Internal Revenue Bulletin 2008-7 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 200
8-7
February 19, 200
8
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.
EMPLOYEE PLANS
Rev. Rul. 2008–7, page 419.
Accrued benefits; cash balance defined benefit pension
plans; section 411 of the Code.This ruling, which pertains
to a traditional defined benefit pension plan that is amended
in 2001 for the 2002 plan year into a cash balance defined
benefit pension plan containing an accrued benefit formula that
is a lump sum-based benefit, describes the application of the
accrual rules of sections 411(b)(1)(A), (B), and (C) of the Code
to the fact pattern.
Notice 2008–21, page 431.
Funding; effective date; proposed regulations under sec-
tions 430 and 436.This notice alerts taxpayers of a uniform
effective date of certain proposed regulations under sections
430 and 436 of the Code. In addition, this notice provides
2008 transitional guidance under section 436 for small plans
with end of the plan year valuation dates.
Notice 2008–23, page 433.
This notice provides a safe harbor with conditions under which
supplemental health insurance is considered excepted from the
requirements of HIPAA and related legislation under chapter
100 (sections 9801–9833) of the Code.
EXCISE TAX
Notice 2008–23, page 433.
This notice provides a safe harbor with conditions under which
supplemental health insurance is considered excepted from the
requirements of HIPAA and related legislation under chapter
100 (sections 9801–9833) of the Code.
ADMINISTRATIVE
T.D. 9370, page 428.
Final regulations under 31 USC 9701 implement new user fees
for the initial and renewed enrollment to become an enrolled
actuary. The new user fees established by the Treasury deci-
sion reflect the IRS’s costs of overseeing the initial enrollment
and renewal of enrollment processes. The regulations estab-
lish a $250 user fee for initial enrollment and a $250 user fee
for renewal of enrollment.
Rev. Proc. 2008–14, page 435.
This procedure provides guidance concerning when informa-
tion shown on a return in accordance with the applicable forms
and instructions will be adequate disclosure for purposes of
reducing an understatement of income tax under sections
6662(d) and 6694(a) of the Code.
Announcement 2008–9, page 444.
Announcement 2008–11, page 445.
Announcement 2008–12, page 446.
These documents contain corrections to temporary regulations
(T.D. 9362, 2007–48 I.R.B. 1050) and proposed regulations
(REG–209020–86, 2007–48 I.R.B. 1075) relating to a United
States taxpayer’s obligation under section 905(c) of the Code
to notify the IRS of a foreign tax redetermination, which is a
change in the taxpayer’s foreign tax liability that may affect the
taxpayer’s foreign tax credit. The regulations also relate to the
civil penalty under section 6689 for failure to notify the IRS of a
foreign tax redetermination as required under section 905(c).
Announcement 2008–10, page 445.
This document contains corrections to final regulations (T.D.
9363, 2007–49 I.R.B. 1084) relating to the requirements for
filing corporate income tax returns and returns of organizations
required to file returns under section 6033 on magnetic media
pursuant to section 6011(e) of the Code.
Announcements of Disbarments and Suspensions begin on page 438.
Finding Lists begin on page ii.

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.
February 19, 20082008–7 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 411
.—Minimum
Vesting St
andards
26 CFR 1.411
(b)–1: Accrued benefit requirements.
(Also,§780
5; § 301.7805–1.)
Accrued be
nefits; cash balance de-
fined bene
fit pension plans; section 411
of the Code
.This ruling, which pertains to
a traditio
nal defined benefit pension plan
that is ame
nded in 2001 for the 2002 plan
year into
a cash balance defined benefit
pension p
lan containing an accrued bene-
fit formu
la that is a lump sum-based bene-
fit, desc
ribes the application of the accrual
rules of s
ections 411(b)(1)(A), (B), and (C)
of the Co
de to the fact pattern.
Rev. Rul
. 2008–7
ISSUE
Does the
defined benefit plan described
below th
at was converted from a tradi-
tional b
enefit formula to a lump sum-based
benefit
formula satisfy the accrual rules of
§411(b
)(1)(A), (B), and (C) of the Internal
Revenu
e Code for the 2002 plan year?
FACTS
Plan A i
s a defined benefit pension plan
that (p
rior to the amendment described be-
low) provid
ed a normal retirement benefit
payable in
the form of a straight life annu-
ity commen
cing at the age 65 normal re-
tirement a
ge under the plan equal to the
product of
1.1% of average compensation
for the th
ree consecutive years of service
with the h
ighest such average multiplied
by the num
ber of years of service at normal
retireme
nt age. Under Plan A, the accrued
benefit (
prior to the amendment described
below) o
f a participant at any point prior to
attainm
ent of normal retirement age is the
benefit
, payable in the form of a straight
life ann
uity commencing at the age 65 nor-
mal ret
irement age, equal to the product
of 1.1%
of the participant’s highest aver-
age com
pensation at such point multiplied
by the p
articipant’s number of years of ser-
vice at
such point. Plan A provides that an
emplo
yee commences participation in the
plan o
n the first day of the first month af-
ter co
mmencing employment, or, if later,
the fi
rst day of the first month following
attai
nment of age 21.
Plan A
was amended in 2001 to change
the pl
an’s benefit formula effective for
plan
years beginning on or after January 1,
2002
. The new benefit formula is a “lump
sum-
based” benefit formula as further de-
scri
bed below. Under the lump sum-based
bene
fit formula, a hypothetical account is
created for
each participant. For partici-
pants who w
ere employees on December
31, 2001, t
he opening account balance
was equal t
o the actuarial present value
of the part
icipant’s accrued benefit deter-
mined as o
f that date. Under Plan A, this
actuaria
l present value was determined
using the
applicable interest rate, post-re-
tirement
mortality using the applicable
mortalit
y table specified under § 417(e)(3)
for 2002
, and no pre-retirement mortality.
Thereaf
ter, the hypothetical account bal-
ance is c
redited with hypothetical interest
at the ra
te of interest on 3-year Treasury
Consta
nt Maturities for the month prior to
the fir
st day of the plan year plus 25 basis
points
(for the 2002 plan year, the rate of
intere
st was determined as 3.87%, which
is 3.62
%, the yield on 3-year Treasury
Const
ant Maturities for December 2001,
plus 2
5 basis points). Additionally, the
hypot
hetical account for each participant
is cre
dited at the end of each accrual com-
putat
ion period (which is the plan year)
with
pay credits that are determined as a
perc
entage of compensation for the partic-
ipan
t for the plan year. The percentage is
dete
rmined, based upon the age of the par-
tici
pant at the beginning of the plan year,
in a
ccordance with the following table:
Age at Beginning of YearPercentage
25 or less
3
26–404
41–505
51–60
6
61 or more7
The annual benefit payable at the age 65
normal retirement age under the new bene-
fit formula is determined by converting the
hypothetical account balance at that time
to a straight life annuity. The plan provides
for the conversion to a straight life annu-
ity to be made using the applicable interest
rate and applicable mortality table, defined
as the 30-year Treasury rate as published
by the Commissioner of Internal Revenue
under § 417(e)(3) for the month prior to the
beginning of the plan year, and the mor-
tality table published by the Commissioner
under § 417(e)(3). For 2002, that applica-
ble interest rate was 5.48% and that appli-
cable mortality table was the mortality ta-
ble set forth in Revenue Ruling 2001–62,
2001–2 C.B. 632.
The amendment to Plan A also changed
how the accrued benefit of a participant
is determined under the plan. For partic-
ipants who were employed on December
31, 2001, had completed 15 years of ser-
vice, and had attained age 50 as of that
date, Plan A provides that the accrued ben-
efit will be the greater of the accrued ben-
efit provided by thehypothetical account
balance at the age 65 normal retirement
age (determined as described above) and
the accrued benefit determined under the
pre-conversion formula as in effect on De-
cember 31, 2001, taking into account com-
pensation and years of service after De-
cember 31, 2001, but not taking into ac-
count compensation and years of service
after December 31, 2005. Plan A refers to
such participants as grandfathered partici-
pants. The accrued benefit provided by the
hypothetical account balance at the age 65
normal retirement age is equal to the hy-
pothetical account balance at that age (in-
cluding projected interest credits under the
2008–7 I.R.B.419February 19, 2008

plan to age 65), converted to a straight life
annuity commencing at age 65 using the
applicable interest rate and applicable mor-
tality table.
For participants who were employed on
December 31, 2001, and who either had
not completed 15 years of service or had
not attained age 50 as of that date (i.e.,par-
ticipants who are not grandfathered partic-
ipants), Plan A provides that the accrued
benefit at any point in time is determined
as the greater of (1) the accrued benefit
determined under the terms of the plan
under the pre-conversion formula imme-
diately before the amendment, but taking
into account only service and compensa-
tion through December 31, 2001, and (2)
the accrued benefit provided by the hy-
pothetical account balance at the age 65
normal retirement age (determined as de-
scribed above). Accordingly, compensa-
tion increases and years of service after
December 31, 2001, are not taken into ac-
count in determining the accrued benefit
under the pre-conversion formula.
For all new participants (i.e.,those em-
ployees who commencedparticipation on
or after January 1, 2002), the accrued ben-
efit at any point is the accrued benefit pro-
vided by the hypothetical account balance
at the age 65 normal retirement age (deter-
mined as described above).
LAW
Section 401(a)(7) provides that a trust
is not a qualified trust under § 401 unless
the plan of which such trust is a part satis-
fies the requirements of § 411 (relating to
minimum vesting standards).
Section 411(a) requires a qualified plan
to provide that an employee’s right to the
normal retirement benefit is nonforfeitable
upon attainment of normal retirement age
and that an employee’s right to his or her
accrued benefit is nonforfeitable upon
completion of the specified number of
years of service under one of the vesting
schedules set forth in § 411(a)(2). Sec-
tion 411(a) also requires that a defined
benefit plan satisfy the requirements of
§ 411(b)(1).
Section 411(a)(7)(A)(i) defines a par-
ticipant’s accrued benefit under a defined
benefit plan as the employee’s accrued
benefit determined under the plan, ex-
pressed in the form of an annual benefit
commencing at normal retirement age,
subject to an exception for § 411(c)(3).
Under § 411(c)(3), the accrued benefit is
the actuarial equivalent of the annual ben-
efit commencing at normal retirement age
in the case of a plan that does not express
the accrued benefit as an annual benefit
commencing at normal retirement age.
Section 1.411(a)–7(a)(1) of the Income
Tax Regulations provides that, for pur-
poses of § 411 and the regulations thereun-
der, the accrued benefit of a participant un-
der a defined benefit plan is either (A) the
accrued benefit determined under the plan
if the plan provides for an accrued bene-
fit in the form of an annual benefit com-
mencing at normal retirement age or (B)
an annual benefit commencing at normal
retirement age which is the actuarial equiv-
alent (determined under § 411(c)(3) and
§ 1.411(c)–1) of the accrued benefit under
the plan if the plan does not provide for an
accrued benefit in the form of an annual
benefitcommencingatnormalretirement
age.
Section 411(b)(1) provides that a de-
fined benefit plan must satisfy one of the
three accrual rules of § 411(b)(1)(A), (B),
and (C) with respect to benefits accruing
under the plan. The three accrual rules
are the 3% method of § 411(b)(1)(A), the
133
1
/3% rule of § 411(b)(1)(B), and the
fractional rule of § 411(b)(1)(C).
Section 411(b)(1)(A) provides that a
defined benefit plan satisfies the require-
ments of the 3% method if, under the plan,
the accrued benefit payable upon the par-
ticipant’s separation from service is not
less than (A) 3% of the normal retirement
benefit to which the participant would be
entitled if the participant commenced par-
ticipation at the earliest possible entry age
under the plan and served continuously
until the earlier of age 65 and the normal
retirement age under the plan, multiplied
by (B) the number of years (not in excess
of 33
1
/3years) of his or her participation
in the plan. Section 411(b)(1)(A) provides
that, in the case of a plan providing re-
tirement benefits based on compensation
during any period, the normal retirement
benefit to which a participant would be
entitled is determined as if the participant
continued to earn annually the average
rate of compensation during consecutive
years of service, not in excess of 10, for
which his or her compensation was high-
est. Section 411(b)(1)(A) also provides
that Social Security benefits and all other
relevant factors used to compute benefits
are treated as remaining constant as of the
current plan year for all years after the
current year.
Section 411(b)(1)(B) provides that a
defined benefit plan satisfies the require-
ments of the 133
1
/3% rule for a particular
plan year if, under the plan, the accrued
benefit payable at the normal retirement
age is equal to the normal retirement ben-
efit, and the annual rate at which any
individual who is or could be a participant
can accrue the retirement benefits payable
at normal retirement age under the plan
for any later plan year is not more than
133
1
/3% of the annual rate at which the
individual can accrue benefits for any plan
year beginning on or after such particular
plan year and before such later plan year.
For purposes of applying the 133
1
/3%
rule, § 411(b)(1)(B)(i) provides that any
amendment to the plan which is in ef-
fect for the current year is treated as in
effect for all other plan years. Section
411(b)(1)(B)(ii) provides that any change
in an accrual rate which does not apply to
any individual who is or could be a partici-
pant in the current plan year is disregarded.
Section 411(b)(1)(B)(iii) provides that the
fact that benefits under the plan may be
payable to certain participants before nor-
mal retirement age is disregarded. Section
411(b)(1)(B)(iv) provides that Social Se-
curity benefits and all other relevant fac-
tors used to compute benefits are treated as
remaining constant as of the current plan
year for all years after the current year.
Section 411(b)(1)(C) provides that a de-
fined benefit plan satisfies the fractional
rule if the accrued benefit to which any par-
ticipant is entitled upon his or her separa-
tion from service is not less than a frac-
tion of the annual benefit commencing at
normal retirement age to which the partic-
ipant would be entitled under the plan as
in effect on the date of separation if the
participant continued to earn annually un-
til normal retirement age the same rate of
compensation upon which the normal re-
tirement benefit would be computed un-
der the plan, determined as if the partici-
pant had attained normal retirement age on
the date on which any such determination
is made (but taking into account no more
than 10 years of service immediately pre-
ceding separation from service). The frac-
tion is a fraction, not exceeding 1, the nu-
merator of which is the total number of
February 19, 20084202008–7 I.R.B.

the participant’s years of participation in
the plan (as of the date of separation from
service) and the denominator of which is
the total number of years the participant
would have participated in the plan if the
participant separated from service at nor-
mal retirement age. Section 411(b)(1)(C)
also provides that Social Security benefits
and all other relevant factors used to com-
pute benefits are treated as remaining con-
stant as of the current plan year for all years
after the current year.
Section 1.411(b)–1(a)(1) provides that
a defined benefit plan is not a qualified
plan unless the method provided by the
plan for determiningaccrued benefits sat-
isfies at least one of the three alternative
methods in § 1.411(b)–1(b) for determin-
ing accrued benefits with respect to all ac-
tive participants under the plan. The three
alternative methods are the 3% method, the
133
1
/3% rule, and the fractional rule. A
defined benefit plan may provide that ac-
crued benefits for participants are deter-
mined under more than one plan formula.
Section 1.411(b)–1(a)(1) provides that, in
such a case, the accrued benefits under all
such formulas must be aggregated in or-
der to determine whether or not the ac-
crued benefits under the plan for partici-
pants satisfy one of these methods. Un-
der § 1.411(b)–1(a)(1), a plan may satisfy
different methods with respect to differ-
ent classifications of employees, or sepa-
rately satisfy one method with respect to
the accrued benefits for each such classi-
fication, provided that such classifications
are not so structured as to evade the ac-
crued benefit requirements of § 411(b) and
§1.411(b)–1.
Section 1.411(b)–1(b)(1)(i) provides
that a defined benefit plan satisfies the
requirements of the 3% method for a plan
year if, as of the close of the plan year, the
accrued benefit to which each participant
is entitled, computed as if the participant
separated from service as of the close of
such plan year, is not less than 3% of
the 3% method benefit, multiplied by the
number of years (not in excess of 33
1
/3)
of his or her participation in the plan,
including years after normal retirement
age. The 3% method benefit is the normal
retirement benefit to which the partici-
pant would be entitled if the participant
commenced participation at the earliest
possible entry age for any individual who
is or could be a participant under the plan
and served continuously until the earlier
of age 65 and the normal retirement age
under the plan.
Section 1.411(b)–1(b)(2)(i) provides
that a defined benefit plan satisfies the
133
1
/3% rule for a particular plan year
if (A) under the plan the accrued bene-
fit payable at the normal retirement age
(determined under the plan) is equal to
the normal retirement benefit (determined
under the plan), and (B) the annual rate
at which any individual who is or could
be a participant can accrue the retirement
benefits payable at normal retirement age
under the plan for any later plan year can-
not be more than 133
1
/3% of the annual
rate at which the participant can accrue
benefits for any plan year beginning on or
after such particular plan year and before
such later plan year.
Pursuant to § 411(b)(1)(B)(i), § 1.411
(b)–1(b)(2)(ii)(A) provides that, for
purposes of the 133
1
/3% rule, any
amendment to the plan which is in effect
for the current plan year is treated as
if it were in effect for all other plan
years. Pursuant to § 411(b)(1)(B)(ii),
§ 1.411(b)–1(b)(2)(ii)(B) provides that any
change in an accrual rate which change
does not apply to any individual who is
or could be a participant in the current
plan year is disregarded. The regulations
provide an example illustrating this rule
under which, for the plan year 1980, a
plan provides an accrued benefit of 2%
of the highest 3 years’ compensation for
each year of service and provides that, for
the plan year 1981, the accrued benefit is
3% of the highest 3 years’ compensation.
The regulations then state that the change
in rate does not cause the plan to fail to
satisfy the 133
1
/3% rule because in the
plan year 1980 the change in the accrual
rate does not apply to any individual who
is or could be a participant in the plan year
1980. However, the regulations further
state that if, for example, a plan were to
provide for an accrued benefit of 1% of
the highest 3 years’ compensation for each
of the first 10 years of service and 1.5%
of such compensation for each year of
service thereafter, then the plan would fail
to satisfy the 133
1
/3% rule for the plan
year even though no participant is actually
accruing at the 1.5% rate because an
individual who could be a participant and
who has over 10 years of service would
accrue at the 1.5% rate, which exceeds
133
1
/3% of the 1.0% rate.
Section 1.411(b)–1(b)(2)(ii) provides
that the fact that certain benefits under
the plan may be payable to certain par-
ticipants before normal retirement age is
disregarded. Section 1.411(b)–1(b)(2)(ii)
further provides that a plan does not satisfy
the requirements of § 1.411(b)–1(b)(2) if
thebaseforthecomputationofretirement
benefits changes solely by reason of an
increase in the number of years of partici-
pation.
Section 1.411(b)–1(b)(2)(iii) provides
examples illustrating the 133
1
/3%rule.
One of these examples, Example (3),
concludes that a plan fails to satisfy the
133
1
/3% rule where the plan provides for
an annual benefit commencing at age 65
equal to a percentage of a participant’s
highest 3 years of compensation equal to
2% for each of the first 5 years of partic-
ipation, 1% for eachof the next 5 years
of participation, and 1.5% for each subse-
quent year of participation (even though
the average rate of accrual in this case is
not less rapid than ratable).
Section 1.411(b)–1(b)(3)(i) provides
that a defined benefit plan satisfies the
fractional rule if the accrued benefit to
which any participant is entitled is not less
than the fractional rule benefit multiplied
by a fraction (not exceeding one) (A) the
numerator of which is the participant’s to-
tal number of years of participation in the
plan, and (B) the denominator of which is
the total number of years the participant
would have participated in the plan if he or
she separated from service at the normal
retirement age under the plan.
Section 1.411(b)–1(b)(3)(ii) provides
that the “fractional rule benefit” is the
annual benefit commencing at normal re-
tirement age under the plan to which a
participant would be entitled if the par-
ticipant continued to earn annually until
normal retirement age the same rate of
compensation upon which the partici-
pant’s normal retirement benefit would be
computed. The rate of compensation is
computed on the basis of compensation
taken into account under the plan (but
taking into account average compensation
for no more than the 10 years of service
immediately preceding the determina-
tion). For purposes of the fractional rule
benefit, the normal retirement benefit is
determined as if the participant had at-
2008–7 I.R.B.421February 19, 2008

tained normal retirement age on the date
any such determination is made. Section
1.411(b)–1(b)(3)(ii) further provides that,
for purposes of the fractional rule, for any
plan year, Social Security benefits and all
relevant factors used to compute benefits,
e.g., consumer price index, are treated as
remaining constant as of the beginning of
the current plan year for all subsequent
plan years.
Section 1.411(b)–1(b)(3)(iii) provides
examples illustrating the fractional rule.
One of these examples, Example (2), con-
cludes that, in the case of a plan that pro-
vides a normal retirement benefit of 1%
of average compensation multiplied by the
number of years of plan participation com-
pleted by the participant, the plan fails to
satisfy the fractional rule with respect to
a participant whose annual compensation
over an 11-year period varies from $17,000
up to $32,000. If the participant were to
separate from service at the end of the pe-
riod, the participant’s annual benefit under
the plan would be $2,530 commencing at
age 65 (based on the 11 years of compen-
sation), which is less than $2,561, which,
taking into account only the last 10 years
of compensation, is the minimum annual
benefit under the fractional rule.
Notice 96–8, 1996–1 C.B. 359, states
that benefits attributable to interest credits
under a cash balance plan are in the nature
of accrued benefits within the meaning of
§ 1.411(a)–7(a). Notice 96–8 further states
that, in order for a plan’s interest credits to
satisfy the accrual rules of § 411(b)(1), the
interest must be frontloaded. In order for
interest to be frontloaded, the benefits at-
tributable to future interest credits with re-
spect to a hypotheticalallocation accrue at
the same time as the benefits attributable
to the hypothetical allocation. Thus, in de-
termining the accrued benefit of a partici-
pant under a cash balance plan at any time
prior to normal retirement age, the balance
in the cash balance account must be pro-
jected with interest credits to normal re-
tirement age. (See, however, § 411(a)(13),
as added by the Pension Protection Act of
2006, Public Law 109–280 (PPA ’06), for
special rules which apply to certain hy-
brid pension plans for purposes of the vest-
ing and distribution rules of §§ 411(a)(2),
411(c), and 417(e), but which do not apply
for purposes of the benefit accrual rules of
§ 411(b)(1)(A)–(C).)
Notice 2007–6, 2007–3 I.R.B. 272,
states that, on September 15, 1999, the
Service’s Director, Employee Plans, is-
sued a field directive (the 1999 Field
Directive) requiring that open determina-
tion letter applications and examination
cases that involved the conversion of a
defined benefit plan formula into a benefit
formula commonly known as a cash bal-
ance formula be submitted for technical
advice with respect to the conversion’s
effect on the qualified status of the plan.
Notice 2007–6 further states that in An-
nouncement 2003–1, 2003–1 C.B. 281,
the Service announced that the cases that
were the subject of the 1999 Field Di-
rective would not be processed pending
issuance of regulations addressing age dis-
crimination. Further, Notice 2007–6 states
that the Service will resume processing the
determination letter and examination cases
that were the subject of the 1999 Field
Directive and Announcement 2003–1.
Notice 2007–6 refers to these plans as
“moratorium plans.”
ANALYSIS
A plan satisfies the accrual rules of
§ 411(b)(1)(A), (B), and (C) if, for all
participants, the accrued benefit of each
participant satisfies one of the three al-
ternative methods (the 3% method, the
133
1
/3% rule, or the fractional rule). In
applying each of the three alternative
methods to a participant (including, in
the case of the 133
1
/3% rule, anyone who
could be a participant), § 1.411(b)–1(a)(1)
requires that the benefits under all formu-
las applicable to the participant must be
aggregated. Therefore, even if one for-
mula applicable to a participant by itself
would produce a benefit that satisfies the
133
1
/3% rule, and another formula by itself
would produce a benefit that satisfies the
fractional rule, the total benefit provided
by the interaction of the two formulas
must accrue in a manner that satisfies at
least one of the three alternative methods.
If the benefits of all participants do
not satisfy the same accrual rule, the
plan is permitted to satisfy one of the
accrual rules for some participants and
another accrual rule for other participants,
but only if the different classification
of participants is not so structured as to
evade the accrued benefit requirements
of § 411(b)(1)(A), (B), and (C). Pursuant
to § 1.411(b)–1(a)(1), this determination
of whether the different classification of
participants is not so structured as to evade
the accrued benefit requirements is made
with consideration of which classification
of participants is satisfying which of the
three accrual rules. Another consideration
in this determination is whether the as-
signment of a participant to a classification
will change merely because of the passage
of time.
When determining the accrued benefit
for purposes of whether a plan satis-
fies the accrued benefit requirements of
§ 411(b)(1)(A), (B), and (C), the accrued
benefit as determined for purposes of § 411
is tested regardless of how the accrued
benefit may be defined in the plan. Thus,
if the plan does not define the accrued ben-
efit as an annual benefit commencing at
normal retirement age, the annual benefit
commencing at normal retirement age that
is the actuarial equivalent of the accrued
benefit under the plan is tested to deter-
mine whether the plan satisfies the accrued
benefit requirements of § 411(b)(1)(A),
(B), and (C).
Analysis of 133
1
/3% Rule in General
1
Under the 133
1
/3% rule, the annual rate
at which the retirement benefits payable
at normal retirement age accrue under the
plan (the annual rate of accrual) must be
determined under the terms of the plan for
anyone who is or could be a participant in
the plan. The annual rate of accrual with
respect to a participant is determined for
the current plan year and all future plan
years. Then the annual rate of accrual for
any future plan year is compared to the an-
nual rate of accrual for any year beginning
on or after the current plan year, and be-
fore such future plan year, to see whether
the ratio of the later annual rate of accrual
to the earlier annual rate of accrual exceeds
133
1
/3%.
Pursuant to § 1.411(b)–1(a)(1), the an-
nual rate of accrual for a plan year is de-
termined by aggregating all benefit formu-
las. Furthermore, the value of all relevant
factors used to determine benefits for the
1
Because the benefits provided by Plan A, both before and after the conversion, accrue over a period of years in excess of 33
1
/3years, Plan A fails to satisfy the 3% method. Accordingly, the
analysis starts with the 133
1
/3%rule.
February 19, 20084222008–7 I.R.B.

current plan year is kept constant in deter-
mining the annual rates of accrual for fu-
ture years. Thus, for example, for the plan
year under consideration, which is 2002,
the 3.87% interest crediting rate, the 5.48%
applicable interest rate under § 417(e)(3),
and the applicable mortality table under
§ 417(e)(3) are assumed to remain constant
in determining the annual rate of accrual
for each plan year after 2002.
If a plan has a single benefit formula,
the annual rate of accrual for a plan year
is generally determined as the increase in
the accrued benefit under that benefit for-
mula for the plan year. If a plan has more
than one benefit formula applicable to a
participant, the annual rate of accrual for
the participant for the plan year must be de-
termined using a single methodology, such
as the increase in the dollar amount of the
accrued benefit or the increase in the dollar
amount of the accrued benefit expressed as
a percentage of compensation for the plan
year. Thus, the annual rate of accrual may
be determined as the difference between
(A) the dollar amount of the accrued ben-
efit as a percentage of average compensa-
tion at the beginning of the plan year and
(B) the dollar amount of the accrued ben-
efit as a percentage of average compensa-
tion at the end of the plan year. In applying
the 133
1
/3% rule for a plan year, whichever
methodology is used to determine the an-
nual rate of accrual must be used consis-
tently for all plan years (that is, the current
plan year and all future plan years).
In applying the 133
1
/3% rule, the analy-
sis considers at least three groups of em-
ployees. The three groups are (1) those
who became employed after December 31,
2001 (who will accrue benefits solely un-
der the lump sum-based benefit formula),
(2) those who were not grandfathered par-
ticipantsbutwhowereemployedonDe-
cember 31, 2001 (who will accrue some
benefits under the lump sum-based benefit
formula, but whose benefits were “frozen”
under the pre-conversion formula), and (3)
the grandfathered participants (who will
accrue benefits for atime under both the
pre-conversion formula and the lump sum-
based benefit formula).
Analysis of the 133
1
/3%RuleforNew
Employees
For the group of new employees, the
annual rate of accrual for a plan year is
most easily determined as the increase in
the dollar amount of the accrued bene-
fit payable at the age 65 normal retire-
ment age for a plan year expressed as a
percentage of compensation for the plan
year. Thus, for any year, the annual rate
of accrual is determined by multiplying the
compensation of a participant for the plan
year by the percentage from the table of
pay credit percentages set forth under the
facts above, accumulating such result with
hypothetical interest to age 65, converting
the accumulation at age 65 to a single life
annuity, and dividing the result by com-
pensation for the year. Accordingly, the
annual rate of accrual for a year will de-
pend on the pay credit for the year, future
interest credits, and the conversion factor.
For purposes of applying the 133
1
/3%rule
to the plan, the interest crediting rate (the
current year’s value of the three-year Trea-
sury Constant Maturity rate plus 25 ba-
sis points) and the conversion factor for
future years (using the applicable interest
rate and the applicable mortality table un-
der § 417(e)(3) for 2002) are assumed to
be the same as for the current plan year.
For 2002, the three-year Treasury Con-
stant Maturity rate is 3.62% (which is the
rate for December 2001), and the result-
ing hypothetical interest crediting rate is
3.87%. For 2002, the 30-year Treasury
rate is 5.48% (the rate for December 2001)
and the applicable mortality table is the ta-
ble set forth in Rev. Rul. 2001–62. The
following table shows the annual rates of
accrual for each age assuming that these
values for 2002 remain the same for future
plan years:
Age at Beginning of Plan YearAnnual Rate of Accrual
211.41%
22
1.35%
231.30%
241.26%
25
1.21%
26
1.55%
271.49%
281.44%
291.38%
301.33%
311.28%
321.24%
331.19%
34
1.15%
35
1.10%
361.06%
371.02%
380.98%
39
0.95%
400.91%
411.10%
421.06%
431.02%
440.98%
2008–7 I.R.B.423February 19, 2008

Age at Beginning of Plan YearAnnual Rate of Accrual
45
0.94%
460.91%
470.87%
480.84%
490.81%
50
0.78%
51
0.90%
52
0.87%
53
0.84%
54
0.80%
55
0.77%
560.75%
57
0.72%
58
0.69%
59
0.66%
600.64%
610.72%
620.69%
630.67%
640.64%
As may be seen by inspection of the ta-
ble, the annual rate of accrual for any later
year is not more than 133
1
/3%ofthean-
nual rate of accrual for any earlier year and,
thus, the lump sum-based benefit formula
standing alone satisfies the 133
1
/3%rule.
For example, in considering a participant
who is age 21 in 2002, the highest ratio
of any future annual rate of accrual to any
earlier rate is 128.1% (which is less than
133
1
/3%). This occurs at age 26, where the
ratio of 1.55% (which also happens to be
the highest rate of accrual) to the 1.21%
rate for age 25 (which is the smallest rate
between ages 21 and 26) is 128.1%.
Analysis of the 133
1
/3% Rule for
Participants Who Are Not Grandfathered
Participants
For participants who were employed
on December 31, 2001, and who were not
grandfathered participants, the accrued
benefit under the pre-conversion formula
does not increase after 2001, and the
participants will only accrue benefits un-
der the lump sum-based benefit formula.
However, whether there is any increase in
the accrued benefit of a participant will
depend on the extent to which the new
lump sum-based benefit formula provides
a benefit that exceeds the benefit that had
been accrued under the pre-conversion
formula as of December 31, 2001. If, for
a period of years, the lump sum-based
benefit formula does not provide a greater
benefit than the frozen accrued benefit
under the pre-conversion formula as of
December 31, 2001, then there is a period
where the annual rate of accrual is zero.
After that period, there will be a period
of a positive annual rate of accrual as the
lump sum-based benefit formula begins to
provide a benefit that exceeds the frozen
accrued benefit under the pre-conversion
formula.
Ordinarily, a period of a zero annual
rate of accrual followed by a period of pos-
itive annual rates of accrual would result in
a plan failing to satisfy the 133
1
/3%rule.
However, because there is no ongoing ac-
crual under the pre-conversion formula for
these participants for service after the Jan-
uary 1, 2002 effective date of the con-
version amendment, the lump sum-based
benefit formula is the only formula under
the plan (other than the § 411(d)(6) pro-
tected benefit), and, pursuant to the spe-
cial rule of § 411(b)(1)(B)(i), that formula
is treated as if it were in effect for all other
plan years. Accordingly, the benefits un-
der the lump sum-based benefit formula
are the only benefits that need to be consid-
ered for purposes of applying the 133
1
/3%
rule (and the § 411(d)(6) protected bene-
fit under the pre-conversion formula ac-
crued through the date of conversion is
disregarded in applying § 411(b)(1)(B)).
As illustrated above, the lump sum-based
benefit formula standing alone satisfies the
133
1
/3% rule, and Plan A thus satisfies the
rule for participants who are not grandfa-
thered participants.
Analysis of the 133
1
/3% Rule for
Grandfathered Participants Age 61 and
Above
For participants who are grandfathered
participants, the pre-conversion formula
continues for a period of four years after
the effective date of the amendment and
thus is not disregarded pursuant to the spe-
cial rule of § 411(b)(1)(B)(i). For grand-
fathered participants who are age 61 or
above on January 1, 2002, the pre-con-
version formula continues at least through
normal retirement age (age 65), and, based
upon calculations using the 3.87% cred-
iting rate and the applicable interest rate
and applicable mortality table, such par-
ticipants have an annual rate of accrual of
1.1%, the rate of accrual under the pre-con-
version formula (because the lump sum-
based benefit formula never provides a
higher benefit). Thus, the annual rate of
accrual through normal retirement age will
continue to be 1.1% of highest average
compensation, and the plan satisfies the
133
1
/3% rule with respect to those partic-
ipants.
Analysis of the 133
1
/3% Rule for
Grandfathered Participants Below Age 61
Who Do Not Accrue Additional Benefits
Under the Lump Sum-Based Benefit
Formula Before Normal Retirement Age
For grandfathered participants who are
at least age 50 and not yet age 61 on Jan-
uary 1, 2002, the pre-conversion formula
February 19, 20084242008–7 I.R.B.

provides a greater benefitforthenextfour
years after the amendment (assuming, as
required under § 411(b)(1)(B)(iv), that the
relevant factors used to compute benefits
as of 2002 are held constant in the fu-
ture). Thereafter, the accrued benefit un-
der the pre-conversion formula does not
increase, and the participants will only ac-
crue benefits under the lump sum-based
benefit formula. However, whether there
is any increase in the accrued benefit of a
participant after 2005 and before normal
retirement age will depend on the extent
to which the new lump sum-based benefit
formula provides a benefit that exceeds the
benefit that had been accrued as of Decem-
ber 31, 2005. If there is a period of time
after December 31, 2005 when the benefit
under the pre-conversion formula (taking
into account service at least through De-
cember 31, 2005) remains larger than the
benefit under the lump sum-based formula,
then there will be a period of zero annual
rates of accrual. Assuming that the rele-
vant factors in effect for the 2002 plan year
remain the same for all future plan years,
for grandfathered participants who are at
least age 55 and not yet age 61 on January
1, 2002, the period of zero annual rates of
accrual extends at least through the age 65
normal retirement age, because the bene-
fit payable at age 65 under the plan will
be the accrued benefit under the pre-con-
version formula as of December 31, 2005.
Because the annual rate of accrual for these
participants changes from 1.1% to zero,
and then does not increase prior to nor-
mal retirement age, Plan A satisfies the
133
1
/3% rule with respect to these partic-
ipants for 2002.
Analysis of the 133
1
/3% Rule for
Grandfathered Participants Below Age
61 Who Do Accrue Additional Benefits
Under the Lump Sum-Based Benefit
Formula Before Normal Retirement Age
(Age 50 to 55)
For grandfathered participants who are
at least age 50 and not yet age 55 on Jan-
uary 1, 2002, assuming as required under
§ 411(b)(1)(B)(iv) that the relevant factors
used to compute benefits as of 2002 re-
main constant in the future, the period of
zero accruals after2005 will be followed
by a period of annual rates of accrual prior
to normal retirement age greater than zero.
In such a case, the later annual rate of ac-
crual which is greater than zero will ex-
ceed 133
1
/3% of the zero annual rate of ac-
crual, and thus Plan A does not satisfy the
133
1
/3% rule with respect to these partici-
pants for 2002.
The effect on grandfathered partici-
pants who are at least age 50 and not yet
age 55 on January 1, 2002, may be illus-
trated by a participant who commenced
participation at age 35 with compensation
of $40,000. Assume that the participant’s
compensation increased at the rate of 3%
per year in the years before 2002. The par-
ticipant on December 31, 2001, was age
50, had 15 years of service, and had high-
est average compensation of $58,758. Ac-
cordingly, the participant’s accrued benefit
at that date is $9,695 per year (1.1% of
$58,758 multiplied by 15 years of service)
payableatnormalretirementage. Atage
54, 4 years after the conversion, assuming
the participant’s compensation remains
constant at the 2001 level, the participant
would have an accrued benefit under the
pre-conversion formula of $12,645 per
year (1.1% of $60,504 multiplied by 19
years of service) payable at normal retire-
ment age. The opening account balance at
January 1, 2002, is $49,352. Taking into
account expected hypothetical contribu-
tions to the account in accordance with the
table of pay credit percentages above, and
assuming that the hypothetical account is
credited with interest at 3.87%, the cash
balance account would provide a benefit
of less than $12,645 for the first 9 plan
years after conversion. Therefore, there
would be a period of approximately 5
plan years (after the 4-year period of con-
tinued accruals under the pre-conversion
formula) for which the participant has no
increase in his or her accrued benefit (i.e.,
effectively an annual rate of accrual of
zero). In approximately the 10th plan year
after the conversion, the participant would
have a small annual rate of accrual and the
participant would have a relatively larger
annual rate of accrual in the remaining 5
plan years until age 65.
Thus, there are some grandfathered par-
ticipants who are at least age 50 and not
yet age 55 with respect to whom Plan A
fails to satisfy the 133
1
/3% rule for 2002.
Accordingly, Plan A cannot satisfy the ac-
crual rules unless it can satisfy the accrual
rules through the use of the fractional rule.
While the fractional rule cannot effectively
be used on a permanent basis for Plan
A (for the reasons discussed below), the
post-conversion transitional accruals un-
der the pre-conversion formula result in a
pattern of accrued benefits that may satisfy
the fractional rule on a temporary basis for
the grandfathered participants who are at
least age 50 and not yet age 55 on January
1, 2002. Therefore, Plan A may be able
to satisfy the accrual rules using the frac-
tional rule for these participants, and the
133
1
/3% rule for the other participants.
Analysis of Fractional Rule for
Grandfathered Participants Age 50 to 55
In order to apply the fractional rule to
the grandfathered participants in Plan A
whodonotsatisfythe133
1
/3%rule,the
fractional rule benefit must be determined
for each such participant. This benefit is
determined under the terms of the plan by
assuming that participation continues to
normal retirement age, and that all relevant
factors used to determine benefits are kept
constant as of the current year for all years
after the current year. The fractional rule
benefit for a participant is also determined
by reflecting all of the participant’s prior
compensation and years of participation,
and assuming that the participant contin-
ues to earn the same rate of compensation
in future years that is taken into account
under the plan, but taking into account no
more than 10 years of compensation. For
this purpose, the number of years of com-
pensation that would be taken into account
under the plan, pursuant to § 411(b)(1)(C)
and § 1.411(b)–1(b)(3)(ii)(A), is deter-
mined as if the participant had attained
normal retirement age on the date the de-
termination is made.
The fractional rule benefit, as so de-
termined, is multiplied by a fraction, the
numeratorofwhichisthenumberofyears
of participation at each future point, and
the denominator of which is the number of
years of participation the participant will
have if participation continues through
normal retirement age. If, for the current
plan year and each future plan year, the
accrued benefit under the plan equals or
exceeds the result obtained by multiplying
the fractional rule benefit by the applicable
fraction for that year, the plan satisfies the
fractional rule with respect to that partici-
pant for the current plan year.
For grandfathered participants who are
at least age 50 and not yet 55 on January
2008–7 I.R.B.425February 19, 2008

1, 2002, the fractional rule benefit is the
greater of the benefit that is projected to be
provided by the pre-conversion benefit for-
mula and the benefit that will be provided
by the hypothetical account of each par-
ticipant, based upon the participation and
compensation history of the participant. In
determining the benefit that will be pro-
vided by the hypothetical account, future
pay credits are determined by assuming
that compensation for each future year is
equal to the average of the compensation
taken into account under the plan for the
immediately preceding 10 years of partic-
ipation (or for all years of participation for
employees with less than 10 years of par-
ticipation).
The fractional rule benefit for a partici-
pant may be determined at a date as illus-
trated by the following steps:
(1) Assuming that the participant had no
additional service, participation, or com-
pensation after the date of determination,
determine which benefit formula would
provide the benefit payable at normal re-
tirement age under the plan (based on all
other relevant factors on such date).
(2) For the formula determined in step
(1), determine the number of years of ser-
vice for which compensation is taken into
account under that formula as of the de-
termination date. For this purpose, where
the lump sum-based benefit formula is the
formula in step (1) and the plan provided
for the establishment of an opening ac-
count balance equal to the present value
of the accrued benefit determined under
the pre-conversion formula, the number of
years of service is the number of years of
service taken into account in determining
that balance, plus one year for each year
since the initial account balance was
determined.
(3) Determine the participant’s average
compensation as of the determination date
for the immediately 10 preceding years or,
if less, the number of years determined in
step (2).
(4) Assume that the participant’s com-
pensation for each future year of partic-
ipation until attainment of normal retire-
ment age is the average compensation de-
termined in step (3).
(5) Determine the participant’s frac-
tional rule benefit as the benefit that would
be payable upon attainment of normal re-
tirement age under the plan by applying
the plan formulas based on future partici-
pation using the compensation determined
under step (4) and based on the assump-
tion that all other relevant factors remain
constant through normal retirement age
at the values for the date on which the
determination is being made.
Under these facts, where the pattern of
accruals results from a transition from a fi-
nal average pay formula that satisfies the
fractional rule to an accumulation formula
that satisfies the 133
1
/3% rule by provid-
ing the greater of the benefit under the
final average pay formula or the bene-
fit under the lump sum-based benefit for-
mula during the transition period, the clas-
sification of participants between at least
age 50 and not yet age 55 on January
1, 2002 (including the use of the frac-
tional rule with respect to such partici-
pants) is not a classification that is struc-
tured to evade the accrued benefit require-
ments of § 411(b)(1)(A), (B), and (C) or
§ 1.411(b)–1. Accordingly, the grandfa-
thered participants in Plan A whose annual
rate of accrual fails the 133
1
/3%rulemay
pass the accrual rules of § 411(b)(1)(A),
(B), and (C) by using the fractional rule.
To illustrate this, consider the grand-
fathered participant described above who
commenced participation at age 35. For
the plan year under consideration, which
is 2002, this participant had a projected
benefit at the age 65 normal retirement
age under the pre-conversion 1.1% for-
mula (based on service through the end
of the grandfathering period and using the
compensation determined under Steps 1
through 4 above, which is $58,758) equal
to $12,281. The projected benefit from the
hypothetical account balance at the age 65
normal retirement age (assuming the pay
credit percentages under the table above
and future compensation of $58,758, and
that the 3.87% interest crediting rate, the
5.48% applicable rate, and the applicable
mortality table remain the same for future
years) is $13,999. Therefore, the frac-
tional rule benefit is $13,999. As may be
seen from the following table, the accrued
benefit under the plan (the greater of the
$12,281 benefit under the prior 1.1% for-
mula and the benefit provided by the hy-
pothetical account balance) is not less than
thepro rataportion of the fractional rule
benefit at the end of each future year. Ac-
cordingly, the benefit with respect to this
participant satisfiesthe fractional rule for
2002.
Age
2
Fraction
Fraction times $13,999
Accrued Benefit at
EndofYearPerPlan
51
16/30
$7,466$10,341
52
17/30
$7,933$10,998
53
18/30
$8,399$11,634
54
19/30
$8,866$12,281
55
20/30
$9,333$12,281
56
21/30
$9,799$12,281
57
22/30
$10,266$12,281
58
23/30
$10,733$12,281
59
24/30
$11,199$12,281
60
25/30
$11,666$12,281
6126/30
$12,132$12,461
6227/30
$12,599$12,867
6328/30
$13,066$13,259
6429/30
$13,532$13,636
65
30/30
$13,999$13,999
2
Age at the end of the plan year.
February 19, 20084262008–7 I.R.B.

Because the accrued benefit of this par-
ticipant at any future point will not be less
than the result obtained by multiplying the
fractional rule benefit by the ratio of the
number of years of participation to that
point to the total number of years of partic-
ipation the participant will have at normal
retirement age, Plan A satisfies the frac-
tional rule for this participant for 2002.
If Plan A can make a similar demonstra-
tion for all grandfathered participants at
least age 50 and not yet age 55 on January
1, 2002, then Plan A can satisfy the frac-
tional rule for these participants and the
133
1
/3% rule for all other participants. Un-
der the facts presented, it is expected that
such a demonstration will show that, for
2002, the fractional rule is satisfied for all
participants whose accrual patterns were
unable to satisfy the 133
1
/3%rule.
3
HOLDING
Plan A satisfies the 133
1
/3%ruleof
§ 411(b)(1)(B) for 2002 for all participants
except the grandfathered participants who
are at least age 50, but not yet age 55, on
January 1, 2002. Under the above facts,
the class of grandfathered participants who
are at least age 50, but not yet age 55, on
January1,2002,isnotaclassificationthat
is structured to evade the accrued benefit
requirements of § 411(b)(1)(A), (B), and
(C) and § 1.411(b)–1 so that the fractional
rule may be used for these participants.
With respect to the grandfathered partici-
pants who are at least age 50, but not yet
age 55, on January 1, 2002, if the accrued
benefits of these participants satisfy the
fractional rule of § 411(b)(1)(C) as set
forth in this revenue ruling, Plan A satis-
fies the accrual rulesof § 411(b)(1)(A),
(B), and (C) for 2002.
Satisfaction of Accrual Rules in Future
Years
The analysis and holding in this revenue
ruling only address the 2002 plan year.
It is possible for a plan described in the
facts of this revenue ruling to fail to sat-
isfy the accrual rules of § 411(b)(1)(A),
(B), and (C) for a subsequent year, either
due to changes in relevant factors that are
treated as constant for any given year or
duetochangesinfactsrelatingtoplanpar-
ticipants. For example, in the facts ad-
dressed in this revenue ruling, whether the
pattern of increasing pay credits results in
an annual rate of accrual which is more
than 133
1
/3% of the annual rate of accrual
for any earlier year is affected by the rate
of interest that is credited under the plan
(which is treated as constant for all future
years for purposes of applying the accrual
rules of § 411(b)(1)(A), (B), and (C) to any
year). In the year 2002, that interest rate is
3.87%. If the rate of interest credited un-
der the plan for a later year were to be less
than 1.58%, Plan A would not satisfy the
133
1
/3% rule for that later year for partic-
ipants who are not grandfathered partici-
pants and thus would need to be amended
in order to satisfy the 133
1
/3%rule.
As another example, if the grandfa-
thered participant described above who did
not satisfy the 133
1
/3% rule were to con-
tinue to have compensation increases in
years after 2002 at an annual 3% rate, then
by 2013 the fractional rule benefit would
be so large that the aggregate accrued ben-
efit of the participant for that year would
be less than the result obtained by multi-
plying that larger fractional rule benefit
by the applicable fraction (the number of
years of participation to that time to the
total number of years of participation the
participant will have at normal retirement
age). Accordingly,even compensation
increases that are regular and predictable
can result in Plan A failing to satisfy the
fractional rule for the grandfathered par-
ticipants. Moreover, the possible volatility
resulting from unpredictable future com-
pensation increases is a major reason why
the fractional rule cannot effectively be
used on a permanent basis for plans such
as Plan A.
If changes to relevant factors such as a
decrease in the interest crediting rate or an
increase in future compensation were to re-
sult in a failure to satisfy the accrual rules,
the plan’s benefit formula would need to
change. Some of the types of changes that
may be used are outlined below with re-
spect to Plan A. Any change would need
to satisfy applicable qualification require-
ments, including satisfaction of the anti-
cutback rules of § 411(d)(6) and the re-
quirement that a plan provide benefits that
are definitely determinable.
In order to bring the plan into compli-
ance in the event of a decrease in the inter-
est crediting rate, Plan A’s benefit formula
could be changed to increase the hypothet-
ical pay credits at the earlier ages, reduce
the hypothetical pay credits at the higher
ages, or a combination of an increase at
the lower ages and a reduction at the higher
ages. The resulting pattern of pay credits
would have to be less steep than before in
order for the 133
1
/3% rule to be satisfied
using the lower interest crediting rate. Plan
A could also provide an interest crediting
rate higher than 1.58% for that year and all
future years for participants for whom the
133
1
/3% rule is not satisfied, but any such
minimum rate could not result in a rate of
interest which exceeds a market rate of in-
terest under § 411(b)(5)(B)(i)(I), as added
to the Code by PPA ’06.
It may be possible that Plan A could
be changed to adjust the hypothetical pay
credits to ensure compliance with the ac-
crual rules of § 411(b)(1)(A), (B), and (C)
for future years. Such a provision would
need to provide that if the interest crediting
rate at the beginning of any plan year is less
than 1.58%, the hypothetical pay credits
are adjusted so that the resulting pattern of
pay credits satisfies the 133
1
/3%ruleusing
the interest crediting rate for the year. Any
such possible provision would need to in-
clude specific ruleson how the adjustment
is made, which would typically be depen-
dent on the extent to which the interest
crediting rate is less than 1.58%. Further-
more, the provision would need to be clear
as to what happens in future years should
the interest crediting rate again change.
Note that it may be difficult to design such
provisions and, furthermore, difficult to
put them into effect in actual plan opera-
tions on a timely basis.
With respect to the possibility that com-
pensation increases for any future year
mayresultinaplanfailingtosatisfythe
fractional rule for that year, provisions
would be necessary either to ensure that
the plan could instead satisfy the 133
1
/3%
rule for that year (as described in the pre-
ceding two paragraphs) or to provide a
combination of increases in the accrued
benefit for earlier years or decreases in the
accruals for future years (but § 411(d)(6)
would not permit decreases for service
3
It is similarly likely that a demonstration will show that, for 2002, the fractional rule is satisfied for all grandfathered participants age 55 or above on January 1, 2002. Also, the use of the
fractional rule with respect to all such participants is not a classificationthatissostructuredastoevadetheaccrued benefit requirements of § 411(b)(1)(A), (B), and (C) and § 1.411(b)–1.
2008–7 I.R.B.427February 19, 2008

before the applicable amendment date)
in order to satisfy the fractional rule for
that year. However, unlike the discussion
above concerning interest crediting rates,
it is not clear how a provision to alter
accrual rates or accrued benefits could be
implemented annually by a plan provision
in the absence of relevant participant infor-
mation such as the compensation history
through the plan year. It may be possi-
ble to limit the compensation taken into
account for any participant by providing
that only compensation increases up to
some specified percentage are taken into
account. However, any such provision
would be difficult to design and extremely
difficult to put into effect in actual plan
operations on a timely basis.
Section 7805(b) Relief
Under the authority of § 7805(b), this
paragraph provides relief for plans under
which a group of employees specified un-
der the plan receives a benefit equal to
the greatest of the benefits provided un-
der two or more formulas (an applicable
“greater-of” benefit), provided that each
such formula standing alone would sat-
isfy an accrual rule of § 411(b)(1)(A), (B),
or (C) for the years involved. This re-
lief applies to a plan only if either: (1)
as of February 19, 2008, the plan provi-
sions under which the applicable “greater-
of” benefit is provided have been the sub-
ject of a favorable determination letter;
(2) as of February 19, 2008, a remedial
amendment period under § 401(b) for the
plan provisions under which the applica-
ble “greater-of” benefit is provided has
not expired; or (3) the plan is otherwise
a “moratorium plan” as defined in Notice
2007–6. Under the relief set forth in this
paragraph, for plan years beginning before
January1,2009,theServicewillnottreat
a plan described in the preceding sentence
as failing to satisfy the accrual rules of
§ 411(b)(1)(A), (B), and (C) solely because
the plan provides an applicable “greater-
of” benefit, where the separate formulas,
standing alone, would satisfy an accrual
rule of § 411(b)(1)(A), (B), and (C). For
this purpose, a plan described in (2) that
provides a group of employees specified
under the plan an applicable “greater-of”
benefit can be retroactively amended
4
so
that each formula, standing alone, would
satisfy an accrual rule of § 411(b)(1)(A),
(B), and (C) for the years involved. For
example, a moratorium plan that has a de-
termination letter request pending under
which the lump sum-based benefit formula
standing alone failsto satisfy the accrual
rules of § 411(b)(1)(A), (B), and (C) for
a plan year beginning before January 1,
2009 (because the interest credits under the
plan are insufficient to compensate for the
effect of age-based or service-based pay
credits) can be retroactively amended so
that the lump sum-based benefit formula
satisfies an accrual rule of § 411(b)(1)(A),
(B), and (C) for the years involved.
The relief under the prior paragraph
does not extend to other issues under
§ 411. Accordingly, before a favorable
determination letter can be issued, the plan
must otherwise satisfy the requirements
of § 411.
5
Thus, for example, in order to
avoid a forfeiture ofthe accrued benefit
under the plan for purposes of § 411, or to
ensure compliance with the accrual rules
of § 411(b)(1)(A), (B), and (C), the annual
benefit payable at normal retirement age
attributable to the lump sum-based benefit
formula at the end of the current year must
not change thereafter, assuming that no
change were to occur in any relevant factor
used to determine benefits and disregard-
ing any future pay credits (e.g.,underthe
plan, the annual benefit payable at normal
retirement age attributable to the lump
sum-based benefit formula as of the end
of a year cannot increase or decrease after
that year due merely to operation of the
plan and the passage of time, as opposed
to additional pay credits or changes in a
relevant factor used to determine benefits).
DRAFTING INFORMATION
The principal author of this rev-
enue ruling is James E. Holland, Jr.
oftheEmployeePlans,TaxExempt
and Government Entities Division.
Mr. Holland may be reached by e-mail at
RetirementPlanQuestions@irs.gov.
Section 6662.—Imposition
of Accuracy-Related
Penalty on Un
derpayments
Guidance is p
rovided concerning when informa-
tionshownon
a return in accordance with the applica-
ble forms and
instructions will be adequate disclosure
under sectio
n 6662(d) for purposes of reducing an un-
derstateme
nt of income tax. See Rev. Proc. 2008-14,
page 435.
Section 6694.—Understate-
ment of Taxpayer’s Liability
by Tax Return Preparer
Guidance is provided concerning when informa-
tion shown on a return in accordance with the appli-
cable forms and instructions will be adequate disclo-
sure under section 6694(a) for purposes of reducing
an understatement of income tax due to a return pre-
parer’s unrealistic position. See Rev. Proc. 2008-14,
page 435.
Section 7805.—Rules
and Regulations
26 CFR 301.7805–1: Rules and regulations.
Whether section 7805(b) relief applies for certain
plans under which a group of employees specified un-
der the plan receives a benefit equal to the greatest
of the benefits provided under two or more formu-
las (an applicable “greater-of” benefit), provided that
each such formula standing alone would satisfy an ac-
crualruleofsection411(b)(1)(A),(B),or(C)forthe
years involved. See Rev. Rul. 2008-7, page 419.
Section 9701.—Definitions
of General Applicability
26 CFR 300.7: Enrollment of enrolled actuary fee.
T.D. 9370
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 300
User Fees Relating to
Enrollment to Perform
Actuarial Services
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final Regulations.
4
Any such amendment must satisfy the anticutback rules of § 411(d)(6).
5
As provided by Notice 2007–6, issues as to whether the conversion satisfiesthe requirements of § 411(b)(1)(H) will generally not be considered for plans where the conversion is before
June 30, 2005.
February 19, 20084282008–7 I.R.B.

SUMMARY: This document contains final
regulations relating to user fees for the ini-
tial and renewed enrollment to become an
enrolled actuary. The charging of user fees
is authorized by the Independent Offices
Appropriations Act (IOAA) of 1952.
DATES:Effective Date:These regulations
are effective on December 21, 2007.
Applicability Date:For date of applica-
bility, see §300.0(c).
FOR FURTHER INFORMATION
CONTACT: Concerning cost methodol-
ogy, Eva J. Williams at (202) 435–5514;
concerning the final regulations,
Kimberly Mattonen at (202) 622–4940
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
The Employee Retirement Income Se-
curity Act of 1974 (Public Law 93–406)
ordered the Secretary of Labor and the
Secretary of Treasury to establish a Joint
Board for the Enrollment of Actuaries. 29
U.S.C. 1241. The Joint Board shall, by
regulation, establish reasonable standards
and qualifications for persons performing
actuarial services and the Joint Board shall
enroll such individuals who, upon appli-
cation, satisfy such standards and quali-
fications. 29 U.S.C. 1242(a). The reg-
ulations at 20 CFR Part 901, Subpart B
address eligibility for enrollment and re-
newal of enrollment. Pursuant to the Joint
Board’s bylaws, the Secretary of the Trea-
sury is to appoint an Executive Director to
the Board who has the delegated authority
to administer the Board’s enrollment pro-
gram. The Secretary of the Treasury has
delegated these functions to the Internal
Revenue Service and the costs of these ac-
tivities are borne by the Service.
20 CFR 901.11(d)(4) provides for a
reasonable non-refundable fee for appli-
cations for renewal of enrollment. Form
5434–A, “Application for Renewal of En-
rollment” presently states that the renewal
fee is $25. Final 26 CFR 300.7 and 300.8
establish separate $250 user fees for the
enrollment and renewal of enrollment
process. These fees represent the IRS’s
costs in administering the program, and
the $250 fee for renewal of enrollment
will supplant the $25 fee.
Authority
The IOAA of 1952 (31 U.S.C. 9701)
authorizes agencies to prescribe regula-
tions that establish charges for services
provided by the agency. The charges must
be fair and be based on the costs to the
Government, the value of the service to
the recipient, the public policy or inter-
est served, and other relevant facts. The
IOAA of 1952 provides that regulations
implementing user fees are subject to poli-
cies prescribed by the President, which are
currently set forth in OMB Circular A–25,
58 FR 38142 (July 15, 1993) (the OMB
Circular).
The OMB Circular encourages user
fees for government-provided services
that confer benefits on identifiable re-
cipients over and above those benefits
received by the general public. Under
the OMB Circular, an agency that seeks
to impose a user fee for government-pro-
vided services must calculate its full cost
of providing those services. In general,
a user fee should be set at an amount in
order for the agency to recover the cost of
providing the special service, unless the
Office of Management and Budget grants
an exception. Pursuant to the guidelines in
the OMB Circular, the IRS has calculated
its cost of providing services under the
enrolled actuaries program. The IRS has
determined that the full cost of adminis-
tering the enrollment and re-enrollment
processes is $250 per enrolled actuary per
process.
The final user fees will be implemented
under the authority of the IOAA of 1952
and the OMB Circular.
On October 31, 2007, a notice of
proposed rulemaking (REG–134923–07,
2007–47 I.R.B. 1037) was published in
theFederal Register[72 FR 61583]. No
comments were received from the public
in response to the notice of proposed rule-
making. No public hearing was requested
or held. The proposed regulations are
adopted by this Treasury decision.
Special Analyses
It has been determined that this final
rule is not a significant regulatory action as
defined in Executive Order 12866. There-
fore, a regulatory assessment is not re-
quired. It is hereby certified that these reg-
ulations will not have a significant eco-
nomic impact on a substantial number of
small entities. Accordingly, a regulatory
flexibility analysis is not required. This
certification is based on the information
that follows. These final rules affect en-
rolled actuaries, of which there are cur-
rently 4,600 active. The economic impact
of these regulations on any small entity
would result from a small entity, including
a sole proprietor, being required to pay a
fee prescribed by these regulations in order
to obtain a particular service. The appro-
priate NAICS codes for enrolled actuar-
ies relate to Insurance Other (524298) and
Administrative and General Management
Consulting, Including Financial Consult-
ing (541611). Entities identified under
these codes are considered small under the
SBA size standards (13 CFR 121.201) if
their annual revenue is less than $6.5 mil-
lion. The IRS estimates that as many as
2,070 enrolled actuaries may be operating
as or employed by small entities. There-
fore, the IRS has determined that these fi-
nal rules will affect a substantial number of
small entities. The dollar amounts of the
fees are not, however, substantial enough
to have a significant economic impact on
any entity subject to the fees. The amounts
of the fees are commensurate with, if not
less than, the amount charged by profes-
sional organizations. Persons who elect to
apply for enrollment or renewal of enroll-
ment also receive benefits from obtaining
the enrolled actuary designation. Pursuant
to section 7805(f) of the Internal Revenue
Code, the NPRM preceding this regula-
tion was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact.
Drafting Information
The principal author of these regula-
tions is Kimberly A. Mattonen of the Of-
fice of the Associate Chief Counsel (Pro-
cedure & Administration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR Part 300 is
amended as follows:
PART 300—USER FEES
Paragraph 1. The authority citation for
part 300 continues to read as follows:
2008–7 I.R.B.429February 19, 2008

Authority: 31 U.S.C. 9701.
Par. 2. Section 300.0 is amended as
follows:
1. Paragraphs (b)(7) and (b)(8) are
added.
2. Paragraph (c) is revised.
The additions and revision read as fol-
lows:
§300.0 User fees, in general.
*****
(b) * * *
(7) Enrolling an enrolled actuary.
(8) Renewing the enrollment of an en-
rolled actuary.
(c)Effective/applicability date.This
part 300 is applicable March 16, 1995, ex-
cept that the user fee for processing of-
fers in compromise is applicable Novem-
ber 1, 2003; the user fee for the special en-
rollment examination, enrollment, and re-
newal of enrollment for enrolled agents is
applicable November 6, 2006; the user fee
for entering into installment agreements on
or after January 1, 2007, is applicable Jan-
uary 1, 2007; the user fee for restructuring
or reinstatement of an installment agree-
ment on or after January 1, 2007, is appli-
cable January 1, 2007; and the user fee for
the enrollment and renewal of enrollment
for enrolled actuaries is applicable January
22, 2008.
Par. 3. Section 300.7 is added to read
as follows:
§300.7 Enrollment of enrolled actuary fee.
(a)Applicability. This section applies
to the initial enrollment of enrolled actuar-
ies with the Joint Board for the Enrollment
of Actuaries pursuant to 20 CFR Part 901.
(b)Fee. The fee for initially enrolling
as an enrolled actuarywith the Joint Board
for the Enrollment of Actuaries is $250.00.
(c)Person liable for the fee. The per-
son liable for the enrollment fee is the ap-
plicant filing for enrollment as an enrolled
actuary with the Joint Board for the Enroll-
ment of Actuaries.
Par. 5. Section 300.8 is added to read
as follows:
§300.8 Renewal of enrollment of enrolled
actuary fee.
(a)Applicability. This section applies
to the renewal of enrollment of enrolled ac-
tuaries with the Joint Board for the Enroll-
ment of Actuaries pursuant to 20 CFR Part
901.
(b)Fee. The fee for renewal of enroll-
ment as an enrolled actuary with the Joint
Board for the Enrollment of Actuaries is
$250.00.
(c)Personliableforthefee. The person
liable for the renewal of enrollment fee is
the person renewing their enrollment as an
enrolled actuary with the Joint Board for
the Enrollment of Actuaries.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved December 17, 2007.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on December 18,
2007, 2:32 p.m., and published in the issue of the Federal
Register for December 21, 2007, 72 F.R. 72606)
February 19, 20084302008–7 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Transition Guidance for
New Funding Rules and
Funding-Related Benefit
Limitations Under PPA ’06
Notice 2008–21
I. PURPOSE
This notice announcesa later effective
date than originally proposed for certain
proposed regulations under §§ 430 and 436
of the Internal Revenue Code (Code), as
addedbythePensionProtectionActof
2006, Public Law 109–280 (PPA). In addi-
tion, this notice provides transitional guid-
ance for 2008 under § 436 for small plans
with end-of-year valuation dates.
II. BACKGROUND
Section 412 provides minimum funding
requirements that generally apply for de-
fined benefit pension plans. Section 430,
which was added by PPA, specifies the
minimum funding requirements that apply
to single employer pension plans (includ-
ing multiple employer plans) pursuant to
§ 412.
Section 430(h)(3) provides rules re-
garding the mortality tables to be used
for purposes of determining any present
value or making any other computation
under § 430. Section 430(h)(3)(C) pro-
vides rules for a plan sponsor’s use, with
the approval of the Secretary, of em-
ployer-specific substitute mortality tables
in lieu of the standard mortality tables that
are otherwise used under § 430(h)(3)(A).
On May 31, 2007, proposed regulations
under § 430(h)(3)(C) were published in
the Federal Register as § 1.430(h)(3)–2
(72 FR 29456). Rev. Proc. 2007–37,
2007–25 I.R.B. 1433, sets forth standards
and procedures for obtaining approval to
use substitute mortality tables.
Section 430(f) provides for certain
funding balances referred to as the pre-
funding balance and the funding standard
carryover balance to be used to reduce the
otherwise applicable minimum required
contribution for a plan year. On August 31,
2007, proposed regulations under § 430(f)
were published in the Federal Register as
§ 1.430(f)–1 (72 FR 50544).
Section 401(a)(29) requires that a de-
fined benefit plan (other than a multiem-
ployer plan) satisfy the requirements of
§ 436. Section 436 sets forth a series of
limitations on the accrual and payment
of benefits under an underfunded plan.
Section 436(b) places limitations on the
payment of plant shutdown benefits and
other unpredictable contingent event ben-
efits, § 436(c) placeslimitations on plan
amendments that increase liabilities for
benefits, § 436(d) places limitations on
the payment of accelerated benefit distri-
butions, and § 436(e) places limitations
on benefit accruals. These limitations are
applied based on the plan’s adjusted fund-
ing target attainment percentage (AFTAP)
for the plan year, as certified by the plan’s
enrolled actuary.
Section 436(j) provides definitions that
are used under § 436, including the defini-
tion of a plan’s AFTAP. In general, a plan’s
AFTAP is based on the plan’s funding tar-
get attainment percentage (FTAP) under
§ 430(d)(2) for the plan year. However, the
plan’s AFTAP is determined by adding the
aggregate amount of purchases of annu-
ities for employees other than highly com-
pensated employees (within the meaning
of § 414(q)) made by the plan during the
two preceding plan years to the numerator
and the denominator of the fraction used to
determine the FTAP.
Section 436(h) sets forth a series of
presumptions that apply during the portion
of the plan year that is before the plan’s
enrolled actuary has certified the plan’s
AFTAP for the year. Under § 436(h)(3), if
any of the § 436 limitations did not apply
to the plan for the preceding year, but the
AFTAP of the plan for the preceding year
was not more than 10 percentage points
greater than the percentage that would
have caused a limitation to apply to the
plan for the preceding year and, as of the
first day of the 4th month of the current
plan year, the enrolled actuary of the plan
has not certified the actual AFTAP for the
current plan year, then, until the enrolled
actuary certifies the plan’s actual AFTAP
for the current plan year, the plan’s AFTAP
for the current plan year is presumed to
be equal to 10 percentage points less than
the AFTAP of the plan for the preceding
plan year. Under § 436(h)(2), if the plan’s
enrolled actuary has not certified the plan’s
AFTAP by the first day of the 10th month
of the current plan year, the plan’s AFTAP
for the current plan year is conclusively
presumed to be less than 60 percent as of
that day.
Section 430(g)(1) provides that all de-
terminations made under § 430 for a plan
year (including the determination of a
plan’s FTAP and AFTAP) must be made
as of the plan’s valuation date. Section
430(g)(2) provides that, other than for
small plans with 100 or fewer participants
(determined as provided in § 430(g)(2)(B)
and (C)), the valuation date for a plan year
must be the first day of the plan year.
Section 436(k) provides that, for pur-
poses of § 436, in the case of plan years
beginning in 2008, the FTAP for the pre-
ceding plan year may be determined using
such methods of estimation as the Secre-
tary may provide.
Proposed regulations under § 436 were
published as § 1.436–1 on August 31, 2007
(72 FR 50544)).
1
Section 1.436–1(j)(2)
and (3) of the proposed regulations would
provide rules for determining the FTAP
and AFTAP for purposes of applying
the § 436 benefit limitations. Section
1.436–1(j)(3)(iii)(B) provides that, for
purposes of determining the plan’s AFTAP
for the first year § 436 applies to the plan,
the adjusted funding target is equal to the
current liability determined pursuant to
§ 412(l)(7) as of the plan’s valuation date
for the plan year that precedes the first
plan year for which § 436 applies to the
plan, increased by the aggregate amount
of purchases of annuities for employees
other than highly compensated employees
(as defined in § 414(q)) which were made
by the plan during the preceding 2 plan
years.
Proposed § 1.436–1(j)(3)(iv) provides
that, in any case in which the plan’s en-
rolled actuary has not issued a certification
of the AFTAP of the plan for the plan year
preceding the plan year § 436 first applies
to the plan (the pre-effective plan year),
the AFTAP of the plan for the plan year
is presumed to be less than 60 percent un-
1
A correction notice was published with respect to this notice of proposed rulemaking in the Federal Register dated November 9, 2007 (72 FR 63528).
2008–7 I.R.B.431February 19, 2008

til the AFTAP of the plan for that pre-ef-
fective plan year has been certified. Under
the proposed regulations, this rule applies
for purposes of § 1.436–1(b) and (c) at the
beginningofthefirstplanyearthat§436
applies to the plan and applies for purposes
of § 1.436–1(d) and (e) as of the first day of
the fourth month of the first plan year that
§ 436 applies to the plan. The guidance
set forth in the proposed § 436 regulations
with respect to application of these pre-
sumptions does not address how the rules
of § 436(h) apply to a plan with a valua-
tion date that is not the first day of the plan
year. See proposed § 1.436–1(h)(5).
On December 31, 2007, proposed reg-
ulations under §§ 430(d), 430(g), 430(h),
and 430(i) were published in the Federal
Register (72 FR 74215). Those regulations
are proposed to apply to plan years begin-
ning on or after January 1, 2009.
III. TRANSITIONAL GUIDANCE
A. Delay of effective date of regulations
under §§ 430(f), 430(h)(3)(C), and 436
In order to maintain a uniform effec-
tive date for guidance under § 430, this no-
tice announces that, when regulations pro-
posed under § 1.430(f)–1 (regarding main-
tenance of certain funding balances) and
§ 1.430(h)(3)–2 (regarding substitute mor-
tality tables) are finalized, those final reg-
ulations will not apply to plan years begin-
ning before January 1, 2009.
2
In addition,
because of the close interaction between
the § 430 and § 436 rules and require-
ments, when regulations proposed under
§ 1.436–1 are finalized, those final regu-
lations also will not apply to plan years
beginning before January 1, 2009. For
plan years beginning during 2008, taxpay-
ers must follow applicable statutory provi-
sions and can rely on the proposed regu-
lations for compliance with those statutory
provisions. Taking into account the items
with respect to which guidance is provided
in this Part III(A), the Service will not chal-
lenge a reasonable interpretation of an ap-
plicable statutory provision under § 430 or
436 for plan years beginning during 2008.
In applying the statutory provisions of
§§ 430 and 436 for plan years beginning
during 2008, taxpayers should note the fol-
lowing:
•Although § 1.430(h)(3)–2 will not ap-
ply to plan years beginning before Jan-
uary 1, 2009, taxpayers can use substi-
tute mortality tables for plan years be-
ginning during 2008 only if those mor-
tality tables are approved by the Ser-
vice under the procedures set forth in
Rev. Proc. 2007–37.
•Under § 430(g)(3)(B), the use of av-
eraging methods in determining the
value of plan assets is permitted only
in accordance with methods prescribed
in Treasury regulations. Accordingly,
under current law, for plan years be-
ginning in 2008, taxpayers cannot use
asset valuation methods other than
fair market value (as described in
§ 430(g)(3)(A)) except as provided in
the Treasury regulations. The final
regulations will permit the averag-
ing method set forth in the proposed
regulations to apply for plan years be-
ginning during 2008.
•Under § 436(k), for purposes of § 436,
in the case of plan years beginning in
2008, the FTAP for the preceding plan
year may be determined using such
methods of estimation as the Secretary
may provide. Thus, methods of esti-
mating the FTAP for the 2007 plan year
can be used for purposes of applying
the rules of § 436 for the 2008 plan year
only if those methods are permitted in
Treasury regulations. Final regulations
will permit the estimation methods set
forth in the proposed regulations to be
used for the 2008 plan year, and will
also permit the rules set forth in Part
III(B) to be used for this purpose for
small plans with end-of-year valuation
dates. Taxpayers should not assume
that other methods will be permitted
except as set forth in published guid-
ance.
For plan years beginning during 2008,
benefit restrictions under § 436(d) and (e)
will apply beginning with the first day of
the fourth month of the plan year if no
certification of the plan’s AFTAP for ei-
ther the prior plan year or the current plan
year is received by that date. In addition,
in the case of a plan amendment or plant
shutdown or other unpredictable contin-
gent event occurring on or after the first
day of a plan year beginning during 2008,
the benefit limitations of § 436(b) and (c)
must be applied based on the AFTAP cer-
tified for the current plan year, or, if no
such certification has yet been received, on
the AFTAP certified for the prior plan year
except as provided under § 436(h)(2) or
§ 436(h)(3). Without the transition guid-
ance provided in Part III(B) of this notice,
the enrolled actuary’s certification of the
prior year AFTAP for a small plan with an
end of year valuation date could not read-
ily be made before these rules would apply.
Therefore, in the absence of such transition
guidance, the AFTAP of such a plan for the
plan year beginning in 2008 would be pre-
sumed to be less than 60 percent as of the
first day of the fourth month of that plan
year for purposes of the limitations under
§ 436(d) and (e) (and the AFTAP of such
a plan would generally be considered to be
less than 60 percent in the case of a plan
amendment or plant shutdown or similar
event as of the first day of the 2008 plan
year pursuant to the rules of § 436(b) and
(c)).
B. Transition rule for application of
§ 436 benefit limitations by small plans
with end of the plan year valuation
dates
In the case of a plan that, under
§ 430(g), has a valuation date that is the
last day of the plan year for each of the
plan years beginning in 2006, 2007, and
2008, for purposes of applying the benefit
limitations of § 436 for the plan year be-
ginning during 2008, a certification of the
plan’s AFTAP for the prior plan year (the
2007 plan year) is permitted to be made by
determining the FTAP for the 2007 plan
year as follows:
•The FTAP for the 2007 plan year is
equal to a fraction (expressed as a per-
centage), the numerator of which is the
value of net plan assets as determined
below, and the denominator of which is
the plan’s current liability determined
pursuant to § 412(l)(7) on the valuation
date for the second plan year that be-
gins before 2008 (the 2006 plan year),
including the increase in current liabil-
ity for the 2006 plan year.
2
It is planned that, when proposed § 1.430(h)(3)–1 (which provides generallyapplicable mortality tables) is finalized, that section will apply to plan years beginning on or after January 1,
2008, as originally proposed.
February 19, 20084322008–7 I.R.B.

•ForpurposesofdeterminingtheFTAP
for the 2007 plan year, the value of net
plan assets is determined as the value
of plan assets under § 412(c)(2) as in
effect for the 2006 plan year, adjusted
as follows: (1) contributions made
for the 2006 plan year are taken into
account, regardless of whether those
contributions are made during the plan
year or after the end of the plan year
and within the period specified under
§ 412(c)(10); (2) the value of plan as-
sets taking into account the amount of
contributions made for the 2006 plan
year is increased or decreased, as nec-
essary, so that it is neither less than 90
percent of the fair market value of plan
assets nor greater than 110 percent of
the fair market value of plan assets on
the valuation date for the 2006 plan
year (taking into account assets attrib-
utable to contributions for the 2006
plan year); and (3) the plan’s funding
standard account credit balance as of
the end of the 2006 plan year is sub-
tracted (unless the value of plan assets
is greater than or equal to 90 percent of
the plan’s current liability determined
under § 412(l)(7) on the valuation date
for the 2006 plan year).
A plan that determines the prior year
AFTAP for the 2008 plan year in accor-
dance with the rules of this Part III(B) can-
not increase plan assets for purposes of
this computation through elective reduc-
tion of the 2008 prefunding balance. If the
plan sponsor wishes to increase plan as-
sets for purposes of determining the prior
year AFTAP through elective reduction of
the prefunding balance, the plan sponsor
should use generally applicable rules for
determination of the prior year AFTAP
(which would require use of the plan’s
2007 valuation rather than the plan’s 2006
valuation).
IV. COMMENTS REQUESTED AND
FUTURE REGULATIONS
The transitional guidance provided in
Part III applies for plan years beginning in
2008. Section 2(c)(2)(F) of both S. 1974
(passed by the Senate on December 19,
2007) and H.R. 3361 (as introduced in the
House of Representatives), which would
provide technical corrections to provisions
enacted under PPA, would add a new pro-
vision to § 436 to provide the Secretary
of the Treasury with authority to prescribe
rules for the application of § 436 to plans
with valuation dates other than the first day
of the plan year. If statutory authority simi-
lar to that in these technical correction pro-
visions is enacted, the IRS and the Trea-
sury Department are considering including
rules in the final regulations substantially
similartothosesetforthinPartIII(B)for
the determination of the prior year AFTAP
for a plan with an end-of-year valuation
date with respect to plan years after 2008.
Similarly, if such authority is enacted, the
IRS and the Treasury Department are con-
sidering including rules in the final regu-
lations under which the certification of an
AFTAP as of the last day of the prior plan
year will be treated asthe certification of
the AFTAP for the current plan year for
aplanwithanend-of-yearvaluationdate.
The IRS and the Treasury Department are
not contemplating any additional special
rules under § 436 for small plans that have
a valuation date other than the first day of
the plan year. Thus, a plan with a mid-year
valuation date may have difficulty in ob-
taining the required actuarial certification
in time to avoid the imposition of benefit
limitations under § 436. Comments are re-
quested regarding the proposals set forth in
this Part IV and whether there is a need for
any other special rules for plans with val-
uation dates other than the first day of the
plan year.
Written comments should be submit-
ted by April 21, 2008. Send submissions
to CC:PA:LPD:DRU (Notice 2008–21),
Room 5203, Internal Revenue Service,
POB 7604 Ben Franklin Station, Wash-
ington, D.C. 20044. Comments may
be hand delivered between the hours
of 8 a.m. and 4 p.m., Monday through
Friday, to CC:PA:LPD:DRU (Notice
2008–21), Courier’s Desk, Internal Rev-
enue Service, 1111 Constitution Avenue,
NW, Washington, DC, or sent electroni-
cally via the Federal eRulemaking portal
athttp://www.regulations.gov(Notice
2008–21). All comments will be available
for public inspection.
DRAFTING INFORMATION
The principal authors of this no-
tice are David Ziegler of the Employee
Plans, Tax Exempt and Government En-
tities Division, and Lauson C. Green
and Linda S. F. Marshall of the Office
of the Division Counsel/Associate
Chief Counsel (Tax Exempt and
Government Entities).For further
information regarding this notice, please
contact Mr. Ziegler via e-mail at
RetirementPlanQuestions@irs.gov,or you
may contact Mr. Green and Ms. Marshall
at (202) 622–6090 (not a toll-free number).
Supplemental Health
InsuranceCoverageas
Excepted Benefits Under
HIPAA and Related Legislation
Notice 2008–23
PURPOSE
This notice provides a safe harbor for
supplemental group health insurance to
be considered excepted from the require-
ments that generally apply under Chapter
100 of the Internal Revenue Code (sec-
tions 9801 – 9833) to benefits provided
under a group health plan. It is expected
that the standards of this safe harbor will
be incorporated as requirements (rather
than just as a safe harbor) in a notice of
proposed rulemaking in the future.
BACKGROUND
HIPAA Health Reform and Related
Legislation
Titles I and IV of the Health Insur-
ance Portability and Accountability Act of
1996, Pub. L. 104–191, 110 Stat. 1936
(HIPAA) amended the Code, the Em-
ployee Retirement Income Security Act
(ERISA), and the Public Health Service
Act (PHS Act) to improve portability, ac-
cess, and continuity with respect to group
health plan coverage provided in connec-
tion with employment. These laws include
limitations on preexisting condition ex-
clusions, require issuance of certificates
of creditable coverage, provide special
enrollment rights, and prohibit discrimi-
nation on the basis of any health factor.
Later amendments to these laws provide
protections relating to mental health par-
ity and hospital lengths of stay following
childbirth. Regulations issued by the De-
partments of the Treasury, of Labor, and of
2008–7 I.R.B.433February 19, 2008

Health and Human Services (the Depart-
ments) on these group market provisions
arecontainedin26CFRPart54,29CFR
Part 2590, and 45 CFR Parts 144 and 146.
Additional reforms were provided in the
PHS Act for health coverage in the in-
dividual market and are contained in 45
CFR Parts 144 and 148.
In general, these health reform provi-
sions apply to group health plans (gen-
erally plans established or maintained by
employers or employee organizations, or
both) and health insurance issuers in the
group or individual market. However,
these provisions do not apply to certain
excepted benefits. Ingeneral, if all bene-
fits under a plan or coverage are excepted
benefits, then the plan and any health in-
surance coverage under the plan do not
have to comply with the health reform
requirements, and the coverage may not
qualify as creditable coverage.
Supplemental Health Insurance Coverage
One category of excepted benefits is
supplemental excepted benefits. Benefits
are supplemental excepted benefits only if
they are provided under a separate policy,
certificate, or contract of insurance and are
either Medicare supplemental health insur-
ance, TRICARE supplemental programs,
or similar supplemental coverage provided
to coverage under a group health plan.
The phrase “similar supplemental cover-
age provided to coverage under a group
health plan” is not defined in the statute
or regulations. However, the regulations
clarify that one requirement to be similar
supplemental coverage is that the cover-
age must be specifically designed to fill
gaps in primary coverage, such as coin-
surance or deductibles (but similar sup-
plemental coverage does not include cov-
erage that becomes secondary or supple-
mental only under a coordination-of-bene-
fits provision). § 54.9831–1(c)(5)(i)(C) of
the Miscellaneous Excise Tax Regulations,
29 CFR 2590.732(c)(5)(i)(C), and 45 CFR
146.145(c)(5)(i)(C).
Coordination of Administration
Various situations have come to the at-
tention of the Departments that raise con-
cerns about whether all of the coverage
that is being marketed as similar supple-
mental coverage actually qualifies as such.
Section 104 of HIPAA requires the Sec-
retaries of the Treasury, of Labor, and of
Health and Human Services to ensure that
guidance under HIPAA issued by the De-
partments that relates to the same matter be
administered so as to have the same effect
at all times. In accordance with section
104 of HIPAA, each of the Departments is
issuing guidance for “similar supplemen-
tal coverage” to be considered benefits ex-
cepted from the requirements of HIPAA.
The guidance being issued has been devel-
oped on a coordinated basis by the Depart-
ments. HHS is also issuing guidance on
similar supplemental coverage for the in-
dividual market.
DISCUSSION
The section immediately below (SAFE
HARBOR STANDARDS) provides that if
the standards in that section are satisfied,
the supplemental health insurance will be
considered to satisfy the conditions for be-
ing excepted benefits for purposes of chap-
ter 100. Supplemental health insurance not
satisfying the conditions for the safe har-
bor is subject to further examination for
a determination whether it is not “similar
supplemental coverage to coverage under
a group health plan” and thus is subject to
all the requirements of chapter 100.
To fall within that safe harbor, the pol-
icy, certificate, or contract of insurance
must be issued by an entity that does not
provide the primary coverage under the
plan and must be specifically designed to
fill gaps in primary coverage.
To be “similar supplemental coverage
to coverage under a group health plan”, the
value of the supplemental coverage must
be significantly less than the value of the
primary coverage that it supplements. To
fall within the safe harbor below, the cost
of supplemental coverage may not exceed
15 percent of the cost of the plan’s primary
coverage. Cost is determined in the same
manner as the “applicable premium” is cal-
culated under a COBRA continuation pro-
vision.
1
Some plans subject to HIPAA ti-
tles I or IV are not subject to the COBRA
continuation coverage requirements, such
as church plans and plans maintained by
an employer with fewer than 20 employ-
ees. These plans should compute cost as if
they were subject to COBRA. (For insured
coverage — all supplemental coverage and
primary coverage to the extent insured —
the COBRA cost is, for purposes of this
notice, the cost of the insurance coverage.)
Issuers of Medicare supplemental
health insurance (commonly referred to
as “Medigap”) generally are subject to
prohibitions against discrimination based
on enrollees’ or potential enrollees’ health
status. Accordingly, to fall within the safe
harbor below, supplemental health insur-
ance also must not differentiate among
individuals in eligibility, benefits, or pre-
miums based upon any health factor of the
individual.
SAFE HABOR STANDARDS
Supplemental health insurance under a
group health plan will be considered to be
“similar supplemental coverage provided
to coverage under a group health plan” un-
der § 54.9831–1(c)(5)(i)(C) if it is pro-
vided through a policy, certificate, or con-
tract of insurance separate from the pri-
mary coverage under the plan and if it sat-
isfies all of the following requirements:
(1)Independent of Primary Coverage.
The supplemental policy, certificate, or
contract of insurance must be issued by an
entity that does not provide the primary
coverage under the plan. For this purpose,
entities that are part of the same controlled
group of corporations or part of the same
group of trades or businesses under com-
mon control, within the meaning of section
52(a) or (b) of the Code, are considered a
single entity.
(2)Supplemental for Gaps in Primary
Coverage. The supplemental policy, cer-
tificate, or contract of insurance must be
specifically designed to fill gaps in pri-
mary coverage, such as coinsurance or de-
ductibles, but does not include a policy,
certificate, or contract of insurance that be-
comes secondary or supplemental only un-
der a coordination-of-benefits provision.
(3)Supplemental in Value of Coverage.
The cost of coverage under the supplemen-
tal policy, certificate, or contract of insur-
ance must not exceed 15 percent of the cost
of primary coverage. Cost is determined
in the same manner as the applicable pre-
1
Under the COBRA rules, plans are generally permitted to charge up to 102 percent of the applicable premium. Thus, COBRA cost for purposes of this noticeis 100 percent of the applicable
premium, not 102 percent of the applicable premium that theplan is generally permitted to charge under the COBRA rules.
February 19, 20084342008–7 I.R.B.

mium is calculated under a COBRA con-
tinuation provision.
(4)Similar to Medicare Supplemental
Coverage. The supplemental policy, cer-
tificate, or contract of insurance that is
group health insurance coverage must not
differentiate among individuals in eligibil-
ity, benefits, or premiums based on any
health factor of an individual (or any de-
pendent of the individual).
DRAFTING INFORMATION
The principal author of this notice is
Russ Weinheimer of the Office of Division
Counsel/Associate Chief Counsel (Tax Ex-
empt & Government Entities). For further
information regarding this notice, contact
Russ Weinheimer at (202) 622–6080 (not
a toll-free call).
26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of cor-
rect tax liability.
(Also Part 1, §§ 6662, 6694, 1.6662–4, 1.6694–2.)
Rev. Proc. 2008–14
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 2006–48, 2006–47 I.R.B. 934, and
identifies circumstances under which the
disclosure on a taxpayer’s return with re-
spect to an item or a position is adequate
for the purpose of reducing the understate-
ment of income tax under section 6662(d)
of the Internal Revenue Code (relating to
the substantial understatement aspect of
the accuracy-related penalty), and for the
purpose of avoiding the preparer penalty
under section 6694(a) (relating to under-
statements due to unreasonable positions)
with respect to income tax returns. This
revenue procedure does not apply with re-
spect to any other penalty provisions (in-
cluding the disregard provisions of the sec-
tion 6662 accuracy-related penalty, which
are subject to an exception for adequate
disclosure). Also, under this revenue pro-
cedure, no disclosure on a return other than
an income tax return will be adequate with
respect to a preparer penalty under section
6694(a).
This revenue procedure applies to any
incometaxreturnfiledon2007taxforms
for a taxable year beginning in 2007, and
toanyincometaxreturnfiledon2007tax
forms in 2008 for short taxable years be-
ginning in 2008.
SECTION 2. CHANGES FROM REV.
PROC. 2006–48
.01. Editorial changes and line refer-
ence changes to Form 1040, Schedule A,
have been made in updating Rev. Proc.
2006–48.
02. This revenue procedure has been
updated to reflect changes made to sec-
tion 170(f) by Public Law 109–280, sec-
tion 1217, and to section 6694 by Public
Law 110–28, section 8246.02.
.03. Section 4.02(3)(f) concerning dif-
ference in book and income tax report-
ing is expanded by adding Form 1120–F,
Schedule M–3 (Form 1120–F),Net Income
(Loss) Reconciliation for Foreign Corpo-
rations With Reportable Assets of $10 Mil-
lion or More: Column (b),Temporary Dif-
ference,andColumn(c),Permanent Dif-
ference, of Part II, (reconciliation of in-
come (loss) items) and Part III (reconcil-
iation of expense/deduction items).
SECTION 3. BACKGROUND
.01 If section 6662 applies to any por-
tion of an underpayment of tax required
to be shown on a return, an amount equal
to 20 percent of the portion of the under-
payment to which the section applies is
added to the tax. (The penalty rate is 40
percent in the case of gross valuation mis-
statements under section 6662(h).) Sec-
tion 6662(b)(2) applies to the portion of
an underpayment of taxthat is attributable
to a substantial understatement of income
tax.
.02 Section 6662(d)(1) provides that
there is a substantial understatement of
income tax if the amount of the understate-
ment exceeds the greater of 10 percent of
the amount of tax required to be shown on
the return for the taxable year or $5,000.
Section 6662(d)(1)(B) provides special
rules for corporations. A corporation
(other than an S corporation or personal
holding company) has a substantial under-
statement of income tax if the amount of
the understatement exceeds the lesser of
10 percent of the tax required to be shown
on the return for a taxable year (or, if
greater, $10,000) or $10,000,000. Section
6662(d)(2) defines an understatement as
the excess of the amount of tax required to
be shown on the return for the taxable year
over the amount of the tax that is shown on
the return reduced by any rebate (within
the meaning of section 6211(b)(2)).
.03 In the case of an item not at-
tributable to a tax shelter, section
6662(d)(2)(B)(ii) provides that the amount
of the understatement is reduced by the
portion of the understatement attributable
to any item with respect to which the
relevant facts affecting the item’s tax treat-
ment are adequately disclosed in the return
or in a statement attached to the return,
and there is a reasonable basis for the tax
treatment of the item by the taxpayer.
.04 Section 6694(a) imposes a penalty
on a tax return preparer for filing a return
or claim for refund that results in an un-
derstatement of liability due to a position
of which the preparer knew or should have
known, if the preparer did not have a rea-
sonable belief that the position would more
likely than not be sustained on the merits
and the position was not disclosed in accor-
dance with section 6662(d)(2)(B)(ii). The
penalty is equal to the greater of $1,000 or
50% of the income derived (or to be de-
rived) by the preparer with respect to the
return or claim.
.05 In general, this revenue proce-
dure provides guidance for determining
when disclosure is adequate for purposes
of section 6662(d)(2)(B)(ii) and section
6694(a)(2)(C)(i). For purposes of this rev-
enue procedure, the taxpayer must furnish
all required information in accordance
with the applicable forms and instructions,
andthemoneyamountsenteredonthese
forms must be verifiable. Annual guid-
ance under Treas. Reg. § 1.6662–4(f)(2)
and Treas. Reg. § 1.6694–3(e)(1) and
(2) for returns filed on 2006, 2005, and
2004 tax forms is provided in Rev. Proc.
2006–48, 2006–47 I.R.B. 934, Rev. Proc.
2005–75, 2005–2 C.B. 1137, and Rev.
Proc. 2004–73, 2004–2 C.B. 999, respec-
tively.
.06 Fiscal and short tax year returns. (a)
In general. This revenue procedure may
apply to a return for a fiscal tax year that
begins in 2007 and ends in 2008. This rev-
enue procedure may also apply to a short
year return for a period beginning in 2008
if the return is to be filed before the 2008
forms are available. (Note that individu-
als are generally not put in this position
as a decedent’s final return for a fractional
part of a year is due the fifteenth day of
2008–7 I.R.B.435February 19, 2008

the fourth month following the close of
the12-month period which began with the
first day of such fractional part of the year.
SeeTreas. Reg. section 1.6072–1(b).) In
the case of fiscal year and short year re-
turns, the taxpayer must take into account
any tax law changes that are effective for
tax years beginning after December 31,
2007, even though these changes are not
reflected on the form.
(b) Tax law changes effective after De-
cember 31, 2007. This document does
not take into account the effect of tax law
changes effective for tax years beginning
after December 31, 2007. If a line ref-
erenced in this revenue procedure is af-
fected by such a change and requires ad-
ditional reporting, a taxpayer may have
to file Form 8275,Disclosure Statement,
or Form 8275–R,Regulation Disclosure
Statementuntil the Service prescribes cri-
teria for complying with the requirement.
SECTION 4. PROCEDURE
.01 General.
(1) Additional disclosure of facts rel-
evant to, or positions taken with respect
to, issues involving any of the items set
forth below is unnecessary for purposes
of reducing any understatement of income
tax under section 6662(d) (except as other-
wise provided in section 4.02(3) concern-
ing Schedules M–1 and M–3), provided
that the forms and attachments are com-
pleted in a clear manner and in accordance
with their instructions.
(2) The money amounts entered on the
forms must be verifiable, and the informa-
tion on the return must be disclosed in the
manner described below. For purposes of
this revenue procedure, a number is verifi-
able if, on audit, the taxpayer can demon-
strate the origin of the number (even if
that number is not ultimately accepted by
the Internal RevenueService) and the tax-
payer can show good faith in entering that
number on the applicable form.
(3) The disclosure of an amount as pro-
vided in section 4.02 below is not ade-
quate when the understatement arises from
a transaction between related parties. If an
entry may present a legal issue or contro-
versy because of a related party transac-
tion, then that transaction and the relation-
ship must be disclosed on a Form 8275,
Disclosure Statement, or Form 8275–R,
Regulation Disclosure Statement.
(4) When the amount of an item is
shown on a line that does not have a
preprinted description identifying that
item (such as on an unnamed line under an
“Other Expense” category) the taxpayer
must clearly identify the item by including
the description on that line. For example,
to disclose a bad debt for a sole propri-
etorship, the words “bad debt” must be
written or typed on the line of Schedule
C that shows the amount of the bad debt.
Also, for Schedule M–3 (Form 1120),
Part II, line 25, Other income (loss) items
with differences, or Part III, line 35, Other
expense/deduction items with differences,
the entry must provide descriptive lan-
guage; for example, “Cost of non-compete
agreement deductible not capitalizable.”
If space limitations on a form do not allow
for an adequate description, the descrip-
tion must be continued on an attachment.
(5) Although a taxpayer may literally
meet the disclosure requirements of this
revenue procedure, the disclosure will
have no effect for purposes of the sec-
tion 6662 accuracy-related penalty if the
item or position on the return: (1) Does
not have a reasonable basis as defined
in Treas. Reg. § 1.6662–3(b)(3); (2) Is
attributable to a tax shelter item as defined
in section 6662(d)(2) and Treas. Reg.
§ 1.6662–4(g); or (3) Is not properly sub-
stantiated or the taxpayer failed to keep
adequate books and records with respect to
the item or position. See I.R.C. § 6694(a),
as amended by the Small Business and
Work Opportunity Tax Act of 2007, Pub.
L. No. 110–28, 121 Stat. 190, and any
guidance published thereunder regarding
limitations on the effectiveness of a dis-
closure on the applicability of the section
6694 return preparer penalty.
.02 Items.
(1) Form 1040, Schedule A,Itemized
Deductions:
(a) Medical and Dental Expenses:
Complete lines 1 through 4, supplying all
required information.
(b) Taxes: Complete lines 5 through 9,
supplying all required information. Line 8
must list each type of tax and the amount
paid.
(c) Interest Expenses: Complete lines
10 through 15, supplying all required in-
formation. This section 4.02(1)(c) does
not apply to (i) amounts disallowed under
section 163(d) unless Form 4952,Invest-
ment Interest Expense Deduction,iscom-
pleted, or (ii) amounts disallowed under
section 265.
(d) Contributions: Complete lines 16
through 19, supplying all required infor-
mation. Enter the amount of the contribu-
tion reduced by the value of any substan-
tial benefit (goods or services) provided by
the donee organization in consideration, in
whole or in part. Entering the value of
the contribution unreduced by the value
of the benefit received will not constitute
adequate disclosure. If a contribution of
$250 or more is made, this section will
not apply unless a contemporaneous writ-
ten acknowledgment, as required by sec-
tion 170(f)(8), is obtained from the donee
organization. If contribution of cash of
less than $250 is made, this section will
not apply unless a bank record or writ-
ten communication from the donee, as re-
quired by section 170(f)(17), is obtained
from the donee organization. If a contri-
bution of property other than cash is made
and the amount claimed as a deduction ex-
ceeds $500, attach a properly completed
Form 8283,Noncash Charitable Contri-
butions,tothereturn. Inadditiontothe
Form 8283, if a contribution of a quali-
fied motor vehicle, boat, or airplane has a
value of more than $500, this section will
not apply unless a contemporaneous writ-
ten acknowledgment, as required by sec-
tion 170(f)(12), is obtained from the donee
organization and attached to the return. An
acknowledgment under section 170(f)(8)
is not required if an acknowledgment un-
der section 170(f)(12) is required.
(e) Casualty and Theft Losses: Com-
plete Form 4684,Casualties and Thefts,
and attach to the return. Each item or ar-
ticle for which a casualty or theft loss is
claimed must be listed on Form 4684.
(2) Certain Trade or Business Expenses
(including, for purposes of this section, the
following six expenses as they relate to the
rental of property):
(a) Casualty and Theft Losses: The pro-
cedure outlined in section 4.02(1)(e) must
be followed.
(b) Legal Expenses: The amount
claimed must be stated. This section does
not apply, however, to amounts prop-
erly characterized as capital expenditures,
personal expenses, or non-deductible lob-
bying or political expenditures, including
amounts that are required to be (or that
are) amortized over a period of years.
February 19, 20084362008–7 I.R.B.

(c) Specific Bad Debt Charge-off: The
amount written off must be stated.
(d) Reasonableness of Officers’ Com-
pensation: Form 1120, Schedule E,Com-
pensation of Officers, must be completed
when required by its instructions. The time
devoted to business must be expressed as
a percentage as opposed to “part” or “as
needed.” This section does not apply to
“golden parachute” payments, as defined
under section 280G. This section will not
apply to the extent that remuneration paid
or incurred exceeds the $1 million-em-
ployee-remuneration limitation, if applica-
ble.
(e) Repair Expenses: The amount
claimed must be stated. This section does
not apply, however, to any repair expenses
properly characterized as capital expendi-
tures or personal expenses.
(f) Taxes (other than foreign taxes): The
amount claimed must be stated.
(3) Differences in book and income tax
reporting.
(a) Form 1065. Schedule M–3 (Form
1065),Net Income (Loss) Reconciliation
for Certain Partnerships: Column (b),
Temporary Difference,andColumn(c),
Permanent Difference, of Part II, (recon-
ciliation of income (loss) items) and Part
III (reconciliation of expense/deduction
items).
(b) Form 1120. (i) Schedule M–1,Rec-
onciliation of Income (Loss) per Books
With Income per Return.
(ii) Schedule M–3 (Form 1120),Net
Income (Loss) Reconciliation for Corpo-
rations With Total Assets of $10 Million
or More: Column (b),Temporary Differ-
ence,andColumn(c),Permanent Differ-
ence, of Part II, (reconciliation of income
(loss) items) and Part III (reconciliation of
expense/deduction items).
(c) Form 1120–L. Schedule M–3 (Form
1120–L),Net Income (Loss) Reconcilia-
tion for U.S. Life Insurance Companies
With Total Assets of $10 Million or More:
Column (b),Temporary Difference,and
Column (c),Permanent Difference,ofPart
II, (reconciliation of income (loss) items)
and Part III (reconciliation of expense/de-
duction items).
(d) Form 1120–PC. Schedule M–3
(Form 1120–PC),Net Income (Loss) Rec-
onciliation for U.S. Property and Casualty
Insurance Companies With Total Assets
of $10 Million or More: Column (b),
Temporary Difference,andColumn(c),
Permanent Difference, of Part II, (recon-
ciliation of income (loss) items) and Part
III (reconciliation of expense/deduction
items).
(e) Form 1120S. Schedule M–3 (Form
1120S),Net Income (Loss) Reconciliation
for S Corporations With Total Assets of
$10 Million or More: Column (b),Tempo-
rary Difference,andColumn(c),Perma-
nent Difference, of Part II, (reconciliation
of income (loss) items) and Part III (recon-
ciliation of expense/deduction items).
(f) Form 1120–F. Schedule M–3 (Form
1120–F),Net Income (Loss) Reconcilia-
tion for Foreign Corporations With Re-
portable Assets of $10 Million or More:
Column (b),Temporary Difference,and
Column (c),Permanent Difference,ofPart
II, (reconciliation of income (loss) items)
and Part III (reconciliation of expense/de-
duction items).
For Schedule M–1 and all Schedules
M–3, the information provided reasonably
must be expected to apprise the Service of
the nature of the potential controversy con-
cerning the tax treatment of the item. If
the information provided does not so ap-
prise the Service, a Form 8275 or Form
8275–R, must be used to adequately dis-
close the item (see Part II of the instruc-
tions for those forms).
Note: Anitemreportedonalinewith
a pre-printed description, shown on an at-
tached schedule, or “itemized” on Sched-
ule M–1 may represent the aggregate
amount of several transactions producing
that item (i.e., a group of similar items,
such as amounts paid or incurred for sup-
plies by a taxpayer engaged in business).
In some instances, the potentially contro-
versial item may involve a portion of the
amount disclosed on the schedule. The
Service will not be reasonably apprised of
the potential controversy by the amount
disclosed. In these instances, the taxpayer
must use Form 8275 or Form 8275–R re-
garding that portion of the item.
The combining of unlike items, whether
on Schedule M–1 or Schedule M–3 (or
on an attachment when directed by the in-
structions), will not constitute an adequate
disclosure.
(4) Foreign Tax Items:
(a) International Boycott Transactions:
Transactions disclosed on Form 5713,
International Boycott Report. Schedule
A,International Boycott Factor (Sec-
tion 999(c)(1)); Schedule B,Specifically
Attributable Taxes and Income (Section
999(c)(2)); and Schedule C,Tax Effect
of the International Boycott Provisions,
must be completed when required by their
instructions.
(b) Treaty-Based Return Position:
Transactions and amounts under section
6114 or section 7701(b) as disclosed on
Form 8833,Treaty-Based Return Posi-
tion Disclosure Under Section 6114 or
7701(b).
(5) Other:
(a) Moving Expenses: Complete Form
3903,Moving Expenses, and attach to the
return.
(b) Employee Business Expenses:
Complete Form 2106,Employee Business
Expenses, or Form 2106–EZ,Unreim-
bursed Employee Business Expenses,and
attach to the return. This section does not
apply to club dues, or to travel expenses
for any non-employee accompanying the
taxpayer on the trip.
(c) Fuels Credit: Complete Form 4136,
Credit for Federal Tax Paid on Fuels,and
attach to the return.
(d) Investment Credit: Complete Form
3468,Investment Credit, and attach to the
return.
SECTION 5. EFFECTIVE DATE
This revenue procedure applies to any
income tax return filed on a 2007 tax form
for a taxable year beginning in 2007, and
to any income tax return filed on a 2007
taxformin2008forashorttaxableyear
beginning in 2008.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Jennifer Wagner of the Office
of Associate Chief Counsel (Procedure &
Administration). For further information
regarding this revenue procedure, contact
Branch 2 of Procedure and Administration
at (202) 622–4940 (not a toll-free call).
2008–7 I.R.B.437February 19, 2008

Part IV. Items o
fGeneralInterest
Announcement of Disciplinary Actions Involving
Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Reinstatements, Suspensions,
Censures, Disbarments, and Resignations
Announcement 2008-5
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before
the Internal Revenue Service if the assis-
tance relates to a matter constituting prac-
tice before the Internal Revenue Service
and may not knowingly aid or abet another
person to practice before the Internal Rev-
enue Service during a period of suspen-
sion, disbarment, or ineligibility of such
other person.
To enable attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries to identify persons to whom
these restrictions apply, the Director, Of-
fice of Professional Responsibility, will
announce in the Internal Revenue Bulletin
their names, their city and state, their pro-
fessional designation, the effective date
of disciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
continue to appear in the weekly Bulletins
for five successive weeks.
Reinstatement To Practice Before the Internal Revenue
Service
Under Title 31, Code of Federal Reg-
ulations, Part 10, The Director, Office of
Professional Responsibility, may entertain
a petition for reinstatement for any attor-
ney, certified public accountant, enrolled
agent, or enrolled actuary censured, sus-
pended, or disbarred, from practice before
the Internal Revenue Service.
The following individuals’ eligibility to
practice before the Internal Revenue Ser-
vice has been restored:
NameAddressDesignationDate of Reinstatement
Cohen, PeterEdison, NJCPAJune 01, 2004
Brunelle, Roswell J.Queensbury, NYCPAJune 10, 2004
Cohick, Jeffrey S.Newville, PAEnrolled AgentOctober 30, 2004
Cotroneo, NicholasMcLean, VACPAFebruary 28, 2007
Layson, David A.Corydon, INAttorneyOctober 06, 2007
Tomasulo, Maria V.Wantagh, NYCPAOctober 16, 2007
Emeziem, Kelechi C.Antioch, CAAttorneyOctober 17, 2007
Johnston, Gregory A.Muscatine, IAAttorneyOctober 17, 2007
Shapiro, Sidney C.West Palm Beach, FLCPAOctober 29, 2007
Hubbard, Cynthia A.Geneva, ILAttorneyOctober 31, 2007
Moss, Steve E.Henderson, NCCPANovember 29, 2007
Schaffer, Robert J.Baiting Hollow, NYCPADecember 04, 2007
Woods, Dalton C.Carrollton, TXEnrolled AgentDecember 04, 2007
Brown, Arthur I.Miami, FLCPADecember 14, 2007
February 19, 20084382008–7 I.R.B.

Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid the institution
or conclusion of a proceeding for his or
her disbarment or suspension from prac-
tice before the Internal Revenue Service,
may offer his or her consent to suspension
from such practice. The Director, Office
of Professional Responsibility, in his dis-
cretion, may suspend an attorney, certified
public accountant, enrolled agent, or en-
rolled actuary in accordance with the con-
sent offered.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
NameAddressDesignationDate of Suspension
Bauman, John J.Battle Creek, MICPAIndefinite
from
October 1, 2007
Montgomery, Dwight M.Redlands, CAAttorneyIndefinite
from
October 1, 2007
Deku, John V.Toledo, OHAttorneyIndefinite
from
October 8, 2007
Ying, William F.Beverly Hills, CACPAIndefinite
from
October 9, 2007
Brill, Ann M.Sheboygan, WICPAIndefinite
from
October 10, 2007
Benvin, Anne C.Phoenix, AZEnrolled AgentIndefinite
from
October 22, 2007
Kingman, William B.San Antonio, TXAttorneyIndefinite
from
October 22, 2007
Nurney, J. ChristopherHatboro, PACPAIndefinite
from
October 22, 2007
Wren, Gary M.Redding, CAEnrolled AgentIndefinite
from
October 29, 2007
Beck, Brian S.Boston, MACPAIndefinite
from
November 1, 2007
Draper, Jeffrey L.Olathe, KSCPAIndefinite
from
November 1, 2007
Ehrlich, Gary P.Chevy Chase, MDCPAIndefinite
from
November 1, 2007
2008–7 I.R.B.439February 19, 2008

NameAddressDesignationDate of Suspension
Garrison, John C.Prairie Village, KSCPAIndefinite
from
November 1, 2007
Greenslit, WayneKeene, NHCPAIndefinite
from
November 1, 2007
Moran, Philip D.Salem, MAAttorneyIndefinite
from
November 1, 2007
Wright, CoryReno, NVCPAIndefinite
from
November 1, 2007
Turbeville, Mary A.Geyserville, CAEnrolled AgentIndefinite
from
November 16, 2007
Saffold, Rodger P.Cleveland, OHCPAIndefinite
from
December 1, 2007
Voss, Patrick W.Metairie, LACPAIndefinite
from
December 1, 2007
Rosner, Ronald I.Manahawkin, NJCPAIndefinite
from
December 13, 2007
Johnson, Jr., StanleyMiami, FLAttorneyIndefinite
from
December 14, 2007
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice before
the Internal RevenueService any practi-
tioner who, within five years from the date
the expedited proceeding is instituted (1)
has had a license to practice as an attor-
ney, certified public accountant, or actuary
suspended or revoked for cause or (2) has
been convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Crotts, William P.Phoenix, AZAttorneyIndefinite
from
October 16, 2007
Daugherty, Troy L.Olathe, KSAttorneyIndefinite
from
October 16, 2007
February 19, 20084402008–7 I.R.B.

NameAddressDesignationDate of Suspension
Driscoll, Jr., Wilfred C.Somerset, MAAttorneyIndefinite
from
October 16, 2007
Shah, Ashok S.Manalapan, NJCPAIndefinite
from
October 16, 2007
Sheline, Calvin L.Camp Verde, AZCPAIndefinite
from
October 16, 2007
Bosse, Leigh D.Hillsborough, NHAttorneyIndefinite
from
October 24, 2007
Webb, James E.Nashville, TNCPAIndefinite
from
October 25, 2007
Gottschalk, Don E.Cedar Falls, IAAttorneyIndefinite
from
October 31, 2007
Joy, Steven B.Paton, IAAttorneyIndefinite
from
October 31, 2007
Smallwood, Teresa L.Durham, NCAttorneyIndefinite
from
November 2, 2007
Donaldson, James F.Denver, COAttorneyIndefinite
from
November 15, 2007
Roux, Johnathan M.Fair Oaks, CACPAIndefinite
from
November 20, 2007
Linville, Wiley T.Denver, COAttorneyIndefinite
from
December 4, 2007
Andrade, Sergio R.Inver Grove Hghts, MNAttorneyIndefinite
from
December 13, 2007
Arzani, Mitzi H.Charlotte, NCCPAIndefinite
from
December 13, 2007
Catron, Stephen B.Knoxville, TNAttorneyIndefinite
from
December 13, 2007
Coulagouri, Louis A.Moorestown, NJAttorneyIndefinite
from
December 13, 2007
2008–7 I.R.B.441February 19, 2008

NameAddressDesignationDate of Suspension
Crown, Charles K.Blakeslee, PACPAIndefinite
from
December 13, 2007
George, Philip J.Great Falls, VAAttorneyIndefinite
from
December 13, 2007
Heitz, John P.Oneill, NEAttorneyIndefinite
from
December 13, 2007
Jones, William F.Park Rapids, MNAttorneyIndefinite
from
December 13, 2007
Khoury, Arthur M.Lawrence, MAAttorneyIndefinite
from
December 13, 2007
McGree, Charles A.Fort Payne, ALAttorneyIndefinite
from
December 13, 2007
Nason, George H.Franklin, TNAttorneyIndefinite
from
December 13, 2007
Owen, Thomas A.Arlington, TXAttorneyIndefinite
from
December 13, 2007
Ozulumba, MichaelBoston, MAAttorneyIndefinite
from
December 13, 2007
Phillips, Mark A.Elm Grove, WIAttorneyIndefinite
from
December 13, 2007
Simpson, Joseph H.Amite, LAAttorneyIndefinite
from
December 13, 2007
Sipes, Laura A.St. Charles, MOAttorneyIndefinite
from
December 13, 2007
Sullivan, Joseph O.Warwick, NYAttorneyIndefinite
from
December 13, 2007
Szegda, Michael A.Old Tappan, NJAttorneyIndefinite
from
December 13, 2007
Misch, Paul M.Akron, OHAttorneyIndefinite
from
December 17, 2007
February 19, 20084422008–7 I.R.B.

NameAddressDesignationDate of Suspension
Brenner, Allen L.Long Beach, NYAttorneyIndefinite
from
December 20, 2007
Cook, Rirchard B.Cockeysville, MDAttorneyIndefinite
from
December 20, 2007
Shang, Wade V.S. San Francisco, CACPAIndefinite
from
December 20, 2007
Suspensions From Practice Before the Internal Revenue
Service After Appeal
Under Title 31, Code of Federal Regu-
lations, Part 10, after a decision is issued
by an Administrative Law Judge, either
party may appeal to the Secretary of the
Treasury. The following individuals have
been placed under suspension from prac-
tice before the Internal Revenue Service
AFTERan appeal:
NameAddressDesignationEffective Date
Andrews, Ted E.Avon, INCPAIndefinite
from
October 19, 2007
Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an adminis-
trative law judge, the following individu-
als have been disbarred from practice be-
fore the Internal Revenue Service:
NameAddressDesignationEffective Date
Ruocchio, RaymondHavertown, PACPAApril 30, 2007
Roseman, Eric W.Scottsdale, AZCPAAugust 20, 2007
Solomon, StanleyBrooklyn, NYCPASeptember 04, 2007
Marks, RobertMedfield, MAAttorneyOctober 15, 2007
2008–7 I.R.B.443February 19, 2008

Censure Issued by Consent
Under Title 31, Code of Federal Reg-
ulations, Part 10, in lieu of a proceeding
being instituted or continued, an attorney,
certified public accountant, enrolled agent,
or enrolled actuary, may offer his or her
consent to the issuance of a censure. Cen-
sure is a public reprimand.
The following individuals have con-
sented to the issuance of a Censure:
NameAddressDesignationDate of Censure
Villarreal, RicardoHouston, TXEASeptember 24, 2007
Meisgeier, Deborah K.Richmond, TXEAOctober 16, 2007
O’Brien, Colleen D.Winter Park, FLCPAOctober 24, 2007
Staver, Peter J.Southgate, MIAttorneyNovember 06, 2007
Weiss, IraPittsburgh, PAAttorneyNovember 29, 2007
Orr, William S.Kerrville, TXCPADecember 04, 2007
Whitsitt, RichardPanama City, FLCPADecember 04, 2007
Foreign Tax Credit:
Notification of Foreign Tax
Redeterminations; Correction
Announcement 2008–9
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting amendments.
SUMMARY: This document contains cor-
rections to temporary regulations (T.D.
9362, 2007–48 I.R.B. 1050) that were
published in theFederal Registeron
Wednesday, November 7, 2007 (72 FR
62771) relating to a United States tax-
payer’s obligation under section 905(c)
of the Internal Revenue Code to notify
the IRS of a foreign tax redetermination,
which is a change in the taxpayer’s foreign
tax liability that may affect the taxpayer’s
foreign tax credit and also relating to the
civil penalty under section 6689 for failure
to notify the IRS of a foreign tax redeter-
mination as required under section 905(c).
DATES: The correction is effective De-
cember 19, 2007.
FOR FURTHER INFORMATION
CONTACT: Teresa Burridge Hughes,
(202) 622–3850 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The temporary regulations (T.D. 9362)
that are the subject of the correction are un-
der section 905(c) of the Internal Revenue
Code.
Need for Correction
As published, temporary regulations
(T.D. 9362) contain errors that may prove
to be misleading and are in need of clarifi-
cation.
*****
Correction of Publication
Accordingly, 26 CFR part 1 is corrected
by making the following amendments:
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 1.905–3T is amended
by revising the eighth sentence of para-
graph (d)(3)(iii)Example.(i), the first sen-
tence of paragraph (d)(3)(iii)Example.(ii),
and the third and last sentences of para-
graph (d)(3)(iii)Example.(iii) as follows:
§1.905–3T Adjustments to United States
tax liability and to the pools of post-1986
undistributed earnings and post-1986
foreign income taxes as a result of a
foreign tax redetermination (temporary).
*****
(d) * * *
(3) * * *
(iii) * * *
Example.***
(
i) * * * In 2009, CFC paid its actual foreign tax
liability for 2008 of 80u. * * *
(ii)Result in 2009. If the 20u overaccrual of tax
for 2008 were taken into account in 2008, CFC’s gen-
eral category post-1986 undistributed earnings would
be 1,020u, CFC’s general category post-1986 foreign
income taxes would be $280, and P would be deemed
to pay $27.45 of tax with respect to the 2008 distri-
bution of 100u (100u/1020u x $280 = $27.45). * * *
(iii) * * * As determined in 2011, CFC’s
post-1986 undistributed earnings for 2009 are 1350u
(1,100u as revised for 2008, less 100u distributed in
2008, plus 350u earned in 2009), and its post-1986
foreign income taxes for 2009 are $281.82 ($200 as
revised for 2008, less $18.18 deemed paid in 2008,
plus $100 accrued for 2009). As redetermined in
2011, P’s deemed paid credit with respect to the 100u
distribution from CFC in 2009 is $20.88 (100u/1350u
x $281.82).
*****
Par. 3. Section 1.905–4T is amended
by revising the last sentence of paragraph
(b)(4) and the second sentence of para-
graph (f)(2)(ii) as follows:
§1.905–4T Notification of foreign tax
redetermination (temporary).
*****
(b) * * *
February 19, 20084442008–7 I.R.B.

(4)***Because the date for notify-
ing the IRS of the foreign tax redetermina-
tion under paragraph (b)(1)(ii) of this sec-
tion precedes the date of the opening con-
ference concerning the examination of the
return for X’s 2008 taxable year, paragraph
(b)(3) of this section does not apply, and X
must notify the IRS of the foreign tax re-
determination by filing an amended return,
Form 1118, and the statement required in
paragraph (c) of this section for the 2008
taxable year by September 15, 2010.
*****
(f) * * *
(2) * * *
(ii)***Suchnotificationmustbefiled
no later than the due date (with extensions)
of the original return for the taxpayer’s first
taxable year following the taxable year in
which these regulations are first applica-
ble. ***
LaNita Van Dyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 18,
2007, 8:45 a.m., and published in the issue of the Federal
Register for December 19, 2007, 72 F.R. 71787)
Returns Required on Magnetic
Media; Correction
Announcement 2008–10
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to final regulations.
SUMMARY: This document contains cor-
rections to final regulations (T.D. 9363,
2007–49 I.R.B. 1084) that were published
in theFederal Registeron Tuesday,
November 13, 2007 (72 FR 63807) relat-
ing to the requirements for filing corporate
income tax returns and returns of orga-
nizations required to file returns under
section 6033 on magnetic media pursuant
to section 6011(e) of the Internal Revenue
Code.
DATES: The correction is effective
November 13, 2007.
FOR FURTHER INFORMATION
CONTACT: Michael E. Hara, (202)
622–4910 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations (T.D. 9363) that
are the subject of this correction are under
sections 6011, 6033 and 6037 of the Inter-
nal Revenue Code.
Need for Correction
As published, the final regulations
(T.D. 9363) contain errors that may prove
to be misleading and are in need of clarifi-
cation.
Correction of Publication
Accordingly, the publication of the fi-
nal regulations (T.D. 9363), which was the
subject of FR Doc. E7–22147, is corrected
as follows:
1. On page 63808, column 2, in the
preamble, under the paragraph heading “1.
Returns Covered”, line 11 from the bottom
of the column, the language “990 series
that are required to be filled” is corrected
to read “990 series that are required to be
filed”.
2. On page 63809, column 2, in the
preamble, under the paragraph heading “4.
Hardship Waiver”, lines 6 through 10 of
the third paragraph of the column, the lan-
guage “Providers for Form 1120/1120S;
IRS Publication 4206,Modernized e-file
information for Authorized e-file Providers
of Exempt Organization Filings;andonthe
IRS.govInternet site.” is corrected to read
“Providers for Form 1120/1120S; and on
theIRS.govInternet site.”
LaNita Van Dyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 12,
2007, 8:45 a.m., and published in the issue of the Federal
Register for December 13, 2007, 72 F.R. 70779)
Foreign Tax Credit:
Notification of Foreign Tax
Redeterminations; Correction
Announcement 2008–11
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to notice of pro-
posedrulemakingbycross-reference to
temporary regulations.
SUMMARY: This document contains
corrections to a notice of proposed rule-
making by cross-reference to temporary
regulations (REG–209020–86, 2007–48
I.R.B. 1075) that was published in the
Federal Registeron Wednesday, Novem-
ber 7, 2007 (72 FR 62805) relating to a
taxpayer’s obligation under section 905(c)
of the Internal Revenue Code to notify
IRS of a foreign tax redetermination and
also relating to the civil penalty under sec-
tion 6689 for failure to notify the IRS of
a foreign tax redetermination as required
under section 905(c).
FOR FURTHER INFORMATION
CONTACT: Teresa Burridge Hughes at
(202) 622–3850 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The correction notice that is the subject
of this document is under section 905(c) of
the Internal Revenue Code.
Need for Correction
As published, the notice of proposed
rulemaking by cross-reference to tempo-
rary regulations (REG–209020–86) con-
tain errors that may prove to be misleading
and are in need of clarification.
Correction of Publication
Accordingly, the publication of the no-
tice of proposed rulemaking by cross-ref-
erence to the temporary regulations
(REG–209020–86), which was the subject
of FR Doc. E7–21727, is corrected as
follows:
1. On page 62806, column 1, in
the preamble, under the caption “AD-
DRESSES:”, line 8, the language
2008–7 I.R.B.445February 19, 2008

“CC:PA:LPD:PR (REG–209020–90),”
is corrected to read “CC:PA:LPD:PR
(REG–209020–86),”.
[§1.905–5 Corrected]
2. On page 62807, column 2, §1.905–5,
the word (temporary) is removed from the
end of the section title.
LaNita Van Dyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 18,
2007, 8:45 a.m., and published in the issue of the Federal
Register for December 19, 2007, 72 F.R. 71842)
Foreign Tax Credit:
Notification of Foreign Tax
Redeterminations; Correction
Announcement 2008–12
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to temporary regula-
tions.
SUMMARY: This document contains
a correction to temporary regulations
(T.D. 9362, 2007–48 I.R.B. 1050) that
were published in the Federal Register on
Wednesday, November 7, 2007 (72 FR
62771) relating to a United States tax-
payer’s obligation under section 905(c)
of the Internal Revenue Code to notify
the IRS of a foreign tax redetermination,
which is a change in the taxpayer’s foreign
tax liability that may affect the taxpayer’s
foreign tax credit and also relating to the
civil penalty under section 6689 for failure
to notify the IRS of a foreign tax redeter-
mination as required under section 905(c).
DATES: The correction is effective De-
cember 19, 2007.
FOR FURTHER INFORMATION
CONTACT: Teresa Burridge Hughes,
(202) 622–3850 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The temporary regulations (T.D. 9362)
that are the subject of the correction are un-
der section 905(c) of the Internal Revenue
Code.
Need for Correction
As published, temporary regulations
(T.D. 9362) contain an error that may
prove to be misleading and is in need of
clarification.
Correction of Publication
Accordingly, the publication of the
temporary regulations (T.D. 9362), which
were the subject of FR Doc. E7–21766, is
corrected as follows:
On page 62779, column 2, under the
paragraph heading “Effective/Applicabil-
ity Date”, last line of the first paragraph of
the column, the language “are first effec-
tive.” is corrected toread “are first appli-
cable.”.
LaNita Van Dyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 18,
2007, 8:45 a.m., and published in the issue of the Federal
Register for December 19, 2007, 72 F.R. 71787)
February 19, 20084462008–7 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.
2008–7 I.R.B.iFebruary 19, 2008

Numerical Finding List
1
Bulletins 2008–1 through 2008–7
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
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
2008-23, 2008-7 I.R.B.433
Proposed Regulations:
REG-104713-07, 2008-6 I.R.B.409
REG-111583-07, 2008-4 I.R.B.319
REG-114126-07, 2008-6 I.R.B.410
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
Revenue Procedures— Continued:
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
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
Tax Conventions:
2008-8, 2008-6 I.R.B.403
Treasury Decisions:
9368, 2008-6 I.R.B.382
9369, 2008-6 I.R.B.394
9370, 2008-7 I.R.B.428
9375, 2008-5 I.R.B.344
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.
February 19, 2008ii2008–7 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–1 through 2008–7
Notices:
2001-16
Modified by
Notice 2008-20, 2008-6 I.R.B.406
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
2007-54
Clarified by
Notice 2008-11, 2008-3 I.R.B.279
Proposed Regulations:
REG-209020-86
Corrected by
Ann. 2008-11, 2008-7 I.R.B.445
REG-113891-07
Hearing scheduled by
Ann. 2008-4, 2008-2 I.R.B.269
Revenue Procedures:
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
Revenue Procedures— Continued:
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
Revenue Rulings:
2007-4
Supplemented and superseded by
Rev. Rul. 2008-3, 2008-2 I.R.B.249
Treasury Decisions:
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
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.
2008–7 I.R.B.iiiFebruary 19, 2008

February 19, 20082008–7 I.R.B.

INTERNAL REVENUE BULLETIN
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