Internal Revenue Bulletin 2010-51 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 201
0-51
December 20, 201
0
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
REG–100194–10, page 891.
Proposed regulations under section 6011(e)(3) of the Code re-
late to the requirement for “specified tax return preparers,” gen-
erally tax return preparers who reasonably expect to file more
than 10 individual income tax returns in a calendar year (100
or more in 2011), to file individual income tax returns using
magnetic media (electronically). A public hearing is scheduled
for January 7, 2011.
Notice 2010–82, page 857.
Section 45R provides a Federal income tax credit to certain
small employers that make nonelective contributions towards
their employees’ health insurance premiums under an arrange-
ment that meets certain requirements. The notice provides
guidance on the credit, including guidance for determining eli-
gibility for the credit and for meeting the qualifying arrangement
requirement for the credit. Notice 2010–44 amplified.
Notice 2010–85, page 877.
This notice contains a proposed revenue procedure that pro-
vides guidance to specified tax return preparers regarding the
procedures to request a waiver of the magnetic media (elec-
tronic) filing requirement, due to undue hardship, under section
6011(e)(3) of the Code and proposed section 301.6011-6 of
the Regulations on Procedure and Administration, which is be-
ing published contemporaneously with this notice. The pro-
posed revenue procedure also provides guidance regarding
how to document a taxpayer’s choice to file the taxpayer’s in-
dividual income tax return in paper format when the return is
prepared by the preparer but filed by the taxpayer.
EMPLOYEE PLANS
Notice 2010–77, page 851.
This notice further extends the deadline for amending qual-
ified defined benefit plans to meet certain requirements of
theCodethatwereaddedbythePensionProtectionActof
2006 (PPA ’06) and subsequently modified by the Worker,
Retiree, and Employer Recovery Act of 2008 (WRERA) and
the Preservation of Access to Care for Medicare Beneficiaries
and Pension Relief Act of 2010 (PRA 2010). The deadline for
adopting an interim or discretionary plan amendment under
sections 401, 436, and 411 is extended to the last day of
the first plan year that begins on or after January 1, 2011.
A plan must continue to satisfy the operational compliance
requirements of section 1107 of PPA ’06 as a condition of
the extension of the deadline for adopting plan amendments
provided by this notice. Notice 2009–97 and Rev. Proc.
2007–44 modified.
Notice 2010–80, page 853.
This notice provides additional relief for nonqualified deferred
compensation plans covered under section 409A. This notice
also expands the types of plans eligible for relief under Notice
2010-6, provides an additional method of correction and tran-
sition relief under Notice 2010-6 for certain plan document fail-
ures relating to payments at separation from service, and mod-
ifies the correction reporting requirements in Notice 2008-113
and Notice 2010-6. Notices 2008–113 and 2010–6 modified.
(Continued on the next page)
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 897.
Finding Lists begin on page ii.

Notice 2010–83, page 862.
Funding relief for multiemployer defined benefit plans
under PRA 2010.This notice provides guidance in the form
of questions and answers for sponsors of multiemployer de-
fined benefit plans with respect to the special funding rules
under section 431(b)(8), as added by section 211(a)(2) of the
Preservation of Access to Care for Medicare Beneficiaries and
Pension Relief Act of 2010 (PRA 2010).
Notice 2010–84, page 872.
Section 2112 of the Small Business Jobs Act of 2010 (“SBJA”)
added section 402A(c)(4) to the Code, effective for distribu-
tions made after September 27, 2010, to permit plans that
include a qualified Roth contribution program to allow individu-
als to roll over amounts from their accounts other than desig-
nated Roth accounts to their designated Roth accounts in the
plan. This notice provides guidance under section 402A(c)(4)
relating to rollovers from section 401(k) plans to designated
Roth accounts in the same plan (“in-plan Roth rollovers”). The
guidance in this notice also generally applies to rollovers from
section 403(b) plans to designated Roth accounts in the same
plan.
EXEMPT ORGANIZATIONS
Announcement 2010–92, page 897.
The IRS has revoked its determination that Chesapeake Wildlife
Sanctuary, Inc., of Valley Park, MO; Communities in Schools of
Northern Virginia of Alexandria, VA; Luxury for Learning, Inc., of
Brunswick, MO; Owls Nest 1230 of Parkersburg, WV; Rensse-
laer Alumni Association, Inc., Orange County Chapter of Lake-
wood, CA; Retired Enlisted Association of Fayetteville, NC; and
Youth Education Scholarship Services of Lathrop, CA, qualify
as organizations described in sections 501(c)(3) and 170(c)(2)
of the Code.
ADMINISTRATIVE
REG–100194–10, page 891.
Proposed regulations under section 6011(e)(3) of the Code re-
late to the requirement for “specified tax return preparers,” gen-
erally tax return preparers who reasonably expect to file more
than 10 individual income tax returns in a calendar year (100
or more in 2011), to file individual income tax returns using
magnetic media (electronically). A public hearing is scheduled
for January 7, 2011.
Notice 2010–85, page 877.
This notice contains a proposed revenue procedure that pro-
vides guidance to specified tax return preparers regarding the
procedures to request a waiver of the magnetic media (elec-
tronic) filing requirement, due to undue hardship, under section
6011(e)(3) of the Code and proposed section 301.6011-6 of
the Regulations on Procedure and Administration, which is be-
ing published contemporaneously with this notice. The pro-
posed revenue procedure also provides guidance regarding
how to document a taxpayer’s choice to file the taxpayer’s in-
dividualincometaxreturninpaperformatwhenthereturnis
prepared by the preparer but filed by the taxpayer.
Notice 2010–88, page 882.
Optional standard mileage rates for 2011.This notice an-
nounces 51 cents as the optional standard mileage rate for
business use of an automobile, 14 cents as the optional rate
for use of an automobile as a charitable contribution, and 19
cents as the optional rate for use of an automobile as a medi-
cal or moving expense for 2011. The notice also provides the
amount a taxpayer must use in calculating reductions to ba-
sis for depreciation taken under the business standard mileage
rate and the maximum standard automobile cost for automo-
biles under a FAVR allowance.
Rev. Proc. 2010–51, page 883.
Optional standards mileage rates procedures.This pro-
cedure provides the rules for substantiating the deductible ex-
penses of using an automobile for business, moving, medical,
or charitable purposes. The revenue procedure also provides
rules for substantiating the amount of an employee’s ordinary
and necessary business expenses of local travel or transporta-
tion away from home that a payor (an employer, its agent, or a
third party) reimburses using a mileage allowance. Rev. Proc.
2009–54 superseded.
December 20, 20102010–51 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2010–51 I.R.B.December 20, 2010

December 20, 20102010–51 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 62.—A
djusted
Gross Income Defined
26 CFR 1.62–2: Reimbursements and other expense
allowance arrangements.
Rules are provided under which a reimbursement
or other expense allowance arrangement for the cost
of operating an automobile for business purposes will
satisfy the requirements of section 62(c) of the Code
as to business connection, substantiation, and return-
ing amounts in excess of expenses. See Rev. Proc.
2010-51, page 883.
Section 162.—Trade or
Business Expenses
26 CFR 1.162–17: Reporting and substantiation of
certain business expenses of employees.
Rules are provided for substantiating the amount
of a deduction for an expense for business use of an
automobile. See Rev. Proc. 2010-51, page 883.
Section 170.—
Charitable,
etc., Contribution and Gifts
26 CFR 1.170A–1: Charitable, etc., contributions
and gifts; allowance of deduction.
Rules are provided for substantiating the amount
of a deduction for an expense for charitable use of an
automobile. See Rev. Proc. 2010-51, page 883.
Section 213.—Medical,
Dental, etc., Expenses
26 CFR 1.1213–1: Medical, dental, etc., expenses.
Rules are provided for substantiating the amount
of a deduction or an expense for use of an automobile
as medical services. See Rev. Proc. 2010-51, page
883.
Section 217.—
Moving
Expenses
26 CFR 1.217–2: Moving expenses.
Rules are provided for substantiating the amount
of a deduction or an expense for use of an automobile
as moving expense. See Rev. Proc. 2010-51, page
883.
Section 1016.—Adjust-
ments to Basis
26 CFR 1.1016–3: Exhaustion, wear and tear, ob-
solescence, amortization, and depletion for periods
since February 28, 1913.
Rules are provided for reduction of basis for busi-
ness use of an automobile under either the optional
standard mileage rate method or a mileage allowance
under a reimbursement or other expense allowance
arrangement. See Rev. Proc. 2010-51, page 883.
2010–51 I.R.B.850December 20, 2010

Part III. Administrative, Procedural, and Miscellaneous
Extension of Deadline to
Adopt Certain Retirement
Plan Amendments
Notice 2010–77
I. Purpose
This notice further extends the dead-
line for amending qualified defined benefit
plans to meet certain requirements of the
Internal Revenue Code that were added by
the Pension Protection Act of 2006 (PPA
’06), Pub. L. 109–280, and subsequently
modified by the Worker, Retiree, and Em-
ployer Recovery Act of 2008 (WRERA),
Pub. L. 110–458, and the Preservation of
Access to Care for Medicare Beneficia-
ries and Pension Relief Act of 2010 (PRA
2010), Pub. L. 111–192. This is a fur-
ther extension of thedeadline for adopt-
ing certain defined benefit plan amend-
ments as previously extended in Notice
2009–97, 2009–52 I.R.B. 972. The dead-
line is now extended to the last day of the
first plan year that begins on or after Jan-
uary 1, 2011. This extension applies to:
1. The deadline for amending single-
employer defined benefit plans to meet the
requirements of §§ 401(a)(29) and 436,
relating to funding-based limits on bene-
fits and benefit accruals under single-em-
ployer plans; and
2. The deadline for amending cash
balance and other applicable defined
benefit plans, within the meaning of
§ 411(a)(13)(C), to meet the require-
ments of § 411(a)(13) (other than
§ 411(a)(13)(A)) and § 411(b)(5), relating
to vesting and other special rules applica-
ble to these plans.
The notice provides that the additional
extension of time to amend also applies for
the purpose of a plan’s eligibility for the
relief from the requirements of § 411(d)(6)
described in Notice 2009–97.
II. Background
Section 401(a)(29) requires single-em-
ployer defined benefit plans that are sub-
ject to the minimum funding requirements
of § 412 to meet the requirements of § 436.
Section 436, which was added by section
113(a)(1) of PPA ’06, imposes funding-
based limits on benefits and benefit ac-
cruals under single-employer plans. The
requirements of § 436 generally apply to
plan years that begin after December 31,
2007.
Final regulations under § 436 were
published in the Federal Register on
October 15, 2009, 74 FR 53004. The
final regulations do not include rules
interpreting the amendments with respect
to § 436 made by section 101(c)(2) of
WRERA,whicharegenerallyeffective
as if included in PPA ‘06, and section
203(a)(2) of PRA 2010, which are
generally effective for plan years
beginning on or after October 1, 2008.
Section 411(a)(13), which was added
by section 701(b)(2) of PPA ’06, contains
special rules for cash balance and other
applicable defined benefit plans. Sec-
tion 411(a)(13)(A) provides, in general,
that an applicable defined benefit plan
will not fail to satisfy the requirements of
§ 411(a)(2), 411(c), or 417(e) solely be-
cause the present value of the participant’s
accrued benefit under the plan equals the
balance in the participant’s hypothetical
account or the accumulated percentage of
the participant’s final average compensa-
tion. Section 411(a)(13)(B) requires an
applicable defined benefit plan to provide
100 percent vesting for employer-derived
benefits on completion of three years of
service. Section 411(a)(13) is generally
effective for years that begin after Decem-
ber 31, 2007, and for distributions made
after August 17, 2006.
Section 411(b)(5), which was added
by section 701(b)(1) of PPA ’06 and is
generally effective for years that begin
after December 31, 2007, contains spe-
cial rules for applicable defined benefit
plans with regard to the requirements of
§ 411(b)(1)(H), which prohibits a defined
benefit plan from ceasing an employee’s
benefit accruals or reducing an employee’s
rate of benefit accrual because of the at-
tainment of any age.
Final and proposed regulations un-
der §§ 411(a)(13) and 411(b)(5) were
published in the Federal Register on
October 19, 2010 (75 FR 64123 and 75
FR 64197, respectively).
Section 401(b) provides a period during
which a plan may be amended retroac-
tively to comply with the Code’s qualifi-
cation requirements. Section 1.401(b)–1
of the Treasury regulations and Rev.
Proc. 2007–44, 2007–2 C.B. 54, describe
the disqualifying provisions that may be
amended retroactively and the remedial
amendment period during which retroac-
tive amendments may be adopted. The
regulations also grant the Commissioner
the discretion to extend the remedial
amendment period.
Section 5.05 of Rev. Proc. 2007–44
provides that when there are statutory or
regulatory changes to the plan qualifica-
tion requirements that will impact provi-
sions of the written plan document, the
adoption of an interim amendment will
generally be required by the later of the
end of the plan year in which the change
is first effective or the due date of the em-
ployer’s tax return for the tax year that in-
cludes the date the change is first effective.
The filing of a determination letter applica-
tion for a plan generally requires the plan
to be restated to take into account changes
in qualification requirements and guidance
that are listed in the Cumulative List of
Changes in the Plan Qualification Require-
ments in effect at the time the application
is filed. (See sections 4 and 12.03 of Rev.
Proc. 2007–44.) Thus, as noted in section
12.03 of Rev. Proc. 2007–44, a determina-
tion letter filing may accelerate to an ear-
lier date one or more of the interim amend-
ment deadlines that would otherwise apply
to a plan.
Section 411(d)(6) provides generally
that a plan will not satisfy § 401(a) if an
amendment to the plan decreases a partic-
ipant’s accrued benefit. For this purpose,
a plan amendment which has the effect
of eliminating or reducing an early retire-
ment benefit or a retirement-type subsidy
or eliminating an optional form of bene-
fit with respect to benefits attributable to
service before the amendment is treated as
reducing accrued benefits. Section 401(b)
does not relieve a plan of the requirement
to satisfy § 411(d)(6) with respect to any
amendment.
Section 1.411(d)–4, A–2(b)(2)(i), pro-
vides that a plan may be amended to elimi-
nate or reduce a § 411(d)(6) protected ben-
efit, within the meaning of § 1.411(d)–4,
A–1, if the following three requirements
December 20, 20108512010–51 I.R.B.

are met: the amendment constitutes timely
compliance with a change in law affecting
plan qualification; there is an exercise of
§ 7805(b) relief by the Commissioner; and
the elimination or reduction is made only
to the extent necessary to enable the plan
to continue to satisfy the requirements for
qualified plans.
Section 1107 of PPA ’06 generally
requires plans to be amended for the
changes in the plan qualification require-
ments made by PPA ’06 by the last day
of the first plan year that begins on or
after January 1, 2009 (“the section 1107
date”) and provides relief from the require-
ments of § 411(d)(6) for plan amendments
adopted by that date pursuant to PPA ’06
or regulations thereunder. Section 1107
of PPA ’06 also generally requires that
such an amendment be effective as of the
effective date of the relevant provision of
PPA ’06 and that the plan be operated in
accordance with the amendment as of the
effective date of the amendment.
Section 5.07(2) of Rev. Proc. 2007–44
provides an exception from the general
deadline for adopting interim amend-
ments. This section provides that the
deadline for adopting an interim amend-
ment pursuant to a provision of PPA ’06 or
regulations thereunder is the section 1107
date. This is also the deadline for adopt-
ing a discretionary amendment (within
the meaning of section 5.05(2) of Rev.
Proc. 2007–44) pursuant to a provision of
PPA ’06 or regulations thereunder.
Under the Commissioner’s authority to
extend remedial amendment periods un-
der § 401(b), Notice 2009–97 extends the
time to adopt interim and discretionary
plan amendments for certain requirements
of PPA ‘06, including §§ 401(a)(29), 436,
411(a)(13) (other than § 411(a)(13)(A)),
and 411(b)(5), to the last day of the first
plan year beginning on or after January 1,
2010.
Notice 2009–97 also grants relief from
the requirements of § 411(d)(6) (pur-
suant to § 7805(b) and § 1.411(d)–4,
A–2(b)(2)(i)) for an interim amendment
that eliminates or reduces a § 411(d)(6)
protected benefit, provided that the amend-
ment is adopted by the last day of the
first plan year that begins on or after
January 1, 2010, and the elimination
or reduction is made only to the extent
necessary to enable the plan to meet the
requirements of §§ 401(a)(29) and 436.
Further, Notice 2009–97 states that, once
final regulations under §§ 411(a)(13)
and 411(b)(5) are issued, it is expected
that relief from the requirements of
§ 411(d)(6) will be granted for a plan
amendment that eliminates or reduces a
§ 411(d)(6) protected benefit, provided
that the amendment is adopted by the last
day of the first plan year that begins on or
after January 1, 2010, and the elimination
or reduction is made only to the extent
necessary to enable the plan to meet the
requirements of § 411(b)(5).
The preamble to the proposed regula-
tions under §§ 411(a)(13) and 411(b)(5)
that were published in the Federal Regis-
ter on October 19, 2010, 75 FR 64197, ex-
tends the duration of the expected relief
and provides that the relief from the re-
quirements of § 411(d)(6) is expected to
apply if the amendment is adopted before
regulations that finalize the proposed reg-
ulations apply to the plan. The regulations
are proposed to be effective for plan years
beginning on or after January 1, 2012, and
the extensions provided by this notice are
tailored to the expectation that this will be
the effective date of the regulations when
they are finalized. (See footnote six of the
preamble to the proposed regulations.)
In order to give plan sponsors time to
take the WRERA and PRA 2010 changes
to § 436 into account, this notice provides
a one-year extension of the time by which
plans must be amended for §§ 401(a)(29)
and 436, as well as the time by which such
amendments must be adopted to be eli-
gible for relief from the requirements of
§ 411(d)(6). In order to give plan spon-
sors time to take the final regulations un-
der §§ 411(a)(13) and 411(b)(5) into ac-
count when adopting amendments to com-
ply with §§ 411(a)(13) and 411(b)(5) (and
consistent with the anticipated duration of
the expected § 411(d)(6) relief that is dis-
cussed in the preamble to the proposed reg-
ulations), this notice also provides a one-
year extension of the time by which plans
must be amended for §§ 411(a)(13) (other
than § 411(a)(13)(A)) and 411(b)(5). This
notice does not extend the deadline for
adopting any other plan amendments for
PPA ’06.
III. Extension of Deadline for Adopting
Amendments Under §§ 401(a)(29), 436,
411(a)(13) (other than § 411(a)(13)(A)),
and 411(b)(5)
The deadline for adopting an interim
or discretionary plan amendment under
§§ 401(a)(29), 436, 411(a)(13) (other
than § 411(a)(13)(A)), and 411(b)(5) is
extended to the last day of the first plan
year that begins on or after January 1,
2011. A plan must continue to satisfy the
operational compliance requirements of
section1107ofPPA’06asaconditionof
the extension of the deadline for adopting
plan amendments provided by this notice.
IV. Section 411(d)(6)Relief for Certain
Amendments
A. Relief for Amendments Under
§§ 401(a)(29) and 436
Pursuant to § 7805(b) and § 1.411(d)–4,
A–2(b)(2)(i), an interim plan amendment
that eliminates or reduces a § 411(d)(6)
protected benefit will not cause a plan to
fail to meet the requirements of § 411(d)(6)
if the amendment is adopted by the last day
of the first plan year that begins on or af-
ter January 1, 2011, and the elimination or
reduction is made only to the extent neces-
sary to enable the plan to meet the require-
ments of §§ 401(a)(29) and 436.
B. Relief for Amendments Under
§ 411(b)(5)
When the regulations under
§§ 411(a)(13) and 411(b)(5) that were pro-
posed on October 19, 2010, are finalized,
it is expected that relief from the require-
ments of § 411(d)(6) will be granted
for a plan amendment that eliminates or
reduces a § 411(d)(6) protected benefit,
provided that the amendment is adopted
by the last day of the first plan year that
begins on or after January 1, 2011, and the
elimination or reduction is made only to
the extent necessary to enable the plan to
meet the requirements of § 411(b)(5). Plan
sponsors and their advisers are reminded
that the preamble to the proposed regu-
lations specifically requests comments
regarding the amendments to a hybrid
plan’s interest crediting rate that should be
considered “necessary to enable the plan
to meet the requirements of § 411(b)(5)”
2010–51 I.R.B.852December 20, 2010

for purposes of the expected relief from
the requirements of § 411(d)(6).
V. Determination Letters
The Service’s review of an application
for a determination letter that is submitted
before February 1, 2012, will not take into
account the requirements of §§ 401(a)(29)
and 436. Accordingly, a determination let-
ter issued with respect to such an applica-
tion cannot be relied upon with respect to
the requirements of §§ 401(a)(29) and 436.
The Service’s review of an application
for a determination letter submitted after
January 31, 2011, will take into account
the requirements of §§ 411(a)(13) and
411(b)(5), including the final regulations
under those sections that were published in
the Federal Register on October 19, 2010,
75 FR 64123. The Service’s review will
not take into account the proposed regu-
lations under §§ 411(a)(13) and 411(b)(5)
but will be based on a standard of rea-
sonable interpretation of the statute with
respect to matters addressed in those reg-
ulations. As noted in section II of this
notice, the filing of a determination letter
application for a plan after January 31,
2011, may accelerate the time by which
the plan’s sponsor must adopt an interim
plan amendment for §§ 411(a)(13) (other
than § 411(a)(13)(A)) and 411(b)(5).
VI. Effect on Other Documents
Notice 2009–97 and section 5.07(2) of
Rev. Proc. 2007–44 are modified.
Drafting Information
The principal author of this notice
is James P. Flannery of the Employee
Plans, Tax Exempt and Government
Entities Division. Questions regarding
this notice may be sent via e-mail to
retirementplanquestions@irs.gov.
Modification to the Relief and
Guidance on Corrections
of Certain Failures of
a Nonqualified Deferred
Compensation Plan to Comply
with § 409A(a)
Notice 2010–80
I. PURPOSE
This notice modifies certain provisions
of Notice 2008–113, Relief and Guid-
ance on Corrections of Certain Failures
of a Nonqualified Deferred Compensa-
tion Plan to Comply with § 409A(a) in
Operation, 2008–2 C.B. 1305, and Notice
2010–6, Relief and Guidance on Correc-
tions of Certain Failures of a Nonqualified
Deferred Compensation Plan to Com-
ply with § 409A(a), 2010–3 I.R.B. 275.
Specifically, this notice:
•Clarifies that the types of plans eligible
for relief under Notice 2010–6 include
a nonqualified plan linked to a quali-
fied plan or another nonqualified plan,
provided that the linkage does not af-
fect the time and form of payments un-
der the plans;
•Expands the types of plans eligible for
relief under Notice 2010–6 to include
certain stock rights that were intended
to comply with the requirements of
§ 409A(a) of the Internal Revenue
Code (rather than be exempt from the
requirements of § 409A(a));
•Provides an additional method of
correction under Notice 2010–6 for
certain failures involving payments
at separation from service subject to
the requirement to submit a release of
claims or similar document; and pro-
vides transition relief permitting the
correction of such failures that were
in effect on or before December 31,
2010 (including relief from the ser-
vice provider information reporting
requirements);
•Provides relieffrom the service
provider information reporting re-
quirements under Notice 2010–6 for
corrections made under the transition
relief ending December 31, 2010; and
•Provides relief from the requirement
that service recipients provide certain
information to service providers under
Notice 2008–113 for corrections made
in the same taxable year as the failure
occurs.
II. BACKGROUND
On December 3, 2008, the Treasury
Department and the IRS issued Notice
2008–113, providing relief and guid-
ance on correctionsof certain failures
of a nonqualified deferred compensa-
tion plan to comply with the opera-
tional requirements applicable under
§ 409A(a). On January 5, 2010, the
Treasury Department and the IRS released
Notice 2010–6, providing relief and
guidance on corrections of certain failures
of a nonqualified deferred compensation
plan to comply with the plan document
requirements applicable under § 409A(a).
Section XI of Notice 2010–6 provided
transition relief under which taxpayers
generally could avoid income inclusion
under § 409A(a) solely due to the failure
of the plan language to comply with
the requirements of § 409A(a), if the
plan document failure and any related
operational failure were corrected before
January 1, 2011 in accordance with the
guidance (although an amount may be
required to be included in income under
§ 409A(a) due to the correction of the
related operational failure).
The Treasury Department and the IRS
received numerous comments on the guid-
ance regarding the correction of failures
to comply with § 409A(a). The Treasury
Department and the IRS continue to ana-
lyze the comments and anticipate issuing
further corrections guidance in the future.
However, because certain transition relief
provided in Section XI of Notice 2010–6
requires correction of plan document
and related operational failures before
January 1, 2011, the Treasury Department
and the IRS are issuing this guidance
to provide immediate relief to taxpayers
with respect to certain issues under Notice
2008–113 and Notice 2010–6.
III. GUIDANCE
A. This § III.A. clarifies § III.G. of
Notice 2010–6 by providing that the types
of plans eligible for relief under Notice
2010–6 include (1) certain linked plans
with plan document failures if the link-
age does not affect the time and form
of payment of amounts under the plans,
and (2) certain stock rights (stock options
December 20, 20108532010–51 I.R.B.

and stock appreciation rights) that were
intended at the time of grant (or upon a
modification pursuant to applicable transi-
tion relief) to be subject to, and compliant
with, § 409A but that have a plan doc-
ument failure. Accordingly, § III.G of
Notice 2010–6 is modified to read as fol-
lows:
“G.Certain Linked Plans and Stock
Rights not Eligible for Relief
Except as specifically provided in
§ XI.B of this notice, the relief provided
under this notice does not apply to a plan
to the extent that the document failure is
due to the time and form of payment being
affected by the amount deferred under, or
the payment provisions of, one or more
other nonqualified deferred compensation
plans or one or more qualified plans (as
defined in §1.409A–1(a)(2)). However, a
plan does not fail to qualify for the relief
provided under this notice merely because
the amount paid under one plan is affected
by the amount paid under the other plan,
provided the time and form of payment
under the first plan is not affected by the
amount deferred under, or the payment
provisions of, the other plan. In addition,
the relief provided under this notice does
not apply to a stock right (as defined in
§1.409A–1(l)) unless pursuant to the terms
of the stock right at the time of grant or
as modified in accordance with applicable
transition relief, the recipient of the stock
right has the right to exercise such stock
right only upon one or more of the follow-
ing: (1) a fixed date or a period beginning
and ending within one taxable year (gen-
erally the calendar year for individual
taxpayers); or (2) a permissible payment
event under § 409A and §1.409A–3(a)
(including any period following a payment
event permitted under §1.409A–3(b)). For
this purpose, a permissible payment event
under § 409A and 1.409A–3(a) includes
a payment event eligible for correction
under §§ IV and V of this notice. For
example, the relief provided under this
notice would apply to a stock right subject
to § 409A granted to an employee with
a calendar year taxable year, where the
right had an exercise date of the earlier of
a fixed date or the period beginning with
the employee’s separation from service
and ending on December 31 of the calen-
dar year in which the employee separated
from service, provided that the definition
of separation from service either complied
with the requirements of §1.409A–1(h) or
was eligible for correction under § V.A of
this notice. For certain relief with respect
to a stock right with an exercise price that
is less than the fair market value of the
underlying shares of stock at the date of
grant, see Notice 2008–113, §§ IV.D and
V.E.”
B.This§III.Bmodifies§VI.B.2of
Notice 2010–6 by providing an additional
method of correction for certain failures
involving payments dependent upon the
service provider completing certain em-
ployment-related actions (such as the exe-
cution and submission of a noncompetition
agreement, a nonsolicitation agreement, or
a release of claims). Under this addi-
tional method, the failure may be corrected
by providing for payment during a spec-
ified period not longer than 90 days fol-
lowing a permissible payment event, pro-
vided that if the period begins in a service
provider taxable year and ends in the sub-
sequent service provider taxable year, the
payment will be made in the subsequent
taxable year. Accordingly, § VI.B.2 of No-
tice 2010–6 is modifiedto read as follows:
“2. Correction
A plan provision eligible for this section
may be corrected in accordance with this
section before the date an event occurs that
would be a permissible payment event un-
der § 409A to which the provision applies.
The plan may be corrected by amending
the plan to remove the ability of the service
provider to delay or accelerate the timing
of the payment as a result of the service
provider’s action. If the plan provides for
payment (subject to the service provider’s
action) within a designated period follow-
ing the permissible payment event under
§ 409A that is a permissible payment pe-
riod under §1.409A–3(b), except that the
service provider’s action could affect the
taxable year of payment, the amendment
must provide either (a) for payment only
on the last day of such designated period,
or (b) for payment in the second taxable
year if in any event the designated period
begins in a first taxable year and ends in
a second taxable year. If the plan does
not provide for payment (subject to the ser-
vice provider’s action) within a designated
period following the permissible payment
event under § 409A that is a permissi-
ble payment period under §1.409A–3(b),
the amendment must provide either (a) for
payment only upon a fixed date either 60
or 90 days following the occurrence of the
permissible payment event, or (b) for pay-
ment during a specified period not longer
than 90 days following the occurrence of
the permissible payment event under the
condition that if the specified period be-
gins in one taxable year and ends in a
second taxable year, the payment will be
made in the second taxable year. In addi-
tion, a plan may be amended to provide for
payment in accordance with clause (b) of
the immediately preceding sentence even
though the plan was previously amended
under § XI of this notice to correct a plan
provision that allowed the service provider
to delay or accelerate the timing of a pay-
ment as a result of the service provider’s
action. In each case the amendment may
not otherwise change the time or form of
payment.”
C. This § III.C modifies § VI.B of No-
tice 2010–6 by providing additional tran-
sition relief through December 31, 2012
for plans that contain certain failures in-
volving payments dependent upon the ser-
vice provider completing certain employ-
ment-related actions (such as the execu-
tion and submission of a noncompetition
agreement, a nonsolicitation agreement, or
a release of claims) as of December 31,
2010, provided that any payments made af-
ter March 31, 2011 that could be paid dur-
ing a period that begins in one taxable year
and ends in the subsequent taxable year are
made during the subsequent taxable year
and provided further that to the extent any
amounts remain deferred under the plan,
the plan is amended to be compliant by no
later than December 31, 2012. Accord-
ingly, the following § VI.B.3 is added to
§ VI.B of Notice 2010–6:
“3. Transition Relief
For any plan with a provision eligible
for correction under this section on or be-
fore December 31, 2010, such provision
will not be treated as failing to comply
with § 409A(a) in form and a payment
pursuant to such provision will not be
treated as having failed to comply with
§ 409A(a) in operation with respect to
an amount deferred under the plan that is
paid on or before March 31, 2011. For
2010–51 I.R.B.854December 20, 2010

any plan provision eligible for correction
under this section as of December 31,
2010, with respect toan amount deferred
under the plan that is paid after March 31,
2011, such provision will not be treated as
failing to comply with § 409A(a) in form
for taxable years commencing on or after
January 1, 2009, and payment pursuant to
such provision will not be treated as failing
to comply with § 409A(a) in operation,
provided that (a) any amounts paid under
theplanpursuanttosuchprovisionwhere
the potential payment period begins in a
service provider taxable year and ends in
a subsequent service provider taxable year
are paid in the subsequent taxable year, or
if paid in the first taxable year are treated
as an operational failure and corrected in
accordance with Notice 2008–113; and (b)
if any amounts that are subject to such a
plan provision remain deferred after De-
cember 31, 2012 (other than any remaining
installment, annuity or other payments
of an amount that has already become
payable pursuant to such a plan provision),
the plan provision has been corrected in
accordance with this section on or before
December 31, 2012. For purposes of this
§ VI.B.3, the failure to pay an amount
during the subsequent taxable year may be
treated as an operational failure eligible for
correction under Notice 2008–113 even
though the plan provision under which
the amount is paid fails to comply with
§ 409A. For purposes of this paragraph,
a plan includes a substantially similar ar-
rangement under which another service
provider commences participation after
December 31, 2010 in accordance with
the plan terms as of December 31, 2010.”
D. To provide an example of the addi-
tional method of correction available for
certain failures involving payments depen-
dent upon the service provider completing
certain employment-related actions (such
as the execution and submission of a non-
competition agreement, a nonsolicitation
agreement, or a release of claims), the fol-
lowing examples are added to § VI.C of
Notice 2010–6:
“Example 5 (impermissible payment provision
making timing of payment after a permissible pay-
ment event dependent upon service provider action).
ThefactsarethesameasinExample 4, except that
on April 1, 2011, Employer and Employee N amend
Employee N’s employment agreement to provide for
payment within 90 days following Employee N’s
separation from service, provided that Employee N
has executed and submitted a release of claims and
the statutory period during which Employee N is
entitled to revoke the release of claims has expired
prior to payment during the 90-day period, and fur-
ther provided that the payment would be made in
the second taxable year if the 90-day period began
in one taxable year and ended in the subsequent
taxable year. Employee N has a separation from
service with Employer on December 1, 2011. Em-
ployee N executes and submits a release of claims
on December 15, 2011. Employer pays Employee N
$100x on January 1, 2012.
Conclusion: Because Employer and Employee N
corrected the plan before Employee N’s separation
from service, Employee N is not required to include
any amount in income under § 409A(a) solely due to
the pre-correction plan provision.
Example 6 (transition relief - impermissible pay-
ment provision making timing of payment after a
permissible payment event dependent upon service
provider action). Employee SS is an employee of
Employer whose employment agreement, entered
into on January 1, 2009, entitles Employee SS to
$100x upon a separation from service (defined to
comply with § 1.409A–1(h)), paid in ten annual
installments (that were not designated as separate
payments for purposes of the application of § 409A)
commencing within 90 days following Employee
SS’s separation from service, provided that Em-
ployee SS executes and submits a release of claims
and the period during which Employee SS may
revoke the release pursuant to applicable law has
expired within the 90 day period. Employee SS
has a separation from service with Employer on
December 15, 2010. Employee SS executes and
submits a release of claims on December 20, 2010,
and Employer commences the annual installments of
$10X to Employee SS on December 31, 2010.
Conclusion: Because Employer paid Employee
SS $10X in accordance with the plan terms on or be-
fore March 31, 2011, Employee SS is not required to
include any amount in income under § 409A(a) solely
due to the plan provision or the payment of the $10X.
Example 7 (transition relief - impermissible
payment provision making timing of payment after
a permissible payment event dependent upon ser-
vice provider action). The facts are the same as in
Example 6, except that Employee SS’s separation
from service occurs on December 1, 2011, Employee
SS executes and submits a release of claims on
December 20, 2011, and Employer commences the
annual installments of $10X to Employee SS on
December 31, 2011. No amounts remain deferred
under the plan on December 31, 2011 except for
the remaining installments on the amount payable at
separation from service.
Conclusion: Provided that Employer and Em-
ployee SS treat the commencement of payment
in 2011 as an operational failure under Notice
2008–113, and such failure is eligible to be corrected,
and is actually corrected as an impermissible pay-
ment in accordance with Notice 2008–113, Employee
SS is not required to include any amount in income
under § 409A(a) solely due to the plan provision.
Note that had the payment commenced in accor-
dance with the terms of the plan but during 2012,
Employer and Employee SS would not have been
required to treat the commencement of the payment
as an operational failure under Notice 2008–113,
and Employee SS would not have been required to
include any amount in income under § 409A solely
due to the plan provision.
Example 8 (transition relief - impermissible pay-
ment provision making timing of payment after a
permissible payment event dependent upon service
provider action). Employee TT is an employee
of Employer. Employer maintains a supplemental
executive retirement plan that is a nonaccount bal-
ance plan for purposes of § 409A and that, as of
December 31, 2010, provides for participation by
every Level AA employee of Employer. On April 1,
2011, Employee TT receives a promotion to a Level
AA position of employment, and accordingly be-
comes eligible for, and commences participation in,
Employer’s supplementalexecutive retirement plan.
The plan provides for payment of a participant’s
benefit in a lump sum within 90 days following
the participant’s separation from service (defined to
comply with § 1.409A–1(h)), provided that the par-
ticipant executes and submits a release of claims and
the period during which the participant may revoke
the release pursuant to applicable law has expired
within the 90 day period. On December 1, 2012,
Employer corrects the planprovision in accordance
with § VI.B.2 of this notice. Employee TT continues
in employment continuously through December 31,
2012.
Conclusion: Because Employee TT became eligi-
ble to participate in accordance with the terms of the
supplemental executive retirement plan that were ef-
fective as of December 31, 2010, Employee TT is eli-
gible for the relief provided by § VI.B.3 of this notice.
Because Employer corrected the plan provision under
§ VI.B.2 of this notice before December 31, 2012, the
plan provision is not treated as having failed to com-
ply with § 409A(a) for periods on or before December
31, 2012.”
E. This § III.E modifies § XII.A of No-
tice 2010–6 to provide relief from the re-
quirement that a service recipient provide
certain information to a service provider
with respect to a plan document correc-
tion made in accordancewith the transition
relief under § VI.B.3 and § XI of Notice
2010–6. (However, the requirement that a
service recipient include information with
its own tax return relating to such a correc-
tion is not changed.) In addition, the mod-
ifications of § XII.A of Notice 2010–6 in
this § III.E provide relief from the require-
ment that a service provider attach a state-
ment to his or her return with respect to a
plan correction made in accordance with
the transition relief in § VI.B 3 and § XI of
Notice 2010–6. Accordingly, § XII.A of
Notice 2010–6 is modified to read as fol-
lows:
December 20, 20108552010–51 I.R.B.

“A.Information and Reporting Required
for Correction of a Document Failure
1. Service Recipient Requirements
A service recipient described in any
of §§ V through XI of this notice must
attach to its timely-filed (including exten-
sions) original federal income tax return
for its taxable year in which it corrects
the failure, a statement entitled Ҥ 409A
Document Correction under § [INSERT
APPROPRIATE SECTION(S)] of No-
tice 2010–6” setting out the information
required by § XII.B of this notice. This
statement must also be attached to the
service recipient’s timely-filed (including
extensions) original federal income tax re-
turn for the service recipient’s taxable year
subsequent to the taxable year in which
the failure was corrected, but only to the
extent that a service provider is required to
include an amount in income during such
subsequent year to be eligible for the relief
under this notice. In addition, a service
recipient described in any of §§ V through
X of this notice must provide to each
such service provider who is affected by
such failure a statement entitled Ҥ 409A
Document Correction under § [INSERT
APPROPRIATE SECTION(S)] of Notice
2010–6” setting out the information re-
quired by § XII.C of this notice not later
than the date (with extensions) on which
it is required to provide an information
return (Form W–2 or 1099) to such service
provider (or if no information return is re-
quired for such service provider, not later
than the January 31 following the calendar
year in which it corrects such failure) for
the calendar year in which it corrects such
failure. The service recipient described
in any of §§ V through X of this notice
must also provide the same information
for the subsequent calendar year to the
extent the service provider is required to
include an amount in income during such
subsequent year to be eligible for relief
under this notice. In addition, any service
recipient relying on the relief provided
in any of §§ V through XI of this notice
must make reasonable efforts to provide
notice to the examining agent upon the
commencement of an examination of such
service recipient’s federal tax return that
the service recipient was relying upon the
relief provided under this notice for years
covered by the examination. A service
recipient is not required to provide the
information statements described in this
§ XII.A.1 to affected service providers
with respect to a plan that is eligible for,
and corrected under, § VI.B.3 or § XI of
this notice, but the service recipient must
attach the informationstatement described
in this § XII.A.1 to its federal income tax
return with respect to such corrections.
2. Service Provider Requirements
A service provider who is relying on
the relief provided in any of §§ V through
X of this notice for a failure to comply
with § 409A(a) must attach to the service
provider’s timely filed (including exten-
sions) original federal income tax return
for the year in which the failure was cor-
rected the information required by § XII.D
of this notice. A service provider rely-
ing on the relief provided in any of §§ V
through X of this notice for a failure to
comply with § 409A(a) must also attach
the information required by § XII.D of this
notice to that service provider’s timely-
filed (including extensions) original fed-
eral income tax return for the year subse-
quent to the year in which the failure was
corrected, but only if the service provider
is required to include an amount in in-
come during that year to be eligible for
the relief in this notice. In addition, any
service provider relying on the relief pro-
vided in any of §§ V through X of this no-
tice must make reasonable efforts to pro-
vide notice to the examining agent upon
the commencement of an examination of
such taxpayer’s federal tax return that the
taxpayer was relying upon the relief pro-
vided under this notice for years covered
by the examination. A service provider is
not subject to the requirements of this para-
graph XII.A.2 with respect to a plan that is
eligible for, and corrected under, § VI.B.3
or§XIofthisnotice.
3. Section References
For purposes of §§ XII.A.1 and
XII.A.2, a section of this notice refers to
each separate section of this notice, such
that §§ VI.A and VI.B are separate sec-
tions, and for service recipients includes
anyuseofthetransitionreliefin§IV.B.3
or § XI.”
F. To provide conforming relief with re-
spect to the information to be provided to
service providers upon use of the transition
relief in § IV.B.3 or § XI of Notice 2010–6,
§ XII.C of Notice 2010–6 is modified to
read as follows:
“C.Information to be Provided to Service
Provider for Failures Described in any of
§§ V through X of this Notice not Eligible
for Relief Under § VI.B. 3 or § XI of this
Notice
The service recipient must provide
the following information to each service
provider affected by a failure to comply
with § 409A who is entitled to relief under
any of §§ V through X of this notice (but
is not eligible for and corrected under the
relief provided in § VI.B.3 or § XI of this
notice) with respect to such failure:
(1) A statement that the service provider
is entitled to the relief provided in §§ V
through X of this notice (identifying the
applicable section of this notice under
which the document failure is corrected)
with respect to a failure to comply with
§ 409A, and that the service provider
must attach a copy of the statement to the
service provider’s income tax return for
the taxable year in which the failure was
corrected and also to the extent applica-
ble, any subsequent taxable year in which
an amount is included in income under
§ 409A by the service provider as part of
the correction.
(2) The information described in
§§ XII.B.(1) through (4) of this notice,
but only to the extent that the information
relates to a deferred amount of that service
provider.”
G. To provide relief from the employee
information reporting requirements upon
use of the transition relief in § VI.B.3 or
§ XI of Notice 2010–6, § XII.D of Notice
2010–6 is modified to read as follows:
“D.Attachment to Service Provider Tax
Return for Failures Described in any of
§§ V through X of this Notice not Eligible
for Relief under § VI.B.3 or § XI of this
Notice
The service providermust attach to the
service provider’s income tax return a copy
of the statement the service provider re-
ceived from the service recipient with re-
spect to a failure described in any of §§ V
through X of this notice that is not eligi-
ble for and corrected under the relief pro-
vided in § VI.B.3 or § XI of this notice. If
a service provider has included an amount
2010–51 I.R.B.856December 20, 2010

in income to be eligible for relief under this
notice, and that inclusion in income occurs
in a year subsequent to the year the plan
was corrected, the service provider must
include the statement with the return for
the year of the correction as well as the re-
turn for the year of income inclusion.”
H. To provide relief from the employee
information reporting requirements upon
the correction of an operational failure in
the same taxable year as the failure occurs,
§ IX.A of Notice 2008–113 is modified to
read as follows:
“A.InformationRequiredwithRespect
to Correction of an Operational Failure
in the Same Taxable Year as the Failure
Occurs
A service recipient described in § IV
of this notice must attach to its timely
filed (including extensions) original fed-
eral income tax return for its taxable year
in which the failure occurred a statement
entitled Ҥ 409A Relief under IV of Notice
2008–113” stating that it is relying upon
§ IV of this notice with respect to a correc-
tion of a failure to comply with § 409A and
setting out the following information with
respect to each such failure:
1. The name and taxpayer identifica-
tion number of each service provider af-
fected by the failure and whether such ser-
vice provider is an insider with respect to
the service recipient. Where the same or
a substantially similar operational failure
has occurred with respect to multiple ser-
vice providers, the information required
in § IX.A.2 through 5 may be supplied
only once with respect to such operational
failure, provided that the identification of
each service provider affected by the oper-
ational failure in this § IX.A.1 references
such information and the amount involved
in the operational failure with respect to
such service provider.
2. Identification of the nonqualified de-
ferred compensation plan with respect to
which such failure occurred.
3. A brief description of the failure and
the circumstances under which it occurred,
including the amount involved and date on
which the failure occurred.
4. A brief description of the steps taken
to correct the failure and the date on which
such correction was completed.
5. A statement that the operational fail-
ure is eligible for the correction under the
terms of this notice, and that the service re-
cipient has taken all actions required, and
otherwise met all requirements, for such
correction.
In addition, each service recipient rely-
ingonthereliefprovidedin§IVofthis
notice must make reasonable efforts to pro-
vide notice to the examining agent upon
the commencement of an examination of
the service recipient’s federal tax return
that the service recipient was relying upon
the relief provided under this notice for
years covered by the examination.”
IV. EFFECTIVE DATE
Taxpayers may rely on this Notice
2010–80 for the modifications to Notice
2008–113 for taxable years beginning on
or after January 1, 2010. Taxpayers may
rely on this Notice 2010–80 for the modifi-
cations to Notice 2010–6 for taxable years
beginning on or after January 1, 2009.
V. EFFECT ON OTHER
DOCUMENTS
Notice 2008–113 and Notice 2010–6
are modified as provided in this notice.
Except as explicitly provided, this notice
does not otherwise affect the guidance
provided in Notice 2010–6 and Notice
2008–113.
VI. DRAFTING INFORMATION
The principal author of this notice is
Keith Ranta of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities), al-
though other Treasury and IRS officials
participated in its development. For fur-
ther information on the provisions of
this notice, contact Keith Ranta at (202)
927–9639 (not a toll-free number).
Tax Credit for Employee
Health Insurance Expenses of
Small Employers
Notice 2010–82
I. PURPOSE AND BACKGROUND
Section 45R of the Internal Revenue
Code (Code) offers a tax credit to certain
small employers that provide health insur-
ance coverage to their employees. The
credit is available for taxable years begin-
ning after December 31, 2009. Both tax-
able employers and employers that are or-
ganizations described in § 501(c) and ex-
empt from tax under § 501(a) (tax-exempt
employers) may be eligible for the § 45R
credit. Employers that satisfy the require-
ments for the credit are referred to in this
notice as “eligible small employers.”
Notice 2010–44, 2010–22 I.R.B. 717,
provides guidance on § 45R as in effect for
taxable years beginning before January 1,
2014, including transition relief for taxable
years beginning in 2010 with respect to the
requirements for a qualifying arrangement
under § 45R. This notice expands on the
guidance provided in Notice 2010–44 and
provides guidance onadditional issues re-
lating to the small employer tax credit.
II. ISSUES RELATING TO
EMPLOYER’S ELIGIBILITY FOR
THE CREDIT
To be an eligible small employer: (1)
the employer must have fewer than 25
full-time equivalent employees (FTEs) for
the taxable year; (2) the average annual
wages of its employees for the year must
be less than $50,000 per FTE; and (3) the
employer must maintain a “qualifying ar-
rangement.” In general, a qualifying ar-
rangement is an arrangement under which
the employer pays premiums for each em-
ployee enrolled in health insurance cover-
age offered by the employer in an amount
equal to a uniform percentage (not less
than 50 percent) of the premium cost of the
coverage.
A. Tax-Exempt Employers Not Described
in § 501(c) and Exempt Under § 501(a)
Section 45R(f)(1) provides that the
credit is available to a tax-exempt eligible
small employer, defined in § 45R(f)(2) as
“any organization described in § 501(c)
which is exempt from taxation under
§ 501(a).” Tax-exempt organizations that
are not both described in § 501(c) and
exempt from taxation under § 501(a) are
not eligible to claim the credit. However,
a § 521 farmers cooperative that is subject
to tax under § 1381 is eligible to claim the
credit as a taxable employer, if it otherwise
meets the definition of an eligible small
employer.
December 20, 20108572010–51 I.R.B.

B. Employers Not Engaged in a Trade or
Business
The statute does not require that, in or-
der for an employer to be an eligible small
employer, the employees of the employer
must be performing services in a trade or
business. Thus, an employer that other-
wise meets the requirements for the credit
under § 45R for a taxable year beginning
before January 1, 2014 does not fail to be
an eligible small employer merely because
the employees of the employer are not per-
forming services in a trade or business. For
example, a household employer that other-
wise satisfies the requirements of § 45R is
eligible for the credit.
C. Employers Located Outside the United
States
For taxable years 2010 through 2013,
an eligible small employer’s credit is based
on premiums paid for health insurance
coverage offered by a health insurance
issuer, as described in § 9832(b)(1). Sec-
tion 9832(b)(2) requires that an insurer
be licensed to engage in the business of
insurance in a State and that the insurer is
subject to State law regulating insurance.
For purposes of § 9832(b)(2) and § 45R,
“State” is defined in § 7701(a)(10), and
means the 50 States plus the District of
Columbia. Therefore, an eligible small
employer located outside the United States
(including an employer located in a U.S.
territory), which hasincome effectively
connected with the conduct of a trade or
business in the United States, may claim
the § 45R credit only if it pays premiums
for an employee’s health insurance cov-
erage that is issued in and regulated by
one of the 50 States or the District of Co-
lumbia. Similarly, a tax-exempt eligible
small employer located outside the United
States (including an employer located in
a U.S. territory) would also be required to
pay premiums for an employee’s health
insurance coverage that is issued in and
regulated by one of the 50 States or the
District of Columbia in order to obtain the
refundable credit described in § 45R(f).
III. OTHER ISSUES RELATING TO
ELIGIBILITY FOR THE CREDIT
A. Determining Employees Taken Into
Account — Spouses
Employees who perform services for
the employer during the taxable year are
taken into account in determining the em-
ployer’s FTEs, average wages, and pre-
miums paid, with certain individuals ex-
cluded and with employees of certain re-
lated employers included. See section II.B
of Notice 2010–44. Sole proprietors, part-
ners in a partnership, shareholders own-
ing more than two percent of the stock in
an S corporation, and any owners of more
than five percent of other businesses are
not taken into account as employees for
purposes of the credit. Family members
of these owners and partners are also not
taken into account as employees.
The definition of “family members” for
purposes of § 45R does not specifically
refer to spouses. However, spouses of
certain business owners are excluded from
being taken into account as employees
by operation of the ownership attribu-
tion rules in the Code. Therefore, the
following individuals also are not taken
into account as employees for purposes
of § 45R: (1) the employee-spouse of a
shareholder owning more than two per-
cent of the stock of an S corporation; (2)
the employee-spouse of an owner of more
than five percent of a business; (3) the
employee-spouse of a partner owning
more than a five percent interest in a
partnership; and (4) the employee-spouse
of a sole proprietor.See§§ 45R(e)(1)(A);
1372(b), 318, 416(i)(1)(B)(i).
B. Determining Employees Taken Into
Account — Leased Employees and Others
Leased employees (as defined in
§ 414(n)) are counted in computing an em-
ployer’s FTEs and average annual wages.
See § 45R(e)(1)(B). However, no provi-
sion of § 45R supports attributing to the
service recipient the leasing organization’s
payment of premiums. Therefore, premi-
ums for health insurance coverage paid
by a leasing organization for a leased em-
ployee are not taken into account by the
service recipient in computing the service
recipient’s § 45R credit.
Unless specifically excluded, all em-
ployees of the employer during the year
for which the credit is being claimed are
taken into account in computing an em-
ployer’s FTEs and annual average wages
under § 45R, including, for example, for-
mer employees who terminated employ-
ment during the year for which the credit
is being claimed, employees covered un-
der a collective bargaining agreement, and
employees who do not enroll in their em-
ployer’s health insurance plan (whether or
not they are covered under another health
insurance plan).
A minister performing services in
the exercise of his or her ministry is
treated as self-employed for Social Se-
curity and Medicare tax purposes. See
§§ 1402(c)(2)(D) and 3121(b)(8)(A).
However, for other tax purposes, including
§ 45R, whether a minister is an employee
or self-employed is determined under the
common law test for determining worker
status. If, under the common law test,
a minister is self-employed, the minister
is not taken into account in determin-
ing an employer’s FTEs and premiums
paid because § 45R(e)(A)(i) excludes a
self-employed individual from the term
“employee” for purposes of the credit. If,
under the common law test, the minister is
an employee, the minister is taken into ac-
count in determining an employer’s FTEs
and premiums paid by the employer for
the minister’s health insurance coverage
can be taken into account in computing
the credit, subject to limitations on the
credit. (Note that, under § 45R(f)(1)(B),
a tax-exempt employer’s § 45R credit
cannot exceed the total of the tax-exempt
eligible small employer’s income tax and
Medicare tax withholding and its Medi-
care tax liability for the year). Because
compensation of a minister performing
services in the exercise of his or her min-
istry is not subject to Social Security or
Medicare tax under the Federal Insurance
Contributions Act (FICA), a minister has
no wages as defined under § 3121(a) for
purposes of computing an employer’s av-
erage annual wages.
C. Determining Average Annual Wages,
Number of Hours Worked, and Number
of FTEs
All wages (as defined under § 3121(a)
but without regard to the wage base lim-
itation under § 3121(a)) paid (including
overtime pay) are taken into account in
2010–51 I.R.B.858December 20, 2010

computing an employer’s average annual
wages. Thus, for example, if an employee
works more than 2,080 hours in a year,
all wages paid to the employee, including
wages for the hours in excess of 2,080, are
taken into account in computing the em-
ployer’s average annual wages.
Notice 2010–44 provides three methods
that employers are permitted to use for cal-
culating employees’ hours of service for
the taxable year: (1) counting actual hours
worked; (2) using a days-worked equiva-
lency; or (3) using a weeks-worked equiv-
alency. Employers need not use the same
method for all employees, but may apply
different methods for different classifica-
tions of employees, if the classifications
are reasonable and consistently applied.
For example, an employer may use the ac-
tual hours worked method for all hourly
employees and the weeks-worked equiva-
lency method for all salaried employees.
In addition, employers may change the
method for calculating employees’ hours
of service for each taxable year.
As explained in Notice 2010–44, the
number of an employer’s FTEs is deter-
mined by dividing the total hours of ser-
vice (but not more than 2,080 hours of ser-
vice for any employee) by 2,080 hours.
See § 45R(d)(2). The result, if not a whole
number, is then rounded to the next lowest
whole number. However, if, after divid-
ing the total hours of service by 2,080, the
resulting number is less than one, the em-
ployer rounds up to one FTE.
D. HSAs and Self-Insured Plans, including
HRAs and FSAs, are not Qualifying
Arrangements
An employer’s premium payments are
not taken into account for purposes of the
§ 45R credit unless they are paid for health
insurance coverage under a qualifying
arrangement. A qualifying arrangement
is an arrangement under which the em-
ployer pays premiums for each employee
enrolled in health insurance coverage of-
fered by the employer in an amount equal
to a uniform percentage (not less than 50
percent) of the premium cost of the cov-
erage. Under § 45R(g)(2)(B), for years
prior to 2014, health insurance coverage
for purposes of the credit is defined in
§ 9832(b)(1). Among the requirements of
§ 9832(b)(1) is that the coverage be of-
fered by a health insurance issuer. A health
insurance issuer is defined in § 9832(b)(2)
as an entity licensed to engage in the busi-
ness of insurance in a State and which
is subject to State law regulating insur-
ance.See§ 9832(b)(1) and section II.G
of Notice 2010–44. Thus, an employer’s
self-insured plan is not health insurance
coverage for purposes of the credit and any
employer contribution to such coverage is
not a qualifying arrangement for purposes
of § 45R.
Because Health Reimbursement Ar-
rangements (HRAs) and health Flexible
Spending Arrangements (health FSAs)
are self-insured plans, these arrangements
are not health insurance coverage. Health
Savings Accounts (HSAs) (defined in
§ 223(d)(1)) are also not health insurance
coverage. Thus, employer contributions
to HRAs, health FSAs, or HSAs are not
taken into account for purposes of the
§ 45R credit.
E. Multiemployer Health and Welfare
Plans Providing Health Insurance
Coverage
For purposes of the § 45R credit, con-
tributions by an employer to a multiem-
ployer plan that are used to pay premiums
for health insurance coverage for employ-
ees covered by the multiemployer plan are
treated as payment of health insurance pre-
miums by the employer. Moreover, if 100
percent of the cost of coverage under the
multiemployer plan is paid from nonelec-
tive employer contributions, and not by
employees, each employer in the multiem-
ployer plan is considered to be contribut-
ing a uniform percentage of 100 percent of
the premium on behalf of each employee
covered by the plan. Accordingly, an em-
ployer that is otherwise an eligible small
employer and that contributes to a mul-
tiemployer plan thatprovides for insured
health care coverage does not fail to sat-
isfy the requirements for the § 45R credit
merely because the insurance premiums
are paid by the plan and not directly paid
by the employer. In addition, the employer
does not fail to be considered to be con-
tributing a uniform percentage of the pre-
mium for each employee if 100 percent of
the cost of coverage for all employees cov-
ered by the plan is paid through employer
nonelective contributions. However, self-
insured health coverage provided through
a multiemployer plan is not health insur-
ance coverage provided under a qualifying
arrangement under § 45R.
Multiemployer plans may provide wel-
fare-type benefits in addition to health in-
surance, such as life insurance or short- or
long-term disability benefits. Only the em-
ployer contributions to the multiemployer
plan that are used to purchase health in-
surance for an employee are permitted to
be taken into account in determining pre-
mium payments by the employer under
§ 45R. Thus, if amounts are contributed
to a multiemployer plan for health insur-
ance coverage and also for other benefits,
the employer must allocate contributions
among the benefits provided, and only the
amount allocable to health insurance pre-
miums applies in calculating the § 45R
credit. An employer contributing to a mul-
tiemployer plan is permitted to rely on in-
formation provided by the plan to deter-
mine the amount of its contribution that is
used to purchase health insurance.
F. Qualifying Arrangements – Church
Welfare Benefit Plans
As noted above, for taxable years be-
ginning prior to 2014, health insurance
coverage for purposes of the credit means
benefits consisting of medical care of-
fered by a health insurance issuer, which
is an entity licensed to engage in the busi-
ness of insurance in a State, and which
is subject to State law regulating insur-
ance.See§§ 9832(b)(1) and 9832(b)(2).
The Church Plan Parity and Entanglement
Prevention Act of 1999 (CPPEPA), Pub.
L. No. 106–244, clarifies the status of
church welfare benefit plans providing
medical benefits in the context of State
insurance laws. Section 2(d) of CPPEPA
provides that “[n]otwithstanding any other
provision of this section, for purposes of
enforcing provisions of State insurance
laws that apply to a church plan that is
a welfare plan, the church plan shall be
subject to State enforcement as if the
church plan were an insurer licensed by
the State.” Thus, under § 2(d) of CPPEPA,
a church welfare benefit plan is subject to
State insurance law enforcement as if it
were licensed as an insurance company.
Section 2(e) of the CPPEPA provides that
§ 2 generally shall not be construed as
recharacterizing the status, or modifying
or affecting the rights, of any plan partic-
ipant or beneficiary.
December 20, 20108592010–51 I.R.B.

Pursuant to this notice, because a
church welfare benefit plan is subject to
State insurance law enforcement as if it
were licensed under State law, it will be
treated as satisfyingthe requirements for
health insurance coverage for purposes
of the § 45R credit. Therefore, for these
purposes, an arrangement under which
a small church employer pays premiums
for employees who receive medical care
provided through a church welfare bene-
fit plan may be a qualifying arrangement
and a small church employer paying for
employees’ medical coverage under such
a plan may be a tax-exempt eligible small
employer. This treatment of church plan
coverage as health insurance coverage ap-
plies solely for purposes of § 45R, which
applies to the tax treatment of the em-
ployer but does not affect the rights of plan
participants and beneficiaries.
G. Uniformity Requirement
To receive the tax credit, an eligible
small employer must pay a uniform per-
centage (not less than 50 percent) of the
premium for each employee enrolled in
health insurance coverage offered by the
employer. See § 45R(d)(4). Section V of
Notice 2010–44 provides transition relief
in applying the uniformity requirement for
taxable years beginning in 2010. This sec-
tion provides rules for applying the unifor-
mity requirement in taxable years begin-
ning after December 31, 2009 and prior
to 2014. For taxable years beginning in
2010, an employer may satisfy the unifor-
mity requirement either by meeting the re-
quirements of this section or by meeting
the requirements of Section V of Notice
2010–44.
1. Terminology Used in this Notice
For purposes of this notice:
(a) Each benefits package is considered
a separate health insurance plan. For ex-
ample, an employer offers a single health
insurance plan if the employer makes only
one benefits package available to its em-
ployees.
(b) A health insurer that charges a uni-
form premium for each of the employer’s
employees or that charges a single aggre-
gate premium for the group of covered em-
ployees that the employer may then divide
by the number of covered employees to de-
termine the uniform premium is referred to
as using “composite billing.”
(c) A health insurer that lists a separate
premium for each employee based on the
age of the employee or other factors is re-
ferred to as using “list billing.”
(d) A “tier” of coverage is coverage un-
der a benefits package that varies only by
the number of individuals covered. For
example, self-only coverage, self plus one
coverage, and family coverage would con-
stitute three separate tiers of coverage.
(e) The “employer-computed compos-
ite rate” for a tier of coverage is the aver-
age rate determined by adding the premi-
ums for that tier of coverage for all em-
ployees eligible to participate in the em-
ployer’s health insurance plan (whether or
not they actually receive coverage under
the plan or under that tier of coverage) and
dividing by the total number of such eligi-
ble employees.
2. Employers Offering One Plan. An
employer that offers a single health insur-
ance plan will satisfy the uniformity re-
quirement of section 45R if it satisfies the
requirements of this subsection G.2. An
employer whose health insurer uses com-
posite billing must satisfy the requirements
of paragraph (a) of this subsection G.2
with respect to self-only coverage under
the plan. An employer whose health in-
surer uses list billing must satisfy the re-
quirements of paragraph (c) of this subsec-
tion G.2 with respect to self-only cover-
age under the plan. If an employer offers a
more expensive tier of coverage than sin-
gle coverage, it must also satisfy paragraph
(b) of this subsection G.2 with respect to
each such more expensive tier if its insurer
uses composite billing and paragraph (d)
of this subsection G.2 if its insurer uses list
billing.
(a) Employers offering one plan -Self-
only coverage — composite billing. An
employer satisfies the requirements of this
paragraph (a) if it pays the same amount
toward the premium for each employee re-
ceiving self-only coverage under the plan,
so long as that amount is equal to at least
50 percent of the self-only premium.
(b) Employers offering one plan -other
tiers of coverage — composite billing. If
an employer offers a tier of coverage that
is more expensive than self-only coverage,
the employer satisfies the requirements of
this paragraph (b) if it pays an amount for
each employee enrolled in that more ex-
pensive tier of coverage that is the same for
all employees and that is no less than the
amount that the employer would have con-
tributed toward self-only coverage for that
employee. Alternatively, an employer that
offers a tier of coverage that is more ex-
pensive than self-only coverage may sat-
isfy the requirements of this paragraph (b)
by meeting the requirements of paragraph
(a) of this subsection G.2 for each tier of
coverage that it offers.
(c) Employers offering one plan -self-
only coverage — list billing. An employer
satisfies the requirements of this paragraph
(c) if the employer either: (i) pays toward
the premium an amount equal to a uniform
percentage (not less than 50 percent) of the
premium charged for each employee or (ii)
converts the individual premiums for self-
only coverage into an employer-computed
composite rate for self-only coverage, and,
if an employee contribution is required,
each employee who receives coverage un-
der the plan pays a uniform amount to-
ward the self-only premium that is no more
than 50 percent of the employer-computed
composite rate for self-only coverage.
(d) Employers offering one plan -other
tiers of coverage — list billing. If an
employer offers a tier of coverage that is
more expensive than self-only coverage,
the employer satisfies the requirements of
this paragraph (d) by paying toward the
premium for each employee covered un-
der that tier of coverage an amount equal
to the amount that the employer would
have contributed with respect to that em-
ployee for self-only coverage, calculated
either based upon the actual premium that
would have been charged by the insurer
for that employee for self-only coverage or
based upon the employer-computed com-
posite rate for self-only coverage. Alterna-
tively, an employer that offers a tier of cov-
erage that is more expensive than self-only
coverage may satisfy the requirements of
this paragraph (d) by meeting the require-
mentsofparagraph(b)ofthissubsection
G.2 for each tier of coverage that it of-
fers and substituting the employer-com-
puted composite rate for that tier of cover-
age for the employer-computed composite
rate for self-only coverage.
3. Employers Offering More than One
Plan. If an employer offers more than one
health insurance plan (i.e., more than one
benefit package), the employer may satisfy
2010–51 I.R.B.860December 20, 2010

the uniformity requirement in either of two
ways:
(a) The employer’s payments toward
the premium with respect to each plan for
which the employer is claiming the credit
satisfy subsection G.2 on a plan-by-plan
basis. The amounts or percentages of pre-
mium paid by the employer for each plan
need not be identical, so long as the pay-
ments with respect to each plan satisfy sub-
section G.2, or
(b) If the requirements of subsection
G.4 are satisfied, the employer may desig-
nate a “reference plan” and make employer
contributions in accordance with the fol-
lowing requirements:
(i) The employer determines a level of
employer contributions for each employee
such that, if all eligible employees enrolled
in the reference plan, the contributions
would satisfy subsection G.2.
(ii) The employer allows each em-
ployee to apply the amount determined
under (i) of this paragraph (b) either to-
ward the reference plan or toward the cost
of coverage under any of the other avail-
able plans.
4. Anti-abuse rule for employers offer-
ing more than one plan and using reference
plan. The requirements of this subsection
G.4 are satisfied if the self-only compos-
ite rate for the reference plan is at least
66 percent of the self-only composite rate
for each non-reference plan with respect to
which the employer claims the credit. For
purposes of this paragraph, the self-only
composite rate is, inthe case of a plan with
composite billing, the rate actually charged
by the health insurance issuer for self-only
coverage, and, in the case of a plan with list
billing, the employer-computed composite
rate for self-only coverage.
Example 1.(i) In 2011, Employer offers one
health insurance plan, Plan A. The premiums for Plan
A are $5,000 per year for self-only coverage, and
$10,000 for family coverage. Employees can elect
self-only or family coverage under Plan A.
(ii) Employer pays $3,000 (60% of the premium)
toward self-only coverage under Plan A and $6,000
(60% of the premium) toward family coverage under
Plan A.
(iii) Employer’s contributions of 60% of the pre-
mium for each tier of coverage satisfy the uniformity
requirement in § 45R(d)(4).
Example 2.(i) Same facts asExample 1, except
that Employer pays $3,000 (60% of the premium)
for each employee electing self-only coverage under
Plan A and pays $3,000 (30% of the premium) for
each employee electing family coverage under Plan
A.
(ii) Employer’s contributions of 60% of the pre-
mium toward self-only coverage and the same dollar
amount toward the premium for family coverage sat-
isfy the uniformity requirement in § 45R(d)(4).
Example 3.(i) In 2011, Employer offers two
health insurance plans, Plan A and Plan B, both of
which use composite billing. The premiums for Plan
A are $5,000 per year for self-only coverage and
$10,000 for family coverage. The premiums for Plan
B are $7,000 per year for self-only coverage and
$13,000 for family coverage. Employees can elect
self-onlyorfamilycoverage under either Plan A or
Plan B.
(ii) Employer pays $3,000 (60% of the premium)
for each employee electing self-only coverage under
Plan A, $3,000 (30% of the premium) for each em-
ployee electing family coverage under Plan A, $3,500
(50% of the premium) for each employee electing
self-only coverage under Plan B, and $3,500 (27% of
the premium) for each employee electing family cov-
erage under Plan B.
(ii) Employer’s contributions of 60% of the pre-
miums for self-only coverage and the same dollar
amounts toward the premium for family coverage un-
der Plan A, and of 50% of the premium for self-only
of coverage and the same dollar amount toward the
premium for family coverage under Plan B, satisfy
the uniformity rule on a plan-by-plan basis; therefore
the employer’s contributions to both plans satisfy the
uniformity requirement in § 45R(d)(4).
Example 4.(i) Same facts asExample 3,ex-
cept that Employer designates Plan A as the reference
plan. Employer pays $2,500 (50% of the premium)
for each employee electing self-only coverage under
Plan A and pays $2,500 of the premium for each em-
ployee electing family coverage under Plan A or ei-
ther self-only or family coverage under Plan B.
(iii) The self-only composite rate for Plan A
($5,000) is greater than 66% of the self-only com-
posite rate for Plan B ($7,000). ($5,000 ÷ $7,000 =
71%).
(iv) Employer’s contribution of $2,500 toward
the premium of each employee enrolled under Plan
A or Plan B satisfies the uniformity requirement in
§ 45R(d)(4).
Example 5.(i) Same facts asExample 4, except
that the self-only composite rate for Plan B is $8,000.
(ii) The self-only composite rate for Plan A
($5,000) is less than 66% of the self-only composite
rate for Plan B ($8,000). ($5,000 ÷ $8,000 = 63%).
Accordingly, Employer may not designate Plan A
as the reference plan. The Employer’s contribution
of $2,500 toward the premium of each employee
enrolled under Plan B fails to satisfy the uniformity
requirement in § 45R(d)(4) and the Employer is not
eligible for a credit with respect to the premiums paid
for Plan B. However, the Employer’s contribution
of $2,500 toward the premium of each employee
enrolled under Plan A satisfies the uniformity re-
quirement in § 45R(d)(4)and, accordingly, if the
other requirements of section 45R are satisfied, the
Employer may receive a credit with respect to its
contributions to Plan A.
Example 6.(i) For the 2011 taxable year, Em-
ployer receives a list billing premium quote from
Health Insurance Issuer W for health insurance cov-
erage for each of Employer’s four employees.
(ii) For Employee L, age 20, the self-only pre-
mium is $3,000 per year, and the family premium is
$8,000. For Employees M, N and O, each age, 40, the
self-only premium is $5,000 per year and the family
premium is $10,000.
(iii) The total self-only premium for the four em-
ployees is $18,000 ($3,000 + (3 x $5,000)). Employer
calculates a employer-computed composite self-only
rate of $4,500 ($18,000 ÷ 4).
(iii) Employer offers to make contributions such
that each employee would need to pay $2,000 of the
premium for self-only coverage. Under this arrange-
ment, Employer would contribute $1,000 toward self-
only coverage for L and $3,000 toward self-only cov-
erage for M, N, and O. In the event an employee
elects family coverage, Employer would make the
same contribution ($1,000 for L or $3,000 for M, N,
or O) toward the family premium.
(v) Employer satisfies the uniformity requirement
in § 45R(d)(4), because it offers and makes contri-
butions based on an employer-calculated composite
self-only rate such that, toreceive self-only coverage,
each employee must pay a uniform amount which is
not more than 50 percent of the composite rate, and
it allows employees to use the same employer contri-
butions toward family coverage.
Example 7.(i) Same facts asExample 6, except
that Employer calculates a employer-computed com-
posite family rate of $9,500 (($8,000 + (3 x $10,000))
÷ 4) and requires each employee to pay $4,000 of the
premium for family coverage.
(ii) Employer satisfies the uniformity requirement
in § 45R(d)(4), because it offers and makes contribu-
tions based on a calculated self-only and family rate
such that, to receive either self-only or family cov-
erage, each employee must pay a uniform amount
which is not more than 50 percent of the composite
rate for coverage of that tier.
Example 8.(i) Same facts asExample 6, except
that Employer also receives a list billing premium
quote from Health Insurance Issuer X for health insur-
ance coverage for each of Employer’s four employ-
ees, in addition to the list billing premium quote from
Health Insurance Issuer W.
(ii) Health Insurance Issuer X’s quote for Em-
ployee L, age 20, is $4,000 per year for self-only cov-
erage or $12,000 per year for family coverage. For
Employees M, N and O, each age 40, the premium is
$7,000 per year for self-only coverage or $15,000 per
year for family coverage.
(iii) The total self-only premium under Plan X is
$25,000 ($4,000 + (3 x $7,000). The employer-com-
puted composite self-only rate is $6,250 ($25,000 ÷
4).
(iv) Employer designates Health Insurance Issuer
W’s health care coverage as the reference plan.
(v) Employer offers to make contributions based
on the employer-calculated composite premium for
the reference plan (Plan W) such that each employee
has to contribute $2,000 to receive self-only coverage
through Plan W. Under this arrangement, Employer
would contribute $1,000 toward self-only coverage
for L and $3,000 toward self-only coverage for M, N,
and O. In the event an employee elects family cov-
erage through Plan W or either self-only or family
coverage through Plan X, Employer would make the
same contribution ($1,000 for L or $3,000 for M, N,
or O) toward that coverage.
(vi) The self-only composite rate for Plan W
($4,500) is at least 66% of the self-only composite
rate for Plan X ($6,250). ($4,500 ÷ $6,250 = 72%).
December 20, 20108612010–51 I.R.B.

(vii) Employer satisfies the uniformity require-
ment in § 45R(d)(4), becauseit offers and makes con-
tributions based on the employer-calculated compos-
ite self-only premium for the Plan W reference plan
such that, in order to receive self-only coverage, each
employee must pay a uniform amount which is not
more than 50 percent of the self-only composite pre-
mium of the reference plan; it allows employees to
use the same employer contributions toward family
coverage in the reference plan or coverage through
another plans; and the self-only composite rate for the
reference plan is at least 66% of the self-only compos-
ite rate for the non-reference plan.
Section 45R does not impose a cov-
erage requirement (although, other pro-
visions of the Code, such as § 105(h),
may impose coverage requirements on the
health plan).
IV. ISSUES RELATING TO
CALCULATING THE CREDIT
A. Small Group Market — Employees in
Multiple States
Under § 45R(b)(2), the credit is lim-
ited by the average premium for the small
group market in the State (or area within
the State) in which the employee enrolls
for coverage.SeeRev. Rul. 2010–13,
2010–21 I.R.B. 691, for average State pre-
miums for the taxable year beginning af-
ter December 31, 2009. If an employer
has employees in multiple States, the em-
ployer applies the average premium for the
small group market in the State (or area
within the State) separately for each em-
ployee using the average State premium
for the State in which the employee works.
B. Application of Average Premium Cap
Under § 45R(b)(2) and 45R(g)(2)(c),
the amount of an employer’s premium pay-
ments that are taken into account in calcu-
lating the credit is limited to the premium
payments the employer would have made
under the same arrangement if the aver-
age premium for the small group market
in the State (or an area within the State) in
which the employer offers coverage were
substituted for the actual premium. See
Notice 2010–44 for additional detail. Rev.
Rul. 2010–13, 2010–21 I.R.B. 691 lists the
applicable average premium for self-only
and family plans in the small group market
in each State for the 2010 taxable year. For
purposes of this calculation, the cap that
is used for each employee (be it self-only
or family) depends on the coverage the
employee takes. This is not affected by
whether the employer’s contribution for
that employee is determined with refer-
ence to the self-only plan, or whether an
employer satisfies the uniformity require-
ment in § 45R(d)(4) by paying an amount
equal to at least 50 percent of the premium
for self-only coverage.
Example 9.(i) In 2011, Employer offers one
health insurance plan, Plan X. The premiums for Plan
X are $4,000 per year for self-only coverage, and
$6,000 for family coverage.
(ii) Employer pays 50% of the premiums ($2,000)
for each employee electing self-only coverage and
pays $2,000 for each employee electing family cov-
erage.
(iii) $2,000 is 50% of the premium for self-only
coverage and 33% of the premium for family cover-
age.
(iv) For employees electing self-only cover-
age, the limitation to the average State premium
for the small group market is 50% of the premium
for self-only coverage, and for employees electing
family coverage, the limitation to the average State
premium for the small group market is 33% of the
premium for family coverage.
C. Taxpayers With Fiscal Taxable Years
Section 45R is effective for taxable
years beginning after December 31, 2009.
If a taxpayer is a calendar year taxpayer,
the § 45R credit first applies for the tax-
able year beginning on January 1, 2010
and ending on December 31, 2010. If the
taxpayer is a fiscal year taxpayer with a
taxable year beginning, for example, on
July 1, 2010, the § 45R credit first applies
for the taxable year beginning on July 1,
2010 and ending on June 30, 2011.
EFFECT ON OTHER DOCUMENTS
Notice 2010–44, 2010–22 I.R.B. 717, is
amplified.
EFFECTIVE DATE
Section 45R is effective for taxable
years beginning after December 31, 2009.
DRAFTING INFORMATION
The principal author of this notice is
Mireille Khoury of the Office of Division
Counsel/Associate Chief Counsel (Tax Ex-
empt and Government Entities). For fur-
ther information regarding this notice, con-
tact Stephanie Caden at (202) 622–6080
(not a toll-free call).
Funding Relief For
Multiemployer Defined Benefit
Plans Under PRA 2010
Notice 2010–83
I. PURPOSE
This notice provides guidance in the
form of questions and answers for spon-
sors of multiemployer defined benefit
plans with respect to the special fund-
ing rules under § 431(b)(8), as added by
section 211(a)(2) of the Preservation of
Access to Care for Medicare Beneficia-
ries and Pension Relief Act of 2010 (PRA
2010), Pub. L. No. 111–192.
II. BACKGROUND
Section 412 contains minimum fund-
ing rules that generally apply to pension
plans. Section 431 sets forth the fund-
ing rules that apply specifically to multi-
employer defined benefit plans. Section
432 sets forth additional rules that apply to
multiemployer plans in effect on July 16,
2006, that are in endangered or critical sta-
tus.
Section 431 provides rules for deter-
mining, based on charges and credits to
the plan’s funding standard account, the
minimum contribution that must be made
to a multiemployer defined benefit plan in
order to satisfy the funding requirements
under § 412. Under § 431(b)(2)(B)(iii)
and (b)(3)(B)(ii), netexperience losses and
gains are amortized by charges (in the case
of losses) and credits (in the case of gains)
in equal annual installments over 15 plan
years.
Section 431(b)(8), added to the Code
by section 211(a)(2) of PRA 2010, pro-
vides two special funding rules available
to multiemployer plans, a special amorti-
zation rule in § 431(b)(8)(A) and a special
asset valuation rule in § 431(b)(8)(B).
Section 431(b)(8)(A) provides a special
amortization rule for certain net invest-
ment losses in the case of a multiemployer
plan that meets a solvency test. The special
rule applies to the portion of the plan’s ex-
perience loss or gain for a plan year attrib-
utable to net investment losses (if any) in-
curred in either or both of the first two plan
years ending after August 31, 2008 (an eli-
gible loss year). This portion of the experi-
ence loss or gain may be treated as an item
2010–51 I.R.B.862December 20, 2010

separate from other experience losses, to
be amortized in equal annual installments
(until fully amortized) over the period be-
ginning with the plan year in which such
portion is first recognized in the actuarial
value of assets and ending with the last
plan year in the 30-plan-year period begin-
ning with the eligible loss year.
For this purpose, net investment losses
are determined in the manner prescribed
by the Secretary on the basis of the differ-
ence between actual and expected returns,
including any difference attributable to any
criminally fraudulent investment arrange-
ment. The determination as to whether an
arrangement is a criminally fraudulent in-
vestment arrangement is made under rules
substantially similar to the rules prescribed
by the Secretary for purposes of § 165.
Section 431(d) provides for the ex-
tension of certain amortization peri-
ods applicable under § 431. Under
§ 431(b)(8)(A)(ii)(I), the amortization pe-
riod under the special amortization rule
cannot be further extended under § 431(d).
In addition, if an extension of an amorti-
zation period was granted under § 431(d)
for any plan year before a decision to ap-
ply the special amortization rule for the
plan year, that extension cannot result in
the amortization period under the special
amortization rule exceeding 30 years.
Under § 431(c)(2)(A), for purposes
of the minimum funding rules, the value
of a plan’s assets must be determined
on the basis of any reasonable asset val-
uation method that takes into account
fair market value and is permitted under
regulations prescribed by the Secretary.
Section 1.412(c)(2)–1(b)(6) of the Income
Tax Regulations establishes a corridor for
the actuarial value of plan assets, under
which the actuarial value generally cannot
be less than 80 percent or more than 120
percent of fair market value. If the plan’s
asset valuation method would result in an
actuarial value outside the corridor, the ac-
tuarial value must be adjusted to be within
the corridor.
Section 1.412(c)(1)–2 permits a collec-
tively bargained plan to use a shortfall
funding method that adapts a plan’s un-
derlying funding method for purposes of
the minimum funding rules. If a multi-
employer plan uses the shortfall method,
§ 1.412(c)(1)–2(h) provides special rules
for the amortization of any net experience
gains or losses under which the amortiza-
tion charges and credits with respect to the
gain or loss are deferred until the earlier of
(1) the fifth plan year following the plan
year in which the gain or loss arose, or (2)
the first plan year beginning after the lat-
est scheduled expiration date of a contract
in effect during the plan year in which the
net experience gain or loss arose. In such a
case, the net experience gain or loss is in-
creased with interest until the first year of
theamortizationchargeorcreditandthe
amortization period is shortened so that it
ends with the same year that would apply
in the absence of the shortfall method.
Rev. Proc. 2000–40, 2000–2 C.B. 357,
provides for certain changes that can be
made in a plan’s funding method (includ-
ing a plan’s asset valuation method) that
are automatically approved by the Service.
An asset valuation method that recognizes
gains and losses in the value of plan assets
over a period of more than five plan years
is not eligible for automatic approval. Un-
der Rev. Proc. 2000–40, any change in
unfunded accrued liability resulting from
a change in funding method is amortized
over a period of 10 years. Rev. Proc.
2000–41, 2000–2 C.B. 371, provides pro-
cedures for obtaining Service approval of
a change in funding method that is not el-
igible for automatic approval. Section 5
of Rev. Proc. 2000–41 provides a proce-
dure for a funding method change “class
ruling,”i.e., a ruling that approves an iden-
tical change in funding method for more
than 40 plans receiving actuarial services
from the same insurance company or con-
sulting firm.
Section 431(b)(8)(B) provides a special
asset valuation rule in the case of a multi-
employer plan that meets a solvency test.
The special rule permits a multiemployer
plan to change its asset valuation method
in a manner that (1) spreads the difference
between expected returns and actual re-
turns for either or both of the eligible loss
years over a period of not more than 10
years, (2) provides that, for either or both
of the first two plan years beginning after
August 31, 2008, the value of plan assets
at any time is not permitted to be less than
80 percent or greater than 130 percent of
the fair market value of the assets at that
time, or (3) provides for both (1) and (2).
Section 431(b)(8)(B)(ii) provides that, if
the special asset valuation rule applies, the
Secretary will not treat the plan’s asset val-
uation method as unreasonable solely be-
cause of the changes described above and
the changes will be deemed approved by
the Secretary.
If the special amortization rule and the
special asset valuation rule both apply for
any plan year, the plan is required to treat
any reduction in the plan’s unfunded ac-
crued liability resulting from the applica-
tion of the special asset valuation rule as
a separate experience amortization base.
This separate base is amortized in equal
annual installments (until fully amortized)
over a period of 30 plan years, rather than
the period over which the reduction in un-
funded accrued liability would otherwise
be amortized.
PRA 2010 also added § 431(b)(8)(C),
(D), and (E). Section 431(b)(8)(C) de-
scribes the solvency test that a multiem-
ployer plan must meet in order for either or
both of the special funding rules to apply.
The solvency test is met only if the plan
actuary certifies that the plan is projected
to have sufficient assets to timely pay
expected benefits and anticipated expendi-
tures over the amortization period, taking
into account the changes in the funding
standard account under § 431(b)(8).
Under § 431(b)(8)(D), if either or both
of the special funding rules apply for any
plan year, a special restriction on ben-
efit increases applies in addition to any
other applicable restrictions on benefit
increases. Under the special restriction,
a plan amendment increasing benefits
may not go into effect during either of
the two plan years immediately following
that plan year unless (1) the plan actuary
certifies that the increase is paid for out
of additional contributions not allocated
to the plan immediately before the plan’s
application of the special amortization rule
or the special asset valuation rule and that
the plan’s funded percentage and projected
credit balances for those two plan years
are reasonably expected to be at least as
high as they would have been if the benefit
increase had not been adopted, or (2) the
amendment is required as a condition of
qualification under the Code or to comply
with other applicable law.
Under § 431(b)(8)(E), the plan spon-
sor of a multiemployer plan to which ei-
ther or both of the special funding rules ap-
ply must give notice of application of the
special rules to plan participants and ben-
eficiaries. In addition, the plan sponsor
must inform the Pension Benefit Guaranty
December 20, 20108632010–51 I.R.B.

Corporation (PBGC) of the application of
the special funding rules in such form and
manner as the Director of the PBGC may
prescribe.
Under section 211(b) of PRA 2010,
§ 431(b)(8) takes effect as of the first
day of the first plan year ending af-
ter August 31, 2008. However, if the
application of the special funding rules
affects the plan’s funding standard account
for the first plan year beginning after
August 31, 2008, application of the special
funding rules is disregarded for purposes
of applying § 432 (and § 305 of the
Employee Retirement Income Security
Act of 1974, as amended (ERISA)),
relating to multiemployer plans in
endangered or critical status. In addition,
the restriction on plan amendments
under § 431(b)(8)(D) is effective on
June 25, 2010, the date of the enactment
of PRA 2010.
Section 304(b)(8) of ERISA, added to
ERISA by section 211(a)(1) of PRA 2010,
is parallel to § 431(b)(8). Under section
101 of Reorganization Plan No. 4 of 1978
(43 FR 47713), the Secretary of Treasury
has interpretive jurisdiction over the sub-
ject matter of this notice for purposes of
ERISA as well as the Code. Thus, this no-
tice applies to the provisions of § 304(b)(8)
of ERISA as well as the Code.
Notice 2010–56, 2010–33 I.R.B. 254,
states that the Service expects to issue fu-
ture guidance on the special funding rules
under PRA 2010 for multiemployer plans.
Notice 2010–56 also states that in the case
of a plan year that ends before the guidance
is issued, the special rules may be applied
without regard to whether the Form 5500
(and Schedule MB) has been filed for that
plan year. This notice constitutes the guid-
ance anticipated in Notice 2010–56.
III. QUESTIONS AND ANSWERS
The following questions and answers
address issues relating to the special amor-
tization rule and special asset valuation
rule under § 431(b)(8), using the follow-
ing designations to indicate the topic ad-
dressed.
A – Extended Amortization Period for Eligible Net Investment Losses
V – Asset Valuation Rules
S – Solvency Test
R – Restrictions on Plan Amendments Increasing Benefits
D – Decision to Apply the Special Funding Rules
N – Notification to Participants, Beneficiaries, and the PBGC
C – Certification of Status under § 432
F – Form 5500 Requirements
A. Extended Amortization Period for
Eligible Net Investment Losses
Q A–1. For purposes of the special
amortization rule in § 431(b)(8)(A), how
is the net investment loss incurred in an
eligible loss year determined?
A A–1. Except as otherwise provided in
this Q&A A–1, if the valuation date for a
plan is either the first day of the plan year
or the last day of the plan year, then the
net investment loss incurred in an eligible
loss year (an eligible net investment loss)
is equal to the excess of the expected mar-
ket value of plan assets as of the end of the
eligible loss year over the market value of
the assets as of that date, including any dif-
ference attributable to a criminally fraudu-
lent investment arrangement. For this pur-
pose, the expected market value of plan as-
sets as of the end of the eligible loss year is
equal to (1) the market value of plan assets
at the beginning of the eligible loss year,
plus (2) contributions made during the el-
igible loss year, minus (3) disbursements
made during the eligible loss year, with all
such amounts adjusted to the end of the el-
igible loss year with interest at the plan’s
valuation rate for the plan year.
However, if the determination of the ac-
tuarial value of assets under the plan’s as-
set valuation method involves a calcula-
tion of the difference between the actual
return for the plan year (determined on a
market value basis) and the expected re-
turn on the actuarial value of assets for the
plan year, then the eligible net investment
loss for the plan year is equal to that actual
return minus the expected return.
If the valuation date for a plan year is
neither the first day of the plan year nor the
last day of the plan year, the calculation of
the eligible net investment loss for the plan
year is made as of the valuation date, based
on the difference between the actual return
(determined on a market value basis as of
the valuation date) and the expected return
(based on either market or actuarial value,
as the case may be, as of the valuation date
for the prior year).
Q A–2. For purposes of determining an
eligible net investment loss, what is a crim-
inally fraudulent investment arrangement?
A A–2. For purposes of determining
an eligible net investment loss, a crimi-
nally fraudulent investment arrangement is
an investment arrangement with respect to
which a loss would be treated as a theft loss
under § 165 if § 165 applied.
Q A–3. If a plan has a net experience
loss for a recognition year(i.e., a plan year
in which a portion of an eligible net invest-
ment loss is recognized in the value of plan
assets), how does thespecial amortization
rule in § 431(b)(8)(A) affect the treatment
of the portion of that loss that is attribut-
able to an eligible net investment loss?
A A–3. If a plan has a net experience
loss for a recognition year and the special
amortization rule under § 431(b)(8)(A) ap-
plies, the net experience loss is bifurcated
into the portion attributable to the eligi-
ble net investment loss (as determined un-
der Q&A A–5) and the portion not attrib-
utable to the eligible net investment loss
(i.e., the portion attributable to other gains
or losses).
A separate amortization base is estab-
lished for the portion attributable to the el-
igible net investment loss, and that por-
tion is amortized over the period beginning
with the recognition year and ending with
the last plan year in the 30-plan-year pe-
riod beginning with the eligible loss year.
Thus, if a plan uses a valuation date of the
first day of the plan year, so that a por-
2010–51 I.R.B.864December 20, 2010

tion of an eligible net investment loss is
first recognized in the actuarial value of as-
sets for the plan year after the eligible loss
year, the amortization period for that por-
tion is the 29-plan-year period beginning
with that recognition year.
The portion of the net experience loss
that is not attributable to the eligible net
investment loss is amortized over 15 plan
years, as provided in § 431(b)(2)(B)(iii).
Thus, if the net experience loss for a plan
year exceeds the amount attributable to the
eligible net investment loss, then the bal-
ance of the net experience loss (i.e.,the
amount by which the net experience loss
exceeds the amount attributable to the el-
igible net investment loss) is amortized
over 15 plan years.
The establishment of a special amor-
tization period for the portion of the net
experience loss attributable to the eligible
net investment loss continues for each plan
year that the plan applies the provisions
of § 431(b)(8)(A) and without regard to
whether the portion of the eligible net in-
vestment loss recognized in a plan year
is a positive or negative number. For ex-
ample, if, as a result of the application of
the requirement that the actuarial value of
assets not exceed 120 percent of market
value, the portion of the eligible net invest-
ment loss that is recognized in the actuarial
value of plan assets for the first recognition
year exceeds the combined portions that
would otherwise be recognized for the first
and second recognition years, then the por-
tion of the eligible net investment loss that
is recognized in the second year’s actuarial
value of assets could instead be an actuar-
ial gain. In such a case, the gain would be
recognized over 28 plan years. However,
in that case, the plan sponsor could decide
to no longer apply the special amortization
rule. See Q&A A–8 and Q&A D–3.
See Q&A A–4 for the rules that apply
if the net experience loss for a plan year
is less than the amount attributable to the
eligible net investment loss, if the amount
attributable to the eligible net investment
loss that is recognized in a recognition year
is an actuarial gain, or if there is an overall
experience gain for the plan year.
Q A–4. What is the appropriate treat-
ment with respect to a plan year for which
the special amortization rule applies, if the
net experience loss for the plan year is less
than the amount attributable to the eligible
net investment loss, if the amount attribut-
able to the eligible net investment loss is
an actuarial gain, or if there is an overall
experience gain for the plan year?
A A–4. In any of these cases, in lieu
of the bifurcation described in Q&A A–3,
two amortization bases are established.
The initial balance of the first base (which
can be a gain base or a loss base) is the
amount attributable to the eligible net
investment loss, and that base is amor-
tized over the extended period described
in Q&A A–3. The initial balance of the
second base (which can also be a gain base
or a loss base) is the amount that, when
combined with the initial balance of the
first base, equals the plan’s net experience
gain or loss for that plan year, and that
base is amortized over 15 plan years.
For instance, if the amount attributable
to an eligible net investment loss is an ac-
tuarial loss that exceeds the net experience
loss for the plan year, then the amount
attributable to the eligible net investment
loss is amortized overthe extended period
described in Q&A A–3 and an offsetting
gain base equal to the excess is established
and amortized over 15 plan years. Simi-
larly, if there is an overall experience gain
for the plan year and the amount attribut-
able to an eligible net investment loss is
an actuarial loss, then the amount attrib-
utable to the eligible net investment loss
is amortized over the extended period de-
scribedinQ&AA–3,andanoffsetting
gain base equal to the sum of that amount
and the amount of the overall experience
gain is established and amortized over 15
plan years.
The following examples illustrate the
application of the rules in Q&A A–3 and
Q&A A–4:
Example (1)Assume that the sponsor
of a multiemployer plan that uses the cal-
endar year as its plan year and a beginning
of year valuation date decides to apply the
special amortization rule in § 431(b)(8)(A)
in order to extend the amortization pe-
riod for the eligible net investment loss
of $1,000,000 incurred in the 2008 plan
year. The valuation interest rate for the
plan is 7 percent. The plan has a net expe-
rience loss in 2010 that is first reflected in
the January 1, 2011, valuation that exceeds
the portion attributable to the 2008 eligible
net investment loss, as shown in the table
below:
Amounts
(Dollars)
(1) Net experience gain or (loss) in 2010 reflected in actuarial
valuation as of 1/1/2011
($500,000)
(2) Portion of 2008 eligible net investment loss reflected in
actuarial value of plan assets as of 1/1/2011
($45,000)
(3) Portion of net experience loss not attributable to 2008 eligible
net investment loss
($455,000)
Under § 431(b)(2)(B)(iii), amortization
of the experience loss of $500,000 would
be over 15 plan years at $51,306 per year
(i.e., $500,000/9.745468). Under the spe-
cial amortization rule, the net experience
loss of $500,000 is bifurcated into two
pieces: (a) the portion attributable to the
2008 eligible net investment loss, resulting
in an amortization charge base of $45,000,
amortized over 27 plan years at $3,509 per
year (i.e., $45,000/12.825779), plus (b) the
remaining loss, resulting in an amortiza-
tion charge base of $455,000 amortized
over 15 plan years at $46,688 per year (i.e.,
$455,000/9.745468).
The combined amortization charges are
$50,197 annually for the first 15 plan years
(i.e., $3,509 plus $46,688), and $3,509 an-
nually for the succeeding 12 plan years.
This results in a reduction in amortization
charges of $1,109 (i.e., $51,306 – $50,197)
during those first 15 plan years and an in-
crease in amortization charges of $3,509
December 20, 20108652010–51 I.R.B.

per year for each of those succeeding 12
plan years, as contrasted with the schedule
of charges under § 431(b)(2)(B)(iii).
Example (2)The facts are the same as
in Example (1), except that the plan has
a net experience loss in 2010 of $30,000
that is first reflected in the January 1, 2011,
actuarial valuation.
Under § 431(b)(2)(B)(iii), amortiza-
tion of the net experience loss of $30,000
would be over 15 plan years at $3,078
per year (i.e., $30,000/9.745468). Under
the special amortization rule, the expe-
rience loss of $30,000 is bifurcated into
two pieces: (a) theportion attributable
to the 2008 eligible net investment loss,
resulting in an amortization charge base of
$45,000, amortized over 27 plan years at
$3,509 per year (i.e., $45,000/12.825779),
plus (b) an offsetting gain base, resulting
in an amortization credit base of $15,000
amortized over 15 plan years at $1,539 per
year (i.e., $15,000/9.745468).
Example (3)The facts are the same as
in Example (1), except that the plan has a
net experience gain in 2010 of $100,000
that is first reflected in the January 1, 2011,
actuarial valuation.
Under § 431(b)(3)(B)(ii), amortization
of the net experience gain of $100,000
would be over 15 plan years at $10,261
per year (i.e., $100,000/9.745468). Under
the special amortization rule, the experi-
ence gain of $100,000 is bifurcated into
two pieces: (a) the portion attributable to
the 2008 eligible net investment loss, re-
sulting in an amortization charge base of
$45,000, amortized over 27 plan years at
$3,509 per year (i.e., $45,000/12.825779),
plus (b) an offsetting gain base, resulting
in an amortization credit base of $145,000
amortized over 15 plan years at $14,879
per year (i.e., $145,000/9.745468).
Q A–5. How is the portion of the net
experience gain or loss for a recognition
year that is attributable to an eligible net
investment loss determined?
A A–5. The portion of the net expe-
rience loss or gain for a recognition year
that is attributable to an eligible net invest-
ment loss is permitted to be determined
under either the prospective or retrospec-
tive method described in this Q&A A–5.
Whichever method is chosen becomes part
of the plan’s funding method and can only
be changed with the consent of the Com-
missioner.
Under the prospective method, the por-
tion of an eligible net investment loss that
is recognized for the first recognition year
and for each future plan year is fixed as of
the first recognition year, based on a pro-
jection of asset values. Specifically, the
amount of an eligible net investment loss
that is recognized inthe first recognition
year is the hypothetical value of plan assets
as of the valuation date for that plan year
minus the actuarial value of plan assets as
of that date. For this purpose, the hypothet-
ical value of plan assets is the value that
would have resulted under the plan’s asset
valuation method if the plan had earned the
expected rate of return for the eligible loss
year.
In order to determine the portion of an
eligible net investment loss that is to be
recognized in any future recognition year,
the hypothetical value of plan assets and
the actuarial value of plan assets must be
projected to that future year assuming that
the plan assets earn the expected rate of re-
turn for all future years and based on a rea-
sonable projection of future contributions
and distributions. Based on this projection,
the accumulated portion of the eligible net
investment loss recognized as of the valu-
ation date for a future plan year (the accu-
mulated recognized eligible loss) is deter-
mined as the projected hypothetical value
of plan assets minus the projected actu-
arial value of plan assets as of that date.
The portion of the eligible net investment
loss that is recognized for that future year
is (1) the accumulated recognized eligible
loss for that future year, minus (2) the ac-
cumulated recognized eligible loss for the
plan year immediately preceding that fu-
ture year.
Under the retrospective method, the
portion of an eligible net investment loss
that is recognized for any recognition year
(i.e., the first recognition year or any later
recognition year) is determined as of the
valuation date for the relevant recognition
year, taking into account actual rates of
return since the eligible loss year. The por-
tion of an eligible net investment loss that
is recognized in the first recognition year is
the same as under the prospective method.
For a recognition year after the first recog-
nition year, a reconstructed hypothetical
value of plan assets is determined for
that year which is then compared with
the actuarial value of plan assets for that
year. For this purpose, the reconstructed
hypothetical value of plan assets is the
value that would have resulted under the
plan’s asset valuation method if the plan
had earned the expected rate of return for
the eligible loss year and actual rates of
return for any subsequent years. Based
on this determination, the accumulated
recognized eligible loss (as defined in the
preceding paragraph) is determined as of
the valuation date for the future plan year
as the reconstructed hypothetical value of
plan assets minus the actuarial value of
plan assets as of that date. The portion
of the eligible net investment loss that is
recognized for that future year is (1) the
accumulated recognized eligible loss for
that future year, minus (2) the accumulated
recognized eligibleloss for the plan year
immediately preceding that future year.
In either case, if the determination of
actuarial value of assets under the plan’s
asset valuation method requires distin-
guishing between realized or unrealized
appreciation and other types of invest-
ment return (such as the average value
described in § 1.412(c)(2)–1(b)(8)), then
the hypothetical value of plan assets, the
projected hypothetical value of plan as-
sets, the projected actuarial value of plan
assets, and the reconstructed hypothetical
value of plan assets are determined by
assuming that the expected rate of return
for the relevant plan year did not include
any realized or unrealized appreciation.
The following example illustrates the
application of the rules in Q&A A–5:
Example(a) A multiemployer plan
with a calendar year plan year and a begin-
ning of year valuation date determines the
actuarial value of assets by spreading the
difference between actual and expected
investment return on a level basis over five
years (as described in approval 15 of Rev.
Proc. 2000–40), subject to the limitation
that the actuarial value of assets be no less
than 80 percent of fair market value and
no greater than 120 percent of fair market
value. The market value of assets as of
January 1, 2008, is $150. The valuation
interest rate used for all years after 2007
is 7 percent, although the actual rate of
return on a market value basis for 2008
was -25 percent. The difference between
expected and actual return for past years is
2010–51 I.R.B.866December 20, 2010

Difference between Expected and Actual Return (Dollars)
2005
20
2006
-15
2007
5
For 2008, contributions and disburse-
ments, increased with interest at the ex-
pected rate through the end of the plan
year, are $10 and $9, respectively. As of
January 1, 2009, projected contributions
and disbursements, increased with interest
at the expected rate through the end of each
plan year is
Contributions
(Dollars)
Disbursements
(Dollars)
20091210
20101411
20111612
20121813
(b) The expected market value of assets
as of the end of 2008 is $161.50 [($150 *
1.07) + $10 - $9].
(c) The net investment loss for 2008 is
$48 (determined as the expected market
value as of the end of 2008 ($161.50) mi-
nus the actual market value as of the end of
2008 ($113.50)) and the plan sponsor has
decided to apply the special amortization
rule of § 431(b)(8)(A) to that eligible net
investment loss.
(d) Under the asset valuation method
for the plan, the actuarial value of assets
on January 1, 2009, prior to applying
the 80/120 percent corridor is $150.90
[$113.50 - (20% * $20) + (40% * $15)
- (60% * $5) + (80% * $48)]. After ap-
plying the 80/120 percent corridor, the
actuarial value of assets is $136.20 (120%
of $113.50).
(e) The plan actuary determines the hy-
pothetical value of assets for the 2009 plan
year by determining what the actuarial
value of assets would have been had the
plan assets earned the expected return dur-
ing 2008. In such a case, the market value
of assets would have been $161.50 and the
actuarial value of assets prior to applying
the 80/120 percent corridor would have
been $160.50 [$161.50 - (20% * $20) +
(40% * $15) - (60% * $5) + (80% * $0)].
After applying the 80/120 percent corri-
dor the hypothetical value of assets would
have been $160.50.
(f) Accordingly, the accumulated rec-
ognized eligible loss (i.e., the portion of
the eligible net investment loss that would
have been recognized in the actuarial value
of assets) as of January 1, 2009, is $24.30
(the difference between the hypothetical
value of assets on that date ($160.50) and
the actuarial value of assets on that date
($136.20)).
(g) 2009 is the first recognition year
(i.e., the first year for which any portion
of the eligible net investment loss is rec-
ognized in the actuarial value of plan as-
sets), and the portion of the eligible net in-
vestment loss that is recognized in the ac-
tuarial value of assets on January 1, 2009,
is $24.30 ($24.30, the accumulated recog-
nized eligible loss for 2009, minus zero,
the accumulated recognized eligible loss
for the preceding year).
(h) If the plan is using the prospective
method of determining the portion of the
eligible net investment loss that is recog-
nized each plan year, then the calculations
set forth in steps (d) through (f) are re-
peated for each futurerecognition year up
to the plan year as of which the entire eligi-
ble net investment loss will have been rec-
ognized. This calculation is a projection of
future results made as of January 1, 2009,
and, for this purpose, it is assumed that the
plan assets earn the assumed rate of return
for each year after 2008. The portion of the
eligible net investment loss recognized for
afutureyearistheresultinstep(f)forthat
future year minus the result in step (f) for
the year immediately preceding that future
year. For example,
•The market value of assets as of Jan-
uary 1, 2010, is projected to be $123.45
[($113.50 * 1.07) + $12 - $10] and
there is projected to be no difference
between actual and expected returns
for 2009.
•Under the asset valuation method for
the plan, the actuarial value of assets at
January 1, 2010, prior to applying the
80/120 percent corridor is projected to
be $153.25 [$123.45 + (20% * $15) -
(40% * $5) + (60% * $48) + (80% *
$0)]. After applying the 80/120 per-
cent corridor, the actuarial value of as-
sets is projected to be $148.14 (120%
of $123.45).
•Had the plan earned the expected rate
of return during 2008, the market value
of assets as of January 1, 2010, would
have been projected to be $174.81
[($161.50 * 1.07) + $12 - $10].
•Under the asset valuation method for
the plan, the actuarial value of assets at
January 1, 2010, prior to applying the
80/120 percent corridor would have
been $175.81 [$174.81 + (20% * $15)
- (40% * $5) + (60% * $0) + (80% *
$0)]. After applying the 80/120 per-
cent corridor the actuarial value of
assets would have been $175.81.
•The accumulated recognized eligible
loss as of the January 1, 2010, valua-
tion date is $27.67 (the difference be-
tween the projected hypothetical value
of assets ($175.81) and the projected
actuarial value of assets ($148.14)).
December 20, 20108672010–51 I.R.B.

•The portion of the eligible net invest-
ment loss that is projected to be first
recognized in the January 1, 2010, ac-
tuarial value of assets is $3.37 (the ac-
cumulated recognized eligible loss as
of January 1, 2010 ($27.67) minus the
accumulated recognized eligible loss
as of January 1, 2009 ($24.30)).
(i) If the plan is using the retrospective
method of determining the portion of the
eligible net investment loss that is recog-
nized each plan year, then calculations set
forth in steps (d) through (f) are repeated
for each future recognition year up to the
plan year as of which the entire eligible
net investment loss will have been recog-
nized. This calculation is made as of a val-
uation date for each future plan year and
takes into account the actual earnings on
plan assets for each year after 2008. The
portion of the eligible net investment loss
recognized for a future year is the result
in step (f) for that future year minus the
result in step (f) for the year immediately
preceding that future year. For example,
if the plan assets earned 10 percent dur-
ing 2009, and assuming that the contribu-
tions and disbursements during 2009 were
as projected,
•The market value of assets as of
January 1, 2010, will be $126.85
[($113.50 * 1.10) + $12 - $10] and
the difference between actual and ex-
pected returns for 2009 will be $3.40.
•Under the asset valuation method for
the plan, the actuarial value of assets
on January 1, 2010, prior to apply-
ing the 80/120 percent corridor will
be $153.93 [$126.85 + (20% * $15)
- (40% * $5) + (60% * $48) - (80%
* $3.40)]. After applying the 80/120
percent corridor, the actuarial value
of assets will be $152.22 (120% of
$126.85).
•Had the plan earned the expected rate
of return during 2008, the market value
of assets as of January 1, 2010, will
be $179.65 [($161.50 * 1.10) + $12 -
$10] and the difference between actual
and expected returns for 2009 will be
$4.84.
•Under the asset valuation method for
the plan, the actuarial value of assets
on January 1, 2010, prior to apply-
ing the 80/120 percent corridor will
be $176.78 [$179.65 + (20% * $15)
- (40% * $5) + (60% * $0) - (80%
* $4.84)]. After applying the 80/120
percent corridor, the actuarial value of
assets will be $176.78. This value is
the reconstructed hypothetical value of
plan assets.
•The accumulated recognized eligible
loss as of the January 1, 2010, valua-
tion date is $24.56 (the difference be-
tween the reconstructed hypothetical
value of assets ($176.78) and the actu-
arial value of assets ($152.22)).
•The portion of the eligible net invest-
ment loss that will be first recognized
in the January 1, 2010, actuarial value
of assets is $0.26 (the accumulated
recognized eligible loss as of January
1, 2010 ($24.56) minus the accumu-
lated recognized eligible loss as of
January 1, 2009 ($24.30)).
Q A–6. If a plan uses the shortfall
method, how does the special amortization
rule apply to the amortization of experi-
ence gain or loss under § 1.412(c)(1)–2(h)?
A A–6. If a multiemployer plan uses the
shortfall method, the net experience gain
or loss for a plan year is bifurcated into the
portion attributable to the eligible net in-
vestment loss and the portion not attribut-
able to the eligible net investment loss in
the same manner as in the case of a plan
that is not using the shortfall method. The
amortization of each of these portions is
deferred until the earlier of (1) the fifth
plan year following the plan year in which
the net experience gain or loss arose, or (2)
the first plan year beginning after the lat-
est scheduled expiration date of a contract
in effect during the plan year in which the
net experience gain or loss arose. In such
a case, the net experience gain or loss is
increased with interest at the rate used for
determining the plan’s normal cost until
the first year of the amortization charge or
credit, and the amortization period is short-
ened so that it ends with the same year that
would apply in the absence of the shortfall
method.
Q A–7. Can the special amortization
rule for eligible net investment losses be
applied to a multiemployer plan that does
not use a funding method that determines
experience gains or losses?
A A–7. The special amortization rule
for eligible net investment losses is not per-
mitted to be applied to a multiemployer
plan that does not use a funding method
that determines experience gains or losses.
However, a multiemployer plan that does
not use a funding method that determines
an experience gain or loss for each plan
year may change its funding method to an
immediate gain method under which an
experience gain or loss is determined for
each plan year. Such a change in fund-
ing method is automatically approved and,
pursuant to Rev. Proc. 2000–40, the amor-
tization period applicable to any change in
unfunded accrued liability attributable to
the change in funding method is 10 years.
Q A–8. For what plan years does the
special amortization rule in § 431(b)(8)(A)
apply?
A A–8. The special amortization rule
under § 431(b)(8)(A) applies beginning
with the first recognition year with respect
to an eligible net investment loss and end-
ing with the earliest of:
1) The plan year in which the entire
unrecognized balance of the eligible net
investment loss as of the preceding plan
year is recognized in the actuarial value of
assets,
2) The plan year for which, if the spe-
cial amortization rule were to apply to es-
tablish a new special amortization base, the
amortization period applicable to that base
wouldbe15planyears,or
3) The plan year for which the plan
sponsor chooses to end the application of
the special amortization rule in accordance
with Q&A D–3.
If the special amortization rule no
longer applies, then no new amortization
bases are established under Q&A A–3
(and any portion of an eligible net invest-
ment loss recognized in a subsequent year
is taken into account under the regular
rules of § 431(b)(2) or (b)(3)). However,
the annual charges or credits to the fund-
ing standard account with respect to any
amortization base previously established
are unaffected.
Q A–9. How do the rules in this notice
apply if the special amortization rule in
§ 431(b)(8)(A) applies with respect to net
investment losses incurred in two eligible
loss years?
A A–9. If the special amortization rule
in § 431(b)(8)(A) applies with respect to
net investment losses incurred in two eligi-
ble loss years, the rules in this notice apply
separately to each portion of a net experi-
ence gain or loss that is attributable to an
eligible net investment loss incurred in a
2010–51 I.R.B.868December 20, 2010

different eligible loss year. For example, in
applying the rules in Q&A A–3, the plan’s
net experience loss would be divided into
three portions: the portion attributable to
the eligible net investment loss (as deter-
mined under Q&A A–5) incurred in one
eligible loss year; the portion attributable
to the eligible net investment loss (as de-
termined under Q&A A–5) incurred in the
other eligible loss year; and the portion not
attributable to the eligible net investment
loss incurred in any eligible loss year. A
separate amortization base would be es-
tablished for each portion attributable to
the eligible net investment loss incurred in
a different eligible loss year, and each of
those portions would be amortized over an
extended period described in Q&A A–3.
The portion of the net experience loss that
is not attributable to eligible net invest-
ment loss would be amortized over 15 plan
years, as provided in § 431(b)(2)(B)(iii).
V. Asset Valuation Rules
Q V–1. What does § 431(b)(8)(B)(i)(I)
permit with respect to the period over
which the difference between actual and
expected returns for an eligible loss year
is recognized in the value of plan assets as
determined under a plan’s asset valuation
method?
A V–1. Subject to the solvency test un-
der § 431(b)(8)(C), a plan’s asset valuation
methodmaybechangedsoastorecognize
the difference between actual and expected
returns for an eligible loss year (i.e.,anel-
igible net investment loss) in the value of
plan assets on a level basis over a period of
not more than 10 years. An asset valuation
method is not considered unreasonable for
purposes of § 431(c)(2)(A) merely because
of such a change, without regard to the pe-
riod over which the difference between ac-
tual and expected returns is otherwise rec-
ognized under the plan’s method.
Q V–2. Is there automatic approval for
the change in method described in Q&A
V–1?
A V–2. If the asset valuation method
for a multiemployer plan provides for a
spreading of the difference between ex-
pected and actual returns on a level basis
over a fixed number of years, then a change
in the asset valuation method to extend
the period-to not more than 10 years-over
which an eligible net investment loss is
recognized in the value of plan assets on
a level basis is automatically approved.
This applies even though the difference be-
tween expected and actual returns for other
plan years is spread over a different num-
ber of years. For this purpose, a plan that
uses market value of assets as the asset val-
uation method spreads the difference be-
tween expected and actual returns over one
plan year.
If the plan uses some other asset valu-
ation method, the plan will need to obtain
approval from the Service for the change.
This approval may be requested using the
class-rulings procedure prescribed under
section 5 of Rev. Proc. 2000–41, if it
otherwise meets the requirements for us-
ing the class-rulings procedure.
Q V–3. What does § 431(b)(8)(B)(i)(II)
permit with respect to the extent to which
the actuarial value of plan assets can vary
from the market value of plan assets?
A V–3. Subject to the solvency test
under § 431(b)(8)(C), a plan’s asset val-
uation method may be changed so that,
for either or both of the first two plan
years beginning after August 31, 2008, the
otherwise applicable corridor limits under
§ 1.412(c)(2)–1(b)(6) are expanded to per-
mit the actuarial value of plan assets to be
as much as 130 percent of the fair market
value of plan assets. An asset valuation
method is not considered unreasonable for
purposes of § 431(c)(2)(A) merely because
of such a change, and such a change is au-
tomatically approved.
Q V–4. What amortization period ap-
plies to a change in a plan’s unfunded
accrued liability attributable to a change
in asset valuation method as described in
Q&A V–1 or Q&A V–3 (or both)?
A V–4. In general, pursuant to Rev.
Proc. 2000–40, the amortization period
applicable to the change in unfunded ac-
crued liability attributable to a change in
asset valuation method as described in
Q&A V–1 or Q&A V–3 (or both) is 10
years. However, if a plan’s asset valuation
method is changed under § 431(b)(8)(B)
for a plan year and the special amortization
rule in § 431(b)(8)(A) also applies, then
the net experience gain or loss for the plan
year and the portion of that experience
gain or loss attributable to the eligible net
investment loss are determined disregard-
ing the change in asset valuation method.
In such a case, the change in unfunded ac-
crued liability attributable to the change in
asset valuation method is then amortized
over 30 plan years.
S. Solvency Test
Q S–1. What is the period that applies
for purposes of a plan actuary’s certifica-
tion of the solvency test (solvency certifi-
cation) under § 431(b)(8)(C)?
A S–1. The period that applies for
purposes of a solvency certification un-
der § 431(b)(8)(C) is the period beginning
with the plan year in which the solvency
certification is made. If the special amor-
tization rule (but not the special asset valu-
ation rule) applies with respect to a multi-
employer plan, such period ends with the
last plan year in the 30-plan-year period
beginning with the eligible loss year. If
the special asset valuation rule (but not the
special amortization rule) applies, such pe-
riod ends with the last plan year in the
10-year period over which the change in
unfunded accrued liability attributable to
the change in asset valuation method is
amortized. If both the special amortiza-
tion rule and the special asset valuation
rule apply, such period ends with the last
plan year in the 30-plan-year period over
which the change in unfunded accrued li-
ability attributable to the change in asset
valuation method is amortized.
Q S–2. When must the solvency certi-
fication be made?
A S–2. The solvency certification must
be made before a formal decision is made
to apply either or both of the special fund-
ing rules in accordance with Q&A D–1.
If the plan passes the solvency test as of
the plan year in which a formal decision is
made to apply either or both of the special
funding rules, the plan is deemed to pass
the test as of any preceding plan year.
Q S–3. What is the actuarial ba-
sis for the solvency certification under
§ 431(b)(8)(C)?
A S–3. In making the solvency certifi-
cation under § 431(b)(8)(C), the plan actu-
ary must use the same actuarial basis (e.g.,
actuarial assumptions, data, and terms of
any existing funding improvement plan or
rehabilitation plan) that is used for pur-
poses of the certification of the plan’s sta-
tus under § 432(b)(3) for the plan year in
which the solvency certification is made.
The actuarial assumptions with respect to
plan years that are after the plan years
that are taken into account for purposes
of that certification of plan status under
§ 432(b)(3) must be consistent with the as-
sumptions used for purposes of that certifi-
cation of plan status. In making a solvency
certification, the plan actuary is not permit-
December 20, 20108692010–51 I.R.B.

ted to take into account any benefit reduc-
tions under § 418D or § 418E projected for
future years.
R. Restrictions on Plan Amendments
Increasing Benefits
Q R–1. How does the restriction on
plan amendments under § 431(b)(8)(D)
apply if the special amortization rule in
§ 431(b)(8)(A) applies?
A R–1. If the special amortization rule
applies with respect to the portion of an eli-
gible net investment loss that is recognized
in a plan year (i.e., if a new amortization
base with an extended amortization period
under § 431(b)(8)(A) is established in the
plan year for a portion of the eligible net in-
vestment loss), a plan amendment increas-
ing benefits may not go into effect during
either of the two plan years immediately
following that plan year unless one of the
two conditions in the following paragraph
are met.
The restriction inthe preceding para-
graph does not apply if (1) the plan ac-
tuary certifies that (i) the increase is paid
for out of additional contributions not al-
located to the plan as of the end of the
immediately preceding plan year, and (ii)
the plan’s funded percentage and projected
credit balances for the two plan years are
reasonably expected to be at least as high
as they would have been if the benefit in-
crease had not been adopted, or (2) the
amendment is required as a condition of
qualification under the Code or to comply
with other applicable law.
Q R–2. How does the restriction on
plan amendments under § 431(b)(8)(D)
apply if the special asset valuation rule in
§ 431(b)(8)(B) applies?
A R–2. If the special asset valua-
tion rule applies for a plan year (i.e.,the
plan’s asset valuation method for that
plan year is changed in accordance with
§ 431(b)(8)(B)), a plan amendment in-
creasing benefits may not go into effect
during either of the two plan years im-
mediately following that plan year unless
one of the two conditions in the following
paragraph are met.
The restriction inthe preceding para-
graph does not apply if (1) the plan ac-
tuary certifies that (i) the increase is paid
for out of additional contributions not al-
located to the plan as of the end of the
immediately preceding plan year, and (ii)
the plan’s funded percentage and projected
credit balances for the two plan years are
reasonably expected to be at least as high
as they would have been if the benefit in-
crease had not been adopted, or (2) the
amendment is required as a condition of
qualification under the Code or to comply
with other applicable law.
Q R–3. How does the effective date
provision of section 211(b)(2) of PRA
2010 affect the application of the re-
striction on plan amendments increasing
benefits?
A R–3. Under section 211(b)(2) of
PRA 2010, the restriction on plan amend-
ments increasing benefits is effective on
June 25, 2010, the date of the enactment
of PRA 2010. Thus, benefit increases
that went into effect before June 25, 2010,
are not subject to the restriction under
§ 431(b)(8)(D). Benefit increases that are
effective on or after June 25, 2010, are
subject to the restriction, even if adopted
before that date.
D. Decision to Apply the Special
Funding Rules
Q D–1. How must a decision to apply
either or both of the special funding rules
under § 431(b)(8) be made?
A D–1. A decision to apply either
or both of the special funding rules un-
der § 431(b)(8) with respect to a multiem-
ployer plan must be made as a formal de-
cision by the plan sponsor using its normal
procedures for making such decisions.
Q D–2. What is the deadline for a for-
mal decision to apply either or both of the
special funding rules?
A D–2. The deadline for a formal de-
cision to apply either or both of the spe-
cial funding rules with respect to a multi-
employer plan is the earliest of:
1) The deadline for certification of the
plan’s status under § 432(b)(3) for the first
plan year beginning on or after January 1,
2011,
2) The date of certification of the plan’s
status under § 432(b)(3) for the first plan
year beginning on or after January 1, 2011,
or
3) June 30, 2011.
However, if, as of the otherwise appli-
cable deadline, a plan sponsor has been un-
able to reach agreement as to whether to
apply either or both of the special funding
rules, and, before the otherwise applicable
deadline, formally decides to resolve the
issue through arbitration, then the deadline
is extended until 30 days after the resolu-
tion of the arbitration.
Q D–3. May a plan sponsor decide to
stop applying the special amortization rule
as of a future plan year?
A D–3. A plan sponsor may decide to
stop applying the special amortization rule
as of a plan year, provided that a formal de-
cision is made by the plan sponsor. If the
special amortization rule no longer applies,
then no new amortization bases are estab-
lished under Q&A A–3 (and any portion
of an eligible net investment loss recog-
nized in a subsequent year is taken into ac-
count under the regular rules of § 431(b)(2)
or (b)(3)). However, the annual charges
or credits to the funding standard account
with respect to any amortization base pre-
viously established are unaffected.
N – Notification to Participants, Ben-
eficiaries, and the PBGC
Q N–1. When must notice of the appli-
cation of the special funding rules be pro-
vided to participants and beneficiaries?
A N–1. If the special amortization rule
or special asset valuation rule, or both, ap-
ply with respect to a multiemployer plan,
the plan sponsor must give notice to par-
ticipants and beneficiaries that the special
rule (or rules) applies, within 30 days after
the deadline for the plan sponsor’s formal
decision to apply the special rule or rules.
Notice need be provided only once, even if
the special funding rules under § 431(b)(8)
apply for more than one plan year.
Q N–2. Which participants and benefi-
ciaries must receive the notice?
A N–2. Except as otherwise provided in
the following sentence, notice is required
to be provided to all plan participants and
beneficiaries. However, the notice does
not have to be provided to any person who
either became a plan participant or benefi-
ciary after the last day of the last plan year
ending before the notice is due or ceased to
be a participant or beneficiary prior to the
date on which the notice is provided.
Q N–3. What information must the no-
tice to participants and beneficiaries con-
tain?
A N–3. The notice must provide (1) the
name of the plan, along with the taxpayer
identification number and plan number for
the plan, (2) an explanation of which of the
special funding rules apply and the plan
year or years for which they apply, (3)
the effect of the application of the spe-
cial funding rules (i.e., the amortization
of losses beyond the otherwise applica-
ble 15-plan-year period and/or the recog-
2010–51 I.R.B.870December 20, 2010

nition of losses in the value of plan as-
sets over a period as long as 10 years), (4)
a general description of the effect of ap-
plying the special funding rules, includ-
ing the fact that applying the special rules
will decrease the amount of required min-
imum contributions that are taken into ac-
count in determining the appropriate con-
tribution rates under collective bargaining
agreements and may also affect the plan’s
status under § 432(b) for the current and
future plan years, (5) a statement that the
plan is not permitted to increase benefits
during the two plan years immediately fol-
lowing any plan year in which either or
both of the special funding rules apply, un-
less certain conditions are met, and (6) the
name, address, and telephone number of
the plan administrator or other contact per-
son from whom more information may be
obtained.
The notice must be written in a manner
calculated to be understood by the average
plan participant or beneficiary. In addition,
thenoticemustbewritteninsuchamanner
that the average participant or beneficiary
will understand the significance of the re-
quired information in the notice. While
the notice may include any additional in-
formation that is necessary or helpful for
recipients to understand the required in-
formation in the notice, the notice should
not have the effect of misleading or mis-
informing recipients or of distracting re-
cipients from the required information in
thenotice. Thenoticemustbeaseparate
notice and cannot be combined with other
information. However, the notice can be
provided at the same time as another no-
tice is provided; forexample, the notice
does not fail to meet the requirements of
this Q&A N–3 merely because it is pro-
vided at the same time as a notice under
section 101(f) of ERISA.
Q N–4. What are the acceptable meth-
ods of providing the required notice? In
particular, can the notice be provided elec-
tronically?
A N–4. The notice must be in writ-
ing and may be furnished in any paper or
electronic form to the extent such form
is reasonably accessible to persons to
whom the notice is required to be pro-
vided. Permissible electronic methods
include those permitted under regulations
of the Department of Labor at 29 C.F.R.
§ 2520.104b–1(c) and those described at
§ 54.4980F–1, Q&A–13(c).
Q N–5. How does a plan sponsor mak-
ing a formal decision to apply either or
both of the special funding rules comply
with the requirement to inform PBGC of
such application?
A N–5. The PBGC has informed the
Treasury Department and the Service
that the plan sponsor must provide the
PBGC with a copy of the notice provided
to participants and beneficiaries under
Q&A N–3, by the deadline described
in Q&A N–6. The notice must be pro-
vided by mail or e-mail. Hard copies of
the notice must be mailed to the Pension
Benefit Guaranty Corporation, ATTN:
Multiemployer Data Coordinator, 1200
K Street, NW, Suite 930, Washington,
DC 20005–4026. Electronic copies of the
notice must be e-mailed to the PBGC at
Multiemployerprogram@pbgc.gov.The
subject line of the e-mail, or the notice sent
by mail, must contain the plan’s taxpayer
identification number, plan number, and
thenameoftheplan.
Q N–6. What is the deadline for notify-
ing the PBGC?
A N–6. The plan sponsor must give no-
tice of the application of the special fund-
ing rules by the later of: (i) 30 days after
the date the plan sponsor makes a formal
decision to apply either or both of the spe-
cial funding rules, or (ii) January 18, 2011.
If the plan sponsor makes separate deci-
sions on different dates regarding which of
the special funding rules will apply, or the
plan years for which they apply, the plan
sponsor must send separate notices with
respect to each application of the special
funding rules. The deadline in this Q&A
N–6 also applies to any formal decision to
apply the special funding rules made prior
to the issuance of this notice.
C – Certification of Status under
§432
Q C–1. To what extent must the appli-
cation of the special funding rules under
§ 431(b)(8) be taken into account for pur-
poses of § 432?
A C–1. Once a formal decision to apply
either or both of the special funding rules
under § 431(b)(8) has been made, the ap-
plication of the special rules must be taken
into account in any contemporaneous or
subsequent certification of status required
under § 432(b)(3) and in any contempora-
neous or subsequent required adoption or
update of a funding improvement plan or
rehabilitation plan.
Q C–2. Is a plan sponsor permitted
to modify a funding improvement plan
or rehabilitation plan that was previously
adopted to take into account the appli-
cation of the special funding rules under
§ 431(b)(8)?
A C–2. A plan sponsor is permitted to
update a previously adopted funding im-
provement plan or rehabilitation plan to
take into account the application of the
special funding rules under § 431(b)(8),
even if an update is not otherwise required
under § 432.
Q C–3. If a multiemployer plan’s sta-
tus under § 432 for a plan year was already
certified before a plan sponsor’s formal de-
cision to apply either or both of the spe-
cial funding rules under § 431(b)(8), can
the plan’s status for the plan year be recer-
tified to take into account the application
of the special funding rules?
A C–3. Normally, a formal decision
to apply the special funding rules under
§ 431(b)(8) will be reflected in any certifi-
cations of a plan’s status under § 432(b)(3)
made after the formal decision. Thus, if a
formal decision to apply the special fund-
ing rules under § 431(b)(8) is made af-
ter the certification of a plan’s status un-
der § 432(b)(3) for a plan year, the ap-
plication of the special funding rules will
not be reflected in the certification of the
plan’s status until the following plan year.
However, the plan sponsor is permitted
to request that the plan actuary redeter-
mine the plan’s status under § 432(b)(3)
for a plan year, taking into account the
application of the special funding rules.
The redetermined status will be treated
as the certified status for the entire plan
year (including for purposes of the require-
ment to adopt or update a funding im-
provement or rehabilitation plan in that
plan year), provided that (1) a revised cer-
tification of the plan’s status for the plan
year is made and sent to the plan sponsor
and the Service before the end of the plan
year, (2) the revised certification otherwise
satisfies the requirements of § 432(b)(3),
(3) notice of the revised certification is
provided to participants and beneficiaries,
the bargaining parties, the PBGC, and the
Secretary of Labor within 30 days after
the revised certification is made, (4) any
measures previously taken that would not
be permitted pursuant to the plan’s sta-
tus under the revised certification (such as
restrictions on distributions as described
December 20, 20108712010–51 I.R.B.

in § 432(f)(2), reductions as described in
§ 432(e)(8) in benefits that are protected
under the anti-cutback rules of § 411(d)(6),
and the imposition of employer surcharges
under § 432(e)(7)) are reversed, and (5)
the plan actuary certifies that reversing the
measures described in clause (4) would not
cause the plan to fail to meet the solvency
test under § 431(b)(8)(C).
Q C–4. How does the effective date
provision of section 211(b)(1) of PRA
2010 affect the application of the special
funding rules for purposes of § 432 for the
first plan year beginning after August 31,
2008?
A C–4. Under section 211(b)(1) of PRA
2010, the application of the special funding
rules is disregarded for purposes of apply-
ing § 432 for the first plan year beginning
after August 31, 2008. Thus, application
of the special funding rules is not taken
into account in any certification of plan
status under § 432(b)(3) for that plan year
or the adoption or update of a funding im-
provement plan or rehabilitation plan for
that plan year.
F – Form 5500 Requirements
Q F–1. How should the effect of the ap-
plication of the special funding rules under
§ 431(b)(8) for a plan year be reported if
the plan sponsor decides to apply either or
both of the special funding rules for that
plan year and a Form 5500 and Schedule
MB were filed for the plan year that did not
reflect application of the special funding
rules, as permitted under Notice 2010–56?
A F–1. If a plan sponsor decides to ap-
ply either or both of the special funding
rules under § 431(b)(8) for a plan year after
the filing of a Form 5500 and Schedule MB
for that plan year that did not reflect appli-
cation of the special funding rules, as per-
mitted under Notice 2010–56, an amended
Form 5500 and Schedule MB for that plan
year are not required to be filed for that
plan year. Instead, the Schedule MB filed
for a subsequent plan year that is no later
than the plan year beginning in 2010 must
include an attachment showing how the in-
formation on a Schedule MB filed for any
previous plan year would have differed if
it had reflected application of the special
funding rules (to the extent applicable) for
any such previous plan year. The attach-
ment already described in the instructions
for Line 9f of the Schedule MB is an appro-
priate means for providing an explanation
of this difference.
Q F–2. How should the effect of the ap-
plication of the special funding rules under
§ 431(b)(8) for a plan year be reported if
the plan sponsor decided to apply either or
both of the special funding rules for that
plan year and a Form 5500 and Schedule
MB were filed for that plan year that re-
flected application of the special funding
rules, but the calculations were different
from the calculations required by this no-
tice?
A F–2. If a plan sponsor decided to ap-
ply either or both of the special funding
rules under § 431(b)(8) for a plan year and
a Form 5500 and Schedule MB were filed
for that plan year that reflected application
of the special funding rules, but the cal-
culations were different from the calcula-
tions required by this notice, an amended
Form 5500 and Schedule MB are not re-
quired to be filed for that plan year. In-
stead, the Schedule MB filed for a subse-
quent plan year that is no later than the plan
year beginning in 2010 must include an at-
tachment showing how the information on
a Schedule MB filed for any previous plan
year would have differed if it had reflected
application of the special funding rules (to
the extent applicable) in accordance with
this notice for any such previous plan year.
The attachment already described in the in-
structions for Line 9f of the Schedule MB
is an appropriate means for providing an
explanation of this difference.
Q F–3. As an alternative to Q&A F–1 or
Q&A F–2, if the special funding rules un-
der § 431(b)(8) apply to a plan for which
a Form 5500 and Schedule MB have al-
ready been filed as described in Q&A F–1
or Q&A F–2, may an amended Form 5500
with a revised Schedule MB be filed?
A F–3. As an alternative to Q&A F–1 or
Q&A F–2, if the special funding rules un-
der § 431(b)(8) apply to a plan for which
a Form 5500 and Schedule MB have al-
ready been filed as described in Q&A F–1
or Q&A F–2, an amended Form 5500 with
a revised Schedule MB showing corrected
information for a previous plan year may
be filed.
IV. PAPERWORK REDUCTION ACT
The collections of information con-
tained in this notice have been approved
by the Office of Management and Budget
in accordance with the Paperwork Reduc-
tion Act of 1995 (44 U.S.C. § 3507) under
control number 1545–2196.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in this
notice are in section III. The information
is required in order to determine the ap-
plication of the special funding rules un-
der § 431(b)(8) and to provide the required
notice of the decision to apply the special
funding rules. The collections of infor-
mation are mandatory for those plan spon-
sors who decide to use the special funding
rules. The likely respondents are sponsors
of multiemployer defined benefit plans.
The estimated total number of respondents
for 2010 and 2011 is 1,500.
The estimated annual burden per re-
spondent varies from 45 minutes to 65
minutes, depending on individual circum-
stances, with an estimated average of 55
minutes.
The estimated total annual reporting
and/or recordkeeping burden is 1,375
hours.
Estimates of the annualized cost to re-
spondents for the hour burdens shown are
not available at this time.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by § 6103.
V. DRAFTING INFORMATION
The principal authors of this notice are
Adrien LaBombarde and Yaguo Zhang of
the Employee Plans, Tax Exempt and Gov-
ernment Entities Division. Questions re-
garding this notice may be sent via e-mail
toRetirementPlanQuestions@irs.gov.
Guidance on In-Plan Roth
Rollovers
Notice 2010–84
I. PURPOSE
This notice provides guidance under
§ 402A(c)(4) of the Internal Revenue
Code, relating to rollovers from § 401(k)
2010–51 I.R.B.872December 20, 2010

plans to designated Roth accounts in the
same plan (“in-plan Roth rollovers”), as
added by § 2112 of the Small Business
Jobs Act of 2010 (“SBJA”), P.L. 111–240.
The guidance in this notice also generally
applies to rollovers from § 403(b) plans
to designated Roth accounts in the same
plan.
II. BACKGROUND
Section 402A of the Code sets forth
the rules for designated Roth contribu-
tions. A designated Roth contribution is
an elective deferral that would otherwise
be excludable from gross income but that
has been designated by the plan partici-
pant who elects the deferral as not being
so excludable. An employee’s designated
Roth contributions and attributable earn-
ings must be maintained by the plan in
a separate account (a designated Roth
account). A qualified distribution, as de-
finedin§402A(d)(2),fromanemployee’s
designated Roth account is excludable
from gross income. A distribution from an
employee’s designated Roth account that
is not a qualified distribution is includible
in gross income pursuant to § 72 in pro-
portion to the employee’s investment in
the contract (basis) and earnings on the
contract.
Section 408A of the Code sets forth the
rules for Roth IRAs. A Roth IRA is a type
of IRA under which contributions are not
deductible from the owner’s gross income
and qualified distributions, as defined in
§ 408A(d)(2), are excludable from gross
income. Section 408A(d)(4) prescribes a
special ordering rule for distributions from
aRothIRA.
Section 408A(d)(3)(A) of the Code pro-
vides that, generally, the taxable amount
of a rollover or conversion to a Roth IRA
is includible in gross income as if it were
not rolled over or converted. For taxable
years beginning in 2010 only, however, the
taxable amount of a rollover or a conver-
sion to a Roth IRA that would otherwise be
includible in gross income for the taxable
year beginning in 2010 is includible half in
the taxable year beginning in 2011 and half
in the taxable year beginning in 2012, un-
less the taxpayer elects to include the entire
taxable amount in the taxable year begin-
ning in 2010.
Section 408A(d)(3)(D) of the Code
provides for such additional reporting “as
the Secretary may require to ensure that
amountsrequiredtobeincludedingross
income under [§ 408A(d)(3)(A)] are so
included.”
Under section 408A(d)(3)(E) of the
Code, in the case of a taxpayer who is
deferring income inclusion of the taxable
amount of a rollover to a Roth IRA made
in the taxpayer’s taxable year beginning in
2010, the taxpayer’s gross income for the
taxable year beginning in 2010 or 2011 is
increased by the amount of any distribu-
tion in such year from the Roth IRA that
is allocable to the taxable amount of the
rollover.
Section 408A(d)(3)(F) of the Code pro-
vides that any distribution from a Roth
IRA that is allocable to the taxable amount
of a rollover to the Roth IRA (other than
from another Roth IRA or a designated
Roth account) made within the preceding
5 taxable years is treated as includible in
gross income for purposes of applying the
10% additional tax under § 72(t). The
5-year recapture rule also applies if the
rollover to the Roth IRA is from a des-
ignated Roth account and the distribution
is allocable to the taxable amount of an
in-plan Roth rollover made within the pre-
ceding 5 years. (SeeQ&A–12 of this no-
tice.)
Section2112ofSBJAadds
§ 402A(c)(4) to the Code, effective for
distributions made after September 27,
2010, to permit plans that include a qual-
ified Roth contribution program to allow
individuals to roll over amounts from
their accounts other than designated Roth
accounts to their designated Roth accounts
in the plan. Currently, only § 401(k) plans
and § 403(b) plans are permitted to include
qualified Roth contribution programs. For
taxable years beginning after 2010, § 2111
of SBJA permits governmental § 457(b)
plans to include designated Roth accounts.
Section 402A(c)(4)(A) of the Code
provides that any distribution described in
§ 402A(c)(4) is included in gross income
as if it were not rolled over to a designated
Roth account. However, for such distri-
butions made in taxable years beginning
in 2010, unless the individual elects to
include the taxable amount of the distribu-
tion in gross income for the taxable year
beginning in 2010, the taxable amount of
the distribution is includible half in the
taxable year beginning in 2011 and half in
the taxable year beginning in 2012.
Section 402A(c)(4)(B) of the Code pro-
vides that in-plan Roth rollovers of eli-
gible rollover distributions may only be
made within a plan containing a qualified
Roth contribution program from accounts
other than designated Roth accounts and
only if the otherwise applicable rollover
requirements of §§ 402(c), 403(b)(8) and
457(e)(16) are satisfied.
Section 402A(c)(4)(D) of the Code
provides that the rules of § 408A(d)(3)(D),
(E), and (F) apply for purposes of
§ 402A(c)(4).
The Joint Committee on Taxation’s
Technical Explanation of H.R. 5297,
which became SBJA, states that an em-
ployer may add new, permissible distribu-
tion options to a plan that are conditioned
on the employee directly rolling over the
distribution to his or her designated Roth
account under the plan. (JCX–47–10,
September 16, 2010, at page 42.)
III. GUIDANCE
Q–1. What is an “in-plan Roth
rollover”?
A–1. An “in-plan Roth rollover” is
a distribution from an individual’s plan
account, other than a designated Roth
account, that is rolled over to the individ-
ual’s designated Roth account in the same
plan, pursuant to new § 402A(c)(4) of the
Code. The rollover may be accomplished
by a direct rollover (an “in-plan Roth
direct rollover”) or by a distribution of
funds to the individual who then rolls over
the funds into his or her designated Roth
account in the plan within 60 days (an
“in-plan Roth 60-dayrollover”). Section
402A(c)(4) applies to distributions made
after September 27, 2010.
Q–2. What amounts are eligible for
in-plan Roth rollovers?
A–2. Any vested amount held in a
plan account for a plan participant (other
than an amount held in a designated Roth
account) is eligible for an in-plan Roth
rollover to a designated Roth account in
the same plan. However, an amount is not
eligible for an in-plan Roth rollover unless
it satisfies the rules for distribution under
the Code and is an eligible rollover distri-
bution as defined in § 402(c)(4). Thus, in
the case of a § 401(k) plan participant who
has not had a severance from employment,
an in-plan Roth rollover from the partic-
ipant’s pre-tax elective deferral account is
December 20, 20108732010–51 I.R.B.

permitted to be made only if the participant
has reached age 59
1
/2, has died or become
disabled, or receives a qualified reservist
distribution as defined in § 72(t)(2)(G)(iii).
See Rev. Rul. 2004–12, 2004–1 C.B.
478, for a discussion of the various dis-
tribution timing restrictions applicable to
amounts held in a plan. An amount is el-
igible for an in-plan Roth rollover only if
the plan provides for such rollovers. But
see Q&As–15 through –20 of this notice,
permitting retroactive amendments for this
purpose.
Q–3. Is an in-plan Roth direct rollover
treated as a distribution for all purposes?
A–3. No. Because an in-plan Roth di-
rect rollover merely changes the account in
aplanunderwhichanamountisheldand
the tax character of the amount, a distribu-
tion that is rolled over in an in-plan Roth
direct rollover is not treated as a distribu-
tion for the following purposes:
(a)Section72(p)(relatingtoplan
loans). A plan loan transferred in an
in-plan Roth direct rollover without chang-
ing the repayment schedule is not treated
as a new loan (so the rule in § 1.72(p)–1,
Q&A–20, of the Income Tax Regulations
does not apply).
(b)Section 401(a)(11) (relating to
spousal annuities). A married plan par-
ticipant is not required to obtain spousal
consent in connection with an election to
make an in-plan Roth direct rollover.
(c)Section 411(a)(11) (relating to par-
ticipant consent before an immediate dis-
tribution of an accrued benefit in excess of
$5,000). The amount rolled over contin-
ues to be taken into account in determin-
ing whether the participant’s accrued ben-
efit exceeds $5,000, and a notice of the par-
ticipant’s right to defer receipt of the distri-
bution is not triggered by the in-plan Roth
direct rollover.
(d)Section 411(d)(6)(B)(ii) (relating to
elimination of optional forms of benefit).
A participant who had a distribution right
(suchasarighttoanimmediatedistribu-
tion of the amount rolled over) prior to the
rollover cannot have this right eliminated
through an in-plan Roth direct rollover.
Q–4. Can a plan add an in-plan Roth
direct rollover option for amounts that are
not otherwise distributable under the terms
of the plan but that would be permitted to
be distributed under the Code if the plan so
provided?
A–4. Yes. A plan may be amended
to add an in-plan Roth direct rollover
option for amounts that are permitted to
be distributed under the Code but that
have not been distributable under more
restrictive terms contained in the plan.
Moreover, such an amendment is not re-
quired to permit any other rollover or
distribution option for these amounts. For
example, a plan that does not currently
allow for in-service distributions from a
participant’s pre-tax elective deferral ac-
count may be amended to permit in-plan
Roth direct rollovers from this account by
participants who have attained age 59
1
/2,
while not otherwise permitting distribu-
tion of these amounts. (However, a plan
amendment imposing such a restriction on
a pre-existing distribution option would
violate § 411(d)(6).)
Q–5. Must a plan that offers in-plan
Roth rollovers include a description of this
feature in the written explanation the plan
provides pursuant to § 402(f) to an individ-
ual receiving an eligible rollover distribu-
tion?
A–5. Yes. For example, if the plan
administrator generally bases its expla-
nation under § 402(f) on the safe harbor
explanation published in Notice 2009–68,
2009–39 I.R.B. 423, the safe harbor expla-
nation for payments not from a designated
Roth account could be revised by adding
a new section in the “SPECIAL RULES
AND OPTIONS” portion of the explana-
tion that describes the consequences if the
distributee were to roll over a payment to a
designated Roth account in the same plan,
including the following information:
•If the distributee rolls over the pay-
ment to a designated Roth account in
the plan, the amount of the payment
rolled over (reduced by any after-tax
amounts directly rolled over) will be
taxed. However, the 10% additional
tax on early distributions will not ap-
ply (unless the distributee takes the
amount rolled over out of the desig-
nated Roth account within the 5-year
period that begins on January 1 of the
year of the rollover). For payments
from the plan in 2010 that are rolled
over to a designated Roth account in
the plan (and that are not distributed
from that account until after 2011), the
taxable amount of the rollover will be
taxed half in 2011 and half in 2012, un-
less the distributee elects to be taxed in
2010.
•If the distributee rolls over the pay-
ment to a designated Roth account
in the plan, later payments from the
designated Roth account that are qual-
ified distributions will not be taxed
(including earnings after the rollover).
A qualified distribution from a desig-
nated Roth account is a payment made
both after the distributee attains age
59
1
/2(or after the distributee’s death
or disability) and after the distributee
has had a designated Roth account
in the plan for a period of at least 5
years. The 5-year period described
in the preceding sentence begins on
January 1 of the year the distributee’s
first contribution was made to the des-
ignated Roth account. However, if the
distributee made a direct rollover to a
designated Roth account in the plan
from a designated Roth account in a
plan of another employer, the 5-year
period begins on January 1 of the year
the distributee’s first contribution was
made to the designated Roth account
in the plan or, if earlier, to the desig-
nated Roth account in the plan of the
other employer. Payments from the
designated Roth account that are not
qualified distributions will be taxed to
the extent allocable to earnings after
the rollover, including the 10% addi-
tional tax on early distributions (unless
an exception applies).
The section in the safe harbor explana-
tion on payments to a Roth IRA would also
need to be revised to reflect that rollovers
to the plan’s designated Roth account are
permitted. Further, for an in-plan Roth di-
rect rollover for in which other distribution
alternatives are not available, the safe har-
bor explanation would need to be revised
to reflect the inapplicability of information
in the explanation about other distribution
alternatives.
Q–6. If a participant elects an in-plan
Roth rollover, can he or she later unwind
the in-plan Roth rollover, as can be done
withrolloverstoRothIRAs?
A–6. No. The recharacterization rule in
§ 408A(d)(6) applies only to contributions
to IRAs.
Q–7. What are the tax consequences of
an in-plan Roth rollover?
2010–51 I.R.B.874December 20, 2010

A–7. The taxable amount of the in-plan
Roth rollover must be included in the
participant’s gross income. The taxable
amount of an in-plan Roth rollover is the
amount that would be includible in a par-
ticipant’s gross income if the rollover were
made to a Roth IRA. This amount is equal
to the fair market value of the distribution
reduced by any basis the participant has
in the distribution. (See Notice 2009–75,
2009–35 I.R.B. 436.) Thus, if the dis-
tribution includes employer securities
attributable to employee contributions, the
fair market value includes any net unre-
alized appreciation within the meaning
of § 402(e)(4). If an outstanding loan is
rolled over in an in-plan Roth rollover, the
amount includible in gross income is the
balance of the loan.
Q–8. Are in-plan Roth direct rollovers
subject to 20% mandatory withholding?
A–8. No, 20% mandatory withhold-
ing under § 3405(c) does not apply to an
in-plan Roth direct rollover. However,
a participant electing an in-plan Roth
rollover may have to increase his or her
withholding or make estimated tax pay-
ments to avoid an underpayment penalty.
See Publication 505,Tax Withholding and
Estimated Tax.
Q–9. When is the taxable amount of
an in-plan Roth rollover includible in gross
income?
A–9. Generally, the taxable amount of
a distribution that an individual rolls over
in an in-plan Roth rollover is includible in
gross income in the taxable year in which
the distribution occurs.
Q–10. Is there an exception to the gen-
eral rule regarding the year of income in-
clusion for in-plan Roth rollovers made in
2010?
A–10. Yes. For distributions made
in 2010 that are rolled over in an in-plan
Roth rollover, the taxable amount is in-
cludible in gross income half in 2011 and
half in 2012 unless the individual elects
to include the taxable amount in gross in-
come in 2010 (or unless the special rules
described in Q&A–11 of this notice ap-
ply). An individual’s election of 2010 in-
come inclusion may not be changed after
the due date (including extensions) for fil-
ing the individual’s 2010 income tax re-
turn. The election applies to all of an indi-
vidual’s 2010 distributions that are rolled
over in an in-plan Roth rollover. The elec-
tion is independent of any election made
with respect to qualified rollover contribu-
tions (as defined in § 408A(e)) to a Roth
IRA from either a non-Roth IRA or a plan
account other than a designated Roth ac-
count. The rules in this Q&A–10 and in
Q&A–11 relating to the years 2010, 2011
and 2012 apply to calendar-year taxpayers;
parallel rules apply to taxable years begin-
ning in 2010, 2011 and 2012 for individu-
als who are not calendar-year taxpayers.
Q–11. If a plan participant is deferring,
to 2011 and 2012, inclusion in income of
the taxable amount from a 2010 in-plan
Roth rollover, are there any special income
acceleration rules for distributions alloca-
ble to the 2010 in-plan Roth rollover?
A–11.Yes, pursuant to
§§ 402A(c)(4)(D) and 408A(d)(3)(E),
if the participant receives a distribution
of an amount in 2010 or 2011 allocable
to the taxable amount of a 2010 in-plan
Roth rollover that would otherwise not be
includible in gross income until 2011 and
2012, then the participant’s gross income
for the year of the distribution is increased
by the amount of the distribution that
would otherwise not be includible in
gross income until a later year. In such
a case, the amount that would otherwise
be includible in the participant’s gross
income in 2012 is reduced by the income
accelerated. Also, if the distribution is
made in 2010, the amount that would
otherwise be includible in the participant’s
gross income in 2011 is reduced by the
amount the income accelerated to 2010
exceeds the amount that would otherwise
be includible in income in 2012.
For example, if a participant makes an
in-plan Roth rollover in 2010 with the tax-
able amount of the rollover, $8,000, be-
ing deferred to 2011 and 2012 and then
takes a distribution in 2010 or 2011 from
the designated Roth account that consists
of $5,000 allocable tothe taxable amount
of the 2010 in-plan Roth rollover, then the
participant’s gross income for the year of
the distribution must be increased by the
taxable amount of the rollover that would
otherwise be deferred to a later year. If this
distribution occurred in 2010, the $5,000 is
included in the participant’s 2010 gross in-
come and the remaining taxable amount of
the 2010 in-plan Roth rollover, $3,000, is
included in the participant’s 2011 gross in-
come.
The income acceleration rule in this
Q&A–11 does not apply to a distribution
that is rolled over to another designated
Roth account of the participant or to a
Roth IRA owned by the participant; how-
ever, the rule does apply to subsequent
distributions made from such other desig-
nated Roth account or Roth IRA in 2010
or 2011. For purposes of this Q&A–11,
the rules in §§ 1.408A–4, Q&A–11, and
1.408A–6, Q&A–6, on income accelera-
tion (as modified by substituting the 2-year
spread under § 2112 of SBJA for the 4-year
spread in the regulations under § 408A of
the Code) also apply. See Q&A–13 of this
notice for rules on allocating distributions
to in-plan Roth rollovers.
Q–12. Are there any special rules re-
lating to the application of the 10% addi-
tional tax under § 72(t) for distributions al-
locable to the taxableamount of an in-plan
Roth rollover made within the preceding 5
years?
A–12.Yes, pursuant to
§§ 402A(c)(4)(D) and 408A(d)(3)(F),
if an amount allocable to the taxable
amount of an in-plan Roth rollover is
distributed within the 5-taxable-year
period beginning with the first day of the
participant’s taxable year in which the
rollover was made, the amount distributed
is treated as includible in gross income
for the purpose of applying § 72(t) to the
distribution. The 5-taxable-year period
ends on the last day of the participant’s
fifth taxable year inthe period. Thus, if
a participant withdraws an amount that
includes $6,000 allocable to the taxable
amount of an in-plan Roth rollover made
within the preceding 5 years, the $6,000
is treated as includible in the participant’s
gross income for purposes of applying
§ 72(t) to the distribution. In such a case,
the participant would owe an additional
tax of $600 unless an exception under
§ 72(t)(2) applies. The 5-year recapture
rule in this Q&A–12 does not apply to a
distribution that is rolled over to another
designated Roth account of the participant
or to a Roth IRA owned by the partic-
ipant; however, the rule does apply to
subsequent distributions made from such
other designated Roth account or Roth
IRA within the 5-taxable-year period. For
purposes of this Q&A–12, the rules in
§ 1.408A–6, Q&A–5, on the application
of § 72(t) also apply. See Q&A–13 of this
notice for rules on allocating distributions
to the taxable amount of in-plan Roth
rollovers.
December 20, 20108752010–51 I.R.B.

Q–13. How is an amount distributed
from a plan allocated to the taxable amount
of an in-plan Roth rollover for purposes of
Q&As–11 and –12 of this notice?
A–13. Solely for purposes of the in-
come acceleration rule in Q&A–11 and
the 5-year recapture rule in Q&A–12,
an amount distributed that, under the
terms of the plan, is paid from a sepa-
rate account maintained solely for in-plan
Roth rollovers (an in-plan Roth rollover
account) is treated as attributable to an
in-plan Roth rollover to the extent the
amount distributed constitutes recovery of
basis determined under the rules of § 72
and § 1.402A–1, Q&A–9.
Any amount distributed from a desig-
nated Roth account that, under the terms
of the plan is not paid from an in-plan Roth
rollover account, is treated as attributable
to an in-plan Roth rollover to the extent
the portion of the distribution that repre-
sents a recovery of basis under the rules of
§ 72 and § 1.402A–1, Q&A–9, exceeds the
basis in the designated Roth account other
than the basis resulting from in-plan Roth
rollovers.
If an amount distributed is treated as
attributable to an in-plan Roth rollover,
then the rules of § 408A(d)(4)(B)(ii)(II)
and the last sentence of § 408A(d)(4) ap-
ply. Thus, a distribution is attributed to an
in-plan Roth rollover on a first-in-first-out
basis and any amount attributed to such
a rollover is allocated first to the taxable
amount of the rollover.
Example.
In 2010, Participant P, age 45, makes a $100,000
in-plan Roth direct rollover from his profit-sharing
account and defers the inclusion of the $90,000
taxable amount of the rollover to 2011 and 2012
($45,000 in 2011 and $45,000 in 2012). At the time
of the in-plan Roth direct rollover, P’s designated
Roth account contains $78,000 of regular Roth con-
tributions and $25,000 of earnings. Since this is an
in-plan Roth direct rollover, the rollover amount is
separately accounted for within the designated Roth
account. Later in 2010, P takes a $106,000 in-service
withdrawal from his designated Roth account. The
source can only be the in-plan Roth rollover account,
since P is under age 59
1
/2, which is the earliest the
plan allows in-service distributions of elective defer-
rals from a designated Roth account. At the time of
the distribution, P’s designated Roth account consists
of:
I
n-PlanRothRolloverAccount:
In-plan Rot
hrollovercontributions($10,000basis).......................
$100,000
Earnings.........................................................
$
6,000
Total.................................
$106,000
R
egularRo
thAccount:
RegularRothcontributions..........................................
$80,000
Earnings.........................................................
$
24,000
Total.................................
$104,000
TotalindesignatedRothaccount................................................................
$210,000
Under thepro-ratarules of § 72, of the $106,000
distribution, $106,000 x 30,000/210,000, or $15,143,
is includible in P’s gross income. All of the $90,857
of the distribution that is a return of basis is allocated
to the in-plan Roth rollover account. P is subject to
the additional 10% tax under § 72(t) on $105,143 (the
$90,000 taxable amount of the in-plan Roth rollover
under the 5-year recapture rule plus $15,143 that is in-
cludible in P’s gross income under thepro-ratarules
of § 72). Also, the entire $90,000 taxable amount of
the in-plan Roth rollover is includible in P’s gross in-
come for 2010 (rather than being includible in gross
income half in 2011 and half in 2012).
Since the amount of the in-plan Roth rollover was
$100,000, there is $9,143 that may still be allocated to
the rollover. This will be reported on a Form 1099-R,
Distributions From Pensions, Annuities, Retirement
or Profit-Sharing Plans, IRAs, Insurance Contracts,
etc., by the trustee if another distribution within 5
years is allocable to this rollover, but none of it will
be subject to § 72(t) under the 5-year recapture rule
because all the taxable amount of the in-plan Roth
rollover has been used up.
If P were eligible for a distribution from his regu-
lar Roth account within his designated Roth account,
he could have withdrawn $93,333 and none of it
would be allocable to the in-plan Roth rollover (be-
cause, of the $93,333 distribution, $80,000 is a return
of basis and that would be absorbed by the $80,000
basis in P’s regular Roth account). If P withdrew
more than $93,333, some would be allocated to the
taxable amount of the in-plan Roth rollover even if P
asked that the distribution be made from his regular
Roth account.
Q–14. Is a beneficiary or alternate
payee eligible to elect an in-plan Roth
rollover?
A–14. An in-plan Roth rollover can be
elected by a beneficiary only if he or she
is a surviving spouse and by an alternate
payee only if he or she is a spouse or for-
mer spouse. This is because in-plan Roth
rollovers can only be elected with respect
to distributions that are eligible rollover
distributions as defined in § 402(c)(4) that
can be rolled over to § 401(k) plans. Sec-
tion 402(c)(4) definesan eligible rollover
distribution as any of certain distributions
“to an employee.” Section 402(c)(9) and
§ 402(e)(1)(B) provide that a spousal ben-
eficiary, and an alternate payee who is
a spouse or former spouse, is treated as
the employee for purposes of § 402(c)(4).
(While § 402(c)(11) permits a non-spouse
beneficiary to elect rollover treatment of
certain amounts, that provision does not
apply to rollovers to qualified plans.)
Q–15. Is a plan amendment providing
for in-plan Roth rollovers in a § 401(k)
plan required to be adopted by the end of
the 2010 plan year?
A–15. No. Under section 5.02 of Rev.
Proc. 2007–44, 2007–2 C.B. 54, which
sets forth certain deadlines for adopting
amendments to qualified plans, a plan
amendment that provides for in-plan Roth
rollovers is a discretionary amendment
and ordinarily the amendment would have
to be adopted by the last day of the plan
year in which the amendment is effective.
However, to give plan sponsors suffi-
cient time to adopt plan amendments and
thereby enable plan participants to make
in-plan Roth rollovers before the end of the
2010 plan year, the Service is extending
the deadline for adopting a plan amend-
ment described in Q&A–17 (including
amendments to provide for in-plan Roth
rollovers in a § 401(k) plan) to the later of
the last day of the plan year in which the
amendment is effective or December 31,
2011, provided that the amendment is ef-
fective as of the date the plan first operates
in accordance with the amendment.
2010–51 I.R.B.876December 20, 2010

Q–16. What is the deadline for adopt-
ing a plan amendment providing for
in-plan Roth rollovers in a § 403(b) plan?
A–16.Announcement 2009–89,
2009–52 I.R.B. 1009, provides that
if an employer adopts, on or before
December 31, 2009 (or, if later, the date
the plan is established) a written § 403(b)
plan intended to satisfy the requirements of
§ 403(b) and the regulations, the employer
will have a remedial amendment period
in which to amend the plan to correct
any form defects retroactive to January 1,
2010 (or the date the plan is established),
provided that the employer subsequently
adopts a pre-approved plan that has
received a favorable opinion letter from
the Service or applies for an individual
determination letter, under forthcoming
procedures. In this case, the employer will
have reliance that the form of its written
plan satisfies the requirements of § 403(b)
and the regulations, provided that, during
the remedial amendment period, the plan is
amended to correct any defects retroactive
to January 1, 2010 (or the date the plan is
established). In the case of a § 403(b) plan
that has a remedial amendment period
pursuant to Announcement 2009–89, a
plan amendment described in Q&A–17
(including a plan amendment providing
for in-plan Roth rollovers) is not required
to be adopted before the later of the end
of that remedial amendment period or the
last day of the first plan year in which
the amendment is effective, provided the
amendment is effective as of the date the
plan first operates in accordance with the
amendment.
Q–17. What plan amendments does
the extension of time under Q&A–15 or
Q&A–16 apply to?
A–17. The extension of time to adopt
a plan amendment under Q&A–15 or
Q&A–16 applies to any plan amendment
that is adopted pursuant to § 2112 of SBJA.
Thus, for example, if a § 401(k) plan or a
§ 403(b) plan is amended to permit in-plan
Roth rollovers, the applicable extension of
time under Q&A–15 or Q&A–16 applies
to a plan amendment that permits elective
deferrals under the plan to be designated
as Roth contributions, a plan amend-
ment that provides for the acceptance of
rollover contributions by the designated
Roth account, and the plan amendment
that permits in-plan Roth rollovers, in-
cluding a plan amendment described in
Q&A–4. However, the extension of time
to adopt a plan amendment does not apply
to a plan amendment that adds a § 401(k)
cash or deferred arrangement to the plan.
See § 1.401(k)–1(a)(3)(iii)(A).
Q–18. Does the extension of time de-
scribed in Q&As–15 through –17 of this
notice apply to § 401(k) safe harbor plans
described in § 401(k)(12) or (13)?
A–18. Yes, however, instead of the
extension being to the later of the last day
of the plan year in which the amendment
is effective or December 31, 2011, the
extension for a § 401(k) safe harbor plan
described in § 401(k)(12) or (13) is to
the later of December 31, 2011, or the
time specified in § 1.401(k)–3(e)(1) (re-
quiring, generally, that safe harbor plan
provisions be adopted before the first day
of the plan year in which they are ef-
fective). Thus, for example, a § 401(k)
safe harbor plan with a plan year begin-
ning July 1 may operationally comply
with§2112ofSBJAduringtheplanyear
beginning July 1, 2010 (for distributions
made after September 27, 2010) and the
plan year beginning July 1, 2011, without
having to be amended for such change in
operation until December 31, 2011.
Q–19. Must a plan have a qualified
Roth contribution program in place at the
time a rollover contribution to a designated
Roth account is made in an in-plan Roth
rollover?
A–19. Yes. Thus, for participants to
be eligible for the 2-year income deferral
described in Q&A–10 of this notice, the
distribution must be made no later than
December 31, 2010, and, at the time of
the rollover contribution to the designated
Roth account, the plan must have a quali-
fied Roth contribution program in place.
Q–20. For purposes of Q&A–19 of this
notice, when is a qualified Roth contribu-
tion program in place?
A–20. Although, pursuant to Q&As–15
through –18 of this notice, a plan may be
amended retroactively to add a qualified
Roth contribution program, such a pro-
gram is in place on a given date only if,
with respect to compensation that could be
deferred beginning with that date, eligi-
ble employees are given an opportunity to
elect on that date to have designated Roth
contributions made to the plan (or would
have such an opportunity but for a statu-
tory or plan limitation on the amount of an
employee’s elective deferrals).
DRAFTING INFORMATION
The principal author of this notice
is Roger Kuehnle of the Employee
Plans, Tax Exempt and Government
Entities Division. Questions regarding
this notice may be sent via e-mail to
RetirementPlanQuestions@irs.gov.
Undue Hardship Waiver of the
Section 6011(e)(3) Electronic
Filing Requirement and
Taxpayer Choice Statements
to File in Paper Format
Notice 2010–85
PURPOSE
This notice contains a proposed rev-
enue procedure that provides guidance to
specified tax return preparers regarding the
format and content of requests for waiver
of the magnetic media(electronic) filing
requirement due to undue hardship, under
section 6011(e)(3) of the Internal Revenue
Code and proposed § 301.6011–6 of the
Regulations on Procedure and Adminis-
tration (26 CFR Part 301), which is being
published contemporaneously with this
notice. The proposed revenue procedure
also provides guidance regarding the time
and manner in which specified tax return
preparers who seek an undue hardship
waiver of the electronic filing require-
ment must submit their written requests
for consideration by the IRS. Finally,
the proposed revenue procedure provides
guidance to tax return preparers, specified
tax return preparers, and taxpayers regard-
ing how to document a taxpayer’s choice
to file the taxpayer’s individual income
tax return in paper format when the return
is prepared by a tax return preparer or
specified tax return preparer but filed by
the taxpayer.
Proposed § 301.6011–6 implements the
requirement under newly enacted section
6011(e)(3) that all specified tax return pre-
parers, generally tax return preparers who
reasonably expect to file (if the preparer is
a member of a firm, whose firm’s members
in the aggregate reasonably expect to file)
more than 10 individual income tax returns
in a calendar year, electronically file all in-
dividual income tax returns they prepare
December 20, 20108772010–51 I.R.B.

and file. To promote the effective and ef-
ficient administration of the electronic fil-
ing requirement in section 6011(e)(3), pro-
posed § 301.6011–6(a)(3) provides a tran-
sition rule for 2011, based upon the num-
ber of individual income tax returns a tax
return preparer reasonably expects (if the
preparer is a member of a firm, the pre-
parer’s firm members in the aggregate rea-
sonably expect) to file, to permit the IRS
and affected tax return preparers sufficient
time to prepare for and implement the re-
quirement of section 6011(e)(3) and pro-
posed § 301.6011–6. Beginning January 1,
2011, tax return preparers who reasonably
expect to file (if a preparer is a member of
a firm, the firm’s members in the aggre-
gate reasonably expect to file) 100 or more
individual income tax returns in calendar
year 2011 are specified tax return prepar-
ers who are subject tothese regulations in
2011. Beginning January 1, 2012, tax re-
turn preparers who reasonably expect to
file (if a preparer is a member of a firm,
the firm’s members in the aggregate rea-
sonably expect to file) 11 or more individ-
ual income tax returns in a calendar year
are specified tax return preparers who are
subject to these regulations for that calen-
dar year.
Proposed § 301.6011–6(c)(1) autho-
rizes the IRS to grant to a specified tax
return preparer a waiver of this require-
ment in the case of undue hardship upon
application by the specified tax return pre-
parer consistent with instructions provided
in additional published guidance and as
prescribed in relevant forms and instruc-
tions. Proposed § 301.6011–6(a)(4)(ii)
also provides that a specified tax return
preparer is not required to electronically
file individual income tax returns that
taxpayers choose to file in paper format
and which the taxpayers file with the IRS
themselves, and that the IRS may pro-
vide guidance through forms, instructions,
or other appropriate guidance regarding
how a preparer can document a taxpayer’s
choice to file in paper format. The pro-
posed revenue procedure provides such
additional guidance regarding undue hard-
ship waiver requests and regarding how
the preparer can document a taxpayer’s
choice to file individual income tax returns
in paper format.
The IRS requests comments on this pro-
posed revenue procedure. In particular, the
IRS requests comments regarding the pro-
cedures and methods for how a specified
tax return preparer can request and obtain
an undue hardship waiver, the proposed
time period for making an undue hardship
waiver request, and the elements required
to be provided in an undue hardship waiver
request, as well as comments on the Pa-
perwork Reduction Act burden estimates
contained in Section 11 of the proposed
revenue procedure. The IRS also requests
comments on the proposed procedures for
how a preparer can document a taxpayer’s
choice to file an individual income tax
return in paper format. The comments
should address procedures or mechanisms
intended to make the proposed revenue
procedure more efficient or functional.
Interested parties are invited to submit
comments on this notice by January 3,
2011. Comments should be submitted to:
Internal Revenue Service, CC:PA:LPD:PR
(Notice 2010–85), Room 5205, P.O. Box
7604, Ben Franklin Station, Washing-
ton, DC 20224. Alternatively, comments
may be hand-delivered Monday through
Friday between the hours of 8:00 a.m.
to 4:00 p.m. to: CC:PA:LPD:PR (No-
tice 2010–85), Courier’s Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Com-
ments may also be submitted electron-
ically via the following e-mail address:
Notice.Comments@irscounsel.treas.gov.
Please include “Notice 2010–85” in the
subject line of any electronic submission.
For calendar year 2011 only, and only
until such time that the proposed revenue
procedure is published in final form or
Form 8944 is finalized and approved, tax
return preparers who meet the definition of
aspecified tax return preparerfor calen-
dar year 2011 and who believe they may
qualify for an undue hardship waiver may
voluntarily submit written waiver requests
to the IRS, and will not be required to use
Form 8944 if the form is not yet publically
available, provided each hardship waiver
request contains the information described
in sections 6.02(1) — (12) and 6.03 of the
proposed revenue procedure. The IRS will
provide further information on processing
these hardship waiver requests, including
time, place and date information, in a later
announcement or notice.
For further information regarding this
notice, contact Keith Brau of the Office
of Associate Chief Counsel (Procedure &
Administration). Mr. Brau may be con-
tacted at 202–622–4940 (not a toll-free
call).
APPENDIX (PROPOSED REVENUE PROCEDURE)
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance to specified tax return preparers
regarding the format and content of re-
questsforwaiverofthemagneticmedia
(electronic) filing requirement due to un-
due hardship, and regarding the time and
manner in which specified tax return pre-
parers who seek an undue hardship waiver
of the electronic filing requirement must
submit their written requests for consider-
ation by the IRS, under section 6011(e)(3)
and § 301.6011–6 of the Regulations on
Procedure and Administration (26 CFR
Part 301). This revenue procedure also
provides guidance to tax return prepar-
ers, specified tax return preparers, and
taxpayers regarding how to document a
taxpayer’s choice to file an individual in-
come tax return in paper format when the
return is prepared by a tax return preparer
or specified tax return preparer but filed
by the taxpayer.
SECTION 2. BACKGROUND
.01 Pursuant to section 6011(e)(3),
§ 301.6011–6 implements the requirement
that specified tax return preparers file in-
dividual income tax returns electronically
if they prepare and filethe returns for tax-
payers. Under section 6011(e)(3)(B) and
as further defined in § 301.6011–6(a)(3), a
specified tax return preparer means, with
respect to any calendar year, any tax return
preparer within the meaning of section
7701(a)(36) and § 301.7701–15 who pre-
pares any individual income tax return
2010–51 I.R.B.878December 20, 2010

unless such tax return preparer reasonably
expects to file 10 or fewer individual in-
come tax returns in the calendar year, and
if a person who is a tax return preparer is
a member of a firm, that person is a speci-
fied tax return preparer unless the person’s
firm members in the aggregate reasonably
expect to file 10 or fewer individual in-
come tax returns in a calendar year. Solely
for the 2011 calendar year, a tax return pre-
parer will not be considered a specified tax
return preparer if the preparer reasonably
expects, or if the preparer is a member of
a firm, the firm’s members in the aggre-
gate reasonably expect, to file fewer than
100 individual income tax returns in the
2011 calendar year. Solely for purposes
of section 6011(e)(3) and § 301.6011–6,
an individual is considered a member of
a firm if the individual is an employee,
agent, member, partner, shareholder, or
other equity holder of the firm.
.02 Section 6011(e)(3)(C) and
§ 301.6011–6(a)(2) define an individual
income tax return as any return of income
tax imposed by subtitle A on individu-
als, estates, and trusts. This includes the
Form 1040 series of income tax returns
for individuals, the Form 1041 series of
income tax returns for estates and trusts,
and Form 990–T (Exempt Organization
Business Income Tax Return) when the
exempt organization is a trust subject to
tax on unrelated business taxable income
under section 511(b).
.03 Under § 301.6011–6(b) any individ-
ual income tax return prepared by a speci-
fied tax return preparer in a calendar year
must be filed on magnetic media if the re-
turnisfiledbythespecifiedtaxreturnpre-
parer.
.04 Section 301.6011–6(a)(4)(i) pro-
vides that an individual income tax return
is considered to befiledby a tax return
preparer or a specifiedtaxreturnpreparer
if the preparer or any member, employee
or agent of the preparer or the preparer’s
firm submits the tax return to the IRS on
the taxpayer’s behalf,either electronically
(by e-file or other magnetic media) or
in non-electronic or non-magnetic media
(paper) form. Submission of a tax return in
paper form includes the direct or indirect
transmission, sending, mailing, or other-
wise delivering of the paper tax return to
the IRS by the tax return preparer or the
specified tax return preparer, or by any
member, employee, or agent of the pre-
parer or the preparer’s firm, and includes
any act or acts of assistance that go beyond
providing filing or delivery instructions to
the taxpayer.
.05 Section 301.6011–6(a)(4)(ii) also
provides that a tax return preparer or spec-
ified tax return preparer, or the preparer’s
firm, is not required to electronically file
an individual income tax return if the pre-
parer who prepared the return obtains a
signed statement from the taxpayer that
states the taxpayer chooses to file the re-
turn in paper format and that the taxpayer,
and not the preparer, is submitting the pa-
per return to the IRS. Such statement must
be signed by the taxpayer (by both spouses
if a joint return) and dated on or before
the date the taxpayer files the return. The
IRS may provide guidance through forms,
instructions or other appropriate guidance
regarding how the preparer can document
a taxpayer’s choice to file a paper indi-
vidual income tax return. This revenue
procedure provides guidance to tax return
preparers, specified taxreturnpreparers,
and taxpayers regarding how tax return
preparers and specified tax return prepar-
ers can document a taxpayer’s choice to
file an individual income tax return in
paper format.
.06 Section 301.6011–6(c)(1) autho-
rizes the IRS to grant a waiver of the elec-
tronic filing requirement in cases of undue
hardship to specified tax return preparers
requesting an undue hardship waiver in the
manner prescribed in IRS forms, instruc-
tions, or other appropriate guidance. This
revenue procedure prescribes guidance on
how to submit an undue hardship waiver
request for consideration by the IRS.
SECTION 3. SCOPE
.01Undue Hardship Waiver Re-
quests. This revenue procedure applies
to all specified tax return preparers, as
defined in section 6011(e)(3)(B) and
§ 301.6011–6(a)(3), who seek a waiver
of the electronic filing requirement in
cases of undue hardship. This revenue
procedure is intended to be applicable
immediately to specified tax return pre-
parers who reasonably expect to file, or if
amemberofafirmwhosefirm’smembers
in the aggregate reasonably expect to file,
100 or more individual income tax returns
in calendar year 2011. An undue hard-
ship waiver, however, is not needed for,
and waiver requests will not be accepted
from, any tax return preparer who during
calendar year 2011 is not required to file
individual income tax returns electroni-
cally due to the transition rule set forth in
§ 301.6011–6(a)(3),i.e.taxreturnprepar-
ers who reasonably expect to file, or if a
member of a firm whose firm’s members
in the aggregate reasonably expect to file,
more than 10 but fewer than 100 individ-
ual income tax returns during calendar
year 2011. For these tax return preparers,
this revenue procedure will apply to undue
hardship waiver requests for calendar year
2012 and thereafter.
.02Documenting a Taxpayer’s Choice
to File Return in Paper Format. The pro-
visions of this revenue procedure that ex-
plain how tax return preparers and speci-
fied tax return preparers can document a
taxpayer’s choice to file an individual in-
come tax return in paper format are in-
tended to be applicable immediately.
SECTION 4. OTHER EXCLUSIONS
FROM THE ELECTRONIC FILING
REQUIREMENT
.01In General.Section
301.6011–6(c)(2) provides for a second
category of exclusion or exemption
from the electronic filing requirement
of section 6011(e)(3) and § 301.6011–6,
administrative exemptions.
.02Administrative Exemptions. Under
§ 301.6011–6(c)(2), the IRS may pro-
vide administrative exemptions for certain
classes of specified tax return preparers or
types of individual income tax returns, as
the IRS determines necessary to promote
the effective and efficient administration
of section 6011(e)(3) and § 301.6011–6.
The IRS generally will provide an ad-
ministrative exemption, and not an undue
hardship waiver, when technology issues
affecting a range of specified tax return
preparers in a similar manner prevent
specified tax return preparers from filing
returns electronically. Undue hardship
waiver requests should not be submitted
by or for specified tax return preparers, or
for the individual income tax returns they
prepare and file, that meet the criteria for
an administrative exemption for purposes
of claiming the exemption. The IRS will
provide the criteria and procedures for
claiming an administrative exemption, if
December 20, 20108792010–51 I.R.B.

any, through forms, instructions, or other
appropriate guidance.
.03Further Information.Furtherin-
formation on the electronic filing require-
ment, undue hardship waiver requests,
documentation for a taxpayer’s choice to
file in paper format, and administrative
exemptions will be posted onwww.irs.gov
and may also be available in recorded mes-
sages on an IRS telephone help-line. The
IRS also intends to post answers to Fre-
quently Asked Questions onwww.irs.gov.
SECTION 5. REQUESTS FOR WAIVER
OF THE ELECTRONIC FILING
REQUIREMENT DUE TO UNDUE
HARDSHIP
.01 Under § 301.6011–6(c)(1), the IRS
may grant waivers of the electronic filing
requirement in cases of undue hardship.
Undue hardship waivers generally are in-
tended to be granted to specified tax re-
turn preparers for undue hardships that can
be identified in advance before the speci-
fied tax return preparers would otherwise
be required to file individual income tax
returns electronicallyfor a particular cal-
endar year.
.02 The IRS will ordinarily grant undue
hardship waivers only in rare cases. An
undue hardship waiver may be granted to
a specified tax return preparer for a speci-
fied period of time or for a series or class
of individual income tax returns, although
undue hardship waivers will not ordinarily
be granted for more than one calendar year
period.
.03 A specified tax return preparer must
request an undue hardship waiver in the
manner prescribed in this revenue proce-
dure. See section 6 below.
.04 The IRS will approve or deny re-
quests for an undue hardship waiver of
the electronic filing requirement based on
each specified tax return preparer’s par-
ticular facts and circumstances. In deter-
mining whether to approve or deny an un-
due hardship waiver request, the IRS may
consider the specifiedtaxreturnpreparer’s
ability to file individual income tax returns
electronically without incurring an undue
financial hardship. The IRS will gener-
ally grant an undue hardship waiver only
when the specified tax return preparer can
demonstrate the undue hardship that would
result by complying with the electronic fil-
ing requirement, including, but not limited
to, any incremental costs to the specified
tax return preparer.
.05 The fact that a specified tax return
preparer does not have a computer or ap-
propriate software or does not desire to ob-
tain or use a computer or software does not,
standing alone, constitute an undue hard-
ship. An undue hardship waiver request
based solely on this fact or personal desire,
without any further explanation or justifi-
cation, will be denied.
SECTION 6. WAIVER REQUEST
FORM CLAIMING UNDUE HARDSHIP
.01 To request an undue hardship
waiver the specified tax return preparer
must complete a Form 8944,Preparer
e-file Hardship Waiver Request,andsub-
mit the completed form and the documen-
tation required by the instructions to the
form to the IRS at the address provided in
the instructions to the form. (Note Form
8944 and accompanyinginstructions have
not been published by the IRS as of the
date of the release of this notice. The
IRS will publish a final Form 8944 when
available.)
.02 In completing Form 8944, the spec-
ified tax return preparer seeking the waiver
must provide all information requested by
that form. This information may include:
(1) The name, address, email address,
telephone number and other contact infor-
mation for the requesting specified tax re-
turn preparer;
(2) The specified tax return preparer’s
preparer tax identification number (PTIN),
and, if the specified tax return preparer is
a member of a firm, the firm’s employer
identification number (EIN);
(3) The reason for the waiver request,
for example, financial hardship, personal
hardship (personal or business casualty,
bankruptcy, other), or other hardship (tech-
nical or systems-based, client-based);
(4) The calendar year for which the
waiver is being requested;
(5) The type of individual income tax
form or forms to which the waiver is to
apply, or a statement that the specified tax
return preparer is seeking a general undue
hardship waiver applicable to the specified
tax return preparer for all individual in-
come tax returns the specified tax return
preparer may file in that calendar year;
(6) Information regarding the specified
tax return preparer’s history of filing in-
dividual income tax returns on behalf of
clients, and the number of individual in-
come tax returns the preparer reasonably
expects to file in the year for which the
waiver is being requested;
(7) An explanation of the process by
which the specified tax return preparer pre-
pares and files individual income tax re-
turns, and of the systems and technologies
the specified tax return preparer uses to
prepare and file the returns;
(8) An explanation of the steps the
specified tax return preparer has taken to
meet the requirement to timely file the
individual income tax returns electroni-
cally and why the steps were unsuccessful
(if applicable), the undue hardship that
would result by complying with the elec-
tronic filing requirement, including gross
income earned from tax return preparation
and any estimated incremental costs to the
specified tax return preparer of complying
with this requirement (with two vendor
estimates or advertising material itemizing
these costs), and whether adjustments to
preparation fees can offset the estimated
additional costs;
(9) If applicable, an explanation of the
nature of any other personal (non-finan-
cial) hardship, how this personal hardship
affects the specified tax return preparer’s
individual income tax return preparation
ability and/or business, and what steps are
still needed to overcome the claimed per-
sonal hardship or to become enabled to
electronically file individual income tax
returns;
(10) If applicable, an explanation of
the basis for waiver requests not based on
hardship to the specified tax return pre-
parer, the steps that have been taken by the
specified tax return preparer to become an
electronic filer of the affected individual
income tax returns (and the results of those
steps), and the steps that are still needed
to be taken by the specified tax return pre-
parer to become enabled to electronically
file the affected individual income tax re-
turns;
(11) A statement describing the steps
the specified tax return preparer will take
to ensure the preparer’s ability to file fu-
ture individual income tax returns elec-
tronically;
(12) A statement signed under penalty
of perjury that, to the best of the specified
tax return preparer’s knowledge, the infor-
2010–51 I.R.B.880December 20, 2010

mation provided is true, correct and com-
plete; and
(13) Any other information the IRS de-
termines necessary or helpful in consider-
ing whether to grant a waiver request as set
forth in forms, instructions, or other guid-
ance.
.03 The Form 8944 must be signed and
dated.
.04 The Form 8944 and any notice from
the IRS granting an undue hardship waiver
should not be attached to a taxpayer’s pa-
per individual income tax return.This form
and any notice should be retained by the
tax return preparer.
SECTION 7. TIME FOR FILING A
WAIVER REQUEST
.01 Because the electronic filing re-
quirement under section 6011(e)(3) and
§ 301.6011–6 is based on a determina-
tion of how many individual income tax
returns a tax return preparer reasonably
expects, or if a member of a firm, the
firm’s members in the aggregate reason-
ably expect, to file during a calendar year,
a specified tax return preparer must make
this reasonable expectation determination
prior to the time the specified tax return
preparer or the preparer’s firm first files
an individual income tax return during the
calendar year.
.02 Tax return preparers who meet the
definition of specified tax return preparer
must therefore ordinarily submit their re-
quests for undue hardship waivers between
October 1 of the calendar year preceding
the applicable calendar year and February
15 of the applicable calendar year. This
will give the IRS time to process the un-
due hardship waiver request. Untimely re-
quests for undue hardship waivers will not
be considered absentthe existence of un-
usual or unforeseen and unavoidable cir-
cumstances. It is important to submit re-
quests for undue hardship waivers timely
because if a waiver request is denied, it can
take up to 45 days to obtain authorization
from the IRS to electronically file individ-
ual income tax returns.SeeIRS Publica-
tion 3112,IRS e-file Application and Par-
ticipation.
SECTION 8. APPROVAL OF
THE WAIVER REQUEST AND
RECONSIDERATION OF DENIED
WAIVER REQUESTS
.01 The IRS will review and process
undue hardship waiver requests in a timely
manner and will send the specified tax
return preparer written notice of any ap-
proval or denial of the undue hardship
waiver request. The IRS will not be con-
sidered to have waived the electronic filing
requirement unless the specified tax re-
turn preparer receives written notice from
the IRS that the undue hardship waiver
request has been approved.
.02 If an undue hardship waiver request
is denied, the specified tax return preparer
may send a written request for reconsider-
ation to the address listed on the written
notice of denial by the date specified on
that notice. The specified tax return pre-
parer must state in the request for recon-
sideration the grounds for reconsideration
and may include additional information or
documentation, if any, to support the re-
quest for reconsideration. The Electronic
Products and Services Support e-help Op-
eration Manager (or designee) will make
a reconsideration determination in writing
on whether to approve or deny the undue
hardship waiver request, as supplemented
by the request for reconsideration and will
send the specified tax return preparer writ-
ten notice of any approval or denial of the
undue hardship waiver request. There is
no further administrative review of this re-
consideration determination, nor is there a
right to judicial review of an adverse deter-
mination.
SECTION 9. DOCUMENTING A
TAXPAYER’S CHOICE TO FILE IN
PAPER FORMAT
.01 Section 301.6011–6(a)(4)(i) pro-
vides that an individual income tax return
is considered to befiledby a tax return
preparer or a specified tax return preparer
if the preparer submits the tax return to
the IRS on the taxpayer’s behalf, either
electronically (by e-file or other magnetic
media) or in non-electronic (paper) form,
and that submission of an individual in-
cometaxreturnbyataxreturnprepareror
a specified tax return preparer in non-elec-
tronic form includes the direct or indirect
transmission, sending, mailing or other-
wise delivering of the paper tax return
to the IRS by the preparer, any member,
employee, or agent of the preparer, or
any member, employee, or agent of the
preparer’s firm, and includes any act or
acts of assistance beyond providing filing
or delivery instructions to the taxpayer.
Section 301.6011–6(a)(4)(ii), however,
provides that an individual income tax
return will not be considered to be filed,
as defined in § 301.6011–6(a)(4)(i), by a
tax return preparer or specified tax return
preparer if the tax return preparer or spec-
ified tax return preparer who prepared the
return obtains, on or prior to the date the
return is filed, a signed (by both spouses if
a joint return) and dated written statement
from the taxpayer that states the taxpayer
chooses to file the return in paper format,
and that the taxpayer, and not the preparer,
is submitting the paper return to the IRS.
.02 A tax return preparer or specified
tax return preparer should document a tax-
payer’s choice to file in paper format in the
manner prescribed in this revenue proce-
dure.
.03 A taxpayer’s choice to file an indi-
vidual income tax return in paper format
must be in writing, must affirm that the tax-
payer is choosing to file the return in paper
format, and must affirm that the taxpayer,
and not the preparer, is filing the return.
This written statement must be signed by
the taxpayer (by both spouses if a joint re-
turn) and dated on or before the date the
taxpayer’s return is filed with the IRS. The
choice to file in paper format is the tax-
payer’s alone.
.04Ifsignedanddatedbythetaxpayer
on or before the date the subject individ-
ual income tax return is filed with the IRS,
the following statement contained in the
signed writing will be sufficient to show
that a taxpayer chooses to file the tax-
payer’s return in paper format and that the
taxpayer, and not the tax return preparer or
specified tax return preparer, will file the
return:
My tax return preparer [INSERT PRE-
PARER’S NAME] has informed me
that [INSERT s/he] may be required to
electronically file my [INSERT TAX
YEAR] individual income tax return
[INSERT TYPE OF RETURN: Form
1040, Form 1040A, Form 1040EZ,
Form 1041, Form 990–T] if [INSERT
s/he] files it with the IRS on my behalf.
I do not want to file my return electron-
December 20, 20108812010–51 I.R.B.

ically and choose to file my return on
paper forms. My preparer will not file
my paper return with the IRS. I will
file my paper return with the IRS my-
self. I was not influenced by [INSERT
PREPARER’S NAME] or any member
of [INSERT “his” or “her”] firm to sign
this statement.
.05 The written statement contain-
ing the taxpayer’s choice to file in paper
format should not be attached to the tax-
payer’s individual income tax return. This
statement should be retained by the tax
return preparer.
SECTION 10. EFFECTIVE DATE
This revenue procedure is effective on
[].
SECTION 11. PAPERWORK
REDUCTION ACT
The collection of information contained
in this revenue procedure relating to undue
hardship waiver requests will be submitted
to the Office of Management and Budget
for review in accordance with the Paper-
work Reduction Act (44 U.S.C. 3507(c)).
The collection of information related to
documenting a taxpayer’s choice to file in
paper format was previously submitted to
the Office of Management and Budget for
review. See [75 FR 75439] for details.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this
revenue procedure is in Sections 5 and 6 of
this revenue procedure. This information
is required for a tax return preparer who
meets the definition of specified tax re-
turn preparer to obtain an undue hardship
waiver of the electronic filing require-
ment contained in section 6011(e)(3) and
§ 301.6011–6. This information will be
used in exercising the IRS’s discretion to
grant undue hardship waivers and approv-
ing or denying requests for such waivers
based on the specified tax return preparer’s
particular facts and circumstances, or for
purposes of reconsidering an undue hard-
ship waiver request that has been denied.
The likely respondents are individuals
and small businesses who prepare and
file individual income tax returns as paid
tax return preparers and who meet the
definition of specified tax return preparer
contained in section 6011(e)(3)(B) and
§ 301.6011–6(a)(3).
The estimated total annual reporting
and/or recordkeeping burden is 3,949 total
hours for waiver requests for calendar year
2011, and 7,328 total hours for waiver
requests for calendar year 2012.
The estimated annual burden per re-
spondent/recordkeeper varies from 15
minutes to 2 hours, depending on individ-
ual circumstances, with an estimated av-
erage of 1 hour. We calculated 15 minutes
of preparation for a basic waiver without
attachments and minimal explanation (e.g.
federal disaster declaration); 31 minutes
for a bankruptcy waiver with attachments;
51 minutes for “other” waiver with at-
tachments and detailed explanation; and
2 hours for an economic hardship waiver
with attachments. We estimated 6 minutes
for recordkeeping, consisting of maintain-
ing a copy of the information submitted
for the respondent’s records.
The estimated number of respondents
and/or recordkeepers is 3,949 for waiver
requests for calendar year 2011 and 7,328
for waiver requests for calendar year 2012.
The estimated annual frequency of re-
sponses (used for reporting requirements
only) is no more than once per respondent.
Books or records relating to a collection
of information must be retained as long as
their contents may become material in the
administration of any internal revenue law.
SECTION 12. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Keith Brau of the Office
of Associate Chief Counsel (Procedure
& Administration). For further infor-
mation regarding this proposed revenue
procedure, contact Keith Brau at (202)
622–4940 (not a toll-free call).
2011 Standard Mileage Rates
Notice 2010–88
SECTION 1. PURPOSE
This notice provides the 2011 standard
mileage rates for taxpayers to use in com-
puting the deductible costs of operating an
automobile for business, charitable, med-
ical, or moving expense purposes. This
notice also provides the amount taxpayers
must use in calculating reductions to basis
for depreciation taken under the business
standard mileage rate, and the maximum
standard automobile cost that may be used
in computing the allowance under a fixed
and variable rate (FAVR) plan.
Further, this notice requests comments
from the public concerning whether tax-
payers should be permitted to use the busi-
ness standard mileage rate for automobiles
used in fleet operations.
SECTION 2. BACKGROUND
Rev. Proc. 2010–51 provides rules for
computing the deductible costs of operat-
ing an automobile for business, charitable,
medical, or moving expense purposes, and
for substantiating, under § 274(d) of the
Internal Revenue Code and § 1.274–5 of
the Income Tax Regulations, the amount
of ordinary and necessary business ex-
penses of local transportation or travel
away from home. Taxpayers using the
standard mileage rates must comply with
Rev. Proc. 2010–51.
An independent contractor conducts an
annual study for the Internal Revenue Ser-
vice of the fixed and variable costs of oper-
atinganautomobiletodeterminethestan-
dard mileage rates for business, medical,
and moving use reflected in this notice.
The standard mileage rate for charitable
use is set by § 170(i).
SECTION 2. STANDARD MILEAGE
RATES
The standard mileage rate for trans-
portation or travel expenses is 51 cents per
mile for all miles of business use (business
standard mileage rate). See section 4 of
Rev. Proc. 2010–51.
The standard mileage rate is 14 cents
per mile for use of an automobile in ren-
dering gratuitous services to a charitable
organization under § 170 (charitable stan-
dard mileage rate). See section 5 of Rev.
Proc. 2010–51.
The standard mileage rate is 19 cents
per mile for use of an automobile (1) for
medical care described in § 213, or (2) as
part of a move for which the expenses are
deductible under § 217 (medical and mov-
ing standard mileage rate). See section 5
of Rev. Proc. 2010–51.
2010–51 I.R.B.882December 20, 2010

SECTION 3. BASIS REDUCTION
AMOUNT
For automobiles a taxpayer uses for
business purposes, the portion of the stan-
dard mileage rate treated as depreciation
is 19 cents per mile for 2007, 21 cents per
mile for 2008 and 2009, 23 cents per mile
for 2010, and 22 cents per mile for 2011.
See section 4.04 of Rev. Proc. 2010–51.
SECTION 4. MAXIMUM STANDARD
AUTOMOBILE COST
For purposes of computing the al-
lowanceunderaFAVRplan,thestandard
automobile cost may not exceed $26,900
for automobiles (excluding trucks and
vans) or $28,200 for trucks and vans. See
section 6.02(6) of Rev. Proc. 2010–51.
SECTION 5. COMMENTS
REQUESTED
The Internal Revenue Service is evalu-
ating the need for the limitation in section
4.05(1) of Rev. Proc. 2010–51 that pro-
hibits a taxpayer from using the business
standard mileage rate to compute the de-
ductible expenses of five or more automo-
biles a taxpayer owns or leases and uses si-
multaneously (such as in fleet operations),
and requests public comments on this is-
sue. Comments should be submitted by
March 31, 2011, to: Internal Revenue Ser-
vice, CC:PA:LDP:PR (Notice 2010–88),
Room 5203, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044. Com-
ments also may be hand delivered between
the hours of 8:00 a.m. and 4:00 p.m. Mon-
daytoFridaytoCC:PA:LDP:PR(Notice
2010–88), Courier’s Desk, Internal Rev-
enue Service, 1111 Constitution Avenue
NW, Washington, DC. Alternatively, com-
ments may be transmitted electronically to
Notice.Comments@irscounsel.treas.gov,
indicating Notice 2010–88 in the subject
line. All comments will be available for
public inspection and copying.
EFFECTIVE DATE
This notice is effective for (1) de-
ductible transportation expenses paid or
incurred on or after January 1, 2011, and
(2) mileage allowances or reimbursements
paid to an employee or to a charitable
volunteer (a) on or after January 1, 2011,
and (b) for transportation expenses the
employee or charitable volunteer pays or
incurs on or after January 1, 2011.
DRAFTING INFORMATION
The principal author of this notice is
Bernard P. Harvey of the Office of Asso-
ciate Chief Counsel (Income Tax and Ac-
counting). For further information on this
notice, contact Bernard P. Harvey at (202)
622–4930 (not a toll-free call).
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also Part I, §§ 62, 162, 170, 213, 217, 274, 1016;
1.62–2, 1.162–17, 1.170A–1, 1.213–1, 1.217–2,
1.274–5, 1.1016–3.)
Rev. Proc. 2010–51
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 2009–54, 2009–51 I.R.B. 930, and
provides rules for using optional standard
mileage rates in computing the deductible
costs of operating an automobile for
business, charitable, medical, or moving
expense purposes. This revenue proce-
dure also provides rules for substantiating,
under § 274(d) of the Internal Revenue
Code and § 1.274–5 of the Income Tax
Regulations, the amount of an employee’s
ordinary and necessary expenses of local
travel or transportation away from home
that a payor (an employer, its agent, or a
third party) reimburses using a mileage
allowance. Taxpayers are not required to
use the substantiation methods described
in this revenue procedure. A taxpayer
may substantiate actual allowable expense
amounts if the taxpayer maintains ade-
quate records or other sufficient evidence.
The Internal Revenue Service prospec-
tively adjusts the standard mileage rates
for business, medical, and moving ex-
penses annually (to the extent warranted).
Beginning with the rates for 2011, the
Service will publish the standard mileage
rates for the use of an automobile for
business, charitable, medical, and moving
expense purposes in a separate annual no-
tice.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 162(a) allows a deduction
for the ordinary and necessary expenses a
taxpayer pays or incurs during the taxable
year in carrying on any trade or business,
including the cost of operating an automo-
bile to the extent that it is used in a trade or
business.
.02 Under § 262, a taxpayer may not
deduct any portion of the cost of operating
an automobile attributable to personal use.
.03 To deduct expenses for travel or
listed property, a taxpayer must substan-
tiate the expenses under § 274(d). Sec-
tion 280F(d)(4) provides that listed prop-
erty includes passenger automobiles and
any other property used as a means of
transportation.
.04 Section 1.274–5(g) and (j) au-
thorizes the Commissioner to prescribe
rules and establish methods under which
mileage rates and allowances that com-
ply with reasonable business practice are
treated as (1) equivalent to substantiation,
by adequate records or other sufficient
evidence, of the amount of transportation
expenses for purposes of § 1.274–5(c),
and (2) satisfying the requirements of an
adequate accounting to the employer of
the amount of the expenses for purposes
of § 1.274–5(f).
.05 For purposes of determining ad-
justed gross income, § 62(a)(2)(A) allows
an employee to deduct business expenses
the employee pays or incurs in perform-
ing services as an employee under a reim-
bursement or other expense allowance ar-
rangement with a payor.
.06 Section 62(c) provides that an ar-
rangement is not treated as a reimburse-
ment or other expense allowance arrange-
ment for purposes of § 62(a)(2)(A) if it—
(1) Does not require the employee to
substantiate the expenses covered under
the arrangement to the payor, or
(2) Allows the employee to retain any
amount in excess of the substantiated ex-
penses covered under the arrangement.
.07 Section 62(c) further provides,
however, that substantiation is not required
for the expense to the extent provided in
regulations under § 274(d).
.08 Under § 1.62–2(c), a reimburse-
ment or other expense allowance arrange-
ment satisfies the requirements of § 62(c)
if it meets the requirements of business
December 20, 20108832010–51 I.R.B.

connection, substantiation, and returning
amounts in excess of expenses. If an ar-
rangement meets these requirements, all
amounts paid under the arrangement are
treated as paid under an accountable plan
and are excluded from income and wages.
If an arrangement does not meet one or
more of these requirements, all amounts
paid under the arrangement are treated as
paid under a nonaccountable plan and are
included in the employee’s gross income,
must be reported as wages or compensa-
tion on the employee’s Form W–2, and are
subject to the withholding and payment of
employment taxes.
.09 Section 1.62–2(e)(2) provides that
the amount of a business expense substan-
tiated under § 1.274–5(g) is treated as sub-
stantiated for purposes of § 1.62–2.
.10 Under § 1.62–2(f)(2), the Com-
missioner may prescribe rules for treating
an arrangement providing mileage al-
lowances as satisfying the requirement of
returningamountsinexcessofexpensesif
the arrangement requires the employee to
return amounts that relate to unsubstanti-
ated travel miles, even if the employee is
not required to return the portion of the al-
lowance for substantiated travel miles that
exceeds the deemed substantiated amount
for those miles. The allowance must be
reasonably calculated not to exceed the
amount of the employee’s expenses and
the employee must be required to return
within a reasonable period (as defined in
§ 1.62–2(g)) any portion of the allowance
that relates to unsubstantiated travel miles.
Under § 1.62–2(h)(2)(i)(B), the portion of
an allowance that relates to substantiated
travel miles but exceeds the substanti-
ated amount for those miles, and that
the employee is not required to return, is
subject to withholding and payment of
employment taxes.See§§ 31.3121(a)–3,
31.3231(e)–1(a)(5), 31.3306(b)–2, and
31.3401(a)–4 of the Employment Tax
Regulations.
.11 Under § 1.62–2(h)(2)(i)(B)(4), the
Commissioner may prescribe special rules
for the timing of withholding and paying
employment taxes on mileage allowances.
.12 This revenue procedure modifies
Rev. Proc. 2009–54 as follows:
(1) The standard mileage rates for
the use of an automobile for business,
charitable, medical, and moving expense
purposes are now published in a separate
annual notice. The notice provides the
amount a taxpayer must use in calculat-
ing reductions to basis for depreciation
taken under the business standard mileage
rate (see section 4.04 of this revenue
procedure) and the maximum standard
automobile cost for automobiles under
aFAVRallowance(seesection6.02(6)
of this revenue procedure). The Service
plans to discontinue publishing this rev-
enue procedure annually but will publish
modifications as required. This revenue
procedure remains in effect until super-
seded.
(2) Section 4.05(1) is modified to al-
low taxpayers to use the business standard
mileage rate to calculate the amount of
deductions for automobiles used for hire,
such as taxicabs.
SECTION 3. DEFINITIONS
.01Standard mileage rate.Theterm
“standard mileage rate” means the amount
the Service provides for optional use by
taxpayers to substantiate the amount of—
(1) Deductible costs of operating for
business purposes automobiles (including
vans, pickups, or panel trucks) they own or
lease, and
(2) Deductible costs of operating auto-
mobiles for charitable, medical, or moving
expense purposes.
.02Transportation expenses.Theterm
“transportation expenses” means the ex-
penses of operating an automobile for local
transportation or transportation away from
home.
.03Mileage allowance.Theterm
“mileage allowance” means a payment
under a reimbursement or other expense
allowance arrangement that is—
(1) Paid for the ordinary and necessary
business expenses an employee incurs, or
that the payor reasonably anticipates an
employee will incur, for transportation ex-
penses in performing services as an em-
ployee,
(2) Reasonably calculated not to exceed
the amount of the expenses or anticipated
expenses, and
(3) Paid at the applicable standard
mileage rate, a flat rate or stated schedule,
or under any other Service-specified rate
or schedule.
.04Flat rate or stated schedule.A
mileage allowance is paid at a flat rate or
stated schedule if it is paid on a uniform
and objective basis for the expenses de-
scribed in section 3.03 of this revenue pro-
cedure. The allowance may be paid peri-
odically at a fixed rate, at a cents-per-mile
rate, at a variable rate based on a stated
schedule, at a rate that combines any of
these rates, or on any other basis that is
consistently applied and accords with rea-
sonable business practice. Thus, for exam-
ple, a periodic payment at a fixed rate to
cover the fixed costs (including deprecia-
tion or lease payments,insurance, registra-
tion and license fees, and personal prop-
erty taxes) of driving an automobile in per-
forming services as an employee, coupled
with a periodic payment at a cents-per-
mile rate to cover the variable costs (in-
cluding gasoline and all taxes thereon, oil,
tires, and routine maintenance and repairs)
of using an automobile for those purposes,
is an allowance paid at a flat rate or stated
schedule. Likewise, a periodic payment at
a variable rate based on a stated schedule
for different locations to cover the costs of
driving an automobile in performing ser-
vices as an employee is an allowance paid
at a flat rate or stated schedule.
.05Lease period. The term “lease pe-
riod” includes renewal periods.
SECTION 4. BUSINESS STANDARD
MILEAGE RATE
.01Use of the business standard
mileage rate. A taxpayer may use the busi-
ness standard mileage rate (published in an
annual notice) to substantiate the amount
of a deduction for an automobile that a
taxpayer either owns or leases. A taxpayer
generally may deduct an amount equal
to either the business standard mileage
rate times the number of business miles
traveled or the actual costs (both fixed and
variable) the taxpayer pays or incurs that
are allocable to traveling those business
miles (subject to the limitations in section
4.05 of this revenue procedure).
.02Business standard mileage rate in
lieu of fixed and variable costs.Atax-
payer computes a deduction using the busi-
ness standard mileage rate on a yearly ba-
sis and in lieu of computing the fixed and
variable costs of the automobile alloca-
ble to business purposes (except as pro-
vided in section 7.06 of this revenue proce-
dure). Items such as depreciation or lease
payments, maintenance and repairs, tires,
gasoline (including all taxes thereon), oil,
insurance, and licenseand registration fees
2010–51 I.R.B.884December 20, 2010

are included in fixed and variable costs for
this purpose.
.03Parking fees, tolls, interest, and
taxes. A taxpayer may deduct, as separate
items, parking fees and tolls attributable
to use of the automobile for business pur-
poses. A taxpayer also may deduct interest
relating to the purchase of the automobile
and state and local personal property taxes
as separate items to the extent allowable
under § 163 or § 164, respectively. Under
§ 163(h)(2)(A), interest is nondeductible
personal interest if it is paid or incurred
on indebtedness properly allocable to the
trade or business of performing services
as an employee. Section 164 provides that
state and local taxes a taxpayer pays or
incurs in connection with an acquisition or
disposition of property are treated as part
of the cost of the acquired property or as
a reduction in the amount realized on the
disposition of the property. If the automo-
bile is operated less than 100 percent for
business purposes, a taxpayer must allo-
cate the business and nonbusiness portion
of the allowable taxes and interest deduc-
tion.
.04Depreciation. Under § 1016, a tax-
payer must reduce the basis of an automo-
bile used in business by the amount of de-
preciation the taxpayer claims for the au-
tomobile. If a taxpayer uses the business
standard mileage rate to compute the ex-
pense of operating an automobile for any
year, a per-mile amount (published in an
annual notice) is treated as depreciation for
those years in which the taxpayer used the
business standard mileage rate. If the tax-
payer deducted the actual costs of operat-
ing an automobile for one or more of those
years, the taxpayer may not use the busi-
ness standard mileage rate to determine the
amount treated as depreciation for those
years.
.05Limitations.
(1) A taxpayer may not use the business
standard mileage rate to compute the de-
ductible expenses of five or more automo-
biles a taxpayer owns or leases and uses si-
multaneously (such as in fleet operations).
(2) A taxpayer may not use the business
standard mileage rate to compute the de-
ductible business expenses of an automo-
bile a taxpayer leases unless the taxpayer
uses either the business standard mileage
rate or a fixed and variable rate allowance
(FAVR allowance) (as provided in section
6 of this revenue procedure) for the entire
lease period.
(3) A taxpayer may not use the busi-
ness standard mileage rate to compute
the deductible expenses of an automobile
for which the taxpayer has (a) claimed
depreciation usinga method other than
straight-line for its estimated useful life,
(b) claimed a § 179 deduction, (c) claimed
the additional first-year depreciation al-
lowance under, for example, § 168(k) or
§ 168(n), or (d) used the Accelerated Cost
Recovery System (ACRS) under former
§ 168 or the Modified Accelerated Cost
Recovery System (MACRS) under current
§ 168. By using the business standard
mileage rate, the taxpayer has elected to
exclude the automobile(ifowned)from
MACRS pursuant to § 168(f)(1). If, after
using the business standard mileage rate,
the taxpayer uses actual costs, the taxpayer
must use straight-line depreciation for the
automobile’s remaining estimated useful
life (subject to the applicable depreciation
deduction limitations under § 280F).
(4) A taxpayer who is an employee
of the United States Postal Service may
not use the business standard mileage
rate or this revenue procedure to compute
the amount of the taxpayer’s deductible
automobile expensesincurred in perform-
ing services involving the collection and
delivery of mail on a rural route if the tax-
payer receives qualified reimbursements
(as defined in § 162(o)) for the expenses.
See§ 162(o) for the rules that apply to
these qualified reimbursements.
SECTION 5. CHARITABLE AND
MEDICAL AND MOVING STANDARD
MILEAGE RATES
.01Charitable standard mileage rate.
A taxpayer may use the charitable stan-
dard mileage rate (published in an annual
notice) to compute the charitable contribu-
tion deduction for use of an automobile in
rendering gratuitous services to a charita-
ble organization under § 170.
.02Medical and moving standard
mileage rate. A taxpayer may use the
medical and moving standard mileage rate
(published in an annual notice) to compute
the deduction for use of an automobile
(1) as medical care described in § 213, or
(2) as a moving expense deductible under
§ 217.
.03Charitable or medical and moving
standard mileage rate in lieu of variable
expenses. A deduction computed using the
applicable standard mileage rate for chari-
table, medical, or moving expense miles is
in lieu of a deduction for variable expenses
(including gasoline and oil) of the automo-
bile allocable to those purposes. Costs for
items such as depreciation or lease pay-
ments, insurance, and license and registra-
tion fees are not deductible for these pur-
poses and are not included in the charitable
or medical and moving standard mileage
rates.
.04Parking fees, tolls, interest, and
taxes. A taxpayer may deduct, as separate
items, parking fees and tolls attributable
to the use of the automobile for charitable,
medical, or moving expense purposes.
Interest relating to the purchase of the
automobile and state and local personal
property taxes are not deductible as char-
itable, medical, or moving expenses, but
they may be deducted as separate items to
the extent allowable under § 163 or § 164.
SECTION 6. FIXED AND VARIABLE
RATE ALLOWANCE
.01In general.
(1) The ordinary and necessary ex-
penses an employee pays or incurs in
driving an automobile the employee owns
or leases in performing services as an
employee of the employer are deemed sub-
stantiated (in an amount determined under
section 7 of this revenue procedure) when
a payor reimburses those expenses using
a FAVR allowance. A FAVR allowance
is a mileage allowance using a flat rate
or stated schedule that combines periodic
fixed and variable rate payments that meet
all the requirements of this section 6.
(2) A payor must base the amount of a
FAVR allowance on data that (a) is derived
from the base locality, (b) reflects retail
prices paid by consumers, and (c) is rea-
sonable and statistically defensible in ap-
proximating the actual expenses employ-
ees receiving the allowance would incur as
owners of the standard automobile.
.02Computing a FAVR allowance.
(1)FAVR allowance.AFAVRal-
lowance includes periodic fixed payments
and periodic variable payments. A payor
may maintain more than one FAVR al-
lowance. A FAVR allowance that uses the
same payor, standard automobile (or an
December 20, 20108852010–51 I.R.B.

automobile of the same make and model
that is comparably equipped), retention
period, and business use percentage is con-
sidered one FAVR allowance, even though
other features of the allowance may vary.
A FAVR allowance also includes any op-
tional high mileage payments. However,
optional high mileage payments are in-
cluded in an employee’s gross income, are
reported as wages or other compensation
on the employee’s Form W–2, and are
subject to withholding and payment of
employment taxes when paid.Seesec-
tion 7.05 of this revenue procedure. An
optional high mileage payment covers
the additional depreciation for a standard
automobile attributable to business miles
an employee drives and substantiates for
a calendar year in excess of the annual
business mileage for that year. If a FAVR
allowance covers an employee for less
than the entire calendar year, the annual
business mileage may be prorated on a
monthly basis for purposes of the preced-
ing sentence.
(2)Periodic fixed payment.Aperiodic
fixed payment covers the projected fixed
costs (including depreciation or lease pay-
ments, insurance, registration and license
fees, and personal property taxes) of driv-
ing the standard automobile in performing
services as an employee of the employer in
a base locality, and must be paid at least
quarterly. A payor may compute a peri-
odic fixed payment by (a) dividing the to-
tal projected fixed costs of the standard au-
tomobile for all years of the retention pe-
riod, determined at the beginning of the re-
tention period, by the number of periodic
fixed payments in the retention period, and
(b) multiplying the resulting amount by the
business use percentage.
(3)Periodic variable payment.Aperi-
odic variable payment covers the projected
variable costs (including gasoline and all
taxes thereon, oil, tires, and routine main-
tenance and repairs) of driving a standard
automobile in performing services as an
employee in a base locality, and must be
paid at least quarterly. A payor may com-
pute a periodic variable payment rate for
a computation period by dividing the to-
tal projected variable costs for the standard
automobile for the computation period, de-
termined at the beginning of the compu-
tation period, by the computation period
mileage. A computation period may be
any period of a year or less. Computa-
tion period mileage is the total mileage
(business and personal) a payor reason-
ably projects a standard automobile will
be driven during a computation period and
equals the retention mileage divided by the
number of computation periods in the re-
tention period. For each business mile an
employee substantiates for the computa-
tion period, a payor must make a periodic
variable payment at a rate that does not ex-
ceed the rate for that computation period.
(4)Base locality. A base locality is the
particular geographic locality or region of
the United States where an employee gen-
erally pays or incurs the costs of driving
an automobile in performing services as
an employee. Thus, for purposes of de-
termining the amount of fixed costs, the
base locality is generally the geographic
locality or region where the employee re-
sides. For purposes of determining the
amount of variable costs, the base local-
ity is generally the geographic locality or
region where the employee drives the au-
tomobile in performing services as an em-
ployee.
(5)Standard automobile. A standard
automobile is the automobile a payor se-
lects on which a specific FAVR allowance
is based.
(6)Standard automobile cost.Thestan-
dard automobile cost for a calendar year
may not exceed 95 percent of the sum of
(a) the retail dealer invoice cost of the stan-
dard automobile in the base locality, and
(b) state and local sales or use taxes on
the purchase of the automobile. The maxi-
mum standard automobile cost for a given
taxable year is published in an annual no-
tice.
(7)Annual mileage. Annual mileage is
the total mileage (business and personal)
a payor reasonably projects an employee
will drive a standard automobile during
a calendar year. Annual mileage equals
the annual business mileage divided by the
business use percentage.
(8)Annual business mileage. Annual
business mileage is the mileage a payor
reasonably projects anemployeewilldrive
a standard automobile in performing ser-
vices as an employee during the calen-
dar year, but may not be less than 6,250
miles for a calendar year. Annual business
mileage equals the annual mileage multi-
plied by the business use percentage.
(9)Business use percentage. A payor
determines the business use percentage
by dividing the annual business mileage
by the annual mileage. The business use
percentage may not exceed 75 percent.
In lieu of demonstrating the reasonable-
ness of the business use percentage based
on records of total mileage and business
mileage driven by employees annually, a
payor may use a business use percentage
that is less than or equal to the following
percentages for a FAVR allowance that
is paid for the following annual business
mileage:
Annual business mileageBusiness use percentage
6,250 or more but less than 10,00045 percent
10,00
0 or more but less than 15,000
55 per
cent
15,000 or more but less than 20,00065 percent
20,0
00 or more
75 percent
(10)
Retention period. A retention pe-
rio
d is the period in calendar years a payor
sel
ects during which the payor expects an
emp
loyee to drive a standard automobile in
per
forming services as an employee before
the a
utomobile is replaced. The period
may
not be less than two calendar years.
(11)
Retention mileage. Retention
mil
eage is the annual mileage multiplied
by th
e number of calendar years in the
ret
ention period.
(12)
Residual value. The residual value
of a
standard automobile is the projected
amo
unt for which it could be sold at the
2010–51 I.R.B.886December 20, 2010

end of the retention period after being
driven the retention mileage. The Ser-
vice will accept the following safe harbor
residual values for a standard automobile
computed as a percentage of the standard
automobile cost:
Retention periodResidual value
2 years70 percent
3 years60 percent
4 years
50 percent
.03FAVR allowance in lieu of fixed and
variable costs.
(1) A reimbursement computed using
a FAVR allowance is in lieu of the em-
ployee’s deduction of all the fixed and
variable costs the employee pays or incurs
in driving the automobile in perform-
ing services as an employee, except as
provided in section 7.06 of this revenue
procedure. Items such as depreciation
or lease payments, maintenance and re-
pairs, tires, gasoline (including all taxes
thereon), oil, insurance, license and reg-
istration fees, and personal property taxes
are included in fixed and variable costs for
this purpose.
(2) An employee may deduct, as sep-
arate items, parking fees and tolls attrib-
utable to the employee driving the stan-
dard automobile in performing services as
an employee. Similarly, an employee may
deduct, as a separate item, interest relating
to the purchase of the standard automobile
to the extent that the interest is an allow-
able deduction under § 163.
.04Depreciation.
(1) A payor may not provide a FAVR
allowance for an automobile for which an
employee has (a) claimed depreciation us-
ing a method other than straight-line for its
estimated useful life, (b) claimed a § 179
deduction, (c) claimed the additional first-
year depreciation allowance under, for ex-
ample, § 168(k) or § 168(n), or (d) used
ACRS under former § 168 or MACRS un-
der current § 168. If an employee uses
actual costs for an owned automobile that
has been covered by a FAVR allowance,
theemployeemustusestraight-linedepre-
ciation for the automobile’s remaining es-
timated useful life (subject to the applica-
ble depreciation deduction limitations un-
der § 280F).
(2) Except as provided in section
6.04(3) of this revenueprocedure, the total
amount of the depreciation component for
the retention period a payor includes in
computing the periodic fixed payments
for that retention period may not exceed
the excess of the standard automobile cost
over the residual value of the standard
automobile. In addition, the total amount
of the depreciation component may not
exceed the sum of the annual § 280F lim-
itations on depreciation in effect at the
beginning of the retention period that ap-
ply to the standard automobile during the
retention period.
(3) If the depreciation component of the
periodic fixed payments exceeds the limi-
tations in section 6.04(2) of this revenue
procedure, the Service will treat that sec-
tion as satisfied if the total annual amount
of the FAVR (periodic fixed and variable)
payments a payor makes to an employee
driving 80 percent of the annual business
mileage of the standard automobile does
not exceed the business standard mileage
rate for that year multiplied by 80 percent
of the annual business mileage of the stan-
dard automobile.
(4) The depreciation included in each
periodic fixed payment portion of a FAVR
allowance paid for an automobile reduces
the basis of the automobile (but not below
zero) in determining adjusted basis as re-
quired by § 1016.Seesection 6.07(2) of
this revenue procedure for the requirement
that the employer report the depreciation
component of a periodic fixed payment to
the employee.
.05FAVR allowance limitations.
(1) A payor may provide a FAVR al-
lowance only to an employee who substan-
tiates to the payor for a calendar year at
least 5,000 miles driveninperformingser-
vices as an employee or, if greater, 80 per-
cent of the annual business mileage of that
FAVR allowance. If the employee is cov-
ered by the FAVR allowance for less than
the entire calendar year, the payor may
prorate these limits on a monthly basis.
(2) A payor may not provide a FAVR
allowance to a control employee (as de-
fined in § 1.61–21(f)(5) and (6), exclud-
ing the $100,000 limitation in paragraph
(f)(5)(iii)).
(3) A payor may not provide a FAVR
allowance if at any time during a calen-
dar year a majority of the employees the
FAVR allowance covers are management
employees.
(4) A payor may not provide a FAVR
allowance to any employee unless at all
times during a calendar year FAVR al-
lowances provided by the payor cover at
least five employees in total.
(5) A payor may provide a FAVR al-
lowance only for an automobile (a) the
employee receiving the payment owns or
leases, (b) the cost of which, as a new ve-
hicle (whether or not purchased new by the
employee), was at least 90 percent of the
standard automobile cost included in de-
termining the FAVR allowance for the first
calendar year the employee receives the al-
lowance for that automobile, and (c) for
which the model year does not differ from
the current calendar year by more than the
number of years in the retention period.
(6) A payor may not provide a FAVR
allowance for an automobile an employee
leases for which the employee has used
actual expenses to compute the deductible
business expenses of the automobile for
any year during the lease period.
(7) The insurance cost component of
a FAVR allowance must be based on the
rates charged in the base locality for insur-
ance coverage on the standard automobile
during the current calendar year without
considering rate-increasing factors such as
poor driving records or young drivers.
(8) A payor may provide a FAVR al-
lowance only to an employee whose insur-
ance coverage limits on the automobile for
which the FAVR allowance is paid are at
least equal to the insurance coverage lim-
its used to compute the periodic fixed pay-
ment under that FAVR allowance.
.06Employee reporting. Within 30
days after a FAVR allowance initially cov-
ers an employee’s automobile, or again
covers the automobile if coverage has
lapsed, the employee by written declara-
tion must provide the payor with the fol-
December 20, 20108872010–51 I.R.B.

lowing information: (1) the make, model,
and year of the employee’s automobile,
(2) written proof of the insurance coverage
limits on the automobile, (3) the odometer
reading of the automobile, (4) if owned,
the purchase price of the automobile or, if
leased, the price at which the automobile is
ordinarily sold by retailers (the gross cap-
italized cost of the automobile), and (5) if
owned, whether the employee has claimed
depreciation for the automobile using any
of the depreciation methods prohibited by
section 6.04(1) of this revenue procedure
or, if leased, whether the employee has
computed deductible business expenses
for the automobile using actual expenses.
Theemployeealsomustprovidethein-
formation in (1), (2), and (3) to the payor
within 30 days after the beginning of each
calendar year that a FAVR allowance cov-
ers the employee’s automobile.
.07Payor recordkeeping and reporting.
(1) The payor or its agent must maintain
written records stating (a) the statistical
data and projections on which the FAVR
allowance payments are based, and (b) the
information the employees provided under
section 6.06 of this revenue procedure.
(2) Within 30 days of the end of each
calendar year, the payor must provide each
employee covered by a FAVR allowance
during that year with a statement that lists
the amount of depreciation included in
each periodic fixed payment portion of the
FAVR allowance paid during that calendar
year to an automobile owner and explains
that by receiving a FAVR allowance the
employee has elected to exclude the au-
tomobile from the Modified Accelerated
Cost Recovery System under § 168(f)(1).
For automobile lessees, the statement
must explain that by receiving the FAVR
allowance the employee may not compute
the deductible business expenses of the
automobile using actual expenses for the
lease period.
.08Failure to meet section 6 require-
ments. If an employee receives a mileage
allowance that fails to meet one or more
of the requirements of this section 6, the
employee may not be treated as covered
by any FAVR allowance of the payor dur-
ing the period of the failure. Neverthe-
less, the expenses to which that mileage
allowance relates may be deemed substan-
tiated using the method described in sec-
tions 4, 7.01(1), and 7.02 of this revenue
procedure to the extent the requirements of
those sections are met.
SECTION 7. MILEAGE
ALLOWANCES
.01 If a payor pays a mileage allowance
in lieu of reimbursing actual transportation
expenses an employee incurs or may incur,
the payor is deemed to have substantiated
either:
(1) For any mileage allowance other
than a FAVR allowance, the lesser of the
amount paid under the mileage allowance
or the business standard mileage rate mul-
tiplied by the number of substantiated
business miles; or
(2) For a FAVR allowance, the amount
paid under the FAVR allowance less the
sum of (a) any periodic variable rate pay-
ment that relates to miles in excess of the
substantiated business miles that the em-
ployee fails to return to the payor although
requiredtodoso,(b)anyportionofaperi-
odic fixed payment that relates to a period
during which the employee is treated as not
covered by the FAVR allowance and that
the employee fails to return to the payor
although required to do so, and (c) any op-
tional high mileage payments.
.02 An employee is deemed to sat-
isfy the adequate accounting require-
ments of § 1.274–5(f) and the requirement
to substantiate by adequate records or
other sufficient evidence for purposes of
§ 1.274–5(c) if the amount of transporta-
tion expenses is deemed substantiated
under the rules provided in section 7.01 of
this revenue procedure, and the employee
actually substantiatesto the payor the ele-
ments of time, place (or use), and business
purpose of the transportation expenses
under § 1.274–5T(b)(2) (travel away from
home), § 1.274–5T(b)(6) (listed property,
which includes passenger automobiles and
any other property used as a means of
transportation), and § 1.274–5(c).
.03 An arrangement providing mileage
allowances is treated as satisfying the re-
quirement of § 1.62–2(f)(2) on returning
amounts in excess of expenses as follows:
(1) For a mileage allowance (other than
a FAVR allowance) paid only at a cents-
per-mile rate, the requirement to return ex-
cess amounts is treated as satisfied if an
employee is required to return within a
reasonable period of time (as defined in
§ 1.62–2(g)) any portion of the allowance
that relates to unsubstantiated travel miles,
even though the arrangement does not re-
quire the employee to return the portion of
the allowance that relates to substantiated
travel miles and that exceeds the amount of
the employee’s expenses deemed substan-
tiated. For example, a payor provides an
employee an advance mileage allowance
of $120.00 based on an anticipated 200
business miles at 60 cents per mile (at a
time when the business standard mileage
rate is 50 cents per mile), and the em-
ployee substantiates 120 business miles.
The requirement to return excess amounts
is treated as satisfied if the employee is
required to return the portion of the al-
lowance that relates to the 80 unsubstanti-
ated business miles ($40.00) even though
the employee is not required to return the
portion of the allowance ($12.00) that ex-
ceeds the amount of the employee’s ex-
penses deemed substantiated under section
7.01 of this revenue procedure ($60.00)
for the 120 substantiated business miles.
However, the $12.00 excess portion of the
allowance is treated as paid under a nonac-
countable plan as discussed in section 7.05
of this revenue procedure.
(2) For a mileage allowance (other than
a FAVR allowance) paid other than only
at a cents-per-mile rate, the requirement
to return excess amounts is treated as sat-
isfied if the employee is required to re-
turn within a reasonable period of time
(as defined in § 1.62–2(g)) any portion of
the allowance that exceeds the product of
the business standard mileage rate and the
number of substantiated travel miles. For
example, a payor provides an employee
an advance mileage allowance of $400 per
month plus 20 cents per mile based on
an anticipated 2000 miles for a total of
$800 (at a time when the business stan-
dard mileage rate is 50 cents per mile),
and the employee substantiates 1000 busi-
ness miles. The requirement to return ex-
cess amounts is treated as satisfied if the
employee is required to return $300, the
portion of the allowance that exceeds the
product of the standard mileage rate and
the miles substantiated ($500).
(3) For a FAVR allowance, the require-
ment to return excess amounts is treated
as satisfied if the employee is required to
return, within a reasonable period of time
(as defined in § 1.62–2(g)), (a) the portion
(if any) of the periodic variable payment
received that relates to miles in excess of
2010–51 I.R.B.888December 20, 2010

substantiated business miles, and (b) the
portion (if any) of a periodic fixed payment
that relates to a period during which the
employee was not covered by the FAVR al-
lowance.
.04 An employee is not required to
include in gross income the portion of a
mileage allowance received from a payor
that is less than or equal to the amount
deemed substantiated under section 7.01
of this revenue procedure, provided the
employee substantiates under section
7.02 of this revenue procedure.See
§ 1.274–5T(f)(2)(i). Assuming that the re-
maining requirements for an accountable
plan provided in § 1.62–2 are satisfied,
that portion of the allowance is treated
as paid under an accountable plan, is not
reported as wages or other compensation
on the employee’s Form W–2, and is ex-
empt from withholding and payment of
employment taxes.See§ 1.62–2(c)(2) and
(c)(4).
.05 An employee is required to include
in gross income the portion of a mileage
allowance received from a payor that ex-
ceeds the amount deemed substantiated
under section 7.01 of this revenue proce-
dure.See§ 1.274–5T(f)(2)(ii). In addi-
tion, the excess portion of the allowance
is treated as paid under a nonaccountable
plan, is reported as wages or other compen-
sation on the employee’s Form W–2, and
is subject to withholding and payment of
employment taxes.See§ 1.62–2(c)(3)(ii),
(c)(5), and (h)(2)(i)(B).
.06 If an employee’s substantiated ex-
penses are less than the employee’s actual
expenses, the following rules apply:
(1) Except as otherwise provided in
section 7.06(2) of this revenue procedure
on leased automobiles, if the amount of
the expenses deemed substantiated under
the rules provided in section 7.01 of this
revenue procedure is less than the amount
of the employee’s business transporta-
tion expenses, the employee may claim
an itemized deduction for the amount
by which the business transportation ex-
penses exceed the amount that is deemed
substantiated, provided the employee sub-
stantiates all the business transportation
expenses (not just the excess over the
business standard mileage rate), includes
on Form 2106,Employee Business Ex-
penses, the deemed substantiated portion
of the mileage allowance received from
the payor, and includes in gross income the
portion (if any) of the mileage allowance
received from the payor that exceeds
the amount deemed substantiated.See
§ 1.274–5T(f)(2)(iii). However, for pur-
poses of claiming this itemized deduction,
the employee is not required to substan-
tiate the amount of the expenses if the
employee is claiming a deduction that is
equal to or less than the business standard
mileage rate multiplied by the number of
business miles the employee substantiated
minus the amount deemed substantiated
under section 7.01 of this revenue proce-
dure. The itemized deduction is subject
to the 2-percent floor on miscellaneous
itemized deductions under § 67.
(2) An employee whose business trans-
portation expenses for a leased automobile
are deemed substantiated under section
7.01(1) of this revenue procedure (relating
to an allowance other than a FAVR al-
lowance) may not claim a deduction based
on actual expenses under section 7.06(1)
unless the employee does so consistently
beginning with the first business use of
the automobile after December 31, 1997.
An employee whose business transporta-
tion expenses for a leased automobile
are deemed substantiated under section
7.01(2) of this revenue procedure (relating
to a FAVR allowance) may not claim a
deduction based on actual expenses.
.07 An employee may deduct an
amount computed under section 4 of this
revenue procedure only as an itemized
deduction. This itemized deduction is
subject to the 2-percent floor on miscella-
neous itemized deductions in § 67.
.08 A self-employed individual may
deduct an amount computed under section
4 of this revenue procedure in determining
adjusted gross income under § 62(a)(1).
SECTION 8. WITHHOLDING AND
PAYMENT OF EMPLOYMENT TAXES
.01 The portion of a mileage allowance
(other than a FAVR allowance), if any, that
relates to substantiated business miles and
that exceeds the amount deemed substanti-
ated for those miles under section 7.01(1)
of this revenue procedure is treated as paid
under a nonaccountable plan and is sub-
ject to withholding and payment of em-
ployment taxes.See§ 1.62–2(h)(2)(i)(B).
(1) For a mileage allowance paid as a re-
imbursement, the excess described in sec-
tion 8.01 of this revenue procedure is sub-
ject to withholding and payment of em-
ployment taxes in the payroll period in
which a payor reimburses the expenses
for the substantiated business miles.See
§ 1.62–2(h)(2)(i)(B)(2).
(2) For a mileage allowance paid as an
advance, the excess described in section
8.01 of this revenue procedure is subject
to withholding and payment of employ-
ment taxes no later than the first payroll
period following the payroll period in
which the business miles for which the
advance was paid are substantiated.See
§ 1.62–2(h)(2)(i)(B)(3). If some or all of
the business miles for which the advance
was paid are not substantiated within a
reasonable periodof time and the em-
ployee does not return the portion of the
allowance that relates to those miles within
a reasonable period of time, the portion of
the allowance that relates to those miles
is subject to withholding and payment of
employment taxes no later than the first
payroll period following the end of the rea-
sonable period.See§ 1.62–2(h)(2)(i)(A).
(3) For a mileage allowance that is not
computed on the basis of a fixed amount
per mile of travel (for example, a mileage
allowance that combines periodic fixed
and variable rate payments, but that does
not satisfy the requirements of section 6
of this revenue procedure), the payor must
compute periodically (no less frequently
than quarterly) the amount, if any, that
exceeds the amount deemed substantiated
under section 7.01(1) of this revenue pro-
cedure by comparing the total mileage
allowance paid for the period to the busi-
ness standard mileage rate multiplied by
the number of business miles the employee
substantiated for the period. Any excess
is subject to withholding and payment of
employment taxes no later than the first
payroll period following the payroll pe-
riod in which the excess is computed.See
§ 1.62–2(h)(2)(i)(B)(4).
(4) For example, a payor provides em-
ployees a mileage allowance under an
arrangement that otherwise meets the re-
quirements of an accountable plan at a
rate of 60 cents per mile (when the busi-
ness standard mileage rate is 50 cents per
mile). The payor does not require the re-
turn of the portion of the allowance that
exceeds the business standard mileage
rate for the substantiated business miles
(10 cents). In June, the payor advances
an employee $300.00 for 500 miles to be
December 20, 20108892010–51 I.R.B.

traveled during the month. In July, the
employee substantiates to the payor 400
business miles traveled in June and returns
$60.00 to the payor for the 100 business
miles not traveled. The amount deemed
substantiated for the 400 miles traveled is
$200.00 and the employee is not required
to return $40.00. No later than the first
payroll period following the payroll period
in which the 400 business miles traveled
are substantiated, the payor must withhold
and pay employment taxes on $40.00.
.02 The portion of a FAVR allowance,
if any, that exceeds the amount deemed
substantiated for those miles under section
7.01(2) of this revenue procedure is sub-
ject to withholding and payment of em-
ployment taxes.See§ 1.62–2(h)(2)(i)(B).
(1) Any periodic variable rate payment
that relates to miles in excess of the busi-
ness miles an employee substantiates and
that the employee fails to return within a
reasonable period, or any portion of a pe-
riodic fixed payment that relates to a pe-
riod during which the employee is treated
as not covered by the FAVR allowance and
that the employee fails to return within a
reasonable period, is subject to withhold-
ing and payment of employment taxes no
later than the first payroll period follow-
ing the end of the reasonable period.See
§ 1.62–2(h)(2)(i)(A).
(2) Any optional high mileage payment
is subject to withholding and payment of
employment taxes when paid.
.03 All payments to an employee un-
der a mileage allowance are treated as
paid under a nonaccountable plan if the
arrangement evidences a pattern of abuse.
An arrangement evidences a pattern of
abuse if, for example, it has no process to
determine when an allowance exceeds the
amount that may be deemed substantiated
and the arrangement routinely pays al-
lowances in excess of the amount that may
be deemed substantiated without (1) re-
quiring actual substantiation or repayment
of the excess amount, or (2) treating the ex-
cess allowances as wages for employment
tax purposes. See § 62(c), § 1.62–2(k),
and Rev. Rul. 2006–56, 2006–2 C.B. 874.
Thus, these payments are included in the
employee’s gross income, are reported
as wages or other compensation on the
employee’s Form W–2, and are subject to
withholding and payment of employment
taxes. See §§ 1.62–2(c)(3), (c)(5), and
(h)(2).
SECTION 9. EFFECTIVE DATE
This revenue procedure is effective
for (1) deductible transportation expenses
paid or incurred on or after January 1,
2011, and (2) mileage allowances or reim-
bursements(a)paidtoanemployeeortoa
charitable volunteer on or after January 1,
2011, and (b) for transportation expenses
the employee or charitable volunteer pays
or incurs on or after January 1, 2011.
SECTION 10. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2009–54 is superseded.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Bernard P. Harvey of the Of-
fice of Associate Chief Counsel (Income
Tax and Accounting). For further infor-
mation regarding this revenue procedure,
contact Mr. Harvey at (202) 622–4930
(not a toll-free call).
2010–51 I.R.B.890December 20, 2010

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Specified Tax
Return
Preparers Re
quired to File
Individual I
ncome Tax Returns
Using Magne
tic Media
REG–100194–
10
AGENCY: Inte
rnal Revenue Service
(IRS), Treas
ury.
ACTION: Noti
ce of proposed rulemaking
and notice of
public hearing.
SUMMARY: Thi
s document contains
proposed reg
ulations relating to the re-
quirement fo
r “specified tax return prepar-
ers,” genera
lly tax return preparers who
reasonably
expect to file more than 10
individual
income tax returns in a cal-
endar year,
to file individual income tax
returns usi
ng magnetic media pursuant to
section 60
11(e)(3) of the Internal Revenue
Code (Code
). The proposed regulations
reflect ch
anges to the law made by the
Worker, Ho
meownership, and Business
Assistanc
e Act of 2009. The proposed
regulatio
ns affect specified tax return pre-
parers wh
o prepare and file individual
income ta
x returns, as defined in section
6011(e)(
3)(C). For calendar year 2011, the
proposed
regulations define a specified
tax retu
rn preparer as a tax return pre-
parer wh
o reasonably expects to file (or
if the pr
eparer is a member of a firm, the
firm’s m
embers in the aggregate reason-
ably exp
ect to file) 100 or more individual
income
tax returns during the year, while
beginn
ing January 1, 2012 a specified tax
return
preparer is a tax return preparer
who rea
sonably expects to file (or if the
prepar
er is a member of a firm, the firm’s
membe
rs in the aggregate reasonably
expec
t to file) 11 or more individual
incom
e tax returns in a calendar year.
The pr
oposed regulations are unrelated
to and
are not intended to address the
requi
rements for obtaining a preparer
tax i
dentification number (PTIN) under
sect
ion 6109. See the final regulations
unde
r section 6109 published in the
Federal Regis
ter(75 FR 60309–01). This
document also
provides a notice of a public
hearingonthe
se proposed regulations.
DATES: Written or electronic comments
must be received by January 3, 2011. Out-
lines of topics to be discussed at the pub-
lic hearing scheduled for January 7, 2011
must be received by January 3, 2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–100194–10), room
5205, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–100194–10),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224, or sent elec-
tronically via the Federal eRulemaking
Portal atwww.regulations.gov(IRS —
REG–100194–10). The public hearing
will be held in the auditorium, Internal
Revenue Building, 1111 Constitution Av-
enue, NW, Washington, DC 20224.
FOR FURT
HER INFORMATION
CONTACT
: Concerning the proposed reg-
ulation
s, Keith L. Brau, (202) 622–4940;
concern
ing submissions of comments,
the hear
ing, and/or to be placed on the
buildi
ng access list to attend the hearing,
Oluwaf
unmilayo Taylor of the Publica-
tions a
nd Regulations Branch at (202)
622–71
80 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The col
lection of information contained
in this
notice of proposed rulemaking has
been s
ubmitted to the Office of Manage-
ment a
nd Budget for review in accordance
with t
he Paperwork Reduction Act of 1995
(44 U.
S.C. 3507(d)). Comments on the
colle
ction of information should be sent to
theO
ffice of Management and Budget,
Attn
: Desk Officer for the Department
of th
e Treasury, Office of Information
and R
egulatory Affairs, Washington,
DC 20
503, with copies to theInternal
Reve
nue Service, Attn: IRS Reports
Cle
arance Officer, SE:CAR:MP:T:T:SP,
Washington, D
C 20224. Comments on
the collectio
n of information should be
received by Ja
nuary 3, 2011. Comments
are specifica
lly requested concerning:
Whether the pr
oposed collection of
information i
s necessary for the proper
performance o
f the Internal Revenue Ser-
vice, includ
ing whether the information
will have pra
ctical utility;
The accuracy
of the estimated burden
associated w
ith the proposed collection of
information
(see below) or of the certifica-
tion contain
ed under the heading “Special
Analyses”;
How the qual
ity, utility, and clarity of
the informa
tion to be collected may be en-
hanced;
How the burd
en of complying with the
proposed co
llection of information may be
minimized;
and
Estimates o
f capital or start-up costs
and costs o
f operation, maintenance, and
purchases
of service to provide informa-
tion.
The collec
tion of information
in this pro
posed regulation is in
§301.6011
–6(a)(4)(ii). This information
can be used
by tax return preparers and
specifie
d tax return preparers, if neces-
sary, to d
emonstrate to the IRS that the
related i
ndividual income tax returns filed
in paper f
ormat were not required to be
filed el
ectronically pursuant to section
6011(e)
(3) and §301.6011–6. The collec-
tion of i
nformation is voluntary to obtain
a benefi
t. The likely respondents are the
individ
uals and small businesses who
prepare
individual income tax returns in
exchan
ge for compensation. It is esti-
mated t
hat 5 minutes of preparation time
is need
edforataxreturnpreparertoex-
plain t
he purpose of the information and
obtain
it from the taxpayer in the manner
presc
ribed by the IRS and 6 minutes for
recor
dkeeping, consisting of maintaining
acopy
of the information submitted for
the re
spondent’s records.
Estim
ated total annual reporting bur-
den: 1
,222,815 hours in calendar year
2011 a
nd 1,689,930 hours in calendar year
2012
.
Estim
ated average annual burden hours
per r
espondent: 9.06 hours (per firm) in
cale
ndar year 2011 and 5.42 hours (per
firm
) in calendar year 2012.
December 20, 20108912010–51 I.R.B.

Estimated number of respondents or
recordkeepers: 135,000 in calendar year
2011 and 312,000 in calendar year 2012.
Estimated annual frequency of re-
sponses per respondent: 49 in calendar
year 2011 and 29.5 in calendar year 2012.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long as
their contents may become material in the
administration of any internal revenue law.
Background
Recognizing the benefits of electronic
filing, Congress enacted section 2001(a)
of the IRS Restructuring and Reform Act
of 1998, Public Law 105–206 (112 Stat.
727), which states that a policy of Con-
gress is to promote paperless filing. Elec-
tronic filing of tax returns benefits taxpay-
ers and the IRS by reducing errors that
are more likely to occur during the man-
ual preparation and processing of paper re-
turns. Electronic filing of tax returns re-
sults in faster settling of accounts and bet-
ter customer service because the time re-
quired to process paper returns is elim-
inated. Electronic filing of tax returns
improves taxpayer satisfaction and confi-
dence in the filing process, and may be
more cost effective.Electronic filing of
tax returns enables the IRS to review tax-
payer submissions expeditiously to reduce
audit cycle time and helps the IRS identify
emerging trends more efficiently.
Section 6011(e)(1) generally autho-
rizes the Secretary to prescribe regulations
providing the standards for determining
which returns must be filed on magnetic
media, including electronic filing. Prior to
passage of the Worker, Homeownership,
and Business Assistance Act of 2009,
Public Law 111–92 (123 Stat. 2984, 2997
(2009)) (Act), section 6011(e)(1) provided
that, without exception, the Secretary may
not require returns of any tax imposed
by subtitle A on individuals, estates, and
trusts to be other than on paper forms
supplied by the Secretary. Under section
6011(e)(2)(A), in prescribing regulations
under section 6011(e)(1), the Secretary
shall not require any person (taxpayer) to
file on magnetic media (including elec-
tronically) unless the person is required to
file at least 250 returns during the calendar
year.
With respect to the restriction that the
Secretary may not require returns of any
tax imposed by subtitle A on individu-
als, estates, and trusts to be filed in any
format other than paper forms supplied
by the Secretary, the Act amended sec-
tion 6011(e)(1) to provide an exception
for individual income tax returns filed by
specified tax return preparers, as set forth
in new section 6011(e)(3). New section
6011(e)(3) provides that the Secretary
shall require the filing on magnetic media
of any individual income tax returns pre-
paredandfiledbyaspecifiedtaxreturn
preparer. As more fully discussed below,
filing on magnetic media includes elec-
tronic filing.
The Act’s amendment to section
6011(e) requires the Secretary to issue reg-
ulations to implement the statute. These
proposed regulations require that the in-
dividual income tax returns prepared
and filed by specified tax return prepar-
ers be filed electronically. To enhance
compliance and to promote effective and
efficient administration of the congres-
sionally-mandated requirement of section
6011(e)(3), the proposed regulations pro-
vide a transition rule for certain specified
taxreturnpreparers.
Explanation of Provisions
1.Specified Tax Return Preparers
Required to File Individual Income Tax
Returns Using Magnetic Media
In general
With certain exclusions, discussed in
the next section, the proposed regulations
provide that any individual income tax
return prepared and filed by a specified
tax return preparer must be filed using
magnetic media, as required under sec-
tion 6011(e)(3). For purposes of these
proposed regulations,magnetic media
is defined in §301.6011–2(a)(1), which
generally includes magnetic tape, tape car-
tridge, and diskette, as well as other media,
such as electronic filing, specifically per-
mitted under the applicable regulations,
procedures, or publications. Also, for pur-
poses of these proposed regulations and
as defined under section 6011(e)(3)(C),
anindividual income tax returnis any
return of income tax imposed by subtitle
A on individuals, estates, and trusts. This
includes any return of income tax in the
Form 1040 series and Form 1041 series.
It also includes Form 990–T(Exempt Or-
ganization Business Income Tax Return)
when the exempt organization is a trust
subject to tax on unrelated business tax-
able income under section 511(b).
The electronic filing requirement in
these proposed regulations applies to spec-
ified tax return preparers. Aspecified tax
return prepareris defined as any person
whoisataxreturnpreparer,asdefined
in section 7701(a)(36) and §301.7701–15,
unless the tax return preparer reasonably
expects to file 10 or fewer individual in-
come tax returns in a calendar year, and
if a person who is a tax return preparer
isamemberofafirm,thatpersonisa
specified tax return preparer unless the
person’s firm members in the aggregate
reasonably expect to file 10 or fewer in-
dividual income tax returns in a calendar
year. The proposed regulations do not
apply to individuals described in sec-
tion 7701(a)(36)(B)(i) through (iv) and
§301.7701–15(f) who are not defined as
tax return preparers under that Code sec-
tion and regulation,such as an individual
who provides tax assistance under a Vol-
unteer Income Tax Assistance (VITA)
program, a person who merely prepares
a return of the employer (or of an officer
or employee of the employer) by whom
the person is regularly and continuously
employed, or a person who prepares a re-
turn as a fiduciary for any person. Solely
for the 2011 calendar year, a tax return
preparer will not be considered a specified
taxreturnpreparerifthetaxreturnpre-
parer reasonably expects, or the preparer’s
firm members in the aggregate reasonably
expect, to file fewer than 100 individual
income tax returns in the 2011 calendar
year.
Under section 6011(e)(3), the concept
of “file” or “filed” individual income tax
returns affects both tax return preparers
and specified tax return preparers. Tax re-
turn preparers are affected by this concept
because a tax return preparer’s classifica-
tion as a specified tax return preparer is
based upon the number of individual in-
come tax returns the tax return preparer
reasonably expects to file in a given cal-
endar year. Specified tax return prepar-
ers are further affected by this concept be-
2010–51 I.R.B.892December 20, 2010

cause the electronic filing requirement for
any particular or specific individual in-
come tax return depends upon whether the
specified tax return preparer files the re-
turn. Therefore, for purposes of section
6011(e)(3) and these regulations only, an
individual income tax return is considered
to be “filed” by a tax return preparer or a
specified tax return preparer if the preparer
or any member, employee, or agent of the
preparer or the preparer’s firm submits the
taxreturntotheIRSonthetaxpayer’sbe-
half, either electronically (by e-file or other
magnetic media) or in non-electronic or
non-magnetic media (paper) form. Sub-
mission of a tax return in paper form in-
cludes the direct or indirect transmission,
sending, mailing, or otherwise delivering
ofthepapertaxreturntotheIRSbythetax
return preparer or the specified tax return
preparer, or by any member, employee, or
agent of the tax return preparer or the pre-
parer’s firm, and may include any act or
acts of assistance thatgo beyond the pro-
vision of filing or delivery instructions to
the taxpayer. For example, this can include
the preparer or a member of the preparer’s
firm dropping the return in the mailbox
for the taxpayer. The assistance of others
is considered for purposes of determining
whether a return is filed by a tax return
preparer or specified tax return preparer,
to prevent a preparer from avoiding these
rules by merely handing the return to an
employee or someone else in the firm to
mail to the IRS.
A tax return preparer or specified tax re-
turn preparer, or if the preparer is a mem-
ber of a firm, the preparer’s firm, will be
able to affirmatively demonstrate, if asked,
that it was a taxpayer’s choice to file an
individual income tax return in paper for-
mat if the preparer who prepared the re-
turn obtains a signed statement from the
taxpayer that states the taxpayer chooses
to file the return in paper format and that
the taxpayer, and not the preparer, will sub-
mit the paper return to the IRS. This state-
ment must be signed by the taxpayer (by
both spouses if a joint return) and dated
on or before the date the taxpayer files the
return. The IRS may provide guidance
through forms, instructions or other appro-
priate guidance regarding how preparers
can document taxpayer choices to file indi-
vidual income tax returns in paper format.
A notice containing a proposed revenue
procedure outlining the requirements and
format of statements to document when
a taxpayer chooses to file individual in-
come tax returns in paper format is be-
ing published in the Internal Revenue Bul-
letin (IRB) concurrently with these pro-
posed regulations.
In addition, the proposed regulations
provide that the definition of file or filed
does not alter or affect a taxpayer’s obli-
gation to file any type of tax return re-
quired under any other provision of law.
The definition offileorfiledby a tax re-
turn preparer or a specified tax return pre-
parer contained in these proposed regula-
tions applies only for the purposes of sec-
tion 6011(e)(3) and these regulations, and
does not apply for any other purpose un-
der any other provision of law, such as the
statutory period of limitations based on the
filing of a tax return.
2.Exclusions
The proposed regulations provide the
following exclusions from the electronic
filing requirement.
A.Undue hardship waivers
Under the proposed regulations, the
IRS may grant a waiver of the requirement
of this rule in cases of undue hardship.
A waiver may generally be granted to a
specified tax return preparer for an undue
hardship that can be identified in advance,
before the specified tax return preparer
would otherwise be required to file indi-
vidual income tax returns electronically.
Because this electronic filing requirement
is statutorily imposed, the IRS will ordi-
narily grant undue hardship waivers only
in rare cases. An undue hardship waiver
may be granted to a specified tax return
preparer for a series or class of individ-
ual income tax returns or for a specified
period of time. A determination of un-
due hardship will be based upon all facts
and circumstances. A specified tax return
preparer shall request an undue hardship
waiver in the manner prescribed by the
IRS in forms, instructions, or other ap-
propriate guidance. A notice containing a
proposed revenue procedure outlining the
requirements and format for undue hard-
ship waiver requests is being published
concurrently with these proposed regula-
tions.
B. Administrative exemptions
The IRS may provide administrative
exemptions for certain classes of specified
tax return preparers or types of individual
income tax returns as the IRS determines
necessary to promote effective and effi-
cient tax administration. For example, the
IRS may provide a broad administrative
exemption applicable to all tax return pre-
parers for a particular type of form if the
IRS does not yet provide the capability
to file the form electronically, or for in-
dividual income tax returns prepared by
specified tax return preparers who meet
certain conditions defined by the IRS.
The IRS may also provide an administra-
tive exemption for individual income tax
returns that contain or require documen-
tation or attachments that the IRS does
not yet provide the capability to file elec-
tronically, for example, documentation for
the First-Time Homebuyer Credit, section
6707A disclosures, or required appraisals
to support charitable contributions. The
IRS may also provide a limited adminis-
trative exemption for specified tax return
preparers who are certified members of,
and follow the teachings of, a recognized
religious group that is conscientiously op-
posed to using electronic media, which
would include filing electronically. Un-
like undue hardship waivers, specified
tax return preparers who meet the criteria
of an administrative exemption generally
need not submit a request to the IRS to
claim applicability of the administrative
exemption. The IRS may provide the cri-
teria and procedures, if any are necessary,
for administrative exemptions through
forms, instructions, or other appropriate
guidance.
3.Reasonably Expect to File
A.In general
The determination of whether a tax re-
turn preparer (or if the preparer is a mem-
ber of a firm, the preparer’s firm mem-
bers in the aggregate) reasonably expects
to file 10 or fewer individual income tax
returns (or, in the case of the 2011 cal-
endar year, fewer than 100 individual in-
come tax returns) is made by adding to-
gether all of the individual income tax re-
turns (forms in the Form 1040 series, Form
1041 series, and Forms 990–T (when the
exempt organizations are trusts subject to
December 20, 20108932010–51 I.R.B.

tax on unrelated business taxable income
under section 511(b)), in the aggregate)
the tax return preparer and, if the preparer
isamemberofafirm,thefirm’smem-
bers, reasonably expect to prepare and file
in each calendar year. In making this de-
termination individual income tax returns
that are excluded from the electronic fil-
ing requirement due to taxpayer choice or
under the administrative exemption exclu-
sion, as provided in these proposed reg-
ulations, are not to be counted. Returns
excluded under the undue hardship waiver
exclusion are to be counted, however, be-
cause it is expected that such waivers will
generally be sought by tax return prepar-
ers who are specified tax return preparers
and who would ordinarily have to file these
returns electronically but for the waivers
granted by the IRS in cases of undue hard-
ship.
B.Time for making determination of
reasonable expectations
The determination regarding reason-
able expectations is made separately for
each calendar year in order to ascertain
whether the electronic filing requirement
applies to a tax return preparer for that
year. For each calendar year, the deter-
mination of whether a tax return preparer
and the preparer’s firm reasonably expect
to file 10 or fewer individual income tax
returns (or, in the case of the 2011 calendar
year, fewer than 100 individual income
tax returns) is made based on all relevant,
objective, and demonstrable facts and cir-
cumstances prior to the time the tax return
preparer and the preparer’s firm first file
an individual income tax return during the
calendar year.
4.Additional guidance
The proposed regulations authorize
the IRS to implement the requirements
of section 6011(e)(3) and the regulations
through additional guidance, including by
revenue procedures, notices, publications,
forms, and instructions, including those
issued electronically.
5.Proposed effective and applicability
dates
The proposed regulations are effective
and applicable on January 1, 2011. To
promote the effective and efficient admin-
istration of the electronic filing require-
ment in section 6011(e)(3), the proposed
regulations provide a transition rule for
2011, based upon the number of individ-
ual income tax returns a tax return pre-
parer files, to permit the IRS and affected
tax return preparers sufficient time to pre-
pare for and implement the requirements
of section 6011(e)(3) and these proposed
regulations. Beginning January 1, 2011,
tax return preparers who reasonably expect
to file (if a member of a firm whose firm
members in the aggregate reasonably ex-
pect to file) 100 or more individual income
tax returns in calendar year 2011 are spec-
ified tax return preparers who are subject
to these regulations in 2011. Beginning
January 1, 2012, tax return preparers who
reasonably expect to file (if a member of
a firm whose firm members in the aggre-
gate reasonably expect to file) 11 or more
individual income tax returns in a calendar
year are specified tax return preparers who
are subject to these regulations for that cal-
endar year.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required.
It is hereby certified that the collection
of information contained in these proposed
regulations would not have a significant
economic impact on a substantial number
of small entities. Accordingly, a Regula-
tory Flexibility Analysis under the Regu-
latory Flexibility Act (5 U.S.C. chapter 6)
is not required. Thiscertification is based
on a determination that these proposed reg-
ulations would impose, at most, a minimal
additional reporting or recordkeeping re-
quirement. As discussed in the Paperwork
Reduction Act section of this preamble, the
economic impact on affected small entities
is not significant.
It also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these proposed regulations. Pursuant
to section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking
has been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on their impact
on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
The Treasury Department and the IRS re-
quest comments on the clarity of the pro-
posed rules and how they can be made eas-
ier to understand. The Treasury Depart-
ment and the IRS also request comments
on the procedures and criteria to be estab-
lished to document taxpayer choices to file
in paper format and to request the undue
hardship waiver, as well as circumstances
that may warrant the granting of an admin-
istrative exemption for the 2011 calendar
year. Finally, the Treasury Department and
the IRS request comments on the accuracy
of the certification that the regulations in
this document will not have a significant
economic impact on a substantial number
of small entities as well as comments on
the Paperwork Reduction Act burden es-
timates contained in the Special Analysis
section of this preamble. All comments
that are submitted by the public will be
available for public inspection and copy-
ing.
A public hearing has been scheduled
for Friday, January 7, 2011 at 10 a.m.
in the auditorium of the Internal Revenue
Building, 1111 Constitution Avenue, NW.,
Washington, DC. Due to building secu-
rity procedures, all visitors must enter at
the Constitution Avenue entrance. In ad-
dition, all visitors must present photo iden-
tification to enter the building. Because
of access restrictions, visitors will not be
admitted beyond the immediate entrance
area more than 30 minutes before the hear-
ing starts. For information about having
your name placed on the building access
list to attend the hearing, see the “FOR
FURTHER INFORMATION CONTACT”
section of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments and
an outline of the topics to be discussed and
the time to be devoted to each topic by Jan-
uary 3, 2011.
A period of 10 minutes will be allot-
ted to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
2010–51 I.R.B.894December 20, 2010

deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these proposed
regulations is Keith L. Brau, Office of the
Associate Chief Counsel (Procedure and
Administration).
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6011–6 also issued under
26 U.S.C. 6011. * * *
Par. 2. Section 1.6011–6 is added to
read as follows:
§1.6011–6 Specified tax return preparers
required to file individual income tax
returns using magnetic media.
Individual income tax returns that are
required to be filed on magnetic media by
tax return preparers under §301.6011–6 of
this chapter must be filed in accordance
with Internal Revenue Service regulations,
revenue procedures, revenue rulings, pub-
lications, forms or instructions, including
those posted electronically.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 3. The authority citation for part
301isamendedbyaddinganentryinnu-
merical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6011–6 also issued under
26 U.S.C. 6011. * * *
Par. 4. Section 301.6011–6 is added to
read as follows:
§301.6011–6 Specified tax return
preparers required to file individual
income tax returns using magnetic media.
(a)Definitions.
(1)Magnetic media. For purposes
of this section, the termmagnetic
mediahas the same meaning as in
§301.6011–2(a)(1).
(2)Individual income tax return.The
termindividual income tax returnmeans
any return of tax imposed by subtitle A on
individuals, estates, and trusts.
(3)Specified tax return preparer.The
termspecified tax return preparermeans
any person who is a tax return preparer,
as defined in section 7701(a)(36) and
§301.7701–15, unless that person reason-
ably expects to file 10 or fewer individual
income tax returns in a calendar year.
If a person who is a tax return preparer
isamemberofafirm,thatpersonisa
specified tax return preparer unless the
person’s firm members in the aggregate
reasonably expect to file 10 or fewer in-
dividual income tax returns in a calendar
year. Solely for the 2011 calendar year, a
person will not be considered a specified
tax return preparer if that person reason-
ably expects, or if the person is a member
of a firm, the firm’s members in the aggre-
gate reasonably expect, to file fewer than
100 individual income tax returns in the
2011 calendar year. Solely for purposes
of this section, an individual is considered
a member of a firm if the individual is an
employee, agent, member, partner, share-
holder, or other equity holder of the firm.
(4)File or Filed.(i)Forpurposesof
section 6011(e)(3) and these regulations
only, an individual income tax return is
considered to be “filed” by a tax return
preparer or a specified tax return preparer
if the preparer submits the tax return to
the IRS on the taxpayer’s behalf, either
electronically (by e-file or other magnetic
media) or in non-electronic (paper) form.
Submission of an individual income tax re-
turn by a tax return preparer or a specified
tax return preparer in non-electronic form
includes the direct or indirect transmission,
sending, mailing or otherwise delivering of
thepapertaxreturntotheIRSbythepre-
parer, any member, employee, or agent of
the preparer, or any member, employee, or
agent of the preparer’s firm, and includes
any act or acts of assistance beyond pro-
viding filing or delivery instructions to the
taxpayer.
(ii) An individual income tax return will
not be considered to be filed, as defined in
paragraph (a)(4)(i) of this section, by a tax
return preparer or specified tax return pre-
parer if the tax return preparer or specified
tax return preparer who prepared the return
obtains, on or prior to the date the return is
filed, a signed (by both spouses if a joint re-
turn) and dated written statement from the
taxpayer that states the taxpayer chooses to
file the return in paper format, and that the
taxpayer, and not the preparer, will submit
the paper return to the IRS. The IRS may
provide guidance through forms, instruc-
tions or other appropriate guidance regard-
ing how preparers can document taxpayer
choices to file individual income tax re-
turns in paper format.
(iii) The rules contained in this section
do not alter or affect a taxpayer’s obliga-
tion to file returns under any other pro-
vision of law. The definition offileor
filedby a tax return preparer or speci-
fied tax return preparer contained in para-
graph (a)(4)(i) of this section applies only
for the purposes of section 6011(e)(3) and
these regulations and does not apply for
any other purpose under any other provi-
sion of law.
(b)Magnetic media filing requirement.
Except as provided in paragraphs (a)(4)(ii)
and (c) of this section, any individual in-
come tax return prepared by a specified
tax return preparer in a calendar year must
be filed on magnetic media if the return is
filed by the specified tax return preparer.
(c)Exclusions. The following exclu-
sions apply to the magnetic media filing re-
quirement in this section:
(1)Undue hardship waiver.TheIRS
may grant a waiver of the requirement of
this section in cases of undue hardship.
An undue hardship waiver may be granted
upon application by a specified tax return
preparer consistent with instructions pro-
vided in published guidance and as pre-
scribed in relevant forms and instructions.
A determination of undue hardship will
be based upon all facts and circumstances.
The undue hardship waiver provided to a
specified tax return preparer may apply to
a series or class of individual income tax
returns or for a specified period of time,
subject to the terms and conditions regard-
ing the method of filing prescribed in such
waiver.
(2)Administrative exemptions.The
IRS may provide administrative exemp-
tions from the requirement of this section
for certain classes of specified tax return
preparers, or regarding certain types of
December 20, 20108952010–51 I.R.B.

individual income tax returns, as the IRS
determines necessary to promote effective
and efficient tax administration. The IRS
may provide administrative exemptions
and any criteria or procedures necessary
to claim an administrative exemption
through forms, instructions, or other ap-
propriate guidance.
(d)Reasonably expect to file—(1)In
general. The determination of whether a
tax return preparer reasonably expects, or
if the preparer is a member of a firm, the
firm’s members in the aggregate reason-
ably expect, to file 10 or fewer individual
income tax returns (or, in the case of the
2011 calendar year, fewer than 100 in-
dividual income tax returns) is made by
adding together all of the individual in-
come tax returns the tax return preparer
and, if the preparer is a member of a firm,
the firm’s members reasonably expect
to prepare and file in the calendar year.
In making this determination, individ-
ual income tax returns that the tax return
preparer reasonably expects will not be
subject to the magnetic media filing re-
quirement under paragraph (a)(4)(ii) of
this section or are excluded from the re-
quirement under (c)(2) of this section are
not to be counted. Returns excluded from
the magnetic media filing requirement
under paragraph (c)(1) of this section are
to be counted for purposes of making this
determination.
(2)Time for making determination of
reasonable expectations. The determina-
tion regarding reasonable expectations is
made separately for each calendar year in
order to ascertain whether the magnetic
media filing requirement applies to a tax
return preparer for that year. For each cal-
endar year, the determination of whether a
taxreturnpreparerandthepreparer’sfirm
reasonably expect to file 10 or fewer indi-
vidual income tax returns (or, in the case of
the 2011 calendar year, fewer than 100 in-
dividual income tax returns) is made based
on all relevant, objective, and demonstra-
ble facts and circumstances prior to the
time the tax return preparer and the pre-
parer’s firm first file an individual income
tax return during the calendar year.
(e)Examples. The examples read as
follows:
Example 1. Tax Return Preparer A is an accoun-
tant who recently graduated from college with an ac-
counting degree and has opened his own practice. A
has not prepared individual income tax returns for
compensation in the past and does not plan to focus
his practice on individual income tax return prepa-
ration. A intends instead to focus his practice on
providing specialized accounting services to certain
health care service providers. A has no plans to, and
does not, employ or engage any other tax return pre-
parers. A estimates that he may be asked by some
clients to prepare and file their individual income tax
returns for compensation, but A expects that the num-
ber of people who do ask him to provide this service
will be no more than seven in 2012. In fact, A actu-
ally prepares and files six paper Form 1040(U.S. In-
dividual Income Tax Return)returns in 2012. Due to
a growing client base, and based upon his experience
in 2012, A expects that the number of individual in-
come tax returns he will prepare and file in 2013 will
at least double, estimating he will prepare and file 12
Form 1040 returns in 2013. A does not qualify as a
specified tax return preparer for 2012 because A rea-
sonably expects to file 10 or fewer (seven) in 2012.
Consequently, A is not required to electronically file
the individual income tax returns he prepares and files
in 2012. He does not qualify as a specified tax return
preparer for that year because A reasonably expects
to file 10 or fewer returns (seven) in 2012. A’s ex-
pectation is reasonable based on his business projec-
tions, individual income tax return filing history, and
staffing decisions. A is a specified tax return preparer
in 2013, however, because based on those same fac-
tors A reasonably expects to file more than 10 indi-
vidual income tax returns (12) during that calendar
year. A, therefore, must electronically file all indi-
vidual income tax returns that A prepares and files in
2013 that are not otherwise excluded from the elec-
tronic filing requirement.
Example 2. Same facts as inExample 1, except
three of Tax Return Preparer A’s clients specifically
chose to have A prepare their individual income tax
returns in paper format in 2012 with the clients mail-
ing their respective returns to the IRS. A expects that
these three clients will similarly choose to have him
prepare their returns in paper format in 2013, with the
clients being responsible for mailing their returns to
the IRS. A is not required to electronically file these
three returns in 2013 because the taxpayers chose to
file their returns in paper format, and A obtained a
dated written statement from each of those taxpayers,
indicating that they chose to file their returns in paper
format. These three individual income tax returns are
not counted in determining how many individual in-
come tax returns A reasonably expects to file in 2013.
Because the total number of individual income tax re-
turns A reasonably expects to file in 2013 (nine) does
not exceed 10, A is not a specified tax return preparer
for calendar year 2013, and A is not required to elec-
tronically file any individual income tax return that
he prepares and files in 2013.
Example 3. Tax Return Preparer B is a solo gen-
eral practice attorney in a small county. Her practice
includes the preparation of wills and assisting execu-
tors in administering estates. As part of her practice,
B infrequently prepares and files Forms 1041 (U.S.
Income Tax Return for Estates and Trusts) for execu-
tors. In the past three years, she prepared and filed
an average of five Forms 1041 each year and never
exceeded more than seven Forms 1041 in any year.
Based on B’s prior experience and her estimate for
2012, made prior to the time she first files an individ-
ual income tax return in 2012, she reasonably expects
to prepare and file no more than five Forms 1041 in
2012. Due to the unforeseen deaths of several of her
clients in late 2011, B actually prepares and files 12
Forms 1041 in 2012. B does not find out about these
deaths until after she has already filed the first Form
1041 in 2012 for another client. B is not required to
electronically file these returns in 2012. She does not
qualify as a specified tax return preparer for calendar
year 2012 because prior to the time she filed the first
Form 1041 in 2012, she reasonably expected to file
10 or fewer individual income tax returns in 2012.
Example 4. Same facts asExample 3, except, in
addition to the five Forms 1041 that she expects to
prepare and file in 2012, Tax Return Preparer B also
expects to prepare and file 10 paper Forms 1040(U.S.
Individual Income Tax Return)in 2012, based upon
the requests that she has received from some of her
clients. Because the total number of individual in-
come tax returns B reasonably expects to file in 2012
(fifteen) exceeds 10, B is a specified tax return pre-
parer for calendar year 2012, and B must electroni-
cally file all individual income tax returns that B pre-
pares and files in 2012 that are not otherwise excluded
from the electronic filing requirement.
Example 5. Firm X consists of two tax return pre-
parers, Tax Return Preparer C who owns Firm X, and
TaxReturnPreparerDwhoisemployedbyCinFirm
X. Based upon the firm’s experience over the past
three years, C and D reasonably expect to file nine
and ten individual income tax returns for compensa-
tion, respectively, in 2012. Both C and D must elec-
tronically file the individual income tax returns that
they prepare in 2012, unlessthe returns are otherwise
excluded from the electronic filing requirement, be-
cause they are members of the same firm and the ag-
gregated total of individual income tax returns that
they reasonably expect to file in 2012 (nineteen), ex-
ceeds 10 individual income tax returns.
(f)Additional guidance.TheIRSmay
implement the requirements of this section
through additional guidance, including by
revenue procedures, notices, publications,
forms and instructions, including those is-
sued electronically.
(g)Proposed effective/applicability
dates. This section is proposed to be ef-
fective and applicable on January 1, 2011.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on December 1,
2010, 4:15 p.m., and published in the issue of the Federal
Register for December 3, 2010, 75 F.R. 75439)
2010–51 I.R.B.896December 20, 2010

Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2010–92
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed,
contributions from individuals and orga-
nizations described in section 170(c)(2)
that are otherwise allowable will continue
to be deductible. Protection under section
7428(c) would begin on December 20,
2010, and would end on the date the court
first determines that the organization is
not described in section 170(c)(2) as more
particularly set forth in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.
Chesapeake Wildlife Sanctuary, Inc.
Valley Park, MO
Communities in Schools of Northern
Virginia
Alexandria, VA
Luxury for Learning, Inc.
Brunswick, MO
Owls Nest 1230
Parkersburg, WV
Rensselaer Alumni Association, Inc.,
Orange County Chapter
Lakewood, CA
The Retired Enlisted Association
Fayetteville, NC
YouthEducationScholarship Services
Lathrop, CA
Section 7428(c) Validation
of Certain Contributions
Made During Pendency
of Declaratory Judgment
Proceedings
Announcement 2010–93
This announcement serves notice to po-
tential donors that the organization listed
below has recently filed a timely declara-
tory judgment suit under section 7428 of
the Code, challenging revocation of its
status as an eligibledonee under section
170(c)(2).
Protection under section 7428(c) of the
Code begins on the date that the notice
of revocation is published in the Internal
Revenue Bulletin and ends on the date
on which a court first determines that an
organization is not described in section
170(c)(2), as more particularly set forth in
section 7428(c)(1).
In the case of individual contributors,
the maximum amount of contributions
protected during this period is limited to
$1,000.00, with a husband and wife being
treated as one contributor. This protection
is not extended to any individual who was
responsible, in whole or in part, for the
acts or omissions of the organizations that
were the basis for the revocation.
This protection also applies (but with-
out limitation as to amount) to organiza-
tions described in section 170(c)(2) which
are exempt from tax under section 501(a).
If the organization ultimately prevails in its
declaratory judgment suit, deductibility of
contributions would be subject to the nor-
mal limitations set forth under section 170.
The Hope And Dreams Foundation,
Palo Alto, CA
Credit Counseling Bureau of San Diego
County, Inc.,
San Diego, CA
December 20, 20108972010–51 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.
2010–51 I.R.B.iDecember 20, 2010

Numerical Finding List
1
Bulletins 2010–27 through 2010–51
Announcements:
2010-43, 2010-27 I.R.B.42
2010-44, 2010-28 I.R.B.54
2010-45, 2010-29 I.R.B.87
2010-46, 2010-29 I.R.B.87
2010-47, 2010-30 I.R.B.173
2010-48, 2010-32 I.R.B.234
2010-49, 2010-34 I.R.B.272
2010-50, 2010-33 I.R.B.260
2010-51, 2010-33 I.R.B.261
2010-52, 2010-36 I.R.B.315
2010-53, 2010-36 I.R.B.323
2010-54, 2010-38 I.R.B.386
2010-55, 2010-37 I.R.B.346
2010-56, 2010-39 I.R.B.398
2010-57, 2010-38 I.R.B.386
2010-58, 2010-38 I.R.B.387
2010-59, 2010-39 I.R.B.399
2010-60, 2010-40 I.R.B.417
2010-61, 2010-40 I.R.B.417
2010-62, 2010-40 I.R.B.417
2010-63, 2010-40 I.R.B.417
2010-64, 2010-40 I.R.B.418
2010-65, 2010-40 I.R.B.418
2010-66, 2010-40 I.R.B.418
2010-67, 2010-40 I.R.B.418
2010-68, 2010-40 I.R.B.418
2010-69, 2010-40 I.R.B.418
2010-70, 2010-40 I.R.B.418
2010-71, 2010-40 I.R.B.418
2010-72, 2010-40 I.R.B.419
2010-73, 2010-40 I.R.B.419
2010-74, 2010-40 I.R.B.419
2010-75, 2010-41 I.R.B.428
2010-76, 2010-41 I.R.B.432
2010-77, 2010-41 I.R.B.433
2010-78, 2010-41 I.R.B.433
2010-79, 2010-42 I.R.B.475
2010-80, 2010-45 I.R.B.638
2010-81, 2010-45 I.R.B.638
2010-82, 2010-42 I.R.B.476
2010-83, 2010-50 I.R.B.848
2010-84, 2010-44 I.R.B.603
2010-85, 2010-44 I.R.B.604
2010-86, 2010-44 I.R.B.604
2010-87, 2010-43 I.R.B.557
2010-88, 2010-47 I.R.B.753
2010-89, 2010-46 I.R.B.669
2010-90, 2010-50 I.R.B.816
2010-91, 2010-50 I.R.B.848
2010-92, 2010-51 I.R.B.897
2010-93, 2010-51 I.R.B.
897
Notices:
2010-48, 2010-27 I.R.B.9
2010-49, 2010-27 I.R.B.10
2010-50, 2010-27 I.R.B.12
2010-51, 2010-29 I.R.B.83
2010-52, 2010-30 I.R.B.88
2010-53, 2010-31 I.R.B.182
2010-54, 2010-40 I.R.B.403
2010-55, 2010-33 I.R.B.253
2010-56, 2010-33 I.R.B.254
2010-57, 2010-34 I.R.B.267
2010-58, 2010-37 I.R.B.326
2010-59, 2010-39 I.R.B.396
2010-60, 2010-37 I.R.B.329
2010-61, 2010-40 I.R.B.408
2010-62, 2010-40 I.R.B.411
2010-63, 2010-41 I.R.B.420
2010-64, 2010-41 I.R.B.421
2010-65, 2010-41 I.R.B.424
2010-66, 2010-42 I.R.B.437
2010-67, 2010-43 I.R.B.529
2010-68, 2010-44 I.R.B.576
2010-69, 2010-44 I.R.B.576
2010-70, 2010-44 I.R.B.576
2010-71, 2010-50 I.R.B.822
2010-72, 2010-46 I.R.B.661
2010-73, 2010-46 I.R.B.662
2010-74, 2010-46 I.R.B.663
2010-75, 2010-48 I.R.B.781
2010-76, 2010-47 I.R.B.712
2010-77, 2010-51 I.R.B.851
2010-78, 2010-49 I.R.B.808
2010-79, 2010-49 I.R.B.809
2010-80, 2010-51 I.R.B.853
2010-81, 2010-50 I.R.B.825
2010-82, 2010-51 I.R.B.857
2010-83, 2010-51 I.R.B.862
2010-84, 2010-51 I.R.B.872
2010-85, 2010-51 I.R.B.877
2010-86, 2010-50 I.R.B.827
2010-88, 2010-51 I.R.B.882
Proposed Regulations:
REG-138637-07, 2010-44 I.R.B.581
REG-132554-08, 2010-48 I.R.B.783
REG-139343-08, 2010-33 I.R.B.256
REG-119921-09, 2010-45 I.R.B.626
REG-137486-09, 2010-46 I.R.B.668
REG-142800-09, 2010-44 I.R.B.580
REG-144762-09, 2010-45 I.R.B.637
REG-151605-09, 2010-31 I.R.B.184
REG-153340-09, 2010-42 I.R.B.469
REG-100194-10, 2010-51 I.R.B.891
REG-112841-10, 2010-27 I.R.B.41
REG-118412-10, 2010-29 I.R.B.85
Proposed Regulations— Continued:
REG-119046-10, 2010-40 I.R.B.415
REG-120391-10, 2010-35 I.R.B.310
REG-120399-10, 2010-32 I.R.B.239
REG-125592-10, 2010-43 I.R.B.556
Revenue Procedures:
2010-25, 2010-27 I.R.B.16
2010-26, 2010-30 I.R.B.91
2010-27, 2010-31 I.R.B.183
2010-28, 2010-34 I.R.B.270
2010-29, 2010-35 I.R.B.309
2010-30, 2010-36 I.R.B.316
2010-31, 2010-40 I.R.B.413
2010-32, 2010-36 I.R.B.320
2010-33, 2010-38 I.R.B.347
2010-34, 2010-41 I.R.B.426
2010-35, 2010-42 I.R.B.438
2010-36, 2010-42 I.R.B.439
2010-37, 2010-42 I.R.B.440
2010-38, 2010-43 I.R.B.530
2010-39, 2010-42 I.R.B.459
2010-40, 2010-46 I.R.B.663
2010-41, 2010-48 I.R.B.781
2010-42, 2010-47 I.R.B.715
2010-43, 2010-47 I.R.B.738
2010-44, 2010-49 I.R.B.811
2010-45, 2010-49 I.R.B.813
2010-46, 2010-49 I.R.B.814
2010-47, 2010-50 I.R.B.827
2010-48, 2010-50 I.R.B.828
2010-49, 2010-50 I.R.B.830
2010-50, 2010-50 I.R.B.841
2010-51, 2010-51 I.R.B.883
Revenue Rulings:
2010-18, 2010-27 I.R.B.1
2010-19, 2010-31 I.R.B.174
2010-20, 2010-36 I.R.B.312
2010-21, 2010-39 I.R.B.388
2010-22, 2010-39 I.R.B.388
2010-23, 2010-39 I.R.B.388
2010-24, 2010-40 I.R.B.400
2010-25, 2010-44 I.R.B.571
2010-26, 2010-44 I.R.B.573
2010-27, 2010-45 I.R.B.620
2010-28, 2010-49 I.R.B.804
2010-29, 2010-50 I.R.B.818
2010-30, 2010-50 I.R.B.820
Tax Conventions:
2010-48, 2010-32 I.R.B.234
2010-52, 2010-36 I.R.B.315
Treasury Decisions:
9486, 2010-27 I.R.B.3
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin
2010–26, dated June 28, 2010.
December 20, 2010ii2010–51 I.R.B.

Treasury Decisions— Continued:
9487, 2010-28 I.R.B.48
9488, 2010-28 I.R.B.51
9489, 2010-29 I.R.B.55
9490, 2010-31 I.R.B.176
9491, 2010-32 I.R.B.186
9492, 2010-33 I.R.B.242
9493, 2010-35 I.R.B.273
9494, 2010-43 I.R.B.500
9495, 2010-43 I.R.B.477
9496, 2010-43 I.R.B.484
9497, 2010-44 I.R.B.558
9498, 2010-45 I.R.B.605
9499, 2010-45 I.R.B.622
9500, 2010-46 I.R.B.649
9501, 2010-46 I.R.B.651
9502, 2010-46 I.R.B.641
9503, 2010-47 I.R.B.706
9504, 2010-47 I.R.B.670
9505, 2010-48 I.R.B.755
2010–51 I.R.B.iiiDecember 20, 2010

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2010–27 through 2010–51
Notices:
96-53
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2003-19
Revoked by
Notice 2010-53, 2010-31 I.R.B.182
2004-2
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2004-50
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2005-90
Supplemented by
Notice 2010-65, 2010-41 I.R.B.424
2006-69
Amplified by
Notice 2010-59, 2010-39 I.R.B.396
2008-51
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2008-52
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2008-113
Modified by
Notice 2010-80, 2010-51 I.R.B.853
2009-47
Obsoleted by
Rev. Proc. 2010-28, 2010-34 I.R.B.270
2009-80
Corrected by
Ann. 2010-59, 2010-39 I.R.B.399
2009-90
Superseded by
Notice 2010-54, 2010-40 I.R.B.403
2009-97
Modified by
Notice 2010-77, 2010-51 I.R.B.851
2010-6
Modified by
Notice 2010-80, 2010-51 I.R.B.853
2010-44
Amplified by
Notice 2010-82, 2010-51 I.R.B.857
Proposed Regulations:
REG-115037-00
Withdrawn by
Ann. 2010-60, 2010-40 I.R.B.417
REG-146893-02
Withdrawn by
Ann. 2010-60, 2010-40 I.R.B.417
Revenue Procedures:
81-18
Obsoleted by
Rev. Proc. 2010-27, 2010-31 I.R.B.183
87-50
Modified by
Rev. Proc. 2010-48, 2010-50 I.R.B.828
98-59
Modified by
Rev. Proc. 2010-48, 2010-50 I.R.B.828
2007-44
Modified by
Notice 2010-77, 2010-51 I.R.B.851
Notice 2010-48, 2010-27 I.R.B.9
2008-33
Superseded by
Rev. Proc. 2010-42, 2010-47 I.R.B.715
2008-49
Superseded by
Rev. Proc. 2010-38, 2010-43 I.R.B.530
2008-52
Modified by
Rev. Proc. 2010-44, 2010-49 I.R.B.811
T.D. 9504, 2010-47 I.R.B.670
2009-18
Obsoleted in part by
Rev. Proc. 2010-25, 2010-27 I.R.B.16
2009-30
Superseded by
Rev. Proc. 2010-26, 2010-30 I.R.B.91
2009-35
Superseded by
Rev. Proc. 2010-33, 2010-38 I.R.B.347
2009-46
Superseded by
Rev. Proc. 2010-37, 2010-42 I.R.B.440
2009-47
Superseded by
Rev. Proc. 2010-39, 2010-42 I.R.B.459
2009-48
Superseded by
Rev. Proc. 2010-43, 2010-47 I.R.B.738
Revenue Procedures— Continued:
2009-50
Modified by
Rev. Proc. 2010-35, 2010-42 I.R.B.438
Modified and superseded by
Rev. Proc. 2010-47, 2010-50 I.R.B.827
2009-54
Superseded by
Rev. Proc. 2010-51, 2010-51 I.R.B.883
2010-3
Modified by
Notice 2010-62, 2010-40 I.R.B.411
2010-24
Superseded by
Rev. Proc. 2010-47, 2010-50 I.R.B.827
Revenue Rulings:
67-436
Obsoleted by
T.D. 9504, 2010-47 I.R.B.670
2003-102
Obsoleted by
Rev. Rul. 2010-23, 2010-39 I.R.B.388
2010-2
Supplemented and superseded by
Rev. Rul. 2010-30, 2010-50 I.R.B.820
Treasury Decisions:
9487
Corrected by
Ann. 2010-50, 2010-33 I.R.B.260
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin 2010–26, dated June 28, 2010.
December 20, 2010iv2010–51 I.R.B.

2010–51 I.R.B.December 20, 2010

December 20, 20102010–51 I.R.B.

INTERNAL REVENUE BULLETIN
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