44, 2008-16 I.R.B.799 2008-45, 2008-17 I.R.B.835 2008-46, 2008-18 I.R.B.868 2008-47, 2008-18 I.R.B.869 2008-48, 2008-21 I.R.B.1008 2008-49, 2008-20 I.R.B.979 2008-50, 2008-21 I.R.B.1010 Proposed Regulations: REG-208199-91, 2008-21 I.R.B.1017 REG-168745-03, 2008-18 I.R.B.871 REG-147290-05, 2008-10 I.R.B.576 REG-141998-06, 2008-19 I.R.B.911 REG-147775-06, 2008-19 I.R.B.916 REG-153589-06, 2008-14 I.R.B.730 REG-104713-07, 2008-6 I.R.B.409 REG-104946-07, 2008-11 I.R.B.596 REG-110136-07, 2008-17 I.R.B.838 REG-111583-07, 2008-4 I.R.B.319 REG-112196-07, 2008-21 I.R.B.1021 REG-114126-07, 2008-6 I.R.B.410 REG-114942-07, 2008-18 I.R.B.901 REG-119518-07, 2008-17 I.R.B.844 REG-124590-07, 2008-16 I.R.B.801 REG-127391-07, 2008-13 I.R.B.689 REG-136701-07, 2008-11 I.R.B.616 REG-137573-07, 2008-15 I.R.B.750 REG-139236-07, 2008-9 I.R.B.491 REG-141399-07, 2008-8 I.R.B.470 REG-143468-07, 2008-17 I.R.B.848 REG-147832-07, 2008-8 I.R.B.472 REG-149475-07, 2008-9 I.R.B.510 REG-151135-07, 2008-16 I.R.B.815 REG-108508-08, 2008-19 I.R.B.923 Revenue Procedures: 2008-1, 2008-1 I.R.B.1 2008-2, 2008-1 I.R.B.90 2008-3, 2008-1 I.R.B.110 2008-4, 2008-1 I.R.B.121 2008-5, 2008-1 I.R.B.164 2008-6, 2008-1 I.R.B.192 2008-7, 2008-1 I.R.B.229 2008-8, 2008-1 I.R.B.233 2008-9, 2008-2 I.R.B.258 2008-10, 2008-3 I.R.B.290 2008-11, 2008-3 I.R.B.301 2008-12, 2008-5 I.R.B.368 2008-13, 2008-6 I.R.B.407 2008-14, 2008-7 I.R.B.435 2008-15, 2008-9 I.R.B.489 2008-16, 2008-10 I.R.B.547 2008-17, 2008-10 I.R.B.549 2008-18, 2008-10 I.R.B.573 2008-19, 2008-11 I.R.B.594 2008-20, 2008-20 I.R.B.980 2008-21, 2008-12 I.R.B.657 2008-22, 2008-12 I.R.B.658 2008-23, 2008-12 I.R.B.664 2008-24, 2008-13 I.R.B.684 2008-25, 2008-13 I.R.B.686 2008-26, 2008-21 I.R.B.1014 2008-27, 2008-21 I.R.B.1014 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26, 2007. May 27, 2008ii2008–21 I.R.B. Revenue Rulings: 2008-1, 2008-2 I.R.B.248 2008-2, 2008-2 I.R.B.247 2008-3, 2008-2 I.R.B.249 2008-4, 2008-3 I.R.B.272 2008-5, 2008-3 I.R.B.271 2008-6, 2008-3 I.R.B.271 2008-7, 2008-7 I.R.B.419 2008-8, 2008-5 I.R.B.340 2008-9, 2008-5 I.R.B.342 2008-10, 2008-13 I.R.B.676 2008-11, 2008-10 I.R.B.541 2008-12, 2008-10 I.R.B.520 2008-13, 2008-10 I.R.B.518 2008-14, 2008-11 I.R.B.578 2008-15, 2008-12 I.R.B.633 2008-16, 2008-11 I.R.B.585 2008-17, 2008-12 I.R.B.626 2008-18, 2008-13 I.R.B.674 2008-19, 2008-13 I.R.B.669 2008-20, 2008-14 I.R.B.716 2008-21, 2008-15 I.R.B.734 2008-22, 2008-16 I.R.B.796 2008-23, 2008-18 I.R.B.852 2008-24, 2008-18 I.R.B.861 2008-25, 2008-21 I.R.B.986 2008-26, 2008-21 I.R.B.985 Tax Conventions: 2008-8, 2008-6 I.R.B.403 2008-39, 2008-18 I.R.B.867 Treasury Decisions: 9368, 2008-6 I.R.B.382 9369, 2008-6 I.R.B.394 9370, 2008-7 I.R.B.428 9371, 2008-8 I.R.B.447 9372, 2008-8 I.R.B.462 9373, 2008-8 I.R.B.463 9374, 2008-10 I.R.B.521 9375, 2008-5 I.R.B.344 9376, 2008-11 I.R.B.587 9377, 2008-11 I.R.B.578 9378, 2008-14 I.R.B.720 9379, 2008-14 I.R.B.715 9380, 2008-14 I.R.B.718 9381, 2008-14 I.R.B.694 9382, 2008-9 I.R.B.482 9383, 2008-15 I.R.B.738 9384, 2008-16 I.R.B.792 9385, 2008-15 I.R.B.735 9386, 2008-16 I.R.B.788 9387, 2008-16 I.R.B.789 9388, 2008-17 I.R.B.832 9389, 2008-18 I.R.B.863 9390, 2008-18 I.R.B.855 9391, 2008-20 I.R.B.945 9392, 2008-19 I.R.B.903 Treasury Decisions— Continued: 9393, 2008-20 I.R.B.975 9394, 2008-21 I.R.B.988 2008–21 I.R.B.iiiMay 27, 2008 Finding List of Current Actions on Previously Published Items 1 Bulletins 2008–1 through 2008–21 Announcements: 2006-88 Clarified and superseded by Notice 2008-35, 2008-12 I.R.B.647 Notice 2008-36, 2008-12 I.R.B.650 2008-6 Superseded by Ann. 2008-19, 2008-11 I.R.B.624 Notices: 2001-16 Modified by Notice 2008-20, 2008-6 I.R.B.406 2001-60 Modified and superseded by Notice 2008-31, 2008-11 I.R.B.592 2002-44 Superseded by Notice 2008-39, 2008-13 I.R.B.684 2003-51 Superseded by Rev. Proc. 2008-24, 2008-13 I.R.B.684 2006-27 Clarified and superseded by Notice 2008-35, 2008-12 I.R.B.647 2006-28 Clarified and superseded by Notice 2008-36, 2008-12 I.R.B.650 2006-52 Clarified and amplified by Notice 2008-40, 2008-14 I.R.B.725 2006-77 Clarified and amplified by Notice 2008-25, 2008-9 I.R.B.484 2006-107 Modified by Notice 2008-7, 2008-3 I.R.B.276 2007-30 Modified and superseded by Notice 2008-14, 2008-4 I.R.B.310 2007-45 Modified by Notice 2008-49, 2008-20 I.R.B.979 2007-54 Clarified by Notice 2008-11, 2008-3 I.R.B.279 Notices— Continued: 2008-13 Supplemented by Notice 2008-46, 2008-18 I.R.B.868 2008-27 Clarified, amended, supplemented, and superseded by Notice 2008-41, 2008-15 I.R.B.742 Proposed Regulations: REG-209020-86 Corrected by Ann. 2008-11, 2008-7 I.R.B.445 REG-107592-00 Partial withdrawal by Ann. 2008-25, 2008-14 I.R.B.732 REG-149856-03 Hearing scheduled by Ann. 2008-26, 2008-13 I.R.B.693 REG-147290-05 Hearing scheduled by Ann. 2008-43, 2008-19 I.R.B.944 REG-109367-06 Withdrawn by Ann. 2008-41, 2008-19 I.R.B.943 REG-104946-07 Hearing scheduled by Ann. 2008-47, 2008-20 I.R.B.983 REG-113891-07 Hearing scheduled by Ann. 2008-4, 2008-2 I.R.B.269 REG-114126-07 Corrected by Ann. 2008-36, 2008-16 I.R.B.827 REG-127770-07 Hearing scheduled by Ann. 2008-24, 2008-13 I.R.B.692 REG-133300-07 Hearing scheduled by Ann. 2008-34, 2008-17 I.R.B.849 REG-139236-07 Hearing scheduled by Ann. 2008-42, 2008-19 I.R.B.943 REG-141399-07 Hearing cancelled by Ann. 2008-31, 2008-15 I.R.B.787 Revenue Procedures: 97-36 Modified by Rev. Proc. 2008-23, 2008-12 I.R.B.664 Revenue Procedures— Continued: 2001-23 Modified by Rev. Proc. 2008-23, 2008-12 I.R.B.664 2002-9 Modified by Rev. Proc. 2008-18, 2008-10 I.R.B.573 Modified and amplified by Rev. Proc. 2008-25, 2008-13 I.R.B.686 2007-1 Superseded by Rev. Proc. 2008-1, 2008-1 I.R.B.1 2007-2 Superseded by Rev. Proc. 2008-2, 2008-1 I.R.B.90 2007-3 Superseded by Rev. Proc. 2008-3, 2008-1 I.R.B.110 2007-4 Superseded by Rev. Proc. 2008-4, 2008-1 I.R.B.121 2007-5 Superseded by Rev. Proc. 2008-5, 2008-1 I.R.B.164 2007-6 Superseded by Rev. Proc. 2008-6, 2008-1 I.R.B.192 2007-7 Superseded by Rev. Proc. 2008-7, 2008-1 I.R.B.229 2007-8 Superseded by Rev. Proc. 2008-8, 2008-1 I.R.B.233 2007-26 Obsoleted in part by Rev. Proc. 2008-17, 2008-10 I.R.B.549 2007-31 Obsoleted in part by Rev. Proc. 2008-19, 2008-11 I.R.B.594 2007-39 Superseded by Rev. Proc. 2008-3, 2008-1 I.R.B.110 2007-52 Superseded by Rev. Proc. 2008-9, 2008-2 I.R.B.258 2008-13 Corrected by Ann. 2008-15, 2008-9 I.R.B.511 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26, 2007. May 27, 2008iv2008–21 I.R.B. Revenue Rulings: 56-127 Obsoleted by T.D. 9391, 2008-20 I.R.B.945 58-612 Clarified and amplified by Rev. Rul. 2008-15, 2008-12 I.R.B.633 64-250 Amplified by Rev. Rul. 2008-18, 2008-13 I.R.B.674 89-42 Modified and superseded by Rev. Rul. 2008-17, 2008-12 I.R.B.626 92-19 Supplemented in part by Rev. Rul. 2008-19, 2008-13 I.R.B.669 97-31 Modified and superseded by Rev. Rul. 2008-17, 2008-12 I.R.B.626 2001-48 Modified and superseded by Rev. Rul. 2008-17, 2008-12 I.R.B.626 2005-28 Clarified and superseded by Rev. Rul. 2008-26, 2008-21 I.R.B.985 2007-4 Supplemented and superseded by Rev. Rul. 2008-3, 2008-2 I.R.B.249 2008-22 Modified by Ann. 2008-46, 2008-20 I.R.B.983 Treasury Decisions: 8697 Corrected by Ann. 2008-38, 2008-17 I.R.B.851 9273 Corrected by Ann. 2008-33, 2008-16 I.R.B.826 9362 Corrected by Ann. 2008-9, 2008-7 I.R.B.444 Ann. 2008-12, 2008-7 I.R.B.446 9363 Corrected by Ann. 2008-10, 2008-7 I.R.B.445 9368 Corrected by Ann. 2008-29, 2008-15 I.R.B.786 Ann. 2008-30, 2008-16 I.R.B.825 9375 Corrected by Ann. 2008-16, 2008-9 I.R.B.511 Treasury Decisions— Continued: 9386 Corrected by Ann. 2008-35, 2008-17 I.R.B.849 2008–21 I.R.B.vMay 27, 2008 INDEX Internal Revenue Bulletins 2008–1 through 2008–21 The abbreviation and number in parenthesis following the index entry refer to the specific item; numbers in roman and italic type following the parenthesis refers to the Internal Revenue Bulletin in which the item may be found and the page number on which it appears. Key to Abbreviations: AnnAnnouncement CDCourt Decision DODelegation Order EOExecutive Order PLPublic Law PTEProhibited Transaction Exemption RPRevenue Procedure RRRevenue Ruling SPRStatement of Procedural Rules TCTax Convention TDTreasury Decision TDOTreasury Department Order EMPLOYEE PLANS Alternative funding schedule, amortization (Ann 2) 3,307 Automatic contribution agreements,hearing for REG–133300–07 (Ann 34) 17,849 Benefit restrictions for underfunded pension plans, hearing for REG–113891–07 (Ann 4) 2,269 Claims submitted to IRS Whistleblower Office under section 7623 (Notice 4) 2,253 Defined benefit plans: Accrued benefits (RR 7) 7,419 Measurement of assets and liabilities for pension funding pur- poses (REG–139236–07) 9,491; hearing scheduled (Ann 42) 19,943 Defined contribution plans: Diversification of employer securities, extension of certain transitional rules (Notice 7) 3,276 Diversification requirements for certain defined contribu- tion plans and to publicly traded employer securities (REG–136701–07) 11,616 Determination letters, issuing procedures (RP 6) 1,192 Economic stimulus payments, tax-favored accounts (Ann 44) 20, 982 Full funding limitations, weighted average interest rates, seg- ment rates for: January 2008 (Notice 17) 4,316 February 2008 (Notice 24) 8,466 March 2008 (Notice 37) 12,654 April 2008 (Notice 45) 17,835 May 2008 (Notice 50) 21,1010 Interim standards under section 6694(a) (Notice 46) 18,868 EMPLOYEE PLANS—Cont. Letter rulings: And determination letters, areas which will not be issued from: Associates Chief Counsel and Division Counsel (TE/GE) (RP 3) 1,110 Associate Chief Counsel (International) (RP 7) 1,229 And general information letters, procedures (RP 4) 1,121 User fees, request for letter rulings (RP 8) 1,233 Master and prototype (M&P) andvolume submitter (VS) plans, EGTRRA opinion and advisory letters (Ann 23) 14,731 Mortality tables, disability (Notice 29) 12,637 Multiemployer plan funding guidance (REG–151135–07) 16, 815 Pension plan amendments, notice requirements, significantly re- ducing rate of future benefit accrual (REG–110136–07) 17, 838 Performance-based compensation (RR 13) 10,518 Proposed Regulations: 26 CFR 1.401, 1.402, 1.411, 1.414, and 54.4979; automatic contribution arrangements, hearing for REG–133300–07 (Ann 34) 17,849 26 CFR 1.401(a)(35)–1, added; diversification requirements for certain defined contribution plans and to publicly traded employer securities (REG–136701–07) 11,616 26 CFR 1.411(a)(13)–1, added; 1.411(b)(5)–1, added; hy- brid retirement plans (REG–104946–07) 11,596; hearing scheduled (Ann 47) 20,983 26 CFR 1.411(d)–3, amended; 54.4980F–1, amended; no- tice requirements for certain pension plan amendments significantly reducing the rate of future benefit accrual (REG–110136–07) 17,838 26 CFR 1.430; 1.436; benefit restrictions for underfunded pension plans, hearing for REG–113891–07 (Ann 4) 2,269 26 CFR 1.430(a)–1, (j)–1, added; 54.4971(c)–1, added; determination of minimum required pension contributions (REG–108508–08) 19,923 26 CFR 1.430(d)–1, added; 1.430(g)–1, added; 1.430(h)(2)–1, added; 1.430(i)–1, added; measurement of assets and liabilities for pension funding purposes (REG–139236–07) 9,491; hearing scheduled (Ann 42) 19,943 26 CFR 1.432(a)–1, (b)–1, added; multiemployer plan fund- ing guidance (REG–151135–07) 16,815 Qualified retirement plans: Determination of minimum required pension contributions (REG–108508–08) 19,923 Distributions (Notice 30) 12,638 Hybrid retirement plans (REG–104946–07) 11,596; hearing scheduled (Ann 47) 20,983 Stocks, statutory stock options, information reporting require- ments (Notice 8) 3,276 Supplemental healthinsurance, HIPAA (Notice 23) 7,433 Technical advice to IRS employees (RP 5) 1,164 Transitional guidance for new funding rules and funding-related benefits limitations under PPA ’06, uniform effective date (No- tice 21) 7,431 May 27, 2008vi2008–21 I.R.B. EMPLOYMENT TAX Claims submitted to IRS Whistleblower Office under section 7623 (Notice 4) 2,253 Corporations, S corporation, status in reorganization where S corporation becomes a QSub of newly formed holding com- pany, assignment of EINs (RR 18) 13,674 Frivolous tax return positions (Notice 14) 4,310 Interest-free adjustments and claims for refund of employment taxes (REG–111583–07) 4,319 Interim standards under section 6694(a) (Notice 46) 18,868 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1 Proposed Regulations: 26 CFR 31.6011(a)–1, –4, –5, amended; 31.6205–1, amended; 31.6302–0, –1, amended; 31.6402(a)–1, –2, amended; 31.6413(a)–2, amended; 31.6414–1, amended; interest-free adjustments and claims for refund of employ- ment taxes (REG–111583–07) 4,319 Technical Advice Memoranda (TAMs) (RP 2) 1,90 ESTATE TAX Claims submitted to IRS Whistleblower Office under section 7623 (Notice 4) 2,253 Election to value on alternate valuation date (REG–112196–07) 21,1021 Frivolous tax return positions (Notice 14) 4,310 Grantor’s retained power to substitute assets of equivalent value (RR 22) 16,796; correction (Ann 46) 20,983 Interim standards under section 6694(a) (Notice 46) 18,868 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1 Proposed Regulations: 26 CFR 20.2032–1, amended; gross estate, election to value on alternate valuation date (REG–112196–07) 21,1021 26 CFR 26.2642–7, added; 301.9100–3, amended; regula- tions under section 2642(g) (REG–147775–06) 19,916 Qualified tuition programs, applicable transfer tax provi- sions, publication of advance notice of proposed rulemaking (REG–127127–05) (Ann 17) 9,512 Relief under section 2642(g)(1) (REG–147775–06) 19,916 Technical Advice Memoranda (TAMs) (RP 2) 1,90 EXCISE TAX Claims submitted to IRS Whistleblower Office under section 7623 (Notice 4) 2,253 Corporations, S corporation, status in reorganization where S corporation becomes a QSub of newly formed holding com- pany, assignment of EINs (RR 18) 13,674 Frivolous tax return positions (Notice 14) 4,310 Insurance excise tax treatment of premiums paid by one foreign insurer to another (RR 15) 12,633 Interim standards under section 6694(a) (Notice 46) 18,868 EXCISE TAX—Cont. Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1 Proposed Regulations: 26 CFR 1.430(a)–1, (j)–1, added; 54.4971(c)–1, added; determination of minimum required pension contributions (REG–108508–08) 19,923 Qualified retirement plans, determination of minimum required pension contributions (REG–108508–08) 19,923 Regulations: 26 CFR 1.501(c)(3)–1, amended; 53.4958–2, amended; stan- dards for recognition of tax-exempt status if private benefit exists or if an applicable tax-exempt organization has en- gaged in excess benefit transaction(s) (TD 9390) 18,855 Supplemental healthinsurance, HIPAA (Notice 23) 7,433 Tax-exempt status, standards for recognition if private benefit ex- ists or if applicable tax-exemptorganization engaged in excess benefit transaction(s) (TD 9390) 18,855 Technical Advice Memoranda (TAMs) (RP 2) 1,90 Voluntary compliance program for foreign insurers and reinsur- ers subject to insurance excise tax imposed by section 4371 (Ann 18) 12,667 EXEMPT ORGANIZATIONS Annual notice to donors regarding pending and settled declara- tory judgment suits (Ann 1) 1,246 Claims submitted to IRS Whistleblower Office under section 7623 (Notice 4) 2,253 Declaratory judgment suits (Ann 48) 20,983 Forms: 990-T: Procedures to request a 501(c)(3) organization’s Form 990-T (Ann 21) 13,691 Public inspection of Form 990-T (Notice 49) 20,979 Frivolous tax return positions (Notice 14) 4,310 Interim standards under section 6694(a) (Notice 46) 18,868 Letter rulings: And determination letters: Areas which will not be issued from Associates Chief Counsel and Division Counsel (TE/GE) (RP 3) 1,110 Exemption application determination letter rulings under sections 501 and 521 (RP 9) 2,258 And general information letters, procedures (RP 4) 1,121 User fees, request for letter rulings (RP 8) 1,233 List of organizations classifiedas private foundations (Ann 13) 8,476; (Ann 28) 14,733; (Ann 37) 17,850; (Ann 40) 19,941 Proposed Regulations: 26 CFR 1.664–1, amended; guidance under section 664 regarding the effect of unrelated business taxable income (UBTI) on charitable remainder trusts (REG–127391–07) 13,689 2008–21 I.R.B.viiMay 27, 2008 EXEMPT ORGANIZATIONS—Cont. Regulations: 26 CFR 1.501(c)(3)–1, amended; 53.4958–2, amended; stan- dards for recognition of tax-exempt status if private benefit exists or if an applicable tax-exempt organization has en- gaged in excess benefit transaction(s) (TD 9390) 18,855 Revocations (Ann 3) 2,269;(Ann14)8,477; (Ann 20) 11,625; (Ann 22) 13,692; (Ann 32) 16,826; (Ann 45) 20,982;(Ann 49) 21,1024 Tax-exempt status, standards for recognition if private benefit ex- ists or if applicable tax-exemptorganization engaged in excess benefit transaction(s) (TD 9390) 18,855 Technical advice to IRS employees (RP 5) 1,164 Transitional relief and filing procedures, charitable trust (Notice 6) 3,275 Trusts, charitable remainder trusts, calculation of excise tax on unrelated business taxable income (UBTI) (REG–127391–07) 13,689 GIFT TAX Claims submitted to IRS Whistleblower Office under section 7623 (Notice 4) 2,253 Frivolous tax return positions (Notice 14) 4,310 Interim standards under section 6694(a) (Notice 46) 18,868 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1 Qualified tuition programs, applicable transfer tax provi- sions, publication of advance notice of proposed rulemaking (REG–127127–05) (Ann 17) 9,512 Technical Advice Memoranda (TAMs) (RP 2) 1,90 INCOME TAX Accounting methods: Procedure for election under section 1361(g) for banks (RP 18) 10,573 Safe harbor method of accounting for payroll taxes (RP 25) 13,686 Accounts and notes receivable, section 1221(a)(4) capital asset exclusion, REG–109367–06 withdrawn (Ann 41) 19,943 Advance Pricing Agreement (APA) Program, annual report to the public, 2007 (Ann 27) 15,751 Allocation of section 179D deduction to designers of government owned buildings, certification requirements for interim light- ing rule, application of interim lighting rule to unconditioned garage space (Notice 40) 14,725 Annual notice to donors regarding pending and settled declara- tory judgment suits (Ann 1) 1,246 Annuity contracts, partial exchange (RP 24) 13,684 Calculating and apportioning the section 11(b)(1) additional tax under section 1561 for controlled groups (TD 9369) 6,394; (REG–104713–07) 6,409 Capital assets, musical compositions (TD 9379) 14,715; (REG–153589–06) 14,730 INCOME TAX—Cont. Capitalization of amounts paid to acquire, produce, or improve tangible property (REG–168745–03) 18,871 Cell captive guidance: Insurance, protected cell company (Notice 19) 5,366 Insurance, risk shifting and risk distribution (RR 8) 5,340 Certain outbound reorganizations and section 351 exchanges (Notice 10) 3,277 Charitable contributions: Appreciated property, Scorporation (RR 16) 11,585 Recordkeeping requirements (Notice 16) 4,315 Claims submitted to IRS Whistleblower Office under section 7623 (Notice 4) 2,253 Clarification of transitional relief under Notice 2007–54 (Notice 11) 3,279 Coal project program, special allocation round for qualifying ad- vanced coal projects (Notice 26) 9,487 Consolidated returns: Intercompany insurance transactions, withdrawal of a portion of REG–107592–00 (Ann 25) 14,732 Loss disallowance (Notice 9) 3,277 Consumer Price Index (CPI) adjustments, certain loans under section 1274A for 2008 (RR 3) 2,249 Contingent fees under Circular 230 (Notice 43) 15,748 Corporations: Entity classification, foreign entities, per se corporations (TD 9388) 17,832; (REG–143468–07) 17,848 Health insurance costs of 2-percent shareholder-employees, S corporation (Notice 1) 2,251 S corporations: Charitable contributions, appreciated property (RR 16) 11, 585 Status in reorganization where S corporation becomes a QSub of newly formed holding company, assignment of EINs (RR 18) 13,674 Succession to items of a liquidating corporation by members of a consolidated group (TD 9376) 11,587 Credits: Alternative motor vehicle credit, qualified fuel cell motor ve- hicles (Notice 33) 12,642 Energy efficient home credit, calculation of heating and cool- ing energy consumption: Dwelling unit (Notice 35) 12,647 Manufactured home (Notice 36) 12,650 Foreign tax credit: Redeterminations, correction to T.D. 9362 (Ann 9) 7,444; additional correction to TD 9362 (Ann 12) 7,446;cor- rection to REG–209020–86 (Ann 11) 7,445 Reduction of foreign tax credit limitation categories un- der section 904(d) (TD 9368) 6,382; corrections (Ann 29) 15,786; additional corrections (Ann 30) 16,825; (REG–114126–07) 6,410; hearing cancellation (Ann 36) 16,827 Increasing research activities,centralized filing of certain claims (Notice 39) 13,684 May 27, 2008viii2008–21 I.R.B. INCOME TAX—Cont. Low-income housing credit: 2008 population figures used for calculation (Notice 22) 8, 465 Indian Housing Block Grant (IHBG) Program (RR 6) 3, 271 Nonconventional source fuel credit, inflation adjustment factor and phase-out amount for CY 2007 (Notice 44) 16,799 Satisfactory bond, “bond factor” amounts for the period: January through March 2008 (RR 2) 2,247 January through June 2008 (RR 21) 15,734 Renewable electricity, refined coal, and Indian coal produc- tion credit, 2008 inflation adjustment (Notice 48) 21,1008 Declaratory judgment suits (Ann 48) 20,983 Deductions: Certain itemized, federal taxable income (CD 2085) 17,828 Dependency exemption, qualifying relative (Notice 5) 2,256 Depreciation, 2008 limitations on depreciation deductions for passenger automobiles (RP 22) 12,658 Designated and related summonses, effect on period of lim- itations on assessment whencase brought with respect to (REG–208199–91) 21,1017 Disciplinary actions involving attorneys, certified public accoun- tants, enrolled agents, and enrolled actuaries (Ann 5) 4,333; announcement of new format (Ann 50) 21,1024 Disclosure of return information: In connection with written contracts among the IRS, whistle- blowers, and legal representatives of whistleblowers (TD 9389) 18,863; (REG–114942–07) 18,901 To the Bureau of the Census (TD 9372) 8,462; (TD 9373) 8, 463; (REG–147832–07) 8,480 Disposition of investment in United States real property (RP 27) 21,1014 Domestic production activities, Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) amendments to section 199 (TD 9381) 14,694 Economic stimulus payments: Filing instructions (Notice 28) 10,546 Tax-favored accounts (Ann 44) 20,982 Electronic tax administration, guidance necessary to facilitate – updating section 7216 regulations (TD 9375) 5,344; correction (Ann 16) 9,511 Employee leasing arrangements, reimbursement of per diem (RR 23) 18,852 Employer-provided vehicles, cents-per-mile valuation rule, max- imum vehicle values (RP 13) 6,407;correction(Ann15)9, 511 Exclusions from gross income, update of Rev. Rul. 2001–48 (RR 17) 12,626 Exemptions, dependents, hearing on REG–149856–03 (Ann 26) 13,693 Federal tax lien: Procedures for obtaining release or discharge (TD 9378) 14, 720 Validity and priority of federal tax lien against certain persons (REG–141998–06) 19,911 INCOME TAX—Cont. Foreign base company sales income rules, application (REG–124590–07) 16,801 Foreign currency, debt characterization, exchange traded notes, prepaid forwards (RR 1) 2,248 Forms, use of Form 13976, Itemized Statement Component of Advisee List, section 6112 list (RP 20) 20,980 Frivolous tax return positions (Notice 14) 4,310 GO Zone bonus depreciation recapture, like-kind exchanges and involuntary conversions (Notice 25) 9,484 Guidance Priority List, recommendations for 2008–2009 (Notice 47) 18,869 Guidance to: Government entities regarding a requirement to withhold on certain payments made by them (Notice 38) 13,683 Tax return preparers, consents to disclose and consents to use tax return information in the Form 1040 series (RP 12) 5, 368 Health Savings Accounts (HSAs), employer comparable contri- butions (TD 9393) 20,975 Income tax returns, 2007, guidance for the Service not challeng- ing the accuracy of 2007 returns filed in compliance with No- tice 2008–28 (RP 21) 12,657 Information reporting, donees of qualified intellectual property contributions (TD 9392) 19,903 Insurance companies: Application of section 338 (TD 9377) 11,578 Diversification requirements under section 817 (TD 9385) 15, 735 Loss payment patterns and discount factors for the 2007 acci- dent year (RP 10) 3,290 Prevailing state assumed interest rate tables, 2008 (RR 19) 13, 669 Proposed AG VACARVM and Proposed Life PBR (Notice 18) 5,363 Salvage discount factors for the 2007 accident year (RP 11) 3, 301 Interest: Deductibility, application of section 163(d) to noncorporate limited partner that does not materially participate in a trader partnership’s trading activity (RR 12) 10,520 Investment: Federal short-term, mid-term, and long-term rates for: January 2008 (RR 4) 3,272 February 2008 (RR 9) 5,342 March 2008 (RR 11) 10,541 April 2008 (RR 20) 14,716 May 2008 (RR 24) 18,861 Rates: Underpayments and overpayments, quarter beginning: April 1, 2008 (RR 10) 13,676 Interim standards under section 6694(a) (Notice 13) 3,282; sup- plemental guidance (Notice 46) 18,868 Inventory, dollar-value last-in, first-out (LIFO) pooling method for certain resellers of cars and light-duty trucks (RP 23) 12, 664 2008–21 I.R.B.ixMay 27, 2008 INCOME TAX—Cont. Letter rulings: And determination letters, areas which will not be issued from: Associates Chief Counsel and Division Counsel (TE/GE) (RP 3) 1,110 Associate Chief Counsel (International) (RP 7) 1,229 And information letters issued by Associate Offices, determi- nation letters issued by Operating Divisions (RP 1) 1,1 Life insurance contracts, modifications of split-dollar arrange- ments (Notice 42) 15,747 Like–kind exchanges, safe harbor, rental property used for per- sonal purposes (RP 16) 10,547 Listed transaction under sections 6011, 6111, and 6112 (Notice 34) 12,645 Losses, deduction for abandonedstock or securities (TD 9386) 16,788; correction (Ann 35) 17,849 Marketing of refund anticipation loans (RALs) and certain other products in connection with thepreparation of a tax return (Ann 7) 5,379 Medicaid rebates (RR 26) 21,985 Mortgage insurance premiums, allocation and information re- porting for 2007 (Notice 15) 4,313 National and area median gross income figures, guidance for 2008 (RP 19) 11,594 Normalization accounting rules, application (TD 9387) 16,789 Partnerships: Application of section 163(d) to noncorporate limited partners in a trader partnership’s trading activity (RR 12) 10,520 Partner-level items in determining withholding tax, effec- tively connected U.S. trade or business income allocable to foreign partners (TD 9394) 21,988 Penalties, substantial understatement, preparer penalty (RP 14) 7,435 Performance-based compensation (RR 13) 10,518 Prepaid forward contracts, exchange traded notes (Notice 2) 2, 252 Preparer signature requirements under section 6695(b) (Notice 12) 3,280 Presidential Primary Matching Payment Account: Payments from (RP 15) 9,489 Timing of payments (TD 9382) 9,482; (REG–149475–07) 9, 510 Private foundations, organizations now classified as (Ann 13) 8, 476; (Ann 28) 14,733; (Ann 37) 17,850; (Ann 40) 19,941 Proposed Regulations: 26 CFR 1.152; dependent child of divorced or separated par- ents or parents who live apart, hearing on REG–149856–03 (Ann 26) 13,693 26 CFR 1.162–3, –4, revised; 1.162–6, removed; 1.263(a)–0, amended; 1.263(a)–1 thru –3, revised; 1.263A–1, amended; guidance regarding deduction and capitalization of expen- ditures related to tangible property (REG–168745–03) 18, 871 26 CFR 1.162–24, added; 301.9100–4T, amended; travel ex- penses of state legislators (REG–119518–07) 17,844 INCOME TAX—Cont. 26 CFR 1.468A–0 thru –9, added; nuclear decommissioning funds (REG–147290–05) 10,576; hearing scheduled (Ann 43) 19,944 26 CFR 1.664–1, amended; guidance under section 664 regarding the effect of unrelated business taxable income (UBTI) on charitable remainder trusts (REG–127391–07) 13,689 26 CFR 1.860A, 1.860G, modifications of commercial mort- gage loans held by a real estate mortgage investment con- duit (REMIC), hearing for REG–127770–07 (Ann 24) 13, 692 26 CFR 1.904–0, amended; 1.904(f)–1, –2, amended; 1.904(f)–7, –8, added; 1.904(g)–0 thru –3, added; 1.1502–9, revised; treatment ofoverall foreign and domes- tic losses (REG–141399–07) 8,470; hearing cancellation (Ann 31) 15,787 26 CFR 1.904–2(i), added; 1.904–4, –5, revised; 1.904–7(g), added; 1.904(f)–12(h), added; reduction of foreign tax credit limitation categories under section 904(d) (REG–114126–07) 6,410; hearing cancellation (Ann 36) 16,827 26 CFR 1.954–3, amended; guidance regarding foreign base company sales income (REG–124590–07) 16,801 26 CFR 1.1221–1, amended; section 1221(a)(4) capi- tal asset exclusion for accounts and notes receivable, REG–109367–06 withdrawn (Ann 41) 19,943 26 CFR 1.1221–3, added; time and manner for electing cap- ital asset treatment for certain self-created musical works (REG–153589–06) 14,730 26 CFR 1.1502–13, amended; amendment of matching rule for certain gains on member stock (REG–137573–07) 15, 750 26 CFR 1.1502–13(e)(2)(ii)(C), withdrawn from REG–107592–00; consolidated returns, intercompany obligations (Ann 25) 14,732 26 CFR 1.1561–0, –2, added; 1.1563–1, amended; calculating and apportioning the section 11(b)(1) additional tax under section 1561 for controlled groups (REG–104713–07) 6, 409 26 CFR 301.6103(j)(1)–1, amended; disclosure of return in- formation to the Bureau of the Census (REG–147832–07) 8,480 26 CFR 301.6103(n)–2, added; disclosure of return informa- tion in connection with written contracts among the IRS, whistleblowers, and legal representatives of whistleblow- ers (REG–114942–07) 18,901 26 CFR 301.6323(b)–1, (c)–2, (f)–1, (g)–1, (h)–1, amended; withdrawal of regulations under old section 6323(b)(10) (REG–141998–06) 19,911 26 CFR 301.6503(j)–1, added; suspension of running of pe- riod of limitations during a proceeding to enforce or quash a designated or related summons (REG–208199–91) 21, 1017 26 CFR 301.7701–2, amended; classification of certain for- eign entities (REG–143468–07) 17,848 May 27, 2008x2008–21 I.R.B. INCOME TAX—Cont. 26 CFR 702.9037–1, –2, revised; payments from the Presidential Primary Matching Payment Account (REG–149475–07) 9,510 Publications: Update to Publication 1187, Specifications for Filing Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, Electronically or Magnetically (Revised 12-2006) (Ann 6) 5,378;(Ann19)11,624 Qualified films under section 199 (TD 9384) 16,792 Qualified mortgage bonds (QMBs) and mortgage credit certifi- cates (MCCs), average area housing purchase prices for 2008 (RP 17) 10,549 Qualified tuition programs, applicable transfer tax provi- sions, publication of advance notice of proposed rulemaking (REG–127127–05) (Ann 17) 9,512 Real estate mortgage investment conduit (REMIC) commercial mortgage loan modification, hearing for REG–127770–07 (Ann 24) 13,692 Regulations: 26 CFR 1.1–1, amended; 1.170A–1, amended; 1.170A–1T, removed; 1.861–3, –8, amended; 1.861–3T, removed; 1.871–1, amended; 1.876–1, revised; 1.876–1T, re- moved; 1.881–1, –5, amended; 1.884–0, amended; 1.884–0T, removed; 1.901–1, amended; 1.901–1T, re- moved; 1.931–1, revised; 1.931–1T, removed; 1.932–1, revised; 1.932–1T, removed; 1.933–1, amended; 1.933–1T, removed; 1.934–1, revised; 1.934–1T, removed; 1.935–1, amended; 1.935–1T, removed; 1.937–1, amended; 1.937–2, –3, added; 1.937–2T, –3T, removed; 1.957–3, revised; 1.957–3T, removed; 1.1402(a)–12, revised; 1.1402(a)–12T, removed; 1.6012–1, amended; 1.6038–2, amended; 1.6038–2T, removed; 1.6046–1, amended; 1.6046–1T, removed; 301.6688–1, revised; 301.6688–1T, removed; 301.7701(b)–1, –9, amended; 301.7701(b)–1T, removed; source rules involving U.S. possessions and other conforming changes (TD 9391) 20,945 26 CFR 1.46–6, amended; 1.168(i)–3, added; application of normalization accounting rules to balances of excess de- ferred income taxes and accumulated deferred investment tax credits of publicutilities whose assets cease to be pub- lic utility property (TD 9387) 16,789 26 CFR 1.165–5, amended; abandonment of stock or other securities (TD 9386) 16,788; correction (Ann 35) 17,849 26 CFR 1.197–0, amended; 1.197–2(g)(5)(ii), revised; 1.197–2T, removed; 1.338–0, –1, –11, amended; 1.338–1T, –11T, removed; 1.338(i)–1, amended; 1.381(c)(22)–1(b)(7)(v), amended; 1.846–0, –4, amended; 1.846–2(d), revised; 602.101, amended; application of section 338 to insurance companies (TD 9377) 11,578 26 CFR 1.199–0 thru –4, –7 thru –9, amended; 1.199–2T, –3T, –5T, –7T, –8T, removed; 1.199–5, added; TIPRA amend- ments to section 199 (TD 9381) 14,694 26 CFR 1.199–0, –3, –7, –8, amended; qualified films under section 199 (TD 9384) 16,792 INCOME TAX—Cont. 26 CFR 1.367(b)–6, amended; stock transfer rules, carryover of earnings and taxes, correction to TD 9273 (Ann 33) 16, 826 26 CFR 1.468A–0 thru –8, removed; 1.468A–0T thru –9T, added; 602.101, amended; nuclear decommissioning funds (TD 9374) 10,521 26 CFR 1.817–5, amended; diversification requirements for variable annuity, endowment, and life insurance contracts under section 817 (TD 9385) 15,735 26 CFR 1.904–0, amended; 1.904(b)–0, added; 1.904(f)–0, –0T, –1T, –2T, –7, –7T, –8, –8T, added; 1.904(f)–1, –2, –3, amended; 1.904(g)–0, –0T, –1, –1T, –2, –2T, –3, –3T, added; 1.904(i)–0, added; 1.904(j)–0, added; 1.1502–9, re- vised; 1.1502–9T, added; treatment of overall foreign and domestic losses (TD 9371) 8,447 26 CFR 1.904–0, –2, –2T, –4, –4T, –5, –5T, –7, –7T, amended; 1.904(f)–12, –12T, amended; reduction of foreign tax credit limitation categories under section 904(d) (TD 9368) 6, 382; corrections (Ann 29) 15,786; additional corrections (Ann 30) 16,825 26 CFR 1.905–3T, –4T, amended;foreign tax credit, notifica- tion of foreign tax redeterminations, correction to TD 9362 (Ann 9) 7,444 26 CFR 1.1221–3T, added; time and manner for electing cap- ital asset treatment for certain self-created musical works (TD 9379) 14,715 26 CFR 1.1446–0, –3, –5(c)(2), amended; 1.1446–6T, re- moved; 1.1446–6, added; 1.1446–7, revised; 1.1464–1, amended; 1.6071–1, revised; 1.6091–1, added; 1.6151–1, amended; 1.6302–2, revised; 1.6414–1, amended; 301.6402–3, revised; 301.6722–1, revised; 602.101, amended; special rules to reduce section 1446 withholding (TD 9394) 21,988 26 CFR 1.1502–13, amended; 1.1502–13T, added; amend- ment of matching rule for certain gains on member stock (TD 9383) 15,738 26 CFR 1.1502–47T, added; 1.1561–0T, added; 1.1561–2, re- moved; 1.1561–2T, amended; 1.1563–1T, amended; calcu- lating and apportioning the section 11(b)(1) additional tax under section 1561 for controlled groups (TD 9369) 6,394 26 CFR 1.1502–80, amended; miscellaneous operating rules for successor persons, succession to items of the liquidating corporation (TD 9376) 11,587 26 CFR 1.6050L–2, added; 1.6050L–2T, removed; 602.101, amended; information returns by donees relating to quali- fied intellectual property contributions (TD 9392) 19,903 26 CFR 54.4980G–0, –4, amended; employer comparable contributions to Health Savings Accounts (HSAs) under section 4980G (TD 9393) 20,975 26 CFR 300.0, amended; 300.7, .8, added; user fees relating to enrollment to perform actuarial services (TD 9370) 7,428 26 CFR 301.6020–1, added; 301.6020–1T, removed; substi- tute for return (TD 9380) 14,718 26 CFR 301.6103(j)(1)–1, amended; disclosure of return in- formation to the Bureau of the Census (TD 9372) 8,462 2008–21 I.R.B.xiMay 27, 2008 INCOME TAX—Cont. 26 CFR 301.6103(j)(1)–1T, amended; disclosure of return in- formation to the Bureau of the Census (TD 9373) 8,463 26 CFR 301.6103(n)–2T, added; disclosure of return informa- tion in connection with written contracts among the IRS, whistleblowers, and legal representatives of whistleblow- ers (TD 9389) 18,863 26 CFR 301.6325–1, amended; 301.6503(f)–1, amended; 301.7426–1, amended; 401.6325–1, removed; release of lien or discharge of property (TD 9378) 14,720 26 CFR 301.7216–0, added; 301.7216–1, –2, –3, revised; guidance necessary to facilitate electronic tax administra- tion, update (TD 9375) 5,344;correction(Ann16)9,511 26 CFR 301.7701–2(b)(8)(i), amended; simplification of en- tity classification rules, correctiontoTD8697(Ann38)17, 851 26 CFR 301.7701–2(b)(8)(vi), (e)(7), added; 301.7701–2T, added; classification of certain foreign entities (TD 9388) 17,832 26 CFR 702.9037–1, –2, amended; 702.9037–1T, –2T, added; payments from the Presidential Primary Matching Payment Account (TD 9382) 9,482 Reissuance standards for state or local bonds (Notice 27) 10,543; (Notice 41) 15,742 Returns required on magnetic media, corrections to TD 9363 (Ann 10) 7,445 Revocations, exempt organizations (Ann 3) 2,269; (Ann 14) 8, 477;(Ann20)11,625; (Ann 22) 13,692; (Ann 32) 16,826; (Ann 45) 20,982;(Ann49)21,1024 Safe harbor, guidance for the Service not challenging the accu- racy of 2007 returns filed incompliance with Notice 2008–28 (RP 21) 12,657 Section 67 limitations on estates or trusts for bundled investment management and advisory costs (Notice 32) 11,593 Securities, readily marketable for purposes of section 956(c)(2)(J) (RP 26) 21,1014 Simplification of entity classification rules, correction to TD 8697 (Ann 38) 17,851 Standard Industry Fare Level (SIFL) formula (RR 14) 11,578 Stocks: Losses, deduction for abandoned stock or securities (TD 9386) 16,788; correction (Ann 35) 17,849 Qualified stock purchase (QSP), reverse subsidiary merger, step transaction (RR 25) 21,986 Redetermination of intercompany gain as excluded from gross income (TD 9383) 15,738; (REG–137573–07) 15,750 Statutory stock options, information reporting requirements (Notice 8) 3,276 Stock transfer rules, carryover of earnings and taxes, correc- tion to TD 9273 (Ann 33) 16,826 Substitute for return (TD 9380) 14,718 Tax conventions: Exclusions from gross income, update of Rev. Rul. 2001–48 (RR 17) 12,626 Insurance excise tax treatment of premiums paid by one for- eign insurer to another (RR 15) 12,633 INCOME TAX—Cont. Updated tax tables for Belgium, Denmark, Finland, and Ger- many tax conventions (Ann 8) 6,403 U.S.-Germany, guidance on MAP arbitration procedures un- derGermanTreaty(Ann39)18,867 U.S.-Mexico income tax treaty, treatment of Mexico’s im- puesto empresarial a tasa unica (IETU) (Notice 3) 2,253 Voluntary compliance program for foreign insurers and rein- surers subject to insurance excise tax imposed by section 4371 (Ann 18) 12,667 Tax evasion, return-of-capital treatment (CD 2086) 19,905 Tax shelter, listed transactions (Notice 20) 6,406 Technical Advice Memoranda (TAMs) (RP 2) 1,90 Travel expenses of state legislators (REG–119518–07) 17,844 Treatment of overall foreign and domestic losses (TD 9371) 8, 447; (REG–141399–07) 8,470; hearing cancellation (Ann 31) 15,787 Trusts: Charitable remainder trusts, calculation of excise tax on unre- lated business taxable income (UBTI) (REG–127391–07) 13,689 Deductions for contributions to qualified nuclear decommis- sioning trusts (TD 9374) 10,521; (REG–147290–05) 10, 576; hearing scheduled (Ann 43) 19,944 U.S. territories, American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, U.S. Virgin Islands, source of income, filing requirements (TD 9391) 20,945 User fees relating to enrollment to perform actuarial services (TD 9370) 7,428 Voluntary closing agreement program for tax-exempt bonds and tax credit bonds (TEB VCAP) (Notice 31) 11,592 Wash sales, individual retirement accounts, Roth IRAs (RR 5) 3, 271 Withholding of tax on disposition of United States real property interests (RP 27) 21,1014 SELF-EMPLOYMENT TAX Claims submitted to IRS Whistleblower Office under section 7623 (Notice 4) 2,253 Frivolous tax return positions (Notice 14) 4,310 Interim standards under section 6694(a) (Notice 46) 18,868 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1 Technical Advice Memoranda (TAMs) (RP 2) 1,90 May 27, 2008xii2008–21 I.R.B. 2008–21 I.R.B.May 27, 2008 May 27, 20082008–21 I.R.B. 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