Bulletin No. 2008-24June 16, 2008

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

T.D. 9398, page 1143.Final regulations under section 704 of the Code clarify thatwhere certain look-through entities (or members of a consol-idated group) are partners in a partnership, the tax attributesof the owners of the look-through entities must be taken intoaccount when testing whether the economic effect of an al-location is substantial within the meaning of section 704(b).Through an example, the final regulations also reiterate the ef-fect of other provisions, such as section 482, upon the taxtreatment of a partner with respect to the partner’s distributiveshare under section 704(b).

T.D. 9400, page 1139.REG–136020–07, page 1154.Final, temporary, and proposed regulations under section367 of the Code implement the rules announced in Notices2006–85, 2006–2 C.B. 677, and 2007–48, 2007–25 I.R.B.1428. The notices announced that Treasury and the IRS wouldissue regulations under section 367(b) to address transactionswhere either a parent corporation (P) or its subsidiary (S) (orboth) are foreign, and the corporations seek to avoid treatingas a distribution the amount of property that S transfers toP or P’s shareholders in exchange for P stock, which S thenuses to acquire the stock or assets of another corporation (T)in a triangular reorganization. Notices 2006–85 and 2007–48obsoleted by T.D. 9400.

EXEMPT ORGANIZATIONS

Announcement 2008–54, page 1155.The IRS has revoked its determination that Community ChildCare of Portland, OR; Camp Meeting of the Assoc. of theNewark Conf. of the Methodist Episcopal Church of Mount

Tabor, NJ; Berryessa PAL Youth Football Club, Inc., of SanJose, CA; Rape Survivors Anonymous World Services, Inc., ofOswego, IL; and Round Rock Band Boosters, Inc., of RoundRock, TX, qualify as organizations described in sections501(c)(3) and 170(c)(2) of the Code.

EMPLOYMENT TAX

Rev. Rul. 2008–29, page 1149.Supplemental wages; income tax. This ruling providesguidance with respect to income tax withholding in nine differ-ent situations involving the payment of supplemental wages.Rev. Ruls. 66–294 and 67–131 obsoleted.

Finding Lists begin on page ii.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand 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.

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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.

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Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

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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 Secre-tary (Enforcement).

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

June 16, 2008 2008–24 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 367.—ForeignCorporations26 CFR 1.367(b)–14T: Acquisition of parent stock forproperty in triangular reorganizations (temporary).

T.D. 9400

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Treatment of PropertyUsed to Acquire ParentStock in Certain TriangularReorganizations InvolvingForeign Corporations

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final and temporary regula-tions.

SUMMARY: This document containsfinal and temporary regulations undersection 367(b) of the Internal RevenueCode (Code). The final regulations re-vise an existing final regulation and adda cross-reference. The temporary regu-lations implement the rules described inNotice 2006–85 and Notice 2007–48. Theregulations affect corporations engaged incertain triangular reorganizations involv-ing one or more foreign corporations. Thetext of the temporary regulations servesas the text of the proposed regulations(REG–136020–07) set forth in the noticeof proposed rulemaking on this subjectpublished in this issue of the Bulletin.

DATES: Effective Date: These regulationsare effective May 27, 2008.

Applicability Dates: For dates of ap-plicability, see §§1.367(a)–3T(b)(2)(i)(C)and 1.367(b)–14T(e).

FOR FURTHER INFORMATIONCONTACT: Daniel McCall, (202)622–3860 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On September 22, 2006, the IRSand Treasury Department issued Notice2006–85, 2006–2 C.B. 677, which an-nounced that regulations would be issuedunder section 367(b) to address certaintriangular reorganizations under section368(a) involving one or more foreign cor-porations. On May 31, 2007, the IRSand Treasury Department issued Notice2007–48, 2007–25 I.R.B. 1428, whichamplified Notice 2006–85 and announcedthat additional regulations would be is-sued under section 367(b). Each noticedescribes transactions the IRS and Trea-sury Department believe raise significantpolicy concerns.

Notice 2006–85 describes triangular re-organizations in which a subsidiary (S)purchases stock of its parent corporation(P) from P in exchange for property, andthen exchanges the P stock for the stockor assets of a target corporation (T), butonly if P or S (or both) is foreign. Notice2006–85 announced that regulations to beissued under section 367(b) would makeadjustments that would have the effect ofa distribution of property from S to P un-der section 301 (deemed distribution). No-tice 2006–85 further announced that regu-lations would address similar transactionswhere S acquires the P stock from a relatedparty that purchased the P stock in a relatedtransaction.

Notice 2007–48 describes transactionsin which S purchases all or a portion ofthe P stock exchanged in the reorganiza-tion from a person other than P (such asfrom public shareholders on the open mar-ket). Notice 2007–48 announced that reg-ulations to be issued under section 367(b)would also make adjustments that wouldhave the effect of a distribution of prop-erty from S to P (under section 301) fol-lowed by a deemed contribution of suchproperty by P to S. Notice 2007–48 fur-ther announced that the regulations wouldtake into account the earnings and profitsof other corporations, as appropriate, if aprincipal purpose of creating, organizing,

or funding S is to avoid the adjustments tobe made by the regulations.

These temporary regulations set forththe regulations described in Notices2006–85 and 2007–48. The existing fi-nal regulations under §1.367(b)–13 arerevised to conform the definitions of theterms P, S, and T in those regulationsto the definitions of such terms in thesetemporary regulations. The existing finalregulations under §1.367(b)–2 are revisedto clarify that the definition of earningsand profits in §1.367(b)–2(l)(8) appliesonly for purposes of §§1.367(b)–7 and1.367(b)–9.

Explanation of Provisions

A. Section 367— In General

Section 367(a)(1) provides that if, inconnection with any exchange describedin section 332, 351, 354, 356, or 361, aUnited States person transfers property toa foreign corporation, such foreign corpo-ration shall not, for purposes of determin-ing the extent to which gain shall be rec-ognized on such transfer, be consideredto be a corporation. However, exceptionsare provided under section 367(a)(2) and(3), and the Secretary has broad author-ity under section 367(a)(6) to provide thatsection 367(a)(1) will not apply to certaintransfers otherwise described therein.

Section 367(b)(1) provides that in thecase of any exchange described in section332, 351, 354, 355, 356, or 361 in con-nection with which there is no transfer ofproperty described in section 367(a)(1), aforeign corporation shall be considered tobe a corporation except to the extent pro-vided in regulations prescribed by the Sec-retary which are necessary or appropriateto prevent the avoidance of Federal incometaxes.

Section 367(b)(2) provides that theregulations prescribed pursuant to section367(b)(1) shall include (but shall not belimited to) regulations dealing with thesale or exchange of stock or securities ina foreign corporation by a United Statesperson, including regulations providingthe circumstances under which gain is rec-ognized, amounts are included in gross in-come as a dividend, adjustments are made

2008–24 I.R.B. 1139 June 16, 2008

to earnings and profits, or adjustments aremade to basis of stock or securities.

B. Policies of Section 367(b)

Section 367(b) was enacted to ensurethat international tax considerations areadequately addressed when the nonrecog-nition provisions of subchapter C of theCode apply to certain exchanges involvingforeign corporations. Congress furthernoted that “it is essential to protect againsttax avoidance in transfers to foreign cor-porations and upon the repatriation ofpreviously untaxed foreign earnings....”H.R. Rep. No. 658, 94th Cong., 1st

Sess. 241 (1975). Accordingly, Congressgranted the Secretary authority to provideregulations “necessary or appropriate toprevent the avoidance of Federal incometaxes” and identified “transfers constitut-ing a repatriation of foreign earnings” asa type of transfer to be covered in regula-tions to be promulgated by the Secretary.Id. The Secretary has exercised this grantof authority to address a wide range ofinternational policy concerns. For fur-ther discussion, see Notices 2006–85 and2007–48.

C. Adjustments Made Under Section367(b)

These temporary regulations apply totriangular reorganizations where P or S (orboth) is foreign and, in connection with thereorganization, S acquires, in exchange forproperty, all or a portion of the P stockthat is used to acquire the stock or assetsof T. The “in connection with” standard isa broad standard that includes any trans-action related to the reorganization even ifthe transaction is not part of the plan of re-organization. For example, the temporaryregulations apply to a triangular reorga-nization regardless of whether P controlsS (within the meaning of section 368(c))when S acquires the P stock that is used inthe reorganization.

In a triangular reorganization subjectto the temporary regulations, adjustmentsshall be made that have the effect of a dis-tribution of property from S to P under sec-tion 301. The amount of the deemed dis-tribution shall equal the amount of moneyplus the fair market value of other propertythat S used to acquire P stock. For this pur-pose, the term property has the meaning set

forth in section 317(a), but includes any li-ability assumed by S in exchange for the Pstock (notwithstanding the application ofsection 357(a)) and any S stock used by Sto acquire the P stock from a person otherthan P. Consistent with the rule announcedin Notice 2007–48, these temporary regu-lations provide that to the extent S buys Pstock from a person other than P, immedi-ately after taking into account the deemeddistribution to P, P is deemed to contributeto S the property deemed distributed to P.

These temporary regulations providethat the deemed distribution shall betreated as a distribution for all purposesof the Code. For example, provisionssuch as sections 312, 881, 897, 902, 959,1442, and 1445 apply, as appropriate, tothe deemed distribution. Similarly, thedeemed contribution of property shall betreated as a contribution of property forall purposes of the Code. For example,appropriate adjustments to P’s basis in theS stock and other affected items shall bemade according to applicable Code provi-sions.

Ordering rules are provided that gener-ally require the deemed distribution and, incases where S buys P stock from a personother than P, the deemed contribution to betaken into account before the transfers un-dertaken pursuant to the triangular reorga-nization. If P does not control S (within themeaning of section 368(c)) at the time thatS purchases the P stock, the deemed dis-tribution and deemed contribution shall betreated as separate transactions occurringimmediately after P acquires control of S.Thus, in a transaction where S purchasesthe P stock from a person other than P, aftertaking into account the adjustments madeunder these temporary regulations, S’s pur-chase and transfer of P stock pursuant tothe triangular reorganization are taken intoaccount under generally applicable Codeprovisions, such as sections 304, 354, 356,358, and 368.

These temporary regulations also pro-vide that appropriate adjustments will bemade if in connection with a triangular re-organization described in the regulations,a transaction is engaged in with a view toavoid the purpose of the regulations. Forexample, if S is a newly formed corpora-tion and, in connection with the reorgani-zation, P contributes to S another corpora-tion with positive earnings and profits (S2)to facilitate S’s purchase of the P stock or

to facilitate the repayment of an obligationincurred by S to purchase the P stock, then,under the temporary regulations, the earn-ings and profits of S may be deemed to in-clude the earnings and profits of S2.

Finally, these temporary regulationscontain a coordination rule that applies totransactions described in section 367(a)and §1.367(b)–14T. The IRS and TreasuryDepartment continue to study transac-tions that implicate the policies of section367(a) and (b), but that are not subject toboth provisions as a result of the applica-tion of the coordination rule. Commentsare requested on such transactions.

Availability of IRS Documents

IRS notices cited in this preamble aremade available by the Superintendent ofDocuments, U.S. Government Printing Of-fice, Washington, DC 20402.

Effective/Applicability Dates

With respect to those rules addressingtransactions described in Notice 2006–85,these temporary regulations are gener-ally applicable to transactions occurringon or after September 22, 2006, withlimited transition relief. With respect tothose rules addressing transactions de-scribed in Notice 2007–48, these tempo-rary regulations are generally applicableto transactions occurring on or after May31, 2007, with limited transition relief.Other rules included in these temporaryregulations are generally applicable totransactions occurring on or after May 23,2008, with limited transition relief. See§1.367(b)–14T(e).

No inference is intended as to the po-tential applicability of other Code or regu-latory provisions or judicial doctrines (in-cluding substance over form) to transac-tions described in these temporary regula-tions.

Effect on Other Documents

The following publications are obsoleteas of May 27, 2008:

Notice 2006–85, 2006–2 C.B. 677.Notice 2007–48, 2007–25 I.R.B. 1428.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order

June 16, 2008 1140 2008–24 I.R.B.

12866. Therefore, a regulatory assessmentis not required. A delayed effective datewould be inappropriate because the pur-pose of this regulation is to address trans-actions that the IRS and Treasury Depart-ment believe raise serious policy concerns.Accordingly, good cause is found for dis-pensing with notice and public commentpursuant to 5 U.S.C. 553(b) and (c) andwith a delayed effective date pursuant to5 U.S.C. 553(d). Furthermore, under sec-tion 7805(b)(1)(C) of the Code, an effec-tive date earlier than the date this regula-tion is filed with the Federal Register isappropriate because prior notices substan-tially described the rules contained in thisregulation. For applicability of the Regu-latory Flexibility Act, see the cross-refer-enced notice of proposed rulemaking pub-lished elsewhere in this Bulletin. Pursuantto section 7805(f) of the Code, these reg-ulations have been submitted to the ChiefCounsel for Advocacy of the Small Busi-ness Administration for comment on itsimpact on small business.

Request for Comments

For information on how to submit com-ments or request a public hearing, see thesection “Comments and Requests for aPublic Hearing,” set forth in the notice ofproposed rulemaking published elsewherein this issue of the Bulletin.

Drafting Information

The principal author of these regula-tions is Daniel McCall of the Office ofAssociate Chief Counsel (International).However, other personnel from the IRSand the Treasury Department participatedin 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 is amended by adding new entries innumerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.367(a)–3T(b)(2)(i)(C) also

issued under 26 U.S.C. 367(a) and (b).* * *

Section 1.367(b)–14T also issued under26 U.S.C. 367(b). * * *

Par. 2. Section 1.367(a)–3 is amendedby revising the first sentence in para-graph (b)(2)(i) and adding new paragraph(b)(2)(i)(C) to read as follows:

§1.367(a)–3 Treatment of transfers ofstock or securities to foreign corporations.

* * * * *(b) * * *(2) * * *(i) * * * A transfer of stock or secu-

rities described in section 367(a) or theregulations thereunder as well as in sec-tion 367(b) or the regulations thereundershall be subject concurrently to sections367(a) and (b) and the respective regu-lations thereunder, except as provided inparagraph (b)(2)(i)(A) through (C) of thissection. * * *

(C) [Reserved]. For further guidance,see §1.367(a)–3T(b)(2)(i)(C).

* * * * *Par. 3. Section 1.367(a)–3T is amended

by revising paragraphs (a) through (d) and(f)(3), to read as follows:

§1.367(a)–3T Treatment of transfers ofstock or securities to foreign corporations(temporary).

(a) through (b)(2)(i)(B) [Reserved].For further guidance, see §1.367(a)–3(a)through (b)(2)(i)(B).

(C) If in connection with a transactiondescribed in §1.367(b)–14T, one or moreU.S. persons transfer stock of T, as definedin §1.358–6(b)(1)(iii), to a corporation ina transfer described in section 367(a), andthe amount of gain in the T stock thatwould otherwise be recognized under sec-tion 367(a) is less than the deemed distri-bution that would result from the adjust-ments made under §1.367(b)–14T and thatwould be treated as a dividend under sec-tion 301(c)(1), then section 367(b), and notsection 367(a), shall apply to such trans-action. This paragraph (b)(2)(i)(C) appliesto transfers occurring on or after May 23,2008.

(b)(2)(ii) through (d) [Reserved]. Forfurther guidance, see §1.367(a)–3(b)(2)(ii)through (d).

* * * * *(f) * * *

(3) Expiration date. The applicabil-ity of §1.367(a)–3T(b)(2)(i)(C) expireson May 23, 2011. The applicability of§1.367(a)–3T(e) and (f)(1) and (f)(2) ex-pires on February 1, 2010.

Par. 4. Section 1.367(b)–2 is amendedby revising paragraph (l)(8) to read as fol-lows:

§1.367(b)–2 Definitions and special rules.

* * * * *(l) * * *(8) Earnings and profits. For purposes

of §§1.367(b)–7 and 1.367(b)–9, the termearnings and profits means post-1986undistributed earnings, pre-1987 accumu-lated profits, and pre-1987 section 960earnings and profits.

* * * * *Par. 5. Section 1.367(b)–13 is amended

by redesignating paragraph (a)(2)(ii) asparagraph (a)(2)(iii), revising newly des-ignated paragraph (a)(2)(iii), and addinga new paragraph (a)(2)(ii) to read as fol-lows:

§1.367(b)–13 Special rules fordetermining basis and holding period.

(a) * * *(2) * * *(ii) The terms P, S, and T have the

meanings set forth in §1.358–6(b)(1)(i),(ii), and (iii), respectively.

(iii) A triangular reorganizationis a reorganization described in§1.358–6(b)(2)(i), (ii), or (iii) or in sec-tions 368(a)(1)(G) and (a)(2)(D) (a for-ward triangular merger, triangular C reor-ganization, reverse triangular merger, ortriangular G reorganization, respectively).

* * * * *Par. 6. Section 1.367(b)–14T is added

to read as follows:

§1.367(b)–14T Acquisition of parent stockfor property in triangular reorganizations(temporary).

(a) In general—(1) Scope and purpose.This section applies to triangular reorgani-zations where P or S (or both) is foreignand, in connection with the reorganization,S acquires, in exchange for property (as de-fined in this section), all or a portion of theP stock that is used to acquire the stockor assets of T. This section may apply to

2008–24 I.R.B. 1141 June 16, 2008

a reorganization regardless of whether Pcontrols S (within the meaning of section368(c)) at the time S acquires the P stockthat is used to acquire the stock or assets ofT. The purpose of this section is to preventwhat is in effect a distribution of propertyto P without the application of provisionsotherwise applicable to property distribu-tions, when in connection with a triangu-lar reorganization S acquires, in exchangefor property, all or a portion of the P stockused in the reorganization.

(2) Definitions. For purposes of thissection, the following definitions apply:

(i) The terms P, S, and T have the mean-ings set forth in §1.358–6(b)(1)(i), (ii), and(iii), respectively.

(ii) In general, the term property hasthe meaning set forth in section 317(a).Notwithstanding section 357(a), such termincludes any liability assumed by S in ex-change for the P stock used to acquire thestock or assets of T. Such term also in-cludes any S stock used by S to acquire Pstock from a person other than P.

(iii) The term triangular reorganiza-tion means a reorganization described in§1.358–6(b)(2) or in section 368(a)(1)(G)and (a)(2)(D).

(b) General rules—(1) Deemed distri-bution. If this section applies, adjustmentsshall be made that have the effect of adistribution of property from S to P un-der section 301 (deemed distribution). Theamount of the deemed distribution shallequal the amount of money plus the fairmarket value of other property transferred,in connection with the reorganization, by Sin exchange for the P stock used to acquirethe stock or assets of T in the triangular re-organization. Additional adjustments shallbe made under paragraph (b)(3) of this sec-tion to the extent S acquires, in exchangefor property, P stock from a person otherthan P.

(2) Timing in the case of acquisitionsfrom P. To the extent S acquires P stockfrom P in exchange for property, thedeemed distribution described in para-graph (b)(1) of this section shall be treatedas a transaction separate from, and occur-ring immediately before, the triangularreorganization. Therefore, P shall not betreated as receiving the property from Sin exchange for P stock. The transfers ofP stock in the triangular reorganizationshall be subject to generally applicableprovisions. See, for example, §1.1032–2.

(3) Timing and deemed contributionin the case of acquisitions from personsother than P. To the extent S acquires Pstock from a person other than P in ex-change for property (the purchase), thenimmediately following the deemed dis-tribution described in paragraph (b)(1) ofthis section, adjustments shall be madethat have the effect of a contribution by Pto S (deemed contribution) of the propertydeemed distributed by S to P under para-graph (b)(1) of this section. If P controlsS (within the meaning of section 368(c))at the time of the purchase, the deemeddistribution and deemed contribution shallbe treated as separate transactions occur-ring immediately before the purchase. IfP does not control S (within the mean-ing of section 368(c)) at the time of thepurchase, the deemed distribution anddeemed contribution shall be treated asseparate transactions occurring immedi-ately after P acquires control of S. Otherprovisions, such as sections 304, 354, 358and 368, shall apply after the adjustmentsmade pursuant to paragraph (b)(1) of thissection and this paragraph.

(4) Example. The rules of this para-graph (b) are illustrated by the followingexample:

(i) Facts. P, a publicly traded domestic corpora-tion, owns all of the outstanding stock of FS, a for-eign corporation, and all of the outstanding stock ofUS1, a domestic corporation that is a member of theP consolidated group. US1 owns all of the outstand-ing stock of FT, a foreign corporation, the fair marketvalue of which is $100x. FS purchases $100x of Pstock on the open market for cash. Pursuant to for-eign law, FT merges with and into FS in a triangularreorganization described in section 368(a)(1)(A) byreason of section 368(a)(2)(D). US1 exchanges all theoutstanding stock of FT for the stock of P purchasedby FS on the open market for $100x cash.

(ii) Analysis. The triangular reorganization is de-scribed in paragraph (a)(1) of this section. Therefore,pursuant to paragraphs (b)(1) and (b)(3) of this sec-tion, FS is treated as distributing $100x to P undersection 301. Immediately after such deemed distribu-tion, P is deemed to contribute to FS the $100x thatwas deemed distributed to P. The deemed distributionand deemed contribution are treated as separate trans-actions occurring immediately before FS’s purchaseof the P stock used in the triangular reorganization.

(c) Collateral adjustments. This para-graph (c) provides rules for the treatmentof a deemed distribution or deemed contri-bution resulting under paragraph (b)(1) or(b)(3) of this section.

(1) Deemed distribution. A deemeddistribution of property described in para-graph (b)(1) of this section shall be treated

as a distribution of property for all pur-poses of the Internal Revenue Code. Forexample, under section 301(c) the distribu-tion may constitute a dividend to the extentof the earnings and profits of S, a return ofbasis, or gain from the sale or exchange ofproperty, as appropriate. In addition, sec-tions 902 and 959 may apply when S isforeign, and sections 897, 1442, and 1445may apply when S is domestic.

(2) Deemed contribution. A deemedcontribution of property described in para-graph (b)(3) of this section shall be treatedas a contribution of property for all pur-poses of the Internal Revenue Code. Forexample, appropriate adjustments to P’sbasis in the S stock and other affected itemsshall be made according to applicable pro-visions.

(d) Special rule. Appropriate adjust-ments shall be made pursuant to this sec-tion if, in connection with a triangular re-organization, a transaction is engaged inwith a view to avoid the purpose of thissection as described in paragraph (a)(1) ofthis section. For example, if S is formed oravailed of with a view to avoid the purposeof this section, the earnings and profits of Smay be deemed to include the earnings andprofits of a corporation related to S (withinthe meaning of section 267(b)).

(e) Effective/applicability date—(1)Acquisitions of P stock from P or relatedpersons. Except as otherwise providedin this paragraph (e), this section appliesto triangular reorganizations described inparagraph (a)(1) of this section, to the ex-tent S acquires the P stock from P or from aperson related to P or S within the meaningof section 267(b) or 707(b), occurring onor after September 22, 2006. This section,however, shall not apply to triangular reor-ganizations described in paragraph (a)(1)of this section, to the extent S acquires theP stock from P or from a person relatedto P or S within the meaning of section267(b) or 707(b), completed on or afterSeptember 22, 2006, pursuant to a writtenagreement that was (subject to customaryconditions) binding before September 22,2006, and all times afterward.

(2) Acquisitions of P stock from personsother than P—(i) General rule. Except asotherwise provided in this paragraph (e),this section applies to triangular reorga-nizations described in paragraph (a)(1) ofthis section, to the extent S acquires the Pstock from a person other than P that is not

June 16, 2008 1142 2008–24 I.R.B.

related to P or S within the meaning of sec-tion 267(b) or 707(b) (unrelated person),occurring on or after May 31, 2007.

(ii) Binding commitment exception.This section shall not apply to triangularreorganizations described in paragraph(a)(1) of this section, to the extent Sacquires the P stock from an unrelatedperson, pursuant to a written agreementthat was (subject to customary conditions)binding before May 31, 2007, and all timesafterward, but only to the extent that—

(A) S acquired the P stock from an un-related person before May 31, 2007; or

(B) S had a commitment to acquire theP stock from an unrelated person pursuantto a written agreement that was (subject tocustomary conditions) binding before May31, 2007, and all times afterward, or pur-suant to a tender offer announced beforeMay 31, 2007, that is subject to section14(d) of the Securities and Exchange Actof 1934 (15 U.S.C. 78n(d)(1)) and Regu-lation 14(D) (17 CFR 240.14d–1 through240.14d–101) or that is subject to compa-rable foreign laws.

(3) Application of special rule—(i)General rule. Except as provided in para-graph (e)(3)(ii) of this section, paragraph(d) of this section applies to triangularreorganizations described in paragraph(a)(1) of this section occurring on or afterMay 31, 2007.

(ii) Binding commitment exception.Paragraph (d) of this section shall not ap-ply to triangular reorganizations describedin paragraph (a)(1) of this section enteredinto pursuant to a written agreement thatwas (subject to customary conditions)binding before May 31, 2007, and all timesafterward, but only to the extent that—

(A) S acquired the P stock before May31, 2007; or

(B) S had a commitment to acquire theP stock from an unrelated person pursuantto a written agreement that was (subject tocustomary conditions) binding before May31, 2007, and all times afterward, or pur-suant to a tender offer announced beforeMay 31, 2007, that is subject to section14(d) of the Securities and Exchange Actof 1934 (15 U.S.C. 78n(d)(1)) and Regu-lation 14(D) (17 CFR 240.14d–1 through240.14d–101) or that is subject to compa-rable foreign laws.

(4) Treatment of S stock as prop-erty—(i) General rule. Except as providedin paragraph (e)(4)(ii) of this section, the

treatment of S stock as property underparagraph (a)(2)(ii) of this section appliesto triangular reorganizations described inparagraph (a)(1) of this section occurringon or after May 23, 2008.

(ii) Binding commitment exception.The treatment of S stock as property underparagraph (a)(2)(ii) of this section shallnot apply to triangular reorganizations de-scribed in paragraph (a)(1) of this sectionoccurring on or after May 23, 2008 en-tered into pursuant to a written agreementthat was (subject to customary conditions)binding before May 23, 2008 and all timesafterward, but only to the extent that—

(A) S acquired the P stock before May23, 2008; or

(B) S had a commitment to acquire theP stock from an unrelated person pursuantto a written agreement that was (subject tocustomary conditions) binding before May23, 2008 and all times afterward, or pur-suant to a tender offer announced beforeMay 23, 2008, that is subject to section14(d) of the Securities and Exchange Actof 1934 (15 U.S.C. 78n(d)(1)) and Regu-lation 14(D) (17 CFR 240.14d–1 through240.14d–101) or that is subject to compa-rable foreign laws.

(5) Expiration. The applicability of thissection expires on May 23, 2011.

Linda E. Stiff,Deputy Commissioner forServices and Enforcement.

Approved May 16, 2008.

Eric Solomon,Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on May 23, 2008,8:45 a.m., and published in the issue of the Federal Registerfor May 27, 2008, 73 F.R. 30301)

Section 704.—Partner’sDistributive Share26 CFR 1.704–1: Partner’s distributive share.

T.D. 9398

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Partner’s Distributive Share

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations providing rules for testingwhether the economic effect of an allo-cation is substantial within the meaningof section 704(b) where partners are look-through entities or members of a consoli-dated group. The final regulations clarifythe application of section 704(b) to part-nerships the interests of which are ownedby look-through entities and members ofconsolidated groups and, through an exam-ple, reiterate the effect of other provisionsof the Internal Revenue Code (Code) onpartnership allocations. The final regula-tions affect partnerships and their partners.

DATES: Effective Date: The final regula-tions are effective on May 19, 2008.

Applicability Date: The final regula-tions apply to partnership taxable years be-ginning on or after May 19, 2008.

FOR FURTHER INFORMATIONCONTACT: Jonathan E. Cornwell andKevin I. Babitz at (202) 622–3050 (not atoll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendmentsto 26 CFR part 1 under section 704 ofthe Internal Revenue Code (Code). OnNovember 18, 2005, proposed regulations(REG–144620–04, 2005–2 C.B. 1141)regarding the substantiality of allocationsto partners that are look-through entitiesor members of a consolidated group werepublished in the Federal Register (70FR 69919). Because no requests to speak

2008–24 I.R.B. 1143 June 16, 2008

were submitted by January 25, 2006, nopublic hearing was held (see 71 FR 7453).The IRS did receive a number of writtencomments responding to the proposedregulations, and, after consideration ofthe comments, the proposed regulationsare adopted as revised by this Treasurydecision.

Section 704(a) provides that a partner’sdistributive share of partnership income,gain, loss, deduction, or credit shall, ex-cept as otherwise provided, be determinedby the partnership agreement. Section704(b) provides that a partner’s distribu-tive share of income, gain, loss, deduction,or credit (or item thereof) shall be deter-mined in accordance with the partner’sinterest in the partnership (determined bytaking into account all facts and circum-stances) if the allocation to the partnerunder the partnership agreement of in-come, gain, loss, deduction, or credit (oritem thereof) does not have substantialeconomic effect.

In order for an allocation to have sub-stantial economic effect, it must haveeconomic effect and such economic effectmust be substantial. For an allocation tohave economic effect, it must be consistentwith the underlying economic arrange-ment of the partners. This means that,in the event there is an economic benefitor burden that corresponds to the alloca-tion, the partner to whom the allocationis made must receive the economic ben-efit or bear such economic burden. See§1.704–1(b)(2)(ii).

Allocations to a partner will have eco-nomic effect if, and only if, throughoutthe full term of the partnership, the part-nership agreement provides for: (i) theproper maintenance of the partners’ cap-ital accounts, (ii) upon liquidation of thepartnership (or any partner’s interest in thepartnership) liquidating distributions arerequired to be made in accordance withthe positive capital account balances ofthe partners, as determined after takinginto account all necessary adjustmentsfor the partnership’s taxable year duringwhich the liquidation occurs, by the endof such taxable year, or if later, 90 daysafter the date of such liquidation, and (iii)if such partner has a deficit balance inthe partner’s capital account following theliquidation of the interest after taking intoaccount all necessary adjustments for thepartnership taxable year during which the

liquidation occurs, the partner is uncon-ditionally obligated to restore the deficitbalance by the end of such taxable year(or, if later, within 90 days after the dateof the liquidation), which amount is paidto the partnership’s creditors or distributedto the other partners in accordance withtheir positive capital account balances.See §1.704–1(b)(2)(ii)(b).

Even if the partnership agreement doesnot require an unlimited deficit restora-tion obligation of a partner, the allocationmay still have economic effect to the ex-tent such allocation does not cause orincrease a deficit balance in the partner’scapital account (in excess of any limiteddollar amount of such partner’s deficitrestoration obligation) if requirements (1)and (2) of §1.704–1(b)(2)(ii)(b) are satis-fied and the partnership agreement con-tains a “qualified income offset.” Section1.704–1(b)(2)(ii)(d). Finally, allocationsthat do not otherwise have economic ef-fect under the foregoing rules shall bedeemed to have economic effect if at theend of each partnership taxable year aliquidation of the partnership at the endof such year or at the end of any futureyear would produce the same economicresults to the partners if such rules hadbeen satisfied regardless of the economicperformance of the partnership. Section1.704–1(b)(2)(ii)(i).

As a general rule, the economic effectof an allocation (or allocations) is sub-stantial if there is a reasonable possibilitythat the allocation (or allocations) willaffect substantially the dollar amounts tobe received by the partners from the part-nership, independent of tax consequences.See §1.704–1(b)(2)(iii). Even if the al-location affects substantially the dollaramounts to be received by the partnersfrom the partnership, the economic effectof the allocation (or allocations) is notsubstantial if, at the time the allocation (orallocations) becomes part of the partner-ship agreement, (1) the after-tax economicconsequences of at least one partner may,in present value terms, be enhanced com-pared to such consequences if the alloca-tion (or allocations) were not contained inthe partnership agreement, and (2) there isa strong likelihood that the after-tax eco-nomic consequences of no partner will, inpresent value terms, be substantially di-minished compared to such consequencesif the allocation (or allocations) were not

contained in the partnership agreement.See §1.704–1(b)(2)(iii). This test is com-monly referred to as the after-tax test. Indetermining the after-tax economic benefitor detriment of an allocation to a partner,the tax consequences that result from theinteraction of the allocation with suchpartner’s tax attributes that are unrelatedto the partnership will be taken into ac-count. Finally, the economic effect of anallocation is not substantial in two situa-tions described in §1.704–1(b)(2)(iii)(b)and (b)(2)(iii)(c). The latter two situationsare generally described as “shifting” and“transitory” allocations, respectively.

If the partnership agreement providesfor an allocation of income, gain, loss,deduction, or credit (or item thereof) toa partner that does not have substantialeconomic effect, then the partner’s dis-tributive share of the income, gain, loss,deduction, or credit (or item thereof) isdetermined in accordance with the part-ner’s interest in the partnership. Refer-ences in section 704(b) or §1.704–1 to apartner’s interest in the partnership, or tothe partners’ interests in the partnership,signify the manner in which the partnershave agreed to share the economic bene-fit or burden (if any) corresponding to theincome, gain, loss, deduction, or credit (oritem thereof) that is allocated, taking intoaccount all facts and circumstances relat-ing to the economic arrangement of thepartners. See §1.704–1(b)(3).

Section 1.704–1(b)(1)(iii) provides thatan allocation that is respected under sec-tion 704(b) nevertheless may be reallo-cated under other provisions, such as sec-tion 482, section 704(e)(2), section 706(d)(and related assignment of income princi-ples), and §1.751–1(b)(2)(ii).

The proposed regulations clarify sev-eral aspects of the regulations under sec-tion 704. The proposed regulations gen-erally provide a “look-through rule” forpurposes of testing the substantiality ofan allocation. The proposed regulationsprovide that in determining the after-taxeconomic benefit or detriment of a part-nership allocation to any partner that is alook-through entity, the look-through ruletakes into account the tax consequencesthat result from the interaction of the allo-cation with the tax attributes of any ownerof the look-through entity. Similarly, indetermining the after-tax economic ben-efit or detriment to any partner that is a

June 16, 2008 1144 2008–24 I.R.B.

member of a consolidated group, the pro-posed regulations generally provide thatthe tax consequences that result from theinteraction of the allocation with the tax at-tributes of the consolidated group and withthe tax attributes of another member withrespect to a separate return year must betaken into account. The proposed regu-lations provide that a look-through entitymeans a partnership, subchapter S corpo-ration, trust, an entity disregarded for Fed-eral tax purposes, or certain controlled for-eign corporations (CFCs).

The proposed regulations clarify that,for purposes of §1.704–1(b)(2)(iii)(a), theafter-tax economic consequences of anallocation contained in the partnershipagreement was compared to the after-taxeconomic consequences of the allocationmade in accordance with the partners’ in-terest in the partnership (within the mean-ing of §1.704–1(b)(3)). For that purpose,the partners’ interest in the partnershipwas determined as if the allocations testedwere not contained in the partnershipagreement. Also, the proposed regulationsremove the per capita presumption in§1.704–1(b)(3)(i). Finally, the proposedregulations include an example illustrat-ing one circumstance where a provisionother than section 704(b) may be used toreallocate partnership items.

Summary of Comments andExplanation of Provisions

The final regulations adopt the pro-posed regulations with clarification ofcertain aspects in response to the com-ments received.

A. Look-Through Entities and Membersof a Consolidated Group

For purpose of applying the after-tax,shifting, and transitory tests to a partnerthat is a look-through entity, the final reg-ulations provide that the tax consequencesthat result from the interaction of an allo-cation with the tax attributes of any personthat is an owner, or in the case of a trustor estate, the beneficiary, of an interest insuch partner must be taken into account.

The final regulations define alook-through entity as a partnership, sub-chapter S corporation, trust, estate, an en-tity disregarded for Federal tax purposes,or certain controlled foreign corporations(CFCs). The final regulations change

the look-through rule for CFCs (CFClook-through rule) to provide an owner-ship threshold that must be met in orderto trigger look-through treatment. Onecomment suggested that, for administra-tive reasons, the look-through rule shouldapply only in cases involving partnerships(whether U.S. or foreign) that meet thecontrol test in section 6038. The IRS andthe Treasury Department agree that ad-ministrative concerns justify limiting theCFC look-through rule but are concernedthat limiting the application of the rule assuggested would provide opportunities forabuse. Accordingly, the final regulationslimit application of the CFC look-throughrule to cases in which United Stated share-holders (within the meaning of section951(b)) of the CFC in the aggregate own,directly or indirectly, at least 10 percentof the capital or profits interests of thepartnership.

In addition, the final regulations clar-ify that a CFC is treated as a look-throughentity, but only with respect to allocationsof items of income, gain, loss, or deduc-tion that enter into the computation of aUnited States shareholder’s inclusion un-der section 951(a) with respect to the con-trolled foreign corporation, enter into anyperson’s income attributable to a UnitedStates shareholder’s inclusion under sec-tion 951(a) with respect to the controlledforeign corporation, or would enter into thecomputations described in this paragraphif such items were allocated to the con-trolled foreign corporation. The TreasuryDepartment and the IRS are further con-sidering whether a CFC partner should betreated as a look-through entity in all casesand how any impact on the tax liability ofa direct or indirect owner of the CFC part-ner resulting from actual or anticipated dis-tributions of property by the CFC partnerunder section 301 should be taken into ac-count in testing the substantiality of an al-location.

Comments were also received on otheraspects of the look-through rule. Onecomment suggested that the definition oflook-through entity be expanded to includeestates. Because estates generally passthrough attributes in the same manner astrusts, this comment is adopted. Anothercomment questioned the inclusion of dis-regarded entities in the list of look-throughentities. The proposed regulations in-cluded disregarded entities because such

entities are the actual state law partnersin the partnership. The final regulationsinclude disregarded entities in the list oflook-through entities for this reason only.

Several comments requested modifica-tions to the look-through rule based upontheir contention that the rule was burden-some. One comment suggested the aban-donment of the look-through rule entirely,believing the application of §1.701–2would protect the concerns underlyingthe proposed regulations and would beless burdensome. Another comment sug-gested that a five year presumption beincluded with respect to the after-tax testin §1.704–1(b)(2)(iii)(a), such that theeconomic effect of any allocation occur-ring five years after the date upon whichthe allocation became a part of the part-nership agreement would be presumed tobe substantial. Finally, several commentsrequested either that the look-through ruleapply only to partners owning more than20 percent of the profits or capital of thepartnership or that the look-through ruleprovide procedures to help partnershipsease the burden of considering the taxattributes of their partners and indirectowners.

One proposal to simplify the applica-tion of the look-through rule was to includea presumption that the partnership did notknow and would not be required to inves-tigate the tax attributes of any partner un-less that partner directly or indirectly ownsmore than a 25 percent interest in the part-nership’s capital or profits. Alternatively,it was suggested that the final regulationsprovide certification procedures pursuantto which a partnership would be entitled torely on a statement from its direct or indi-rect owner regarding such person’s tax at-tributes.

The substantiality test in its presentform was adopted in 1986. The Trea-sury Department and the IRS believe thatthe final regulations merely confirm theproper application of the substantiality testin those instances in which the partnershipis owned by one or more look-throughentities. In that respect, the look-throughrule in the final regulations is not a changeto the substantiality test. The TreasuryDepartment and the IRS do not believethat it is necessary at this time to simplifythe application of the substantiality test assuggested by the comments. However, toaddress the concerns expressed regarding

2008–24 I.R.B. 1145 June 16, 2008

the burden of the substantiality test as itapplies to partnerships with look-throughentity partners, the final regulations in-clude a de minimis rule that provides that,for purposes of determining substantiality,the tax attributes of de minimis partnersneed not be taken into account. A deminimis partner is any partner, includinga look-through entity, that owns less than10 percent of the capital and profits of apartnership, and who is allocated less than10 percent of each partnership item. Be-cause of the inclusion of this de minimisrule, the final regulations do not providefor a certification procedure.

Some comments requested that the finalregulations clarify what constitutes a “taxattribute” and an “interaction.” The IRSand the Treasury Department believe thatthis issue is sufficiently addressed underthe current regulations, and, therefore, nofurther guidance is provided in the finalregulations.

Finally, one comment requested that thefinal regulations provide guidance for situ-ations in which the interaction of an alloca-tion to a look-through entity, such as a trustor estate, and the tax attributes of the bene-ficiary of the entity are dependent on otherfactors such as the timing and amount ofdistributions from the trust or estate to thebeneficiary. For example, it may be diffi-cult to evaluate an allocation to a partnerthat is a trust where it is not known whatdistributions the trust will make. The IRSand the Treasury Department believe thatthis issue is addressed by the “strong like-lihood” language of the substantiality testand, therefore, the final regulations do notprovide additional guidance.

B. The Baseline for Comparison in§1.704–1(b)(2)(iii)

Section 1.704–1(b)(2)(iii)(a) providesthat the economic effect of an allocation isnot substantial if, at the time the allocationbecomes part of the partnership agreement,the after-tax economic consequences ofat least one partner may, in present valueterms, be enhanced compared to suchconsequences if the allocation were notcontained in the partnership agreement,and there is a strong likelihood that theafter-tax economic consequences of nopartner will, in present value terms, besubstantially diminished compared to suchconsequences if the allocation were not

contained in the partnership agreement.Because taxpayers have suggested thatthe baseline comparison required by thisprovision is unclear, the proposed regu-lations clarified this rule, consistent withthe provisions of §1.704–1(b)(1)(i), byexplaining that the after-tax economic con-sequences that result from the allocationmust be compared to such consequencesthat would result if the allocations werenot contained in the partnership agreementand were determined in accordance withthe partners’ interests in the partnership.

One comment suggested that an in-consistency existed between identifyingthe partners’ interests in the partner-ship as the baseline for comparison in§1.704–1(b)(2)(iii)(a)(1) and (2) and theconclusions reached by §1.704–1(b)(5)Example 5. According to this comment,paragraph (ii) of §1.704–1(b)(5) Example5 provides that the sharing percentagesunder the partners’ interests in the part-nership standard was 36 percent for onepartner and 64 percent for the other partner.Comparing the after-tax economic con-sequences of the allocations contained inthe partnership agreement with the 36/64sharing percentages results in the after-taxeconomic consequences of one partnerbeing enhanced and those of the otherpartner being substantially diminished.Thus, according to the comment, the con-clusion in paragraph (i) of §1.704–1(b)(5)Example 5 cannot be correct. The after-taxtest, however, is applied by comparing theallocations contained in the partnershipagreement with the consequences deter-mined in accordance with the partners’interests in the partnership had the allo-cations not been part of the partnershipagreement. In Example 5, aside fromthe allocations being tested, the partnersshared all other items equally and madeequal capital contributions. To apply thesubstantiality test to the special allocationsin that example, the results were comparedto what would have occurred if the part-ners had 50/50 sharing percentages. Thiscomparison revealed that one partner’safter-tax economic return was enhancedand no partner’s after-tax return was sub-stantially diminished. Thus, the speciallyallocated items had to be reallocated underthe partners’ interests in the partnership.Under the facts of Example 5, the partners’interests in the partnership were the 36/64sharing percentages, which were the same

percentages in which they actually sharedthe partnership’s total income for the year.The reallocation did not change the per-centages in which the partners shared totalincome, but rather, required that each itemof income (that is, tax-exempt income andtaxable interest and dividends included intotal income) be shared in those same per-centages. Thus, in Example 5 the partners’interests in the partnership for purposes ofreallocating the items that lacked substan-tial economic effect was determined to bedifferent than the partners’ interests in thepartnership used to test substantiality.

One comment suggested that the com-parison to the partners’ interests in thepartnership is equally applicable whentesting shifting and transitory alloca-tions under §1.704–1(b)(2)(iii)(b) and(c) as it is to the after-tax test under§1.704–1(b)(2)(iii)(a), and suggested thatthe final regulations so provide. Thiscomment is adopted and, in order to fur-ther clarify that the partners’ interestsin the partnership (determined withoutregard to the allocation or allocations be-ing tested) is the baseline for comparisonwhen testing the substantiality of an allo-cation, whether under the after-tax test orthe shifting or transitory allocation test,the final regulations remove the paren-thetical clauses inserted by the proposedregulations and add a sentence to the endof §1.704–1(b)(2)(iii)(a)(1) that providesthat references in §1.704–1(b)(2)(iii) to anallocation (or allocations) not contained inthe partnership agreement mean that theallocation (or allocations) is determinedin accordance with the partners’ interestsin the partnership (within the meaning ofparagraph §1.704–1(b)(3)), disregardingthe allocation (or allocations) being testedunder §1.704–1(b)(2)(iii).

C. Removal of Per Capita Presumption in§1.704–1(b)(3)

The proposed regulations removed theper capita presumption in §1.704–1(b)(3).Because this section generally does notcontain mechanical rules to determine thepartners’ interests in the partnership, onecomment suggested that the presumptionwas necessary to reduce complexity, andtherefore recommended that the final regu-lations reinsert the presumption. However,because the per capita presumption failedto consider factors relevant to a determi-

June 16, 2008 1146 2008–24 I.R.B.

nation of the manner in which the part-ners agreed to share the economic benefitsor burdens corresponding to the allocationof partnership items, the correct result wasreached in very few cases. Accordingly,the Treasury Department and IRS believethat any benefits of the presumption areoutweighed by the potential for incorrectdeterminations.

D. Example 29

In Example 29 of the proposed regula-tions, B, a domestic corporation, and C, acontrolled foreign corporation, form BC,a partnership organized under the laws ofa foreign jurisdiction, with equal capitalcontributions. B and C are both whollyowned by A, a domestic corporation. Sub-stantially all of BC’s income would not besubpart F income if earned directly by C.For the first fifteen years of the partner-ship, gross income is allocated 10 percentto B and 90 percent to C, and all deductionsand losses will be allocated 90 percent to Band 10 percent to C. After the initial fifteenyear period, BC’s gross income will be al-located 90 percent to B and 10 percent to C,and all deductions and losses will be allo-cated 10 percent to B and 90 percent to C.The example concludes that, apart from theapplication of section 704(b), the Commis-sioner may reallocate or otherwise not re-spect the allocations under other Code sec-tions.

One comment questioned why Example29 did not contain a substantial economiceffect analysis. Another comment in-ferred from the absence of a citation to§1.701–2 in Example 29 that the part-nership anti-abuse rule did not apply andwould not be asserted by the IRS. Ex-ample 29 was included in the proposedregulations only to reiterate the provisionscontained in §1.704–1(b)(1)(iii) regard-ing the effect other sections may haveon partnership allocations. Accordingly,the Treasury Department and IRS do notbelieve that any further analysis is neces-sary. Moreover the list of other sectionsthat can affect the validity of a partner-ship allocation in §1.704–1(b)(1)(iii) isnot an exhaustive list and, accordingly,the absence of a citation to §1.701–2 orother potentially applicable sections doesnot preclude the applicability of thoseprovisions of law in the appropriate cir-cumstances. The Treasury Department

and IRS continue to consider issuing ad-ditional guidance addressing the propertreatment of special allocations of items ofa partnership that is owned primarily byrelated parties. Examples 29 and 30 in theproposed regulations have been renum-bered as Examples 28 and 29, respectively,in these final regulations.

Effective/Applicability Date

The amendments made by these finalregulations apply to partnership taxableyears beginning on or after May 19, 2008.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been deter-mined that section 553(b) of the Admin-istrative Procedure Act (5 U.S.C. chapter5) does not apply to these regulations, andbecause these regulations do not imposeon small entities a collection of informa-tion requirement, the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) does not apply.Therefore, a Regulatory Flexibility Anal-ysis is not required. Pursuant to section7805(f) of the Code, the notice of rulemak-ing preceding these regulations was sub-mitted to the Chief Counsel for Advocacyof the Small Business Administration forcomment on its impact on small business.

Drafting Information

The principal authors of this reg-ulation are Jonathan E. Cornwell andKevin I. Babitz, Office of the AssociateChief Counsel (Passthroughs & SpecialIndustries). However, other personnelfrom the IRS and Treasury Departmentparticipated in its development.

* * * * *

Adoption of 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 1.704–1 is amended asfollows:

1. A sentence is added at the end of theparagraph (b)(1)(ii)(a).

2. A sentence is added at the end of theparagraph (b)(2)(iii)(a).

3. Paragraphs (b)(2)(iii)(d) and (e) areadded.

4. The last two sentences of paragraph(b)(3)(i) are removed.

5. Paragraph (b)(5) Examples 28, 29and 30 are added.

The additions and revisions read as fol-lows:

§1.704–1 Partner’s distributive share.

* * * * *(b) * * *(1) * * *(ii) Effective/applicability dates. (a)

* * * Paragraphs (b)(2)(iii)(a) (lastsentence), (b)(2)(iii)(d), (b)(2)(iii)(e),and (b)(5) Example 28, Example 29,and Example 30 of this section apply topartnership taxable years beginning on orafter May 19, 2008.

(2) * * *(iii) * * * (a) * * * References in this

paragraph (b)(2)(iii) to a comparison toconsequences arising if an allocation (orallocations) were not contained in the part-nership agreement mean that the alloca-tion (or allocations) is determined in ac-cordance with the partners’ interests in thepartnership (within the meaning of para-graph (b)(3) of this section), disregardingthe allocation (or allocations) being testedunder this paragraph (b)(2)(iii).

* * * * *(d) Partners that are look-through enti-

ties or members of a consolidated group—(1) In general. For purposes of apply-ing paragraphs (b)(2)(iii)(a), (b), and (c)of this section to a partner that is a look-through entity, the tax consequences thatresult from the interaction of the allocationwith the tax attributes of any person that isan owner, or in the case of a trust or es-tate, the beneficiary, of an interest in sucha partner, whether directly or indirectlythrough one or more look-through entities,must be taken into account. For purposesof applying paragraphs (b)(2)(iii)(a), (b),and (c) of this section to a partner that isa member of a consolidated group (withinthe meaning of §1.1502–1(h)), the tax con-sequences that result from the interaction

2008–24 I.R.B. 1147 June 16, 2008

of the allocation with the tax attributes ofthe consolidated group and with the tax at-tributes of another member with respect toa separate return year must be taken intoaccount. See paragraph (b)(5) Example 29of this section.

(2) Look-through entity. For pur-poses of this paragraph (b)(2)(iii)(d), alook-through entity means—

(i) A partnership;(ii) A subchapter S corporation;(iii) A trust or an estate;(iv) An entity that is disregarded for

Federal tax purposes, such as a qualifiedsubchapter S subsidiary under section1361(b)(3), an entity that is disregardedas an entity separate from its owner under§§301.7701–1 through 301.7701–3 of thischapter, or a qualified REIT subsidiarywithin the meaning of section 856(i)(2); or

(v) A controlled foreign corporationif United States shareholders of the con-trolled foreign corporation in the aggre-gate own, directly or indirectly, at least10 percent of the capital or profits ofthe partnership on any day during thepartnership’s taxable year. In such case,the controlled foreign corporation shallbe treated as a look-through entity, butonly with respect to allocations of in-come, gain, loss, or deduction (or itemsthereof) that enter into the computationof a United States shareholder’s inclu-sion under section 951(a) with respect tothe controlled foreign corporation, enterinto any person’s income attributable toa United States shareholder’s inclusionunder section 951(a) with respect to thecontrolled foreign corporation, or wouldenter into the computations described inthis paragraph if such items were allocatedto the controlled foreign corporation. Seeparagraph (b)(2)(iii)(d)(6) for the defini-tion of indirect ownership.

(3) Controlled foreign corporations.For purposes of this section, the termcontrolled foreign corporation means acontrolled foreign corporation as definedin section 957(a) or section 953(c). Inthe case of a controlled foreign corpo-ration that is a look-through entity, thetax attributes to be taken into accountare those of any person that is a UnitedStates shareholder (as defined in para-graph (b)(2)(iii)(d)(5) of this section)of the controlled foreign corporation,or, if the United States shareholder is alook-through entity, a United States person

that owns an interest in such shareholderdirectly or indirectly through one or morelook-through entities.

(4) United States person. For purposesof this section, a United States person is aperson described in section 7701(a)(30).

(5) United States shareholder. For pur-poses of this section, a United States share-holder is a person described in section951(b) or section 953(c).

(6) Indirect ownership. For purposes ofthis section, indirect ownership of stock oranother equity interest (such as an interestin a partnership) shall be determined inaccordance with the principles of section318, substituting the phrase “10 percent”for the phrase “50 percent” each time itappears.

(e) De minimis rule. For purposes ofapplying this paragraph (b)(2)(iii), thetax attributes of de minimis partners neednot be taken into account. For purposesof this paragraph (b)(2)(iii)(e), a de min-imis partner is any partner, including alook-through entity that owns, directlyor indirectly, less than 10 percent of thecapital and profits of a partnership, andwho is allocated less than 10 percent ofeach partnership item of income, gain,loss, deduction, and credit. See paragraph(b)(2)(iii)(d)(6) of this section for the def-inition of indirect ownership.

* * * * *(5) * * *Example 28. (i) B, a domestic corporation, and

C, a controlled foreign corporation, form BC, a part-nership organized under the laws of country X. B andC each contribute 50 percent of the capital of BC. Band C are wholly-owned subsidiaries of A, a domesticcorporation. Substantially all of BC’s income wouldnot be subpart F income if earned directly by C. TheBC partnership agreement provides that, for the firstfifteen years, BC’s gross income will be allocated 10percent to B and 90 percent to C, and BC’s deduc-tions and losses will be allocated 90 percent to B and10 percent to C. The partnership agreement also pro-vides that, after the initial fifteen year period, BC’sgross income will be allocated 90 percent to B and 10percent to C, and BC’s deductions and losses will beallocated 10 percent to B and 90 percent to C.

(ii) Apart from the application of section 704(b),the Commissioner may reallocate or otherwise not re-spect the allocations under other sections. See para-graph (b)(1)(iii) of this section. For example, BC’sallocations of gross income, deductions, and lossesmay be evaluated and reallocated (or not respected),as appropriate, if it is determined that the allocationsresult in the evasion of tax or do not clearly reflectincome under section 482.

Example 29. PRS is a partnership with three equalpartners, A, B, and C. A is a corporation that is amember of a consolidated group within the mean-

ing of §1.1502–1(h). B is a subchapter S corpora-tion that is wholly owned by D, an individual. C isa partnership with two partners, E, an individual, andF, a corporation that is a member of a consolidatedgroup within the meaning of §1.1502–1(h). For pur-poses of paragraph (b)(2)(iii) of this section, in de-termining the after-tax economic benefit or detrimentof an allocation to A, the tax consequences that resultfrom the interaction of the allocation to A with thetax attributes of the consolidated group of which A isa member must be taken into account. In determin-ing the after-tax economic benefit or detriment of anallocation to B, the tax consequences that result fromthe interaction of the allocation with the tax attributesof D must be taken into account. In determining theafter-tax economic benefit or detriment of an alloca-tion to C, the tax consequences that result from theinteraction of the allocation with the tax attributes ofE and the consolidated group of which F is a membermust be taken into account.

Example 30. (i) A, a controlled foreign corpora-tion, and B, a foreign corporation that is not a con-trolled foreign corporation, form AB, a partnershiporganized under the laws of country X. The part-nership agreement contains the provisions necessaryto comply with the economic effect safe harbor ofparagraph (b)(2)(ii)(b) of this section. A is wholly-owned by C, a domestic corporation that is not amember of a consolidated group within the meaningof §1.1502–1(h). B is wholly owned by an individ-ual who is a citizen and resident of country X and isnot related to A. Neither A, B, nor AB, is engagedin a trade or business in the United States. A and Beach contribute 50 percent of the capital of AB. Thereis a strong likelihood that in each of the next severalyears AB will realize equal amounts of gross incomethat would constitute subpart F income if allocated toA, and gross income that would not constitute subpartF income if allocated to A (“non-subpart F income”).A and B agree to share bottom-line net income fromAB equally; however, rather than share all items ofgross income equally, A and B agree that B will beallocated all of AB’s subpart F income to the extentof its 50 percent share of bottom-line net income. Inyear 1, AB earns $60x of income, $30x of which issubpart F income and is allocated to B, and $30x ofwhich is non-subpart F income and is allocated to A.

(ii) Although neither A nor B is subject to U.S. taxwith respect to its distributive share of the income ofAB, under paragraph (b)(2)(iii)(d) of this section, thetax attributes of C must be taken into account withrespect to A for purposes of applying the tests de-scribed in paragraphs (b)(2)(iii)(a), (b), and (c) of thissection. The allocations in year 1 have economic ef-fect. However, the economic effect of the allocationsis not substantial under the test described in para-graph (b)(2)(iii)(b) of this section because there was astrong likelihood, at the time the allocations becamepart of the AB partnership agreement, that the net in-creases and decreases to A’s and B’s capital accountsin year 1 would not differ substantially when com-pared to the net increases and decreases to A’s and B’scapital accounts for year 1 if the allocations were notcontained in the partnership agreement, and the totaltax liability from the income earned by AB in year 1(taking into account the tax attributes of the alloca-tions to C) would be reduced as a result of such al-locations. Under paragraph (b)(3) of this section, thesubpart F income and non-subpart F income earned

June 16, 2008 1148 2008–24 I.R.B.

by AB in year 1 must each be reallocated 50 percentto A and 50 percent to B.

* * * * *

Linda E. Stiff,Deputy Commissioner forServices and Enforcement.

Approved May 8, 2008.

Eric Solomon,Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on May 16, 2008,8:45 a.m., and published in the issue of the Federal Registerfor May 19, 2008, 73 F.R. 28699)

Section 3402.—Income TaxCollected at Source26 CFR 31.3402(g)–1: Supplemental wage pay-ments.(Also: § 31.3401(b)–1(a).)

Supplemental wages; income tax.This ruling provides guidance with respectto income tax withholding in nine differ-ent situations involving the payment ofsupplemental wages. Rev. Ruls. 66–294and 67–131 obsoleted.

Rev. Rul. 2008–29

ISSUE

How does an employer determine theamount of income tax required to be with-held under section 3402 of the InternalRevenue Code with respect to certain sup-plemental wages the employer pays to anemployee.

FACTS

In this revenue ruling nine differentsituations are described: (1) commissionspaid at fixed intervals with no regularwages paid to the employee; (2) commis-sions paid at fixed intervals in additionto regular wages paid at different inter-vals; (3) draws paid in connection withcommissions; (4) commissions paid tothe employee only when the accumu-lated commission credit of the employeereaches a specific numerical threshold;(5) a signing bonus paid prior to the com-mencement of employment; (6) severancepay paid after the termination of employ-ment; (7) lump sum payments of accumu-lated annual leave; (8) annual payments of

vacation and sick leave; and (9) sick paypaid at a different rate than regular pay. Inthese situations, it is assumed, for incometax and income tax withholding purposes,that there is no constructive receipt orconstructive payment of wages before theactual payment of wages, that no amountsare required to be included in incomeunder section 409A before the actual pay-ment of wages, and that all payments aremade on or after January 1, 2007. Exceptfor Employee F in Situation 5, none ofthe employees below is paid more than$1,000,000 of supplemental wages duringany calendar year.

Situation 1. Employee A works as asalesperson for employer X. During A’s ca-reer as an employee with X, X has paid Aonly commissions as compensation for ser-vices. X pays the commissions credited toA on a monthly basis.

Situation 2. Employee B works as asalesperson for employer Y. Y pays B amonthly salary of $10,000, which it payson the first business day of the month. Inaddition to the salary, Y pays B a commis-sion equal to 5 percent of sales. Y pays theamount of accumulated commissions to Beach Monday unless the Monday is a fed-eral holiday, in which case the amount ispaid on the next business day. Y withholdsincome tax from the monthly salary paid toB.

Situation 3. Employee C works as asalesperson for employer Z. Under C’s em-ployment arrangement, Z pays a $5,000draw to C on a semimonthly basis. To-gether with the second $5,000 draw pay-ment for a month, Z pays C the amount ofcommissions credited to him less the totalamount of draws ($10,000) that Z pays Cduring that month. If C’s draws exceed theamount of commissions earned by C dur-ing that month, Z reduces the amount ofthe draws paid to C during the next month.If C terminates employment with Z, he isobligated to repay any draws received inexcess of commissions earned. C receivesno wage payments other than the semi-monthly draw payments and the monthlycommission payments.

Situation 4. Employee D has worked asa salesperson for employer M for a num-ber of years, and has been compensatedsolely by commission. M pays D the com-missions credited to D whenever her accu-mulated net commissions equal $1,000 ormore. On January 13, D has $1,350 in ac-

cumulated commissions. This is the firstday of the year the amount of commissionscredited to her has equaled or exceeded$1,000, and M pays the full accumulatedamount ($1,350) to D on January 14. Thispayment is the first payment of wages toD for the calendar year. D has $2,125 inaccumulated commissions credited to heraccount on January 31, which is the nextday in the calendar year that the amount ofcommissions credited to her has exceeded$1,000. M pays the full amount of accu-mulated commissions ($2,125) on Febru-ary 1. This payment is the second paymentof wages to D for the calendar year.

Situation 5. Under an employment con-tract entered into on May 1 of Year 1, Em-ployee F is scheduled to begin performingservices for employer P on October 1 ofYear 1. F will receive regular wages of$75,000 per month for his services as anemployee of P, and will have a monthlypayroll period. On June 1 of Year 1, P paysF $2,100,000 as a bonus for signing theemployment contract. F has received nowage payments in any year from P prior tothe payment on June 1 of Year 1. F has re-ceived no wage payments from agents of Por any other person treated as the same em-ployer as P under § 31.3402(g)–1(a)(3)(i)of the Employment Tax Regulations.

Situation 6. Employee G performs ser-vices for employer S, which has a sever-ance pay plan for its employees. The planprovides that, generally, if an employeeis involuntarily terminated, the employeewill receive weekly severance pay equal tohis or her ending regular weekly pay. Theseverance pay will continue after termina-tion for the number of weeks that is equalto the number of full years the employeeperformed services as an employee for theemployer multiplied by 3. G is involuntar-ily terminated by S on June 30 of Year 1,after G has performed services as an em-ployee of S for 17 years. Thus, G will re-ceive 51 weeks of severance pay, whichwill be paid weekly starting in July of Year1 and continuing into Year 2.

Situation 7. In general, Civil Serviceemployees of the Federal Governmentearn specified hours of annual leave each80-hour biweekly pay period, dependingon the length of the employee’s service.Employees, under usual circumstances,are permitted to accumulate earned butunused annual leave from year to year, upto a specified maximum number of hours.

2008–24 I.R.B. 1149 June 16, 2008

When an employee leaves the service ofthe Federal Government, the employee re-ceives his or her final payment of regularwages and, either in the same check or in aseparate check, receives payment for anyunused accumulated annual leave, com-puted at the employee’s former regularpay rate. The terminating employee re-ceives a report from the agency for whichthe employee works, or the agency’s des-ignated agent, specifying the amount ofthe payment of the accumulated annualleave. Federal agency T pays Employee Ha lump sum payment for unused accumu-lated annual leave upon H’s termination ofemployment.

Situation 8. Employer U maintains aplan that pays its employees at the endof approximately each 12-month period alump sum payment known as a vacationand sick leave allowance. An employee re-ceives this payment whether or not he orshe has been absent from work because ofvacation or illness. However, in the eventof absenteeism because of vacation or ill-ness, the employee receives no regular payfor the period of absence. U makes a lumpsum payment under the plan to employeeJ.

Situation 9. Employer V pays its em-ployees at one rate when the employee ispresent and working and at another ratewhen the employee is absent because ofsickness. The employer maintains payrollrecords that separately state the amountof wages paid for working days and theamount of wages paid for sick pay. Vmakes a single payment of wages to em-ployee K for a payroll period, and the pay-ment includes an amount for working daysand an amount for sick pay.

LAW AND ANALYSIS

Section 31.3402(g)–1(a) of the regula-tions, as amended by T.D. 9276, 2006–2C.B. 423, provides rules for determiningwhether wages paid to an employee areregular wages or supplemental wages. Theamendments to the regulations are effec-tive with respect to wages paid on or af-ter January 1, 2007. Whether wages areclassified as regular wages or supplemen-tal wages may have significance in deter-mining the amount of income tax requiredto be withheld.

Section 31.3402(g)–1(a)(1)(i) of theregulations provides that supplemental

wages are all wages paid by an employerthat are not regular wages. Supplementalwages include wage payments made with-out regard to an employee’s payroll period,but also may include payments made fora payroll period. The regulations providemany examples of supplemental wagesincluding commissions, bonuses, nonqual-ified deferred compensation includible inwages, and back pay. The regulations alsoprovide that amounts that are described assupplemental wages in the definition inthe regulations are supplemental wages re-gardless of whether the employer has paidthe employee any regular wages duringeither the calendar year of the payment orany prior calendar year.

Section 31.3402(g)–1(a)(1)(ii) of theregulations provides that, as distinguishedfrom supplemental wages, regular wagesare amounts that are paid at a regularhourly, daily, or similar periodic rate (andnot an overtime rate) for the current pay-roll period or at a predetermined fixeddeterminable amount for the current pay-roll period.

Section 31.3402(g)–1(a)(2) of the reg-ulations provides that if a supplementalwage payment, when added to all supple-mental wage payments previously madeby one employer (as defined under theregulations) to an employee during thecalendar year, exceeds $1,000,000, therate used in determining the amount ofwithholding on the excess (including anyexcess which is a portion of a supplemen-tal wage payment) shall be equal to thehighest rate of tax applicable under section1 of the Code for such taxable years begin-ning in such calendar year. This flat rateshall be applied without regard to whetherincome tax has been withheld from theemployee’s regular wages, without al-lowance for the number of withholdingallowances claimed by the employee onForm W–4, “Employee’s Withholding Al-lowance Certificate,” without regard towhether the employee has claimed exemptstatus on Form W–4, without regard towhether the employee has requested ad-ditional withholding on Form W–4, andwithout regard to the withholding methodused by the employer. Withholding un-der § 31.3402(g)–1(a)(2) is referred to asmandatory flat rate withholding.

If the supplemental wages paid to anemployee by an employer (as definedin the regulations) during a calendar

year do not exceed $1,000,000, thenthe amount of income tax withholdingis determined under the rules providedin § 31.3402(g)–1(a)(6) and (7). Theseparagraphs describe two procedures forwithholding on supplemental wages: theaggregate procedure and optional flat ratewithholding.

An employer applies the aggregate pro-cedure described in § 31.3402(g)–1(a)(6)by using the withholding tables applicableto the payroll period with respect to whichthe employer is calculating the income taxwithholding liability on the supplementalwages. The supplemental wages, if paidconcurrently with wages for a payroll pe-riod, are aggregated with the wages paidfor such payroll period. If not paid con-currently, the supplemental wages are ag-gregated with the wages paid or to be paidwithin the same calendar year for the lastpreceding payroll period or for the currentpayroll period, if any. The amount of taxto be withheld is determined as if the ag-gregate of the supplemental wages and theregular wages constituted a single wagepayment for the regular payroll period.

The aggregate procedure can be usedto determine the amount of income tax tobe withheld with respect to any paymentof supplemental wages, except to the ex-tent that mandatory flat rate withholdingapplies. See § 31.3402(g)–1(a)(6) of theregulations. However, optional flat ratewithholding may only be used under cer-tain conditions.

Under § 31.3402(g)–1(a)(7)(i) of theregulations, an employer must meet thefollowing conditions at the time of pay-ment to use optional flat rate withholdingwith respect to a supplemental wage pay-ment or portion of a payment:

(A) The wage payment or por-tion of the payment is not subject tomandatory flat rate withholding under§ 31.3402(g)–1(a)(2) of the regulations;

(B) The supplemental wages are eithernot paid concurrently with regular wagesor are separately stated on the payrollrecords of the employer; and

(C) Income tax has been withheld fromregular wages of the employee during thecalendar year of the payment of the sup-plemental wages or the preceding calendaryear.

In determining the amount of incometax withholding applicable under the ag-gregate procedure, it is necessary to deter-

June 16, 2008 1150 2008–24 I.R.B.

mine the payroll period of the employee sothat the correct withholding table can beapplied. Withholding tables are updatedeach year and are found in Publication 15,(Circular E), Employer’s Tax Guide.

Section 31.3401(b)–1(a) of the regula-tions provides that the term “payroll pe-riod” means the period of service for whicha payment of wages is ordinarily made toan employee by his or her employer. It isimmaterial that the wages are not alwayspaid at regular intervals.

Section 31.3401(b)–1(b) of the regula-tions provides that for purposes of section3402, an employee can have only one pay-roll period with respect to wages paid byany one employer. Thus, if an employeeis paid a regular wage for a weekly payrollperiod and in addition thereto is paid sup-plemental wages (for example, bonuses)determined with respect to a different pe-riod, the payroll period is the weekly pay-roll period.

Section 31.3401(b)–1(d) of the regu-lations provides that the term “miscella-neous payroll period” means a payroll pe-riod other than a daily, weekly, biweekly,semimonthly, monthly, quarterly, semian-nual, or annual payroll period.

Employers may elect to use eitherthe percentage method of withholding orthe wage bracket method of withholdingin withholding on regular wages of anemployee. In applying the aggregate pro-cedure applicable to supplemental wages,the employer will ordinarily apply themethod of withholding used with respectto regular wages if the employer paysregular wages to the employee. Section31.3402(b)–1 of the regulations providesthat the amount of tax to be deducted andwithheld under the percentage method ofwithholding shall be determined underthe applicable percentage method of with-holding table contained in Publication 15,according to the instructions containedtherein. Similarly, § 31.3402(c)–1(a)(1)of the regulations provides that the correctamount of withholding under the wagebracket method shall be determined underthe applicable wage bracket withholdingtable contained in Publication 15 issuedfor use with respect to the period in whichsuch wages are paid.

Section 3402(c)(3) and § 31.3402(c)–1(c)(3) of the regulations provide, withrespect to wage bracket withholding,that if wages are paid to an employee

without regard to any particular period,as, for example, commissions paid to asalesperson upon consummation of a sale,the amount of tax to be deducted andwithheld shall be determined in the samemanner as in the case of a miscellaneouspayroll period containing a number ofdays (including Saturdays, Sundays,and holidays) equal to the number ofdays (including Saturdays, Sundays, andholidays) which have elapsed beginningwith the latest of the following days:

(i) The first day after the last payment ofwages to such employee by such employerin the calendar year, or

(ii) The date on which such individual’semployment with such employer began inthe calendar year, or

(iii) January 1 of such calendar year,and ending with (and including) the dateon which such wages are paid.

Situation 1. Section 31.3402(g)–1(a)(1)(i) of the regulations specificallyincludes commissions as an example ofsupplemental wages. Amounts included assupplemental wages under the definitionin the regulations are supplemental wagesregardless of whether the employer haspaid the employee any regular wagesduring either the calendar year of thepayment or any prior calendar year.Because the commission payments aresupplemental wages, X has paid A onlysupplemental wages and no regular wages.

An employer determines income taxwithholding on a payment of supplementalwages under either the aggregate proce-dure or optional flat rate withholding. Xmay not use the optional flat rate methodwith respect to the wages paid to A be-cause one of the three requirements setforth in § 31.3402(g)–1(a)(7)(i) has notbeen met. X has not withheld income taxfrom regular wages paid to A during thecalendar year or the preceding calendaryear. Therefore, X must use the aggregateprocedure to determine the amount of in-come tax withholding on the commissionspaid to A.

The payroll period of any particular em-ployee is the period of service for whicha payment of wages is ordinarily madeto an employee by the employer. See§ 31.3401(b)–1(a). A receives no regularwages; therefore, the payroll period can-not be determined with respect to regularwage payments made by X but is deter-mined by the period of service for which

the payments of supplemental wages areordinarily paid by X to A. Because X makespayments of the commissions to A on amonthly basis, A has a monthly payroll pe-riod. Therefore, X determines withhold-ing on the commissions by using the ap-plicable table for a monthly payroll periodfound in Publication 15.

Situation 2. Y is paying B both reg-ular wages (the salary) and supplementalwages (the commissions). Because theregular wages are paid on a monthly ba-sis, B has a monthly payroll period. Thefrequency of payment of the supplementalwages has no effect on the determinationof B’s payroll period because B receivesperiodic regular wage payments during thecalendar year.

Y may use either the aggregate proce-dure or optional flat rate withholding todetermine income tax withholding on thecommissions paid to B. Under the factshere, Y did not pay the supplemental wagesconcurrently with the wages for the pay-roll period. Therefore, if Y uses the aggre-gate procedure, Y may include, in the cal-culation of the aggregate of regular wagesand supplemental wages, the regular wagepayments for either the current or the lastpreceding payroll period. In calculatingthe aggregate wages, the employer wouldalso include any other supplemental wagepayments made for such payroll period.Thus, for example, in determining the cor-rect withholding on the fourth commissionpayment during a month under the aggre-gate procedure, Y needs to aggregate reg-ular wages paid for the payroll period plusthe three prior commission payments forthe payroll period (and any other supple-mental wage payments paid for that pay-roll period) and then apply the applicablemonthly payroll table in Publication 15.Because Y has withheld income tax fromregular wages paid to B, Y may also useoptional flat rate withholding to determinethe amount of withholding on the supple-mental wage payments to B.

Situation 3. Under this wage structure,the draws represent payments of commis-sions that are supplemental wages. Thedraws are debited against commissions,and the employer reduces the amount ofthe draws if they exceed commissions.Thus, the payment of the draw is a pay-ment of commissions and not a paymentof salary, and constitutes supplementalwages not regular wages. Therefore, Z is

2008–24 I.R.B. 1151 June 16, 2008

paying only supplemental wages to C, and,as in situation 1, the employer must use theaggregate procedure in determining theamount of withholding on the payments ofwages to the employee. Because Z ordi-narily pays C her supplemental wages ona semimonthly basis, C has a semimonthlypayroll period. Thus, Z should use the ap-plicable semimonthly withholding table inPublication 15 in determining withholdingon payments to C.

Situation 4. Under the facts of this sit-uation, D is receiving only supplementalwages, and thus M must use the aggre-gate procedure in determining income taxwithholding required under section 3402.However, the wages are not paid at regu-lar intervals. Because the wages are notpaid based on a period of service, but onsome other basis (i.e., the date the amountof unpaid commissions credited to the em-ployee equals or exceeds $1,000), the in-come tax withheld from the wages paidto D is based on the rules applicable towages paid without regard to any periodprovided in § 31.3402(c)–1(c)(3) or Pub-lication 15. Under these rules, the incometax to be withheld is determined based onthe applicable table for a miscellaneouspayroll period. The first payment to theemployee is treated as a payment for a mis-cellaneous payroll period of 15 days, andthe employer determines the income taxwithholding based on that period. The 15days is derived from a beginning date ofJanuary 1, which is the latest of (a) the firstday after the last payment of wages to suchemployee by such employer in the calen-dar year, (b) the date on which the em-ployee began employment with such em-ployer in the calendar year, and (c) Jan-uary 1 of the calendar year, and an end-ing date of January 15, the date on whichthe wages were paid. Similarly, the with-holding on the second wage payment is de-termined based on a miscellaneous payrollperiod of 17 days, from January 16 (the dayafter the last payment of wages) to Febru-ary 1, the date on which the wages werepaid.

Situation 5. The bonus payment onJune 1 of Year 1 is supplemental wages.See Rev. Rul. 2004–109, 2004–2 C.B.958, and § 31.3402(g)–1(a)(1). To theextent the bonus exceeds $1,000,000, Pis required to apply mandatory flat ratewithholding under § 31.3402(g)–1(a)(2)because the supplemental wages paid to F

by P exceed $1,000,000 for the calendaryear. Thus, P is required to apply manda-tory flat rate withholding with respect to$1,100,000 of the bonus.

With respect to the first $1,000,000portion of the signing bonus, P has thechoice of either applying the aggregateprocedure or treating the amount as sub-ject to mandatory flat rate withholding.See § 31.3402(g)–1(a)(4)(iv) of the regu-lations, which provides that, in the case ofa supplemental wage payment that, whenadded to all supplemental wage paymentspreviously made by the employer to theemployee in the calendar year, results inthe employee having received in excessof $1,000,000 supplemental wages for thecalendar year, the employer may subjectthe entire amount of such supplementalwage payment to mandatory flat rate with-holding. If P uses the aggregate procedure,the payroll period to be applied with re-spect to determining the amount of incometax to be withheld on the first $1,000,000portion of the bonus is the monthly payrollperiod, because the regular wage paymentsto be paid to F during the calendar year arescheduled to be paid on a monthly basis. Pmay not use optional flat rate withholdingto determine income tax withholding onF’s signing bonus because at the time thebonus is paid P has not withheld incometax from regular wages paid during year 1or the preceding year.

Situation 6. Severance pay is supple-mental wages because it is not a paymentfor services in the current payroll periodbut a payment made upon or after termi-nation of employment for an employmentrelationship that has terminated. Thus, al-though the payments in this situation arefor a fixed determinable amount for 51weeks, they are not fixed payments for thecurrent payroll period and thus are not reg-ular wages.

Because the severance pay is supple-mental wages, the usual rules for determin-ing income tax withholding with respectto supplemental wages apply. S can usethe aggregate procedure to determine with-holding on the payments. Alternatively,if S has withheld income tax on regularwages paid to G in Year 1, S can use op-tional flat rate withholding to determinethe withholding with respect to the supple-mental wage payments in Year 1 and Year2.

Situation 7. The lump sum payment ofaccumulated annual leave is a supplemen-tal wage payment, because it is not a pay-ment at a regular rate for the current pay-roll period. T can use the aggregate proce-dure in determining income tax withhold-ing with respect to the amount of the ac-cumulated annual leave payment. T sepa-rately states the amount of the supplemen-tal wages on its payroll records. Thus, ifT has withheld income tax from regularwages paid to H during the calendar yearor the preceding calendar year, T can useoptional flat rate withholding to determinethe withholding with respect to the supple-mental wage payment.

Situation 8. The annual payment ofthe vacation and sick leave allowance isa supplemental wage payment, because itis not a payment at a regular rate for thecurrent payroll period. U can use the ag-gregate procedure to determine the incometax withholding with respect to the leaveallowance payment. The supplementalwages are not paid concurrently with reg-ular wages, and thus U meets one of therequirements for use of optional flat ratewithholding, that the supplemental wagepayment must be either not paid concur-rently with regular wages or separatelystated on the payroll records of the em-ployer. If U has withheld income tax fromregular wages paid to J during the calen-dar year or the preceding calendar year,U can use optional flat rate withholdingto determine the withholding on the leaveallowance payment.

Situation 9. The portion of the wagepayment for sick days is supplementalwages, because the sick pay is paid at adifferent rate than the regular wages paidthe employee. V can use the aggregateprocedure to determine withholding withrespect to the sick pay. V separately statesthe amount of the sick pay on its payrollrecords. Thus, if V has withheld incometax from regular wages paid to K duringthe calendar year or the preceding calendaryear, V can use optional flat rate withhold-ing to determine the withholding on thesick pay.

HOLDINGS

Situation 1. X must use theaggregate procedure described in§ 31.3402(g)–1(a)(6) in determining theamount of income tax withholding on the

June 16, 2008 1152 2008–24 I.R.B.

payments of commissions to A. Becausethe supplemental wages are ordinarilypaid for a monthly period of service, Xshould use the applicable withholding ta-ble for a monthly payroll period found inPublication 15 in applying the aggregateprocedure.

Situation 2. Y is permitted to use ei-ther optional flat rate withholding or theaggregate procedure. If Y is applying theaggregate procedure, Y must aggregate allwages paid to B for the monthly payroll pe-riod, including all payments of supplemen-tal wages for that payroll period.

Situation 3. The payments of the drawsare supplemental wages. Therefore, Z ispaying only supplemental wages to C, and,as in Situation 1, Z must use the aggregateprocedure in determining the amount ofwithholding on the wages paid to C.

Situation 4. M is required to use theaggregate procedure in determining theamount of income tax to be withheld. Fur-thermore, because D is paid supplementalwages without regard to any particularperiod of service, income tax withhold-ing on the payments of the supplementalwages is determined under the rules ap-plicable for wages paid without regard toany period under § 31.3402(c)–1(c)(3), ifthe employer is using the wage bracketmethod, or under Publication 15, if the

employer is using the percentage methodof withholding.

Situation 5. The signing bonus is a sup-plemental wage payment. To the extentthe signing bonus exceeds $1,000,000, Pis required to apply mandatory flat ratewithholding under § 31.3402(g)–1(a)(2)because F will have received in excessof $1,000,000 in supplemental wagesfrom P during the calendar year. Thus,$1,100,000 of the signing bonus is subjectto mandatory flat rate withholding. Indetermining the payroll period applicablewith respect to the payment of the signingbonus, P uses the payroll period for whichregular wages will be paid the employee.With respect to the first $1,000,000 of thebonus, P may either treat the amount assubject to mandatory flat rate withholdingor withhold using the aggregate procedurebased on a monthly payroll period.

Situation 6. The severance pay paidto G is supplemental wages. Therefore, Sshould withhold on the payments under therules applicable in determining withhold-ing on supplemental wages.

Situation 7. The lump sum annualleave payment is a supplemental wagepayment. Therefore, T should withhold onthe payment under the rules applicable indetermining withholding on supplementalwages.

Situation 8. The lump sum annual pay-ment for vacation and sick leave is a sup-plemental wage payment. Therefore, Ushould withhold on the payment under therules applicable in determining withhold-ing on supplemental wages.

Situation 9. The amount paid for sickpay is supplemental wages. Therefore, Vshould withhold on the payment under therules applicable in determining withhold-ing on supplemental wages.

EFFECT ON OTHER REVENUERULINGS

Rev. Rul. 67–131, 1967–1 C.B. 291,and Rev. Rul. 66–294, 1966–2 C.B.459, are obsolete. This revenue rulingand § 31.3402(g)–1(a) of the regulations,as amended by T.D. 9276, provide ruleswith respect to the types of payments de-scribed in Rev. Rul. 66–294 and Rev. Rul.67–131.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Alfred G. Kelley of the Office ofAssociate Chief Counsel (Tax Exempt &Government Entities). For further infor-mation regarding this revenue ruling, con-tact Mr. Kelley at (202) 622–6040 (not atoll-free call).

2008–24 I.R.B. 1153 June 16, 2008

Part IV. Items of General InterestNotice of ProposedRulemaking byCross-Reference toTemporary Regulations

Treatment of PropertyUsed to Acquire ParentStock in Certain TriangularReorganizations InvolvingForeign Corporations

REG–136020–07

AGENCY: Internal Revenue Service(IRS), Treasury.

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

SUMMARY: In this issue of the Bulletin,the IRS is issuing temporary regulations(T.D. 9400) under section 367(b) of the In-ternal Revenue Code (Code) regarding cer-tain triangular reorganizations. The regu-lations implement rules described in No-tice 2006–85, 2006–2 C.B. 677, and No-tice 2007–48, 2007–25 I.R.B. 1428. Theregulations primarily affect corporationsengaged in certain triangular reorganiza-tions involving one or more foreign corpo-rations. The text of those regulations alsoserves as the text of these proposed regu-lations.

DATES: Written or electronic commentsand requests for a public hearing must bereceived by August 25, 2008.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–136020–07),room 5203, Internal Revenue Service,PO Box 7604, Ben Franklin Station,Washington, DC 20044. Submissions maybe hand-delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–136020–07),Courier’s Desk, Internal RevenueService, 1111 Constitution Avenue, NW,Washington, DC, or sent electronically,via the Federal eRulemakingPortal at www.regulations.gov (IRSREG–136020–07).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposed reg-ulations, Daniel McCall, (202) 622–3860;concerning submissions of comments,requests for a public hearing, and/or tobe placed on the building access list toattend a hearing, contact Richard Hurst(Richard.A.Hurst@irscounsel.treas.gov)or (202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation ofProvisions

Temporary regulations in this issue ofthe Bulletin amend the Income Tax Reg-ulations (26 CFR part 1) relating to sec-tion 367(b) of the Code and certain trian-gular reorganizations. The text of thoseregulations also serves as the text of theseproposed regulations. The preamble to thetemporary regulations explains the tempo-rary regulations and the proposed regula-tions.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866. Therefore, a regulatory as-sessment is not required.

It is hereby certified that these regu-lations will not have a significant eco-nomic impact on a substantial numberof small entities. Accordingly, a regula-tory flexibility analysis is not required.This certification is based on the fact thatthe regulations will primarily affect largemulti-national corporations that engagein triangular reorganizations subject tothe regulations. The regulations apply totriangular reorganizations, involving oneor more foreign corporations, to the extentthat, in connection with the reorganization,the acquiring corporation purchases, in ex-change for property, all or a portion of thestock used to acquire the stock or assetsof the target corporation. Therefore, theIRS and Treasury Department expect onlya de minimis number of small businessentities to be subject to the regulations.Pursuant to section 7805(f) of the Code,this regulation has been submitted to theChief Counsel for Advocacy of the Small

Business Administration for comment onits impact on small business.

Comments and Requests for a PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments(a signed original and eight (8) copies)or electronic comments that are submittedtimely to the IRS. The IRS and TreasuryDepartment request comments on the clar-ity of the proposed rules and how they canbe made easier to understand. All com-ments will be available for public inspec-tion and copying. A public hearing will bescheduled if requested in writing by anyperson that timely submits written com-ments. If a public hearing is scheduled, no-tice of the date, time, and place for the pub-lic hearing will be published in the FederalRegister.

Drafting Information

The principal author of these proposedregulations is Daniel McCall of the Of-fice of Associate Chief Counsel (Interna-tional). However, other personnel from theIRS and the Treasury Department partici-pated in 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 is amended by adding new entries innumerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.367(a)–3(b)(2)(i)(C) also is-

sued under 26 U.S.C. 367(a) and (b). * * *Section 1.367(b)–14 also issued under

26 U.S.C. 367(b). * * *Par. 2. Section 1.367(a)–3 is amended

by adding new paragraph (b)(2)(i)(C) toread as follows:

§1.367(a)–3 Treatment of transfers ofstock or securities to foreign corporations.

* * * * *

June 16, 2008 1154 2008–24 I.R.B.

(b) * * *(2) * * *(i) * * *(C) [The text of this proposed

amendment to §1.367(a)–3(b)(2)(i)(C)is the same as the text of§1.367(a)–3T(b)(2)(i)(C) published else-where in this issue of the Bulletin].

* * * * *Par. 3. Section 1.367(b)–14 is added to

read as follows:

§1.367(b)–14 Acquisition of parent stockfor property in triangular reorganizations.

[The text of proposed §1.367(b)–14 isthe same as the text of §1.367(b)–14T(a)through (e)(5) published elsewhere in thisissue of the Bulletin.]

Linda E. Stiff,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on May 23, 2008,8:45 a.m., and published in the issue of the Federal Registerfor May 27, 2008, 73 F.R. 30330)

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

Announcement 2008–54

The Internal Revenue Service has re-voked its determination that the organi-zations listed below qualify as organiza-tions described in sections 501(c)(3) 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-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 June 16, 2008, andwould end on the date the court first deter-mines that the organization is not describedin section 170(c)(2) as more particularlyset forth in section 7428(c)(1). For indi-vidual contributors, the maximum deduc-tion protected is $1,000, with a husbandand wife treated as one contributor. Thisbenefit is not extended to any individual, inwhole or in part, for the acts or omissionsof the organization that were the basis forrevocation.

Community Child CarePortland, OR

Camp Meeting of the Assoc. of theNewark Conf. of the MethodistEpiscopal ChurchMount Tabor, NJ

Berryessa PAL Youth Football Club, Inc.San Jose, CA

Rape Survivors Anonymous WorldServices, Inc.Oswego, IL

Round Rock Band Boosters, Inc.Round Rock, TX

2008–24 I.R.B. 1155 June 16, 2008

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 situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

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.

June 16, 2008 i 2008–24 I.R.B.

Numerical Finding List1

Bulletins 2008–1 through 2008–24

Announcements:

2008-1, 2008-1 I.R.B. 246

2008-2, 2008-3 I.R.B. 307

2008-3, 2008-2 I.R.B. 269

2008-4, 2008-2 I.R.B. 269

2008-5, 2008-4 I.R.B. 333

2008-6, 2008-5 I.R.B. 378

2008-7, 2008-5 I.R.B. 379

2008-8, 2008-6 I.R.B. 403

2008-9, 2008-7 I.R.B. 444

2008-10, 2008-7 I.R.B. 445

2008-11, 2008-7 I.R.B. 445

2008-12, 2008-7 I.R.B. 446

2008-13, 2008-8 I.R.B. 480

2008-14, 2008-8 I.R.B. 481

2008-15, 2008-9 I.R.B. 511

2008-16, 2008-9 I.R.B. 511

2008-17, 2008-9 I.R.B. 512

2008-18, 2008-12 I.R.B. 667

2008-19, 2008-11 I.R.B. 624

2008-20, 2008-11 I.R.B. 625

2008-21, 2008-13 I.R.B. 691

2008-22, 2008-13 I.R.B. 692

2008-23, 2008-14 I.R.B. 731

2008-24, 2008-13 I.R.B. 692

2008-25, 2008-14 I.R.B. 732

2008-26, 2008-13 I.R.B. 693

2008-27, 2008-15 I.R.B. 751

2008-28, 2008-14 I.R.B. 733

2008-29, 2008-15 I.R.B. 786

2008-30, 2008-16 I.R.B. 825

2008-31, 2008-15 I.R.B. 787

2008-32, 2008-16 I.R.B. 826

2008-33, 2008-16 I.R.B. 826

2008-34, 2008-17 I.R.B. 849

2008-35, 2008-17 I.R.B. 849

2008-36, 2008-16 I.R.B. 827

2008-37, 2008-17 I.R.B. 850

2008-38, 2008-17 I.R.B. 851

2008-39, 2008-18 I.R.B. 867

2008-40, 2008-19 I.R.B. 941

2008-41, 2008-19 I.R.B. 943

2008-42, 2008-19 I.R.B. 943

2008-43, 2008-19 I.R.B. 944

2008-44, 2008-20 I.R.B. 982

2008-45, 2008-20 I.R.B. 982

2008-46, 2008-20 I.R.B. 983

2008-47, 2008-20 I.R.B. 983

2008-48, 2008-20 I.R.B. 983

2008-49, 2008-21 I.R.B. 1024

2008-50, 2008-21 I.R.B. 1024

2008-51, 2008-22 I.R.B. 1040

2008-52, 2008-22 I.R.B. 1040

Announcements— Continued:

2008-53, 2008-23 I.R.B. 1137

2008-54, 2008-24 I.R.B. 1155

Court Decisions:

2085, 2008-17 I.R.B. 828

2086, 2008-19 I.R.B. 905

Notices:

2008-1, 2008-2 I.R.B. 251

2008-2, 2008-2 I.R.B. 252

2008-3, 2008-2 I.R.B. 253

2008-4, 2008-2 I.R.B. 253

2008-5, 2008-2 I.R.B. 256

2008-6, 2008-3 I.R.B. 275

2008-7, 2008-3 I.R.B. 276

2008-8, 2008-3 I.R.B. 276

2008-9, 2008-3 I.R.B. 277

2008-10, 2008-3 I.R.B. 277

2008-11, 2008-3 I.R.B. 279

2008-12, 2008-3 I.R.B. 280

2008-13, 2008-3 I.R.B. 282

2008-14, 2008-4 I.R.B. 310

2008-15, 2008-4 I.R.B. 313

2008-16, 2008-4 I.R.B. 315

2008-17, 2008-4 I.R.B. 316

2008-18, 2008-5 I.R.B. 363

2008-19, 2008-5 I.R.B. 366

2008-20, 2008-6 I.R.B. 406

2008-21, 2008-7 I.R.B. 431

2008-22, 2008-8 I.R.B. 465

2008-23, 2008-7 I.R.B. 433

2008-24, 2008-8 I.R.B. 466

2008-25, 2008-9 I.R.B. 484

2008-26, 2008-9 I.R.B. 487

2008-27, 2008-10 I.R.B. 543

2008-28, 2008-10 I.R.B. 546

2008-29, 2008-12 I.R.B. 637

2008-30, 2008-12 I.R.B. 638

2008-31, 2008-11 I.R.B. 592

2008-32, 2008-11 I.R.B. 593

2008-33, 2008-12 I.R.B. 642

2008-34, 2008-12 I.R.B. 645

2008-35, 2008-12 I.R.B. 647

2008-36, 2008-12 I.R.B. 650

2008-37, 2008-12 I.R.B. 654

2008-38, 2008-13 I.R.B. 683

2008-39, 2008-13 I.R.B. 684

2008-40, 2008-14 I.R.B. 725

2008-41, 2008-15 I.R.B. 742

2008-42, 2008-15 I.R.B. 747

2008-43, 2008-15 I.R.B. 748

2008-44, 2008-16 I.R.B. 799

2008-45, 2008-17 I.R.B. 835

2008-46, 2008-18 I.R.B. 868

2008-47, 2008-18 I.R.B. 869

Notices— Continued:

2008-48, 2008-21 I.R.B. 1008

2008-49, 2008-20 I.R.B. 979

2008-50, 2008-21 I.R.B. 1010

Proposed Regulations:

REG-208199-91, 2008-21 I.R.B. 1017

REG-168745-03, 2008-18 I.R.B. 871

REG-147290-05, 2008-10 I.R.B. 576

REG-100798-06, 2008-23 I.R.B. 1135

REG-141998-06, 2008-19 I.R.B. 911

REG-147775-06, 2008-19 I.R.B. 916

REG-153589-06, 2008-14 I.R.B. 730

REG-104713-07, 2008-6 I.R.B. 409

REG-104946-07, 2008-11 I.R.B. 596

REG-110136-07, 2008-17 I.R.B. 838

REG-111583-07, 2008-4 I.R.B. 319

REG-112196-07, 2008-21 I.R.B. 1021

REG-114126-07, 2008-6 I.R.B. 410

REG-114942-07, 2008-18 I.R.B. 901

REG-119518-07, 2008-17 I.R.B. 844

REG-124590-07, 2008-16 I.R.B. 801

REG-127391-07, 2008-13 I.R.B. 689

REG-136020-07, 2008-24 I.R.B. 1154

REG-136701-07, 2008-11 I.R.B. 616

REG-137573-07, 2008-15 I.R.B. 750

REG-139236-07, 2008-9 I.R.B. 491

REG-141399-07, 2008-8 I.R.B. 470

REG-143468-07, 2008-17 I.R.B. 848

REG-147832-07, 2008-8 I.R.B. 472

REG-149475-07, 2008-9 I.R.B. 510

REG-151135-07, 2008-16 I.R.B. 815

REG-108508-08, 2008-19 I.R.B. 923

Revenue Procedures:

2008-1, 2008-1 I.R.B. 1

2008-2, 2008-1 I.R.B. 90

2008-3, 2008-1 I.R.B. 110

2008-4, 2008-1 I.R.B. 121

2008-5, 2008-1 I.R.B. 164

2008-6, 2008-1 I.R.B. 192

2008-7, 2008-1 I.R.B. 229

2008-8, 2008-1 I.R.B. 233

2008-9, 2008-2 I.R.B. 258

2008-10, 2008-3 I.R.B. 290

2008-11, 2008-3 I.R.B. 301

2008-12, 2008-5 I.R.B. 368

2008-13, 2008-6 I.R.B. 407

2008-14, 2008-7 I.R.B. 435

2008-15, 2008-9 I.R.B. 489

2008-16, 2008-10 I.R.B. 547

2008-17, 2008-10 I.R.B. 549

2008-18, 2008-10 I.R.B. 573

2008-19, 2008-11 I.R.B. 594

2008-20, 2008-20 I.R.B. 980

2008-21, 2008-12 I.R.B. 657

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin2007–52, dated December 26, 2007.

2008–24 I.R.B. ii June 16, 2008

Revenue Procedures— Continued:

2008-22, 2008-12 I.R.B. 658

2008-23, 2008-12 I.R.B. 664

2008-24, 2008-13 I.R.B. 684

2008-25, 2008-13 I.R.B. 686

2008-26, 2008-21 I.R.B. 1014

2008-27, 2008-21 I.R.B. 1014

2008-28, 2008-23 I.R.B. 1054

2008-29, 2008-22 I.R.B. 1039

2008-30, 2008-23 I.R.B. 1056

2008-31, 2008-23 I.R.B. 1133

Revenue Rulings:

2008-1, 2008-2 I.R.B. 248

2008-2, 2008-2 I.R.B. 247

2008-3, 2008-2 I.R.B. 249

2008-4, 2008-3 I.R.B. 272

2008-5, 2008-3 I.R.B. 271

2008-6, 2008-3 I.R.B. 271

2008-7, 2008-7 I.R.B. 419

2008-8, 2008-5 I.R.B. 340

2008-9, 2008-5 I.R.B. 342

2008-10, 2008-13 I.R.B. 676

2008-11, 2008-10 I.R.B. 541

2008-12, 2008-10 I.R.B. 520

2008-13, 2008-10 I.R.B. 518

2008-14, 2008-11 I.R.B. 578

2008-15, 2008-12 I.R.B. 633

2008-16, 2008-11 I.R.B. 585

2008-17, 2008-12 I.R.B. 626

2008-18, 2008-13 I.R.B. 674

2008-19, 2008-13 I.R.B. 669

2008-20, 2008-14 I.R.B. 716

2008-21, 2008-15 I.R.B. 734

2008-22, 2008-16 I.R.B. 796

2008-23, 2008-18 I.R.B. 852

2008-24, 2008-18 I.R.B. 861

2008-25, 2008-21 I.R.B. 986

2008-26, 2008-21 I.R.B. 985

2008-28, 2008-22 I.R.B. 1029

2008-29, 2008-24 I.R.B. 1149

Tax Conventions:

2008-8, 2008-6 I.R.B. 403

2008-39, 2008-18 I.R.B. 867

Treasury Decisions:

9368, 2008-6 I.R.B. 382

9369, 2008-6 I.R.B. 394

9370, 2008-7 I.R.B. 428

9371, 2008-8 I.R.B. 447

9372, 2008-8 I.R.B. 462

9373, 2008-8 I.R.B. 463

9374, 2008-10 I.R.B. 521

9375, 2008-5 I.R.B. 344

9376, 2008-11 I.R.B. 587

9377, 2008-11 I.R.B. 578

9378, 2008-14 I.R.B. 720

Treasury Decisions— Continued:

9379, 2008-14 I.R.B. 715

9380, 2008-14 I.R.B. 718

9381, 2008-14 I.R.B. 694

9382, 2008-9 I.R.B. 482

9383, 2008-15 I.R.B. 738

9384, 2008-16 I.R.B. 792

9385, 2008-15 I.R.B. 735

9386, 2008-16 I.R.B. 788

9387, 2008-16 I.R.B. 789

9388, 2008-17 I.R.B. 832

9389, 2008-18 I.R.B. 863

9390, 2008-18 I.R.B. 855

9391, 2008-20 I.R.B. 945

9392, 2008-19 I.R.B. 903

9393, 2008-20 I.R.B. 975

9394, 2008-21 I.R.B. 988

9395, 2008-22 I.R.B. 1031

9396, 2008-22 I.R.B. 1026

9397, 2008-22 I.R.B. 1025

9398, 2008-24 I.R.B. 1143

9400, 2008-24 I.R.B. 1139

June 16, 2008 iii 2008–24 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2008–1 through 2008–24

Announcements:

2006-88

Clarified and superseded by

Notice 2008-35, 2008-12 I.R.B. 647Notice 2008-36, 2008-12 I.R.B. 650

2008-6

Superseded by

Ann. 2008-19, 2008-11 I.R.B. 624

Notices:

2001-16

Modified by

Notice 2008-20, 2008-6 I.R.B. 406

2001-60

Modified and superseded by

Notice 2008-31, 2008-11 I.R.B. 592

2002-44

Superseded by

Notice 2008-39, 2008-13 I.R.B. 684

2003-51

Superseded by

Rev. Proc. 2008-24, 2008-13 I.R.B. 684

2006-27

Clarified and superseded by

Notice 2008-35, 2008-12 I.R.B. 647

2006-28

Clarified and superseded by

Notice 2008-36, 2008-12 I.R.B. 650

2006-52

Clarified and amplified by

Notice 2008-40, 2008-14 I.R.B. 725

2006-77

Clarified and amplified by

Notice 2008-25, 2008-9 I.R.B. 484

2006-85

Obsoleted by

T.D. 9400, 2008-24 I.R.B. 1139

2006-107

Modified by

Notice 2008-7, 2008-3 I.R.B. 276

2007-30

Modified and superseded by

Notice 2008-14, 2008-4 I.R.B. 310

2007-45

Modified by

Notice 2008-49, 2008-20 I.R.B. 979

Notices— Continued:

2007-48

Obsoleted by

T.D. 9400, 2008-24 I.R.B. 1139

2007-54

Clarified by

Notice 2008-11, 2008-3 I.R.B. 279

2008-13

Supplemented by

Notice 2008-46, 2008-18 I.R.B. 868

2008-27

Clarified, amended, supplemented, and

superseded by

Notice 2008-41, 2008-15 I.R.B. 742

Proposed Regulations:

REG-209020-86

Corrected by

Ann. 2008-11, 2008-7 I.R.B. 445

REG-107592-00

Partial withdrawal by

Ann. 2008-25, 2008-14 I.R.B. 732

REG-149856-03

Hearing scheduled by

Ann. 2008-26, 2008-13 I.R.B. 693

REG-143397-05

Corrected by

Ann. 2008-53, 2008-23 I.R.B. 1137

REG-147290-05

Hearing scheduled by

Ann. 2008-43, 2008-19 I.R.B. 944

REG-109367-06

Withdrawn by

Ann. 2008-41, 2008-19 I.R.B. 943

REG-104946-07

Hearing scheduled by

Ann. 2008-47, 2008-20 I.R.B. 983

REG-113891-07

Hearing scheduled by

Ann. 2008-4, 2008-2 I.R.B. 269

REG-114126-07

Corrected by

Ann. 2008-36, 2008-16 I.R.B. 827

REG-127770-07

Hearing scheduled by

Ann. 2008-24, 2008-13 I.R.B. 692

REG-133300-07

Hearing scheduled by

Ann. 2008-34, 2008-17 I.R.B. 849

Proposed Regulations— Continued:

REG-139236-07

Hearing scheduled by

Ann. 2008-42, 2008-19 I.R.B. 943

REG-141399-07

Hearing cancelled by

Ann. 2008-31, 2008-15 I.R.B. 787

Revenue Procedures:

97-36

Modified by

Rev. Proc. 2008-23, 2008-12 I.R.B. 664

2001-23

Modified by

Rev. Proc. 2008-23, 2008-12 I.R.B. 664

2002-9

Modified by

Rev. Proc. 2008-18, 2008-10 I.R.B. 573

Modified and amplified by

Rev. Proc. 2008-25, 2008-13 I.R.B. 686

2006-9

Modified by

Rev. Proc. 2008-31, 2008-23 I.R.B. 1133

2007-1

Superseded by

Rev. Proc. 2008-1, 2008-1 I.R.B. 1

2007-2

Superseded by

Rev. Proc. 2008-2, 2008-1 I.R.B. 90

2007-3

Superseded by

Rev. Proc. 2008-3, 2008-1 I.R.B. 110

2007-4

Superseded by

Rev. Proc. 2008-4, 2008-1 I.R.B. 121

2007-5

Superseded by

Rev. Proc. 2008-5, 2008-1 I.R.B. 164

2007-6

Superseded by

Rev. Proc. 2008-6, 2008-1 I.R.B. 192

2007-7

Superseded by

Rev. Proc. 2008-7, 2008-1 I.R.B. 229

2007-8

Superseded by

Rev. Proc. 2008-8, 2008-1 I.R.B. 233

2007-26

Obsoleted in part by

Rev. Proc. 2008-17, 2008-10 I.R.B. 549

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26,2007.

2008–24 I.R.B. iv June 16, 2008

Revenue Procedures— Continued:

2007-31

Obsoleted in part by

Rev. Proc. 2008-19, 2008-11 I.R.B. 594

2007-39

Superseded by

Rev. Proc. 2008-3, 2008-1 I.R.B. 110

2007-51

Superseded by

Rev. Proc. 2008-30, 2008-23 I.R.B. 1056

2007-52

Superseded by

Rev. Proc. 2008-9, 2008-2 I.R.B. 258

2008-13

Corrected by

Ann. 2008-15, 2008-9 I.R.B. 511

Revenue Rulings:

56-127

Obsoleted by

T.D. 9391, 2008-20 I.R.B. 945

58-612

Clarified and amplified by

Rev. Rul. 2008-15, 2008-12 I.R.B. 633

64-250

Amplified by

Rev. Rul. 2008-18, 2008-13 I.R.B. 674

66-294

Obsoleted by

Rev. Rul. 2008-29, 2008-24 I.R.B. 1149

67-131

Obsoleted by

Rev. Rul. 2008-29, 2008-24 I.R.B. 1149

89-42

Modified and superseded by

Rev. Rul. 2008-17, 2008-12 I.R.B. 626

92-19

Supplemented in part by

Rev. Rul. 2008-19, 2008-13 I.R.B. 669

97-31

Modified and superseded by

Rev. Rul. 2008-17, 2008-12 I.R.B. 626

2001-48

Modified and superseded by

Rev. Rul. 2008-17, 2008-12 I.R.B. 626

2005-28

Clarified and superseded by

Rev. Rul. 2008-26, 2008-21 I.R.B. 985

2007-4

Supplemented and superseded by

Rev. Rul. 2008-3, 2008-2 I.R.B. 249

Revenue Rulings— Continued:

2008-22

Modified by

Ann. 2008-46, 2008-20 I.R.B. 983

Treasury Decisions:

8697

Corrected by

Ann. 2008-38, 2008-17 I.R.B. 851

9273

Corrected by

Ann. 2008-33, 2008-16 I.R.B. 826

9362

Corrected by

Ann. 2008-9, 2008-7 I.R.B. 444Ann. 2008-12, 2008-7 I.R.B. 446

9363

Corrected by

Ann. 2008-10, 2008-7 I.R.B. 445

9368

Corrected by

Ann. 2008-29, 2008-15 I.R.B. 786Ann. 2008-30, 2008-16 I.R.B. 825

9375

Corrected by

Ann. 2008-16, 2008-9 I.R.B. 511

9386

Corrected by

Ann. 2008-35, 2008-17 I.R.B. 849

June 16, 2008 v 2008–24 I.R.B.

2008–24 I.R.B. June 16, 2008

June 16, 2008 2008–24 I.R.B.

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