Bulletin No. 2009-49 December 7, 2009 …Bulletin No. 2009-49 December 7, 2009 HIGHLIGHTS OF THIS...

Bulletin No. 2009-49December 7, 2009

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

INCOME TAX

Rev. Rul. 2009–38, page 736.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for December 2009.

T.D. 9470, page 738.Final regulations under section 6039 of the Code require cor-porations to file an information return with the IRS and furnisha written statement to each employee regarding: (i) the corpo-ration’s transfer of stock pursuant to the employee’s exerciseof an incentive stock option described in section 422(b); and(ii) transfers of stock by the employee where the stock wasacquired pursuant to the exercise of an option described insection 423(c). The time and manner for filing a return andfurnishing statements to employees, as well as the informationto be contained in the return and furnished to employees, areaddressed in these final regulations.

T.D. 9471, page 722.Final regulations under section 423 of the Code provide the re-quirements that must be satisfied in order for a plan to meetthe definition of an employee stock purchase plan. Section 423also addresses the individual income tax treatment of stock ac-quired pursuant to an option granted under an employee stockpurchase plan. The regulations update the existing regulationsand provide additional guidance in certain areas.

REG–139255–08, page 747.Proposed regulations under section 6050W of the Code relateto information reporting requirements, information reportingpenalties, and backup withholding requirements for payment

card and third party network transactions. A public hearing isscheduled for February 10, 2010.

Rev. Proc. 2009–52, page 744.This procedure provides guidance to taxpayers on electing the3, 4, or 5 year carryback of net operating losses or losses fromoperations under section 13 of the Worker, Homeownership,and Business Assistance Act of 2009.

EMPLOYEE PLANS

T.D. 9470, page 738.Final regulations under section 6039 of the Code require cor-porations to file an information return with the IRS and furnisha written statement to each employee regarding: (i) the corpo-ration’s transfer of stock pursuant to the employee’s exerciseof an incentive stock option described in section 422(b); and(ii) transfers of stock by the employee where the stock wasacquired pursuant to the exercise of an option described insection 423(c). The time and manner for filing a return andfurnishing statements to employees, as well as the informationto be contained in the return and furnished to employees, areaddressed in these final regulations.

T.D. 9471, page 722.Final regulations under section 423 of the Code provide the re-quirements that must be satisfied in order for a plan to meetthe definition of an employee stock purchase plan. Section 423also addresses the individual income tax treatment of stock ac-quired pursuant to an option granted under an employee stockpurchase plan. The regulations update the existing regulationsand provide additional guidance in certain areas.

(Continued on the next page)

Finding Lists begin on page ii.

EXEMPT ORGANIZATIONS

Announcement 2009–86, page 759.The IRS has revoked its determination that the Gehrig andMargaret White Charitable Foundation of Charlotte, NC; and theDowns Family Foundation of Detroit, MI, qualify as organizationsdescribed in sections 501(c)(3) and 170(c)(2) of the Code.

EMPLOYMENT TAX

Rev. Proc. 2009–53, page 746.This procedure extends the sunset date of the AttributedTip Income Program (ATIP) for two additional years untilDecember 31, 2011. With the exception of this extension,requirements for ATIP as set forth in Rev. Proc. 2006–30,2006–2 C.B. 110, remain unchanged. Rev. Proc. 2006–30modified.

ADMINISTRATIVE

REG–139255–08, page 747.Proposed regulations under section 6050W of the Code relateto information reporting requirements, information reportingpenalties, and backup withholding requirements for paymentcard and third party network transactions. A public hearing isscheduled for February 10, 2010.

December 7, 2009 2009–49 I.R.B.

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.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

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

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

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

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

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

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

2009–49 I.R.B. December 7, 2009

December 7, 2009 2009–49 I.R.B.

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

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof December 2009. See Rev. Rul. 2009-38, page736.

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of December 2009. SeeRev. Rul. 2009-38, page 736.

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

The adjusted applicable federal long-term rate isset forth for the month of December 2009. See Rev.Rul. 2009-38, page 736.

Section 412.—MinimumFunding Standards


Section 421.—GeneralRules

Final regulations clarify the requirements for es-tablishing the date of grant for an option granted pur-suant to an employee stock purchase plan under sec-tion 423. See T.D. 9471, page 722.

Section 422.—IncentiveStock Options

Final regulations clarify the shareholder approvalrequirements related to incentive stock options undersection 422. See T.D. 9471, page 722.

Section 423.—EmployeeStock Purchase Plans

Final regulations provide guidance to assist tax-payers in complying with the rules under section 423

regarding options granted under an employee stockpurchase plan. See T.D. 9471, page 722.

26 CFR 1.423–2: Employee stock purchase plan de-fined.

T.D. 9471

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR part 1

Employee Stock PurchasePlans Under Internal RevenueCode Section 423

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document containsthe final regulations relating to optionsgranted under an employee stock purchaseplan as defined in section 423 of the In-ternal Revenue Code (Code). These finalregulations affect certain taxpayers whoparticipate in the transfer of stock pursuantto the exercise of options granted under anemployee stock purchase plan. These finalregulations provide guidance to assist tax-payers in complying with section 423 inaddition to clarifying certain rules regard-ing options granted under an employeestock purchase plan. This document alsocontains final regulations under sections421, 422 and 424 of the Code.

DATES: Effective Date: These regulationsare effective on November 17, 2009.

Applicability Date: These regulationsapply as of January 1, 2010.

FOR FURTHER INFORMATIONCONTACT: Thomas Scholz orIlya Enkishev at (202) 622–6030 (not atoll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final amend-ments to the Income Tax Regulations

(26 CFR part 1) under sections 421, 422,423 and 424 of the Code.

Section 423 was added to the Code bysection 221(a) of the Revenue Act of 1964,Public Law 88–272 (78 Stat. 63 (1964)).Changes to the applicable law concern-ing section 423 were made by sections1402(b)(1)(C) and 1402(b)(2) of the TaxReform Act of 1976, Public Law 94–455(90 Stat. 1731 and 1732–1733 (1976));section 1001(b)(5) of the Deficit Reduc-tion Act of 1984, Public Law 98–369(98 Stat. 1011 (1984)); section 1114of the Tax Reform Act of 1986, PublicLaw 99–514 (100 Stat. 2451 (1986));and sections 11801(c)(9)(D)(i), (ii) and11801(c)(9)(E) of the Omnibus BudgetReconciliation Act of 1990, Public Law101–508 (104 Stat. 1388–525 (1990)).

Regulations under section 423 werepublished in the Federal Register onJune 23, 1966 (T.D. 6887, 1966–2 C.B.129). These regulations were amended onSeptember 27, 1979 (T.D. 7645, 1979–2C.B. 198), October 31, 1980 (T.D. 7728,1980–2 C.B. 236), and December 1, 1988(T.D. 8235, 1989–1 C.B. 117). In Notice2004–55, 2004–2 C.B. 319 (August 23,2004)) (see §601.601(d)(2)(ii)(b)), the IRSand the Treasury Department requestedcomments concerning whether the exist-ing regulations under section 423 shouldbe amended, and if so, what issues shouldbe addressed.

On July 29, 2008, the Treasury De-partment published a notice of proposedrulemaking (REG–106251–08, 2008–39I.R.B. 774) in the Federal Register (73 FR43875) under section 423. A public hear-ing on the proposed regulations was heldon January 15, 2009. Written and elec-tronic comments responding to the noticeof proposed rulemaking were received.After consideration of these comments,the Treasury Department adopts the pro-posed regulations as final regulations, withthe modifications set forth in this Treasurydecision. The significant revisions arediscussed in this preamble.

In general, the income tax treatment ofthe grant of an option to purchase stockin connection with the performance of ser-vices and of the transfer of stock pursuant

2009–49 I.R.B. 722 December 7, 2009

to the exercise of the option is determinedunder section 83 and the regulations there-under. However, section 421 provides spe-cial rules for determining the income taxtreatment of the transfer of shares of stockpursuant to the exercise of an option if therequirements of sections 422(a) or 423(a),as applicable, are met. Section 422 ap-plies to incentive stock options and sec-tion 423 applies to options granted underan employee stock purchase plan (collec-tively, statutory options).

Under section 421, if a share of stockis transferred to an individual pursuant tothe exercise of a statutory option, there isno income at the time of exercise of theoption with respect to the transfer and nodeduction under section 162 is allowed tothe employer corporation with respect tothe transfer.

Section 423(a) provides that section421 applies to the transfer of stock to anindividual pursuant to the exercise of anoption granted under an employee stockpurchase plan if: (i) no disposition of thestock is made within two years from thedate of grant of the option or within oneyear from the date of transfer of the share,and (ii) at all times during the period be-ginning on the date of grant and ending onthe day three months before the exerciseof the option, the individual is an em-ployee of either the corporation grantingthe option or a parent or subsidiary of suchcorporation, or a corporation (or a parentor subsidiary of such corporation) issuingor assuming a stock option in a transactionto which section 424(a) applies. Section423(b) sets forth several requirements thatmust be met for a plan to qualify as anemployee stock purchase plan. Section423(c) provides a special rule that is ap-plicable where the option exercise priceis between 85 and 100 percent of the fairmarket value of the stock at the time theoption was granted.

Explanation of Provisions

These final regulations provide a com-prehensive set of rules governing stock op-tions issued under an employee stock pur-chase plan and incorporate substantially allof the rules contained in the existing reg-ulations under section 423. These finalregulations are comprised of two sections:Section 1.423–1, applicability of section421(a); and §1.423–2, employee stock pur-

chase plan defined. The modifications tothe proposed regulations that are includedin these final regulations reflect considera-tion of the comments submitted by taxpay-ers.

1. General requirements

The proposed regulations provide thatan employee stock purchase plan mustmeet the requirements of paragraphs (i)through (ix) of §1.423–2(a)(2) to qualifyas an employee stock purchase plan undersection 423(b). The proposed regulationsalso provide that the requirements of para-graphs (iii) through (ix) of §1.423–2(a)(2)may be satisfied by the terms of the planor an offering made under the plan. Thefinal regulations adopt these requirementsof the proposed regulations, although thenumerical designation of the requirementsis modified. To emphasize that the re-quirements of paragraphs (iii) through (ix)of §1.423–2(a)(2) of the proposed regula-tions may be satisfied by the terms of theplan or an offering made under the plan,these final regulations separately list theserequirements in §1.423–2(a)(3).

Commenters requested clarification ofwhether options with terms that are incon-sistent with the terms of the plan will beeligible for the special tax treatment of sec-tion 421. As provided in §1.423–2(a)(3) ofthe proposed regulations, §1.423–2(a)(4)of these final regulations provides that, ifthe terms of an option are inconsistent withthe terms of the employee stock purchaseplan or an offering under the plan, thenthe option will not be treated as grantedunder an employee stock purchase plan.However, an option may still qualify forthe special tax treatment of section 421,even if the terms of the plan are incon-sistent with any of the requirements in§1.423–2(a)(3) of these final regulations,if the option is granted under an offeringwith terms that comply with the require-ments of §1.423–2(a)(3). Example 2 of§1.423–2(e)(6) of these final regulationsillustrates this principle.

2. Offerings under an employee stockpurchase plan

These final regulations provide furtherguidance for employee stock purchaseplans under which more than one offeringis made. As set forth in §1.423–2(a)(1)

of these final regulations, one or moreofferings may be made under a plan andthe offerings may be consecutive or over-lapping. Further, pursuant to section423(b) and its flush language, the termsof each offering need not be identical.Although the terms of each offering neednot be identical, the terms of the plan andeach offering together must satisfy therequirements of §1.423–2(a)(2) and (3)of these final regulations. For example,if overlapping offerings are made underan employee stock purchase plan, theneach offering may contain different terms,provided that the terms of each offering(together with the plan) satisfy the re-quirements of §1.423–2(a)(3) of thesefinal regulations. Furthermore, when aparent corporation adopts an employeestock purchase plan, it may establish sep-arate offerings with different terms underthe plan and designate which subsidiarycorporations of the parent corporationmay participate in a particular offering,provided that the terms of each offering(together with the plan) satisfy the re-quirements of §1.423–2(a)(3). The terms“parent corporation” and “subsidiary cor-poration” are defined in §1.424–1(f) of theregulations.

a. Employees covered by the plan

Paragraphs (i) through (iv) of§1.423–2(e)(1) of the proposed regula-tions and these final regulations set forththe categories of employees that may beexcluded from coverage under an em-ployee stock purchase plan or an offeringunder the plan. The proposed regulationsprovide that the exclusions for variouscategories of employees must be appliedin an identical manner to all employeesof every corporation whose employeesare granted options under the plan. Com-menters noted that the requirement ofidentical exclusions for all offerings undera plan constrains the ability to make futureand overlapping offerings that are more(or less) inclusive than prior offerings un-der the plan. Commenters suggested thatthe final regulations should permit multi-ple offerings under a plan with differentexclusions applicable to the one or morecorporations whose employees participatein the particular offering under the plan.

These final regulations generally adoptthe approach suggested by the com-

December 7, 2009 723 2009–49 I.R.B.

menters. Pursuant to these final reg-ulations, whether the terms of a planand offering satisfy the requirements of§1.423–2(e) is made on an offering-by-of-fering basis. The terms of each offeringunder a plan may be different, providedthe plan and offering together satisfy therequirements of §1.423–2(a)(2) and (3) ofthese final regulations. With respect to sat-isfying the requirements of §1.423–2(e),the terms of each offering may providedifferent exclusions of employees, as per-mitted and within the limitations describedin §1.423–2(e)(1), (2) and (3) of thesefinal regulations. The exclusions estab-lished with respect to a particular offeringmust be applied in an identical manner toall employees of every corporation whoseemployees are granted options under thatparticular offering. Examples 7 and 8 of§1.423–2(e)(6) of these final regulationsillustrate these principles.

Some commenters suggested that thefinal regulations permit employers to ex-clude from plan participation employeeswho are nonresident aliens and who re-ceive no earned income that constitutesincome from sources within the UnitedStates. Other commenters suggested thatthe final regulations permit employers toexclude from plan participation employ-ees under a specified age. The IRS andthe Treasury Department are aware of thecomplexities often associated with partici-pation in an employee stock purchase planby nonresident aliens and employees undera specified age, such as the age of majority.However, section 423 does not provide ex-clusions for nonresident aliens or employ-ees under a specified age. Accordingly, theIRS and the Treasury Department are con-strained by statutory authority from pro-viding a general exclusion from plan par-ticipation for employees who are nonresi-dent aliens or employees under a specifiedage.

One commenter suggested that the finalregulations provide additional flexibilityby permitting employers to exclude fromplan participation highly compensatedemployees (HCEs) (within the meaningof section 414(q)) on any basis. Section1.423–2(e)(2)(ii) of the proposed regula-tions provides that the terms of an em-ployee stock purchase plan may excludeHCEs: (a) with compensation above a cer-tain level, or (b) who are officers or subjectto the disclosure requirements of section

16(a) of the Securities Exchange Act of1934, provided the exclusion is applied inan identical manner to all HCEs of everycorporation whose employees are grantedoptions under the plan. These final reg-ulations do not adopt the suggestion thatHCEs may be excluded from participationin an employee stock purchase plan onany basis. Instead, these final regulationsoffer some additional flexibility by pro-viding that, with respect to the exclusionof HCEs, the terms of each offering madeunder a plan need not be identical withrespect to the HCEs, provided the HCEsare excluded as permitted and within thelimitations described in §1.423–2(e)(2)(ii)of these final regulations.

b. Equal rights and privileges

Commenters further suggested that thefinal regulations provide flexibility bypermitting employers to make multipleofferings with different rights and priv-ileges applicable to the participants ofeach offering under a plan. These finalregulations generally adopt the approachsuggested by the commenters. Pursuantto these final regulations, the determina-tion of whether the terms of an offeringsatisfy the requirements of §1.423–2(f)is made on an offering-by-offering ba-sis. The terms of each offering under aplan may be different, provided the planand offering together satisfy the require-ments of §1.423–2(a)(2) and (3) of thesefinal regulations. However, the rights andprivileges established with respect to aparticular offering must be applied in anidentical manner to all employees of everycorporation whose employees are grantedoptions under that particular offering. Ex-amples 4 and 5 of §1.423–2(f)(7) of thesefinal regulations illustrate these principles.

3. Maximum number of shares that maybe purchased by an employee

Commenters asked whether the desig-nation of a maximum number of sharesthat may be purchased by an employee dur-ing the offering is necessary in order forthe first day of the offering period to bethe date of grant. Consistent with the pro-posed regulations, §1.423–2(h)(3) of thesefinal regulations provides that the date ofgrant will be the first day of an offeringperiod if the terms of an employee stock

purchase plan or offering designate a max-imum number of shares that may be pur-chased by each employee during the offer-ing. Similarly, the date of grant will be thefirst day of an offering if the terms of theplan or offering require the application of aformula to establish, on the first day of theoffering, the maximum number of sharesthat may be purchased by each employeeduring the offering.

However, §1.423–2(h)(3) of these finalregulations does not require that an em-ployee stock purchase plan or offering des-ignate a maximum number of shares thatmay be purchased by each employee dur-ing the offering or incorporate a formulato establish a maximum number of sharesthat may be purchased by each employeeduring the offering. If the maximum num-ber of shares that can be purchased underan option is not fixed or determinable un-til the date the option is exercised, then thedate of exercise will be the date of grant ofthe option. As discussed in the preamble tothe proposed regulations, the $25,000 limitunder section 423(b)(8) and the limit onthe aggregate number of shares that may beissued under an employee stock purchaseplan are not sufficient to establish the max-imum number of shares that can be pur-chased by an employee under an option sothat the date of grant will be the first dayof the offering. Examples 1, 2, 3 and 4in §1.423–2(h)(4) of these final regulationsillustrate these principles.

Commenters also asked whether anyparticular number of shares is necessaryto satisfy the requirement to designate amaximum number of shares that may bepurchased during the offering in order forthe first day of the offering period to bethe date of grant. No particular numberof shares is necessary to satisfy this re-quirement and establish the first day ofthe offering period as the date of grantfor the option. These final regulationsadopt §1.423–2(h)(3) of the proposed reg-ulations to provide that the designation ofany maximum number of shares is suffi-cient to establish the first day of the offer-ing period as the date of grant for the op-tion.

4. Annual $25,000 limitation

Section 423(b)(8) provides that an em-ployee stock purchase plan must, by itsterms, provide that no employee may be

2009–49 I.R.B. 724 December 7, 2009

permitted to accrue the right to purchasestock under all the employee stock pur-chase plans of his or her employer cor-poration and its related corporations at arate which exceeds $25,000 in fair marketvalue of the stock (determined on the dateof grant) for each calendar year in whichan option granted to the employee is out-standing. Section 423(b)(8)(A) providesthat the right to purchase stock under anoption accrues when the option first be-comes exercisable.

In drafting the proposed regulations,the Treasury Department and the IRS wereaware that taxpayers were interpreting the$25,000 limitation inconsistently. Certaintaxpayers interpreted section 423(b)(8) tomean that the limit increases by $25,000for each calendar year during which theoption is outstanding and exercisable;other taxpayers interpreted the sections tomean that such limit increases for eachcalendar year during which the optionis simply outstanding. Consistent withcomments received by the Treasury De-partment and the IRS in response to Notice2004–55, 2004–2 C.B. 319 (August 23,2004)), (see §601.601(d)(2)(ii)(b)), theproposed regulations adopted an approachthat was generally consistent with the$100,000 limitation for incentive stockoptions and interpreted section 423(b)(8)to mean that the limit increases by $25,000for each calendar year during which theoption is outstanding and exercisable.

In response to the proposed regulations,several commenters suggested that theTreasury Department and the IRS recon-sider the calculation of the $25,000 limi-tation in section 423(b)(8). Commenterssuggested that the regulations adopt an ap-proach that permits an option to accrue at arate of $25,000 for each calendar year thatthe option is simply outstanding. Specif-ically, even though section 423(b)(8)(A)provides that the right to purchase stockactually accrues when the option first be-comes exercisable during a calendar year,the first sentence of section 423(b)(8) pro-vides that the limit on accruals is $25,000“for each year in which such option is out-standing.” Upon further consideration andin response to the foregoing comments,these final regulations modify §1.423–2(i)of the proposed regulations to provide thatthe limit increases by $25,000 for eachcalendar year that an option is outstanding.Example 5 in §1.423–2(i)(5) of these final

regulations has been modified to illustratethis principle.

5. Stockholder approval requirements

To qualify as an employee stock pur-chase plan, section 423(b)(2) requires thatthe plan be approved by the stockhold-ers of the granting corporation within 12months before or after the date the planis adopted. These final regulations clar-ify that new stockholder approval is re-quired if there is a change in the shareswith respect to which options are issuedor a change in the granting corporation.In particular, these final regulations clarifythat the stockholders of a subsidiary corpo-ration include the parent corporation andany other stockholders of the subsidiary.Accordingly, these final regulations adoptExample 1(iii) in §1.423–2(c)(5) and Ex-ample 1(iii) in §1.422–2(b)(6) of the pro-posed regulations.

One commenter to the proposed reg-ulations suggested that a conformingchange be made to Example 9(iii) in§1.424–1(a)(10) which addresses thesubstitution of options in the contextof an acquisition. Example 9(iii) in§1.424–1(a)(10), as previously set forth inthe regulations, requires the stockholdersof an acquiring company to approve anamendment of the option plan of an ac-quired corporate subsidiary to issue parentstock instead of subsidiary stock. Thecommenter proposed that the example beamended to require the acquiring company(instead of its stockholders) to approvethe amendment of the option plan to issueparent stock instead of subsidiary stock.This amendment is consistent with Exam-ple 1(iii) in §1.423–2(c)(5) and Example1(iii) in §1.422–2(b)(6) of these final reg-ulations. Accordingly, Example 9(iii) in§1.424–1(a)(10) of these final regulationshas been modified to reflect the adoptionof the commenter’s suggestion.

Effective/Applicability Date

These regulations apply as of January 1,2010, and will apply to any statutoryoption granted on or after that date.Taxpayers may rely on these finalregulations for the treatment of anystatutory option granted prior to January 1,2010.

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 the regulations do not impose acollection of information on small entities,the Regulatory Flexibility Act (5 U.S.C.chapter 6) does not apply. Pursuant to sec-tion 7805(f) of the Code, the notice of pro-posed rulemaking preceding these regula-tions was submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on its impact onsmall business.

Drafting Information

The principal authors of theseregulations are Thomas Scholz andIlya Enkishev, Office of the DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities).However, other personnel from the IRSand the Treasury Department participatedin their 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 1.421–1, paragraphs

(c)(1) and (j)(1) are revised to read as fol-lows:

§1.421–1 Meaning and use of certainterms.

* * * * *(c) Time and date of granting op-

tion. (1) For purposes of this section and§§1.421–2 through 1.424–1, the language“the date of the granting of the option”and “the time such option is granted,” andsimilar phrases refer to the date or timewhen the granting corporation completesthe corporate action constituting an offer

December 7, 2009 725 2009–49 I.R.B.

of stock for sale to an individual under theterms and conditions of a statutory option.Except as set forth in §1.423–2(h)(2), acorporate action constituting an offer ofstock for sale is not considered completeuntil the date on which the maximumnumber of shares that can be purchasedunder the option and the minimum optionprice are fixed or determinable.

* * * * *(j) Effective/applicability date—(1) In

general. Except for paragraph (c)(1) ofthis section, the regulations under this sec-tion are effective on August 3, 2004. Para-graph (c)(1) of this section is effective onNovember 17, 2009. Paragraph (c)(1) ofthis section applies to statutory optionsgranted on or after January 1, 2010.

* * * * *Par. 3. Section 1.422–2, paragraph

(b)(6), Example 1 (iii) is revised to read asfollows:

§1.422–2 Incentive stock options defined.

* * * * *(b) * * *(6) * * *Example 1. * * *(iii) Assume the same facts as in paragraph (i) of

this Example 1, except that the plan was adopted onJanuary 1, 2010. Assume further that the plan wasapproved by the stockholders of S (in this case, P)on March 1, 2010. On January 1, 2012, S changesthe plan to provide that incentive stock options for Pstock will be granted to S employees under the plan.Because there is a change in the stock available forgrant under the plan, the change is considered theadoption of a new plan that must be approved by thestockholder of S (in this case, P) within 12 monthsbefore or after January 1, 2012.

* * * * *Par. 4. Section 1.422–5, paragraph

(f)(1) is revised to read as follows:§1.422–5 Permissible provisions.

* * * * *(f) Effective/applicability date—(1) In

general. Except for §1.422–2(b)(6) Exam-ple 1 (iii), the regulations under this sec-tion are effective on August 3, 2004. Sec-tion 1.422–2(b)(6) Example 1 (iii) is ef-fective on November 17, 2009. Section1.422–2(b)(6) Example 1 (iii) applies tostatutory options granted on or after Jan-uary 1, 2010.

* * * * *Par. 5. Section 1.423–1 is revised to

read as follows:

§1.423–1 Applicability of section 421(a).

(a) General rule. Subject to the provi-sions of section 423(c) and §1.423–2(k),the special rules of income tax treatmentprovided in section 421(a) apply with re-spect to the transfer of a share of stock toan individual pursuant to the individual’sexercise of an option granted under an em-ployee stock purchase plan, as defined in§1.423–2, if the following conditions aresatisfied—

(1) The individual makes no dispositionof such share before the later of the expi-ration of the two-year period from the dateof the grant of the option pursuant to whichsuch share was transferred or the expira-tion of the one-year period from the dateof transfer of such share to the individual;and

(2) At all times during the period begin-ning on the date of the grant of the optionand ending on the day three months beforethe date of exercise, the individual was anemployee of the corporation granting theoption, a related corporation, or a corpora-tion (or a related corporation) substitutingor assuming the stock option in a transac-tion to which section 424(a) applies.

(b) Cross-references. For rules relat-ing to the requisite employment relation-ship, see §1.421–1(h). For rules relatingto the effect of a disqualifying disposition,see section 421(b) and §1.421–2(b). Forthe definition of the term “disposition,”see section 424(c) and §1.424–1(c). Forthe definition of the term “related corpo-ration,” see §1.421–1(i).

(c) Effective/applicability date. Theregulations under this section are effectiveon November 17, 2009. The regulationsunder this section apply to options grantedunder an employee stock purchase plan onor after January 1, 2010.

Par. 6. Section 1.423–2 is revised toread as follows:

§1.423–2 Employee stock purchase plandefined.

(a) In general—(1) The term “em-ployee stock purchase plan” means a planthat meets the requirements of paragraphs(a)(2) and (a)(3) of this section. If theterms of the plan do not satisfy the require-ments of paragraph (a)(3) of this section,then such requirements may be satisfied

by the terms of an offering made under theplan. However, where the requirementsof paragraph (a)(3) of this section are sat-isfied by the terms of an offering, suchrequirements will be treated as satisfiedonly with respect to options exercised un-der that offering. One or more offeringsmay be made under an employee stockpurchase plan. Offerings may be consecu-tive or overlapping, and the terms of eachoffering need not be identical provided theterms of the plan and the offering togethersatisfy the requirements of paragraphs(a)(2) and (a)(3) of this section. The planand the terms of an offering must be inwriting or electronic form, provided thatsuch writing or electronic form is adequateto establish the terms of the plan or offer-ing, as applicable.

(2) To satisfy the requirements of thisparagraph (a)(2) and §1.423–1, the planmust meet both of the following require-ments—

(i) The plan must provide that optionscan be granted only to employees of theemployer corporation or of a related cor-poration (as defined in paragraph (i) of§1.421–1) to purchase stock in any suchcorporation (see paragraph (b) of this sec-tion); and

(ii) The plan must be approved by thestockholders of the granting corporationwithin 12 months before or after the datethe plan is adopted (see paragraph (c) ofthis section).

(3) To satisfy the requirements of thisparagraph (a)(3) and §1.423–1, the termsof the plan or offering must meet all of thefollowing requirements—

(i) An employee cannot be granted anoption if, immediately after the option isgranted, the employee owns stock possess-ing 5 percent or more of the total com-bined voting power or value of all classesof stock of the employer corporation or ofa related corporation (see paragraph (d) ofthis section);

(ii) Options must be granted to all em-ployees of any corporation whose employ-ees are granted any options by reason oftheir employment by the corporation (seeparagraph (e) of this section);

(iii) All employees granted optionsmust have the same rights and privileges(see paragraph (f) of this section);

(iv) The option price cannot be less thanthe lesser of—

2009–49 I.R.B. 726 December 7, 2009

(A) An amount equal to 85 percent ofthe fair market value of the stock at thetime the option is granted, or

(B) An amount not less than 85 percentof the fair market value of the stock at thetime the option is exercised (see paragraph(g) of this section).

(v) Options cannot be exercised afterthe expiration of—

(A) Five years from the date the optionis granted if, under the terms of such plan,the option price cannot be less than 85 per-cent of the fair market value of the stock atthe time the option is exercised, or

(B) Twenty-seven months from the datethe option is granted, if the option price isnot determined in the manner described inparagraph (a)(3)(v)(A) of this section (seeparagraph (h) of this section).

(vi) No employee may be granted an op-tion that permits the employee’s rights topurchase stock under all employee stockpurchase plans of the employer corpora-tion and its related corporations to accrueat a rate that exceeds $25,000 of fair mar-ket value of the stock (determined at thetime the option is granted) for each calen-dar year in which the option is outstandingat any time (see paragraph (i) of this sec-tion); and

(vii) Options are not transferable by theoptionee other than by will or the laws ofdescent and distribution, and are exercis-able, during the lifetime of the optionee,only by the optionee (see paragraph (j) ofthis section).

(4) The determination of whether a par-ticular option is an option granted under anemployee stock purchase plan is made atthe time the option is granted. If the termsof an option are inconsistent with the termsof the employee stock purchase plan or theoffering under the plan pursuant to whichthe option is granted, the option will not betreated as granted under an employee stockpurchase plan. If an option with terms thatare inconsistent with the terms of the planor an offering under the plan is granted toan employee who is entitled to the grant ofan option under the terms of the plan or of-fering, and the employee is not granted anoption under the offering that qualifies asan option granted under an employee stockpurchase plan, the offering will not meetthe requirements of paragraph (e) of thissection. Accordingly, none of the optionsgranted under the offering will be eligiblefor the special tax treatment of section 421.

However, if an option with terms that areinconsistent with the terms of the plan oran offering under the plan is granted to anindividual who is not entitled to the grantof an option under the terms of the planor offering, the option will not be treatedas an option granted under an employeestock purchase plan but the grant of the op-tion will not disqualify the options grantedunder the plan or offering. If, at the timeof grant, an option qualifies as an optiongranted under an employee stock purchaseplan, but after the time of grant one or moreof the requirements of paragraph (a)(3) ofthis section is not satisfied with respect tothe option, the option will not be treatedas granted under an employee stock pur-chase plan but this failure to comply withthe terms of the option will not disqualifythe other options granted under the plan oroffering.

(5) Examples. The following examplesillustrate the principles of paragraph (a):

Example 1. Corporation A operates an employeestock purchase plan under which options for A stockare granted to employees of A. The terms of an of-fering provide that the option price will be 90 per-cent of the fair market value of A stock on the dateof exercise. A grants an option under the offering toEmployee Z, an employee of A. The terms of the op-tion provide that the option price will be 85 percent ofthe fair market value of A stock on the date of exer-cise. Because the terms of Z’s option are inconsistentwith the terms of the offering, the option granted toZ will not be treated as an option granted under theemployee stock purchase plan. Further, unless Z isgranted an option under the offering that qualifies asan option granted under the employee stock purchaseplan, the offering will not meet the requirements ofparagraph (e) of this section and none of the optionsgranted under the offering will be eligible for the spe-cial tax treatment of section 421.

Example 2. Corporation B operates an employeestock purchase plan that provides that options for Bstock may only be granted to employees of B. Underthe terms of the plan, options may not be granted toconsultants and other non-employees. B grants an op-tion to Consultant Y, a consultant of B. Because Y isineligible to receive an option under the plan becauseY is not an employee, the grant of the option to Y isinconsistent with the terms of the plan and the optiongranted to Y will not be treated as an option grantedunder the employee stock purchase plan. However,the grant of the option to Y will not disqualify the op-tions granted under the plan or any offering becauseY was not entitled to the grant of an option under theplan.

Example 3. Corporation C operates an employeestock purchase plan under which options for C stockare granted to employees of C. C grants an optionpursuant to an offering under the plan to EmployeeX, an employee of C who is a highly compensatedemployee. The terms of the employee stock pur-chase plan exclude highly compensated employeesfrom participation in the plan. Because X is ineligible

to receive an option under the plan by reason of X’sexclusion from participation in the plan, the optiongranted to X will not be treated as an option grantedunder the employee stock purchase plan. However,the grant of the option to X will not disqualify theoptions granted under the plan or offering because Xwas not entitled to the grant of an option under theplan.

Example 4. Corporation D operates an employeestock purchase plan under which options for D stockare granted to employees of D. D grants an optionpursuant to an offering under the plan to EmployeeW, an employee of D. The terms of the option providethat the option price will be 90 percent of the fairmarket value of D stock on the date of exercise. Onthe date of exercise, W pays only 85 percent of thefair market value of D stock. Because the terms ofW’s option are not satisfied, the option granted toW will not be treated as an option granted under theemployee stock purchase plan. However, the failureto comply with the terms of the option granted to Wwill not disqualify the options granted under the planor offering.

(b) Options restricted to employees. Anemployee stock purchase plan must pro-vide that options can be granted only toemployees of the employer corporation (oremployees of its related corporations) topurchase stock in the employer corpora-tion (or one of its related corporations).If such a provision is not included in theterms of the plan, the plan will not be anemployee stock purchase plan and optionsgranted under the plan will not qualify forthe special tax treatment of section 421.For rules relating to the employment re-quirement, see §1.421–1(h).

(c) Stockholder approval—(1) An em-ployee stock purchase plan must be ap-proved by the stockholders of the grant-ing corporation within 12 months beforeor after the date such plan is adopted. Theapproval of the stockholders must complywith all applicable provisions of the corpo-rate charter and bylaws and of applicableState law prescribing the method and de-gree of stockholder approval required forthe issuance of corporate stock or options.If the applicable State law does not pre-scribe a method and degree of stockholderapproval, then an employee stock purchaseplan must be approved—

(i) By a majority of the votes cast at aduly held stockholder’s meeting at which aquorum representing a majority of all out-standing voting stock is, either in person orby proxy, present and voting on the plan; or

(ii) By a method and in a degree thatwould be treated as adequate under appli-cable State law in the case of an action re-quiring stockholder approval (such as, an

December 7, 2009 727 2009–49 I.R.B.

action on which stockholders would be en-titled to vote if the action were taken at aduly held stockholders’ meeting).

(2) For purposes of the stockholderapproval required by this paragraph (c),ordinarily, a plan is adopted when it is ap-proved by the granting corporation’s boardof directors, and the date of the board’saction is the reference point for determin-ing whether stockholder approval occurswithin the applicable 24-month period.However, if the board’s action is subject toa condition (such as stockholder approval)or the happening of a particular event, theplan is adopted on the date the condition ismet or the event occurs, unless the board’sresolution fixes the date of adoption as thedate of the board’s action.

(3) An employee stock purchase plan,as adopted and approved, must designatethe maximum aggregate number of sharesthat may be issued under the plan, andthe corporations or class of corporationswhose employees may be offered optionsunder the plan. A plan that merely pro-vides that the number of shares that maybe issued under the plan may not exceeda stated percentage of the shares outstand-ing at the time of each offering or grant un-der the plan does not satisfy the require-ments of this paragraph (c)(3). However,the maximum aggregate number of sharesthat may be issued under the plan maybe stated in terms of a percentage of theauthorized, issued, or outstanding shareson the date of the adoption of the plan.The plan may specify that the maximumaggregate number of shares available forgrants under the plan may increase annu-ally by a specified percentage of the au-thorized, issued, or outstanding shares onthe date of the adoption of the plan. Aplan that provides that the maximum ag-gregate number of shares that may be is-sued as options under the plan may changebased on any other specific circumstancessatisfies the requirements of this paragraphonly if the stockholders approve an imme-diately determinable maximum number ofshares that may be issued under the plan inany event. If there is more than one em-ployee stock purchase plan under whichoptions may be granted and stockholdersof the granting corporation merely approvea maximum aggregate number of sharesthat are available for issuance under theplans, the stockholder approval require-ments described in paragraph (c)(1) of this

section are not satisfied. A separate maxi-mum aggregate number of shares availablefor issuance pursuant to options must bespecified and approved for each plan.

(4) Once an employee stock purchaseplan is approved by the stockholders ofthe granting corporation, the plan neednot be reapproved by the stockholders ofthe granting corporation unless the plan isamended or changed in a manner that isconsidered the adoption of a new plan, inwhich case the plan must be reapprovedwithin the prescribed 24-month period.Any increase in the aggregate number ofshares that may be issued under the plan(other than an increase merely reflectinga change in the number of outstandingshares, such as a stock dividend or stocksplit) will be considered the adoption of anew plan requiring stockholder approvalwithin the prescribed 24-month period.Similarly, a change in the designation ofcorporations whose employees may beoffered options under the plan will beconsidered the adoption of a new planrequiring stockholder approval within theprescribed 24-month period unless theplan provides that designations of partic-ipating corporations may be made fromtime to time from among a group consist-ing of the granting corporation and its re-lated corporations. The group from amongwhich such changes and designations arepermitted without additional stockholderapproval may include corporations hav-ing become parents or subsidiaries of thegranting corporation after the adoption andapproval of the plan. In addition, a changein the granting corporation or the stockavailable for purchase under the plan willbe considered the adoption of a new planrequiring stockholder approval within theprescribed 24-month period. Any otherchanges in the terms of an employee stockpurchase plan are not considered the adop-tion of a new plan and, thus, do not requirestockholder approval.

(5) Examples. The following examplesillustrate the principles of this paragraph(c):

Example 1. (i) Corporation E is a subsidiary ofCorporation F, a publicly traded corporation. On Jan-uary 1, 2010, E adopts an employee stock purchaseplan under which options for E stock are granted to Eemployees.

(ii) To meet the requirements of paragraph (c)(1)of this section, the plan must be approved by thestockholders of E (in this case, F) within 12 monthsbefore or after January 1, 2010.

(iii) Assume the same facts as in paragraph (i) ofthis Example 1, except that the plan was approvedby the stockholders of E (in this case, F) on March1, 2010. On January 1, 2012, E changes the planto provide that options for F stock will be grantedto E employees under the plan. Because there is achange in the stock available for grant under the plan,under paragraph (c)(4) of this section, the change isconsidered the adoption of a new plan that must beapproved by the stockholders of E (in this case, F)within 12 months before or after January 1, 2012.

Example 2. (i) Assume the same facts as inparagraph (i) of Example 1, except that on March15, 2011, F completely disposes of its interest in E.Thereafter, E continues to grant options for E stockto E employees under the plan.

(ii) The new E options are granted under a planthat meets the stockholder approval requirementsof paragraph (c)(1) of this section without regardto whether E seeks approval of the plan from thestockholders of E after F disposes of its interest in E.

(iii) Assume the same facts as in paragraph (i) ofthis Example 2, except that under the plan as adoptedon January 1, 2010, only options for F stock aregranted to E employees. Assume further that, afterF disposes of its interest in E, E changes the planto provide for the grant of options for E stock to Eemployees. Because there is a change in the stockavailable for purchase or grant under the plan, underparagraph (c)(4) of this section, the stockholders ofE must approve the plan within 12 months before orafter the change to the plan to meet the stockholderapproval requirements of paragraph (c) of this sec-tion.

Example 3. (i) Corporation G maintains an em-ployee stock purchase plan providing options for Gstock. Corporation H does not maintain an employeestock purchase plan. On May 15, 2010, G and H con-solidate under State law to form one corporation. Thenew corporation is named Corporation H. The con-solidation agreement describes the G plan, includingthe maximum aggregate number of shares availablefor issuance under the plan after the consolidation.Additionally, the consolidation agreement states thatthe plan will be continued by H after the consolida-tion. The consolidation agreement is approved by thestockholders of G and H on May 1, 2010. H assumesthe plan formerly maintained by G and continues togrant options under the plan to all eligible employees,but the options are for H stock.

(ii) Because there is a change in the granting cor-poration (from G to H) and the stock available forpurchase, under paragraph (c)(4) of this section, H isconsidered to have adopted a new plan. Because theplan is fully described in the consolidation agreement,including the maximum aggregate number of sharesavailable for issuance under the plan, the approvalof the consolidation agreement by the stockholdersconstitutes approval of the plan. Thus, the stock-holder approval of the consolidation agreement sat-isfies the stockholder approval requirements of para-graph (c)(1) of this section, and the plan is consideredto be adopted by H and approved by its stockholderson May 1, 2010.

Example 4. Corporation I adopts an employeestock purchase plan on November 1, 2010. On thatdate, there are two million shares of I stock outstand-ing. The plan provides that the maximum aggregatenumber of shares that may be issued under the plan

2009–49 I.R.B. 728 December 7, 2009

may not exceed 15 percent of the number of shares ofI stock outstanding on November 1, 2010. Becausethe maximum aggregate number of shares that maybe issued under the plan is designated in the plan, therequirements of paragraph (c)(3) of this section aremet.

Example 5. (i) Corporation J adopts an employeestock purchase plan on March 15, 2010. The plan pro-vides that the maximum aggregate number of sharesof J stock available for issuance under the plan is50,000, increased on each anniversary date of theadoption of the plan by 5 percent of the then outstand-ing shares. Because the maximum aggregate numberof shares is not designated under the plan, the require-ments of paragraph (c)(3) of this section are not met.

(ii) Assume the same facts as in paragraph (i) ofthis Example 5, except that the plan provides thatthe maximum aggregate number of shares availableunder the plan is the lesser of (a) 50,000 shares, in-creased each anniversary date of the adoption of theplan by 5 percent of the then-outstanding shares, or(b) 200,000 shares. Because the maximum aggregatenumber of shares that may be issued under the plan isdesignated as the lesser of two numbers, one of whichprovides an immediately determinable maximum ag-gregate number of shares that may be issued underthe plan in any event, the requirements of paragraph(c)(3) of this section are met.

(d) Options granted to certain share-holders—(1) An employee stock purchaseplan or offering must, by its terms, providethat an employee cannot be granted an op-tion if the employee, immediately after theoption is granted, owns stock possessing 5percent or more of the total combined vot-ing power or value of all classes of stock ofthe employer corporation or a related cor-poration. In determining whether the stockownership of an employee equals or ex-ceeds this 5 percent limit, the rules of sec-tion 424(d) (relating to attribution of stockownership) shall apply, and stock that theemployee may purchase under outstandingoptions (whether or not the options qual-ify for the special tax treatment affordedby section 421(a)) shall be treated as stockowned by the employee. An option is out-standing for purposes of this paragraph (d)although under its terms it may be exer-cised only in installments or after the ex-piration of a fixed period of time. If an op-tion is granted to an employee whose stockownership (as determined under this para-graph (d)) exceeds the limitation set forthin this paragraph (d), no portion of the op-tion will be treated as having been grantedunder an employee stock purchase plan.

(2) The determination of the percent-age of the total combined voting poweror value of all classes of stock of the em-ployer corporation (or a related corpora-tion) that is owned by the employee is

made by comparing the voting power orvalue of the shares owned (or treated asowned) by the employee to the aggregatevoting power or value of all shares actuallyissued and outstanding immediately afterthe grant of the option to the employee.The aggregate voting power or value of allshares actually issued and outstanding im-mediately after the grant of the option doesnot include the voting power or value oftreasury shares or shares authorized for is-sue under outstanding options held by theemployee or any other person.

(3) Examples. The following examplesillustrate the principles of this paragraph(d):

Example 1. Employee V, an employee of Cor-poration K, owns 6,000 shares of K common stock,the only class of K stock outstanding. K has 100,000shares of its common stock outstanding. BecauseV owns 6 percent of the combined voting power orvalue of all classes of K stock, K cannot grant an op-tion to V under K’s employee stock purchase plan.If V’s father and brother each owned 3,000 sharesof K stock and V did not own any K stock, thenthe result would be the same because, under section424(d), an individual is treated as owning stock heldby the person’s father and brother. Similarly, the re-sult would be the same if, instead of actually own-ing 6,000 shares, V merely held an option on 6,000shares of K stock, irrespective of whether the transferof stock under the option could qualify for the specialtax treatment of section 421, because this paragraph(d) provides that stock the employee may purchaseunder outstanding options is treated as stock ownedby such employee.

Example 2. Assume the same facts as in Example1, except that K is a 50 percent subsidiary corporationof Corporation L. Irrespective of whether V owns anyL stock, V cannot receive an option from L underL’s employee stock purchase plan because he owns5 percent of the total combined voting power of allclasses of stock of a subsidiary of L, in this example,K. An employee who owns (or is treated as owning)stock in excess of the limitation of this paragraph (d),in any corporation in a group of related corporations,consisting of a parent and its subsidiary corporations,cannot receive an option under an employee stockpurchase plan from any corporation in the group.

Example 3. Employee U is an employee of Cor-poration M. M has only one class of stock, of which100,000 shares are issued and outstanding. Assum-ing U does not own (and is not treated as owning)any stock in M or in any related corporation of M, Mmay grant an option to U under its employee stockpurchase plan for 4,999 shares, because immediatelyafter the grant of the option, U would not own 5 per-cent or more of the combined voting power or valueof all classes of M stock actually issued and outstand-ing at such time. The 4,999 shares that U would betreated as owning under this paragraph (d) would notbe added to the 100,000 shares actually issued andoutstanding immediately after the grant for purposesof determining whether U’s stock ownership exceedsthe limitation of this paragraph (d).

Example 4. Assume the same facts as in Example3 but instead of an option for 4,999 shares, M grants Uan option, purportedly under its employee stock pur-chase plan, for 5,000 shares. No portion of this optionwill be treated as granted under an employee stockpurchase plan because U’s stock ownership exceedsthe limitation of this paragraph (d).

(e) Employees covered by plan—(1)Subject to the provisions of this paragraph(e) and the limitations of paragraphs (d),(f) and (i) of this section, an employeestock purchase plan or offering must, byits terms, provide that options are to begranted to all employees of any corpo-ration whose employees are granted anyof such options by reason of their em-ployment by that corporation, except thatone or more of the following categoriesof employees may be excluded from thecoverage of the plan or offering—

(i) Employees who have been employedless than two years;

(ii) Employees whose customary em-ployment is 20 hours or less per week;

(iii) Employees whose customary em-ployment is for not more than five monthsin any calendar year; and

(iv) Highly compensated employees(within the meaning of section 414(q)).

(2) A plan or offering does not fail tosatisfy the coverage provision of para-graph (e)(1) of this section in the followingcircumstances—

(i) The plan or offering excludes em-ployees who have completed a shorter pe-riod of service or whose customary em-ployment is for fewer hours per week orfewer months in a calendar year than isspecified in paragraphs (e)(1)(i), (ii) and(iii) of this section, provided the exclusionis applied in an identical manner to all em-ployees of every corporation whose em-ployees are granted options under the planor offering.

(ii) The plan or offering excludes highlycompensated employees (within the mean-ing of section 414(q)) with compensationabove a certain level or who are officersor subject to the disclosure requirementsof section 16(a) of the Securities ExchangeAct of 1934, provided the exclusion is ap-plied in an identical manner to all highlycompensated employees of every corpora-tion whose employees are granted optionsunder the plan or offering.

(3) Notwithstanding paragraph (e)(1) ofthis section, employees who are citizens orresidents of a foreign jurisdiction (withoutregard to whether they are also citizens of

December 7, 2009 729 2009–49 I.R.B.

the United States or resident aliens (withinthe meaning of section 7701(b)(1)(A)))may be excluded from the coverage of anemployee stock purchase plan or offeringunder the following circumstances—

(i) The grant of an option under the planor offering to a citizen or resident of theforeign jurisdiction is prohibited under thelaws of such jurisdiction; or

(ii) Compliance with the laws of theforeign jurisdiction would cause the planor offering to violate the requirements ofsection 423.

(4) No option granted under a plan oroffering that excludes from participationany employees, other than those who maybe excluded under this paragraph (e), andthose barred from participation by reasonof paragraphs (d), (f) and (i) of this section,can be regarded as having been granted un-der an employee stock purchase plan. Ifan option is not granted to any employeewho is entitled to the grant of an option un-der the terms of the plan or offering, noneof the options granted under such offer-ing will be treated as having been grantedunder an employee stock purchase plan.However, a plan that, by its terms, per-mits all eligible employees to elect to par-ticipate in an offering will not violate therequirements of this paragraph solely be-cause eligible employees who elect not toparticipate in the offering are not grantedoptions pursuant to such offering.

(5) For purposes of this paragraph (e),the existence of the employment relation-ship between an individual and the corpo-ration participating under the plan will bedetermined under §1.421–1(h).

(6) Examples. The following examplesillustrate the principles of this paragraph(e):

Example 1. Corporation N has a stock purchaseplan that meets all the requirements of paragraphs(a)(2) and (a)(3) of this section except that optionsare not required to be granted to employees whoseweekly rate of pay is less than $1,000. As a matter ofcorporate practice, however, N grants options underits plan to all employees, irrespective of their weeklyrate of pay. Even though N’s plan is operated in com-pliance with the requirements of this paragraph (e),N’s plan is not an employee stock purchase plan be-cause the terms of the plan exclude a category of em-ployees that is not permitted under this paragraph (e).

Example 2. Assume the same facts as in Example1, except that the first offering under N’s plan pro-vides that options will be granted to all employees ofN. The terms of the first offering will be treated aspart of the terms of N’s plan, but only for purposesof the first offering. Because the terms of the first of-fering satisfy the requirements of this paragraph (e),

stock transferred pursuant to options exercised underthe first offering will be treated as stock transferredpursuant to the exercise of options granted under anemployee stock purchase plan for purposes of section421.

Example 3. Corporation O has a stock purchaseplan that excludes from participation all employeeswho have been employed less than one year. As-suming all other requirements of paragraphs (a)(2)and (a)(3) of this section are satisfied, O’s plan quali-fies as an employee stock purchase plan under section423.

Example 4. Corporation P has a stock purchaseplan that excludes from participation clerical employ-ees who have been employed less than two years.However, non-clerical employees with less than twoyears of service are permitted to participate in theplan. P’s plan is not an employee stock purchase planbecause the exclusion of employees who have beenemployed less than two years applies only to certainemployees of P and is not applied in an identical man-ner to all employees of P. If, instead, P’s plan excludesfrom participation all employees (both clerical andnon-clerical) who have been employed less than twoyears, then P’s plan would qualify as an employeestock purchase plan under section 423 assuming allother requirements of paragraphs (a)(2) and (a)(3) ofthis section are satisfied.

Example 5. Corporation Q has a stock purchaseplan that excludes from participation all officers whoare highly compensated employees (within the mean-ing of section 414(q)). Assuming all other require-ments of paragraphs (a)(2) and (a)(3) of this sectionare satisfied, Q’s plan qualifies as an employee stockpurchase plan under section 423.

Example 6. Corporation R maintains an em-ployee stock purchase plan that excludes fromparticipation all highly compensated employees(within the meaning of section 414(q)), except highlycompensated employees who are officers of R. R’splan is not an employee stock purchase plan becausethe exclusion of all highly compensated employ-ees except highly compensated employees who areofficers of R is not a permissible exclusion underparagraph (e)(2)(ii) of this section.

Example 7. Corporation S is the parent corpora-tion of Subsidiary YY and Subsidiary ZZ. S main-tains an employee stock purchase plan with both YYand ZZ participating in the same offering under theplan. Under the terms of the offering under the plan,all employees of YY and ZZ are permitted to partic-ipate in the plan with the exception of ZZ’s highlycompensated employees with annual compensationgreater than $300,000. None of the options grantedunder the offering will be considered granted underan employee stock purchase plan because the exclu-sion of highly compensated employees with annualcompensation greater than $300,000 is not applied inan identical manner to all employees of YY and ZZgranted options in the same offering.

Example 8. Assume the same facts as in Exam-ple 7, except that Corporation S establishes separateofferings under the plan for YY and ZZ. Under theterms of the separate offering for YY, all employeesof YY are permitted to participate in the plan. Un-der the terms of the separate offering established forZZ, all employees of ZZ are permitted to participatein the plan with the exception of ZZ’s highly compen-sated employees with annual compensation greater

than $300,000. The options granted under the sepa-rate offering for YY will be considered granted underan employee stock purchase plan. Further, the op-tions granted under the separate offering for ZZ willbe considered granted under an employee stock pur-chase plan because the exclusion of highly compen-sated employees with annual compensation greaterthan $300,000 is applied in an identical manner to allemployees of ZZ granted options in the same offer-ing.

Example 9. The laws of Country A requirethat options granted to residents of Country A betransferable during the lifetime of the option recip-ient. Corporation T has a stock purchase plan thatexcludes residents of Country A from participationin the plan. Because compliance with the laws ofCountry A would cause options granted to residentsof Country A to violate paragraph (j) of this section,T may exclude residents of Country A from partici-pation in the plan. Assuming all other requirementsof paragraph (a)(2) of this section are satisfied, T’splan qualifies as an employee stock purchase planunder section 423.

(f) Equal rights and privileges—(1)Except as otherwise provided in para-graphs (f)(2) through (f)(6) of this section,an employee stock purchase plan or of-fering must, by its terms, provide that allemployees granted options under the planor offering shall have the same rights andprivileges. Thus, the provisions applyingto one option under an offering (such asthe provisions relating to the method ofpayment for the stock and the determina-tion of the purchase price per share) mustapply to all other options under the offer-ing in the same manner. If all the optionsgranted under a plan or offering do not, bytheir terms, give the respective optioneesthe same rights and privileges, none ofthe options will be treated as having beengranted under an employee stock purchaseplan for purposes of section 421.

(2) The requirements of this paragraph(f) do not prevent the maximum amount ofstock that an employee may purchase frombeing determined on the basis of a uniformrelationship to the total compensation, orthe basic or regular rate of compensation,of all employees.

(3) A plan or offering will not fail tosatisfy the requirements of this paragraph(f) because the plan or offering providesthat no employee may purchase more thana maximum amount of stock fixed underthe plan or offering.

(4) A plan or offering will not fail tosatisfy the requirements of this paragraph(f) if, in order to comply with the laws ofa foreign jurisdiction, the terms of an op-tion granted under a plan or offering to cit-

2009–49 I.R.B. 730 December 7, 2009

izens or residents of such foreign jurisdic-tion (without regard to whether they arealso citizens of the United States or resi-dent aliens (within the meaning of section7701(b)(1)(A))) are less favorable than theterms of options granted under the sameplan or offering to employees resident inthe United States.

(5)(i) Except as provided in this para-graph and paragraph (f)(5)(ii) of this sec-tion, a plan or offering permitting one ormore employees to carry forward amountsthat were withheld but not applied towardthe purchase of stock under an earlier planor offering and apply the amounts towardsthe purchase of additional stock under asubsequent plan or offering will be a viola-tion of the equal rights and privileges un-der paragraph (f)(1) of this section. How-ever, the carry forward of amounts with-held but not applied toward the purchase ofstock under an earlier plan or offering willnot violate the equal rights and privilegesrequirement of paragraph (f)(1) of this sec-tion, if all other employees participating inthe current plan or offering are permitted tomake direct payments toward the purchaseof shares under a subsequent plan or offer-ing in an amount equal to the excess of thegreatest amount which any employee is al-lowed to carry forward from an earlier planor offering over the amount, if any, the em-ployee will carry forward from an earlierplan or offering.

(ii) A plan or offering will not fail to sat-isfy the requirements of this section merelybecause employees are permitted to carryforward amounts representing a fractionalshare, that were withheld but not appliedtoward the purchase of stock under an ear-lier plan or offering and apply the amountstoward the purchase of additional stock un-der a subsequent plan or offering.

(6) Paragraph (f) does not prohibitthe delaying of the grant of an option toany employee who is barred from beinggranted an option solely by reason of theemployee’s failing to meet a minimumservice requirement set forth in paragraph(e)(1) of this section until the employeemeets such requirement.

(7) Examples. The following examplesillustrate the principles of this paragraph(f):

Example 1. Corporation U has an employeestock purchase plan that provides that the maximumamount of stock that each employee may purchaseunder the offering is one share for each $100 of

annual gross pay. The plan meets the requirementsof this paragraph (f).

Example 2. Corporation V has an employeestock purchase plan that provides that the maximumamount of stock that each employee may purchaseunder the offering is one share for each $100 of an-nual gross pay up to and including $10,000, and twoshares for each $100 of annual gross pay in excess of$10,000. The plan will not meet the requirements ofthis paragraph (f) because the amount of stock thatmay be purchased under the plan is not based on auniform relationship to the total compensation of allemployees.

Example 3. Corporation W has an employeestock purchase plan that provides that options topurchase stock in an amount equal to ten percent ofan employee’s annual salary at a price equal to 85percent of the fair market value on the first day of theoffering will be granted to all employees other thanthose who have been employed less than 18 months.In addition, the plan provides that employees whohave not yet met the minimum service requirementson the first day of the offering will be granted similaroptions on the date the 18 month service requirementhas been attained. The plan meets the requirementsof this paragraph (f).

Example 4. Corporation X is the parent corpora-tion of Subsidiary AA, Subsidiary BB and SubsidiaryCC. X maintains an employee stock purchase planwith AA, BB and CC participating in the same offer-ing under the plan. Under the terms of the offering un-der the plan, options to purchase stock at a price equalto 90 percent of the fair market value at the time theoption is exercised will be granted to all employees.Certain employees of AA are residents of Country B.The laws of Country B provide that options granted toemployees who are residents of Country B must havea purchase price not less than 95 percent of the fairmarket value at the time the option is exercised. Theplan will not fail to satisfy the requirements of thisparagraph (f) merely because the residents of Coun-try B are granted options under the plan to purchasestock at a price equal to 95 percent of the fair marketvalue at the time the option is exercised.

Example 5. Assume the same facts as in Example4, except that Corporation X establishes two separateofferings under the plan: a separate offering for theemployees of AA and a separate offering for the em-ployees of BB and CC. Under the separate offeringfor the employees of BB and CC, options are grantedto all employees with an exercise price equal to 90percent of the fair market value at the time the optionis exercised. Under the separate offering for the em-ployees of AA, options are granted to all employeeswith an exercise price equal to 95 percent of the fairmarket value at the time the option is exercised. Theplan does not violate the equal rights and privilegesrequirement of this paragraph (f) merely because theexercise price of options granted under one offeringis less than the exercise price of options granted un-der a separate offering.

Example 6. Corporation Y maintains an em-ployee stock purchase plan. Employee T is employedby Y. T is granted an option under the current offeringto purchase a maximum of 100 shares of Y stock atan option price equal to 85 percent of the fair marketvalue of the stock at exercise. The plan permits thecarry forward of withheld but unused amounts froman earlier offering. Prior to the exercise date, $2000

of T’s salary has been withheld and is available tobe applied toward the purchase of Y stock. On theexercise date, the fair market value of Y stock is$20 per share. T is able to purchase 100 shares ofY stock at $17 per share for an aggregate purchaseprice of $1700. T can carry forward $300 to the sub-sequent offering. Each employee in the subsequentoffering other than T will be permitted to make directpayments toward the purchase of shares under thesubsequent offering in a maximum amount of $300less any amount the employee has carried forwardfrom an earlier offering. The plan does not violatethe equal rights and privileges requirement of thisparagraph (f).

(g) Option price—(1) An employeestock purchase plan or offering must, byits terms, provide that the option price willnot be less than the lesser of—

(i) An amount equal to 85 percent of thefair market value of the stock at the timethe option is granted, or

(ii) An amount that under the terms ofthe option may not be less than 85 percentof the fair market value of the stock at thetime the option is exercised.

(2) For purposes of determining theoption price, the fair market value of thestock may be determined in any reasonablemanner, including the valuation methodspermitted under §20.2031–2. However,the option price must meet the minimumpricing requirements of this paragraph(g). For general rules relating to the op-tion price, see §1.421–1(e). For rulesrelating to the determination of when anoption is granted, see §§1.421–1(c) and1.423–2(h)(2). Any option that does notmeet the minimum pricing requirementsof this paragraph (g) will not be treated asan option granted under an employee stockpurchase plan irrespective of whether theplan or offering satisfies those require-ments. If an option that does not meet theminimum pricing requirements is grantedto an employee who is entitled to the grantof an option under the terms of the plan oroffering, and the employee is not grantedan option under such offering that qualifiesas an option granted under an employeestock purchase plan, the offering will notmeet the requirements of paragraph (e)of this section. Accordingly, none of theoptions granted under the offering will beeligible for the special tax treatment ofsection 421.

(3) The option price may be stated ei-ther as a percentage or as a dollar amount.If the option price is stated as a dollaramount, then the requirement of this para-graph (g) can only be met by a plan or of-

December 7, 2009 731 2009–49 I.R.B.

fering in which the price is fixed at not lessthan 85 percent of the fair market value ofthe stock at the time the option is granted.If the fixed price is less than 85 percent ofthe fair market value of the stock at grant,then the option cannot meet the require-ment of this paragraph (g) even if a declinein the fair market value of the stock resultsin such fixed price being not less than 85percent of the fair market value of the stockat the time the option is exercised, becausethat result was not certain to occur underthe terms of the option.

(4) Examples. The following examplesillustrate the principles of this paragraph(g):

Example 1. Corporation Z has an employee stockpurchase plan that provides that the option price willbe 85 percent of the fair market value of the stockon the first day of the offering (which is the date ofgrant in this case), or 85 percent of the fair marketvalue of the stock at exercise, whichever amount isthe lesser. Upon the exercise of an option issued un-der Z’s plan, Z agrees to accept an option price thatis less than the minimum amount allowable under theterms of such plan. Notwithstanding that the optionwas issued under an employee stock purchase plan,the transfer of stock pursuant to the exercise of suchoption does not satisfy the requirement of this para-graph (g) and cannot qualify for the special tax treat-ment of section 421.

Example 2. Corporation AA has an employeestock purchase plan that provides that the option priceis set at 85 percent of the fair market value of AAstock at exercise, but not less than $80 per share. Onthe first day of the offering (which is the date of grantin this case), the fair market value of AA stock is $100per share. The option satisfies the requirement of thisparagraph (g), and can qualify for the special tax treat-ment of section 421.

Example 3. Assume the same facts as in Example2, except that the option price is set at 85 percent ofthe fair market value of AA stock at exercise, but notmore than $80 per share. This option cannot satisfythe requirement of this paragraph (g) irrespective ofwhether, at the time the option is exercised, 85 per-cent of the fair market value of AA stock is $80 orless.

(h) Option period—(1) An employeestock purchase plan or offering must, byits terms, provide that options granted un-der the plan cannot be exercised after theexpiration of 27 months from the date ofgrant unless, under the terms of the plan oroffering, the option price is not less than85 percent of the fair market value of thestock at the time of the exercise of the op-tion. If the option price is not less than 85percent of the fair market value of the stockat the time the option is exercised, thenthe option period provided under the planmust not exceed five years from the dateof grant. If the requirements of this para-

graph (h) are not met by the terms of theplan or offering, then options issued undersuch plan or offering will not be treated asoptions granted under an employee stockpurchase plan irrespective of whether theoptions, by their terms, are exercisable be-yond the period allowable under this para-graph (h). An option that provides thatthe option price is not less than 85 per-cent of the fair market value of the stockat exercise may have an option period of 5years irrespective of whether the fair mar-ket value of the stock at exercise is more orless than the fair market value of the stockat grant. However, if the option providesthat the option price is 85 percent of thefair market value of the stock at exercise,but not more than some other fixed amountdetermined in accordance with the provi-sions of paragraph (g) of this section, thenirrespective of the price paid on exercise,the option period must not be more than 27months.

(2) Section 1.421–1(c) provides that,for purposes of §§1.421–1 through1.424–1, the language “the date of thegranting of the option” and the “time suchoption is granted,” and similar phrasesrefer to the date or time when the grant-ing corporation completes the corporateaction constituting an offer of stock forsale to an individual under the terms andconditions of a statutory option. Withrespect to options granted under an em-ployee stock purchase plan, the principlesof §1.421–1(c) shall be applied without re-gard to the requirement that the minimumoption price must be fixed or determinablein order for the corporate action consti-tuting an offer of stock to be consideredcomplete.

(3) The date of grant will be the firstday of an offering if the terms of an em-ployee stock purchase plan or offering des-ignate a maximum number of shares thatmay be purchased by each employee dur-ing the offering. Similarly, the date ofgrant will be the first day of an offeringif the terms of the plan or offering requirethe application of a formula to establish,on the first day of the offering, the max-imum number of shares that may be pur-chased by each employee during the offer-ing. It is not required that an employeestock purchase plan or offering designatea maximum number of shares that may bepurchased by each employee during the of-fering or incorporate a formula to establish

a maximum number of shares that may bepurchased by each employee during the of-fering. If the maximum number of sharesthat can be purchased under an option isnot fixed or determinable until the date theoption is exercised, then the date of exer-cise will be the date of grant of the option.

(4) Examples. The following examplesillustrate the principles of this paragraph(h):

Example 1. (i) Corporation BB has an employeestock purchase plan that provides that the option pricewill be the lesser of 85 percent of the fair marketvalue of the stock on the first day of an offering or85 percent of the fair market value of the stock on thelast day of the offering. Options are exercised on thelast day of the offering. One million shares of BBstock are reserved for issuance under the plan. Theplan provides that no employee may be permitted topurchase stock under the plan at a rate that exceeds$25,000 in fair market value of the BB stock (deter-mined on the date of grant) for each calendar year dur-ing which an option granted to the employee is out-standing. The terms of each option granted under anoffering provide that a maximum of 500 shares maybe purchased by the option recipient during the of-fering. Because the maximum number of shares thatcan be purchased under the option is fixed and deter-minable on the first day of the offering, the date ofgrant for the option is the first day of the offering.

(ii) Assume the same facts as in paragraph (i)of Example 1, except that BB’s plan excludes allemployees who have been employed less than 18months. The plan provides that employees who havenot yet met the minimum service requirements onthe first day of an offering will be granted an optionon the date the 18–month service requirement hasbeen attained. With respect to those employees whohave been employed less than 18 months on the firstday of an offering, the date of grant for the option isthe date the 18–month service requirement has beenattained.

Example 2. Assume the same facts as in para-graph (i) of Example 1, except that the terms of eachoption granted do not provide that a maximum of 500shares may be purchased by the option recipient dur-ing the offering. Notwithstanding the fixed numberof shares reserved for issuance under the plan and the$25,000 limitation set forth in the plan, the maximumnumber of shares that can be purchased under the op-tion is not fixed or determinable until the last day ofthe offering when the option is exercised. Thereforethe date of grant for the option is the last day of theoffering when the option is exercised.

Example 3. Corporation CC has an employeestock purchase plan that provides that the option pricewill be 85 percent of the fair market value of the stockon the last day of the offering. Options are exercisedon the last day of the offering. Each offering underthe plan begins on January 1 and ends on December31 of the same calendar year. The terms of each op-tion granted under an offering provide that the maxi-mum number of shares that may be purchased by anyemployee during the offering equals $25,000 dividedby the fair market value of the stock on the first dayof the offering. The maximum number of shares thatcan be purchased under the option is fixed and deter-

2009–49 I.R.B. 732 December 7, 2009

minable on the first day of the offering and thereforethe date of grant for the option is the first day of theoffering.

Example 4. Assume the same facts as in Exam-ple 3 except that the terms of each option granted un-der an offering provide that the maximum number ofshares that may be purchased by any employee dur-ing the offering equals 10 percent of the employee’sannual salary (determined as of January 1 of the yearin which the offering commences) divided by the fairmarket value of the stock on the first day of the of-fering. The maximum number of shares that can bepurchased under the option is fixed and determinableon the first day of the offering and therefore the dateof grant for the option is the first day of the offering.

(i) Annual $25,000 limitation—(1) Anemployee stock purchase plan or offer-ing must, by its terms, provide that noemployee may be permitted to purchasestock under all the employee stock pur-chase plans of the employer corporationand its related corporations at a rate thatexceeds $25,000 in fair market value of thestock (determined at the time the option isgranted) for each calendar year in whichany option granted to the employee is out-standing at any time. In applying the fore-going limitation—

(i) The right to purchase stock underan option accrues when the option (or anyportion thereof) first becomes exercisableduring the calendar year;

(ii) The right to purchase stock under anoption accrues at the rate provided in theoption, but in no case may such rate ex-ceed $25,000 of fair market value of suchstock (determined at the time such optionis granted) for any one calendar year; and

(iii) A right to purchase stock that hasaccrued under one option granted pursuantto the plan may not be carried over to anyother option.

(2) If an option is granted under an em-ployee stock purchase plan that satisfiesthe requirement of this paragraph (i), butthe option gives the optionee the right tobuy stock in excess of the maximum rateallowable under this paragraph (i), then noportion of the option will be treated as hav-ing been granted under an employee stockpurchase plan. Furthermore, if the optionwas granted to an employee entitled to thegrant of an option under the terms of theplan or offering, and the employee is notgranted an option under the offering thatqualifies as an option granted under an em-ployee stock purchase plan, then the of-fering will not meet the requirements ofparagraph (e) of this section. Accordingly,none of the options granted under the of-

fering will be eligible for the special taxtreatment of section 421.

(3) The limitation of this paragraph (i)applies only to options granted under em-ployee stock purchase plans and does notlimit the amount of stock that an employeemay purchase under incentive stock op-tions (as defined in section 422(b)) or anyother stock options except those to whichsection 423 applies. Stock purchased un-der options to which section 423 does notapply will not limit the amount that an em-ployee may purchase under an employeestock purchase plan, except for purposes ofthe 5–percent stock ownership provisionof paragraph (d) of this section.

(4) Under the limitation of this para-graph (i), an employee may purchase upto $25,000 of stock (based on the fair mar-ket value of the stock at the time the optionwas granted) in each calendar year duringwhich an option granted to the employeeunder an employee stock purchase plan isoutstanding. Alternatively, an employeemay purchase more than $25,000 of stock(based on the fair market value of suchstock at the time the option was granted) ina calendar year, so long as the total amountof stock that the employee purchases doesnot exceed $25,000 in fair market value ofthe stock (determined at the time the op-tion was granted) for each calendar year inwhich any option was outstanding. If, inany calendar year, the employee holds twoor more outstanding options granted un-der employee stock purchase plans of theemployer corporation, or a related corpo-ration, then the employee’s purchases ofstock attributable to that year under all op-tions granted under employee stock pur-chase plans must not exceed $25,000 infair market value of the stock (determinedat the time the options were granted). Un-der an employee stock purchase plan, anemployee may not purchase stock in an-ticipation that the option will be outstand-ing in some future year. Thus, the em-ployee may purchase only the amount ofstock that does not exceed the limitationof this paragraph (i) for the year of thepurchase and for preceding years duringwhich the option was outstanding. Thus,the amount of stock that may be purchasedunder an option depends on the number ofyears in which the option is actually out-standing. The amount of stock that maybe purchased under an employee stock pur-chase plan may not be increased by reason

of the failure to grant an option in an earlieryear under such plan, or by reason of thefailure to exercise an earlier option. Forexample, if an option is granted to an in-dividual and expires without having beenexercised at all, then the failure to exercisethe option does not increase the amount ofstock which such individual may be per-mitted to purchase under an option grantedin a year following the year of such expi-ration. If an option granted under an em-ployee stock purchase plan is outstandingin more than one calendar year, then stockpurchased pursuant to the exercise of suchan option will be applied first, to the extentallowable under this paragraph (i), againstthe $25,000 limitation for the earliest yearin which the option was outstanding, then,against the $25,000 limitation for each suc-ceeding year, in order.

(5) Examples. The following examplesillustrate the principles of this paragraph(i):

Example 1. Assume that Corporation DD main-tains an employee stock purchase plan and that Em-ployee S is employed by DD. On June 1, 2010, DDgrants S an option under the plan to purchase a total of750 shares of DD stock at $85 per share. On that date,the fair market value of DD stock is $100 per share.The option provides that it may be exercised at anytime but cannot be exercised after May 31, 2012. Un-der this paragraph (i), the option must not permit S topurchase more than 250 shares of DD stock during thecalendar year 2010, because 250 shares are equal to$25,000 in fair market value of DD stock determinedat the time of grant. During the calendar year 2011,S may purchase under the option an amount of DDstock equal to the difference between $50,000 in fairmarket value of DD stock (determined at the time theoption was granted) and the fair market value of DDstock (determined at the time of grant of the option)purchased during the year 2010. During the calendaryear 2012, S may purchase an amount of DD stockequal to the difference between $75,000 in fair mar-ket value of the stock (determined at the time of grantof the option) and the total amount of the fair marketvalue of the stock (determined at the time of grant ofthe option) purchased under the option during the cal-endar years 2010 and 2011. S may purchase $25,000of stock for the year 2010, and $25,000 of stock forthe year 2012, although the option was outstandingfor only a part of each of such years. However, Smay not be granted another option under an employeestock purchase plan of DD or a related corporation topurchase stock of DD or a related corporation duringthe calendar years 2010, 2011, and 2012, so long asthe option granted June 1, 2010, is outstanding.

Example 2. Assume the same facts as in Example1, except that the option granted to S in 2010 is termi-nated in 2011 without any part of the option havingbeen exercised, and that subsequent to the termina-tion and during 2011, S is granted another option un-der DD’s employee stock purchase plan. Under thatoption, S may be permitted to purchase $25,000 ofstock for 2011. The failure of S to exercise the option

December 7, 2009 733 2009–49 I.R.B.

granted to S in 2010, does not increase the amount ofstock that S may be permitted to purchase under theoption granted to S in 2011.

Example 3. Assume the same facts as in Example1, except that, on May 31, 2012, S exercised the op-tion granted to S in 2010, and purchased 600 sharesof DD stock. Five hundred shares, the maximumamount of stock that could have been purchased in2011, under the option, are treated as having been pur-chased for the years 2010 and 2011. Only 100 sharesof the stock are treated as having been purchased for2012. After S’s exercise of the option on May 31,2012, S is granted another option under DD’s em-ployee stock purchase plan. S may be permitted un-der the new option to purchase for 2012 stock havinga fair market value of no more than $15,000 at thetime the new option is granted.

Example 4. Corporation EE maintains an em-ployee stock purchase plan and Employee R is em-ployed by EE. On August 1, 2010, EE grants R anoption under the plan to purchase 150 shares of EEstock at $85 per share during each of the calendaryears 2010, 2011, and 2012. On that date, the fairmarket value of EE stock is $100 per share. The op-tion provides that it may be exercised at any time dur-ing years 2010, 2011, and 2012. Because this optionpermits R to purchase only $15,000 of EE’s stockfor each year the option is outstanding, R could begranted another option by EE, or by a related corpo-ration, in year 2010, permitting R to purchase an ad-ditional $10,000 of stock during each of the calendaryears 2010, 2011, and 2012.

Example 5. Corporation FF maintains an em-ployee stock purchase plan and Employee Q is em-ployed by FF. On September 1, 2010, FF grants Qan option under the plan that will be automaticallyexercised on August 31, 2011, and August 31, 2012.The terms of the option provide that no more than 150shares may be purchased on each date that the optionis automatically exercised. On August 31, 2011, Qmay purchase under the option an amount of FF stockequal to $50,000 in fair market value of FF stock (de-termined at the time the option was granted). On Au-gust 31, 2012, Q may purchase under the option anamount of FF stock equal to the difference between$75,000 in fair market value of FF stock (determinedat the time the option was granted) and the fair mar-ket value of FF stock (determined at the time of grantof the option) purchased during year 2011.

(j) Restriction on transferability. Anemployee stock purchase plan or offeringmust, by its terms, provide that optionsgranted under the plan are not transferableby the optionee other than by will or thelaws of descent and distribution, and mustbe exercisable, during the optionee’s life-time, only by the optionee. For generalrules relating to the restriction on transfer-ability required by this paragraph (j), see§1.421–1(b)(2). For a limited exception tothe requirement of this paragraph (j), seesection 424(h)(3).

(k) Special rule where option price isbetween 85 percent and 100 percent ofvalue of stock—(1)(i) If all the conditionsnecessary for the application of section

421(a) exist, this paragraph (k) providesadditional rules that are applicable in caseswhere, at the time the option is granted,the option price per share is less than 100percent (but not less than 85 percent) ofthe fair market value of the share. In thatcase, upon the disposition of the share bythe employee after the expiration of thetwo-year and the one-year holding periods,or upon the employee’s death while own-ing the share (whether occurring before orafter the expiration of such periods), thereshall be included in the employee’s grossincome as compensation (and not as gainupon the sale or exchange of a capital as-set) the lesser of—

(a) The amount, if any, by which theprice paid under the option was exceededby the fair market value of the share at thetime the option was granted, or

(b) The amount, if any, by which theprice paid under the option was exceededby the fair market value of the share at thetime of such disposition or death.

(ii) For purposes of applying the rulesof this paragraph (k), if the option price isnot fixed or determinable at the time theoption is granted, the option price will becomputed as if the option had been exer-cised at such time. The amount of compen-sation resulting from the application of thisparagraph (k) shall be included in the em-ployee’s gross income for the taxable yearin which the disposition occurs, or for thetaxable year closing with the employee’sdeath, whichever event results in the ap-plication of this paragraph (k).

(iii) The application of the special rulesprovided in this paragraph (k) shall not af-fect the rules provided in section 421(a)with respect to the employee exercising theoption, the employer corporation, or a re-lated corporation. Thus, notwithstandingthe inclusion of an amount as compensa-tion in the gross income of an employee,as provided in this paragraph (k), no in-come results to the employee at the timethe stock is transferred to the employee,and no deduction under section 162 is al-lowable at any time to the employer corpo-ration or a related corporation with respectto such amount.

(iv) If, during the employee’s lifetime,the employee exercises an option grantedunder an employee stock purchase plan,but the employee dies before the stock istransferred to the employee pursuant to theexercise of the option, then for the purpose

of sections 421 and 423, on the employee’sdeath, the stock is deemed to be transferredimmediately to the employee, and imme-diately thereafter, the employee is deemedto have transferred the stock to the em-ployee’s executor, administrator, trustee,beneficiary by operation of law, heir, orlegatee, as the case may be.

(2) If the special rules provided in thisparagraph (k) are applicable to the dis-position of a share of stock by an em-ployee, then the basis of the share in theemployee’s hands at the time of the dis-position, determined under section 1011,shall be increased by an amount equal tothe amount includible as compensation inthe employee’s gross income under thisparagraph (k). However, the basis of ashare of stock acquired after the death ofan employee by the exercise of an op-tion granted to the employee under an em-ployee stock purchase plan shall be deter-mined in accordance with the rules of sec-tion 421(c) and §1.421–2(c). If the specialrules provided in this paragraph (k) are ap-plicable to a share of stock upon the deathof an employee, then the basis of the sharein the hands of the estate or the person re-ceiving the stock by bequest or inheritanceshall be determined under section 1014,and shall not be increased by reason of theinclusion upon the decedent’s death of anyamount in the decedent’s gross income un-der this paragraph (k). See Example (9) ofthis paragraph (k) with respect to the deter-mination of basis of the share in the handsof a surviving joint owner.

(3) Examples. The following examplesillustrate the principles of this paragraph(k):

Example 1. On June 1, 2010, Corporation GGgrants to Employee P, an employee of GG, an op-tion under GG’s employee stock purchase plan to pur-chase a share of GG stock for $85. The fair marketvalue of GG stock on such date is $100 per share. OnJune 1, 2011, P exercises the option and on that dateGG transfers the share of stock to P. On January 1,2013, P sells the share for $150, its fair market valueon that date. P’s income tax return is filed on the basisof the calendar year. The income tax consequences toP and GG are as follows—

(i) Compensation in the amount of $15 is includi-ble in P’s gross income for the year 2013, the yearof the disposition of the share. The $15 representsthe difference between the option price ($85) and thefair market value of the share on the date the optionwas granted ($100), because the value is less than thefair market value of the share on the date of disposi-tion ($150). For the purpose of computing P’s gain orloss on the sale of the share, P’s cost basis of $85 isincreased by $15, the amount includible in P’s gross

2009–49 I.R.B. 734 December 7, 2009

income as compensation. Thus, P’s basis for the shareis $100. Because the share was sold for $150, P real-izes a gain of $50, which is treated as long-term cap-ital gain; and

(ii) GG is not entitled to any deduction under sec-tion 162 at any time with respect to the share trans-ferred to P.

Example 2. Assume the same facts as in Example1, except that P sells the share of GG stock on Jan-uary 1, 2014, for $75, its fair market value on thatdate. Because $75 is less than the option price ($85),no amount in respect of the sale is includible as com-pensation in P’s gross income for the year 2014. P’sbasis for determining gain or loss on the sale is $85.Because P sold the share for $75, P realized a loss of$10 on the sale that is treated as a long-term capitalloss.

Example 3. Assume the same facts as in Exam-ple 1, except that the option provides that the optionprice shall be 90 percent of the fair market value ofthe stock on the day the option is exercised. On June1, 2011, when the option is exercised, the fair mar-ket value of the stock is $120 per share so that P pays$108 for the share of the stock. Compensation in theamount of $10 is includible in P’s gross income forthe year 2013, the year of the disposition of the share.This is determined in the following manner: the ex-cess of the fair market value of the stock at the time ofthe disposition ($150) over the price paid for the share($108) is $42; and the excess of the fair market valueof the stock at the time the option was granted ($100)over the option price, computed as if the option hadbeen exercised at such time ($90), is $10. Accord-ingly, $10, the lesser, is includible in gross income.In this situation, P’s cost basis of $108 is increasedby $10, the amount includible in P’s gross income ascompensation. Thus, P’s basis for the share is $118.Because the share was sold for $150, P realizes a gainof $32 that is treated as long-term capital gain.

Example 4. Assume the same facts as in Exam-ple 1, except that the option provides that the optionprice shall be the lesser of 95 percent of the fair mar-ket value of the stock on the first day of the offeringperiod and 95 percent of the fair market value of thestock on the day the option is exercised. On June 1,2011, when the option is exercised, the fair marketvalue of the stock is $120 per share. P pays $95 forthe share of the stock. Compensation in the amountof $5 is includible in P’s gross income for the year2013, the year of the disposition of the share. This isdetermined in the following manner: the excess of thefair market value of the stock at the time of the dispo-sition ($150) over the price paid for the share ($95)is $55; and the excess of the fair market value of thestock at the time the option was granted ($100) overthe option price, computed as if the option had beenexercised at such time ($95), is $5. Accordingly, $5,the lesser, is includible in gross income. In this sit-uation, P’s cost basis of $95 is increased by $5, theamount includible in P’s gross income as compensa-tion. Thus, P’s basis for the share is $100. Becausethe share was sold for $150, P realizes a gain of $50that is treated as long-term capital gain.

Example 5. Assume the same facts as in Example1, except that instead of selling the share on January 1,2013, P makes a gift of the share on that day. In thatcase $15 is includible as compensation in P’s gross

income for 2013. P’s cost basis of $85 is increasedby $15, the amount includible in P’s gross income ascompensation. Thus, P’s basis for the share is $100,which becomes the donee’s basis, as of the time of thegift, for determining gain or loss.

Example 6. Assume the same facts as in Example2, except that instead of selling the share on January1, 2014, P makes a gift of the share on that date. Be-cause the fair market value of the share on that day($75) is less than the option price ($85), no amountin respect of the disposition by way of gift is includi-ble as compensation in P’s gross income for 2014. P’sbasis for the share is $85, which becomes the donee’sbasis, as of the time of the gift, for the purpose of de-termining gain. The donee’s basis for the purpose ofdetermining loss, determined under section 1015(a),is $75 (fair market value of the share at the date ofgift).

Example 7. Assume the same facts as in Exam-ple 1, except that after acquiring the share of stock onJune 1, 2011, P dies on August 1, 2012, at which timethe share has a fair market value of $150. Compensa-tion in the amount of $15 is includible in P’s gross in-come for the taxable year closing with P’s death, $15being the difference between the option price ($85)and the fair market value of the share when the op-tion was granted ($100), because such value is lessthan the fair market value at date of death ($150). Thebasis of the share in the hands of P’s estate is deter-mined under section 1014 without regard to the $15includible in the decedent’s gross income.

Example 8. Assume the same facts as in Example7, except that P dies on August 1, 2011, at which timethe share has a fair market value of $150. AlthoughP’s death occurred within one year after the transferof the share to P, the income tax consequences are thesame as in Example 7.

Example 9. Assume the same facts as in Exam-ple 1, except that the share of stock was issued in thenames of P and P’s spouse jointly with right of sur-vivorship, and that P and P’s spouse sold the share onJune 15, 2012, for $150, its fair market value on thatdate. Compensation in the amount of $15 is includi-ble in P’s gross income for the year 2012, the year ofthe disposition of the share. The basis of the share inthe hands of P and P’s spouse for the purpose of de-termining gain or loss on the sale is $100, that is, thecost of $85 increased by the amount of $15 includi-ble as compensation in P’s gross income. The gainof $50 on the sale is treated as long-term capital gain,and is divided equally between P and P’s spouse.

Example 10. Assume the same facts as in Exam-ple 1, except that the share of stock was issued in thenames of P and P’s spouse jointly with right of sur-vivorship, and that P predeceased P’s spouse on Au-gust 1, 2012, at which time the share had a fair mar-ket value of $150. Compensation in the amount of$15 is includible in P’s gross income for the taxableyear closing with his death. See Example 7. The basisof the share in the hands of P’s spouse as survivor isdetermined under section 1014 without regard to the$15 includible in the decedent’s gross income.

Example 11. Assume the same facts as in Exam-ple 10, except that P’s spouse predeceased P on July1, 2012. Section 423(c) does not apply in respect ofthe death of P’s spouse. Upon the subsequent deathof P on August 1, 2012, the income tax consequences

in respect of P’s taxable year closing with the date ofP’s death, and in respect of the basis of the share inthe hands of P’s estate, are the same as in Example7. If P had sold the share on July 15, 2012 (after thedeath of P’s spouse), for $150, its fair market value atthat time, the income tax consequences would be thesame as in Example 1.

(l) Effective/applicability date. Theregulations under this section are effectiveon November 17, 2009. These regula-tions apply to options granted under anemployee stock purchase plan on or afterJanuary 1, 2010.

Par. 6. Section 1.424–1, paragraphs(a)(10) Example 9 (iii) and (g)(1) are re-vised to read as follows:

§1.424–1 Definition and special rulesapplicable to statutory options.

(a) * * * (10) * * *Example 9. * * *(iii) Assume the same facts as in paragraphs (i)

and (ii) of this Example 9. Assume further that as partof the acquisition, X amends its plan to allow futuregrants under the plan to be grants to acquire Y stock.Because the amendment of the plan to allow optionson a different stock is considered the adoption of anew plan under §1.422–2(b)(2)(iii), the stockholdersof X (in this case, Y) must approve the plan within12 months before or after the date of the amendmentof the plan. If the stockholders of X (in this case, Y)timely approve the plan, the future grants to acquireY stock will be incentive stock options (assuming theother requirements of §1.422–2 have been met).

* * * * *(g) Effective/applicability date—(1) In

general. Except for §1.424–1(a)(10) Ex-ample 9 (iii), the regulations under this sec-tion are effective on August 3, 2004. Sec-tion 1.424–1(a)(10) Example 9 (iii) is ef-fective on November 17, 2009. Section1.424–1(a)(10) Example 9 (iii) applies tostatutory options granted on or after Jan-uary 1, 2010.

* * * * *

Linda E. Stiff,Deputy Commissioner forServices and Enforcement.

Approved November 9, 2009.

Michael F. Mundaca,Acting Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on November 16,2009, 8:45 a.m., and published in the issue of the FederalRegister for November 17, 2009, 74 F.R. 59074)

December 7, 2009 735 2009–49 I.R.B.

Section 424.—Definitionsand Special Rules

Final regulations clarify the shareholder approvalrequirements related to incentive stock options undersection 422. See T.D. 9471, page 722.

Section 467.—CertainPayments for the Use ofProperty or Services


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


Section 482.—Allocationof Income and DeductionsAmong Taxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—SpecialRules for Credits andDeductions


Section 807.—Rules forCertain Reserves

The adjusted federal short-term, mid-term, andlong-term rates are set forth for the month of Decem-ber 2009. See Rev. Rul. 2009-38, page 736.

Section 810.—OperationsLoss Deduction

Guidance is provided for taxpayers to elect a 4 or5 year carryback of losses from operations under sec-tion 13 of the Worker, Homeownership, and BusinessAssistance Act of 2009. See Rev. Proc. 2009-52,page 744.

Section 846.—DiscountedUnpaid Losses Defined


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

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes ofsections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for December 2009.

Rev. Rul. 2009–38

This revenue ruling provides variousprescribed rates for federal income taxpurposes for December 2009 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (adjustedAFR) for the current month for purposesof section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described insection 382(f). Table 4 contains the ap-propriate percentages for determining thelow-income housing credit described insection 42(b)(1) for buildings placed inservice during the current month. How-ever, under section 42(b)(2), the applicablepercentage for non-federally subsidizednew buildings placed in service after July30, 2008, and before December 31, 2013,shall not be less than 9%. Table 5 containsthe federal rate for determining the presentvalue of an annuity, an interest for life orfor a term of years, or a remainder or a re-versionary interest for purposes of section7520. Finally, Table 6 contains the 2010interest rate for sections 846 and 807.

2009–49 I.R.B. 736 December 7, 2009

REV. RUL. 2009–38 TABLE 1

Applicable Federal Rates (AFR) for December 2009

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR .69% .69% .69% .69%110% AFR .76% .76% .76% .76%120% AFR .83% .83% .83% .83%130% AFR .90% .90% .90% .90%

Mid-term

AFR 2.64% 2.62% 2.61% 2.61%110% AFR 2.90% 2.88% 2.87% 2.86%120% AFR 3.16% 3.14% 3.13% 3.12%130% AFR 3.44% 3.41% 3.40% 3.39%150% AFR 3.97% 3.93% 3.91% 3.90%175% AFR 4.64% 4.59% 4.56% 4.55%

Long-term

AFR 4.17% 4.13% 4.11% 4.09%110% AFR 4.59% 4.54% 4.51% 4.50%120% AFR 5.02% 4.96% 4.93% 4.91%130% AFR 5.44% 5.37% 5.33% 5.31%


Adjusted AFR for December 2009

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

.86% .86% .86% .86%

Mid-term adjusted AFR 2.25% 2.24% 2.23% 2.23%

Long-term adjustedAFR

4.14% 4.10% 4.08% 4.07%


Rates Under Section 382 for December 2009

Adjusted federal long-term rate for the current month 4.14%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.16%


Appropriate Percentages Under Section 42(b)(1) for December 2009

Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July30, 2008, and before December 31, 2013, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit 7.79%

Appropriate percentage for the 30% present value low-income housing credit 3.34%

December 7, 2009 737 2009–49 I.R.B.


Rate Under Section 7520 for December 2009

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 3.2%


Rates Under Sections 846 and 807

Applicable rate of interest for 2010 for purposes of sections 846 and 807 3.81%

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


Section 6039.—ReturnsRequired in ConnectionWith Certain Options

Final regulations provide guidance to assist corpo-rations that issue statutory stock options in comply-ing with the return and information statement require-ments under section 6039. See T.D. 9470, page 738.

26 CFR 1.6039–1: Returns required in connectionwith certain options.

T.D. 9470

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR part 1

Information ReportingRequirements Under InternalRevenue Code Section 6039


ACTION: Final regulations.

SUMMARY: This document contains thefinal regulations relating to the return andinformation statement requirements undersection 6039 of the Internal Revenue Code(Code). These regulations reflect changesto section 6039 made by section 403 of the

Tax Relief and Health Care Act of 2006.These regulations affect corporations thatissue statutory stock options and provideguidance to assist corporations in comply-ing with the return and information state-ment requirements under section 6039.

DATES: Effective Date: These regulationsare effective on November 17, 2009.

Applicability Date: For dates ofapplicability, see §§1.6039–1(f) and1.6039–2(e).

FOR FURTHER INFORMATIONCONTACT: Thomas Scholz orIlya Enkishev at (202) 622–6030 (not atoll-free number).


Paperwork Reduction Act

The collection of information containedin these regulations has been reviewedand approved by the Office of Manage-ment and Budget in accordance withthe Paperwork Reduction Act of 1995(44 U.S.C. 3507 (d)) under control number1545–2129. Responses to this collectionof information are required to assisttaxpayers with the completion of theirincome tax returns for the taxable yearin which a disposition of stock acquiredunder a statutory option occurs.

An agency may not conduct or sponsor,and a person is not required to respondto, a collection of information unless thecollection of information displays a validcontrol number assigned by the Office ofManagement and Budget.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax return

information are confidential, as requiredby 26 U.S.C. 6103.

Background

Section 403 of the Tax Relief andHealth Care Act of 2006 (Act) amendedthe information reporting requirements ofsection 6039. Prior to its amendment, sec-tion 6039 required corporations to furnisha written statement to each employee, ina manner prescribed by the Secretary inthe regulations, regarding: (i) the corpo-ration’s transfer of stock pursuant to theemployee’s exercise of an incentive stockoption described in section 422(b); and(ii) the transfer of stock by the employeewhere the stock was acquired pursuantto the exercise of an option described insection 423(c). Corporations must furnishemployees with the information state-ments required by section 6039 on orbefore January 31 of the year following theyear for which the statement is required.Prior to the amendment of section 6039made by the Act, the regulations undersection 6039 were last updated in 2004.See T.D. 9144, 2004–2 C.B. 413 (69 FR46401).

As amended by the Act, section 6039requires corporations to file an informa-tion return with the IRS, in addition toproviding employees with an informationstatement, following a stock transfer. Sec-tion 6039, as amended by the Act, ap-plies to stock transfers occurring on or af-ter January 1, 2007. However, in Notice2008–8, 2008–3 I.R.B. 276 (December 19,2007) (see §601.601(d)(2)(ii)(b)), the IRSwaived the obligation to file an informa-tion return for 2007 stock transfers gov-erned by section 6039.

On July 17, 2008, the Departmentof Treasury published a notice of pro-posed rulemaking (REG–103146–08,

2009–49 I.R.B. 738 December 7, 2009

2008–37 I.R.B. 701) in the FederalRegister (73 FR 40999) under section6039. In addition to describing the returnand information reporting requirementspursuant to section 6039, the noticeof proposed rulemaking waived theobligation to file an information returnfor 2008 stock transfers governed bysection 6039. A public hearing onthe proposed regulations was held onOctober 30, 2008. Written and electroniccomments responding to the notice ofproposed rulemaking were received.After consideration of these comments,the Department of Treasury adopts theproposed regulations as final regulations,with the modifications set forth in thisTreasury decision. The significantrevisions are discussed in this preamble.


1. Overview

These final regulations describe the in-formation that is required in the return filedwith the IRS and the information statementfurnished to employees pursuant to section6039. There are two sections under thesefinal regulations: §1.6039–1, Returns re-quired in connection with certain options;and §1.6039–2, Statements to persons withrespect to whom information is reported.A principal objective of these final reg-ulations is to require corporations to fur-nish employees with sufficient informationto enable them to calculate their tax obli-gations upon disposition of the shares ac-quired by the exercise of a statutory op-tion. As discussed further in this pream-ble, the IRS will issue two forms (withaccompanying instructions) that corpora-tions must use to satisfy the return andinformation statement requirements undersection 6039.

Comments received in response to theproposed regulations were generally fa-vorable. Commenters observed that theproposed regulations improved the exist-ing regulations by requiring corporationsto provide additional information useful toemployees for purposes of computing taxliability with respect to the disposition ofshares acquired pursuant to the exercise ofa statutory option. These final regulationsare generally similar to the proposed reg-ulations with the modifications described

below in response to the comments sub-mitted by taxpayers.

2. Return and information statementrequirements for stock acquired pursuantto incentive stock options

With respect to the transfer of stock pur-suant to the exercise of an incentive stockoption, the information required in the re-turn and the information statement pur-suant to §1.6039–1(a) and §1.6039–2(a) ofthese final regulations is the same infor-mation that is required pursuant to the pro-posed regulations.

3. Return and information statementrequirements for stock acquired underemployee stock purchase plans

a. Transfers of legal title for stockacquired under an employee stockpurchase plan

Section 6039(a)(2) requires every cor-poration which records (or has by its agentrecorded) a transfer of the legal title of ashare of stock acquired by the employeewhere the stock was acquired pursuant tothe exercise of an option described in sec-tion 423(c) to file a return with respectto each transfer made during a particu-lar year. Section 6039(c)(2) provides thatthe return under section 6039(a)(2) is re-quired only with respect to the first trans-fer of such stock by the person who ex-ercised the option. Section 6039(b) re-quires every corporation filing a return un-der section 6039(a)(2) to furnish to eachemployee named in such return a writtenstatement with respect to the transfer ortransfers made by the employee during aparticular year.

Several commenters noted that it hasbecome common practice for employersto maintain a system in which shares ac-quired by employees under an employeestock purchase plan are deposited directlyinto a brokerage account established on be-half of the employee. In the typical ar-rangement, a contractual agreement existswith a recognized broker or financial in-stitution, and employees who elect to par-ticipate in the employee stock purchaseplan direct that all shares acquired uponthe exercise of the option be immediatelydeposited into a brokerage account estab-lished on behalf of the employee. The le-gal title of the shares deposited into the

brokerage account is typically held by an-other entity acting as a securities deposi-tory, which holds the shares in the streetname of the broker. The employee has abeneficial interest in the shares, but the se-curities depository holds legal title of theshares.

The final regulations modify§1.6039–1(b)(3) of the proposed regula-tions to provide that a transfer of legaltitle to a recognized broker or financialinstitution immediately following the ex-ercise of an option is treated as the firsttransfer of legal title for purposes of thesection 6039(a)(2) filing requirement.Accordingly, if an employer operates anemployee stock purchase plan pursuant towhich shares acquired upon exercise ofthe option will be immediately depositedinto a brokerage account established onbehalf of the employee, then the deposit ofshares by the employee into the brokerageaccount following the exercise of the op-tion is the first transfer of legal title of theshares acquired by the employee and thecorporation is only required to file a returnrelating to such transfer of legal title.

For employees whose shares are imme-diately deposited into a brokerage accountfollowing the exercise of an option, the ex-ercise of the option and the first transferof legal title occur on the same date. Insuch a case, the dates to be provided under§§1.6039–1(b)(1)(vii) (the date the optionwas exercised) and (ix) (the date legal titlewas first transferred) will be the same.

If, instead of establishing a brokeragearrangement, an employer either issues astock certificate directly to an employeewho purchases stock pursuant to an em-ployee stock purchase plan, or registers theshares in the employee’s name on the em-ployer’s record books and the employeror its transfer agent holds the shares forthe employee in book-entry form, then, forpurposes of section 6039(a)(2) and (c)(2),the issuance of the stock certificate or theregistration of the stock ownership on therecord books is not considered the firsttransfer of legal title of the stock acquiredby the employee. Accordingly, the em-ployer is not required to file a return andfurnish an information statement to theemployee (pursuant to section 6039(a)(2)and (b)) with respect to such transfer of thestock to the employee. Instead, the em-ployer is required to file a return and fur-nish an information statement to the em-

December 7, 2009 739 2009–49 I.R.B.

ployee with respect to the first transferof the legal title of the stock acquired bythe employee (for example, when the em-ployee sells the stock or transfers the stockto a brokerage account established on be-half of the employee). Consequently, ifa stock certificate is issued or the owner-ship of the shares is registered on the em-ployer’s record books following the exer-cise of an option, the exercise of the optionand the first transfer of legal title occur ondifferent dates, unless the shares are imme-diately sold or otherwise transferred. Ac-cordingly, in such a case, the dates to beprovided under §§1.6039–1(b)(1)(vii) (thedate the option was exercised) and (ix) (thedate legal title was first transferred) will bedifferent.

b. Reporting of information with respectto the special tax rule under section 423(c)

Acknowledging that one of the primarypurposes of these regulations is to provideinformation to employees for purposes ofcomputing their tax liability with respectto the disposition of shares acquired pur-suant to statutory options, commenterssuggested that the return and informationstatement provided with respect to optionsgranted under an employee stock pur-chase plan contain additional informationnecessary to calculate the tax liability inthe case of a qualifying disposition of thestock. Under section 423(a), a qualifyingdisposition occurs if the stock acquiredunder an employee stock purchase plan isdisposed of no earlier than two years afterthe date of grant of the option and one yearafter the date of exercise of the option.

Section 423(c) provides a special rulefor calculating the timing and amount ofcompensation income that must be recog-nized in the event of a qualifying dispo-sition when the exercise price is less than100 percent of the value of a share on thedate of grant. Generally, the compensationincome recognized is the lesser of: (a) theexcess of the fair market value of the shareon the date of grant over the exercise price,and (b) the excess of the fair market valueof a share at the time of disposition (ordeath) over the price paid per share. Theflush language of section 423(c) providesthat if the exercise price is not known onthe date of grant, the exercise price shallbe determined as if the option were exer-cised on the date of grant.

There are various circumstances underwhich the exercise price will not be knownon the date of grant. For example, the ex-ercise price will not be known on the dateof grant if the exercise price is equal tothe lesser of 85 percent of the fair mar-ket value of the stock on the date of grantor 85 percent of the fair market value ofthe stock on the date of exercise. In addi-tion, the exercise price will not be knownon the date of grant if the exercise priceis calculated based on a certain percentage(not less than 85 percent) of the fair marketvalue of the stock on the date of exercise.In order to compute the tax liability re-sulting from a qualifying disposition of thestock acquired using either of the forego-ing pricing formulas, the employee needsto know the exercise price determined asif the option were exercised on the date ofgrant of the option.

In response to the comments, these finalregulations modify the proposed regula-tions by adding §1.6039–1(b)(vi) to thesefinal regulations. If the exercise price pershare of an option is not fixed or deter-minable on the date the option was grantedto the employee, §1.6039–1(b)(vi) of thesefinal regulations requires corporations toinclude in the return and information state-ment the exercise price per share deter-mined as if the option were exercised onthe date of grant.

c. Requirement of return and informationstatement under section 6039(a)(2) and(b)

Commenters asked for clarificationregarding whether the return and infor-mation statement requirements of section6039(a)(2) and (b) apply only to the trans-fer of shares pursuant to a qualifyingdisposition. Section 6039(a)(2) requiresthat an information return be filed by ev-ery corporation which in any calendaryear records (or has by its agent recorded)a transfer of the legal title of a share ofstock acquired by the transferor pursuantto his or her exercise of an option de-scribed in section 423(c). The IRS andthe Treasury Department have concludedthat the reference in section 6039(a)(2)to an option described in section 423(c)relates to the exercise price of the op-tion (as evidenced by the parentheticalphrase in section 6039(a)(2) following thereference to section 423(c)) rather than

whether or not the shares are disposedof in a qualifying disposition as also de-scribed in section 423(c). Furthermore,section 6039(c)(2) provides that the returnand information statement requirementsof section 6039(a)(2) and (b) are triggeredby the first transfer of the legal title of theshares. This provision would be unneces-sary if section 6039(a)(2) only applied toqualifying dispositions. Therefore, thesefinal regulations provide that the returnand information statement requirementsare not dependent upon whether suchtransfer of legal title is a qualifying ordisqualifying disposition.

Commenters also asked for clarifica-tion regarding whether the return and in-formation statement requirements of sec-tion 6039(a)(2) and (b) only apply to thetransfer of shares acquired pursuant to anoption described in section 423(c) wherethe exercise price is less than 100 percentof the value of a share on the date of grant.These final regulations provide that thereturn and information statement require-ments of section 6039(a)(2) and (b) alsoapply to the transfer of shares acquired pur-suant to an option where the exercise priceis not fixed or determinable on the date ofgrant, as well as to the transfer of sharesacquired pursuant to an option described insection 423(c) where the exercise price isless than 100 percent of the value of a shareon the date of grant.

4. Nonresident aliens

Several commenters suggested that thereturn and information statement require-ments of section 6039 should not applyto nonresident aliens (as defined in sec-tion 7701(b)) who perform services out-side the United States. These commenterspoint out that the reported information maynot be useful to nonresident aliens becausethey likely will not have any U.S. tax lia-bility.

In response to comments, these finalregulations modify the proposed regula-tions by adding §1.6039–1(e) which pro-vides an exception to the return require-ments of section 6039(a) for certain non-resident aliens. With respect to incentivestock options, the return requirement ofsection 6039(a)(1) is not applicable to theexercise of an incentive stock option by anemployee who is a nonresident alien andto whom the corporation is not required

2009–49 I.R.B. 740 December 7, 2009

to provide a Form W–2, Wage and TaxStatement (or its designated successor) forany calendar year within the time periodbeginning with the first day of the calen-dar year in which the option was grantedto the employee and ending on the lastday of the calendar year in which the em-ployee exercised the incentive stock op-tion. With respect to employee stock pur-chase plans, the return requirement of sec-tion 6039(a)(2) is not applicable to thefirst transfer of legal title of a share ofstock by an employee who is a nonresi-dent alien and to whom the corporation isnot required to provide a Form W–2 forany calendar year within the time periodbeginning with the first day of the calen-dar year in which the option was grantedto the employee and ending on the lastday of the calendar year in which the em-ployee first transferred legal title to sharesacquired under the option. For purposesof §1.6039–1(e) of these final regulations,the term corporation is defined in section7701(a) and includes, but is not limited to,the corporation issuing the stock, a relatedcorporation of the corporation, any agentof the corporation, any party distributingshares of stock or other payments in con-nection with the plan (for example, a bro-kerage firm), and any party in control ofthe payment of remuneration for employ-ment to the employee.

5. Forms to satisfy the return andinformation statement requirements

Returns required by §1.6039–1(a) ofthese final regulations and informationstatements required by §1.6039–2(a) ofthese final regulations must be made usingForm 3921, Exercise of an Incentive StockOption Under Section 422(b) (or its des-ignated successor) and filed in the mannerprovided in the instructions thereto. Re-turns required by §1.6039–1(b) of thesefinal regulations and information state-ments required by §1.6039–2(b) of thesefinal regulations must be made using Form3922, Transfer of Stock Acquired Throughan Employee Stock Purchase Plan UnderSection 423(c) (or its designated succes-sor) and filed in the manner provided in theinstructions thereto. Section 1.6039–1(c)of the proposed regulations provided thatForms 3921 and 3922 must be filed on orbefore January 31 of the year followingthe year for which the return and state-

ment are required. Section 1.6039–1(c) ofthese final regulations has been revised toprovide that Forms 3921 and 3922 mustbe filed in accordance with the guidelinesand procedures set forth in the instructionsto Forms 3921 and 3922. The IRS expectsto release Forms 3921 and 3922 in the nearfuture.

Several commenters suggested thattaxpayers be allowed to satisfy the in-formation statement requirements of§1.6039–2(a) and (b) of these final regu-lations by delivering a substitute form thatincludes all of the information required tobe included on the Forms 3921 or 3922,as applicable. Taxpayers may satisfy thereturn requirements of §1.6039–1(a) and(b) as well as the information statementrequirements of §1.6039–2(a) and (b) bysubmitting substitute Forms 3921 and3922 in accordance with the guidelines setforth in Publication 1179 (or its designatedsuccessor). For example, it would be per-missible for a taxpayer to satisfy the returnrequirements of §1.6039–1(a) and (b) bysubmitting Forms 3921 and 3922 to theIRS, and satisfy the information statementrequirements of §1.6039–2(a) and (b) bydelivering substitute Forms 3921 and 3922to the appropriate recipients in accordancewith the guidelines set forth in Publication1179 (or its designated successor).

Effective/Applicability Date

These final regulations will apply asof January 1, 2007. However, taxpay-ers are not required to comply with thereturn requirements of §1.6039–1(a) and(b) of these final regulations for stocktransfers that occur during the 2007, 2008and 2009 calendar years. Notwithstand-ing the waiver of the return requirementsfor 2007, 2008 and 2009 stock trans-fers, taxpayers must furnish informationstatements to employees for such stocktransfers. For purposes of furnishinginformation statements for stock trans-fers that occur during the 2007 or 2008calendar years, taxpayers may rely on§1.6039–1 of the 2004 final regulations((69 FR 46401) or §1.6039–2 of the 2008proposed regulations (REG–103146–08))(73 FR 40999). For purposes of furnishinginformation statements for stock transfersthat occur during the 2009 calendar year,taxpayers may rely on §1.6039–1 of the2004 final regulations (69 FR 46401),

§1.6039–2 of the 2008 proposed regula-tions (REG–103146–08) (73 FR 40999),or these final regulations.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Or-der 12866. Therefore, a regulatory assess-ment is not required. It is hereby certi-fied that the regulations will not have asignificant economic impact on a substan-tial number of small entities. This certi-fication is based on the fact that the fil-ing of a return with the IRS and the provi-sion of employee statements required un-der this Treasury decision will impose aminimal administrative burden on smallentities. It is estimated that it will takeapproximately 30 minutes to prepare andprovide the information required by theseregulations. Further, the information to beprovided is readily available. Therefore,an analysis under the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) is not required.Pursuant to section 7805(f) of the Inter-nal Revenue Code, the notice of proposedrulemaking that preceded these regulationswas submitted to the Chief Counsel forAdvocacy of the Small Business Adminis-tration for comment on its impact on smallbusiness.


The principal authors of theseregulations are Thomas Scholz andIlya Enkishev, Office of the DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities).However, other personnel from the IRSand Treasury Department participated intheir development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:



Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.6039–1 is revised to

read as follows:

December 7, 2009 741 2009–49 I.R.B.

§1.6039–1 Returns required in connectionwith certain options.

(a) Requirement of return with respectto incentive stock options under section6039(a)(1). (1) Every corporation whichin any calendar year transfers to any per-son a share of stock pursuant to such per-son’s exercise of an incentive stock optionshall, for such calendar year, file a returnwith respect to each transfer made duringsuch year. This return must include the fol-lowing information—

(i) The name, address, and employeridentification number of the corporationtransferring the stock;

(ii) If other than the corporation identi-fied in paragraph (a)(1)(i) of this section,the name, address and employer identifi-cation number of the corporation whosestock is being transferred;

(iii) The name, address, and identifyingnumber of the person to whom the share orshares of stock were transferred pursuantto the exercise of the option;

(iv) The date the option was granted tothe person;

(v) The exercise price per share;(vi) The date the option was exercised

by the person;(vii) The fair market value of a share of

stock on the date the option was exercisedby the person; and

(viii) The number of shares of stocktransferred to the person pursuant to theexercise of the option.

(2) Each return required by this para-graph (a) shall be made on Form 3921, Ex-ercise of an Incentive Stock Option UnderSection 422(b) (or its designated succes-sor) and shall be filed in such manner asprovided in the instructions thereto.

(b) Requirement of return with re-spect to stock purchased under an em-ployee stock purchase plan under section6039(a)(2). (1) Every corporation whichin any calendar year records, or has byits agent recorded, a transfer of the le-gal title of a share of stock acquired bythe transferor (person who acquires theshares pursuant to the exercise of the op-tion) pursuant to the transferor’s exerciseof an option granted under an employeestock purchase plan as described in sec-tion 423(c) and where the exercise priceis less than 100 percent of the value ofthe stock on date of grant or is not fixedor determinable on the date of the grant,

shall, for such calendar year, file a returnwith respect each transfer made duringsuch year. This return must include thefollowing information—

(i) The name, address, and identifyingnumber of the transferor;

(ii) The name, address and employeridentification number of the corporationwhose stock is being transferred;

(iii) The date the option was granted tothe transferor;

(iv) The fair market value of the stockon the date the option was granted;

(v) The actual exercise price paid pershare;

(vi) The exercise price per share deter-mined as if the option were exercised onthe date the option was granted to the trans-feror (to be provided only if the exerciseprice per share is not fixed or determinableon the date the option was granted);

(vii) The date the option was exercisedby the transferor;

(viii) The fair market value of the stockon the date the option was exercised by thetransferor;

(ix) The date the legal title of the shareswas transferred by the transferor (see para-graph (b)(3) of this section); and

(x) The number of shares to which legaltitle was transferred by the transferor.

(2) Each return required by this para-graph (b) shall be made on Form 3922,Transfer of Stock Acquired Through anEmployee Stock Purchase Plan Under Sec-tion 423(c) (or its designated successor)and shall be filed in such manner as pro-vided in the instructions thereto.

(3) A return is required by reason ofa transfer described in section 6039(a)(2)only with respect to the first transfer of le-gal title of the shares by the transferor, in-cluding the first transfer of legal title toa recognized broker or financial institu-tion. If a contractual agreement exists oris entered into with a recognized brokeror financial institution pursuant to whichshares acquired upon exercise of the op-tion will be immediately deposited into abrokerage account established on behalf ofthe transferor, then the deposit of shares bythe transferor into the brokerage accountfollowing the exercise of the option is thefirst transfer of legal title of the shares ac-quired by the transferor, and the corpora-tion is only required to file a return relatingto such transfer of legal title.

(4) Every corporation that transfers anyshare of stock pursuant to the exercise ofan option described in this paragraph shallidentify such stock in a manner sufficientto enable the accurate reporting of thetransfer of legal title to such shares. Suchidentification may be accomplished byassigning to the certificates of stock issuedpursuant to the exercise of such options aspecial serial number or color.

(c) Time for filing returns. Each returnrequired by this section for a calendar yearmust be filed in accordance with the guide-lines and procedures set forth in the in-structions to Form 3921 and Form 3922.

(d) Penalty. For provisions relating tothe penalty applicable to the failure to file areturn under this section, see section 6721.

(e) Exception to return requirementsof section 6039(a) for certain nonresidentaliens— (1) Return requirement under sec-tion 6039(a)(1). The return requirement ofsection 6039(a)(1) is not applicable to theexercise of an incentive stock option by anemployee who is a nonresident alien (asdefined in section 7701(b)) and to whomthe corporation is not required to providea Form W–2, Wage and Tax Statement (orits designated successor) for any calendaryear within the time period beginning withthe first day of the calendar year in whichthe option was granted to the employeeand ending on the last day of the calendaryear in which the employee exercised theoption.

(2) Return requirement under section6039(a)(2). The return requirement of sec-tion 6039(a)(2) is not applicable to the firsttransfer of legal title of a share of stock byan employee who is a nonresident alien (asdefined in section 7701(b)) and to whomthe corporation is not required to providea Form W–2 for any calendar year withinthe time period beginning with the firstday of the calendar year in which the op-tion was granted to the employee and end-ing on the last day of the calendar year inwhich the employee first transferred legaltitle to shares acquired under the option asdescribed in paragraph (b)(3) of this sec-tion.

(3) For purposes of this paragraph (e),the term corporation is defined in section7701(a) and includes, but is not limited to,the corporation issuing the stock, a relatedcorporation of the corporation, any agentof the corporation, any party distributingshares of stock or other payments in con-

2009–49 I.R.B. 742 December 7, 2009

nection with the plan (for example, a bro-kerage firm), and any party in control ofthe payment of remuneration for employ-ment to the employee.

(f) Effective/applicability date—(1)In general. This section is effective onNovember 17, 2009. This section willapply as of January 1, 2007.

(2) Transition period. Taxpayers arenot required to comply with the return re-quirements of paragraphs (a) and (b) ofthis section for stock transfers that occurduring the 2007, 2008 and 2009 calendaryears.

Par. 3. A new §1.6039–2 is added toread as follows:

§1.6039–2 Statements to persons withrespect to whom information is reported.

(a) Requirement of statement with re-spect to incentive stock options under sec-tion 6039(b). (1) Every corporation fil-ing a return under §1.6039–1(a) shall fur-nish to each person whose name is set forthin such return a written statement withrespect to the transfer or transfers madeto such person during such year. Thisstatement must include the information de-scribed in §1.6039–1(a)(1).

(2) Each statement required by thisparagraph (a) to be furnished to any per-son must be furnished to such person onForm 3921, Exercise of an Incentive StockOption Under Section 422(b) (or its desig-nated successor) and be delivered at suchtime and in such manner as provided inthe instructions thereto.

(b) Requirement of statement withrespect to stock purchased under an em-ployee stock purchase plan under section6039(b). (1) Every corporation filing areturn under §1.6039–1(b) shall furnishto each person whose name is set forthin such return a written statement withrespect to the transfer or transfers madeby such person during such year. Thisstatement must include the informationdescribed in §1.6039–1(b)(1).

(2) Each statement required by thisparagraph (b) to be furnished to any person

must be furnished to such person on Form3922, Transfer of Stock Acquired Throughan Employee Stock Purchase Plan UnderSection 423(c) (or its designated succes-sor) and be delivered at such time and insuch manner as provided in the instruc-tions thereto.

(3) If the statement required by thisparagraph is made by the authorized trans-fer agent of the corporation, it is deemedto have been made by the corporation. Theterm transfer agent, as used in this section,means any designee authorized to keep thestock ownership records of a corporationand to record a transfer of title of the stockof such corporation on behalf of such cor-poration.

(c) Time for furnishing statements—(1)In general. Each statement required by thissection to be furnished to any person fora calendar year must be furnished to suchperson on or before January 31 of the yearfollowing the year for which the statementis required.

(2) Extension of time. An extension oftime to furnish statements required by thissection may be granted in accordance withthe guidelines and procedures set forth inthe instructions to Form 3921 and Form3922.

(d) Penalty. For provisions relating tothe penalty applicable to the failure to fur-nish a statement under this section, see sec-tion 6722.

(e) Effective/applicability date—(1)In general. This section is effective onNovember 17, 2009. This section willapply as of January 1, 2007.

(2) Reliance and transition period.Notwithstanding §1.6039–1(f), corpora-tions must furnish information statementsto employees in accordance with thissection for stock transfers that are sub-ject to §1.6039–1(a) and (b), and occurduring the 2007, 2008 and 2009 calen-dar years. For purposes of furnishinginformation statements for stock trans-fers that occur during the 2007 or 2008calendar years, taxpayers may rely on§1.6039–1 of the 2004 final regulations(69 FR 46401) or §1.6039–2 of the 2008

proposed regulations (REG–103146–08)(73 FR 40999). For purposes of furnishinginformation statements for stock transfersthat occur during the 2009 calendar year,taxpayers may rely on §1.6039–1 of the2004 final regulations (69 FR 46401),§1.6039–2 of the 2008 proposed regula-tions (REG–103146–08) (73 FR 40999),or this section.


Approved November 9, 2009.

Michael F. Mundaca,Acting Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on November 16,2009, 8:45 a.m., and published in the issue of the FederalRegister for November 17, 2009, 74 F.R. 59087)

Section 6411.—TentativeCarryback and RefundAdjustments

Guidance is provided for taxpayers to elect the 3,4, or 5 year carryback of net operating losses or lossesfrom operations under section 13 of the Worker,Homeownership, and Business Assistance Act of2009 by filing Form 1045, Application for TentativeRefund, or Form 1139, Corporation Application forTentative Refund. See Rev. Proc. 2009-52, page 744.

Section 7520.—ValuationTables


Section 7872.—Treatmentof Loans With Below-MarketInterest Rates


December 7, 2009 743 2009–49 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous26 CFR 601.105: Examination of returns and claimsfor refund, credit or abatement; determination of cor-rect tax liability.(Also Part I, §§ 172, 6411.)

Rev. Proc. 2009–52

SECTION 1. PURPOSE

.01 This revenue procedure providesguidance under § 13 of the Worker, Home-ownership, and Business Assistance Actof 2009, Pub. L. No. 111–92, 123 Stat.2984 (November 6, 2009) (the Act). Sec-tion 13 of the Act amends §§ 172(b)(1)(H)and 810(b) of the Internal Revenue Codeto allow taxpayers to elect to carry back anapplicable net operating loss (NOL) for aperiod of 3, 4, or 5 years, or a loss from op-erations for 4 or 5 years, to offset taxableincome in those preceding taxable years.This revenue procedure applies to lossesfrom operations of a life insurance com-pany under § 810 in the same manner asto NOLs under § 172.

.02 This revenue procedure pre-scribes when and how to elect under§ 172(b)(1)(H) to carry back an applica-ble NOL for a period of 3, 4, or 5 yearsfor (1) taxpayers that have not claimeda deduction for an applicable NOL; (2)taxpayers that previously claimed a de-duction for an applicable NOL; and (3)taxpayers that previously filed an electionunder §§ 172(b)(3) or 810(b)(3) to forgothe NOL carryback period.

SECTION 2. BACKGROUND

.01 Section 172(a) allows a deductionequal to the aggregate of the NOL carry-overs and carrybacks to the taxable year.Section 172(b)(1)(A)(i) provides that anNOL for any taxable year generally mustbe carried back to each of the 2 yearspreceding the taxable year of the NOL.Section 172(b)(3) provides that any tax-payer entitled to a carryback period under§ 172(b)(1) may make an irrevocable elec-tion to relinquish the carryback period foran NOL for any taxable year.

.02 Section 810(b)(1)(A) provides thatlife insurance companies may carry backan NOL for any taxable year to each of the3 years preceding the taxable year of theloss. Section 810(b)(3) provides that any

taxpayer entitled to a carryback period un-der § 810(b)(1) may make an irrevocableelection to relinquish the carryback periodfor a loss from operations for any taxableyear.

.03 Section 6411(a) provides that a tax-payer may file an application for a tenta-tive carryback adjustment of the tax forthe prior taxable year affected by an NOLcarryback from any taxable year. Sec-tion 6411(a) also provides that the appli-cation must be filed on or after the dateof filing for the return for the taxable yearof the NOL from which the carryback re-sults and within a period of 12 months af-ter that taxable year or, for any portion ofa business credit carryback attributable toan NOL from a subsequent taxable year,within a period of 12 months from the endof the subsequent taxable year. Section6411(b) provides a 90-day period duringwhich the Internal Revenue Service willmake a limited examination of the appli-cation to discover omissions and errors ofcomputation and determine the amount ofthe decrease in tax attributable to the car-ryback. The Service may disallow, with-out further action, any application that con-tains errors of computation that cannot becorrected within the 90-day period or thatcontains material omissions. The decreasein tax attributable to the carryback is ap-plied against unpaid amounts of tax. Anyremainder of the decrease is credited or re-funded within the 90-day period.

.04 Section 1211 of the American Re-covery and Reinvestment Tax Act of 2009,Div. B of Pub. L. No. 111–5, 123 Stat. 115(February 17, 2009) (ARRA), amended§ 172(b)(1)(H) to allow an eligible smallbusiness (ESB) to elect to carry back a2008 applicable NOL for a period of 3, 4,or 5 years (the ARRA election). Unlikethe § 172(b)(1)(H) election under the Act(referred to in this revenue procedure asthe § 172(b)(1)(H) election), the ARRAelection is applicable only to an NOL at-tributable to an ESB. The ARRA electionis irrevocable and may be made for onlyone taxable year. Rev. Proc. 2009–26,2009–19 I.R.B. 935 (April 25, 2009),modifying and superseding Rev. Proc.2009–19, 2009–14 I.R.B. 747 (March 16,2009), advises taxpayers how to make theARRA election.

.05 Section 172(b)(1)(H)(i), asamended by the Act, permits a taxpayerto elect to carry back its applicable NOLto 3, 4, or 5 years preceding the taxableyear of the applicable NOL. This elec-tion is not limited to an ESB. Section172(b)(1)(H)(ii) provides that the term“applicable net operating loss” means thetaxpayer’s NOL for a taxable year endingafter December 31, 2007, and beginningbefore January 1, 2010.

.06 Section 172(b)(1)(H)(iii) providesthat the election under § 172(b)(1)(H) is re-quired to be made in a manner prescribedby the Secretary, and must be made bythe due date (including extensions) for fil-ing the return for the taxpayer’s last tax-able year beginning in 2009. The elec-tion is irrevocable and, in general, may bemade for only one taxable year. However,§ 172(b)(1)(H)(v) allows a taxpayer thatmade or makes an ARRA election also tomake an election under § 172(b)(1)(H) foranother taxable year.

.07 Section 172(b)(1)(H)(iv) limits theamount of an NOL that a taxpayer electsunder § 172(b)(1)(H)(i) to carry back to the5th taxable year preceding the taxable yearof the loss to 50 percent of the taxpayer’staxable income for the carryback taxableyear. The taxable income for the carrybacktaxable year is computed without regard tothe NOL for the loss year or any taxableyear thereafter. The excess of the amountof the loss over 50 percent of the taxableincome, as determined under § 172(b)(2),for the carryback taxable year is carried tolater taxable years. For the carryback of analternative tax NOL to the 5th taxable yearpreceding the taxable year of the loss, the50 percent limitation is applied separatelybased on the alternative minimum taxableincome. The § 172(b)(1)(H)(iv) limitationdoes not apply to an NOL carryback underthe ARRA election.

.08 Section 13(e)(4) of the Act pro-vides that a taxpayer that has elected un-der §§ 172(b)(3) or 810(b)(3) to forgo acarryback for a loss for a taxable yearending before the date of enactment ofthe Act (November 6, 2009) may revokethat election before the due date (includ-ing extensions) for filing the return for thetaxpayer’s last taxable year beginning in2009. An application under § 6411(a) for

2009–49 I.R.B. 744 December 7, 2009

the applicable NOL is treated as timely iffiled before that due date.

.09 Section 13(c) of the Act amends§ 810(b) to allow life insurance companiesto elect to carry back an applicable lossfrom operations for 4 or 5 taxable years.An applicable loss from operations is a lossfrom operations for a taxable year endingafter December 31, 2007, and beginningbefore January 1, 2010.

.10 Section 13(f) of the Act providesthat § 172(b)(1)(H) does not apply toany taxpayer that received certain ben-efits (whether or not repaid) under theEmergency Economic Stabilization Actof 2008, Title I of Div. A of Pub. L. No.110–343, 122 Stat. 3765 (TARP recip-ients), or to members of the taxpayer’saffiliated group.

SECTION 3. SCOPE

Except as provided in § 13(f) of the Act,this revenue procedure applies to taxpay-ers that incurred an applicable NOL or anapplicable loss from operations for a tax-able year ending after December 31, 2007,and beginning before January 1, 2010.

SECTION 4. APPLICATION

.01 Time and manner of making theelection under § 172(b)(1)(H).

(1) In general. A taxpayer withinthe scope of this revenue procedure maymake the election under § 172(b)(1)(H) or§ 810(b)(4) by following the procedure de-scribed in either section 4.01(3) or section4.01(4) of this revenue procedure. Theprocedures under this revenue procedurethat apply to NOLs and the election under§ 172(b)(1)(H) also apply to a loss fromoperations of a life insurance companyand the election under § 810(b)(4).

(2) Affiliated groups. For purposesof this revenue procedure, “taxpayer”includes an affiliated group filing a consol-idated return, “applicable NOL” includesa consolidated net operating loss (CNOL),and the common parent of the groupmakes the § 172(b)(1)(H) election. See§ 1.1502–21(b); § 1.1502–77(a). How-ever, nothing in this revenue procedurepermits a consolidated return group tootherwise make or revoke a carrybackwaiver election for the CNOL attributableto a member acquired from another group,described in § 1.1502–21(b)(3)(ii)(B). The

conditions under which this election maybe permitted will be the subject of separateguidance.

(3) Electing on a federal income tax re-turn for the taxable year of the applicableNOL.

(a) What to file. A taxpayer may makethe election under § 172(b)(1)(H) by at-taching a statement to the taxpayer’s fed-eral income tax return for the taxable yearin which the applicable NOL arises. A tax-payer that filed its federal income tax re-turn for the taxable year of the applicableNOL may make the election by attachinga statement to an amended return for thetaxable year of the applicable NOL. Theelection statement must state that the tax-payer is electing to apply § 172(b)(1)(H)or § 810(b)(4) under Rev. Proc. 2009–52,and that the taxpayer is not a TARP recip-ient nor, in 2008 or 2009, an affiliate of aTARP recipient. The statement must spec-ify the length of the NOL carryback periodthe taxpayer elects (3, 4, or 5 years).

(b) When to file. A taxpayer must filethe election statement with the taxpayer’soriginal or amended federal income tax re-turn for the taxable year of the applicableNOL on or before the due date (includ-ing extensions) for filing the return for thetaxpayer’s last taxable year beginning in2009.

(c) Carryback applications or re-fund claims. A taxpayer that makes the§ 172(b)(1)(H) election under this section4.01(3) must attach a copy of the electionstatement to the taxpayer’s claim for ten-tative carryback adjustment (Form 1045,Application for Tentative Refund; or Form1139, Corporation Application for Tenta-tive Refund) or amended return applyingthe applicable NOL to the carryback year.The due date for timely filing a claim fortentative carryback adjustment on Form1045 or 1139 for a taxpayer that makes the§ 172(b)(1)(H) election is extended to thedue date (including extensions) for filingthe return for the taxpayer’s last taxableyear beginning in 2009.

(4) Electing on an appropriate form. Inlieu of the procedures described in section4.01(3) of this revenue procedure, a tax-payer may make the § 172(b)(1)(H) elec-tion on an appropriate form under this sec-tion 4.01(4).

(a) What to file.(i) A taxpayer may make the

§ 172(b)(1)(H) election by attaching an

election statement to the appropriate formthe taxpayer files applying the NOL car-ryback period the taxpayer elects. Theelection statement must state that the tax-payer is electing to apply § 172(b)(1)(H)or § 810(b)(4) under Rev. Proc. 2009–52,and that the taxpayer is not a TARP recip-ient nor, in 2008 or 2009, an affiliate of aTARP recipient. The statement must spec-ify the length of the NOL carryback periodthe taxpayer elects (3, 4, or 5 years). Theappropriate form is—

(A) For corporations, Form 1139 orForm 1120X, Amended U.S. CorporationIncome Tax Return;

(B) For individuals, Form 1045 or Form1040X, Amended U.S. Individual IncomeTax Return;

(C) For estates or trusts, Form 1045 oramended Form 1041, U.S. Income Tax Re-turn for Estates and Trusts.

(D) For tax exempt organizations withunrelated business income, Form 1139 oramended Form 990–T, Exempt Organi-zation Business Income Tax Return (andproxy tax under section 6033(e)).

(b) When to file. When using an ap-propriate form to make the election underthis paragraph 4.01(4), the taxpayer mustfile the form on or before the due date (in-cluding extensions) for filing the return forthe taxpayer’s last taxable year beginningin 2009. The taxpayer’s time for claiminga tentative carryback adjustment on Form1045 or 1139 also is extended to this date.

.02 Taxpayers that previously filed acarryback application or claim.

(1) In general. A taxpayer that previ-ously filed an application for a tentativecarryback adjustment (whether or not theService has acted upon the application) oran amended return (except to the extentthat the application or claim was for anapplicable NOL for which an ESB madean ARRA election) may make the electionunder § 172(b)(1)(H) by following the pro-cedures under section 4.01(3) or (4) of thisrevenue procedure. The taxpayer’s elec-tion statement must state that the electionamends a previous carryback applicationor claim.

(2) Additional rules. A taxpayer’samendment of a carryback application orclaim also applies to a carryback of anyalternative tax NOL for the same taxableyear. In the case of an amended applica-tion for a tentative carryback adjustment,the 90-day period described in § 6411(b)

December 7, 2009 745 2009–49 I.R.B.

begins on the date the taxpayer files theamended application.

.03 Revocation of the election to waiveNOL carryback period. A taxpayer withinthe scope of this revenue procedure thatpreviously elected under § 172(b)(3) or§ 810(b)(3) to forgo the carryback periodfor an applicable NOL for a taxable yearending before November 6, 2009, may re-voke that election and make the electionunder § 172(b)(1)(H). Any revocation ofthe election to forgo the NOL carrybackperiod also will apply to a carryback ofany alternative tax NOL for the same tax-able year. The taxpayer may make therevocation and the election by followingthe procedures under section 4.01(3) or(4) of this revenue procedure. The elec-tion statement must state that the taxpayeris revoking an NOL (or loss from oper-ations) carryback waiver and electing toapply § 172(b)(1)(H) or § 810(b)(4) un-der Rev. Proc. 2009–52, and that thetaxpayer is not a TARP recipient nor, in2008 or 2009, an affiliate of a TARP recip-ient. The statement must specify the lengthof the NOL carryback period the taxpayerelects (3, 4, or 5 years). The taxpayer mustfile the revocation and the election under§ 172(b)(1)(H) before the due date (includ-ing extensions) for filing the return for thetaxpayer’s last taxable year beginning in2009.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective forNOLs arising in taxable years ending afterDecember 31, 2007.

SECTION 6. PAPERWORKREDUCTION ACT

The collection of information con-tained in this revenue procedure has beenreviewed and approved by the Officeof Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. 3507) under the followingcontrol numbers: 1545–0074 Form 1040(U.S. Individual Income Tax Return) andForm 1040X (Amended U.S. IndividualIncome Tax Return); 1545–0123 Form1120 (U.S. Corporation Income TaxReturn); 1545–0132 Form 1120X(Amended U.S. Corporation IncomeTax Return); 1545–0128 Form 1120–L(U.S. Life Insurance Company Income

Tax Return); 1545–0092 Form 1041(U.S. Income Tax Return for Estates andTrusts); 1545–0687 Form 990–T (ExemptOrganization Business Income Tax Return(and proxy tax under section 6033(e)));1545–0098 Form 1045 (Application forTentative Refund); 1545–0582 Form 1139(Corporation Application for TentativeRefund). For further information, pleaserefer to the Paperwork Reduction Actstatements accompanying these forms.

DRAFTING INFORMATION

The principal authors of this rev-enue procedure are Seoyeon Park andForest Boone of the Office of theAssociate Chief Counsel (Income Taxand Accounting). For further informationregarding this notice, contact Ms. Parkor Mr. Boone at (202) 622–4960 (not atoll-free call).

26 CFR 31.6053–1: Report of tips by employee toemployer.

Rev. Proc. 2009–53

SECTION 1. PURPOSE

The purpose of this revenue procedureis to extend the Attributed Tip Income Pro-gram (ATIP) for two additional years. Therequirements for participating in ATIP areset forth in Rev. Proc. 2006–30, 2006–2C.B. 110.

SECTION 2. BACKGROUND

.01 ATIP is a reporting alternative foremployers in the food and beverage in-dustry designed to promote compliance byemployers and employees with the provi-sions of the Internal Revenue Code gov-erning tip income, to reduce disputes onaudit, and to reduce filing and recordkeep-ing burdens.

02. Rev. Proc. 2006–30 establishedATIP as a pilot program available for thethree calendar years beginning on or afterJanuary 1, 2007. The Service has deter-mined that the ATIP pilot program shouldbe extended.

SECTION 3. EXTENSION OF ATIP

Section 11.02 of Rev. Proc. 2006–30provides that ATIP will sunset on Decem-

ber 31, 2009. This revenue procedure ex-tends ATIP for two additional years. ATIPwill now terminate on December 31, 2011,unless the Service issues further guidanceextending the term. Notwithstanding theforegoing, the Commissioner of InternalRevenue may terminate ATIP at any time.

SECTION 4. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2006–30 is modified to ex-tend ATIP for two additional years. Withthe exception of this extension, require-ments for ATIP as set forth in Rev. Proc.2006–30 remain unchanged.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective im-mediately.

SECTION 6. PAPERWORKREDUCTION ACT

An agency may not conduct or spon-sor, and a person is not required to respondto, a collection of information unless thecollection of information displays a validOMB control number. This revenue pro-cedure does not impose any new informa-tion collection. The Office of Manage-ment and Budget (OMB) previously ap-proved the information collection require-ments contained in Rev. Proc. 2006–30under control number 1545–2005.

The collection of information is in Rev.Proc. 2006–30, section 4, titled EmployerParticipation in ATIP. This information isrequired to evaluate the suitability of theReporting Program for the particular tax-payer. The collection of information is re-quired to obtain the benefits described inRev. Proc. 2006–30. The likely respon-dents are businesses or other for-profit in-stitutions.

SECTION 7. CONTACTINFORMATION

The principal author of this revenueprocedure is Linda L. Conway of the Of-fice of the Division Counsel/AssociateChief Counsel (Tax Exempt & Govern-ment Entities). For further informationregarding ATIP, contact the IRS Businessand Specialty Tax Line at (800) 829–4933or e-mail [email protected].

2009–49 I.R.B. 746 December 7, 2009

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

Information Reporting forPayments Made in Settlementof Payment Card and ThirdParty Network Transactions

REG–139255–08


ACTION: Notice of proposed rulemakingand notice of public hearing.

SUMMARY: This document contains pro-posed regulations relating to informationreporting requirements, information re-porting penalties, and backup withholdingrequirements for payment card and thirdparty network transactions. The proposedregulations reflect the enactment of sec-tion 6050W and related changes in the lawmade by the Housing Assistance Tax Actof 2008 that require payment settlementorganizations to report payments in set-tlement of payment card and third partynetwork transactions for each calendaryear. The proposed regulations in thisdocument will affect persons that makepayment in settlement of payment cardand third party network transactions andthe payees of these transactions. Theproposed regulations provide guidanceto assist persons who will be requiredto make returns reporting payment cardand third party network transactions andto the payees of those transactions. Thisdocument also provides notice of a publichearing on these proposed amendments tothe regulations.

DATES: Written or electronic commentsmust be received by January 25, 2010.Outlines of topics to be discussed at thepublic hearing scheduled for February 10,2010 at 10 am must be received by January27, 2010.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–139255–08), room5205, Internal Revenue Service, P.O. Box7604, Ben Franklin Station, Washing-ton, DC 20044. Submissions may be

hand-delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–139255–08),Courier’s Desk, Internal RevenueService, 1111 Constitution Avenue, NW,Washington, DC, or sent electronicallyvia the Federal eRulemaking Portalat http://www.regulations.gov/ (IRSREG–139255–08).

FOR FURTHER INFORMATIONCONTACT: Concerning these pro-posed regulations, Barbara Pettoni,(202) 622–4910; concerning submis-sions of comments or the public hearing,Regina Johnson, (202) 622–7180 (nottoll-free numbers).


Background

This document contains proposedamendments to 26 CFR Part 1 relating toinformation reporting under sections 6041,6050W, and 6051 of the Internal RevenueCode (Code). This document also containsproposed amendments to 26 CFR Part 31relating to backup withholding undersection 3406, and to 26 CFR Part 301relating to information reporting penaltiesunder sections 6721 and 6722.

A new reporting requirement, section6050W, was added to the Code by sec-tion 3091(a) of the Housing Assistance TaxAct of 2008, Div. C of Public Law No.110–289, 122 Stat. 2654 (the Act), enactedon July 30, 2008. Section 6050W requiresmerchant acquiring entities and third partysettlement organizations to file an infor-mation return for each calendar year re-porting all payment card transactions andthird party network transactions with par-ticipating payees occurring in that calendaryear. This requirement to file informationreturns applies to returns for calendar yearsbeginning after December 31, 2010. Thissection also requires statements to be fur-nished to participating payees on or beforeJanuary 31st of the year following the yearfor which the return is required.

The Act also amended section3406(b)(3) to provide that amounts re-portable under section 6050W are subjectto backup withholding requirements. Sec-tion 3406(a)(1) requires certain payors to

perform backup withholding by deduct-ing and withholding income tax from areportable payment (as defined in section3406(b)(1)) if the payee fails to furnishthe payee’s taxpayer identification number(TIN) to the payor on a required return,or if the Secretary notifies the payor thatthe TIN furnished by the payee is incor-rect. Backup withholding for amountsreportable under section 6050W applies toamounts paid after December 31, 2011.

Prior to making an information return, apayor may check the TIN furnished by thepayee against the name/TIN combinationcontained in the IRS’s database main-tained for the program, and the IRS willinform the participant whether or not thename/TIN combination furnished by thepayee matches a name/TIN combinationin the database. The matching informa-tion provided to participants will helpavoid TIN errors and reduce the number ofbackup withholding notices required un-der section 3406(a)(1)(B) of the Code. Averified TIN/name match will also provideparticipants with reasonable cause relieffrom penalties under section 6724(a). TheAct further provides that, solely for pur-poses of carrying out TIN matching undersection 3406, section 6050W is effectiveon the date of enactment, July 30, 2008.The TIN matching program described inRev. Proc. 2003–9, 2003–1 C.B. 516,permits program participants to verify thepayee TINs required to be reported oninformation returns and payee statements.On February 6, 2009, the IRS announcedthat persons who will be required to makereturns under section 6050W may matchTINs under the procedures established byRev. Proc. 2003–9. See Announcement2009–6, “Taxpayer Identification Number(“TIN”) Matching Program is Availableto Persons Required to Make Returns Un-der New Section 6050W of the InternalRevenue Code” (Announcement 2009–6,2009–9 I.R.B. 643 (March 2, 2009)). See§601.601(d)(2)(ii)(b).

The Act also amended section 6724(d)by adding returns required by section6050W to the definition of information re-turn for purposes of penalties for failure tocomply with certain information reportingrequirements. The amendments to section

December 7, 2009 747 2009–49 I.R.B.

6724(d) apply to returns for calendar yearsbeginning after December 31, 2010.

Notice 2009–19 invited public com-ments regarding guidance under section6050W. See Notice 2009–19, “Infor-mation Reporting of Payments Made inSettlement of Payment Card and ThirdParty Network Transactions” (Notice2009–19, 2009–10 I.R.B. 660 (March 9,2009)). In particular, Notice 2009–19 re-quested comments on the interpretationof the statutory definitions of terms usedin section 6050W, how to administer thereporting requirements so as to prevent re-porting of the same transaction more thanonce, and whether the “gross amount” ofthe reportable payment transaction shouldbe defined as “gross receipts or sales”or whether adjustments should be madefor credits, cash equivalents, discounts,fees, refunds, or other amounts. Notice2009–19 also requested comments onhow to address differences between sec-tion 6050W reporting and payee reportingon Form 1040, “U.S. Individual IncomeTax Return,” Form 1065, “U.S. Returnof Partnership Income,” or Form 1120,“U.S. Corporation Income Tax Return,”and whether the time, form and mannerof reporting should conform to existingpractices for information reporting to theIRS under other provisions of the Code.

Comments were received in response toNotice 2009–19, and the comments weretaken into consideration in developingthese proposed regulations. The IRS andthe Treasury Department invite any addi-tional comments on the issues discussed inthis preamble or on other issues relating tosection 6050W. See §601.601(d)(2)(ii)(b).


In general

The proposed regulations provide guid-ance to interpret the definitions used inthe statute and examples to illustrate therules in the proposed regulations. Thenew law requires any payment settlemententity making payment to a participatingpayee in settlement of reportable paymenttransactions to make an annual return foreach calendar year reporting the grossamount of the reportable transactions, andthe name, address, and TIN of the par-ticipating payee. See section 6050W(a).The law also requires payment settlement

entities to furnish written statements topersons with respect to whom such a returnis required showing the name, address,and telephone number of the informationcontact of the person required to makethe return and the gross amount of thereportable payment transactions with re-spect to the person required to be shownon the return. See section 6050W(f).

Section 6050W(b) provides that theterm payment settlement entity means, inthe case of a payment card transaction, amerchant acquiring entity; and in the caseof a third party network transaction, a thirdparty settlement organization. Section6050W(b)(2) defines merchant acquiringentity as the bank or other organizationwith the contractual obligation to makepayment to participating payees in settle-ment of payment card transactions, andsection 6050W(b)(3) defines third partysettlement organization as the centralorganization that has the contractual obli-gation to make payment to participatingpayees of third party network transactions.The proposed regulations clarify that a“payment settlement entity” may be a do-mestic or foreign entity.

A reportable payment transaction isany transaction in which a payment card isaccepted as payment and any transactionthat is settled through a third party pay-ment network. See section 6050W(c). Theproposed regulations provide guidanceto interpret the meaning of this term inthe context of both payment card transac-tions and third party network transactions,and to determine the gross amount of thetransaction to be reported. Many com-menters suggested meanings for the term“gross amount.” Some commenters sug-gested defining “gross amount” as the totalamount of the transaction reduced by thefees deducted by the merchant acquiringentity. Other commenters suggested defin-ing “gross amount” as the total amount ofthe transaction reduced by not only feesbut also chargebacks and refunds. Com-menters did not suggest, however, that re-porting a gross amount with no reductionsfor any amounts would be burdensome forpayment settlement entities. The proposedregulations provide that gross amountmeans the total dollar amount of aggregatereportable payment transactions for eachparticipating payee without regard to anyadjustments for credits, cash equivalents,

discount amounts, fees, refunded amounts,or any other amounts.

The proposed regulations require re-porting, with respect to each participatingpayee, of the gross amount of the aggre-gate reportable payment transactions forthe calendar year and the gross amount ofthe aggregate reportable payment transac-tions for each month of the calendar year.The inclusion of monthly amounts on thereturn filed with the IRS and on the state-ment furnished to the payee will aid inreconciling payment card and third partynetwork transaction receipts for fiscal yearpayees.

Section 6050W(e) provides an excep-tion for de minimis payments by third partysettlement organizations to certain partic-ipating payees. Under the proposed reg-ulations, a third party settlement organ-ization must report payments made to aparticipating payee only if its aggregatepayments to that payee from third partynetwork transactions exceed $20,000 andthe aggregate number of those transactionswith the payee exceeds 200. Several com-menters requested that the exception for deminimis payments be extended to includepayments in settlement of payment cardtransactions. The proposed regulations donot adopt this suggestion. Further com-ments are requested on the application ofthe de minimis rule exception, includingwhether the exception should be manda-tory or voluntary.

Section 6050W(d)(1)(A) provides thatparticipating payee means: (i) in the caseof a payment card transaction, any personwho accepts a payment card as payment;and (ii) in the case of a third party net-work transaction, any person who acceptspayment from a third party settlementorganization in settlement of such trans-action. Under section 6050W(d)(1)(B),the term participating payee excludes anyperson with a foreign address, except asthe Secretary may provide. The proposedregulations provide that a payment set-tlement entity that is a person describedas a U.S. payor or U.S. middleman in§1.6049–5(c)(5) is not required to reportpayments to participating payees with aforeign address as long as, prior to pay-ment, the payee has provided the paymentsettlement entity with documentationupon which the payment settlement entitymay rely to treat the payment as madeto a foreign person in accordance with

2009–49 I.R.B. 748 December 7, 2009

§1.1441–1(e)(1)(ii). By contrast, a pay-ment settlement entity that is not a persondescribed as a U.S. payor or U.S. middle-man in §1.6049–5(c)(5) is not required toreport payments to participating payeesthat do not have a United States addressas long as the payment settlement entityneither knows nor has reason to know thatthe participating payee is a United Statesperson. For purposes of this section, for-eign address means any address that isnot within the United States, as definedin section 7701(a)(9) (the States and theDistrict of Columbia). United States ad-dress means any address that is withinthe United States. The IRS and the Trea-sury Department request comments on thetreatment of payment settlement entitiesthat are not U.S. payors or U.S. middlemenwithin the meaning of §1.6049–5(c)(5).

Under section 6050W(d)(1)(C), theterm “participating payee” includes anygovernmental unit and any agency or in-strumentality thereof. Accordingly, theproposed regulations do not provide forany exceptions to reporting for paymentsmade to governmental units. Payments togovernmental units that are made usingtransit cards and electronic toll collectionsystems are included within the scope ofsection 6050W if such payments meetthe other requirements of section 6050W.Comments were not received from gov-ernmental units regarding these issues.Therefore, the IRS and the Treasury De-partment request comments from govern-mental units and other interested partiesregarding the impact of these proposedregulations on governmental units thataccept payments made using transit cards,electronic toll collection systems, and sim-ilar electronic payment mechanisms.

Payment Card Transactions

A payment card transaction is anytransaction in which a payment cardis accepted as payment. See sec-tion 6050W(c)(2). Under section6050W(d)(2), a payment card is a cardissued pursuant to an agreement or ar-rangement that provides for: (1) one ormore issuers of such cards; (2) a networkof persons unrelated to each other, and tothe issuer, who agree to accept the cardsas payment; and (3) standards and mecha-nisms for settling the transactions betweenthe merchant acquiring entities and the

persons who agree to accept the cards aspayment.

Funds generally do not pass directlyfrom the cardholder to the provider ofgoods or services for purchases made witha payment card. For example, in the caseof a credit card transaction, a credit cardorganization may direct the transfer offunds from an issuing bank (the bank thatissued the credit card) through the debitof the funds on account at an acceptableinstitution (such as a Federal ReserveBank) and a credit of those funds to themerchant’s bank (the merchant acquiringbank), which in turn pays the provider ofgoods or services. The cardholder fre-quently does not pay the issuing bank untilafter receipt of the payment card monthlybilling statement. Thus, the merchant ac-quiring bank makes the payment to theprovider of goods or services to settle thetransaction, and the cardholder, who is theultimate payor, generally does not makepayment until after the transaction occurs.The information reporting requirementsunder section 6050W reflect that the mer-chant acquiring bank is in the best positionto file the information return reportingthe payment to the provider of goods orservices.

Commenters suggested adoptingthe definition of “payment card” in§31.3406(g)–1(f)(2)(i) for purposes ofsection 6050W. However, the definition of“payment card” in section 6050W(d)(2)is broader than in §31.3406(g)–1(f)(2)(i),which defines payment card as a card is-sued by a payment card organization (forexample, a credit card organization). Theproposed regulations reflect the broaderstatutory definition of “payment card”under section 6050W. Accordingly, a pay-ment card is a card, issued to a cardholder,that a network of unrelated persons hasagreed to accept as payment under anagreement that provides standards andmechanisms for settling the transactionsbetween a merchant acquiring bank orsimilar entity and the providers who acceptthe cards. Under the proposed regulations,a payment card includes, but is not lim-ited to, all credit cards, debit cards, andstored-value cards (including gift cards),and also includes the acceptance as pay-ment of any account number or otherindicia associated with a payment card.

Cards Issued in Connection with aFlexible Spending Account or a HealthReimbursement Arrangement

Several commenters requested that thedefinition of payment card be interpretedto exclude cards issued in connection withflexible spending arrangements (FSAs)(as defined in section 106(c)(2)) or healthreimbursement arrangements (HRAs) thatare treated as employer-provided cover-age under an accident or health plan forpurposes of section 106. The commentersexpressed concern that section 6050Wmay be interpreted to override the excep-tion to information reporting under section6041(f) for payments made for medicalcare (as defined in section 213(d)) un-der FSAs and HRAs. Other commentersindicated that it would be difficult for mer-chant acquiring entities to identify FSAand HRA card transactions and segregatethem from other payment card transac-tions. In general, FSA and HRA cardshave the imprint of a credit card associa-tion and function like credit or debit cards.Therefore, merchant acquiring entitiesmay have difficulty distinguishing thesetransactions from typical credit or debitcard transactions. In keeping with thebroad interpretation of the definition of“payment card,” the proposed regulationsdo not except payments for medical careusing an FSA or HRA card from reportingunder section 6050W. Therefore, underthe proposed regulations, the definition ofpayment card encompasses a card issuedin connection with an FSA or HRA. Pay-ments made for medical care under FSAsor HRAs will continue to be exempt fromreporting under section 6041.

Stored-Value Cards and Gift Cards

The proposed regulations provide thatthe term “stored-value card” means anycard with a prepaid value, including anygift card. Under the proposed regulations,a stored-value card is not a payment cardwithin the meaning of section 6050Wwhen the card is accepted as payment bya person who is related to the issuer ofthe card. Under these circumstances, thetransaction is not a payment card transac-tion within the meaning of section 6050Wand thus not a reportable transaction.However, if the stored-value card itself ispurchased with a payment card issued by

December 7, 2009 749 2009–49 I.R.B.

an unrelated entity, that purchase transac-tion is reportable under section 6050W.

In contrast, a stored-value card that anetwork of persons unrelated to the issuerhas agreed to accept as payment (such as astored-value card issued by a college thatmay be used at various local merchants un-related to the college) is a payment cardwhen it is accepted as payment in a trans-action with an unrelated person. Underthese circumstances, the transaction is apayment card transaction within the mean-ing of section 6050W that is reportable bythe payment settlement entity. Use of astored-value card within a network of bothrelated persons and unrelated persons is areportable transaction only when it is ac-cepted as payment by an unrelated per-son. For purposes of this section, unre-lated means any person who is not re-lated within the meaning of section 267(b)(providing a list of relationships), includ-ing the application of section 267(c) and(e)(3) (providing rules relating to construc-tive ownership), or section 707(b)(1) (rela-tionships with partnerships).

Third Party Network Transactions

Section 6050W(c)(3) provides that athird party network transaction meansany transaction that is settled through athird party payment network. Section6050W(d)(3) provides that third partypayment network means any agreementor arrangement that: (A) involves theestablishment of accounts with a centralorganization by a substantial number ofpersons who (i) are unrelated to such or-ganization, (ii) provide goods or services,and (iii) have agreed to settle transac-tions for the provision of such goods orservices pursuant to such agreement or ar-rangement; (B) provides for standards andmechanisms for settling such transactions;and (C) guarantees persons providinggoods or services pursuant to such agree-ment or arrangement that those personswill be paid for providing such goods orservices. Section 6050W(d)(3) providesthat a third party payment network doesnot include any agreement or arrangementthat provides for the issuance of paymentcards.

The Joint Committee on Taxation (JCT)technical explanation of section 6050Wexplains that, in the case of a third partynetwork transaction, the payment settle-

ment entity is the third party settlementorganization, defined as a central organ-ization with the contractual obligation tomake payment to participating payees ofthird party payment networks. Accordingto the technical explanation, the central or-ganization is a payment settlement entityrequired to report under section 6050Wif it provides “a network enabling buyersto transfer funds to sellers who have es-tablished accounts with the organizationand have a contractual obligation to ac-cept payments through the network.” See“Technical Explanation of Division C ofH.R. 3221, the ’Housing Assistance Act of2008’ as Scheduled for Consideration bythe House of Representatives on July 23,2008” (JCX–63–08), Joint Committee onTaxation, at 61 (July 23, 2008) (JCT Tech-nical Explanation). Consistent with thisexplanation, the proposed regulations pro-vide that the central organization of a thirdparty settlement organization must providea third party payment network that enablespurchasers to transfer funds to providers ofgoods and services.

The JCT Technical Explanation alsogives an example of “substantial numberof persons” as that phrase is used in thedefinition of “third party payment net-work” in section 6050W(d)(3). The JCTTechnical Explanation describes a “thirdparty payment network” as any agree-ment or arrangement that, among otherrequirements, involves the establishmentof accounts with a central organizationby “a substantial number of persons (e.g.,more than 50).” JCT Technical Explana-tion at 61. Comments are requested on theinterpretation of “substantial number ofpersons” as used in the definition of “thirdparty payment network.”

Many comments were received request-ing clarification on the meaning of thirdparty payment network, in particular withrespect to healthcare networks, accountspayable departments and “shared-service”organizations, and organizations that settlepayment transactions on behalf of others.

Healthcare Networks

Several commenters expressed con-cern that the broad definition of thirdparty payment network will include healthcarriers that have contracts with a net-work of providers who provide servicesto covered persons under both insured

and administrative service contract health-care arrangements. A typical healthcarenetwork (sometimes referred to as a “man-aged care” network) may include “coveredpersons” (policyholders, subscribers, en-rollees or other individuals participatingin a health benefit plan), a “health careprovider” or “participating provider” (ahealthcare professional or a facility thatagrees under contract with a health carrierto provide services to covered personswith the expectation of receiving paymentdirectly from the health carrier), and a“health carrier” (an entity that enters intoan agreement to provide, deliver, arrangefor, pay for, or reimburse any of the cost ofhealth care services). Each of these partiesmay be a primary party with respect to itsagreements with the other parties in thenetwork.

Under the proposed regulations, healthcarriers operating a healthcare network areoutside the scope of section 6050W be-cause a healthcare network does not en-able the transfer of funds from buyers tosellers. Health carriers do not facilitatethe transfer of payments from a coveredperson to a healthcare provider: the pay-ments by covered persons to health car-riers and the payments by health carri-ers to healthcare providers are separateand distinct. Health carriers collect pre-miums from covered persons pursuant toa plan agreement between the health car-rier and the covered person for the costof participation in the healthcare network.Separately, health carriers pay healthcareproviders to compensate providers for ser-vices rendered to covered persons pursuantto provider agreements. Accordingly, be-cause the purpose of a healthcare networkis not to enable buyers to transfer funds tosellers, a healthcare network is not a “thirdparty payment network” within the mean-ing of the proposed regulations.

Accounts Payable Departments andShared-Service Organizations

Many comments were received request-ing guidance on the interpretation of “thirdparty payment network” with respect toaccounts payable departments. Underthe proposed regulations, an in-houseaccounts payable department is not athird party settlement organization of athird party payment network because anin-house accounts payable department is

2009–49 I.R.B. 750 December 7, 2009

not a “third party.” Rather, an in-houseaccounts payable department is merely anaccounting function of the purchaser ofgoods and services by which the purchasermakes payments directly to sellers on thepurchaser’s own behalf.

In contrast, many purchasers outsourcetheir accounts payable function to a thirdparty organization, sometimes referredto as a “shared-service” organization.In a shared-service business model, theshared-service organization acts as an in-dependent contractor with respect to theaccounts payable of purchasers of goodsand services. A shared-service arrange-ment allows purchasers to transfer funds toproviders who have established accountswith the shared-service organization andhave agreed to accept payment for theirgoods and services from the shared-serviceorganization. Thus, the shared-servicebusiness model consists of a central organ-ization that provides “a network enablingbuyers to transfer funds to sellers whohave established accounts with the organ-ization and have a contractual obligationto accept payments through the network.”JCT Technical Explanation at 61.

Accordingly, under the proposed reg-ulations, a shared-service organization isa third party settlement organization of athird party payment network if: (1) a sub-stantial number of unrelated providers ofgoods and services have established ac-counts with the shared-service organiza-tion, and (2) this arrangement enables pur-chasers of goods and services to trans-fer funds to these providers, who are ob-ligated by contract to accept guaranteedpayments from the shared-service organ-ization in settlement of their transactionswith the purchasers. The shared serviceorganization must report these transactionsas third party network transactions unlessthe de minimis exception applies (that is,the aggregate payments to each payee donot exceed $20,000 or the aggregate num-ber of transactions for each payee does notexceed 200).

Automated Clearing House (ACH)Networks

As stated previously, the JCT TechnicalExplanation states that an organizationgenerally is required to report if it provides“a network enabling buyers to transferfunds to sellers who have established ac-

counts with the organization and havea contractual obligation to accept pay-ment through the network.” JCT TechnicalExplanation at 61. The JCT TechnicalExplanation further states: “However, anorganization operating a network whichmerely processes electronic payments(such as wire transfers, electronic checks,and direct deposit payments) betweenbuyers and sellers, but does not have con-tractual agreements with sellers to usesuch network, is not required to reportunder the provision.” JCT Technical Ex-planation at 61.

Consistent with the JCT Technical Ex-planation, an example in the proposedregulations illustrates that payments set-tled through an automated clearing house(ACH) network are not settled through athird party payment network. An ACHmerely processes electronic payments be-tween payors and payees, and does notitself have contractual agreements withpayees to use the ACH network. Accord-ingly, the proposed regulations reflect thatan ACH network is not a third party pay-ment network, and an ACH is therefore notrequired to report under section 6050W.

Aggregated Payees

Section 6050W(b)(4)(A) imposes spe-cial rules for persons who receive pay-ments from a payment settlement entity onbehalf of one or more participating pay-ees and distribute such payments to one ormore participating payees. Under section6050W(b)(4)(A), such persons are treated(i) as participating payees with respect tothe payment settlement entity, and (ii) aspayment settlement entities with respect tothe participating payees to whom the per-son distributes payments.

For example, in the case of a corpora-tion that receives payment from a bank forcredit card sales transacted at corporateindependently-owned franchise stores,the bank is required to report the grossamount of the reportable transactions set-tled through the corporation even thoughthe corporation does not accept creditcards and would not otherwise be treatedas a participating payee under this sec-tion. In turn, the corporation is requiredto report the gross amount of reportabletransactions allocable to each franchisestore. The bank has no obligation to reportthe payments allocated by the corpora-

tion to the franchise stores. See TechnicalExplanation at 61–62. The proposed reg-ulations provide an example of personsthat are aggregated payees for purposes ofthis section. This example is not meant toexclude other aggregated payee arrange-ments.

Electronic Payment Facilitators

A payment settlement entity maycontract with a third party to settle re-portable payment transactions on behalfof the payment settlement entity. Sec-tion 6050W(b)(4)(B) provides a specialrule for such arrangements. In any casewhere an “electronic payment facilitator”or other third party makes payments insettlement of reportable payment transac-tions on behalf of the payment settlemententity, the return under section 6050Wmust be filed by the electronic paymentfacilitator or other third party in lieu of thepayment settlement entity.

Under the proposed regulations, anyperson that has contracted with a paymentsettlement entity to make payments onbehalf of the payment settlement entityto a participating payee in settlement ofreportable payment transactions is subjectto the electronic payment facilitator rule.Because the electronic payment facilitatoror other third party is required by statuteto file the return if it makes the paymenton behalf of the payment settlement en-tity, and because the electronic paymentfacilitator or other third party files in lieuof the payment settlement entity, the pay-ment facilitator or other third party, notthe payment settlement entity, is the partywith the obligation to file the return undersection 6050W in these cases. Therefore,the electronic payment facilitator or otherthird party that makes payment on behalfof the payment settlement entity is theparty that will be liable for any applicablepenalties for failure to comply with theinformation reporting requirements undersection 6050W.

Duplicate Reporting of the SameTransaction

Section 6050W(g) grants authority tothe Secretary to issue guidance to imple-ment the reporting requirement, includingrules to prevent the reporting of the sametransaction more than once. Numerous

December 7, 2009 751 2009–49 I.R.B.

commenters requested relief from report-ing the same transaction under more thanone Code section, in particular with respectto transactions that will be subject to re-porting under both sections 6041 (relatingto information at source) and 6050W.

Depending on the circumstances, re-porting of the same transaction more thanonce may be warranted for several rea-sons. First, the burden for reporting mayfall on different persons. For example, un-der section 6041, the reporting person isthe payor, whereas under section 6050W,the reporting person is the payment settle-ment entity. Requiring reporting from bothreporters will help ensure that the transac-tion is reported even where one reporterfails to report.

Second, information reporting underother Code sections may provide differentinformation that may be useful to the IRS.For example, section 6041 requires report-ing of fixed or determinable gains, profitsand income, whereas section 6050W re-quires reporting of gross amounts.

Third, exceptions to information re-porting may apply under one Code sectionbut not the other, which makes rules toavoid reporting the same transaction morethan once difficult to coordinate. Forexample, §1.6041–3(p) provides that pay-ments made to corporations are generallyexempt from reporting under section 6041,whereas no corporate payee exceptionexists under section 6050W. Conversely,for third party network transactions undersection 6050W, a de minimis exceptionapplies where the aggregate payments toeach payee do not exceed $20,000 or theaggregate number of transactions for eachpayee does not exceed 200, but no similarexception exists under section 6041. Thus,there are compelling reasons to requirereporting under both Code sections.

Nevertheless, for payment card trans-actions, relief from reporting under section6041 is warranted because section 6050Wreporting covers all payment card transac-tions and thus effectively encompasses allpayments subject to section 6041 report-ing made by payment card. Accordingly,the proposed regulations amend section§1.6041–1 to provide that any paymentcard transaction that otherwise would bereportable under both sections 6041 and6050W must be reported under section6050W and not section 6041.

Relief from reporting under section6041 is not warranted, however, for thirdparty network transactions because suchtransactions are not subject to reportingunless the de minimis thresholds are met.The payor with the obligation to reportunder section 6041 cannot determine withcertainty whether a third party networktransaction is required to be reported undersection 6050W. Additional comments arerequested regarding the application of thisrule to prevent the reporting of the sametransaction more than once.

Commenters also requested relief fromreporting the same transaction under bothsections 3402(t) (relating to withholdingon certain payments made by governmententities) and 6050W. Government entitiesfrequently use payment cards for paymentsfor property and services. Such paymentcard transactions will be subject both to in-formation reporting under section 6050Wand to withholding and information report-ing under section 3402(t).

Information reporting under section3402(t) and section 6050W serve differentpurposes, however. The purpose of infor-mation reporting under section 6050W isto encourage voluntary compliance in thereporting of gross receipts. In contrast, thepurpose of information reporting undersection 3402(t) is to report the amounts oftax withheld from payments and to furnishthis information to payees and to the IRS.Both payees and the IRS must have mech-anisms in place to account for the incometax that has been withheld from payments.Therefore, reporting under section 3402(t)cannot be eliminated for transactions thatwill also be required to be reported undersection 6050W.

Further, an exception from reportingunder section 6050W when the sametransaction will be reported under section3402(t) is not feasible because the paymentsettlement entity, such as a merchant ac-quiring entity in the case of a payment cardtransaction, may not have access to theidentity of the actual card user. Thus, thepayment settlement entity would not knowwhether the card user is a governmententity required to withhold on paymentspursuant to section 3402(t) and would notbe able to determine whether reportingunder section 6050W is excepted. Also,the proposed rules under section 3402(t)provide for a $10,000 payment thresholdamount, whereas section 6050W has no

payment threshold amount for paymentcard transactions. See REG–158747–06,2009–4 I.R.B. 362 (73 FR 74,082) (Dec.5, 2008). Accordingly, the proposed regu-lations do not provide relief from reportingthe same transaction under both sections3402(t) and 6050W.

Time, Form and Manner for Reporting

Many commenters recommended thatthe IRS create a new form to be usedsolely for reporting under section 6050W.A draft form for this purpose, Form1099–K, “Merchant Card and Third-PartyPayments,” is expected to be releasedcontemporaneously with these proposedregulations. Draft Form 1099–K will beavailable for viewing and comment on theIRS web site at http://www.irs.gov/pub/irs-dft/f1099k—dft.pdf. Additional guidanceregarding the proper form for reportingunder this section will be issued in timefor filing the first returns due under thissection (returns for calendar year 2011 duein 2012).

The draft form is expected to require re-porting, with respect to each participatingpayee, of the gross amount of the aggre-gate reportable payment transactions forthe calendar year and the gross amount ofthe aggregate reportable payment transac-tions for each month of the calendar year.The inclusion of monthly amounts on thereturn filed with the IRS and on the state-ment furnished to the payee will aid in rec-onciling payment card and third party net-work transaction receipts for fiscal yearpayees. Additionally, the proposed regula-tions provide that the time and manner forreporting under section 6050W will followthe existing procedures for information re-porting under other Code sections.

Section 6050W(f) provides that payeestatements may be furnished electroni-cally. Commenters requested that the ex-isting procedures for payee statements bemodified to eliminate the requirement foran affirmative consent to receive the payeestatement under section 6050W electron-ically. Instead, commenters requestedthat merchants already receiving businesscommunications electronically be deemedto have consented to receive electronicpayee statements under section 6050W.Commenters also suggested that reportingentities not be required to send a separatecommunication to payees to inform them

2009–49 I.R.B. 752 December 7, 2009

of their option to receive payee statementselectronically; rather, the communicationmay be included in another business com-munication. Commenters also suggestedthat merchants receiving paper commu-nications who wish to receive electronicpayee statements be allowed to consent toelectronic payees statements by loggingonto a website to indicate their consent,with no further written consent required.The proposed regulations do not adoptthese suggestions to eliminate the existingconsent procedures for furnishing elec-tronic statements to payees. Additionalcomments are requested on whether theexisting consent procedures should bemodified.

Backup Withholding

The Act amended section 3406(b)(3) toprovide that reportable payment transac-tions subject to information reporting un-der section 6050W generally are subject tobackup withholding requirements. Section3406 requires backup withholding in thecase of any reportable payment if a con-dition for backup withholding, as set forthin section 3406(a)(1), exists. In the case ofreportable payments, backup withholdinggenerally applies if the payee fails to fur-nish his TIN to the payor or if the IRS no-tifies the payor that the TIN furnished bythe payee is incorrect.

Section 3091(c) of the Act amendedsection 3406(b) by expanding the meaningof reportable payments subject to backupwithholding to include payments requiredto be shown on a return required undersection 6050W, effective for amounts paidafter December 31, 2011. Accordingly,the proposed regulations amend the regu-lations under section 3406 to provide thatpersons making information returns withrespect to any reportable payment undersection 6050W made after December 31,2011 are included in the definition of “pay-ors” obligated to backup withhold.

Several commenters expressed con-cern that when backup withholding forreportable payments reportable under sec-tion 6050W becomes effective, duplicatebackup withholding on the same paymentcould potentially occur. The same re-portable payment may be reportable undersection 6050W and under another Codesection, such as section 6041 or 6041A,thus potentially subjecting the payee to as

much as 56-percent withholding for thesame transaction.

Because the proposed regulations pro-vide relief from reporting under section6041 for payment card transactions thatwould otherwise be reportable under bothsections 6041 and 6050W, the potentialfor duplicate backup withholding in suchsituations is eliminated. There continues,however, to be a potential for duplicatebackup withholding for reportable pay-ments made after December 31, 2011 thatare reportable under section 6050W andanother Code section. Also, in the caseof a payment for services using a thirdparty payment network after December31, 2011, the payment potentially couldbe subject to backup withholding by thepayor for these services as a reportablepayment under section 6041, and by thethird party settlement organization as areportable payment under section 6050W.

A payment settlement entity reportingunder section 6050W is in a better positionto perform backup withholding for a thirdparty network transaction than the payorreporting under section 6041. Backupwithholding compliance is difficult forpayors in third party network transactionsbecause an invoice may not be issued, andthe payor in the transaction may not bein a position to backup withhold easilyat the time of the transaction. Backupwithholding may also be difficult becausethe payor does not make payment directlyto the provider of services; rather, thethird party settlement organization makespayment to the provider. However, relieffrom backup withholding for third partynetwork transactions reportable underboth section 6050W and section 6041 isnot warranted because such transactionsare not subject to reporting under section6050W unless the de minimis thresholdsare met. Thus, the payor with the obliga-tion to report under section 6041 cannotdetermine with certainty whether a thirdparty network transaction is required to bereported under section 6050W.

For payments that are subject to with-holding under both sections 3402(t) and6050W, the potential for duplicate with-holding is complicated by the 3-percentwithholding requirement contained withinsection 3402(t) itself. Section 3402(t)expressly provides exceptions to the3-percent withholding requirement forpayments that are subject to backup with-

holding under section 3406 if backupwithholding is actually being deductedfrom the payment. Thus, where there is no3-percent withholding on a governmentpayment card transaction, the transactionwill be subject to the higher 28-percentbackup withholding under section 3406instead of the 3-percent withholding undersection 3402(t). However, a potential forduplicate backup withholding may ariseif information reporting is required underboth sections 3402(t) and 6050W but nei-ther reporting requirement is satisfied.

The proposed regulations do not elim-inate the requirement for backup with-holding for transactions that are reportableunder section 6050W and another Codesection. Comments are requested on thecircumstances under which relief for du-plicate backup withholding is appropriateonce backup withholding under section6050W becomes effective.

Proposed Effective/Applicability Dates:

The amendments to the regulations asproposed will be effective on the date theyare published as final regulations in theFederal Register.

With respect to the regulations undersections 6041, 6050W, 6051, 6721 and6722, the regulations are proposed to ap-ply to returns for calendar years beginningafter December 31, 2010. With respect tothe regulations under section 3406, the reg-ulations are proposed to apply to amountspaid after December 31, 2011.

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 also has beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to these regulations.Pursuant to the Regulatory Flexibility Act(5.U.S.C. chapter 6), it is hereby certifiedthat the regulations will not have a sig-nificant economic impact on a substantialnumber of small entities. This certifica-tion is based on the fact that the persons re-quired to report under section 6050W, pay-ment settlement entities, will generally notbe small businesses. Merchant acquiringentities, the payment settlement entities re-quired to report payment card transactions,

December 7, 2009 753 2009–49 I.R.B.

will primarily be banks with over $175million in assets. Third party settlementorganizations, the payment settlement en-tities required to report third party networktransactions, will generally not be smallentities by virtue of the definition of a thirdparty payment network, which requires theestablishment of accounts with a centralorganization (the third party settlement or-ganization) by a substantial number of per-sons. Further, section 6050W(e) providesa de minimis exception that exempts thirdparty settlement organizations from report-ing transactions with respect to a payeeif the aggregate amount of such transac-tions does not exceed $20,000 or the ag-gregate number of such transactions doesnot exceed 200. The IRS and the TreasuryDepartment also request comments on theaccuracy of the statement that the regula-tions in this document will not have a sig-nificant economic impact on a substantialnumber of small entities. Pursuant to sec-tion 7805(f) of the Code, this regulationhas been submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on their impacton small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written (a signed origi-nal and eight (8) copies) or electronic com-ments that are submitted timely to the IRS.The IRS and the Treasury Department re-quest comments on the clarity of the pro-posed regulations and how they can bemade easier to understand. Commentsare requested on the examples in the pro-posed regulations, and commentators arespecifically invited to suggest changes tothese examples or to suggest new exam-ples that they believe would better illus-trate the principles that should be includedin the final regulations. All commentswill be available for public inspection andcopying.

A public hearing has been scheduled forFebruary 10, 2010 at 10 am in room 2615,Internal Revenue Building, 1111 Constitu-tion Avenue, NW, Washington, DC. Due tobuilding security procedures, visitors mustenter at the Constitution Avenue entrance.In addition, all visitors must present photoidentification to enter the building. Be-cause of access restrictions, visitors will

not be admitted beyond the immediate en-trance area more than 30 minutes beforethe hearing starts. For information abouthaving your name placed on the buildingaccess list to attend the hearing, see theFOR FURTHER INFORMATION CON-TACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons who wish topresent oral comments at the hearing mustsubmit written or electronic comments andan outline of the topics to be discussedand the time to be devoted to each topic(a signed original and eight (8) copies) byJanuary 27, 2010. A period of 10 minuteswill be allotted to each person for makingcomments. An agenda showing the sched-uling of the speakers will be prepared af-ter the deadline for receiving outlines haspassed. Copies of the agenda will be avail-able free of charge at the hearing.


The principal author of these proposedregulations is Barbara Pettoni, Office ofAssociate Chief Counsel (Procedure andAdministration).

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR parts 1, 31 and301 are proposed to be amended as fol-lows:



Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.6041–1 is amended by

adding a sentence at the end of paragraph(a)(1)(ii) and adding paragraphs (a)(1)(iv)and (a)(1)(v) to read as follows:

§1.6041–1 Return of information as topayments of $600 or more.

(a) * * *(1) * * *(i) * * *(ii) * * * For payment card transac-

tions (as described in §1.6050W–1(b))required to be reported on informationreturns required under section 6050W(relating to payment card and third partynetwork transactions), see special rules in§1.6041–1(a)(1)(iv).

* * * * *

(iv) Information returns required un-der section 6050W for calendar yearsbeginning after December 31, 2010. Forpayments made by payment card afterDecember 31, 2010, that are required tobe reported on an information return un-der section 6050W (relating to paymentcard and third party network transac-tions), the following rule applies. Paymentcard transactions that are described inparagraph (a)(1)(ii) of this section thatotherwise would be reportable under bothsections 6041 and 6050W are reported un-der section 6050W and not section 6041.For provisions relating to information re-porting for payment card transactions, see§1.6050W–1.

(v) Example. The provisions of para-graph (a)(1)(iv) are illustrated by the fol-lowing example:

Example. Restaurant owner A, in the course ofbusiness, pays $600 of fixed or determinable incometo B, a repairman, by credit card. B is one of a net-work of unrelated persons that has agreed to acceptA’s credit card as payment under an agreement thatprovides standards and mechanisms for settling thetransaction between a merchant acquiring bank andthe persons who accept the cards. Merchant acquir-ing bank Y is responsible for making the paymentto B. Under paragraph (a)(1)(iv) of this section, A,as payor, is not required to file an information returnunder section 6041 with respect to the transaction be-cause Y, as the payment settlement entity for the pay-ment card transaction, is required to file an informa-tion return under section 6050W.

* * * * *Par. 3. Section §1.6050W–1 is added

to read as follows:

§1.6050W–1 Information reporting forpayments made in settlement of paymentcard and third party network transactions.

(a) In general—(1) General rule. Ev-ery payment settlement entity, as definedin paragraph (a)(3) of this section, mustfile an information return for each calen-dar year with respect to payments made insettlement of reportable payment transac-tions, as defined in paragraph (a)(2) of thissection, setting forth the following infor-mation:

(i) The name, address, and taxpayeridentification number (TIN) of each par-ticipating payee, as defined in paragraph(a)(4) of this section, to whom one or morepayments in settlement of reportable pay-ment transactions are made.

2009–49 I.R.B. 754 December 7, 2009

(ii) With respect to each participatingpayee, the gross amount, as defined inparagraph (a)(5) of this section, of—

(A) The aggregate reportable paymenttransactions for the calendar year; and

(B) The aggregate reportable paymenttransactions for each month of the calendaryear.

(iii) Any other information required bythe form, instructions or current revenueprocedures.

(2) Reportable payment transaction.The term reportable payment transactionmeans any payment card transaction (asdefined in paragraph (b)(1) of this section)and any third party network transaction(as defined in paragraph (c)(1) of this sec-tion).

(3) Payment settlement entity. The termpayment settlement entity means a domes-tic or foreign entity that is—

(i) In the case of a payment card trans-action, a merchant acquiring entity (as de-fined in paragraph (b)(2) of this section);and

(ii) In the case of a third party networktransaction, a third party settlement organ-ization (as defined in paragraph (c)(2) ofthis section).

(4) Participating payee—(i) Definition.In general, the term participating payeemeans any person, including any govern-mental unit (and any agency or instrumen-tality thereof), who:

(A) In the case of a payment card trans-action, accepts a payment card (as definedin paragraph (b)(3) of this section) as pay-ment; and

(B) In the case of a third party networktransaction, accepts payment from a thirdparty settlement organization (as definedin paragraph (c)(2) of this section) in set-tlement of such transaction.

(ii) Foreign payees. For special rulesrelating to foreign payees, see paragraph(d)(3) of this section.

(5) Gross amount. For purposes ofthis section, gross amount means the to-tal dollar amount of aggregate reportablepayment transactions for each participat-ing payee without regard to any adjust-ments for credits, cash equivalents, dis-count amounts, fees, refunded amounts orany other amounts.

(b) Payment card transactions—(1)Definition. The term payment card trans-action means any transaction in which apayment card, or any account number or

other indicia associated with a paymentcard, is accepted as payment.

(2) Merchant acquiring entity. Theterm merchant acquiring entity meansthe bank or other organization that hasthe contractual obligation to make pay-ment to participating payees (as defined inparagraph (a)(4)(i)(A) of this section) insettlement of payment card transactions.

(3) Payment card. (i) The term pay-ment card means any card, including anystored-value card as defined in paragraph(b)(4) of this section, issued pursuant toan agreement or arrangement that providesfor—

(A) One or more issuers of such cards;(B) A network of persons unrelated to

each other, and to the issuer, who agree toaccept such cards as payment; and

(C) Standards and mechanisms forsettling the transactions between the mer-chant acquiring entities and the personswho agree to accept the cards as payment.

(ii) Persons who agree to accept suchcards as payment as described in thisparagraph (b)(3) are participating pay-ees within the meaning of paragraph(a)(4)(i)(A) of this section.

(4) Stored-value cards. The termstored-value card means any card with aprepaid value, including any gift card.

(c) Third party network transac-tions—(1) Definition. The term third partynetwork transaction means any transac-tion that is settled through a third partypayment network.

(2) Third party settlement organization.The term third party settlement organiza-tion means the central organization thathas the contractual obligation to make pay-ments to participating payees (as definedin paragraph (a)(4)(i)(B) of this section) ofthird party network transactions. A cen-tral organization is a third party settlementorganization if it provides a third partypayment network (as defined in paragraph(c)(3)(i) of this section) that enables pur-chasers to transfer funds to providers ofgoods and services.

(3) Third party payment network. (i)The term third party payment networkmeans any agreement or arrangementthat—

(A) Involves the establishment of ac-counts with a central organization by a sub-stantial number of providers of goods orservices who are unrelated to the organiza-tion and who have agreed to settle transac-

tions for the provision of the goods or ser-vices to purchasers according to the termsof the agreement or arrangement;

(B) Provides standards and mechanismsfor settling the transactions; and

(C) Guarantees payment to the personsproviding goods or services in settlementof transactions with purchasers pursuant tothe agreement or arrangement.

(ii) Persons who are providers of goodsand services as described in this paragraph(c)(3) are participating payees within themeaning of paragraph (a)(4)(i)(B) of thissection.

(4) Exception for de minimis payments.A third party settlement organization isrequired to report any information underparagraph (a)(1) of this section with re-spect to third party network transactions ofany participating payee only if—

(i) The amount that would otherwise bereported under paragraph (a)(1)(ii) of thissection with respect to such transactionsexceeds $20,000; and

(ii) The aggregate number of such trans-actions exceeds 200.

(d) Special rules—(1) Aggregated pay-ees. In any case where a person receivespayments from a payment settlement en-tity (as defined in paragraph (a)(3) of thissection) on behalf of one or more partic-ipating payees and distributes such pay-ments to one or more participating payees(as defined in paragraph (a)(4) of this sec-tion), the person is treated as:

(i) The participating payee with respectto the payment settlement entity; and

(ii) The payment settlement entitywith respect to the participating payees towhom the person distributes payments.

(2) Electronic payment facilitator. Ifa payment settlement entity (as defined inparagraph (a)(3) of this section) contractswith an electronic payment facilitator orother third party to settle reportable pay-ment transactions on behalf of the paymentsettlement entity, the electronic paymentfacilitator or other third party must file theannual information return under this sec-tion in lieu of the payment settlement en-tity. The electronic payment facilitator orother third party who makes payment onbehalf of the payment settlement entity isthe party that will be liable for any appli-cable penalties for failure to comply withthe information reporting requirements ofsection 6050W.

December 7, 2009 755 2009–49 I.R.B.

(3) Foreign payees—(i) In general. Apayment settlement entity that is a persondescribed as a U.S. payor or U.S. middle-man in §1.6049–5(c)(5) is not required tomake a return of information for paymentsto a participating payee with a foreign ad-dress as long as, prior to payment, thepayee has provided the payment settlemententity with documentation upon which thepayment settlement entity may rely to treatthe payment as made to a foreign person inaccordance with §1.1441–1(e)(1)(ii). Forpurposes of this paragraph (d)(3)(i), theprovisions of §1.1441–1 shall apply bysubstituting the term payor for the termwithholding agent and without regard tothe limitation to amounts subject to with-holding under chapter 3 of the InternalRevenue Code and the regulations underthat chapter.

(ii) Special rule. A payment settle-ment entity that is not a person describedas a U.S. payor or U.S middleman in§1.6049–5(c)(5) is not required to makea return of information for a payment toa participating payee that does not have aUnited States address as long as the pay-ment settlement entity neither knows norhas reason to know that the participatingpayee is a United States person.

(iii) Foreign address; United States ad-dress. For purposes of this section, for-eign address means any address that is notwithin the United States, as defined in sec-tion 7701(a)(9) of the Internal RevenueCode (the States and the District of Colum-bia). United States address means any ad-dress that is within the United States.

(4) Unrelated persons. For purposes ofthis section, unrelated means any personwho is not related to another person withinthe meaning of section 267(b) (providing alist of relationships), including the applica-tion of section 267(c) and (e)(3) (providingrules relating to constructive ownership),and section 707(b)(1) (relationships withpartnerships).

(e) Examples. The following examplesillustrate the provisions of this section:

Example 1. Merchant acquiring entity. CustomerA purchases goods from merchant B using a creditcard issued by Bank X. B is one of a network of un-related persons that has agreed to accept credit cardsissued by X as payment under an agreement that pro-vides standards and mechanisms for settling the trans-action between a merchant acquiring bank and thepersons who accept the cards. Bank Z is the bankwith the contractual obligation to make payment toB for goods provided to A in the above transaction.

As defined in paragraph (b)(2) of this section, Z is themerchant acquiring entity that must file the annual in-formation return required under paragraph (a)(1) ofthis section to report the payment made to settle thetransaction for the sale of goods from B to A.

Example 2. Third party settlement organization.(i) Merchant B is one of a substantial number of per-sons selling goods or services over the Internet thathave an account with X, an Internet payment serviceprovider. None of these persons, including B, are re-lated to X, and all have agreed to settle transactionsfor the sale of goods or services to customers accord-ing to the terms of their contracts with X. X has guar-anteed payment to all of these persons, including B,for the sale of goods or services to customers. Cus-tomer A purchases goods from B. A pays X for thegoods purchased from B. X, in turn, makes paymentto B in settlement of the transaction for the sale ofgoods from B to A.

(ii) X’s arrangement constitutes a third party pay-ment network as defined in paragraph (c)(3) of thissection because a substantial number of persons thatare unrelated to X, including B, have established ac-counts with X, and X is contractually obligated tosettle transactions for the provision of goods or ser-vices by these persons to purchasers. Thus, underparagraph (c)(2) of this section, X is a third partysettlement organization and the transaction discussedin this example is a third party network transactionunder paragraph (c)(1) of this section. Therefore, Xmust file the annual information return required un-der paragraph (a)(1) of this section to report the pay-ment made to B in settlement of the transaction withA provided that X’s aggregate payments to B fromthird party network transactions exceed $20,000 andthe aggregate number of X’s transactions with B ex-ceeds 200 (as provided in paragraph (c)(4) of this sec-tion).

Example 3. Automated clearing house network.A operates an automated clearing house (“ACH”)network that merely processes electronic payments(such as wire transfers, electronic checks, and directdeposit payments) between buyers and sellers. Thereare no contractual agreements between A and thesellers for the purpose of permitting the sellers touse the ACH network. Thus, A is not a third partysettlement organization under paragraph (c)(2) ofthis section, the ACH network is not a third partypayment network under paragraph (c)(3) of thissection, and the electronic payment transactions arenot third party network transactions under paragraph(c)(1) of this section. A is not required to file theannual information return required under paragraph(a)(1) of this section.

Example 4. Gross amount. Customer A uses apayment card to purchase $100 worth of goods atmerchant B. Bank X, the merchant acquiring entityfor B, is the party with the contractual obligation tomake payment to B in settlement of the transaction.X, after deducting fees of $2, makes payment of $98to settle the transaction for the sale of goods from Bto A. Under paragraph (a)(5) of this section, X mustreport the amount of $100, without any reduction forfees or any other amount, as the gross amount of thisreportable payment transaction on the annual infor-mation return filed under paragraph (a)(1) of this sec-tion.

Example 5. Gift card. (i) Customer A purchases agift card from Merchant X that may be used only at X

and its related network of stores. A purchases the giftcard using cash. A gives the gift card to B. B uses thegift card to purchase goods at one of X’s stores. Thepurchase of the gift card by A using cash is not a pay-ment card transaction described in paragraph (b)(1)of this section and, thus,is not required to be reportedin a return of information required under paragraph(a)(1) of this section. Under paragraph (b)(3) of thissection, the gift card is not a payment card becausethe gift card is accepted as payment by a person whois related to the issuer of the gift card. Therefore, theuse of the gift card by B is not required to be reportedin a return of information required under paragraph(a)(1) of this section.

(ii) The facts are the same as in paragraph (i),except that B adds value to the gift card using a creditcard. The use of the credit card to add value to the giftcard is a reportable payment transaction (as defined inparagraph (a)(2) of this section) and must be reportedin a return of information under this section by thebank or other organization that has the contractualobligation to make payment to X in settlement of thetransaction.

Example 6. Campus card. (i) Student A pur-chases a card issued by University Y that may beused on campus at various university-owned mer-chants and at various local merchants unrelated to Y.A uses the card in the university-owned cafeteria topurchase lunch. Under paragraph (b)(3) of this sec-tion, the campus card is not a payment card in thistransaction because the card is accepted as paymentby a person who is related to the issuer of the card.Therefore, the use of the campus-card by A in theuniversity cafeteria is not required to be reported in areturn of information required under paragraph (a)(1)of this section.

(ii) The facts are the same as in paragraph (i), ex-cept that A uses the campus card to purchase lunchat a local restaurant, unrelated to Y, that has agreed toaccept the campus card as payment. Under paragraph(b)(3) of this section, the campus card is a paymentcard in this transaction because the card is acceptedas payment by a person that is unrelated to this issuerof the card pursuant to an agreement. Therefore, theuse of the card by A in the local restaurant for the pur-chase of lunch must be reported in a return of infor-mation required under paragraph (a)(1) of this sectionby the bank or other organization that has the contrac-tual obligation to make payment to the restaurant insettlement of the transaction.

Example 7. Prepaid telephone card. A purchasesa prepaid telephone card from Company X that maybe used to make telephone calls using various long-distance providers unrelated to X that have agreed toaccept the card as payment. A places a telephone callusing the prepaid card as payment for the telephonecall. Under paragraph (b)(3) of this section, the pre-paid telephone card is a payment card because thecard is accepted as payment by a person that is un-related to the issuer of the card pursuant to an agree-ment. Therefore, the use of the prepaid card to makepayment for the telephone call must be reported in areturn of information required under paragraph (a)(1)of this section by the bank or other organization thathas the contractual obligation to make payment to thelong distance provider in settlement of the transac-tion.

Example 8. Transit card. City Z accepts a tran-sit card as payment for use of its mass transit system.

2009–49 I.R.B. 756 December 7, 2009

The transit card is issued by B, an organization unre-lated to Z. A network of persons, including Z, who areunrelated to each other and to B, have agreed to ac-cept the transit card issued by B as payment for tran-sit and for other goods and services. Transit rider Xpurchases a transit card and uses the card to pay fortravel on Z’s mass transit system. Under paragraph(b)(3) of this section, the transit card is a payment cardbecause the card is accepted as payment by a personwho is one of a network of persons that are unrelatedto the issuer of the card and that have agreed to ac-cept the card as payment. Therefore, the use of thetransit card by X to pay for transit on Z’s mass tran-sit system is a payment card transaction described inparagraph (b)(1) of this section that must be reportedin a return of information required under paragraph(a)(1) of this section by the bank or other organiza-tion that has the contractual obligation to make pay-ment to Z. Z is the participating payee, described inparagraph (a)(4)(i)(A) of this section, of the paymentcard transaction.

Example 9. Healthcare network. Health car-rier A operates healthcare network Y. A collectspremiums from covered persons pursuant to a planagreement between A and the covered persons forthe cost of membership in Y. Separately, A payshealthcare providers pursuant to provider agreementsto compensate these providers for services renderedto covered persons who are members of Y. A is not athird party settlement organization under paragraph(c)(2) of this section because A does not operate athird party payment network that enables purchasersto transfer funds to providers of goods and services.Therefore, A is not required to file the annual infor-mation return required under paragraph (a)(1) of thissection.

Example 10. Third party accounts payable. Xis a “shared-service” organization that performs ac-counts payable services for numerous purchasers thatare unrelated to X. A substantial number of providersof goods and services have established accounts withX and have agreed to accept payment from X insettlement of their transactions with purchasers. Theprovider agreement with X includes standards andmechanisms for settling the transactions and guaran-tees payment to the providers, and the arrangementenables purchasers to transfer funds to providers.Under paragraph (c)(3) of this section, X’s accountspayable services constitute a third party paymentnetwork, of which X is the third party settlementorganization (as defined in paragraph (c)(2) of thissection). For each payee, X must file the annualinformation return required under paragraph (a)(1)of this section to report payments made by X insettlement of accounts payable to that payee if X’saggregate payments to that payee exceed $20,000and the aggregate number of transactions with thatpayee exceeds 200 (as provided in paragraph (c)(4)of this section).

Example 11. Toll collection network. State Acharges a toll to vehicles that travel its state high-ways. The tolling agency for A contracted with or-ganization X to perform its toll collection. X pro-vides an electronic toll collection system that allowsthe toll facility to record the passage of a vehicle witha transponder affixed to the vehicle. The customeraccount associated with the transponder is automat-ically debited for the amount of the toll. The cus-tomer funds a balance in the account, which is then

depleted as the toll transactions occur. X periodi-cally bills the customer to replenish the account. Xthen makes payment to A to settle the toll transactionsthat are recorded by the transponder. X also contractswith a substantial number of other entities unrelatedto X that have established accounts with X and haveagreed to accept payment using the electronic toll col-lection system provided by X. X guarantees paymentto the entities for all toll transactions that are recordedby the transponders, and the arrangement enables cus-tomers to transfer funds to State A and other entitiesthat charge tolls. Under paragraph (c)(3) of this sec-tion, X’s electronic toll collection system constitutesa third party payment network, of which X is the thirdparty settlement organization (as defined in paragraph(c)(2) of this section). For each payee, including A, Xmust file the annual information return required un-der paragraph (a)(1) of this section to report paymentsmade by X in settlement of toll transactions if X’s ag-gregate payments to that payee exceed $20,000 andthe aggregate number of transactions with that payeeexceeds 200 (as provided in paragraph (c)(4) of thissection).

Example 12. Hotel kiosk. Under a “hotel kiosk”arrangement, Hotel B permits its customers to charge,to their room account, transactions for goods and ser-vices at a substantial number of sellers unrelated toB that operate on B’s premises and have establishedaccounts in B’s hotel kiosk system. Customers set-tle their room account with B when they check out,and B in turn settles the hotel kiosk transactions withthe unrelated sellers. B guarantees payment to thesellers for these transactions and the arrangement en-ables customers to transfer funds to the sellers bymeans of one payment made to the hotel. Under para-graph (c)(3) of this section, B’s hotel kiosk systemconstitutes a third party payment network, of whichB is the third party settlement organization (as de-fined in paragraph (c)(2) of this section). For eachpayee, B must file the annual information return re-quired under paragraph (a)(1) of this section to reportpayments made by B in settlement of the hotel kiosktransactions if B’s aggregate payments to that payeeexceed $20,000 and the aggregate number of trans-actions with that payee exceeds 200 (as provided inparagraph (c)(4) of this section).

Example 13. Aggregated payee. Corporation A,acting on behalf of A’s independently-owned fran-chise stores, receives payment from Bank X for creditcard sales effectuated at these franchise stores. X, thepayment settlement entity (as defined in paragraph(a)(3)(i) of this section), is required under paragraph(d)(1)(i) of this section to report the gross amountof the reportable payment transactions distributed toA (notwithstanding the fact that A does not acceptpayment cards and would not otherwise be treatedas a participating payee). In turn, under paragraph(d)(1)(ii), A is required to report the gross amount ofthe reportable payment transactions allocable to eachfranchise store. X has no reporting obligation underthis section with respect to payments made by A toits franchise stores.

Example 14. Electronic payment facilitator.Bank A is a merchant acquiring entity (as defined inparagraph (b)(2) of this section) with the contractualobligation to make payments to participating mer-chants to settle certain credit card transactions. Xenters into a contract with A to settle these credit cardtransactions electronically on behalf of A. Under

paragraph (d)(2) of this section, X is an electronicpayment facilitator and must file the informationreturn required under paragraph (a)(1) of this sectionwith respect to A’s credit card transactions settledby X. A has no reporting obligation with respect topayments made by X on A’s behalf.

(f) Prescribed form. The return re-quired by paragraph (a)(1) of this sectionmust be made according to the forms andinstructions published by the IRS.

(g) Time and place for filing. Returnsmade under this section for any calendaryear must be filed on or before February28th (March 31st if filing electronically) ofthe following year at the Internal RevenueService Center location designated in theinstructions to the relevant form.

(h) Time and place for furnishing state-ment—(1) In general. Every paymentsettlement entity required to file a returnunder this section must also furnish to eachparticipating payee a written statementwith the same information (as describedin paragraph (h)(2) of this section). Thestatement must be furnished to the payeeon or before January 31st of the year fol-lowing the calendar year in which thereportable payment is made. If the returnof information is not made on magneticmedia, this requirement may be satisfiedby furnishing to such person a copy ofall Forms 1099–K, “Merchant Card andThird-Party Payments,” or any successorform with respect to such person filed withthe Internal Revenue Service Center. Thestatement will be considered furnished tothe payee if it is mailed to the payee’s lastknown address. The payment settlemententity may furnish the statement electron-ically with the prior consent of the payee.

(2) Information to be shown on state-ment furnished to payee. Each writtenstatement furnished under paragraph(h)(1) of this section must include the fol-lowing information—

(i) The name, address, and phone num-ber (or email address if the statement is fur-nished electronically) of the informationcontact of the payment settlement entity.

(ii) With respect to the participatingpayee, the gross amount of—

(A) The aggregate reportable paymenttransactions for the calendar year; and

(B) The aggregate reportable paymenttransactions for each month of the calendaryear.

December 7, 2009 757 2009–49 I.R.B.

(iii) Any other information required bythe form, instructions, or current revenueprocedures.

(i) Cross-reference to penalties. Forprovisions relating to the penalty for fail-ure to file timely a correct informationreturn required under section 6050W, see§301.6721–1 of this chapter (Procedureand Administration Regulations). For pro-visions relating to the penalty for failureto furnish timely a correct payee state-ment required under section 6050W(f),see §301.6722–1 of this chapter. See§301.6724–1 of this chapter for the waiverof a penalty if failure is due to reasonablecause and is not due to willful neglect.

(j) Effective/applicability date. Therules in this section apply to returns forcalendar years beginning after December31, 2010. The rules in this section areeffective on the date of publication of theTreasury decision adopting these rules asfinal regulations in the Federal Register.

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOME TAXAT SOURCE

Par. 4. The authority citation for part31 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 5. Section 31.3406–0 is amended

as follows:1. Entries for §31.3406(b)(3)–5(a), (b)

and (c) are added.2. Entry for §31.3406(g)–1 is amended

by adding paragraphs (d), (e), and (f).The additions read as follows:

§31.3406–0 Outline of the backupwithholding regulations.

* * * * *

§31.3406(b)(3)–5 Reportable paymentsof payment card and third party networktransactions.

(a) Payment card and third party net-work transactions subject to backup with-holding.

(b) Amount subject to backup withhold-ing.

(c) Effective/applicability date.

* * * * *

§31.3406(g)–1 Exception for paymentsto certain payees and certain otherpayments.

* * * * *(d) Reportable payments made to Cana-

dian nonresident alien individuals.(e) Certain reportable payments made

outside the United States by foreign per-sons, foreign offices of United Statesbanks and brokers, and others.

(f) Special rule for certain payment cardtransactions.

* * * * *Par. 6. Section 31.3406(a)–2 is

amended by revising paragraph (a) to readas follows:

§31.3406(a)–2 Definition of payorsobligated to backup withhold.

(a) In general. Payor means the per-son that is required to make an informa-tion return under sections 6041, 6041A(a),6042, 6044, 6045, 6049, 6050A, 6050N,or 6050W with respect to any reportablepayment (as described in section 3406(b)),or that is described in paragraph (b) of thissection.

* * * * *Par. 7. Section 31.3406(b)(3)–5 is

added to read as follows:

§31.3406(b)(3)–5 Reportable paymentsof payment card and third party networktransactions.

(a) Payment card and third party net-work transactions subject to backup with-holding. A payment of a kind, and to apayee, that is required to be reported un-der section 6050W (relating to informationreporting for payment card and third partynetwork transactions) is a reportable pay-ment for purposes of section 3406. See§31.6051–4 for the requirement to furnisha statement to the payee if tax is withheldunder section 3406.

(b) Amount subject to backup withhold-ing. In general, the amount described inparagraph (a) of this section that is subjectto withholding under section 3406 is theamount subject to reporting under section6050W.

(c) Effective/applicability date. Theprovisions of this section apply to amountspaid after December 31, 2011.

Par. 8. Section 31.3406(d)–1 isamended by revising paragraph (d) to readas follows:

§31.3406(d)–1 Manner required forfurnishing a taxpayer identificationnumber.

* * * * *(d) Rents, commissions, nonemployee

compensation, certain fishing boat oper-ators, and payment card and third partynetwork transactions, etc.—Manner re-quired for furnishing a taxpayer identifi-cation number. For accounts, contracts,or relationships subject to informationreporting under section 6041 (relating toinformation reporting at source on rents,royalties, salaries, etc.), section 6041A(a)(relating to information reporting of pay-ments for nonemployee services), section6050A (relating to information reportingby certain fishing boat operators), section6050N (relating to information report-ing of payments of royalties), or section6050W (relating to information reportingfor payment card and third party networktransactions), the payee must furnish thepayee’s taxpayer identification numberto the payor either orally or in writing.Except as provided in §31.3406(d)–5,the payee is not required to certify underpenalties of perjury that the taxpayer iden-tification number is correct regardless ofwhen the account, contract, or relationshipis established.

Par. 9. Section 31.6051–4 is amendedby revising paragraph (c)(2) to read as fol-lows:

§31.6051–4 Statement required in case ofbackup withholding.

* * * * *(c)* * *(2) The amount subject to reporting un-

der sections 6041, 6041A(a), 6042, 6044,6045, 6049, 6050A, 6050N, or 6050Wwhether or not the amount of the reportablepayment is less than the amount for whichan information return is required. If taxis withheld under section 3406, the state-ment must show the amount of the pay-ment withheld upon;

* * * * *

2009–49 I.R.B. 758 December 7, 2009

PART 301—PROCEDURE ANDADMINISTRATION

Par. 10. Section 301.6721–1(g) isamended by:

1. Removing the language “or” atthe end of paragraphs (g)(2)(vi) and(g)(3)(xii).

2. Redesignating paragraph (g)(2)(vii)as (g)(2)(viii).

3. Adding new paragraph (g)(2)(vii).4. Redesignating paragraphs

(g)(3)(viii), (g)(3)(ix), (g)(3)(x),(g)(3)(xi), (g)(3)(xii) and (g)(3)(xiii) as(g)(3)(ix), (g)(3)(x), (g)(3)(xi), (g)(3)(xii),(g)(3)(xiii) and (g)(3)(xiv).

5. Adding the language “or” at the endof newly designated paragraph (g)(3)(xiii).

6. Adding new paragraph (g)(3)(viii).The revisions and additions read as fol-

lows:

§301.6721–1 Failure to file correctinformation returns.

* * * * *(g)* * * (2)* * *(vii) Section 6050W (relating to infor-

mation returns with respect to paymentsmade in settlement of payment card andthird party network transactions (effectivefor information returns required to be filedfor calendar years beginning after Decem-ber 31, 2010)), or

* * * * *(3)* * *(viii) Section 6050W (relating to infor-

mation returns with respect to paymentsmade in settlement of payment card andthird party network transactions (effectivefor information returns required to be filedfor calendar years beginning after Decem-ber 31, 2010)),

* * * * *Par. 11. Section 301.6722–1 is

amended by:1. Removing the language “and” at the

end of paragraph (d)(2)(xviii).

2. Redesignating paragraphs(d)(2)(xvi), (d)(2)(xvii), (d)(2)(xviii) and(d)(2)(xix) as (d)(2)(xvii), (d)(2)(xviii),(d)(2)(xix) and (d)(2)(xx).

3. Adding new paragraph (d)(2)(xvi).4. Adding the language “and” at the

end of the newly designated paragraph(d)(2)(xix).

5. Adding new paragraph (f).The revisions and additions read as fol-

lows:

§301.6722–1 Failure to furnish correctpayee statements.

* * * * *(d)* * * (2)* * *(xvi) Section 6050W (relating to infor-

mation returns with respect to paymentsmade in settlement of payment card andthird party network transactions, generallythe recipient copy),

* * * * *(f) Effective/Applicability date. The

provisions of paragraph (d)(2)(xvi) ofthis section apply to information returnsrequired to be filed for calendar years be-ginning after December 31, 2010.

* * * * *


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

Announcement 2009–86

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) and

170(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,contributions from individuals and orga-nizations described in section 170(c)(2)that are otherwise allowable will continueto be deductible. Protection under sec-tion 7428(c) would begin on December 7,2009, and would end on the date the courtfirst determines that the organization isnot described in section 170(c)(2) as moreparticularly set forth in section 7428(c)(1).For individual contributors, the maximumdeduction protected is $1,000, with a hus-band and wife treated as one contributor.This benefit is not extended to any indi-vidual, in whole or in part, for the acts oromissions of the organization that werethe basis for revocation.

Gehrig and Margaret White CharitableFoundationCharlotte, NC

Downs Family FoundationDetroit, MI

December 7, 2009 759 2009–49 I.R.B.

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.

2009–49 I.R.B. i December 7, 2009

Numerical Finding List1

Bulletins 2009–27 through 2009–49

Announcements:

2009-56, 2009-28 I.R.B. 145

2009-57, 2009-29 I.R.B. 158

2009-58, 2009-29 I.R.B. 158

2009-59, 2009-29 I.R.B. 158

2009-60, 2009-30 I.R.B. 166

2009-61, 2009-33 I.R.B. 246

2009-62, 2009-33 I.R.B. 247

2009-63, 2009-33 I.R.B. 248

2009-64, 2009-36 I.R.B. 319

2009-65, 2009-36 I.R.B. 319

2009-66, 2009-37 I.R.B. 364

2009-67, 2009-38 I.R.B. 388

2009-68, 2009-38 I.R.B. 388

2009-69, 2009-40 I.R.B. 475

2009-70, 2009-41 I.R.B. 499

2009-71, 2009-40 I.R.B. 475

2009-72, 2009-41 I.R.B. 500

2009-73, 2009-41 I.R.B. 500

2009-74, 2009-42 I.R.B. 537

2009-75, 2009-42 I.R.B. 537

2009-76, 2009-45 I.R.B. 627

2009-77, 2009-43 I.R.B. 567

2009-78, 2009-44 I.R.B. 594

2009-79, 2009-46 I.R.B. 628

2009-80, 2009-46 I.R.B. 646

2009-81, 2009-46 I.R.B. 647

2009-82, 2009-48 I.R.B. 720

2009-83, 2009-46 I.R.B. 647

2009-84, 2009-47 I.R.B. 683

2009-86, 2009-49 I.R.B. 759

Notices:

2009-51, 2009-28 I.R.B. 128

2009-55, 2009-31 I.R.B. 170

2009-57, 2009-29 I.R.B. 147

2009-58, 2009-30 I.R.B. 163

2009-59, 2009-31 I.R.B. 170

2009-60, 2009-32 I.R.B. 181

2009-61, 2009-32 I.R.B. 181

2009-62, 2009-35 I.R.B. 260

2009-63, 2009-34 I.R.B. 252

2009-64, 2009-36 I.R.B. 307

2009-65, 2009-39 I.R.B. 413

2009-66, 2009-39 I.R.B. 418

2009-67, 2009-39 I.R.B. 420

2009-68, 2009-39 I.R.B. 423

2009-69, 2009-35 I.R.B. 261

2009-70, 2009-34 I.R.B. 255

2009-71, 2009-35 I.R.B. 262

2009-72, 2009-37 I.R.B. 325

2009-73, 2009-38 I.R.B. 369

Notices— Continued:

2009-74, 2009-38 I.R.B. 370

2009-75, 2009-39 I.R.B. 436

2009-76, 2009-43 I.R.B. 554

2009-77, 2009-40 I.R.B. 449

2009-78, 2009-40 I.R.B. 452

2009-79, 2009-40 I.R.B. 454

2009-81, 2009-40 I.R.B. 455

2009-82, 2009-41 I.R.B. 491

2009-83, 2009-44 I.R.B. 588

2009-84, 2009-44 I.R.B. 592

2009-85, 2009-45 I.R.B. 598

2009-86, 2009-46 I.R.B. 629

2009-87, 2009-46 I.R.B. 630

2009-88, 2009-47 I.R.B. 654

2009-89, 2009-48 I.R.B. 714

2009-91, 2009-48 I.R.B. 717

Proposed Regulations:

REG-140492-02, 2009-43 I.R.B. 559

REG-159704-03, 2009-46 I.R.B. 632

REG-160871-04, 2009-47 I.R.B. 657

REG-152166-05, 2009-32 I.R.B. 183

REG-112994-06, 2009-28 I.R.B. 144

REG-127270-06, 2009-42 I.R.B. 534

REG-155929-06, 2009-47 I.R.B. 665

REG-135005-07, 2009-47 I.R.B. 681

REG-136563-07, 2009-41 I.R.B. 497

REG-108045-08, 2009-43 I.R.B. 557

REG-113289-08, 2009-33 I.R.B. 244

REG-116614-08, 2009-42 I.R.B. 536

REG-123829-08, 2009-48 I.R.B. 719

REG-130200-08, 2009-31 I.R.B. 174

REG-139068-08, 2009-43 I.R.B. 558

REG-139255-08, 2009-52 I.R.B. 747

Revenue Procedures:

2009-30, 2009-27 I.R.B. 27

2009-31, 2009-27 I.R.B. 107

2009-32, 2009-28 I.R.B. 142

2009-33, 2009-29 I.R.B. 150

2009-34, 2009-34 I.R.B. 258

2009-35, 2009-35 I.R.B. 265

2009-36, 2009-35 I.R.B. 304

2009-37, 2009-36 I.R.B. 309

2009-38, 2009-37 I.R.B. 362

2009-39, 2009-38 I.R.B. 371

2009-40, 2009-39 I.R.B. 438

2009-41, 2009-39 I.R.B. 439

2009-42, 2009-40 I.R.B. 459

2009-43, 2009-40 I.R.B. 460

2009-44, 2009-40 I.R.B. 462

2009-45, 2009-40 I.R.B. 471

2009-46, 2009-42 I.R.B. 507

2009-47, 2009-42 I.R.B. 524

2009-50, 2009-45 I.R.B. 617

Revenue Procedures— Continued:

2009-51, 2009-45 I.R.B. 625

2009-52, 2009-49 I.R.B. 744

2009-53, 2009-49 I.R.B. 746

Revenue Rulings:

2009-18, 2009-27 I.R.B. 1

2009-19, 2009-28 I.R.B. 111

2009-20, 2009-28 I.R.B. 112

2009-21, 2009-30 I.R.B. 162

2009-22, 2009-31 I.R.B. 167

2009-23, 2009-32 I.R.B. 177

2009-24, 2009-36 I.R.B. 306

2009-25, 2009-38 I.R.B. 365

2009-26, 2009-38 I.R.B. 366

2009-27, 2009-39 I.R.B. 404

2009-28, 2009-39 I.R.B. 391

2009-29, 2009-37 I.R.B. 322

2009-30, 2009-39 I.R.B. 391

2009-31, 2009-39 I.R.B. 395

2009-32, 2009-39 I.R.B. 398

2009-33, 2009-40 I.R.B. 447

2009-34, 2009-42 I.R.B. 502

2009-35, 2009-44 I.R.B. 568

2009-36, 2009-47 I.R.B. 650

2009-38, 2009-49 I.R.B. 736

Tax Conventions:

2009-79, 2009-46 I.R.B. 628

Treasury Decisions:

9452, 2009-27 I.R.B. 1

9453, 2009-28 I.R.B. 114

9454, 2009-32 I.R.B. 178

9455, 2009-33 I.R.B. 239

9456, 2009-33 I.R.B. 188

9457, 2009-41 I.R.B. 482

9458, 2009-43 I.R.B. 547

9459, 2009-41 I.R.B. 480

9460, 2009-44 I.R.B. 584

9461, 2009-41 I.R.B. 488

9462, 2009-42 I.R.B. 504

9463, 2009-40 I.R.B. 442

9464, 2009-48 I.R.B. 692

9465, 2009-43 I.R.B. 542

9466, 2009-43 I.R.B. 551

9468, 2009-44 I.R.B. 570

9469, 2009-48 I.R.B. 687

9470, 2009-49 I.R.B. 738

9471, 2009-49 I.R.B. 722

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin2009–26, dated June 29, 2009.

December 7, 2009 ii 2009–49 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2009–27 through 2009–49

Announcements:

2006-93

Superseded by

Ann. 2009-62, 2009-33 I.R.B. 247

Notices:

2002-3

Modified and superseded by

Notice 2009-68, 2009-39 I.R.B. 423

2004-67

Supplemented and superseded by

Notice 2009-59, 2009-31 I.R.B. 170

2005-76

Modified by

Notice 2009-91, 2009-48 I.R.B. 717

2006-70

Obsoleted by

T.D. 9453, 2009-28 I.R.B. 114

2006-109

Superseded in part by

Rev. Proc. 2009-32, 2009-28 I.R.B. 142

2007-7

Modified by

Notice 2009-82, 2009-41 I.R.B. 491

2008-30

Amplified and clarified by

Notice 2009-75, 2009-39 I.R.B. 436

2008-43

Obsoleted by

REG-113289-08, 2009-33 I.R.B. 244

2009-28

Clarified by

Notice 2009-69, 2009-35 I.R.B. 261

2009-31

Amplified by

Rev. Proc. 2009-43, 2009-40 I.R.B. 460

2009-42

Amplified by

Rev. Proc. 2009-43, 2009-40 I.R.B. 460

2009-54

Amplified by

Notice 2009-89, 2009-48 I.R.B. 714

2009-58

Amplified by

Notice 2009-89, 2009-48 I.R.B. 714

Proposed Regulations:

REG-130200-08

Hearing cancelled by

Ann. 2009-81, 2009-46 I.R.B. 647

Revenue Procedures:

97-27

Clarified and modified by

Rev. Proc. 2009-39, 2009-38 I.R.B. 371

97-49

Modified and superseded by

Rev. Proc. 2009-31, 2009-27 I.R.B. 107

2002-44

Superseded by

Rev. Proc. 2009-44, 2009-40 I.R.B. 462

2002-59

Superseded by

Rev. Proc. 2009-41, 2009-39 I.R.B. 439

2005-63

Modified by

Rev. Proc. 2009-39, 2009-38 I.R.B. 371

2006-30

Modified by

Rev. Proc. 2009-53, 2009-49 I.R.B. 746

2007-44

Modified by

Rev. Proc. 2009-36, 2009-35 I.R.B. 304

2007-65

Modified by

Ann. 2009-69, 2009-40 I.R.B. 475

2008-34

Superseded by

Rev. Proc. 2009-46, 2009-42 I.R.B. 507

2008-38

Superseded by

Rev. Proc. 2009-30, 2009-27 I.R.B. 27

2008-44

Superseded by

Rev. Proc. 2009-35, 2009-35 I.R.B. 265

2008-52

Amplified, clarified, and modified by

Rev. Proc. 2009-39, 2009-38 I.R.B. 371

2008-59

Superseded by

Rev. Proc. 2009-47, 2009-42 I.R.B. 524

2008-65

Modified by

Rev. Proc. 2009-33, 2009-29 I.R.B. 150

2009-16

Modified by

Rev. Proc. 2009-33, 2009-29 I.R.B. 150

Revenue Procedures— Continued:

2009-39

Modified by

Ann. 2009-67, 2009-38 I.R.B. 388

Revenue Rulings:

74-346

Superseded by

Rev. Rul. 2009-34, 2009-42 I.R.B. 502

75-190

Superseded by

Rev. Rul. 2009-34, 2009-42 I.R.B. 502

75-398

Superseded by

Rev. Rul. 2009-34, 2009-42 I.R.B. 502

75-526

Superseded by

Rev. Rul. 2009-34, 2009-42 I.R.B. 502

2009-22

Corrected by

Ann. 2009-74, 2009-42 I.R.B. 537

2009-29

Corrected by

Ann. 2009-74, 2009-42 I.R.B. 537

Treasury Decisions:

9456

Corrected by

Ann. 2009-73, 2009-41 I.R.B. 500

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin 2009–26, dated June 29, 2009.

2009–49 I.R.B. iii December 7, 2009

December 7, 2009 2009–49 I.R.B.

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