Internal Revenue Bulletin 2025-35 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 2025–35
August 25, 2025
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.
EMPLOYMENT TAX
REG-132805-17, page 343.
These proposed regulations would provide guidance regard-
ing determining an employer’s line or lines of business for
purposes of the section 132 exclusions from gross income
for no-additional-cost services fringe benefits and qualified
employee discounts fringe benefits.
ESTATE TAX
Rev. Rul. 2025-16, page 342.
The 2025 interest rates to be used in computing the spe-
cial use value of farm real property for which an election
is made under section 2032A of the Code are listed for
estate of decedents.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
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,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management 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 rul-
ings 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.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal 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,
Legislation 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
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and 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 contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
August 25, 2025 Bulletin No. 2025–35

Part I
Section 2032A.—Valuation
of Certain Farm, Etc.,
Real Property
26 CFR 20.2032A-4: Method of valuing farm real
property.
Rev. Rul. 2025-16
This revenue ruling contains a list of
the average annual effective interest rates
on new loans under the Farm Credit Sys-
tem. This revenue ruling also contains a
list of the states within each Farm Credit
System Bank Territory.
Under § 2032A(e)(7)(A)(ii) of the
Internal Revenue Code, rates on new
Farm Credit System Bank loans are
used in computing the special use
value of real property used as a farm
for which an election is made under
§ 2032A. The rates in Table 1 of this
revenue ruling may be used by estates
that value farmland under § 2032A as
of a date in 2025.
Average annual effective interest
rates, calculated in accordance with
§ 2032A(e)(7)(A) and § 20.2032A-4(e)
of the Estate Tax Regulations, to be used
under § 2032A(e)(7)(A)(ii), are set forth
in the accompanying Table of Interest
Rates (Table 1). The states within each
Farm Credit System Bank Territory are
set forth in the accompanying Table of
Farm Credit System Bank Territories
(Table 2).
Rev. Rul. 81-170, 1981-1 C.B. 454,
contains an illustrative computation of
an average annual effective interest rate.
The rates applicable for valuation in 2024
are in Rev. Rul. 2024-16, 2024-35 I.R.B.
534. For rate information for years prior
to 2024, see Rev. Rul. 2023-15, 2023-34
I.R.B. 559, and other revenue rulings that
are referenced therein.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Lane Damazo of the Office of the
Associate Chief Counsel (Passthroughs,
Trusts, and Estates). For further informa-
tion regarding this revenue ruling, contact
Lane Damazo at (202) 317-4628 (not a
toll-free number).
REV. RUL. 2025-16 TABLE 1
TABLE OF INTEREST RATES
(Year of Valuation 2025)
Farm Credit System Bank Servicing State in
Which Property is Located Rate
AgFirst, FCB . . . . . . . . . . . . . . . . . . . . . . . . . 6.25
AgriBank, FCB . . . . . . . . . . . . . . . . . . . . . . . . 5.80
CoBank, ACB . . . . . . . . . . . . . . . . . . . . . . . . . 5.78
Texas, FCB. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.21
REV. RUL. 2025-16 TABLE 2
TABLE OF FARM CREDIT SYSTEM BANK TERRITORIES
Farm Credit System Bank . . . Location of Property
AgFirst, FCB. . . . . . . . . . Delaware, District of Columbia, Florida, Georgia,
Maryland, North Carolina, Pennsylvania, South Carolina,
Virginia, West Virginia.
AgriBank, FCB . . . . . . . . Arkansas, Illinois, Indiana, Iowa, Kentucky, Michigan,
Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, Tennessee, Wisconsin, Wyoming.
CoBank, ACB . . . . . . . . . Alaska, Arizona, California, Colorado, Connecticut,
Hawaii, Idaho, Kansas, Maine, Massachusetts, Montana,
New Hampshire, New Jersey, New Mexico, New York,
Nevada, Oklahoma, Oregon, Rhode Island, Utah,
Vermont, Washington.
Texas, FCB. . . . . . . . . . . Alabama, Louisiana, Mississippi, Texas.
August 25, 2025 342 Bulletin No. 2025–35

Part IV
Notice of Proposed
Rulemaking
Determination of Line of
Business for Purposes of
No-Additional-Cost Service
and Qualified Employee
Discount Fringe Benefits.
REG-132805-17
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations that would provide guid-
ance regarding an employer’s line or lines
of business for purposes of determining the
exclusion from gross income for no-addi-
tional-cost services or qualified employee
discounts provided to employees.
DATES: Written or electronic comments
and requests for a public hearing must be
received by November 4, 2025.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically via Federal eRulemaking
Portal at https://www.regulations.gov
(indicate IRS and REG-132805-17) by
following the online instructions for sub-
mitting comments. Requests for a public
hearing must be submitted as prescribed
in the “Comments and Requests for a
Public Hearing” section. Once submitted
to the Federal eRulemaking Portal, com-
ments cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comments submit-
ted to the IRS’s public docket. Send paper
submissions to: CC:PA:01:PR (REG-
132805-17), Room 5203, Internal Reve-
nue Service, P.O. Box 7604, Ben Franklin
Station, Washington DC, 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Andrew Holubeck at (202)
317-4774; concerning submissions of
comments and/or requests for a public
hearing, Publications and Regulations
Section at (202) 317-6901 (not toll-free
numbers) or by email to publichearings@
irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemaking
contains proposed regulations that would
amend the Income Tax Regulations (26
CFR part 1) under section 132(a) of the
Internal Revenue Code (Code) related
to no-additional-cost services and qual-
ified employee discounts. The proposed
regulations are issued under the author-
ity conferred by Section 132(o), which
provides the Secretary or his delegate
(Secretary) with an express grant of reg-
ulatory authority to prescribe such regu-
lations as may be necessary or appropri-
ate to carry out the purposes of section
132. The proposed regulations are also
issued under the authority of section
7805(a) of the Code, which authorizes
the Secretary to prescribe all needful
rules and regulations for the enforce-
ment of the Code.
These proposed regulations would
replace a business classification system
that has not been updated since 1974 with
a much more current classification system
that is updated every five years. Under
these proposed regulations, the appli-
cation of the no-additional-cost benefit
and employee discount exclusions from
employee income under section 132(a)
(1) and (2) would be determined under a
classification system that more accurately
reflects current economic activity than the
system used under the existing regula-
tions, thereby reducing burden in applying
the exclusions from income under section
132(a)(1) and (2).
Background
Section 132(a)(1) and (2) exclude from
the gross income of an individual any
fringe benefit that qualifies as a no-addi-
tional-cost service or a qualified employee
discount, respectively. Section 132(b)
defines the term “no-additional-cost ser-
vice,” in part, as any service provided by an
employer to an employee for use by such
employee if such service is offered for sale
to customers in the ordinary course of the
line of business of the employer in which
the employee is performing services.
Section 132(c)(1) defines the term “qual-
ified employee discount,” in part, as any
employee discount with respect to quali-
fied property or services. Section 132(c)
(4) defines the term “qualified property or
services” as any property (other than real
property and other than personal property
of a kind held for investment) or services
that are offered for sale to customers in
the ordinary course of the line of business
of the employer in which the employee is
performing services.
Section 1.132-4(a)(1) provides that,
for purposes of determining whether the
exclusion under section 132(a)(1) or (2)
applies, an individual to whom or on
behalf of whom the fringe benefit is pro-
vided must have performed substantial
services in the employer’s line of business
that offers such services or property for
sale to customers in the ordinary course of
business.
Section 1.132-4(a)(2)(i) states that an
employer’s line of business is determined
by reference to the Enterprise Standard
Industrial Classification Manual (ESIC
Manual) prepared by the Statistical Pol-
icy Division of the U.S. Office of Man-
agement and Budget (OMB) and further
provides that an employer is considered
to have more than one line of business if
the employer offers for sale to custom-
ers property or services in more than one
two-digit code classification referred to in
the ESIC Manual. Section 1.132-4(a)(2)
(ii) lists as examples of two-digit classi-
fications under the ESIC Manual general
retail merchandise stores; hotels and other
lodging places; auto repair, services, and
garages; and food stores.
Section 1.132-4(a)(3) provides that, if
pursuant to § 1.132-4(a)(2), an employer
has more than a single line of business,
such lines of business will be treated as
a single line of business where and to the
Bulletin No. 2025–35 343 August 25, 2025

August 25, 2025 344 Bulletin No. 2025–35
extent that one or more of the following
aggregation rules apply:
(i) If it is uncommon in the industry of
the employer for any of the separate
lines of business of the employer to
be operated without the others, the
separate lines of business are treated
as one line of business.
(ii) If it is common for a substantial
number of employees (other than
those employees who work at the
headquarters or main office of the
employer) to perform substantial
services for more than one line of
business of the employer, so that
determination of which employees
perform substantial services for
which line of business would be
difficult, then the separate lines of
business of the employer in which
such employees perform substantial
services are treated as one line of
business.
(iii) If the retail operations of an
employer that are located on the
same premises are in separate lines
of business but would be considered
to be within one line of business
under § 1.132-4(a)(2) if the mer-
chandise offered for sale in such
lines of business were offered for
sale at a department store, then the
operations are treated as one line of
business.
Section 132 (including section 132(a)
(1) and (2)), was added to the Code as part
of the Deficit Reduction Act of 1984, Pub-
lic Law 98-369, 98 Stat. 494. Concerning
the line of business limitation that applies
to the no-additional-cost service and qual-
ified employee discount exclusions in
section 132(a), the House Report on this
legislation noted that “[i]n providing guid-
ance as to the treatment of an employer as
consisting of separate lines of business
for this purpose, Treasury regulations...
may refer to the Standard Industrial Clas-
sifications used for other governmental
purposes.” H. Rept. 98-432, 1594, 1984
U.S.C.C.A.N. 697, 1218.
First used in 1938, the Standard Indus-
trial Classification (SIC) is an industry
classification system developed by OMB
for use in the classification of establish-
ments by type of activity in which the
establishments are primarily engaged. See
North American Industry Classification
System (NAICS), United States, 2022,
published by OMB, Executive Office of
the President (hereinafter referred to as the
“NAICS Manual”), pg. 13.
1
For purposes
of the SIC, an establishment is an eco-
nomic unit, generally at a single physical
location, where business is conducted or
where services or industrial operations are
performed (such as a factory, mill, store,
hotel, movie theater, mine, farm, ranch,
bank, railroad depot, airline terminal,
sales office, warehouse, or central admin-
istrative office). See Standard Industrial
Classification Manual, 1987, published
by OMB, Executive Office of the Presi-
dent (hereinafter referred to as the “SIC
Manual”), Introduction, pg. 12.
2
The SIC
is a hierarchical classification system that
includes a two-digit major group, a three-
digit industry group, or a four-digit indus-
try code (the most specific classification).
Id. Examples of four-digit industry code
SIC classifications include metal mining,
general building contractors – non-resi-
dential buildings, and knitting mills.
The ESIC Manual was developed by
the Statistical Policy Division of OMB to
supplement the SIC by providing a stan-
dard for use with statistics about enter-
prises (rather than “establishments,” the
applicable unit for SIC) by kind of eco-
nomic activity. See Announcement 86-6
(1986-4 IRB 52). For this purpose, the
term “enterprise” consists of all establish-
ments under common direct or indirect
ownership. An enterprise, for this pur-
pose, is generally defined to include all
entities, including subsidiaries, if there is
more than 50 percent common ownership.
An enterprise may vary in composition
ranging from a single legal entity (e.g.,
corporation, partnership, individual pro-
prietorship) to a complex family of legal
entities under common ownership. Id.
Just like the SIC, the ESIC Manual uses
a four-digit code for detailed classification
(with a decimal between the second and
third digits to visually distinguish an ESIC
Manual classification from a SIC classifi-
cation). Id. “The first two digits of the
code represent the Major Group, similar
to that for the establishment SIC,” while
“the third and fourth digits represent the
enterprise subdivision.” ESIC Manual
codes are similar, and sometimes identical
to, SIC codes, but they aren’t necessarily
defined in the same way. The last update
of the ESIC Manual was in 1974.
In response to the House Report sug-
gestion that the SIC could be used as a
reference for determining line of business,
Treasury and the IRS elected to use the
ESIC Manual, a supplement to the SIC
as described above, as a basis for defining
line of business for purposes of section
132(a)(1) and (2) when they issued final
regulations under section 132 in the Fed-
eral Register in 1989 (54 FR 28576). In
the early 1990s, “[r]apid changes in both
the U.S. and world economies brought
the SIC under increasing criticism.” See
NAICS Manual, Introduction, pg. 13. In
1992, the OMB began work on develop-
ing a new classification system to address
these criticisms and coordinated this work
with Mexico and Canada. Id. The product
of these efforts was the NAICS, which
would take the place of the existing classi-
fication systems in the United States, Can-
ada, and Mexico. Id. The United States
implemented NAICS for the first time
in 1997. Since then, the NAICS has rep-
resented a continuing cooperative effort
among Statistics Canada, Mexico’s Insti-
tuto Nacional de Estadística y Geografía
(INEGI), and the Economic Classification
Policy Committee (ECPC) of the United
States, acting on behalf of OMB. See
NAICS Manual, Preface, pg. 3. Since its
inception, the countries have collaborated
in revising the NAICS every five years
in order to keep the classification system
current with changes in economic activ-
ities. See 2022 NAICS Manual, Preface,
pg. 3.
The NAICS is primarily a classifica-
tion system for establishments, defined
for this purpose as the “smallest operating
entity for which records provide informa-
tion on the cost of resources—materials,
labor, and capital—employed to produce
the units of output.” See NAICS Manual,
1
To access the 2022 NAICS Manual and other NAICS information, visit the U.S. Census website at https://www.census.gov/NAICS.
2
To access the 1987 SIC Manual and other SIC information, visit the Library of Congress website at https://guides.loc.gov/industry-research/classification-sic.

Bulletin No. 2025–35 345 August 25, 2025
Introduction, pg. 18. Similar to the SIC,
an establishment for purposes of NAICS
is typically “a single physical location
where business is conducted or where
services or industrial operations are per-
formed (for example, a factory, mill, store,
hotel, movie theater, mine, farm, airline
terminal, sales office, warehouse, or cen-
tral administrative office).” Id.
The structure of the NAICS is hierarchi-
cal. It classifies establishments into similar
industries using a six-digit coding system.
Id. The first two digits of the code desig-
nate the sector of an establishment, which
represents general categories of economic
activity (e.g., under the 2022 classification,
sector codes 44 and 45 designate “Retail
Trade”). Id. at pg. 17. The third digit des-
ignates the subsector (e.g., 449 designates
the “Furniture, Home Furnishings, Elec-
tronics, and Appliance Retailers” subsector
of “Retail Trade”); the fourth digit desig-
nates the industry group (e.g., 4491 desig-
nates the “Furniture and Home Furnishings
Retailers” industry group in the “Furniture,
Home Furnishings, Electronics, and Appli-
ance Retailers” subsector); and the fifth
digit designates the NAICS industry (e.g.,
44912 designates the “Home Furnishings
Retailers” industry of the “Furniture and
Home Furnishings Retailers” industry
group). Id. at pg. 18.
Any particular establishment is usually
classified down to the NAICS five-digit
industry level classification, using the clas-
sification of the industry that best matches
its primary activity. Id. at pg. 19. When
applicable, the sixth digit is used to desig-
nate the national industry (e.g., 449122 des-
ignates the “Window Treatment Retailers”
industry). Id. at pg. 18. “Typically the level
at which comparable data will be avail-
able for Canada, Mexico, and the United
States is the five-digit NAICS industry,”
but where additional detail or clarifying
classification is needed for a specific nation
(Canada, Mexico, or the United States) the
national industry classification can be used.
Id. A zero as the sixth digit generally indi-
cates that the NAICS industry and the U.S.
industry are the same. Id.
Table I below provides a breakdown
of the NAICS classification for a window
treatment retail establishment.
Table I. NAICS Classification of Window Treatment Stores
Hierarchical ClassificationDescriptionCode
SectorRetail Trade44
SubsectorFurniture, Home Furnishings, Electronics, and Appliance Retailers449
Industry GroupFurniture and Home Furnishings Retailers4491
NAICS IndustryFurniture and Home Furnishings Retailers44912
National IndustryWindow Treatment Retailers449122
The NAICS is used by the IRS for var-
ious purposes under the Code. See, e.g.,
Instructions for Form 1120, U.S. Corpora-
tion Income Tax Return (which asks that
a “principal business activity code” based
on the NAICS six-digit code be entered
on line 2a on Schedule K of Form 1120);
Instructions for Schedule C (Form 1040),
Profit or Loss From Business (which
requires that a six-digit Principal Business
or Professional Activity Code based on the
NAICS be entered on Line B); and section
15.10 of Rev. Proc. 2025-23 (2025 IRB
1476) (which uses the first three digits of
NAICS codes in defining which taxpayers
qualify as “specified transportation indus-
try taxpayers” for purposes of accounting
method change rules that apply specifi-
cally to specified transportation industry
taxpayers).
Explanation of Provisions
These proposed regulations would
replace the ESIC Manual with the NAICS
as the industry classification system
used to determine an employer’s line
of business for purposes of excluding
no-additional-cost services and qualified
employee discounts from employees’
gross income pursuant to section 132(a)
(1) and (2) of the Code, respectively. The
ESIC Manual has not been updated since
1974. Conversely, the NAICS was most
recently updated in 2022, and is the most
current classification system in the United
States, making it a more accurate and
detailed reflection of present economic
realities.
In addition, because significant
changes and advances in technology
have occurred since 1974, many current
industries are not accounted for in the
ESIC Manual because they did not exist
at the time it was last updated. Examples
include internet service providers, cell
phone manufacturers, cell phone service
providers, and smart phone application
designers. The NAICS, on the other
hand, is updated regularly to take into
account new and developing industries.
For instance, the 2022 NAICS specifi-
cally describes broadband internet ser-
vice providers as falling under the four-
digit category of Wired and Wireless
Telecommunications (except Satellite)
(5171). Under the ESIC Manual, this
line of business could be considered
under the two-digit code “Communi-
cation” (48), but none of the sub-cate-
gories in the Communication category
include the broadband internet service
provider industry, making determina-
tion of the appropriate ESIC Manual
category for broadband internet service
providers unclear. Replacing the ESIC
Manual with the NAICS as the industry
classification system used to determine
an employer’s line of business will make
determining the line of business for new
and constantly evolving industries eas-
ier and more certain.
While the numeric NAICS and SIC
codes are not related to each other, their
organizational structures have some sim-

August 25, 2025 346 Bulletin No. 2025–35
ilarities.
3
SIC codes (as well as ESIC
Manual codes) are grouped into “divi-
sions” that are labeled with a letter (e.g.,
Division A is “Agriculture, Forestry, and
Fishing”).
4
This roughly corresponds with
the NAICS two-digit “Sector” level of
classification (e.g., the NAICS Sector 11
is Agriculture, Forestry, Fishing and Hunt-
ing”).
5
Continuing down the classification
levels of both systems, the SIC two-digit
“Major Group” level roughly corre-
sponds to the NAICS three-digit “Subsec-
tor” level, the SIC three-digit “Industry
Group” level roughly corresponds to the
NAICS four-digit “Industry Group” level,
and the four-digit SIC “Industry” level
roughly corresponds with the NAICS five-
digit “NAICS Industry” level.
6

Because the ESIC Manual is structured
very similarly to the SIC codes, the com-
parison between ESIC Manual codes and
NAICS codes largely parallels the com-
parison between SIC Codes and NAICS
codes. Therefore, the NAICS three-digit
“Subsector” level would roughly corre-
spond with the ESIC Manual two-digit
“Major Group” level used to determine line
of business under the current § 1.132-4(a)
(2)(i) regulations. However, the five-digit
NAICS industry classification is intended
to be applied to the primary activity of a
single-location establishment, making it a
more appropriate level for determining the
line of business of an employer for whom
the employee receiving the fringe benefit
is performing services, since an employee
typically performs services at a single
location or establishment. Nevertheless,
to account for the fact that some estab-
lishments may represent more than one
NAICS industry, making determination of
the most accurate NAICS industry classi-
fication challenging in certain situations,
these proposed regulations would use the
NAICS four-digit “Industry Group” clas-
sification in determining an employer’s
line of business for purposes of section
132(a)(1) and (2).
An employer is considered to have
more than one line of business if the
employer offers for sale to customers
property or services in more than one
four-digit NAICS industry group clas-
sification, according to the most recent
version of the NAICS available on the
first day of the taxable year in which the
no-additional-cost service or qualified
employee discount exclusion is being
applied. Examples of four-digit NAICS
industry groups are: General Merchandise
Stores, including Warehouse Clubs and
Supercenters; Traveler Accommodation;
Automotive Repair and Maintenance; and
Grocery Stores.
In situations where an employer has
multiple primary activities correspond-
ing to multiple four-digit NAICS industry
group classifications causing it to have
more than one line of business, the aggre-
gation rules under § 1.132-4(a)(3) con-
tinue to apply under these proposed reg-
ulations. Minor modifications to the text
of the aggregation rules under § 1.132-
4(a)(3)(i) and (ii) have been proposed to
accommodate the change from the ESIC
Manual to the NAICS.
In addition, the proposed regulations
would amend the aggregation rule under
§ 1.132-4(a)(3)(iii). Currently, this section
provides that if the retail operations of
an employer that are located on the same
premises are in separate lines of business
but would be considered to be within
one line of business if the merchandise
offered for sale in such lines of business
were offered for sale at a department store,
then the operations are treated as one line
of business. The proposed regulations
would amend this rule to replace “depart-
ment store” with “general merchandise
store, including warehouse clubs and
super centers.” This update of the regu-
lations reflects the pervasiveness of big-
box stores, hypermarkets, super centers,
and warehouse clubs in the current retail
economy, especially in comparison to the
traditional department store. These types
of establishments sell an ever-increasing
variety of merchandise but are still clas-
sified under one NAICS industry group
(4552, Warehouse Clubs, Supercenters,
and Other General Merchandise Retail-
ers, under the 2022 NAICS). Therefore,
under the proposed regulations, employ-
ees working for these types of employers
would be considered to be working in one
line of business. The proposed amend-
ment to this section provides equal treat-
ment for employees working for other
types of employers that similarly sell a
variety of kinds of merchandise on their
business premises, but the variety is more
narrowly tailored to cater to a specific
segment of the retail market (e.g., a store
that primarily sells coffee and tea, but
that also sells electric coffeemakers, elec-
tric tea kettles, and similar related small
home appliances). Under the proposed
amendment, employees working for such
employers would still be considered to be
working in one line of business, even if
the sale of the various merchandise sold
by the employer is classified under two or
more NAICS industry groups (e.g., spe-
cialty food retailers and electronics and
appliance retailers), as long as the sale of
the merchandise would be considered to
be one line of business if the merchandise
was being sold at a general merchandise
store, warehouse club, or super center.
Finally, the proposed regulations pro-
vide updated examples of the application
of the aggregation rules reflecting the use
of NAICS classifications.
The Treasury Department and the IRS
request comments on all aspects of the
proposed rules, including on the use of the
NAICS four-digit industry group code,
whether additional changes are necessary
to the aggregation rules under § 1.132-4(a)
(3), whether the proposed applicabil-
ity date could pose any challenges, and
whether transition or other rules are nec-
essary to accommodate the change in the
standard for determining lines of business.
Proposed Effective/Applicability Dates
These regulations are proposed to be
effective on the date these rules are pub-
lished in the Federal Register as final
regulations and would apply to taxable
years beginning on or after that date.
3
U.S. Bureau of Labor Statistics website titled “Industrial Classification Overview” accessed at https://www.bls.gov/ces/naics/#2 on March 20, 2024.
4
Id.
5
Id.
6
Id.

Bulletin No. 2025–35 347 August 25, 2025
Statement of Availability of IRS
Documents
IRS guidance cited in this preamble is
published in the Internal Revenue Bulletin
and is available from the Superintendent
of Documents, U.S. Government Publish-
ing Office, Washington, DC 20402, or by
visiting the IRS website at https://www.
irs.gov.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
The Office of Management and Bud-
get’s Office of Information and Regulatory
Analysis has determined that these regu-
lations are not significant and not subject
to review under section 6(b) of Executive
Order 12866, as amended.
II. Paperwork Reduction Act
These proposed regulations do not
create new collection requirements, as
defined under the Paperwork Reduction
Act (44 USC 35), and do not alter any pre-
viously approved OMB information col-
lection requirements and their associated
burden.
III. Regulatory Flexibility Act
It is hereby certified that these proposed
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6). This
certification is based on the fact that these
proposed regulations do not impose any
new requirements on small entities. The
proposed regulations would apply only to
employers that provide no-additional-cost
services and/or qualified employee dis-
count fringe benefits to their employees
and, therefore, would affect a relatively
small number of taxpayers. In addi-
tion, these proposed regulations are very
unlikely to affect employment tax report-
ing or require any additional substanti-
ation. Rather, the proposed regulations
affect the industry classification system
used to determine an employer’s line of
business for purposes of the exclusions
from gross income under section 132(a)
(1) and (2) and for this reason do not add
any economic burden to affected entities.
Therefore, a Regulatory Flexibility Analy-
sis under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required.
Notwithstanding this certification that
the proposed regulations would not have a
significant economic impact on a substan-
tial number of small entities, the Treasury
Department and the IRS invite comments
on the impacts these proposed regulations
may have on small entities.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Code, these proposed regulations will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a State, local, or Tribal gov-
ernment, in the aggregate, or by the pri-
vate sector, of $100 million in 1995 dol-
lars, updated annually for inflation. These
proposed regulations do not include any
Federal mandate that may result in expen-
ditures by State, local, or Tribal govern-
ments, or by the private sector, in excess
of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. These proposed regulations
do not have federalism implications, do
not impose substantial direct compliance
costs on State and local governments, and
do not preempt State law within the mean-
ing of the Executive order.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are sub-
mitted timely to the IRS as prescribed in this
preamble under the ADDRESSES head-
ing. The Treasury Department and the IRS
request comments on all aspects of the pro-
posed regulations. Any comments submitted
will be available at https://www.regulations.
gov or upon request. A public hearing will be
scheduled if requested in writing by any per-
son who timely submits electronic or written
comments. Requests for a public hearing are
also encouraged to be made electronically. If
a public hearing is scheduled, notice of the
date and time for the public hearing will be
published in the Federal Register.
Drafting Information
The principal author of these regulations
is Andrew Holubeck of the Office of the
Associate Chief Counsel (Employee Ben-
efits, Exempt Organizations, and Employ-
ment Taxes). However, other personnel
from the IRS and the Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and IRS propose to amend 26 CFR part 1
as follows:
PART 1-INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by revising an entry for
§§ 1.132–0 through 1.132–8T in numeri-
cal order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Sections 1.132-0 through 1.132-8T also
issued under 26 U.S.C. 132(o).
* * * * *
Par 2. Section 1.132-4 is amended by
revising paragraphs (a)(2) and (3) and
adding paragraph (a)(4) to read as follows:

August 25, 2025 348 Bulletin No. 2025–35
§ 1.132-4 Line of business limitation.
(a) * * *
(2) Definition of line of business—(i)
In general. An employer’s line of business
is determined by reference to the most
recent version of the North American
Industry Classification System (NAICS),
as prepared by Statistics Canada, Mex-
ico’s Instituto Nacional de Estadística y
Geografía, and the Economic Classifi-
cation Policy Committee of the United
States, acting on behalf of the Office of
Management and Budget (OMB) (or
successor organizations), that is avail-
able on the first day of the taxable year
in which the no-additional-cost service or
qualified employee discount exclusion is
being applied. An employer is considered
to have more than one line of business if
the employer offers for sale to customers
goods or services in more than one four-
digit code classification referred to in the
NAICS (i.e., NAICS industry group).
(ii) Examples. Examples of the four-
digit industry group classifications are:
General Merchandise Stores, including
Warehouse Clubs and Supercenters; Trav-
eler Accommodation; Automotive Repair
and Maintenance; and Grocery Stores.
(3) Aggregation of four-digit classifi-
cations. If, pursuant to paragraph (a)(2)
of this section, an employer has more
than one line of business, such lines of
business will be treated as a single line
of business where and to the extent that
one or more of the following aggregation
rules apply:
(i) If it is uncommon in the industry of
the employer for any of the separate lines
of business of the employer to be operated
without the others, the separate lines of
business are treated as one line of busi-
ness.
(ii) If it is common for a substantial
number of employees (other than those
employees who work at the headquarters
or main office of the employer) to perform
substantial services for more than one
line of business of the employer, so that
determination of which employees per-
form substantial services for which line
of business would be difficult, then the
separate lines of business of the employer
in which such employees perform sub-
stantial services are treated as one line
of business. For example, assume that an
employer operates a delicatessen (i.e., a
specialty food store) with an attached ser-
vice counter at which food is sold for con-
sumption on the premises (i.e., a restau-
rant or eating place). Assume further that
most but not all employees work both at
the delicatessen and at the service counter.
Under the aggregation rule of this para-
graph (a)(3)(ii), the delicatessen and the
service counter are treated as one line of
business.
(iii) If the retail operations of an
employer that are located on the same
premises are in separate lines of business
but would be considered to be within one
line of business under paragraph (a)(2) of
this section if the merchandise offered for
sale in such lines of business were offered
for sale at a general merchandise store,
including a warehouse club or super cen-
ter, then the operations are treated as one
line of business. For example, assume that
on the same premises an employer sells
both specialty foods (i.e., specialty food
retailers) and small kitchen appliances
(i.e., electronics and appliance retailers).
Because, if sold together at a general mer-
chandise store, the operations would be
part of the same line of business, the oper-
ations are treated as one line of business.
(4) Applicability date. Paragraphs (a)
(2) and (3) of this section apply to taxable
years beginning on or after [DATE OF
PUBLICATION OF THE FINAL RULE
IN THE FEDERAL REGISTER].
Edward T. Killlen,
Acting Chief Tax Compliance Officer.
(Filed by the Office of the Federal Register August
5, 2025, 8:45 a.m., and published in the issue of the
Federal Register for August 6, 2025, 90 FR 37824)

Bulletin No. 2025–35 i August 25, 2025
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
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is 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
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings 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.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes 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
published ruling is first modified and then,
as modified, is superseded.
Supplemented is 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
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is 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 following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.
—Court Decision.
CY—County.
D—Decedent.
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—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

August 25, 2025 ii Bulletin No. 2025–35
Numerical Finding List
1
Bulletin 2025–35
Announcements:
2025-19, 2025-29 I.R.B. 191
2025-20, 2025-31 I.R.B. 271
2025-21, 2025-32 I.R.B. 312
Notices:
2025-32, 2025-27 I.R.B. 1
2025-33, 2025-27 I.R.B. 4
2025-34, 2025-27 I.R.B. 6
2025-35, 2025-27 I.R.B. 8
2025-31, 2025-28 I.R.B. 14
2025-36, 2025-30 I.R.B. 192
2025-37, 2025-30 I.R.B. 198
2025-40, 2025-31 I.R.B. 266
2025-39, 2025-32 I.R.B. 308
2025-28, 2025-34 I.R.B. 316
2025-41, 2025-34 I.R.B. 325
Proposed Regulations:
REG-125710-18, 2025-30 I.R.B. 263
REG-107459-24, 2025-32 I.R.B. 313
REG-132805-17, 2025-35 I.R.B. 342
Revenue Procedures:
2025-22, 2025-30 I.R.B. 200
2025-24, 2025-31 I.R.B. 273
2025-25, 2025-32 I.R.B. 311
2025-26, 2025-33 I.R.B. 315
Revenue Rulings:
2025-13, 2025-28 I.R.B. 11
2025-14, 2025-32 I.R.B. 300
2025-15, 2025-32 I.R.B. 302
2025-16, 2025-35 I.R.B. 342
Treasury Decisions:
10021, 2025-31 I.R.B. 264
10031, 2025-32 I.R.B. 304
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin
2025–52, dated December 22, 2025.

Bulletin No. 2025–35 iii August 25, 2025
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2025–35
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin
2025–52, dated December 22, 2025.

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