Internal Revenue Bulletin 2005-18 (PDF rendition): IRS Revenue Rulings

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. 200
5-18
May 2, 2005
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2005–25, page 971.
Health Savings Accounts (HSAs); non-high deductible
health plan (HDHP).This ruling provides guidance on eligibil-
ity and contribution rules under section 223 of the Code for
a married individual whose spouse has non-high deductible
health plan (HDHP) coverage. Amarried individual may con-
tribute to a Health Savings Account (HSA) even though his or
her spouse has non-HDHP coverage, so long as the individual
is not covered by the spouse’s non-HDHP. The maximum
amount that an eligible individual may contribute to an HSA is
based on whether the individual has self-only or family HDHP
coverage.
T.D. 919
7, page 985.
REG–148
521–04, page 995.
Final, te
mporary, and proposed regulations under section 7701
of the Co
de add to the list of foreign business entities that are
always c
lassified as corporations, per se corporations, and,
therefo
re, are not eligible to check the box to change their
classif
ication. A public hearing on the proposed regulations is
schedul
ed for July 27, 2005.
T.D. 9198, page 972.
Final regulations under section 355(e) of the Code relate to the
recognition of gain on certain distributions of stock or securi-
ties in connection with an acquisition. The regulations provide
guidance on whether an acquisition and a distribution are part
of a plan (or series of related transactions).
Rev. Proc. 2005–20, page 990.
This procedure describes how a regulated investment company
(RIC) that holds a partnership interest is treated. A RIC that is a
consenting partner in a partnership, that has in effect a monthly
closing election under Rev. Proc. 2003–84, 2003–2 C.B.
1159, is treated as if directly invested in the assets held by the
partnership. Rev. Proc. 2003–32 amplified and superseded.
Announcement 2005–31, page 996.
This document contains corrections to final regulations (T.D.
9165, 2005–4 I.R.B. 357) under section 330 of Title 31 of
the U.S. Code governing practice before the Internal Revenue
Service (Circular 230).
EMPLOYEE PLANS
Rev. Proc. 2005–23, page 991.
Retroactive payment of benefits; remedial amendment
period; determination letters.This document contains pro-
cedures to limit the retroactive application of the decision in
Central Laborers’ Pension Fund v. Heinz, 124 S.Ct. 2230
(2004), for affected retirement plans qualified under section
401(a) of the Code.
TAX CONVENTIONS
Announcement 2005–30, page 988.
Mutual Agreement on U.K. pension arrangements.A
copy of the news release issued by the Director, International
(U.S. Competent Authority), on April 13, 2005 (IR–2005–44),
is set forth.
(Continued on the next page)
Fi
nding Lists begin on page ii.

ADMINISTRATIVE
T.D. 9197, page 985.
REG–148521–04, page 995.
Final, temporary, and proposed regulations under section 7701
of the Code add to the list of foreign business entities that are
always classified as corporations, per se corporations, and,
therefore, are not eligible to check the box to change their
classification. A public hearing on the proposed regulations is
scheduled for July 27, 2005.
Rev. Proc. 200
5–20, page 990.
This procedur
e describes how a regulated investment company
(RIC) that hol
ds a partnership interest is treated. A RIC that is a
consenting p
artner in a partnership, that has in effect a monthly
closing elec
tion under Rev. Proc. 2003–84, 2003–2 C.B.
1159, is trea
ted as if directly invested in the assets held by the
partnership
. Rev. Proc. 2003–32 amplified and superseded.
May 2, 20052005–18 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (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.
2005–18 I.R.B.May 2, 2005

Place missing child here.
May 2, 20052005–18 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 223.—Health
Savings Accounts
Health Savings Accounts (HSAs);
non-high deductible health plan
(HDHP).This ruling provides guidance
on eligibility and contribution rules un-
der section 223 of the Code for a married
individual whose spouse has non-high
deductible health plan (HDHP) coverage.
A married individual may contribute to
a Health Savings Account (HSA) even
though his or her spouse has non-HDHP
coverage, so long as the individual is not
covered by the spouse’s non-HDHP. The
maximum amount that an eligible indi-
vidual may contribute to an HSA is based
on whether the individual has self-only or
family HDHP coverage.
Rev. Rul. 2005–25
ISSUES
1. Is a married individual who other-
wise qualifies as an “eligible individual”
eligible to contribute to a Health Savings
Account (HSA) under section 223 of the
Internal Revenue Code (the Code) if the
individual’s spouse has non-HDHP family
coverage that does not cover the individ-
ual?
2. If the individual is eligible to con-
tribute to an HSA, what is the maximum
contribution limit?
FACTS
Situation 1
H and W are a married couple and
both are age 35. Throughout 2005, H has
self-only coverage under a high deductible
health plan (HDHP) as defined in section
223(c)(2) with an annual deductible of
$2,000. H has no other health coverage,
is not enrolled in Medicare and may not
be claimed as a dependent on another tax-
payer’s return. W has non-HDHP family
coverage for W and H’s and W’s two
dependents, but H is excluded from W’s
coverage.
Situation 2
The same facts asSituation 1, except
that H has HDHP family coverage as de-
fined in section 223(c)(2) for H and one
of H’s and W’s dependents with an annual
deductible of $5,000. W has non-HDHP
family coverage for W and H’s and W’s
other dependent. H is excluded from W’s
coverage.
Situation 3
The same facts asSituation 1, except
that H has HDHP family coverage for H
and H’s and W’s two dependents with an
annual deductible of $5,000. W is not cov-
ered under H’s health plan and has no other
health plan coverage.
LAW AND ANALYSIS
Section 223(a) allows a deduction for
contributions to anHSA for an “eligible
individual.” Section 223(c)(1)(A) defines
“eligible individual” with respect to any
month, as an individual who, in addition
to other requirements, is covered under
an HDHP on the first day of such month
and is not, while covered under an HDHP,
“covered under any health plan which
is not a high deductible health plan, and
which provides coverage for any benefit
which is covered under the high deductible
health plan.” An eligible individual may
also have permitted insurance, and certain
disregarded coverage in addition to an
HDHP. A plan does not fail to be treated
as an HDHP merely because it covers pre-
ventive care without a deductible.
An HDHP is a health plan that satisfies
certain requirements with respect to min-
imum annual deductibles and maximum
annual out-of-pocket expenses. Section
223(c)(2)(A). Family coverage is any cov-
erage other than self-only coverage (e.g.,
an HDHP covering one eligible individual
and at least one other individual (whether
or not the other individual is an eligible in-
dividual)). Section 223(c)(4); Q&A–12 of
Notice 2004–50, 2004–33 I.R.B. 196.
Only eligible individuals may con-
tribute to an HSA. The maximum annual
contribution limit is the sum of the limits
determined separately for each month. For
an individual who is eligible during the
entire calendar year 2005, the contribution
limit is the lesser of the annual deductible
under the HDHP (minimum of $1,000 for
self-only coverage and $2,000 for family
coverage) or $2,650 for self-only cov-
erage and $5,250 for family coverage.
Rev. Proc. 2004–71, 2004–50 I.R.B. 970,
§3.22.
Section 223(b)(5)provides special
rules for married individuals. In general,
if either spouse has family coverage, both
spouses are treated as having only such
family coverage. Also, if each spouse
has family coverage under different health
plans, both spouses are treated as having
family coverage under the plan with the
lowest deductible. However, if a spouse
has HDHP family coverage and the other
spouse has non-HDHP self-only cover-
age, the spouse with the HDHP family
coverage is an eligible individual and may
contribute to an HSA up to the amount of
the annual contribution limit. Because the
other spouse is covered by a non-HDHP
and is therefore not an eligible individual,
the other spouse may not contribute to an
HSA, notwithstandingthe special rule in
section 223(b)(5) treating both spouses
as having family coverage. Q&A–31 of
Notice 2004–50.
An eligible individual who attains age
55 before the close of the calendar year
may make a catch-up HSA contribution
(up to $600 in 2005). Section 223(b)(3).
InSituation 1, H has HDHP self-only
coverage and no other health coverage,
is not enrolled in Medicare and may
not be claimed as a dependent on an-
other taxpayer’s return. Although W has
non-HDHP family coverage, H is not cov-
ered under that health plan. H is therefore
an eligible individualas defined in section
223(c)(1). The special rules for married
individuals under section 223(b)(5) do
not apply because W’s non-HDHP fam-
ily coverage does not cover H. Thus, H
remains an eligible individual and H may
contribute up to $2,000 to an HSA (lesser
of the HDHP deductible for self-only cov-
erage or $2,650) for 2005. H may not
make the catch-up contribution under sec-
tion 223(b)(3) because H is not age 55 in
2005–18 I.R.B.971May 2, 2005

2005. W has non-HDHP coverage and is
therefore not an eligible individual.
InSituation 2, H has HDHP family cov-
erage for one of H’s and W’s dependents
and W has non-HDHP family coverage
for W and H’s and W’s other dependent.
Because the non-HDHP family coverage
does not cover H, the special rules in sec-
tion 223(b)(5) do not affect H’s eligibility
to make HSA contributions up to H’s an-
nual HSA contribution limit. H may there-
fore contribute up to $5,000 to an HSA (the
lesser of the family HDHP deductible or
$5,250). W has non-HDHP coverage and
is therefore not an eligible individual.
InSituation 3, H has HDHP family cov-
erage for H and H’s and W’s two depen-
dents. H may contribute to up to $5,000
to an HSA (the lesser of the family HDHP
deductible or $5,250). Because H’s fam-
ily coverage does not cover W, the special
rules under section 223(b)(5) do not apply
to treat W as having family coverage. W
has no health plan coverage and is there-
fore not an eligible individual.
HOLDINGS
1. An individual who otherwise qual-
ifies as an eligible individual does not
fail to be an eligible individual merely
because the individual’s spouse has
non-HDHP family coverage, if the
spouse’s non-HDHP does not cover the
individual. Accordingly, that individual
maycontributetoanHSA.
2. The maximum amount under section
223(b) that an eligible individual may con-
tributetoanHSAisbasedonwhetherthe
individual has self-only or family HDHP
coverage.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Elizabeth Purcell of the Office of
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties). For further information regarding
this revenue ruling, contact Ms. Purcell at
(202) 622–6080 (not a toll-free call).
Section 355.—Distribution
of Stock and Securities of
a Controlled Corporation
26 CFR 1.355–7: Recognition of gain on certain dis-
tributions of stock or securities in connection with an
acquisition.
T.D. 9198
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Guidance Under Section
355(e); Recognition of Gain on
Certain Distributions of Stock
or Securities in Connection
With an Acquisition
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations under section 355(e) of
the Internal Revenue Code relating to the
recognition of gain on certain distributions
of stock or securities of a controlled cor-
poration in connection with an acquisition.
Changes to the applicable law were made
by the Taxpayer Relief Act of 1997. These
regulations affect corporations and are
necessary to provide them with guidance
needed to comply with those changes.
DATES:Effective Date:These regulations
are effective April 19, 2005.
Applicability Date:For dates of appli-
cability, see §1.355–7(k).
FOR FURTHER INFORMATION
CONTACT: Amber R. Cook, (202)
622–7530 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains amendments to
26 CFR part 1 under section 355(e) of
the Internal Revenue Code (Code). Sec-
tion 355(e) provides that the stock of a
controlled corporation will not be quali-
fied property under section 355(c)(2) or
361(c)(2) if the stock is distributed as “part
of a plan (or series of related transactions)
pursuant to which 1 or more persons ac-
quire directly or indirectly stock represent-
ing a 50-percent or greater interest in the
distributing corporation or any controlled
corporation.”
On April 26, 2002, temporary reg-
ulations (T.D. 8988, 2002–1 C.B. 929)
(the 2002 temporary regulations) were
published in theFederal Register(67
FR 20632). The 2002 temporary regu-
lations provide guidance concerning the
interpretation of the phrase “plan (or se-
ries of related transactions).” A notice of
proposed rulemaking (REG–163892–01,
2002–1 C.B. 968) (the 2002 proposed
regulations) cross-referencing the 2002
temporary regulations was published in
theFederal Registerfor the same day (67
FR 20711).
The 2002 temporary regulations pro-
vide that whether a distribution and an ac-
quisition are part of a plan is determined
based on all the facts and circumstances
and set forth a nonexclusive list of factors
that are relevant in making that determina-
tion. The 2002 temporary regulations also
provide that a distribution and a post-dis-
tribution acquisition not involving a public
offering can be part of a plan only if there
was an agreement, understanding, arrange-
ment, or substantial negotiations regarding
the acquisition or a similar acquisition at
some time during the two-year period pre-
ceding the distribution (the post-distribu-
tion acquisition rule). Finally, the 2002
temporary regulations set forth seven safe
harbors. The satisfaction of any one of
these safe harbors confirms that a distri-
bution and an acquisition are not part of a
plan.
No public hearing was requested or held
for the 2002 proposed regulations. Writ-
ten and electronic comments responding to
the notice of proposed rulemaking were re-
ceived. After consideration of the com-
ments, the 2002 proposed regulations are
adoptedasamendedbythisTreasurydeci-
sion, and the corresponding temporary reg-
ulations are removed. The more signifi-
cant comments and revisions are discussed
below.
May 2, 20059722005–18 I.R.B.

A.Pre-Distribution Acquisitions Not
Involving a Public Offering
The 2002 temporary regulations in-
clude a safe harbor, Safe Harbor IV, that
may be available for a pre-distribution
acquisition. That safe harbor provides
that an acquisition and a distribution that
occurs more than two years after the acqui-
sition are not part of a plan if there was no
agreement, understanding, arrangement,
or substantial negotiations concerning the
distribution at the time of the acquisi-
tion or within six months thereafter. In
addition to Safe Harbor IV, the 2002 tem-
porary regulations identify a number of
factors that are relevant in determining
whether a distribution and a pre-distri-
bution acquisition not involving a public
offering are part of a plan. Among the
factors tending to show that a distribution
and a pre-distribution acquisition not in-
volving a public offering are not part of
a plan is the absence of discussions by
the distributing corporation (Distributing)
or the controlled corporation (Controlled)
with the acquirer regarding a distribution
during the two-year period before the ac-
quisition (the no-discussions factor). The
absence of such discussions, however, will
not tend to show that a distribution and an
acquisition are not part of a plan if the ac-
quisition occurs after the date of the public
announcement of the planned distribution
(the public announcement restriction).
Commentators have suggested that, un-
der the 2002 temporary regulations, it is
more difficult to establish that a distribu-
tion and a pre-distribution acquisition not
involving a public offering are not part of
a plan than it is to establish that a distri-
bution and a post-distribution acquisition
are not part of a plan. This suggestion is
based in part on the fact that the 2002 tem-
porary regulations include the post-distri-
bution acquisition rule for post-distribu-
tion acquisitions but no analogous rule for
pre-distribution acquisitions.
Commentators have proposed extend-
ing the availability of Safe Harbor IV by
reducing the period between the acquisi-
tion and the distribution from two years
to one year. They have also suggested
adopting a new safe harbor that would be
available for acquisitions of Distributing
that occur before apro ratadistribution.
Finally, commentators have suggested
that the public announcement restriction
on the no-discussions factor be elimi-
nated because a public announcement, as
a practical matter, commits Distributing to
attempt the distribution and, thus, is strong
evidence that the distribution would have
occurred regardless of the acquisition.
The IRS and Treasury Department be-
lieve that it is desirable to provide for ad-
ditional bright-line rules for determining
whether a distribution and a pre-distribu-
tion acquisition not involving a public of-
fering are part of a plan. Accordingly,
these final regulations amend Safe Harbor
IV, add a new safe harbor for acquisitions
of Distributing prior to apro ratadistribu-
tion, and amend the no-discussions factor.
1.Revisions to Safe Harbor IV of the
2002 temporary regulations
The IRS and Treasury Department gen-
erally believe that if an acquirer had no
knowledge of Distributing’s intention to
effect a distribution and had no intention
or ability to cause a distribution, a pre-
distribution acquisition and a distribution
should not be considered part of a plan, re-
gardless of whether the distribution occurs
more than two years after the acquisition.
The IRS and Treasury Department, how-
ever, are concerned that conditioning the
availability of a safe harbor on an absence
of knowledge may be inadministrable and
lead to uncertainty. Accordingly, these fi-
nal regulations amend Safe Harbor IV of
the 2002 temporary regulations to provide
that a distribution and a pre-distribution
acquisition not involving a public offering
will not be considered part of a plan if the
acquisition occurs before the first disclo-
sure event regarding the distribution. The
final regulations define a disclosure event
as any communication by an officer, direc-
tor, controlling shareholder, or employee
of Distributing, Controlled, or a corpora-
tion related to Distributing or Controlled,
or an outside advisor of any of those per-
sons (where such advisor makes the com-
munication on behalf of such person), re-
garding the distribution, or the possibility
thereof, to the acquirer or any other person
(other than an officer, director, controlling
shareholder, or employee of Distributing,
Controlled, or a corporation related to Dis-
tributing or Controlled, or an outside advi-
sor of any of those persons).
To ensure that Safe Harbor IV of the
2002 temporary regulations is not avail-
able for acquisitions by persons who could
participate in the decision to effect a distri-
bution, these final regulations provide that
Safe Harbor IV is not available for acqui-
sitions by a person that was a controlling
shareholder or a ten-percent shareholder of
the acquired corporation at any time during
the period beginning immediately after the
acquisition and ending on the date of the
distribution. The safe harbor is also un-
available if the acquisition occurs in con-
nection with a transaction in which the ag-
gregate acquisitions represent 20 percent
or more of the stock of the acquired cor-
poration by vote or value.
2.New safe harbor for acquisitions before
a pro rata distribution
The IRS and Treasury Department be-
lieve that acquisitions of Distributing not
involving a public offering that occur be-
fore apro ratadistribution are not likely to
be part of a plan including the distribution
where there has been a public announce-
ment of the distribution prior to the acqui-
sition, there were no discussions regard-
ing the acquisition prior to the public an-
nouncement, and the acquirer did not have
the ability to participate in or influence
the distribution decision. The facts that
the distribution was publicly announced
prior to discussions regarding the acqui-
sition and that the acquisition was small
in size suggest that the distribution would
have occurred regardless of the acquisi-
tion. Moreover, the fact that a pre-dis-
tribution shareholder of Distributing has
the same interest in both Distributing and
Controlled, directly or indirectly, both im-
mediately before and immediately after a
pro ratadistribution reduces the likelihood
that the acquisition and the distribution
were part of a plan. Accordingly, these fi-
nal regulations include a new safe harbor,
Safe Harbor V, that applies to acquisitions
of Distributing not involving a public of-
fering that occur prior to apro ratadis-
tribution. That safe harbor provides that a
distribution that ispro rataamong the Dis-
tributing shareholders and a pre-distribu-
tion acquisition of Distributing not involv-
ing a public offering will not be considered
part of a plan if the acquisition occurs af-
ter the date of a public announcement re-
garding the distribution and there were no
discussions by Distributing or Controlled
with the acquirer regarding a distribution
2005–18 I.R.B.973May 2, 2005

on or before the date of the first public an-
nouncement regarding the distribution. A
public announcement regarding the distri-
bution is any communication by Distribut-
ing or Controlled regarding Distributing’s
intention to effect the distribution where
the communication is generally available
to the public. A public announcement in-
cludes, for example, a press release issued
by Distributing announcing the distribu-
tion. It also includes a conversation be-
tween an officer of Distributing and stock
analysts in which the officer communi-
cates Distributing’s intention to effect a
distribution. New Safe Harbor V is in-
tended to apply only to acquisitions by per-
sons that do not have the ability to effect
the distribution. Therefore, new Safe Har-
bor V is unavailable for acquisitions by
persons that were controlling shareholders
or ten-percent shareholders of Distributing
at any time during the period beginning
immediately after theacquisition and end-
ing on the date of the distribution. In addi-
tion, new Safe Harbor V is unavailable if
the acquisition occursin connection with a
transaction in which the aggregate acqui-
sitions represent 20 percent or more of the
stock of Distributing by vote or value.
3.No-discussions factor
As discussed above, the IRS and Trea-
sury Department believe that the occur-
rence of a public announcement of a
distribution before the discussion of an
acquisition not involving a public offering
suggests that the distribution would have
occurred regardlessof the acquisition.
Therefore, these final regulations amend
the no-discussions factor to remove the
public announcement restriction.
B.Public Offerings
The 2002 temporary regulations distin-
guish between acquisitions not involving
a public offering and acquisitions involv-
ing a public offering. A number of com-
mentators have suggested that it is diffi-
cult to apply the 2002 temporary regula-
tions to acquisitions involving public of-
ferings and have requested (1) clarifica-
tion of the definition of public offering, (2)
additional safe harbors for acquisitions in-
volving public offerings, and (3) guidance
regarding when an acquisition is similar to
a potential acquisition involving a public
offering. These final regulations address
these requests.
1.Definition of public offering
Questions have arisen regarding
whether a public offering includes stock
issuances that are not for cash, includ-
ing stock issuances for assets or stock in
tax-free reorganizations. These final reg-
ulations define an acquisition involving a
public offering as a stock acquisition for
cash where the terms of the acquisition
are established by the acquired corpora-
tion (Distributing or Controlled) or the
seller with the involvement of one or more
investment bankers, and the potential ac-
quirers have no opportunity to negotiate
the terms of the acquisition. Under this
definition, while an initial public offering
and a secondary offering will be treated
as public offerings, aprivate placement
involving bilateral discussions and a stock
issuance for assets or stock in a tax-free
reorganization will not be treated as public
offerings.
2.New safe harbor for public offerings
These final regulations add new Safe
Harbor VI. Under new Safe Harbor VI, a
distribution and an acquisition involving a
public offering occurring before the distri-
bution will not be considered part of a plan
if the acquisition occurs before the first
disclosure event regarding the distribution
in the case of an acquisition of stock that is
not listed on an established market, or be-
fore the date of the first public announce-
ment regarding the distribution in the case
of an acquisition of stock that is listed on
an established market. The new safe har-
bor is based on the view of the IRS and
Treasury Department that a public offering
and a distribution are not likely to be part
of a plan if the acquirers in the offering are
unaware that a distribution will occur.
3.Similar acquisitions involving public
offerings
In the plan and non-plan factors and a
number of safe harbors, the 2002 tempo-
rary regulations refer to acquisitions that
are similar to the actual acquisition. The
2002 temporary regulations provide that
an acquisition involving a public offering
may be similar to another acquisition in-
volving a public offering even though there
are changes in the terms of the stock, the
class of stock being offered, the size of
the offering, the timing of the offering, the
price of the stock, or the participants in the
offering. This provision is intended to en-
sure that certain changes in the terms of the
offering that is intended at the time of the
distribution do not prevent the distribution
and the offering that actually occurs from
being considered part of a plan.
Commentators have requested further
guidance regarding when an acquisition
will be treated as similar to another ac-
quisition involving a public offering. The
IRS and Treasury Department believe, and
these final regulations provide, that more
than one actual acquisition may be similar
to a potential acquisition involving a pub-
lic offering. However, the IRS and Trea-
sury Department also believe, and these fi-
nal regulations provide that, if there is an
actual acquisition involving a public offer-
ing (the first public offering) that is the
same as, or similar to, a potential acqui-
sition involving a public offering, then an-
other actual acquisition involving a public
offering (the second public offering) can-
not be similar to the potential acquisition
unless the purpose of the second public of-
fering is similar to that of the potential ac-
quisition and occurs close in time to the
first public offering. The final regulations
include three new examples that illustrate
the application of this rule.
C.Acquisitions Pursuant to Publicly
Offered Options
The IRS and Treasury Department be-
lieve that, in certain cases, whether an ac-
quisition that is pursuant to an option and
a distribution are part of a plan should be
determined pursuant to the rules related to
acquisitions involving a public offering. In
particular, suppose that, after consulting
with its investment banker, Distributing is-
sues options to acquire its stock. The op-
tions are marketed and sold through a dis-
tribution process that is similar to that uti-
lized in a public offering. In these cases,
the acquirer may never discuss the acqui-
sition with Distributing. The investment
banker, however, will discuss the acquisi-
tion with Distributing. Therefore, it seems
more appropriate to analyze whether a dis-
tribution and an acquisition of stock pur-
suant to such an option are part of a plan
under the rules that apply to acquisitions
May 2, 20059742005–18 I.R.B.

involving a public offering, rather than the
rules that apply to acquisitions not involv-
ing a public offering. Accordingly, these
final regulations provide that, if an option
is issued for cash, the terms of the acquisi-
tion of the option and the terms of the op-
tion are established by the corporation the
stock of which is subject to the option (Dis-
tributing or Controlled) or the writer with
the involvement of one or more investment
bankers, and the potential acquirers of the
option have no opportunity to negotiate the
terms of the acquisition of the option or
the terms of the option, then an acquisition
pursuant to that option will be treated as an
acquisition involving a public offering oc-
curring after a distribution if the option is
exercised after the distribution or an acqui-
sition involving a public offering occurring
before the distribution if the option is ex-
ercised before the distribution. Otherwise,
an acquisition pursuant to an option will
be treated as an acquisition not involving
a public offering.
D.Agreement, Understanding, or
Arrangement
Throughout the 2002 temporary reg-
ulations reference is made to the phrase
“agreement, understanding, or arrange-
ment.” The 2002 temporary regulations
provide that whether an agreement, under-
standing, or arrangement exists depends
on the facts and circumstances. One com-
mentator questioned whether an agree-
ment by a person who does not actively
participate in the management of the ac-
quired corporation should be treated as
an agreement, understanding, or arrange-
ment. The IRS and Treasury Department
believe that the activities of those who
have the authority to act on behalf of
Distributing or Controlled as well as the
activities of the controlling shareholders
of Distributing and Controlled are relevant
to the determination of whether a distribu-
tion and an acquisition are part of a plan.
Therefore, these finalregulations provide
that an agreement, understanding, or ar-
rangement generally requires either (1) an
agreement, understanding, or arrangement
by one or more officers or directors acting
on behalf of Distributing or Controlled,
by a controlling shareholder of Distribut-
ing or Controlled, or by another person
with the implicit or explicit permission
of one or more of such persons, with the
acquirer or with a person or persons with
the implicit or explicit permission of the
acquirer; or (2) an agreement, understand-
ing, or arrangement by an acquirer that
is a controlling shareholder of Distribut-
ing or Controlled immediately after the
acquisition that is the subject of the agree-
ment, understanding, or arrangement, or
by a person or persons with the implicit or
explicit permission of such acquirer, with
the transferor or with a person or persons
with the implicit or explicit permission
of the transferor. These final regulations
also make conforming changes to the rules
relatedtowhenanoptionwillbetreatedas
an agreement, understanding, or arrange-
ment to acquire stock, and the definition
of substantial negotiations.
E.Substantial Negotiations and
Discussions
Under the 2002 temporary regulations,
the presence or absence of “substantial ne-
gotiations” or “discussions” regarding an
acquisition or a distribution is relevant to
the determination of whether a distribu-
tion and an acquisition are part of a plan.
The 2002 temporary regulations provide
that, in the case of an acquisition other
than a public offering, substantial negoti-
ations generally require discussions of sig-
nificant economic terms by one or more of-
ficers, directors, or controlling sharehold-
ers of Distributing or Controlled, or an-
other person or persons with the implicit
or explicit permission of one or more offi-
cers, directors, or controlling shareholders
of Distributing or Controlled, with the ac-
quirer or a person or persons with the im-
plicit or explicit permission of the acquirer.
In addition, the 2002 temporary regula-
tions provide that (i) discussions by Dis-
tributing or Controlled generally require
discussions by one or more officers, di-
rectors, or controlling shareholders of Dis-
tributing or Controlled, or another person
or persons with the implicit or explicit per-
mission of one or more officers, directors,
or controlling shareholders of Distributing
or Controlled; and (ii) discussions with the
acquirer generally require discussions with
the acquirer or a person or persons with the
implicit or explicit permission of the ac-
quirer.
Commentators have requested that fi-
nal regulations clarify that, where the ac-
quirer is a corporation, substantial nego-
tiations and discussions must involve one
or more officers, directors, or controlling
shareholders of the acquirer, or another
person or persons with the implicit or ex-
plicit permission of one or more of such of-
ficers, directors, or controlling sharehold-
ers. These final regulations reflect those
clarifications.
F.Safe Harbor VI of the 2002 Temporary
Regulations
1.Asset reorganizations involving
Distributing or Controlled
Safe Harbor VI of the 2002 temporary
regulations generally provides that if stock
of Distributing or Controlled is acquired
by a person in connection with such per-
son’s performance of services as an em-
ployee, director, or independent contrac-
tor for Distributing, Controlled, or a re-
lated person in a transaction to which sec-
tion 83 or section 421(a) applies, the ac-
quisition and the distribution will not be
considered part of a plan. Questions have
arisen regarding whether this safe harbor
is available for an acquisition of Distribut-
ing or Controlled stock to which section
83 or section 421(a) applies when the ac-
quirer performed services for a corpora-
tion other than Distributing, Controlled, or
a person related to Distributing or Con-
trolled. For example, assume that X, a
corporation unrelatedto Distributing and
Controlled, grants A, an employee, an in-
centive stock option in connection with A’s
performance of services as an employee
of X. Before A exercises the option, Dis-
tributing acquires the assets of X in a reor-
ganization under section 368(a)(1)(A) and
A’s incentive stock option to acquire stock
of X is substituted within the meaning of
§1.424–1(a) with an incentive stock op-
tion to acquire stock of Distributing. Com-
mentators have asked whether Safe Harbor
VI of the 2002 temporary regulations ap-
plies to A’s exercise of the option to ac-
quire stock of Distributing, even though A
performed services for X rather than Dis-
tributing. These final regulations modify
thissafeharbor(SafeHarborVIIIofthese
final regulations) to ensure its availability
in this and similar situations.
2.Disqualifying dispositions
As described above, Safe Harbor VI
of the 2002 temporary regulations may
2005–18 I.R.B.975May 2, 2005

be available for acquisitions of stock in
a transaction to which section 421(a) ap-
plies. In order to qualify as a transac-
tion to which section 421(a) applies, the
acquirer must satisfy the requirements of
section 422(a) or section 423(a), includ-
ing the holding period requirements of sec-
tion 422(a)(1) or section 423(a)(1). In par-
ticular, the acquirer must not dispose of
the acquired stock within two years from
the date of the granting of the option or
within one year after the transfer of such
stock to the acquirer. The IRS and Trea-
sury Department do not believe that a dis-
position of stock acquired pursuant to an
option that otherwise satisfies the require-
ments of section 422 or section 423 prior to
theperiodprescribedinsection422(a)(1)
or 423(a)(1) evidences that the acquisition
of stock pursuant to the option and the dis-
tribution are part of a plan. Therefore,
these final regulations extend the applica-
tion of Safe Harbor VI of the 2002 tem-
porary regulations to not only transactions
to which section 421(a) applies, but also
transactions to which section 421(b) ap-
plies.
G.Safe Harbor VII of the 2002 Temporary
Regulations
Safe Harbor VII of the 2002 temporary
regulations generally provides that if stock
of Distributing or Controlled is acquired
by an employer’s retirement plan that qual-
ifies under section 401(a) or 403(a), the ac-
quisition and the distribution will not be
considered part of a plan. That safe harbor,
however, does not apply to the extent that
the stock acquired by all of the employer’s
qualified plans during the four-year period
beginning two years before the distribu-
tion, in the aggregate, represents ten per-
cent or more of the total combined vot-
ing power of all classes of stock entitled
to vote, or ten percent or more of the total
value of shares of all classes of stock, of
the acquired corporation. Questions have
arisen regarding whether this safe harbor
is available at all if the acquisitions by
the employer’s retirement plans exceed ten
percent of the acquired corporation’s stock
during the prescribed period.
These final regulations revise Safe Har-
bor VII of the 2002 temporary regulations
(Safe Harbor IX of these final regulations)
to clarify that, if the acquisitions by an em-
ployer’s retirement plan total in excess of
ten percent, the safe harbor is available for
the first ten percent acquired during the
prescribed period. These final regulations
also revise this safe harbor to reflect that it
is only available for acquisitions by a re-
tirement plan of Distributing, Controlled,
or any person that is treated as the same
employer as Distributing or Controlled un-
der section 414(b), (c), (m), or (o).
H.Compensatory Options
The 2002 temporary regulations in-
clude special rules that treat an option as
an agreement, understanding, or arrange-
ment to acquire the stock subject to the
option on the earliest of the date the option
was written, transferred, or modified, if
on that date the option was more likely
than not to be exercised. The 2002 tem-
porary regulations except compensatory
options from these rules. For this purpose,
acompensatoryoptionisanoptiontoac-
quire stock in Distributing or Controlled
with customary terms and conditions pro-
videdtoapersoninconnectionwithsuch
person’s performance of services as an
employee, director, or independent con-
tractor for the corporation or a related
person (and that is not excessive by refer-
ence to the services performed), provided
that the transfer of stock pursuant to such
option is described in section 421(a) or
the option is nontransferable within the
meaning of §1.83–3(d) and does not have
a readily ascertainable fair market value
as defined in §1.83–7(b).
The IRS and Treasury Department
have become aware that arrangements
using compensatory options have been
structured to prevent an acquisition of
stock from being treated as part of a plan
that includes a distribution in avoidance
of section 355(e). Accordingly, these fi-
nal regulations revise the 2002 temporary
regulations to treat compensatory options
as options.
Special Analysis
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations, and, be-
cause these regulations do not impose a
collection of information requirement on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on their impact on
small business.
Drafting Information
The principal author of these regula-
tions is Amber R. Cook of the Office of As-
sociate Chief Counsel (Corporate). How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Adoption of Amendments to
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entry
for §1.355–7T and adding the following
entry to read, in part, as follows:
Authority: 26 U.S.C. 7805. * * *
Section 1.355–7 also issued under 26
U.S.C. 355(e)(5). * * *
Par. 2. Section 1.355–0 is amended as
follows:
1. Revise the introductory text.
2. Remove the entries for §1.355–7T
and add the entries for §1.355–7.
The revision and addition read as fol-
lows:
§1.355–0 Outline of sections.
In order to facilitate the use of
§§1.355–1 through 1.355–7, this sec-
tion lists the major paragraphs in those
sections as follows:
*****
§1.355–7 Recognition of gain on certain
distributions of stock or securities in
connection with an acquisition.
(a) In general.
(b) Plan.
(1) In general.
May 2, 20059762005–18 I.R.B.

(2) Certain post-distribution acquisi-
tions.
(3) Plan factors.
(4) Non-plan factors.
(c) Operating rules.
(1) Internal discussions and discussions
with outside advisors evidence of business
purpose.
(2) Takeover defense.
(3) Effect of distribution on trading in
stock.
(4) Consequences of section 355(e) dis-
regarded for certain purposes.
(5) Multiple acquisitions.
(d) Safe harbors.
(1) Safe Harbor I.
(2) Safe Harbor II.
(i) In general.
(ii) Special rule.
(3) Safe Harbor III.
(4) Safe Harbor IV.
(i) In general.
(ii) Special rules.
(5) Safe Harbor V.
(i) In general.
(ii) Special rules.
(6) Safe Harbor VI.
(7) Safe Harbor VII.
(i) In general.
(ii) Special rules.
(8) Safe Harbor VIII.
(i) In general.
(ii) Special rule.
(9) Safe Harbor IX.
(i) In general.
(ii) Special rule.
(e) Options, warrants, convertible obli-
gations, and other similar interests.
(1) Treatment of options.
(i) General rule.
(ii) Agreement, understanding, or ar-
rangement to write, transfer, or modify an
option.
(iii) Substantial negotiations related to
options.
(2) Stock acquired pursuant to options.
(3) Instruments treated as options.
(4) Instruments generally not treated as
options.
(i) Escrow, pledge, or other security
agreements.
(ii) Options exercisable only upon
death, disability, mental incompetency, or
separation from service.
(iii)Rightsoffirstrefusal.
(iv) Other enumerated instruments.
(f) Multiple controlled corporations.
(g) Valuation.
(h) Definitions.
(1) Agreement, understanding, arrange-
ment, or substantial negotiations.
(2) Controlled corporation.
(3) Controlling shareholder.
(4) Coordinating group.
(5) Disclosure event.
(6) Discussions.
(7) Established market.
(8) Five-percent shareholder.
(9) Implicit permission.
(10) Public announcement.
(11) Public offering.
(12) Similar acquisition (not involving
a public offering).
(13) Similar acquisition involving a
public offering.
(i) One public offering.
(ii) More than one public offering.
(iii) Potential acquisition involving a
public offering.
(14) Ten-percent shareholder.
(i) [Reserved].
(j) Examples.
(k) Effective dates.
Par. 3. Section 1.355–7 is added to read
as follows:
§1.355–7 Recognition of gain on certain
distributions of stock or securities in
connection with an acquisition.
(a)In general. Except as provided in
section 355(e) and in this section, section
355(e) applies to any distribution—
(1) To which section 355 (or so much
of section 356 as relates to section 355)
applies; and
(2)Thatispartofaplan(orseriesofre-
lated transactions) (hereinafter, plan) pur-
suant to which 1 or more persons acquire
directly or indirectly stock representing a
50-percent or greater interest in the dis-
tributing corporation (Distributing) or any
controlled corporation (Controlled).
(b)Plan—(1)In general.Whethera
distribution and an acquisition are part of
a plan is determined based on all the facts
and circumstances. The facts and circum-
stances to be considered in demonstrat-
ing whether a distribution and an acqui-
sition are part of a plan include, but are
not limited to, the facts and circumstances
set forth in paragraphs (b)(3) and (4) of
this section. In general, the weight to be
given each of the facts and circumstances
depends on the particular case. Whether a
distribution and an acquisition are part of a
plan does not depend on the relative num-
ber of facts and circumstances set forth in
paragraph (b)(3) that evidence that a distri-
bution and an acquisition are part of a plan
as compared to the relative number of facts
and circumstances set forth in paragraph
(b)(4) that evidence that a distribution and
an acquisition are not part of a plan.
(2)Certain post-distribution acquisi-
tions. In the case of an acquisition (other
than involving a public offering) after a
distribution, the distribution and the ac-
quisition can be part of a plan only if
there was an agreement, understanding,
arrangement, or substantial negotiations
regarding the acquisition or a similar ac-
quisition at some time during the two-year
period ending on the date of the distribu-
tion. In the case of an acquisition (other
than involving a public offering) after a
distribution, the existence of an agree-
ment, understanding, arrangement, or
substantial negotiations regarding the ac-
quisition or a similar acquisition at some
time during the two-year period ending
on the date of the distribution tends to
show that the distribution and the acqui-
sition are part of a plan. See paragraph
(b)(3)(i) of this section. However, all facts
and circumstances must be considered to
determine whether the distribution and
the acquisition are part of a plan. For
example, in the case of an acquisition
(other than involving a public offering)
after a distribution, if the distribution was
motivated in whole or substantial part by
a corporate business purpose (within the
meaning of §1.355–2(b)) other than a busi-
ness purpose to facilitate the acquisition
or a similar acquisition of Distributing or
Controlled (see paragraph (b)(4)(v) of this
section) and would have occurred at ap-
proximately the same time and in similar
form regardless of whether the acquisition
or a similar acquisition was effected (see
paragraph (b)(4)(vi) of this section), the
taxpayer may be able to establish that the
distribution and the acquisition are not
part of a plan.
(3)Plan factors. Among the facts and
circumstances tending to show that a dis-
tribution and an acquisition are part of a
plan are the following:
(i) In the case of an acquisition (other
than involving a public offering) after a
distribution, at some time during the two-
year period ending on the date of the dis-
tribution, there wasan agreement, under-
2005–18 I.R.B.977May 2, 2005

standing, arrangement, or substantial ne-
gotiations regarding the acquisition or a
similar acquisition. The weight to be ac-
corded this fact depends on the nature, ex-
tent, and timing of the agreement, under-
standing, arrangement, or substantial ne-
gotiations. The existence of an agree-
ment, understanding, or arrangement at the
time of the distribution is given substantial
weight.
(ii) In the case of an acquisition involv-
ing a public offering after a distribution, at
some time during the two-year period end-
ing on the date of the distribution, there
were discussions by Distributing or Con-
trolled with an investment banker regard-
ing the acquisition or a similar acquisition.
The weight to be accorded this fact de-
pends on the nature, extent, and timing of
the discussions.
(iii) In the case of an acquisition (other
than involving a public offering) before a
distribution, at some time during the two-
year period ending on the date of the acqui-
sition, there were discussions by Distribut-
ing or Controlled with the acquirer regard-
ing a distribution. The weight to be ac-
corded this fact depends on the nature, ex-
tent, and timing of the discussions. In ad-
dition, in the case of an acquisition (other
than involving a public offering) before a
distribution, the acquirer intends to cause a
distribution and, immediately after the ac-
quisition, can meaningfully participate in
the decision regarding whether to make a
distribution.
(iv) In the case of an acquisition involv-
ing a public offering before a distribution,
at some time during the two-year period
ending on the date of the acquisition, there
were discussions by Distributing or Con-
trolled with an investment banker regard-
ing a distribution. The weight to be ac-
corded this fact depends on the nature, ex-
tent, and timing of the discussions.
(v) In the case of an acquisition either
before or after a distribution, the distribu-
tion was motivated by a business purpose
to facilitate the acquisition or a similar ac-
quisition.
(4)Non-plan factors. Among the facts
and circumstances tending to show that a
distribution and an acquisition are not part
of a plan are the following:
(i) In the case of an acquisition involv-
ing a public offering after a distribution,
during the two-year period ending on the
date of the distribution, there were no
discussions by Distributing or Controlled
with an investment banker regarding the
acquisition or a similar acquisition.
(ii) In the case of an acquisition after
a distribution, there was an identifiable,
unexpected change in market or business
conditions occurring after the distribution
that resulted in the acquisition that was
otherwise unexpected at the time of the
distribution.
(iii) In the case of an acquisition (other
than involving a public offering) before
a distribution, during the two-year period
ending on the date of the earlier to oc-
cur of the acquisition or the first public
announcement regarding the distribution,
there were no discussions by Distributing
or Controlled with the acquirer regarding
a distribution. Paragraph (b)(4)(iii) of this
section does not apply to an acquisition
where the acquirer intends to cause a dis-
tribution and, immediately after the acqui-
sition, can meaningfully participate in the
decision regarding whether to make a dis-
tribution.
(iv) In the case of an acquisition before
a distribution, there was an identifiable,
unexpected change in market or business
conditions occurring after the acquisition
that resulted in a distribution that was oth-
erwise unexpected.
(v) In the case of an acquisition either
before or after a distribution, the distribu-
tion was motivated in whole or substan-
tial part by a corporate business purpose
(within the meaning of §1.355–2(b)) other
than a business purpose to facilitate the ac-
quisition or a similar acquisition.
(vi) In the case of an acquisition either
before or after a distribution, the distribu-
tion would have occurred at approximately
thesametimeandinsimilarformregard-
less of the acquisition or a similar acquisi-
tion.
(c)Operating rules. The operating
rules contained in this paragraph (c) apply
for all purposes of this section.
(1)Internal discussions and discussions
with outside advisors evidence of business
purpose. Discussions by Distributing or
Controlled with outside advisors and inter-
nal discussions may be indicative of one
or more business purposes for the distri-
bution and the relative importance of such
purposes.
(2)Takeover defense. If Distributing
engages in discussions with a potential
acquirer regarding an acquisition of Dis-
tributing or Controlled and distributes
Controlled stock intending, in whole or
substantial part, to decrease the likeli-
hood of the acquisition of Distributing or
Controlled by separating it from another
corporation that is likely to be acquired,
Distributing will be treated as having a
business purpose to facilitate the acquisi-
tion of the corporation that was likely to
be acquired.
(3)Effect of distribution on trading in
stock. The fact that the distribution made
all or a part of the stock of Controlled
available for trading or made Distribut-
ing’s or Controlled’s stock trade more
actively is not taken into account in de-
termining whether the distribution and an
acquisition of Distributing or Controlled
stock were part of a plan.
(4)Consequences of section 355(e)
disregarded for certain purposes.For
purposes of determining the intentions
of the relevant parties under this section,
the consequences of the application of
section 355(e), and the existence of any
contractual indemnity by Controlled for
tax resulting from the application of sec-
tion 355(e) caused by an acquisition of
Controlled, are disregarded.
(5)Multiple acquisitions. All acquisi-
tions of stock of Distributing or Controlled
that are considered to be part of a plan
with a distribution pursuant to paragraph
(b) of this section will be aggregated for
purposes of the 50-percent test of para-
graph (a)(2) of this section.
(d)Safe harbors—(1)Safe Harbor I.A
distribution and an acquisition occurring
after the distribution will not be considered
part of a plan if—
(i) The distribution was motivated in
whole or substantial part by a corporate
business purpose (within the meaning of
§1.355–2(b)), other than a business pur-
pose to facilitate an acquisition of the ac-
quired corporation (Distributing or Con-
trolled); and
(ii) The acquisition occurred more
than six months after the distribution and
there was no agreement, understanding,
arrangement, or substantial negotiations
concerning the acquisition or a similar
acquisition during the period that begins
one year before the distribution and ends
six months thereafter.
(2)Safe Harbor II—(i)In general.A
distribution and an acquisition occurring
May 2, 20059782005–18 I.R.B.

after the distribution will not be considered
part of a plan if—
(A) The distribution was not motivated
by a business purpose to facilitate the ac-
quisition or a similar acquisition;
(B) The acquisition occurred more
than six months after the distribution and
there was no agreement, understanding,
arrangement, or substantial negotiations
concerning the acquisition or a similar
acquisition during the period that begins
one year before the distribution and ends
six months thereafter; and
(C)Nomorethan25percentofthe
stock of the acquired corporation (Dis-
tributing or Controlled) was either ac-
quired or the subject of an agreement,
understanding, arrangement, or substan-
tial negotiations during the period that
begins one year before the distribution and
ends six months thereafter.
(ii)Special rule. For purposes of para-
graph (d)(2)(i)(C) of this section, acquisi-
tions of stock that are treated as not part of
a plan pursuant to Safe Harbor VII, Safe
Harbor VIII, or Safe Harbor IX are disre-
garded.
(3)Safe Harbor III. If an acquisition
occurs after a distribution, there was no
agreement, understanding, or arrangement
concerning the acquisition or a similar ac-
quisition at the time of the distribution,
and there was no agreement, understand-
ing, arrangement, or substantial negotia-
tions concerning the acquisition or a sim-
ilar acquisition within one year after the
distribution, the acquisition and the distri-
bution will not be considered part of a plan.
(4)Safe Harbor IV—(i)In general.A
distribution and an acquisition (other than
involving a public offering) occurring be-
fore the distribution will not be considered
part of a plan if the acquisition occurs be-
fore the date of the first disclosure event
regarding the distribution.
(ii)Special rules.(A)Paragraph
(d)(4)(i) of this section does not apply
to a stock acquisition if the acquirer or a
coordinating group of which the acquirer
is a member is a controlling shareholder or
a ten-percent shareholder of the acquired
corporation (Distributing or Controlled) at
any time during the period beginning im-
mediately after the acquisition and ending
on the date of the distribution.
(B) Paragraph (d)(4)(i) of this section
does not apply to an acquisition that occurs
in connection with a transaction in which
the aggregate acquisitions are of stock pos-
sessing 20 percent or more of the total
voting power of the stock of the acquired
corporation (Distributing or Controlled) or
stock having a value of 20 percent or more
of the total value of the stock of the ac-
quired corporation (Distributing or Con-
trolled).
(5)Safe Harbor V—(i)In general.A
distribution that ispro rataamong the Dis-
tributing shareholders and an acquisition
(other than involving a public offering)
of Distributing stock occurring before the
distribution will not be considered part of
aplanif—
(A) The acquisition occurs after the date
of a public announcement regarding the
distribution; and
(B) There were no discussions by Dis-
tributing or Controlled with the acquirer
regarding a distribution on or before the
date of the first public announcement re-
garding the distribution.
(ii)Special rules.(A)Paragraph
(d)(5)(i) of this section does not apply
to a stock acquisition if the acquirer or a
coordinating group of which the acquirer
is a member is a controlling shareholder or
a ten-percent shareholder of Distributing
at any time during the period beginning
immediately after the acquisition and end-
ing on the date of the distribution.
(B) Paragraph (d)(5)(i) of this section
does not apply to an acquisition that occurs
in connection with a transaction in which
the aggregate acquisitions are of stock pos-
sessing 20 percent or more of the total vot-
ing power of the stock of Distributing or
stock having a value of 20 percent or more
of the total value of the stock of Distribut-
ing.
(6)Safe Harbor VI. A distribution and
an acquisition involving a public offering
occurring before the distribution will not
be considered part of a plan if the acquisi-
tion occurs before the date of the first dis-
closure event regarding the distribution in
the case of an acquisition of stock that is
not listed on an established market imme-
diately after the acquisition, or before the
date of the first public announcement re-
garding the distribution in the case of an
acquisition of stock that is listed on an es-
tablished market immediately after the ac-
quisition.
(7)Safe Harbor VII—(i)In general.An
acquisition (other than involving a pub-
lic offering) of Distributing or Controlled
stock that is listed on an established market
is not part of a plan if, immediately before
or immediately after the transfer, none of
the transferor, the transferee, and any co-
ordinating group of which either the trans-
feror or the transferee is a member is—
(A) The acquired corporation (Dis-
tributing or Controlled);
(B) A corporation that the acquired cor-
poration (Distributing or Controlled) con-
trols within the meaning of section 368(c);
(C) A member of a controlled group of
corporations within the meaning of sec-
tion 1563 of which the acquired corpora-
tion (Distributing or Controlled) is a mem-
ber;
(D) A controlling shareholder of the ac-
quired corporation (Distributing or Con-
trolled); or
(E) A ten-percent shareholder of the ac-
quired corporation (Distributing or Con-
trolled).
(ii)Special rules.(A)Paragraph
(d)(7)(i) of this section does not apply
to a transfer of stock by or to a person if
the corporation the stock of which is being
transferred knows, or has reason to know,
that the person or a coordinating group of
whichsuchpersonisamemberintends
to become a controlling shareholder or a
ten-percent shareholder of the acquired
corporation (Distributing or Controlled) at
any time after the acquisition and before
the date that is two years after the distri-
bution.
(B) If a transfer of stock to which para-
graph (d)(7)(i) of this section applies re-
sults immediately, or upon a subsequent
event or the passage of time, in an indi-
rect acquisition of voting power by a per-
son other than the transferee, paragraph
(d)(7)(i) of this section does not prevent an
acquisition of stock (with the voting power
such stock represents after the transfer to
which paragraph (d)(7)(i) of this section
applies) by such other person from being
treated as part of a plan.
(8)Safe Harbor VIII—(i)In general.
If, in a transaction to which section 83 or
section 421(a) or (b) applies, stock of Dis-
tributing or Controlled is acquired by a per-
soninconnectionwithsuchperson’sper-
formance of services as an employee, di-
rector, or independent contractor for Dis-
tributing, Controlled, a related person, a
corporation the assets of which Distribut-
ing, Controlled, or a related person ac-
quires in a reorganization under section
2005–18 I.R.B.979May 2, 2005

368(a), or a corporation that acquires the
assets of Distributing or Controlled in such
a reorganization (and the stock acquired
is not excessive by reference to the ser-
vices performed), the acquisition and the
distribution will not be considered part of
a plan. For purposes of this paragraph
(d)(8)(i), a related person is a person re-
lated to Distributing or Controlled under
section 355(d)(7)(A).
(ii)Special rule. Paragraph (d)(8)(i) of
this section does not apply to a stock ac-
quisition if the acquirer or a coordinating
group of which the acquirer is a member
is a controlling shareholder or a ten-per-
cent shareholder of the acquired corpora-
tion (Distributing or Controlled) immedi-
ately after the acquisition.
(9)Safe Harbor IX—(i)In general.If
stock of Distributing or Controlled is ac-
quired by a retirement plan of Distributing
or Controlled (or a retirement plan of any
other person that is treated as the same em-
ployer as Distributing or Controlled under
section 414(b), (c), (m), or (o)) that quali-
fies under section 401(a) or 403(a), the ac-
quisition and the distribution will not be
considered part of a plan.
(ii)Special rule. Paragraph (d)(9)(i) of
this section does not apply to the extent
that the stock acquired pursuant to acqui-
sitions by all of the qualified plans of the
persons described in paragraph (d)(9)(i) of
this section during the four-year period be-
ginning two years before the distribution,
in the aggregate, represents more than ten
percent of the total combined voting power
of all classes of stock entitled to vote, or
more than ten percent of the total value of
shares of all classes of stock, of the ac-
quired corporation (Distributing or Con-
trolled).
(e)Options, warrants, convertible obli-
gations, and other similar interests—(1)
Treatment of options—(i)General rule.
For purposes of this section, if stock of
Distributing or Controlled is acquired
pursuant to an option that is written by
Distributing, Controlled, or a person that
is a controlling shareholder of Distribut-
ing or Controlled at the time the option is
written, or that is acquired by a person that
is a controlling shareholder of Distributing
or Controlled immediately after the option
is written, the option will be treated as an
agreement, understanding, or arrangement
to acquire the stock on the earliest of the
following dates: the date that the option is
written, if the option was more likely than
not to be exercised as of such date; the
date that the option is transferred if, im-
mediately before or immediately after the
transfer, the transferor or transferee was
Distributing, Controlled, a corporation
that Distributing or Controlled controls
within the meaning of section 368(c), a
member of a controlled group of corpora-
tions within the meaning of section 1563
of which Distributing or Controlled is a
member, or a controlling shareholder or a
ten-percent shareholder of Distributing or
Controlled and the option was more likely
than not to be exercised as of such date;
and the date that the option is modified in a
manner that materially increases the like-
lihood of exercise, if the option was more
likely than not to be exercised as of such
date; provided, however, if the writing,
transfer, or modification had a principal
purpose of avoiding section 355(e), the
option will be treated as an agreement, un-
derstanding, arrangement, or substantial
negotiations to acquire the stock on the
date of the distribution. The determination
of whether an option was more likely than
nottobeexercisedisbasedonallthefacts
and circumstances, taking control premi-
ums and minority and blockage discounts
into account in determining the fair market
value of stock underlying an option.
(ii)Agreement, understanding, or ar-
rangement to write, transfer, or modify an
option. If there is an agreement, under-
standing, or arrangement to write an op-
tion, the option will be treated as written on
the date of the agreement, understanding,
or arrangement. If there is an agreement,
understanding, or arrangement to transfer
an option, the option will be treated as
transferred on the date of the agreement,
understanding, or arrangement. If there is
an agreement, understanding, or arrange-
ment to modify an option in a manner that
materially increases the likelihood of exer-
cise, the option will be treated as so mod-
ified on the date of the agreement, under-
standing, or arrangement.
(iii)Substantial negotiations related to
options. If an option is treated as an agree-
ment, understanding, or arrangement to ac-
quire the stock on the date that the option is
written, substantial negotiations to acquire
the option will be treated as substantial ne-
gotiations to acquire the stock subject to
such option. If an option is treated as an
agreement, understanding, or arrangement
to acquire the stock on the date that the
option is transferred, substantial negotia-
tions regarding the transfer of the option
will be treated as substantial negotiations
to acquire the stock subject to such option.
If an option is treated as an agreement, un-
derstanding, or arrangement to acquire the
stock on the date that the option is modi-
fied in a manner that materially increases
the likelihood of exercise, substantial ne-
gotiations regardingsuch modifications to
the option will be treated as substantial ne-
gotiations to acquire the stock subject to
such option.
(2)Stock acquired pursuant to options.
For purposes of this section, if an option
is issued for cash, the terms of the acquisi-
tion of the option and the terms of the op-
tion are established by the corporation the
stock of which is subject to the option (Dis-
tributing or Controlled) or the writer with
the involvement of one or more investment
bankers, and the potential acquirers of the
option have no opportunity to negotiate the
terms of the acquisition of the option or
the terms of the option, then an acquisition
pursuant to such option shall be treated as
an acquisition involving a public offering
occurring after the distribution if the op-
tion is exercised after the distribution or
an acquisition involving a public offering
before a distribution if the option is exer-
cised before the distribution. Otherwise,
an acquisition pursuant to an option shall
be treated as an acquisition not involving a
public offering.
(3)Instruments treated as options.For
purposes of this section, except to the ex-
tent provided in paragraph (e)(4) of this
section, call options, warrants, convert-
ible obligations, the conversion feature of
convertible stock, put options, redemp-
tion agreements (including rights to cause
the redemption of stock), any other in-
struments that provide for the right or
possibility to issue, redeem, or transfer
stock(includinganoptiononanoption),
or any other similar interests are treated as
options.
(4)Instruments generally not treated as
options. For purposes of this section, the
following are not treated as options unless
(in the case of paragraphs (e)(4)(i), (ii),
and (iii) of this section) written, transferred
(directly or indirectly), modified, or listed
with a principal purpose of avoiding the
application of section 355(e) or this sec-
tion.
May 2, 20059802005–18 I.R.B.

(i)Escrow, pledge, or other security
agreements. Anoptionthatispartofa
security arrangement in a typical lending
transaction (including a purchase money
loan), if the arrangement is subject to cus-
tomary commercial conditions. For this
purpose, a security arrangement includes,
for example, an agreement for holding
stock in escrow or under a pledge or other
security agreement, or an option to acquire
stock contingent upon a default under a
loan.
(ii)Options exercisable only upon
death, disability, mental incompetency,
or separation from service. Any option
entered into between shareholders of a
corporation (or a shareholder and the cor-
poration) that is exercisable only upon
the death, disability, or mental incompe-
tency of the shareholder, or, in the case
ofstockacquiredinconnectionwiththe
performance of services for the corpora-
tion or a person related to it under section
355(d)(7)(A) (and that is not excessive by
reference to the services performed), the
shareholder’s separation from service.
(iii)Rights of first refusal.Abona fide
right of first refusal regarding the corpora-
tion’s stock with customary terms, entered
into between shareholders of a corporation
(or between the corporation and a share-
holder).
(iv)Other enumerated instruments.
Any other instrument the Commissioner
may designate in revenue procedures,
notices, or other guidance published
in the Internal Revenue Bulletin (see
§601.601(d)(2) of this chapter).
(f)Multiple controlled corporations.
Only the stock or securities of a controlled
corporation in which one or more persons
acquire directly or indirectly stock repre-
senting a 50-percent or greater interest as
part of a plan involving the distribution
of that corporation will be treated as not
qualified property under section 355(e)(1)
if—
(1) The stock or securities of more than
one controlled corporation are distributed
in distributions to which section 355 (or so
much of section 356 as relates to section
355) applies; and
(2) One or more persons do not acquire,
directly or indirectly, stock representing a
50-percent or greater interest in Distribut-
ing pursuant to a plan involving any of
those distributions.
(g)Valuation. Except as provided in
paragraph (e)(1)(i) of this section, for pur-
poses of section 355(e) and this section,
all shares of stock within a single class are
considered to have the same value. Thus,
control premiums and minority and block-
age discounts within a single class are not
taken into account.
(h)Definitions. For purposes of this
section, the following definitions shall ap-
ply:
(1)Agreement, understanding, ar-
rangement, or substantial negotiations.(i)
An agreement, understanding, or arrange-
ment generally requires either—
(A) an agreement, understanding, or ar-
rangement by one or more officers or di-
rectors acting on behalf of Distributing or
Controlled, by controlling shareholders of
Distributing or Controlled, or by another
person or persons with the implicit or ex-
plicit permission of one or more of such of-
ficers, directors, or controlling sharehold-
ers, with the acquirer or with a person or
persons with the implicit or explicit per-
mission of the acquirer; or
(B) an agreement, understanding, or ar-
rangement by an acquirer that is a control-
ling shareholder of Distributing or Con-
trolled immediately after the acquisition
that is the subject of the agreement, un-
derstanding, or arrangement, or by a per-
son or persons with the implicit or explicit
permission of such acquirer, with the trans-
feror or with a person or persons with the
implicit or explicit permission of the trans-
feror.
(ii) In the case of an acquisition by a
corporation, an agreement, understanding,
or arrangement with the acquiring corpora-
tion generally requires an agreement, un-
derstanding, or arrangement with one or
more officers or directors acting on behalf
of the acquiring corporation, with control-
ling shareholders of the acquiring corpo-
ration, or with another person or persons
with the implicit or explicit permission of
one or more of such officers, directors, or
controlling shareholders.
(iii) Whether an agreement, under-
standing, or arrangement exists depends
on the facts and circumstances. The
parties do not necessarily have to have
entered into a binding contract or have
reached agreement on all significant eco-
nomic terms to have an agreement, under-
standing, or arrangement. However, an
agreement, understanding, or arrangement
clearly exists if a binding contract to ac-
quire stock exists.
(iv) Substantial negotiations in the case
of an acquisition (other than involving a
public offering) generally require discus-
sions of significant economic terms,e.g.,
the exchange ratio in a reorganization, ei-
ther—
(A) by one or more officers or directors
acting on behalf of Distributing or Con-
trolled, by controlling shareholders of Dis-
tributing or Controlled, or by another per-
son or persons with the implicit or explicit
permission of one or more of such officers,
directors, or controlling shareholders, with
the acquirer or with a person or persons
with the implicit or explicit permission of
the acquirer; or
(B) if the acquirer is a controlling share-
holder of Distributing or Controlled imme-
diately after the acquisition that is the sub-
ject of substantial negotiations, by the ac-
quirer or by a person or persons with the
implicit or explicit permission of the ac-
quirer, with the transferor or with a person
or persons with the implicit or explicit per-
mission of the transferor.
(v) In the case of an acquisition (other
than involving a public offering) by a
corporation, substantial negotiations gen-
erally require discussions of significant
economic terms with one or more offi-
cers or directors acting on behalf of the
acquiring corporation, with controlling
shareholders of the acquiring corporation,
or with another person or persons with the
implicit or explicit permission of one or
more of such officers, directors, or con-
trolling shareholders.
(vi) In the case of an acquisition involv-
ing a public offering, the existence of an
agreement, understanding, arrangement,
or substantial negotiations will be based
on discussions by one or more officers or
directors acting on behalf of Distributing
or Controlled, by controlling shareholders
of Distributing or Controlled, or by an-
other person or persons with the implicit
or explicit permission of one or more of
such officers, directors, or controlling
shareholders, with an investment banker.
(2)Controlled corporation. A con-
trolled corporation is a corporation the
stockofwhichisdistributedinadistri-
bution to which section 355 (or so much
of section 356 as relates to section 355)
applies.
2005–18 I.R.B.981May 2, 2005

(3)Controlling shareholder.(i)Acon-
trolling shareholder of a corporation the
stock of which is listed on an established
market is a five-percent shareholder who
actively participatesin the management or
operation of the corporation. For purposes
of this paragraph (h)(3)(i), a corporate di-
rector will be treated asactively participat-
ing in the management of the corporation.
(ii) A controlling shareholder of a cor-
poration the stock of which is not listed on
an established market is any person that
owns stock possessing voting power rep-
resenting a meaningful voice in the gover-
nance of the corporation. For purposes of
determining whether a person owns stock
possessing voting power representing a
meaningful voice in the governance of the
corporation, the person shall be treated as
owning the stock that such person owns
actually and constructively under the rules
of section 318 (without regard to section
318(a)(4)). In addition, if the exercise of
an option (whether by itself or in con-
junction with the deemed exercise of one
or more other options) would cause the
holder to own stock possessing voting
power representing a meaningful voice in
the governance of the corporation, then
the option will be treated as exercised.
(iii) If a distribution precedes an ac-
quisition, Controlled’s controlling share-
holders immediately after the distribution
and Distributing are included among Con-
trolled’s controlling shareholders at the
time of the distribution.
(4)Coordinating group. A coordinat-
ing group includes two or more persons
that, pursuant to a formal or informal un-
derstanding, join in one or more coordi-
nated acquisitions or dispositions of stock
of Distributing or Controlled. A principal
element in determining if such an under-
standing exists is whether the investment
decision of each person is based on the
investment decision of one or more other
existing or prospective shareholders. A
coordinating group istreated as a single
shareholder for purposes of determining
whether the coordinating group is treated
as a controlling shareholder, a five-percent
shareholder, or a ten-percent shareholder.
(5)Disclosure event.Adisclosure
event regarding the distribution means
any communication by an officer, direc-
tor, controlling shareholder, or employee
of Distributing, Controlled, or a corpora-
tion related to Distributing or Controlled,
or an outside advisor of any of those
persons (where such advisor makes the
communication on behalf of such person),
regarding the distribution, or the possibil-
ity thereof, to the acquirer or any other
person (other than an officer, director,
controlling shareholder, or employee of
Distributing, Controlled, or a corporation
related to Distributing or Controlled, or an
outside advisor of any of those persons).
For purposes of this paragraph (h)(5), a
corporation is related to Distributing or
Controlled if it is a member of an affiliated
group(asdefinedinsection1504(a)with-
out regard to section 1504(b)) that includes
either Distributing or Controlled or it is a
member of a qualified group (as defined
in §1.368–1(d)(4)(ii)) that includes either
Distributing or Controlled.
(6)Discussions. Discussions by Dis-
tributing or Controlled generally require
discussions by one or more officers or di-
rectors acting on behalf of Distributing or
Controlled, by controlling shareholders of
Distributing or Controlled, or by another
person or persons with the implicit or ex-
plicit permission of one or more of such of-
ficers, directors, or controlling sharehold-
ers. Discussions with the acquirer gener-
ally require discussions with the acquirer
or with a person or persons with the im-
plicit or explicit permission of the acquirer.
In the case of an acquisition by a corpora-
tion, discussions with the acquiring corpo-
ration generally require discussions with
one or more officers or directors acting on
behalf of the acquiring corporation, with
controlling shareholders of the acquiring
corporation, or with another person or per-
sons with the implicit or explicit permis-
sion of one or more of such officers, direc-
tors, or controlling shareholders.
(7)Established market. An established
market is—
(i) A national securities exchange regis-
tered under section 6 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78f);
(ii) An interdealer quotation system
sponsored by a national securities associ-
ation registered under section 15A of the
Securities Act of 1934 (15 U.S.C. 78o-3);
or
(iii) Any additional market that the
Commissioner may designate in revenue
procedures, notices, or other guidance
published in the Internal Revenue Bulletin
(see §601.601(d)(2) of this chapter).
(8)Five-percent shareholder.Aperson
will be considered a five-percent share-
holder of a corporation the stock of which
is listed on an established market if the
person owns five percent or more of any
class of stock of the corporation whose
stock is transferred. For purposes of de-
termining whether a person owns five
percent or more of any class of stock of
the corporation whose stock is transferred,
the person shall be treated as owning the
stockthatsuchpersonownsactuallyand
constructively underthe rules of section
318 (without regard to section 318(a)(4)).
In addition, if the exercise of an option
(whether by itself or in conjunction with
the deemed exercise of one or more other
options) would cause the holder to become
a five-percent shareholder, then the option
will be treated as exercised. Absent actual
knowledge that a person is a five-per-
cent shareholder, a corporation can rely
on Schedules 13D and 13G (or any sim-
ilar schedules) filed with the Securities
and Exchange Commission to identify its
five-percent shareholders.
(9)Implicit permission. A corporation
is treated as having the implicit permis-
sion of its shareholders when it engages in
discussions or negotiations, or enters into
an agreement, understanding, or arrange-
ment.
(10)Public announcement. A public
announcement regarding the distribution
means any communication by Distribut-
ing or Controlled regarding Distributing’s
intention to effect the distribution where
the communication is generally available
to the public.
(11)Public offering. An acquisition in-
volving a public offering means an acqui-
sition of stock for cash where the terms of
the acquisition are established by the ac-
quired corporation (Distributing or Con-
trolled) or the seller with the involvement
of one or more investment bankers and the
potential acquirers have no opportunity to
negotiate the terms of the acquisition. For
example, a public offering includes an un-
derwritten offering of registered stock for
cash.
(12)Similar acquisition (not involving
a public offering). In general, an actual
acquisition (other than involving a public
offering) is similar to another potential ac-
quisition if the actual acquisition effects
a direct or indirect combination of all or
a significant portion of the same business
May 2, 20059822005–18 I.R.B.

operations as the combination that would
have been effected by such other poten-
tial acquisition. Thus, an actual acquisi-
tion may be similar to another acquisition
even if the timing or terms of the actual
acquisition are different from the timing
or terms of the other acquisition. For ex-
ample, an actual acquisition of Distribut-
ing by shareholders of another corporation
in connection with a merger of such other
corporation with and into Distributing is
similar to another acquisition of Distribut-
ing by merger into such other corporation
or into a subsidiary of such other corpo-
ration. However, in general, an actual ac-
quisition (other than involving a public of-
fering) is not similar to another acquisition
if the ultimate owners of the business op-
erations with which Distributing or Con-
trolled is combined in the actual acquisi-
tion are substantially different from the ul-
timate owners of the business operations
with which Distributing or Controlled was
to be combined in such other acquisition.
(13)Similar acquisition involving a
public offering—(i)One public offering.
In general, an actual acquisition involv-
ing a public offering may be similar to a
potential acquisition involving a public
offering, even though there are changes in
the terms of the stock, the class of stock
being offered, the size of the offering, the
timing of the offering, the price of the
stock, or the participants in the offering.
(ii)More than one public offering.
More than one actual acquisition involv-
ing a public offering may be similar to a
potential acquisition involving a public
offering. If there is an actual acquisition
involving a public offering (the first public
offering) that is the same as, or similar to,
a potential acquisition involving a public
offering, then another actual acquisition
involving a public offering (the second
public offering) cannot be similar to the
potential acquisition unless the purpose
of the second public offering is similar to
that of the potential acquisition and occurs
close in time to the first public offering.
(iii)Potential acquisition involving a
public offering. For purposes of paragraph
(h)(13)(i) and (ii) of this section, as the
context may require, a potential acquisi-
tion involving a public offering means a
potential acquisition involving a public of-
fering that was discussed by Distributing
or Controlled with an investment banker,
that motivated the distribution, or that was
the subject of an agreement, understand-
ing, arrangement, or substantial negotia-
tions.
(14)Ten-percent shareholder.Aper-
son will be considered a ten-percent share-
holder of a corporation the stock of which
is listed on an established market if the per-
son owns, actually or constructively under
the rules of section 318 (without regard to
section 318(a)(4)), ten percent or more of
any class of stock of the corporation whose
stock is transferred. A person will be con-
sidered a ten-percent shareholder of a cor-
poration the stock of which is not listed on
an established market if the person owns
stock possessing ten percent or more of
the total voting power of the stock of the
corporation whose stock is transferred or
stock having a value equal to ten percent
or more of the total value of the stock of
the corporation whose stock is transferred.
For purposes of determining whether a per-
son owns ten percent or more of the to-
tal voting power or value of the stock of
the corporation whose stock is transferred,
the person shall be treated as owning the
stock that such person owns actually and
constructively under the rules of section
318 (without regard to section 318(a)(4)).
In addition, if the exercise of an option
(whether by itself or in conjunction with
the deemed exercise of one or more other
options) would cause the holder to become
a ten-percent shareholder, then the option
will be treated as exercised. Absent ac-
tual knowledge that a person is a ten-per-
cent shareholder, a corporation the stock
of which is listed on an established market
can rely on Schedules 13D and 13G (or any
similar schedules) filed with the Securities
and Exchange Commission to identify its
ten-percent shareholders.
(i) [Reserved]
(j)Examples. The following examples
illustrate paragraphs (a) through (h) of this
section. Throughout these examples, as-
sume that Distributing (D) owns all of the
stock of Controlled (C). Assume further
that D distributes the stock of C in a distri-
bution to which section 355 applies and to
which section 355(d) does not apply. Un-
less otherwise stated, assume the corpora-
tions do not have controlling shareholders.
No inference should be drawn from any
example concerning whether any require-
ments of section 355 other than those of
section 355(e) are satisfied. The examples
are as follows:
Example 1.Unwanted assets. (i) D is in busi-
ness 1. C is in business 2. D is relatively small in its
industry. D wants to combine with X, a larger cor-
poration also engaged in business 1. X and D begin
negotiating for X to acquire D, but X does not want
to acquire C. To facilitate the acquisition of D by X,
D agrees to distribute all the stock of Cpro ratabe-
fore the acquisition. Prior to the distribution, D and
X enter into a contract for D to merge into X subject
to several conditions. One month after D and X en-
ter into the contract, D distributes C and, on the day
after the distribution, D merges into X. As a result of
the merger, D’s former shareholders own less than 50
percent of the stock of X.
(ii) The issue is whether the distribution of C and
the merger of D into X are part of a plan. No Safe Har-
bor applies to this acquisition. To determine whether
the distribution of C and the merger of D into X are
part of a plan, D must consider all the facts and cir-
cumstances, including those described in paragraph
(b)ofthissection.
(iii) The following tends to show that the dis-
tribution of C and the merger of D into X are part
of a plan: X and D had an agreement regarding the
acquisition during the two-year period ending on the
date of the distribution (paragraph (b)(3)(i) of this
section), and the distribution was motivated by a
business purpose to facilitate the merger (paragraph
(b)(3)(v) of this section). Because the merger was
agreed to at the time of the distribution, the fact de-
scribed in paragraph (b)(3)(i) of this section is given
substantial weight.
(iv) None of the facts and circumstances listed in
paragraph (b)(4) of this section, tending to show that
a distribution and an acquisition are not part of a plan,
exist in this case.
(v) The distribution of C and the merger of D into
X are part of a plan under paragraph (b) of this sec-
tion.
Example 2.Public offering. (i) D’s managers, di-
rectors, and investment banker discuss the possibil-
ity of offering D stock to the public. They decide a
public offering of 20 percent of D’s stock with D as a
stand-alone corporation would be in D’s best interest.
One month later, to facilitate a stock offering by D of
20 percent of its stock, D distributes all the stock of
Cpro ratato D’s shareholders. D issues new shares
amounting to 20 percent of its stock to the public in a
public offering seven months after the distribution.
(ii) The issue is whether the distribution of C and
the public offering by D are part of a plan. No Safe
Harbor applies to this acquisition. Safe Harbor VII,
relating to public trading, does not apply to public of-
ferings (see paragraph (d)(7)(i) of this section). To
determine whether the distribution of C and the pub-
lic offering by D are part of a plan, D must consider
all the facts and circumstances, including those de-
scribed in paragraph (b) of this section.
(iii) The following tends to show that the distri-
bution of C and the public offering by D are part of
a plan: D discussed the public offering with its in-
vestment banker during the two-year period ending
on the date of the distribution (paragraph (b)(3)(ii)
of this section), and the distribution was motivated
by a business purpose to facilitate the public offering
(paragraph (b)(3)(v) of this section).
(iv) None of the facts and circumstances listed in
paragraph (b)(4) of this section, tending to show that
2005–18 I.R.B.983May 2, 2005

a distribution and an acquisition are not part of a plan,
exist in this case.
(v) The distribution of C and the public offering
by D are part of a plan under paragraph (b) of this
section.
Example 3.Hot market. (i) D is a widely-held
corporation the stock of which is listed on an estab-
lished market. D announces a distribution of C and
distributes Cpro ratato D’s shareholders. By con-
tract, C agrees to indemnify D for any imposition
of tax under section 355(e) caused by the acts of C.
The distribution is motivated by a desire to improve
D’s access to financing at preferred customer interest
rates, which will be more readily available if D sepa-
rates from C. At the time of the distribution, although
neither D nor C has been approached by any potential
acquirer of C, it is reasonably certain that soon after
the distribution either an acquisition of C will occur or
there will be an agreement, understanding, arrange-
ment, or substantial negotiations regarding an acqui-
sition of C. Corporation Y acquires C in a merger de-
scribed in section 368(a)(1)(A) by reason of section
368(a)(2)(E) within six months after the distribution.
The C shareholders receive less than 50 percent of the
stock of Y in the exchange.
(ii) The issue is whether the distribution of C and
the acquisition of C by Y are part of a plan. No Safe
Harbor applies to this acquisition. Under paragraph
(b)(2) of this section, becauseprior to the distribution
neither D nor C and Y had an agreement, understand-
ing, arrangement, or substantial negotiations regard-
ing the acquisition or a similar acquisition, the distri-
bution of C by D and the acquisition of C by Y are
not part of a plan under paragraph (b) of this section.
Example 4.Unexpected opportunity. (i) D, the
stock of which is listed on an established market,
makes a public announcement that it will distribute
all the stock of Cpro ratato D’s shareholders. Af-
ter the public announcement but before the distribu-
tion, widely-held X becomes available as an acqui-
sition target. There were no discussions by D or C
with X before the date of the public announcement.
D negotiates with X and X merges into D before the
distribution. In the merger, X’s shareholders receive
ten percent of D’s stock. D distributes the stock of C
pro ratawithin six months after the acquisition of X.
No shareholder of X was a controlling shareholder or
a ten-percent shareholder of D at any time during the
period beginning immediately after the merger and
ending on the date of the distribution
(ii) The issue is whether the acquisition of X by D
and the distribution of C are part of a plan. Safe Har-
bor V applies to this acquisition because the distribu-
tion ispro rataamong D’s shareholders, the acquisi-
tion occurs after the date of a public announcement
regarding the distribution, there were no discussions
by D or C with X on or before the date of the public
announcement, no acquirer was a controlling share-
holder or a ten-percent shareholder of D during the
period beginning immediately after the merger and
ending on the date of the distribution, and not more
than 20 percent of D’s stock was acquired by the X
shareholders in the merger.
Example 5.Vote shifting transaction.(i)Disin
business 1. C is in business 2. D wants to combine
with X, which is also engaged in business 1. The
stock of X is closely held. X and D begin negotiat-
ing for D to acquire X, but the X shareholders do not
want to acquire an indirect interest in C. To facilitate
the acquisition of X by D, D agrees to distribute all
the stock of Cpro ratabefore the acquisition of X. D
and X enter into a contract for X to merge into D sub-
ject to several conditions. Among those conditions
is that D will amend its corporate charter to provide
for two classes of stock: Class A and Class B. Under
all circumstances, each share of Class A stock will
be entitled to ten votes in the election of each direc-
tor on D’s board of directors. Upon issuance, each
share of Class B stock will be entitled to ten votes
in the election of each director on D’s board of di-
rectors; however, a disposition of such share by its
original holder will result in such share being entitled
to only one vote, rather than ten votes, in the election
of each director. Immediately after the merger, the
Class B shares will be listed on an established market.
One month after D and X enter into the contract, D
distributes C. Immediately after the distribution, the
shareholders of D exchange their D stock for the new
Class B shares. On the day after the distribution, X
merges into D. In the merger, the former sharehold-
ers of X exchange their X stock for Class A shares of
D. Immediately after the merger, D’s historic share-
holders own stock of D representing 51 percent of the
total combined voting power of all classes of stock
of D entitled to vote and more than 50 percent of
the total value of all classes of stock of D. During
the 30-day period following the merger, none of the
Class A shares are transferred, but a number of D’s
historic shareholders sell their Class B stock of D in
public trading with the result that, at the end of that
30-day period, the Class A shares owned by the for-
mer X shareholders represent 52 percent of the total
combined voting power of all classes of stock of D
entitled to vote.
(ii)X acquisition. (A)Theissueiswhetherthe
distribution of C and the merger of X into D are part
of a plan. No Safe Harbor applies to this acquisition.
To determine whether the distribution of C and the
merger of X into D are part of a plan, D must con-
sider all the facts and circumstances, including those
described in paragraph (b) of this section.
(B) The following tends to show that the dis-
tribution of C and the merger of X into D are part
of a plan: X and D had an agreement regarding the
acquisition during the two-year period ending on the
date of the distribution (paragraph (b)(3)(i) of this
section), and the distribution was motivated by a
business purpose to facilitate the merger (paragraph
(b)(3)(v) of this section). Because the merger was
agreed to at the time of the distribution, the fact de-
scribed in paragraph (b)(3)(i) of this section is given
substantial weight.
(C) None of the facts and circumstances listed in
paragraph (b)(4) of this section, tending to show that
a distribution and an acquisition are not part of a plan,
exist in this case.
(D) The distribution of C and the merger of X
into D are part of a plan under paragraph (b) of this
section.
(iii)Public trading of Class B shares.(A)Assum-
ing that each of the transferors and the transferees of
the Class B stock of D in public trading is not one
of the prohibited transferors or transferees listed in
paragraph (d)(7)(i), Safe Harbor VII will apply to the
acquisitions of the Class B stock during the 30-day
period following the merger such that the distribu-
tion and those acquisitions will not be treated as part
of a plan. However, to the extent that those acquisi-
tions result in an indirect acquisition of voting power
by a person other than the acquirerofthetransferred
stock, Safe Harbor VII does not prevent the acquisi-
tion of the D stock (with the voting power such stock
represents after those acquisitions) by the former X
shareholders from being treated as part of a plan.
(B) To the extent that the transfer of the Class B
shares causes the voting power of D to shift to the
Class A stock acquired by the former X shareholders,
such shifted voting power will be treated as attribut-
able to the stock acquired by the former X sharehold-
ers as part of a plan that includes the distribution and
the X acquisition.
Example 6.Acquisition not involving a public of-
fering that is not similar. (i) D, X, and Y are each
corporations the stock of which is publicly traded and
widely held. Each of D, X, and Y is engaged in the
manufacture and sale of trucks. C is engaged in the
manufacture and sale of buses. D and X engage in
substantial negotiations concerning X’s acquisition
of the stock of D from the D shareholders in exchange
for stock of X. D and X do not reach an agreement re-
garding that acquisition. Three months after D and X
first began negotiations regarding that acquisition, D
distributes the stock of Cpro ratato its sharehold-
ers. Three months after the distribution, Y acquires
the stock of D from the D shareholders in exchange
for stock of Y. The ultimate owners of Y are substan-
tially different from the ultimate owners of X.
(ii) Although both X and Y engage in the manu-
facture and sale of trucks, X’s truck business and Y’s
truck business are not the same business operations.
Therefore, because Y’s acquisition of D does not ef-
fect a combination of the same business operations
as X’s acquisition of D would have effected, and be-
cause the ultimate owners of Y are substantially dif-
ferent from the ultimate owners of X, Y’s acquisition
of D is not similar to X’s potential acquisition of D
that was the subject of earlier negotiations.
Example 7.Acquisition not involving a public of-
fering that is similar. (i) D is engaged in the business
of writing custom software for several industries (in-
dustries 1 through 6). The software business of D re-
lated to industries 4, 5, and 6 is significant relative
to the software business of D related to industries 3,
4, 5, and 6. X, an unrelated corporation, is engaged
in the business of writing software and the business
of manufacturing and selling hardware devices. X’s
business of writing software is significant relative to
its total businesses. X and D engage in substantial ne-
gotiations regarding X’s acquisition of D stock from
the D shareholders in exchange for stock of X. Be-
cause X does not want to acquire the software busi-
nesses related to industries 1 and 2, these negotiations
relate to an acquisition of D stock where D owns the
software businesses related only to industries 3, 4, 5,
and 6. Thereafter, D concludes that the intellectual
property licenses central to the software business re-
lated to industries 1 and 2 are not transferable and that
a separation of the softwarebusiness related to indus-
try 3 from the software business related to industry 2
is not desirable. One month after D begins negotiat-
ing with X, D contributes the software businesses re-
lated to industries 4, 5, and 6 to C, and distributes the
stock of Cpro ratato its shareholders. In addition,
X sells its hardware businesses for cash. After the
distribution, C and X negotiate for X’s acquisition of
the C stock from the C shareholders in exchange for
X stock, and X acquires the stock of C.
May 2, 20059842005–18 I.R.B.

(ii) Although D and C are different corporations,
C does not own the custom software business related
to industry 3, and X sold its hardware business prior
to the acquisition of C, because X’s acquisition of
C involves a combination of a significant portion of
the same business operations as the combination that
would have been effected by the acquisition of D that
was the subject of negotiations between D and X, X’s
acquisition of C is the same as, or similar to, X’s po-
tential acquisition of D that was the subject of earlier
negotiations.
Example 8.Acquisitions involving public offer-
ings with different purposes. (i) D’s managers, direc-
tors, and investment banker discuss the possibility of
offering D stock to the public for the purpose of fund-
ing the acquisition of the assets of X. They decide a
public offering of 20 percent of D’s stock with D as
a stand-alone corporation would allow D to raise the
capital needed to effect the acquisition of X’s assets.
One month later, to facilitate a stock offering by D
of 20 percent of its stock, D distributes all the stock
of Cpro ratato D’s shareholders. Two months after
the distribution, D issues new shares amounting to 20
percent of its stock to the public in a public offering
(the first public offering). Four months after the dis-
tribution, D acquires the assets of X. Seven months
after the distribution, D’s managers, directors, and in-
vestment banker discuss the possibility of offering D
stock to the public solely for the purpose of funding
the acquisition of the assets of Y, a corporation unre-
lated to X. One year after the distribution, D issues
new shares amounting to 40 percent of its stock to
the public in a public offering (the second public of-
fering). One month after the second public offering,
D acquires the assets of Y.
(ii) The first public offering is the same as the po-
tential acquisition that D’s managers, directors, and
investment banker discussed prior to the distribution.
The purpose of the second public offering (funding
the acquisition of the assets of Y) is not similar to
that of the potential acquisition (funding the acquisi-
tion of the assets of X). Therefore, the second public
offering is not similar to the potential acquisition.
Example 9.Acquisitions involving public offer-
ings that are close in time. (i) D’s managers, direc-
tors, and investment banker discuss the possibility
of offering D stock to the public for the purpose of
raising funds for general corporate purposes. They
decide a public offering of 20 percent of D’s stock
with D as a stand-alone corporation would allow D
to raise such funds. One month later, to facilitate a
stock offering by D of 20 percent of its stock, D dis-
tributes all the stock of Cpro ratato D’s sharehold-
ers. Two months after the distribution, D issues new
shares amounting to 20 percent of its stock to the pub-
lic in a public offering (the first public offering). Af-
ter the first public offering, D’s managers, directors,
and investment banker discuss the possibility of an-
other offering of D stock to the public for the purpose
of raising additional funds for general corporate pur-
poses. Eight months after the distribution, D issues
new shares amounting to ten percent of its stock to
the public in a public offering (the second public of-
fering).
(ii) The first public offering is the same as the po-
tential acquisition that D’s managers, directors, and
investment banker discussed prior to the distribution.
The purpose of the second public offering (raising
funds for general corporate purposes) is the same as
that of the potential acquisition. In addition, the sec-
ond public offering is close in time to the first pub-
lic offering. Therefore, the second public offering is
similar to the potential acquisition.
Example 10.Acquisitions involving public offer-
ings that are not close in time. The facts are the same
as those inExample 9, except that the second public
offering occurs fourteen months after the distribution.
Although the purpose of the second public offering is
the same as that of the potential acquisition, the sec-
ond public offering is not close in time to the first
public offering. Therefore, the second public offer-
ing is not similar to the potential acquisition.
(k)Effective dates. This section applies
to distributions occurring after April 19,
2005. For distributions occurring on or be-
fore April 19, 2005, and after April 26,
2002, see §1.355–7T as contained in 26
CFR part 1 revised as of April 1, 2003;
however, taxpayers may apply these reg-
ulations, in whole, but not in part, to such
distributions. For distributions occurring
on or before April 26, 2002, and after Au-
gust 3, 2001, see §1.355–7T as contained
in 26 CFR part 1 revised as of April 1,
2002; however, taxpayers may apply, in
whole, but not in part, either these regu-
lations or §1.355–7T as contained in 26
CFR part 1 revised as of April 1, 2003, to
such distributions. For distributions occur-
ring on or before August 3, 2001, and af-
ter April 16, 1997, taxpayers may apply, in
whole, but not in part, either these regula-
tions or §1.355–7T as contained in 26 CFR
part 1 revised as of April 1, 2003, to such
distributions.
§1.355–7T [Removed]
Par. 4. Section 1.355–7T is removed.
Cono R. Namorato,
Acting Deputy Commissioner for
Services and Enforcement.
Approved April 13, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on April 18, 2005,
8:45 a.m., and published in the issue of the Federal Register
for April 19, 2005, 70 F.R. 20279)
Section 411.—Minimum
Vesting Standards
26 CFR 1.411(d)–4: Section 411(d)(6) protected ben-
efits.
Whether an amendment pertaining to section
203(a)(3)(B) service is a protected benefit. See Rev.
Proc. 2005-23, page 991.
Section 7701.—Definitions
26 CFR 301.7701–2: Busin
ess entities; definitions.
T.D. 9197
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 301
Classification of Certain
Foreign Entities
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains tem-
porary and final regulations relating to cer-
tain business entities included on the list
of foreign business entities that are always
classified as corporations for Federal tax
purposes. The text of the temporary reg-
ulations also serves as the text of the pro-
posed regulations (REG–148521–04) set
forth in the notice of proposed rulemaking
on this subject in this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on October 7, 2004.
Applicability Date:For the dates of
applicability of these regulations, see
§301.7701–2T(e).
FOR FURTHER INFORMATION
CONTACT: Ronald M. Gootzeit, (202)
622–3860 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The IRS and Treasury Department is-
sued final regulations concerning the clas-
sification of entities under section 7701 of
the Internal Revenue Code (Code) on De-
cember 18, 1996 (final regulations). See
2005–18 I.R.B.985May 2, 2005

generally T.D. 8697, 1997–1 C.B. 215, and
§§301.7701–1 through 301.7701– 3. Un-
der the final regulations, a business en-
tity that is not specifically classified as a
corporation is an eligible entity that can
elect its classification for Federal tax pur-
poses under certain circumstances. How-
ever, §301.7701–2(b)(8) provides a list of
certain foreign business entities that are al-
ways classified as corporations for Federal
tax purposes (the per se corporation list).
These foreign business entities are gener-
ally referred to as per se corporations.
On October 8, 2001, the Council of the
European Union adopted Council Regu-
lation 2157/2001 2001 O.J. (L 294) (the
EU Regulation) to provide for a new busi-
ness entity, the European public limited
liability company (Societas Europaea or
SE). The EU Regulation entered into force
on October 8, 2004, and has effect in all
the Member States of the European Eco-
nomic Area (which includes all Member
States of the European Union plus Norway,
Iceland, and Liechtenstein). An SE must
have a registered office in one of the Mem-
ber States.
The SE is a public limited liability com-
pany. The EU Regulation provides gen-
eral rules that govern the formation and
operation of an SE and supplements those
rules for specified issues and issues it does
not address by reference to the laws with
respect to public limited liability compa-
nies for the country in which the SE has
its registered office. Most of the countries
in which an SE can have its registered of-
fice have a business entity that constitutes
a public limited liability company and that
currently is on the per se corporation list.
However, an SE can have its registered of-
fice in the following countries that have a
business entity that is a public limited lia-
bility company but that is not yet on the
per se corporation list: Estonia, Latvia,
Lithuania, Slovenia, and Liechtenstein.
Explanation of Provisions
In Notice 2004–68, 2004–43 I.R.B.
706, the IRS and Treasury stated that the
SE is properly classified as a per se corpo-
ration because it will function as a public
limited liability company. The notice also
stated that the IRS and Treasury will issue
temporary and proposed regulations that
will modify §301.7701–2(b)(8) to include
the SE on the per se corporation list. The
notice further stated that the temporary
and proposed regulations will modify
§301.7701–2(b)(8) to include as per se
corporations the Estonian Aktsiaselts,
Latvian Akciju Sabiedriba, Lithuanian
Akcine Bendroves, Slovenian Delniska
Druzba, and Liechtenstein Aktienge-
sellschaft. These entities are the public
limited liability companies in their respec-
tive countries. The temporary regulations
in this document make these modifica-
tions to §301.7701–2(b)(8). In addition,
in accordance with Notice 2004–68, these
regulations will be effective for the Esto-
nian, Latvian, Liechtenstein, Lithuanian,
and Slovenian entitiesformedonorafter
October 7, 2004, and for the European
Economic Area entity formed on or af-
ter October 8, 2004. See also section
7805(b)(1)(C).
The status of an SE may be relevant
to the application of various Federal in-
come tax provisions, such as the subpart
F same-country exception under section
954(c)(3). Treasury and the IRS are con-
sidering these issues and invite comments
on any additional areas in which guidance
on the Federal tax treatment of an SE may
be warranted.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. As a result of the issuance
of Notice 2004–68, good cause is found for
dispensing with prior notice and comment
pursuant to 5 U.S.C. 553(b). For the appli-
cability of the Regulatory Flexibility Act
(5 U.S.C. chapter 6), refer to the Special
Analyses section of the preamble to the no-
tice of proposed rulemaking published in
this issue of the Bulletin. Pursuant to sec-
tion 7805(f) of the Code, these temporary
regulations will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on their
impact.
Drafting Information
The principal author of these regula-
tions is Ronald M. Gootzeit of the Of-
fice of Associate Chief Counsel (Interna-
tional). However, other personnel from the
IRS and Treasury Department participated
in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301 — PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §301.7701–2, paragraph
(b)(8)(vi) is added to read as follows:
§301.7701–2 Business entities;
definitions.
*****
(b) * * *
(8) * * *
(vi)Certain European entities.[Re-
served]. For further guidance, see
§301.7701–2T.
*****
Par. 3. Section 301.7701–2T is
amended by adding paragraphs (b)(8)(vi)
and (e) to read as follows:
§301.7701–2T Business entities;
definitions (temporary).
(a) through (b)(8)(v) [Reserved]. For
further guidance, see §301.7701–2(a)
through (b)(8)(v).
(b)(8)(vi)Certain European entities.
The following business entities formed in
the following jurisdictions:
Estonia, Aktsiaselts
European Economic Area/European
Union, Societas Europaea
Latvia, Akciju Sabiedriba
Liechtenstein, Aktiengesellschaft
Lithuania, Akcine Bendroves
Slovenia, Delniska Druzba.
(c) and (d) [Reserved]. For further
guidance, see §301.7701–2(c) and (d).
(e)Effective dates—
(1) and (2) [Reserved]. For further
guidance, see §301.7701–2(e)(1) and (2).
(3) The reference to the Estonian,
Latvian, Liechtenstein, Lithuanian, and
Slovenian entities in paragraph (b)(8)(vi)
of this section applies to such entities
formed on or after October 7, 2004, and
toanysuchentityformedbeforesuch
date from the date any person or persons,
May 2, 20059862005–18 I.R.B.

who were not owners of the entity as of
October 7, 2004, own in the aggregate a
50 percent or greater interest in the entity.
The reference to the European Economic
Area/European Union entity in paragraph
(b)(8)(vi) of this section applies to such
entities formed on or after October 8,
2004.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved March 28, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on April 13, 2005,
8:45 a.m., and published in the issue of the Federal Register
for April 14, 2005, 70 F.R. 19697)
Section 7805.—Rules
and Regulations
26 CFR 301.7805–1: Rules and regulations.
Whether, and to what extent, the holding inCen-
tral Laborers’ Pension Fund v. Heinz, 124 S.Ct. 2230
(2004), will be limited. See Rev. Proc. 2005-23, page
991.
2005–18 I.R.B.987May 2, 2005

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
Mutual Agreement on U.K.
Pension Arrangements
Announcement 2005–30
Following is a copy of the News Re-
lease issued by the Director, International
(U.S. Competent Authority), on April 13,
2005 (IR–2005–44).
Agreement Identifies U.K. Pension
Arrangements for Tax Treaty Benefits
IR–2005–44, April 13, 2005
WASHINGTON — The Competent Au-
thorities of the United Kingdom and the
United States have reached a mutual agree-
ment on the qualification of certain U.K.
pension arrangements for treaty benefits
under paragraph 3(b) of Article 10 (Div-
idends) of the Convention Between the
United States of America and the United
Kingdom of Great Britain and North-
ern Ireland for the Avoidance of Double
Taxation with Respect to Taxes on In-
come signed at London on July 24, 2001
(“Treaty”).
The agreement constitutes a Mutual
Agreement in accordance with paragraph
3 of Treaty Article 26 (Mutual Agreement
Procedure).
The text of the agreement is as follows:
COMPETENT AUTHORITY AGREEMENT
The competent authorities of the United States and the United Kingdom hereby enter into the following agreement (“the
Agreement”) regarding the qualification of certain U.K. pension or other retirement arrangements for benefits under paragraph
3(b) of Article 10 (Dividends) of the Convention Between the United States of America and the United Kingdom of Great Britain
and Northern Ireland for the Avoidance of Double Taxation with Respect to Taxes on Income signed at London on July 24, 2001
(“the Treaty”). The Agreement is entered into under paragraph 3 of Article 26 (Mutual Agreement Procedure).
It is u
nderstood that for the purposes of this Agreement theterm “Article” refers to an Article of the Treaty.
Qualification for benefits under Article 10(3)
Paragraph 3(b) of Article 10 of the Treaty provides that dividendsshall not be taxed in the Contracting State of which the company
paying the dividends is a resident if the beneficial owner of thedividends is a pension scheme resident in the other Contracting
State, provided that such dividends are not derived from the carrying on of business by the pension scheme.
Pur
suant to subparagraphs a) and b) of paragraph 3 of Article 4 (Residence), the term “resident of aContracting State” includes
ape
nsion scheme or a plan, scheme, fund, trust, company or other arrangement established in a Contracting State that is
ope
rated exclusively to administer or provide employee benefits and that, by reason of its nature as such, is generally exempt
fro
m income taxation in that State.
The term “pension scheme” is defined in Article 3(1)(o) as any plan, scheme, fund, trust or otherarrangement established in a
Contracting State which is: (i) generally exempt from income taxation in that State; and (ii) operated principally to administer or
provide pension or retirement benefits or to earn income for the benefit of one or more such arrangements.
Subparagraph 2(e) of Article 23 (Limitation on Benefits) provides, in part, that a person described in Article 4(3)(a) or (b) may
claim benefits under the Treaty only if more than half of its beneficiaries, members, or participants are individuals who are
residents of either Contracting State.
O
ccupational pension arrangements in the United Kingdom are generally established through separate trust deeds. Many of these
p
ension schemes, particularly the small and medium-sized schemes pool their investments in various ways. Questions have arisen
a
s to the eligibility for benefits under Article 10(3) of such pooling arrangements.
In order to provide certainty for taxpayers, the competent authorities of the United States and the United Kingdom have agreed
that the following types of U.K. arrangements are “pension schemes” as that term is defined in Article 3(1)(o), are treated as
the beneficial owners of dividends paid to them by U.S. corporations, and therefore are considered to meet the requirements
of Article 10(3)(b):
a. A U.K. resident unit trust, so longas the following conditions are met:
i. The trust deed specifically provides that only pension schemes that are not subject to U.K.
capital gains tax or corporation taxmay participate in the trust; and
ii. Any tax paid by the Trustee of such a trust is deemed to be paid by the unit-holder pension
schemes such that the tax is refunded to the pension schemes.
May 2, 20059882005–18 I.R.B.

b. A fund, plan or arrangement to which an occupational or individual pension scheme contributes by paying
premiums to an insurance company so long as the following conditions are met:
i. Contributions by the pension scheme are placed by the insurance company in a fund that is
generally exempt from tax in the United Kingdom;
ii. The insurance company allocates a number of units to the contributing pension scheme, so
that the value of the pension scheme’s investment is represented by a proportionate share of
the total value of the fund;
iii. The return on the pension scheme’s investment is not fixed;
iv. The return to the contributing pension scheme is directly linked to the value of its share of the
total return to the fund identified through the unit mechanism under (ii);
v. All return on investment inures only to the benefit of the contributing occupational or individual
pension scheme and not to the insurance company shareholders; and
vi. To the extent that there is withholding onforeign source income received by the fund, the
return to the underlying pension scheme is diminished. Any tax so paid is effectively borne by the
pension scheme and the insurancecompany does not benefit from it.
Such arrangements therefore will qualify for the benefits of Article 10(3)(b) if they satisfy the conditions of Article 23(2)(e).
Upon signature by both Competent Authorities, this Agreement is effective as of May 1, 2003, the date the Treaty is effective for
taxes withheld at source under Article 29(2).
Agreed to by the undersigned competent authorities:
/s/4-11-05/s/3-21-05
Robert H. GreenDate
U.S. competent authority
Diane HayDate
U.K. competent authority
2005–18 I.R.B.989May 2, 2005

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 851, 852; 1.851–2.)
Rev. Proc. 2005–20
SECTION 1. PURPOSE
This revenue procedure amplifies and
supersedes Rev. Proc. 2003–32, 2003–1
C.B. 803, to take into account that Rev.
Proc. 2002–68, 2002–2 C.B. 753, was
modified and superseded by Rev. Proc.
2003–84, 2003–2 C.B. 1159, and describes
conditions under which a regulated invest-
ment company (RIC) that holds a part-
nership interest is treated, for purposes of
qualifying as a RIC under § 851(b)(3) of
the Internal Revenue Code of 1986 and for
purposes of eligibility to pay exempt-in-
terest dividends under § 852(b)(5), as if it
directly invested in the assets held by the
partnership.
SECTION 2. BACKGROUND
.01 Certain RICs seek investments with
a yield that is treated for federal income tax
purposes as interest exempt from tax under
§ 103 and that reflects current short-term
exempt interest rates. Partnerships de-
scribed in Rev. Proc. 2003–84 offer these
advantages to some of their partners. Part-
nerships described in its predecessor rev-
enue procedure, Rev. Proc. 2002–68, also
offered these advantages. The partnership
interests are referred to as synthetic tax-ex-
empt variable-rate bonds. Eligible part-
nerships described in either revenue pro-
cedure may make a monthly closing elec-
tion that permits consenting partners to
take into account their distributive shares
of partnership income on a monthly basis.
.02 Rev. Proc. 2003–32 provides con-
ditions under which a RIC that holds a
partnership interest is treated as if it di-
rectly invested in the assets held by the
partnership. It applies to consenting part-
ners in eligible partnerships described in
Rev. Proc. 2002–68. After the issuance of
Rev. Proc. 2003–32, however, Rev. Proc.
2002–68 was modified and superseded by
Rev. Proc. 2003–84. This revenue proce-
dure amplifies and supersedes Rev. Proc.
2003–32 to extend this treatment to con-
senting partners in partnerships described
in Rev. Proc. 2003–84 or in any succes-
sor published guidance that provides sub-
stantially the same treatment for consent-
ing partners in eligible tax-exempt bond
partnerships.
.03 Partners in eligible partnerships
described in Rev. Proc. 2003–84 that
are RICs must qualify as RICs under
§ 851(b)(3) and generally also seek to
qualify to pay exempt-interest dividends
under § 852(b)(5).
.04 Section 851(b)(3)(A) requires that,
for a corporation to qualify as a RIC, at the
close of each quarter of the taxable year,
at least 50 percent of the value of the cor-
poration’s total assets must be represented
by cash and cash items (including receiv-
ables), Government securities, securities
of other RICs, and other securities gener-
ally limited in respect of any one issuer to
an amount not greater in value than 5 per-
cent of the value of the total assets of the
corporation and to not more than 10 per-
cent of the outstanding voting securities of
such issuer.
.05 Section 851(b)(3)(B) provides that,
foracorporationtoqualifyasaRIC,not
more than 25 percent of the corporation’s
total assets may be invested in the securi-
ties (other than Government securities and
the securities of other RICs) of any one is-
suer, or of two or more issuers that the cor-
poration controls and that are determined,
under regulations, to be engaged in the
same or similar trades or businesses or re-
lated trades or businesses.
.06 Section 852(b)(5) provides that, if
at least 50 percent of the value (as de-
fined in § 851(c)(4)) of a RIC’s total assets
at the close of each calendar quarter con-
sists of obligations described in § 103(a),
the RIC is eligible to pay exempt-interest
dividends, which are treated by the RIC’s
shareholders as interest excludable from
gross income under § 103(a).
SECTION 3. SCOPE
This revenue procedure applies to
RICs that are consenting partners in eligi-
ble partnerships described in Rev. Proc.
2002–68, in Rev. Proc. 2003–84, or in
any successor published guidance that
provides substantially the same treatment
for consenting partners in eligible tax-ex-
empt-bond partnerships.
SECTION 4. PROCEDURE
For purposes of qualifying as a RIC un-
der § 851(b)(3) and for purposes of eli-
gibility to pay exempt-interest dividends
under § 852(b)(5), a RIC meeting the re-
quirements of Section3ofthisprocedure
is treated as if it directly invested in the as-
sets held by the eligible partnership. For
these purposes, its interest in partnership
assets is determined in accordance with its
capital interest in the partnership.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
asset determinations that are made as of
dates that are on or after March 31, 2003.
SECTION 6. TRANSITION RULES
.01 The Service will not challenge a
RIC partner’s look-through treatment for
purposes of an asset determination, pro-
vided that—
(1) The asset determination is made as
of a date that is in a taxable year beginning
before January 1, 2004;
(2) The partnership would be an eligi-
ble partnership as defined in Rev. Proc.
2002–68;
(3) The RIC partner’s inclusion of in-
come, gain, loss, deduction, and credits is
consistent with that permitted under that
revenue procedure; and
(4) The RIC partner’s tax treatment is
consistent with an election under § 761(a)
to be excluded from the provisions of sub-
chapter K.
.02 The Service will not challenge a
consenting RIC partner’s look-through
treatment for purposes of an asset determi-
nation, provided that the partnership is an
electing partnership under the provisions
of Rev. Proc. 2002–16 or Rev. Proc.
2002–68 to which the grandfather rule in
section 9.02(1) of Rev. Proc. 2003–84
applies.
.03 For purposes of this Section 6,
“look-through treatment” means that a
RIC makes asset determinations as if it
directly invested in the assets held by a
partnership in which it invests.
May 2, 20059902005–18 I.R.B.

SECTION 7. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2003–32 is amplified and
superseded.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Lauren J. Blecker of the Of-
fice of the Associate Chief Counsel (Fi-
nancial Institutions & Products). For
further information regarding this revenue
procedure, contact her at (202) 622–3920
(not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 411, 7805; §§ 1.411(d)–4,
301.7805–1.)
Rev. Proc. 2005–23
SECTION 1. PURPOSE
.01In general. The purpose of this rev-
enue procedure is to limit the retroactive
application of the decision inCentral La-
borers’ Pension Fund v. Heinz,124S.Ct.
2230 (June 7, 2004) for retirement plans
qualified under § 401(a) of the Internal
Revenue Code (Code).
.02Scope of treatment. With regard
to qualified retirement plans that adopted
certain amendments before June 7, 2004,
section 3 of this revenue procedure gener-
ally provides that the Service will not dis-
qualify a plan solely on account of a plan
amendment adding or expanding a sus-
pension of benefit provision, as prohibited
underCentral Laborers’. The treatment
under this revenue procedure applies only
with respect to amendments described in
section 3.01 and not to other plan amend-
ments that may violate § 411(d)(6). The
limitation on the retroactive application
ofCentral Laborers’under this revenue
procedure has no effect on the rights of
any party under section 204(g) of the Em-
ployee Retirement Income Security Act of
1974 (ERISA) or any other law.
SECTION 2. BACKGROUND
Section 411 requires a qualified plan to
meet certain minimum vesting standards.
Under § 411(a), an employee’s right to
the accrued benefit derived from employer
contributions must become nonforfeitable
within a specified period of service, and
certain other conditions must also be met.
Section 411(a)(3) provides circumstances
under which an employee’s benefit is per-
mitted to be forfeited without violating
§ 411(a). In particular, § 411(a)(3)(B) pro-
vides that a right to an accrued benefit de-
rived from employer contributions is not
treated as forfeitable solely because the
plan provides that the payment of bene-
fits is suspended for such period as the
employee is employed, subsequent to the
commencement of payment of such bene-
fits—
(i) in the case of a plan other than a
multiemployer plan, by the employer who
maintains the plan under which such ben-
efits were being paid; and
(ii) in the case of a multiemployer plan,
in the same industry, the same trade or
craft, and the same geographic area cov-
ered by the plan as when such benefits
commenced.
This definition of employment for
which benefit payments are permitted
to be suspended is further described in
29 CFR § 2530.203–3, which interprets
section 203(a)(3)(B) of ERISA, the coun-
terpart to § 411(a)(3)(B) of the Code.
Employment that satisfies the conditions
described in the statute and regulations is
referred to as “section 203(a)(3)(B) ser-
vice.” See 29 CFR § 2530.203–3(c).
Section 411(d)(6)(A) generally pro-
vides that a plan is not treated as satisfying
the requirements of § 411 if the accrued
benefit of a participant is decreased by a
plan amendment. Under § 411(d)(6)(B)
and regulations thereunder, a plan amend-
ment that has the effect of eliminating
or reducing an early retirement benefit,
a retirement-type subsidy, or an optional
form of benefit, with respect to benefits
attributable to service before the amend-
ment, is treated as reducing accrued ben-
efits for any employee who satisfies the
pre-amendment conditions for that benefit
(either before or after the amendment).
Under § 7805(b)(8), the Commissioner
is authorized to prescribe the extent, if any,
to which a judicial decision relating to the
internal revenue laws is to be applied with-
out retroactive effect.
InCentral Laborers’, the plaintiffs
were two inactive participants in the Cen-
tral Laborers’ Pension Fund, a multiem-
ployer pension plan. The two participants
commenced payment of their benefits in
1996 after accruing enough pension cred-
its to qualify for early retirement payments
under a plan provision that paid them the
same monthly benefit they would have
received had they commenced payment
at normal retirement age. The plan terms
required that payments be suspended if
a participant engaged in “disqualifying
employment.” At the time the two partic-
ipants commenced payment, the plan de-
fined disqualifying employment to include
only employment covered by the plan. At
that time, employment covered by the
plan (and thus, disqualifying employment)
did not include work as a construction
supervisor, the position in which the two
participants were employed after they
commenced benefits. Accordingly, the
participants’ benefit payments were not
suspended in 1996. However, in 1998, the
plan was amended to expand its definition
of disqualifying employment to include
any employment in the construction in-
dustry in the geographic area covered by
the plan, and the plan stopped payments
to the two participants on account of their
disqualifying employment as construc-
tion supervisors. The two participants
sued to recover the suspended payments,
claiming that the amendment expanding
the plan’s suspension provisions violated
section 204(g) of ERISA (the counterpart
to § 411(d)(6) of the Code).
The Supreme Court, holding for the two
participants, ruled that section 204(g) pro-
hibits a plan amendment expanding the
categories of post-retirement employment
that results in suspension of the payment of
early retirement benefits already accrued.
The Court found that while ERISA per-
mits certain conditions that are elements
of the benefit itself (such as suspensions
under § 411(a)(3)(B) of the Code or sec-
tion 203(a)(3)(B) of ERISA), such a con-
dition may not be imposed after a bene-
fit has accrued and that the right to re-
ceive benefit payments on a certain date
may not be limited by a new condition nar-
rowing that right. The Court agreed with
the 7
th
Circuit that “[a] participant’s ben-
efits cannot be understood without refer-
ence to the conditions imposed on receiv-
ing those benefits, and an amendment plac-
ing materially greater restrictions on the
receipt of the benefit ‘reduces’ the bene-
fit just as surely as a decrease in the size
of the monthly benefit payment.”Central
Laborers’, 124 S.Ct. at 2235–36, quoting
2005–18 I.R.B.991May 2, 2005

Heinz v. Central Laborers’ Pension Fund,
303F.3d802,805(7
th
Cir. 2002). How-
ever, the Court stated:
Nothing we hold today requires the IRS
to revisit the tax-exempt status in past
years of plans that were amended in re-
liance on the agency’s representations
in its manual by expanding the cate-
gories of work that would trigger sus-
pension of benefit payments as to al-
ready-accrued benefits. The Internal
Revenue Code gives the Commissioner
discretion to decline to apply decisions
of this Court retroactively. 26 U.S.C.
§ 7805(b)(8) . . . This would doubtless
be an appropriate occasion for exercise
of that discretion.
Central Laborers’, 124 S.Ct. at 2238, n.4.
SECTION 3. EXERCISE OF
AUTHORITY UNDER § 7805(b)(8)
.01In general.PursuanttotheCom-
missioner’s authority under § 7805(b)(8),
a plan will not be treated as having failed
to satisfy the requirements of § 401(a)
merely because an amendment adopted
before June 7, 2004, violated § 411(d)(6)
by adding or expanding a provision under
which a suspension of benefits occurs on
account of section 203(a)(3)(B) service.
This treatment applies only if a reform-
ing amendment, as described in section
3.02, is adopted and the plan complies
operationally withthat amendment, as
described in sections 3.02, 3.03, and 3.04.
For purposes of this revenue procedure,
an amendment adopted before June 7,
2004, that violated § 411(d)(6) by adding
or expanding a provision under which a
suspension of benefits occurs on account
of section 203(a)(3)(B) service is referred
to as the original amendment, and the
amendment required under section 3.02 is
referred to as the reforming amendment.
This section 3.01 applies to any such orig-
inal amendment regardless of whether
the amendment provided for a suspen-
sion of payment of the accrued benefit or
for a suspension of the payment of early
retirement benefits or retirement-type sub-
sidies such as those at issue inCentral
Laborers’, and regardless of whether the
plan as amended by the original amend-
ment provided that subsequent benefit
payments under the plan were actuarially
adjusted to take into account the fact that
benefits were not paid during the suspen-
sion period. For purposes of this revenue
procedure, a provision under which a sus-
pension of benefits occurs on account of
section 203(a)(3)(B) service includes a
provision that results in a plan not provid-
ing actuarial increases as a result of such
service after normal retirement age. If a
plan has more than one original amend-
ment that violated § 411(d)(6) by adding
or expanding a provision under which a
suspension of benefits occurs on account
of section 203(a)(3)(B) service, this rev-
enue procedure applies separately to each
amendment.
.02Reforming amendment.(1)General
requirements. The reforming amendment
must provide that, beginning on June
7, 2004, the provisions of the original
amendment that suspend benefits do not
apply with respect to benefits that had
accrued as of the applicable amendment
date for the original amendment and must
provide certain participants with an option
to commence payment of their benefits,
as described in section 3.04. For purposes
of this revenue procedure, the applicable
amendment date for a plan amendment
is the later of the effective date of the
amendment or the date the amendment is
adopted. However, the reforming amend-
ment is permitted to provide that the
suspension of benefit provisions of the
original amendment will continue to apply
with respect to benefits that had accrued
after the applicable amendment date for
the original amendment. Further, a plan
may continue to apply the suspension of
benefit provision as in effect immediately
prior to the original amendment with re-
spect to all accrued benefits (accruing both
before and after the original amendment).
(2)Broader reforming amendments
permitted. The reforming amendment is
permitted to provide greater benefits to
participants than the minimum required
under section 3.02(1). For example, in
addition to satisfying the minimum re-
quirements of this section 3, a reforming
amendment might provide that the suspen-
sion of benefit provisions of the original
amendment cease to apply beginning on a
date earlier than June 7, 2004, and might
also provide a corresponding opportunity
for participants to apply for retroactive
benefits commencingon that earlier date.
Similarly, the reforming amendment might
apply to the entire accrued benefit of those
participants with an accrued benefit on the
applicable amendment date of the original
amendment, rather than just to benefits
that had accrued as of the applicable
amendment date, so that the suspension of
benefit provisions of the original amend-
ment as reformed only apply to those
participants who commence participation
after that applicable amendment date.
(3)Effective date and remedial amend-
ment period. The reforming amendment
must be effective as of a date not later than
June 7, 2004. Section 4 provides a reme-
dial amendment period for the reforming
amendment.
.03Payment of retroactive benefits re-
quirement.(1)In general. In order for
a plan to obtain the treatment provided in
section 3.01, the reforming amendment de-
scribedinsection3.02mustprovidefor
the payment of retroactive benefits (be-
ginning as of June 7, 2004, or such ear-
lier date on which the reforming amend-
ment is made effective pursuant to section
3.02(3)) to an affectedplan participant (in-
cluding any appropriate interest or actu-
arial increase) with respect to benefits that
had accrued as of the applicable amend-
ment date for the original amendment. For
purposes of this section 3.03, an affected
plan participant means (a) a participant
who commenced receipt of benefits and
whose benefits were suspended on account
of the original amendment or (b) a partic-
ipant who applied to commence benefits,
whose application (including the form of
payment) was approved, and whose bene-
fits were suspended before payments com-
menced.
(2)Effective date for retroactive pay-
ment of benefits for affected participants.
The plan must provide for the payment
of retroactive benefits described in sec-
tion 3.03(1) effective not later than Jan-
uary 1, 2006. The plan must be in op-
erational compliance with the reforming
amendment by January 1, 2006, with re-
spect to benefits payable through Decem-
ber 31, 2005, and must maintain compli-
ance for all periods on or after that date.
.04Option to commence payment.(1)
In general. In order for a plan to obtain the
treatment provided in section 3.01, a par-
ticipant described in section 3.04(2) must
be given an opportunity to elect retroac-
tively the commencement of payment of
benefits as of the first date on which (a)
the reforming amendment is made effec-
tive and (b) the participant was eligible
May 2, 20059922005–18 I.R.B.

to commence receipt of benefits. See
§ 1.417(e)–1 for rules relating to retroac-
tive annuity starting dates.
(2)Eligibility for option. A participant
who is eligible for the option described in
section 3.04(1) is one who —
(a) at any time after the applicable
amendment date of the original amend-
ment, was eligible to commence the receipt
of benefits under the plan, determined
without regard to the suspension of benefit
provisions of the original amendment,
(b) at the same time, engaged in sec-
tion 203(a)(3)(B) service for which ben-
efits were not permitted to commence, as
determined taking into account the origi-
nal amendment, and
(c) is not an affected participant as de-
finedinsection3.03(e.g., is a participant
who did not apply for benefits).
(3)Election period. The election period
for the option set forth in section 3.04(1)
begins within a reasonable time period
after participants described in section
3.04(2) have received notification of the
option in accordance with section 3.04(4)
and ends no sooner than six months after
notification. Reasonable efforts must be
taken to notify all such participants. For
those participants not located after a mail-
ing to the last known address, reasonable
efforts include the use of the Internal Rev-
enue Service Letter Forwarding Program
(see Rev. Proc. 94–22, 1994–1 C.B. 608)
or the Social Security Administration Em-
ployer Reporting Service.
(4)Notification requirement. The plan
must provide notice of the option set forth
in section 3.04(1) to each participant de-
scribedinsection3.04(2). Inadditionto
satisfying any generally applicable notice
requirements, the notice of the option to
commence payment of benefits must be
designed to be readily understandable by
the average plan participant. The notice
must explain the option to commence
retroactive payment of benefits, as de-
scribed in section 3.04(1), and the period
for making the election, as described in
section 3.04(3). The notice must be sent
on or before January 1, 2006.
.05Terminated plans. A plan that was
terminated with a termination date before
June 7, 2004, is not required to adopt a
reforming plan amendment or take the
actions required in sections 3.02 through
3.05 in order to receivethe treatment pro-
videdinsection3.01.
SECTION 4. EFFECT ON
DETERMINATION LETTERS AND
REMEDIAL AMENDMENT PERIOD
For purposes of any previously issued
determination letter and for purposes of
applying the rules in § 401(b), theCentral
Laborers’decision constitutes a change in
law under § 401(a) that is effective on June
7, 2004 (the date of theCentral Laborers’
decision). Thus, if a favorable determi-
nation letter was issued with respect to a
plan amendment that is adversely affected
by theCentral Laborers’decision, the plan
sponsor cannot rely on the determination
letter from and after June 7, 2004.
1
Fur-
ther, a plan provision that is an original
amendment as defined in section 3.01 is
designated under § 1.401(b)–1(b)(3)(i) as
a disqualifying provision resulting from a
change in the qualification requirements
under § 401(a). The last day of the reme-
dial amendment period for this disqualify-
ing provision is the same as the last day of
the EGTRRA remedial amendment period
for the plan.
2
SECTION 5. PROPOSED
REGULATION
The Treasury Department and the Ser-
vice intend to propose regulations that re-
flect the holding inCentral Laborers’.Itis
expected that the proposed regulations will
provide guidance on when an amendment
may add a benefit entitlement condition
that is permitted under the vesting rules
(e.g., a condition described in § 411(a)(3))
with respect to benefits accrued before
the date of the amendment. It is further
expected that, with respect to the types
of benefits protected under § 411(d)(6),
the proposed regulations will provide that
such an amendment is not permitted with
respect to benefits accrued before the ap-
plicable amendment date, but is permitted
to the extent that the amendment applies
with respect to benefits accrued after the
applicable amendment date.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective
April 18, 2005.
SECTION 7. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1938.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this
revenue procedure is in section 3.04(4).
This information is required to notify
certain participants of the opportunity to
elect retroactively the commencement of
benefits. The collection of information is
requiredtoobtainabenefit. Thelikely
respondents are retirement plan sponsors,
administrators, and trustees.
The estimated total annual reporting
and/or recordkeeping burden is 142,500
hours.
The estimated annual burden per re-
spondent/recordkeeper varies from 250
hours to 750 hours, depending on indi-
vidual circumstances, with an estimated
average of 500 hours. The estimated num-
ber of respondents and/or recordkeepers is
285.
The estimated annual frequency of re-
sponses (used for reporting requirements
only) is one.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal authors of this revenue
procedure are Kathleen J. Herrmann and
1
Seesection 21 of Rev. Proc. 2005–6, 2005–1 I.R.B. 200.
2
Pursuant to Notice 2001–42, 2001–2 C.B. 70, the EGTRRA remedial amendment period will not end earlier than December 31, 2005. Announcement 2004–71, 2004–40 I.R.B. 569, includes
a proposed revenue procedure which, if finalized, would extend this remedial amendment period.
2005–18 I.R.B.993May 2, 2005

Diane S. Bloom of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. Ms. Herrmann may be reached at
(202) 283–9888 (not a toll-free number).
May 2, 20059942005–18 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
and Notice of Public Hearing
Classification of Certain
Foreign Entities
REG–148521–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions and notice of public hearing.
SUMMARY: This issue of the Bulletin
contains temporary and final regulations
(T.D. 9197) relating to certain business en-
tities included on the list of foreign busi-
ness entities that are always classified as
corporations for Federal tax purposes. The
text of those temporary regulations also
serves as the text of these proposed regu-
lations. This document also provides a no-
tice of a public hearing on these proposed
regulations.
DATES: Written or electronic comments
must be received by July 13, 2005. Re-
quests to speak and outlines of topics to be
discussed at the public hearing scheduled
for July 27, 2005, must be received by July
6, 2005.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–148521–04),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
also be hand-delivered Monday through
Friday (excluding Federal holidays) be-
tween the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–148521–04),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC or sent electroni-
cally, via either the IRS internet site at
www.irs.gov/regsor the Federal eRule-
making Portal atwww.regulations.gov
(IRS and REG–148521–04). The public
hearing will be held in the Auditorium,
Internal Revenue Building, 1111 Constitu-
tion Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Ronald M. Gootzeit, (202)
622–3860; concerning submissions
of comments or the public hearing,
Jacqueline B. Turner, (202) 622–7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin amend and revise 26 CFR part
301 relating to section 7701 of the Inter-
nal Revenue Code of 1986 (Code). The
temporary regulationsadd certain business
entities to the list of foreign business en-
tities that are always classified as corpo-
rations for Federal tax purposes. The text
of those regulations also serves as the text
of these proposed regulations. The pream-
ble to the temporary regulations explains
both the temporary regulations and these
proposed regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. Also, be-
cause the regulations do not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies) or electronic com-
ments that are submitted timely to the IRS.
The IRS and Treasury Department request
comments on the clarity of the proposed
rules and how they can be made easier to
understand. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled for
July 27, 2005, at 10:00 a.m. in the Au-
ditorium of the Internal Revenue building,
1111 Constitution Avenue, NW, Washing-
ton, DC. Due to building security proce-
dures, visitors must enter at the Consti-
tution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area ear-
lier than 30 minutes prior to the start of
the hearing. For information about hav-
ing your name placed on the building ac-
cess list to attend the hearing, see the “FOR
FURTHER INFORMATION CONTACT”
section of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to this hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments and
an outline of the topics to be discussed and
the time devoted to eachtopic (signed orig-
inal and eight (8) copies) by July 6, 2005.
A period of ten minutes will be allotted
to each person for making comments. An
agenda showing the scheduling of speak-
ers will be prepared after the deadline for
receiving outlines has passed. Copies of
theagendawillbeavailablefreeofcharge
at the hearing.
Proposed Effective Date
Except as otherwise specified, these
regulations are proposed to apply as of
October 7, 2004.
Drafting Information
The principal author of these proposed
regulations is Ronald M. Gootzeit of the
Office of Associate Chief Counsel (Inter-
national). However, other personnel from
the IRS and Treasury Department partici-
pated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301 — PROCEDURE AND
ADMINISTRATION
2005–18 I.R.B.995May 2, 2005

Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7701–2 is amended
by adding paragraphs (b)(8)(vi) and (e)(3)
to read as follows:
§301.7701–2 Business entities;
definitions.
*****
(b) * * *
(8) * * *
(vi) [The text of the proposed amend-
ment adding §301.7701–2(b)(8)(vi)
is the same as the text of
§301.7701–2T(b)(8)(vi) published else-
where in this issue of the Bulletin.]
*****
(e)Effective dates.(1)***
(2) * * *
(3) [The text of the proposed amend-
ment to §301.7701–2(e)(3) is the same as
the text of §301.7701–2T(e)(3) published
elsewhere in this issue of the Bulletin.]
Mark E. Matthews,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on April 13, 2005,
8:45 a.m., and published in the issue of the Federal Register
for April 14, 2005, 70 F.R. 19722)
Regulations Governing
Practice Before the Internal
Revenue Service; Correction
Announcement 2005–31
AGENCY: Office of the Secretary, Trea-
sury.
ACTION: Correcting amendment.
SUMMARY: This document contains cor-
rections to (T.D. 9165, 2005–4 I.R.B. 357),
which were published in theFederal Reg-
isteron Monday, December 20, 2004 (69
FR 75839) revising the regulations gov-
erning practice before the Internal Rev-
enue Service (Circular 230).
DATES: This correction is effective De-
cember 20, 2004.
FOR FURTHER INFORMATION
CONTACT: Heather L. Dostaler at (202)
622–4940 or Brinton T. Warren at (202)
622–7800 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
The final regulations (T.D. 9165) that
are the subject of these corrections are un-
der 31 CFR sections 10.33, 10.35, 10.36,
10.37, 10.38, 10.52 and 10.93.
Need for Correction
As published, T.D. 9165 contains errors
that may prove to be misleading and are in
need of clarification.
*****
Correction of Publication
Accordingly, 31 CFR Part 10 is cor-
rected by making the following correcting
amendments:
PART 10 — PRACTICE BEFORE THE
INTERNAL REVENUE SERVICE
Paragraph 1.The authority citation for
31 CFR, part 10 continues to read in part as
follows:
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. 330; Reorg. Plan
No. 26 of 1950, 15 FR 4935, 64 Stat.
1280, 3 CFR, 1949–1953 Comp., p. 1017.
§10.35 [Corrected]
Par. 2.Section 10.35 is amended by
revising paragraphs (b)(2)(ii)(B) introduc-
tory text and (b)(4)(i) to read as follows:
§10.35 Requirements for covered
opinions.
*****
(b) * * *
(2) * * *(ii) * * *
(A) * * *
(B) Written advice, other than advice
described in paragraph (b)(2)(i)(A) of this
section (concerning listed transactions) or
paragraph (b)(2)(i)(B) of this section (con-
cerning the principalpurpose of avoidance
or evasion) that—
*****
(4)Reliance opinion—(i) Written ad-
vice is areliance opinionif the advice
concludes at a confidence level of at least
more likely than not (a greater than 50 per-
cent likelihood) that one or more signifi-
cant Federal tax issues would be resolved
in the taxpayer’s favor.
*****
Richard S. Carro,
Senior Advisor to the General
Counsel (Regulatory Affairs).
(Filed by the Office of the Federal Register on April 13, 2005,
8:45 a.m., and published in the issue of the Federal Register
for April 14, 2005, 70 F.R. 19892)
May 2, 20059962005–18 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 rul-
ings 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.
2005–18 I.R.B.iMay 2, 2005

Numerical Finding List
1
Bulletins 2005–1 through 2005–18
Announcements:
2005-1, 2005-1 I.R.B.257
2005-2, 2005-2 I.R.B.319
2005-3, 2005-2 I.R.B.270
2005-4, 2005-2 I.R.B.319
2005-5, 2005-3 I.R.B.353
2005-6, 2005-4 I.R.B.377
2005-7, 2005-4 I.R.B.377
2005-8, 2005-4 I.R.B.380
2005-9, 2005-4 I.R.B.380
2005-10, 2005-5 I.R.B.450
2005-11, 2005-5 I.R.B.451
2005-12, 2005-7 I.R.B.555
2005-13, 2005-8 I.R.B.627
2005-14, 2005-9 I.R.B.653
2005-15, 2005-9 I.R.B.654
2005-16, 2005-10 I.R.B.702
2005-17, 2005-10 I.R.B.673
2005-18, 2005-9 I.R.B.660
2005-19, 2005-11 I.R.B.744
2005-20, 2005-12 I.R.B.772
2005-21, 2005-12 I.R.B.776
2005-22, 2005-14 I.R.B.826
2005-23, 2005-14 I.R.B.845
2005-24, 2005-15 I.R.B.889
2005-25, 2005-15 I.R.B.891
2005-26, 2005-17 I.R.B.969
2005-27, 2005-16 I.R.B.918
2005-28, 2005-17 I.R.B.969
2005-29, 2005-17 I.R.B.969
2005-30, 2005-18 I.R.B.988
2005-31, 2005-18 I.R.B.996
Court Decisions:
2080, 2005-15 I.R.B.850
Notices:
2005-1, 2005-2 I.R.B.274
2005-2, 2005-3 I.R.B.337
2005-3, 2005-5 I.R.B.447
2005-4, 2005-2 I.R.B.289
2005-5, 2005-3 I.R.B.337
2005-6, 2005-5 I.R.B.448
2005-7, 2005-3 I.R.B.340
2005-8, 2005-4 I.R.B.368
2005-9, 2005-4 I.R.B.369
2005-10, 2005-6 I.R.B.474
2005-11, 2005-7 I.R.B.493
2005-12, 2005-7 I.R.B.494
2005-13, 2005-9 I.R.B.630
2005-14, 2005-7 I.R.B.498
2005-15, 2005-7 I.R.B.527
Notices— Continued:
2005-16, 2005-8 I.R.B.605
2005-17, 2005-8 I.R.B.606
2005-18, 2005-9 I.R.B.634
2005-19, 2005-9 I.R.B.634
2005-20, 2005-9 I.R.B.635
2005-21, 2005-11 I.R.B.727
2005-22, 2005-12 I.R.B.756
2005-23, 2005-11 I.R.B.732
2005-24, 2005-12 I.R.B.757
2005-25, 2005-14 I.R.B.827
2005-26, 2005-12 I.R.B.758
2005-27, 2005-13 I.R.B.795
2005-28, 2005-13 I.R.B.796
2005-29, 2005-13 I.R.B.796
2005-30, 2005-14 I.R.B.827
2005-31, 2005-14 I.R.B.830
2005-32, 2005-16 I.R.B.895
2005-33, 2005-17 I.R.B.960
2005-34, 2005-17 I.R.B.960
Proposed Regulations:
REG-117969-00, 2005-7 I.R.B.533
REG-125443-01, 2005-16 I.R.B.912
REG-125628-01, 2005-7 I.R.B.536
REG-129709-03, 2005-3 I.R.B.351
REG-148701-03, 2005-13 I.R.B.802
REG-148867-03, 2005-9 I.R.B.646
REG-160315-03, 2005-14 I.R.B.833
REG-163314-03, 2005-14 I.R.B.835
REG-122847-04, 2005-13 I.R.B.804
REG-130370-04, 2005-8 I.R.B.608
REG-130671-04, 2005-10 I.R.B.694
REG-131128-04, 2005-11 I.R.B.733
REG-139683-04, 2005-4 I.R.B.371
REG-147195-04, 2005-15 I.R.B.888
REG-148521-04, 2005-18 I.R.B.995
REG-152354-04, 2005-13 I.R.B.805
REG-152914-04, 2005-9 I.R.B.650
REG-152945-04, 2005-6 I.R.B.484
REG-159824-04, 2005-4 I.R.B.372
Revenue Procedures:
2005-1, 2005-1 I.R.B.1
2005-2, 2005-1 I.R.B.86
2005-3, 2005-1 I.R.B.118
2005-4, 2005-1 I.R.B.128
2005-5, 2005-1 I.R.B.170
2005-6, 2005-1 I.R.B.200
2005-7, 2005-1 I.R.B.240
2005-8, 2005-1 I.R.B.243
2005-9, 2005-2 I.R.B.303
2005-10, 2005-3 I.R.B.341
2005-11, 2005-2 I.R.B.307
2005-12, 2005-2 I.R.B.311
2005-13, 2005-12 I.R.B.759
Revenue Procedures— Continued:
2005-14, 2005-7 I.R.B.528
2005-15, 2005-9 I.R.B.638
2005-16, 2005-10 I.R.B.674
2005-17, 2005-13 I.R.B.797
2005-18, 2005-13 I.R.B.798
2005-19, 2005-14 I.R.B.832
2005-20, 2005-18 I.R.B.990
2005-21, 2005-16 I.R.B.899
2005-22, 2005-15 I.R.B.886
2005-23, 2005-18 I.R.B.991
2005-24, 2005-16 I.R.B.909
2005-25, 2005-17 I.R.B.962
2005-26, 2005-17 I.R.B.965
Revenue Rulings:
2005-1, 2005-2 I.R.B.258
2005-2, 2005-2 I.R.B.259
2005-3, 2005-3 I.R.B.334
2005-4, 2005-4 I.R.B.366
2005-5, 2005-5 I.R.B.445
2005-6, 2005-6 I.R.B.471
2005-7, 2005-6 I.R.B.464
2005-8, 2005-6 I.R.B.466
2005-9, 2005-6 I.R.B.470
2005-10, 2005-7 I.R.B.492
2005-11, 2005-14 I.R.B.816
2005-12, 2005-9 I.R.B.628
2005-13, 2005-10 I.R.B.664
2005-14, 2005-12 I.R.B.749
2005-15, 2005-11 I.R.B.720
2005-16, 2005-13 I.R.B.777
2005-17, 2005-14 I.R.B.823
2005-18, 2005-14 I.R.B.817
2005-19, 2005-14 I.R.B.819
2005-20, 2005-14 I.R.B.821
2005-21, 2005-14 I.R.B.822
2005-22, 2005-13 I.R.B.787
2005-23, 2005-15 I.R.B.864
2005-24, 2005-16 I.R.B.892
2005-25, 2005-18 I.R.B.971
2005-26, 2005-17 I.R.B.957
Tax Conventions:
2005-3, 2005-2 I.R.B.270
2005-17, 2005-10 I.R.B.673
2005-22, 2005-14 I.R.B.826
2005-30, 2005-18 I.R.B.988
Treasury Decisions:
9164, 2005-3 I.R.B.320
9165, 2005-4 I.R.B.357
9166, 2005-8 I.R.B.558
9167, 2005-2 I.R.B.261
9168, 2005-4 I.R.B.354
9169, 2005-5 I.R.B.381
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2004–27 through 2004–52 is in Internal Revenue Bulletin
2004–52, dated December 27, 2004.
May 2, 2005ii2005–18 I.R.B.

Treasury Decisions— Continued:
9170, 2005-4 I.R.B.363
9171, 2005-6 I.R.B.452
9172, 2005-6 I.R.B.468
9173, 2005-8 I.R.B.557
9174, 2005-9 I.R.B.629
9175, 2005-10 I.R.B.665
9176, 2005-10 I.R.B.661
9177, 2005-10 I.R.B.671
9178, 2005-11 I.R.B.708
9179, 2005-11 I.R.B.707
9180, 2005-11 I.R.B.714
9181, 2005-11 I.R.B.717
9182, 2005-11 I.R.B.713
9183, 2005-12 I.R.B.754
9184, 2005-12 I.R.B.753
9185, 2005-12 I.R.B.749
9186, 2005-13 I.R.B.790
9187, 2005-13 I.R.B.778
9188, 2005-15 I.R.B.883
9189, 2005-13 I.R.B.788
9190, 2005-15 I.R.B.855
9191, 2005-15 I.R.B.854
9192, 2005-15 I.R.B.866
9193, 2005-15 I.R.B.862
9195, 2005-17 I.R.B.958
9197, 2005-18 I.R.B.985
9198, 2005-18 I.R.B.972
2005–18 I.R.B.iiiMay 2, 2005

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2005–1 through 2005–18
Announcements:
2001-77
Modified by
Rev. Proc. 2005-16, 2005-10 I.R.B.674
Notices:
88-30
Obsoleted by
Notice 2005-4, 2005-2 I.R.B.289
88-132
Obsoleted by
Notice 2005-4, 2005-2 I.R.B.289
89-29
Obsoleted by
Notice 2005-4, 2005-2 I.R.B.289
89-38
Obsoleted by
Notice 2005-4, 2005-2 I.R.B.289
2002-45
Amplified by
Rev. Rul. 2005-24, 2005-16 I.R.B.892
2004-22
Modified and superseded by
Notice 2005-30, 2005-14 I.R.B.827
2004-38
Obsoleted by
T.D. 9186, 2005-13 I.R.B.790
2004-80
Clarified and modified by
Notice 2005-22, 2005-12 I.R.B.756
Updated by
Notice 2005-17, 2005-8 I.R.B.606
2005-4
Modified by
Notice 2005-24, 2005-12 I.R.B.757
2005-17
Clarified and modified by
Notice 2005-22, 2005-12 I.R.B.756
Proposed Regulations:
REG-149519-03
Corrected by
Ann. 2005-11, 2005-5 I.R.B.451
REG-114726-04
Corrected by
Ann. 2005-10, 2005-5 I.R.B.450
Revenue Procedures:
84-58
Superseded by
Rev. Proc. 2005-18, 2005-13 I.R.B.798
98-16
Modified and superseded by
Rev. Proc. 2005-11, 2005-2 I.R.B.307
2000-20
Modified and superseded by
Rev. Proc. 2005-16, 2005-10 I.R.B.674
2001-22
Superseded by
Rev. Proc. 2005-12, 2005-2 I.R.B.311
2002-9
Modified and amplified by
Rev. Proc. 2005-9, 2005-2 I.R.B.303
2003-32
Amplified and superseded by
Rev. Proc. 2005-20, 2005-18 I.R.B.990
2004-1
Superseded by
Rev. Proc. 2005-1, 2005-1 I.R.B.1
2004-2
Superseded by
Rev. Proc. 2005-2, 2005-1 I.R.B.86
2004-3
Superseded by
Rev. Proc. 2005-3, 2005-1 I.R.B.118
2004-4
Superseded by
Rev. Proc. 2005-4, 2005-1 I.R.B.128
2004-5
Superseded by
Rev. Proc. 2005-5, 2005-1 I.R.B.170
2004-6
Superseded by
Rev. Proc. 2005-6, 2005-1 I.R.B.200
2004-7
Superseded by
Rev. Proc. 2005-7, 2005-1 I.R.B.240
2004-8
Superseded by
Rev. Proc. 2005-8, 2005-1 I.R.B.243
2004-16
Modified and superseded by
Rev. Proc. 2005-25, 2005-17 I.R.B.962
2004-18
Obsoleted in part by
Rev. Proc. 2005-15, 2005-9 I.R.B.638
Revenue Procedures— Continued:
2004-24
Obsoleted by
Rev. Proc. 2005-22, 2005-15 I.R.B.886
2004-35
Corrected by
Ann. 2005-4, 2005-2 I.R.B.319
2004-60
Superseded by
Rev. Proc. 2005-10, 2005-3 I.R.B.341
2005-6
Modified by
Rev. Proc. 2005-16, 2005-10 I.R.B.674
2005-8
Modified by
Rev. Proc. 2005-16, 2005-10 I.R.B.674
2005-9
Modified by
Rev. Proc. 2005-17, 2005-13 I.R.B.797
Revenue Rulings:
69-516
Obsoleted by
T.D. 9182, 2005-11 I.R.B.713
77-415
Obsoleted by
T.D. 9182, 2005-11 I.R.B.713
77-479
Obsoleted by
T.D. 9182, 2005-11 I.R.B.713
82-34
Obsoleted by
T.D. 9182, 2005-11 I.R.B.713
92-63
Modified and superseded by
Rev. Rul. 2005-3, 2005-3 I.R.B.334
95-63
Modified and superseded by
Rev. Rul. 2005-3, 2005-3 I.R.B.334
2004-43
Revoked by
Rev. Rul. 2005-10, 2005-7 I.R.B.492
2004-103
Superseded by
Rev. Rul. 2005-3, 2005-3 I.R.B.334
Treasury Decisions:
8408
Corrected by
Ann. 2005-28, 2005-17 I.R.B.969
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2004–27 through 2004–52 is in Internal Revenue Bulletin 2004–52, dated December 27,
2004.
May 2, 2005iv2005–18 I.R.B.

Treasury Decisions— Continued:
9130
Corrected by
Ann. 2005-29, 2005-17 I.R.B.969
9165
Corrected by
Ann. 2005-31, 2005-18 I.R.B.996
9170
Corrected by
Ann. 2005-13, 2005-8 I.R.B.627
9187
Corrected by
Ann. 2005-25, 2005-15 I.R.B.891
2005–18 I.R.B.vMay 2, 2005

May 2, 20052005–18 I.R.B.

2005–18 I.R.B.May 2, 2005

May 2, 20052005–18 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Under information for: select Businesses. Under
related topics, select More Topics. Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to
six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BUL
LETIN
If you have c
omments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,
we would be p
leased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.g
ov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224
Internal Revenue Service
W
ashington,DC20224
Official B
usiness
Penalty for
Private Use, $300