Bulletin No. 2006-36 September 5, 2006 HIGHLIGHTS OF THIS … · 2012-07-17 · Bulletin No....

Bulletin No. 2006-36September 5, 2006

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2006–36, page 353.Health reimbursement arrangements. This ruling holdsthat amounts that may be paid as medical benefits to adesignated beneficiary (other than an employee’s spouseor an employee’s dependent) are not excludable from theemployee’s gross income under section 105(b) of the Code.Notice 2002–45 and Rev. Ruls. 2002–41 and 2005–24amplified.

Rev. Rul. 2006–44, page 361.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for September 2006.

T.D. 9279, page 355.REG–125071–06, page 375.Final, temporary, and proposed regulations under section 671of the Code amend regulations section 1.671–5, reportingrules for widely held fixed investment trusts (WHFITs), to clar-ify and simplify the application of those rules to non-mortgagewidely held fixed investment trusts (NMWHFITs). The proposedregulations also include a requirement that trustees of WHFITsfile an information return with the IRS and provide for the IRSto create a directory of NMWHFITs and trustees of widely heldmortgage trusts (WHMTs). The proposed regulations clarify themarket discount reporting rules under the NMWHFIT safe har-bor and solicit comments on the WHMT safe harbor.

REG–124152–06, page 368.Proposed regulations provide guidance relating to the determi-nation of who is considered to pay a foreign tax for purposes of

sections 901 and 903 of the Code. A public hearing is sched-uled for October 13, 2006.

Notice 2006–72, page 363.This notice contains questions and answers that provide guid-ance on the information reporting requirements for qualified tu-ition and related expenses under section 6050S of the Code.

Announcement 2006–61, page 390.This announcement provides an opportunity for small busi-ness/self employed taxpayers to use Fast Track Settlement(FTS) to expedite case resolution within the IRS’s Small Busi-ness/Self Employed (SB/SE) organization. The SB/SE FTS willenable SB/SE taxpayers that currently have unagreed issuesin at least one open year under examination to work togetherwith SB/SE and the Office of Appeals to resolve outstandingdisputed issues while the case is still in SB/SE jurisdiction.

EMPLOYEE PLANS

Notice 2006–75, page 366.Weighted average interest rate modifications; corporatebond weighted average. This notice extends the use of thecorporate bond weighted average interest rate for sections412(c)(7)(E) and 412(l) of the Code and sections 302(c)(7)(E)and 302(d) of the Employee Retirement Income Security Act of1974 as provided in section 301 of the Pension Protection Actof 2006.

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 379.Finding Lists begin on page ii.

EXEMPT ORGANIZATIONS

Announcement 2006–60, page 389.Aylesi M. Bobo Charitable Foundation of Independence, MO, nolonger qualifies as an organization to which contributions aredeductible under section 170 of the Code.

ADMINISTRATIVE

Notice 2006–72, page 363.This notice contains questions and answers that provide guid-ance on the information reporting requirements for qualified tu-ition and related expenses under section 6050S of the Code.

Announcement 2006–58, page 388.This document provides changes of date and location for apublic hearing on proposed regulations (REG–118775–06,2006–28 I.R.B. 73) under sections 871 and 881 of the Coderelating to the exclusion from gross income of portfolio interestpaid to a nonresident alien individual or foreign corporation.The public hearing is rescheduled for October 6, 2006.

Announcement 2006–59, page 388.Bonds issued by or on behalf of Indian tribal govern-ments are excluded from gross income only if the pro-ceeds of such bonds are used for an “essential govern-mental function.” This announcement of advanced notice ofproposed rulemaking provides that an activity performed by anIndian tribal government will be treated as an essential govern-mental function if (1) many state and local governments con-duct such activity and finance it with tax-exempt bonds, (2)state and local governments have been financing such activ-ity for many years, and (3) such activity is not a commercial orindustrial activity.

Announcement 2006–61, page 390.This announcement provides an opportunity for small busi-ness/self employed taxpayers to use Fast Track Settlement(FTS) to expedite case resolution within the IRS’s Small Busi-ness/Self Employed (SB/SE) organization. The SB/SE FTS willenable SB/SE taxpayers that currently have unagreed issuesin at least one open year under examination to work togetherwith SB/SE and the Office of Appeals to resolve outstandingdisputed issues while the case is still in SB/SE jurisdiction.

September 5, 2006 2006–36 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helpingthem understand and meet their tax responsibilities and by

applying the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents 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 ofthe 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 internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe 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 ofthe 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, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Sec-retary (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 indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished 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.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2006–36 I.R.B. September 5, 2006

Place missing child here.

September 5, 2006 2006–36 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof September 2006. See Rev. Rul. 2006-44, page361.

Section 105.—AmountsReceived Under Accidentand Health Plans

Health reimbursement arrange-ments. This ruling holds that amountsthat may be paid as medical benefits toa designated beneficiary (other than anemployee’s spouse or an employee’s de-pendent) are not excludable from theemployee’s gross income under section105(b) of the Code. Notice 2002–45 andRev. Ruls. 2002–41 and 2005–24 ampli-fied.

Rev. Rul. 2006–36

ISSUE

Are amounts paid to an employee undera reimbursement plan excludable from theemployee’s gross income under § 105(b)of the Internal Revenue Code (the Code)if the plan provides that amounts may bepaid as § 213(d) medical benefits to a des-ignated beneficiary (other than the em-ployee’s spouse or dependents or an em-ployee)?

FACTS

Employer sponsors a reimbursementplan (the Plan) that reimburses an em-ployee solely for substantiated medicalcare expenses (as defined in § 213(d)).The Plan provides reimbursements up toan annual maximum dollar amount forthe coverage period and reimburses med-ical expenses only to the extent that theexpenses have not been reimbursed fromany other plan. Under the Plan, each em-ployee’s unused reimbursement amountavailable at the end of each plan year iscarried forward for use in later plan years.The Plan reimburses the substantiatedmedical care expenses of both current and

former employees (including retired em-ployees), their spouses and dependents (asdefined in § 152, determined without re-gard to § 152(b)(1), (b)(2), and (d)(1)(B)).The Plan also reimburses the substantiatedmedical care expenses of the survivingspouse and dependents of a deceased em-ployee. Upon the death of the deceasedemployee’s surviving spouse and last de-pendent, or upon the death of the employeeif there is no surviving spouse or depen-dents, any unused reimbursement amountis paid as reimbursement of substantiatedmedical care expenses of a beneficiarydesignated by the employee. The Plandoes not include the fair market value ofthe coverage for the designated benefi-ciary in the gross income of the employee.The Plan treats the reimbursement as tax-able to the designated beneficiary.

The Plan is paid for solely by Employerand is not provided pursuant to a salary-re-duction election or otherwise under a § 125cafeteria plan. Neither the employee norany other person has the right, currently orfor any future year, to receive any benefitother than the reimbursement of substan-tiated medical care expenses incurred bythe employee, his or her spouse and depen-dents or the employee’s designated benefi-ciary.

LAW AND ANALYSIS

Section 61(a)(1) provides that, ex-cept as otherwise provided in Subtitle A,gross income includes compensation forservices, including fees, commissions,fringe benefits, and similar items. Section1.61–21(a)(3) and (4) of the Income TaxRegulations states that a fringe benefitprovided in connection with the perfor-mance of services shall be considered tohave been provided as compensation to theperson performing such services. Thus, afringe benefit may be taxable to a personeven though that person did not actuallyreceive the fringe benefit. If a fringe ben-efit is furnished to someone other than theservice provider, such benefit is consid-ered as furnished to the service providerand use by the other person is considereduse by the service provider.

Section 106 provides that the gross in-come of an employee does not include em-ployer-provided coverage under an acci-dent or health plan. Section 1.106–1 ofthe regulations provides that the gross in-come of an employee does not include con-tributions which the employee’s employermakes to an accident or health plan forcompensation (through insurance or other-wise) for personal injuries or sickness tothe employee or the employee’s spouse ordependents.

Section 105(a) provides that, except asotherwise provided in § 105, amounts re-ceived by an employee through accidentor health insurance for personal injuriesor sickness shall be included in gross in-come to the extent such amounts (1) are at-tributable to contributions by the employerwhich were not includible in the gross in-come of the employee, or (2) are paid bythe employer.

Section 105(b) states that except in thecase of amounts attributable to (and not inexcess of) deductions allowed under § 213(relating to medical expenses) for any priortaxable year, gross income does not in-clude amounts referred to in § 105(a) ifsuch amounts are paid, directly or indi-rectly, to the taxpayer to reimburse the tax-payer for expenses incurred by the tax-payer for the medical care (as defined in§ 213(d)) of the taxpayer or the taxpayer’sspouse or dependents (as defined in § 152,determined without regard to § 152(b)(1),(b)(2), and (d)(1)(B)).

Section 1.105–2 of the Income TaxRegulations provides that only amountsthat are paid specifically to reimbursethe taxpayer for expenses incurred by thetaxpayer, spouse or dependents for the pre-scribed medical care are excludable fromgross income. Section 1.105–2 furtherprovides that payments to or on behalfof the taxpayer’s spouse or dependentsshall constitute indirect payment to thetaxpayer. Section 1.105–2 also states that“. . . section 105(b) does not apply toamounts which the taxpayer would be en-titled to receive irrespective of whether ornot he incurs expenses for medical care.”Thus, if an employee has the opportunity toreceive a payment irrespective of whetherany medical expenses have been incurred

2006–36 I.R.B. 353 September 5, 2006

by the employee or the employee’s spouseor dependents, the payment is not exclud-able from gross income under § 105(b)even if the employee (or his or her spouseor dependents) incurred medical expensesduring the year.

Notice 2002–45, 2002–2 C.B. 93, de-scribes the tax treatment of health reim-bursement arrangements (HRAs) exclud-able under § 105(b). The notice explainsthat an HRA is an arrangement that is paidfor solely by the employer and not pur-suant to a salary reduction election or oth-erwise under a § 125 cafeteria plan. AnHRA reimburses the employee for medi-cal care expenses (as defined in § 213(d))incurred by the employee or by the em-ployee’s spouse or dependents, and pro-vides reimbursements up to a maximumdollar amount with any unused portion ofthat amount at the end of the coverage pe-riod carried forward to subsequent cover-age periods.

Notice 2002–45 also states that to qual-ify for the exclusion from gross income un-der § 105(b), an HRA may only providebenefits that reimburse expenses for med-ical care as defined in § 213(d). An HRAdoes not qualify for the exclusion under§ 105(b) if any person has the right to re-ceive cash or any other taxable or non-tax-able benefit under the arrangement otherthan the reimbursement of medical careexpenses. If any person has such a right,currently or for any future year, all pay-ments to all persons made from the ar-rangement in the current year are includedin gross income, even amounts paid to re-imburse medical care expenses of the em-ployee, spouse or dependents.

Situation 3 of Rev. Rul. 2005–24,2005–1 C.B. 892, describes a plan that,after the death of an employee and theemployee’s surviving spouse and depen-dents, pays all or a portion of the unusedreimbursement amount in cash to a bene-ficiary or beneficiaries designated by theemployee, and if no beneficiary is des-ignated, to the deceased employee’s es-tate. Rev. Rul. 2005–24 holds that anamount (including an amount paid to re-imburse medical expenses) paid from aplan that provides for the payment of theunused reimbursement amount in cash orother benefits is not excludable from theemployee’s gross income under § 105(b).Rev. Rul. 2005–24 does not specificallyaddress reimbursement of § 213(d) med-

ical expenses incurred by a non-spouseor non-dependent. Nevertheless, the rul-ing also states that it applies to any pur-ported employer-provided medical reim-bursement arrangement that provides forthe receipt by the employee or any otherperson of cash or any other taxable or non-taxable benefit other than the reimburse-ment of medical care expenses of employ-ees and their spouses and dependents. Thisprinciple applies to amounts paid for re-imbursement of medical expenses to des-ignated beneficiaries other than the em-ployee’s spouse or dependents.

The Plan described in this ruling doesnot meet the requirements of § 105(b) and§ 1.105–2. Because a beneficiary who isnot the employee’s spouse or dependentmay receive some or all of the medicalreimbursements under the Plan, amountspaid under the Plan are not excludable un-der § 105(b) even if those amounts are paidto reimburse the medical expenses of theemployee or the employee’s spouse or de-pendents. Because the benefit is providedin connection with the performance of ser-vices by the employee, the benefit is con-sidered provided to the employee and mustbe included in the employee’s gross in-come. See § 1.61–21(a)(3) and (4).

HOLDING

Amounts paid to an employee under thereimbursement plan described in this rul-ing are not excludable from gross incomeunder § 105(b) if the plan permits amountsto be paid as § 213(d) medical benefitsto a designated beneficiary (other than theemployee’s spouse or dependents of theemployee). None of the payments madefrom the reimbursement plan during theplan year to any person, including amountspaid to reimburse the medical expenses ofan employee or the employee’s spouse ordependents, is excludable from the grossincome.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2005–24, 2005–1 C.B. 892,Rev. Rul. 2002–41, 2002–2 C.B. 75, andNotice 2002–45, 2002–2 C.B. 93 are am-plified.

EFFECTIVE DATE

For reimbursement plans containing aprovision on or before August 14, 2006

stating that upon the death of a deceasedemployee’s surviving spouse and lastdependent, or upon the death of the em-ployee, if there is no surviving spouse ordependents, any unused reimbursementamount will be paid as a reimbursementof substantiated medical care expenses ofa beneficiary designated by the employee,this revenue ruling is effective with respectto that provision for plan years beginningafter December 31, 2008.

DRAFTING INFORMATION

The principal author of this revenueruling is Shoshanna Tanner of the Of-fice of Division Counsel/Associate ChiefCounsel (Tax Exempt and GovernmentEntities). For further information re-garding this revenue ruling, contactElizabeth Purcell at (202) 622–6080 (nota toll-free call).

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of September 2006. SeeRev. Rul. 2006-44, page 361.

Section 382.—Limitationon Net Operating LossCarryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of September 2006. See Rev.Rul. 2006-44, page 361.

Section 412.—MinimumFunding Standards


Section 467.—CertainPayments for the Use ofProperty or Services


September 5, 2006 354 2006–36 I.R.B.

Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs


Section 482.—Allocationof Income and DeductionsAmong Taxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—SpecialRules for Credits andDeductions


Section 671.—TrustIncome, Deductions, andCredits Attributable toGrantors and Others asSubstantial Owners26 CFR 1.671–5: Reporting for widely held fixed in-vestment trusts.

T.D. 9279

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Part 1

Reporting Rules for WidelyHeld Fixed Investment Trusts

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final and Temporary regula-tions

SUMMARY: This document contains fi-nal and temporary regulations amending§1.671–5, a provision which providesreporting rules for widely held fixed in-vestment trusts (WHFITs). These reg-ulations clarify and simplify reportingfor trustees and middlemen of non-mort-gage widely held fixed investment trusts(NMWHFITs). The text of these final andtemporary regulations also serves, in part,as the text of the proposed regulations setforth in the notice of proposed rulemaking(REG–125071–06) on this subject in thisissue of the Bulletin.

DATES: Effective Date: These regulationsare effective July 28, 2006.

Applicability Date: For dates of appli-cability, see §1.671–5(m).

FOR FURTHER INFORMATIONCONTACT: Faith Colson, 202–622–3060(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

These final and temporary regulationsamend §1.671–5. The collection of in-formation contained in these regulationsis in §1.671–5 and has been previouslyreviewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of 1995(44 U.S.C. 3507) under control number1545–1540. Response to this collection ofinformation is mandatory. This informa-tion is required to be reported to beneficialowners of trust interests to enable themto correctly report their share of the itemsof income, deduction, and credit of theWHFIT in which they have invested. Thisinformation is also required to be reportedto the IRS to enable the IRS to verify thattrustees and middlemen are accurately re-porting information to beneficial ownersof trust interests and that beneficial ownersare properly reporting their ownership ofa trust interest.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid control number assigned by the Of-fice of Management and Budget.

Books or records relating to a collectionof information must be retained as long

as their contents might become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

Background

This document contains amendmentsto 26 CFR part 1. On January 24, 2006,the Internal Revenue Service (IRS) andthe Treasury Department published finalregulations (T.D. 9241, 2006–7 I.R.B.427) (final regulations) under §1.671–5in the Federal Register (71 FR 4002)providing reporting rules for WHFITs.On February 23, 2006, in response tocomments received subsequent to the pub-lication of the final regulations, the IRSand the Treasury Department issued No-tice 2006–29, 2006–12 I.R.B. 644. Notice2006–29 informed trustees and middle-men of NMWHFITs that §1.671–5 wouldbe amended to extend the availability ofthe qualified NMWHFIT exception (dis-cussed in section I) beyond February 23,2006, the cut-off date provided in the finalregulations for funding a NMWHFIT thatsatisfied the exception, and to clarify theapplication of certain provisions in thefinal regulations to NMWHFITs. On May25, 2006, the IRS and Treasury Depart-ment issued Notice 2006–30, 2006–24I.R.B. 1044, stating that the IRS and theTreasury Department expected to issuethe additional guidance under §1.671–5discussed in Notice 2006–29 in the nearfuture but that such guidance would notbe issued prior to the expiration of theextended cut-off date for the qualifiedNMWHFIT exception in Notice 2006–29.Accordingly, Notice 2006–30 extendedthe cut-off date for the availability of thequalified NMWHFIT exception in No-tice 2006–29 for an additional 60 days.These temporary regulations extend theavailability of the qualified NMWHFITexception to the dates provided in No-tice 2006–30 and clarify the NMWHFITreporting rules as described in Notice2006–29. These temporary regulationsalso simplify the application of §1.671–5as it applies to NMWHFIT sales and dis-positions as well as sales or redemptionsof trust interests in an equity trust (a trust,substantially all of whose income is com-prised of dividends).

2006–36 I.R.B. 355 September 5, 2006

Summary and Explanation of Revisions

I. The Qualified NMWHFIT Exception

In general, under the final regulations,trustees and middlemen of NMWHFITsare required to report information regard-ing market discount, bond premium, salesand dispositions of trust assets, redemp-tions, and sales of trust interests. Trusteesand middlemen of NMWHFITs that sat-isfy the qualified NMWHFIT exceptionin §1.671–5(c)(2)(iv)(E) are, however,excepted from reporting market discountand bond premium and are permittedto use the simplified reporting rules forsales and dispositions of trust assets in§1.671–5(c)(2)(iv)(B) and the simplifiedreporting rules for sales or redemptionsof trust interests in §1.671–5(c)(2)(v)(C).As provided in Notice 2006–29 and sub-sequently modified in Notice 2006–30,§1.671–5T(c)(2)(iv)(E) of these final andtemporary regulations provides that thequalified NMWHFIT exception is satis-fied if the calendar year for which thetrustee is reporting begins before January1, 2011, and the NMWHFIT meets anyof the following requirements: (1) theNMWHFIT has a start-up date as definedin §1.671–5(b)(19) before February 23,2006; (2) the registration statement for theNMWHFIT becomes effective under theSecurities Act of 1933 (15 U.S.C. 77a)(Securities Act of 1933) and trust interestsare offered for sale to the public beforeFebruary 23, 2006; or (3) the registrationstatement of the NMWHFIT becomes ef-fective under the Securities Act of 1933and trust interests are offered for sale tothe public on or after February 23 andbefore July 31, 2006, and the NMWHFITis fully funded before October 1, 2006.The IRS and the Treasury Departmenthave also received comments suggestingthat the January 1, 2011 cut-off date beextended or eliminated. The IRS and theTreasury Department are not adopting thatsuggestion.

II. Availability of the NMWHFIT SafeHarbor

Section 1.671–5(f) provides a reportingsafe harbor for NMWHFITs. If trusteesand middlemen report consistently withthe safe harbor, trustees and middlemenare deemed to have provided information

in a manner that enables a trust interestholder to reasonably accurately report theitems of income, deduction, and creditof the trust on the trust interest holder’sown federal income tax return. Section1.671–5(f)(1)(i) provides that if substan-tially all of a NMWHFIT’s income is fromdividends (as defined in section 6042(b)and the regulations thereunder) or inter-est (as defined in section 6049(b) andthe regulations thereunder) and all trustinterests have identical value and rights,a NMWHFIT may report under the safeharbor in §1.671–5(f). Commentatorshave expressed concern that, if a trusteeof a NMWHFIT must sell or dispose ofa significant number of trust assets andtrust sales proceeds are included in thedetermination of whether “substantiallyall” of a trust’s income is from inter-est or dividends, the NMWHFIT willbe ineligible for the safe harbor report-ing rules in §1.671–5(f). To address thisconcern, §1.671–5T(f)(1)(i) of the finaland temporary regulations provides thattrust sales proceeds are to be ignored indetermining whether a NMWHFIT is eli-gible to report under the NMWHFIT safeharbor in §1.671–5(f). Accordingly, aNMWHFIT may be eligible to report un-der the NMWHFIT safe harbor even if ithas significant trust sales proceeds fromthe sale or disposition of trust assets.

Commentators also noted that§1.671–5(f)(1)(i)(1) refers to section6049(b) and the definition of interestin section 6049(b) does not include inter-est that is exempt from tax under section103 of the Internal Revenue Code. Thesecommentators were concerned that if aNMWHFIT’s income is from tax-exemptinterest, the NMWHFIT would not beeligible to report under the NMWHFITsafe harbor reporting rules. To addressthis concern, §1.671–5T(f)(1)(i)(A)(1) ofthe final and temporary regulations doesnot refer to sections 6042(b) and 6049(b)and the regulations thereunder. Accord-ingly, NMWHFITs whose income is fromtax-exempt interest, may be eligible toreport under the NMWHFIT safe harborreporting rules.

III. Simplified Reporting of Sales andRedemptions of Trust Interests for EquityTrusts

Section 1.671–5(c)(2)(v) requirestrustees and middlemen to provide in-formation regarding the income that isattributable to a redeeming, selling or pur-chasing beneficial owner up to the dateof the sale or redemption of a trust inter-est. Section 1.671–5(c)(2)(v)(C) providesan exception to this rule for NMWHFITsif substantially all their income is com-prised of dividends (equity trusts) and theNMWHFIT is required by its governingdocument to distribute income at leastmonthly. Commentators reported thatsome equity trusts do not receive signif-icant dividend income and that it wouldnot be feasible for these trusts to makemonthly distributions. These commenta-tors suggested that there be a de minimisexception to the requirement that the trustmake monthly distributions.

Accordingly, §1.671–5T(c)(2)(v)(C)provides that a NMWHFIT will be consid-ered to have satisfied the requirement thatit make monthly distributions notwith-standing the fact that, although the gov-erning document requires monthly dis-tributions, the governing document ofthe NMWHFIT also permits the trusteeto forego making its normally requiredmonthly distribution if the cash held fordistribution is less than 0.1% of the net as-set value of the trust (aggregate fair marketvalue of the trust’s assets less the trust’sliabilities) as of the date that the amountof the monthly distribution is requiredto be determined. Commentators sug-gested various other modifications to the§1.675(c)(2)(v)(C) exception; however,the IRS and Treasury Department believethat the modification adopted above ad-dresses the majority of the commentators’concerns while maintaining the integrityof the reporting information to be providedunder §1.671–5.

Similar to the “substantially all” testfor eligibility to use the NMWHFIT safeharbor discussed in section II above,commentators have expressed concernthat if a NMWHFIT has significantsales and dispositions and trust salesproceeds are included for the purposeof determining if “substantially all” ofthe NMWHFIT’s income is from div-idends, then the NMWHFIT will not

September 5, 2006 356 2006–36 I.R.B.

qualify for this exception even though theNMWHFIT only holds assets that producedividend income. To address this con-cern, §1.671–5T(c)(2)(v)(C) of the finaland temporary regulations provides thatproceeds received by a NMWHFIT fromthe sale or disposition of trust assets are tobe ignored for the purpose of determiningwhether an equity trust is eligible to reportunder that paragraph.

IV. Simplified Reporting for CertainNMWHFIT Sales and Dispositions

In addition to the qualified NMWHFITexception, the final regulations pro-vide that the trustees of NMWHFITsthat meet the general de minimis testin §1.671–5(c)(2)(iv)(D)(1) are only re-quired, under §1.671–5(c)(2)(iv)(B), toprovide information regarding the amountof trust sales proceeds distributed to a trustinterest holder. The reason for the de min-imis exception, as stated in the preambleto the final regulations, is that the IRSand the Treasury Department believe thatif a NMWHFIT only sells or disposes ofassets infrequently, although there will besome deferral of gains and losses if salesand dispositions are not fully reported,the deferral is acceptable, in light of theburden of fully, accurately reporting thesales and dispositions.

Commentators reported that trustees ofNMWHFITs frequently have to sell trustassets to obtain cash to effect redemp-tions. These commentators indicated thatbecause of certain securities laws, trusteesof many NMWHFITs must redeem trustinterests every time an interest is tenderedfor redemption. Trustees have no controlover the number of trust interests tenderedfor redemption and as a result, have nocontrol over the number of correspondingsales of trust assets to obtain cash for theseredemptions. Because of these sales to ef-fect redemptions, many NMWHFITs willalso not be able to meet the general de min-imis test in §1.671–5(c)(2)(iv)(D)(1). If aNMWHFIT does not meet the general deminimis test, trustees and middlemen mustprovide information regarding the amountof trust sales proceeds that are attributableto a trust interest holder, and informationthat will enable a trust interest holder toallocate with reasonable accuracy a por-tion of its basis and a portion of its marketdiscount or premium to the assets sold.

Commentators indicated that, under thefinal regulations, a significant number ofNMWHFITs do not qualify for the re-duced reporting in §1.671–5(c)(2)(iv)(B)and that as a result, many investors willbe provided with more information thanthey can accurately process and trusteesand middlemen will be subject to thesignificant reporting costs of supplyingthis information. These commentatorsrequested that the final regulations beamended to provide for reduced reportingfor other situations in which it will havelittle or no compliance impact. In responseto these comments, the IRS and the Trea-sury Department provide the followingmodifications to the sales and dispositionreporting rules for NMWHFITs in the finalregulations:

1. NMWHFIT final calendar yearexception

Commentators requested that the IRSand Treasury Department extend the sim-plified reporting in §1.671–5(c)(2)(iv)(B)to the final calendar year of a NMWHFITregardless of whether the de minimis testor the qualified NMWHFIT exception issatisfied. The commentators reported thatfor a significant number of NMWHFITs,95% of a trustee’s sales of assets to ef-fect redemptions occur during the lastthree months of the NMWHFIT. Thecommentators asserted that there wouldnot be significant deferral of gains orlosses on sales or dispositions of assets byNMWHFITs in their final calendar year ifinformation regarding the sales and dis-positions of trust assets during these finalmonths were not communicated to non-re-deeming trust interest holders becausethe non-redeeming trust interest holderswould be cashing out their investmentduring that calendar year. Accordingly,§1.671–5T(c)(2)(iv)(F) of the final andtemporary regulations provide that allNMWHFITs qualify for the simplifiedreporting in §1.671–5T(c)(2)(iv)(B) in thefinal calendar year of the NMWHFIT, re-gardless of whether the NMWHFIT hasotherwise satisfied the de minimis test,provided that a trust interest holder cannotroll-over its investment in the NMWHFITto another WHFIT.

2. Pro-rata sale exception

Commentators also requested that pro-rata sales of trust assets be excepted fromreporting. The commentators contendedthat trustees generally sell a redeemingtrust interest holder’s pro-rata share of thetrust assets to effect a redemption so thatthere is no change in the investments ofthe non-redeeming trust interest holdersand therefore little or no compliance bene-fit of reporting to the non-redeeming trustinterest holders. Accordingly, the com-mentators requested that pro-rata sales oftrust assets to effect redemptions be ex-cepted from the reporting requirements of§1.671–5(c)(2)(iv).

In response to this request,§1.671–5T(c)(2)(iv)(G) of the finaland temporary regulations provides thata pro-rata sale of a trust asset to effect aredemption is not required to be reportedunder §1.671–5. A pro-rata sale of atrust asset occurs when (1) a trust interestholder tenders one or more trust interestsfor redemption; (2) the trustee sells thepro-rata share of a trust asset that isdeemed to be owned by the trust interestholder as a result of the trust interestholder’s ownership of the trust interestor interests tendered for redemption; (3)the trustee engages in the sale solely toobtain cash that is immediately distributedto the redeeming trust interest holder asa result of the redemption; and (4) theredemption is reported as required under§1.671–5(c)(2)(v).

Commentators strongly urged the IRSand the Treasury Department to ex-cept NMWHFITs with a duration of nomore than 15 months and that span nomore than two calendar years (short-termNMWHFITs) from all reporting of salesand dispositions of trust assets. The IRSand the Treasury Department believethat the NMWHFIT final year exception,discussed in section IV(1) above, ade-quately provides reporting relief for mostshort-term NMWHFITs for the sales anddispositions of trust assets to effect re-demptions that a trustee must make duringthe final three months of the NMWHFIT.Further, §1.671–5T(b)(21) provides anamended definition of trust sales proceedsexcluding the gross proceeds paid to aNMWHFIT for a pro-rata sale of a trustasset to effect a redemption from the def-inition of trust sales proceeds. The effect

2006–36 I.R.B. 357 September 5, 2006

of this change in the definition of trustsales proceeds is to exclude the proceedsfrom a pro-rata sale of a trust asset toeffect a redemption when determiningwhether a trust has met the de minimistest. Since only the proceeds from nonpro-rata sales of trust assets are consid-ered for purposes of determining whethera NMWHFIT meets the de minimis test,more trusts will meet the de minimis testand qualify for the reduced reportingin §1.671–5T(c)(2)(iv)(B). The IRS andthe Treasury Department believe that thecombined application of the pro-rata salesexception, the revised definition of trustsales proceeds, and the de minimis testadequately address the commentators’concerns regarding sales and dispositionsof trust assets by trustees of short-termNMWHFITs during the first year of thetrust.

Commentators also suggested that therebe a reporting exception for when a trusteeengages in a non pro-rata sale of a trustasset because the redeeming trust inter-est holder is only deemed to own a frac-tional share of a trust asset or becausemarket conditions or restrictions prevent apro-rata sale of a trust asset. The IRS andthe Treasury Department believe that thisissue is also adequately addressed by thecombined application of the pro-rata saleexception, the revised definition of trustsales proceeds and the de minimis test.

Effective Date

These amendments are effective July28, 2006. The amendments are applicableto the reporting required under §1.671–5as of January 1, 2007 (see §1.671–5(m))and will be applied as though these amend-ments were included in T.D. 9241.

Special Analysis

These regulations are necessary toprovide trustees and middlemen ofNMWHFITs with immediate guidanceon the application of the final regulationsso they can take measures necessary tobe able to comply with the final regula-tions on their January 1, 2007, effectivedate. Additionally, the IRS and the Trea-sury Department have published Notice2006–29 and Notice 2006–30 indicat-ing that §1.671–5 would be amended asprovided in these temporary regulations

and received comments regarding the ap-plication of §1.671–5 from trustees andmiddlemen of NMWHFITs. Accordingly,good cause is found for dispensing withnotice and public comment pursuant to5 U.S.C. 553(b)(B)(3). The final and tem-porary regulations are applicable morethan 30 days after they are published inthe Federal Register and accordingly,no exemption is required under 5 U.S.C.553(d). For the applicability of the Reg-ulatory Flexibility Act (5 U.S.C. chapter6) refer to the Special Analysis sectionof the preamble to the cross-referencednotice of proposed rulemaking publishedin this issue of the Bulletin. Pursuant sec-tion 7805(f) of the Code, these final andtemporary regulations will be submitted tothe Chief Counsel for Advocacy of SmallBusiness Administration for comment onits impact on small business.

Drafting Information

The principal author of these regula-tions is Faith Colson, Office of AssociateChief Counsel (Passthroughs & Special In-dustries). However, other personnel fromthe IRS and the Treasury Department par-ticipated in their development.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.671–5 is amended by:1. Revising paragraphs (b)(5), (b)(8),

and (b)(21).2. Revising paragraphs (c)(2)(iv),

(v)(C), (vi), and (vii).3. Revising paragraphs (f)(1)(i)(A) and

(viii)(A).The revisions read as follows:

§1.671–5 Reporting for widely held fixedinvestment trusts.

* * * * *(b) * * *(5) [Reserved.] For further guidance,

see §1.671–5T(b)(5).

* * * * *(8) [Reserved.] For further guidance,

see §1.671–5T(b)(8).

* * * * *(21) [Reserved.] For further guidance,

see §1.671–5T(b)(21).

* * * * *(c) * * *(2) * * *(iv) [Reserved.] For further guidance,

see §1.671–5T(c)(2)(iv).(v) * * *(C) [Reserved.] For further guidance,

see §1.671–5T(c)(2)(v)(C).(vi) [Reserved.] For further guidance,

see §1.671–5T(c)(2)(vi).(vii) [Reserved.] For further guidance,

see §1.671–5T(c)(2)(vii).

* * * * *(f) * * *(1) * * *(i) * * *(A) [Reserved.] For further guidance,

see §1.671–5T(f)(1)(i)(A).

* * * * *(viii) * * *(A) [Reserved.] For further guidance,

see §1.671–5T(f)(1)(viii).Par. 3. Section 1.671–5T is added to

read as follows:

§1.671–5T Reporting for widely held fixedinvestment trusts (temporary).

(a) through (b)(4) [Reserved.] For fur-ther guidance, see §1.671–5(a) through(b)(4).

(5) The cash held for distribution is thecash held by the WHFIT (other than trustsales proceeds and proceeds from sales de-scribed in paragraph (c)(2)(iv)(G) of thissection) less reasonably required reservefunds as of the date that the amount of adistribution is required to be determinedunder the WHFIT’s governing document.

(b)(6) and (b)(7) [Reserved.] For fur-ther guidance, see §1.671–5(b)(6) and(b)(7).

(8) An in-kind redemption is a redemp-tion in which a beneficial owner receivesa pro-rata share of each of the assets ofthe WHFIT that the beneficial owner isdeemed to own under section 671. Forexample, for purposes of this paragraph(b)(8), if beneficial owner A owns a onepercent interest in a WHFIT that holds 100

September 5, 2006 358 2006–36 I.R.B.

shares of X corporation stock, so that A isconsidered to own a one percent interest ineach of the 100 shares, A’s pro-rata shareof the X corporation stock for this purposeis one share of X corporation stock.

(b)(9) through (b)(20) [Reserved.]For further guidance, see §1.671–5(b)(9)through (b)(20).

(21) Trust sales proceeds equal theamount paid to a WHFIT for the sale ordisposition of an asset held by the WHFIT,including principal payments received bythe WHFIT that completely retire a debtinstrument (other than a final scheduledprincipal payment) and pro-rata partialprincipal prepayments described under§1.1275–2(f)(2). Trust sales proceeds donot include amounts paid for any interestincome that would be required to be re-ported under §1.6045–1(d)(3). Trust salesproceeds also do not include amounts paidto a NMWHFIT as the result of a pro-ratasales of trust assets to effect a redemptiondescribed in paragraph (c)(2)(iv)(G) ofthis section.

(b)(22) through (c)(2)(iii) [Reserved.]For further guidance, see §1.671–5(b)(22)through (c)(2)(iii).

(iv) Asset sales and dispositions. Thetrustee must report information regardingsales and dispositions of WHFIT assetsas required in this paragraph (c)(2)(iv).For purposes of this paragraph (c)(2)(iv),a payment (other than a final scheduledpayment) that completely retires a debt in-strument (including a mortgage held by aWHMT) or a pro-rata prepayment on adebt instrument (see §1.1275–2(f)(2)) heldby a WHFIT must be reported as a full orpartial sale or disposition of the debt in-strument. A pro-rata sale of a trust assetto effect a redemption, as defined in para-graph (c)(2)(iv)(G) of this section, is notreported as a sale or disposition under thisparagraph (c)(2)(iv).

(A) General rule. Except as providedin paragraph (c)(2)(iv)(B) of this sec-tion (regarding the exception for certainNMWHFITs) or paragraph (c)(2)(iv)(C)(regarding the exception for certainWHMTs) of this section, the trustee mustreport with respect to each sale or disposi-tion of a WHFIT asset—

(1) The date of each sale or disposition;(2) Information that enables a request-

ing person to determine the amount of trustsales proceeds (as defined in paragraph(b)(21) of this section) attributable to a

beneficial owner as a result of each sale ordisposition; and

(3) Information that enables a beneficialowner to allocate, with reasonable accu-racy, a portion of the owner’s basis in itstrust interest to each sale or disposition.

(B) Exception for certain NMWHFITs.If a NMWHFIT meets either the gen-eral WHFIT de minimis test of paragraph(c)(2)(iv)(D)(1) of this section for a cal-endar year, the qualified NMWHFIT ex-ception of paragraph (c)(2)(iv)(E) of thissection, or the NMWHFIT final calendaryear exception of paragraph (c)(2)(iv)(F)of this section, the trustee is not requiredto report under paragraph (c)(2)(iv)(A)of this section. Instead, the trustee mustreport sufficient information to enable arequesting person to determine the amountof trust sales proceeds distributed to abeneficial owner during the calendar yearwith respect to each sale or disposition ofa trust asset. The trustee also must pro-vide requesting persons with a statementthat the NMWHFIT is permitted to reportunder this paragraph (c)(2)(iv)(B).

(C) Exception for certain WHMTs. Ifa WHMT meets either of the de minimistests of paragraph (c)(2)(iv)(D) of thissection for the calendar year, the trusteeis not required to report under paragraph(c)(2)(iv)(A) of this section. Instead, thetrustee must report information to enable arequesting person to determine the amountof trust sales proceeds attributable to abeneficial owner as a result of the sale ordisposition. The trustee also must providerequesting persons with a statement thatthe WHMT is permitted to report underthis paragraph (c)(2)(iv)(C).

(D) De minimis tests—(1) GeneralWHFIT de minimis test. The generalWHFIT de minimis test applies to aNMWHFIT or to a WHMT that doesnot meet the requirements for the spe-cial WHMT de minimis test in paragraph(c)(2)(iv)(D)(2) of this section. The gen-eral WHFIT de minimis test is satisfiedif trust sales proceeds for the calendaryear are not more than five percent of thenet asset value of the trust (aggregate fairmarket value of the trust’s assets less thetrust’s liabilities) as of the later of January1 of that year or the trust’s start-up date(as defined in §1.671–5(b)(19)).

(2) Special WHMT de minimis test. AWHMT that meets the asset requirement of§1.671–5(g)(1)(ii)(E) satisfies the special

WHMT de minimis test in this paragraph(c)(2)(iv)(D)(2) if trust sales proceeds forthe calendar year are not more than fivepercent of the aggregate outstanding prin-cipal balance of the WHMT (as defined in§1.671–5(g)(1)(iii)(D)) as of the later ofJanuary 1 of that year or the trust’s start-update. For purposes of applying the spe-cial WHMT de minimis test in this para-graph (c)(2)(iv)(D)(2), amounts that resultfrom the complete or partial payment ofthe outstanding principal balance of themortgages held by the trust are not in-cluded in the amount of trust sales pro-ceeds.

(3) Effect of clean-up call. If a WHFITfails to meet either de minimis test de-scribed in this paragraph (c)(2)(iv)(D)solely as the result of a clean-up call, asdefined in §1.671–5(b)(6), the WHFITwill be treated as having met the de min-imis test.

(E) Qualified NMWHFIT exception.The qualified NMWHFIT exception issatisfied if the calendar year for which thetrustee is reporting begins before January1, 2011 and —

(1) The NMWHFIT has a start-up date(as defined in §1.671–5(b)(19)) beforeFebruary 23, 2006;

(2) The registration statement of theNMWHFIT becomes effective underthe Securities Act of 1933, as amended(15 U.S.C. 77a, et. seq.) and trust interestsare offered for sale to the public beforeFebruary 23, 2006; or

(3) The registration statement of theNMWHFIT become effective under theSecurities Act of 1933 and trust interestsare offered for sale to the public on or af-ter February 23, 2006, and before July 31,2006, and the NMWHFIT is fully fundedbefore October 1, 2006.

(F) NMWHFIT final calendar year ex-ception. The NMWHFIT final calendaryear exception is satisfied if—

(1) The NMWHFIT terminates on orbefore December 31 of the year for whichthe trustee is reporting;

(2) A trust interest holder may not roll-over its investment in the NMWHFIT toanother WHFIT; and

(3) The trustee makes reasonable effortsto engage in pro-rata sales of trust assets toeffect redemptions.

(G) Pro-rata sales of trust assets to ef-fect a redemption—(1) Definition. A pro-rata sale of a trust asset to effect a redemp-

2006–36 I.R.B. 359 September 5, 2006

tion is not required to be reported underthis paragraph (c)(2)(iv). A pro-rata saleof a trust asset to effect a redemption oc-curs when a—

(i) A trust interest holder tenders one ormore trust interests for redemption;

(ii) The trustee sells the pro-rata shareof the trust asset that is deemed to beowned by the trust interest holder un-der section 671 as a result of the trustinterest holder’s ownership of the trustinterest or interests tendered for redemp-tion (See paragraph (b)(8) of this sectionfor a description of how pro-rata is tobe applied for purposes of this paragraph(c)(2)(iv)(G)) ;

(iii) The trustee engages in the salesolely to obtain cash that is immediatelydistributed to the redeeming trust interestholder as a result of the redemption; and

(iv) The redemption is reported as re-quired under §1.671–5(c)(2)(v) by thetrustee.

(2) Example. The following exampleillustrates the definition of a pro-rata saleof a trust asset to effect a redemption:

Example: Trust has two hundred trust interestsand all interests have equal value and rights. Trustowns two hundred shares of stock in corporation X,two hundred shares of stock in corporation Y, and onehundred shares of stock in corporation Z. C owns onetrust interest and tenders it for redemption. To ob-tain cash for the redemption, the trustee of Trust sellsone share of each of the X and Y stock and one shareof Z stock. Trustee immediately distributes the pro-ceeds from the sale of the X and the Y stock, as wellas 50% of the proceeds from the sale of the Z stockto C as redemption proceeds. Trustee will report theredemption under §1.671–5(c)(2)(v). The sale of theshare of X stock and the sale of the share of Y stockare each a pro-rata sale of a trust asset to effect aredemption and are not required to be reported un-der this paragraph (c)(2)(iv)(G). The proceeds fromthe sale of the X stock and the Y stock are not trustsales proceeds under paragraph (b)(21) of this sectionand are not included for the purpose of determiningwhether Trust meets the de minimis test. The sale ofthe Z stock, because it was not a sale of the pro-ratashare of the trust asset that is treated as owned by Cis not a pro-rata sale of a trust asset to effect a re-demption and is required to be reported as providedunder paragraph (c)(2)(iv)(A) or (B) of this section,whichever is applicable. The proceeds from the saleof the Z stock are trust sales proceeds under paragraph(b)(21) of this section and included for the purpose ofdetermining whether Trust meets the de minimis testin paragraph (c)(2)(iv)(D)(1) of this section.

(c)(2)(v)(A) and (B) [Re-served.] For further guidance, see§1.671–5(c)(2)(v)(A) and (B).

(C) Exception for certain NMWHFITswith dividend income—(1) In general.The trustee of a NMWHFIT described in

paragraph (c)(2)(v)(C)(2) of this sectionis not required to report the informa-tion described in §1.671–5(c)(2)(v)(A)(regarding redemptions) or (c)(2)(v)(B)(regarding sales). However, the trusteemust report to requesting persons, for eachdate on which the amount of redemptionproceeds to be paid for the redemptionof a trust interest is determined, informa-tion that will enable requesting personsto determine the redemption proceeds pertrust interest on that date. The trustee alsomust provide requesting persons with astatement that this paragraph applies to theNMWHFIT.

(2) NMWHFITs that qualify for theexception. This paragraph (c)(2)(v)(C)applies to a NMWHFIT if substantiallyall the income of the NMWHFIT con-sists of dividends (as defined in section6042(b) and the regulations thereunder)and the NMWHFIT satisfies either para-graph (c)(2)(v)(C)(2)(i) or (ii) of thissection. Trust sales proceeds and grossproceeds from a sale described in para-graph (c)(2)(iv)(G) of this section areignored for the purpose of determining ifsubstantially all of a NMWHFITs incomeconsists of dividends.

(i) The trustee is required by the gov-erning document of the NMWHFIT todetermine and distribute all cash heldfor distribution (as defined in paragraph(b)(5) of this section) no less frequentlythan monthly. A NMWHFIT will be con-sidered to have satisfied this paragraph(c)(2)(v)(C)(2)(i) notwithstanding that thegoverning document of the NMWHFITpermits the trustee to forego making arequired monthly or more frequent distri-bution, if the cash held for distribution isless than 0.1% of the aggregate net assetvalue of the trust as of the date specifiedin the governing document for calculatingthe amount of the monthly distribution.

(ii) The qualified NMWHFIT exceptionof paragraph (c)(2)(iv)(E) of this section issatisfied.

(vi) Information regarding bond pre-mium. The trustee generally must re-port information that enables a beneficialowner to determine, in any manner that isreasonably consistent with section 171, theamount of the beneficial owner’s amor-tizable bond premium, if any, for eachcalendar year. However, if a NMWHFITmeets the general de minimis test of para-graph (c)(2)(iv)(D)(1) of this section, the

qualified NMWHFIT exception of para-graph (c)(2)(iv)(E) of this section, or theNMWHFIT final calendar year exceptionof paragraph (c)(2)(iv)(F) of this section,the trustee of such NMWHFIT is not re-quired to report information regardingbond premium.

(vii) Information regarding marketdiscount. The trustee generally mustreport information that enables a benefi-cial owner to determine, in any mannerreasonably consistent with section 1276(including section 1276(a)(3)), the amountof market discount that has accrued dur-ing the calendar year. However, if aNMWHFIT meets the general de min-imis test of paragraph (c)(2)(iv)(D)(1) ofthis section, the qualified NMWHFIT ex-ception of paragraph (c)(2)(iv)(E) of thissection, NMWHFIT final calendar yearexception of paragraph (c)(2)(iv)(F) of thissection, the trustee of such NMWHFIT isnot required to provide information re-garding market discount.

(c)(3) through (f)(1)(i) [Reserved.]For further guidance, see §1.671–5(c)(3)through (e)(4).

(f) Safe harbor for providing informa-tion for certain NMWHFITs—(1) Safeharbor for trustee reporting of NMWHFITinformation. The trustee of a NMWHFITthat meets the requirements of paragraph(f)(1)(i) of this section is deemed to satisfyparagraph (c)(1)(i) of this section, if thetrustee calculates and provides WHFITinformation in the manner described inthis paragraph (f) and provides a statementto a requesting person giving notice thatinformation has been calculated in accor-dance with this paragraph (f)(1).

(i) In general—(A) Eligibility to reportunder this safe harbor. Only NMWHFITsthat meet the requirements set forth inparagraphs (f)(1)(i)(A)(1) and (2) of thissection may report under this safe har-bor. For purposes of determining whetherparagraph (f)(1)(i)(A)(1) is met, trust salesproceeds and gross proceeds from salesdescribed in paragraph (c)(2)(iv)(G) ofthis section are ignored.

(1) Substantially all of theNMWHFIT’s income is from divi-dends or interest; and

(2) All trust interests have identicalvalue and rights.

(f)(1)(i)(B) through (f)(vii) [Re-served.] For further guidance, see§1.671–5(f)(1)(i)(B) through (f)(vii).

September 5, 2006 360 2006–36 I.R.B.

(viii) Reporting market discount in-formation under the safe harbor—(A) Ingeneral. If the trustee of a NMWHFITis required to provide information re-garding market discount under paragraph(c)(2)(vii) of this section, the trustee mustprovide the information required under§1.671–5(f)(1)(iv)(A)(1)(iii) of this sec-tion. If the trustee is not required toprovide market discount information un-der paragraph (c)(2)(vii) of this section(because paragraph (c)(2)(iv) of this sec-tion applies to the NMWHFIT), the trusteeis not required under this paragraph (f) toprovide any information regarding marketdiscount.

(f)(1)(viii)(B) through (m) [Re-served.] For further guidance, see§1.671–5(f)(1)(viii)(B) through (m).

Mark E. Matthews,Deputy Commissioner forServices and Enforcement.

Approved July 28, 2006.

Eric Solomon,Acting Deputy Assistant

Secretary (Tax Policy).

(Filed by the Office of the Federal Register on July 28, 2006,4:15 p.m., and published in the issue of the Federal Registerfor August 3, 2006, 71 F.R. 43968)

Section 807.—Rules forCertain Reserves


Section 846.—DiscountedUnpaid Losses Defined


Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes of

sections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for September 2006.

Rev. Rul. 2006–44

This revenue ruling provides variousprescribed rates for federal income taxpurposes for September 2006 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (adjustedAFR) for the current month for purposesof section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described insection 382(f). Table 4 contains the ap-propriate percentages for determining thelow-income housing credit described insection 42(b)(2) for buildings placed inservice during the current month. Finally,Table 5 contains the federal rate for deter-mining the present value of an annuity, aninterest for life or for a term of years, ora remainder or a reversionary interest forpurposes of section 7520.

REV. RUL. 2006–44 TABLE 1

Applicable Federal Rates (AFR) for September 2006

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 5.13% 5.07% 5.04% 5.02%110% AFR 5.66% 5.58% 5.54% 5.52%120% AFR 6.17% 6.08% 6.03% 6.00%130% AFR 6.70% 6.59% 6.54% 6.50%

Mid-term

AFR 5.01% 4.95% 4.92% 4.90%110% AFR 5.52% 5.45% 5.41% 5.39%120% AFR 6.03% 5.94% 5.90% 5.87%130% AFR 6.54% 6.44% 6.39% 6.36%150% AFR 7.57% 7.43% 7.36% 7.32%175% AFR 8.85% 8.66% 8.57% 8.51%

Long-term

AFR 5.21% 5.14% 5.11% 5.09%110% AFR 5.73% 5.65% 5.61% 5.58%120% AFR 6.27% 6.17% 6.12% 6.09%130% AFR 6.79% 6.68% 6.63% 6.59%

2006–36 I.R.B. 361 September 5, 2006


Adjusted AFR for September 2006

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

3.65% 3.62% 3.60% 3.59%

Mid-term adjusted AFR 3.83% 3.79% 3.77% 3.76%

Long-term adjustedAFR

4.41% 4.36% 4.34% 4.32%


Rates Under Section 382 for September 2006

Adjusted federal long-term rate for the current month 4.41%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.52%


Appropriate Percentages Under Section 42(b)(2) for September 2006Appropriate percentage for the 70% present value low-income housing credit 8.19%

Appropriate percentage for the 30% present value low-income housing credit 3.51%


Rate Under Section 7520 for September 2006

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 6.0%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations


Section 7520.—ValuationTables


Section 7872.—Treatmentof Loans With Below-MarketInterest Rates


September 5, 2006 362 2006–36 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousInformation Reporting forQualified Tuition and RelatedExpenses

Notice 2006–72

This notice contains questions and an-swers that provide guidance on the infor-mation reporting requirements for quali-fied tuition and related expenses under sec-tion 6050S of the Internal Revenue Code(Code).

BACKGROUND

The Taxpayer Relief Act of 1997 (Pub-lic Law 105–34 (111 Stat. 788)) added sec-tion 6050S to the Code. In general, section6050S requires any eligible educationalinstitution (institution) to file informationreturns and to furnish information state-ments to assist taxpayers and the Servicein determining the amount of qualifiedtuition and related expenses (qualified ex-penses) for which an education tax creditis allowable under section 25A (as well asother tax benefits for higher education ex-penses). Congress amended section 6050Sin the Internal Revenue Service Restruc-turing and Reform Act of 1998 (PublicLaw 105–206 (112 Stat. 685)) and PublicLaw 107–131 (115 Stat. 2410) (simplifi-cation of reporting requirements relatingto higher education tuition and relatedexpenses). As amended for calendar yearsbeginning after December 31, 2002, sec-tion 6050S requires institutions to reporteither the aggregate amount of paymentsreceived, or the aggregate amount billed,for qualified tuition and related expenses(qualified expenses) during the calendaryear with respect to each individual en-rolled (a student) for any academic period.See Rev. Proc. 2005–50, 2005–32 I.R.B.272 (consent to change method of report-ing payments received or amounts billed).Institutions must separately report adjust-ments (i.e., refunds or reimbursementsof payments if an institution elects to re-port payments received, or reductions incharges if an institution elects to reportamounts billed) made during the calendaryear with respect to a student that relateto payments received, or amounts billed,for qualified expenses that the institu-tion reported for a prior calendar year. In

addition, institutions must report the ag-gregate amount of scholarships or grantsfor the payment of a student’s costs of at-tendance that the institution administeredand processed during the calendar year.Institutions must separately report reduc-tions made during the calendar year to theamount of scholarships or grants that theinstitution reported for a prior calendaryear.

On December 19, 2002, the TreasuryDepartment and the Service issued finalregulations under section 6050S describ-ing the information reporting requirementsfor institutions. See T.D. 9029, 2003–1C.B. 403 [67 FR 77678] (Dec. 19, 2002).The final regulations are applicable for in-formation returns required to be filed withthe Service, and information statements re-quired to be furnished to students, after De-cember 31, 2003. For prior years, institu-tions were not required to include dollaramounts relating to qualified expenses orscholarships and grants on information re-turns and information statements.

Section 1.6050S–1(b)(2)(iii) of theIncome Tax Regulations (regulations)provides that the amount of paymentsreceived for qualified expenses is deter-mined by netting the amount of paymentsreceived for qualified expenses duringthe calendar year against any reimburse-ments or refunds of qualified expensesmade during the calendar year that re-late to payments received for qualifiedexpenses during the same calendar year.Section 1.6050S–1(b)(3)(iii) provides thatthe amount billed for qualified expensesis determined by netting the amount billedfor qualified expenses during the calendaryear against any reductions in charges forqualified expenses made during the cal-endar year that relate to amounts billedfor qualified expenses during the samecalendar year.

Institutions are required to report thefollowing information on Form 1098–T,“Tuition Statement,” for calendar years2006 and after:

(1) The name, address, and taxpayeridentification number (TIN) of the institu-tion;

(2) The name, address, and TIN of thestudent;

(3) The amount of payments received(Box 1), or the amount billed (Box 2),for qualified expenses during the calendaryear;

(4) An indication whether an institutionhas changed its method of reporting (Box3);

(5) The amount of any reimbursementsor refunds of qualified expenses made dur-ing the calendar year that relate to pay-ments received for qualified expenses thatthe institution reported for a prior calen-dar year, or the amount of any reductionsin charges made during the calendar yearthat relate to amounts billed for qualifiedexpenses that the institution reported for aprior calendar year (Box 4);

(6) The amount of any scholarships orgrants that the institution administered andprocessed during the calendar year (Box5);

(7) The amount of any reductions toscholarships or grants that the institutionreported for a prior calendar year (Box 6);

(8) An indication whether any amountsbilled, or payments received, for qualifiedexpenses reported for the calendar year re-late to an academic period that begins dur-ing the first three months of the followingcalendar year (Box 7);

(9) An indication whether the studentwas enrolled at least half-time for at leastone academic period that began during thecalendar year (Box 8); and

(10) An indication whether the studentwas enrolled in a graduate-level degreeprogram during the calendar year (Box 9).

For rules on when a student mayclaim an education tax credit, see sec-tion 1.25A–5(e).

DISCUSSION

Q–1. Must an institution reportamounts billed, or payments received,for a student who is not enrolled for anacademic period during the calendar yearwhen the institution bills the student, orreceives payment, for qualified expenses,if the student will be enrolled for the firsttime for an academic period during thefollowing calendar year?

A–1. No. Section 6050S(b)(2)(A) ofthe Code provides that institutions shallreport only for students who are enrolledfor an academic period beginning during

2006–36 I.R.B. 363 September 5, 2006

the calendar year (or enrolled for an aca-demic period in a prior calendar year) andfor whom a transaction which is requiredto be reported is made during the calen-dar year. This rule applies whether theinstitution elects to report amounts billed(see section 1.6050S–1(b)(3) of the regula-tions) or elects to report payments received(see section 1.6050S–1(b)(2)).

Section 1.6050S–1(d)(1) of the regula-tions permits an institution to determinethe enrollment status of a student for eachacademic period under its own rules andpolicies, or as of any of the followingdates:

(1) 30 days after the first day of theacademic period;

(2) A date during the academic periodon which enrollment data must be col-lected for purposes of the Integrated PostSecondary Education Data System admin-istered by the Department of Education; or

(3) A date during the academic periodon which the institution must report en-rollment data to the State, the institution’sgoverning body, or some other externalgoverning body.

Q–2. Must an institution report for highschool students attending classes at theinstitution prior to graduation from highschool?

A–2. An institution must report for anystudent if the institution considers the stu-dent to be enrolled and a transaction forwhich reporting is required is made duringthe year with respect to the student.

Q–3. Must an institution report if a stu-dent is not enrolled for an academic periodduring the calendar year in which the in-stitution makes an adjustment to amountsthat the institution reported for a prior yearin which the student was enrolled? For ex-ample, Student A was enrolled for an aca-demic period during calendar year 2005.During 2005, Institution X bills Student A$3,000 for qualified expenses and reportsthese amounts in Box 2. In 2005, after thetuition bill is sent, Student A reduces hiscourseload. During calendar year 2006,Institution X credits Student A’s accountwith $200, reflecting a $200 reduction incharges for 2005. Student A is not enrolledfor any academic period during calendaryear 2006.

A–3. Yes. Section 6050S(b)(2)(A)of the Code and section 1.6050S–1(b)(2)and (b)(3) of the regulations provide thatan institution must report for each stu-

dent enrolled for an academic period in aprior year (or enrolled for an academic pe-riod beginning during the calendar year)for whom an adjustment as described insections 1.6050S–1(b)(2)(ii)(F) or (G) or1.6050S–1(b)(3)(ii)(F) or (G) is made dur-ing the calendar year. Accordingly, forcalendar year 2006, Institution X must re-port in Box 4 the $200 adjustment madeto amounts reported in Box 2 for calendaryear 2005, even though Student A is notenrolled for an academic period during cal-endar year 2006.

Q–4. If an institution is not required toreport because an exception to reportingunder 1.6050S–1(a)(2) of the regulationsapplies to a category of students, may aninstitution nevertheless choose to report?

A–4. Yes. An institution that is notrequired to report because an exceptionto reporting applies to a category of stu-dents may nevertheless choose to report.Section 1.6050S–1(a)(1) of the regulationsdoes not preclude optional reporting.

Q–5. Must an institution report if theregulations provide an exception to report-ing for a category of students (other thannon-resident alien individuals) and a stu-dent within that category requests the in-stitution to report for a calendar year?

A–5. No. An institution is not re-quired to report if an exception under sec-tion 1.6050S–1(a)(2)(ii)-(iv) of the regula-tions applies to a category of students anda student within that category requests thatthe institution report for a calendar year.

Q–6. In what circumstances must aninstitution report with respect to a studentwho is a non-resident alien individual?

A–6. Section 1.6050S–1(a)(2)(i) of theregulations provides that no reporting is re-quired for non-resident alien individuals,unless the non-resident alien individual re-quests the institution to report for a calen-dar year. If a student who is a non-resi-dent alien individual requests that the insti-tution report for a calendar year, the insti-tution must report with respect to that stu-dent, unless another exception under sec-tion 1.6050S–1(a)(2) applies. If a non-res-ident alien individual falls within a cate-gory of students covered by an exceptionunder section 1.6050S–1(a)(2)(ii)-(iv) ofthe regulations for the calendar year, theinstitution is not required to report, even ifthe student requests the institution to reportfor the calendar year. See Q&A–5, above.

Q–7. The regulations provide an ex-ception to reporting if a student’s qualifiedexpenses are covered by a “formal billingarrangement.” What is a formal billing ar-rangement, and who may be a payor undera formal billing arrangement?

A–7. Section 1.6050S–1(a)(2)(iv)(B)of the regulations provides that a formalbilling arrangement is an arrangement inwhich the institution: (1) bills only an em-ployer or a governmental entity for educa-tion that the institution furnishes to a stu-dent and (2) does not maintain a separatefinancial account for the student. Wherean employer is billed for a student’s quali-fied expenses, the student must be an em-ployee of the employer. Similar agree-ments with other institutional third partypayors will also qualify as formal billingarrangements if the Service so determinesin further published guidance or in a rulingor determination issued to the participants.

Q–8. What amounts must an institutionreport in Box 5 as scholarships or grants?

A–8. Section 6050S(b)(2)(B)(ii) of theCode provides that an institution must re-port the amount of any grants that the in-stitution administered and processed dur-ing the calendar year for the payment of thestudent’s costs of attendance. A student’scosts of attendance may include both qual-ified expenses (such as tuition and requiredfees) and non-qualified expenses (such asroom and board). The institution shouldreport these amounts in Box 5. A quali-fied tuition reduction described in section117(d) of the Code is not a scholarship orgrant, and accordingly, should not be re-ported in Box 5; but such a reduction isrelevant in determining the net amount re-ported in Box 2 if the institution elects toreport amounts billed.

Whether an institution reported schol-arship or grant amounts in Box 5 is notconsidered in determining amounts to bereported as payments received (Box 1) oras amounts billed (Box 2) for qualifiedexpenses. An institution that elects toreport payments received for qualified ex-penses generally must include the amountof scholarships and grants in Box 1, ex-cept any scholarship or grant that by itsterms must be applied to expenses otherthan qualified expenses, such as room andboard (see section 1.6050S–1(b)(2)(v) ofthe regulations). An institution that electsto report amounts billed for qualified

September 5, 2006 364 2006–36 I.R.B.

expenses may not reduce the amount re-ported in Box 2 by scholarships or grants.

Q–9. The regulations require an insti-tution to report separately any reimburse-ments or refunds of qualified expenses (ifan institution reports payments received)or any reductions in charges (if the insti-tution reports amounts billed), and any re-ductions to scholarships, made during thecalendar year that relate to amounts the in-stitution reported for a prior calendar year.Does “a prior calendar year” refer to anyprior calendar year for which reportingwas required, or only the immediately pre-ceding calendar year for which reportingwas required?

A–9. The separate reporting require-ment in section 6050S(b)(2)(B)(iii) of theCode applies to any prior calendar yearfor which reporting was required, and notonly to the immediately preceding calen-dar year.

Q–10. Must an institution that volun-tarily reported dollar amounts for calendaryears before 2003 report with respect toadjustments in a later calendar year that re-late to qualified expenses and scholarshipsor grants reported for calendar years before2003?

A–10. The reporting of adjustments ina later calendar year that relate to quali-fied expenses and scholarships or grantsreported for calendar years before 2003 isvoluntary, as was the original reporting.

Q–11. If an institution elects to reportamounts billed, how must the institutionreport increases in certain charges and re-ductions in other charges for the calendaryear if the increases and reductions relateto amounts reported for a prior calendaryear? For example, in December 2005,an institution bills $1,000 for tuition and$50 for required fees for the 2006 Springterm that will begin in January 2006. InJanuary 2006, the institution bills an addi-tional $200 for tuition for the 2006 Springterm and reduces the charges for the pre-viously billed required fees by $10 for the2006 Spring term. In August 2006, theinstitution bills $1,000 for tuition for the2006 Fall term. How must the institutionreport for calendar year 2005 and calendaryear 2006?

A–11. Section 6050S of the Coderequires reporting based on transactionsthat occur during a calendar year. Thisincludes transactions which may relate toan academic period in a prior calendar

year. Section 1.6050S–1(b)(3)(ii)(c) ofthe regulations provides that an institutionthat elects to report amounts billed forqualified expenses must report the amountbilled for qualified expenses with respectto the student during the calendar year.Accordingly, for calendar year 2005, theinstitution must report $1,050 in Box 2.For calendar year 2006, the institutionmust aggregate the $200 billed for the2006 Spring term and the $1,000 billed forthe 2006 Fall term and report $1,200 inBox 2. In addition, as provided in section1.6050S–1(b)(3)(iv), the institution mustseparately report in Box 3 the $10 reduc-tion in charges made during calendar year2006 that relates to amounts previouslyreported in Box 2 for calendar year 2005.

Q–12. If an institution elects to reportpayments received for qualified expenses,must an institution report payments forqualified expenses that it receives with re-spect to a student during the calendar yearif the payment relates to an academic pe-riod that began during a prior calendaryear?

A–12. Yes. Under section 1.6050S–1(b)(2) of the regulations, the institutionmust report all payments of qualified ex-penses received during the calendar year,even if one or more of the payments relateto an academic period that began during aprior calendar year.

Q–13. If an institution elects to reportamounts billed for qualified expenses, howmust the institution report amounts billedfor qualified expenses during one calendaryear if the institution administers and pro-cesses a scholarship or grant in the follow-ing calendar year for the same qualified ex-penses? For example, an institution bills$1,000 for qualified expenses for the 2006Spring term in December 2005. In January2006, the institution administers and pro-cesses a scholarship for the same qualifiedexpenses for the 2006 Spring term.

A–13. Section 6050S of the Coderequires reporting based on transac-tions that occur during a calendar year.For calendar year 2005, under section1.6050S–1(b)(3)(i) of the regulations, theinstitution must report in Box 2 the $1,000billed during the calendar year in Box2. For calendar year 2006, under sec-tion 1.6050S–1(b)(3)(ii)(E), the institutionmust report in Box 5 the scholarship itadministered and processed during 2006for the 2006 Spring term, even though

the scholarship relates to amounts billedduring calendar year 2005 for the sameacademic period. In addition, becausescholarships or grants are not reductionsin charges, they are not included in theamount reported in Box 4 as adjustmentsto amounts reported in Box 2 for calendaryear 2005.

Q–14. Should an institution include anynegative numbers on Form 1098–T?

A–14. No. Section 1.6050S–1(b)(1)of the regulations provides that, for pur-poses of section 1.6050S–1(b)(2), anadjustment to payments received meansa reimbursement or refund. In addition,section 1.6050S–1(b)(1) provides that,for purposes of section 1.6050S–1(b)(3),an adjustment to amounts billed means areduction in charges. Any adjustments toamounts billed or payments received (asapplicable) reported for a prior year, andany reductions to scholarships or grantsreported for a prior year, reflect down-ward adjustments. These adjustments arereported as positive numbers in Box 4 orBox 6, respectively.

Q–15. Must an institution report adjust-ments made during a calendar year if theadjustment relates to amounts not reportedfor a prior calendar year because an excep-tion to reporting applied for the prior cal-endar year?

A–15. No. Under section 6050S(b)(2)(B)(iii) of the Code, an institution mustreport adjustments made during a calen-dar year that relate to amounts that werereported for a prior calendar year. If anamount was not reported for a prior calen-dar year because an exception to reportingapplied for the prior calendar year, a re-lated adjustment need not be reported un-der this section.

Q–16. Can an adjustment made duringa calendar year exceed the amounts billedor payments received (as applicable) forqualified expenses that an institution re-ported for the immediately preceding cal-endar year?

A–16. Adjustments made during acalendar year may relate to amounts previ-ously reported for multiple prior calendaryears. In this situation, the adjustmentsmay exceed the amount reported for theimmediately preceding calendar year. Forexample, an institution reported $5,000billed for qualified expenses for calendaryear 2004 and $4,000 billed for calendaryear 2005. In calendar year 2006, the in-

2006–36 I.R.B. 365 September 5, 2006

stitution reduces the charges for 2004 by$2,000 and reduces the charges for 2005by $3,000. In this situation, for calen-dar year 2006, the institution must report$5,000 in Box 4 as adjustments made dur-ing the calendar year that relate to amountsreported for prior calendar years, whichexceeds the amount reported as billed inthe preceding calendar year.

Q–17. Why does Form 1098–T includeBox 8, the “half-time indicator?”

A–17. Section 25A of the Codeprovides, among other things, that theHope Scholarship Credit is allowable foramounts paid for qualified expenses onlyfor students enrolled at least half-time forone academic period that begins duringthe calendar year. Box 8 provides theService with an indication that the HopeScholarship Credit may be allowable forthe student’s qualified expenses.

Q–18. When should an institutioncheck Box 8?

A–18. An institution should checkBox 8 if for at least one academic periodthat began during the calendar year thestudent was enrolled for at least one-halfof the normal full-time work load for thecourse of study the student is pursuing.The standard for what is half of the normalfull-time work load is determined by eachinstitution, but the standard may not belower than the standard established by theU.S. Department of Education. See sec-tion 1.25A–3(d)(1)(ii) of the regulations.

Q–19. Should an institution check Box8 if a student is not enrolled at least half-time during the calendar year when the in-stitution bills, or receives payments, forqualified expenses, but the student will beenrolled at least-half time in the followingcalendar year?

A–19. No. If a student is not enrolledat least half-time for at least one academicperiod that begins during the calendar yearfor which reporting is required, the institu-tion should not check Box 8.

Q–20. Why does Form 1098–T includeBox 9, the “graduate-level indicator?”

A–20. Section 25A of the Code pro-vides, among other things, that the HopeScholarship Credit is allowable only forqualified expenses of a student who has notcompleted the first two years of post-sec-ondary education; however, the LifetimeLearning Credit is available beyond thefirst two years of post-secondary educa-tion. Box 9 assists the Service in mon-

itoring compliance with respect to a stu-dent’s eligibility for the Hope ScholarshipCredit or the Lifetime Learning Credit. IfBox 9 is checked, the Service is alerted tothe fact that the Hope Scholarship Creditis not allowable for the student’s qualifiedexpenses because the student is beyond thefirst two years of post-secondary educationand that the Lifetime Learning Credit maybe allowable.

Q–21. When should an institutioncheck Box 9?

A–21. An institution should check Box9 if the student was enrolled as a graduatestudent during the calendar year.

Q–22. Should an institution check Box9 if a student is not a graduate student dur-ing the calendar year when the institutionbills, or receives payment, for qualified ex-penses, but the student will be a gradu-ate student during the following calendaryear?

A–22. No. The institution should notcheck Box 9 unless the student is enrolledas a graduate student for at least one aca-demic period during the calendar year forwhich reporting is required.

Q–23. What telephone number mustan institution include on the informationstatement furnished to the student?

A–23. Section 1.6050S–1(c)(1)(iii)(G)of the regulations requires institutions toinclude the telephone number of the infor-mation contact of the institution (i.e., notthe institution’s general telephone num-ber). The institution information contactmust be an individual, or a department,that can answer questions about the infor-mation statement. The institution may notlist only the institution’s general telephonenumber. In addition, an institution may in-clude information of a third-party serviceprovider who may also answer questionsabout the information statement.


The principal author of this notice isKaren E. Briscoe of the Office of AssociateChief Counsel (Procedure & Administra-tion). For further information regardingthis notice, contact Mrs. Briscoe at (202)622–4910 (not a toll-free call).

Weighted Average InterestRate Modification

Notice 2006–75

This notice provides guidance as to thedetermination of the weighted average in-terest rate and the resulting permissiblerange of interest rates used to calculate cur-rent liability for the purpose of the addi-tional funding requirements under § 412(l)of the Internal Revenue Code (Code) andthe minimum full funding limitation of§ 412(c)(7)(E), and the corresponding re-quirements and limitation under sections302(c)(7)(E) and 302(d) of the EmployeeRetirement Income Security Act of 1974(ERISA), as in effect for plan years begin-ning in 2006 and 2007. This notice imple-ments changes to the rules regarding thoseinterest rates that were enacted by § 301 ofthe Pension Protection Act of 2006, Pub.L. No. 109–280 (PPA ’06).

BACKGROUND

Section 412 of the Code, and the cor-responding requirements of section 302 ofERISA, set forth minimum funding stan-dards that apply to certain plans. Title Iof PPA ’06, enacted on August 17, 2006,makes extensive changes to the rules of§ 412 of the Code and section 302 ofERISA, generally applicable to plan yearsbeginning on or after January 1, 2008. Inaddition, section 301 of PPA ’06 makescertain changes to the minimum fundingrules that apply to earlier plan years. Forpurposes of this notice, all references to§ 412 refer to § 412 of the Code withoutregard to the amendments made by Title Iof PPA ’06.

PRIOR LAW

Under § 412(b)(5)(A), the funding stan-dard account (and items therein) must becharged or credited with interest at the ap-propriate rate consistent with the rate orrates of interest used under the plan to de-termine costs.

Section 412(b)(5)(B) provides specialrules for the interest rate that is used todetermine a plan’s current liability forpurposes of § 412(l) and for purposes ofthe minimum full funding limitation under§ 412(c)(7)(E). In general, that interestrate must fall within a specified corridorbased on the weighted average of the rates

September 5, 2006 366 2006–36 I.R.B.

of interest on 30-year Treasury constantmaturities during the 4-year period end-ing on the last day before the beginningof the plan year, as published monthly inthe Internal Revenue Bulletin. See No-tice 88–73, 1988–2 C.B. 383, and Notice2006–8, 2006–5 I.R.B. 386.

Section 412(b)(5)(B)(ii) provides a spe-cial rule that applies for plan years begin-ning in 2004 and 2005. Under that spe-cial rule, the interest rate used to deter-mine current liability must not be aboveand must not be more than 10 percentbelow the weighted average of the ratesof interest on amounts invested conserva-tively in long-term investment-grade cor-porate bonds during the 4-year period end-ing on the last day before the beginning ofthe plan year. In Notice 2004–34, 2004–1C.B. 848, the Treasury Department pre-scribed the method for periodically deter-mining the corporate rates, and made the

permissible range, indices and methodol-ogy used to determine the average ratepublicly available.

Section 412(l)(7)(C)(i)(II) generallyprovides that, for plan years beginningafter 1999, the interest rate used to de-termine the deficit reduction contribu-tion must be not more than 105% of theweighted average interest rate (or 120%of the weighted average interest rate forplan yeas beginning in 2002 and 2003).Section 412(l)(7)(C)(i)(IV) provided that,for plan years beginning in 2004 and 2005,the interest rate used to determine currentliability for purposes of determining thedeficit reduction contribution must be thesame as the rate used under § 412(b)(5).

PENSION PROTECTION ACT OF 2006

Section 301(b) of PPA ’06 amends§ 412(b)(5)(B)(ii)(II) to extend the use

of the corporate bond weighted averagefor plan years beginning in 2006 and2007. Section 412(l)(7)(C)(i)(IV) is alsoamended by extending the use of the cor-porate bond weighted average for planyears beginning in 2006 and 2007. Cor-responding changes were made to theparallel ERISA provisions.

This notice provides the composite cor-porate bond rates from December, 2005through July, 2006, and the resulting cor-porate bond weighted averages for planyears beginning in the months from Jan-uary, 2006 through August, 2006. Theseinterest rates have been computed in accor-dance with the methodology and using theindices set forth in Notice 2004–34.

For Plan YearsCompositeCorporate

CorporateBond

Beginning in: Bond Weighted Permissible RangeMonth Year Rate Average 90% 100%

December 2005 5.72

January 2006 5.65 5.77 5.19 5.77February 2006 5.73 5.75 5.18 5.75March 2006 5.89 5.75 5.17 5.75

April 2006 6.18 5.74 5.17 5.74May 2006 6.29 5.74 5.17 5.74June 2006 6.31 5.75 5.18 5.75

July 2006 6.30 5.77 5.19 5.77August 2006 5.78 5.20 5.78


The principal author of this notice isTony Montanaro of the Employee Plans,Tax Exempt and Government Entities Di-

vision. For further information regardingthis notice, please contact the EmployeePlans’ taxpayer assistance telephone ser-vice at 1–877–829–5500 (a toll-free num-ber), between the hours of 8:30 a.m. and

4:30 p.m. Eastern time, Monday throughFriday. Mr. Montanaro may be reached at1–202–283–9714 (not a toll-free number).

2006–36 I.R.B. 367 September 5, 2006

Part IV. Items of General InterestNotice of ProposedRulemaking and Notice ofPublic Hearing

Definition of Taxpayer forPurposes of Section 901 andRelated Matters

REG–124152–06


ACTION: Notice of proposed rulemakingand notice of public hearing.

SUMMARY: These proposed regulationsprovide guidance relating to the determi-nation of who is considered to pay a for-eign tax for purposes of sections 901 and903. The proposed regulations affect tax-payers that claim direct and indirect for-eign tax credits.

DATES: Written or electronic commentsmust be received by October 3, 2006. Out-lines of topics to be discussed at the publichearing scheduled for October 13, 2006,must be received by October 3, 2006.

ADDRESSES: Send submissions toCC:PA:LPD:PR (REG–124152–06),Room 5203, Internal Revenue Ser-vice, P.O. Box 7604, Ben Franklin Sta-tion, Washington, DC 20044. Submis-sions may be sent electronically via theIRS Internet site at www.irs.gov/regsor via the Federal eRulemaking Por-tal at www.regulations.gov (IRS andREG–124152–06). The public hearingwill be held in the Auditorium, InternalRevenue Service, New Carrollton Build-ing, 5000 Ellin Road, Lanham, MD 20706.

FOR FURTHER INFORMATIONCONTACT: Concerning submissionof comments, the hearing, and/or tobe placed on the building access listto attend the hearing, Kelly Banks([email protected]);concerning the regulations, Bethany A.Ingwalson, (202) 622–3850 (not a toll-freenumber).


Background

Section 901 of the Internal RevenueCode (Code) permits taxpayers to claim acredit for income, war profits, and excessprofits taxes paid or accrued during thetaxable year to any foreign country or toany possession of the United States. Sec-tion 903 of the Code permits taxpayers toclaim a credit for a tax paid in lieu of anincome tax.

Section 1.901–2(f)(1) of the current fi-nal regulations provides that the personby whom tax is considered paid for pur-poses of sections 901 and 903 is the personon whom foreign law imposes legal liabil-ity for such tax. This legal liability ruleapplies even if another person, such as awithholding agent, remits the tax. Section1.901–2(f)(3) provides that if foreign in-come tax is imposed on the combined in-come of two or more related persons (forexample, a husband and wife or a corpo-ration and one or more of its subsidiaries)and they are jointly and severally liablefor the tax under foreign law, foreign lawis considered to impose legal liability oneach such person for the amount of the for-eign income tax that is attributable to itsportion of the base of the tax, regardless ofwhich person actually pays the tax.

The existing final regulations were pub-lished in 1983. Since that time, numerousquestions have arisen regarding the ap-plication of the legal liability rule to factpatterns not specifically addressed in theregulations or the case law. These includesituations in which the members of a for-eign consolidated group may not have inthe U.S. sense the full equivalent of jointand several liability for the group’s con-solidated tax liability, and cases in whichthe person whose income is included inthe foreign tax base is not the person whois obligated to remit the tax. Courts havereached inconsistent conclusions on thesematters. Compare Nissho Iwai AmericanCorp. v. Commissioner, 89 T.C. 765,773–74 (1987), Continental Illinois Corp.v. Commissioner, 998 F.2d 513 (7th Cir.1993), cert. denied, 510 U.S. 1041 (1994),

Norwest Corp v. Commissioner, 69 F.3d1404 (8th Cir. 1995), cert. denied, 517U.S. 1203 (1996), Riggs National Corp.& Subs. v. Commissioner, 107 T.C. 301,rev’d and rem’d on another issue, 163F.3d 1363 (D.C. Cir. 1999) (all holdingthat U.S. lenders had legal liability fortax imposed on their interest income fromBrazilian borrowers, notwithstanding thatunder Brazilian law the tax could onlybe collected from the borrowers) withGuardian Industries Corp. & Subs. v.United States, 65 Fed. Cl. 50 (2005), ap-peal docketed, No. 2006–5058 (Fed. Cir.December 19, 2005) (concluding that thesubsidiary corporations in a Luxembourgconsolidated group had no legal liabilityfor tax imposed on their income, becauseunder Luxembourg law the parent corpo-ration was solely liable to pay the tax).

Questions have also arisen regardingthe application of the legal liability ruleto entities that have different classifica-tions for U.S. and foreign tax law pur-poses (e.g., hybrid entities and reverse hy-brids). This is particularly the case fol-lowing the promulgation of §§301.7701–1through –3 (the check the box regulations)in 1997. A hybrid entity is an entity thatis treated as a taxable entity (e.g., a cor-poration) under foreign law and as a part-nership or disregarded entity for U.S. taxpurposes. For purposes of these regula-tions, a reverse hybrid is an entity that isa corporation for U.S. tax purposes but istreated as a pass-through entity for for-eign tax purposes (i.e., income of the en-tity is taxed under foreign law at the ownerlevel). Current §1.901–2(f) does not ex-plicitly address how to determine the per-son that is considered to pay foreign taximposed on the income of hybrid entitiesor reverse hybrids.

The IRS and the Treasury Depart-ment have determined that the regulationsshould be updated to clarify the appli-cation of the legal liability rule in thesesituations, and request comments on addi-tional matters that should be addressed inpublished guidance.

September 5, 2006 368 2006–36 I.R.B.

Explanation of Provisions

A. Overview

The IRS and Treasury Department havereceived substantial comments as to mat-ters that may be addressed under the le-gal liability rule of §1.901–2(f). Thesematters include rules relating to the treat-ment of foreign consolidated groups, re-verse hybrids, hybrid entities, hybrid in-struments and payments, and other issues.The proposed regulations would provideguidance on foreign consolidated groups,reverse hybrids, and hybrid entities. How-ever, the proposed regulations reserve onissues relating to hybrid instruments andpayments, specifically on the question ofwho is considered to pay tax imposed onincome attributable to amounts paid or ac-crued between related parties under a hy-brid instrument or payments that are disre-garded for U.S. tax purposes. These andother issues will be addressed in a subse-quent guidance project.

The proposed regulations would retainthe general principle that tax is consideredpaid by the person who has legal liabil-ity under foreign law for the tax. How-ever, the proposed regulations would fur-ther clarify application of the legal liabil-ity rule in situations where foreign law im-poses tax on the income of one person butrequires another person to remit the tax.The proposed regulations make clear thatforeign law is considered to impose le-gal liability for income tax on the personwho is required to take such income intoaccount for foreign tax purposes even ifanother person has the sole obligation toremit the tax (subject to the above-refer-enced reservation for hybrid instrumentsand payments).

The proposed regulations would pro-vide detailed guidance regarding how totreat taxes paid on the combined incomeof two or more persons. First, the pro-posed regulations would clarify the appli-cation of §1.901–2(f) to foreign consoli-dated-type regimes where the members arenot jointly and severally liable in the U.S.sense for the group’s tax. The proposedregulations would make clear that the for-eign tax must be apportioned among allthe members pro rata based on the rela-tive amounts of net income of each mem-ber as computed under foreign law. Theproposed regulations would provide guid-

ance in determining the relative amountsof net income.

Second, the proposed regulationswould revise §1.901–2(f) to provide thata reverse hybrid is considered to have le-gal liability under foreign law for foreigntaxes imposed on an owner of the reversehybrid in respect of the owner’s share ofincome of the reverse hybrid. The reversehybrid’s foreign tax liability would bedetermined based on the portion of theowner’s taxable income (as computed un-der foreign law) that is attributable to theowner’s share of the income of the reversehybrid.

Third, the proposed regulations wouldclarify that a hybrid entity that is treated asa partnership for U.S. income tax purposesis legally liable under foreign law for for-eign income tax imposed on the income ofthe entity, and that the owner of an entitythat is disregarded for U.S. income tax pur-poses is considered to have legal liabilityfor such tax.

These provisions are discussed in moredetail below.

B. Legal Liability under Foreign Law

Section 1.901–2(f)(1)(i) of the pro-posed regulations clarifies that, except forincome attributable to related party hybridpayments described in §1.901–2(f)(4),foreign law is considered to impose le-gal liability for income tax on the personwho is required to take such income intoaccount for foreign tax purposes. Thisparagraph of the proposed regulations fur-ther clarifies that such person has legalliability for the tax even if another personis obligated to remit the tax, another per-son actually remits the tax, or the foreigncountry (defined in §1.901–2(g) to includepolitical subdivisions and U.S. posses-sions) can proceed against another personto collect the tax in the event the tax is notpaid.

Similarly, §1.902–1(f)(1)(ii) of the pro-posed regulations clarifies that, in the caseof a tax imposed with respect to a baseother than income, foreign law is consid-ered to impose legal liability for the tax onthe person who is the owner of the tax basefor foreign tax purposes. Thus, in the caseof a gross basis withholding tax that qual-ifies as a tax in lieu of an income tax un-der §1.903–1(a), the proposed regulationsprovide that the person that is considered

under foreign law to earn the income onwhich the foreign tax is imposed has legalliability for the tax, even if the foreign taxcannot be collected from such person.

The IRS and Treasury Departmentrequest comments on whether the regu-lations should provide a special rule onwhere legal liability resides in the case ofwithholding taxes imposed on an amountreceived by one person on behalf of thebeneficial owner of such amount. In cer-tain cases, a foreign country may considerthe recipient to earn income (or be theowner of the tax base) while the UnitedStates considers the recipient to be a nomi-nee receiving the payment on behalf of thebeneficial owner. Comments should focuson how a special rule for such nomineearrangements could be narrowly drawnto prevent opportunities for abuse whilemaintaining the administrative advantagesof the legal liability rule, which generallyoperates to classify as the taxpayer theperson who is in the best position to provethe tax was required to be, and actuallywas, paid.

C. Taxes Imposed on Combined Income

1. Foreign Consolidated Groups

The IRS and Treasury Department be-lieve that §1.901–2(f)(1) of the currentfinal regulations requires allocation offoreign consolidated tax liability amongthe members of a foreign consolidatedgroup pro rata based on each member’sshare of the consolidated taxable incomeincluded in the foreign tax base. In ad-dition, the IRS and Treasury Departmentbelieve that §1.901–2(f)(3) confirms thisrule in situations in which foreign con-solidated regimes impose joint and sev-eral liability for the group’s tax on eachmember. With respect to a foreign con-solidated-type regime where the membersdo not have the full equivalent of jointand several liability in the U.S. sense,or where the income of the consolidatedgroup members is attributed to the parentcorporation in computing the consolidatedtaxable income, the current regulations donot include a specific illustration of howthe consolidated tax should be allocatedamong the members of the group for for-eign tax credit purposes.

Thus, the IRS and Treasury Departmentbelieve that §1.901–2(f)(1) of the current

2006–36 I.R.B. 369 September 5, 2006

final regulations requires as a general rulepro rata allocation of foreign tax amongthe members of a foreign consolidatedgroup, and that §1.901–2(f)(3) illustratesthe application of the general rule in caseswhere the group members are jointly andseverally liable for that consolidated tax.Failure to allocate appropriately the con-solidated tax among the members of thegroup may result in a separation of foreigntax from the income on which the tax isimposed. This type of splitting of foreigntax and income is contrary to the generalpurpose of the foreign tax credit to relievedouble taxation of foreign-source income.Accordingly, §1.901–2(f)(2) of the pro-posed regulations would explicitly coverall foreign consolidated-type regimes,including those in which the regime im-poses joint and several liability in the U.S.sense, those in which the regime treatssubsidiaries as branches of the parent cor-poration (or otherwise attributes incomeof subsidiaries to the parent corporation),and those in which some of the groupmembers have limited obligations, or evenno obligation, to pay the consolidated tax.Several significant commentators recom-mended that the regulations be clarified inthis manner.

The proposed regulations would definecombined income to include cases wherethe foreign country initially recognizes thesubsidiaries as separate taxable entities,but pursuant to the applicable consolidatedtax regime treats subsidiaries as branchesof the parent, requires or treats all incomeas distributed to the parent, or otherwise at-tributes all income to the parent. This ap-proach will minimize the need for exten-sive analysis of the intricacies of the rel-evant foreign consolidated tax regime, bytreating a foreign subsidiary as legally li-able for its share of the consolidated taxwithout regard to the precise mechanics ofthe foreign consolidated regime. This ap-proach will not only reduce inappropriateforeign tax credit splitting but will also re-duce administrative burdens on taxpayersand the IRS.

Section 1.902–1(f)(2) of the proposedregulations retains the general principlethat the foreign tax must be apportionedamong the persons whose income is in-cluded in the combined base pro ratabased on the relative amounts of net in-come of each person as computed underforeign law. As under current law, this

rule would apply regardless of which per-son is obligated to remit the tax, whichperson actually remits the tax, and whichperson the foreign country could proceedagainst to collect the tax in the event allor a portion of the tax is not paid. Under§1.902–1(f)(2)(i), person for this purposeincludes a disregarded entity.

2. Reverse Hybrid Entities

The proposed regulations would revise§1.901–2(f) to provide that a reverse hy-brid is considered to have legal liabilityunder foreign law for foreign taxes im-posed on the owners of the reverse hybridin respect of each owner’s share of the re-verse hybrid’s income. Proposed regula-tion §1.902–1(f)(2)(iii). This rule is nec-essary to prevent the inappropriate sepa-ration of foreign tax from the related in-come and to prevent dissimilar treatmentof foreign consolidated groups and foreigngroups containing reverse hybrids, whichare treated identically for U.S. tax pur-poses. Under the proposed rule, the re-verse hybrid’s foreign tax liability wouldbe determined based on the portion of theowner’s taxable income (as computed un-der foreign law) that is attributable to theowner’s share of the reverse hybrid’s in-come. Thus, for example, if an owner ofa reverse hybrid has no other income onwhich tax is imposed by the foreign coun-try, then the entire amount of foreign taxthat is imposed on the owner is treated asattributable to the reverse hybrid for U.S.income tax purposes and, accordingly, istax for which the reverse hybrid has le-gal liability. This rule would apply irre-spective of whether the owner and the re-verse hybrid are located in the same for-eign country. If the owner pays tax to morethan one foreign country with respect to in-come of the reverse hybrid, tax paid to eachforeign country would be separately appor-tioned on the basis of the income includedin that country’s tax base. The treatmentof reverse hybrids in the proposed regula-tions is consistent with the treatment rec-ommended by a significant commentator.

3. Apportionment of Tax on CombinedIncome

Section 1.901–2(f)(2)(iv) of the pro-posed regulations includes rules for deter-mining each person’s share of the com-bined income tax base, generally relying

on foreign tax reporting of separate tax-able income or books maintained for thatpurpose. The regulations provide that pay-ments between group members that resultin a deduction under both U.S. and foreigntax law will be given effect in determin-ing each person’s share of the combinedincome, but, as noted above, explicitlyreserve with respect to the effect of hybridinstruments and disregarded paymentsbetween related parties (to be dealt within a separate guidance project). Specialrules address the effect of dividends (anddeemed dividends) and net losses of groupmembers on the determination of separatetaxable income.

Once an amount of foreign tax is deter-mined to be paid by a consolidated groupmember or reverse hybrid under the com-bined income rule, applicable provisionsof the Code would determine the specificU.S. tax consequences of that treatment.For example, a parent corporation’s pay-ment of tax on its subsidiary’s share ofconsolidated taxable income, or the pay-ment of tax by the owner of a reverse hy-brid with respect to its share of the incomeof the reverse hybrid, ordinarily would re-sult in a capital contribution to the sub-sidiary or reverse hybrid. Further, undersections 902 and 960, domestic corporateowners that own 10 percent or more of aforeign corporation’s voting stock are eli-gible to claim indirect credits. Thus, do-mestic corporations that are considered toown 10 percent or more of a reverse hy-brid’s voting stock would be able to claimindirect credits for the taxes attributable tothe earnings of the reverse hybrid that aredistributed as dividends or otherwise in-cluded in the owner’s income for U.S. taxpurposes.

D. Hybrid Entities

Section 1.901–2(f)(3) of the proposedregulations would also clarify the treat-ment of hybrid entities. In the case of anentity that is a partnership for U.S. incometax purposes but taxable under foreign lawas an entity, foreign law is considered toimpose legal liability for the tax on the en-tity. This is the case even if the ownersof the entity also have a secondary obli-gation to pay the tax. Sections 702, 704,and 901(b)(5) and the Treasury regulationsthereunder apply for purposes of allocat-ing the foreign tax among the owners of a

September 5, 2006 370 2006–36 I.R.B.

hybrid entity that is a partnership for U.S.tax purposes. In the case of tax imposedon an entity that is disregarded as separatefrom its owner for U.S. income tax pur-poses, foreign law is considered to imposelegal liability for the tax on the owner.

E. Effective Date

The regulations are proposed to be ef-fective for foreign taxes paid or accruedduring taxable years beginning on or afterJanuary 1, 2007. Comments are requestedas to how to determine which person paid aforeign tax in cases where a foreign taxableyear ends, and foreign tax accrues, withina post-effective date U.S. taxable year ofa reverse hybrid and a pre-effective dateU.S. taxable year of its owner.

F. Request for Additional Comments

As indicated above, in developing theseproposed regulations, the IRS and Trea-sury Department considered comments onthe proper scope and content of the regula-tions. Commentators generally agreed thatamendments to clarify that foreign tax isproperly apportioned among the membersof a foreign consolidated group were ap-propriate. Commentators also agreed thatthe regulations should clarify that tax im-posed on a disregarded entity is consideredpaid by its owner, and that tax imposedon a hybrid partnership should be allo-cated under the rules of sections 702, 704,and 901(b)(5). Some comments stronglystated that the IRS and Treasury Depart-ment have authority to extend the scopeof the regulations to require the attribu-tion of foreign tax to reverse hybrids. Onecomment, however, suggested that the IRSand Treasury Department may lack suchauthority. The IRS and Treasury Depart-ment considered these comments and con-cluded that the proposed regulations arewell within applicable regulatory authorityand fully consistent with the case law, in-cluding Biddle v. Commissioner, 302 U.S.573 (1938).

Comments also suggested that the IRSand Treasury Department should extendthe scope of the regulations to ensure thathybrid instruments and hybrid entitiescould not be used effectively to sepa-rate foreign tax from the related foreignincome. As indicated above, however,the IRS and Treasury Department have

decided not to exercise this authority inthese regulations. The proposed regula-tions reserve on the effect given to hybridpayments and disregarded payments indetermining the person whose income issubject to foreign tax. The IRS and Trea-sury Department are continuing to studycertain transactions employing hybrid in-struments and other transactions designedto generate inappropriate foreign tax creditresults. These include the use of hybridinstruments that accrue income for foreigntax purposes, but not U.S. tax purposes,to accelerate the payment of creditableforeign taxes before the related income issubject to U.S. tax. These also include theuse of disregarded payments to shift for-eign tax liabilities away from the personthat is considered to earn the associatedtaxable income for U.S. tax purposes. Itis contemplated that some or all of theseissues will be addressed in a separate guid-ance project, and that any such regulationsmay also be effective for taxable yearsbeginning on or after January 1, 2007.

The IRS and Treasury Department re-quest additional comments regarding theappropriate application of the legal liabil-ity rule to hybrid instruments and pay-ments that are disregarded for U.S. tax pur-poses. They also request comments onother issues that might be incorporated intofinal regulations.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It also hasbeen determined that section 553(b) of theAdministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these reg-ulations, and because the regulations donot impose a collection of information onsmall entities, the Regulatory FlexibilityAct (5 U.S.C. chapter 6), does not apply.Pursuant to section 7805(f) of the InternalRevenue Code, these proposed regulationswill be submitted to the Chief Counsel forAdvocacy of the Small Business Admin-istration for comment on their impact onsmall businesses.

Comments and Public Hearing

Before these proposed regulations areadopted 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 requestcomments on the clarity of the proposedregulations and how they can be made eas-ier to understand. All comments will beavailable for public inspection and copy-ing.

A public hearing has been scheduled forOctober 13, 2006, beginning at 10:00 a.m.in the Auditorium, Internal Revenue Ser-vice, New Carrollton Building, 5000 EllinRoad, Lanham, MD 20706. In addition, allvisitors must present photo identificationto enter the building. Because of accessrestrictions, visitors will not be admittedbeyond the immediate entrance area morethan 30 minutes before the hearing starts.For information about having your nameplaced on the building access list to attendthe hearing, see the “FOR FURTHER IN-FORMATION CONTACT” section of thispreamble.

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons who wish topresent oral comments must submit elec-tronic or written comments and an outlineof the topics to be discussed and time tobe devoted to each topic (a signed orig-inal and eight (8) copies) by October 3,2006. A period of 10 minutes will beallotted to each person for making com-ments. An agenda showing the schedulingof the speakers will be prepared after thedeadline for receiving outlines has passed.Copies of the agenda will be available freeof charge at the hearing.


The principal author of these regula-tions is Bethany A. Ingwalson, Office ofAssociate Chief Counsel (International).However, other personnel from the IRSand the Treasury Department participatedin their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is proposedto be amended as follows:

PART 1 — INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read in part as follows:

2006–36 I.R.B. 371 September 5, 2006

Authority: 26 U.S.C. 7805 * * *Par. 2. In §1.706–1, paragraph (c)(6) is

added to read as follows:

§1.706–1 Taxable years of partner andpartnership.

* * * * *(c) * * *(6) Foreign taxes. For rules relat-

ing to the treatment of foreign taxespaid or accrued by a partnership, see§1.901–2(f)(3)(i) and (ii).

* * * * *Par. 3. In §1.901–2, paragraphs (f) and

(h) are revised to read as follows:

§1.901–2 Income, war profits, or excessprofits tax paid or accrued.

* * * * *(f) Taxpayer—(1) In general—(i) In-

come taxes. Income tax (within the mean-ing of paragraphs (a) through (c) of thissection) is considered paid for U.S. incometax purposes by the person on whom for-eign law imposes legal liability for suchtax. In general, foreign law is consideredto impose legal liability for tax on incomeon the person who is required to take theincome into account for foreign incometax purposes (paragraph (f)(4) of this sec-tion reserves with respect to certain relatedparty hybrid payments). This rule applieseven if under foreign law another person isobligated to remit the tax, another person(e.g., a withholding agent) actually remitsthe tax, or foreign law permits the foreigncountry to proceed against another personto collect the tax in the event the tax is notpaid. However, see section 905(b) and theregulations thereunder for rules relating toproof of payment. Except as provided inparagraph (f)(2)(i) of this section, for pur-poses of this section the term person hasthe meaning set forth in section 7701(a)(1),and so includes an entity treated as a cor-poration, trust, estate or partnership forU.S. tax purposes, but not a disregardedentity described in §301.7701–2(c)(2)(i) ofthis chapter. The person on whom foreignlaw imposes legal liability is referred to asthe “taxpayer” for purposes of this section,§1.901–2A, and §1.903–1.

(ii) Taxes in lieu of income taxes. Theprinciples of paragraph (f)(1)(i) and para-graphs (f)(2) through (f)(5) of this sectionshall apply to determine the person who is

considered to have legal liability for, andthus to have paid, a tax in lieu of an incometax (within the meaning of §1.903–1(a)).Accordingly, foreign law is considered toimpose legal liability for any such tax onthe person who is the owner of the baseon which the tax is imposed for foreign taxpurposes.

(2) Taxes on combined income of two ormore persons—(i) In general. If foreigntax is imposed on the combined income oftwo or more persons (for example, a hus-band and wife or a corporation and oneor more of its subsidiaries), foreign lawis considered to impose legal liability oneach such person for the amount of the taxthat is attributable to such person’s portionof the base of the tax. Therefore, if foreigntax is imposed on the combined income oftwo or more persons, such tax shall be allo-cated among, and considered paid by, suchpersons on a pro rata basis. For this pur-pose, the term pro rata means in propor-tion to each person’s portion of the com-bined income, as determined under para-graph (f)(2)(iv) of this section and, gener-ally, under foreign law. The rules of thisparagraph (f)(2) apply regardless of whichperson is obligated to remit the tax, whichperson actually remits the tax, or whichperson the foreign country could proceedagainst to collect the tax in the event allor a portion of the tax is not paid. Forpurposes of this paragraph (f)(2), the termperson shall include a disregarded entitydescribed in §301.7701–2(c)(2)(i) of thischapter. In determining the amount of taxpaid by an owner of a hybrid partnership ordisregarded entity (as defined in paragraph(f)(3) of this section), this paragraph (f)(2)shall first apply to determine the amount oftax paid by the hybrid partnership or dis-regarded entity, and then paragraph (f)(3)of this section shall apply to allocate theamount of such tax to the owner.

(ii) Combined income. For purposesof this paragraph (f)(2), foreign tax isimposed on the combined income of twoor more persons if such persons computetheir taxable income on a combined basisunder foreign law. Foreign tax is con-sidered to be imposed on the combinedincome of two or more persons even ifthe combined income is computed underforeign law by attributing to one such per-son (e.g., the foreign parent of a foreignconsolidated group) the income of othersuch persons. However, foreign tax is not

considered to be imposed on the combinedincome of two or more persons solely be-cause foreign law —

(A) Permits one person to surrender anet loss to another person pursuant to agroup relief or similar regime;

(B) Requires a shareholder of a corpo-ration to include in income amounts at-tributable to taxes imposed on the corpo-ration with respect to distributed earnings,pursuant to an integrated tax system thatallows the shareholder a credit for suchtaxes; or

(C) Requires a shareholder to include,pursuant to an anti-deferral regime (sim-ilar to subpart F of the Internal RevenueCode (sections 951 through 965)), incomeattributable to the shareholder’s interest inthe corporation.

(iii) Reverse hybrid entities. For pur-poses of this paragraph (f)(2), if an entity isa corporation for U.S. income tax purposesand a person is required to take all or a partof the income of one or more such enti-ties into account under foreign law becausethe entity is treated as a branch or a pass-through entity under foreign law (a re-verse hybrid), tax imposed on the person’sshare of income from each reverse hybridand tax imposed by the foreign country onother income of the person, if any, is con-sidered to be imposed on the combined in-come of the person and each reverse hy-brid. Therefore, under paragraph (f)(2)(i)of this section, foreign tax imposed on thecombined income of the person and eachreverse hybrid shall be allocated betweenthe person and the reverse hybrid on a prorata basis. For this purpose, the term prorata means in proportion to the portion ofthe combined income included in the for-eign tax base that is attributable to the per-son’s share of income from each reversehybrid and the portion of the combined in-come that is attributable to the other in-come of the person (including income re-ceived from a reverse hybrid other than inthe owner’s capacity as an owner). If theperson has a share of income from the re-verse hybrid but no other income on whichtax is imposed by the foreign country, theentire amount of foreign tax is allocated toand considered paid by the reverse hybrid.

(iv) Portion of combined income—(A)In general. Except with respect to in-come attributable to related party hybridpayments or accrued amounts described inparagraph (f)(4) of this section, each per-

September 5, 2006 372 2006–36 I.R.B.

son’s portion of the combined income shallbe determined by reference to any return,schedule or other document that must befiled or maintained with respect to a personshowing such person’s income for foreigntax purposes, as properly amended or ad-justed for foreign tax purposes. If no suchreturn, schedule or document must be filedor maintained with respect to a person forforeign tax purposes, then, for purposes ofthis paragraph (f)(2), such person’s incomeshall be determined from the books of ac-count regularly maintained by or on behalfof the person for purposes of computing itstaxable income under foreign law.

(B) Effect of certain payments. Eachperson’s portion of the combined incomeshall be determined by giving effect topayments and accrued amounts of interest,rents, royalties, and other amounts to theextent such payments or accrued amountsare taken into account in computing theseparate taxable income of such personboth under foreign law and under U.S. taxprinciples. With respect to certain relatedparty hybrid payments, see the reservationin paragraph (f)(4) of this section. Thus,for example, interest paid by a reverse hy-brid to one of its owners with respect toan instrument that is treated as debt forboth U.S. and foreign tax purposes wouldbe considered income of the owner andwould reduce the taxable income of the re-verse hybrid. However, each person’s por-tion of the combined income shall be de-termined without taking into account anypayments from other persons whose in-come is included in the combined base thatare treated as dividends under foreign law,and without taking into account deemeddividends or any similar attribution of in-come made for purposes of computing thecombined income under foreign law. Thisrule applies regardless of whether any suchdividend, deemed dividend or attributionof income results in a deduction or inclu-sion under foreign law.

(C) Net losses. If tax is considered tobe imposed on the combined income ofthree or more persons and one or more ofsuch persons has a net loss for the taxableyear for foreign tax purposes, the follow-ing rules apply. If foreign law providesmandatory rules for allocating the net lossamong the other persons, then the rules thatapply for foreign tax purposes shall applyfor purposes of paragraph (f)(2)(iv) of thissection. If foreign law does not provide

mandatory rules for allocating the net loss,the net loss shall be allocated among allother such persons pro rata based on theamount of each person’s income, as deter-mined under paragraphs (f)(2)(iv)(A) and(B) of this section. For purposes of thisparagraph (f)(2)(iv)(C), foreign law shallnot be considered to provide mandatoryrules for allocating a loss solely becausesuch loss is attributed from one person to asecond person for purposes of computingcombined income, as described in para-graph (f)(2)(ii) of this section.

(v) Collateral consequences. U.S. taxprinciples shall apply to determine the taxconsequences if one person remits a taxthat is the legal liability of, and thus isconsidered paid by, another person. Forexample, a payment of tax for which acorporation has legal liability by a share-holder of that corporation (including anowner of a reverse hybrid) will ordinar-ily result in a deemed capital contributionand deemed payment of tax by the corpo-ration. If the corporation reimburses theshareholder for the tax payment, such re-imbursement would ordinarily be treatedas a distribution for U.S. tax purposes.

(3) Taxes on income of hybrid partner-ships and disregarded entities—(i) Hybridpartnerships. If foreign law imposes tax atthe entity level on the income of an entitythat is treated as a partnership for U.S. in-come tax purposes (a hybrid partnership),the hybrid partnership is considered to belegally liable for such tax under foreignlaw. Therefore, the hybrid partnership isconsidered to pay the tax for U.S. incometax purposes. See §1.704–1(b)(4)(viii) forrules relating to the allocation of such taxamong the partners of the partnership. Ifthe hybrid partnership’s U.S. taxable yearcloses for all partners due to a termina-tion of the partnership under section 708and the regulations thereunder (other thanin the case of a termination under section708(b)(1)(A)) and the foreign taxable yearof the partnership does not close, then for-eign tax paid or accrued by the partnershipwith respect to the foreign taxable yearthat ends with or within the new partner-ship’s first U.S. taxable year shall be al-located between the terminating partner-ship and the new partnership. The allo-cation shall be made under the principlesof §1.1502–76(b) based on the respectiveportions of the taxable income of the part-nership (as determined under foreign law)

for the foreign taxable year that are attrib-utable to the period ending on and the pe-riod ending after the last day of the ter-minating partnership’s U.S. taxable year.The principles of the preceding sentenceshall also apply if the hybrid partnership’sU.S. taxable year closes with respect toone or more, but less than all, partnersor, except as otherwise provided in section706(d)(2) or (d)(3) (relating to certain cashbasis items of the partnership), there is achange in any partner’s interest in the part-nership during the partnership’s U.S. tax-able year. If, as a result of a change in own-ership during a hybrid partnership’s for-eign taxable year, the hybrid partnershipbecomes a disregarded entity and the en-tity’s foreign taxable year does not close,foreign tax paid or accrued by the disre-garded entity with respect to the foreigntaxable year shall be allocated between thehybrid partnership and the owner of thedisregarded entity under the principles ofthis paragraph (f)(3)(i).

(ii) Disregarded entities. If foreigntax is imposed at the entity level onthe income of an entity described in§301.7701–2(c)(2)(i) of this chapter (adisregarded entity), foreign law is consid-ered to impose legal liability for the tax onthe person who is treated as owning theassets of the disregarded entity for U.S.income tax purposes. Such person shall beconsidered to pay the tax for U.S. incometax purposes. If there is a change in theownership of such disregarded entity dur-ing the entity’s foreign taxable year andsuch change does not result in a closingof the disregarded entity’s foreign taxableyear, foreign tax paid or accrued with re-spect to such foreign taxable year shall beallocated between the old owner and thenew owner. The allocation shall be madeunder the principles of §1.1502–76(b)based on the respective portions of thetaxable income of the disregarded entity(as determined under foreign law) for theforeign taxable year that are attributable tothe period ending on the date of the own-ership change and the period ending aftersuch date. If, as a result of a change inownership, the disregarded entity becomesa hybrid partnership and the entity’s for-eign taxable year does not close, foreigntax paid or accrued by the hybrid partner-ship with respect to the foreign taxableyear shall be allocated between the oldowner and the hybrid partnership under

2006–36 I.R.B. 373 September 5, 2006

the principles of this paragraph (f)(3)(ii).If the person who owns a disregardedentity is a partnership for U.S. incometax purposes, see §1.704–1(b)(4)(viii) forrules relating to the allocation of such taxamong the partners of the partnership.

(4) Tax on income attributable to re-lated party payments or accrued amountsthat are deductible for foreign (or U.S.) taxlaw purposes and that are nondeductiblefor U.S. (or foreign) tax law purposes orthat are disregarded for U.S. tax law pur-poses. [Reserved].

(5) Party undertaking tax obligation aspart of transaction. Tax is considered paidby the taxpayer even if another party to adirect or indirect transaction with the tax-payer agrees, as a part of the transaction, toassume the taxpayer’s foreign tax liability.The rules of the foregoing sentence applynotwithstanding anything to the contraryin paragraph (e)(3) of this section. See§1.901–2A for additional rules regardingdual capacity taxpayers.

(6) Examples. The following exam-ples illustrate the rules of paragraphs (f)(1)through (f)(5) of this section.

Example 1. (i) Facts. Under a loan agreementbetween A, a resident of country X, and B, a UnitedStates person, A agrees to pay B a certain amount ofinterest net of any tax that country X may impose onB with respect to its interest income. Country X im-poses a 10 percent tax on the gross amount of interestincome received by nonresidents of country X fromsources in country X, and it is established that this taxis a tax in lieu of an income tax within the meaning of§1.903–1(a). Under the law of country X this tax isimposed on the interest income of the nonresident re-cipient, and any resident of country X that pays suchinterest to a nonresident is required to withhold andpay over to country X 10 percent of the amount ofsuch interest. Under the law of country X, the coun-try X taxing authority may proceed against A, but notB, if A fails to withhold and pay over the tax to coun-try X.

(ii) Result. Under paragraph (f)(1)(ii) of this sec-tion, B is considered legally liable for the country Xtax because such tax is imposed on B’s interest in-come. Therefore, for U.S. income tax purposes, B isconsidered to pay the country X tax, and B’s interestincome includes the amount of country X tax that isimposed with respect to such interest income and paidon B’s behalf by A. No portion of such tax is consid-ered paid by A.

Example 2. (i) Facts. The facts are the same asin Example 1, except that in collecting and receivingthe interest B is acting as a nominee for, or agent of,C, who is a United States person. Accordingly, C, notB, is the beneficial owner of the interest for U.S. in-come tax purposes. Country X law also recognizesthe nominee or agency arrangement and, thus, con-siders C to be the beneficial owner of the interest in-come.

(ii) Result. Under paragraph (f)(1)(ii) of this sec-tion, legal liability for the tax is considered to be im-posed on C, not B (C’s nominee or agent). Thus, Cis the taxpayer with respect to the country X tax im-posed on C’s interest income from C’s loan to A. Ac-cordingly, C’s interest income for U.S. income taxpurposes includes the amount of country X tax thatis imposed on C with respect to such interest incomeand that is paid on C’s behalf by A pursuant to theloan agreement. Under paragraph (f)(1)(ii) of thissection, such tax is considered for U.S. income taxpurposes to be paid by C. No such tax is consideredpaid by B.

Example 3. (i) Facts. A, a U.S. person, owns abond issued by C, a resident of country X. On January1, 2008, A and B enter into a transaction in which A,in form, sells the bond to B, also a U.S. person. Aspart of the transaction, A and B agree that A will re-purchase the bond from B on December 31, 2013 forthe same amount. In addition, B agrees to make pay-ments to A equal to the amount of interest B receivesfrom C. As a result of the arrangement, legal title tothe bond is transferred to B. The transfer of legal titlehas the effect of transferring ownership of the bond toB for country X tax purposes. A remains the ownerof the bond for U.S. income tax purposes. Country Ximposes a 10 percent tax on the gross amount of in-terest income received by nonresidents of country Xfrom sources in country X, and it is established thatthis tax is a tax in lieu of an income tax within themeaning of §1.903–1(a). Under the law of countryX this tax is imposed on the interest income of thenonresident recipient, and any resident of country Xthat pays such interest to a nonresident is required towithhold and pay over to country X 10 percent of theamount of such interest. On December 31, 2008, Cpays B interest on the bond and withholds 10 percentof country X tax.

(ii) Result. Under paragraph (f)(1)(ii) of this sec-tion, B is considered legally liable for the country Xtax because B is the owner of the interest income forcountry X tax purposes, even though A and not Brecognizes the interest income for U.S. tax purposes.The result would be the same if the transaction hadthe effect of transferring ownership of the bond to Bfor U.S. income tax purposes.

Example 4. (i) Facts. On January 1, 2007, A, aUnited States person, purchases a bond issued by X,a foreign person resident in country Y. A accrues in-terest income on the bond for U.S. tax purposes fromJanuary 1, 2007, until A sells the bond to B, anotherUnited States person, on July 1, 2007. On December31, 2007, X pays interest on the bond that accrued forthe entire year to B. Country Y imposes a 10 percenttax on the gross amount of interest income receivedby nonresidents of country Y from sources in coun-try Y, and it is established that this tax is a tax in lieuof an income tax within the meaning of §1.903–1(a).Under the law of country Y this tax is imposed onthe interest income of the nonresident recipient, andany resident of country Y that pays such interest toa nonresident is required to withhold and pay overto country Y 10 percent of the amount of such inter-est. Pursuant to the law of country Y, X withholds taxfrom the interest paid to B.

(ii) Result. Under paragraph (f)(1)(ii) of this sec-tion, legal liability for the tax is considered to be im-posed on B. Thus, B is the taxpayer with respect to theentire amount of the country Y tax even though, for

U.S. income tax purposes, B only recognizes interestthat accrues on the bond on and after July 1, 2007. Noportion of the country Y tax is considered to be paidby A even though, for U.S. income tax purposes, Arecognizes interest on the bond that accrues prior toJuly 1, 2007.

Example 5. (i) Facts. A, a United States personand resident of country X, is an employee of B, acorporation organized in country X. Under the laws ofcountry X, B is required to withhold from A’s wagesand pay over to country X foreign social security taxof a type described in paragraph (a)(2)(ii)(C) of thissection, and it is established that this tax is an incometax described in paragraph (a)(1) of this section.

(ii) Result. Under paragraph (f)(1)(i) of this sec-tion, A is considered legally liable for the country Xtax because such tax is imposed on A’s wages. There-fore, for U.S. income tax purposes, A is considered topay the country X tax.

Example 6. (i) Facts. A, a United States person,owns 100 percent of B, an entity organized in countryX. B is a corporation for country X tax purposes, anda disregarded entity for U.S. income tax purposes. Bowns 100 percent of corporation C and corporation D,both of which are also organized in country X. B, Cand D use the “u” as their functional currency and fileon a combined basis for country X income tax pur-poses. Country X imposes an income tax described inparagraph (a)(1) of this section at the rate of 30 per-cent on the taxable income of corporations organizedin country X. Under the country X combined report-ing regime, income (or loss) of C and D is attributedto, and treated as income (or loss) of, B. B has the soleobligation to pay country X income tax imposed withrespect to income of B and income of C and D that isattributed to, and treated as income of, B. Under thelaw of country X, country X may proceed against B,but not C or D, if B fails to pay over to country X allor any portion of the country X income tax imposedwith respect to such income. In year 1, B has taxableincome of 100u, C has taxable income of 200u, andD has a net loss of (60u). Under the law of country X,B is considered to have 240u of taxable income withrespect to which 72u of country X income tax is im-posed. Country X does not provide mandatory rulesfor allocating D’s loss.

(ii) Result. Under paragraph (f)(2)(ii) of this sec-tion, the 72u of country X tax is considered to beimposed on the combined income of B, C, and D.Because country X law does not provide mandatoryrules for allocating D’s loss between B and C, underparagraph (f)(2)(iv)(C) of this section D’s (60u) lossis allocated pro rata: 20u to B ((100u/300u) x 60u)and 40u to C ((200u/300u) x 60u). Under paragraph(f)(2)(i) of this section, the 72u of country X tax mustbe allocated pro rata among B, C, and D. Because Dhas no income for country X tax purposes, no coun-try X tax is allocated to D. Accordingly, 24u (72u x(80u/240u)) of the country X tax is allocated to B,and 48u (72u x (160u/240u)) of such tax is allocatedto C. Under paragraph (f)(3)(ii) of this section, A isconsidered to have legal liability for the 24u of coun-try X tax allocated to B under paragraph (f)(2) of thissection.

Example 7. (i) Facts. A, a domestic corporation,owns 95 percent of the voting power and value of C,an entity organized in country Z that uses the “u” asits functional currency. B, a domestic corporation,owns the remaining 5 percent of the voting power

September 5, 2006 374 2006–36 I.R.B.

and value of C. Pursuant to an election made under§301.7701–3(a), C is treated as a corporation for U.S.income tax purposes, but as a partnership for countryZ income tax purposes. Accordingly, under countryZ law, A and B are required to take into account theirrespective shares of the taxable income of C. Coun-try Z imposes an income tax described in paragraph(a)(1) of this section at the rate of 30 percent on suchtaxable income. For 2007, C has 500u of taxable in-come for country Z tax purposes. A’s and B’s sharesof such income are 475u and 25u, respectively. In ad-dition, A has 125u of taxable income attributable toa permanent establishment in country Z. Income ofnonresidents that is attributable to a permanent estab-lishment in country Z is also subject to the countryZ income tax at a rate of 30 percent. Accordingly,country Z imposes 180u of tax on A’s total taxableincome of 600u (475u of income from C and 125u ofincome from the permanent establishment). CountryZ imposes 7.5u of tax on B’s 25u of taxable incomefrom C.

(ii) Result. Under paragraph (f)(2)(iii) of this sec-tion, the 180u of tax imposed on the taxable incomeof A is considered to be imposed on the combined in-come of A and C. Under paragraph (f)(2)(i) of thissection, such tax must be allocated between A and Con a pro rata basis. Accordingly, C is considered tobe legally liable for the 142.5u (180u x (475u/600u))of country Z tax imposed on A’s 475u share of C’sincome, and A is considered to be legally liable forthe 37.5u (180u x (125u/600u)) of the country Z taximposed on A’s 125u of income from its permanentestablishment. Under paragraph (f)(2)(iii) of this sec-tion, the 7.5u of tax imposed on the taxable incomeof B is considered to be imposed on the combined in-come of B and C. Since B has no other income onwhich income tax is imposed by country Z, underparagraph (f)(2)(iii) of this section the entire amountof such tax is allocated to and considered paid by C.C’s post-1986 foreign income taxes include the U.S.dollar equivalent of 150u of country Z income tax Cis considered to pay for U.S. income tax purposes. A,but not B, is eligible to compute deemed-paid taxesunder section 902(a) in connection with dividends re-ceived from C. Under paragraph (f)(2)(v) of this sec-tion, the payment by A or B of tax for which C isconsidered legally liable is treated as a capital contri-bution by A or B to C.

Example 8. (i) Facts. A, B, and C are U.S. per-sons that each use the calendar year as their taxableyear. A and B each own 50 percent of the capital andprofits of D, an entity organized in country M. D isa partnership for U.S. income tax purposes, but is acorporation for country M tax purposes. D uses the“u” as its functional currency and the calendar year asits taxable year for both U.S. tax purposes and coun-try M tax purposes. Country M imposes an incometax described in paragraph (a)(1) of this section at arate of 30 percent at the entity level on the taxableincome of D. On September 30, 2008, A sells its 50percent interest in D to C. A’s sale of its partnershipinterest results in a termination of the partnership un-der section 708(b) for U.S. tax purposes. As a resultof the termination, “old” D’s taxable year closes onSeptember 30, 2008 for U.S. tax purposes. New Dalso has a short U.S. taxable year, beginning on Octo-ber 1, 2008, and ending on December 31, 2008. The

sale of A’s interest does not close D’s taxable yearfor country M tax purposes. D has 400u of taxableincome for its 2008 foreign taxable year with respectto which country M imposes 120u equal to $120 ofincome tax.

(ii) Result. Under paragraph (f)(3)(i) of this sec-tion, hybrid partnership D is legally liable for the$120 of country M income tax imposed on its net in-come. Because D’s taxable year closes on September30, 2008, for U.S. tax purposes, but does not close forcountry M tax purposes, under paragraph (f)(3)(i) ofthis section the $120 of country M tax must be allo-cated under the principles of §1.1502–76(b) betweenthe short U.S. taxable years of “old” D and new D.See §1.704–1(b)(4)(viii) for rules relating to the allo-cation of “old” D’s country M taxes between A andB and the allocation of new D’s country M taxes be-tween B and C.

Example 9. (i) Facts. A, a United States per-son engaged in construction activities in country X,is subject to the country X income tax. Country Xhas contracted with A for A to construct a naval base.A is a dual capacity taxpayer (as defined in paragraph(a)(2)(ii)(A) of this section) and, in accordance withparagraphs (a)(1) and (c)(1) of §1.901–2A, A has es-tablished that the country X income tax as applied todual capacity persons and the country X income taxas applied to persons other than dual capacity personstogether constitute a single levy. A has also estab-lished that that levy is an income tax within the mean-ing of paragraph (a)(1) of this section. Pursuant to theterms of the contract, country X has agreed to assumeany country X income tax liability that A may incurwith respect to A’s income from the contract.

(ii) Result. For U.S. income tax purposes, A’sincome from the contract includes the amount of taxthat is imposed by country X on A with respect toits income from the contract and that is assumed bycountry X; and the amount of the tax liability assumedby country X is considered to be paid by A. By reasonof paragraph (f)(5) of this section, country X is notconsidered to provide a subsidy, within the meaningof section 901(i) and paragraph (e)(3) of this section,to A.

* * * * *(h) Effective date. Paragraphs (a)

through (e) and paragraph (g) of this sec-tion, §1.901–2A and §1.903–1 apply totaxable years beginning after November14, 1983. Paragraph (f) of this section iseffective for foreign taxes paid or accruedduring taxable years of the taxpayer be-ginning on or after January 1, 2007.


(Filed by the Office of the Federal Register on August 3,2006, 8:45 a.m., and published in the issue of the FederalRegister for August 4, 2006, 71 F.R. 44240)

Notice of ProposedRulemaking byCross-Reference toTemporary Regulations

Reporting Rules for WidelyHeld Fixed Investment Trusts

REG–125071–06


ACTION: Notice of proposed rulemakingby cross-reference to temporary regula-tions.

SUMMARY: In this issue of the Bulletin,the IRS and the Treasury Department areissuing final and temporary regulations(T.D. 9279) amending §1.671–5 whichprovides reporting rules for widely heldfixed investment trusts (WHFITs). Thefinal and temporary regulations clarifyand simplify reporting for trustees andmiddlemen of non-mortgage widely heldfixed investment trusts (NMWHFITs).The text of those final and temporary reg-ulations serves, in part, as the text of theseproposed regulations. In addition to theamendments to §1.671–5 included in thefinal and temporary regulations, these pro-posed regulations provide for the creationof a directory of NMWHFITs and trusteesof widely held mortgage trusts (WHMTs).These regulations also clarify the report-ing rules for market discount under theNMWHFIT safe harbor for NMWHFITsthat hold debt instruments with originalissue discount (OID). The preamble tothese regulations also solicits commentsregarding the safe harbor for WHMTs.

DATES: Written or electronic commentsand requests for a public hearing must bereceived by October 2, 2006.

ADDRESSES: Send submissions toCC:PA:LPD:PR (REG–125071–06), In-ternal Revenue Service, PO Box 7604,Ben Franklin Station, Washington, DC20044, or send electronically, via theIRS Internet site at www.irs.gov/regsor via the Federal eRulemaking Por-tal at http://www.regulations.gov/(IRS–REG–125071–06).

2006–36 I.R.B. 375 September 5, 2006

FOR FURTHER INFORMATIONCONTACT: Concerning the proposedregulations, Faith Colson, (202) 622–3060(not a toll-free number); concerning sub-mission of comments and/or requests fora public hearing, Richard A. Hurst [email protected].


Paperwork Reduction Act

These proposed regulations amend§1.671–5. The collection of informationcontained in these proposed regulationshas been previously reviewed and ap-proved by the Office of Management andBudget in accordance with the PaperworkReduction Act of 1995 (44 U.S.C. 3507)under control number 1545–1540. Re-sponse to this collection of informationis mandatory. The collection of informa-tion in these proposed regulations is in§1.671–5. This information is required tobe reported to beneficial owners of trustinterests to enable them to correctly reporttheir share of the items of income, deduc-tion, and credit of the WHFIT in whichthey have invested. This information isalso required to be reported to the IRSto enable the IRS to verify that trusteesand middlemen are accurately reportinginformation to beneficial owners of trustinterests and that beneficial owners areproperly reporting their ownership of atrust interest.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid control number assigned by the Of-fice of Management and Budget.

Books or records relating to a collectionof information must be retained as longas their contents might become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

Background and Explanation ofProvisions

On January 24, 2006, the Internal Rev-enue Service (IRS) and the Treasury De-partment published final regulations (T.D.9241, 2006–7 I.R.B. 427) under §1.671–5in the Federal Register (71 FR 4002)providing reporting rules for WHFITs.

Final and temporary regulations in thisissue of the Bulletin amend §1.671–5.These amendments are intended to clarifyand simplify the reporting required byNMWHFITs under §1.671–5. The textof the final and temporary regulationsalso serves, in part, as the text of theseproposed regulations. The preamble tofinal and temporary regulations explainsthe final and temporary regulations andthose parts of these proposed regulationsthat are included in the final and tempo-rary regulations. These proposed regu-lations include proposed amendments to§1.671–5 in addition to those provided bythe final and temporary regulations. Theproposed amendments to §1.671–5 thatare not included in the final and temporaryregulations are discussed below.

I. Proposed Directory of WHMT Trusteesand NMWHFITs and Requirement ThatWHMT trustees Provide a List of WHMTsfor Which They act on an Internet Website.

Prior to the publication of the final regu-lations under §1.671–5, commentators ex-pressed concern that middlemen would notbe able to identify a client’s investment asan investment in a WHFIT and suggestedthat the IRS publish a directory or listof WHFITs that would include the nameand CUSIP number of each WHFIT, alongwith the name, address and telephone num-ber of the WHFIT’s representative. Com-mentators noted that a publicly availabledirectory or list would assist middlemenand brokers in identifying a client’s invest-ment as an investment in a WHFIT and inlocating the WHFIT’s representative.

In response to these comments, thefinal regulations require a trustee to iden-tify the WHFIT as either a WHMT or aNMWHFIT when providing trust infor-mation. The preamble to the final WHFITregulations provides that the IRS and theTreasury Department are studying whethera directory or list of WHFITs can be com-piled by the IRS and expressed concernthat such a directory was not feasible be-cause of the large number of WHMTs. Inthe preamble, the IRS and the TreasuryDepartment requested additional com-ments from middlemen regarding the typeof WHFITs that should be included in anydirectory, the type of information neededby middlemen (especially middlemen

holding WHMT interests), and the formatof a directory that would be most help-ful. Trustees were also asked to commentregarding how the IRS could obtain thetrust information needed for the directoryfrom the trustees in the least burdensomemanner.

Since the publication of the final reg-ulations, the IRS has received additionalcomments regarding the need for a direc-tory of WHFITs. Commentators indicatedthat such a directory would significantlyimprove a middleman’s ability to complywith §1.671–5 and suggested that the IRSprovide a directory of WHMT trustees andNMWHFITs, with each WHMT trusteemaintaining a list of the WHMTs for whichthe trustee acts at an Internet website avail-able to middlemen.

In response to these comments, theIRS proposes to expand Publication 938,“Real Estate Mortgage Investment Con-duits (REMICs) Reporting Information(And Other Collateralized Debt Obli-gations (CDOs)),” or create a separatepublication to list WHMT trustees andNMWHFITs. The IRS currently intendsto list NMWHFITs in this directory bytrustee (listed in alphabetical order) withthe NMWHFITs for which the trusteeacts listed by CUSIP number, followedby any NMWHFITs, listed in alphabet-ical order by name which do not haveCUSIP numbers. NMWHFIT trustees willbe required to file Form 8811, “Informa-tion Return for Real Estate InvestmentConduits (REMICs) and Issuers of Collat-eralized Debt Obligations,” or a similarform to provide the IRS with the infor-mation it needs to list NMWHFITs in thedirectory.

The directory will also alphabeticallylist WHMT trustees and provide the ad-dress of the Internet website that liststhe WHMTs for which the trustee acts.WHMT trustees will be required to fileForm 8811, or similar form, to identifythemselves to the IRS as a WHMT trusteeand provide an Internet website that liststhe WHMTs for which the trustee acts.The IRS and Treasury Department con-tinue to request comments on the need forthe directory and the format to be usedfor the directory, as well as commentsregarding how to obtain information fromtrustees in the least burdensome manner.

September 5, 2006 376 2006–36 I.R.B.

II. Clarification of Market DiscountInformation Required to be Reportedunder the NMWHFIT Safe Harbor.

Commentators also noted the need foramendments to the information requiredto be reported under the NMWHFIT safeharbor with respect to market discount. Ifa NMWHFIT does not qualify for the re-duced reporting in §1.671–5(c)(2)(iv)(B),§1.671–5(f)(1)(viii) requires the trustee toprovide information regarding the portionof the trust that the assets sold represented.Assuming that a trust interest holder pur-chased its interest at a discount, it wascontemplated that the trust interest holderwould allocate the same portion of its dis-count to the sale as the assets representedto the NMWHFIT. The trust interest holderwould then determine how much of thediscount allocated to the sold assets hadaccrued since the trust interest holder pur-chased its interest using either a ratable orconstant interest method, as appropriate.

After reviewing the comments receivedafter the publication of T.D. 9241, the IRSand the Treasury Department noted thatthe information required to be reportedunder the safe harbor is incomplete withrespect to a NMWHFIT holding debt in-struments with original issue discount(OID). Under both the general provi-sions (§1.671–5(c)(2)(ii)(A) and (vii))and the safe harbor (§1.671–5(f)(1)(vii)and (viii)), OID information is requiredto be calculated and provided separatelyfrom market discount. Accordingly, toenable trust interest holders to determinethe amount of market discount the interestholder is to allocate to a particular saleor disposition of debt instruments by theNMWHFIT, §1.671–5(f)(1)(viii)(A) isproposed to be amended with respect toNMWHFITs that hold debt instrumentswith OID, to include a requirement thattrustees provide the aggregate adjustedissue price of the debt instruments heldby the NMWHFIT per trust interest asof the start-up date as well as of Jan-uary 1 of each subsequent year of theNMWHFIT. It is contemplated that trustinterest holders will use the January 1 ad-justed issue price for the year in which thetrust interest holder purchased its interestto determine whether a trust interest wasacquired with market discount. So as notto require trustees to calculate informationfor calendar years prior to the effective

date of the final regulations, the proposedregulations only apply this requirementto NMWHFITs with a start-up date (asdefined in §1.671–5(b)(19)) after January24, 2006.

III. Request for comments on theexpansion of the WHMT safe harbor.

The final regulations include safe har-bor reporting rules for WHMTs. Section1.671–5(g)(1)(ii)(B) provides that, to beeligible to report under the WHMT safeharbor, all interests in the WHMT mustrepresent the right to receive an equalpro-rata share of both the income andthe principal payments received by theWHMT on the mortgages it holds andthat, for example, a WHMT that holdsor issues trust interests that qualify asstripped interests under section 1286 maynot report under the safe harbor. Further,a WHMT that holds an interest in anotherWHFIT is not eligible to report under theWHMT safe harbor. See §1.671–5(b)(11)(limiting the definition of a mortgage toexclude an interest in another WHFIT)and §1.671–5(g)(1)(ii)(E)(1) (providingthat only WHMTs that directly hold mort-gages may use the safe harbor). Sincethe publication of the final regulations,a commentator has requested that safeharbor reporting rules be developed forWHMTs that hold or issue stripped inter-ests and for WHMTs that hold interests inother WHMTs. The IRS and the TreasuryDepartment will consider this request inconnection with further action on this pro-posed regulation and request additionalcomments regarding the need for addi-tional WHMT safe harbor reporting rules,the nature of the arrangements for whichthe additional safe harbors are needed, thesafe harbor reporting suggested and howsuch reporting is consistent with substan-tive law.

Effective Date

The IRS and the Treasury Depart-ment expect to take prompt action tofinalize the proposed regulations so thatcertain of the provisions that are only in-cluded in the proposed regulations can bemade effective as of January 1, 2007 (see§1.671–5(m)) as though the provisionswere included in T.D. 9241. The IRS andTreasury Department invite recommenda-

tions regarding the effective date of pro-posed paragraphs (c)(3) (requiring trusteesto file an information return with the IRSand requiring WHMT trustees to providean Internet Website listing the WHMTs forwhich they act) and (c)(5) (providing formiddlemen to refer to a directory createdby the IRS), that may require some leadtime for their implementation.

Special Analysis

It has been determined that these pro-posed regulations are not a significant reg-ulatory action as defined in Executive Or-der 12866. Therefore, a regulatory assess-ment is not required. It is hereby certifiedthat these regulations will not have a sig-nificant economic impact on a substantialnumber of small entities. This certifica-tion is based on the fact that the regulationswill not to have a significant economic im-pact on small entities because the report-ing burdens in these regulations will fallprimarily on large brokerage firms, largebanks, and other large entities acting astrustees or middlemen, most of which arenot small entities within the meaning of theRegulatory Flexibility Act (5 U.S.C. chap-ter 6). Thus, a substantial number of smallentities are not expected to be affected.Therefore, a Regulatory Flexibility Anal-ysis under the Regulatory Flexibility Act(5 U.S.C. chapter 6) is not required. Pur-suant to section 7805(f) of the Code, theseregulations will be submitted to the ChiefCounsel for Advocacy of the Small Busi-ness Administration for comment on theirimpact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill 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 the Treasury Department re-quest comments on the clarity of the pro-posed rules and how they can be made eas-ier to understand. All comments will beavailable for public inspection and copy-ing. A public hearing will be scheduledif requested in writing by any person thattimely submits written comments. If apublic hearing is scheduled, notice of thedate, time, and place for the public hearingwill be published in the Federal Register.

2006–36 I.R.B. 377 September 5, 2006


The principal author of these regula-tions is Faith Colson, Office of AssociateChief Counsel (Passthroughs & Special In-dustries). However, other personnel fromthe IRS and the Treasury Department par-ticipated in their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1 — INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.671–5 is amended by:1. Revising paragraphs (b)(5), (b)(8),

and (b)(21).2. Revising paragraphs (c)(2)(iv),

(v)(C), (vi), and (vii).3. Revising paragraph (c)(3).4. Adding paragraph (c)(5)(iv).5. Revising paragraphs (f)(1)(i)(A) and

(viii)(A).The revisions and addition read as fol-

lows:

§1.671–5 Reporting for widely held fixedinvestment trusts.

* * * * *(b) * * *(5) [The text of proposed

§1.671–5(b)(5) is the same as the text of§1.671–5T(b)(5) published elsewhere inthis issue of the Bulletin].

* * * * *(8) [The text of proposed

§1.671–5(b)(8) is the same as the text of§1.671–5T(b)(8) published elsewhere inthis issue of the Bulletin].

* * * * *(21) [The text of proposed

§1.671–5(b)(21) is the same as thetext of §1.671–5T(b)(21) publishedelsewhere in this issue of the Bulletin].

* * * * *(c) * * *(2) * * *

(iv) [The text of proposed§1.671–5(c)(2)(iv) is the same as thetext of §1.671–5T(c)(2)(iv) publishedelsewhere in this issue of the Bulletin].

(v) * * *(C) [The text of proposed

§1.671–5(c)(2)(v)(C) is the same asthe text of §1.671–5T(c)(2)(v)(C) pub-lished elsewhere in this issue of theBulletin].

(vi) [The text of proposed§1.671–5(c)(2)(vi) is the same as thetext of §1.671–5T(c)(2)(vi) publishedelsewhere in this issue of the Bulletin].

(vii) [The text of proposed§1.671–5(c)(2)(vii) is the same asthe text of §1.671–5T(c)(2)(vii) publishedelsewhere in this issue of the Bulletin].

* * * * *(3) Requirement that trustees file an in-

formation return and that WHMT trusteeslist WHMTs on an Internet website—(i) In-formation return identifying a NMWHFITto the IRS. For each NMWHFIT for whichthe trustee acts, the trustee of a NMWHFITmust file the form specified as the infor-mation return to be used for identifying aNMWHFIT to the IRS. The form must befiled by the due date provided by that formand must contain the information requiredto be provided by the form. If, follow-ing the publication of final regulations inthe Federal Register, the IRS issues ad-ditional guidance that prescribes anothermethod to be used to identify and provideinformation with respect to a NMWHFITto the IRS, this method must be used.

(ii) Information return for trustees ofWHMTs and the requirement that thetrustee maintain an Internet website list-ing the CUSIP numbers and names ofthe WHMTs for which the trustee acts.The trustee of a NMWHFIT must file theform specified as the information return tobe used for identifying the trustee to theIRS. The form must be filed by the duedate provided by that form and containthe information required to be providedby the form. In addition, the trustee mustmaintain a list of the WHMTs for whichthe trustee acts on the trustee’s Internetwebsite (or another site designated by thetrustee for this purpose). If, following thepublication of final regulations in the Fed-eral Register, the IRS issues additionalguidance that prescribes another methodto be used to identify a trustee as a WHMT

trustee and provide information with re-spect to the WHMTs for which the trusteeacts, this method must be used.

* * * * *(5) * * *(iv) Directory of WHMT trustees and

NMWHFITs. The IRS provides a directoryof WHMT trustees and NMWHFITs, andWHMT trustees provide an Internet web-site at which the trustees list the WHMTsfor which they act, to assist requestingpersons in locating a representative of aWHFIT that will provide the informationspecified in paragraph (c) of this section.A requesting person may report consistentwith this section for any arrangement iden-tified in the directory as a NMWHFIT oron a WHMT trustee’s Internet website asa WHMT provided that the requesting per-son does not have actual knowledge thatthe arrangement is not a WHFIT.

(f) * * *(1) * * *(i) * * *(A) [The text of proposed

§1.671–5(f)(1)(i)(A) is the same asthe text of §1.671–5T(f)(1)(i)(A) pub-lished elsewhere in this issue of theBulletin].

* * * * *(viii) Reporting market discount in-

formation under the safe harbor — (A)In general — (1) Trustee is required toprovide market discount information. Ifthe trustee is required to provide infor-mation regarding market discount underparagraph (c)(2)(vii) of this section, thetrustee must provide—

(i) The information required to be pro-vided under paragraph (f)(1)(iv)(A)(1)(iii)of this section; and

(ii) If the NMWHFIT holds debt in-struments with OID and the NMWHFIThas a start-up date on or after January 24,2006, the aggregate adjusted issue price ofthe debt instruments per trust interest cal-culated as of the start-up date and as ofJanuary 1 for each subsequent year of theNMWHFIT.

(2) Trustee is not required to pro-vide market discount information. If thetrustee is not required to provide mar-ket discount information under paragraph(c)(2)(vii) of this section (because theNMWHFIT meets the de minimis test ofparagraph (c)(2)(iv)(D)(1) of this section,the qualified NMWHFIT exception of

September 5, 2006 378 2006–36 I.R.B.

paragraph (c)(2)(iv)(E) of this section,or the NMWHFIT final year exception ofparagraph (c)(2)(iv)(F) of this section), thetrustee is not required under this paragraph(f) to provide any information regardingmarket discount.

* * * * *


(Filed by the Office of the Federal Register on July 28, 2006,4:15 p.m., and published in the issue of the Federal Registerfor August 3, 2006, 71 F.R. 43998)

Announcement of Disciplinary Actions InvolvingAttorneys, Certified Public Accountants, Enrolled Agents,and Enrolled Actuaries — Suspensions, Censures,Disbarments, and ResignationsAnnouncement 2006-57

Under Title 31, Code of Federal Regu-lations, Part 10, attorneys, certified publicaccountants, enrolled agents, and enrolledactuaries may not accept assistance from,or assist, any person who is under disbar-ment or suspension from practice beforethe Internal Revenue Service if the assis-tance relates to a matter constituting prac-tice before the Internal Revenue Serviceand may not knowingly aid or abet another

person to practice before the Internal Rev-enue Service during a period of suspen-sion, disbarment, or ineligibility of suchother person.

To enable attorneys, certified publicaccountants, enrolled agents, and enrolledactuaries to identify persons to whomthese restrictions apply, the Director, Of-fice of Professional Responsibility, willannounce in the Internal Revenue Bulletin

their names, their city and state, their pro-fessional designation, the effective dateof disciplinary action, and the period ofsuspension. This announcement will ap-pear in the weekly Bulletin at the earliestpracticable date after such action and willcontinue to appear in the weekly Bulletinsfor five successive weeks.

Consent Suspensions From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, an attorney, certified pub-lic accountant, enrolled agent, or enrolledactuary, in order to avoid the institutionor conclusion of a proceeding for his orher disbarment or suspension from prac-tice before the Internal Revenue Service,

may offer his or her consent to suspensionfrom such practice. The Director, Officeof Professional Responsibility, in his dis-cretion, may suspend an attorney, certifiedpublic accountant, enrolled agent, or en-rolled actuary in accordance with the con-sent offered.

The following individuals have beenplaced under consent suspension frompractice before the Internal Revenue Ser-vice:

Name Address Designation Date of Suspension

Crane, Stephen Palm Springs, CA Enrolled Agent May 4, 2006toAugust 3, 2007

Cohen, Ronald J. Newburgh, NY Attorney IndefinitefromJune 21, 2006

Layson, David A. Corydon, IN Attorney April 7, 2006toOctober 6, 2007

Brough, Donald L. Salem, IN CPA July 1, 2006toJune 30, 2010

2006–36 I.R.B. 379 September 5, 2006


Gulian, Yervant Great Neck, NY CPA April 17, 2006toDecember 16, 2007

Rivera-Smith, Dawn Brick, NJ CPA May 30, 2006toNovember 29, 2008

Eckstein, Matthew Woodbury, NY CPA June 15, 2006toMarch 14, 2007

Hecht, Jodee L. Clifton, VA CPA IndefinitefromJune 19, 2006

Finch, Phillip W. Yorktown, VA CPA IndefinitefromJune 22, 2006

Troese Jr., Henry A. Clarion, PA Enrolled Agent IndefinitefromJune 22, 2006

Robbins, Ronald E. Pittsford, VT CPA June 24, 2006toJune 23, 2008

Shapiro, Sidney C. West Palm Beach, FL CPA IndefinitefromJuly 1, 2006

Martini, Anthony Stamford, CT CPA June 18, 2006toDecember, 17, 2007

Cunningham, William Philadelphia, PA CPA July 1, 2006toMarch 31, 2007

Simontacchi, Joseph F. Morris Plains, NJ CPA IndefinitefromJuly 1, 2006

Carroccio, Ronald P. Staten Island, NY CPA IndefinitefromJuly 1, 2006

Miller, Walter P. Roanoke, VA CPA IndefinitefromJuly 1, 2006

Aneji, Patrick Houston, TX CPA IndefinitefromJune 22, 2006

Rosenbloom, Mark L. Chicago, IL Attorney August 15, 2006toAugust 14, 2007

September 5, 2006 380 2006–36 I.R.B.


Viener, Ira S. Fort Lee, NJ CPA IndefinitefromAugust 1, 2006

Ganz, Sheldon M. Great Neck, NJ CPA IndefinitefromAugust 1, 2006

Tomasulo, Maria Wantagh, NY CPA IndefinitefromAugust 7, 2006

Galpern, Joel G. North Miami, FL CPA IndefinitefromSeptember 1, 2006

Expedited Suspensions From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, the Director, Office of Pro-fessional Responsibility, is authorized toimmediately suspend from practice beforethe Internal Revenue Service any practi-tioner who, within five years from the date

the expedited proceeding is instituted (1)has had a license to practice as an attor-ney, certified public accountant, or actuarysuspended or revoked for cause or (2) hasbeen convicted of certain crimes.

The following individuals have beenplaced under suspension from practice be-fore the Internal Revenue Service by virtueof the expedited proceeding provisions:


Dolan Jr., John L. Memphis, TN Attorney IndefinitefromApril 3, 2006

St. Mary, Randall L. Snohomish, WA Attorney IndefinitefromApril 3, 2006

Theriault, Michael J. Bel Air, MD Attorney IndefinitefromApril 3, 2006

Smith, Bernard P. Marblehead, MA Attorney IndefinitefromApril 3, 2006

Bradley, Phillip M. West Point, VA Attorney IndefinitefromApril 3, 2006

Haefele, Richard J. Wayzata, MN Attorney IndefinitefromApril 3, 2006

Decker, William E. Mandeville, LA Attorney IndefinitefromApril 3, 2006

2006–36 I.R.B. 381 September 5, 2006


Arbour, John J. Monroe, LA Attorney IndefinitefromApril 3, 2006

Keller, John S. Martin Kenner, LA Attorney IndefinitefromApril 3, 2006

Fallon, Charles D. Neptune, NJ Attorney IndefinitefromApril 3, 2006

Agresti, Thomas J. Centennial, CO Attorney IndefinitefromApril 3, 2006

Kirsch, Craig F. Pittsburgh, PA CPA IndefinitefromApril 3, 2006

Hall, Lenny G. McDowell, KY CPA IndefinitefromApril 11, 2006

Hultgren, Jerry R. Fresno, CA Attorney IndefinitefromApril 11, 2006

Loutos, Peter A. Chicago, IL Attorney IndefinitefromApril 11, 2006

Smith III, Frank L. Bushnell, FL Attorney IndefinitefromApril 11, 2006

Morley, Michael J. Springfield, PA CPA IndefinitefromApril 11, 2006

Waters, Richard W. Smithfield, UT CPA IndefinitefromApril 11, 2006

Hartgraves, Travis M. Abilene, TX Attorney IndefinitefromApril 14, 2006

Dunn, George T. Lockhart, TX Attorney IndefinitefromApril 14, 2006

Adkins, Thomas R. Houston, TX Attorney IndefinitefromApril 14, 2006

Hairston, John W. Sugar Land, TX Attorney IndefinitefromApril 26, 2006

September 5, 2006 382 2006–36 I.R.B.


Marcone, Frank J. Upper Providence, PA Attorney IndefinitefromMay 1, 2006

Fraley, Donald J. Minneapolis, MN Attorney IndefinitefromMay 3, 2006

Tooke, S. Judd Shreveport, LA Attorney IndefinitefromMay 3, 2006

Reilly, Michael G. Council Bluffs, IA Attorney IndefinitefromMay 3, 2006

Faneuil, Robert A. Newton, MA Attorney IndefinitefromMay 3, 2006

Maignan, Peter R. Upper Marlboro, MD Attorney IndefinitefromMay 3, 2006

Son, David Phoenix, AZ Attorney IndefinitefromMay 5, 2006

Susman, Warren I. New York, NY Attorney IndefinitefromMay 8, 2006

Wurst, Jerome Arlington, TX Attorney IndefinitefromMay 8, 2006

O’Shea, Joseph G. Jackson Heights, NY Attorney IndefinitefromMay 8, 2006

Biegelson, Alan Brooklyn, NY Attorney IndefinitefromMay 8, 2006

Leonard, Robert K. Winston-Salem, NC Attorney IndefinitefromMay 8, 2006

Cassidy, Michael M. Madison, WI Attorney IndefinitefromMay 8, 2006

Dobkin, Daniel B. New Hyde Park, NY Attorney IndefinitefromMay 8, 2006

Nealy, Joseph L. Sugarland, TX Attorney IndefinitefromMay 16, 2006

Conmey, Edwin W. Oconomowoc, WI Attorney IndefinitefromMay 16, 2006

2006–36 I.R.B. 383 September 5, 2006


Knott Jr., Robert T. Los Angeles, CA Attorney IndefinitefromMay 16, 2006

Diamond, Howard S. Mendham, NJ Attorney IndefinitefromMay 16, 2006

Fitzgerald, Bill L. Lubbock, TX Attorney IndefinitefromMay 16, 2006

Brubaker, Gregory A. San Francisco, CA Attorney IndefinitefromMay 18, 2006

Dodenbier, Robert F. Lehi, UT Attorney IndefinitefromMay 18, 2006

Young, Paul J. Taft, CA Attorney IndefinitefromJune 8, 2006

Dahodwala, Fatema Andover, MA Attorney IndefinitefromJune 8, 2006

Mendola, Joseph E. Monessen, PA CPA IndefinitefromJune 8, 2006

Rooney, Edward F. Minneapolis, MN Attorney IndefinitefromJune 8, 2006

Long, Rebecca L. Wichita, KS Attorney IndefinitefromJune 8, 2006

West, Clifton C. Fayetteville, NC Attorney IndefinitefromJune 8, 2006

Silva, Zoilo I. City Island, NY Attorney IndefinitefromJune 8, 2006

Tyler Jr., Earle S. Bangor, ME Attorney IndefinitefromJune 12, 2006

Horneber, Alice S. Sioux City, IA Attorney IndefinitefromJune 12, 2006

Donnelly, Christine M. Blue Springs, MO Attorney IndefinitefromJune 12, 2006

Driscoll Jr., Peter Columbia, MD Attorney IndefinitefromJune 12, 2006

September 5, 2006 384 2006–36 I.R.B.


Souza, John C. Pocatello, ID Attorney IndefinitefromJune 12, 2006

Crockett, Kevin J. Midvale, UT Attorney IndefinitefromJune 12, 2006

White, Debra M. Wyatt Navasota, TX CPA IndefinitefromJune 12, 2006

Wilkins, Daniel J. Chelmsford, MA Attorney IndefinitefromJune 12, 2006

Merica, Chad L. Murray, UT CPA IndefinitefromJune 12, 2006

Wintroub, David S. Omaha, NE Attorney IndefinitefromJune 12, 2006

Smith, Roderick E. Kansas City, MO Attorney IndefinitefromJune 12, 2006

Guida, Joseph M. Aberdeen, MD Attorney IndefinitefromJune 12, 2006

Sonibare, Nash St. Paul, MN CPA IndefinitefromJune 12, 2006

Braun, Marc W. St. Louis, MO Attorney IndefinitefromJune 12, 2006

Coffey, John J. Rye, NH Attorney IndefinitefromJune 12, 2006

Whitehead, H. Allen New York, NY Attorney IndefinitefromJune 12, 2006

Lansky, Sidney Mattapoisett, MA Attorney IndefinitefromJune 12, 2006

Pazniokas, Paul M. Norwood, MA Attorney IndefinitefromJune 12, 2006

Bajgrowicz, James J. Santa Rosa, CA Attorney IndefinitefromJune 12, 2006

Davis, Bret J. Los Angeles, CA Attorney IndefinitefromJune 12, 2006

2006–36 I.R.B. 385 September 5, 2006


McAvoy, Timothy Chicago, IL Attorney IndefinitefromJune 12, 2006

Loffadelli, Thomas C. Studio City, CA Attorney IndefinitefromJune 12, 2006

Emeziem, Kelechi C. Antioch, CA Attorney IndefinitefromJune 12, 2006

Pugh, William C. Wayzata, MN Attorney IndefinitefromJune 12, 2006

Lamanna, Eugene C. Reading, PA Attorney IndefinitefromJune 12, 2006

Bartels, John R. St. Paul, MN Attorney IndefinitefromJune 12, 2006

Shapiro, Kenneth S. Bala Cynwyd, PA CPA IndefinitefromJune 14, 2006

Stone, Jerry W. Austin, TX Attorney IndefinitefromJune 21, 2006

Vanriper, Philip E. Binghamton, NY Attorney IndefinitefromJune 21, 2006

Simuro, Valerie T. Gardiner, NY Attorney IndefinitefromJune 21, 2006

Simms, William K. Brooklyn, NY Attorney IndefinitefromJune 21, 2006

Weaver, Terring M. Clarksburg, WV CPA IndefinitefromJuly 1, 2006

Norman, Clarence Brooklyn, NY Attorney IndefinitefromAugust 3, 2006

Knight, John G. Winston-Salem, NC Attorney IndefinitefromAugust 3, 2006

Kronegold, Sheldon H. Englewood, NJ Attorney IndefinitefromAugust 3, 2006

September 5, 2006 386 2006–36 I.R.B.


Foushee, Wayne H. Winston-Salem, NC Attorney IndefinitefromAugust 3, 2006

Suspensions From Practice Before the Internal RevenueService After Notice and an Opportunity for a Proceeding

Under Title 31, Code of Federal Reg-ulations, Part 10, after notice and an op-portunity for a proceeding before an ad-

ministrative law judge, the following indi-viduals have been placed under suspension

from practice before the Internal RevenueService:

Name Address Designation Effective Date

Kahn, Harold Hollis, NY CPA June 26, 2006toJune 25, 2010

Disbarments From Practice Before the Internal RevenueService After Notice and an Opportunity for a Proceeding

Under Title 31, Code of Federal Regu-lations, Part 10, after notice and an oppor-

tunity for a proceeding before an adminis-trative law judge, the following individu-

als have been disbarred from practice be-fore the Internal Revenue Service:

Name Address Designation Effective Date

Gailey, James N. Huntersville, NC CPA June 5, 2006

Censure Issued by ConsentUnder Title 31, Code of Federal Reg-

ulations, Part 10, in lieu of a proceedingbeing instituted or continued, an attorney,certified public accountant, enrolled agent,

or enrolled actuary, may offer his or herconsent to the issuance of a censure. Cen-sure is a public reprimand.

The following individuals have con-sented to the issuance of a Censure:

Name Address Designation Date of Censure

Williams, Daniel S. Carlsbad, CA Attorney March 29, 2006

Azan, Reinaldo L. Miami Beach, FL CPA July 24, 2006

Golub, Stephen B. Norwalk, CT CPA August 3, 2006

2006–36 I.R.B. 387 September 5, 2006

Revisions to RegulationsRelating To Repeal of Taxon Interest of NonresidentAlien Individuals and ForeignCorporations ReceivedFrom Certain Portfolio DebtInvestments; Hearing

Announcement 2006–58

AGENCY: Internal Revenue Service,Treasury.

ACTION: Changes of date and location forpublic hearing.

SUMMARY: This document provideschanges of date and location for a pub-lic hearing on proposed regulations(REG–118775–06, 2006–28 I.R.B. 73)under sections 871 and 881 of the Inter-nal Revenue Code (Code) relating to theexclusion from gross income of portfoliointerest paid to a nonresident alien indi-vidual or foreign corporation.

DATES: The public hearing originallyscheduled for Thursday, September 7,2006, at 10 a.m. is rescheduled for Friday,October 6, 2006, at 10 a.m. Outlines oftopics to be discussed at the public hearingwill be due by August 24, 2006.

ADDRESSES: The public hearing wasoriginally being held in the IRS Audito-rium, Internal Revenue Building, 1111Constitution Avenue, NW, WashingtonDC. The hearing location has changed.The public hearing will be held in theIRS Auditorium, New Carrollton Fed-eral Building, 5000 Ellin Road, Lanham,Maryland 20706.

FOR FURTHER INFORMATIONCONTACT: Guy R. Traynor,(301) 922–0539 (not a toll-freenumber) or Richard Hurst [email protected].


A notice of proposed rulemak-ing and notice of public hearing(REG–118775–06) appearing in the Fed-eral Register on Tuesday, June 13, 2006(71 FR 34047), announced that a publichearing on proposed regulations relatingto the exclusion from gross income ofportfolio interest paid to a nonresident

alien individual or foreign corporationwould be held on Thursday, September7, 2006, beginning at 10 a.m. in the IRSAuditorium, 1111 Constitution Avenue,NW, Washington, DC.

The date and location of the hearinghave changed. The hearing is rescheduledfor Friday, October 6, 2006, beginning at10 a.m. in the IRS Auditorium, New Car-rollton Federal Building, 5000 Ellin Road,Lanham, Maryland 20706.

A period of 10 minutes is allotted toeach person for presenting oral comments.The IRS will prepare an agenda contain-ing the schedule of speakers. Copies ofthe agenda will be made available, free ofcharge, at the hearing.

Guy R. Traynor,Chief, Publications and

Regulations Branch,Legal Processing Division,

Associate Chief Counsel(Procedure and Administration).


Definition of EssentialGovernmental Function UnderSection 7871 and Limitationto Activities CustomarilyPerformed by States andLocal Governments



ACTION: Advance notice of proposedrulemaking.

SUMMARY: This document applies toIndian tribal governments and to State andlocal governments that issue bonds forthe benefit of Indian tribal governments.This document describes rules that the IRSand the Treasury Department anticipateproposing, in a notice of proposed rule-making (REG–118788–06), regarding thedefinition of an essential governmentalfunction under section 7871(c) of the In-ternal Revenue Code and the limitationof that term to activities customarily per-formed by State and local governments forpurposes of section 7871(e) of the Internal

Revenue Code. This document also in-vites comments from the public regardingthis proposed standard.

DATES: Written or electronic commentsmust be submitted by November 7, 2006.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–118788–06), room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may be sentelectronically, via the IRS Internet site atwww.irs.gov/regs or via the Federal eRule-making Portal at www.regulations.gov(indicate IRS and REG–118788–06).

FOR FURTHER INFORMATIONCONTACT: Concerning submissions,Kelly Banks, (202) 927–1443; concern-ing the proposed rules, Timothy L. Jonesor Aviva M. Roth, (202) 622–4164 (nottoll-free numbers).


Background

Section 7871(a)(4) of the Internal Rev-enue Code of 1986 provides that an Indiantribal government is to be treated as a State“subject to subsection (c), for purposesof section 103 (relating to State and localbonds)”. Section 7871(c)(1) provides that“section 103(a) shall apply to any obliga-tion (not described in paragraph (2)) issuedby an Indian tribal government (or subdi-vision thereof) only if such obligation ispart of an issue substantially all of the pro-ceeds of which are to be used in the ex-ercise of any essential governmental func-tion”. Section 7871(e) provides that “[f]orpurposes of this section, the term ‘essen-tial governmental function’ shall not in-clude any function which is not customar-ily performed by State and local govern-ments with general taxing powers”.

Section 7871 was originally enacted in1982 by The Indian Tribal GovernmentTax Status Act, Pub. L. No. 97–473, 96Stat. 2605 § 202 (1983). In the legisla-tive history to that Act, the Senate FinanceCommittee indicated that tax-exempt bondfinancing was not intended to be availableto Indian tribal governments for “commer-cial or industrial activities (or other ac-tivities other than essential governmentalfunctions).” S. Rep. No. 97–646, at 13–14(1982).

September 5, 2006 388 2006–36 I.R.B.

Section 7871(e) was added to the statuteby The Omnibus Budget ReconciliationAct of 1987, Pub. L. No. 100–203, 101Stat. 1330, § 10632(a) (1987). In the leg-islative history to this provision, the HouseWays and Means Committee criticized1984 Temporary Treasury Regulations in-terpreting the term essential governmentalfunction in section 7871(c) for includingcertain activities eligible for Federal fund-ing in that definition. The House Ways andMeans Committee stated that the reasonfor this amendment was that the Com-mittee was concerned about reports thatIndian tribal governments were issuingtax-exempt bonds for interests in “com-mercial and industrial enterprises”. TheCommittee further included the followingstatement about section 7871(e):

The bill clarifies that, with respect tobonds issued by Indian tribal govern-ments, the term ‘essential governmen-tal function’ does not include any gov-ernmental function that is not customar-ily performed (and financed with gov-ernmental tax-exempt bonds) by Stateand local governments with general tax-ing powers. For example, issuance ofbonds to finance commercial or indus-trial facilities (e.g., private rental hous-ing, cement factories, or mirror facto-ries) which bonds technically may notbe private activity bonds is not includedwithin the scope of the essential govern-mental function exception.

Additionally, the committee wishes tostress that only those activities that arecustomarily financed with governmen-tal bonds (e.g., schools, roads, govern-mental buildings, etc.) are intended tobe within the scope of this exception,notwithstanding that isolated instancesof a State or local government issuingbonds for another activity may occur.

H. R. Rep. No. 100–391, at 1139 (1987).

The 1987 Conference Committee addingthe limited manufacturing facility provi-sion of section 7871(c)(3)(A), noted that:

A facility which does not qualify as amanufacturing facility for purposes ofthis provision may nonetheless be fi-nanced with tax-exempt bonds issuedby a tribal government provided that

the facility satisfies the ‘essential gov-ernmental function’ standard (i.e., thefacility is comparable to facilities thatare customarily acquired or constructedand operated by States and local gov-ernments). For example, a buildingused for offices for a tribal governmentitself would be comparable to State orlocal government office buildings, andtherefore, could be financed with tax-exempt bonds. As another example, alodge owned and operated by a tribalgovernment may be eligible for tax-ex-empt financing if it is comparable tolodges customarily owned and operatedby State park or recreation agencies.

H. R. Rep. No. 100–495, at 1012 n.5(1987) (Conf. Rep.).

The IRS has become aware of an in-creasing number of instances in which tax-payers have raised questions about the ap-plication of section 7871(e). Accordingly,the Treasury Department and the IRS havedetermined to seek public comment in ad-vance of issuing proposed regulations inthis area.

Explanation of Provisions

The Treasury Department and the IRSanticipate that the proposed regulationswill provide that for purposes of section7871(c) and section 7871(e), an activitywill be considered an essential govern-mental function that is customarily per-formed by State and local governmentsif: (1) there are numerous State and localgovernments with general taxing powersthat have been conducting the activity andfinancing it with tax-exempt governmen-tal bonds, (2) State and local governmentswith general taxing powers have beenconducting the activity and financing itwith tax-exempt governmental bonds formany years, and (3) the activity is nota commercial or industrial activity. Theproposed regulations will further providethat examples of activities customarilyperformed by State and local governmentsinclude, but are not limited to, publicworks projects such as roads, schools, andgovernment buildings.

Request for Comments

Before the notice of proposed rulemak-ing is issued, consideration will be given

to any written comments that are submit-ted timely (preferably a signed original andeight (8) copies) to the IRS. All commentswill be available for public inspection andcopying.


The principal authors of this ad-vance notice of proposed rulemakingare Aviva M. Roth and Timothy L. Jones,Office of the Chief Counsel (Tax-Exemptand Government Entities), however, otherpersonnel from the IRS and Treasury De-partment participated in its development.



Deletions From CumulativeList of OrganizationsContributions to Whichare Deductible Under Section170 of the Code


The Internal Revenue Service has re-voked its determination that the organiza-tion listed below qualifies as an organi-zation described in sections 501(c)(3) and170(c)(2) of the Internal Revenue Code of1986.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is notprecluded from disallowing a deductionfor any contributions made after an or-ganization ceases to qualify under section170(c)(2) if the organization has not timelyfiled a suit for declaratory judgment undersection 7428 and if the contributor (1) hadknowledge of the revocation of the rulingor determination letter, (2) was aware thatsuch revocation was imminent, or (3) wasin part responsible for or was aware of theactivities or omissions of the organizationthat brought about this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-

2006–36 I.R.B. 389 September 5, 2006

tributions from individuals and organiza-tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin on September 5,2006, and would end on the date the courtfirst determines that the organization isnot described in section 170(c)(2) as moreparticularly set forth in section 7428(c)(1).For individual contributors, the maximumdeduction protected is $1,000, with a hus-band and wife treated as one contributor.This benefit is not extended to any indi-vidual, in whole or in part, for the acts oromissions of the organization that werethe basis for revocation.

Aylesi M. Bobo Charitable FoundationIndependence, MO

Fast Track Settlement forSB/SE Taxpayers


DESCRIPTION OF SB/SE FASTTRACK SETTLEMENT

This announcement provides an oppor-tunity for small business/self employedtaxpayers to use Fast Track Settlement(FTS) to expedite case resolution at theearliest opportunity within the IRS’s SmallBusiness/Self Employed organization(SB/SE). The purpose of SB/SE FTS isto enable SB/SE taxpayers that currentlyhave unagreed issues in at least one openyear under examination to work togetherwith SB/SE and the Office of Appeals(Appeals) to resolve outstanding disputedissues while the case is still in SB/SE ju-risdiction. SB/SE and Appeals will jointlyadminister the SB/SE FTS process. SB/SEFTS will be used to resolve factual and le-gal issues and may be initiated at any timeafter an issue has been fully developed,preferably before the issuance of a 30-dayletter or equivalent notice.

SB/SE FTS will be available to taxpay-ers for a test period of up to two years,beginning upon the date of publication ofthis announcement. Within this period,there will be an initial focused test of sixmonths during which SB/SE FTS willonly be available for taxpayers under ex-amination in Chicago, Illinois; Houston,

Texas; and St. Paul, Minnesota. By theend of this six-month focused test, SB/SEand Appeals will evaluate the program,consider necessary adjustments and deter-mine whether to continue testing SB/SEFTS for the remaining eighteen monthsof the test period. If continued, SB/SEFTS will be available to taxpayers nation-wide. Upon completion of the two-yeartest period, SB/SE and Appeals will againevaluate the program, consider necessaryadjustments, and determine whether tomake the program permanent.

RELIANCE ON AND DIFFERENCESFROM LMSB FAST TRACKSETTLEMENT

The procedures for using FTS forSB/SE taxpayers rely on the provisionsof Revenue Procedure 2003–40, 2003–1C.B. 1044, which implemented a Largeand Mid-Size Business Fast Track Set-tlement Dispute Resolution Program andallows the use of Appeals settlement au-thority in SB/SE cases. See section 3.02of Rev. Proc. 2003–40.

During the two-year test period, SB/SEFTS extends the provisions of the LMSBFast Track program to SB/SE cases andprovides for direct oversight of the pro-gram by SB/SE and Appeals. SB/SE FTStherefore involves procedures almost iden-tical to the LMSB FTS procedures de-scribed in Rev. Proc. 2003–40. The keydifferences between the LMSB and SB/SEFTS procedures are as follows:

• The SB/SE Group Manager or de-signee fulfills the duties of the LMSBTeam manager, as described in Rev.Proc. 2003–40;

• SB/SE Group Managers and AppealsTeam Managers select and managecases eligible for SB/SE FTS; and

• The SB/SE FTS process is designed tobe completed within 60 days of accep-tance of the SB/SE-Appeals FTS Ap-plication.

CASE ELIGIBILITY ANDEXCLUSIONS

Subject to the limitations set forth be-low, SB/SE FTS is generally available forcases under the jurisdiction of the SB/SEDivision if:

• Issues are fully developed;

• The taxpayer has stated a position inwriting (or filed a small case requestfor cases in which the total amount forany tax period is less than $25,000, asdescribed in Publication 5, Your Ap-peal Rights and How To Prepare aProtest If You Don’t Agree); and

• There are a limited number of una-greed issues.

SB/SE FTS is not available for:

• Collection Appeals Program, Collec-tion Due Process, Offer-In-Compro-mise and Trust Fund Recovery cases,except as provided in any guidance is-sued by the Service;

• Correspondence examination casesworked solely in a Campus/ServiceCenter site;

• Cases in which the taxpayer has failedto respond to Service communicationsand no documentation has been previ-ously submitted for consideration byCompliance;

• Tax Equity & Fiscal Responsibility Act(TEFRA) partnership cases;

• Issues outside SB/SE jurisdiction, ex-cept as provided below;

• Issues designated for litigation;

• Issues under consideration for designa-tion for litigation;

• Issues for which the taxpayer has sub-mitted a request for competent author-ity assistance;

• Issues for which the taxpayer hasrequested the simultaneous Ap-peal/Competent Authority proceduredescribed in section 8 of Rev. Proc.2002–52, 2002–2 C.B. 242, or the cor-responding provision of any successorguidance;

• Frivolous issues, such as, but not lim-ited to, those identified in Rev. Proc.2006–2, 2006–1 I.R.B. 89, or any suc-cessor guidance;

• “Whipsaw” issues, i.e., issues forwhich resolution with respect to one

September 5, 2006 390 2006–36 I.R.B.

party might result in inconsistent treat-ment in the absence of the participationof another party; or

• Issues that have been identified ina Chief Counsel Notice, or equiva-lent publication, as excluded from theSB/SE FTS process.

If an issue is determined not to be eli-gible for the SB/SE FTS program, all is-sues in the case shall not be eligible for theSB/SE FTS program.

SB/SE FTS may not be the appropri-ate dispute resolution process for all casesinvolving SB/SE taxpayers. The SB/SEGroup Manager or designee and the tax-payer will evaluate their individual cir-cumstances to determine if this processmeets their needs.

SB/SE FTS may also be available forcases under the jurisdiction of the Tax Ex-empt and Government Entities (TE/GE)Division, depending on the circumstancesand operational needs of the case. The useof SB/SE FTS procedures for such caseswill require the consent of the taxpayer,the local Appeals Team Manager and theTE/GE Field Manager, or equivalent. ForTE/GE cases approved for SB/SE FTS,the appropriate TE/GE Field Manager, orequivalent, will carry out the responsibil-ities of the SB/SE Group Manager as setforth in this announcement. The applica-tion process for TE/GE taxpayers wishingto use SB/SE FTS procedures may be mod-ified by subsequent published guidance.

APPLICATION PROCESS

A taxpayer that is interested in partici-pating in SB/SE FTS, or that has questionsabout the program and its suitability for thetaxpayer’s case, may contact the SB/SEGroup Manager for the year currently un-der examination. Either the taxpayer, Ex-amining Agent or the SB/SE Group Man-ager can initiate the process to take part inthe SB/SE FTS program at any time af-ter an issue has been fully developed butpreferably before a 30-day or equivalentletter is issued.

To apply for the SB/SE FTS program,the taxpayer and the SB/SE Group Man-ager should submit a SB/SE-Appeals FTSApplication, attached as Exhibit 1, to thelocal Appeals Team Manager. A Sum-mary of Issues or Examination Re-engi-

neering Lead sheets (the equivalent to aForm 5701, Notice of Proposed Adjust-ment) will be prepared by the SB/SE Com-pliance team, and a written response fromthe taxpayer should be included with theSB/SE-Appeals FTS Application to com-plete the package for the parties to under-stand opposing views.

If the case is not accepted for inclu-sion in SB/SE FTS, the SB/SE or Ap-peals representative will inform the tax-payer of the basis for this decision and dis-cuss other dispute resolution opportunitieswith the taxpayer, including 30-day letterprocedures contained in IRS Publication 5,Your Appeal Rights and How To Preparea Protest If You Don’t Agree. The deci-sion not to accept a case into the SB/SEFTS program is not subject to administra-tive appeal or judicial review.

SETTLEMENT PROCESS

SB/SE FTS employs various alterna-tive dispute resolution techniques to pro-mote case resolution. An Appeals Officer,trained in mediation, will serve as a neu-tral party (the FTS Appeals Official). TheFTS Appeals Official will not perform ina traditional Appeals role, but will use dis-pute resolution techniques to facilitate set-tlement between the parties.

During SB/SE FTS, the taxpayer andSB/SE representatives hold a conferencewith the FTS Appeals Official (the FTSSession). The taxpayer and SB/SE rep-resentatives at the FTS Session shouldinclude individuals with decision-makingauthority and the information and exper-tise necessary to assist the parties and theFTS Appeals Official during the settle-ment process. The FTS Appeals Officialmay ask the parties to limit the number ofparticipants at the FTS Session to facili-tate the process. A taxpayer is not requiredto have a representative to participate inSB/SE FTS. If the taxpayer is representedby a person engaged in practice beforethe Service, however, this individual musthave a power of attorney from the tax-payer (Form 2848, Power of Attorney andDeclaration of Representative) in additionto the FTS Agreement.

The FTS Appeals Official will holdthe FTS Session at the date and locationagreed to by both parties. Prior to the FTSSession, the FTS Appeals Official willadvise the participants of the procedures

and establish ground rules. The FTS Ap-peals Official may modify the rules andprocedures during the session to adapt tochanges in circumstances. The FTS Ses-sion may include conferences attended byall of the parties, separate meetings witheach party, or both as determined appro-priate in the sole judgment of the FTSAppeals Official.

The FTS Appeals Official will use aFTS Session Report to assist in planningthe FTS Session and to report on develop-ments during the FTS Session. The FTSSession Report will include a list of all is-sues approved for the FTS program, a de-scription of the issues, the amounts in dis-pute, conference dates, a plan of actionfor the FTS Session and other informa-tion useful to the process as determined bythe parties and the FTS Appeals Official.The FTS Appeals Official may also pre-pare and update an Agenda, which guidesthe communication, sets the order of is-sue discussion, poses questions to clarifythe issues and guides the meetings. Dur-ing the FTS Session, the FTS Appeals Of-ficial will provide decision makers fromboth parties with copies of the Agenda andthe FTS Session Report.

Generally, the FTS Appeals Officialwill consider only those issues outlinedin the FTS Session Report, except bymutual agreement of the parties. If thetaxpayer presents information during theFTS Session that the taxpayer had notpreviously presented during the audit,the FTS Appeals Official will adjust thetargeted completion date to give the ap-propriate Service officials time to evaluatethe information/documentation.

During the FTS Session, the FTS Ap-peals Official may propose settlementterms for any or all issues and may con-sider settlement terms proposed by eitherparty. If the taxpayer accepts the FTSAppeals Official’s settlement proposal,but the SB/SE Group Manager rejects it,the SB/SE Territory Manager must re-view SB/SE’s rejection of the settlementproposal and either concur in writing, oraccept the settlement proposal on behalfof SB/SE. If the SB/SE Territory Managerconcurs with the Group Manager’s rejec-tion of the settlement proposal, and anacceptable alternative settlement cannotbe reached, the issue will be closed out ofthe FTS program as unagreed.

2006–36 I.R.B. 391 September 5, 2006

If the parties resolve any of the disputedissues at the conclusion of the FTS Ses-sion, the parties and the FTS Appeals Of-ficial shall sign the FTS Session Reportacknowledging acceptance of the terms ofsettlement for purposes of preparing com-putations. The signature of the parties onthe FTS Session Report does not constitutea final settlement, nor does it waive restric-tions on assessment, terminate consents toextend periods of limitation, start the run-ning of any periods of limitation, or con-stitute agreement to close the case.

The SB/SE FTS process is confidential.IRS employees involved in any way withthe SB/SE FTS process are subject to theconfidentiality and disclosure provisionsof the Internal Revenue Code, includingsection 6103. By signing the FTS Agree-ment, attached as Exhibit 1, the taxpayerconsents, pursuant to section 6103(c), tothe disclosure of the taxpayer’s returnsand return information pertaining to theissues being considered in the SB/SE FTSprocess to those persons named on theAgreement as participants in the process.IRS employees, the taxpayer and personsinvited to participate by the IRS or thetaxpayer shall not voluntarily disclose in-formation regarding any communicationmade during the SB/SE FTS Session, ex-cept as provided by statute.

The prohibition against ex parte com-munications between Appeals Officersand other IRS employees provided bysection 1001(a) of the Internal RevenueService Restructuring and Reform Act of1998 does not apply to the communica-tions arising in the SB/SE FTS processbecause the Appeals personnel are facili-tating an agreement between the taxpayerand SB/SE and are not acting in their tra-ditional Appeals settlement role.

Any recommended settlement by theFTS Appeals Official of an issue in FTSshall be subject to the procedures thatwould be applicable if the issue werebeing considered by Appeals, includingprocedures in the Internal Revenue Man-ual and existing published guidance. FTStherefore creates no special authority forsettlement by the FTS Appeals Official.For example, if the FTS issue is coordi-

nated in either the Technical Advisor Pro-gram or the Appeals Technical Guidanceprogram, the proposed settlement of thatissue is subject to established procedures,including submission of the proposed set-tlement to the Appeals Coordinator forreview and concurrence.

If the parties fail to resolve any issuein FTS, the taxpayer retains the option ofrequesting that the issue be heard throughthe traditional Appeals process.

Except as specifically provided above,both parties retain the right to withdrawthroughout the entire SB/SE FTS process.A party wishing to withdraw should pro-vide written notice to the FTS Appeals Of-ficial and the other party.

POST-SETTLEMENT PROCEDURE

If the parties reach an agreement on allor some issues through the SB/SE FTSprocess, the SB/SE representative or FTSAppeals Official, as appropriate, will useestablished issue or case closing proce-dures and applicable agreement forms, in-cluding preparation of a Form 906 specificmatters closing agreement, if appropriate.

If applicable, the Service will reporta proposed resolution reached as a resultof SB/SE FTS to the Joint Committee onTaxation in accordance with section 6405.The taxpayer acknowledges that the Ser-vice may reconsider a proposed settlement,as reflected in a signed FTS Session Re-port, upon receipt of comments on the pro-posed settlement from the Joint Commit-tee on Taxation. If the taxpayer declinesto agree with any changes by the Serviceupon reconsideration, SB/SE will close thecase unagreed and the taxpayer will retainall the usual rights to request Appeals con-sideration of any unagreed issues.

GENERAL PROVISIONS

A resolution reached by the partiesthrough the SB/SE FTS process will notbind the parties for taxable years or issuesnot covered by the SB/SE-Appeals FTSagreement, unless such taxable years orissues are expressly addressed in a formalclosing agreement reached as part of theSB/SE FTS process.

For SB/SE FTS cases that are returnedfor traditional Appeals consideration forany reason, ex parte restrictions will notbe imposed on intra-Appeals communica-tions. Appeals management will take ap-propriate measures to ensure these casesare handled impartially.

DELEGATION OF AUTHORITY

This announcement constitutes a del-egation by the Commissioner of InternalRevenue of settlement authority to Grade14, 13 and 12 Appeals Officers who areassigned to be Appeals FTS Officials forSB/SE FTS cases described in this an-nouncement. This delegation of settle-ment authority includes the responsibilityfor arriving at the final disposition fromthe Government’s perspective, approvingthe final settlement in accordance with thedelegated authority, and executing the ap-propriate closing documents. This author-ity may not be redelegated.

EFFECTIVE DATE

SB/SE FTS is effective beginningSeptember 5, 2006.

COMMENTS

The IRS encourages interested personsto comment on this program, includingsuggested changes to make the programmore useful and effective. Send submis-sions to:

Internal Revenue Service-AppealsAttn: Nancy J. Talajkowski160 Spear Street, Suite 800San Francisco, CA 94105

FURTHER INFORMATION

For further information regard-ing this announcement, contact either:Thomas S. Ryan, SB/SE Program Analyst,

ber); or Nancy J. Talajkowski, AppealsProgram Analyst, Tax Policy & Procedure(Alternative Dispute Resolution) at (415)227–5007 (not a toll-free number).

September 5, 2006 392 2006–36 I.R.B.

at (757) 213–3810 (not a toll-free num-

Exhibit 1: Application for SB/SE-Appeals Fast Track Settlement

To: Local Appeals OfficeDate:

Is the case subject to Joint Committee review? No Yes

Taxpayer:Name:Address:City, State and Zip Code:Taxpayer EIN Tax Years InvolvedCorporate Officer: Title:Telephone #: ( ) Fax #: ( )

Compliance:Revenue Agent/SB/SE Group Manager Name: GroupAddress:City, State and Zip Code:Telephone Number: ( ) Fax #: ( )MFT Code Type of Tax

Name of Representative:Taxpayer’s Representative (if applicable):Name of Firm:Address:City, State and Zip Code:Telephone #: ( ) Fax #: ( )

SIGNATURESThe undersigned request Appeals assistance in the SB/SE-Appeals Fast Track Settlement process. The issues for which thisassistance is requested are described in the Summary of Issues or Examination Re-Engineering Lead sheets and Taxpayer’s writtenresponse thereto attached to this agreement. By signing the Application to Fast Track Settlement, the taxpayer consents, pursuantto section 6103(c) of the Internal Revenue Code, to the disclosure of the taxpayer’s returns and return information pertaining tothe issues being considered in the FTS process to those persons named on the Agreement as participants in the process. IRSemployees, the taxpayer and persons invited to participate by the IRS or the taxpayer shall not voluntarily disclose informationregarding any communication made during the SB/SE Fast Track Settlement session, except as provided by statute, such as insections 6103 or 7214 (a) (8) of the Code, or 5 U.S.C. § 574. The prohibition against ex parte communications between AppealsOfficers and other Service employees provided by section 1001(a) of the Internal Revenue Service Restructuring and Reform Actof 1998 does not apply to the communications arising in Fast Track Settlement because Appeals personnel, in facilitating anagreement between the taxpayer and SB/SE, are not acting in their traditional Appeals settlement role.

Taxpayer Date SB/SE Group Manager Date

Representative Date

Comments and Other Participants (attach additional sheets as necessary)Name Position or Affiliation Phone

2006–36 I.R.B. 393 September 5, 2006

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe 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 the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situationsto show that the previous published rul-ings will not be applied pending somefuture action such as the issuance of newor amended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished 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.

September 5, 2006 i 2006–36 I.R.B.

Numerical Finding List1

Bulletins 2006–27 through 2006–36

Announcements:

2006-42, 2006-27 I.R.B. 48

2006-43, 2006-27 I.R.B. 48

2006-44, 2006-27 I.R.B. 49

2006-45, 2006-31 I.R.B. 121

2006-46, 2006-28 I.R.B. 76

2006-47, 2006-28 I.R.B. 78

2006-48, 2006-31 I.R.B. 135

2006-49, 2006-29 I.R.B. 89

2006-50, 2006-34 I.R.B. 321

2006-51, 2006-32 I.R.B. 222

2006-52, 2006-33 I.R.B. 254

2006-53, 2006-33 I.R.B. 254

2006-54, 2006-33 I.R.B. 254

2006-55, 2006-35 I.R.B. 342

2006-56, 2006-35 I.R.B. 342

2006-57, 2006-35 I.R.B. 343

2006-58, 2006-36 I.R.B. 388

2006-59, 2006-36 I.R.B. 388

2006-60, 2006-36 I.R.B. 389

2006-61, 2006-36 I.R.B. 390

Notices:

2006-56, 2006-28 I.R.B. 58

2006-57, 2006-27 I.R.B. 13

2006-58, 2006-28 I.R.B. 59

2006-59, 2006-28 I.R.B. 60

2006-60, 2006-29 I.R.B. 82

2006-61, 2006-29 I.R.B. 85

2006-62, 2006-29 I.R.B. 86

2006-63, 2006-29 I.R.B. 87

2006-64, 2006-29 I.R.B. 88

2006-65, 2006-31 I.R.B. 102

2006-66, 2006-30 I.R.B. 99

2006-67, 2006-33 I.R.B. 248

2006-68, 2006-31 I.R.B. 105

2006-69, 2006-31 I.R.B. 107

2006-70, 2006-33 I.R.B. 252

2006-71, 2006-34 I.R.B. 316

2006-72, 2006-36 I.R.B. 363

2006-73, 2006-35 I.R.B. 339

2006-74, 2006-35 I.R.B. 339

2006-75, 2006-36 I.R.B. 366

Proposed Regulations:

REG-135866-02, 2006-27 I.R.B. 34

REG-146893-02, 2006-34 I.R.B. 317

REG-159929-02, 2006-35 I.R.B. 341

REG-148864-03, 2006-34 I.R.B. 320

REG-109512-05, 2006-30 I.R.B. 100

REG-112994-06, 2006-27 I.R.B. 47

REG-118775-06, 2006-28 I.R.B. 73

Proposed Regulations— Continued:

REG-118897-06, 2006-31 I.R.B. 120

REG-124152-06, 2006-36 I.R.B. 368

REG-125071-06, 2006-36 I.R.B. 375

Revenue Procedures:

2006-29, 2006-27 I.R.B. 13

2006-30, 2006-31 I.R.B. 110

2006-31, 2006-27 I.R.B. 32

2006-32, 2006-28 I.R.B. 61

2006-33, 2006-32 I.R.B. 140

Revenue Rulings:

2006-35, 2006-28 I.R.B. 50

2006-36, 2006-36 I.R.B. 353

2006-37, 2006-30 I.R.B. 91

2006-38, 2006-29 I.R.B. 80

2006-39, 2006-32 I.R.B. 137

2006-40, 2006-32 I.R.B. 136

2006-41, 2006-35 I.R.B. 331

2006-42, 2006-35 I.R.B. 337

2006-43, 2006-35 I.R.B. 329

2006-44, 2006-36 I.R.B. 361

Treasury Decisions:

9265, 2006-27 I.R.B. 1

9266, 2006-28 I.R.B. 52

9267, 2006-34 I.R.B. 313

9268, 2006-30 I.R.B. 94

9269, 2006-30 I.R.B. 92

9270, 2006-33 I.R.B. 237

9271, 2006-33 I.R.B. 224

9272, 2006-35 I.R.B. 332

9274, 2006-33 I.R.B. 244

9275, 2006-35 I.R.B. 327

9277, 2006-33 I.R.B. 226

9278, 2006-34 I.R.B. 256

9279, 2006-36 I.R.B. 355

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2006–1 through 2006–26 is in Internal Revenue Bulletin2006–26, dated June 26, 2006.

2006–36 I.R.B. ii September 5, 2006

Finding List of Current Actions onPreviously Published Items1

Bulletins 2006–27 through 2006–36

Announcements:

2005-59

Updated and superseded by

Ann. 2006-45, 2006-31 I.R.B. 121

Notices:

2002-45

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

2006-20

Supplemented and modified by

Notice 2006-56, 2006-28 I.R.B. 58

2006-53

Modified by

Notice 2006-71, 2006-34 I.R.B. 316

Proposed Regulations:

REG-134317-05

Corrected by

Ann. 2006-47, 2006-28 I.R.B. 78

Revenue Procedures:

2002-9

Modified and amplified by

Notice 2006-67, 2006-33 I.R.B. 248

2005-41

Superseded by

Rev. Proc. 2006-29, 2006-27 I.R.B. 13

2005-49

Superseded by

Rev. Proc. 2006-33, 2006-32 I.R.B. 140

Revenue Rulings:

81-35

Amplified and modified by

Rev. Rul. 2006-43, 2006-35 I.R.B. 329

81-36


Rev. Rul. 2006-43, 2006-35 I.R.B. 329

87-10


Rev. Rul. 2006-43, 2006-35 I.R.B. 329

2002-41

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

2003-43

Amplified by

Notice 2006-69, 2006-31 I.R.B. 107

Revenue Rulings— Continued:

2005-24

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

Treasury Decisions:

9254

Corrected by

Ann. 2006-44, 2006-27 I.R.B. 49

9258

Corrected by

Ann. 2006-46, 2006-28 I.R.B. 76

9262

Corrected by

Ann. 2006-56, 2006-35 I.R.B. 342

9264

Corrected by

Ann. 2006-46, 2006-28 I.R.B. 76

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2006–1 through 2006–26 is in Internal Revenue Bulletin 2006–26, dated June 26, 2006.

September 5, 2006 iii 2006–36 I.R.B.

2006–36 I.R.B. September 5, 2006

September 5, 2006 2006–36 I.R.B.

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