Internal Revenue Bulletin 2012-40 (PDF rendition): IRS Revenue Procedures

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 201
2-40
October 1, 2012
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9599, page 417.
Final regulations under section 1273 of the Code clarify the
circumstances in which property is traded on an established
market (that is, publicly traded) for purposes of determining
theissuepriceofadebtinstrument.
Rev. Proc. 2012–40, page 424.
This procedure provides domestic asset/liability percentages
and domestic investment yields needed by foreign life insur-
ance companies and foreign property and liability insurance
companies to compute their minimum effectively connected
net investment income under section 842(b) of the Code for
taxable years beginning after December 31, 2010.
EXCISE TAX
Notice 2012–57, page 424.
This notice was released to the media on August 31, 2012.
This notice informs taxpayers that the IRS has granted an exten-
sion of time to electronically file Forms 2290 (“Heavy Highway
Vehicle Use Tax Return”) that were due on August 31, 2012.
The extension of time to file electronic returns was granted be-
cause the IRS Modernized eFile (MeF) system was unavailable
from August 31, 2012, through September 4, 2012, for elec-
tronic filing of Form 2290. The time to file the Form 2290 and
pay the associated tax has been extended from August 31,
2012, to September 7, 2012.
ADMINISTRATIVE
REG–138367–06, page 426.
Proposed regulations modify the standards governing written
advice, clarify recent amendments to Circular 230, and update
certainprovisionsasappropriate.
Actions Relating to Court Decisions is on the page following the Introduction.
Finding Lists begin on page ii.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
October 1, 20122012–40 I.R.B.

Actions Relati
ng to Decisions of the Tax Court
It is the policy
of the Internal Rev-
enue Service t
o announce at an early date
whether it wil
l follow the holdings in cer-
tain cases. An
Action on Decision is the
document maki
ng such an announcement.
An Action on De
cision will be issued at
the discreti
on of the Service only on unap-
pealed issue
s decided adverse to the gov-
ernment. Gen
erally, an Action on Decision
is issued whe
re its guidance would be help-
ful to Servi
ce personnel working with the
same or simi
lar issues. Unlike a Treasury
Regulation
or a Revenue Ruling, an Action
on Decision
is not an affirmative statement
of Service
position. It is not intended to
serve as pu
blic guidance and may not be
cited as pr
ecedent.
Actions on
Decisions shall be relied
upon withi
n the Service only as conclu-
sions appl
ying the law to the facts in the
particul
ar case at the time the Action on
Decision
was issued. Caution should be
exercise
d in extending the recommenda-
tion of th
e Action on Decision to similar
cases whe
re the facts are different. More-
over, th
e recommendation in the Action on
Decisio
n may be superseded by new legis-
lation,
regulations, rulings, cases, or Ac-
tions on
Decisions.
Prior to
1991, the Service published
acquies
cence or nonacquiescence only in
certain regula
r Tax Court opinions. The
Service has ex
panded its acquiescence
program to inc
lude other civil tax cases
where guidanc
e is determined to be help-
ful. Accordin
gly, the Service now may
acquiesce or n
onacquiesce in the holdings
of memorandu
m Tax Court opinions, as
well as those
of the United States District
Courts, Clai
ms Court, and Circuit Courts
of Appeal. Re
gardless of the court decid-
ing the case
, the recommendation of any
ActiononDe
cision will be published in
the Interna
l Revenue Bulletin.
The recomme
ndation in every Action
on Decision
will be summarized as ac-
quiescence
, acquiescence in result only,
or nonacqu
iescence. Both “acquiescence”
and “acqui
escence in result only” mean
that the Se
rvice accepts the holding of
the court i
n a case and that the Service
will foll
ow it in disposing of cases with
thesamec
ontrolling facts. However, “ac-
quiescen
ce” indicates neither approval
nor disap
proval of the reasons assigned
by the cou
rt for its conclusions; whereas,
“acquie
scence in result only” indicates
disagre
ement or concern with some or all
of those
reasons. “Nonacquiescence” sig-
nifies t
hat, although no further review was
sought,
the Service does not agree with
the hol
ding of the court and, generally,
will not follow
the decision in disposing
of cases invol
ving other taxpayers. In
reference to a
n opinion of a circuit court
of appeals, a “
nonacquiescence” indicates
that the Servi
ce will not follow the hold-
ingonanation
wide basis. However, the
Service will
recognize the precedential
impact of the
opinion on cases arising
within the ve
nue of the deciding circuit.
The Actions o
n Decisions published in
the weekly In
ternal Revenue Bulletin are
consolidate
d semiannually and appear in
the first Bu
lletin for July and the Cumula-
tive Bullet
in for the first half of the year. A
semiannual
consolidation also appears in
the first Bu
lletin for the following January
andintheC
umulative Bulletin for the last
half of the
year.
The Commis
sioner does NOT ACQUI-
ESCE in the
following decision:
Internati
onal Business Machines
Corp. v. Un
ited States,
1
343F.2d91
4 (Ct. Cl. 1965),
cert. deni
ed, 382 U.S. 1028 (1966)
1
Nonacquiescence to the Court of Claims’ decision that the Service was required to apply an adverse ruling prospectively because retroactive application would treat the taxpayer who
requested the ruling differently from a taxpayer who received a favorable ruling on the same subject.
2012–40 I.R.B.October 1, 2012

October 1, 20122012–40 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 1273.
—Determina-
tion of Amount
of Original
Issue Discount
26 CFR 1.1273–1: Definition of OID.
T.D. 9599
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Property Traded on an
Established Market
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations that apply to determine when
property is traded on an established mar-
ket (that is, publicly traded) for purposes
of determining the issue price of a debt
instrument. The regulations amend the
current regulations toclarify the circum-
stances that cause property to be publicly
traded. The regulations also amend the
current regulations for reopenings of debt
instruments, potentially abusive situations,
and the definition of qualified stated inter-
est. The regulations provide guidance to
issuers and holders of debt instruments.
DATES:Effective Date:These regulations
are effective on September 13, 2012.
Applicability Dates:For the appli-
cability dates, see §§1.1273–1(c)(6)(ii),
1.1273–2(f)(10), 1.1274–3(b)(4)(ii), and
1.1275–2(k)(5).
FOR FURTHER INFORMATION
CONTACT: William E. Blanchard at (202)
622–3950 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The
collection of information contained
in t
hese regulations relating to the fur-
nis
hing of information under §1.1273–2
to determine t
heissuepriceofadebtin-
strument was p
reviouslyreviewedand
approved by th
e Office of Management
and Budget in
accordance with the Paper-
work Reducti
on Act of 1995 (44 U.S.C.
3507) under c
ontrol number 1545–1353.
The collecti
on of information in these fi-
nal regulat
ions is in §1.1273–2(f)(9) and
is an increa
se in the total annual burden in
the current
regulations under §1.1273–2.
Under §1.12
73–2(f)(9), the issuer of a
debt instru
ment is required to make the
fair marke
t value of property (which can
be stated a
s the issue price of the debt
instrumen
t) available to holders in a com-
mercially
reasonable fashion within 90
days of th
e date that the debt instruments
are issue
d, including by electronic pub-
lication
. The issuer’s determinations are
binding o
n all holders of the debt instru-
ment unle
ss the holder explicitly discloses
that its
determinations are different from
the issu
er’s determinations on a timely
filed Fe
deral income tax return for the
taxable
year that includesthe acquisition
date of
the debt instrument. The disclosure
must in
clude how the holder determined
the val
ue or issue price that it is using.
This in
formation is required by the IRS
to ensu
re consistent treatment between
the iss
uer and the holders or to alert the
IRS wh
en inconsistent positions are be-
ing ta
ken by the issuer and one or more
holde
rs. This information will be used
for au
dit and examination purposes. The
likel
y respondents are businesses or other
for-
profit institutions.
Esti
mated total annual reporting burden
is 10
,000 hours.
Esti
mated average annual burden per
resp
ondent is .5 hours.
Esti
mated average burden per response
is 5 m
inutes.
Esti
mated number of respondents is
20,0
00.
Esti
mated total frequency of responses
is 20
,000.
An ag
ency may not conduct or sponsor,
and a
person is not required to respond to, a
coll
ection of information unless it displays
aval
id control number assigned by the Of-
fice
of Management and Budget.
Book
s or records relating to a collection
of in
formation must be retained as long
as their conte
nts may become material in
the administr
ation of any internal revenue
law. Generall
y, tax returns and return in-
formation ar
e confidential, as required by
26 U.S.C. 610
3.
Background
The issue price
of a debt instrument is
determined un
der section 1273(b) of the
Internal Reve
nue Code (Code) or, in the
case of certai
n debt instruments issued
for property,
under section 1274. Section
1273(b)(3) g
enerally provides that in the
case of a debt
instrument issued for prop-
erty and part
of an issue some or all of
which is trad
ed on an established securi-
ties market (
oftenreferredtoas“publicly
traded”), t
he issue price of the debt instru-
ment is the f
air market value of the debt
instrument
. Similarly, if a debt instrument
is issued fo
r stock or securities (or other
property)
that are publicly traded, the is-
sue price o
f the debt instrument is the fair
market val
ue of the stock, securities, or
other prop
erty. If a debt instrument issued
for proper
ty is not publicly traded or is not
issued fo
r property that is publicly traded,
the issue
price of the debt instrument is
usually d
etermined under section 1274,
which gen
erally results in an issue price
equal to
the stated principal amount of
the debt
instrument if the debt instrument
provide
s for adequate stated interest.
Section
1.1273–2 of the Income Tax
Regulat
ions (the “current regulations”)
contain
s the rules that generally apply to
determi
netheissuepriceofadebtinstru-
ment th
at is publicly traded or is issued
for pub
liclytradedpropertyandwhen
proper
ty (including a debt instrument is-
sued fo
r property) is publicly traded. In
genera
l, under §1.1273–2(f) of the cur-
rent re
gulations, property is traded on
an est
ablished market (that is, publicly
trade
d for purposes of section 1273(b)(3)
and §1
.1273–2) if the property is ex-
chang
e listed property, market traded
prope
rty, property appearing on a quota-
tion
medium, or readily quotable property
in th
e 60-day period ending 30 days after
the i
ssue date of the debt instrument.
The i
ssue price of a debt instrument has
impo
rtant income tax consequences. As
2012–40 I.R.B.417October 1, 2012

an initial matter, the difference between
the issue price of a debt instrument and its
stated redemption price at maturity mea-
sures whether there is any original issue
discount (OID) associated with the instru-
ment. A debt-for-debt exchange (includ-
ing a significant modification of existing
debt) in the context of a workout may re-
sult in a reduced issue price for the new
debt, which generally would produce can-
cellation of indebtedness income for the is-
suer, a loss to the holder whose basis is
greater than the issue price of the new debt,
and OID that generally must be accounted
for by both the issuer and the holder of
the new debt. These consequences, exac-
erbated by the effects of the credit crisis on
the debt markets in recent years, have fo-
cused attention on the definition of when
property is traded on an established mar-
ket for purposes of §1.1273–2(f).
A notice of proposed rulemaking
(REG–131947–10, 2011–8 I.R.B. 521
[76 FR 1101]) (proposed regulations)
was published in theFederal Register
on January 7, 2011. No public hearing
was requested or held. However, writ-
ten comments responding to the notice
of proposed rulemaking were received
from the public. These comments were
considered and areavailable for public
inspection athttp://www.regulations.gov
or upon request. After consideration of
the comments, the proposed regulations
are adopted as amended by this Treasury
decision. The comments and the revisions
are discussed in this preamble.
Summary of Comments and
Explanation of Provisions
The increased liquidity and trans-
parency of the debt markets in recent years
has largely eliminated concerns about re-
liable information on sales and pricing
being unavailable. The proposed regula-
tions acknowledge this fact by updating
and streamlining the “publicly traded”
standard under the current regulations to
reflect current market practice. To the
extent that objective pricing information
exists, the proposed regulations use that
information to determine issue price for
purposes of section 1273.
Although the final regulations substan-
tially follow the framework established
in the proposed regulations, comments
received on the proposed regulations
prompted several changes. The final reg-
ulations dispense with the category of
exchange listed property because the small
amount of debt that is listed rarely actu-
ally trades over the exchange. Moreover,
although stock, commodities, and simi-
lar property are commonly listed on and
traded over a board or exchange, such
property typically will be the subject of
frequent sales or quotes and would be
covered in a separate category of publicly
traded property. A debt instrument that
is issued for stock, commodities, or simi-
lar exchange traded property is therefore
tested under the rule for property where
there is a sales price or quote within the
31-day period ending 15 days after the
issue date of the debt instrument. Elimi-
nating the category of property listed on
an exchange also eliminates the need for
thede minimistrading exception in the
proposed regulations, which was intended
toexcludepropertythatislistedonanex-
change but trades in a negligible quantity.
In response to commenters, the final
regulations also expand and clarify the $50
million exception forsmall debt issues in
the proposed regulations. Participants in
the debt trading markets indicated that liq-
uidity begins to noticeably diminish when
an issue falls below $100 million. The fi-
nal regulations therefore expand the small
debt issue exception from $50 million to
$100 million, which creates an automatic
exclusion for debt that is the least likely
to be publicly traded. The final regula-
tions also clarify that the exception applies
based on the outstanding stated principal
amount of the debt instruments in an issue
when the determination is made.
The other significant change made in
the final regulations is to require that is-
sue price be reported consistently by is-
suers and holders. In response to com-
ments, the final regulations provide that an
issuer’s determination as to whether prop-
erty is traded on an established market and,
if it is, the fair market value of the property
generally is binding on the holders of the
debt instrument. Information on pricing
and recent sales generally is easily accessi-
ble by the issuer of a debt instrument, mak-
ing the issuer the logical person to deter-
mine issue price. The final regulations also
require the issuer to make the fair market
value of the property (which can be stated
as the issue price of the debt instrument)
available to holders in a commercially rea-
sonable fashion, which can be a posting to
a web site or similar electronic publication,
within 90 days of the date that the debt in-
struments are issued. If a holder makes a
contrary determination that the property is
or is not traded on an established market,
or uses a fair market value that is differ-
ent from the value determined by the is-
suer, the holder must file a statement with
its income tax return that explicitly states
that it is using a different determination,
the reasons for the different determination
and, if applicable, describes how fair mar-
ket value was determined.
There also was a comment urging that
the final regulations be accompanied by
additional regulations, possibly under sec-
tion 446(b), that would require a matching
of the cancellation of debt income that of-
ten accompanies a debt-for-debt exchange
(with the issue price of the new debt in-
strument determined under these rules)
with the OID deductions that accrue sub-
sequently on the new debt instrument. As
an alternative, commenters suggested that
the Treasury Department and IRS provide
a special rule that treats the issue price of
the new debt instrument in a debt-for-debt
exchange as being equal to the lesser of the
issue price determined under the princi-
ples of section 1274 and the adjusted issue
price of the old debt instrument, whether
or not the old debt instrument or the new
debt instrument is publicly traded. The
same commenters recommended that the
suspension of the application of the appli-
cable high yield discount obligation rules
in section 163(e)(5) be extended, as they
were in Notice 2010–11, 2010–4 I.R.B.
326, January 25, 2010, or that similar re-
lief be provided for all debt instruments
issued in an exchange that meets certain
conditions. These suggestions were not
adopted because they are outside the scope
of these regulations.
The remaining comments relate to spe-
cific aspects of the proposed regulations.
For example, one commenter recom-
mended that the final regulations specify
that property falls within thede minimis
trading exception if no actual sales of the
property occur during the 31-day period
ending 15 days after the issue date. As
previously noted, because thede minimis
trading exception was not adopted in the
final regulations and the existence of price
quotations can be used to accurately de-
termine the fair market value of a debt
October 1, 20124182012–40 I.R.B.

instrument, this comment was not adopted
in the final regulations.
Several comments pertain to the rules
for sales and price quotations. One com-
menter recommended that the final regu-
lations provide that a sales price or quote
for property must provide a reasonable ba-
sis to determine fair market value for the
property to be treatedas publicly traded.
Another commenter recommended that if
an available actual sales price or quote is
from a date different than the issue date
and the taxpayer has a reasonable basis to
conclude that the fair market value as of
the issue date is different from such sales
price or quote, the taxpayer may use rea-
sonable methods to modify such price or
quote to arrive at the fair market value as
of the issue date. Commenters also rec-
ommended that the final regulations clar-
ify that a price quote must be abona fide
price quote to a third party to buy and sell,
must be available to the issuer or the holder
who is determining the issue price of the
debt instrument in question, and must ex-
ist independently of any inquiry the is-
suer or the holder makes in connection
with the issue price determination. The fi-
nal regulations rely on sales information
and price quotationsfrom brokers, deal-
ers, and pricing services, which are widely
available to market participants that trade
debt instruments. Recent financial infor-
mation, whether in the form of sales or
price quotes, is the most reliable objective
information available on fair market value,
and such information is readily available
to participants in the debt trading markets.
The final regulations are therefore respon-
sive to the concerns expressed by com-
menters. Moreover, as discussed earlier
in the preamble, the final regulations re-
quire the issuer to disclose the fair market
value of property to the holders, which will
ensure that the issue price is available to
holders in most situations.
In addressing the provision in the pro-
posed regulations that permits taxpayers
to use any reasonable method, consistently
applied, to determine the fair market value
when there is more than one sales price
or price quotation, commenters requested
that the final regulations describe various
factors that taxpayers may consider in es-
tablishing fair market value. In response
to this comment, the final regulations pro-
vide a non-exclusive list of factors a tax-
payer may consider to establish fair mar-
ket value. However, a method that may
be reasonable in one situation may not be
so in another situation. In addition, in re-
sponse to another comment on this pro-
vision in the proposed regulations, the fi-
nal regulations provide that a method will
be regarded as consistently applied as long
as it is consistently applied to the same or
substantially similar facts to determine the
fair market value.
One commenter recommended that the
final regulations clarify that a sales price
exists within the meaning of proposed
§1.1273–2(f)(3)(i) only if the purchase
and sale of the property occurs, and the
sales price is reasonably available, during
the testing period. The final regulations
accept part of this suggestion by explicitly
incorporating the 31-day time period in
the description of when a sales price ex-
ists, but the suggestion that the sales price
must be available in that same time period
would be needlessly restrictive and is not
adopted. The final regulations specifically
provide that taxpayers are only required
to search for executed sales for a reason-
able period of time after the issue date
(including a significant modification), but
that time need not be within the 31 days
surrounding the issue date. Here, too, the
addition of the issuer-holder consistency
rule described earlier in the preamble will
considerably alleviate the burden of deter-
mining when a sale has occurred because
the issuer is usually in the best position
to know when its debt has been sold or
modified.
In response to a comment, the final reg-
ulations add a second anti-abuse rule pro-
viding that if there is any sale or price
quote a principal purpose of which is to
causethepropertytobetradedonanes-
tablished market or to materially misrep-
resent the value of property for federal in-
come tax purposes, then the sale or price
quote is disregarded.
Finally, a commenter recommended
that the effective date of the final regu-
lations be modified to provide that the
new rules do not apply to any debt instru-
ment issued or exchanged pursuant to a
written binding agreement entered into by
the taxpayer before the date that the final
regulations are published in theFederal
Register. The final regulations do not
adopt this comment. However, to mini-
mize their effect on pending transactions,
the final regulations under §1.1273–2(f)
apply only to debt instruments issued on
or after 60 days after the publication date
of the final regulations.
Other Provisions
The proposed regulations expanded the
definition of a qualified reopening under
§1.1275–2(k) to debt instruments that are
issued for cash to unrelated persons, pro-
vided that the other requirements of the
regulations are satisfied. Commenters re-
quested that the qualified reopening rules
in §1.1275–2(k) be further liberalized. In
response to these comments, the final reg-
ulations expand the definition of a quali-
fied reopening to include an issuance that
satisfies a 100 percent yield test for a re-
opening after six months. This change is
consistent with the intent of the reopening
rules, which prevent taxpayers from con-
verting OID into market discount. In re-
sponse to comments, the final regulations
also make slight revisions to the rules used
to determine the testing date for a qualified
reopening.
Comments also were received on the
proposed amendment to the regulations
under section 1274 that address poten-
tially abusive situations. One commenter
suggested that the change to §1.1274–3
be deferred and considered as part of a
larger project addressing distorted gains
from modifications, or,alternatively, that
the proposed change be limited so that the
recent sale rule continues to apply to a
debt modification if all sales that are part
of the recent sales transaction involve,
in the aggregate, a large portion of the
modified debt (for example, more than
50 percent by principal amount). Another
commenter requested that the final reg-
ulations not apply if either a recent sale
occurs or a binding contract providing
for the recent sale is entered into prior to
publication because investors may commit
to buy pools of discount debt in reliance
on existing law. Potential distortions cre-
ated by distressed debt situations are the
subject of a separate guidance project. In
the meantime, the Treasury Department
and the IRS believe that the proposed
regulations reach the correct result in de-
termining issue price under section 1274,
and the final regulations do not adopt these
suggestions. However, to minimize their
effect on pending transactions, the final
regulations under §1.1274–3(b)(4) apply
2012–40 I.R.B.419October 1, 2012

only to a debt instrument issued on or after
60 days after the publication date of the
final regulations.
Effective/Applicability Date
The regulations generally apply to a
debt instrument issued on or after Novem-
ber 13, 2012.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. It is
hereby certified that the collection of infor-
mation in these regulations will not have a
significant economic impact on a substan-
tial number of small entities. This certi-
fication is based on the fact that the col-
lection of information imposed on a tax-
payer generally only applies if the out-
standing stated principal amount of the
debt is more than $100 million, which is
anticipated to affect only a small number
of small entities. Moreover, any economic
impact is expected to be minimal because
it should take a taxpayer no more than one-
half hour to satisfy the information-sharing
requirement in these regulations. There-
fore, a regulatory flexibility analysis under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to sec-
tion 7805(f) of the Code, the proposed reg-
ulations preceding these regulations have
been submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business, and no comments were received.
Drafting Information
These regulations were drafted by per-
sonnel in the Office of Associate Chief
Counsel (Financial Institutions and Prod-
ucts) and the Treasury Department.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1271–0 is amended as
follows:
1. The introductory text for paragraph
(b) is revised.
2.Adding the entry for
§1.1273–1(c)(6).
3.Revising the entries for
§1.1273–2(f)(2) through (7).
4.Adding the entries for
§1.1273–2(f)(8) through (10).
5.Adding the entry for
§1.1274–3(b)(4).
6.Revising the entry for
§1.1275–2(k)(5).
The revisions and additions read as fol-
lows:
§1.1271–0 Original issue discount;
effective date; table of contents.
*****
(b)Table of contents. This section
lists captioned paragraphs contained in
§§1.1271–1 through 1.1275–7.
*****
§1.1273–1 Definition of OID.
*****
(c) * * *
(6) Business day convention.
*****
§1.1273–2 Determination of issue price
and issue date.
*****
(f) * * *
(2) Sales price.
(3) Firm quote.
(4) Indicative quote.
(5) Presumption that price or quote is
equal to fair market value.
(6) Exception for small debt issues.
(7) Anti-abuse rules.
(8) Convertible debt instruments.
(9) Issuer-holder consistency require-
ment.
(10) Effective/applicability dates.
*****
§1.1274–3 Potentially abusive situations
defined.
*****
(b) * * *
(4) Debt-for-debt exchange.
*****
§1.1275–2 Special rules relating to debt
instruments.
*****
(k) * * *
(5) Effective/applicability dates.
*****
Par. 3. Section 1.1273–1 is amended
by adding a new paragraph (c)(6) to read
as follows:
§1.1273–1 Definition of OID.
*****
(c) * * *
(6)Business day convention—(i)Rule.
For purposes of this paragraph (c), if a
scheduled payment date for stated interest
falls on a Saturday, Sunday, or Federal hol-
iday (within the meaning of 5 U.S.C. 6103)
but, under the terms of the debt instrument,
the stated interest is payable on the first
business day that immediately follows the
scheduled payment date, the stated interest
is treated as payable on the scheduled pay-
ment date, provided no additional interest
is payable as a result of the deferral.
(ii)Effective/applicability date. Para-
graph (c)(6)(i) of this section applies to a
debt instrument issued on or after Septem-
ber 13, 2012. A taxpayer, however, may
rely on paragraph (c)(6)(i) of this section
for a debt instrument issued before that
date.
*****
Par. 4. Section 1.1273–2 is amended by
adding a sentence at the end of paragraphs
(b)(1) and (c)(1) and revising paragraph (f)
to read as follows:
§1.1273–2 Determination of issue price
and issue date.
*****
(b) * * *
(1)***Seeparagraph(f)ofthissec-
tion for rules to determine the fair market
value of a debt instrument for purposes of
this section.
October 1, 20124202012–40 I.R.B.

*****
(c) * * *
(1)***Seeparagraph(f)ofthissec-
tion for rules to determine the fair market
value of property for purposes of this sec-
tion.
*****
(f)Traded on an established market
(publicly traded)—(1)In general. Except
as provided in paragraph (f)(6) of this
section, property (including a debt instru-
ment described in paragraph (b)(1) of this
section) is traded on an established market
for purposes of this section if, at any time
during the 31-day period ending 15 days
after the issue date—
(i)Thereisasalespricefortheproperty
as described in paragraph (f)(2) of this sec-
tion;
(ii)Thereareoneormorefirmquotes
for the property as described in paragraph
(f)(3) of this section; or
(iii) There are one or more indicative
quotes for the property as described in
paragraph (f)(4) of this section.
(2)Sales price—(i)In general.Asales
price exists if the price for an executed
purchase or sale of the property within
the 31-day period described in paragraph
(f)(1) of this section is reasonably avail-
able within a reasonable period of time af-
ter the sale.
(ii)Pricing information for a debt
instrument. For purposes of paragraph
(f)(2)(i) of this section, the price of a
debt instrument is considered reasonably
available if the sales price (or information
sufficient to calculate the sales price) ap-
pears in a medium that is made available
to issuers of debt instruments, persons that
regularly purchase or sell debt instruments
(including a price provided only to certain
customers or to subscribers), or persons
that broker purchases or sales of debt in-
struments.
(3)Firm quote. A firm quote is consid-
ered to exist when a price quote is avail-
able from at least one broker, dealer, or
pricing service (including a price provided
only to certain customers or to subscribers)
for property and the quoted price is sub-
stantially the same as the price for which
the person receiving the quoted price could
purchase or sell the property. A price quote
is considered to be available whether the
quote is initiated by a person providing the
quote or provided at the request of the per-
son receiving the quote. The identity of the
person providing the quote must be reason-
ably ascertainable for a quote to be con-
sidered a firm quote for purposes of this
paragraph (f)(3). A quote will be consid-
ered a firm quote if the quote is designated
as a firm quote by the person providing
the quote or if market participants typically
purchase or sell, as the case may be, at the
quoted price, even ifthe party providing
the quote is not legally obligated to pur-
chase or sell at that price.
(4)Indicative quote. An indicative
quote is considered to exist when a price
quote is available from at least one bro-
ker, dealer, or pricing service (including a
price provided only to certain customers
or to subscribers) for property and the
price quote is not a firm quote described
in paragraph (f)(3) of this section.
(5)Presumption that price or quote is
equal to fair market value—(i)In general.
For purposes of this section, the fair market
valueofpropertywillbepresumedtobe
equal to its sales price or quoted price de-
termined under paragraphs (f)(2) through
(f)(4) of this section. If there is more than
one sales price under paragraph (f)(2) of
this section, more than one quoted price
under paragraph (f)(3) or (f)(4) of this sec-
tion, or both one or more sales prices under
paragraph (f)(2) of this section and quoted
prices under paragraph (f)(3) or (f)(4) of
this section, a taxpayer may use any rea-
sonable method, consistently applied to
the same or substantially similar facts, to
determine the fair market value. For ex-
ample, to determine the fair market value
under a reasonable method, a taxpayer may
consider factors such as (but not neces-
sarily limited to) the timing of each rele-
vant sale or quote in relation to the issue
date; whether the price is derived from a
sale, a firm quote, or an indicative quote;
the size of each relevant sale or quote;
or whether the sales price or quote corre-
sponds to pricing information provided by
an independent bond or loan pricing ser-
vice.
(ii)Special rule for property for which
thereisonlyanindicativequote.Ifprop-
erty is described only in paragraph (f)(4)
of this section, and the taxpayer deter-
mines that the quote (or an average of the
quotes) materially misrepresents the fair
market value of the property, the taxpayer
can use any method that provides a rea-
sonable basis to determine the fair market
value of the property. A taxpayer must es-
tablish that the method chosen more ac-
curately reflects the value of the property
than the quote or quotes for the property to
use the method provided in this paragraph
(f)(5)(ii). For an equity or debt instrument,
a volume discount or control premium will
not be considered to create a material mis-
representation of value for purposes of this
paragraph (f)(5)(ii).
(6)Exception for small debt issues.
Notwithstanding any other provision in
paragraph (f) of this section, a debt in-
strument will not be treated as traded on
an established market if at the time the
determination is made the outstanding
stated principal amount of the issue that in-
cludes the debt instrument does not exceed
US$100 million (or, for a debt instrument
denominated in a currency other than the
U.S. dollar, the equivalent amount in the
currency in which the debt instrument is
denominated).
(7)Anti-abuse rules—(i)Effect of cer-
tain temporary restrictions on trading.If
there is any temporary restriction on trad-
ing a purpose of which is to avoid the char-
acterization of the property as one that is
traded on an established market for Federal
income tax purposes, then the property is
treated as traded on an established market.
For purposes of the preceding sentence, a
temporary restriction on trading need not
be imposed by the issuer.
(ii)Artificial pricing information.Ifa
principal purpose for the existence of any
sale or price quotation is to cause the prop-
erty to be traded on an established market
or to materially misrepresent the value of
property, that sale or price quotation is dis-
regarded.
(8)Convertible debt instruments.A
debt instrument is not treated as traded on
an established market solely because the
debt instrument is convertible into prop-
erty that is so traded.
(9)Issuer-holder consistency require-
ment—(i)General rule. For purposes
of this section, an issuer must determine
whether property is traded on an estab-
lished market and, if so, the fair market
value of the property. An issuer is re-
quired to exercise reasonable diligence
to determine whether purchases or sales
have taken place, the quantity of purchases
and sales, the price at which purchases or
sales occurred, the existence of firm or
indicative quotes, and any other relevant
2012–40 I.R.B.421October 1, 2012

information using the rules provided in
paragraph (f) of this section to determine
the fair market value of the property. If an
issuer determines that property is traded
on an established market, the issuer is re-
quired to make that determination as well
as the fair market value of the property
(which can be stated as the issue price of
the debt instrument) available to holders
in a commercially reasonable fashion, in-
cluding by electronic publication, within
90 days of the date that the debt instrument
is issued. Each determination by an issuer
is binding on a holder of the debt instru-
ment unless the holder explicitly discloses
that its determination is different from the
issuer’s determination (for example, the
holder determines a different fair market
value for the property or determines that
the property is not traded on an estab-
lished market). A holder must describe in
the disclosure the reasons for its different
determination and, if applicable, how the
holder determined the fair market value.
A holder’s disclosure must be filed on
a timely filed Federal income tax return
for the taxable year that includes the ac-
quisition date of the debt instrument. If
an issuer for any reason does not make
the fair market value or issue price of a
debt instrument reasonably available to
a holder, the holder must determine the
fair market value of the property and issue
price of the debt instrument using the rules
provided in paragraph (f) of this section.
(ii)Co-obligors. If a debt instrument
has more than one obligor, the obligors
must designate one obligor (issuer) to de-
termine whether property is traded on an
established market and, if so, the fair mar-
ket value of the property and issue price
of the debt instrument and make the price
available to holders using the rules pro-
vided in paragraph (f)(9)(i) of this section.
(10)Effective/applicability dates—(i)
This paragraph (f) applies to a debt in-
strument issued on or after November 13,
2012.
(ii) For rules applying to a debt instru-
ment issued before November 13, 2012,
see paragraph (f) of this section as con-
tained in 26 CFR part 1, revised April 1,
2011.
*****
Par. 5. Section 1.1274–3 is amended
by adding a new paragraph (b)(4) to read
as follows:
§1.1274–3 Potentially abusive situations
defined.
*****
(b) * * *
(4)Debt-for-debt exchange—(i)Rule.
A debt instrument issued in a debt-for-debt
exchange, including a deemed exchange
under §1.1001–3, will not be treated as the
subject of a recent sales transaction for pur-
poses of section 1274(b)(3)(B)(ii)(I) even
if the debt instrument exchanged for the
newly issued debt instrument was recently
acquired prior to the exchange. There-
fore, the issue price of the debt instru-
ment will not be determined under section
1274(b)(3). However, if the debt instru-
ment or the property for which the debt in-
strument is issued is publicly traded within
the meaning of §1.1273–2(f), the rules of
§1.1273–2 will apply to determine the is-
sue price of the debt instrument.
(ii)Effective/applicability date. Para-
graph (b)(4)(i) of this section applies to a
debt instrument issued on or after Novem-
ber 13, 2012.
*****
Par. 6. Section 1.1275–2 is amended
by:
1. Adding a sentence at the end of para-
graph (d)(2)(ii)(C).
2. Revising the first sentence of para-
graph (k)(3)(i).
3. Revising paragraphs (k)(3)(ii)(A),
(k)(3)(iii)(A) and (k)(5).
4. Redesignating paragraph (k)(3)(iv)
as newly designated paragraph (k)(3)(vi).
5. Adding new paragraphs (k)(3)(iv)
and (k)(3)(v).
The revisions and additions read as fol-
lows:
§1.1275–2 Special rules relating to debt
instruments.
*****
(d) * * *
(2) * * *
(ii) * * *
(C) * * * For a reopening of Trea-
sury securities that occurs on or after
September 13, 2012, a qualified reopening
also is a reopening of Treasury securities
that is described in paragraph (k)(3)(v) of
this section.
*****
(k) * * *
(3) * * *
(i) * * *A qualified reopening is a
reopening of original debt instruments
that is described in paragraph (k)(3)(ii),
(k)(3)(iii), (k)(3)(iv), or (k)(3)(v) of this
section. * * *
(ii) * * *
(A) The original debt instruments are
publicly traded (within the meaning of
§1.1273–2(f)) as of the date on which the
price of the additional debt instruments is
established (or, if earlier, the announce-
ment date);
*****
(iii) * * *
(A) The original debt instruments are
publicly traded (within the meaning of
§1.1273–2(f)) as of the date on which the
price of the additional debt instruments is
established (or, if earlier, the announce-
ment date); and
*****
(iv)Non-publicly traded debt issued
for cash.Areopeningisdescribed in this
paragraph (k)(3)(iv) if the additional debt
instruments are issued for cash to persons
unrelated to the issuer (as determined un-
der section 267(b) or 707(b)) for an arm’s
length price and either the requirements in
paragraphs (k)(3)(ii)(B) and (k)(3)(ii)(C)
of this section for a reopening within six
months are satisfied or the requirements
in paragraph (k)(3)(iii)(B) of this sec-
tion for a reopening withde minimisOID
are satisfied. For purposes of paragraph
(k)(3)(ii)(C) of this section, the yield test
is satisfied if, on the date on which the
price of the additional debt instruments is
established (or, if earlier, the announce-
ment date), the yield of the additional debt
instruments (based on their cash purchase
price) is not more than 110 percent of the
yield of the original debt instruments on
their issue date (or, if the original debt in-
struments were issued with no more than
ade minimisamount of OID, the coupon
rate).
(v)100 Percent yield test for reopening
after six months. A reopening is described
in this paragraph (k)(3)(v) if the additional
debt instruments are issued more than six
months after the issue date of the orig-
inal debt instruments and either the re-
quirements in paragraphs (k)(3)(ii)(A) and
(k)(3)(ii)(C) of this section are satisfied
or the additional debt instruments are is-
suedforcashtopersonsunrelatedtothe
October 1, 20124222012–40 I.R.B.

issuer (as determined under section 267(b)
or 707(b)) for an arm’s length price and
the requirements in paragraph (k)(3)(ii)(C)
of this section are satisfied. For purposes
of the preceding sentence, the yield test
in paragraph (k)(3)(ii)(C) of this section is
satisfied if, on the date on which the price
of the additional debt instruments is es-
tablished (or, if earlier, the announcement
date), the yield of the additional debt in-
struments (based on their fair market value
or cash purchase price, whichever is appli-
cable) is not more than 100 percent of the
yield of the original debt instruments on
their issue date (or, if the original debt in-
struments were issued with no more than
ade minimisamount of OID, the coupon
rate).
*****
(5)Effective/applicability dates—(i)
Except as provided in paragraph (k)(5)(ii)
of this section, this paragraph (k) applies
to debt instruments that are part of a re-
opening if the reopening date is on or after
March 13, 2001.
(ii)Paragraphs(k)(3)(ii)(A),
(k)(3)(iii)(A), (k)(3)(iv) and (k)(3)(v) of
this section apply to debt instruments that
are part of a reopening if the reopening
date is on or after September 13, 2012.
Par. 7. Section 1.1275–4 is amended
by revising the first sentence in paragraph
(b)(9)(i)(E) to read as follows:
§1.1275–4 Contingent payment debt
instruments.
*****
(b) * * *
(9) * * *
(i) * * *
(E) * * * If the debt instrument is
exchange listed property (within the mean-
ing of §1.1273–2(f)(2) as contained in
26 CFR part 1, revised April 1, 2011),
it is reasonable for the holder to allocate
any difference between the holder’s
basis and the adjusted issue price of
the debt instrumentpro-ratato daily
portions of interest (as determined under
paragraph (b)(3)(iii) of this section) over
the remaining term of the debt instrument.
*****
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 8. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 9. In §602.101, paragraph (b) is
amended by adding the following entry in
numerical order to the table to read as fol-
lows:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
Identified and described
Current OMB
Control No.
*****
1.1273–2(f)(9)...........................................................
1545–1353
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved August 17, 2012.
Mark J. Mazur,
Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on September 12,
2012, 8:45 a.m., and published in the issue of the Federal
Register for September 13, 2012, 77 F.R. 56533)
2012–40 I.R.B.423October 1, 2012

Part III. Administrative, Procedural, and Miscellaneous
Certain Filing Changes for
Heavy Highway Vehicle Use
Tax Return
Notice 2012–57
This notice notifies taxpayers that the
IRS Modernized eFile (MeF) system will
not be available from August 31, 2012,
through September 4, 2012, for electronic
filing of Form 2290,Heavy Highway Ve-
hicle Use Tax Return. In addition, this no-
tice describes extended filing and payment
deadlines available to taxpayers affected
by this suspension period.
Suspension of IRS MeF System for 2290
Filers
Section 4481 imposes a tax on the use
in any taxable period of a highway mo-
tor vehicle with a taxable gross weight
of 55,000 pounds or more. Generally, a
“taxable period” is the year that begins on
July 1 and ends on the following June 30.
Section 41.6011(a)–1 of the Highway Use
Tax Regulations requires each person that
is liable for the tax imposed by section
4481 to file a return for each taxable period
on Form 2290,Heavy Highway Vehicle
Use Tax Return. Section 41.6151(a)-(1)T
provides that the tax must be paid at the
time prescribed in § 41.6071(a)–1 for
filing the return and at the place prescribed
in §41.6091–1 for filing the return. Under
§ 41.6071(a)–1(a), Form 2290 generally
must be filed by the last day of the month
following the month in which a person
becomes liable for tax. For the taxable
period that begins on July 1, 2012, and
ends on June 30, 2013, taxpayers subject
to the tax under section 4481 must file
Form 2290 by August 31, 2012, for
vehicles on the road during July 2012.
For vehicles first used after July 2012, the
filing deadline is the last day of the month
following the month of first use.
To facilitate systems and program-
ming changes, the IRS is suspending the
availability of its MeF system for filing
Form 2290 from August 31, 2012, through
September 4, 2012 (the suspension pe-
riod).
Extended Filing Date for Eligible
Affected Taxpayers
To minimize the impact on affected tax-
payers, the IRS is granting an extension
of time under section 6081(a) to electron-
ically file Form 2290to affected taxpay-
ers whose due date for the return is Au-
gust 31, 2012. The extended due date is
now September 7, 2012. Only taxpayers
that electronically file Form 2290 with a
due date of August 31, 2012, are consid-
ered “affected taxpayers” for purposes of
this notice. Taxpayers filing a paper Form
2290 must continue to file by the original
due date of August 31, 2012.
Extension of Time for Paying Tax
The IRS is also granting an extension
of time under section 6161(a)(1) to pay the
tax imposed by section 4481. Because this
tax is due when a taxpayer files its Form
2290, affected taxpayers that take advan-
tage of the September 7, 2012, electronic
filing deadline and pay the tax owed under
section 4481 by that date will be consid-
ered to have timely paid such tax. Taxpay-
ers filing a paper Form 2290 must continue
to pay their tax by August 31, 2012.
Penalties
If an affected taxpayer e-files Form
2290 after September 7, 2012, and re-
ceives a system-generated notice from the
IRS that imposes a penalty, the taxpayer
may call the telephone number on that
notice with any questions about the com-
putation of the penalty.
Effective Date
This notice is effective as of August 31,
2012.
Contact Information
For further information regarding this
notice, please contact Ms. Natalie Payne
of the Office of Associate Chief Counsel
(Passthroughs and Special Industries) at
(202) 622–3130 (not a toll-free number).
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of tax
liability.
(Also: §842(b).)
Rev. Proc. 2012–40
SECTION 1. PURPOSE
This revenue procedure provides the
domestic asset/liability percentages and
domestic investment yields needed by for-
eign life insurance companies and foreign
property and liability insurance compa-
nies to compute their minimum effectively
connected net investment income under
section 842(b) of the Internal Revenue
Code for taxable years beginning after
December 31, 2010. Instructions are pro-
vided for computing foreign insurance
companies’ liabilities for the estimated tax
and installment payments of estimated tax
for taxable years beginning after Decem-
ber 31, 2010. For more specific guidance
regarding the computation of the amount
of net investment income to be included by
a foreign insurance company on its U.S. in-
come tax return, see Notice 89–96, 1989–2
C.B. 417. For the domestic asset/liability
percentage and domestic investment yield,
as well as instructions for computing for-
eign insurance companies’ liabilities for
estimated tax and installment payments of
estimated tax for taxable years beginning
after December 31, 2009, see Rev. Proc.
2011–45, 2011–39 I.R.B. 449.
SECTION 2. CHANGES
DOMESTICASSET/LIABILITY
PERCENTAGES FOR 2011. The Secre-
tary determines the domestic asset/liability
percentage separately for life insurance
companies and property and liability in-
surance companies. For the first taxable
year beginning after December 31, 2010,
the relevant domestic asset/liability per-
centages are:
166.1 percent for foreign life insurance
companies, and
189.6 percent for foreign property and
liability insurance companies.
.02 DOMESTIC INVESTMENT
YIELDS FOR 2011. The Secretary is
required to prescribe separate domestic in-
vestment yields for foreign life insurance
October 1, 20124242012–40 I.R.B.

companies and for foreign property and
liability insurance companies. For the first
taxable year beginning after December 31,
2010, the relevant domestic investment
yields are:
3.2 percent for foreign life insurance
companies, and
3.2 percent for foreign property and li-
ability insurance companies.
.03 SOURCE OF DATA FOR 2011.
The section 842(b) percentages to be used
for the 2011 tax year are based on tax re-
turn data following the same methodology
used for the 2010 year.
SECTION 3.
APPLICATION—ESTIMATED TAXES
To compute estimated tax and the in-
stallment payments of estimated tax due
for taxable years beginning after Decem-
ber 31, 2010, a foreign insurance com-
pany must compute its estimated tax pay-
ments by adding to its income other than
net investment income the greater of (i) its
net investment income as determined un-
der section 842(b)(5), that is actually ef-
fectively connected with the conduct of a
trade or business within the United States
for the relevant period, or (ii) the mini-
mum effectively connected net investment
income under section 842(b) that would re-
sult from using the most recently available
domestic asset/liability percentage and do-
mestic investment yield. Thus, for install-
ment payments due after the publication of
this revenue procedure, the domestic as-
set/liability percentages and the domestic
investment yields provided in this revenue
procedure must be used to compute the
minimum effectively connected net invest-
ment income. However, if the due date of
an installment is less than 20 days after the
date this revenue procedure is published
in the Internal Revenue Bulletin, the as-
set/liability percentages and domestic in-
vestment yields provided in Rev. Proc.
2011–45 may be used to compute the mini-
mum effectively connected net investment
income for such installment. For further
guidance in computing estimated tax, see
Notice 89–96.
SECTION 4. EFFECTIVE DATE
This revenue procedure is effec-
tive for taxable years beginning after
December 31, 2010.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Sheila Ramaswamy of
the Office of Associate Chief Counsel
(International). For further information
regarding this revenue procedure, contact
Sheila Ramaswamy at (202) 622–3870
(not a toll-free call).
2012–40 I.R.B.425October 1, 2012

Part IV. Items o
fGeneralInterest
Withdrawal of
Notice of
Proposed Rule
making; Notice
of Proposed Ru
lemaking and
Notice of Pub
lic Hearing
Regulations
Governing
Practice Bef
ore the Internal
Revenue Ser
vice
REG–138367
–06
AGENCY: Off
ice of the Secretary, Trea-
sury.
ACTION: Wit
hdrawal of notice of pro-
posed rulem
aking; notice of proposed rule-
making and
notice of public hearing.
SUMMARY: T
his document proposes
modificat
ions of the regulations govern-
ing practi
ce before the Internal Revenue
Service (I
RS). These proposed regulations
affect in
dividuals who practice before the
IRS. Thes
e proposed regulations modify
the stand
ards governing written advice and
update ce
rtain provisions as appropriate.
This docu
ment also provides notice of a
public h
earing on the proposed regulations
and with
draws the notice of proposed rule-
making p
ublished on December 20, 2004,
setting
forth standards for State or local
bond opi
nions.
DATES: C
omments must be received by
Novemb
er 16, 2012. Outlines of topics to
be disc
ussed at the public hearing sched-
uled fo
r December 7, 2012 at 10 a.m., in
the Aud
itorium of the Internal Revenue
Servic
e building at 1111 Constitution Av-
enue,
NW, Washington, DC 20224, must
be rec
eived by November 16, 2012.
ADDRE
SSES: Send submissions to:
CC:PA
:LPD:PR (REG–138367–06), room
5205,
Internal Revenue Service, P.O. Box
7604,
Ben Franklin Station, Washing-
ton,
DC 20044. Submissions may be
hand
delivered Monday through Friday
betw
een the hours of 8 a.m. and 4 p.m.
to: C
C:PA:LPD:PR (REG–138367–06),
Cour
ier’s Desk, Internal Revenue Ser-
vice
, 1111 Constitution Avenue, NW,
Was
hington, DC, or sent electronically
via
the Federal eRulemaking Portal at
www
.regulations.gov(indicate IRS and
REG–138367–0
6). The public hearing
will be held in
the Auditorium, Internal
Revenue Build
ing, 1111 Constitution Av-
enue, NW, Wash
ington, DC.
FOR FURTHER IN
FORMATION
CONTACT: Con
cerning issues for
comment, Mat
thew D. Lucey at (202)
622–4940; co
ncerning submissions of
comments the
public hearing, or to be
placed on th
e building access list to attend
the hearing
, Oluwafunmilayo Taylor at
(202) 622–7
180; (not toll-free numbers).
SUPPLEMENT
ARY INFORMATION:
Background
Section 330
of title 31 of the United
States Cod
e authorizes the Secretary of the
Treasury t
o regulate practice before the
Treasury D
epartment (Treasury). The Sec-
retary has
published regulations govern-
ing pract
icebeforetheIRSin31CFRpart
10 and rep
rinted the regulations as Trea-
sury Depa
rtment Circular No. 230 (Circu-
lar 230).
Treasury
and the IRS have consistently
maintain
ed that tax practitioners must
meet mini
mum standards of conduct with
respect
to written tax advice, and those
whodono
t should be subject to disci-
plinary
action, including suspension or
disbarm
ent. In accordance with these prin-
ciples,
the regulations have been amended
from ti
me to time to address issues relating
to tax o
pinions and written tax advice.
In Febr
uary 1984, the regulations were
amende
d to provide standards for provid-
ing opi
nions used in tax shelter offerings
in acco
rdance with American Bar Associ-
ation F
ormal Opinion 346 (49 FR 6719).
The 19
84 amendments required a practi-
tione
r who renders a tax shelter opinion
to exe
rcise responsibility with respect to
the ac
curacy of the relevant facts; apply
the la
w to the particular facts of the tax
shel
ter offering; ascertain that all material
Fede
ral tax issues have been considered;
when
possible, provide an opinion as to the
like
ly outcome on the merits of each mate-
rial
tax issue; provide an evaluation of the
ext
ent to which the material tax benefits in
the
aggregate will be realized; and assure
tha
t the nature and extent of the tax shelter
opinion is des
cribed correctly in the offer-
ing materials
.
In January 200
1, Treasury and the IRS
proposed addi
tional amendments regard-
ing tax shelte
r opinions. See 66 FR 3276.
The 2001 notic
e of proposed rulemaking
addressed bot
h general matters pertaining
to practice b
efore the IRS and matters per-
taining spec
ifically to tax shelter opinions,
but the porti
on of these regulations regard-
ing tax shelt
er opinions was not finalized.
Rather, on D
ecember 30, 2003, Treasury
and the IRS p
ublished in theFederal Reg-
ister(68 FR
75186) (the 2003 proposed
regulation
s) a second notice of proposed
rulemakin
g to set forth best practices for
tax adviso
rs and to modify the standards
for certai
n tax shelter opinions. Subse-
quently, C
ongress amended section 330 of
title 31 to
clarify that the Secretary may
impose st
andards for written advice relat-
ing to a ma
tter that is identified as hav-
ing a pote
ntial for tax avoidance or eva-
sion (Ame
rican Jobs Creation Act of 2004,
Public L
aw 108–357, 118 Stat. 1418).
In Decemb
er 2004, Treasury and the
IRS fina
lized the 2003 proposed regula-
tions by
publishing final regulations (T.D.
9165, 20
05–1 C.B. 357) in theFederal
Registe
r(69 FR 75839) setting forth best
practic
es for tax advisors and providing
standa
rds for covered opinions and other
writte
n advice. Treasury and the IRS si-
multan
eously issued a notice of proposed
rulema
king (REG–159824–04, 2005–1
C.B. 37
2) in theFederal Register(69 FR
75887
) proposing standards for practice
befor
e the IRS relating to State or local
bond o
pinions. In May 2005, Treasury
and th
e IRS published revisions to the
final
regulations (T.D. 9201, 2005–1 C.B.
1153
)intheFederal Register(70 FR
2882
4) to clarify the standards for covered
opin
ions. In June 2005, Treasury and the
IRS p
ublished Notice 2005–47, 2005–1
C.B.
1373, providing interim guidance
and
information concerning State or local
bon
d opinions. While not a complete
lis
t of revisions to Circular 230, the
pre
ceding history demonstrates Treasury
and
the IRS’ commitment to maintaining
min
imum standards for written advice
th
at foster an ethical environment for
pr
actitioners and taxpayers.
October 1, 20124262012–40 I.R.B.

As explained later in the Explanation
of Provisions section of this preamble,
these proposed regulations amend Cir-
cular 230 by eliminating the complex
rules governing covered opinions in cur-
rent §10.35. In addition, these proposed
regulations expand the requirements for
written advice under §10.37 and withdraw
the proposed amendments to §10.39 of
the regulations governing requirements
for State or local bond opinions. These
proposed regulations also broaden the
scope of the procedures to ensure com-
pliance under §10.36 by requiring that a
practitioner with principal authority for
overseeing a firm’s Federal tax practice
take reasonable steps to ensure the firm
has adequate procedures in place for pur-
poses of complying with Circular 230.
These proposed regulations clarify that
practitioners must exercise competence
when engaged in practice before the IRS
and that the prohibition on a practitioner
endorsing or otherwise negotiating any
check issued to a taxpayer in respect of a
Federal tax liability applies to government
payments made by any means, electronic
or otherwise. These proposed regulations
expand the categories of violations subject
to the expedited proceedings in §10.82 to
include failures to comply with a practi-
tioner’s personal tax filing obligations that
demonstrate a pattern of willful disrep-
utable conduct. The proposed regulations
also clarify the Officeof Professional Re-
sponsibility’s scope of responsibility.
Explanation of Provisions
Public awareness of the standards for
written tax advice and the accountabil-
ity of practitioners offering tax advice
have increased since Treasury and the IRS
published final regulations on covered
opinions. This increased awareness and
accountability is having a positive effect
on our Federal tax system. Years of prac-
tical experience, however, have shown
that the covered opinion rules in current
§10.35 have produced some unintended
consequences and should be reconsidered.
Reconsideration of the covered opinion
rules is appropriate in light of contin-
ued practitioner dissatisfaction due to the
difficulty and cost of compliance with
the rules. Practitioners have consistently
voiced their concern over the current rules
since their promulgation in 2004. See
the docket for IRS REG–138367–06 at
www.regulations.gov. Practitioners over-
whelmingly conclude that the rules are
overbroad, difficult to apply, and do not
necessarily produce higher quality tax
advice. Many practitioners have stated
that the rules unduly interfere with their
client relationships and are not an ethical
standard that everyone, including clients,
can comprehend easily. Some practition-
ers have also opined that these rules may
reduce, rather than enhance, tax compli-
ance due to the perception that a covered
opinion takes more time to produce and is
more expensive for the client than other
tax advice. In this same regard, it has
been suggested that the rules increase the
likelihood that practitioners will provide
oral advice to their clients when written
advice is more appropriate because current
§10.35 does not govern oral advice.
Another concern that the government
has heard from practitioners relates to the
unrestrained use of disclaimers on nearly
every practitioner communication regard-
less of whether the communication con-
tains tax advice. Practitioners have stated
that this practice discourages compliance
with the ethical requirements because
some practitioners have concluded that, if
they include a disclaimer, they are free to
disregard the standards in current §10.35
regarding written tax advice. The dis-
claimers also lead to confusion for clients
because clients often do not understand
why the disclaimer is present and its con-
sequences. In addition, practitioners have
complained that the disclaimer’s wide-
spread overuse causes clients to ignore
the disclaimers altogether, and may render
their use in some circumstances irrelevant.
Although practitioners have informed
us that they support sensible regulation of
written tax advice, they have expressed lit-
tle support for the rules in their current
form and we have received numerous re-
quests to revise the rules. After years of
experience with these rules, the govern-
ment and practitioners agree that the cov-
ered opinion rules are often burdensome
and provide only minimal taxpayer pro-
tection. Overall, the benefit is insuffi-
cient to justify the additional costs associ-
ated with practitioner compliance with the
covered opinion rules. After careful con-
sideration, including consideration of the
public’s experience with and comments on
these rules, Treasury and the IRS have con-
cluded that the written advice standards
should be revised.
The proposed regulations will stream-
line the existing rules for written tax ad-
vice by removing current §10.35 and ap-
plying one standard for all written tax ad-
vice under proposed §10.37. Proposed
§10.37 provides that the practitioner must
base all written advice on reasonable fac-
tual and legal assumptions, exercise rea-
sonable reliance, and consider all relevant
facts that the practitioner knows or should
know. The proposed removal of §10.35
will eliminate the requirement that practi-
tioners fully describe the relevant facts (in-
cluding the factual and legal assumptions
relied upon) and the application of the law
to the facts in the written advice itself,
and the use of Circular 230 disclaimers
in documents and transmissions, including
e-mails.
Other provisions, §§10.31, 10.36, and
10.82, are also being updated at this time
to reflect the current practice environment.
In addition, a general competence standard
is being proposed in new §10.35. The pro-
posed regulations also clarify that the Of-
fice of Professional Responsibility has ex-
clusive responsibility for matters related
to practitioner discipline, including disci-
plinary proceedings and sanctions.
The scope of these regulations is limited
to practice before the IRS. These regula-
tions do not alter or supplant other ethical
standards applicable to practitioners.
1.Amendments Regarding Rules
Governing Written Advice
A.Elimination of Covered Opinion Rules
in §10.35
Current §§10.35 and 10.37 provide
comprehensive rules with respect to writ-
ten tax advice. Specifically, current §10.35
provides detailed rules for tax opinions
that constitute “covered opinions” under
Circular 230. Covered opinions include
written advice concerning: (1) a listed
transaction; (2) a transaction with the
principal purpose of tax avoidance or
evasion; or (3) a transaction with a signif-
icant purpose of tax avoidance or evasion,
if the advice is a reliance opinion, mar-
keted opinion, subject to conditions of
confidentiality, or subject to a contractual
protection.
2012–40 I.R.B.427October 1, 2012

The definitions of the various types of
covered opinions under Circular 230 re-
quire considerable effort on behalf of prac-
titioners to determine whether the advice
rendered in a particular circumstance is
subject to the covered opinion rules in cur-
rent §10.35. Because of the effort in-
volved, many practitioners attempt to ex-
empt the advice from the covered opinion
rules by making a prominent disclosure or
disclaimer stating that the opinion cannot
be relied upon for penalty protection, as
permitted by Circular 230.
Circular 230 also requires that practi-
tioners comply with the extensive require-
mentssetforthin§10.35whenproviding
written advice that constitutes a covered
opinion. Many of the standards in current
§10.35 track principles a competent prac-
titioner uses when considering and render-
ing any advice, although these standards
may be more rigid and cumbersome in ap-
plication than generally applicable ethical
standards. For example, current §10.35
requires the practitioner to include in the
written advice the relevant facts (including
assumptions and representations), the ap-
plication of the law to those facts, and the
practitioner’s conclusion with respect to
the law and the facts. This mechanical re-
quirement of automatic inclusion of infor-
mation will sometimes lead to awkward or
unnecessary, highly technical discussions
in the opinion that may hinder the practi-
tioner’s ability to provide quality tax ad-
vice. Further, the inclusion of this particu-
lar detail almost always burdens the prac-
titioner and the client with significant in-
creased costs, without necessarily increas-
ing the quality of the tax advice that the
client receives.
Significant progress has been made
in combating abusive tax shelters and
schemes, and preventing unscrupulous
individuals from promoting those arrange-
ments. In recent years, heightened aware-
ness of the ethical standards governing tax
advice contributed to this improved state
and has benefited practitioners, taxpayers,
and the government. At the same time,
there is no direct evidence to suggest that
the overly-technical and detailed require-
ments of current §10.35 were responsible
for, or particularly effective at, curtailing
the behavior of individuals attempting to
profit from promoting frivolous transac-
tions or transactions without a reasonable
basis.
For these reasons, the proposed regula-
tions eliminate the covered opinion rules
in §10.35 and instead subject all written
tax advice to streamlined standards under
proposed §10.37, as described later in this
preamble. The proposed regulations also
remove references to current §10.35 in
§§10.3, 10.22, and 10.52. The burden
reduction that should result from the pro-
posed regulations is consistent with the
President’s directive in Executive Order
13563 to remove or modify regulations
that are outmoded, ineffective, insuffi-
cient, or too burdensome.
The elimination of the covered opinion
rules in this notice of proposed rulemak-
ing would, at a minimum, save tax practi-
tioners $5,333,200. This burden reduction
comes from the elimination of the provi-
sions requiring practitioners to make cer-
tain disclosures in the covered opinion.
This number does not include a num-
ber of other significant savings to both tax
practitioners and taxpayers relating to the
cost of obtaining a covered opinion under
the current rules that would occur as a re-
sult of the proposed regulations. Practi-
tioners spend many hours each year de-
termining whether they need to prepare a
covered opinion for a client or if the ad-
vice falls into one of the exceptions. This
requires significant time to, among other
things, research and review the compli-
cated covered opinion rules and discuss the
issue with other practitioners in the firm
to determine the right course of action. If
the practitioner decides, after undertaking
these activities, that a covered opinion is
necessary, the practitioner must discuss the
covered opinion rules with the client, in-
cluding how the rules affect the scope of
the work that the client has asked the prac-
titioner to perform, because the client will
incur significant extra costs to obtain the
written advice the client requested. These
significant extra costs can, in some cases,
tip the scales against obtaining written ad-
vice.
B.Revision of Requirements for Written
Advice
Treasury and the IRS continue to be
aware of the risk associated with practi-
tioners providing and marketing written
tax opinions. Proposed §10.37, therefore,
replaces the covered opinion rules with
basic principles to which all practitioners
must adhere when rendering written ad-
vice. The proposed provisions also com-
plement the best practices of §10.33 and
the due diligence requirements in §10.22.
Specifically, the proposed regulations re-
vise §10.37 to state affirmatively the stan-
dards to which a practitioner must adhere
when providing written advice on a Fed-
eral tax matter. Proposed §10.37 requires,
among other things, that the practitioner
base all written advice on reasonable fac-
tual and legal assumptions, exercise rea-
sonable reliance, and consider all relevant
facts that the practitioner knows or should
know. A practitioner must also use rea-
sonable efforts to identify and ascertain the
facts relevant to written advice on a Fed-
eral tax matter under the proposed regula-
tions.
Consistent with current §10.37, the pro-
posed regulations provide that a practi-
tioner must not, in evaluating a Federal
tax matter, take into account the possibil-
ity that a tax return will not be audited
or that an issue will not be raised on au-
dit. Proposed §10.37 eliminates the pro-
vision in the current regulations that pro-
hibits a practitioner from taking into ac-
count the possibility that an issue will be
resolved through settlement if raised when
giving written advice evaluating a Federal
tax matter. Treasury and IRS conclude
that the current rule may unduly restrict
the ability of a practitioner to provide com-
prehensive written advice because the ex-
istence or nonexistence of legitimate haz-
ards that may make settlement more or less
likely may be a material issue for which the
practitioner has an obligation to inform the
client.
Under proposed §10.37(c)(2), the IRS
will continue to apply a heightened stan-
dard of review to determine whether a
practitioner has satisfied the written advice
standards when the practitioner knows or
has reason to know that the written advice
will be used in promoting, marketing, or
recommending an investment plan or ar-
rangement a significant purpose of which
is the avoidance or evasion of any tax
imposed by the Internal Revenue Code.
Proposed §10.37(b) also provides that a
practitioner may rely on the advice of an-
other practitioner only if the reliance on
that advice is reasonable and in good faith
considering the facts and circumstances.
Specifically, proposed §10.37(b) provides
that reliance is not reasonable when the
October 1, 20124282012–40 I.R.B.

practitioner knows or should know that the
opinion of the other practitioner should not
be relied on, the other practitioner is not
competent to provide the advice, or the
other practitioner has a conflict of inter-
est. These proposed reliance provisions
incorporate reliance concepts from current
§§10.22 and 10.35(d).
Proposed §10.37, unlike current
§10.35, does not require that the practi-
tioner describe in the written advice the
relevant facts (including assumptions and
representations), the application of the
law to those facts, and the practitioner’s
conclusion with respect to the law and the
facts. Rather, the scope of the engagement
and the type and specificity of the advice
sought by the client, in addition to all other
appropriate facts andcircumstances, are
factors in determining the extent that the
relevant facts, application of the law to
those facts, and the practitioner’s conclu-
sion with respect to the law and the facts
must be set forth in the written advice.
Also, under proposed §10.37, unlike cur-
rent §10.35, the practitioner may consider
these factors in determining the scope of
the written advice. Further, the determi-
nation of whether a practitioner has failed
to comply with the requirements of pro-
posed §10.37 will be based on all facts
and circumstances, not on whether each
requirement is addressed in the written
advice.
As discussed earlier in this preamble,
many practitioners currently use a Circular
230 disclaimer at the conclusion of every
e-mail or other writing as a measure to re-
move the advice from the covered opinion
rules in §10.35. In many instances, these
disclaimers are frequently inserted without
regard to whether the disclaimer is neces-
sary or appropriate. These types of dis-
claimers are routinely inserted in any writ-
ten transmission, including writings that
do not contain any tax advice. The pro-
posed removal of current §10.35 elimi-
nates the detailed provisions concerning
covered opinions and disclosures in writ-
ten opinions. Because proposed §10.37
does not include the disclosure provisions
in the current covered opinion rules, Trea-
sury and the IRS expect that these amend-
ments, if adopted, will eliminate the use
of a Circular 230 disclaimer in e-mail and
other writings.
Overall, Treasury and the IRS have de-
termined that the proposed regulations re-
garding written advicestrike an appropri-
ate balance between allowing practitioners
flexibility in providing written advice and
at the same time maintaining standards that
require the practitioner to act ethically and
competently. Treasury and the IRS are par-
ticularly interested in comments respond-
ing to whether the proposed rules achieve
that appropriate balance.
C.Municipal Bond Opinions
The proposed regulations withdraw
the proposed amendments to §10.39 gov-
erning requirements for State or local
bond opinions, and remove the defini-
tion of, and exclusion for, State or local
bond opinions from the definition of cov-
ered opinions in §10.35. The previously
proposed amendments to §10.39 are no
longer necessary because these proposed
regulations remove entirely the concept
of covered opinions from Circular 230.
Under these proposed regulations, prac-
titioners rendering opinions concerning
the tax treatment of municipal bonds are
subject to the standards in §10.37, the
same professional standards that apply to
all written tax advice.
2.Procedures to Ensure Compliance
Current §10.36(a) provides require-
ments for procedures to ensure compli-
ance with §10.35. Because these pro-
posed regulations remove current §10.35,
these regulations also remove current
§10.36(a). Treasury and the IRS, how-
ever, are proposing a new §10.36 to ensure
compliance with Circular 230 generally.
The procedures to ensure compliance
have produced great successes in encour-
aging firms to self-regulate, without the
excessive burden often associated with a
rigid one-size-fits-all approach. Treasury
and the IRS expanded §10.36 in June 2011
to require firms to have procedures in place
to ensure Circular 230 compliance with
respect to a firm’s tax return preparation
practice. Under §10.36 of these proposed
regulations, the requirement for proce-
dures to ensure compliance are expanded
to include all provisions of Circular 230.
Firm responsibility is a critical factor
in ensuring high quality advice and rep-
resentation for taxpayers. Accordingly,
Treasury and the IRS conclude that firm
management with principal authority and
responsibility for overseeing a firm’s prac-
tice governed by Circular 230 should be
responsible for establishing procedures to
ensure compliance with all provisions of
Circular 230, and not merely the provi-
sions regarding tax advice and tax return
preparation. For purposes of §10.36,
“principal” management will be inter-
preted in a manner consistent with its use
in §1.6694–2(a)(2) and Notice 2007–39.
3.General Standard of Competence
Proposed §10.35 provides that a prac-
titioner must exercise competence when
engaged in practice before the IRS. Al-
though a practitioner can be sanctioned
for incompetent conduct under §10.51, no
provision of Circular 230 specifically re-
quires a practitioner to exercise compe-
tence when engaged in practice before the
IRS. Section 10.35 is revised, therefore, to
clarify that a practitioner must possess the
necessary competence when engaged in
practice before the IRS. Proposed §10.35
specifies that competent practice requires
the knowledge, skill, thoroughness, and
preparation necessary for the matter for
which the practitioner is engaged.
4.Electronic Negotiation of Taxpayer
Refunds
Proposed §10.31 provides that a practi-
tioner may not endorse or otherwise nego-
tiate any check (including directing or ac-
cepting payment by any means, electronic
or otherwise, into an account owned or
controlled by the practitioner or any firm
or other entity with whom the practitioner
is associated) issued to a client by the gov-
ernment in respect of a Federal tax liability.
Treasury and the IRS are proposing to
revise §10.31 to clarify that the prohibi-
tion on practitioner negotiation of taxpayer
refunds applies in the modern-day elec-
tronic environment in which the IRS and
practitioners operate today. The proposed
regulations also expand §10.31 to apply
to all individuals who practice before the
IRS, not just those practitioners who are
tax return preparers. Treasury and the IRS
continue to encounter a small number of
unscrupulous preparers and practitioners
who attempt to manipulate the electronic
refund process with the intent to defraud
their clients and the IRS. The proposed
regulations clarify that it constitutes dis-
reputable conduct for a practitioner to di-
rect the payment (or accept payment) of
2012–40 I.R.B.429October 1, 2012

any monies issued to a client by the gov-
ernment in respect of a Federal tax liabil-
ity to the practitioner or any firm or entity
with which the practitioner is associated
and that such conduct is subject to sanc-
tion.
5.Expedited Suspension Procedures
Section 10.82 of the current regulations
authorizes the immediate suspension of
a practitioner who has engaged in cer-
tain conduct. The proposed regulations
extend the expedited disciplinary proce-
dures to disciplinary proceedings against
practitioners who have willfully failed
to comply with their Federal tax filing
obligations. Treasury and the IRS is-
sued a notice of proposed rulemaking
in 2006, which included provisions that
proposed extension of the availability of
the expedited suspension procedures to
practitioners not compliant with tax fil-
ing and payment obligations. See 71 FR
6421. These provisions were not finalized
in the attendant 2007 final regulations
due to practitioners’ concerns that the
proposed rule would erode due process
rights. See 72 FR 54540. Treasury and
the IRS continue, however, to encounter
practitioners who demonstrate they are
unfit to practice by repeatedly failing to
comply with their own tax obligations.
Accordingly, these proposed regula-
tions permit prompt action against prac-
titioners who have engaged in a pattern
of willful disreputable conduct as demon-
strated by non-compliance with their Fed-
eral tax obligations, but in a manner more
narrowly tailored than the 2006 proposal.
These proposed regulations only permit
the use of expedited procedures in the lim-
ited circumstances when a noncompliant
practitioner demonstrates a pattern of will-
ful disreputable conduct by (1) failing to
make an annual Federal tax return during
four of five tax years immediately before
the institution of an expedited suspension
proceeding; or (2) failing to make a return
required more frequently than annually
during five of seven tax periods immedi-
ately before the institutionofanexpedited
suspension proceeding. For purposes of
proposed §10.82, the phrase “make a re-
turn” has the same meaning as used in
sections 6011 and 6012 of the Internal
Revenue Code and §10.51(a)(6) of this
part. Additionally, the practitioner must
be noncompliant with a tax filing obliga-
tion at the time the notice of suspension is
served on the practitioner for the expedited
procedures to apply.
Unlike the previously proposed reg-
ulations, these proposed regulations do
not permit the use of expedited suspen-
sion proceedings against practitioners who
have not paid their Federal tax obligations.
This modification responds to commenta-
tors’ concern that a practitioner’s failure to
pay can be precipitated by circumstances
outside of the practitioner’s control and
that it may be inequitable to suspend a
practitioner expeditiously in these situ-
ations. Treasury and the IRS conclude,
however, that expedited suspension is ap-
propriate for practitioners who have not
complied with basic tax filing obligations
for the immediately preceding four of five
years for annual returns (or five of seven
tax periods). Practitioners engaging in this
repeated pattern of non-filing demonstrate
a high level of disregard for the Federal tax
system and a level of willfulness sufficient
for practitioner sanction under Circular
230. Treasury and the IRS have deter-
mined that the proposed rule is appropriate
because practitioners demonstrating this
high level of disregard for the Federal tax
system are unfit to represent others who
are making a good faith attempt to comply
with their own Federal tax obligations.
Expedited action in these cases will likely
prevent harm to these taxpayers and the
Federal tax system.
Current §10.82(f)(2) provides that a
suspension under the expedited proce-
dures is effective until the suspension is
lifted by the IRS, an Administrative Law
Judge, or the Secretary of the Treasury.
Circular 230 does not otherwise provide
guidance with respect to the length of
suspension or the time period in which
the practitioner is permitted to apply for
reinstatement. Section 10.81, however,
currently provides that a disbarred prac-
titioner (or disqualified appraiser) may
apply for reinstatement after five years
following the practitioner’s disbarment or
disqualification. Proposed §10.81 makes
these rules consistent and applies the same
five-year time period for both disbarred
and suspended practitioners.
Treasury and IRS are also proposing
several non-substantive changes to the
terms of §10.82 that will help practition-
ers distinguish between the expedited
suspension procedures of §10.82 and oth-
erwise generally applicable procedures
for sanctions instituted under §10.60. For
example, to begin an expedited suspen-
sion under the proposed regulations, the
IRS would issue a “show cause order” in-
stead of a “complaint” and the practitioner
would submit a “response” instead of
an “answer.” The terms “complaint” and
“answer” are currently used to describe
the documents used in both expedited
suspensions under §10.82 and regular pro-
ceedings under §10.60. These revisions
do not generally change current expedited
suspension procedures, or the contents
of what must be included in the underly-
ing documents, but are proposed to make
§10.82 easier to understand.
Proposed §10.82(g) clarifies that practi-
tioners subject to an expedited proceeding
may demand a complaint under §10.60,
and that the demand must specifically
reference the suspension action under
§10.82. Current §10.82(g) provides that
the IRS has 30 days to issue a complaint
after receiving the practitioner’s demand
for a complaint. In some cases, extra time
may be necessary to provide the practi-
tioner and Administrative Law Judge with
the most current information regarding
the practitioner’s fitness to practice before
the IRS. Treasury and the IRS have deter-
minedthat45dayswillprovidetheIRS
with sufficient time to ensure the com-
plaint complies with the requirements in
§10.62. Accordingly, proposed §10.82(g)
provides that the IRS has 45 days to issue
a complaint after receiving a demand for
a complaint from a practitioner suspended
under the expedited procedures.
6. Scope of the Office of Professional
Responsibility
IRS and Treasury propose revising cur-
rent §10.1 to clarify that the Office of Pro-
fessional Responsibility has exclusive re-
sponsibility for matters related to prac-
titioner discipline, including disciplinary
proceedings and sanctions.
Effect on Other Documents
Notice 2005–47, 2005–1 C.B. 1373,
will be obsolete beginning on the date
that final regulations are published in the
Federal Register.
October 1, 20124302012–40 I.R.B.

Availability of IRS Documents
IRS notices cited in this preamble are
made available by the Superintendent of
Documents, U.S. Government Printing Of-
fice, Washington, DC 20402.
Special Analyses
It has been determined that this pro-
posed rule is not a significant regulatory
action as defined in Executive Order
12866, as supplemented by Executive
Order 13563. Therefore, a regulatory
assessment is not required. It is hereby
certified that these regulations will not
have a significant economic impact on
a substantial number of small entities.
The proposed rule affects practitioners
who practice before the IRS. Persons au-
thorized to practice before the IRS have
long been requiredto comply with cer-
tain standards of conduct, and those who
provide written tax advice currently must
comply with specific rules for this advice.
Because these proposed rules replace the
rigid rules for written tax advice with more
flexible rules and eliminate the necessity
to provide disclaimers in certain written
tax advice, these rules will reduce the bur-
den imposed on small entities that issue
written tax advice. Therefore, the up-
dating amendments and requirements for
written advice imposed by these regula-
tions will not have a significant economic
impact on a substantial number of small
entities. Therefore, a regulatory flexibility
analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small businesses.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
timely submitted to the IRS as prescribed
in this preamble under the “Addresses”
heading. Treasury and the IRS request
comments on all aspects of the proposed
rules. All comments will be available at
www.regulations.govor upon request.
The public hearing is scheduled for De-
cember 7, 2012, from 10 a.m., and will
be held in the Auditorium, Internal Rev-
enue Building, 1111 Constitution Avenue,
NW, Washington, DC. Due to building se-
curity procedures, visitors must enter at the
Constitution Avenue entrance. All visitors
must present photo identification to enter
the building. Because of access restric-
tions, visitors will not be admitted beyond
the immediate entrance area more than 30
minutes before the hearing starts. For in-
formation about having your name placed
on the building access list to attend the
hearing, see the FOR FURTHER INFOR-
MATION CONTACT section of this pre-
amble.
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 comments by November 16, 2012,
and an outline of the topics to be discussed,
and the time to be devoted to each topic by
November 16, 2012. A period of 10 min-
utes will be allocated to each person for
making comments. An agenda showing
the scheduling of the speakers will be pre-
pared after the deadline for receiving out-
lines has passed. Copies of the agenda will
be available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Matthew D. Lucey of the Office
of the Associate ChiefCounsel (Procedure
and Administration).
*****
Withdrawal of Notice of Proposed
Rulemaking
Accordingly, under the authority of
31 CFR part 330, the notice of proposed
rulemaking (REG–159824–04) that was
published in theFederal Registeron
December 20, 2004 (69 FR 75887) is
withdrawn.
Proposed Amendments to the
Regulations
Accordingly, 31 CFR part 10 is pro-
posed to be amended as follows:
PART 10—PRACTICE BEFORE THE
INTERNAL REVENUE SERVICE
Paragraph 1. The authority citation for
31 CFR part 10 continues to read as fol-
lows:
Authority: Sec. 3, 23 Stat. 258, secs.
2–12, 60 Stat. 237et. seq.; 5 U.S.C. 301,
500, 551–559; 31 U.S.C. 321; 31 U.S.C.
330; Reorg. Plan No. 26 of 1950, 15 FR
4935, 64 Stat. 1280, 3 CFR, 1949–1953
Comp., p. 1017.
Par. 2. Section 10.1 is amended by
revising paragraphs (a)(1) and (d) to read
as follows:
§10.1 Offices.
(a) * * *
(1) The Office of Professional Respon-
sibility, which shall generally have respon-
sibility for matters related to practitioner
conduct and shall have exclusive responsi-
bility for discipline, including disciplinary
proceedings and sanctions; and
*****
(d)Effective/applicability date.This
section is applicable beginning after the
date that final regulations are published in
theFederal Register.
Par. 3. Section 10.3 is amended by
revising paragraphs (a), (b), (g), and (j) to
read as follows:
§10.3 Who may practice.
(a)Attorneys.Any attorney who is not
currently under suspension or disbarment
from practice before the Internal Revenue
Service may practice before the Internal
Revenue Service by filing with the Inter-
nal Revenue Service a written declaration
that the attorney is currently qualified as
an attorney and is authorized to represent
the party or parties. Notwithstanding the
preceding sentence, attorneys who are not
currently under suspension or disbarment
from practice before the Internal Revenue
Service are not required to file a written
declaration with the IRS before rendering
written advice covered under §10.37, but
their rendering of this advice is practice be-
fore the Internal Revenue Service.
(b)Certified public accountants.Any
certified public accountant who is not
currently under suspension or disbarment
from practice before the Internal Revenue
Service may practice before the Internal
Revenue Service by filing with the Internal
Revenue Service a written declaration that
the certified public accountant is currently
qualified as a certified public accountant
and is authorized to represent the party
or parties. Notwithstanding the preceding
2012–40 I.R.B.431October 1, 2012

sentence, certified public accountants who
are not currently under suspension or dis-
barment from practice before the Internal
Revenue Service are not required to file
a written declaration with the IRS before
rendering written advice covered under
§10.37, but their rendering of this advice
is practice before the Internal Revenue
Service.
*****
(g)Others.Any individual qualifying
under §10.5(e) or §10.7 is eligible to prac-
tice before the Internal Revenue Service to
the extent provided in those sections.
*****
(j)Effective/applicability date.This
section is applicable beginning after the
date that final regulations are published in
theFederal Register.
Par. 4. Section 10.22 is amended by
revising paragraphs (b) and (c) to read as
follows:
§10.22 Diligence as to accuracy.
*****
(b)Reliance on others.Except as pro-
vided in §§10.34 and 10.37, a practitioner
will be presumed to have exercised due
diligence for purposes of this section if the
practitioner relies on the work product of
another person and the practitioner used
reasonable care in engaging, supervising,
training, and evaluating the person, taking
proper account of the nature of the rela-
tionship between the practitioner and the
person.
(c)Effective/applicability date.This
section is applicable beginning after the
date that final regulations are published in
theFederal Register.
Par. 5. Section 10.31 is revised to read
as follows:
§10.31 Negotiation of taxpayer checks.
(a) A practitioner may not endorse or
otherwise negotiate any check (includ-
ing directing or accepting payment by
any means, electronic or otherwise, in an
account owned or controlled by the prac-
titioner or any firm or other entity with
whom the practitioner is associated) issued
to a client by the government in respect of
a Federal tax liability.
(b)Effective/applicability date.This
section is applicable beginning after the
date that final regulations are published in
theFederal Register.
Par. 6. Section 10.35 is revised to read
as follows:
§10.35 Competence.
(a) A practitioner must possess the
necessary competence to engage in prac-
tice before the Internal Revenue Service.
Competent practice requires the knowl-
edge, skill, thoroughness, and preparation
necessary for the matter for which the
practitioner is engaged.
(b)Effective/applicability date.This
section is applicable beginning after the
date that final regulations are published in
theFederal Register.
Par. 7. Section 10.36 is revised to read
as follows:
§10.36 Procedures to ensure compliance.
(a) Any practitioner who has (or prac-
titioners who have or share) principal au-
thority and responsibility for overseeing a
firm’s practice governed by this part, in-
cluding the provision of advice concerning
Federal tax matters and preparation of tax
returns, claims for refund, or other docu-
ments for submission to the Internal Rev-
enue Service, must take reasonable steps
to ensure that the firm has adequate proce-
dures in effect for all members, associates,
and employees for purposes of complying
with this part, as applicable. Any practi-
tioner who has (or practitioners who have
or share) this principal authority will be
subject to discipline for failing to comply
with the requirements of this paragraph (a)
if—
(1) The practitioner through willful-
ness, recklessness, or gross incompetence
does not take reasonable steps to ensure
that the firm has adequate procedures to
comply with this part, as applicable, and
one or more individuals who are members
of, associated with, or employed by, the
firm are, or have, engaged in a pattern or
practice, in connection with their practice
with the firm, of failing to comply with
this part, as applicable; or
(2) The practitioner knows or should
know that one or more individuals who are
members of, associated with, or employed
by, the firm are, or have, engaged in a pat-
tern or practice, in connection with their
practice with the firm, that does not com-
ply with this part, as applicable, and the
practitioner, through willfulness, reckless-
ness, or gross incompetence fails to take
prompt action to correct the noncompli-
ance.
(b)Effective/applicability date.This
section is applicable beginning after the
date that final regulations are published in
theFederal Register.
Par. 8. Section 10.37 is revised to read
as follows:
§10.37 Requirements for written advice.
(a)Requirements. (1) A practitioner
may give written advice (including by
means of electronic communication) con-
cerning one or more Federal tax matters
subject to the requirements in paragraph
(a)(2) of this section.
(2) The practitioner must—
(i) Base the written advice on reason-
able factual and legal assumptions (includ-
ing assumptions as to future events);
(ii) Reasonably consider all relevant
facts that the practitioner knows or should
know;
(iii) Use reasonableefforts to identify
and ascertain the facts relevant to written
advice on each Federal tax matter;
(iv) Not rely upon representations,
statements, findings, or agreements (in-
cluding projections, financial forecasts, or
appraisals) of the taxpayer or any other
person if reliance on them would be un-
reasonable; and
(v) Not, in evaluating a Federal tax mat-
ter, take into account the possibility that a
tax return will not be audited or that a mat-
ter will not be raised on audit.
(3) Reliance on representations, state-
ments, findings, or agreements is unrea-
sonable if the practitioner knows or should
know that one or more representations or
assumptions on which any representation
is based are incorrect or incomplete.
(b)Reliance on advice of others.A
practitioner may only rely on the advice
of another practitioner if the advice was
reasonable and the reliance is in good
faith considering all the facts and cir-
cumstances. Reliance is not reasonable
when—
(1) The practitioner knows or should
know that the opinion of the other practi-
tioner should not be relied on;
(2) The practitioner knows or should
know that the other practitioner is not com-
October 1, 20124322012–40 I.R.B.

petent or lacks the necessary qualifications
to provide the advice; or
(3) The practitioner knows or should
know that the other practitioner has a con-
flict of interest as described in this part.
(c)Standard of review. (1) In evaluat-
ing whether a practitioner giving written
advice concerning one or more Federal tax
matters complied with the requirements of
this section, the Commissioner, or dele-
gate, will apply a reasonableness standard,
considering all facts and circumstances, in-
cluding, but not limited to, the scope of the
engagement and the type and specificity of
the advice sought by the client.
(2) In the case of an opinion the practi-
tioner knows or has reason to know will be
used or referred to by a person other than
the practitioner (or a person who is a mem-
ber of, associated with, or employed by the
practitioner’s firm) in promoting, market-
ing, or recommending to one or more tax-
payers a partnership or other entity, invest-
ment plan or arrangement a significant pur-
pose of which is the avoidance or evasion
of any tax imposed by the Internal Rev-
enue Code, the determination of whether
a practitioner has failed to comply with
this section will be made on the basis of a
heightened standard of review because of
the greater risk caused by the practitioner’s
lack of knowledge of the taxpayer’s partic-
ular circumstances.
(d)Effective/applicability date.The
rules of this section will apply to writ-
ten advice that is rendered after the date
of publication of the Treasury decision
adopting these rules as final regulations in
theFederal Register.
Par. 9. Section 10.52 is revised to read
as follows:
§10.52 Violations subject to sanction.
(a) A practitioner may be sanctioned
under §10.50 if the practitioner—
(1) Willfully violates any of the regula-
tions (other than §10.33) contained in this
part; or
(2) Recklessly or through gross in-
competence (within the meaning of
§10.51(a)(13)) violates §§10.34, 10.36, or
10.37.
(b)Effective/applicability date.This
section is applicable to conduct occurring
on or after the date final regulations are
published in theFederal Register.
Par. 10. Section 10.81 is revised to read
as follows:
§10.81 Petition for reinstatement.
(a)In general.A practitioner disbarred
or suspended under §10.60, or suspended
under §10.82, or a disqualified appraiser
may petition for reinstatement before the
Internal Revenue Service after the expira-
tion of 5 years following such disbarment,
suspension, or disqualification. Reinstate-
ment will not be granted unless the Internal
Revenue Service is satisfied that the peti-
tioner is not likely to engage thereafter in
conduct contrary to the regulations in this
part, and that granting such reinstatement
would not be contrary to the public inter-
est.
(b)Effective/applicability date.This
section is applicable beginning on the date
final regulations are published in theFed-
eral Register.
Par 11. Section 10.82 is amended by:
1. Revising paragraph (a) and the intro-
ductory text of paragraph (b).
2. Adding paragraph (b)(5).
3. Revising paragraphs (c), (d), (e), (f),
(g), and (h).
The revisions and additions read as fol-
lows:
§10.82 Expedited suspension.
(a)When applicable.Whenever the
Commissioner, or delegate, determines
that a practitioner is described in para-
graph (b) of this section, the expedited
procedures described in this section may
be used to suspend the practitioner from
practice before the Internal Revenue Ser-
vice.
(b)To whom applicable. This section
applies to any practitioner who, within 5
years prior to the date that a show cause or-
der under this section’s expedited suspen-
sion procedures is served:
*****
(5) Has demonstrated a pattern of will-
ful disreputable conduct by—
(i) Failing to make an annual Federal
tax return, in violation of the Federal tax
laws, during 4 of the 5 tax years imme-
diately preceding theinstitution of a pro-
ceeding under paragraph (c) of this section
and remains noncompliant with any of the
practitioner’s Federaltax filing obligations
at the time the notice of suspension is is-
sued under paragraph (f) of this section; or
(ii) Failing to make a return required
more frequently than annually, in violation
of the Federal tax laws, during 5 of the 7
tax periods immediately preceding the in-
stitution of a proceeding under paragraph
(c) of this section and remains noncompli-
ant with any of the practitioner’s Federal
tax filing obligations at the time the notice
of suspension is issued under paragraph (f)
of this section.
(c)Expedited suspension procedures.
A suspension under this section will be
proposed by a show cause order that names
the respondent, is signed by an authorized
representative of the Internal Revenue Ser-
vice under §10.69(a)(1), and served ac-
cordingtotherulessetforthinparagraph
(a) of §10.63. The show cause order must
give a plain and concise description of the
allegations that constitute the basis for the
proposed suspension. The show cause or-
der must notify the respondent—
(1) Of the place and due date for filing
a response;
(2) That an expedited suspension de-
cision by default may be rendered if the
respondent fails to file a response as re-
quired;
(3) That the respondent may request a
conference to address the merits of the
show cause order and that any such request
must be made in the response; and
(4) That the respondent may be sus-
pended either immediately following the
expiration of the period within which a re-
sponse must be filed or, if a conference is
requested, immediately following the con-
ference.
(d)Response.The response to the show
cause order described in this section must
be filed no later than 30 calendar days fol-
lowing the date the show cause order is
served, unless the time for filing is ex-
tended. The response must be filed in ac-
cordance with the rules set forth for an-
swers to a complaint in §10.64, except as
otherwise provided in this section. The re-
sponse must include a request for a con-
ference, if a conference is desired. The re-
spondent is entitledto the conference only
if the request is made in a timely filed re-
sponse.
(e)Conference. An authorized repre-
sentative of the Internal Revenue Service
will preside at a conference described in
this section. The conference will be held
2012–40 I.R.B.433October 1, 2012

at a place and time selected by the Inter-
nal Revenue Service, but no sooner than
14 calendar days after the date by which
the response must be filed with the Inter-
nal Revenue Service, unless the respon-
dent agrees to an earlier date. An autho-
rized representative may represent the re-
spondent at the conference.
(f)Suspension—(1)In general.The
Commissioner, or delegate, may suspend
the respondent from practice before the In-
ternal Revenue Service by a written notice
of expedited suspension immediately fol-
lowing:
(i) The expiration of the period within
which a response to a show cause order
must be filed if the respondent does not file
a response as required by paragraph (d) of
this section;
(ii) The conference described in para-
graph (e) of this section if the Internal Rev-
enue Service finds that the respondent is
described in paragraph (b) of this section;
(iii) The respondent’s failure to appear,
either personally or through an authorized
representative, at a conference scheduled
by the Internal Revenue Service under
paragraph (e) of this section.
(2)Duration of suspension. A suspen-
sion under this section will commence on
the date that the written notice of expe-
dited suspension is served on the practi-
tioner, either personally or through an au-
thorized representative. The suspension
will remain effective until the earlier of:
(i) The date the Internal Revenue Ser-
vice lifts the suspension after determining
that the practitioner is no longer described
in paragraph (b) of this section or for any
other reason; or
(ii) The date the suspension is lifted by
an Administrative Law Judge or the Sec-
retary of the Treasury, or delegate decid-
ing appeals, in a proceeding referred to in
paragraph (g) of this section and instituted
under §10.60.
(g)Practitioner request for §10.60 pro-
ceeding.If the Internal Revenue Service
suspends a practitioner under the expe-
dited suspension procedures described
in this section, the practitioner may de-
mand that the Internal Revenue Service
institute a proceeding under §10.60 and
issue the complaint described in §10.62.
The request must be in writing, specif-
ically reference the suspension action
under §10.82, and be made within 2 years
from the date on which the practitioner’s
suspension commenced. The Internal
Revenue Service must issue a complaint
demanded under this paragraph (g) within
45 calendar days of receiving the demand.
(h)Effective/applicability date.This
section is applicable beginning on the date
that final regulations are published in the
Federal Register.
Par. 12. Section 10.91 is revised to read
as follows:
§10.91 Saving provision.
Any proceeding instituted under this
part prior to the date that final regulations
are published in theFederal Register,
for which a final decision has not been
reached or for which judicial review is
still available is not affected by these re-
visions. Any proceeding under this part
based on conduct engaged in prior to the
date that final regulations are published in
theFederal Register, which is instituted
after that date, will apply subpart D and E
of this part as revised, but the conduct en-
gaged in prior to the effective date of these
revisions will be judged by the regulations
in effect at the time the conduct occurred.
Par.13.Section10.93isrevisedtoread
as follows:
§10.93 Effective date.
Except as otherwise provided in each
section and subject to §10.91, Part 10 is
applicable on the date that final regulations
are published in theFederal Register.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on September 14,
2012, 8:45 a.m., and published in the issue of the Federal
Register for September 17, 2012, 77 F.R. 57055)
October 1, 20124342012–40 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.
2012–40 I.R.B.iOctober 1, 2012

Numerical Finding List
1
Bulletins 2012–27 through 2012–40
Announcements:
2012-26, 2012-27 I.R.B.8
2012-27, 2012-27 I.R.B.10
2012-28, 2012-27 I.R.B.10
2012-30, 2012-34 I.R.B.314
2012-31, 2012-34 I.R.B.315
2012-32, 2012-35 I.R.B.325
2012-33, 2012-35 I.R.B.325
2012-34, 2012-36 I.R.B.334
2012-35, 2012-38 I.R.B.356
Notices:
2012-39, 2012-31 I.R.B.95
2012-44, 2012-28 I.R.B.45
2012-45, 2012-29 I.R.B.59
2012-46, 2012-30 I.R.B.86
2012-47, 2012-31 I.R.B.98
2012-48, 2012-31 I.R.B.102
2012-49, 2012-31 I.R.B.119
2012-50, 2012-31 I.R.B.121
2012-51, 2012-33 I.R.B.150
2012-52, 2012-35 I.R.B.317
2012-53, 2012-35 I.R.B.317
2012-55, 2012-36 I.R.B.332
2012-56, 2012-39 I.R.B.370
2012-57, 2012-40 I.R.B.424
Proposed Regulations:
REG-126770-06, 2012-38 I.R.B.347
REG-138367-06, 2012-40 I.R.B.426
REG-101812-07, 2012-34 I.R.B.311
REG-134042-07, 2012-27 I.R.B.5
REG-153627-08, 2012-29 I.R.B.60
REG-136491-09, 2012-35 I.R.B.321
REG-138489-09, 2012-38 I.R.B.355
REG-125570-11, 2012-30 I.R.B.93
REG-130266-11, 2012-32 I.R.B.126
REG-134935-11, 2012-29 I.R.B.64
REG-141832-11, 2012-28 I.R.B.54
REG-107889-12, 2012-28 I.R.B.53
REG-113738-12, 2012-29 I.R.B.66
Revenue Procedures:
2012-28, 2012-27 I.R.B.4
2012-29, 2012-28 I.R.B.49
2012-30, 2012-33 I.R.B.165
2012-31, 2012-33 I.R.B.256
2012-32, 2012-34 I.R.B.267
2012-33, 2012-34 I.R.B.272
2012-34, 2012-34 I.R.B.280
2012-35, 2012-37 I.R.B.341
2012-36, 2012-39 I.R.B.374
Revenue Procedures— Continued:
2012-40, 2012-40 I.R.B.424
Revenue Rulings:
2012-19, 2012-28 I.R.B.16
2012-20, 2012-27 I.R.B.1
2012-21, 2012-32 I.R.B.123
2012-23, 2012-39 I.R.B.359
2012-24, 2012-36 I.R.B.329
2012-25, 2012-37 I.R.B.337
2012-26, 2012-39 I.R.B.358
Treasury Decisions:
9591, 2012-28 I.R.B.32
9592, 2012-28 I.R.B.41
9593, 2012-28 I.R.B.17
9594, 2012-29 I.R.B.57
9595, 2012-30 I.R.B.71
9596, 2012-30 I.R.B.84
9597, 2012-34 I.R.B.258
9598, 2012-38 I.R.B.343
9599, 2012-40 I.R.B.417
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin
2012–26, dated June 25, 2012.
October 1, 2012ii2012–40 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2012–27 through 2012–40
Announcements:
83-196
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
85-141
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
2008-105
Modified and superseded by
Ann. 2012-34, 2012-36 I.R.B.334
Notices:
2009-24
Amplified by
Notice 2012-51, 2012-33 I.R.B.150
2012-51
Amplified by
Notice 2012-51, 2012-33 I.R.B.150
Proposed Regulations:
REG-100276-97
Withdrawn by
Ann. 2012-27, 2012-27 I.R.B.10
Revenue Procedures:
94-22
Modified and superseded by
Rev. Proc. 2012-35, 2012-37 I.R.B.341
95-15
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
98-32
Modified and superseded by
Rev. Proc. 2012-33, 2012-34 I.R.B.272
2007-38
Modified and superseded by
Rev. Proc. 2012-32, 2012-34 I.R.B.267
2011-40
Superseded by
Rev. Proc. 2012-30, 2012-33 I.R.B.165
2011-50
Superseded by
Rev. Proc. 2012-36, 2012-39 I.R.B.374
Treasury Decisions:
9752
Corrected by
Ann. 2012-35, 2012-38 I.R.B.356
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin 2012–26, dated June 25, 2012.
2012–40 I.R.B.iiiOctober 1, 2012

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